Financial Calendar 2011 - mtu Solutions

Financial Calendar 2011

9 May Publication of the fi rst quarter report

11 May Annual General Meeting 2011, Friedrichshafen

4 August Publication of the second quarter report

8 November Publication of the third quarter report

All data is preliminary and subject to change.

Tognum AktiengesellschaftMaybachplatz 1

88045 Friedrichshafen

Germany

Phone +49 (0) 75 41 90 91

Fax +49 (0) 75 41 90 97

www.tognum.com

Annual Report 2010 Engines are our driving force

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Engines are our driving force

The Tognum Group is one of the world’s leading providers of engines and propulsion systems

for off -road applications and onsite energy systems. We possess the expertise, the drive and

the innovative power to off er our customers solutions that meet their specifi c needs precisely

and provide services along the entire value-added chain. We are a strong team made up of

people who are driven by the spirit of innovation, with a passion for engineering and the cour-

age to pursue new paths.

The cover photo shows a 12V Series 1600 MTU diesel engine used for example in gensets for

emergency standby and peak load power supply. The Series 1600 engine is setting standards

in environmental compatibility: it meets the most stringent emission standards today without

the need for exhaust aftertreatment.

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Germany

Phone +49 (0) 75 41 90 91

Fax +49 (0) 75 41 90 97

www.tognum.com


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»Formorethan100years,wehavebeendrivenbythefascinationforoff -highwayenginestoreachtheheightsoftechnologicalachieve-ment.Withastrategygearedtolong-termgrowth,ourinnovativepowerandtechnologicalstrength,wehavesetoursightsonachievingprofitablegrowth–todayandtomorrow.«

Volker Heuer | Chairman of Tognum AG

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enceKey Figures of the Tognum Group

INEURMIL L ION 2007 2008 2009 20102009/2010

Changes

Orderintake 3,107 3,230.6 2,330.4 2,830.5 21.5%

Revenues 2,835 3,133.1 2,529.4 2,563.6 1.4%

AdjustedEBITDA 457 481.7 287.5 341.7 18.9%

as%ofrevenues 16.1% 15.4% 11.4% 13.3%

AdjustedEBIT 390 406.9 198.6 242.1 21.9%

as%ofrevenues 13.8% 13.0% 7.9% 9.4%

Adjustedconsolidatednetincome 199 264.3 121.3 159.2 31.2%

Adjustedearningspershareineuro1 1.58 2.01 0.92 1.21 31.5%

Dividendpayout 79 92 46 662 42.9%

Dividendineuro 0.60 0.70 0.35 0.502 42.9%

Marketcapitalisationattheendofthefinancialyear 2,708 1,182.4 1,524.0 2,592.0 70.1%

Totalassets 2,361 2,554.2 2,469.3 2,745.7 11.2%

Equityratio3 22.7% 26.3% 27.6% 26.8%

Netfinancialdebt 294 335.8 192.2 57.2 –70.2%

Investmentsinproperty,plantandequipmentandintangibleassets4 140 172.6 141.7 152.8 7.8%

R&Dexpenses5 168 183.1 202.7 192.6 –5.0%

Freecashflow6 52 64.8 223.6 199.4 –10.8%

Employees(endofyear) 8,179 8,929 8,726 9,046 3.7%

1Earningspersharearedeterminedonthebasisoftheweightedaveragenumberofsharesoutstanding;

125,902,123in2007;131,375,000in2008,2009and20102Subjecttoapprovalatthegeneralshareholders’meetingonMay11,20113Ratioofshareholders’equitytototalassets4Excludingadditionstothegroupofconsolidatedcompaniesresultingfromacquisitionofcompanies5Developmentexpenditure,capitaliseddevelopmentcostsanddevelopmentactivitiespaidforbythirdparties6Freecashflowiscomprisedofthecashflowfromoperatingactivitiesandthecashflowfrominvestmentactivities

The Tognum GroupTheTognumGroupisacombinationofpowerfulbrands.WiththeMTUbrand

intheEnginesdivisionandtheMTUOnsiteEnergyandL‘Orangebrandsinthe

Onsite Energy Componentsdivision,aswellasMercedesBenzandDetroitDiesel,

Tognumcoversabroadrangeofapplications.

Global presenceOurcustomersaretobefoundintheoff -highwaybusiness.Theyoperatealloverthe

world,andfrequentlyinextremelyremoteregions.Theyopenupnewfrontiers.They

strikeoutinnewdirections.Whenever,whereverandforwhatevertheyneedus–we

arecloseathandandthatdecisivestepaheadforthem.With25fullyconsolidated

subsidiariesandaround1,200servicecentresanddealers,wearepresentin130countries

andoneverycontinent.

euroPeBeauchamp|FranceDordrecht|NetherlandsEastGrinstead|GreatBritainIstanbul|TurkeyLaSpezia|ItalyMadrid|Spain

germanyAugsburgFriedrichshafenMagdeburgGlattenStuttgart

africaCapeTown|SouthAfrica

asiaDatong|ChinaHanoi|VietnamHongKong|ChinaJakarta|IndonesiaPune|IndiaShanghai|ChinaSingapore|SingaporeSuzhou|ChinaTokyo|Japan

australiaSydney

middle eastNathanya|Israel

nortH america Aiken|USA

Detroit|USA

Mankato|USA

soutH americaSãoPaulo|Brazil

marine

Ourenginesandpropulsionsys-temsareusedinshipsoperatedbycoastguardsandothergovern-mentbodiesaswellasinwork-boatsandluxuryyachts.Withitsinnovationpower,reliabilityandsystemengineeringcapabilities,MTUhasuniquepropulsionsystemexpertise.

industrial

Thedevelopmentandproductionofdieseltractionsystemsforrail-waytrainsisoneofthecoreskillsofMTU.Otherapplicationsectors:mining,harbourequipment,mo-bilecranesandconstructionandagriculturalmachinery.Distribu-tionofMercedesBenzandDetroitDieselenginesinthepowerrangeupto500kilowatts.

oil & gas

Ourrangeofenginesandpowergenerationsystemsdevelopedspecificallyfortheoilandgasin-dustryforpumps,compressorsandfireextinguishingequipmentonoilandgasrigsprovetheirqualitiesdayinanddayoutinthetoughestconditionsanywhereintheworld.

defense

High-torqueandexceptionallyreliableMTUpowertrainsforarmouredpersonnelcarriers,self-propelledhowitzers,transportersandspecialisedmilitaryvehicles.DetroitDieseltwo-strokeen-ginesforheavymilitarytrucks.

diesel systems & engines

MTUOnsiteEnergydieselenginesandsystemsforgeneratingbackuppowerinanemergency,coveringpowerdemandpeaksandprovid-ingdecentralisedcontinuouspower.Thedieselgensetsaredis-tinguishedinparticularbytheiroutstandingreliabilityandeffi -ciencyandtheirlowemissions.

gas systems

Modularcombinedheatandpower(CHP)plantsbasedongasen-gines.Theysaveprimaryenergyresourcesandrunonclimate-neutralregenerativefuelssuchasbiogas,sewagegasandlandfillgas.

injection systems

Electronicallycontrolledhigh-pressurefuelinjectionsystemsmadebyL’Orange(common-railfuelinjection)designedspecifi-callyforlarge-scaledieselen-ginesinordertoachievelowex-haustemissions,effi cientfuelconsumptionandlongenginelife.

after sales

MTUseesitselfasareliableglobalpartnerfortheaftersalesser-viceneedsofitsclientsinallap-plicationareas,off eringrapidandexpertonsiteassistance:dur-ingnormaloperation,forpre-ventivemaintenance,forcorrectiverepairs,forchangesindeploy-mentconditionsandthesupplyofspareparts.

segment engines

segment onsite energy & components across segments

22 % Asia/Pacific

9 % Othercountries

19 % GermanyRestofEurope 28 %

NorthAmerica(NAFTA) 23 %

EUR2,563.6MILLION

re V enues B y regions

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INEURMIL L ION 2007 2008 2009 20102009/2010

Changes

Orderintake 3,107 3,230.6 2,330.4 2,830.5 21.5%

Revenues 2,835 3,133.1 2,529.4 2,563.6 1.4%

AdjustedEBITDA 457 481.7 287.5 341.7 18.9%

as%ofrevenues 16.1% 15.4% 11.4% 13.3%

AdjustedEBIT 390 406.9 198.6 242.1 21.9%

as%ofrevenues 13.8% 13.0% 7.9% 9.4%




Dividendineuro 0.60 0.70 0.35 0.502 42.9%


Totalassets 2,361 2,554.2 2,469.3 2,745.7 11.2%

Equityratio3 22.7% 26.3% 27.6% 26.8%



R&Dexpenses5 168 183.1 202.7 192.6 –5.0%

Freecashflow6 52 64.8 223.6 199.4 –10.8%


















australiaSydney



Detroit|USA

Mankato|USA


marine


industrial


oil & gas


defense




gas systems


injection systems


after sales


segment engines


22 % Asia/Pacific

9 % Othercountries



EUR2,563.6MILLION


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G R O U P M A N A G E M E N T R E P O R T

C O N S O L I D A T E D F I N A N C I A L

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Overview 04 04 Chairman’s letter 08 Tognum AG’s Executive Board 10 Report of the Supervisory Board 14 Highlights 2010

Group Management Report 18 20 Company Profi le 31 Business and General

Background Conditions 37 Income, Assets and Financial Position

of the Tognum Group 47 Management Report on the

Individual Financial Statements of Tognum AG prepared in accordance with the German Commercial Code (HGB)

52 Segments 56 Research and Development 61 The Tognum Share 66 Corporate Governance Report 80 Employees 83 Sustainability Report 90 Takeover Directive Implementation Act 93 Declaration on Corporate Governance 95 Events after the Balance Sheet Date 95 Opportunities and Risk Report 105 Report on Expected Developments

Contents

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Consolidated Financial Statements 110 112 Consolidated Statement of

Comprehensive Income 113 Consolidated Statement of Cash Flows 114 Consolidated Statement of

Financial Position 116 Consolidated Statement of

Changes in Equity 118 Group Segment Reporting 120 Notes 120 Explanatory Notes 146 Notes to the Consolidated Statement of

Comprehensive Income 153 Notes to the Consolidated Statement of

Financial Position 173 Other Disclosures 190 Responsibility Statement 191 Auditor’s Report

Service 192 192 Figures at a glance 2007-2010 196 Glossary 200 Contact | Imprint

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» Tognum performed better than expected in the 2010 transition year – as a result of the considerable trust and con� dence our customers place in us as well as the active support and loyalty of our workforce.«

Volker Heuer | Chairman of the Executive Board of Tognum AG

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Tognum performed better than expected in the transition year. It was a year in which we were able to strengthen our earnings power. Following on from 2009, a year that had been marked by global eco-nomic crisis, the markets in which we operate became more stable again last year. Since we again sharp-ened our strategic focus – primarily by continuing to invest heavily in research and development and in production capacity – we are in a much stronger position now, as we emerge from the crisis.

A� er moving into 2010 with a weak order intake, there was a steady increase in order intake as the year progressed. In the fourth quarter of 2010, our order intake had achieved its highest level since the start of the crisis, with new orders being placed primarily for industrial engines, drive systems for the oil and gas industry and for distributed energy systems. � e overall result is that we have met in full the revenue forecast we had raised a� er nine months and the margin forecast we had re� ned upwards, and have even slightly exceeded the adjusted EBIT margin.

� e order intake in our core business – excluding the Rotorion activities which were sold at the end of 2009 – was up 27.5 % to 2,830.5 million euros (2009: 2,330.4 million euros). Taking the Rotorion activities into account in the comparative � gures for 2009, the increase amounts to 21.5 %. Revenues in our core business – here again, excluding the Rotorion activities – were up 6 % to 2,563.6 million euros. Including Rotorion, the increase in revenues amounted to 1.4 %.

� e adjusted EBIT increased signi� cantly in 2010 by 21.9 % to 242.1 million euros (2009: 198.6 million euros). � e main reasons for this were improved capacity utilisation, the increased e� ciency resulting from Tognum TOP, our continuous cost and process optimisation programme, and a positive margin squeeze. � e adjusted EBIT margin was up to 9.4 % (2009: 7.9 %). With an adjusted gross pro� t of 704.2 million euros (2009: 624.3 million euros), this resulted in an adjusted gross pro� t margin of 27.5 % for 2010 (2009: 24.7 %). We also saw an increase in the adjusted consolidated net income of 31.2 % to 159.2 million euros (2009: 121.3 million euros), and adjusted earnings per share were thus 1.21 euros (2009: 0.92 euros). Reported consolidated net income of 63.2 million euros (previous year: 102.9 million euros) as at the balance sheet date is not comparable with the previous year due to one-time and valuation e� ects.

You as shareholders bene� t from the strong income position we have regained – we will propose to the Annual General Meeting that the dividend of 0.35 euros per share paid out in 2009 be increased to 0.50 euros per share for the � nancial year just ended. � is means that we continue to remain in line with our dividend policy: since the IPO, Tognum has paid out between 30 % and 50 % of the adjusted group net income to its shareholders.

At the beginning of 2010, many questions remained unanswered as to the further development of the global economy. In January, as was the case with many other companies, we faced a � nancial year that was characterised by a large degree of uncertainly. However, the global economic crisis was not the � rst crisis of this kind in the over 100-year history of our company – or more precisely the history of our

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largest subsidiary MTU Friedrichshafen – that we have had to overcome. Looking back today, we can say that we not only took on the challenge, but actually used it increasingly to focus our strategy and to reas-sess speci� c areas of our portfolio. Following the sale of our propeller sha� business Rotorion, we are now concentrating solely on our o� -highway business – on land and water, and in both mobile and station-ary applications. Our products and services are used in over 20 di� erent application areas in all regions of the world. � is means that, in the event of economic £ uctuations, we are able to o� set lean times in one market with successes in another market. � e past two years have demonstrated quite conclusively that this mechanism works, even when faced with a global and cross-sector economic downturn.

� e active support and loyalty of our entire workforce and the disciplined implementation of the Robust Action Plan, our internal action package to counter the e� ects of the crisis, ultimately enabled us to overcome the di� cult market situation without having to introduce short-time work or reduce the size of our core workforce. � e � nancial year just ended shows that the e� orts have been worthwhile and that, as the economy begins to recover, we are now back on a stable upward movement.

In addition to the positive business outlook, the � nancial requirements for sustainable corporate growth are also in place. Our equity base continued to increase in 2010, which is re£ ected in a solid equity ratio of 26.8 %. Due to the high cash in£ ow from operating activities, we have once again been able to reduce our net � nancial debt signi� cantly from 192.2 million euros to 57.2 million euros. � is strong operating cash £ ow gives us su� cient � nancial strength to put great e� ort into pursuing our strategic goals.

As I mentioned at the start of this letter, with targeted investments in our technological competence and in sales last year, we have again furthered the fundamental requirements for the implementation of our growth strategy. We have continuously expanded our technology leadership, for example, even during the recent di� cult years. In 2010, we continued to invest in the internationalisation of production capacity and set up a new engine plant in Aiken, South Carolina/USA, and with a Chinese partner inau-gurated a genset assembly plant in Datong/China. � is means that the production capacity we will require in future is now available in time to bene� t from the economic recovery. In addition, work at our new development centre in Pune in India has already begun. � e announced joint venture in Russia can o� er us considerable mid-term growth potential in the region.

One of our stated goals for the future is to further strengthen our innovative power. Despite the di� cult environment, we have steadily increased our expenditure for research and development over the past years in order to develop the innovative solutions our customers will need tomorrow. Hybrid con-cepts, integrated system solutions and new technical solutions designed to reduce exhaust emissions and fuel consumption are the prime focus. As a result, we are ready for the emission regulations that are becoming increasingly more stringent. In the majority of applications in the markets in which we are involved, our prototypes already meet the legal requirements that will come into e� ect in several years time. In April last year, for example, we presented our extensive portfolio of engines that already meet the US and European emission levels that will not come into force until 2014 for the construction and industrial sector. We are thus able to show our customers today the solutions we have for 2014, and strive to comply with the individual emission regulations with an even lower fuel consumption. Another example is our new Series 4000 engine for rail applications, which we presented in September at Innotrans, the international trade fair for transport technology. It has already been certi� ed by the German Federal Motor Transport Authority for EU Stage IIIB emission regulation, which will not come into force until 2012.

On the product side, we are also at the forefront of technological progress with our engines and systems, and in this respect are ideally prepared for the future. Our customer-speci� c solutions and engines with very low life cycle costs demonstrate the highest levels of reliability and operational stability on a day-by-day basis. � ese have always been the features which the relationships we have enjoyed with our customers of many years standing are based on.

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� e advancement of new technologies always involves new challenges, such as those associated with mar-ket entry. � e appropriate sales markets have � rst to be developed over periods of many years. We faced such a challenge, for example, with fuel cells for stationary power generation. Following an in-depth analysis of the market situation and an unsuccessful search for a partner, we � nally took the decision at the end of 2010 to exit from our activities in this sector. We came to the conclusion that the business in stationary fuel cells will not be commercially viable in the medium term in view of the current market conditions and subsidy schemes that are evident worldwide. � e step we have taken will have no impact on the outlook for 2011; in the annual � nancial statements for 2010, there are non-operating one-time e� ects amounting to around 64 million euros.

We managed to cope with the extreme challenges of the last two years very well. In view of our solid order backlog, we can now look with con� dence to 2011. We continue to pursue our corporate strategy and continue to put every e� ort into pushing ahead with our � ve long-term growth initiatives. � ey focus on supplementing our product portfolio, expanding our systems business with o� -highway drive and propulsion systems, growth in onsite energy, enhancing our a� er sales portfolio and decentralisation through regional expansion.

We are proud of our broadly diversi� ed and balanced product and application portfolio and our global presence. � ey give us stability and set us apart from most of our competitors. For 2011, we anticipate a growth in revenues of at least 10% with an adjusted EBIT margin of around 10 %. In 2012, we expect to see a positive performance in our end markets, stimulated by rising raw material prices and an increasing demand for transport, in addition to a growing structural demand for decentralised power generation. In view of these trends, we intend to grow faster than the market, while achieving an adjusted EBIT margin in excess of 10 %.

May I at this point – also on behalf of my colleagues on the Executive Board – express my thanks to Rainer Breidenbach, who le� the company at his own request at the end of 2010. Since his appointment to the Board in 2005, he made a major contribution to our success with his experience in sales, most recently as the member responsible for the Engines business unit.

As you are already aware, there is another change to come on the Tognum Executive Board. In Septem-ber 2011, my deputy and colleague on the Executive Board Joachim Coers will assume the position of Chairman. I would like to take this opportunity to thank you personally for your trust and support in the last few years. Please continue to accompany Tognum on its journey and share in the development of this remarkable company with interest and benevolence – it will de� nitely be worth it!

Best wishes

Volker HeuerChairman and CEO

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Peter KneippIntheExecutiveBoardsince1January

2011.MemberofTognumAG’sExecutive

Board,responsiblefortheEngines

divison,memberoftheManagement

BoardofMTUFriedrichshafenGmbH.

Appointeduntil31December2013.

Joachim CoersMemberofTognumAG’sExecutive

Board,CFO,responsibleforCorporate

ServicesandHumanResources,

MemberoftheManagementBoardof

MTUFriedrichshafenGmbH.

Appointeduntil30September2013.

Volker HeuerChairmanofTognumAG’sExecutive

Board,chairmanoftheManagement

BoardofMTUFriedrichshafenGmbH.

Appointeduntil30September2011.

Tognum AG’s Executive Board

Detailed biographies of

the Executive Board members:

www.tognum.com/company/

board-of-management

ResignedfromtheExecutiveBoardby

31December2010:RainerBreidenbach

Engineshowninthebackground:

12V1600G60

Dr. Ing. Ulrich DohleMemberofTognumAG’sExecutive

Board,responsiblefortheTechnology

Operationsdivision,memberofthe

ManagementBoardofMTUFriedrichs-

hafenGmbH.

Appointeduntil30April2014.

Christof von BranconiMemberofTognumAG’sExecutiveBoard,

responsiblefortheOnsiteEnergy

Componentsdivision,memberofthe

ManagementBoardofMTUFriedrichs-

hafenGmbH.

Appointeduntil28Februar2013.

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Report of the Supervisory Board

� e consequences of the economic crisis presented the Group with enormous challenges in the 2010 � nancial year just end-ed. � e company managed the situation e� ectively not least due to the exceptional commitment of the entire workforce and countermeasures implemented by the Executive Board.

During the 2010 � nancial year, the Supervisory Board of Tognum AG once again carried out with great diligence the tasks incumbent upon it by law, under the terms of the Articles of Association and the bylaw.

In the year just ended, the Supervisory Board regularly advised the Executive Board in matters concerning the management of the company, supervised the conduct of its a� airs and was continuously involved in business developments, in addition to the situation of the company and the Group. � e Executive Board reported regularly, both verbally and in writing, promptly and comprehensively on all transactions of material signi� cance to the company. To this end, the Executive Board ensured that the Supervisory Board was directly involved in all relevant decisions at an early stage. In addition, the Supervisory Board received written monthly reports on the development of the income, assets and � nancial position. Together with the Exe cu-tive Board, the Supervisory Board discussed in particular topics such as business policy, strategic issues relating to corporate planning, including � nancial, investment and personnel planning, the business situation of the company and the Group, the risk situation, risk management and compliance. Any business requiring the approval of the Supervisory Board in accord-ance with the law, the Articles of Association or the bylaws of the Executive Board, were examined by the Supervisory Board, discussed in detail with the Executive Board and subsequently approved. In addition, the Chairman of the Supervisory Board maintained regular contact with the Executive Board outside the Supervisory Board meetings and was informed of the current business situation, signi� cant business transactions and imminent decisions of signi� cance.

Key focus of deliBerations in Plenary sessions. In the 2010 � nancial year, the Supervisory Board held a total of six ordinary meetings and � ve extraordinary meetings. All members of the Supervisory Board were either present at the meetings or had been excused. � e Supervisory Board member Andreas Renschler attended � ve of the eleven Supervisory Board meetings held in the 2010 � nancial year. Votes were received in absentia for members who were not present at the meetings. Topics addressed at the ordinary Supervisory Board meetings – apart from the accounts meeting – included in particular the corresponding quarterly reports, the assessment of the market and the business development of the indivi du-al business units, risk management and in-depth reports on the work carried out in the committees from each of the committee chairmen.

In the accounts meeting held on 8 March 2010, a� er thorough examination and on the basis of preliminary discussions and preliminary examinations and deliberations by the Audit Committee in particular, the Supervisory Board approved the annual and group � nancial statements of Tognum AG as at 31 December 2009. � e auditors were present at the accounts meeting. � e dra� resolutions to be submitted to the 2010 Annual General Meeting were also discussed and approved. Approval of the dra� resolution to be submitted to the Annual General Meeting on the amount and structure of the remu-neration for the members of the Supervisory Board was postponed. In the course of this meeting, the Supervisory Board was also informed on the planned relocation of the production facility within the US.

In the meeting held on 25 March 2010, the Executive Board informed the Supervisory Board in detail on the training and development concept and submitted a personnel report. � e Executive Board also reported to the Supervisory Board on developments in MTU Onsite Energy Fuel Cell Systems and MTU Onsite Energy Gas Power Systems.

On 26 March 2010, an extraordinary meeting of the Supervisory Board was held in which the dra� resolution to be submitted to the Annual General Meeting on the amount and structure of the remuneration for the members of the Supervisory Board was deliberated and � nally agreed.

At the extraordinary meeting of the Supervisory Board held on 12 April 2010, amongst others, the contract of Volker Heuer was extended to 30 September 2011 and that of Joachim Coers to 30 September 2013. It was also decided that Joachim Coers will take over as Chairman of the Executive Board as of 1 October 2011.

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In the meeting on 6 May 2010, the Executive Board reported to the Supervisory Board in detail on the current situation in A� er Sales and MTU Onsite Energy Fuel Cell Systems. � e Supervisory Board also received a detailed report on Tognum AG’s materials management centre in Friedrichshafen and on Tognum’s research and development centre at the MTU India Pvt. Ltd. location in Pune/India.

On 18 May 2010, an extraordinary meeting of the Supervisory Board was held immediately prior to the Annual General Meeting of Tognum AG to deal with the change to Item 10 on the agenda of the Annual General Meeting (election of Su-pervisory Board members). � e reason for the change was that, immediately before the Annual General Meeting took place, various shareholders suggested another substitute candidate to stand for election, in addition to Dr. Albert Xaver Kirchmann who had previously been proposed as substitute member. � e Supervisory Board complied with this request by proposing Dr. Andreas Leimbach as substitute member.

� e key items discussed at the meeting on 3 August 2010 were the further development of the corporate strategy and the refocusing of Tognum’s global spare parts logistics. In addition, the Supervisory Board approved the absorption of the inter-mediate holding company MTU DDC International GmbH, Friedrichshafen into MTU Friedrichshafen GmbH, Fried-richshafen. � e Supervisory Board agreed on the basic details of the remuneration and pension scheme for the Executive Board that will be applied for the � rst time following the extension of the contracts of Volker Heuer and Joachim Coers. For de-tails of the new remuneration structure for Executive Board members, please consult the remuneration report on pages 69 – 77 of the Group’s annual report 2010. � e Executive Board also informed the Supervisory Board on the introduction of a so-called Supervisory Board platform, which is designed to provide a fast, secure and e� ective paperless exchange of infor-mation between the Executive Board and Supervisory Board and thus simplify the work of the Supervisory Board.

An additional extraordinary meeting of the Supervisory Board was held on 18 October 2010. During this meeting, as a result of his resignation, the Supervisory Board agreed on the termination of Rainer Breidenbach’s contract e� ective 31 De-cember 2010. Peter Kneipp was appointed to the Executive Board as the new regular Executive Board member to replace Rainer Breidenbach from 1 January 2011 to 31 December 2013. � e Supervisory Board also approved measures to optimise the global sales structure and set up a Strategy Committee for Tognum AG.

In the Supervisory Board meeting on 2 November 2010, the Supervisory Board dealt with the further development of the Series 1163 engine, with the progress made in various strategic projects and with the successfully completed relocation of the production facility within the US. � e Supervisory Board also deliberated and discussed the new recommendations of the

Rolf EckrodtChairmanoftheSupervisoryBoardofTognumAG

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German Corporate Governance Code (GCGC) in the version dated 26 May 2010, approved amendments to the bylaws of the Supervisory Board to bring them in line with Item 5.4.1 of the GCGC (»Diversity«), and agreed on the wording of the current declaration of compliance. An additional item on the agenda was the further extension of the »Long-Term Incentive Concept for the Group’s senior executives« for 2011.

In its meeting on 9 December 2010, the Supervisory Board discussed the business plan submitted by the Executive Board for the coming 2011 � nancial year in detail and received the latest information on various strategic projects. In-depth delib-erations were also held on the planned appointment of a successor to the CFO. � e Supervisory Board – following initial preparation in the Executive Committee − carried out an e� ciency review in accordance with the recommendations of the GCGC and discussed other ways of consistently increasing the e� ectiveness of its work. � e next regular e� ciency review will follow in the 2011 � nancial year.

In the � nal Supervisory Board meeting of 2010, which took the form of an extraordinary meeting 28 December 2010, the Supervisory Board discussed on the next steps to be taken with respect to the fuel cell activities of MTU Onsite Energy.

WorK in tHe committees. � e Supervisory Board has � ve Supervisory Board committees at its disposal (the Nomina-tions Committee, the Executive Committee, the Audit Committee, the Strategy Committee and the Mediation Committee). � e committees prepare speci� c topics for discussion in the plenary sessions and Supervisory Board resolutions. For speci� c issues, the Supervisory Board has delegated decision-making authority to these committees. A presentation of the indi-vi dual committees and their members is included on page 186 of this annual report.

nominations committee. � e Nominations Committee held one meeting in 2010, in which arrangements for succes-sion on the Supervisory Board of Tognum AG were made for Giulio Mazzalupi, who le� the company on 18 May 2010 for health reasons.

eXecutiVe committee. � e Executive Committee held a total of eleven meetings in 2010. It dealt in depth with the le-gal aspects of Executive Board remuneration and in this context discussed the current remuneration system and amend-ments to the existing contracts of the individual members of the Executive Board. Other topics included the extension of Volker Heuer’s contract to 30 September 2011 and that of Joachim Coers to 30 September 2013, in addition to arrangements for appointing a successor to the CFO as of 1 October 2011. � e Executive Committee additionally dealt with the resignation of Rainer Breidenbach, which became e� ective on 31 December 2010, and the subsequent appointment of Peter Kneipp as the new member of the Executive Board for the period from 1 January 2011 to 31 December 2013. It also dealt with the e� ciency review of the Supervisory Board. � e Executive Committee also made preparations for amendments to the bylaws of the Supervisory Board to bring them in line with Item 5.4.1 of the CGGC (»Diversity«) and the decision of the Supervisory Board on the wording of the declaration of compliance in accordance with Section 161 of the German Stock Corporation Act (AktG).

audit committee. � e Audit Committee held six meetings in 2010. Its work focused on the examination of the annual and group � nancial statements, including discussion of the combined management report, an audit review of the half-year � nancial report and the quarterly � nancial reports for the 2010 � nancial year. Accounting and risk management, plus co-operation with the auditors were also discussed in detail. � e Audit Committee also dealt with the preparation of the Supervisory Board’s proposal to the Annual General Meeting for the choice of auditors (PricewaterhouseCoopers Aktien-gesellscha� Wirtscha� sprüfungsgesellscha� , Stuttgart) for the 2010 � nancial year and obtained their declaration of in-dependence. � e Chairman of the Supervisory Board subsequently issued them a mandate to conduct the audit for the 2010 � nancial year. In addition, the Audit Committee reviewed the fees for PricewaterhouseCoopers Aktiengesellscha� Wirt-scha� sprüfungsgesellscha� and, together with the auditors, speci� ed the key auditing focus for the examination of the an-nual and group � nancial statements for the 2010 � nancial year. � e Audit Committee monitored the accounting process, and the e� ectiveness of the risk management system, the internal control system and the internal auditing system in accordance with the legal requirements. Compliance issues were also dealt with in depth in each of the meetings.

strategy committee. � e Strategy Committee that was set up in the Supervisory Board meeting on 18 October 2010 will perform its duties initially as a working group and draw up details of the main focus of its work. However, in the event that matters arise that require resolutions to be passed by the entire Supervisory Board, the Strategy Committee will be o� cially convened and if necessary will provide preparatory support for any decisions to be taken.

mediation committee. Meetings of the Mediation Committee in accordance with Section 27 (3) of the Co-Determination Act ( MitbestG) were not necessary in the 2010 � nancial year just ended.

13

CORPORATE GOVERNANCE. In November 2010, together with the Executive Board, the Supervisory Board issued an updated declaration of compliance in accordance with Section 161 of the German Stock Corporation Act (AktG), which is published on page 66 of this annual report and on the company’s website. Together with the Executive Board, we report on corporate governance in the corporate governance report on pages 66 – 77.

In the period under review, no conflicts of interest occurred in connection with Executive Board or Supervisory Board mem-bers to be disclosed immediately to the Supervisory Board and for which the Annual General Meeting is to be informed. However, purely as a precautionary measure, the two Supervisory Board members – Dr. Edgar Krökel and Andreas Renschler – who are both concurrently employed by our major shareholder Daimler did not take part in the discussion and passing of resolutions on a specific item of the agenda and voluntarily agreed not to be given the associated document and minutes.

ANNUAL AND GROUP FINANCIAL STATEMENTS 2010. PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprü-fungsgesellschaft, Stuttgart, who were appointed as auditors by the Annual General Meeting, audited the annual and group financial statements as at 31 December 2010, including the combined management report for the 2010 financial year, and subsequently issued an unqualified audit certificate.

Based on the preliminary financial statements prepared by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsge-sellschaft, Stuttgart, which the Chairman of the Audit Committee had presented to the Supervisory Board as a full report of the completed audit, the Supervisory Board dealt in detail with the annual statements, the group financial statements, the combined management report for the 2010 financial year and the Executive Board’s proposal for the appropriation of the net profit. The audit reports prepared by the auditors and the financial statements to be examined were presented to each member of the Supervisory Board in good time. The auditors were present at the meeting of the Audit Committee that was held on 4 March 2011 and at the Supervisory Board accounts meeting on 7 March 2011 and reported on the key results of their audit. Accepting and taking into consideration the reports presented by the Chairman of the Audit Committee and the auditors, as well as in talks and discussions with them, the Supervisory Board examined the financial statements and raised no objections. The Supervisory Board formally accepted the annual and group financial statements for the 2010 financial year in the Supervisory Board meeting on 7 March 2011. The annual financial statements are thus approved. After examining and taking into account the interests of the shareholders and the company, the Supervisory Board also approved the Executive Board’s proposal for the appropriation of the net profit in the meeting on 7 March 2011.

CHANGES ON THE SUPERVISORY BOARD AND THE EXECUTIVE BOARD. On 18 May 2010, the Annual General Meeting elected Axel Arendt as the new member of the shareholders’ Supervisory Board and Dr. Andreas Leimbach as his substitute member. Axel Arendt replaces Giulio Mazzalupi, who had to resign his seat on the Supervisory Board for health reasons on 18 May 2010.

There was also a change on the Executive Board of Tognum AG in the 2010 financial year: Rainer Breidenbach resigned from the Executive Board effective 31 December 2010 for personal reasons. As his successor, the Supervisory Board appointed Peter Kneipp to the Executive Board as a regular member for the period from 1 January 2011 to 31 December 2013.

The Supervisory Board thanks Giulio Mazzalupi and Rainer Breidenbach for their dedicated and competent work and the service they have given Tognum AG since it was formed.

In addition, the Supervisory Board would like to thank all the members of the Tognum workforce in Germany and abroad, as well as the members of the Executive Board for their excellent performance and commitment in 2010. Thanks also go to the employee representatives of Tognum AG and all the companies within the Group, and last, but by no means least, all the shareholders, who put their trust and confidence in Tognum AG in the 2010 financial year just ended.

Friedrichshafen, 8 March 2011

For the Supervisory Board

Rolf Eckrodt Chairman of the Supervisory Board

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14O V E R V I E WH i g h l i g h t s 2 0 1 0



S T A T E M E N T S

S E R V I C E

15

Highlights 2010

january | DoWn on tHe farm (picture) MTUOnsiteEnergyGasSystemsuseacowintheirnewcampaignthatanswerstothenameofRESIE–RESource-friendly,IntelligentEnergygeneration.RESIEprovidesfarmerswithinformationontheeffi cientuseofbio-gaswithcogenerationplants.

january | poWer up TengensetssuppliedbyMTUOnsiteEnergysecuretheemergencystandbypowersupplyinanewmedicalcentreinCalgary(Canada).EquippedwithSeries4000engines,thegensetstogetherdeliver28megawattsofpowerandalsobalancepeakloads.Theycanrunuptofullloadinjusttenseconds.

feBruary | groWtH market MTUIndia’snewcorporateheadquartersisopenedinPune.Itincludesadevelopmentcentre,trainingcentreandworkshop,inadditiontoprovidingsupportforsalesandaftersales.Theserviceandsalesnetworkcontinuestoexpandin2010.

feBruary | bosporus liners ProductionofcylinderlinersforSeries4000enginesstartsinIstanbulandrepresentsthefirstlarge-scaleproductionofenginepartsoutsideFriedrichshafen.Tenassemblylineworkersandtwoservicetechniciansareem-ployedinproduction.

may | future Tognumplayshostto125youngpeopleatthe»TognumYouthFutureForum«.Theeventenablesthemtoexperiencehowaglobalcom-panypreparesitselfforthechallengesofthefuture,butalsooff ersthemanopportunitytopresenttheirownideasforthefuture.

may | targeteD AttheAnnualGeneralMeeting,theExecutiveBoardconfirmsitsforecastfor2010.ThecompanyatthistimeexpectsanadjustedEBITmarginof6%to9%withrevenuesof2.3to2.5billioneuros.

june | moVing aHeaD V-TRACisthenameofthenewdistributorforTognum’ssubsidiaryMTUinVietnam.Theagreementwiththeleadingcompanyforsales,repairandmaintenancewillenableMTUtoimproveitssalesandserviceaccesstothemarketinSouthEastAsia.

june | spacesHip (picture) Acatamarancommissionedbythecustomertobea»spaceshiponwater«anddesignedbythePorscheDesignGroup,ispoweredbytwoSeries4000MTUengines.Eachenginedelivers3,440kilowattstogivethecatama-ranatopspeedof35knots.

marcH | accolaDes TognumisGermany’s»TopEmployer2010«,havingalreadybeenawardedthequalitysealofapprovalin2009asthe»TOPEmployerforEngineers«.OneofthereasonswhyTognumqualifiedfortheawardisthatittookon47skilledworkerswhohadjustcompletedtheirvocationaltraining.

marcH | islanD paraDise (picture) InDubai,onthe»JumeirahPalmIsland«,theTognumbrandMTUOnsiteEnergypresentsitsnewfamilyofstandardgensetstocustom-ersandpartners,whoareshownhowsuddenpowerfailuresorenergybottleneckscanbedealtwitheff ectively.EnginessuppliedbyMTUOnsiteEnergyhavesafeguardedthesup-plyofelectricpoweranddrinkingwaterontheislandsinceautumn2008.

aPril | continuity ChangeatthetopofTognumisannounced:JoachimCoers,CFOandDeputyChairman,istotakeoverasChairmanoftheExecutiveBoardfromVolkerHeuerasofSeptember2011.ThisensurescontinuityoftheExecutiveBoard’swork.

aPril | WorlD’s first TwoSeries2000MTUenginesprovidethepropulsionfortheworld’sfirstSWATHwindfarmtender,avesseldesignedspecificallyforthesupplyandmaintenanceofoff shorewindfarms.Thepropulsionsystemiscon-trolledbyMTU’sCallosumshipautomationsystem.

15

july | family-frienDly (picture) TognumanditslargestsubsidiaryMTUFriedrichshafenarerecertifiedasfamily-friendlycompanies.

july | business in russiaTognumandaRussiangovernmentworkinggroupsignaletterofintentforthejointproductionandsaleofenginesforRussia.Moreover,MTUclosesacontractwithRussiantrainmanufacturerMetrowagonmashforthedeliveryofover100PowerPacks.

july | neW recorD TognumsubsidiaryL’Orangeproducesits500,000thfuelinjector.Theeventmarksanewproductionrecordforthemanufacturerofhigh-pressurefuelinjectionsystemsfordieselandheavyoilengines.

august | turbogas Tognumdeliverstwogasturbineplantswithanestimatedvalueofover40millioneurostotwoGermanenergyproviders.Theturbinesarehighlyeffi cient,off erflexiblepoweroutputandaredesignedtomeetthespecificneedsofthecustomers.

august | efficient Tognum’ssubsidiaryMTUFriedrichshafenstartsconstructionofanewmaterialsman-agementcentreintheFriedrichshafendistrictofKluftern.Beginningin2012,itwillsupplyproductioninFriedrichshafenandotherloca-tionswithpartsandwillreplaceseveralexternalstorageareas.

noVemBer | DeVelopment AttheBioEnergyDecentraltradefair,MTUOnsiteEnergyGmbHGasPowerSystemspresentsgensetsandcogenerationmodulesequippedwiththenewSeries4000biogasenginesforoutputsofbetween770and2000kilowatts.

decemBer | neW facility (picture) ThenewengineproductionfacilityinAikenintheUSStateofSouthCarolinagoesintooperation:theplantwillassembleSeries2000and4000enginesprimarilyfortheUSmar-ket.PartsproductioninAikenisscheduledtostartinspring2011.ThehighervalueaddedintheUSAincreasesthechancesforobtainingAmericanpubliccontracts.

decemBer | successor PeterKneippsucceedsRainerBreidenbachasmemberoftheTognumExecutiveBoard.Breidenbach,memberoftheExecutiveBoardresponsiblefortheBusinessUnitEngines,athisownrequestleavesthecompanyattheendofyeartotakeearlyretirement.Kneipp,formerheadofMTUAsia,takesuphisnewroleasof1January2011.

decemBer | fareWellTognumannouncestodiscontinueitsfuelcellactivitiesforstationarypowergeneration.Underthecurrentmarketandfinancingcon-ditionsthatareevidentworldwide,ithasbecomeclearthatthisbusinesswillnotbecommerciallyviableinthemediumterm.Theresultantone-timechargehasnoimpactontheadjustedresultsfortheyear2010.

sePtemBer | eXpansion TognumandChinaNorthIndustriesGroupCor-poration(Norinco)openanengineandgen-setfacilityinDatong.ThejointventurewillassemblelargeMTUdieselenginesemer-gencypowersupplygensets.

sePtemBer | pioneer Tognum’ssubsidiaryMTUFriedrichshafenpresentsforward-lookingdrivesolutionsattheInnotranstradefairfortransporttech-nology.BesidesthenewgenerationofSeries4000engines,thenewlydevelopedSeries1600engineisalsoonshow.BothalreadymeettheEUStageIIIBemissionregu-lationsthatwillcomeintoforceasfrom2012.MTUisperformingtrialswithahybriddrivesysteminstalledinarailcarincollab-orationwithaDeutscheBahnsubsidiary.

octoBer | generating poWer AnIndonesiantextilemanufacturertakesdeliveryofeightcogenerationplantssup-pliedbytheTognumbrandMTUOnsiteEnergy.Theyaredrivenby20-cylindergasengines.

octoBer | mtu to tHe rescue (picture) AnenginemanufacturedbyTognum’ssub-sidiaryMTUpowersthedrillrigusedtorescue33Chileanminerstrappedatadepthof700metres.TheSeries200012-cylinderengineisincontinuousoperation.After69days,allofthe33menarebroughtsafelytothesurface.

onsite energy

» � e demand for energy is increasing worldwide. As is the demand for e� cient onsite energy systems.«

Kevin McKinney | Regional Sales Manager, MTU Onsite Energy Mankato

onsite energy

Onsiteenergysystemsareasourceofgrowthforus.

Wherever a stable supply of electric power is needed, reliable emergency power systems are vital. Under the MTU Onsite Energy brand, we supply onsite energy systems based on diesel or gas designed to deliver the required power. Our emergency power systems secure the supply of electric power around the clock in nuclear power plants, for example, but also in hotels and casinos – even in such places as the energetic desert city of Las Vegas.

genset Based on a series 1600 engineLarge hotels and casinos use emergency backup gensets from MTU Onsite Energy based on the Series 1600 engine.

onsite energy

» � e demand for energy is increasing worldwide. As is the demand for e� cient onsite energy systems.«

Kevin McKinney | Regional Sales Manager, MTU Onsite Energy Mankato

onsite energy

20 Company Profile

31 Business and General Background Conditions

37 Income, Assets and Financial Position of the Tognum Group

47 Management Report on the Individual Financial Statements of Tognum AG in Accordance with the German Commercial Code (HGB)

52 Segments

56 Research and Development

61 The Tognum Share

66 Corporate Governance Report

80 Employees

83 Sustainability Report

90 Takeover Directive Implementation Act

93 Declaration on Corporate Governance

95 Events after the Balance Sheet Date

95 Opportunities and Risk Report

105 Report on Expected Developments

Items in this report may contain differences between individual figures and the resultant totals due to rounding.

Group Management Report

20 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T C o m p a n y P r o f i l e

C O N S O L I D A T E D F I N A N C I A L S T A T E -

M E N T S

S E R V I C E

Company Profile History of the Tognum Group The Tognum Group as we know it today looks back on a century of corporate history. Known originally as Luftfahrzeug Motorenbau GmbH, the company was founded by Karl Maybach and Graf Ferdinand von Zeppelin on 23 March 1909 and began by developing and building engines for the rigid airships produced in the local Zeppelin factory. The name was subsequently changed to Maybach Motorenbau GmbH in 1918. At the end of the First World War, the company was involved for a brief period in motor car manufacture and the production of high-performance diesel engines – since 1969, it has operated under the name of MTU Friedrichshafen GmbH (MTU stands for Motoren- und Turbinen-Union). Prior to 2006, the MTU Friedrichshafen Group had developed to become an integral part of the off-highway operations of the former DaimlerChrysler Group and was subsequently sold to a financial investor. What emerged was the Tognum Group, which went public in 2007.

Group Structure and Business Activities Today, Tognum is one of the world’s leading providers of high-speed diesel engines and complete propulsion systems for ships, drive systems for heavy agricultural and rail vehicles, and industrial drives (off-highway applications); Tognum’s product portfolio also includes onsite energy systems. In the 2010 financial year, the Group generated a total revenue of 2,563.6 million euros. As at 31 December 2010, the workforce of the Tognum group of companies worldwide totalled 9,046 employees.

P R O D U C T P O R T F O L I O . Tognum has one of the most diversified and balanced product portfolios in the industry. Apart from diesel engines marketed under the MTU, Detroit Diesel and Mercedes-Benz (in-dustrial engines via distribution license) brands, it also includes diesel and gas engine systems, in addi-tion to stationary energy systems, which it markets under the MTU Onsite Energy brand and high-performance engine components such as high-pressure fuel injection systems (marketed under the L’Orange brand). The Tognum Group also develops and produces tailor-made electronic systems for the control and monitoring of its engines and drive systems. In addition to fuel injection as a key technology, it develops and produces exhaust gas turbochargers for large diesel engines. In conjunction with the continuing development of in-engine technologies, exhaust aftertreatment ensures that engines pur-chased by our customers will comply with future emission standards.

Annual revenues of 2,563.6 million euros and 9,046 employees worldwide

Rich product portfolio

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A P P L I C A T I O N A R E A S O F T H E T O G N U M G R O U P

G R O U P S T R U C T U R E . Tognum continues to develop its corporate and brand strategy. Under the corporate umbrella of the Tognum AG strategic holding company, the business activities are broken down into the following three reporting segments – Engines, Onsite Energy & Components (OE&C) and Distribution. Internal control and measurement of the performance of the individual segments is carried out by the Executive Board of Tognum AG as the chief operating decision maker with the aid of adjusted EBIT figures. External reporting in accordance with IFRS 8 »Operating Segments« is based on this segment structure. The allocation of the legal entities to the three reporting segments is shown in the diagram below:

21

A P P L I C A T I O N A R E A S O F T H E T O G N U M G R O U P

G R O U P S T R U C T U R E . Tognum continues to develop its corporate and brand strategy. Under the corporate umbrella of the Tognum AG strategic holding company, the business activities are broken down into the following three reporting segments – Engines, Onsite Energy & Components (OE&C) and Distribution. Internal control and measurement of the performance of the individual segments is carried out by the Executive Board of Tognum AG as the chief operating decision maker with the aid of adjusted EBIT figures. External reporting in accordance with IFRS 8 »Operating Segments« is based on this segment structure. The allocation of the legal entities to the three reporting segments is shown in the diagram below:

marine

- Yachts

- Commercialvessels

- Vesselsforpublicauthorities

industrial

- Railcars

- Agriculturalequipment

- Constructionequipment,industrialapplications

-Mining

oil & gas

- Onshore

- Offshore

- Mechanicaldrives,e.g.pumpsfireextinguishingsystemsanddrillingunits

defense systems

- Lightandmedium-weightmilitaryvehicles

- Heavymilitaryvehicles

segment onsite energy & components

segment engines


- Emergencystandbysystems

- Base-loadplants

- Peak-loadplants

gas systems

- Base-loadplants

- Peak-loadplants

injection systems

- High-speedengines

- Medium-speedengines

©K

MW

Phot

oSi

emen

sA

G

22 O V E R V I E W



M E N T S

S E R V I C E

O V E R V I E W O F T H E G R O U P S T R U C T U R E S H O W I N G C O N S O L I D A T E D C O M P A N I E S A S A T 3 1 D E C E M B E R 2 0 1 0

E N G I N E S . The Engines segment is involved in the development, manufacture and sale of diesel engines in the power range of between 75 and 9,100 kilowatts, in addition to the associated services and after sales business. In the Marine application area, the power range to a maximum of 35,000 kilowatts is supple-mented by gas turbine systems.

The engines are used in a variety of application areas with different operational requirements. These are primarily marine (marine propulsion systems and on-board units in a wide variety of categories, such as military and coast guard vessels, large ferries, yachts and work boats), oil & gas (primarily drive systems for the generation of mechanical power for oil and gas exploration), industrial (engines for rail, agricultural and construction vehicles, industrial applications and engines for mining vehicles) defence applications (military land vehicles) and after sales activities (spare parts, servicing, repair and remanufacturing).

O N S I T E E N E R G Y & C O M P O N E N T S . The business activities of the Onsite Energy & Components (OE&C) segment include onsite energy systems (Onsite Energy) based on diesel engines (OE Diesel Systems & Engines), gas engines (OE Gas Power Systems) and after sales activities, in addition to components

Diverse application areas

23

(Components) for engines (injection systems). Diesel engines with a power output of up to 6,250 kilowatts and gas engines delivering up to 1,950 kilowatts of power are used in the onsite energy sector. The port-folio is supplemented by purchased products (gas turbines to a maximum of 50,000 kilowatts and engines in the lower power range below 75 kilowatts).

D I S T R I B U T I O N . The Distribution reporting segment comprises the Group-owned sales companies in the Europe and Asia/Pacific regions.

F U R T H E R D E V E L O P M E N T O F T H E S E G M E N T S T R U C T U R E A S O F 2 0 1 1 . The continuous and systematic development of the segment structure that has been in place since 2008 has led to changes in the impor-tance of individual legal entities within the Tognum Group. In order to account for the advanced inter-pretation of the above logic, the allocation of individual legal entities to the three reporting segments will be adjusted as of 1 January 2011.

The Tognum Group, in addition to Tognum AG as the parent company with its registered office in Frie-drichshafen/Germany, has a global production, sales and services structure that includes 25 fully con-solidated subsidiaries, more than 140 sales partners and over 500 authorised dealers at around 1,200 locations.

The largest single company within the Tognum Group is MTU Friedrichshafen GmbH with its registered office in Friedrichshafen/Germany. Other group companies that make a major contribution to the busi-ness volume are MTU Detroit Diesel Inc., Detroit/USA and MTU Asia Pte. Ltd., Singapore/Singapore as the lead company of the sub-group MTU Asia Group in which all Asian subsidiary companies are in-cluded. Central production facilities of the Tognum Group are located in Germany, the USA and China.

Compared with the situation as at 31 December 2009, two companies have been added to the group of consolidated companies of Tognum AG and one company is no longer included in the Group. The sub-sidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey, which was founded in 1990, and its subsidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Subesi, Çorlu/Turkey were included in the group of consolidated companies of Tognum AG for the first time as at 1 January 2010. Both companies are allocated to the Engines segment. The inclusion of these compa-nies has no substantial impact on the income, assets and financial position of the Tognum Group. As a result of the enlarged group of consolidated companies, a further 118 employees were reported for the Tognum Group as at 31 December 2010. MTU DDC International GmbH, Friedrichshafen, was ab-sorbed into MTU Friedrichshafen GmbH, Friedrichshafen retroactively as of 1 January 2010. The entry into the commercial register took place on 24 August 2010. The absorption of this company into MTU Friedrichshafen GmbH, Friedrichshafen has no impact on the income, asset and financial position of the Tognum Group.

S T R A T E G I C F O C U S . Effective 31 October 2009, Tognum AG completed the sale of its Propeller Shaft unit, which consisted of the Rotorion North America LLC, Charleston/USA and Rotorion GmbH, Frie-drichshafen subsidiary companies, to IFA Rotorion Holding GmbH (formerly IFA-Maschinenbau Ver-waltungsgesellschaft mbH), Haldensleben. In return, the Tognum Group received among other things a shareholding of around 25% in the purchasing company. Tognum intends to withdraw completely from this shareholding after a period of five years. As a result of this determined step, Tognum will now con-centrate on its core business in off-highway drive systems and onsite energy systems.

C H A N G E S T O T H E B U S I N E S S O R G A N I S A T I O N A N D C O R P O R A T E S T R U C T U R E . There were no substantial changes to either the business organisation or the corporate structure in the reporting period.

Enlarged group of consolidated companies

24 O V E R V I E W



M E N T S

S E R V I C E

Reporting Period and Comparable Periods In this combined group management report, we present details of the 2010 financial year compared with the 2009 financial year. The management report of Tognum AG, in accordance with Section 315 (3) of the German Commercial Code (HGB), is included with that of the Tognum Group. The risks and oppor-tunities of Tognum AG as the parent company are inseparably connected with those of the Tognum Group. Information contained in the present management report, unless otherwise specified, relates to the Tognum Group. Information on the state of affairs of the parent company, Tognum AG, is included in a separate section.

We present details of the asset situation compared with the situation as at 31 December 2009. Both the financial statements for the reporting period and those for the comparable period have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the regulations to be complied with under commercial law as speci-fied in Section 315a of the German Commercial Code (HGB). The Tognum Group emerged in 2006 from the off-highway activities of the former DaimlerChrysler Group, which is why the multi-year pres-entations in this annual report are confined to the years from 2007 to 2010.

Corporate Management and Goals Our strategy is focused on achieving profitable growth. This includes both organic growth that results from increasing our market share and expanding our market position as a provider of propulsion and energy systems and on external growth through additional targeted acquisitions. Our prime goal is the sustained and long-term increase in shareholder value.

K E Y P E R F O R M A N C E I N D I C A T O R S . Using an extensive performance management and key performance indicator system, we monitor all the factors that will enable us to achieve our goals. These include our market position, order intake and revenue performance, adjusted earnings before interest and taxes (EBIT) and adjusted earnings per share. To manage our financial situation, we use a variety of indicators, including net working capital, net asset and cash flow figures. For the assessment of investments and projects, we specifically apply the discounted cash flow model.

O V E R V I E W O F K E Y P E R F O R M A N C E I N D I C A T O R S

K E Y B U D G E T / T A R G E T F I G U R E S O F T H E P E R F O R M A N C E I N D I C A T O R S . As part of the annual operational planning process, we develop target and budget figures that are subsequently prepared and analysed in monthly comparisons of actual vs. projected values. The results of these analyses in each case provide us with an excellent overview of the current financial situation of the Tognum Group and the various segments.

Monitoring of all factors that enable us to achieve our goals

Revenue increase of at least 10% expected

25

The data obtained are also used as a basis for making decisions on the appropriate action to be taken and as a basis for regular discussions with the Supervisory Board and the Audit Committee. For 2011, we anticipate an increase in revenues of at least 10%. The adjusted EBIT Margin is expected to be around 10%. Additional target figures for selected performance indicators for 2011 are included in the report on expected developments at the end of the group management report beginning on page 105.

E A R LY C O M P A N Y- S P E C I F I C P E R F O R M A N C E I N D I C A T O R S . A rolling forecast of sales/revenues at product level, a rolling liquidity plan, and a complete financial forecast to the end of the year, which is prepared several times in the course of the year, are decisive indicators of the progress being made towards achiev-ing our goals. Another key indicator for forecasting coming developments is the change in order intake, which enables us to draw conclusions as to the future revenue and income situation. »Order intake for the previous financial years and quarters«, therefore, is included as a key indicator in the tables begin-ning on page 192. In the 2010 financial year order intake was up 21.5%. Another early performance indicator we use is »order coverage«, which is a key internal figure. Based on the information this gives us on the extent to which the planned sales volume is covered by firm delivery contracts, we can finalise our sales forecasts and predictions as to the anticipated capacity utilisation.

C U S T O M E R S A T I S F A C T I O N . Beyond the purely monetary aspects of corporate management and the associated key performance figures that are used, customer satisfaction is crucial to all our company’s activities. To obtain a realistic picture of the level of satisfaction of our customers worldwide, we conduct customer surveys on a global scale at regular intervals. The results of these surveys provide us with im-portant information as to how we can better meet the needs and requirements of our customers.

E M P L O Y E E S A T I S F A C T I O N . Satisfied and motivated employees are vital to the company and are of prime importance for achieving our corporate goals. For this reason, we attach great importance to the con-tinuous dialogue between employees and senior management, and for this purpose conduct regular in-depth employee satisfaction surveys. Management and the specialist departments involved take the findings of such surveys very seriously and implement whatever action is necessary to further increase employee satisfaction and subsequently maintain the loyalty of our employees.

Corporate Strategy S T R A T E G I C G R O W T H I N I T I A T I V E S

Our long-term growth strategy rests on five strategic pillars:

- O N S I T E E N E R G Y. Expansion of the decentralised power generation business area (Onsite Energy) with new and more advanced engines and systems

- P R O P U L S I O N . Further expansion of the strong market position we already occupy in propulsion and drive systems, with a particular focus on new technologies of the future (e.g. hybrid systems) and all-inclusive customer solutions

- A F T E R S A L E S . Expansion of our after sales business beyond our business in spare parts, primarily in the fields of remanufacturing, maintenance contracts and remote services

- P R O D U C T P O R T F O L I O . Extension of our product portfolio to include new power ranges (e.g. Series 1000 to 1500 and 1600 engines), and the continuing development of our existing engine series in or-der to comply with future emission standards in addition to achieving improvements in fuel effi-ciency

- R E G I O N A L E X P A N S I O N . Development of each of the relevant growth markets in all of our key regions and the creation of a global production and procurement network

Increased employee satisfaction

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M E N T S

S E R V I C E

O N S I T E E N E R G Y. The first pillar of our growth strategy is the expansion of our Onsite Energy business area. This is where we expect to see very strong growth due to the steady increase in demand for decentralised systems for emergency standby, prime and continuous power generation, as well as turnkey CHP plants. Under the MTU Onsite Energy brand, we offer onsite energy systems based on diesel en-gines, gas engines and gas turbines, including every conceivable combination of these units. We are a single-source supplier and cover the complete range from around 30 kilowatts to 50 megawatts. The intelligent combination of technologies from our portfolio enables us to provide optimum solutions designed to meet our customers’ specific requirements.

Our portfolio of gensets based on MTU diesel engines, which is marketed worldwide, begins in the lower range with the recently introduced Series 1600 engine, which delivers a power output of approx. 210 kilowatts. With our proven Series 2000 and 4000 engines, we provide power outputs of up to approx. 1,240 kilowatts and 3,315 kilowatts respectively. The delivery programme includes single diesel engines for power generation and modularised gensets for our standard system business, in addition to CHP plants, and extends to highly complex and safety-critical special applications, such as emergency standby gensets for nuclear power plants. We are continually expanding the production and sales activities for our diesel-based energy systems worldwide, acquiring the former Katolight Corporation in Mankato, Minnesota/USA in 2007, for example. Since then, we have produced our own gensets there under the name of MTU Onsite Energy Corp. and benefit from a strong sales network and direct access to the end customer market in North America. We continue to push ahead into new markets and have taken steps to ensure that the production plants in our global network, which currently consists of genset assembly plants in Mankato in the USA, Friedrichshafen in Germany and Suzhou in China, and will soon include Magdeburg in Germany, will be more closely linked.

Our portfolio of gas-based gensets consists of Series 400 and Series 4000 engines with power outputs ranging from approx. 120 kilowatts to approx. 2,150 kilowatts. In addition to environmentally friendly facilities designed for continuous power generation, the delivery programme includes CHP plants. Com-pared with central power plants, the use of such gensets makes it possible to significantly increase overall plant efficiency to more than 90%. At our Augsburg site, for example, we are not only involved in pro-duction, but are also continuously developing our systems, including optimisation of the efficiency and the gas compatibility of the engines we manufacture. The implementation of our strategy also includes making our business even more international than before, e.g. in South East Asia, in the years ahead.

Business involving gas turbines purchased from General Electric, which covers the power range from approx. 20 to 50 megawatts, is another key pillar of our onsite energy activities. Our customers place great value on the high efficiency ratings of the gas turbines and their flexible power adaption character-istics. With solutions that are tailored to meet the specific needs of the individual customer, we demon-strate the high level of systems expertise we possess in the design of complex energy plants, which is absolutely essential in our system business. Working closely with General Electric, we intend to increase our involvement in this field in the next few years.

P R O P U L S I O N . In the supply of propulsion systems for ships, drive systems for the oil and gas industry, rail and industrial applications, and for military vehicles, we have for decades had a traditionally strong position on the market, based on the high quality of our products, our consultancy expertise, the long-standing working relationships with our customers based on trust and confidence, and our global pres-ence. What distinguishes us from our competitors as an independent engine manufacturer, however, is first and foremost our determination and ability to offer our customers solutions tailored to their specific needs – from the engine to the complete drive or propulsion system. The strong position we occupy on the market today is the result of our many years of experience in the application areas mentioned above and our customer-driven technology leadership. We intend to further expand this position, particularly with a focus on new technologies such as hybrid drive systems and complete turnkey customer solutions.

Systematic development of additional markets

Overall efficiency increased to over 90%

Individual solutions designed to meet customers‘ specific needs

Growth through further expansion of our strong position in propulsion and drive systems

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In the marine sector, our propulsion systems are valued for their high level of reliability and their excel-lent product features. In addition to the traditionally strong segments, such as government contract business and challenging yacht applications, in which we have a competitive edge as a result of our ability to design and configure complex systems solutions that meet the customer’s specifications precisely, commercial shipping applications offer interesting growth potential for the future. With the launch of the Series 4000 Ironmen engine in 2009, for example, we offered the market an engine that, with its rugged design and operational economy, is ideally suited to the needs of the commercial shipping sector. In the course of the year under review, the engine was able to demonstrate its excellent features in day-to-day operations in numerous reference projects. In addition, a new series of gensets based on the Series 4000 engine, which extends MTU’s product portfolio by the addition of pre-defined solutions, was presented for the first time at the international trade fair for the shipbuilding industry – the SMM in Hamburg in September 2010. The continuous development of our products is not the only focus of our attention however. We are also extending the areas of application for commercial applications. These rugged MTU gensets are the ideal propulsion solution for the emerging market segment of offshore wind farm con-struction vessels. To enable us to set the standard for innovative ship propulsion solutions, Tognum is involved in a joint project with UK-based yacht builder Sunseeker for the development of hybrid propul-sion systems. To be able to demonstrate the customer benefits of such innovative solutions in day-to-day operations, primarily in terms of increased comfort and performance, environmental awareness, and above all cost effectiveness, the first sea trials have already begun. Apart from the reputation Tognum enjoys as a leading supplier of traditional marine engines, we also offer our customers ship automation solutions with integrated monitoring and control systems.

Another key element of the strategic pillar for propulsion is our system business in industrial applica-tions. Since 1996, for example, Tognum has delivered more than 4,000 PowerPacks for rail applications worldwide. Due to their modular construction, they can be used for virtually all the current types of vehicles. The customer gets a complete drive package with optimally matched components based on an MTU engine delivering 315 to 390 kilowatts of power. With an order from the Russian train manufac-turer Metrowagonmash for the delivery of more than 100 PowerPacks in 2010, Tognum once again showed itself to be a leading supplier of complete tailor-made systems. Our goal is to further expand this position in future with innovative technologies and solutions, which is also one of the reasons why we are involved in the joint testing of a hybrid drive system incorporated in a railcar operated by Westfranken-bahn. As part of a research project financed by the German Ministry for Transport, Construction and Urban Development (BMVBS), a prototype of the hybrid PowerPack developed by Tognum is to be tested in a local transport railcar. The hybrid PowerPack is an underfloor drive unit that recovers energy released during braking and uses it again for starting and for stop and go operations. Using this drive system will result in a reduction of up to 25 per cent in terms of fuel consumption and carbon dioxide emissions.

In addition to rail applications, we are continuously increasing our efforts in the mining sector. For the repowering of mining vehicles, for example, there is considerable demand for the Series 4000 engine in particular, primarily because of its high reliability and low fuel consumption. There is also significant demand for the recently introduced after sales products, which offer the customer a variety of options for guaranteeing the availability of the drive systems installed.

Our drive business with the oil and gas industry was the fastest growing business area in the 2010 re-porting year. It benefited primarily from high-volume deliveries of Series 4000 engines to US OEM part-ners for onshore applications. In 2010, Tognum also managed to penetrate the systems market with its electric drilling package, for example, a mobile genset designed for drilling systems that was launched by Tognum in March 2010 and offers unbeatable reliability combined with low fuel consumption and ex-tended maintenance intervals. The genset is the first turnkey solution Tognum has supplied to the oil and gas industry.

Propulsion systems for commercial vessels offer interesting growth potential

Hybrid PowerPack in development stage

Series 4000 for onshore applications

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S E R V I C E

A F T E R S A L E S . A key pillar in our growth strategy is our after sales business. Our focus in this area is on the expansion of our business activities and improvements in efficiency, which will also lead to a further increase in customer satisfaction and loyalty.

We intend to expand our business activities in after sales on the one hand because of the increased size of the installed engine population that has resulted from the increase in sales in the course of the last few years. On the other hand, we also intend to expand our business in replacement and reman parts, main-tenance, repairs and many other services. This is a path we entered on several years ago and one we continued to pursue successfully in 2010.

We also continued to support our product offensive by extending our portfolio of maintenance con-tracts and reman parts. Customers of our mining applications can now conclude maintenance contracts, for example, developed specifically to meet their individual requirements. New reman spare parts have also been added to our remanufacturing portfolio. This means that we are now in a position to offer cost-conscious customers a wide range of reconditioned spare parts – which represents a low-cost alternative to new parts or local repair that preserves resources and is available at short notice.

To be able to sell reman parts worldwide, we are continuing with our strategy of establishing a global reman network. The start was made in 2008 with the acquisition of SKL Motor GmbH (SKL) in Magde-burg. The successful creation of a source of expertise at SKL means that we now have a solid foundation for the global expansion of this business. In Asia, we have intensified our alliance with the remanufactur-ing specialists Motor Teknologi & Industri Sdn Bhd, Rawang/Malaysia, and extended the long-standing partnership with Detroit Diesel Remanufacturing LLC, Detroit/Michigan, in North America. We have thus made great strides in establishing remanufacturing as a key element of our after sales business.

In future, we will also generate growth with telemetry products and services. To this end, we launched our new »Remote Services« product onto the market in 2010. This enables our customers to transmit their engine or system data to their computers via remote data transfer in real time. It also offers new analysis and optimisation potential, in addition to other options for monitoring equipment. Owners of MTU engines and systems, for example, can now be automatically notified of problems via eCall/SMS messages. Remote Services also gives us the possibility of troubleshooting customer problems using remote diagnostics. We will be extending this service in the next few years with additional options and services.

In addition to extending our after sales product portfolio to achieve new growth potential, we will also concentrate on improving efficiency. This will enable us to achieve a further increase in the global availability of our spare parts and services. For this purpose, we are investing in standardised IT systems worldwide that will lead to the efficient and transparent use of resources around the globe. At the same time, we are making access to after sales products and services easier by continuously expanding our proven business portal and thus improving the interface to the customer. This will make it easier for customers who operate on a global scale to contact us and for us to provide them with solutions for their increasingly challenging requirements.

P R O D U C T P O R T F O L I O . The fourth pillar of our growth strategy is the continuing development of our product portfolio. A key element of this is the new Series 1600 engine, which we have been supplying in 6-, 8-, 10- and 12-cylinder versions for emergency standby and peak load applications since 2010. Following the launch of these diesel engines for decentralised power generation, a second stage of extension of the Series 1600 is scheduled to be launched as from 2012 for construction and industrial equipment (C&I) and agricultural applications. At the same time, we are extending our strategic alliance with Daimler AG and will supplement our product portfolio in the power range below 560 kilowatts for C&I applications

Expansion of business activities

Generating growth with telemetry products and services

New engines comply with much tougher emission regulations

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as from 2014 with the addition of new 4- and 6-cylinder engines, which are designated Series 1000, 1100, 1300 and 1500 engines. Presented for the first time at this year’s BAUMA International Trade Fair for Construction Machinery in Munich, they are based on the new generation of engines for commercial vehicles manufactured by Mercedes-Benz and will be designed by Tognum specifically for the C&I re-quirement profile and marketed under the MTU brand.

The focus, however, is not only on improving Tognum’s market position in the lower power range, but also on the continuous development of the product portfolio for existing business areas. The new genera-tion of Series 4000 engines, for example, will incorporate a large number of new technologies to ensure that it continues to remain the benchmark in its power class with regard to exhaust emission levels, avail-ability and efficiency. Following the unveiling of the series last autumn at Innotrans, the international trade fair for transport technology in Berlin, series production will begin in 2011 for applications in the oil and gas industry. Engines designed for rail applications will then follow as from 2012, whereas the engine for mining applications will not become available until 2015. The new engines not only comply with the much tougher emission regulations in the USA and Europe, but are also more -efficient and produce less CO2. Another approach being implemented to expand and support existing business areas is the further development of the Series 1163 engine for marine applications, which has been extremely successful due to its unique product features. In addition to the further optimisation of diesel engine technology, a key focus of our development activities in future will be to improve our existing gas engines. In the year under review, we have managed to move into the megawatt class in biogas gensets. Based on a Series 4000 engine, more biogas gensets with a power output of up to 2 megawatts will be launched onto the market in stages in 2011.

P R O D U C T P O R T F O L I O S H O W I N G P O W E R R A N G E S

LM 2500/LM 6000

TF 40/50

8000

956/1163

4000

396

2000

1600

1800

S60

460/500/900

106/199/837/870/880/890

The goal of our product development is to satisfy our customers’ demands for cost effectiveness, low environmental impact, availability and performance, and to comply with the tougher laws on emissions. At the same time, the key focus is on reducing life-cycle costs for the customer and further optimising fuel consumption, maintenance intervals and performance. Our success is based on the key components we incorporate such as the turbocharger, the engine management system, fuel injection system and ex-haust aftertreatment, which, unlike most of our competitors, we largely develop and produce ourselves.

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M E N T S

S E R V I C E

R E G I O N A L E X P A N S I O N . In 2010, the key focus of the Tognum Group was once again on the expansion of its international business activities and as a result we implemented numerous initiatives worldwide.

To improve access to our customers, we have further expanded our global service and sales network. In India, for example, we have set up a branch which includes a customer support and training centre. This means that we are now in a position to provide our growing number of customers in this region with even better service. We have also strengthened our global network by concluding partnership agreements with successful and experienced distributors in Mongolia, Taiwan and Vietnam.

Besides expanding our service and sales network, we have also focused on increasing efficiency, and have made significant progress, primarily in Europe, Africa, the Near East and Latin America. As a result of setting up decentralised competence centres, we are now able to exploit the synergy potential within our network even more. And we also organise customer events, such as the »Onsite Energy Customer Events«, to further increase the awareness of the MTU Onsite Energy brand – an essential requirement, particularly for the expansion of our business in Africa and the Near East.

We have made a lot of progress in North America, moving ahead, for example, with the harmonisation of our distribution network. Operating under our own name, the new structure will provide better support to our sales and service activities, enabling us to optimise the service we provide for our regular custom-ers, making it easier for us to get new customers, and also helping us to develop more market potential.

In the current reporting year, we continuously pursued our strategy of further diversifying our global production footprint. In September 2010, for example, we celebrated the opening of an assembly plant for engines and emergency standby gensets with one of our joint venture partners in Datong, north of Peking. This new plant is taking us closer to achieving our goal of becoming a key player on the Chinese market.

The relocation of the US assembly lines for our Series 2000 and 4000 engines from Detroit/Michigan to Aiken/South Carolina will be of long-term importance. The plant in Aiken, which was officially opened on 1 December 2010, will in future manufacture components on recently purchased machine tools in addition to the final engine assembly. This means we will now be closer to our customers in the USA, will be able to increase flexibility and reduce delivery times, and it will also make us less vulnerable to currency fluctuations. The high level of local value added is also a key prerequisite for obtaining public contracts in the USA.

As part of the continuing progress in India, we opened a development centre in Pune in September 2010 – a vital step towards achieving our goal of establishing a key decentralised centre for applications engi-neering and product development. With numerous highly qualified university graduates, India is an ideal location for expanding our development network.

Strategic financing activities

For planned investments and for possible future acquisitions, the Tognum Group has sufficient liquid funds available from the expected positive cash flow of current business operations. If required, we also have guaranteed access to existing lines of credit. We intend to maintain our sound financing structure. The Tognum Group currently has no official external rating. As a result of the high equity ratio and the significant reduction in net financial debt, we have been given a credit rating of »investment grade« from the refinancing banks. We observe the market conditions at all times in order to optimise the existing financing structure or, if necessary, to be able to cover new financing needs. More detailed information is included in the notes to the consolidated financial statements beginning on page 171.

Increased efficiency

Relocation of US assembly lines

Significant reduction in net financial debt

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Business and General Background Conditions Despite the still fragile macroeconomic situation at the start of the year, 2010

was extremely positive. Although the first signs of recovery had already been

apparent at the end of 2009, it came as a surprise to even the most optimistic

economists that the economy would ultimately perform as dynamically as it

did in some areas.

Global Economic Trends The economic stimulus packages that had been introduced worldwide and the stocking cycle provided the initial impetus: during the financial crisis, companies had been buying less and had fallen back on existing stocks for their raw materials and primary products; the result was that stock levels had to be built up again in 2010. Stabilising measures took effect, the expansionist monetary policy of the major central banks and new financial market regulations, for example, helped to boost economic development. Following the gloomy start of 2009, the global economy subsequently experienced growth of 4% (previ-ous year: – 2.2%).

G R O W T H O F G L O B A L E C O N O M Y Source: Global Insight

2007 +3.9%

2008

2009

+1.4%

2010 + 4.0%-2.2%

2007 +3.9%

2008

2009

+1.4%

2010 + 4.0%-2.2%

The emerging countries were among the most important pillars supporting the global economic devel-opment. Strong domestic economies in these areas resulted in growth; countries exporting raw materials also benefited from the sharp rise in commodities prices again on the stock markets. The Chinese na-tional economy grew by 10.1% in the year just ended, closely followed by India with growth of 8.5%. On the South American continent, Brazil’s gross domestic product (GDP) was up 7.5%.

Economic performance in the industrialised countries, on the other hand, was much less uniform. While there had been great hopes at the start of the year on a rapid turnaround for the US economy, by the middle of the year, the world’s largest economy in the world was again a cause of renewed concern. Setbacks on the property market and the very sluggish employment situation held the US economy back. Net US GDP grew by 2.9%.

G R O W T H O F U S E C O N O M Y Source: Global Insight

2007

2008

2009

0.0%

2010 + 2.9%

+1.9%

–2.6%

2007

2008

2009

0.0%

2010 + 2.9%

+1.9%

–2.6%

In Japan the strong yen slowed down the export-driven industry. After a strong start, the Japanese economy lost a lot of its impetus in the second half of 2010. The Japanese GDP reported overall growth of 4.3%.

Emerging countries – vital pillars of global economic development

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In the eurozone, all eyes turned to the peripheral countries, where the debt crisis was moving into its second year. After Greece, Ireland also had to accept bailouts from the EU. By the end of 2010 the situa-tion had worsened, as even countries such as Italy and Spain were confronted with growing risk premi-ums when refinancing their national debts. Against the backdrop of recession in Greece, Spain and Ire-land, Eurozone GDP growth of 1.7% was relatively low by international standards. Bottom-line growth in the eurozone would have been much worse without the extremely dynamic growth of Germany. With its strong export industry, Germany benefited from the high demand from the emerging countries for capi-tal goods. Due to a remarkable increase in employment levels and the resulting increase in household purchasing power, even consumer spending was up at the end of the year. GDP in Germany rose by 3.6% in 2010 – a level of increase not seen in this country since the beginning of the 1990s.

G R O S S D O M E S T I C P R O D U C T I N G E R M A N Y Source: Global Insight

2008

2009

2010

+ 0.7%

– 4.7%

2007 + 2.8%

+ 3.6%

2008

2009

2010

+ 0.7%

– 4.7%

2007 + 2.8%

+ 3.6%

For Tognum AG, a company operating in the international arena, trends on the currency markets are also highly relevant. Concern for the peripheral countries became a serious burden for the European Community currency. Compared with the average values in 2009 of 1.39 US dollars/euro, and in 2010 of about 1.33 US dollars/euro, the dollar rose against the euro by almost 5%. The Japanese yen also showed its robust side, trading against the euro in 2010 at 11% higher than in the previous year (based in each case on average values). The Chinese renminbi also rose by an average of 6% against the euro in 2010. Turning to the South American continent, the Brazilian real rose in value by a remarkable 16%. For exporting companies like Tognum, this was a positive trend – German products became much more competitive in important sales markets.

Sector Performance The lively performance of the global economy is reflected in a marked recovery of the global mechanical engineering sector. Real revenue growth for this industry, according to the German Machinery and Plant Manufacturing Association (VDMA), was up worldwide in 2010 by 17%.

Despite this, the national debt crisis in the peripheral countries of the eurozone also left its mark on the machine engineering sectors of those countries. According to VDMA information, sales revenues for the industry in Spain, for example, were down 6% in the year under review.

The German mechanical engineering industry recovered noticeably in the course of 2010; this recovery was evident in almost all areas of the industry. Orders received rose in 2-digit figures compared with 2009. Especially strong new order growth rates were achieved by industry players in the first half-year, whereas the second half-year slackened to a marked degree. Both export and domestic demand were affected, according to VDMA figures. In June, orders received were up in real terms by 62% against the same month in the previous year, but in December, growth was up just 44%. VDMA figures show pro-duction in German machinery and plant manufacturing up by 8.8%. Pleasing, too, is that capacity utilisa-tion in German machine engineering was therefore only just below its long-term average of 86%.

German mechanical engineering industry recovered during the year

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O R D E R I N T A K E I N G E R M A N M A C H I N E R Y A N D P L A N T M A N U F A C T U R I N G Source: VDMA (in % compared with the previous year; real)

–80

–60

–40

–20

0

20

2007 2008

40

2009 2010

60

80

The recovery of the global economy was very marked in most of the segments of the off-highway market so important for Tognum. The consequences of the global economic crisis, however, were still evident in some segments.

Market Position The market of relevance to Tognum is that of high-speed diesel engines for off-highway applications in the 150 kilowatt to 10 megawatt power range. The main competitors of Tognum are Caterpillar, Cum-mins and MAN Diesel.

E N G I N E S . Of those areas particularly hard hit by the financial crisis in the marine applications subseg-ment, contrary to early positive indications in other off-highway market segments, demand only picked up in engines for small, series-produced yachts. Demand for larger yachts, on the other hand, continued weak, despite more orders and projects compared with the previous year.

The commercial shipping sector also continued to feel the effects of the global financial crisis, although the first positive signals can be seen here, as world trade gradually recovers. In addition, there was evi-dence of special economic trends in certain countries and markets that helped to boost construction of special-purpose ships such as for the oil and gas industries.

The market for military shipping also took a stable trend in the past year of 2010, despite the global economic situation and the resulting tight budget situation of many countries. This can be attributed to the long drawn-out project times and the increasing security requirements.

The Tognum Group is among the world’s leading providers of high-speed diesel engines for marine applications in the 260 to 9,100 kilowatt range. With market shares of more than 30% in some cases, we have a leading position in a number of market segments, including drive systems for custom-manufactured megayachts, high-speed ferries, frigates and patrol boats.

Significant growth rates were seen for almost all types of construction and industrial machinery in 2010. This surprisingly positive development coming in the wake of the severe collapses seen in 2009 was partly due to the economic rescue programmes introduced in the crisis, together with the strong growth in the BRIC countries and fleet renewal activities. Last year, many companies in the sector were produc-ing at close to maximum capacity. The order books of engine manufacturers showed clear signs of pre-purchase activities due to the imminent introduction of stricter rules on industrial emissions.

High-speed diesel engines from 150 kilowatts to 10 megawatts

Strong economic growth in BRIC countries

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European manufacturers of agricultural machinery saw a continued decline in production figures to begin with, largely due to the sharp fall in demand for tractors and combine harvesters. This was partly due to difficult weather conditions in Europe, such as the grassland fires in Russia, which greatly reduced harvests in certain areas. In the course of the year, however, there was increasing readiness to invest again partly thanks to rising prices for agricultural products. Demand for agricultural machinery was largely positive on the global scale due to the strong growth in the countries of South America and India. Engine sales were also boosted by pre-purchase effects due to the imminent introduction of stricter rules on industrial emissions.

Commodities markets saw a very sharp price hike for the reporting year of 2010. Prices of many metals almost reached the peak levels of 2008, and copper and zinc climbed even higher. Mining production went up accordingly in all regions, bringing in its wake the need for mining equipment.

The global oil and gas industry also benefited from the upward trend on the commodities markets. De-mand for oil and gas settled again at a high level (demand for oil in 2010: approx. 88 million barrels per day), bringing consumption and production into balance. As a general rule, an oil price above 65 US dollars has a positive effect on investment activity.

The heavily cyclical market for onshore equipment, which optimises the output of existing oil and gas resources and was hit very hard by the crisis, stabilised. Distinct growth was apparent in the market for equipment for exploiting gas deposits in shale, which has hitherto been concentrated largely in the USA. Improved methods allow economically viable exploitation of these natural gas deposits in regions outside the USA, with the result that exploration activities have increased considerably overall.

Demand for engine applications for offshore deep-sea drilling installations started off well, but suffered a setback in the spring of 2010 due to the oil disaster in the Gulf of Mexico. The moratorium on deep-sea drilling projects in the Gulf of Mexico led to a global review of safety standards. This meant investors postponed their purchasing decisions, waiting for the new rules promulgated by the licence-issuing governments.

With the global economy gathering steam, flows of goods and commodities deliveries picked up again. This helped to bring some stability to the procurement programmes in the rail engineering market, which is a long term business. Tognum was able to hold on to its exceptionally good market position in European heavy goods trains and drive systems for locomotives, and is well equipped with cutting edge technologies to meet future demands. More energy efficient drives and further reduction in emissions will determine developments in these engines in the coming years.

O N S I T E E N E R G Y & C O M P O N E N T S . The global market for engines and system products in the field of decentralised heat and power generation, which was hit by the financial and economic crisis in 2009, grew in the course of 2010 faster than had been expected at the start of the year. This performance is due primarily to the increasing demand from the emerging Asian markets, which had been less affected by the crisis and again grew faster in 2010 than the markets in Western Europe and the USA. Growth in the engine market was also due to the fact that industrial customers had begun to increase their stock levels again. This can be regarded as a one-time effect that was only felt in some of the end customer markets.

Sharp increase in prices on commodities markets

35

The market for gas-powered energy systems reported strong growth in 2010. The German Biogas Asso-ciation, for example, revised its forecast upwards significantly from 5,300 biogas plants in operation at the beginning of 2010 in Germany to 6,000 plants at the end of 2010.

Following the decline in business on the market for diesel-driven systems as a result of the crisis, the market also performed positively in 2010. This was due to the performance of the markets in South East Asia , which had already begun to stabilise even during the crisis, and the South American markets, which saw strong growth as well. The markets for diesel-driven plants in Russia also reported a very positive performance, following a significant decline that had been observed during the crisis.

The market for fuel injection systems, in which our subsidiary L’Orange GmbH, Stuttgart operates, bene-fited in the year just ended primarily from the increased demand for high-speed diesel engines.

E C O N O M I C A N D L E G A L F A C T O R S A F F E C T I N G B U S I N E S S . With its product portfolio, the Tognum Group covers numerous application areas and is represented in a large number of markets worldwide. For this reason, primarily in its key sales regions of Europe, America and Asia, it cannot be completely decoupled from economic developments on the individual markets. However, since we maintain a broadly diversi-fied product portfolio and our business is spread evenly worldwide, our group of companies is compara-tively less vulnerable to negative developments that only affect individual economic regions or applica-tion areas.

The market demands engines and onsite energy systems that are increasingly more efficient, generate more power, and at the same time have a lower environmental impact. This trend requires that all com-petitors continuously develop and technically optimise the products they offer. With the high level of technological expertise we possess, we are setting standards and driving innovations, primarily in the independent development and manufacture of key components used in the production of diesel engines (fuel injection, electronics, turbocharging and exhaust aftertreatment).

The prices for raw materials and other materials have an effect on our business performance. Our main primary materials are high-grade steel, cast products, semi-finished products, aluminium alloys in addi-tion to other metals and alloys. Mineral oil (diesel) and electricity are also important. Most of the pri-mary materials relevant for our costs increased in price compared with the previous year as a result of the general economic recovery and the increased demand that followed. On average for the year, the prices for crude oil in 2010 were higher than the previous year’s level, while electricity prices in contrast dropped slightly. We counter risks associated with price increases by means of long-term supply con-tracts and raw material hedges.

The business situation had already been affected by the bankruptcy and liquidity risk associated with suppliers in 2009 as a result of the global financial and economic crisis. By implementing a fully inte-grated supplier risk management system to continually track the financial situation of our main suppliers, we could respond to changes in good time.

The changes in labour costs also had an impact on the financial situation of the Tognum Group. Whereas basic wages and salaries remained stable or rose only marginally, variable remuneration components and costs for health insurance and retirement, in addition to structural effects, were the prime cost drivers.

Tognum is less vulnerable to negative trends on the individual markets due to its application and regional diversification

Supplier risk management enables responses to change to be made in good time

36 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T B u s i n e s s a n d G e n e r a l B a c k g r o u n d

C o n d i t i o n s | I n c o m e , A s s e t s a n d

F i n a n c i a l P o s i t i o n o f t h e T o g n u m G r o u p


M E N T S

S E R V I C E

Currency exchange rates, in particular the US dollar to the euro, also have an influence on the financial situation of the Tognum Group. The average annual exchange rate of the euro with respect to the US dollar performed favourably for the German export industry compared with the previous year, even though the exchange rate was very volatile throughout the year, as it had been in 2009. As a hedge against exchange rate fluctuations we are involved in hedging transactions. The exchange rate of the US dollar with respect to the euro influences the valuation of our current US dollar loans.

P E R F O R M A N C E O F T H E U S D O L L A R I N R E L A T I O N T O T H E E U R O

1.10

1.20

1.30

1.40

1.50

1.60

1/07 4/07

1.70

7/07 10/07 1/08 4/08 7/08 10/08 1/09 4/09 7/09 10/09 1/10 4/10 10/107/10

In the countries in which we do business, we are required to observe a wide variety of laws and regula-tions. Export control regimes, legal environmental provisions (relating to production methods, locations and products) and regulations covering military procurement procedures, for example, are of special importance for Tognum’s business activities.

Business Performance For Tognum, the year 2010 was a year of transition in which a number of our application areas were still noticing the effects of the financial and economic crisis, whereas many other application areas were already seeing the benefits of the upswing. In this situation, we successfully defended and ultimately consolidated our market position. By consistently implementing our strategy, we even exceeded our earnings target corridor of 7.5% to 9% with an adjusted EBIT Margin of 9.4%, despite higher selling, administration and development costs.

The key factor for Tognum’s continuous success has primarily been the high performance and technology standard of our products. We regard our strengths in our ability to design and offer customer-specific propulsion and energy systems, in our widely diversified product portfolio and in a professional sales organisation of high repute operating on an international scale. With this balanced business model, our vulnerability to the economic cycles of individual application areas and regions is limited. The focus of our regional sales effort in the reporting period was again on Europe, followed by North America and Asia. Group-wide revenues were up 1.4%. Not including the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 6.0%.

K E Y E V E N T S A F F E C T I N G O U R B U S I N E S S P E R F O R M A N C E . The economic turnaround resulted in stable sales revenues and a strong increase in new orders (additional information on the order intake is pro-vided in the section entitled »Segments« beginning on page 52). A key influence on our business per-formance, in addition to the overall economic environment on the market, was the performance of the US dollar. Apart from specific fluctuations, the US dollar became steadily stronger in the course of 2010. With an average exchange rate of the euro for the year of 1.33 US dollars compared with 1.39 US dollars in the previous year, our position showed a marginal upward trend.

C O M P A R I S O N O F A C T U A L A N D P R E D I C T E D B U S I N E S S P E R F O R M A N C E . In the 2010 financial year, we exceeded our projected profit goals. The key external factor was the improvement in the overall eco-nomic situation. The greatest increase in sales revenues at 12.4% was reported in the Asia/Pacific region.

Forecast met

Overall economic situation and exchange rate with respect to the US dollar have a positive impact

37

The following product and market-driven strategic objectives were successfully implemented in 2010:

- expansion of high-margin after sales business, in particular remanufacturing and improved spare parts logistics,

- acquisition of strategically important orders for emergency standby gensets for nuclear power plants, - strong growth in onsite energy business, - high revenues in propulsion systems for vessels operated by public authorities.

Overall, sales revenues were slightly above the previous year’s level at 2,563.6 million euros. Not includ-ing the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 6.0%. At the beginning of 2010, we had predicted a corridor of 2.3 to 2.5 billion euros; in the course of the year, as a result of the brightening outlook in the sector, we subsequently refined our forecast to about 2,550 million euros. Additional information is provided in the section entitled »Income, assets and financial position of the Tognum Group« beginning on page 37.

In the case of the adjusted EBIT at 242.1 million euros, which is equivalent to an EBIT Margin of 9.4%, we have exceeded the corridor of 6% to 9% that we had forecast initially. The strong fourth quarter in 2010 and continual increases in efficiency contributed to this excellent result.

Our intention was to increase expenditure for research and development, which we achieved with an increase in adjusted expenditure for research and development of 15.3% to 164.5 million euros (previous year: 142.7 million euros); we are also securing our future technology leadership by investing in future technologies.

Income, Assets and Financial Position of the Tognum Group The 2010 financial year was a transition year for Tognum. Order intake was up

21.5% to 2,830.5 million euros (previous year: 2,330.4 million euros). Group

revenues increased by 1.4% to 2,563.6 million euros (previous year:

2,529.4 million euros). The adjusted EBIT rose by 21.9% to 242.1 million euros

(previous year: 198.6 million euros).

Income T O G N U M G R O U P

IN EUR MILL ION 2009 2010 Change

Order intake 2,330.4 2,830.5 21.5%

Revenues 2,529.4 2,563.6 1.4%

EBIT 172.3 112.3 – 34.8%

Adjusted EBIT 198.6 242.1 21.9%

EBIT Margin (adjusted EBIT/revenues) 7.9% 9.4%

Product and market-driven goals met

Investments secure technology leadership

38 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T I n c o m e , A s s e t s a n d F i n a n c i a l P o s i t i o n

o f t h e T o g n u m G r o u p


M E N T S

S E R V I C E

O R D E R I N T A K E . The order intake of the Tognum Group was up 21.5% in 2010 to 2,830.5 million euros (previous year: 2,330.4 million euros). Not including the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 27.5%; at the same time, the Rotorion order intake in 2009 was offset against the services provided for the IFA Rotorion Group at the Friedrichshafen location in 2010. The cancellation of orders from earlier years amounting to 43.8 million euros (previous year: 141.0 million euros) declined significantly. Detailed information on the order intake of the segments is included in this report beginning on page 52.

O R D E R I N T A K E Iin EUR million

2,330.42,220.1

2010 2,830.5

2009

3,230.6

3,107

2008

2007

2,330.42,220.1

2010 2,830.5

2009

3,230.6

3,107

2008

2007

R E V E N U E S . Group revenues in the reporting period were up 1.4% to 2,563.6 million euros (previous year: 2,529.4 million euros). Not including the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 6.0%. Revenues in the Engines segment increased by 4.6% to 1,758.1 million euros (previous year: 1,680.5 million euros), in the Onsite Energy & Components (OE&C) segment by 3.3% to 742.6 million euros (previous year: 719.1 million euros). Adjusted for the Rotorion activities, revenues in the OE&C segment increased by 22.0%. In the Distribution segment, revenues were up 13.4% to 594.2 million euros (previous year: 524.1 million euros). The segment figures include intersegment revenues amounting to 531.3 million euros (previous year: 394.2 million euros). This rise resulted from the increased integration of services.

R E V E N U E S In EUR million

2,529.42,419.1

2010 2,563.6

2009

3,133.1

2,835

2008

2007

2,529.42,419.1

2010 2,563.6

2009

3,133.1

2,835

2008

2007

Due to our strong regional diversification, we generated 81.3% (previous year: 80.9%) of our revenues outside Germany in 2010; the Asia/Pacific region, as in the previous year, accounted for an increasingly larger share of our revenues. Information on the revenues of the segments is presented in detail in this report beginning on page 52.

R E V E N U E S B Y R E G I O N

29.5% Europe w/o Germany 27.6%

7.9% Other countries 8.6%

19.1% Germany 18.7%

23.5% North America (NAFTA) 22.9%

19.9% Asia/Pacific 22.1%

2009 2010

Increase in order intake

2007-2009 including Rotorion Group 2009 without Rotorion Group2007-2009 including Rotorion Group 2009 without Rotorion Group


39

E A R N I N G S P E R F O R M A N C E . In the reporting period, EBIT was down 34.8% to 112.3 million euros (pre-vious year: 172.3 million euros). Direct comparison of this figure with that of the previous year is of limited benefit only, however, since the data include a large number of one-time effects and non-operating issues. The charges related to our exit from business activities (with maintenance of support) in Onsite Energy Fuel Cell Systems in particular led to a high one-time effect on EBIT amounting 63.8 million euros. After taking these effects into account, the result is an adjusted EBIT of 242.1 million euros (previous year: 198.6 million euros) for the reporting period. This is equivalent to an increase of 21.9%. In the reporting period, we achieved an adjusted EBIT Margin of 9.4% (previous year: 7.9%).

A D J U S T E D E B I T In EUR million

198.6197.5

2010 242.1

2009

406.9

390

2008

2007

198.6197.5

2010 242.1

2009

406.9

390

2008

2007

The following one-time effects and non-operating issues were included in the calculation of the adjusted EBIT:

T O G N U M G R O U P : E B I T A D J U S T M E N T

IN EUR MILL ION 2009 2010

EBIT 172.3 112.3

Increased depreciation in connection with acquisitions (PPA) 47.4 44.0

Exchange rate factors resulting from valuation of loans/currencies at the reporting

date and hedging activities – 17.6 17.0

Adjustment of the acquired net assets – MTU Ibérica Propulsión y Energía S.L. – 3.5 0.0

Effects from exit from business activities in Onsite Energy Fuel Cell Systems 0.0 63.8

Impairment of Fuel Cell Energy Inc. 0.0 5.0

Adjusted EBIT 198.6 242.1

The increase in the adjusted EBIT compared with the same period in the previous year results primarily from the improved capacity utilisation, the increased efficiency driven by Tognum’s TOP (Total Opera-tional Performance) and a positive margin squeeze. Not including the Rotorion activities, which were sold as at 31 October 2009, there would have been no significant change in the increase in the adjusted EBIT. Selling costs increased compared with the previous year by 3.5% to 210.2 million euros (previous year: 203.0 million euros). This increase is largely due to increased sales activities and the first-time consolidation of the MTU Turkey Group. The rise in general administration costs of 21.3% to 97.8 million euros (previous year: 80.6 million euros) was partly project-related. Our expenditure for research and development increased to 186.9 million euros (previous year: 142.7 million euros). Adjusted for effects resulting from our exit from business activities in Onsite Energy Fuel Cell Systems, expendi-ture for research and development amounted to 164.5 million euros, which results in a scheduled in-crease compared with the previous year of 15.3%. As in previous years, we strategically invest in the future to increase our technological edge with new engines and systems.

Our other key earnings figures, which are included in the tables at the end of the annual report, are as follows:


40 O V E R V I E W




M E N T S

S E R V I C E

G R O S S P R O F I T. The cost of sales in the reporting period amounted to 1,941.4 million euros, resulting in a gross profit of 622.1 million euros (previous year: 1,943.6 million euros and 585.8 million euros respec-tively). Deducting the relevant one-time and non-operating effects for gross profit in the reporting period resulted in an adjusted gross profit of 704.2 million euros (previous year: 624.3 million euros) and thus an improved adjusted gross profit margin of 27.5% (previous year: 24.7%). There was a positive impact on gross profit as a result of the elimination of the Rotorion share in the revenue mix, a positive margin squeeze in conjunction with the Tognum TOP measures, as well as the higher capacity utilisation and productivity.

A D J U S T E D G R O S S P R O F I T In EUR million

2008

2009

2010

787.8 (25.2%)

624.3 (24.7%)

704.2 (27.5%)

2,529.4

2007703 (24.8%)

2,835

3,133.1

2,563.5

2,345.3

1,905.1

1,859.3

2,132

I N T E R E S T R E S U LT. The interest result in the reporting year amounting to – 26.8 million euros (previous year: – 25.3 million euros) was at the level of the previous year.

A D J U S T E D E A R N I N G S P E R S H A R E . Consolidated net income after taxes in the reporting period amounted to 63.2 million euros (previous year: 102.9 million euros). Taking into account the above-mentioned one-time and non-operating effects, and applying a group tax rate of 26.1% (previous year: 30.0%), this resulted in an adjusted consolidated net income of 159.2 million euros (previous year: 121.3 million euros). The reduction in the group tax rate is due primarily to aperiodic tax effects and a structural shift of tax expenditure in countries with tax rates below the group tax rate. Adjusted earnings per share1 for the reporting period thus improved by 31.5% to 1.21 euros (previous year: 0.92 euros).

R E T U R N O N C A P I T A L . To present the total return on capital, we use the key performance indicator »RONA« (return on net assets). Net assets include the bound and interest-bearing capital in the Tognum Group. At group level, net assets are calculated on the liabilities side and include equity, provisions for pensions and interest-bearing debt capital, less cash and cash equivalents. We use the capital employed calculated in this way as the average value2 in relation to our operating earnings indicator – the adjusted EBIT. The resulting RONA is subsequently set against the Group’s cost of capital rate.

In the year under review, for the internal management of the Tognum Group, a standard internal rate of return before taxes of around 12% was used. This value has been fixed as the long-term average and thus ensures that brief fluctuations of the determinants of the internal rate of return do not on their own influence long-term investment decisions. The internal rate of return is fixed independently of the WACC (weighted average cost of capital), which is calculated on the basis of IAS 36.

Applying the average net assets amounting to 1,236.2 million euros and the adjusted EBIT of 242.1 million euros for the 2010 financial year, resulted in an adjusted RONA of 19.6% (previous year: 14.8%). This means that our return on capital was significantly above our cost of capital rate.

1 The earnings per share are determined by dividing the group earnings which the shareholders of Tognum AG are entitled to

by the number of shares of 131,375,000. 2 (Level at the beginning of the year + level at the end of the year)/2

Improved adjusted gross profit margin

At 19.6%, clearly above the cost of capital rate

Adjusted gross profit (margin)Adjusted cost of sales

41

C H A N G E S I N C O S T S A N D P R I C E S . The changes in our costs, particularly for sales, administration and research and development, are described above in this section under »Earnings performance«. We in-creased our list prices from the beginning of 2010 by an average of 2%. Compared with the previous year, most of the cost-relevant primary materials have risen in price due to the general economic recovery and the subsequent increase in demand. The average price levels for crude oil in 2010 were above those of the previous year, whereas the price levels for electricity have dropped slightly. Personnel costs also have an influence on the financial situation of the Group. While basic wages and salaries remained stable or rose only marginally, variable remuneration components and costs for health insurance and retirement, in addition to structural effects, were the prime cost drivers.

Assets Deviating from the balance sheet structure in accordance with IFRS, a consolidated statement of finan-cial position is presented here that has been reduced for reasons of comprehensibility to the key items. This also forms the basis for further commentary.

T O G N U M G R O U P : C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N A S S E T S

IN EUR MILL ION 31 Dec. 2009 31 Dec. 2010

Non-current assets 1,133.9 1,165.8

Inventories 635.9 751.1

Trade receivables 493.6 495.7

Cash and cash equivalents 118.4 240.5

Other assets 87.5 92.7

Total assets 2,469.3 2,745.7

L I A B I L I T I E S


Equity 680.5 735.8

Provisions 845.3 922.0

Financial liabilities 378.6 374.0

Trade payables 223.6 316.6

Advance payments received 195.2 257.7

Other types of liabilities 146.0 139.6

Total equity and liabilities 2,469.3 2,745.7

Total assets were up 11.2% on the balance sheet date compared with the previous year. The most signifi-cant changes are presented below.

As a result of the first-time consolidation of the MTU Turkey Group as at 1 January 2010, the consoli-dated statement of financial position as at 31 December 2010 includes additional assets amounting to 47.7 million euros and liabilities amounting to 21.1 million euros.

A S S E T S . There was only a marginal change in non-current assets. Due to the higher production volume, inventories increased by 18.1% to 751.1 million euros (previous year: 635.9 million euros). There was a slight change only in trade receivables. Liquid funds increased by 103.1% due to the high free cash flow to 240.5 million euros (previous year: 118.4 million euros).

First-time consolidation of Turkish companies

42 O V E R V I E W




M E N T S

S E R V I C E

A S S E T S T R U C T U R E

2008

2009

2010

2.2%

4.7%

8.8%

56.4%

48.1%

48.7%

41.4%

47.2%

42.5%

20072.6% 56.1% 41.3%

2,554.2

2,745.7

2,469.3

2,361

Net working capital3 was down primarily as a result of the increase in trade payables and advance pay-ments received compared with the situation at the end of 2009 by 5.4% to 672.4 million euros (previous year: 710.7 million euros).

N E T W O R K I N G C A P I T A L In EUR million

2007 769

2008

2009

908.6

710.7

2010 672.4

2007 769

2008

2009

908.6

710.7

2010 672.4

L I A B I L I T I E S . The increase in equity compared with the previous year results primarily from the consoli-dated net income achieved, additions to retained profit as a result of the first-time consolidation of the two Turkish subsidiaries and the foreign currency translation of the financial statements of foreign sub-sidiaries that was recognised directly in equity. This was offset by the paid dividends amounting to 46.0 million euros that had been approved at the Annual General Meeting. Taking into account the issues presented above, equity increased overall by 55.3 million euros. The equity ratio amounted to 26.8% (previous year: 27.6%). More details on changes in equity are presented in the table under »Consolidated Statement of Changes in Equity« in the consolidated financial statements beginning on page 116. Provi-sions increased by 76.7 million euros to 922.0 million euros (previous year: 845.3 million euros). This increase came about primarily as a result of our exit from business activities in Onsite Energy Fuel Cell Systems and increased personnel and social commitments. To cover its financial requirements, the Tog-num Group has concluded long-term financing contracts with a bank consortium, in which flexible credit facilities are provided to cover fluctuating financial requirements. The decline in financial liabili-ties of 4.6 million euros to 374.0 million euros (previous year: 378.6 million euros) was caused by the repayment of long-term financing liabilities. Trade payables were up 41.6% to 316.6 million euros (previ-ous year: 223.6 million euros) due to business expansion. Advance payments received increased by 32.0% to 257.7 million euros (previous year: 195.2 million euros) due to a large number of ongoing projects.

More figures and multi-period overviews are included in our service section at the end of this annual report.

3 Net working capital = Inventories + Trade receivables ./. Trade payables ./. Advance payments received

Net working capital down

Non-current assetsCurrent assetsCash and cash equivalents

43

L I A B I L I T Y S T R U C T U R E

2008

2009

2010

26.3%

27.6%

26.8%

19.3%

15.3%

13.6%

54.4%

57.1%

59.6%

200722.7% 18.0% 59.3%

2,554.2

2,745.7

2,469.3

2,361

O T H E R I N T A N G I B L E A S S E T S . In addition to its book value, Tognum also has organisational and process-based advantages. We have a global organisational structure, customer contacts of many years standing and a high average long-term employment rate; 29.8% of the Tognum Group workforce have been with the company for more than 20 years. We have also accumulated over 100 years of experience and exper-tise, in addition to specific process and system competence in engine design and manufacture.

E F F E C T S O F A C C O U N T I N G D I S C L O S U R E S O N T H E F I N A N C I A L S I T U A T I O N . In accordance with IAS 19.92, Tognum AG uses the so-called corridor approach to calculate the actuarial gains/losses from outstanding pension obligations. The cumulative amount of actuarial gains not included in the annual statements amounted to 46.5 million euros as at the 2010 balance sheet date. If Tognum AG had applied the so-called SORIE approach (IAS 19.93A), a corresponding increase in equity, taking deferred taxes into account, would have been reported as at 31 December 2010. Further information is provided in the section entitled »Provisions for pensions« in the notes to the consolidated financial statements beginning on page 166.

N O N - D I S C L O S E D F I N A N C I A L I N S T R U M E N T S . We use leasing agreements for property, our vehicle fleet and IT systems to limit the investment of capital and investment risks. In the year under review, new leasing agreements were concluded, e.g. for the new Tognum administration building and for multi-level parking facilities with a third party at the Friedrichshafen location. Minimum leasing payments amount-ing to 38.2 million euros (previous year: 39.9million euros) relating to rental and leasing agreements in the 2010 financial year were recognised with effect on income. As a result of temporarily leasing buildings to third parties outside the Group, there was a positive impact on expenditure amounting to 5.9 million euros (previous year: 1.0 million euros). Further information on future obligations arising from rental and leasing agreements is provided in the section entitled »Leases« beginning on page 178 in the notes to the consolidated financial statements.

E X P L A N A T O R Y N O T E O N C O R P O R A T E A C Q U I S I T I O N S . Our M&A strategy is based on our five strategic growth initiatives. These include the expansion of our after sales activities. Our production capacity is also to be set up on a more distributed basis worldwide. In the 2010 financial year, Tognum completed no acquisition transactions. Further information on our corporate strategy is included in the section entitled »Corporate strategy« beginning on page 25.

P R E S E N T A T I O N O F T H E I N F L U E N C E O F T H E A C C O U N T I N G P O L I C Y O N T H E F I N A N C I A L S I T U A T I O N O F

T H E T O G N U M G R O U P. We pursue a permanent accounting policy. Compared with the previous year 2009, the exercise of voting rights remained unchanged.

Use of leasing agreements for property, the vehicle fleet and IT systems

Other debt capitalFinancial liabilitiesEquity

44 O V E R V I E W




M E N T S

S E R V I C E

Financial Management and Financial Position F I N A N C I A L M A N A G E M E N T. Our financial management system focuses on providing support for sustain-able growth of the Tognum Group by means of an adequate financing structure and guaranteeing our ability to pay at all times. To this end, we have sufficient funds available from the cash flow from operat-ing activities and from existing loan agreements. We have a syndicated loan of 450 million euros and 260 million US dollars with a term that runs until July 2013.

T O G N U M G R O U P : C A S H F L O W


Cash flow from operating activities 382.3 342.4 – 10.4%

Cash flow from investing activities – 158.7 – 143.0 9.9%

Cash flow from financing activities – 165.7 – 75.5 54.4%

Cash flow from operating activities amounting to 342.4 million euros was 10.4% below the level of the previous year (previous year: 382.3 million euros); however, it continues to remain on a high level. The main reason for this decline was the increase in inventories. In the current reporting period, cash flow from investing activities amounted to – 143.0 million euros (previous year: – 158.7 million euros). Cash flow from financing activities amounting to – 75.5 million euros (previous year: – 165.7 million euros) was down 54.4%, due to reduced repayments of financial liabilities and a lower dividend payment.

I N V E S T M E N T S 4. In the reporting period, we made investments totalling 152.8 million euros (previous year: 141.7 million euros), that included 113.7 million euros for investments in property, plant and equipment (previous year: 101.2 million euros).

In 2010, we mainly purchased production and production-related plant and equipment, in addition to special-purpose equipment for new products and engines. The regional focus was on North America, where we set up a new assembly and manufacturing plant in the US State of South Carolina. In the third quarter of 2010, the ground-breaking ceremony took place for the new materials management centre in Friedrichshafen – a key element in the optimisation of our production logistics system. Investments also included additions to intangible assets amounting to 39.1 million euros (previous year: 40.4 million euros), which primarily relate to the future Series 1000, 1100, 1300 and 1500 engines and also included capitalised development costs amounting to 9.6 million euros (previous year: 32.1 million euros). Further details are included in the section entitled »Research and Development« beginning on page 56.

4 Investments in intangible assets and in property, plant and equipment, excluding financial investments and

also excluding new additions to the group of consolidated companies

Cash flow from operating activities remains at a high level

Ground-breaking ceremony for materials management centre in Friedrichshafen

45

I N V E S T M E N T S in EUR million

2009

2010

127.0

101.2

113.7

71.4

40.5

39.1

2007101 39

2008

152.8

140

198.4

141.7

N E T F I N A N C I A L D E B T in EUR million

2008

2009

2010

335.8

192.2

57.2

319.9

331.5

353.2

78.3

72.5

46.5

2007294 319 71

2008

2009

2010

335.8

192.2

57.2

319.9

331.5

353.2

78.3

72.5

46.5

2007294 319 71

N E T F I N A N C I A L D E B T. We reduced net financial debt by 70.2% to 57.2 million euros (previous year: 192.2 million euros). One reason for this was the high level of cash flow from operating activities. In-vestments we made and the dividend payment for 2009 had an offsetting effect. The ratio of net financial debt to adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation of tangible and intangible assets) increased to 0.2.

C R E D I T F A C I L I T I E S . The term of our syndicated loan amounting to 450 million euros and 260 million US dollars runs until July 2013. The loan agreement contains certain framework conditions, such as the ratio of net financial debt to EBITDA, the sale of assets and M&A activities. Together with the cash flow from current operating activities, it provides the funds for day-to-day business operations and for financ-ing organic and external growth.

Syndicated loan runs until July 2013

Intangible assetsIntangible assets

Funded status pension commitmentsFunded status pension commitmentsUnrecognised actuarial gains/lossesUnrecognised actuarial gains/lossesUnrecognised actuarial gains/losses

Net financial debtNet financial debt

Tangible assetsTangible assets

46 O V E R V I E W




M E N T S

S E R V I C E

Overall Statement on the Business Situation by the Executive Board The 2010 financial year was a transition year, with our order intake increasing steadily throughout the period. Declines in revenues reported in individual application areas were project-related. In the fourth quarter of 2010, we reported the highest revenues in the company’s history. Overall capacity utilisation was improved considerably. We continue to invest heavily in research and development in order to fur-ther increase our competitive edge. Our product portfolio is now ideally set up for the tougher emission standards to come – and we have also further improved specific features of our products that are impor-tant to our customers, such as fuel consumption and life-cycle costs. Overall, at the end of the reporting period, the Tognum Group is in a sound financial position and is geared to achieving more profitable growth.

2010 – a transition year

47

Management Report on the Individual Financial Statements of Tognum AG prepared in accordance with the German Commercial Code (HGB) The management report of Tognum AG is presented below. The single entity

financial statement is included in a separate report.

Income of Tognum AG T O G N U M A G ( S I N G L E E N T I T Y ) : I N C O M E S T A T E M E N T A S A T 3 1 D E C E M B E R 2 0 1 0

IN EUR MILL ION Jan. 1 – Dec. 31, 2009 Jan. 1 – Dec. 31, 2010

Financial result 142.5 207.2

General administrative costs – 76.2 – 83.4

Other operating income 80.2 74.8

Other operating expenses – 23.1 – 30.2

Result from operating activities 123.4 168.4

Extraordinary result 0.0 3.4

Income taxes – 26.0 – 66.4

Net profit/loss 97.4 105.5

Profit carried forward from previous year 109.4 112.2

Allocations to profit reserves – 48.7 – 52.7

Accumulated profits 158.1 164.9

Tognum AG achieved a result from operating activities in the 2010 financial year amounting to 168.4 million euros (previous year: 123.4 million euros). Compared with the previous year, this repre-sents an increase of 36.5%. This result is due primarily to the income from its shareholding in MTU Friedrichshafen GmbH, Friedrichshafen, amounting to 219.1 million euros (previous year: 167.6 million euros). Another positive contribution to Tognum AG’s performance came from other operating income totalling 74.8 million euros (previous year: 80.2 million euros). This item primarily includes income from internal Group contributions amounting to 72.1 million euros (previous year: 69.3 million euros); in the previous year, this item had included the accounting profit arising from the sale of Rotorion GmbH, Friedrichshafen, amounting to 7.2 million euros.

48 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T M a n a g e m e n t R e p o r t o n t h e I n d i v i d u a l

F i n a n c i a l S t a t e m e n t s

o f T o g n u m A G p r e p a r e d i n a c c o r d a n c e

w i t h t h e G e r m a n C o m m e r c i a l C o d e

( H G B )


The result was negatively affected by general administration costs amounting to 83.4 million euros (pre-vious year: 76.2 million euros) and other operating expenses amounting to 30.2 million euros (previous year: 23.1 million euros). This resulted from the increase in personnel costs and the allocation to other provisions.

As a result of taking the German Accounting Law Modernisation Act (BilMoG) into account for the first time as at 1 January 2010, an extraordinary result amounting to 3.4 million euros was achieved. This was due on the one hand to valuation changes in the case of receivables, other assets and liabilities in foreign currencies, and on the other hand to adjustments to pension obligations and personnel provisions. An adjustment of the previous year’s figures, in accordance with the German Accounting Law Modernisa-tion Act transitional rules, is not necessary.

In 2010, tax expenditure was up 40.4 million euros to 66.4 million euros (previous year: 26.0 million euros). The deviation of the tax rate (38.61%) from the tax rate of 28.07% to be applied is due primarily to both extraordinary and tax effects from previous reporting periods.

Assets of Tognum AG T O G N U M A G ( S I N G L E E N T I T Y ) : S T A T E M E N T O F F I N A N C I A L P O S I T I O N A S A T 3 1 D E C E M B E R 2 0 1 0 A S S E T S


Non-current assets

Intangible assets 0.3 0.2

Property, plant and equipment 1.3 1.2

Financial investments 1,008.2 982.2

1,009.8 983.5

Current assets

Receivables and other current assets 192.6 172.2


287.1 368.7

Prepaid expenses 0.0 0.0

Deferred taxes 0.0 23.9

Total assets 1,296.9 1,376.2



Equity

Share capital 131.4 131.4

(Conditional capital for EUR 13 million)

Capital reserves 262.6 262.6

Profit reserves 162.6 242.1

Accumulated profits 158.1 164.9

714.8 801.0

Provisions 35.9 83.4

Liabilities 546.2 491.8


Increased personnel costs

49

A S S E T S . As at 31 December 2010, the total assets of Tognum AG amounted to 1,376.2 million euros (previous year: 1,296.9 million euros). This was attributable on the asset side in particular to the financial assets of Tognum AG, which basically consists of the shareholding in MTU Friedrichshafen GmbH, Friedrichshafen.

The majority of the current assets consists of receivables from associated undertakings resulting from financial transactions within the Tognum Group. Other assets primarily include sales tax refund claims arising from the taxable relationship that Tognum AG as the parent company has with various subsidiary companies.

As a result of taking the German Accounting Law Modernisation Act (BilMoG) into account for the first time as at 1 January 2010, deferred tax assets amounting to 23.9 million euros were disclosed.

L I A B I L I T I E S . The equity of Tognum AG increased by 86.2 million euros compared with the previous year to 801.0 million euros (previous year: 714.8 million euros). At the end of the period under review, the equity ratio had increased to 58.2% (previous year: 55.1%).

The provisions are mainly made up of provisions for pensions, taxes and other provisions. The increase in provisions for taxes compared with the previous year is primarily due to taxes that have not yet been finally assessed. Other provisions, as in the previous year, mainly relate to personnel provisions.

The liabilities of Tognum AG consist basically of two elements: firstly, amounts owed to banks amount-ing to 294.8 million euros (previous year: 322.8 million euros), which principally relate to the financing of the shareholding in MTU Friedrichshafen GmbH, Friedrichshafen and secondly, amounts owed to associated undertakings totalling 184.2 million euros (previous year: 210.7 million euros), which in turn result from financial transactions within the Tognum Group.

Financial Management and Financial Position of Tognum AG F I N A N C I A L M A N A G E M E N T. As the holding company of the Tognum Group, Tognum AG is responsible for its financial management. The goal of our financial management system, therefore, includes provid-ing support for the growth of the Tognum Group by means of an adequate financing structure and guar-anteeing its ability to pay at all times. To this end, we have sufficient funds available from the operating activities of the subsidiary companies and existing credit facilities.

C U R R E N T F I N A N C I N G . The term of our syndicated loan amounting to 450 million euros and 260 million US dollars runs until July 2013. The loan agreement contains certain framework conditions, such as the ratio of net financial debt to EBITDA (earnings before interest, taxes, depreciation and amortisation of tangible and intangible assets), the sale of assets and M&A activities. Together with the cash flow from current operating activities, it provides the funds for day-to-day business operations and for financing organic and external growth.

Equity ratio of 58.2%

» Tognum stands for bundled expertise and key technologies in the � eld of engine design, electronics, turbocharg-ing, fuel injection and propulsion.«

Cornelia Friedrich | Application Center Marine, MTU Friedrichshafen

propulsion systems

Tailor-madesystemsolutionsareasourceofgrowth.

We supply complete propulsion systems – based on low-emission and extremely fuel-e� cient diesel engines including transmission, propeller sha� s, propellers, complete electronic ship automation systems and exhaust gas a� ertreatment technology. Our attention is focused on both standard and project-based system business. Our customers receive everything from a single source – optimised to meet their speci� c needs. � is enables us to provide economical propulsion systems, such as those used in ferries and other commercial ships – but also in yachts and in naval and government vessels.

series 8000 MTU’s Series 8000 engines provide the power for many ferries worldwide.

» Tognum stands for bundled expertise and key technologies in the � eld of engine design, electronics, turbocharg-ing, fuel injection and propulsion.«

Cornelia Friedrich | Application Center Marine, MTU Friedrichshafen

propulsion systems

52 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T S e g m e n t s


M E N T S

S E R V I C E

Segments5 Our business activities include the following segments –

Engines, Onsite Energy & Components (OE&C) and Distribution.

Engines O V E R V I E W O F T H E E N G I N E S S E G M E N T


Order intake 1,507.7 1,860.7 23.4%

Revenues, thereof: 1,680.5 1,758.1 4.6%

Marine 564.6 509.0 – 9.8%

Industrial 248.4 395.0 59.0%

Oil & Gas 41.9 72.8 73.7%

Defense 180.4 92.4 – 48.8%

After Sales/Other (Engines) 645.2 688.8 6.8%

Adjusted EBIT 136.2 187.1 37.4%


O R D E R I N T A K E . At 1,860.7 million euros (previous year: 1,507.7 million euros), the order intake in 2010 was 23.4% above that of the previous year. In the Marine application area, we received follow-up orders in the reporting period from the US Department of Defense to supply the main propulsion system for high speed catamarans (Joint High Speed Vessel). We were also awarded the contract to supply the pro-pulsion system for four additional ships in the US Coast Guard’s Sentinel Class Cutter programme. In the Industrial application area, we reported significant increases in order intake in the lower power segment. In the Oil & Gas sector, the demand for our products was very high, particularly in North America. From an expected total order volume of over 300 million euros for a total of 405 PowerPacks for the Puma armoured personnel carrier, we entered the first tranche amounting to around 8 million euros into the order intake for the Defense application area in the second quarter of 2010. After Sales continued to perform positively.

O R D E R I N T A K E E N G I N E S In EUR million

2007 2,081

2008

2009

2,095.6

1,507.7

2010 1,860.7

2007 2,081

2008

2009

2,095.6

1,507.7

2010 1,860.7

R E V E N U E S E N G I N E S In EUR million

2007 1,915

2008

2009

2,052.5

1,680.5

2010 1,758.1

2007 1,915

2008

2009

2,052.5

1,680.5

2010 1,758.1

5 All data include intersegment relations, i.e. transactions between the segments

High growth in Oil & Gas

53

R E V E N U E S . Segment revenues amounted to 1,758.1 million euros in the reporting period and were thus 4.6% above the level of the previous year (1,680.5 million euros). A decline in revenues in the Marine application area was reported for both the yacht and the commercial sector; government business in contrast remained stable. In the Industrial application are, all subsectors performed positively, with agri-cultural, construction and industrial equipment applications benefiting from orders placed in anticipa-tion of new emission regulations that will apply as of 2011. In the Oil & Gas application area, there was a disproportionate increase in revenues due to higher investing activities that resulted from the increase in raw material price levels. Revenues were down in the Defense sector, as several major projects had been completed on schedule and there were no new projects of any significance ready for completion in 2010. The After Sales/Other application area continued to make a major contribution to growth.

R E V E N U E D I S T R I B U T I O N E N G I N E S

33.6% Marine 29.0%

38.4% After Sales/Other 39.2%

10.7% Defense 5.3%

14.8% Industrial 22.5%

2.5% Oil & Gas 4.1%

2009 2010

E A R N I N G S P E R F O R M A N C E . In the reporting period, the adjusted segment EBIT was up 37.4% to 187.1 million euros (previous year: 136.2 million euros). As at Group level, there was a positive impact due to the improved capacity utilisation, improvements in efficiency and a positive margin squeeze. This was offset by the increased research and development expenditure. The EBIT Margin was 10.6% (previ-ous year: 8.1%).

Onsite Energy & Components O V E R V I E W O F T H E O N S I T E E N E R G Y & C O M P O N E N T S S E G M E N T


Order intake 704.1 903.8 28.4%

Revenues, thereof: 719.1 742.6 3.3%

OE Diesel Systems & Engines 365.4 448.3 22.7%

OE Gas & Fuel Cell Systems 37.8 49.4 30.7%

After Sales/Other (Onsite Energy) 55.9 92.0 64.6%

Injection Systems 120.4 152.9 27.0%

Propeller Shafts 139.5 0.0 -

Adjusted EBIT 27.1 32.8 21.0%


O R D E R I N T A K E . The order intake increased in 2010 by 28.4% to 903.8 million euros (previous year: 704.1 million euros). Not including the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 52.2%. In the OE Diesel systems & Engines application area, the supply busi-ness with our OEM customers was positive throughout the year. From the third quarter of 2010 onwards, there was increased demand for diesel systems. At the end of 2010, major orders for the delivery of emer-gency standby gensets for nuclear power plants to China and Switzerland were reported.

4.6% growth in revenues

Order intake up 28.4%

54 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T S e g m e n t s


M E N T S

S E R V I C E

O R D E R I N T A K E O N S I T E E N E R G Y & C O M P O N E N T S In EUR million

704.1593.8

2010 903.8

2009

1,036.6

960

2008

2007

704.1593.8

2010 903.8

2009

1,036.6

960

2008

2007

We also received orders for gas turbine plants in Germany amounting to over 50 million euros. With several major orders for the delivery of systems based on gas engines to industrial customers in different countries, we also managed to enter the market in France. These orders show the attractiveness of our business with CHP plants. In the case of injection systems, we reported high growth rates in both our third-party customer business and our own.

R E V E N U E S O N S I T E E N E R G Y & C O M P O N E N T S In EUR million

719.1608.8

2010 742.6

2009

1,014.6

878

2008

2007

719.1608.8

2010 742.6

2009

1,014.6

878

2008

2007

R E V E N U E S . The segment’s revenues were up 3.3% in the reporting period to 742.6 million euros (previ-ous year: 719.1 million euros). Not including the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 22.0%. In the OE Diesel Systems & Engines application area, the supply business with our OEM customers in all regions performed extremely well; our business in diesel systems was stable. In the third quarter of 2010, we supplied MTU Onsite Energy brand gensets with an order volume totalling 12 million US dollars to Brazil. Revenues of OE Gas & Fuel Cell systems were up 30.7% due to the strong gas engine business. Higher revenues in the After Sales/Other application area compared with the previous year were based primarily on services provided for the IFA Rotorion Group at the Friedrichshafen location amounting to 29.2 million euros.

R E V E N U E D I S T R I B U T I O N O N S I T E E N E R G Y & C O M P O N E N T S

5.3% OE Gas & Fuel Cell Systems 6.6%

50.8% OE Diesel Systems & Engines 60.3%

7.8% After Sales 12.4%

19.4% Propeller Shafts

16.7% Injection Systems 20.6%

2009 2010



55

E A R N I N G S P E R F O R M A N C E . The adjusted segment EBIT in the reporting period was up 21.0% to 32.8 million euros (previous year: 27.1 million euros). Not including the Rotorion activities, which were sold as at 31 October 2009, there would have been no change in the increase of the adjusted EBIT. As at Group level, there was a positive impact due to the improved capacity utilisation, improvements in effi-ciency, a positive development of prices and costs and an improved revenue mix. This was offset by the expansion of product development and the start of series production of the Series 1600 engine. As a result, the EBIT Margin was at 4.4% (previous year: 3.8%).

Distribution O V E R V I E W O F T H E D I S T R I B U T I O N S E G M E N T


Order intake 501.0 653.0 30.3%

Revenues, thereof: 524.1 594.2 13.4%

Products 339.7 386.7 13.8%

After Sales (Distribution) 184.4 207.4 12.5%

Adjusted EBIT 49.6 56.3 13.5%


O R D E R I N T A K E . Compared with the same period in the previous year, the order volume increased sig-nificantly by 30.3% to 653.0 million euros (previous year: 501.0 million euros). The Asia/Pacific region in particular contributed to this growth.

O R D E R I N T A K E D I S T R I B U T I O N In EUR million

2007 674

2008

2009

561.3

501.0

2010 653.0

2007 674

2008

2009

561.3

501.0

2010 653.0

R E V E N U E S . The segment’s revenue volume was up 13.4% in the reporting period to 594.2 million euros (previous year: 524.1 million euros).

R E V E N U E S D I S T R I B U T I O N In EUR million

2007 523

2008

2009

601.5

524.1

2010 594.2

2007 523

2008

2009

601.5

524.1

2010 594.2

E A R N I N G S P E R F O R M A N C E . The adjusted EBIT increased to 56.3 million euros (previous year: 49.6 million euros), the EBIT Margin was at 9.5% (previous year: 9.5%). This was due primarily to the excellent profit situation in Asia.

56 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T R e s e a r c h a n d D e v e l o p m e n t


M E N T S

S E R V I C E

Research and Development In our corporate vision, we clearly stated our claim to be the technology leader.

»We at Tognum set the standard as the preferred partner for the best solutions

in power and propulsion.« This claim also defines our development work. For

decades, we have been creating and implementing innovative solutions of high

technical quality for our customers. They are based on products that have mul-

tiple uses and which today meet the environmental standards of tomorrow. And

why are we doing all this? We are doing it to give our customers a competitive

edge in the global marketplace.

Development Activities At the end of 2010, almost 10% of the entire Tognum Group workforce (867 employees) was dedicated to research and development. They not only perform basic research in the field of internal combustion and the control of engine and propulsion systems, but also design, calculate and test them. A key focus is on the development of sustainable, future-proof solutions that take the increasingly tougher emission regu-lations into account. To this end, we not only test low-emission combustion processes, but also compo-nents and systems for exhaust aftertreatment.

Innovative solutions based on advanced technologies are the main focus of the research and development activities within the Tognum Group. To achieve our objectives, we completed adjusted R&D activities in the reporting period amounting to 192.6 million euros (previous year: 202.7 million euros). Adjusted development expenditure was up 15.3% to 164.5 million euros (previous year: 142.7 million euros). For adjustment details, please consult the overview on page 39. Development expenditures were adjusted for one-time effects related to our exit from business activities in Onsite Energy Fuel Cell Systems were adjusted.

We also intend to invest more in order to maintain our technology leadership in development for the successors to the Series 2000 and 4000 engines. For this reason, we consider the more stringent emission regulations to be a great opportunity for us. In Marine, for example, we will continue with the develop-ment of a new generation of the Series 1163 engine to comply with the new emission regulations. Capi-talised development costs decreased by 70.1% to 9.6 million euros (previous year: 32.1 million euros), due to the largely completed development of the Series 1600 engine. Paid development activities fell by 33.7% to 18.5 million euros (previous year: 27.9 million euros) as a result of a number of major defence projects coming to an end.

A D J U S T E D R& D A C T I V I T I E S In EUR million

2008

2009

2010

110.4

142.7

164.5

33.6

32.1

9.6

39.1

27.9

18.5

200792 25 51

202.7

168

183.1

192.6

Innovative solutions

Adjusted development expenditures Capitalised development costs Paid development activities

57

The adjusted R&D ratio (ratio of the adjusted R&D activities to revenues) was down in the reporting period to 7.5% (previous year: 8.0%).

In 2010, we applied for 87 patents (previous year: 89); 29 of them (previous year: 54) originated from Germany and 58 (previous year: 35) abroad. At the reporting date, Tognum had 1,040 industrial property rights (previous year: 953), consisting of patent applications, patents and industrial designs. These, in turn, are broken down into 387 domestic (previous year: 370) and 653 foreign property rights (previous year: 583). The number of first-time applications amounted to 27 (previous year: 56).

Key Technologies and Innovations They go by the name of soot particles or nitrogen oxides, particulate filters, SCR catalytic converters or exhaust gas recirculation systems – buzz words that keep engine specialists occupied. While the power output and the efficiency of an engine was the main interest a few years ago, a third component has now been added: exhaust emissions. Maximum emission levels are different depending on the region, but they all have one thing in common: they specify the emission levels of nitrogen oxides (NOx) and soot particles (PM). By the year 2014, these limits will in many countries go down to a fraction of what they were at the beginning of the new millennium.

Diesel engines are thermal engines with the highest efficiency level. However, pollutants are produced during the combustion process. For this reason, back in the 1980s, MTU began to reduce engine emissions. With the perfect combination of key technologies that had been developed and produced in-house, such as turbocharging, fuel injection and engine electronics, in addition to advanced combustion technology, our development engineers optimised the in-engine technologies to the point where no additional external exhaust aftertreatment was necessary to comply with the emission standards.

If in-engine optimisation is no longer sufficient to meet the more stringent emission requirements, then exhaust aftertreatment is added. In this case, a diesel particulate filter reduces the soot particle emissions to a minimum and, in a chemical reaction, the nitrogen oxide is converted in a process of selective catalytic reduction (SCR) in a catalytic converter to produce non-polluting water and nitrogen. Exhaust aftertreat-ment is a key technology, the importance of which is growing strongly.

Exhaust aftertreatment systems based on power plant technology were so far used for large engines in order to comply with local emission regulations, for example. They were manufactured in small numbers and at high cost – when compared with on-highway systems and based on the installed capacity. By adapt-ing components from high-output series-manufactured engines designed for commercial vehicles, we have been able to develop function and cost-optimised systems for large engines. Tognum has the necessary resources and the expertise to successfully complete the system integration of such systems in-house.

Lean Production Inherent in our corporate vision is our commitment to examine all processes in order to give our cus-tomers a competitive edge in the global marketplace. To enable us to improve in the production areas, we launched the lean@mtu project. This is a project designed to rigorously implement lean production principles in production. For us it means going through a cultural change in which the production sys-tem takes on the role of a frame of reference. The core idea is to continuously reduce the time between receiving the order and final delivery.

87 patent applications

Internal engine optimisation to comply with emission limits

58 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T R e s e a r c h a n d D e v e l o p m e n t


M E N T S

S E R V I C E

Products S E R I E S 1 6 0 0 . Over 6,000 hours of continuous duty testing, which is equivalent to 250 days: this is the length of time a genset equipped with a Series 1600 engine ran non-stop in Friedrichshafen on an out-door test facility. In March 2010, the next stage began; this time with a pre-series engine, the last of the Series 1600 engines destined to complete the 6,000 hours »endurance test«. New, improved components such as the fuel filter are qualified with this engine, and so are alternative fuels for the engine that have features unlike those of the conventional diesel fuel. In both cases, the objective is to ensure that our customers’ specific requirements can be met.

The results so far are extremely positive: the core components currently being tested in continuous op-eration, including the engine itself with its fuel injection system and MTU’s proprietary electronics, have shown that they are ready for series production; the peripheral systems, such as the fans, front-mounted/ fuel coolers, preheaters and heavy-duty air filters also stood the test. All versions of the Series 1600 engine for gensets demonstrate excellent load switching capabilities and equally good frequency settling charac-teristics during load acceptance.

These outstanding features of Tognum’s MTU Onsite Energy brand diesel genset, which is based on the brand new MTU Series 1600 engine, were additionally recognised when it was nominated »Product of the Year«. The award, which is sponsored by the trade journal »Consulting Specifying Engineer«, recog-nises the best engineering products to enter the market in 2009, and is made on the basis of evaluations by engineering experts in ten categories.

Something quite new at Tognum is the maintenance concept for Series 1600 engines that are used in gensets. This eliminates the preventive replacement of components such as turbochargers, injectors and water pumps. The design of all components is based on the TBO (time between overhauls), which means that components are replaced only when they actually fail.

Engines currently being developed include those for C&I and agricultural applications (10- and 12-cylinder engine versions), in addition to 12-cylinder versions for rail applications, such as underfloor units for railcars and drive systems for locomotives.

S E R I E S 2 0 0 0 . The key focus in the development of the new Series 2000 is on the future 12- and 16-cylinder engines for the C&I and Oil & Gas application areas; these engines will comply with the future US EPA Tier 4i emission regulations. To achieve the low emission levels, an exhaust gas recirculation system, two-stage controlled turbocharging and a new common rail injection system with injection pressures of up to 2,100 bar are used. A completely newly developed engine management system handles the complex open and closed-loop control functions of the technologies used. Three 12-cylinder test engines and a 16-cylinder test engine have already completed exhaustive bench tests. These include continuous duty tests, which the engines completed successfully.

Meeting customers’ specific requirements

Newly developed engine management -system

59

The complex fine-tuning of the test engines was performed on the 12-cylinder version using the »design of experiment« method in a largely automated bench test. This method of statistical design and optimisa-tion of tests makes it possible to achieve a specific information level with an optimised number of meas-urements. Assembly of the first 12V OEM engines began at the end of October 2010. The engines have already been presented to the regional sales organisations in product launch events in Detroit/USA and Shanghai/China.

S E R I E S 4 0 0 0 . With the release of the new 8V Series 4000 (M03) workboat engine on 1 July 2010, Tognum customers now have an 8V, 12V and 16V workboat engine with low fuel consumption and very long service life available that complies with EPA Tier 2 and also with the IMO Tier 2 emission standard for marine engines, the International Maritime Organisation’s standard, which is valid until 2016.

At the Innotrans trade fair for transport technology in Berlin in September 2010, Tognum presented forward-looking drive solutions that already meet the EU Stage III B emission standards that will come into force as from 2012. The new Series 4000 engines feature exhaust gas recirculation and diesel particulate filters, and cover a power range from 1,000 to 2,700 kilowatts. They will be launched on the market in stages as 8-, 12-, 16- and 20–cylinder versions as from 2012. Siemens also presented its new Vectron diesel locomotive, which incorporates a 16-cylinder new generation Series 4000 engine, for the first time at Innotrans. The EU Clean European Rail Diesel project goes a stage further. In this project, Tognum, in collaboration with Deutsche Bahn and other development partners, will be testing more advanced tech-nologies for future emission levels based on the EU Stage III B engine. The engine will be installed in a diesel freight locomotive in spring 2011.

S E R I E S 8 0 0 0 . Series 8000 engines are designed specifically for fast commercial ships with a high payload and for defence vessels. They are available with outputs of up to 9,100 kilowatts and are certified for either the EPA Tier 2 emission standards or the tough standards of the International Maritime Organisa-tion IMO. They also comply with the tightened IMO Tier II emission limits valid as of 1 January 2011.

The »NORDIC«, the new emergency towing vessel and most powerful vessel of its type in the world, has a propulsion system that has been designed to meet particularly challenging requirements. The engines, the development of which we have now successfully completed, are certified by German Lloyd and have now completed sea trials, with the result that the vessel was able to enter service in the North Sea on 1 January 2011. The challenge was that the engine is also required to operate in an environment contami-nated by explosive gases. The Tognum subsidiary MTU Friedrichshafen GmbH, Friedrichshafen is the only engine manufacturer in the world with the many years of experience required for this specific tech-nology; this was one of the reasons why the German Ministry for Transport, Construction and Urban Planning awarded the contract for the concept submitted by the »Arbeitsgemeinschaft Küstenschutz« consortium in 2008, following a Europe-wide competitive tender.

Reduced fuel consumption

Engine continues to operate in an environment contaminated with explosive gases

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S E R I E S 1 1 6 3 . Series 1163 engines with a power output of 4,440 to 7,400 kilowatts are incorporated in the propulsion systems of both civil and government vessels, such as catamaran ferries and coast guard ships. Tognum also continues to develop these new generations of engines to meet future emission standards. All the key engine features that are of importance to the customer, such as the best power to weight ratio and acceleration capabilities in its class and the compact installation dimensions, have remained unchanged, and so have the engine interfaces to the vessel. New features include a common rail injection system, the ADEC electronic engine management system, the combustion process and optimised turbocharger. The IMO Tier II emission standard is complied with solely with the use of in-engine technology. The require-ments of IMO Tier III are met by means of an SCR catalytic converter to reduce NOx emissions. This means that the engines can in future be used in so-called emission control areas.

G A S E N G I N E S . Gas engines are used to generate electricity and in the field of heat and power generation. This is an area in which Tognum offers optimum figures: the uprated version of the Series 400 gas engine delivers an electrical output of 120 to 420 kilowatts and an electrical efficiency of up to 40%. We com-pleted the trials phase for all engine types in the middle of 2010.

With the 20V Series 4000 gas engine, Tognum has entered a new power class for natural gas operation: In the L63 version, the engine delivers 2,200 kilowatts of power. A version was developed specifically for the Asian market that operates in tropical ambient conditions such a high humidity combined with high temperatures; the first units were delivered in December 2009. Our gas engine systems also get attention as a result of the extended spark plug and oil change intervals.

Another highlight in 2010 was the debut of the first Series 4000 biogas engine at the »EURO TIER« trade fair in Hanover in November. The start of series production of the 12-cylinder engine is scheduled for spring 2011, followed by the launch of the 8-, 16- and 20-cylinder versions on the market in stages. The use of biogas from renewable resources, sewage and landfill gases and later special gases is planned. The power range extends from 800 to 2,200 kilowatts.

Suppliers and Service Providers Our innovative power ultimately results from our global development network, which we continued to expand in 2010. The proximity to our customers is important to us and helps us determine how we can better satisfy their wishes and their needs. At the same time, we exploit the cost benefits that such a global network offers us at various locations. At our Global Supplier Day during the summer of 2010, awards were presented to our three best suppliers.

Internationalisation of Development Activities In the USA we have been running test engines for years to supplement the test stand capacity in Germany. We also benefit from the lower costs for diesel fuel at the Detroit site. The transient test stand there, on which engines with a power output of up to 4,000 kilowatts can be run, was extensively modernised in 2009.

Further development of the Series 1163 engine to meet IMO II and III

Debut of first Series 4000 biogas engine

61

It is used to simulate very fast load changes and meets the most stringent test requirements specified in the US Code of Federal Regulations 1065 (engine-testing procedures), so that we can have engines devel-oped and certified there for all the EPA emission levels planned for the future. We are also planning to set up two test stands in our new plant in Aiken/South Carolina.

The Tognum subsidiary MTU India Pvt. Ltd. inaugurated the new research and development centre in the Indian city of Pune on 28 September 2010 with an official ceremony. It is the first time a design and calculation department has been set up outside the Group head office in Friedrichshafen/Germany. This means that the Tognum Group is now extending its global network strategy beyond production and purchasing to include engine development. In Pune, we will create the additional low-cost capacity that will enable us to develop engines and drive systems to meet the customers’ future requirements and comply with emission guidelines.

The research and development centre in Pune/India will work closely with the research and development department in Germany. The Indian engineers are directly involved in the development of MTU engines of various sizes, which includes the design and development of different components and systems, in addition to virtual simulation tools for the verification of design details. The centre will provide jobs for around 5% to 10% of the employees working for Tognum worldwide in the field of research and development.

The Tognum Share

D E TAI LS O F T HE TOG N U M S H AR E 2007 2008 2009 2010

Number of shares pieces 131,375,000 131,375,000 131,375,000 131,375,000

Price at the end of the year1 in EUR 20.61 9.00 11.60 19.73

Year-high/low1 in EUR 26.60/16.81 20.75/6.94 12.20/6.53 20.22/11.71

Market capitalisation at the end of the financial year in EUR million 2,708 1,182 1,524 2,592

TGM share price performance % – 14.12 – 56.3 + 28.9 + 70.1

MDAX performance % – 10.72 – 43.2 + 34.0 + 34.9

MSCI World performance % – 1.72 – 42.1 + 27.0 + 9.6

Dividend per share in EUR 0.60 0.70 0.35 0,503

Dividend amount in EUR million 78.8 92.0 46.0 65,73

Earnings per share (adjusted) in EUR 1.58 2.01 0.92 1,21

Stock market segment Prime Standard (regulated market)

Stock exchange code TGM, ISIN: DE000A0N4P43, WKN: A0N4P4

1 Xetra closing price 2 From 2 July to 30 December 2007 3 subject to the approval of the Annual General Meeting on 11 May 2011

P E R F O R M A N C E O F T H E M A R K E T S . The mood on the global stock markets at the beginning of 2010 was characterised by uncertainty: share prices traded within a narrow corridor in March and April, followed by a brief rise. At the beginning of May, the stock markets came under pressure and remained unstable until the beginning of summer. During the second half of the year 2010, the markets showed an increas-ingly positive trend. The German stock market was more stable and outperformed many international indices; it thus reflected the sound basic upswing of the domestic economy. The German DAX30 rose 16.1% in the course of the year, the MDAX 34.9% and the MSCI World 9.6%.

Inauguration of the new research and development centre in India

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P E R F O R M A N C E O F T H E T O G N U M S H A R E . The Tognum share also benefited from the general market upswing in Germany and a sharp upwards trend in the industry, performing very positively overall in 2010: its closing price at the end of the year was 19.73 euros (previous year: 11.60 euros), representing an increase of 70.1%. On 6 January 2010, the Tognum share reached its low for the year at 11.71 euros. The share reached its high for the year at 20.22 euros on 22 December 2010.

T O G N U M S H A R E P E R F O R M A N C E C O M P A R E D W I T H M D A X 2 0 1 0 Indexed, from 2 January to 30 December 2010 based on the Xetra daily closing price

80

100

120

140

160

180

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Market capitalisation at the end of 2010 was up 70.1% to 2.592 billion euros (previous year: 1.524 billion euros). The average daily trading volume amounted to 475,000 shares (previous year: 443,000). The most actively traded month in 2010 was May, with an average of 797,000 shares traded daily.

M U LT I Y E A R C O M P A R I S O N O F M A R K E T C A P I T A L I S A T I O N in EUR million

2007 2,708

2008

2009

1,182

1,524

2010 2,592

A D J U S T E D E A R N I N G S P E R S H A R E . Consolidated net income after taxes in the reporting period amounted to 63.2 million euros (previous year: 102.9 million euros). Taking into account the above-mentioned one-time and non-operating effects, and applying a group tax rate of 26.1% (previous year: 30.0%), this resulted in an adjusted consolidated net income of 159.2 million euros (previous year: 121.3 million euros). Adjusted earnings per share6 for the reporting period thus improved by 31.5% to 1.21 euros (previous year: 0.92 euros).

A N A LY S T R E C O M M E N D A T I O N S . At the end of 2010, 21 investment banks were tracking the Tognum share: Bankhaus Lampe, Berenberg Bank, BHF-Bank, CA Cheuvreux, Commerzbank, Deutsche Bank, DZ BANK, equinet, Goldman Sachs, HSBC Trinkaus & Burkhardt, Kepler Capital Markets, Macquarie Research, MainFirst Bank, Merck Finck & Co, Merrill Lynch, Nomura, Reuschel & Co., Société Générale, UBS, UniCredit and WestLB. Of these, a total of twelve teams of analysts gave the share a positive/buy rating as at 31 December 2010, eight teams a neutral/hold and one team a negative/sell rating.

S H A R E H O L D I N G S T R U C T U R E . Over 70% of Tognum shares continue to be in free float. In October 2010, investors BlackRock, New York/USA, in accordance with Section 21(1)(1) of the German Securities Trading Act (WpHG), notified us that their share of the voting rights in the company had reached or had exceeded the threshold of 3%. The shareholding structure is as follows:

6 The earnings per share are determined by dividing the Group earnings which the shareholders of Tognum AG are entitled to

by the number of shares of 131,375,000.

Market capitalisation up 70.1% to 2.592 million euros

TOGNUM-SHARETOGNUM-SHARE MDAX

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S H A R E H O L D I N G S T R U C T U R E A S A T 3 1 D E C E M B E R 2 0 1 0

Free float, incl. < 75%- Top Management ~ 6%

(Supervisory Board andExecutive Board members)

- ING Groep, Netherlands > 5%

- First Eagle InvestmentManagement, USA > 3%

- BlackRock, USA > 3%

Free float, incl. < 75%- Top Management ~ 6%

(Supervisory Board andExecutive Board members)

- ING Groep, Netherlands > 5%

- First Eagle InvestmentManagement, USA > 3%

- BlackRock, USA > 3%

Daimler AG> 25%

D I V I D E N D S . At the Annual General Meeting to be held on 11 May 2011, the Executive Board and the Supervisory Board will propose that a dividend of 0.50 euros per share be paid for the 2010 financial year just ended (previous year: 0.35 euros). This dividend payment represents around 62.3% of the net profit recognised by Tognum AG in the annual financial statements and 41.3% of the adjusted group net in-come for 2010, and is thus in line with the dividend policy announced at the IPO. We also intend to pursue an attractive dividend policy in future and distribute approx. 30% to 50% of our adjusted group net income in the form of dividends.

I N V E S T O R R E L A T I O N S . Transparent communications and open dialogue with our investors and analysts are of utmost priority. Our Tognum annual reports, of which this is the fourth we have published, have scored high in the independent »manager magazin« competition: we came second in the »Stock Ex-change Newcomers« category with our first annual report. With our second annual report, we made it into the MDAX Top Ten (9th place), and in last year’s competition, our Annual Report 2009 was ulti-mately placed tenth in the MDAX category and thus remains in the index’s Top Ten.

The Annual General Meeting held on 18 May 2010 in the Graf-Zeppelin-Haus in Friedrichshafen is regarded as an important communications platform. A total of around 700 shareholders attended the third Annual General Meeting in Tognum’s history since it went public in July 2007, representing 73.3% of the equity capital of Tognum AG. More than 60 private shareholders once again took advantage of our offer to become more familiar with the company by taking part in guided tours of our facilities. The next Annual General Meeting will take place on 11 May 2011 in the Graf-Zeppelin-Haus in Frie-drichshafen.

Intensive support provided for current and potential investors, in addition to meetings with analysts determine the day-to-day business of our investor relations team (IR). The Executive Board also invests a lot of its time maintaining contact with institutional investors. Last year, the Executive Board together with the IR-team had numerous meetings with individual investors and presented the company through roadshows in Frankfurt, Munich, Düsseldorf, London, Edinburgh, Paris, Brussels, Zurich, Amsterdam, The Hague, Copenhagen, Stockholm, New York, Boston and Toronto. Attendance at international inves-tor conferences in Frankfurt, London, Munich and New York are an integral part of the IR calendar.

Please contact us if you would like more information on the company:

Investor Relations Public Relations Phone: + 49 (0)75 41 90 33 18 Phone: + 49 (0)75 41 90 39 89

Fax: + 49 (0)75 41 90 33 28 Fax: + 49 (0)75 41 90 39 18

E-mail: [email protected] E-mail: [email protected]

Internet: http://investors.tognum.com Internet: http://www.tognum.com

Dividend policy remains stable

Additional up-to-date information for investors available at: http://investors. tognum.com

Contact

» Remote diagnostics for engines and systems is an integral part of the all-round service package we o� er to customers all over the world.«

Mirko Butscher | Product Support, MTU Onsite Energy, Gas Power Systems, Augsburg

after sales business

Servicesolutionsareasourceofgrowth,becausetheyallowourcustomerstofocusontheircorebusiness.

Our engines provide a high degree of reliability wherever they are used. Whether on a farm in Germany, in Asia, or any other region of the world, we provide our customers with an all-round service. Our remote diagnostics system means we are there immediately, as if we were on the spot. With service contracts tailored to the customer’s individual requirements, we o� er maximum plan -ning certainty over the entire service life of their systems.

Biogas cogener ation Plant incorPor ating series 4000 enginesIn modern biogas plants, cogeneration units from MTU Onsite Energy are frequently used.

» Remote diagnostics for engines and systems is an integral part of the all-round service package we o� er to customers all over the world.«

Mirko Butscher | Product Support, MTU Onsite Energy, Gas Power Systems, Augsburg

after sales business

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Corporate Governance Report Corporate Governance is a key element of corporate management in all areas

of Tognum. The rules and principles of good corporate governance are taken

into account in internal Tognum guidelines in particular. Corporate governance

means responsible, transparent corporate management and control that is

geared to long-term value added. The Executive Board and Supervisory Board

are committed to good corporate governance as a key element of corporate

management and control, which is designed to achieve a sustainable increase

in shareholder value. Tognum complies with all recommendations of the German

Corporate Governance Code in the current version dated 26 May 2010.

In the chapters below, in accordance with Item 3.10 of the Code, the Executive Board, also on behalf of the Supervisory Board, reports on Corporate Governance of the company in the 2010 financial year.

D E C L A R A T I O N O F C O M P L I A N C E . The following declaration of compliance, which can be viewed at any time on the Tognum corporate website (www.tognum.com), was issued by the Executive Board and the Supervisory Board in November 2010.

»In their meetings of 28 October 2010 and 2 November 2010, the Board of Management and the Super-visory Board of Tognum AG approved the following declaration of compliance pursuant to Section 161 of the German Stock Corporation Act:

The Board of Management and the Supervisory Board of Tognum AG hereby state that the recommenda-tions of the »Government Commission of the German Corporate Governance Code« as published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette are complied with in the version dated 26 May 2010 and that the Board of Management and the Supervisory Board of Tognum AG also intend to observe the recommendations of the German Corporate Governance Code in the future. Since the publication of the last statement of compliance in November 2009, Tognum AG has observed all the recommendations of the »Government Commission of the German Corporate Governance Code« in the version dated 18 June 2009, subject to the exceptions included in said statement.

If any deviations from this statement arise during the current financial year, Tognum AG will update this statement without delay. The current version of the German Corporate Governance Code can be seen at www.corporate-governance-code.de.

Friedrichshafen, November 2010«

S H A R E H O L D E R S A N D A N N U A L G E N E R A L M E E T I N G . The shareholders of Tognum AG exercise their rights prior to or during the Annual General Meeting within the possibilities available to them as provided by the Articles of Association of the company. In accordance with Section 20 (1) of the company’sArticles of Association, each share carries one vote. The Annual General Meeting exercises all the duties conferred upon it by the law and the Articles of Association. During the preparation and in the course of the Annual General Meeting, one of the prime concerns of Tognum AG is to make it easy for all shareholders to exercise their rights. For this reason, we make all documents and information relating to our Annual General Meeting and the annual report available for download from the Tognum website. At the Annual General Meeting itself, shareholders are given the opportunity to exercise their voting rights in person or

Further information relating to our Annual General Meeting on our website

67

to grant proxy voting rights to a third party of their choice or to a proxy nominated by the company with voting instructions.

E X E C U T I V E B O A R D . In accordance with the Articles of Association, the Executive Board consists of at least two persons. It currently has five members, four of whom have international experience due to extended periods spent abroad. With sole responsibility and acting in the company’s interests, the Executive Board manages the company’s business for achieving sustainable value added. To this end, it takes into consid-eration the interests of the shareholders, the employees and other groups associated with the company (all relevant stakeholders). When making key management appointments in the company, it pays atten-tion to diversity and strives in particular to include an appropriate number of women.

It informs the Supervisory Board promptly and regularly on the current situation of the company, possible risks and risk management, strategic decisions and their implementation, in addition to matters relating to compliance. Its bylaws regulate the detailed work it performs, the areas of responsibility of the individual Executive Board members, matters reserved for the Executive Board as a whole, and decision-making procedures.

The assignment of board divisions is shown on pages 8 to 9 of the annual report and in detail in the notes beginning on page 184.

S U P E R V I S O R Y B O A R D . The Supervisory Board of Tognum AG, in accordance with the legal provisions, consists of six representatives each of both the shareholders and the employees. It supervises and advises the Executive Board in managing the company’s business and appoints the members of the Executive Board. All members of the Supervisory Board perform their duties with due diligence. The Supervisory Board determines on a regular basis whether any conflicts of interest have arisen with respect to its members in order to provide for the Executive Board’s independent advice and supervision. The Supervisory Board members – in view of the company’s international operations – possess the required expertise, skills and specialist experience required to perform their duties correctly. The Supervisory Board has brought its bylaws in line with the recommendations of the Code regarding »diversity«. In addition to the specialist and personal qualifications of Supervisory Board members, specific goals designed to take diversity into account are now expressly integrated into the bylaws for the Supervisory Board. As a result, the number of women on the Supervisory Board should at least represent the ratio of women employed in the company (including subsidiaries of the Group). As at 31 December 2010, the percentage of women in the total work-force of the Group was 16.3%. These goals are currently met and will continue to be taken into account in future appointments to the Supervisory Board. The bylaws also include provisions for the formation of committees. The Supervisory Board of Tognum AG has five committees. Detailed information on the work performed by the individual committees is included in the report of the Supervisory Board on pages 12 to 13.

R E S P O N S I B L E C O - O P E R A T I O N B E T W E E E N E X E C U T I V E B O A R D A N D S U P E R V I S O R Y B O A R D . Key princi-ples of good corporate governance include an efficient working relationship between members of the Executive Board and Supervisory Board based on trust and confidence, as well as open and transparent communications. The Executive Board and Supervisory Board work closely with each other to achieve the common goal of a sustainable increase in shareholder value. The Executive Board informs the Super-visory Board regularly, promptly and in full on current developments, the business policy and on all issues relating to corporate planning and the risk situation, in addition to risk management and compli-ance. The Supervisory Board receives monthly written reports on changes in the income, assets and financial position. Significant business transactions require the approval of the Supervisory Board.

More details on how the Executive Board and Supervisory Board work and co-operate and on their committees are included under the item entitled »Workings of the Executive Board and Supervisory Board, including the composition and workings of their committees«, in the declaration on corporate governance in the group management report beginning on page 93.

Five members of the Executive Board

Supervisory Board consists of six representatives each of both the shareholders and the employees

Goal: sustainable increase in shareholder value

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A P P R O P R I A T E R I S K M A N A G E M E N T. The Executive Board is required to ensure that the company has an appropriate risk management and control system in place. As part of a value-based corporate management system, risk management ensures that risks are identified, analysed and assessed at an early stage and that items exposed to risk are protected against. The Supervisory Board is regularly informed by the Executive Board of existing risks and their development. The early warning system in risk identification system set up by the Executive Board is examined by the auditors in terms of its effectiveness, is continually devel-oped by Tognum and adapted to the changing situation. Further details are included in the »Opportunities and Risk Report« beginning on page 95.

F I N A N C I A L R E P O R T I N G A N D A U D I T I N G . The group financial statements for the Tognum Group are prepared in accordance with the principles of the International Financial Reporting Standards (IFRS). We prepare the individual financial statement for Tognum AG relating to the dividends and taxes pursuant to the requirements of the German Commercial Code (HGB). An internal control system and uniform accounting principles ensure that the financial statements represent a true and fair view of the assets and income, the financial situation and cash flows of all group companies. The Annual General Meeting held on 18 May 2010 appointed PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Stuttgart, as the auditors for the 2010 financial year. Prior to the appointment, the Supervisory Board ensured that there was no doubt as to the auditors' independence. In accordance with the recommenda-tions of the Code, Tognum agreed with the auditors, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Stuttgart, that the Chairman of the Audit Committee would be notified without delay of any grounds for disqualification or partiality occurring for the financial year under review. The auditors also agreed to report any findings or incidents of significance to the duties of the Supervisory Board immediately. In addition, the auditors agreed to inform the Supervisory Board or include a remark in the their report if, in the course of the audit, they become aware of findings that give reason to doubt the correctness of the declaration of compliance with the Code issued by the Executive Board and the Supervisory Board.

C O M P L I A N C E . Tognum is committed to the principles of good corporate governance. An integral part of good corporate governance is compliance. Compliance is regarded as an indispensable element of the corporate culture to ensure that it remains effective in the long term. In order to give compliance the appropriate degree of importance, the Integrity Code has been introduced at Tognum that is valid for the entire workforce and to which the company is committed, with members of management leading by example in terms of its observance. To ensure that the corporate culture pervades all aspects of the day-to-day work performed within the company, compliance must also be an integral part of the various corporate processes. To bring this about, a systematic holistic approach has been selected and a compli-ance management system (CMS) implemented.

D I A G R A M O F C O M P L I A N C E M A N A G E M E N T S Y S T E M I N T H E T O G N U M G R O U P

Group financial statements according to IFRS

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Remuneration Report

In accordance with Item 4.2.5 and Item 5.4.6 of the German Corporate Govern-

ance Code (hereinafter referred to as »GCGC«), the remuneration system for

members of the Executive Board and Supervisory Board is to be disclosed in a

remuneration report. The remuneration report also includes a description of

the basic principles on which the amount of remuneration for the individual

members is calculated.

Remuneration of the Executive Board

The Supervisor Board specifies the total remuneration of the individual members of the Executive Board and reviews the remuneration system at regular intervals. In the 2010 financial year, the system of the Executive Board’s remuneration was further developed by the Supervisory Board and brought in line with the new legislation. The remuneration for the members of the Executive Board is based on the size and the global activities of the company, its business and financial situation, and on the amount and structure of the Executive Board’s remuneration in comparable publicly traded companies both inside and outside Germany. In addition, the duties, the personal performance and the achievement of indi-vidually agreed financial targets, the success and the future prospects of the company are taken into account.

The Executive Committee advises the Supervisory Board plenary session on the remuneration system for the Executive Board, submits proposals and prepares the regular review of the remuneration structure.

R E M U N E R A T I O N S T R U C T U R E . The total remuneration for the members of the Executive Board is speci-fied by the entire Supervisory Board based on a performance assessment, taking into account any pay-ment by companies within the Group. In 2010, the total remuneration for all members of the Executive Board excluding pension commitments amounted to 6,211,276 euros (previous year: 4,720,861 euros). As a matter of principle, the remuneration for the members of the Executive Board is composed of fixed and success-related components. The actual composition in the reporting period was agreed personally between the Supervisory Board and individual Executive Board member. The corresponding amounts paid to a specific Executive Board member can be seen in the remuneration tables on page 71.

As a result of the service time extensions for Volker Heuer and Joachim Coers, a contractual transfer into a new target remuneration structure took place for these members. However, since the entire Executive Board voluntarily agreed to waive any change in the basic remuneration and variable remuneration in the 2010 financial year (in the case of a 100% achievement of target), for all practical purposes the new remu-neration conditions will not take effect until 1 January 2011. The new Executive Board member Peter Kneipp, appointed as at 1 January 2011, will also receive his remuneration on the basis of the new target remuneration structure, which will in future be applied to each new member appointed to the Executive Board. The new market-based target remuneration structure in terms of sustainable corporate governance is aligned to a 40% basic remuneration (paid in twelve identical amounts by means of a cashless money transfer at the end of each month; »monthly salary«), 30% of the success-based remuneration (based on corporate goals and individual goals; »variable remuneration«) and 30% long-term remuneration (Long-Term Incentive Concept; »LTIC programme«).

New target remuneration structure based on sustainable corporate governance

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The following applies for the reporting period:

- F I X E D C O M P O N E N T. The basic remuneration consists of the fixed annual salary (paid in twelve iden-tical amounts by means of a cashless money transfer at the end of each month; »monthly salary«), plus fringe benefits and the pension commitment.

- S U C C E S S - R E L A T E D C O M P O N E N T. The amount of the success-related component (variable remunera-tion) is based on the performance of the respective member of the Executive Board and on the corporate success. The individual performance is based on the degree to which the Executive Board member has achieved the goals that the Executive Committee had agreed at the beginning of the year with each Executive Board member and that had been confirmed by the Supervisory Board. The suc-cess-related remuneration is paid at the end of the respective financial year as soon as the degree to which the goals have been achieved has been determined and confirmed by the Supervisory Board.

Specifically, 50% of the success-related component for Volker Heuer is determined by the group success based on the adjusted earnings before interest and taxes (»Konzernerfolg«) and 30% by the group cash flow based on the adjusted operating cash flow before investments, interest and taxes (»group cash flow«). The remaining 20% are related to the achievement of personal goals.

In the case of Rainer Breidenbach, the Executive Board member who retired as at 31 December 2010, 30% of the success-related component is determined by the group success, 15% by the group cash flow, 25% by the adjusted profit contribution of the Engines business unit and 10% by the capacity utilisation at the Friedrichshafen site. The personal goals make up the remaining 20%.

In the case of Executive Board member Joachim Coers, 40% of the success-related component is deter-mined by the group success, 25% by the group cash flow, 5% by the adjusted profit contribution of the Components/Propeller Shaft division and 10% by the capacity utilisation at the Friedrichshafen site. The personal goals make up the remaining 20%.

In the case of Executive Board member Dr. Ulrich Dohle, 30% of the success-related component is determined by the group success, 10% by the group cash flow, 10% by the adjusted profit contribution of the Engines business unit, 10% by the adjusted profit contribution of the Components/Injection Systems division and 20% by the capacity utilisation at the Friedrichshafen site. The personal goals make up the remaining 20%.

In the case of Executive Board member Christof von Branconi, 30% of the success-related component is determined by the group success, 10% by the group cash flow and 25% by the adjusted profit con-tribution of the Onsite Energy & Components business unit, 5% by the adjusted profit contribution of the Components/Propeller Shaft division and 10% by the capacity utilisation at the Friedrichshafen site. The personal goals make up the remaining 20%.

71

L O N G -T E R M R E M U N E R A T I O N . Tognum AG has for a long time pursued the goal now codified by the legislature, of basing the remuneration structure on sustainable corporate development. The long-term remuneration of the Executive Board is based on the Long-Term Incentive Concept, a share-based re-muneration concept (known as the LTIC programme). This is a remuneration concept that includes incentives and achievement levels based on the company’s sustainable success. The concept applies to all members of the Executive Board and for level 2 and 3 executives. The Supervisory Board approved this concept, which is intended to bind decision-makers to the company for a longer term, in the 2007 finan-cial year.

In its meeting on 2 November 2010, the Supervisory Board gave its approval for the LTIC programme to be continued unchanged in 2011.

Details of the LTIC programme are provided in the notes to the consolidated financial statements on page 150 of this annual report under »Share-based payments«.

F R I N G E B E N E F I T S . Fringe benefits primarily include the use of a company car, insurance premiums, subsidies for retirement, plus costs for security systems.

No loans were granted to members of the Executive Board in the year under review.

E X E C U T I V E B O A R D R E M U N E R A T I O N ( I N D I V I D U A L I S E D ) F O R 2 0 1 0 : (

Fixed remuneration

Success-related

remuneration

Long-term

remuneration Subtotal

Long-term

remuneration Total

I N EUR

Basic

remuneration

Fringe

benefits

Variable

remuneration

Share in

corporate

success

Dividend

equivalent

2010

(cash payment

from LTIC)

Total cash

payment

Acquired

share from

LTIC:

2008 – 2012,

2009 – 2013,

2010 – 2014

Volker Heuer 635,000 65,832 914,400 0 27,156 1,642,388 527,303 2,169,691

Rainer Breidenbach 300,000 40,571 334,050 0 10,582 685,203 175,169 860,372

Joachim Coers 420,000 47,810 505,700 0 15,902 989,412 268,373 1,257,785

Dr. Ulrich Dohle 385,000 40,461 471,200 0 6,227 902,888 127,878 1,030,766

Christof von Branconi 270,000 39,321 286,875 100,000 11,079 707,275 185,387 892,662

Total 2,010,000 233,995 2,512,225 100,000 70,946 4,927,166 1,284,110 6,211,276

E X E C U T I V E B O A R D R E M U N E R A T I O N ( I N D I V I D U A L I S E D ) F O R 2 0 0 9 :

Fixed remuneration

Success-related

remuneration

Long-term

remuneration Subtotal

Long-term

remuneration Total

I N EUR

Basic

remuneration

Fringe

benefits

Variable

remuneration

Share in

corporate

success

Dividend

equivalent

2010

(cash payment

from LTIC)

Total cash

payment

Acquired

share from

LTIC:

2008 – 2012,

2009 – 2013,

2010 – 2014

Volker Heuer 635,000 53,732 638,850 0 17,445 1,345,027 295,094 1,640,121

Rainer Breidenbach 300,000 39,260 231,550 0 8,723 579,533 57,065 636,598

Joachim Coers 420,000 49,497 395,250 0 10,903 875,650 87,797 963,447

Dr. Ulrich Dohle 288,747 28,102 286,750 0 0 603,599 38,334 641,933

Christof von Branconi 270,000 36,557 216,650 0 8,723 531,930 60,127 592,057

Dr.-Ing. Gerd-Michael Wolters 90,000 68,213 63,750 0 7,851 229,814 16,891 246,705

Total 2,003,747 275,361 1,832,800 0 53,645 4,165,553 555,308 4,720,861

Long-term remuneration of the Executive Board based on the LTIC programme

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A L L O T M E N T S U N D E R T H E LT I C P R O G R A M M E F O R 2 0 1 0 :

Allotted values as

at 31 Dec. 2009

in EUR

Allotted number of

phantom shares

as at 31 Dec. 2009

Allotted values

in 2010 in EUR

Allotted number of

phantom shares

in 2010

Allotted values as

at 31 Dec. 2010

in EUR

Allotted number of

phantom shares

as at 31 Dec. 2010

Euro Stück Euro Stück Euro Stück

Volker Heuer 844,500 77,588 444,500 34,618 1,289,000 112,206

Rainer Breidenbach 350,000 30,234 165,000 12,850 515,000 43,084

Joachim Coers 502,000 45,434 252,000 19,626 754,000 65,060

Dr. Ulrich Dohle 150,150 17,790 165,165 12,863 315,315 30,653

Christof von Branconi 362,000 31,655 178,200 13,879 540,200 45,534

Dr.-Ing. Gerd-Michael Wolters

(Executive Board member

until 30 Apr. 2009) 180,000 11,215 0 0 180,000 11,215

LTIC Total 2,388,650 213,916 1,204,865 93,836 3,593,515 307,752

A L L O T M E N T S U N D E R T H E LT I C P R O G R A M M E F O R 2 0 0 9 :

Allotted values as

at 31 Dec. 2008

in EUR

Allotted number of

phantom shares

as at 31 Dec. 2008

Allotted values

in 2009 in EUR

Allotted number of

phantom shares

in 2009

Allotted values as

at 31 Dec. 2009

in EUR

Allotted number of

phantom shares

as at 31 Dec. 2009

Euro Stück Euro Stück Euro Stück

Volker Heuer 400,000 24,922 444,500 52,666 844,500 77,588

Rainer Breidenbach 200,000 12,461 150,000 17,773 350,000 30,234

Joachim Coers 250,000 15,576 252,000 29,858 502,000 45,434

Dr. Ulrich Dohle 0 0 150,150 17,790 150,150 17,790

Christof von Branconi 200,000 12,461 162,000 19,194 362,000 31,655

Dr.-Ing. Gerd-Michael Wolters 180,000 11,215 0 0 180,000 11,215

LTIC Total 1,230,000 76,635 1,158,650 137,281 2,388,650 213,916

P E N S I O N C O M M I T M E N T S T O M E M B E R S O F T H E E X E C U T I V E B O A R D . The members of the Executive Board are entitled to a company retirement pension if they retire from the company on or after reaching 60 years of age. Dependants are also covered.

In the past, Tognum AG has granted the members of the Executive Board benefit commitments. The amount depends on the last drawn monthly salary. Entitlement to a company pension also exists if the employment contract is not renewed, is terminated prematurely by mutual agreement, or terminated by the company by means of the appropriate notice, without premature termination of the contract being for good cause attributable to the person in question. The amount of the annual retirement pay depends on the Executive Board member’s length of service.

A contribution-based pension commitment, the calculation of which is based on the pension commit-ment model for board members of Tognum AG, has been granted to the members of the Executive Board Volker Heuer and Joachim Coers, who were reappointed in the reporting year. Previously earned pension entitlements have been replaced by an initial module of the same value. The amount of the annual pen-sion contribution is determined by the individual circumstances and is based on the inherent value of the previously granted pension commitments dependent on the salary at retirement. A bridging salary under these contractual terms is not planned; in the case of Volker Heuer, however, the bridging salary that had previously been agreed on has been continued.

73

P E N S I O N C O M M I T M E N T S F O R E X E C U T I V E B O A R D M E M B E R S :

I N EUR Retirement pay regulations Service cost 2009 Service cost 2010

Volker Heuer Payment agreement based on contributions as of 2011;

fixed-term bridging salary in the event of an early retirement;

previous year’s agreement: absolute monthly contributions, sliding

during the first three years, according to pension agreement 262,304 282,993

Rainer Breidenbach 35% of the last monthly salary 163,978 208,905

Joachim Coers Payment agreement based on contributions as of 2011;

previous year’s agreement: absolute monthly contributions, sliding

during the first three years, according to pension agreement 45,128 49,249

Dr. Ulrich Dohle Fixed amount agreement;

in the event of an early retirement between 30% and 77%

of the fixed amount 370,708 514,307

Christof von Branconi 50% of the last monthly salary;

in the event of an early retirement and corporate management

up to 10 years: 35%, as of 11th year: 50% 101,379 141,714

Total 943,497 1,197,168

In the year under review, Tognum AG transferred 1,197,168 euros (previous year: 943,497 euros) into pension reserves (current service cost) for active members of the Executive Board as at 31 December 2010.

For pension obligations to former members of the Executive Board of Tognum AG, 136,308 euros (pre-vious year: 90,000 euros) were expended in the 2010 financial year. Our reserves for these pension pay-ments amounted to 2,019,991 euros (previous year: 2,031,691 euros) as at 31 December 2010.

Remuneration of the Supervisory Board

The remuneration of the Supervisory Board is determined by the Annual General Meeting. At the last Annual General Meeting of Tognum AG on 18 May 2010, a change to the remuneration system of the Supervisory Board was approved in order to take appropriate account of the increased legal requirements that also affect the long-term incentive components for the remuneration of the Supervisory Board. As a result, the remuneration for the Supervisory Board is composed principally of the following components:

- fixed salary; - variable remuneration, based principally on long-term corporate success; - remuneration for committee activities; - attendance fee.

The amount of the remuneration is based on the responsibility and the scope of activity of the respective member. The financial situation and the success of Tognum are also determining factors.

For the 2010 financial year just ended, the total remuneration for the Supervisory Board members amounted to 1,148,886 euros (previous year: 342,839 euros).

F I X E D R E M U N E R A T I O N C O M P O N E N T. Each member of the Supervisory Board is entitled to receive a basic annual remuneration of 40,000 euros. The Chairman of the Supervisory Board receives twice the amount of this basic remuneration, the Deputy Chairman 1.5 times the amount.

Each member of the Supervisory Board who is also a member of a committee receives an additional fixed remuneration per year and committee as follows:

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S E R V I C E

An ordinary member of a committee receives 2,000 euros, the chairman of a committee 5,000 euros and the deputy chairman of a committee 2,500 euros.

The members of the Supervisory Boards also receive an attendance fee for meetings of the Supervisory Board and its committees. The attendance fee amounts to 1,500 euros for each meeting, but no more than 2,000 euros for each calendar day.

V A R I A B L E R E M U N E R A T I O N C O M P O N E N T. The variable remuneration consists of a basic annual amount of 20,000 euros and is granted for the current financial year – initially for the 2010 financial year. This will, however, involve a change in the overall performance in terms of the following regulation with either an increase or decrease in the basic amount. The overall performance is calculated as the mean value of the

- percentage by which the adjusted annual net income as at 31 December of a financial year is below or above the adjusted annual net profit as at 31 December of the respective previous year (absolute per-formance; in 2010, this was 131.245%), and

- percentage by which the price of the company’s share as at 31 December of a financial year is below or above the MSCI World (Morgan Stanley Capital International World) benchmark index (relative per-formance, in 2010, this was 155.257%).

The overall performance (143.251%) is used as a multiplier for the basic amount (basic amount x overall performance).

Following the Supervisory Board’s acceptance of its mandate, the amount calculated in this way and to be paid at the end of the first financial year comes to 0%, at the end of the second financial year it is 25%, at the end of the third financial year 50%, at the end of the fourth financial year 75% and at the end of the fifth financial year 100%. Any amounts that exceed each payout percentage will be deposited into a vir-tual, interest-free bonus bank account (virtual credit). This means that an account balance will be calcu-lated every year that takes the performance (negative or positive) into account. The basic amount and virtual credit result in the amount in euros with which the overall performance is to be multiplied in order to calculate the annual overall performance amount in euros that is valid for the current financial year. If a member leaves the Supervisory Board prematurely, his virtual credit will no longer be available.

Payment is made unless twice the value of the basic amounts for four financial years - i.e. 160,000 euros (4 x 20,000 euros x 2) – has already been paid to the relevant member of the Supervisory Board in accor-dance with the above statements in this section. Amounts that have already been paid will not be returned.

For Supervisory Board members appointed for several terms of office (one full term of office, in accor-dance with Article 9.2 of the Articles of Association of Tognum AG, is five years), the payout percentage begins after completion of a full term of office and in each case at the next higher level, i.e. the payout percentage for the second term of office in the first financial year already amounts to 25%, in the second financial year 50%, in the third financial year 75%, and in both the fourth and fifth financial year 100%.

Supervisory Board and committee members who have been members of the Supervisory Board or a committee for part of the financial year only receive remuneration on a pro rata basis.

The company reimburses Supervisory Board members for any reasonable expenses on presentation of proof of payment, but not exceeding 750 euros for each day of a meeting. Sales tax is reimbursed by the company if the members of the Supervisory Board have been authorised to provide the company with a separate invoice for sales tax, and exercise this right.

75

The individual members of the Supervisory Board were allocated the following amounts in 2010 and in 2009 for purposes of comparison:

S U P E R V I S O R Y B O A R D R E M U N E R A T I O N ( I N D I V I D U A L I S E D ) F O R 2 0 1 0 :

Fixed remuneration component Variable remuneration component Total

I N EUR

Fixed

payment

Remuneration

for committee

activities

Attendance

fee for

meetings

Other

(withholding

tax)

Overall

performance:

amount paid

for 2010

Virtual credit1

(bonus bank)

Other

(withholding

tax)

Rolf Eckrodt 80,000 15,000 29,500 0 28,650 0 0 153,150

Axel Arendt 24,667 406 7,500 0 0 28,650 0 32,573

Andreas Bemerl 40,000 0 16,500 0 14,325 14,325 70,825

Franz Benz 40,000 0 16,500 0 14,325 14,325 0 70,825

Heinz Brechtel 40,000 2,500 19,500 0 28,650 0 0 90,650

Sune Karlsson 40,000 8,000 35,000 38,434 28,650 0 13,267 163,351

Dr. Edgar Krökel 40,000 5,000 23,000 0 14,325 14,325 0 82,325

Giulio Mazzalupi 15,333 0 4,500 9,184 10,983 0 5,086 45,086

Patrick Müller 60,000 7,000 35,000 0 28,650 0 0 130,650

Dr. Jutta Nübel 40,000 406 16,500 0 14,325 14,325 0 71,231

Lilo Rademacher 40,000 4,406 28,000 0 28,650 0 0 101,056

Andreas Renschler 40,000 2,000 9,000 0 14,325 14,325 0 65,325

Dr. Cletus von Pichler 40,000 1,014 16,500 0 14,325 14,325 0 71,839

Total 540,000 45,732 257,000 47,618 240,183 114,600 18,353 1,148,886

1 The virtual credit (bonus bank) serves as the basis for the calculation in the following year; payment is therefore not effected and not

included under Total.

S U P E R V I S O R Y B O A R D R E M U N E R A T I O N ( I N D I V I D U A L I S E D ) F O R 2 0 0 9 :

Fixed remuneration

Success-related

remuneration Total

I N EUR Salary Other1 Royalty Other2

Rolf Eckrodt 22,500 11,000 0 0 33,500

Andreas Bemerl 15,000 5,000 0 0 20,000

Franz Benz 15,000 5,000 0 0 20,000

Heinz Brechtel 17,500 10,000 0 0 27,500

Sune Karlsson 23,000 33,328 0 0 56,328

Dr. Edgar Krökel 20,000 11,000 0 0 31,000

Giulio Mazzalupi 15,000 14,261 0 0 29,261

Patrick Müller 18,750 16,500 0 0 35,250

Dr. Jutta Nübel 15,000 5,000 0 0 20,000

Lilo Rademacher 19,000 11,000 0 0 30,000

Andreas Renschler 17,000 3,000 0 0 20,000

Dr. Cletus von Pichler 15,000 5,000 0 0 20,000

Total 212,750 130,089 0 0 342,839

1 Attendance fee and withholding tax 2 Withholding tax

In October 2006, a loan amounting to 3,100 euros was granted to an employee representative on the Supervisory Board. The loan bears 5% interest and will be redeemed at 18% above the original amount; it amounted to 0 euros at the end of 2010 (previous year: 1,186 euros). This was a home loan. The company grants such loans to employees who have a permanent employment contract.

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Shares in Tognum AG held by members of the Executive Board and Supervisory Board In accordance with Item 6.6 of the Code, the direct or indirect holding of company shares by members of the Executive Board and the Supervisory Board is to be reported for the individual members, if the number of such shares is greater than 1% of the shares issued by the company.

As at 31 December 2010, Executive Board members of Tognum AG – directly or indirectly – held the following shares in Tognum AG:

E X ECU T I VE BOA RD M EM BE R Shares (amount) Shares (%)

Volker Heuer 3,036,956 2.31%

Joachim Coers 2,286,956 1.74%

Rainer Breidenbach 1,687,203 1.28%

In all three cases, the shares are not held personally by the members of the Executive Board, but by companies that have been assigned to the members of the Executive Board specified.

The total shareholdings of all Executive Board members relating to the shares issued by the company, as at 31 December 2010, amounted to 5.34% of the shares issued by Tognum AG.

The total shareholdings of all Supervisory Board members relating to the shares issued by the company amounted to 0.59% of the shares issued by Tognum AG as at the balance sheet date.

I N S U R A N C E F O R M E M B E R S O F T H E S U P E R V I S O R Y B O A R D A N D E X E C U T I V E B O A R D O F T H E T O G N U M

G R O U P. The company has taken out property damage and indemnity insurance (D&O liability insurance) for all members of the Executive Board and Supervisory Board. Managing directors and advisory board members of companies inside and outside Germany in which Tognum AG, either directly or indirectly, holds more than 50% of the shares, or is responsible for the corporate management are also included in the D&O liability insurance. The D&O liability insurance includes a deductible that complies with the recommendations of the Code.

A V O I D A N C E O F C O N F L I C T S O F I N T E R E S T. Executive Board and Supervisory Board members are com-mitted to acting in the interests of the company. Potential conflicts of interest for Executive Board or Supervisory Board members are disclosed to the Supervisory Board without delay. The Supervisory Board reports to the Annual General Meeting on any conflicts of interest and their consequences. In the year under review, there were no conflicts of interest either for Executive Board members or Supervisory Board members. However, purely as a precautionary measure, Supervisory Board members Dr. Edgar Krökel and Andreas Renschler agreed not to take part in a meeting of the Supervisory Board for delib-erations on a specific item of the agenda and not to be given the associated document and minutes.

77

C O M P R E H E N S I V E I N F O R M A T I O N . Both the Executive Board and the Supervisory Board wish to strengthen the confidence of the institutional investors, private shareholders, shareholders’ associations, financial analysts, business partners, employees of the company and the media and interested members of the general public by means of open communications and transparency. Details of the company’s current situation can be viewed at any time on the company’s website at www.tognum.com. Press releases, annual and interim reports, in addition to a detailed financial calendar that is updated on a regular basis are available in both German and English. The Executive Board reports four times a year on the business performance and on the financial and earnings situation to ensure that investors, analysts and the press are kept up to date on the quarterly and annual results.

If events occur that could have an impact on the price of the Tognum share, these are published in accor-dance with the legal requirements in the form of ad-hoc announcements. In addition, as part of our investor relations activities, regular meetings take place with analysts and institutional investors, e.g. at the annual analyst conference. We also offer telephone conferences to analysts and interested investors when we publish the quarterly figures, which we also make available on our website.

Announcement on directors’ dealings In accordance with Section 15a of the German Securities Trading Act (WpHG), members of the Executive Board and Supervisory Board of Tognum AG are required to disclose any purchase and sale of Tognum shares and associated financial instruments (directors’ dealings). This also applies to other persons with management duties and persons closely related to them. For the 2010 financial year, the following directors’ dealings have been reported to the Tognum AG:

T R A D E DATE Name Reason for disclosure

Financial instrument

and ISIN

Type of

transaction

Price per share

in EUR

Number of

shares

25 June 2010 Dr. Jutta Nübel Supervisory Board member

Tognum share

DE000A0N4P43 Purchase 15.80 1,260

10 Aug. 2010

BJC Equity KG

Joachim Coers Executive Board member

Tognum share

DE000A0N4P43 Sale 15.75 750,000

09 Nov. 2010 Rudolf Eckrodt Supervisory Board member

Tognum share

DE000A0N4P43 Sale 18.82 150,000

All key press releases and capital market disclosures of Tognum AG are also published by the company on its website (www.tognum.com).

www.tognum.com

» We’re o� ering solutions today that comply with the emission stand-ards that will be in force in 2012 and consume even less fuel.«

Geoff Bailey | Manager Industrial Markets, MTU Detroit Diesel Australia

proDuct portfolio

Wearegrowingbecauseweoff erourcustomersthebestsolutionsforthefuture.

We are technically in a position to deliver engines for every emission standard worldwide. Many diesel-powered rail vehicles are � tted with our engines, not only because they meet the local emission requirements, but because their low fuel consumption also cuts operating costs.

series 4000MTU’s Series 4000 engines for rail applications that are being produced today are already confi gured to meet tomorrow’s emission standards. As a result of their high effi ciency and long service life, they lead to a signifi cant reduction in operating costs.

» We’re o� ering solutions today that comply with the emission stand-ards that will be in force in 2012 and consume even less fuel.«

Geoff Bailey | Manager Industrial Markets, MTU Detroit Diesel Australia

proDuct portfolio

80 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T E m p l o y e e s


M E N T S

S E R V I C E

Employees Our employees have been turning fascinating ideas into driving power and en-

ergy for more than 100 years thereby creating the foundation for our company’s

success. We are proud of that. We would therefore like to offer our employees

an environment of appreciation and trust by giving them the best possible

framework conditions to fully unfold their potential.

Employee Development T O G N U M G R O U P ( C O N S O L I D A T E D C O M P A N I E S ) : E M P L O Y E E S B Y R E G I O N

31 Dec. 2009 31 Dec. 2010 Change

Germany 7,309 7,375 0.9%

Europe without Germany 191 301 57.6%

USA 674 722 7.1%

Asia 552 648 17.4%

Total employees 8,726 9,046 3.7%

As at 31 December 2010, 9,046 employees (previous year: 8,726 employees), trainees and interns in-cluded, were employed, of which 6,013 were employees at Friedrichshafen. The 57.6% increase in per-sonnel in Europe excluding Germany compared to 2009 is a result of the first consolidation of the Turk-ish company, MTU Motor Türbin San. VE Tic. A.Ş. in Hadımköy/Turkey, and its subsidiary MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Subesi, Çorlu/Turkey. In addition, we strengthened the development, sales and service activities in the US and Asia. Tognum AG as the Group’s parent com-pany, had 635 employees as at balance sheet date 31 December, 2010, who were mainly active in the group functions of personnel, IT, legal, finances and controlling as well as communication, marketing, audit and strategy. In total, the Group appointed 532 new employees.

Training Inventing the future – following this motto, training at the Tognum Group has for more than 90 years ensured first-class newly qualified professionals. Since then, more than 7,000 young people have taken one of more than 15 technical and commercial training courses or one of the dual-system study pro-grammes. With modern training concepts, competent and committed trainers ensure that our young professionals are excellently qualified and set new standards in in-house training. We will continue with this success story: a modular training concept based on the dual-system training concept will also be implemented at our international locations (for further detail please see the sustainability report on page 88).

As at the balance sheet date 31 December 2010, the Tognum Group employed 399 trainees and 134 in-terns amounting to 5.9% of the total staff complement. In 2010, MTU Friedrichshafen GmbH, Frie-drichshafen alone appointed 83 trainees. At the start of the training year 2010, 62 new professionals learned a technical profession and seven a commercial profession. 14 young adults decided to embark on a course of study in collaboration with the Duale Hochschule (dual-system university), which, amongst others, provides for a three-month stay at one of the international subsidiaries of the Group. In 2011, more than 85 young adults start their training with us.

532 new employees appointed by the Tognum Group

81

Creative employees ready to take on responsibility contribute decisively to the success of our company. In addition to the professional qualification of our employees, we also develop their team spirit, motivation and innovativeness. In the context of so-called pedagogical programmes for personal development, an internal development programme was developed whereby computers and machine tools are exchanged for canoes and hiking shoes. In this way, the young adults can gain experiences which are often difficult to impart in the operational environment. The technical and commercial trainees in addition have the opportunity of gaining their first experiences abroad, e.g. through an internship at Tognum's locations in England, France, or La Spezia in Italy.

Personnel Development Personnel development in 2010 was increasingly concerned with the issue of competence management, and a competence model tailored to the Tognum Group’s management levels was developed. The model includes special development programmes for functional, regional and management-specific competen-cies. The focus here is on the sustainable and systematic promotion of personal specialist, social, meth-odological, and leadership competencies. The relevant personnel development programmes are each aligned exactly to the individual competence profiles.

We regard the early identification of talents and top performers as one of the priority themes in person-nel development, using future-oriented selection tools to identify potential, including the best possible subsequent development support based on individual development plans. It remains to be our aim for the future to staff our specialist and management positions with the best suited young professionals and to gain their long-term loyalty to our company. In 2011, we will also make specific expert and project management careers possible in addition to the management careers.

After two years on Lake Constance, Tognum’s employee yacht, which was commissioned in 2009 after a three-year planning and construction phase, has been on its planned trip to our international locations since November 2010. The first leg will bring »Tognum« to the four major Mediterranean locations in Turkey, Italy, France and Spain, where it will be available for personnel development programmes for our employees at these locations. The team concept has taken on new significance in our company through the Tognum employee yacht. More than 1,000 employees from the German locations who participated in a total of 117 team development programmes on board the »Tognum« in 2009 and 2010 support this.

Qualification and Further Education The focal points of our activities regarding the qualification and further education of our employees during this year were the development of binding standards in e-learning as well as the selection and implementation of a relevant learning management system. The system selected will in future serve as the platform for e-learning courses, presence training and the provision of training material and will be used by all employees of the Tognum Group worldwide.

The comprehensive and targeted further education of our employees continued to play a core strategic role in 2010. We aim to secure our competitiveness and develop it further through the sustainable pro-motion and further development of the potentials and capacities of our staff, as it is only as a learning organisation that we are able to conquer the challenges of the future. We regard a sound professional education which enjoys a high degree of significance within the Group as the foundation for our further education programme. Based on this, we offer a varied qualification programme for our specialist and management staff in methodological, social and intercultural competencies as well as in technology and languages. The focal points of the further education programme in 2010 were compliance and sales training programmes, amongst others. At Friedrichshafen alone, 6,269 employees (previous year: 5,818 employees) took part in 9,312 training days (previous year: 9,333 training days) in a total of 1,238 events (previous year: 1,221 events).

Competence model for the management levels

Tognum employee yacht for personnel development

Comprehensive and targeted further education for our employees

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Health Promotion The health and well-being of our employees are the best prerequisites for their performance, satisfaction and innovativeness. Healthy and capable employees are the foundation of productivity and efficiency in our company. The long-term individual promotion of our employees’ personal responsibility (in short: LIFE) is therefore the core idea which is reflected in all our health-promoting programs. Our definition of health is comprehensive: In addition to the issues around the »traditional« medical and mental health topics we support our employees in Germany via the LIFE advisory centre in both socially and finan-cially problematic situations.

In addition to a wide offering of medical presentations (nutrition, living wills and stress reduction) and preventative courses (stopping smoking, weight reduction) we have offered 400 to 500 employees annu-ally the option of attending the »LIFE Health Days« health seminar, which is offered in addition to the »Pitstop« and »Health and Leadership« management seminars, since 2009. The aim of all seminars is to intensively engage with one’s own health.

In 2010, the in-house health promotion programme LIFE was expanded to include the German locations of Hamburg, Duisburg, Augsburg and Magdeburg.

The Race for Talent If you want to go successfully into the future, you had best take part in its design. We follow this principle not only when developing new products and markets but also when competing for the management and specialist staff of tomorrow. We offer young people exciting insights into our company early on and engage intensively in the promotion of young professionals.

A focal point here is to maintain contact with universities and students. With our participation in a total of 16 events nationwide, such as university fairs, including those held by TU Braunschweig and RWTH Aachen, as well as the recruiting events of the German engineering association, the VDI, we seek direct contact with first-class young professionals – e.g. for our international trainee programme »Multiple Chances«, which in 2010 took on board its third year (see also Page 88 in the sustainability report).

We also make our presence felt regionally, be it at the International Fair for Consumer and Investment Goods or the workshop symposium held by the Zeppelin University in Friedrichshafen. In addition, as the main sponsors, we host the annual »Formula Student Germany« events at the Hockenheimring rac-ing circuit and also support six of the participating motor racing teams individually in their preparations – including the two-time world champions from the University of Stuttgart.

Young adults who would like to get to know more about our company early on are also more than wel-come. For this target group, we organise and participate in events such as the nationwide Girls’ Day, our Open Day Training Workshop or the regional competition in South Württemberg – »Youth in Research«.

In April 2010, we hosted »Tognum’s 1st Youth Future Forum«. 125 young people from all over Germany came to this event in Friedrichshafen and jointly developed their ideas for the technology company of the future. The participants experienced exciting presentations on innovation topics, personal discus-sions with our management staff as well as workshops and discussions. More than 1,300 students had applied for the event at our offices.

Health is a prerequisite for performance

Intensive engagement in the promotion of young professionals

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A great achievement in the race for talents was the award of the CRF quality seal »Top Employer in Germany 2010« and »Top Employer for Engineers 2010« (please see the sustainability report on Page 88 for further information).

Work-Life Balance As a holder of the »berufundfamilie« certificate – an initiative of the foundation »Hertie Stiftung« – we support our employers in maintaining the work-life balance between their private and professional lives. In 2010, our focal point was on the topic of c»are« which we took on together with the health manage-ment and the company’s health insurance fund. We support our employees who have relatives requiring special care with presentations on various care issues and by providing contacts to our network partners. Other measures which we initiated in 2010 was a nanny agency in collaboration with the association Tagesmütternetz e. V., the development of holiday care for children as well as the »Tognum Family« portal, an international platform for the organisation of exchanges of employees' children in another »Tognum Family«.

International Transfer Center The Tognum Group employs more than 100 expatriates and impatriates who work at one of our locations in another country either temporarily or for a longer period of time. The employee secondments abroad are usually associated with complex issues in respect of contract structure as well as tax and social secu-rity laws. In order to optimise the information pathways between the interfaces in the company, a com-petence and service centre working cross-departmentally with employees from Human Resources and Tax was created which implements the secondment policies within the Group: the International Transfer Center. Its overarching aim is to trim down the internal processes, at the same time providing optimal support before and during the secondment until the reintegration of the employee.

Sustainability Report Our aim is to act sustainably and responsibly, maintaining a delicate balance between business, people and the environment. To lay the foundation for this, Tognum is committed to the ten principles of the Global Compact, an initiative of the United Nations for responsibility in business. The principles encom-pass internationally recognised human rights and work standards as well as environmental protection and the fight against corruption. They form a part of the binding code of conduct for our employees in their relationship towards one another as well as with customers, suppliers, business partners and the environment. With these guidelines, our employees have a clear value code and a framework for action in order to be able to appropriately respond to legal and ethical questions in day-to-day operations. This raises the awareness of our staff and makes it clear that Tognum will not tolerate conduct which violates regulations (please see the corporate governance report beginning on Page 66).

Our aims with respect to sustainability are clearly reflected in Tognum's company guidelines. Our social and ecological self-image is strategically anchored in its own guideline: »We assume corporate and social responsibility and continuously improve the environmental track record of our products and locations«.

Commitment to the principles of the Global Compact

Sustainability aspects anchored in the guideline

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We regularly and comprehensively keep our staff up to date on many aspects of sustainability via the intranet as well as through our employee magazine »Insight« and conduct training sessions. In this way, we ensure that our staff are sensitised and able to develop a culture in which the demands for sustainable development can also be implemented: each one of our around 9,000 employees worldwide, within his or her area of influence, is responsible for ensuring that economy, ecology as well as social and corporate responsibility are in unison with the day-to-day operations of Tognum.

In the operational implementation of measures, established management systems for environmental protection (ISO 14001), quality assurance (ISO 9001, KTA, IAEA 50-C-Q, IRIS) and for occupational health and safety (OHSAS/OHRIS) take effect along the entire value creation chain. These ensure that uniform management processes are applied consistently worldwide and integrated in operational proc-esses. Internal and external audits carried out annually as well as certifications carried out by independ-ent experts in three-yearly cycles at all locations involved prove this. Any weak points are highlighted and optimisation potentials are documented.

This leads to a continuous improvement process. The main drivers for this are global megatrends such as climate change, commodity shortages and the demographic development. Legislators introduce ever stricter environmentally friendly emissions regulations for engines and production systems. At the same time, our customers’ demands on the efficiency and economy of our products increase. In addition, the demand for product innovations based on environmentally friendly technologies and alternative drives continues to grow. As an employer, we are required to be able to cover our need for qualified specialist staff in the future as well. Not least the capital market, the media and the public are showing more and more interest in how we are meeting these challenges and assuming our responsibility as a company. For this reason as well, we will be reporting extensively on our understanding and our involvement in the area of corporate responsibility in 2011.

At Tognum, we keep our eye on sustainability at all levels of our value creation chain: from research and development to purchasing, logistics and production, right through to marketing, sales and maintenance, and a basic overhaul of our products until the end of their lifecycle. In addition to the product-related aspects of sustainability, our strategic attention will also be focused on occupational safety as well as on the protection of health and the environment. This holistic understanding is expressed in the future integration of our management systems for quality, as well as occupational, health and environmental safety in a joint, process-oriented system.

The Group of companies has in the past developed ever more consistently from a pure engine manufac-turer to a systems supplier and solutions provider and has thus achieved a high degree of systems integra-tion. Value creation does not stop at national borders for Tognum – we act globally. This has financial reasons (e.g. foreign currency fluctuations, customer demands for local value creation and delivery ti-mes), ecological reasons (e.g. shorter transport routes) and social reasons (e.g. customer proximity, avail-ability of specialist personnel). When new locations are developed, as in Aiken/USA and Datong/China in the past year, we review the quality, environmental and safety standards in advance. Wherever neces-sary, we will take the necessary steps to bring them up to Tognum standards.

Product Responsibility Our products are used in areas which have a direct effect on people and the environment. For instance, they provide hospitals and power plants with emergency electricity, thereby ensuring their safety. They drive machines in agriculture and forestry as well as dump trucks and excavators which transport raw materials. Commercial ships or trains using our engines ensure mobility. In military vehicles, the safety and manning of machines is largely dependent on the reliability and performance of the drive systems. In

Proven standards – worldwide

Continuous improvement process

Responsibility along the entire global value creation chain

Responsibility throughout the entire product lifecycle

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all these, we take the responsibility for quality, reliability, safety, efficiency, resource preservation and environmental protection. We ensure that our products meet all legal and contractually agreed require-ments and test them in depth. We see our responsibility throughout the entire product lifecycle as: start-ing from structured innovation management to the development of fuel efficient, low emission products and their resource-efficient and environmentally protecting production through to the re-using or recy-cling of engines or individual components.

I N N O V A T I V E T E C H N O L O G I E S . Innovations form the basis of economic success and thus for the sustain-able development of our company. The future-oriented drive systems and energy systems of the Tognum Group set benchmarks in respect of energy efficiency as well as low fuel consumption and emissions – characteristics from which both our customers and the environment benefit.

Of the combustion engines, diesel engines have the highest efficiency. However, pollutants are created during the combustion process: nitrogen oxides (NOx), hydrocarbons (HC) and particulate matter (PM). Tognum is one of the technology leaders for low emission and economical drives. For instance, at the construction machinery trade fair, BAUMA, in spring 2010, we were already presenting machines that met the emission level EA tier 4 of the US environmental authority to be introduced in 2014.

The steep reduction in emissions within a few years is associated with a high investment cost for drive manufacturers: in 2010, Tognum provided adjusted development services of 192.6 million euros, which represents 7.5% of sales. More in-depth information on research and development can be found beginning on page 56.

In order to reduce the emissions of engines, Tognum prefers to optimise combustion to keep the raw emissions as low as possible. If internal engine technologies such as exhaust gas recirculation and dual-stage charging are not enough, the after treatment of exhaust gases comes into play. Diesel particulate filters minimise the emission of particulate matter from engines while SCR catalytic converters lower NOx emissions. In order to meet future emission thresholds, the technologies for the after treatment of exhaust gases will play a key role.

Gas engines are an alternative to diesel engines, particularly in stationary use in onsite energy systems. Our gas engines work with both natural gas and biogas. The latter belong to the regenerative fuels which are produced in agriculture or in wastewater treatment plants, for example. As these gases only release as much CO2 during combustion as was bound in their production, they are regarded as climate neutral.

The future belongs to alternative drive technologies. Hybrid systems which, for instance, combine drive packages from diesel and electric engines promise to become a successful solution. On braking these produce kinetic energy which they convert into electrical energy, storing and then using when restarting or accelerating. Tognum will be testing these solutions which have already been developed in a rail car and a yacht in 2011.

The energy requirements growing rapidly worldwide, in particular in the emerging and developing coun-tries, time and again lead to supply gaps which need to be bridged in the short term. If the requirement is to be independent of public networks or to supply local networks with additional power, our onsite en-ergy systems by the MTU Onsite Energy brand offer flexible and environmentally friendly solutions.

A F T E R S A L E S . Our after sales activities contribute to extending the life cycle of our products. We thus not only ensure stability of value and security of investment, but also handle resources with care. We provide our customers and partners with detailed and informative technical documentation and specifi-cations in several languages for each product. These include information on environmental protection

Engines meet the strictest emissions requirements

Environmentally friendly technologies reduce the emission of pollutants

Clean gas engines rely on climate-neutral regenerative energies

Alternative drive with hybrid technology

Flexible solutions for rapidly growing energy requirements

Protecting resources and securing value

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and clear instructions as to how the product is properly and safely operated. We also offer our customers training sessions for this purpose. In addition, we are concerned with professional maintenance and repair and provide high quality original spare parts and consumables. Customers can return engines to Tognum which have reached the end of their life and are part of the Reman programme. In our Reman centres, these are industrially overhauled, technically updated and then sold with the same guarantee as a new part. Components such as crank shafts can be refurbished up to three times. In the exchange process, the customer immediately receives a reworked engine or a reworked part, thus avoiding downtimes and benefiting from more cost-effective prices. The advantages of this process for the environment are obvi-ous: materials can be re-used and utilised efficiently, thus saving raw materials; there is less waste and less energy is used. A uniform deposit system for engines and components in the Reman programme should additionally motivate customers to return their used spare parts. In this way, the remanufacturing cycle can be maintained.

R E M A N U F A C T U R I N G

P U R C H A S I N G A N D S U P P L I E R M A N A G E M E N T . We aim for a long-term and reliable partnership with our suppliers, who make an important contribution to our value creation chain. We expect from them that their conduct corresponds to Tognum’s company values and quality requirements. For us, it represents an important foundation for our business relationships that this requirement is recognised. When selecting suppliers, we therefore emphasise the existence of social and ethical guidelines and that the supplier and its partners are not engaged in child labour and corruption. Since the start of 2010, we have expanded our supplier evaluation system by environmental protection and recommend that our strategic partners are ISO 14001 certified. If violations of the legal regulations concerning environmental protection are identified, the termination of the business relationship is seen as a last resort.

Environmental Protection P R O D U C T I O N A N D A S S E M B L Y . Quality, environmental protection as well as occupational health and safety will go hand in hand at Tognum in the future. We are thus currently developing an integrated management system with a focus on quality and environmental protection. The goal is to optimise the manufacturing and assembly processes, thereby minimising the consumption of resources, environ-mental pollution and health compromises of our employees. In order to be able to measure the progress in the future and to compare ourselves to competitors, we are currently developing a group-wide infor-mative key indicator system. The relevant goals and resulting programmes will be formulated in 2011.

Selecting suppliers according to sustainability criteria

Group-wide key indicator system developed

4 Thesparepartissubsequentlysoldasaremanufacturedor»Reman«part.

1 WhenacustomerbuysasparepartfromtheMTU_ValueExchangeportfolio,acoredepositisincludedintheprice.

3 IntheRemanCentre,theusedpart(core)isrefurbishedbasedonastandardisedprocess.

2 Whenhereturnstheusedpart(core)toTognum’scorecollectioncentre,itisinitiallyinspectedtoseeifitmeetstheacceptancecriteria.Ifthisisthecase,thecoredepositisreimbursed.

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In 2010, recertification in accordance with the environmental protection management system ISO 14001 was on the agenda at Tognum’s locations in Friedrichshafen. In the context of matrix financing, eleven additional locations were also recertified until 2013. The certificates can be found on the internet at www.tognum.com under »Sustainability & Innovation«.

E N VIRO NM EN TAL CE RT I F I CAT IO N S IN ACCO R DAN CE WI T H ISO 140 02 , VALI D UN T I L M AY 2 013

SKL Motor GmbH, Magdeburg First certification December 2009

MTU Onsite Energy Corp., Mankanto/USA First certification October 2008

MTU Onsite Energy GmbH, Augsburg First certification May 2007

L’Orange GmbH, Stuttgart, Glatten and Wolfratshausen First certification May 2007

MTU Engineering Co. Ltd., Suzhou/China First certification May 2007

Tognum AG, Friedrichshafen First certification May 2007

MTU Italia S.r.L., Arcola/Italy First certification October 2003

MTU Friedrichshafen GmbH (including the Duisburg and Überlingen locations) First certification May 2001

We also use our own products at our locations in the environmentally friendly production of electricity and heat. At the two factories in Friedrichshafen, cogeneration power plants with MTU Onsite Energy gas engines cover approx. one quarter of the electricity and heat requirement. The cogeneration of heat and power makes it possible to use 73% of the energy contained in natural gas. The high efficiency of the gas engines pays off compared to the separate generation of electricity and heat: 1,700 tons of CO2 can be saved per year.

L O G I S T I C S . With more than ten assembly and manufacturing locations and with a network of more than 140 sales partners and more than 500 authorised dealers at approx. 1,200 locations in 130 countries, Tognum moves large quantities of materials, spare parts and vehicles every day – with a corresponding effect on the environment. The local value added in various regions of the world contributes to lowering the consumption of resources and environmental pollution. We made an additional contribution in 2010 with our new production and assembly locations in Aiken/USA und Datong/China. In order to improve Tognum’s ecological footprint, we are always seeking ways of improving even the warehousing and trans-port of our products as well as the organisation of business trips and the management of our company vehicle fleet.

We consider fuel consumption, low CO2 emissions and costs when equipping our vehicle fleet. All the heavy trucks of MTU Logistics have a modern exhaust cleaning system (BlueTECdiesel technology) and thus fully comply with the exhaust gas standards. We also observe these aspects in the selection of com-pany cars.

The new centralised materials management centre in Kluftern near Friedrichshafen, the construction of which was started in 2010, will make an important contribution to ensuring that the logistics structures at Friedrichshafen are designed more simply and more efficiently. The goal is to provide all the parts that are needed for an engine at one central location in time for manufacture and assembly. Currently, the materials are divided over ten warehousing and logistics locations in the vicinity of Lake Constance. This centralisation will make it possible for us to optimise logistical processes and reliability of delivery as well as to improve efficiency. Ultimately, optimised logistics ensures better utilisation of vehicles which, in turn, reduces environmental pollution.

Environmental protection in accordance with ISO 14001

Self-produced electricity and heat for the factory buildings

Vehicle fleet management

Centralised materials management centre

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Social Responsibility to our Employees Approximately 9,000 people and their families are behind the Tognum Group and its companies. Fluc-tuations in the economy and demographic developments time and again present us as an employer with new challenges. The awards for employee-friendly company and personnel policies show that we handle these with a high degree of responsibility. We were therefore pleased to have achieved the CRF quality seal »Top Employer in Germany 2010« and »Top Employer for Engineers 2010« in the past year. Tognum also scored top marks in criteria such as job security, development opportunities, market position and image as well as compensation. In addition, the audit by berufundfamilie gGmbH, under the patronage of the Federal Minister for Family Affairs and the Federal Minister of Finance, ensured that a particularly family-friendly personnel policy could be renewed in 2010. Tognum can also be regarded as a »Fair Company« as we abide by all the rules of the game in this initiative (see Page 83 for further details).

S E C U R E W O R K P L A C E S . In the difficult phase of the financial crisis, we succeeded in keeping our core personnel on board and in avoiding short-time work. A decisive factor in this was the flexible working hours account model developed at Friedrichshafen.

Due to the sale in 2009 and associated relocation of propeller shaft production (Rotorion) from Frie-drichshafen to Haldensleben (approx. 700 kilometres away), 426 employees needed a new perspective. The »Future Active« project was started in order to find new employment relationships or individual solutions. More than 340 employees had already been placed by the end of 2010.

G A I N I N G A N D T R A I N I N G Q U A L I F I E D S P E C I A L I S T P E R S O N N E L . As a successful systems provider with extensive customer and product support,and as a research technology company with distinctive expertise in finding solutions, we are reliant on well-qualified employees. That is why we train them ourselves: in more than 15 technical and commercial careers as well as through a dual-system course of study. Only in this way can Tognum be sure to secure a good position in the ever increasing competition for qualified personnel.

According to the German example, we also offer qualified technical training programmes and training sessions at our international locations. We collaborate with local educational institutions; this works very well at our location in South Africa, for instance. In a parallel process, we have initiated the transfer of knowledge within the Group and are developing multipliers in accordance with the train-the-trainer principle. Five trainers from our locations in Malaysia have, for instance, been active for Asian plants since October 2010 after having been trained at home and in Friedrichshafen. 30 Chinese colleagues from Datong visited Lake Constance in 2010 in order to be comprehensively introduced to assembly activities. In summer, ten American employees qualified at Friedrichshafen for one month; they are now passing on their knowledge at the new US assembly location in Aiken/South Carolina.

We received approximately 850 applications for the »Multiple Chances« international trainee programme in 2010, from which we selected a group of highly qualified candidates. At the beginning of 2010, the trainees of the first year ended their 18-month programme.

O C C U P A T I O N A L H E A LT H A N D S A F E T Y . Tognum places high value on maximum safety and occupational health at the workplace. In the medium term, Tognum plans to introduce the OHSAS 18001 occupa-tional health and safety management system or similar systems in all its manufacturing and assembly plants, depending on financial considerations, legal requirements or customer requests. The L’Orange locations in Stuttgart, Glatten and Wolfratshausen will start with this during the course of 2011. Augs-burg has already used the OHRIS occupational health management system initiated by the Bavarian State Ministry for Environmental Protection, Health and Consumer Protection. The service location MTU Italia S.r.l. in Arcola/Italy has already been OHSAS 18001 certified.

Top Employer in Germany 2010

Securing employment

International education according to the German example

Occupational health and safety

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The commitment in the working committee for cooling lubricants shows that Tognum is on the right path to occupational health and safety. Tognum’s representatives have participated here and prepared a special list of hazardous substances. In October 2010, the result was awarded with the 8th »German Pro-tection against Hazardous Substances Prize« given by the Federal Ministry of Labour and Social Affairs.

With our health promotion programme, we support employees who assume personal responsibility for their health on an ongoing basis. With a range of individual programmes, we contribute to ensuring that our employees remain healthy. Further information can be found on page 82.

Social Engagement with a Regional Focus Our social responsibilities are also met at our locations. Since December 2009, two guidelines regulate the donation and sponsoring activities for the entire Tognum Group. The guidelines prescribe the correct treatment of donations and sponsorships and, amongst others, include information on goals, responsi-bilities and administrative principles. In this way, we make sure that donations and sponsored funds are used in a targeted manner. As a sponsor, we support projects worthy of promotion in the areas of sport, art, environment and society which are initiated for the medium to long term. With our donations, we support without exception associations and institutions which are active in social, cultural or scientific fields in the regional environment of our locations.

With the MTU Umweltstiftung (environmental foundation) established in 2004, we are involved in environmental and nature protection projects at Lake Constance. In the past year, the foundation offered a grant for 2011 amounting to 20,000 euros. A research project by the Institute for the »Physiological ecology of animals« at the Eberhard Karls University in Tübingen is being funded. Through a before-after study, it will be investigated what effects micropollutants such as medicines and endocrine sub-stances or non-degradable or partially degradable substances have on amphipods in the Schussen river flowing into Lake Constance if an active charcoal filter is installed at the Langwiese wastewater treatment plant in the administrative district of Ravensburg. In addition to our involvement with our own founda-tion, two further institutions with a sustainable social orientation are closely connected to our company: the Jean-Raebel-Stiftung and the Karl Maybach-Hilfe.

The foundation of the same name established by Jean Raebel in 1982 assists employees who are pursuing full-time studies or a masters or technician training course. 1,490 scholarship holders have been finan-cially supported to date; there are currently 120 scholarship holders. In addition to the employees, their children also enjoy this sustainable institution.

The Karl Maybach-Hilfe, established in 1958, documents the social engagement of our company foun-ders. Until today, employees and their families benefit from grants either on the occasion of the birth of their children or in difficult financial situations.

Stakeholder Dialogue Thanks to a continuing improvement management we are always developing ourselves further. Our internal ideas management makes an important contribution to this. In 2010, more than 1,300 entries were checked and evaluated. Equally important to us is open dialogue with our stakeholders such as employees, customers and suppliers, with whom we aim to have a long-term collaboration. We regularly ask them for feedback and use the insights gained to jointly orient ourselves even better to future tasks. In 2010, we carried out an employee survey for the second time in Germany and Asia to this end. Fields of activity and themes with an increased improvement potential are systematically developed further with the aim of carrying out a follow-up survey. In addition, we initiate customer surveys worldwide every three years, the most recent one towards the end of 2010. We also use these insights to become or remain our customers' preferred partner.

Donations and sponsorships

Lake Concstance Grant from MTU’s environmental foundation

Karl Maybach-Hilfe

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Takeover Directive Implementation Act (Provisions in Accordance with Sections 289 (4) and 315 (4) of the German Commercial Code (HGB), and Explanatory Report) Based on the above provisions relating to the Takeover Directive Implementation Act of July 2006, the following compulsory disclosures result for the Tognum Group:

C O M P O S I T I O N O F S U B S C R I B E D C A P I T A L . The subscribed capital of Tognum AG amounts to 131,375,000.00 euros and is divided into 131,375,000 bearer shares with a portion of the share capital amounting to 1.00 euro per share.

All shares involve the same rights and obligations. Every share guarantees one vote at the Annual General Meeting and determines the portion of the company’s profits to which the shareholder is entitled. Ex-cluded from this are any shares the company may hold for which it is not entitled to any rights. The rights and obligations of the shareholders are outlined in detail in the provisions of the German Stock Corporation Act (AktG), and in particular in Sections 12, 53a et seqq., 118 et seqq. and 186 of the Ger-man Stock Corporation Act. Different share categories do not exist.

L I M I T A T I O N S T H A T A F F E C T V O T I N G R I G H T S O R T R A N S F E R O F S H A R E S . There are no limitations with respect to voting rights or the transfer of shares. The underwriting agreement and lock-up agreement concluded on the same day between the consortium banks, Tognum AG, and the issuing shareholder, in preparation for the IPO, have expired.

I N V E S T M E N T S I N C A P I T A L E X C E E D I N G 1 0 % O F T H E V O T I N G R I G H T S . In accordance with the German Securities Trading Act (WpHG), any investor obtaining, exceeding or falling below a certain threshold of voting rights in the company by acquisition, divestiture or otherwise, is required to notify the company and the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) im-mediately. The notification will then be published as provided by the German Securities Trading Act.

Daimler Vermögens- and Beteiligungsgesellschaft mbH, Stuttgart/Germany informed us in accordance with Section 21(1) of the German Securities Trading Act that on 23 July 2008, it had exceeded the 25% threshold of the voting rights in our company and that it was now entitled to 25.00000076% (32,843,751 of the voting rights) in our company. Daimler AG, Stuttgart/Germany informed us at the same time that the aforementioned voting rights of Daimler Vermögens- and Beteiligungsgesellschaft mbH, which is controlled by Daimler AG, would be assigned in accordance with Section 22 (1) (1) (1)of the German Securities Trading Act.

Other investments that exceed 10% of the voting rights are not known to the company.

No limitations with respect to voting rights or the transfer of shares

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S H A R E S W I T H S P E C I A L R I G H T S T H A T G I V E C O N T R O L A U T H O R I T Y. There are no shares with special rights that give control authority.

T Y P E O F V O T I N G R I G H T C O N T R O L W H E N E M P L O Y E E S I N V E S T I N C A P I T A L A N D T H E I R C O N T R O L

R I G H T S A R E N O T E X E R C I S E D D I R E C T LY. There are no employees who have invested in the capital of the company and are subject to voting right controls.

L E G A L R E Q U I R E M E N T S A N D P R O V I S I O N S I N T H E A R T I C L E S O F A S S O C I A T I O N R E L A T I N G T O T H E

A P P O I N T M E N T A N D D I S M I S S A L O F M E M B E R S O F T H E E X E C U T I V E B O A R D A N D R E L A T I N G T O

C H A N G E S T O T H E A R T I C L E S O F A S S O C I A T I O N . The appointment and dismissal of members of the Executive Board is governed by Sections 84 and 85 of the German Stock Corporation Law and Section 31 of the German Co-Determination Act. Members of the Executive Board are appointed by the Supervi-sory Board for no more than five years. However, the supervisory board intends to appoint members of the Executive Board for three years. Reappointment or the extension of the term for no more than an-other five years is also permitted.

In accordance with Section 31 of the German Co-Determination Act, a majority of at least two thirds of the members of the Supervisory Board is required for the appointment of the members of the Executive Board. If no appointment is made, the Mediation Committee of the Supervisory Board is required to make a recommendation for the appointment within a month after voting has taken place. The Supervi-sory Board then appoints the members of the Executive Board with a majority vote of its members. If an appointment still fails to be made, the chairman of the Supervisory Board has two votes in the next vote.

In accordance with Section 7.1 of the Articles of Association, the Executive Board consists of at least two people; the actual number of members of the Executive Board is determined by the Supervisory Board. The Supervisory Board can appoint a chairman of the Executive Board and a deputy chairman (in accor-dance with Section 84 of the German Stock Corporation Act and Section 7.1 of the Articles of Associa-tion). If a member required on the Executive Board is incapacitated, then, in accordance with Section 85 of the German Stock Corporation Act, a member will be appointed by the court in urgent cases at the request of one of the members involved. In accordance with Section 84 (3) of the German Stock Corpo-ration Act, the Supervisory Board can revoke a person’s appointment to the Executive Board and to the position of Chairman of the Executive Board if there is good cause.

In accordance with Section 179 of the German Stock Corporation Act, any amendment to the Articles of Association requires a resolution of the Annual General Meeting. Authorisation to make changes that affect the wording of the amendment only, in accordance with Section 23 of the Articles of Association, is transferred to the Supervisory Board. The Supervisory Board, in accordance with Article 5.4 of the Articles of Association, is also authorised to amend the Articles of Association in accordance with the respective use of the authorised capital 2010/I and after the respective authorisation term has expired.

Tognum AG’s Articles of Association were last revised by means of a resolution passed by the Annual General Meeting held on 18 May 2010. In this case, the provisions regarding authorised capital 2010/I were included, the ruling on the remuneration of the Supervisory Board members was modified, and the Articles of Association were amended to comply with the Act Implementing the Shareholder Rights Directive (ARUG).

A U T H O R I S A T I O N F O R T H E E X E C U T I V E B O A R D T O I S S U E O R B U Y B A C K S H A R E S . The Executive Board is authorised by the Articles of Association to increase the share capital with the approval of the Supervi-sory Board by issuing new shares once or on more than one occasion, but for no more than 48,662,500.00 euros until 17 May 2015 (authorised capital 2010/I).

Executive Board members appointed by the Supervisory Board for no more than five years

Amendment to the Articles of Association requires resolution of the Annual General Meeting

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The extraordinary Annual General Meeting held on 5 June 2007, with the approval of the Supervisory Board, authorised the Executive Board to issue once or on more than one occasion bearer warrant bonds and/or convertible bonds for up to 500,000,000.00 euros and to grant warrant rights to the owners of the warrant bonds or note rights to the owners of the convertible bonds for the bearer shares of the company with a proportional amount of the share capital for a total of up to 13,000,000.00 euros in accordance with the conditions of the warrant bonds or the convertible bonds. This authorisation is valid until 31 May 2012.

At the ordinary Annual General Meeting held on 18 May 2010, the company was authorised to acquire and the Executive Board to make use of own shares. The authorisation to acquire own shares is valid until 17 May 2015 and is limited to 10% of the share capital, while including own shares and the shares to be added in accordance with Sections 71a et seqq. of the German Stock Corporation Act

The Executive Board did not exercise the aforementioned authorisation to issue option and/or converti-ble bonds and to acquire its own shares in the year under review. Accordingly, as at 31 December 2010, the company did not hold any own shares.

S I G N I F I C A N T A G R E E M E N T S O F T H E P A R E N T C O M P A N Y T H A T A R E S U B J E C T T O A C H A N G E I N C O N -

T R O L A S A R E S U LT O F A N A C Q U I S I T I O N O F F E R . There is a credit agreement with a bank for a revolving guarantee credit facility not exceeding 70 million euros, in which it is agreed that the bank has an ex-traordinary right to terminate the agreement in the event of a change of control at Tognum AG should the parties be unable to come to an agreement regarding a continuation of the credit agreement.

In a credit agreement with another bank regarding a guarantee credit line not exceeding 50 million euros, it has been agreed that the bank may terminate the agreement in the event of a change of control at Tog-num AG relating to a subsequently reduced creditworthiness.

In a credit agreement with a consortium consisting of 13 international banks for a total volume of 450 million euros and 260 million US dollars, it has been agreed that each of the consortium banks has the possibility of terminating its obligations under the credit agreement in the event of a change of con-trol at Tognum AG.

The above regulations relating to the contracting parties’ rights in the event of a change of control consti-tute customary conditions as part of such agreements. They will not lead to an automatic termination of the agreed arrangements, but merely entitle the contractual parties to terminate them in the event of a change of control.

C O M P E N S A T I O N A G R E E M E N T S O F T H E P A R E N T C O M P A N Y W I T H M E M B E R S O F T H E E X E C U T I V E

B O A R D O R T H E E M P L O Y E E S I N T H E E V E N T O F A T A K E O V E R O F F E R . There are no compensation agreements with the members of the Executive Board or employees in the event of a takeover offer.

Tognum authorised to acquire and make use of its own shares

No compensation agreements in the event of a takeover offer

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Declaration on Corporate Governance The declaration on corporate governance in accordance with Section 289a of

the German Commercial Code (HGB) includes the declaration of compliance in

accordance with Section 161 of the German Stock Corporation Act (AktG), rele-

vant disclosures relating to corporate governance practices, a description of the

workings of the Executive Board and Supervisory Board, and the composition

and workings of their committees.

Contents

- Declaration of compliance in accordance with Section 161 of the German Stock Corporation Act - Relevant disclosures relating to corporate governance practices - Workings of the Executive Board and Supervisory Board, including the composition and workings of

their committees

D E C L A R A T I O N O F C O M P L I A N C E I N A C C O R D A N C E W I T H S E C T I O N 1 6 1 O F T H E G E R M A N S T O C K C O R P O -

R A T I O N A C T. The complete text of the declaration of compliance in accordance with Section 161 of the German Stock Corporation Act is included in the annual report beginning on page 66.

R E L E V A N T D I S C L O S U R E S R E L A T I N G T O C O R P O R A T E G O V E R N A N C E P R A C T I C E S . Tognum AG recog-nises its responsibility to society and is convinced that social responsibility is an important factor for the company’s long-term success. Tognum AG therefore supports the principles of the Global Compact, an initiative of the United Nations for businesses in areas such as environment, human rights and labour standards.

Tognum AG’s commitment in the areas of environment, human rights and labour standards is based on its support for personal initiative and personal responsibility. Only internationally competitive and fi-nancially sound companies can contribute to solving society’s problems.

For Tognum AG, acting in a financially, ecologically and socially responsible way means securing the future competence and innovative ability on the basis of financial success.

Personal initiative and personal responsibility

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Tognum AG has also summarised key guidelines in a code of conduct called the »Integrity Code«, which is valid for each individual employee within the Group and includes the following core statements:

- In all dealings with business partners, competitors, governments and authorities, Tognum AG specifies clear rules and modes of behaviour.

- Tognum AG respects internationally recognised human rights, the occupational health and safety of the people it employs and respects the principle of partnership-based cooperation and equal oppor-tunity in the workplace.

- Tognum AG employs internal control systems for the protection of the company and to guarantee compliance with the law and internal regulations.

- Tognum AG strives to bring about a continuous improvement in the quality of its products and services and supports the sustainable protection of the environment.

- Tognum AG is opposed to discrimination, exploitative working conditions and corruption. - Company executives and departments set up specifically for this purpose are responsible for clarifying

questions and pointing out the possible consequences of not complying with this code of conduct.

More detailed information relating to the above-mentioned corporate governance practices is available to the general public on the following websites:

- Global Compact: www.unglobalcompact.org - Tognum Integrity Code:

http://www.tognum.com/sustainability-innovation/integrity-code/index.de.html

W O R K I N G S O F T H E E X E C U T I V E B O A R D A N D S U P E R V I S O R Y B O A R D , I N C L U D I N G T H E C O M P O S I T I O N

A N D W O R K I N G S O F T H E I R C O M M I T T E E S . The Executive Board and Supervisory Board work closely with each other in a spirit of mutual trust and confidence to further the interests of Tognum AG. The Executive Board runs the company and manages its business. The Supervisory Board monitors and advises the Executive Board on a regular basis. The Executive Board informs the Supervisory Board regularly, promptly and in full on all issues of relevance to the company relating to corporate planning, including financial, investment and personnel planning, the business situation of the company and the Group, the risk situation, risk management and compliance, and thus complies fully with its reporting obligations. In the event that deviations occur between targets and forecasts in the course of the com-pany’s business, the Executive Board notifies the Supervisory Board immediately. This also applies when changes are made to the strategy and development of the Group. The Executive Board also reports regu-larly, both verbally and in writing, promptly and comprehensively on all transactions of significance to the company. Significant business transactions require the approval of the Supervisory Board. The Su-pervisory Board is involved in all decisions at an early stage. Outside meetings, the Executive Board and Supervisory Board regularly discuss matters relating to strategy and planning, in addition to current business developments.

W O R K I N T H E C O M M I T T E E S . To be in a position to perform its duties effectively, the Supervisory Board has set up a total of five committees (the Executive Committee, the Mediation Committee, the Audit Committee, the Strategy Committee and the Nominations Committee). The committees prepare specific topics for discussion in the plenary sessions and Supervisory Board resolutions. For specific issues, the Supervisory Board has delegated decision-making authority to the committees. A presentation of the individual committees and their members is included on pages 12 to 13 of this management report.

Key guidelines summarised in the Integrity Code

Working relationship between Executive Board and Supervisory Board based on mutual trust and confidence

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Events after the Balance Sheet Date There were no significant reportable events between the balance sheet date and the date on which this report was prepared.

Opportunities and Risk Report Opportunities Report In addition to the possible risks to which the Tognum Group is exposed, the global markets offer numerous opportunities. As with risks, these can also have an impact on the asset situation of Tognum shareholders.

Identifying and dealing systematically with opportunities

At Tognum AG, opportunities are identified, analysed, controlled and monitored in a decentralised manner. At the operational level, we also assess the market and sales opportunities. For this purpose, order and customer project lists are prepared, prioritised and subsequently dealt with together with the heads of the divisions in the regions. We also prepare operational costs and efficiency potential in a structured form in our »Tognum TOP« specialist steering committees. We use a variety of tools to do this, including benchmarking, continuous improvement process, Kaizen and lean management. We also make a close examination of the potential identified in this way. The entire Executive Board is informed of the current progress being made in all the work packages of the »Tognum TOP« committees.

At the strategic level, opportunities are identified in annual strategic planning meetings. Potential in the markets and applications, in addition to production, IT and administration are displayed and prioritised in strategy meetings that include scenario workshops. Long-term product planning also points out con-crete opportunities resulting from the new development or modification of existing products to meet other customer needs and then prioritises them.

Trends as opportunities

The following trends will offer us significant opportunities for a sustainable development of the Tognum Group in the years ahead:

D Y N A M I C E M E R G I N G E C O N O M I E S . With the increasingly dynamic growth of many emerging economies in the medium term – in terms of both production and consumption – favourable economic and legal conditions are developing in regions in which we are already doing business or in which we would like to do more business.

G L O B A L I S A T I O N . Unaffected by short-term trends, the constantly increasing globalisation of production sites and trade flows will continue to lead to more energy being generated, more raw material extracted, and even more goods and people being transported.

D E C E N T R A L I S E D E N E R G Y D E M A N D . An asymmetric development of decentralised energy demand and supply can be seen in many countries. In the industrialised countries, this development is accompanied by increasing structural problems in terms of network capacity. Furthermore, climate change (severe winters, hot summers, storms and natural disasters) will lead to an increased vulnerability of the net-works and subsequently to an increasing demand for emergency power and peak load plants.

Opportunities identified, controlled and monitored in a decentralised manner

Significant opportunities for sustainable development

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S H O R T A G E O F R A W M A T E R I A L S . There will be an increasing shortage of raw materials and energy in the long term. Associated statutory and other regulations will lead to a further increase in demand for even more efficient production and transport systems.

S E C U R I T Y. Globalisation ultimately increases the demand for products and systems that can be used to protect national and regional borders or coastlines and public buildings.

These are megatrends that are relevant for our business, and we can use them for the benefit of our stakeholders and at the same time position our engines, systems and services even better in the respec-tive markets.

Other opportunities

Other opportunities result from the SWOT analysis presented in the opportunities and risk report, which is included on page 104. For information on ways in which we can avoid risks, we would refer to the detailed risk report that begins on page 96.

Risk Report Risk management system

As an international group of companies, the Tognum Group is exposed to many potential risks. They result on the one hand from significant changes in the relevant markets in which the company operates, and on the other hand from a potential shift in Tognum's competitive position. As a result – depending on the importance of the risks concerned – their consequences can have a greater or lesser impact on the assets of Tognum's shareholders.

The Executive Board of Tognum AG, on the basis of its corporate strategy has specified a risk manage-ment strategy that is implemented in the risk management system. Risk management takes place in a control environment that is vital for its effectiveness: the key factors are our corporate culture, our awareness of high-risk trends and events and our ability to deal with the risks and to employ the risk management system effectively.

In order to reduce the effects of such risks to a minimum, Tognum has introduced a powerful risk man-agement system designed to identify and analyse developments unfavourable to the company as early as possible, as well as to ensure the rapid introduction of counter-measures. Within the risk management system, various roles with clearly described tasks, competencies and responsibilities are defined. Persons responsible for the respective risk are named and identify risks on the basis of a company-wide listing, by taking a systematic look at events and developments in the company or its environment that could lead to a divergence from the planned commercial success. The listing of risks takes place on the basis of defined fields of risk that cover all relevant areas and are adjusted continually.

The risks are evaluated based on the likelihood of their occurrence on the one hand and on the amount of loss on occurrence on the other hand, and are then included in a matrix. Those responsible for dealing with the risks have computer programmes available to identify, document and evaluate risks and, in addition, through the recording of indicators, to provide an early indication of high-risk trends. Adjusted threshold values have been defined for the individual divisions and companies. During the reporting process, we specify the committees to which the risks – based on their classification – have to be reported, either regularly or on an ad-hoc basis. The Executive Board and the Supervisory Board of Tognum AG are informed of the Group’s risk portfolio several times a year.

Powerful risk management system

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Identified group-wide risks are collected, consolidated, analysed and evaluated by central risk manage-ment, with special attention given to the singular, cumulative or additive features of the risks, without offsetting them against opportunities. Central risk management is supported during the analysis and evaluation of individual risks and the overall risks of the Tognum Group by a so-called risk review team.

Persons responsible for risks at decentralised location outside head office are responsible for handling and managing individual risks; they are supported by central risk management in this process. The over-all risk position is managed by the Executive Board of Tognum AG.

We have recorded the processes of risk identification from regular recording, analysis and management to the reporting of individual risks and overall risk situation in a guideline that is valid and binding throughout the Group. In addition, every employee has access to a manual that contains detailed infor-mation of the risks.

The risk management system is also analysed and managed on a monthly basis for liquidity, currency and interest risks. Detailed information on individual risks is provided under »Financial risks« and in the notes to the consolidated financial statements in the section entitled »Financial risk management«.

Compliance with the risk management processes is examined regularly by internal group auditing. The examination of the risk management system is also part of the annual audit performed by the German Public Auditors. In addition, the Supervisory Board’s Audit Committee is required to examine the effec-tiveness of the risk management system.

Risks

Risks are broken down as follows into market, product portfolio, investment portfolio and corporate strategy risks, in addition to technology, quality, personnel, IT, financial, environmental and other risks.

T Y P E S O F R I S K

Central risk management

Internal group audit examines compliance with the risk management processes

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M A R K E T R I S K S The sale of Tognum’s products is very much dependent on our customers’ demand, which fluctuates with the economic cycle. Despite the stabilisation of the situation on the financial markets and the overall improved demand for investment goods, the Tognum Group is still exposed to a volatile risk situation. On the other hand, the economic situation does not affect all market subsections and application areas equally. As a result of Tognum’s global presence and the wide range of application areas of Tognum’s products, we can reduce the effects of individual declines in demand on our overall performance. In addition to the economic situation, there are other drivers that also have an influence on the success of the Tognum Group, such as budgets for public spending. These above-mentioned factors act against each other to a certain degree and thus offset each other. For this reason, we regularly perform market analy-ses that look primarily at the economic situation, any additional macroeconomic factors and the com-petitive environment. We also reduce possible risks resulting from fluctuation in productivity and sales by means of flexible production capacity and measures that reduce overheads. By pushing production capacity utilisation to its limits, unforeseen events can result in supply risks arising and lead to contrac-tual penalties.

As a result of the strong competition in the engines market, we cannot automatically pass on price in-creases for raw materials, energy and primary products in full to our customers. Hence, to reduce these price and buying risks on the procurement side, we focus on globally coordinated purchasing activities, long-term supply contracts and the continued optimisation of the supplier’s portfolio.

In some cases, component suppliers and customers are still affected by the very difficult borrowing situa-tion. In the event of increased call-offs by the Tognum Group, suppliers can also experience supply bot-tlenecks.

P R O D U C T P O RT F O L I O R I S K S The Tognum Group has closed gaps in its product portfolio and reduced the portion of products pro-cured from outside and, thus, the dependence on the suppliers of engines. With the newly developed Series 1600, we are now serving and developing the lower power range. The assembly of engines for onsite energy applications started in 2009. In the power range below 560 kilowatts, Tognum will be sup-plementing its product portfolio for C&I applications below the Series 1600 engine as from 2014 with new 4- and 6-cylinder engines designated Series 1000, 1100, 1300 and 1500 engines. On our stand at the BAUMA trade fair in Munich in mid-April 2010, we already had a 6R 1500 engine on display. This en-gine is based on the coming generation of commercial vehicle engines from Mercedes-Benz and will be configured by Tognum specifically for the C&I requirement profile. On the one hand, all these new developments are associated with market entry risks – on the other hand, they increase the appeal of our product portfolio.

I N V E S T M E N T P O RT F O L I O R I S K S Tognum's investments are largely restricted to companies that are fully owned by Tognum AG or its subsidiary companies. This means there are no significant investment portfolio risks, such as risks aris-ing from foreseeable conflicts with minority shareholders. There are also joint ventures and minority holdings in which we usually have extensive voting rights and rights to information. The shareholding in IFA-Rotorion Holding GmbH, Haldensleben, still contains a risk of purchase price payment, which is primarily dependent on the financial performance of the company. Otherwise, no substantial risks have been identified in the investment portfolio.

C O R P O R AT E S T R AT E G Y R I S K S The Group structure and corporate processes are appropriately geared to the Tognum corporate strategy. Tognum’s activities are broken down into two business units: Engines and Onsite Energy & Components. The product portfolio of the Engines business unit includes MTU engines and MTU drive or propulsion

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systems for ships, agricultural and rail vehicles, military vehicles and the oil and gas industry. The portfolio of the Onsite Energy & Components business unit consists of the onsite energy systems of the MTU Onsite Energy brand and fuel injection systems from L’Orange. The energy systems include diesel gensets for emergency standby, base and peak load applications, in addition to CHP plants for combined heat and power generation based on gas engines and gas turbines.

Strategic decisions by nature include the risk of making the wrong decisions. Strategic risks can arise in particular due to decisions relating to all aspects of product development, due to investment decisions such as the choice of location, or in association with M&A activities. Strategic decisions at Tognum are related to economic appraisals.

New products are generally associated with the risk that they may be unprofitable because they are either too expensive in terms of development or will not be accepted by the market. New product development is carried out on the basis of projects. To eliminate or counter the risks, we perform risk analyses during the project assignment and at the project milestones, the projects go through defined quality gates. In the case of new product developments, we examine analyses of the market and the competitive environment. In the case of M&A activities, we perform due diligence to identify possible risks at an early stage and take the appropriate action.

If necessary, Tognum‘s organisation will be brought in line with changes in strategy. We anticipate that our corporate strategy will prove to be viable, even in a difficult market environment.

To implement its global growth strategy, Tognum also enters into joint venture agreements. They support our activities in Asia in particular, counter high risk exposure and are seen as opportunities.

Public contracts regularly assume that local value added is included. We counter the risk of not being able to accept such contracts or of being unable to meet contractual obligations with the continuing internationalisation of our value added. The new US production facility in Aiken/South Carolina, which was inaugurated on 1 December 2010, is also part of our international production strategy. The assembly lines are the first step to developing the Aiken plant into a broad production base in the USA, with the ultimate aim of gaining more market shares in the US and the US dollar zone. The implementation of an international production strategy is supported by a production site-related procurement strategy to reduce our dependence on Western European supplier markets.

T E C H N O LO G Y R I S K S Technology risks are fundamental risks for the Tognum Group. Growing requirements with respect to the performance and cost effectiveness of our products and the more stringent exhaust emission regula-tions are key challenges in the continuing technological development of our products. Tognum counters these risks by constantly optimising the development processes.

Q U A L I T Y R I S K S Not least as a result of the recognised quality of its products and its global service presence, the Tognum Group also considers itself to be well positioned. The technical specification of the products requires constantly high supplier quality. To secure this quality, we select suppliers carefully and monitor them on a regular basis.

Product defects have a negative effect on the company's reputation and entail liability risks. We prevent such risks by means of careful product development and an effective quality management system. How-ever, since the occasional fault cannot be completely excluded, Tognum offers its clients a reliable service network which is available worldwide. In order to limit the possible financial effects of such risks, insur-ance contracts have also been concluded.

Joint ventures seen as opportunities for our company

Careful selection of suppliers

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P E R S O N N E L R I S K S To attract highly qualified employees to our company, we present ourselves as an attractive and modern employer. We have also intensified our personnel marketing activities ahead of our recruitment activities – we now approach future engineers while they are still studying.

We have established an international trainee programme for university graduates in various specialist fields to cover any future lack of specialists and company executives. We counter a possible lack of spe-cialists by offering numerous traineeships. Our training and development programmes that include internal or external events are designed to motivate the employees and increase their qualifications. The low employee fluctuation rate and a long average period of employment with the company demonstrate that these current measures are successful. To identify high risk trends that are detrimental to the com-pany, we carried out a second employee survey in the reporting year 2010, which was well received. We will exploit the potential for improvement we have identified in a number of fields to position the com-pany as an even more attractive employer, to increase the satisfaction of our workforce and thus improve their performance. Overall, we pursue a preventive risk strategy in the field of personnel.

In the event of an extended period of low demand for our products, we counter any possible impact on personnel with a flexible employment strategy. This includes measures such as the use of agency workers and temporary contracts – this allows us to adapt capacity at relatively short notice to the demand in production. We also use flexible working time accounts to adjust manning levels in sales and production, in addition to indirect areas.

I T R I S K S The central business processes of the Tognum Group and its individual companies are dependent to a considerable extent on its IT processes and activities. The security of the computer systems and data are exposed to both external risks, such as attempts to infiltrate the system and malware, plus technical risks such as a server failure or faulty software. In order to minimise these risks, we have upgraded the IT organisation as part of our global strategy and optimised it continually to meet the requirements. The reliability of the IT system is guaranteed by means of a consistent standardisation of the IT infrastructure throughout the entire Group and by constantly ensuring that it is state of the art. A special focus is placed on the security of the IT systems and the data on file. Security is provided and optimised by means of redundant hardware systems and the use of the latest software solutions. An information security officer is also responsible for identifying worldwide risks to information security, for taking counter-measures and controlling their implementation.

Personnel marketing activities intensified

Flexible employment -strategy

Standardised IT infrastructure throughout the Group

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F I N A N C I A L R I S K S As a global group of companies, Tognum is generally exposed to financial market risks within the framework of its operative business activities and financing. These risks are minimised as much as possi-ble by appropriate countermeasures (»natural hedge«, e.g. by purchasing primary products in the cur-rency of revenue recognition). The remaining net risks are limited or eliminated by means of derivative financial instruments. As a matter of principle, all the necessary hedging business is handled by the central Group Treasury.

The use of derivative financial instruments is governed by an internal group-wide guideline, which also specifies the conceptual framework for identifying and determining the individual net risk exposure for all companies in the Group. Derivative financial instruments are used solely for hedging items but not for purposes of trading speculation. The effectiveness of risk hedging is monitored and controlled in the course of internal reporting procedures. Further information on financing and financial market risks is included in the notes to the consolidated financial statements in the section entitled »Financial risk management« beginning on page 139.

C U R R E N C Y A N D I N T E R E S T C H A N G E R I S K S . Currency risks can result from assets, liabilities and ex-pected cash flows which are expressed in currencies other than the euro. In order to limit such risks or eliminate them completely, Tognum takes out loans in foreign currencies and employs forward exchange transactions and, if required, options. Such measures apply above all to currency risks resulting from investments in US dollars.

Tognum has also taken out bank loans with variable interest rates, which entail interest change risks. The interest change risk from the drawn, non-revolving loan tranche is completely eliminated by the use of interest swaps. With regard to the management of interest change risks, the group-wide guideline also includes caps and floors as possible hedging instruments. For hedging business in the area of interest currency, there is a counterparty credit risk with respect to banks who are contracting partners.

Limitation of interest change risks through interest derivatives

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L I Q U I D I T Y R I S K S . Tognum pursues a conservative financing strategy. The company has a low level of net financing debt and a sufficiently high equity ratio. Apart from the stable earning capacity, this contrib-utes to a credit rating by the refinancing banks that corresponds to investment grade. This credit rating has a direct impact on financing conditions. Supported by medium-term framework financing, we are therefore in a good position as far as financing is concerned. The loan contracts we have concluded contain agreements on the observance of covenants that are common on the market. By non-observance of the covenants, banks have the right to terminate the financing agreements. We secure the company's liquidity by means of long-term and sufficient credit lines and guarantees with a large number of mainly European banks. Our excellent cash flow and active cash management also ensure that financial re-sources are available as required.

D E F A U LT R I S K S . We hedge default risks to which Tognum is exposed to the usual extent with conven-tional means of securing receivables and active receivables management. We minimise the risk in ad-vance by examining and assessing the financial situation of our customers. We grant credit lines to a limited extent only. In addition, in cases of recognisable default risks, we respond by implementing ap-propriate value adjustments.

E N V I R O N M E N TA L R I S K S The Tognum Group is also exposed to environment risks in the course of its operating activities, when dealing with water-polluting substances such as diesel fuel, for example, and crude oil. We counter such risks by means of regular eco audits, which ensure that both national environmental regulations and the tough environmental protection standards that apply within the Group are complied with.

A C C O U N T I N G R I S K S In addition to the individual financial statement of Tognum AG, 25 individual financial statements pre-pared by German and foreign subsidiaries are included in the consolidated financial statements of Tog-num AG as at 31 December 2010. Most of the individual financial statements of the subsidiary compa-nies are prepared in a decentralised way. The consolidation of the Tognum Group is largely done at the Group head office. The US subgroup MTU Detroit Diesel Inc., Detroit/USA, is included pre-consolidated into the financial statement of the subgroup MTU Friedrichshafen GmbH, Friedrichshafen, which in turn is included in the consolidated financial statements of Tognum AG. The country-specific accounting standards of the subsidiary companies are transferred to the International Financial Report-ing Standards (IFRS), unless the individual financial statements of the subsidiaries have already been prepared in accordance with IFRS. Uniform accounting across the Group as a whole with regard to assessment, evaluation and reporting is ensured by means of a reporting and accounting handbook, which is continually brought up to date. The process of preparing the consolidated financial statements is supported by a financial statements calendar and a consolidation software solution developed to meet Tognum's specific requirements. Subjects such as financing and taxes are bundled by the central area functions of 'Group Treasury' and 'Group Taxes' in the Group's head office.

As a result of the number of companies and differing regional distribution of subsidiaries, there are risks with regard to the goal of achieving reliable accounting that could be reflected in delayed publication, incorrect information in the annual/consolidated financial statements or fraudulent manipulation. In order to limit and manage such risks as far as possible, Tognum AG has put in place a variety of measures and controls. For the purpose of correctly recording transactions in the accounts, manual as well as automatic controls to avoid and expose mistakes in the working processes were included in the account-ing software. Furthermore, subsidiaries are supported at Group headquarters by 'corporate mentors' who operate a form of quality control for the data received and assist subsidiaries when complex questions arise.

Conservative financing strategy

Manual and automatic controls in the accounting software

103

There is an intrinsic value risk when carrying out general evaluations, e.g. to ascertain goodwill or imma-terial assets with an indeterminate useful life. In order to examine this and in the event of any sign of impairment, an annual impairment test is carried out. Basic assumptions included are objectified by reference to recognised rating agencies and peer groups, or by using external experts, in order to ensure reliability of assessments and valuations.

As a result of the Tognum Group’s production activities, sufficient stocks must be available, while the stocks concerned are kept as low as possible in order to reduce costs and risks. For this reason, there are intrinsic value and stock keeping risks that are limited by means of regular stocktaking and an objective evaluation of the analyses of future market and sales possibilities.

There are actuarial evaluation risks in Tognum AG's consolidated financial statements resulting from pension benefit commitments. In order to limit these risks, independent experts are commissioned to prepare actuarial reports.

In general, the so-called four eyes principle and functional separation of procedures in accounting ap-plies throughout the Group so that an adequate quality assurance and approval process can be ensured.

OT H E R R I S K S Court proceedings against Tognum are pending and others could become pending. In our view, however, these are normal occurrences relating to our business. Important risks arising from litigation are not expected from today's point of view, but are possible on principle. If necessary, we would make provi-sions to the usual extent. We naturally counter such risks with our contract management system and high product quality. As far as certifications by the authorities are concerned, we are exposed to a large degree of regulations. Despite our technological edge, this may involve risks. Changing emission regulations can lead to an increased development requirement in the event of tougher regulations, whereas a softening of the increased requirements, e.g. by implementing flexible measures in the launch phase, can lead to reassessments of developments. Due primarily to the diversity of applications and our global market presence, numerous emission regulations apply to our products, the compliance with which is subject to uncertainties – also due to highly complex approval procedures.

O V E R A L L S TAT E M E N T O N T H E R I S K S I T U AT I O N The company’s total risk exposure is assessed using the risk portfolio for all the significant individual risks, taking into account the interdependencies that exist between the risks themselves. Setting off risks against opportunities does not take place. There are no special purpose entities, either consolidated or non-consolidated.

No significant impairment of the company’s situation by risks can be identified at the moment, either by individual risks or by a combination of more than one risk. The Executive Board of Tognum AG consid-ers the risk situation to be limited and controllable. As in 2009, senior management has found that there are currently no risks envisaged that could endanger the company's continued existence. Negative trends on the markets and a worsening of the overall economic performance, however, cannot be completely excluded and could have a corresponding effect on the risk situation.

Impairment test

104 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T O p p o r t u n i t i e s a n d R i s k R e p o r t |

R e p o r t o n E x p e c t e d D e v e l o p m e n t s


M E N T S

S E R V I C E

SWOT Analysis We perform SWOT analyses on a regular basis to identify key strengths, weaknesses, opportunities and threats. The following chart shows current issues:

S W O T A N A LY S I S O F T H E T O G N U M G R O U P

105

Report on Expected Developments According to the assessment of most economists, global economic growth will begin to slow down to some extent in 2011: in most national economies – following the unexpectedly strong upturn in 2010 – it must be assumed that growth rates will return to normal levels again. Nevertheless, the situation will continue to remain difficult in some regions.

First and foremost, this will have an effect on the crisis-ridden countries of the eurozone, such as Greece and Ireland, where cutbacks in expenditure and increases in taxes strongly encumber economic devel-opment. It is also likely that the problems of financial and real estate markets in these countries will continue to have an effect for quite some time. For the year 2011, most analysts of cyclical trends assume a growth in gross domestic product (GDP) in the eurozone of around 1.5% (2010: 1.7%). Without the strong phase of economic recovery in Germany, the eurozone's overall situation in 2011 would certainly look much less healthy. Although the growth rate of the German economy during the current year is also likely to be weaker than in 2010, the increase of probably 2.7% in GDP (source: Global Insight) continues to be evidence of a more positive development.

T R E N D S I N G D P G R O W T H I N T H E E C O N O M I C R E G I O N S (forecast growth rates are adjusted for inflation)

-1.0 %

2007 2008 2009 2010

-4.0 %

-3.0 %

-2.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

6.0 %

2011 2012

-1.0 %

2007 2008 2009 2010

-4.0 %

-3.0 %

-2.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

6.0 %

2011 2012

-1.0 %

2007 2008 2009 2010

-4.0 %

-3.0 %

-2.0 %

0.0 %

1.0 %

2.0 %

3.0 %

4.0 %

5.0 %

6.0 %

2011 2012

As far as the development of the US economy is concerned, there are some imponderables: while on the one hand, the debt reduction of both private households and the financial sector is hampering the econ-omy, the investment activities of companies, on the other hand, will continue to steer an expansive course. According to Global Insight's estimates, GDP in the US will increase by 3.2% in 2011.

Despite less growth, the emerging countries might well remain in the overtaking lane; driven by strong internal economic trends, their GDPs will in all probability continue to increase strongly. While the meas-ures taken by the Chinese government to slow down this trend are likely to reduce growth to some extent, the increase of 9.5% expected by Global Insight is still very high when compared with other countries.

Global Insight is expecting a global economic growth of 3.4% during the current year. For 2012, most economists forecast even higher rates of increase; Global Insight estimates that the global economy will then expand by 3.5%.

In view of the increased prices for raw materials, global inflation – according to Global Insight's esti-mates – is likely to increase from 2.8% to 3.1% in 2011. For Germany, this economic research institute is expecting an increase of 1.1% to around 2% for the year 2011.

3.2% growth of US economy

Germany EU-27 Asia/Pacific North AmericaGermany EU-27 Asia/Pacific North AmericaGermany EU-27 Asia/Pacific North America

106 O V E R V I E W

G R O U P M A N A G E M E N T R E P O R T R e p o r t o n E x p e c t e d D e v e l o p m e n t s


M E N T S

S E R V I C E

In spite of the further recovery of the global economy, as expected by most economists, risks remain: the already more noticeable increased volatility in currency and raw materials markets might continue for some time longer, making their own planning more difficult for companies. Moreover, the emerging countries' rapid catching up process leads to a shift in economic power relationships; conflicts of interest between these and the industrialised countries contain uncertainties, and last but not least, residual risks remain for the financial markets: if, contrary to the consensus of opinion, there should be shortfalls in the payments made by the critical countries within the eurozone after all, turbulences on the financial markets might increase again.

The German Machinery and Plant Manufacturing Association (VDMA) is taking an optimistic look at 2011: the association is expecting a 10% increase in real production of machinery. Therefore, chances are good that the capacity utilisation in German mechanical engineering will continue to increase.

Due to developments in China, global turnover in mechanical engineering – according to the VDMA – could again show a two-figure increase of around 11% in real terms. According to the VDMA's estimates, and looking at the industrialised countries only, an increase in turnover of 6% in real terms is a realistic possibility.

Tognum's important off-highway markets and the markets for more complex energy systems are also likely to profit from the global economy's continued recovery. The emerging markets, with their persis-tently high demand for raw materials and energy, and the continued recovery in the global building and industrial sectors are contributing to this development.

Our growth possibilities expected in the longer term are closely linked with our company strategy, which is described in detail on page 25. Basically, our strategy aims at driving forward five initiatives for sus-tainable profitable growth; they are also described there.

We are always looking for qualified employees to support us in the implementation of our company strategy. We intend to increase the number of employees in 2011 and are expecting an increase in the number of employees in Asia. Employment situations can be adapted flexibly to requirements by means of instruments such as part-time work, working time accounts and fixed-term contracts, amongst others.

In order to increase our technological lead further, we will again increase our adjusted expenditure for research and development in 2011. We are working, for example, on the development of the 1600 Series for future applications in rail as well as in the construction, agricultural and industrial equipment appli-cation areas. The Series 2000, 4000 and 1163 engines are being prepared for more stringent emission regulations.

In 2011, our investments will increase project-related: further investments are planned in the new US production plant in Aiken/South Carolina, as well as a logistics centre for spare parts in the greater De-troit/Michigan area. We thereby intend to meet local value-added requirements and to further increase our purchasing volume in US dollars. The building of the materials management centre in Frie-drichshafen also continues to optimise production logistics.

The Tognum Group has sufficient liquid funds for the intended investments and also potential acquisi-tions from the expected positive cash flows from operating activities. If need be, we also have secured access to existing credit lines. We intend to maintain our solid financing structure.

Sector outlook

Growth of the workforce in Asia

Increasing technological lead

Investments remain at high level

Sound financing

107

Based on current knowledge, it is assumed that revenues will increase by at least 10% during the 2011 financial year compared with the previous year 2010. Positive developments are expected particularly in the applications Marine, Oil & Gas, Onsite Energy, Injection Systems and After Sales. In the medium term, and in the course of further stabilisation of the overall economic situation and the revival of the off-highway markets, we assume a better than average growth in revenue.

On the basis of planned revenues with high expenditures and investments for future projects, as well as increasing expenditure for research and development in order to strengthen our product portfolio, we are expecting an adjusted EBIT Margin of around 10% for the financial year 2011. At a tax rate of around 28%, we are at the same time planning on an improved adjusted earnings per share. In accordance with the dividend policy we announced at our IPO, we are again aiming at a dividend payment of 30% to 50% of the adjusted group results for 2011.

O V E R V I E W F O R E C A S T 2 0 1 1 V S . 2 0 1 0 % Actual 2010 Forecast 2011

Revenues 2,563.6 million euros At least + 10%

Adjusted EBIT Margin 9.4% Around 10%

Group tax rate 26.1% Around 28%

Adjusted earnings per share 1.21 euro Improved

Investments 152.8 million euros Rising

Adjusted depreciation 99.6 million euros Around + 10%

Adjusted R&D expenditure in % of revenues 6.4% 6 – 7%

With respect to possible development trends beyond 2011, no statements have so far been made by the VDMA. Should the global economy recover in a lasting and sustainable way, though – as forecast by Global Insight – we would expect trends in applications to continue to stabilise. The mega-trends rele-vant for Tognum have been described in the opportunities report beginning on page 95. On that basis, we also assume that we will again be growing faster than the market and thereby achieve an adjusted EBIT Margin of over 10% in 2012. In the medium term we are expecting on that basis a return on capital of more than 20% based on the adjusted RONA. All three reporting segments will support this forecast development.

Whether we will achieve our goals will largely depend on global economic and primarily industry-specific developments. An economic downturn and/or an obvious weakening of the US Dollar could lead to our expectations not being entirely met. Should there be an acceleration of economic developments, however, we see additional possibilities for revenue and income.

Friedrichshafen, 24 February 2011

Tognum AG

The Executive Board

Revenue forecast

Results forecast

Outlook for 2012

» We are expanding our international activities along the entire value chain. In China, we assemble both MTU’s large high-speed diesel engines and emergency backup gensets for nuclear power plants.«

Yue Chun Hong | Sales Manager, MTU Engineering, Suzhou

regional eXpansion

Wearegrowinginallregionsworldwide.

series 956 MTU’s Series 956 engines are incorporated in emergency backup gensets from MTU Onsite Energy for use in nuclear power plants.

A key element of our strategy of regional expan-sion is the development of our global production network. Just recently in China, for example, we inaugurated a joint venture with a Chinese part-ner that, among other things, assembles gensets for Chinese nuclear power plants that supply the power needed to satisfy the voracious appetite of high-growth cities like Shanghai. With our emergency power systems, we are making an important contribution to the safe and reliable operation of nuclear power plants.

» We are expanding our international activities along the entire value chain. In China, we assemble both MTU’s large high-speed diesel engines and emergency backup gensets for nuclear power plants.«

Yue Chun Hong | Sales Manager, MTU Engineering, Suzhou

regional eXpansion

112 Consolidated Statement of Comprehensive Income

113 Consolidated Statement of Cash Flows

114 Consolidated Statement of Financial Position

116 Consolidated Statement of Changes in Equity

118 Group Segment Reporting

120 Notes

120 Explanatory Notes

146 Notes to the Consolidated Statement of Comprehensive Income

153 Notes to the Consolidated Statement of Financial Position

173 Other Disclosures

190 Responsibility Statement

191 Auditor’s Report

Consolidated Financial Statements

112 Consolidated Statement of Comprehensive Income

113 Consolidated Statement of Cash Flows

114 Consolidated Statement of Financial Position

116 Consolidated Statement of Changes in Equity

118 Group Segment Reporting

120 Notes

120 Explanatory Notes

146 Notes to the Consolidated Statement of Comprehensive Income

153 Notes to the Consolidated Statement of Financial Position

173 Other Disclosures

190 Responsibility Statement

191 Auditor’s Report

Consolidated Financial Statements

112 O V E R V I E W


C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C o n s o l i d a t e d S t a t e m e n t o f

C o m p r e h e n s i v e I n c o m e |

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w s

S E R V I C E

Consolidated Statement of Comprehensive Income of Tognum AG, Friedrichshafen, for the period 1 January to 31 December 2010

IN EUR MILL ION Note 1 Jan. – 31 Dec. 2009 1 Jan. – 31 Dec. 2010

Revenues 5 2,529.4 2,563.6

Cost of sales 6 – 1,943.6 – 1,941.4

Gross profit 585.8 622.1

Other operating income 7 12.4 12.3

Selling costs 8 – 203.0 – 210.2

General administrative costs 9 – 80.6 – 97.8

Research and development costs 10 – 142.7 – 186.9

Other operating expenses 11 – 3.3 – 1.6

Results from operating activities 168.6 137.9

Share of profit from investments accounted for using the

equity method 1.9 – 0.7

Other financial income 12 32.8 28.9

Other financial expenses 12 – 31.0 – 53.8

Earnings before interest and taxes 172.3 112.3

Interest income 13 3.0 6.6

Interest expenses 13 – 28.3 – 33.4

Earnings before taxes 147.0 85.5

Income taxes 14 – 44.1 – 22.3

Net profit or loss 102.9 63.2

Other comprehensive income

Foreign currency translation differences for foreign

operations – 3.0 19.6

Net change in fair value of available-for-sale financial

assets – 0.5 0.5

Other comprehensive income – 3.5 20.1

Total comprehensive income 99.4 83.3


thereof attributable to the shareholders of Tognum AG 102.5 62.8

thereof attributable to minority interests 15 0.3 0.4

Total comprehensive income 99.4 83.3

thereof attributable to the shareholders of Tognum AG 99.1 82.5

thereof attributable to minority interests 15 0.3 0.8

Earnings per share (in EUR) 16 0.78 0.48

Diluted earnings per share (in EUR) 16 0.78 0.48

The following explanatory notes are an integral part of the audited consolidated financial statements.

113

Consolidated Statement of Cash Flows of Tognum AG, Friedrichshafen, as at 31 December 2010

IN EUR MILL ION 1 Jan. – 31 Dec. 2009 1 Jan. – 31 Dec. 2010


Depreciation and amortisation/reversals for non-current assets 136.4 173.7

Elimination of changes of deferred taxes – 0.8 – 54.5

Change of derivative financial instruments – 26.8 8.5

Change in inventories 169.4 – 94.4

Change in receivables 3.0 17.6

Change in liabilities 30.6 133.0

Increase/decrease in provisions including pensions 9.5 78.3

Change in other assets – 25.6 – 1.3

Non-cash generating exchange rate changes of loans – 7.3 16.0

Other non-cash expenses/income – 8.8 2.3

Cash flow from operating activities 382.3 342.4

thereof interests received 2.3 2.4

thereof interests paid – 9.1 – 4.2

thereof income taxes paid – 38.9 – 61.3

Purchase of property, plant and equipment – 101.2 – 113.7

Proceeds from the sale of property, plant and equipment 3.2 0.7

Purchase of intangible assets – 40.4 – 39.1

Increase in cash and cash equivalents resulting from the changes in the group of

consolidated companies 7.1

Payments for the acquisition of consolidated companies (net of cash and cash

equivalents acquired) – 17.5

Proceeds from the sale of consolidated companies 2.7 0.1

Purchase of investments accounted for using the equity method – 5.4

Payments for the acquisition of investments available for sale – 0.7

Proceeds from investments available for sale 2.5

Cash flow from investing activities – 158.7 – 143.0

Borrowings 83.9 2.8

Repayments of financial liabilities – 157.6 – 32.2

Dividends paid – 92.0 – 46.1

Cash flow from financing activities – 165.7 – 75.5

Change in cash and cash equivalents 57.9 123.9

Cash and cash equivalents at the beginning of the period 55.7 118.4

Effect of foreign exchange rates on cash and cash equivalents 4.8 – 1.8

Cash and cash equivalents at the end of the period 118.4 240.5


114 O V E R V I E W


C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C o n s o l i d a t e d S t a t e m e n t o f

F i n a n c i a l P o s i t i o n

S E R V I C E

Consolidated Statement of Financial Position of Tognum AG, Friedrichshafen, as at 31 December 2010

A S S E T S

IN EUR MILL ION Note 31 Dec. 2009 31 Dec. 2010

Intangible assets 20 476.0 433.4

Property, plant and equipment 21 453.9 491.1

Investments accounted for using the equity method 22 31.5 36.4

Deferred tax assets 23 40.5 78.7

Other non-current financial assets 24 132.1 125.4

Other non-current assets 0.8

Non-current assets 1,133.9 1,165.8

Inventories 25 635.9 751.1

Trade receivables 26 493.6 495.7

Tax claims 3.4 0.7

Cash and cash equivalents 27 118.4 240.5

Other current financial assets 28 31.9 32.3

Other current assets 52.2 59.7

Current assets 1,335.4 1,579.9

Total assets 2,469.3 2,745.7


115


IN EUR MILL ION Note 31 Dec. 2009 31 Dec. 2010

Share capital 131.4 131.4

Capital reserves 257.7 257.7

Retained earnings and other reserves 289.5 344.1

Equity attributable to the shareholders of Tognum AG 678.6 733.2

Minority interests 1.9 2.6

Equity 30 680.5 735.8

Provision for pensions 31 403.9 399.9

Tax provisions 2.9

Other long-term provisions 32 206.5 204.6

Deferred tax liabilities 23 92.5 73.6

Long-term financial liabilities1 33 315.8 296.8


Other long-term liabilities 1.0 2.6

Non-current liabilities 1,027.1 987.9

Trade payables 34 223.6 316.6

Tax payables 20.1 46.7

Other short-term provisions 32 234.8 317.5

Short-term financial and other liabilities1 33 62.8 77.2


Other current liabilities 35 29.5 16.7

Current liabilities 761.7 1,022.0


1 Net financial debt = Interest-bearing financial liabilities less Liquid funds; thereof interest-bearing long-term financial liabilities

294.9 million euros (previous year: 308.3 million euros) and short-term financial liabilities 2.8 million euros (previous year: 2.3 million euros)


116 O V E R V I E W


C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n

E q u i t y

S E R V I C E

Consolidated Statement of Changes in Equity of Tognum AG, Friedrichshafen, as at 31 December 2010

IN EUR MILL ION Share capital Capital reserves

Balance as at 1 Jan. 2009 131.4 257.7

Net profit or loss


Total comprehensive income

Sale of minority interests

Dividends paid to shareholders

Balance as at 31 Dec. 2009 131.4 257.7

Balance as at 1 Jan. 2010 131.4 257.7

Net profit or loss


Total comprehensive income

Changes in the group of consolidated companies

Dividends paid to shareholders

Balance as at 31 Dec. 2010 131.4 257.7

117

Retained earnings and other reserves

Accumulated

net income

Change in

fair values of

available-for-sale

financial assets

Currency

translation reserves

Total retained

earnings and

other reserves

Total equity

attributable to

the shareholders

of Tognum AG Minority interests Total

307.6 – 25.1 282.5 671.6 671.6

102.5 102.5 102.5 0.3 102.9

– 0.5 – 3.0 – 3.5 – 3.5 – 3.5

102.5 – 0.5 – 3.0 99.1 99.1 0.3 99.4

1.6 1.6

– 92.0 – 92.0 – 92.0 – 92.0

318.2 – 0.5 – 28.1 289.5 678.6 1.9 680.5

318.2 – 0.5 – 28.1 289.5 678.6 1.9 680.5

62.8 62.8 62.8 0.4 63.2

0.5 19.2 19.7 19.7 0.4 20.1

62.8 0.5 19.2 82.5 82.5 0.8 83.3

18.0 18.0 18.0 18.0

– 46.0 – 46.0 – 46.0 – 0.1 – 46.1

353.0 – 8.9 344.1 733.2 2.6 735.8


118 O V E R V I E W


C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S G r o u p S e g m e n t R e p o r t i n g

S E R V I C E

Group Segment Reporting of Tognum AG, Friedrichshafen, as at 31 December 2010

IN EUR MILL ION Engines OE&C Distribution Sum segments

Consolidation/

corporate service

Tognum AG Tognum Group

1 Jan. – 31 Dec. 2010

External revenues 1,441.6 542.5 579.4 2,563.6 2,563.6

Intersegment revenues 316.5 200.1 14.8 531.3 – 531.3

Total revenues 1,758.1 742.6 594.2 3,094.9 – 531.3 2,563.6

Segment results (adjusted EBIT) 187.1 32.8 56.3 276.1 – 34.0 242.1

thereof profit from investments accounted for using the equity method – 0.7 – 0.7 – 0.7

Segment assets 1,688.3 557.6 305.7 2,551.6 194.1 2,745.7

thereof investments accounted for using the equity method 36.4 36.4 36.4

Segment liabilities 832.9 222.5 247.6 1,303.0 706.9 2,009.9

Net assets1 855.3 335.2 58.1 1,248.6 – 55.5 1,193.1

Capital expenditure2 126.9 22.4 3.5 152.8 152.8

thereof intangible assets 28.9 10.2 39.1 39.1

thereof property, plant and equipment 98.0 12.2 3.5 113.7 113.7

Depreciation and amortisation – 89.2 – 77.8 – 6.5 – 173.5 – 0.2 – 173.7

1 Jan. – 31 Dec. 2009

External revenues 1,392.8 627.0 509.7 2,529.4 2,529.4

Intersegment revenues 287.7 92.1 14.4 394.2 – 394.2

Total revenues 1,680.5 719.1 524.1 2,923.6 – 394.2 2,529.4

Segment results (adjusted EBIT) 136.2 27.1 49.6 212.9 – 14.3 198.6

thereof profit from investments accounted for using the equity method 1.9 1.9 1.9

Segment assets 1,609.3 429.1 257.6 2,296.0 173.3 2,469.3

thereof investments accounted for using the equity method 31.5 31.5 31.5

Segment liabilities 741.0 141.4 200.8 1,083.3 705.5 1,788.8

Net assets1 868.2 287.7 56.7 1,212.7 66.5 1,279.2

Capital expenditure2 107.8 30.3 3.1 141.2 0.5 141.7

thereof intangible assets 29.0 11.2 0.1 40.3 0.2 40.4

thereof property, plant and equipment 78.7 19.1 3.1 100.9 0.3 101.2

Depreciation and amortisation – 80.6 – 49.3 – 6.2 – 136.1 – 0.2 – 136.4

1 Net assets reflect the use of capital for returns in the Group. Assets can be determined on the assets or liabilities side. For internal control purposes, they are calculated as

total assets (excluding liquid funds), less any non-interest-bearing debt capital that is available. At group level, net assets are derived from disclosures on the liabilities side and include the following items: equity, provisions for pensions and interest-bearing borrowed capital.

2 Excluding new additions to the group of consolidated companies from corporate acquisitions

In the reporting period, extraordinary depreciation and amortisation related to the exit from Onsite Energy Fuel Cell Systems business activities amounting to 30.1 million euros is included in the depreciation and amortisation reported in the segment OE&C.

119

Offsetting and reconciliation IN EUR MILL ION 1 Jan. – 31 Dec. 2009 1 Jan. – 31 Dec. 2010

Total segment results (adjusted EBIT) 212.9 276.1

Corporate items – 23.7 – 27.8

Eliminations 9.4 – 6.2

Adjusted EBIT, Group 198.6 242.1

Adjustments – 26.3 – 129.9

Interest result – 25.3 – 26.8

Earnings before taxes 147.0 85.5

Total assets, segments 2,296.0 2,551.6

Assets from income taxes 43.9 79.3

Cash 118.4 240.5

Corporate items 217.2 62.8

Eliminations – 206.2 – 188.5

Group assets 2,469.3 2,745.7

Total debt, segments 1,083.3 1,303.0

Liabilities from income taxes 113.5 122.3


Not allocated financial instruments 2.6 0.2

Liabilities for pensions 403.9 399.9

Corporate items 69.9 57.6

Eliminations – 195.0 – 170.8

Group debt 1,788.8 2,009.9

Segment information by region The table below includes information by region for the 2009 and 2010 financial years:

Germany Europe excluding Germany North America (NAFTA)

E U R M I LLIO N 2009 2010 2009 2010 2009 2010

External revenues 483.9 480.5 746.0 707.3 595.1 587.6

Non-current assets1 830.0 800.7 24.7 34.5 57.7 73.9

Capital expenditure2 127.1 127.7 1.5 1.7 11.5 21.1

Asia/Pacific Others Group

E U R M I LLIO N 2009 2010 2009 2010 2009 2010

External revenues 504.5 567.3 199.9 221.0 2,529.4 2,563.6

Non-current assets1 17.5 16.3 929.9 925.3

Capital expenditure2 1.7 2.3 141.7 152.8

1 Non-current assets consist of property, plant and equipment, intangible assets and other non-current assets 2 Excluding new additions to the group of consolidated companies from corporate acquisitions

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Notes Explanatory Notes 1 | General information

Tognum AG is a public limited company incorporated under the law of the Federal Republic of Germany. The address of the registered office is Maybachplatz 1, 88045 Friedrichshafen/Germany. The company is entered in the Trade Register of the Local District Court in Ulm/Germany. The financial year corre-sponds to the calendar year.

The consolidated financial statements consist of the financial statements of Tognum AG and its subsidia-ries. The consolidated financial statements as at 31 December 2010 have been prepared in accordance with the International Financial Reporting Standards (IFRS) as endorsed by the European Union and the additional requirements of German commercial law in accordance with Section 315a (1) of the German Commercial Code (HGB).

The Executive Board of Tognum AG approved the release of the financial statements to the Supervisory Board on 24 February 2011. The Supervisory Board is required to examine the consolidated financial statements and to state whether it approves the consolidated financial statements.

Tognum prepares and publishes the consolidated financial statements in euros. To make the figures easier to understand, the individual items in the consolidated financial statements are presented in mil-lions of euros (EUR millions), rounded to one decimal place. The consolidated financial statements are prepared on the basis of historical acquisition and manufacturing costs, except for derivative financial instruments and available-for-sale financial assets, which have been measured at fair value.

The consolidated statement of comprehensive income has been prepared in accordance with the inter-nationally accepted cost of sales method. The preparation of the consolidated financial statements in compliance with the above-mentioned standards requires that, for certain items, assumptions be made that have an impact on the items recognised in the consolidated statement of financial position or the consolidated statement of comprehensive income as well as on the disclosure of contingent assets and liabilities.

The following explanatory notes include disclosures and remarks that, in accordance with IFRS require-ments, are to be incorporated as notes in the consolidated financial statements in addition to the con-solidated statement of comprehensive income for the reporting period, the consolidated statement of financial position, the consolidated statement of changes in equity and the consolidated statement of cash flows.

2 | Accounting and valuation methods

B A S I S O F C O N S O L I D AT I O N In addition to Tognum AG, 25 domestic and foreign subsidiaries (previous year: 24), which are directly or indirectly controlled by Tognum AG, are included in the consolidated financial statements. Control in accordance with International Accounting Standard (IAS) 27 is presumed when a controlling entity has the ability to determine the financial and operating policies of an entity so as to obtain benefits from its activities. Inclusion in the consolidated financial statements takes place at the time the parent company acquires control. Subsidiaries are removed from the group of consolidated companies when the parent no longer controls them. Moreover, subsidiaries are not included in the group of consolidated companies if they are of minor importance for the income, asset and financial position of the Group.

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In accordance with IFRS 3 »Business Combinations«, business combinations are accounted for using the acquisition method. The acquisition costs correspond to the fair value of the assets given, the issued equity instruments and the incurred or assumed debt at the time of the transaction, plus the costs direct-ly attributable to the acquisition. Assets, debts and contingent liabilities identified during a business com-bination are recognised for the first-time consolidation at their fair value at the time of acquisition, re-gardless of the extent of minority interests. The excess of the cost of acquisition over the Group's share of the fair value of the net assets is disclosed as goodwill. If the acquisition costs are less than the Group’s interest in the fair value of the net assets of the acquired subsidiary, the difference in the amount is dis-closed directly in the consolidated statement of comprehensive income.

Goodwill, in accordance with IFRS 3, is no longer amortised systematically over its useful life, but in-stead is subject to an impairment test at least once a year in accordance with IAS 36 »Impairment of Assets«. Reversals of impairment loss for goodwill are prohibited. Intangible assets that are anticipated to supply the company with incoming cash for an unlimited period of time are to be disclosed with an in-definite useful life. The systematic amortisation of such intangible assets is prohibited.

Intergroup profits and losses, expenses and income as well as receivables and liabilities existing between consolidated companies are eliminated.

Joint ventures are disclosed using the equity method and initially stated at their acquisition cost. The acquisition costs increase or decrease by the change in equity that corresponds to the capital interest of Tognum AG. Differences in amounts from the first-time consolidation are dealt with under the prin-ciples of full consolidation for the initial inclusion of investments in accordance with the equity method. Changes in the share of equity that effect profits or losses, including extraordinary amortisation of good-will, are shown in the financial results of the consolidated statement of comprehensive income.

Associated companies are companies over which the Tognum Group exercises significant influence. Shareholdings in associated companies are accounted for using the equity method.

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G R O U P O F C O N S O L I D AT E D C O M PA N I E S The following companies and/or subgroups were consolidated in full as at 31 December 2010:

SHA R E HO LD I N G I N % 31 Dec. 2009 31 Dec. 2010

MTU Friedrichshafen GmbH, Friedrichshafen 100% 100%

MTU Ibérica Propulsión y Energía S.L., Coslada/Spain 100% 100%

Karl Maybach-Hilfe GmbH, Friedrichshafen 100% 100%

L’Orange GmbH, Stuttgart 100% 100%

MTU Anlagenvermietung GmbH, Friedrichshafen 100% 100%

MTU Asia Pte. Ltd., Singapore/Singapore 100% 100%

MTU Australia Pty. Ltd., Kings Park/Australia 100% 100%

MTU Benelux B.V., Dordrecht/Netherlands 100% 100%

MTU Detroit Diesel Inc., Detroit/USA 100% 100%

MTU Italia S.r.l., Arcola/Italy 100% 100%

MTU Onsite Energy Corp., Mankato/USA 100% 100%

MTU Onsite Energy GmbH, Augsburg 100% 100%

MTU Onsite Energy GmbH, Friedrichshafen 100% 100%

MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadmköy/Turkey 0.0% 100%

MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Şubesi, Çorlu/Turkey 0.0% 100%

SKL Motor GmbH, Magdeburg 100% 100%

MTU Asia Pte. Ltd., Singapore/Singapore is an Asian subgroup that is pre-consolidated and included in the consolidated financial statements of MTU Friedrichshafen GmbH, Friedrichshafen. This subgroup comprises the following companies, which are consolidated in full: MTU Asia Pte. Ltd., Singapore/Singapore (parent company of the subgroup), MTU Hong Kong Ltd.,Hong Kong/China, MTU Engineering Co. Ltd., Suzhou/China, MTU India Pvt. Ltd., Bangalore/India, MTU Indonesia, Jakarta/Indonesia, MTU China Co. Ltd., Shanghai/China, MTU Vietnam Co. Ltd., Hanoi City/Vietnam, as well as MTU Marubeni Co. Ltd., Tokyo/Japan. Effective 1 January 2009, Marubeni Corp., Tokyo/Japan, acquired 49% of MTU Japan Co. Ltd., Tokyo/Japan, which has since operated under the name of MTU Marubeni Co. Ltd., Tokyo/Japan. The minority interests amount to 2.6 million euros (previous year: 1.9 million euros) and are presented in the »Consolidated Statement of Changes in Equity« accordingly. MTU Friedrichshafen GmbH, Friedrichshafen, has a 100% shareholding in MTU Asia Pte. Ltd., Singapore/Singapore, while MTU Asia Pte. Ltd., Singapore/Singapore itself holds 100% of the shares in each of the fully consolidated companies as at 31 December 2010, with the exception of MTU Marubeni Co. Ltd., Tokyo/Japan.

MTU Detroit Diesel Inc. is also a pre-consolidated subgroup that is included in the subconsolidated financial statements of MTU Friedrichshafen GmbH, Friedrichshafen. This subgroup comprises the following companies that are consolidated in full: MTU Detroit Diesel Inc., Detroit/USA (parent com-pany of the subgroup), Detroit Diesel (Suisse) SA, Studen/Switzerland and Detroit Diesel Distribution Center B.V., Ridderkerk/Netherlands. MTU Friedrichshafen GmbH, Friedrichshafen has a 100% share-holding in MTU Detroit Diesel Inc., Detroit/USA, while MTU Detroit Diesel Inc., Detroit/USA itself holds 100% of the shares in each of the fully consolidated companies.

The subsidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey, which was founded in 1990, and its subsidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Subesi, Çorlu/Turkey were included in the group of consolidated companies of Tognum AG for the first time as at 1 January 2010. MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey is also a subgroup that is pre-consolidated and included in the subconsolidated financial statements of MTU Friedrichshafen GmbH, Friedrichshafen. Additional information is included in section 3 | »Change in scope of consolidated companies«.

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MTU DDC International GmbH, Friedrichshafen, was absorbed into MTU Friedrichshafen GmbH, Friedrichshafen retroactively as of 1 January 2010. Additional information is included in section 3 | »Change in scope of consolidated companies«.

The following companies, which are registered in Germany, have exercised the option in Section 264 (3) of the German Commercial Code (HGB) not to publish financial statements for 2010 or prepare a man-agement report:

- MTU Friedrichshafen GmbH, Friedrichshafen, - MTU Anlagenvermietung GmbH, Friedrichshafen, - MTU Onsite Energy GmbH, Augsburg, - MTU Onsite Energy GmbH, Friedrichshafen, - L’Orange GmbH, Stuttgart, - SKL Motor GmbH, Magdeburg.

As at 31 December 2009 and 31 December 2010, the following companies were recognised at equity as associated companies or joint ventures:

SHA R E HO LD I N G I N % 31 Dec. 2009 31 Dec. 2010

MTU Detroit Diesel Australia Pty. Ltd., Chipping Norton/Australia 50.0% 50.0%

Shanxi North MTU Diesel Co. Ltd., Datong/China 49.0% 49.0%

R E C E N T A C CO U N T I N G D E V E LO P M E N T S In preparing the consolidated financial statements, the company has adopted all the new and amended standards and interpretations published by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) that are required within the European Union for financial years beginning on or after 1 January 2010.

STANDARD/INTERPRETATION Effective date1 Endorsement2

Amendment IAS 27 Consolidated and Separate Financial Statements in

accordance with IFRS 1 July 2009 12 June 2009

Amendment IAS 39 Financial Instruments: Recognition and Measurement:

Eligible Hedged Items 1 July 2009 16 Sep. 2009

Amendment IFRS 1 First-time Adoption of International

Financial Reporting Standards 1 Jan. 2010 26 Nov. 2009

Amendment IFRS 2 Group Cash-settled Share-based

Payment Transactions 1 Jan. 2010 23 Mar. 2010

Amendment IFRS 3 Business Combination 1 July 2009 12 June 2009

Amendment Diverse Improvement Project 2009 1 Jan. 2010 23 Mar. 2010

New IFRIC 12 Service Concession Arrangements 30 Mar. 2009 26 Mar. 2009

New IFRIC 15 Agreements for the Construction of Real Estate 1 Jan. 2010 23 July 2009

New IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 July 2009 5 June 2009

New IFRIC 17 Distributions of Non-Cash Assets to Owners 1 Nov. 2009 27 Nov. 2009

New IFRIC 18 Transfers of Assets from Customers 1 Nov. 2009 1 Dec. 2009

1 Applicable from the first reporting period of a financial year beginning on or after this date 2 Adoption of IFRS Standards or Interpretations by the EU Commission

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- The amended IAS 27 »Consolidated and Separate Financial Statements in accordance with IFRS« was published in January 2008. The amendments resulted from the joint project set up by IASB and the Financial Accounting Standards Board (FASB) to revise the accounting requirements for business combinations. The amendments primarily affect the disclosure of shares without a controlling character (minority interests), which will completely participate in the losses of the Group in the future, and the disclosure of transactions that lead to a loss of control of a subsidiary, the effects of which are to be recognised as profit or loss in the future. The impact of sales of shares that do not lead to a loss of control is to be recognised in equity with no effect on profit or loss. The transition conditions set out multiple exceptions from the fundamentally retrospective application of the new requirement. This had no impact on the consolidated financial statements of Tognum AG.

- In July 2008, the IASB published amendments to IAS 39 »Financial Instruments: Recognition and Measurement«. To simplify the application of the standard, additions were made to the designation of inflation risk for an underlying transaction as well as the designation of a one-sided risk in an under-lying transaction. There was no significant impact on the consolidated financial statements of Tognum AG.

- The amended IFRS 1 »First-time Adoption of International Financial Reporting Standards« was pub-lished by the IASB on 27 November 2008. The content remains unchanged by comparison with the previous version of IFRS 1, with the amendments affecting only the formal structure. The main sec-tion of the standard now includes the general regulations such as the scope of application and provi-sions relating to general recognition or measurement, while the specific regulations pertaining to exemptions from and exceptions to the regulations of individual standards are presented at the end in separate appendices. The intention behind the new structure is to improve the clarity and applicabi-lity of the standard. The revision of this standard had no impact on the Tognum Group.

- The amendments to IFRS 2 »Share-based Payment« published in June 2009 clarify the scope of IFRS 2 and the interaction of IFRS 2 and other standards. The amendments to the standard also incorporate guidance previously included in IFRIC 8 »Scope of IFRS 2« and IFRIC 11 »IFRS 2 – Group and Treasury Share Transactions«. As soon as the amendments, which are mandatory for financial years beginning on or before 1 January 2010, become effective, the two interpretations will be withdrawn. There was no significant impact on the consolidated financial statements of Tognum AG as a result of the amendments to IFRS 2.

- IFRS 3 »Business Combinations« was subjected to a comprehensive revision in the context of the IASB and FASB convergence project. The principal amendments primarily affect the introduction of an option right in the valuation of minority interests to recognise either proportionately identifiable net assets (the so-called purchased goodwill method), or to apply the so-called full goodwill method, in accordance with which the entire portion of goodwill of the acquired company is recognised, in-cluding the goodwill allotment to the minority shareholders. Furthermore, the revaluation of already existing investment shares at profit or loss for the first obtainment of control (successive share pur-chases), and the obligatory requirement of a consideration that is tied to future events taking effect, are to be demonstrated at the time of acquisition. No changes result for assets and liabilities that en-sue from the business combinations before the first application of the new standards. In the event that Tognum AG acquires subsidiaries in future periods, an impact on the recognition and measurement of the acquired assets and liabilities is expected.

- As part of the IASB »Improvement Project« that was set up in 2008, further amendments to a number of standards were published in April 2009. IASB’s aim was once again to eliminate the inconsistencies in the existing disclosure requirements and editorial amendments to clarify existing requirements. Amendments were also made that could have an impact on the recognition, measurement or disclo-sure. This had no significant impact on the consolidated financial statements of Tognum AG.

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- IFRIC 12 »Service Concession Arrangements« was published in November 2006 and addresses the reporting of infrastructure services provided by private sector operators on behalf of local authorities. The first-time application of IFRIC 12 had no significant impact on the consolidated financial state-ments of Tognum AG.

- IFRIC 15 »Agreements for the Construction of Real Estate« is intended to provide uniform accounting treatment for companies that develop properties and in this capacity sell units such as residential units or houses »off plan«, i.e. before such units are completed. Criteria are defined as to whether IAS 11 »Construction Contracts« or IAS 18 »Revenue« should be applied in the reporting. This had no impact on the consolidated financial statements of Tognum AG.

- IFRIC 16 »Hedges of a Net Investment in a Foreign Operation« was published in July 2008 and clari-fies what qualifies as a risk in the hedge of a net investment in a foreign operation, and where, within a group, the hedging instrument to minimise this risk may be held. The interpretation also contains regulations regarding the procedure to be applied when a foreign subsidiary exits from the group of consolidated companies. This had no significant impact on the consolidated financial statements of Tognum AG.

- IFRIC 17 »Distributions of Non-Cash Assets to Owners« was published by the IASB on 27 Novem-ber 2008 and contains regulations as to how a company has to measure other assets as payment instruments which it transfers to shareholders as dividends. If the assets designated for distribution correspond to the definition of a discontinued operation, additional disclosures will need to be made in the notes to the financial statements. The amendments to IAS 10 »Events After the Balance Sheet Date« and IFRS 5 »Non-Current Assets Held for Sale and Discontinued Operations« associated with IFRIC 17 will also become effective when IFRIC 17 is adopted. This had no significant impact on the consolidated financial statements of Tognum AG.

- IFRIC 18 »Transfers of Assets from Customers« clarifies and explains how the transfer of items of property, plant and equipment or cash and cash equivalents for the construction or purchase of an item of property, plant or equipment by a customer is to be treated for accounting purposes. This interpretation did not result in any significant impact on the consolidated financial statements of Tognum AG.

In addition, IASB has published the following standards, interpretations and amendments to existing standards that have already been endorsed by the European Union, the application of which, however, is not yet mandatory for the 2010 financial year, and that will not be applied prematurely in the consoli-dated financial statements of Tognum AG.

STANDARD/INTERPRETATION Effective date1 Endorsement2

Amendment IAS 24 Related Party Disclosures 1 Jan. 2011 19 July 2010

Amendment IAS 32 Financial Instruments: Presentation 1 Feb. 2010 23 Dec. 2009

Amendment IFRS 1 First-time Adoption of International

Financial Reporting Standards 1 Jan. 2010 30 June 2010

Amendment IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset,

Minimum Funding Requirements and their Interaction 1 Jan. 2011 19 July 2010

Amendment IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2010 23 July 2010

1 Applicable from the first reporting period of a financial year beginning on or after this date 2 Adoption of IFRS Standards or Interpretations by the EU Commission

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- The amendments to IAS 24 »Related Party Disclosures« published in November 2009 are intended to simplify the disclosure requirements for government-related entities. The definition of a related entity or party has also been clarified. The amended standard is to become effective for reporting periods beginning on or after 1 January 2011. The amendments are not expected to result in significant addi-tional disclosures in the notes to the consolidated financial statements of Tognum AG.

- On 8 October 2009, the IASB published amendments to IAS 32 »Financial Instruments: Presentation«. They address the accounting treatment of subscription rights, options and warrants to acquire a fixed number of an entity’s own equity instruments that are denominated in a currency other than the functional currency of the issuer. The amendments are applicable for financial years beginning on or after 1 February 2010. No impact is expected on the consolidated financial statements of Tognum AG.

- On 28 January 2010, the IASB published an amendment to IFRS 1 entitled »Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters«. The amendment enables first-time adop-ters of IFRS to apply the transition provisions of IFRS 7 »Financial Instruments: Disclosures« for the disclosure requirements introduced in March 2009. The amendment is applicable for financial years beginning on or after 1 July 2010. Earlier application is permitted however. The amendment to IFRS 1 will have no impact on the consolidated financial statements of Tognum AG.

- The amendments to IFRIC 14 »IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction« clarify the accounting treatment of prepayments for minimum funding contributions. The amendments permit entities in such cases to recognise the benefit obtained from such a prepayment as an asset. Compulsory application is planned for financial years beginning on or after 1 January 2011. The amendments to IFRIC 14 are not expected to have any im-pact on the consolidated financial statements of the Tognum AG.

- IFRIC 19 »Extinguishing Financial Liabilities with Equity Instruments« was published on 19 Novem-ber 2009. The interpretation is applied when the renegotiated terms of a financial liability permit the debtor to extinguish the financial liability completely or partially by issuing shares or other equity in-struments (so-called debt for equity swaps). The interpretation addresses only the accounting by the debtor, i.e. the entity issuing equity instruments, and also assumes that the creditor is an independent third party. IFRIC 19 is to be applied for reporting periods beginning on or after 1 July 2010. It is not expected that IFRIC 19 will have an impact on future consolidated financial statements of Tognum AG.

The first-time adoption of each of these standards, interpretations and amendments to existing standards is planned from the date of its compulsory application.

The IASB has also published the following standards, interpretations and amendments to existing stan-dards that have not yet been endorsed by the European Union and have thus not been applied in the present consolidated financial statements.

STANDARD/INTERPRETATION

Amendment IFRS 7 Notes to the Financial Statements – Transfers of Financial Assets

Amendment Diverse Improvement Project 2010

New IFRS 9 Financial Instruments: Classification and Measurement

Amendment IAS 12/SIC-21 Income Taxes: Recovery of Revaluated Non-Depreciable Assets

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- The IASB published amendments to IFRS 7 »Financial Instruments: Disclosures« on 7 October 2010. The amendments relate to additional disclosure requirements for the derecognition of financial assets. This is intended to enable users of financial statements to better understand transactions performed for the purpose of transferring assets (e.g. securitisation or factoring). Application of the amendments is compulsory for financial years beginning on or after 1 July 2011. Comparative disclosures are not required in the first year of application. There will be no impact on the Tognum Group as a result of the amendments to the standard.

- As part of the IASB »Improvement Project« that was set up in 2008, further amendments to a number of standards were published in May 2010. IASB’s aim was once again to eliminate the inconsistencies in the existing disclosure requirements and editorial amendments to clarify existing requirements. Amendments were also made that could have an impact on the recognition, measurement or dis-closure. This is not likely to have any significant impact on the consolidated financial statements of Tognum AG. The vast majority of the amendments are effective for financial years beginning on or after 1 January 2011.

- With the publication of IFRS 9 »Financial Instruments: Classification and Measurement«, the first part of the project to replace IAS 39 by several successor standards has now ended. IFRS 9 focuses on the classification and measurement of financial assets. With the arrival of the new standards, the pre-vious measurement categories of IAS 39

- loans and receivables, - held-to-maturity investments, - available-for-sale financial assets, and - assets measured at fair value through profit or loss

will be replaced by the following two categories:

- amortised cost and - fair value.

The inclusion of a financial instrument in the amortised cost category is dependent on the one hand on the way in which an entity controls financial instruments and on the other hand on the product features of the individual instrument. Instruments that do not comply with the defining features of the amortised cost category are to be measured at fair value through profit or loss. A measurement at fair value in equity is permitted for selected equity instruments. IFRS 9 contains no requirements for the measurement of financial liabilities. The new standard is to be applied for financial years begin-ning on or after 1 January 2013. IFRS 9 requirements will have a significant impact on the measure-ment and disclosure of financial assets in the consolidated financial statements of Tognum AG. A reliable estimate of the associated quantitative effects is not possible at the moment.

- The IASB published amendments to IAS 12 »Income Taxes« and SIC-21 (Standing Interpretations Committee) »Income Taxes – Recovery of Revalued Non-Depreciable Assets« on 20 December 2010. In the case of investment property that, in accordance with IAS 40, is recognised using the fair value model, it is necessary to determine whether temporary tax differences are reversed by use or by sale. This is often difficult to determine. The amendment therefore includes a refutable presumption in IAS 12 that the recovery of the carrying amount of the property normally takes place through sale. In countries in which no tax arises from the sale of investment property, or only the amortisation is

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taxed, this would mean that no or only a small amount of deferred taxes would have to be accounted for. The remaining interpretations in SIC-21 have been integrated into IAS 12 and SIC-21 has now been withdrawn. The amendment to IAS 12 is to be applied retroactively for reporting periods begin-ning on or after 1 January 2012. The amendment to the standard will have no impact on the Tognum Group.

New standards and interpretations, or amendments to existing standards and interpretations are normal-ly not applied by the Group before the date on which they enter into force. The first-time application of the respective standard or interpretation is intended to take place from the date of its compulsory appli-cation in the European Union (following endorsement).

C U R R E N C Y T R A N S L AT I O N The financial statements of the foreign companies in the Group whose functional currency is not the euro are translated into the euro, the currency of the consolidated financial statements, in accordance with the concept of the functional currency. The functional currency of the foreign subsidiaries of the Group is normally the currency of the country in which it operates. An exception to this is the subgroup of MTU Asia Pte. Ltd., Singapore/Singapore, whose functional currency is the euro.

Assets and liabilities are translated into euros at the exchange rate as at the balance sheet date, income and expenses are translated at the weighted average exchange rate for the respective periods. Any dif-ferences resulting from the translation are recorded in equity with no effect on profits or losses. A trans-lation difference recorded in equity with no effect on results is only reported as profit or loss if the cor-porate entity concerned is removed from the group of consolidated companies.

Foreign currency transactions are translated into the functional currency at the exchange rate applicable at the time of the transaction. Gains and losses resulting from the fulfilment of such transactions, and from translating monetary assets and liabilities held in a foreign currency at the exchange rate on the balance sheet date, are reported with an effect on profits or losses.

Since Tognum AG has no significant subsidiary company with registered office in a hyperinflationary country, the preparation of financial statements in accordance with the rules of IAS 29 »Financial Reporting in Hyperinflationary Economies« was not necessary.

The following currency exchange rates apply for the Tognum Group’s key foreign currencies:

Rate at closing date Average exchange rate

CO UN TRY Currency 31 Dec. 2009 31 Dec. 2010

1 Jan. –

31 Dec. 2009

1 Jan. –

31 Dec. 2010

Great Britain GBP 0.8881 0.8608 0.8909 0.8579

Australia AUD 1.6008 1.3136 1.7733 1.4430

Japan JPY 133.1600 108.6500 130.3311 116.2654

Switzerland CHF 1.4836 1.2504 1.5101 1.3807

Singapore SGD 2.0194 1.7136 2.0240 1.8062

South Africa ZAR 10.6660 8.8625 11.6774 9.7028

USA USD 1.4406 1.3362 1.3946 1.3260

U S E O F A S S U M P T I O N S A N D E S T I M AT E S The preparation of the consolidated financial statements requires management to make judgements, esti-mates and assumptions that to a certain extent affect the reported amounts of assets and liabilities, in-come and expenses, as well as contingent liabilities.

The assumptions and estimates relate primarily to

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- the accounting representation of business combinations, - the assessment of the value of intangible assets (particularly goodwill), - the capitalisation of assets manufactured in-house (development costs), - the uniform determination of the useful commercial life

for intangible assets and property, plant and equipment throughout the Group, - the collectability of receivables, - the valuation of inventories, - the calculation of the overall costs of long-term service contracts, - the assessment of economic risks and opportunities of leasing contracts, and - the accounting and measurement of pension provisions and other provisions.

In the course of business combinations, estimates are generally made to determine the fair value of an ac-quired asset. As a basic principle, the fair value is determined by using a suitable valuation method that is generally based on the prospects for future incoming cash and cash equivalents. External experts are con-sulted in exceptional cases.

To test goodwill for impairment, the value in use for cash-generating units (CGUs) to which goodwill has been allocated is determined by means of the discounted cash flow method (cf. section 20 | »Intangible assets«). Assumptions regarding future business developments and general underlying data (e.g. interest rate level, exchange rate development) are to be made for this purpose. If there are any changes in these influencing factors, the value in use of the CGUs can change, possibly necessitating a need for impair-ment.

Self-produced intangible assets are capitalised in accordance with the accounting and measurement method (cf. page 131). In order to determine the amounts to be capitalised, Tognum AG has to make assumptions regarding the expected future cash flow arising from these assets, the interest rate to be applied, and the period of the inflow of the expected future cash flows which the assets are expected to generate.

The uniform determination of the useful commercial life for intangible assets and property, plant and equipment throughout the Group is subject to the estimations made by the company management.

For receivables, solvency and default risks may arise to the extent that customers are unable to meet their payment obligations, and thus produce losses. The calculation of the required impairments takes into account such things as the solvency of customers, existing securities as well as experience based on his-torical default rates. The actual payment defaults by customers may differ from the anticipated payment default due to the underlying influencing factors.

Inventories are valued at the lower value of acquisition and manufacturing cost and net realisable value. The net realisable value is determined by subtracting the costs incurred up to completion from the ex-pected sales price of the end product. If assumptions regarding future share prices or end product market potentials are not appropriate, this may lead to a further need for depreciating inventories.

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Revenues from long-term service contracts (primarily maintenance contracts) are reported in accord-ance with the respective state of completion. A determination of expected overall cost is required when applying the cost-to-cost method, which is based on empirical values from prior contracts. However, should deviations from estimated values arise due to unforeseen special effects, a too far advanced state of completion could have been determined as at the balance sheet date, resulting in a reporting of sales revenues that would be too high (for total sales revenues from service contracts, please refer to section 5 | »Sales revenues« of the notes to the consolidated financial statements).

For the commercial allocation of lease objects, it is of utmost importance to determine who carries the significant commercial risks and opportunities associated with the ownership of the object. To this end, assumptions must be made regarding the market price of the lease object at the end of the lease period and the cash value of the minimum lease payments.

When accounting for provisions, management must make assumptions regarding the probability of certain business transactions resulting in an impending loss of commercial benefit for Tognum AG. Es-timates regarding the amount and timing of possible economic outflows form the basis for the measure-ment of provisions. If the actual amount and the timing differ from estimates made, then this may affect the results of Tognum AG.

The assumptions and estimates are based on premises based on the knowledge at hand at the respective time. Unforeseeable developments and developments beyond management’s control may cause a diffe-rence between the originally estimated values and the actual amounts arising at a later date. In this case, the premises and, if necessary, the carrying amounts of the affected assets and liabilities will be adjusted accordingly. Other instances of the exercise of discretion by management in the application of account-ing and measurement methods which have a significant effect on the consolidated financial statements are as follows:

- The Tognum Group reports actuarial gains and losses of pension provisions using the corridor method. The corridor method was chosen for the lower volatility and its effect on equity. The use of another method for reporting actuarial gains and losses in accordance with IAS 19 would possibly have an effect on the provisions for pensions and on the consolidated statement of comprehensive income.

- Deferred tax assets may only be stated to the extent that it is likely that sufficient taxable earnings will be available in the future. The exercising of discretion is necessary to assess whether these claims can be settled.

- In inter-company relationships between companies within the Tognum Group and so-called special purpose entities (e.g. lease object companies), estimates as to whether the special purpose entities are controlled by the Tognum Group must be made. Within the Tognum Group, there are business rela-tionships with lease object companies. Following an overall appraisal of all risks and opportunities, no consolidation required was determined.

R E C O G N I T I O N O F I N C O M E A N D E X P E N S E S Revenues and other operating income from the sale of goods are disclosed at the time that the relevant risks and opportunities associated with the ownership of the sold goods and products are transferred to the customer and when it is sufficiently likely that the commercial benefit from the sale will flow to the Tognum Group.

Income received from the provision of services is recognised in accordance with the state of completion of the respective transactions. In long-term service and maintenance contracts and extended, separately billed guarantees, the revenues are as a rule recognised systematically over the term of the contract or, if the services are not provided systematically, in accordance with the ratio of the already incurred costs to the expected overall cost (cost-to-cost method). The expected overall costs are determined on the basis of prior empirical values.

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As a manufacturer of diesel engines, the Tognum Group is also involved in the associated spare parts business, which is divided into the trading and distribution of new spare parts (cf. »Principles of earnings generated through the sale of goods«) as well as re-conditioned spare parts. The deposit received in the sale of these re-conditioned parts – based on the accounting system used for traditional deposit systems – is accounted for as a provision using an estimated rate of return when the part is made available for sale.

Revenue reductions such as sales returns, rebates, discounts and incentives are set off against gross rev-enue. Manufacturing costs for sales include the costs for sold products manufactured in-house as well as delivery costs for the sold merchandise. Manufacturing costs for products manufactured in-house in-clude the directly allocable individual material and production costs, the allocable parts of the overhead costs for production including depreciation of production equipment, other intangible assets and reduc-tions in inventories. Rental charges and licence fees are accrued and recognised in accordance with the commercial situation of the transactions.

Borrowing costs directly related to the sale, construction or manufacture of qualified assets (i.e. assets for which a substantial amount of time is required to return them to the condition required for use or sale) are to be added to the manufacturing costs of these assets until the time the assets are available for their intended use or sale. Income earned on the temporary investment of capital borrowed specifically for this purpose until spent on qualified assets, is deducted from the borrowing costs eligible for capitalisation. Interest that has not been capitalised in accordance with IAS 23 is reported in the reporting period as an expense or as earnings using the effective interest method.

Dividends are recognised with an effect on profits or losses when the legal entitlement for payment arises.

I N TA N G I B L E A S S E T S I N T A N G I B L E A S S E T S A C Q U I R E D A G A I N S T P A Y M E N T. Intangible assets that are acquired against payment are recognised at acquisition cost. They are amortised systematically in accordance with their respective useful life. Intangible assets are amortised according to the straight-line method.

Intangible assets with an indefinite useful life are subject to at least one impairment test a year and are not amortised systematically. With the exception of goodwill and brand names, no intangible assets with an indefinite useful life were capitalised in the Tognum Group.

S E L F - P R O D U C E D I N T A N G I B L E A S S E T S . Costs for the development of new or significantly improved products and processes are capitalised if the development costs can be reliably determined, the product or the process can be realised technically and commercially and when future commercial benefits are likely. Moreover, the Tognum Group must have the intention and possess sufficient resources to complete the development and to use or sell the asset. The capitalised costs include material costs, production wages and the directly allocable general overhead costs. Capitalised development costs are recognised at manufacturing cost less accumulated amortisation and impairments.

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These may include the following costs:

DIRECT CO STS OVERHEAD CO STS (D IRECTLY ALLO CABLE )

Direct material costs Material overheads

Direct manufacturing costs Manufacturing overheads

Special direct manufacturing costs Fixed asset depreciation

Development-related administration costs

Research and development costs that do not meet the disclosure criteria are recognised with an effect on profit or loss in the period in which they are incurred.

Within the self-produced intangible assets at the balance sheet date, there was one qualifying asset as de-fined under IAS 23, which meant that borrowing costs amounting to 0.2 million euros were capitalised for the first time.

G O O D W I L L . Goodwill corresponds to the difference between the purchase price and the proportional fair value of the net asset at the time of acquisition. Capitalised goodwill is not amortised systematically. It is subject to an annual impairment test. If there are indications of impairment, the impairment test is also conducted during the year. Please refer to section 20 | »Intangible assets« for more information about the impairment test.

The following useful lives are taken as the basis for the systematic amortisation of intangible assets:

Useful life in years

Concessions, industrial property rights 2 – 9

Brands 3 – 5

Technology 5 – 8

Customer relationships 5 – 20

Order backlog 1 – 2

Development costs in the production phase 5 – 10

P R O P E RT Y, P L A N T A N D E Q U I P M E N T Property, plant and equipment are valued at amortised cost less accumulated, systematic depreciation for wear and tear, as well as accumulated expenses for impairments.

Acquisition costs include the acquisition price, directly attributable costs of the acquisition and subse-quent acquisition costs less price reductions received for the acquisition. Manufacturing costs for equip-ment manufactured in-house include both the individual costs and the allocable overhead costs for mate-rials and production. These consist of production-related depreciation and the proportional costs for the company’s retirement provisions and the voluntary retirement benefits. At the balance sheet date, there were no qualifying assets as defined under IAS 23, which meant that no borrowing costs for property, plant and equipment were capitalised.

Property, plant and equipment are depreciated over their commercial useful life in a systematic, straight-line method. Property is not depreciated systematically.

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The following useful lives are taken as the basis for systematic depreciation:

Useful life in years

Buildings 8 — 50

Plant and machinery 5 — 10

Other facilities, including factory and office equipment 3 — 14

I M PA I R M E N T O F I N TA N G I B L E A S S E T S A N D P R O P E RT Y, P L A N T A N D E Q U I P M E N T In accordance with IAS 36, property, plant and equipment as well as intangible assets with a limited useful life are reviewed as at every balance sheet date to determine whether there is reason for possible impairment. If there is reason for impairment, the recoverable amount of the asset is determined. The recoverable amount is defined as the higher amount from the fair value less costs to sell and the value in use. If the carrying amount is greater than the recoverable amount of the asset, then an impairment loss for the sum that the carrying amount exceeds the recoverable amount is reported with an effect on profit or loss. For the impairment test, assets are summarised at the lowest level for which a separate cash flow can be identified. If the cash flow for an asset cannot be identified separately, the impairment test is per-formed on the basis of the Cash Generating Unit (CGU) to which the asset belongs.

The asset is appreciated to a new recoverable amount if the reasons for the impairment from previous years no longer apply. The upper limit for appreciations is the amortised costs that would have resulted if no impairment had been reported in the previous years.

To carry out the annual impairment test for goodwill, an allocation to the CGUs has to be done. The recoverable amount of these CGUs is then checked at least once a year or when there are indications that the carrying amounts of these CGUs exceed the recoverable amount. If the recoverable amount of the CGU falls below the carrying amount of its net asset, then the impairments are reported with an effect on profit or loss in accordance with the requirements of IAS 36. Reversing an impairment loss for goodwill in later periods is forbidden. The impairment of intangible assets with an unspecified useful life is determined in accordance with the same principles.

I N V E N T O R I E S Raw materials, consumables and supplies, unfinished goods and services, finished goods and merchan-dise, and advance payments made are disclosed under inventories. They are recognised at acquisition or manufacturing cost, which is allocated to certain inventories by means of an individual allocation pro-cess. If this is not possible, then they are determined in accordance with the average method. The acqui-sition and manufacturing costs are calculated by using the standard cost method where the normal amount for materials used and wages paid as well as the normal performance and capacity utilisation are taken into account.

Inventories are recognised at the lower value of either the acquisition/manufacturing costs or the net realisable value. Appropriate appreciation to a new net realisable value is determined if the reasons for an impairment cease to apply. The upper limit for such a reinstatement is the historical (i.e. amortised) acquisition or manufacturing cost. As at the balance sheet date, borrowing costs of capital were not capi-talised since the current inventory level does not meet the criteria specified by IAS 23 for an appropriate capitalisation.

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N O N - C U R R E N T A S S E T S A N D L I A B I L I T I E S H E L D F O R S A L E Non-current assets (or a disposal group) are classified as being held for sale and recognised at the lower value of either the carrying amount or the fair value less costs to sell if the carrying amount is redeemed primarily through a sale and not through ongoing use by the company.

D E F E R R E D TA X E S In accordance with IAS 12, deferred taxes are recognised for temporary differences between the carrying amounts in the IFRS balance sheet and in the tax balance sheet. In addition, deferred tax assets are also to be recognised for tax losses carried forward, provided that tax credits result in the following years from the anticipated use of existing tax losses carried forward. The calculation of the deferred taxes is based on the tax rates that apply or with a reasonable degree of probability are expected to apply in the individual countries on the reporting date.

At the balance sheet date, the value of the deferred tax assets is reviewed and reduced to the extent that it is no longer probable that sufficient taxable profit will be available in the relevant planning period. De-ferred tax assets that were not previously recognised are reviewed once again at the balance sheet date and recognised to the extent that it is now probable that any future taxable profit will enable the deferred tax asset to be realised.

Deferred taxes arising from the initial recognition of goodwill, an asset or a liability in the course of a business transaction other than a business combination, whereby the initial recognition affects neither the accounting profit nor the taxable profit, are not recognised.

Deferred tax assets and liabilities are set off against each other when the Group has a legally enforceable right to offset the actual tax refund claims against the actual tax liabilities and when these relate to in-come tax levied on the same taxable entity by the same tax authority.

O R I G I N A L F I N A N C I A L I N S T R U M E N T S Financial instruments are contracts that lead to a financial asset at one company and a financial liability or equity instrument at the other.

Financial assets and liabilities are disclosed on the balance sheet when the Tognum Group becomes a contractual party to a financial instrument. The financial assets are recognised at their fair value in the initial disclosure. Subsequent valuation depends on the classification.

IAS 39 classifies financial assets into the following categories:

- financial assets at fair value through profit or loss, - financial assets held to maturity, - loans and receivables, and - available-for-sale financial assets.

Financial instruments in the »Loans and receivables« category are recognised upon delivery or settlement of the service, i.e. at the time the claim to payment arises (settlement date). Derivatives are booked on the day of the transaction, and all other financial assets are booked on the settlement date. The transaction day is the day on which the Tognum Group enters into the obligation to purchase or sell an asset. The settlement date is the day on which an asset is delivered to or by the company.

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Derecognition of a financial asset takes place on the selling date (trading day) or when the claim has been settled. Derecognition then takes place when a receivable has become irrecoverable. Any effects arising from derecognition are recognised through profit or loss.

Financial instruments are impaired when there are objective indications for this. Such indications for a financial instrument could include:

- severe financial difficulties on the part of the issuer, - breach of contract by the debtor, e.g. defaulting on interest or debt repayments, - concessions made to a debtor that would not have been made under normal circumstances, - a high probability of insolvency proceedings or other financial restructuring by the debtor, - observable information from which a reduction in the expected future cash flows can be deduced (e.g.

adverse changes in the conduct of debtor payments, national or local commercial circumstances), as well as

- a lasting or significant reduction in the fair value of equity instruments under acquisition costs.

The impairment is determined by taking into account collateral held, or other credit enhancements, with recourse to the objective indications. The carrying amount of the asset is reduced by using an adjustment account and recognising the impairment loss with an effect on profit or loss. Interest earnings, based on the original effective interest rate of the asset, continue to be reported on the reduced carrying amount. Receivables, together with the relevant amortisation, are derecognised when they are classified as irre-coverable and when all collateral has been accessed and utilised. If the amount of an estimated amorti-sation expense increases or decreases in a later reporting period due to an event which occurred after the amortisation expense was reported, then the previously reported amortisation expense is increased or decreased with an effect on profit or loss by adjusting the amortisation account. If a derecognised re-ceivable is again classified as recoverable due to an event occurring after derecognition, then the relevant amount is immediately reported as recoverable with an effect on profit or loss. The cash value of the ex-pected future cash flow is reduced by the original effective interest rate of the financial asset.

Expended loans, receivables and liabilities as well as financial investments held to maturity are recog-nised at amortised cost in accordance with the effective interest method. These include other receivables, financial assets and liabilities as well as financial debt.

The »Available-for-sale financial assets« category includes all financial assets that are not allocated to an-other measurement category. As a possible application of available-for-sale financial assets, securities are recognised on the settlement date for the first time at fair value. Changes to the fair value are recognised in equity without an effect on profit or loss under consideration of deferred taxes. Gains or losses are recognised when a financial asset is derecognised or a long-term impairment of the asset is present.

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Shareholdings are also allocated to available-for-sale financial assets as long as the option provided under IAS 39 of measuring them at fair value through profit or loss is not exercised. Since there is no active market for shareholdings that are categorised as available-for-sale financial assets in companies that are not traded publicly (this only includes shares in a GmbH, i.e. a German limited liability company, or a comparable foreign legal entity) with the aid of which fair value could be reliably determined, and as there is no other method that can determine fair value reliably, valuation is at amortised cost. As at the balance sheet date, there is no intention to dispose of these shares.

Shareholdings for which the option provided under IAS 39 (fair value option) is exercised, are measured at fair value through profit or loss. Fair value is determined using standard financial valuation models (valuation methods) based on instrument-specific market parameters.

Financial liabilities include trade payables and other liabilities including financial debts. They are to be recognised when the Group becomes a contractual party to the provisions of a financial instrument. Lia-bilities incurred due to an obligation to purchase goods or services are recognised on the settlement date for the respective delivery or service. For financial liabilities, the appropriate liabilities are to be recog-nised on the settlement date, i.e. the value date. Derivatives are recognised on the day of the transaction. Financial liabilities are derecognised when they have been settled, i.e. when the obligations stated in the contract have been met, lifted or expired. Initial disclosure is made at fair value. Where there is a finan-cial liability that is valued at fair value without an effect on profit or loss, valuation occurs after deducting transaction costs from the consideration received. The subsequent valuation is dependent on the cate-gorisation.

IAS 39 classifies financial liabilities into the following categories:

- financial liabilities measured at fair value through profit or loss, and - other liabilities.

In the subsequent periods, other liabilities are recognised at amortised costs. For current liabilities, this means that they are recognised at the redemption or settlement amount. Non-current liabilities and financial debts are accounted for using the effective interest method.

In the interests of more transparent corporate reporting and in compliance with IFRS 7.6, Tognum AG allocates financial instruments to different classes in accordance with the underlying characteristics of these instruments. The following classes of financial assets and liabilities existed as at the balance sheet date:

- trade receivables, - cash and cash equivalents, - available-for-sale financial assets, - financial assets measured at fair value through profit or loss (e.g. fair value of derivatives without

hedge accounting), - other receivables and assets, - financial liabilities, - trade payables, - financial liabilities measured at fair value through profit or loss (e.g. fair value of derivatives without

hedge accounting), and - other financial liabilities.

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For details of the allocation of individual classes to the relevant measurement categories in accordance with IAS 39, please refer to the table in section 37 | »Additional disclosures on financial instruments«. The »Financial instruments held to maturity« measurement category is not applied within the Tognum Group.

D E R I VAT I V E F I N A N C I A L I N S T R U M E N T S Derivative financial instruments are used within the Tognum Group to reduce currency and interest risks. For their initial valuation, derivatives are recognised at their fair value on the day the contract is signed.

Derivative financial instruments belong to the category of »Financial assets and financial liabilities mea-sured at fair value through profit or loss«. Changes in the fair value are recognised with an effect on profit or loss. »Hedge accounting« is not applied in the Tognum Group.

The category of »Financial assets and financial liabilities measured at fair value through profit or loss« also includes options in which fair value is determined using standard financial valuation models (val-uation methods) based on instrument-specific market parameters.

G O V E R N M E N T G R A N T S Government grants in accordance with IAS 20 »Accounting for Government Grants and Disclosures of Government Assistance« are only reported when there is sufficient guarantee that the associated con-ditions have been satisfied and the grants made. Investment subsidies for depreciable assets are treated as a reduction in acquisition costs. The subsidy is thus proportionally recognised under net income as lower depreciation.

C A S H A N D C A S H E Q U I VA L E N T S Cash and cash equivalents comprise cash, deposits and other current, highly liquid financial assets that are only subject to insignificant risks in the fluctuation of value and that have a maximum term of no more than three months.

E M P LO Y E E B E N E F I T S Employee benefits include short-term benefits and post-employment benefits, other non-current benefits owed and termination benefits. The Tognum Group currently guarantees pension benefits to almost all employees in Germany and also to some employees abroad

Post-employment benefit plans are classified on the basis of their financial content, which results from the underlying benefit conditions and benefit prerequisites of the plan, either as defined benefit (DB) or as defined contribution (DC).

Retirement benefit plans that cannot be clearly classified as DC are considered as DB contributions. The provision recognised on the balance sheet for benefit contributions corresponds to the balance from the cash value of the defined benefit obligation (DBO) as at the balance sheet date and the fair value of the possibly existing plan asset, adjusted for subsequent, offsettable accumulated service costs that have not had an effect on results to date, as well as the actuarial gains or losses that have not had an effect on results to date.

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The calculation of the DBO is based on the projected unit credit method under IAS 19. For the calcula-tion of the DBO, the actuarial interest rate at the respective balance sheet date is determined from the current capital market information and under consideration of the term of the existing obligations. Fur-thermore, long-term assumptions are made on future developments with regard to anticipated increases in salaries and pensions. They are made in accordance with the principle of the best possible estimates and considered in the valuation. The obligations are assessed once a year by independent qualified actuaries.

Actuarial gains or losses are recognised in expenses in accordance with the corridor approach. The proportion of the actuarial gains or losses that exceeds 10% of the higher amount of the DBO or the plan asset as at the balance sheet date is distributed over the rest of the average service period of the em-ployees starting the following year with an effect on profit or loss.

Settlements are paid when an employee is laid off before the regular age for retirement or terminates his or her employment contract voluntarily for a settlement, and are recognised when the Tognum Group has entered into an irreversible obligation. Services due more than twelve months after the balance sheet date are discounted to their cash value.

F O R M S O F S H A R E - B A S E D PAY M E N T The goods or services received or acquired in a transaction with a share-based payment are disclosed or recognised as an expense at the time the goods are acquired or the service received. An appropriate in-crease in equity is reported when the goods or services in a share-based payment transaction are received by means of equity instruments, or a debt is recognised when the goods or services in a share-based payment transaction are acquired for cash compensation. In the event of a share-based payment trans-action which is settled in cash, the acquired goods or services and the incurred debt are recognised at the fair value of the debt. Until the debt has been settled, the fair value of the debt is re-determined at every balance sheet date and all changes to the fair value are recognised as profit or loss.

OT H E R P R O V I S I O N S Other provisions are created for obligations resulting from events in the past that are likely to lead to a financial burden, the amount of which can be estimated reliably.

Provisions with a remaining term of more than one year are recognised at their discounted amount to be paid. Increases in a provision resulting from accrued interest are recognised in other financial results.

L E A S I N G In accordance with IAS 17 »Leases«, the commercial ownership of leased assets is to be allocated to the lessee if this party assumes all the significant opportunities and risks connected to the asset (finance leases). Leases where a significant portion of the opportunities and risks remain with the lessor are classi-fied as operating leases. The payments made in this context are recognised systematically for the length of the lease with an effect on profit or loss.

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S U M M A R Y O F S E L E C T E D A C C O U N T I N G P R I N C I P L E S

I T EM ACCO UNTING PRINCI PLE

Assets

Goodwill Acquisition costs (subsequent measurement: impairment test)

Other intangible assets

Intangible assets acquired against payment (Amortised) acquisition costs

Self-produced intangible assets Manufacturing costs of development

(direct costs and directly allocable overhead costs)

Property, plant and equipment (Amortised) acquisition costs

Financial assets

Loans and receivables (Amortised) acquisition costs

Held- to -maturity (Amortised) acquisition costs

Fair value through profit or loss Fair value through profit or loss

Available -for -sale Fair value recognised in equity without an effect on profit or loss

Inventories Lower value of acquisition and net realisable value

Trade receivables (Amortised) acquisition costs

Cash and cash equivalents Nominal value

Liabilities

Provisions

Pension provisions Projected unit credit method

Other provisions Settlement value (with maximum probability of occurrence)

Financial debt

(Amortised) acquisition costs (Amortised) acquisition costs

Fair value through profit or loss Fair value through profit or loss

Other liabilities Settlement value

Trade payables (Amortised) acquisition costs

F I N A N C I A L R I S K M A N A G E M E N T As a group of companies operating on a global scale, the Tognum Group is exposed to currency and interest risks as part of its operating activities and in the area of financing. These risks are reduced or eliminated by derivative financial instruments. All necessary hedging measures are fundamentally taken by Group Treasury.

For further information regarding risk management, please refer to the risk report, which is an integral part of the group management report.

F O R E I G N C U R R E N C Y R I S K . The currency risks to which the Tognum Group is exposed result primarily from business transactions with international contractual partners that lead to payment flows in a cur-rency other than the functional currency of the respective subsidiary. The Tognum Group reduces this risk by settling these business transactions (sales and purchases of products and services, as well as investment and financing activities) preferably in the respective functional currency. Some of the foreign currency risk associated with revenue recognition is also offset through the acquisition of goods, raw materials and services in the relevant foreign currency.

Any foreign currency risk that remains for the Tognum Group is actively managed for all group com-panies by the central Group Treasury. The use of derivative financial instruments is regulated by means of internal guidelines that are binding throughout the Group and also specify the conceptual framework

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for the identification and determination of individual net currency positions for all group companies. Providing this is not prohibited by statutory exchange control regulations, all hedging business is carried out via the Group Treasury of the Tognum Group, which in turn concludes identical financial instru-ments with external partners.

Foreign currency risks arise in particular where receivables, liabilities and planned transactions exist in a currency other than the local one. Within the Tognum Group, this primarily involves the US dollar, but also the Singapore dollar, the British pound sterling, the Swiss franc and the South African rand.

On both the revenue and the cost side, the Tognum Group has considerable currency exposure in the key currencies. This offsetting currency exposure will be calculated for the next twelve months and, taking the currency holdings into account, will be recognised in transaction-related net foreign currency ex-posure. This net foreign currency exposure has been actively secured by concluding currency hedges. As at the balance sheet date, the transaction-related net foreign currency exposure following hedging amounted to 142.8 million euros (previous year: 131.3 million euros).

Foreign currency risks also arise from other financial liabilities and assets. The resultant foreign currency risks relate primarily to US dollar drawings for the syndicated loan agreement. These US dollar drawings serve to hedge the translational risk that arises for Tognum AG from the net assets of the US dollar dom-inated subsidiaries.

The currency losses from the realisation of currency receivables/liabilities as well as their valuation and the valuation of currency holdings at year-end recognised in the consolidated statement of comprehen-sive income amounted to – 10.8 million euros in 2010 (previous year: currency gain of 4.7 million euros).

I N T E R E S T R I S K . Changes in market interest rates have an effect on future interest payments for liabilities with variable interest rates. Significant increases in interest rates can thus have a negative effect on the profitability, liquidity and financial position of the Tognum Group.

The interest risk positions of the Tognum Group are centrally managed for all group companies. The aim of interest risk management within the Tognum Group is to limit the risk of financial losses due to unfavourable changes in the overall interest rate level. To this end, interest swaps are introduced which counter a large part of the risk due to interest rate changes arising from liabilities to banks with variable interest rates. As at the balance sheet date, the risks arising from changes in the interest rates of non-current liabilities to banks were eliminated until the end of the term of credit due to interest swaps. The valuation of the interest swap as at the balance sheet date led to an effect on profits of – 8.8 million euros (previous year: 19.0 million euros).

D E F A U LT R I S K . The customer structure of the Tognum Group entails no significant concentration of default risks with respect to trade accounts receivable. In terms of the fair value of financial receivables at the reporting date, there were no indications of any reduction in value. The maximum default risk from financial assets is the risk of losing a contractual partner and, thus, the sum of the carrying amount of the respective contracting party.

An overview of the carrying amounts and the resultant maximum default risk is shown in section 37 | »Additional disclosures on financial instruments« in the notes to the consolidated financial statements. The Tognum Group also pursues business policies that limit this risk to a specific amount for individual contracting parties. The default risk for receivables is accounted for by the impairment of receivables. In addition, in terms of long-term loans, collateral exists in the form of pledged shares in the company.

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L I Q U I D I T Y R I S K . Liquidity risk is regarded as being the risk that the Tognum Group does not have suf-ficient funds to meet its payment obligations. This risk is countered by means of a systematic liquidity management system. A liquidity preview focused on a fixed planning period as well as unused credit lines available in the Group ensure that liquidity is consistent with the planned business development. As at the balance sheet date, Tognum AG had credit lines available totalling 619.6 million euros (previous year: 630.5 million euros), of which 295.0 million euros (previous year: 308.7 million euros) were utilised.

The following overview shows the contractually arranged maturity dates for financial liabilities, including contractual interest payments:

Cash flows 2011 Cash flows 2012 Cash flows 2013 Cash flows ≥2014

IN EUR MILL ION

Carrying

amount as at

31 Dec. 2010 Interests Repayments Interests Repayments Interests Repayments Interests Repayments

Financial liabilities1 297.7 2.6 3.0 2.5 0.3 1.3 294.3

Derivative financial liabilities2 13.7 4.5 9.6 4.5 2.7 2.3 1.4

Trade liabilities 316.6 316.6

Other financial liabilities 62.7 60.8 0.9 1.0

690.6 7.0 390.0 7.0 3.9 3.5 296.7

Cash flows 2010 Cash flows 2011 Cash flows 2012 Cash flows ≥2013

IN EUR MILL ION

Carrying

amount as at

31 Dec. 2010 Interests Repayments Interests Repayments Interests Repayments Interests Repayments

Financial liabilities1 310.6 2.2 2.6 2.2 0.3 2.2 0.3 1.1 307.5

Derivative financial liabilities2 2.1 4.6 2.1 4.6 4.7 2.3

Trade liabilities 223.6 223.6

Other financial liabilities 65.9 58.4 6.2 1.1 0.2

602.2 6.9 286.7 6.9 6.5 6.9 1.4 3.4 307.7

1 The relevant bullet repayments are taken into account for non-current financial liabilities. For interest on non-current financial liabilities

(Facility A1 and A2), the variable interest rates applicable on the balance sheet date are taken as the basis. 2 Cash flows from derivative financial liabilities include the anticipated compensation payments from existing interest swaps. The carrying

amounts of the interest swaps were spread linearly over the entire lifetime. Other derivative financial liabilities were spread according to their maturity.

All instruments that were on hand and for which payments had already been contractually agreed as at 31 December 2010 were included. Planned figures for new future liabilities were not included. Foreign currency amounts were translated at the exchange rate on the balance sheet date (as at 31 December). The flexible interest payments from the financial instruments were calculated on the basis of the last fixed interest rates.

S E N S I T I V I T Y A N A LY S E S For every type of market risk, sensitivity analyses determine the effects that hypothetical changes in the respective risk variables would have on the consolidated net profit or loss and consolidated equity, in each case before taxes, as at the balance sheet date.

I N T E R E S T R A T E S E N S I T I V I T Y. In accordance with the requirements of IFRS 7, the effects of the main interest rate changes on the consolidated net profit or loss and consolidated equity were analysed, in each case before taxes. The effect of changes in interest rates on future cash flows was not included in this analysis. The effects of the interest result on interest-bearing liabilities with a variable interest rate exist-ing as at financial year end (cf. details in section 33 | »Financial liabilities« in the notes to the consoli-dated financial statements) were determined by hypothetical market interest rates. Changes in market interest rates have an effect on interest payments for liabilities and short-term financial investments with variable interest rates. The fair value of the derivative interest instruments (cf. section 36 | »Derivative financial instruments to hedge business operations« in the notes to the consolidated financial statements)

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was subsequently re-calculated using the hypothetical market interest rate, and the resulting effects on the consolidated net profit or loss and consolidated equity, in each case before taxes, were then included in the sensitivity analysis.

The interest rate sensitivity analysis assumes a shift in the yield curve of 100 basis points (one percentage point) upward and downward, all other conditions remaining the same. Deviations from the interests or fair values actually recognised and the potential effects on the consolidated net profit or loss and consoli-dated equity as at the balance sheet date, in each case before taxes, are presented in the following over-view. In the 2010 financial year, the presentation is based on a determination of the effects on consoli-dated net profit or loss and consolidated equity, in each case before taxes, taking into account the effects on the interest result in the event of a re-calculation using hypothetical market interest rates for liabilities and financial investments with a variable interest rate.

IN EUR MILL ION Profit or loss Equity effect

3 1 D EC . 201 0 BP 100+ BP 100- BP 100+ BP 100-

Effects in the area of original financial instruments

(change in interest expenses) – 2.0 1.2 – 2.0 1.2

Effects in the area of derivative financial instruments

(fair-value changes) 7.4 – 7.4 7.4 – 7.4

Total 5.4 – 6.2 5.4 – 6.2

IN EUR MILL ION Profit or loss Equity effect

3 1 D EC . 200 9 BP 100+ BP 100- BP 100+ BP 100-

Effects in the area of original financial instruments

(change in interest expenses) – 2.1 2.6 – 2.1 2.6

Effects in the area of derivative financial instruments

(fair-value changes) 9.5 – 9.5 9.5 – 9.5

Total 7.4 – 6.9 7.4 – 6.9

C U R R E N C Y S E N S I T I V I T Y . For sensitivity analysis purposes, currency risks from monetary financial in-struments are included in the analysis where these financial instruments were not contracted in the func-tional currency of the individual companies of the Tognum Group. The effects resulting from translating the foreign currency financial statements of foreign subsidiaries into the currency of the consolidated financial statements (euro) are not included in the sensitivity analysis in accordance with IFRS 7.

An increase or decrease of 10% in the euro against the US dollar as at 31 December 2010 in original financial instruments (recognised assets and liabilities) would increase or reduce the consolidated net profit or loss before taxes by 17.9 million euros (previous year: 16.8 million euros) and consolidated equity before taxes by 17.9 million euros (previous year: 16.1 million euros). An increase or decrease of 10% in the euro against all other currencies in original financial instruments would increase or reduce the consolidated net profit or loss and consolidated equity, in each case before taxes, by 0.2 million euros (previous year: 0.9 million euros). This analysis was conducted on the assumption that all other variables such as interest rates, prices and costs in the respective foreign currency, etc. remain unchanged.

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No currency hedges were concluded for US dollar liabilities contained in the financial liabilities (cf. sec-tion 33 | »Financial liabilities« in the notes to the consolidated financial statements). The following state-ments on the effects on derivative financial instruments are thus based on the hedges in operations. The derivative financial instruments also contain currency hedges for future transactions that have not yet been recognised, but in all probability will take place.

An increase of 10% in the euro against the US dollar as at 31 December 2010 in derivative financial in-struments (forward exchange transactions) would increase the consolidated net profit or loss and con-solidated equity, in each case before taxes, by 15.3 million euros (previous year: 10.9 million euros). A decrease of 10% in the euro against the US dollar in derivative financial instruments would reduce the consolidated net profit or loss and consolidated equity in each case before taxes by 15.3 million euros (previous year: 10.9 million euros).

An increase of 10% in the euro against all other currencies as at 31 December 2010 in derivative financial instruments (forward exchange transactions) would reduce the consolidated net profit or loss and con-solidated equity, in each case before taxes, by 2.1 million euros (previous year: 0.4 million euros). A de-crease of 10% in the euro against all other currencies in derivative financial instruments would increase the consolidated net profit or loss and consolidated equity, in each case before taxes, by 2.1 million euros (previous year: 0.4 million euros).

C A P I TA L M A N A G E M E N T The objective of capital management is to provide a sound financial profile. In particular, the ability to meet our current payment obligations, our debt service for external creditors and appropriate dividend payments for our shareholders are to be ensured at all times. Furthermore, Tognum Group intends to retain sufficient financial leeway to continue on its course of growth.

The Tognum Group does not currently have an official external rating. The group-wide risk profile is actively controlled and monitored centrally by the Group Treasury. As a result of the stable equity ratio and the significant reduction in net financial debt, we were given a credit rating by the refinancing banks that corresponds to investment grade.

Consolidated equity (including minority interests) was up 55.3 million euros to 735.8 million euros compared with the previous year. The disclosed net financial debt (interest-bearing financial liabilities less liquid funds) decreased significantly by 135.0 million euros to 57.2 million euros due to the positive operating cash flow and the low net working capital1.

This means that, as at the balance sheet date, a current ratio of net financial debt to EBITDA of less than 1:1 had been achieved, which was thus well below the ratio of 3.25:12 agreed with the refinancing banks. As a result of the current capital structure and the medium-term cash flow plan of the Tognum Group, we see a violation of the above-mentioned covenant as unlikely. In the event of a breach of the covenant, by means of a majority resolution, the consortium could demand the immediate repayment of the syndi-cated loan.

1 Net working capital: Inventories plus Trade receiveables less Trade payables less Payments on account 2 The calculation of the net financial debt and the EBITDA as defined by the refinancing banks deviates from the values

recognised in the balance sheet of the Tognum Group.

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Equity in EUR million (including minority interests) 680.5 735.8

in per cent of total balance sheet 27.6% 26.8%

Net financial debt in EUR million 192.2 57.2

With an equity ratio of 26.8%, the Tognum Group exhibits a sound and appropriate financial structure.

As part of the capital management strategy of the Tognum Group, it is always ensured that the companies in the Group as well as its subsidiaries have sufficient equity to meet the local requirements. Besides adequate financing, a required liquidity tolerance is made available to the subsidiaries. In the year under review, all externally imposed minimum capital requirements were met. In order to guarantee the exter-nally imposed minimum capital requirements, prior to carrying out measures which could have a signifi-cant impact on the capital structure of the Group, a test is always carried out to determine whether the ability of Tognum AG to maintain the external minimum capital requirements could be negatively affected by the transaction.

3 | Change in scope of consolidated companies

Compared with the situation as at 31 December 2009, two companies have been added to the group of consolidated companies and one company is no longer included in the Group. The subsidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey, which was founded in 1990, and its sub-sidiary company MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Şubesi, Çorlu/Turkey were included in the group of consolidated companies of Tognum for the first time as at 1 January 2010. The two companies are allocated to the Engines segment. The inclusion of these companies had no sub-stantial impact on the income, asset and financial position of the Tognum Group.

MTU DDC International GmbH, Friedrichshafen was absorbed into MTU Friedrichshafen GmbH, Friedrichshafen retroactively as of 1 January 2010. The entry into the commercial register took place on 24 August 2010. The absorption of this company into MTU Friedrichshafen GmbH, Friedrichshafen had no impact on the income, asset and financial position of the Tognum Group.

4 | Exit from Onsite Energy Fuel Cell Systems

Since the business in stationary fuel cell technologies (Onsite Energy Fuel Cell Systems), under the cur-rent market and promotion conditions that are evident worldwide, will not be commercially viable with-in the Tognum Group in the medium term, Tognum AG exits from these activities in the segment Onsite Energy & Components. On 28 December 2010, the Supervisory Board approved the resolution taken by the Executive Board.

One-time effects (extraordinary impairment losses and additions to provisions for restructuring) arising from the resolution taken by the Executive Board will be allocated to the consolidated statement of com-prehensive income on the balance sheet date as follows:

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Special effects

IN EUR MILL ION

Statement of

comprehensive

income before

special effects

Extraordinary

impairment

losses

Restructuring

costs

Statement of

comprehensive

income after

special effects

Revenues 2,563.6 2,563.6

Cost of sales – 1,903.9 – 17.3 – 20.2 – 1,941.4

Gross profit 659.6 – 17.3 – 20.2 622.1

Other operating income 12.3 12.3

Selling costs – 208.8 – 0.6 – 0.8 – 210.2

General administrative costs – 95.4 – 1.0 – 1.4 – 97.8

Research and development costs – 164.5 – 20.1 – 2.2 – 186.9

Other operating expenses – 1.6 – 1.6

Results from operating activities 201.7 – 39.1 – 24.7 137.9

Share of profit from investments accounted for

using the equity method – 0.7 – 0.7

Other financial income 28.9 28.9

Other financial expenses – 53.8 – 53.8

Earnings before interest and taxes 176.0 – 39.1 – 24.7 112.3

Interest income 6.6 6.6

Interest expenses – 33.4 – 33.4

Earnings before taxes 149.2 – 39.1 – 24.7 85.5

Income taxes – 38.9 10.2 6.4 – 22.3

Net profit or loss 110.4 – 28.9 – 18.3 63.2


Foreign currency translation differences for foreign operations 19.6 19.6

Net change in fair value of available-for-sale financial assets 0.5 0.5

Other comprehensive income 20.1 20.1

Total comprehensive income 130.5 – 28.9 – 18.3 83.3

Net profit or loss 110.4 – 28.9 – 18.3 63.2

thereof attributable to the shareholders of Tognum AG 110.0 – 28.9 – 18.3 62.8

thereof attributable to minority interests 0.4 0.4

Total comprehensive income 130.5 – 28.9 – 18.3 83.3

thereof attributable to the shareholders of Tognum AG 129.7 – 28.9 – 18.3 82.5

thereof attributable to minority interests 0.8 0.8

Earnings per share (in EUR) 0.84 – 0.22 – 0.14 0.48

Diluted earnings per share (in EUR) 0.84 – 0.22 – 0.14 0.48

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Notes to the Consolidated Statement of Comprehensive Income 5 | Sales revenues

Sales revenues result primarily from the sale of goods, with the product portfolio, in addition to diesel engines, also including diesel and gas engine systems as well as high-quality engine and drive compo-nents such as high-pressure fuel injection systems. The company also supplies gas turbines and tailor-made electronic systems for the monitoring and control of the engines and propulsion systems, in addi-tion to services such as maintenance or development contracts.

The external sales of the Tognum Group are as follows:


Engines 1,392.8 1,441.6

Onsite Energy Systems & Components 627.0 542.5

Distribution 509.7 579.4

2,529.4 2,563.6

Group revenues went up 34.2 million euros in the 2010 financial year to 2,563.6 million euros. Explana-tory notes on changes to group revenues are included in the group management report under »Income, Assets and Financial Position« on page 20 et seqq. A further break-down of sales revenues based on sales with third parties, intersegment sales and sales by region (based on the location of the customers’ regis-tered offices) is included in section 40 | »Segment reporting« in the notes to the consolidated financial statements.

In accordance with IAS 18.35 (b), the revenues of the Tognum Group can be broken down into the fol-lowing categories:


Sales of goods 2,348.3 2,343.3

Sales of services 181.1 220.3

2,529.4 2,563.6

6 | Cost of sales

Cost of sales includes the total acquisition and manufacturing costs incurred for products, goods and services that are sold. Cost of sales include extraordinary impairment losses amounting to 17.3 million euros and costs from restructuring activities amounting to 20.2 million euros related to the exit from Onsite Energy Fuel Cell Systems business activities. Depreciation on capitalised development costs are an integral part of manufacturing costs and are allocated to the series/components through which they are incurred. In the 2010 financial year, scheduled depreciation on capitalised development costs amounted to 12.3 million euros (previous year: 5.3 million euros) and are included in cost of sales.

7 | Other operating income


Gain on disposal of non-current assets 0.5 0.2

Income from sale of shares in consolidated companies 4.5 0.1

Miscellaneous other income 7.3 11.9

12.4 12.3

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The income generated from the sale of shares in consolidated companies results from a subsequent work-ing capital adjustment clause following the sale of the Propeller Shaft unit.

Other operating income includes other income from insurance compensation amounting to 0.9 million euros (previous year: 1.1 million euros). In addition, miscellaneous other income includes 2.2 million euros from the cancellation of the liability with respect to the flexible purchase price for the Tognum sub-sidiary MTU Ibérica Propulsión y Energía S.L., Coslada/Spain in the 2010 financial year. Other operating income also includes, in accordance with Section 105 of the energy tax implementation rules (EnergieStV), tax reimbursements for diesel fuel used in pilot projects amounting to 2.9 million euros. Moreover, other operating income includes various sources of income for which the individual values are insignificant.

8 | Selling costs

Selling costs include all individual sales and overhead sales costs. They include all expenses for person-nel, materials and depreciation, in addition to other sales expenditure.

The increase in selling costs to 210.2 million euros (previous year: 203.0 million euros) resulted primarily from an increase in sales activities, higher expenditure for logistics and the first-time consolidation of the two Turkish subsidiaries. Selling costs include extraordinary impairment losses amounting to 0.6 million euros relating to the exit from Onsite Energy Fuel Cell Systems business activities and costs arising from restructuring activities amounting to 0.8 million euros.

9 | General administrative costs

General administrative costs include the personnel and material costs of the central administrative areas (e.g. controlling, finance and accounting, as well as the tax and legal department, corporate communica-tions and strategy), which are not related to production, sales, or research and development. General ad-ministrative costs also include extraordinary impairment losses amounting to 1.0 million euros relating to the exit from Onsite Energy Fuel Cell Systems business activities and costs arising from restructuring activities amounting to 1.4 million euros.

The fees and expenses included for the auditor of the consolidated financial statements, Pricewater-houseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Stuttgart, and its associated compa-nies in accordance with Section 271 (2) of the German Commercial Code (HGB) for the 2010 financial year amounted to 0.4 million euros and cover auditing services for the consolidated financial statements and the statutory audit of the financial statements of Tognum AG and its German subsidiaries. An addi-tional sum of 0.1 million euros was included for miscellaneous services and 0.1 million euros for other certification services.

10 | Research and development costs

Research and development costs amounting to 186.9 million euros (previous year: 142.7 million euros), in addition to research costs and development costs not eligible for capitalisation, also include depre-ciation of intangible assets, property, plant and equipment (excluding capitalised development costs) amounting to 5.4 million euros (previous year: 7.0 million euros). Extraordinary impairment losses amounting to 20.1 million euros relating to the exit from Onsite Energy Fuel Cell Systems business activities and costs arising from restructuring activities amounting to 2.2 million euros contributed to the increase in research and development costs.

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11 | Other operating expenses


Loss on disposal of non-current assets – 1.5 – 0.6

Other operating expense – 1.8 – 1.0

– 3.3 – 1.6

Other operating expenses include a large number of expenses that, taken individually, are of little signifi-cance.

12 | Other financial results


Income from foreign exchange differences 13.8 7.2

Income from disposal of available-for-sale financial assets 0.2 2.7

Income from valuation of derivatives 18.8 16.0

Miscellaneous financial income 3.0

Other financial income 32.8 28.9

Expenses from foreign exchange differences – 9.3 – 23.8

Expenses from available-for-sale financial assets – 5.2

Expenses from compounding interests on provisions – 7.0 – 11.2

Expenses from valuation of derivatives – 14.7 – 13.5

Miscellaneous financial expenses – 0.1

Other financial expenses – 31.0 – 53.8

Other financial income and expenses 1.8 – 24.9

Other financial results went down 26.7 million euros to – 24.9 million euros (previous year: 1.8 mil-lion euros). This decline was due primarily to losses amounting to – 16.6 million euros (previous year: 4.5 million euros) arising from the valuation of the US dollar loan and foreign exchange balances.

Income from the disposal of available-for-sale financial assets relates to dividend payments received.

Other financial income includes the valuation of the investment in IFA-Rotorion Holding GmbH, Hal-densleben, which was reported at fair value through profit or loss.

Expenses from available-for-sale financial assets result from impairment losses from shareholdings in Fuel Cell Energy Inc., Danbury/USA, which has been sold in the third quarter of 2010.

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13 | Interest result


Interest income from loans and receivables 1.7 4.5

Other interest income 1.4 2.1

Total interest income 3.0 6.6

Interest expenses from financial liabilities – 13.1 – 18.0

Interest expenses from pension obligations – 15.2 – 15.4

Total interest expenses – 28.3 – 33.4

Interest result – 25.3 – 26.8

The interest result of – 26.8 million euros in the reporting year (previous year: – 25.3 million euros) re-mained close to the previous year’s level. Interest expenses from financial liabilities went up 4.9 million euros to – 18.0 million euros (previous year: – 13.1 million euros). This was due in part to the change in valuation of interest rate derivatives. There was a positive impact from the reduced interest payments due to the repayment of the Facility B loan in the first quarter of 2010.

The increase in interest income from loans and receivables resulted largely from interest received on the loan that was made available to IFA-Rotorion Holding GmbH, Haldensleben.

For financial assets and liabilities not valued at fair value through profit or loss, a total interest income of 6.6 million euros (previous year: 3.0 million euros) and a total interest expense of 4.9 million euros (pre-vious year: 9.3 million euros) was recognised in the reporting period in accordance with IFRS 7.20(b).

14 | Taxes on income

Details of taxes on income are presented in section 23 | »Income taxes« in the notes to the consolidated financial statements.

15 | Profit attributable to minority interests

From consolidated net profit or loss, a total of 0.4 million euros is attributable to minority interests (pre-vious year: 0.3 million euros). Further information on minority interests in consolidated equity is pre-sented in the table under »Consolidated Statement of Changes in Equity« on page 116.

16 | Earnings per share

In accordance with IAS 33, the basic earnings per share are calculated by dividing the consolidated net profit or loss that the shareholders of Tognum AG (excluding minority interests) are entitled to by the weighted number of outstanding shares in the period (1 January to 31 December 2010: 131,375,000 shares).

1 Jan. – 31 Dec. 2009 1 Jan. – 31 Dec. 2010

Net profit or loss (excluding minority interests) in EUR million 102.5 62.8

Number of ordinary shares issued (weighted average) 131,375,000 131,375,000

Earnings per share in EUR 0.78 0.48

Neither as at 31 December 2010 nor as at 31 December 2009 were there options on shares outstanding that diluted the earnings per share. As a result, neither in the 2010 financial year nor in the previous year were there any diluted earnings per share that deviated from this.

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17 | Personnel expenses


Wages and salaries – 426.4 – 499.9

Social security, post-employment and welfare costs – 103.4 – 95.0

thereof pension costs for defined benefit plans – 9.5 – 10.8

thereof pension costs for defined contribution plans – 41.6 – 42.2

Total personnel expenses – 529.8 – 594.9

Social security expenses and expenses for pension plans include the expense for the new pension claims acquired in the financial year. The anticipated return on the plan asset and the interest expense are dis-closed under the interest result.

The pension expense for defined contribution plans includes the employer’s contributions to social se-curity.

1 Jan. – 31 Dec. 2009 1 Jan. – 31 Dec. 2010

Workers/employees 8,435 8,421

Apprentices/interns 470 493

8,905 8,914

The Tognum Group had an average of 8,914 employees in the 2010 financial year (previous year: 8,905). This results in an average expense per employee of 66.7 thousand euros (previous year: 59.5 thousand euros). The increase in the average expense per employee compared with the previous year is due pri-marily to the increase in overtime; 2009, in contrast, had benefited from measures introduced as part of the Robust Action Plan (reduction in flexitime account balances and leave).

A direct comparison reveals that change in these headcount-related figures is due to the deployment of employees with different working time models.

18 | Cost of materials


Costs of raw materials, consumables and supplies, purchased goods – 1,065.7 – 1,129.0

Costs of services received – 423.6 – 302.2

– 1,489.3 – 1,431.2

19 | Share-based payments

In December 2007, the Tognum Group introduced a special remuneration scheme for members of man-agement. Participants invested a certain amount of their own funds that was then doubled by the com-pany. With the total invested capital, fictitious Tognum shares were »acquired« at their average listing price from 1 September to 31 October 2007. These fictitious shares must be held until at least 1 April 2011.

Compensation of the fictitious shares will be made in cash either in April, July or October 2011. The amount of the special remuneration is determined by the future increase in the value of the company measured on the listing price of Tognum shares between September and October 2007 and the respective

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periods in 2011 (maximum price: 30 euros). If the price at the time of payment is 15 euros or less, the in-vested capital is redeemed without interest.

The special remuneration scheme or share-based payment is recognised in accordance with IFRS 2 un-der the regulations for share-based remuneration transactions by cash settlement. Accordingly, the total value of the virtual shares or share options granted to management is determined on the day of payout with the aid of an option price valuation model. The total calculated value of the special remuneration scheme is distributed as a personnel expense over the period that services will be rendered by the bene-ficiary. As at 31 December 2010, a total of 2.0 million euros was recognised as expenses and 4.8 million euros as liabilities (previous year: 0.1 as expenses and 3.0 million euros as liabilities) for the special com-pensation scheme in accordance with IFRS 2. The special remuneration scheme held 245,824 virtual shares as at 31 December 2010 (previous year: 259,265 virtual shares). If a beneficiary leaves the scheme prior to the designated payout date in 2011 due termination, termination being given by Tognum or the conclusion of a cancellation agreement, the rights to the virtual shares allocated expire without compen-sation, and the amount paid in by the beneficiary will be repaid.

The special remuneration represents an actuarial, semi-American call option of the Bermuda type. A bi-nomial model according to the method of Cox, Ross and Rubinstein was used to determine the fair value. The following valuation parameters form the basis of the calculation of the expense:

31 Dec. 2009 31 Dec. 2010

End of the vesting period 30 Mar. 2011 30 Mar. 2011

End of the exercising period 30 Sep. 2011 30 Sep. 2011

Price per share on valuation day, average value 45 days, in EUR 11.49 20.00

Issue price per share in EUR 15.00 15.00

Standard deviation of daily income, average value 45 days, annualised, rounded off 53.23% 34.90%

Return on dividends 4.73% 1.78%

No-risk interest as at valuation day 1.41% 1.13%

Option value on valuation date in EUR 0.33 8.85

L O N G -T E R M I N C E N T I V E C O N C E P T ( LT I C ) 2 0 0 8 : An LTIC scheme for members of management was in-troduced in May 2008. With this concept, the Tognum Group grants employee beneficiaries virtual shares (phantom shares), which after four years entitle to receive a payment in cash.

The individual virtual shares were allotted on the calculation basis of the average share price of Tognum AG shares from 1 January to 31 March 2008. The originally allotted number of virtual shares is variable and depends on the development of the earnings per share as well as on the relative development of the share price of Tognum AG compared to the performance of the MDAX in the financial years from 2008 to 2010. After determining the final number of the earned virtual shares, the result of multiplying these virtual shares with the average share price of the Tognum AG share from 1 January to 31 March 2012 equals the amount of the payout from the LTIC scheme. Payout will take place after the expiry of a holding period of one year in May 2012. Following payment, employees are required to acquire and hold Tognum AG listed shares amounting to 25% of the payout amount before taxes.

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The amount of this share-based payment is furthermore dependent on annual income and the classifi-cation of employees. There is a lower limit (10% or 13% of annual income) as well as an upper limit (25% or 30% of annual income) for the compensation amount from the LTIC scheme. For members of the Ex-ecutive Board, the payment limits were fixed by the Executive Committee of the Supervisory Board at a minimum of 10% and a maximum of 50% of the target value in each case.

The members of management entitled to this benefit will also receive a dividend equivalent payout based on the provisionally allotted virtual shares for the 2008 to 2010 financial years.

The LTIC scheme is recognised in accordance with IFRS 2 under the regulations for share-based compensation transactions by cash settlement. Accordingly, the total value of the virtual shares or share options granted to members of management is determined on the payout date with the aid of an option price valuation model. The total calculated value of the special compensation scheme is distributed as a personnel expense over the period that services are rendered by the beneficiary. The value of the phan-tom share multiplied by the number of outstanding phantom shares results in the maximum liability from the share option plan as at the date of valuation. The proportional time weighting, with the portion of the time earned until then, results in the earned liability and thus the provision requirement.

L O N G -T E R M I N C E N T I V E C O N C E P T 2 0 0 9 : In May 2009, another LTIC for members of management was introduced with the same parameters and conditions as the scheme described above for 2008. Eligible employees also receive virtual shares (phantom shares), which can be paid out to eligible employees in cash after a period of 4 years.

L O N G -T E R M I N C E N T I V E C O N C E P T 2 0 1 0 : In May 2010, another LTIC for members of management was introduced with the same parameters and conditions as the scheme described above for 2008 and 2009. Eligible employees also receive virtual shares (phantom shares), which can be paid out to eligible em-ployees in cash after a period of 4 years.

A C C O U N T I N G O F L O N G -T E R M I N C E N T I V E C O N C E P T S 2 0 0 8 / 2 0 0 9 / 2 0 1 0 : As at 31 December 2010, a total of 4.9 million euros was recognised as expenses and 7.2 million euros as liabilities (previous year: 1.7 million euros expense and 2.3 million euros liabilities) for the above-mentioned special compen-sation scheme in accordance with IFRS 2. As at the balance sheet date on 31 December 2010, the LTIC schemes held a total of 1,077,027 virtual shares. These were allocated to the individual schemes as follows:

- LTIC 2008: 224,802 virtual shares (previous year: 254,860 virtual shares) - LTIC 2009: 488,974 virtual shares (previous year: 511,170 virtual shares) - LTIC 2010: 363,251 virtual shares

No virtual shares expired during the reporting period and no virtual shares were exercised. The reduc-tion in the number of virtual shares results from changes in the group of consolidated companies of Tognum AG and eligible persons leaving the scheme.

The Monte Carlo method is used to determine the fair value of a phantom share from the LTIC scheme. To this end, the performance of the earnings per share (EPS) of the Tognum share and the MDAX is stochastically simulated over the term of the plan, in order to determine the number of shares to be paid out at the end of each three-year performance period and the payout value for the beneficiary at the end of the subsequent one-year holding period. The payout limits for representatives of the management levels are taken into account.

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Notes to the Consolidated Statement of Financial Position 20 | Intangible assets

IN EUR MILL ION

Concessions,

industrial

property

rights

Capitalised

development

costs Goodwill

Advance

payments

made on

intangible

assets Total

Historical costs

Balance at 1 Jan. 2009 351.6 92.2 192.1 6.2 642.0

Change in consolidated companies 11.2 – 7.1 4.1

Additions 7.0 32.1 1.4 40.4

Transfers 6.2 – 6.0 0.2

Disposals – 0.3 – 0.2 – 0.3 – 0.8

Exchange differences – 0.9 – 0.3 – 1.2

Balance at 31 Dec. 2009 374.8 124.0 184.4 1.6 684.8

Balance at 1 Jan. 2010 374.8 124.0 184.4 1.6 684.8

Change in consolidated companies 0.4 0.4

Additions 9.7 9.6 19.8 39.1

Transfers 0.6 – 0.6 0.1

Disposals – 0.1 – 0.1

Exchange differences 1.9 0.7 2.5

Balance at 31 Dec. 2010 387.4 133.6 185.1 20.8 726.9

Amortisation and impairment

Balance at 1 Jan. 2009 – 150.2 – 10.1 – 160.3


Amortisation – 51.1 – 5.3 – 56.4

Disposals 0.2 0.2 0.4

Exchange differences 0.5 0.5

Balance at 31 Dec. 2009 – 193.6 – 15.3 – 208.9

Balance at 1 Jan. 2010 – 193.6 – 15.3 – 208.9

Amortisation – 51.8 – 31.7 – 83.5

Exchange differences – 1.2 – 1.2

Balance at 31 Dec. 2010 – 246.6 – 46.9 – 293.5

Carrying amount

Balance at 31 Dec. 2009 181.2 108.7 184.4 1.6 476.0

Balance at 31 Dec. 2010 140.8 86.7 185.1 20.8 433.4

Amortisation on intangible assets is included under the following items of the consolidated statement of comprehensive income in accordance with the use of the asset: cost of sales, research and development costs, selling costs and general administrative costs.

Extraordinary amortisation relating to the exit from Onsite Energy Fuel Cell Systems business activities is included in the consolidated statement of financial position in the item »Concessions and industrial property rights« at 1.9 million euros and in »Capitalised development costs« at 19.3 million euros.

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The item in the consolidated statement of financial position entitled »Concessions and industrial proper-ty rights« is made up of the following groups:

- brands, - technology, - customer relationships, and - other intangibles (e.g. software).

The changes in these groups are as follows:

IN EUR MILL ION Brands Technology

Customer

relationships

Other

intangibles Total

Historical costs

Balance at 1 Jan. 2009 55.3 151.5 70.2 74.6 351.6

Change in consolidated companies 10.7 0.5 11.2

Additions 7.0 7.0

Transfers 6.2 6.2


Exchange differences – 0.9 – 0.9

Balance at 31 Dec. 2009 55.3 151.5 80.9 87.1 374.8

Balance at 1 Jan. 2010 55.3 151.5 80.9 87.1 374.8


Additions 9.7 9.7

Transfers 0.6 0.6


Exchange differences 0.8 0.5 0.6 1.9

Balance at 31 Dec. 2010 56.1 151.5 81.4 98.3 387.4


Balance at 1 Jan. 2009 – 0.9 – 74.8 – 23.7 – 50.8 – 150.2


Amortisation – 2.0 – 27.3 – 10.0 – 11.8 – 51.1

Disposals 0.2 0.2


Balance at 31 Dec. 2009 – 2.8 – 102.1 – 26.6 – 62.1 – 193.6

Balance at 1 Jan. 2010 – 2.8 – 102.1 – 26.6 – 62.1 – 193.6

Amortisation – 2.1 – 29.1 – 8.4 – 12.2 – 51.8

Exchange differences – 0.3 – 0.2 – 0.7 – 1.2

Balance at 31 Dec. 2010 – 5.2 – 131.2 – 35.2 – 75.0 – 246.6

Carrying amount

Balance at 31 Dec. 2009 52.5 49.4 54.1 25.2 181.2

Balance at 31 Dec. 2010 50.9 20.3 46.2 23.3 140.8

The »MTU« brand was recognised as an intangible asset with an indefinite useful life and a carrying amount of 46.5 million euros (previous year: 46.5 million euros). Since its launch on the market in 1969, MTU Friedrichshafen GmbH, Friedrichshafen has protected the value of the »MTU« brand through its corporate policies and by not granting third parties who are not part of the Tognum AG sales network the right to use it. Furthermore, in the financial year just ended, from 1 January to 31 December 2010, 186.9 million euros (previous year: 142.7 million euros) were recorded in expenses for research and de-velopment. As in the previous year, there were no assignments for security of intangible assets, patents, industrial property rights and brands as at the balance sheet date.

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For the impairment test, goodwill is allocated to the CGUs that are expected to achieve benefits from the synergies of their combination. These units are based on the lowest level within the Tognum Group at which the goodwill is monitored for internal management purposes.

Four CGUs (previous year: four) have been identified in the Tognum Group, with goodwill allocated to each CGU. As a result of the change in internal reporting as at 1 January 2009, a Distribution CGU was created, resulting in a re-allocation of goodwill. The Propeller Shaft CGU was deconsolidated on 31 Oc-tober 2009 and no longer existed as of 31 December 2009. Goodwill is distributed among the CGUs as follows:

IN EUR MILL ION 31 Dec. 2009 Exchange differences 31 Dec. 2010

Engines 139.6 139.6

Injection Systems 12.5 12.5

Onsite Energy Systems 32.1 0.7 32.7

Distribution 0.3 0.3

184.4 0.7 185.1

The criterion for identifying a CGU is that it generates cash inflows largely independently of other assets Within the Engines CGU, there are no CGUs in applications, for example, since only on a higher level can a group of assets be allocated that generate cash inflows which are largely independent of the cash inflows of other assets or other groups of assets. Applications are differentiated according to the specifi-cations inherent in the engines, which are, however, all based on the same basic engine. The applications do not generate cash flows largely independently, since these always require the basic engines. The pro-duction of engines for the different applications is characterised by a high degree of commonality in terms of the production facilities used. Related information (revenues and order intake) are used for the control and development of sales markets on the application level. In addition, the basic engines are not independently marketable within the production process and do not represent marketable semi-finished products.

At the balance sheet date, intangible assets with an indefinite useful life were found in the Engines CGU in the form of trademark rights amounting to 34.9 million euros and in the Onsite Energy Systems CGU amounting to 11.6 million euros (the carrying amount of the MTU brand thus remained unchanged at 46.5 million euros compared with the previous year).

During the impairment test, the carrying amount of the CGUs was compared with the recoverable amount, which is the higher of both amounts of the fair value less cost to sell and the value in use. The recoverable amount for the CGUs as at 31 December 2010 was based in each case on the value in use using the discounted cash flow method.

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The following assumptions were taken as the basis for determining these amounts for all four CGUs:

- the determination of future cash flows (incoming and outgoing payments without taking into account financing activities and taxes);

- assumptions on possible changes in these planned cash flows that could result from a different amount or from receiving an amount at a different time;

- the determination of the weighted average cost of capital (WACC) after taxes, taking into account the following:

- risk-free prime rate, - operations risk (market risk premium multiplied by the calculated beta factor on the basis of a

peer group analysis), - borrowing costs, and - capital structure of the peer group companies;

- iterative determination of the weighted average cost of capital (WACC) before taxes.

In addition, the following significant assumptions were taken as the starting point in determining the value in use of each CGU:

- The detailed planning period for all CGUs is three years. The WACC before taxes based on these criteria amounted to 10.9% (previous year: 12.7%) for the Engines CGU, 10.9% (previous year: 12.3%) for the Injection Systems CGU, 10.9% (previous year: 12.5%) for the Onsite Energy Systems CGU and 10.9% (previous year: 12.6%) for the Distribution CGU.

- For the period of »perpetuity« following on from the detailed planning, long-term obtainable cash flows are specified as values to be discounted, taking a long-term reinvestment rate as the basis. In determining the period of »perpetuity«, a growth rate of 1.0% (previous year: 1.0%) was applied.

- The separate cash flows of the individual CGUs were calculated by Tognum for the individual planned values by referring to external sources of information (e.g. market/industry studies), in which items characteristic of the individual businesses were taken into account on the basis of past empirical values. The general market and industry trends were adjusted for group-specific items, for the planning of sales revenues and market prices in particular. By contrast, the development of material and personnel costs were in the first instance determined by means of general market and industry trends. General macro-economic data were also taken into account in the corporate planning.

Taking the above-mentioned assumptions as the basis, there is no need to impair either the goodwill allocated to the CGUs or the »MTU« brand.

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21 | Property, plant and equipment

IN EUR MILL ION

Land and

buildings

Plant and

machinery

Other

equipment,

operating and

office

equipment

Payments

made in

advance and

plant under

construction Total

Historical costs

Balance at 1 Jan. 2009 205.2 258.7 148.1 50.5 662.6

Change in consolidated companies – 3.0 – 60.4 – 7.1 – 1.1 – 71.5

Additions 5.4 27.8 46.1 21.9 101.2

Transfers 11.5 21.3 10.3 – 43.3 – 0.2

Disposals – 3.4 – 0.7 – 1.6 – 5.7

Exchange differences – 0.4 – 0.6 – 0.6 – 0.3 – 1.9

Balance at 31 Dec. 2009 218.7 243.4 196.2 26.1 684.4

Balance at 1 Jan. 2010 218.7 243.4 196.2 26.1 684.4

Change in consolidated companies 4.8 6.6 0.6 12.0

Additions 11.6 16.2 35.8 50.1 113.7

Transfers 10.7 14.2 1.5 – 26.4 – 0.1

Disposals – 0.1 – 1.4 – 0.5 – 0.3 – 2.3

Exchange differences 0.8 1.4 1.4 0.7 4.3

Balance at 31 Dec. 2010 246.5 280.4 235.0 50.2 812.1


Balance at 1 Jan. 2009 – 19.5 – 98.7 – 60.3 – 178.5

Change in consolidated companies 0.2 22.1 3.4 25.8

Depreciation – 8.9 – 39.7 – 31.3 – 79.9

Transfers – 0.1 – 0.3 0.3



Balance at 31 Dec. 2009 – 28.1 – 114.9 – 87.5 – 230.5

Balance at 1 Jan. 2010 – 28.1 – 114.9 – 87.5 – 230.5

Depreciation – 10.6 – 39.7 – 38.1 – 1.9 – 90.2


Exchange differences – 0.2 – 0.7 – 0.5 – 1.3

Balance at 31 Dec. 2010 – 38.9 – 154.6 – 125.6 – 1.9 – 321.0

Carrying amount

Balance at 31 Dec. 2009 190.6 128.5 108.7 26.1 453.9

Balance at 31 Dec. 2010 207.6 125.8 109.4 48.3 491.1

Extraordinary depreciation relating to the exit from Onsite Energy Fuel Cell Systems business activities is included in the item in the consolidated statement of financial position entitled »Land and buildings« at 1.5 million euros, in »Plant and machinery« at 4.9 million euros and in »Other equipment, operating and office equipment« at 0.7 million euros.

As in the previous year, there were no disposal restrictions such as mortgages or assignments for security purposes.

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22 | Financial investments accounted for using the equity method

A S S O C I AT E D C O M PA N I E S The key financial figures of the Shanxi North MTU Diesel Co. Ltd., Datong/China joint venture, in which the Tognum Group has a 49% shareholding, are as follows:


Assets 23.2 37.2

Liabilities 2.1 14.4

Shareholders’ equity 21.1 22.9

Net loss – 0.5 – 0.6

Net loss attributable to shareholders – 0.2 – 0.3

The carrying amount of shares in associated companies included in the item in the consolidated state-ment of financial position entitled »Financial investments accounted for at equity« amounted to 11.2 million euros (previous year: 10.4 million euros).

J O I N T V E N T U R E S The key financial figures of the MTU Detroit Diesel Australia Pty. Ltd. joint venture in Altona North/Australia, which is reported at equity, are summarised as follows, based on the shares of the Tognum Group:


Current assets 56.3 44.8

Non-current assets 9.9 13.5

Short-term liabilities 27.3 14.1

Long-term liabilities 15.5 18.3

Income 78.3 97.6

Expenses – 76.6 – 99.3

23 | Income taxes

TA X E S O N I N C O M E German companies are subject to an average trade tax burden of 12.25%. The corporate tax rate for the assessment period amounted to15.0%, plus a solidarity surcharge of 5.5% on corporate tax. By compa-rison with previous years, this resulted in an unchanged income tax rate for German-based companies of 28.1%. For foreign companies, the calculation is based on the nominal income tax rates applicable in the individual countries, which were between 17% and 46% (previous year: 18% and 38%). For the Tognum Group, this resulted in a nominal group tax rate of 29.5%.

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Taxes on income are broken down as follows:


Current tax

thereof Germany – 25.7 – 63.7

thereof other countries – 19.5 – 13.2

– 45.2 – 76.9

Deferred tax

thereof Germany – 3.6 23.1

thereof other countries 4.7 31.5

1.1 54.6

– 44.1 – 22.3

D E F E R R E D TA X E S Deferred tax assets and liabilities from temporary differences and tax losses carried forward are broken down as follows:

IN EUR MILL ION Deferred tax assets Deferred tax liabilities

31 Dec. 2009 31 Dec. 2010 31 Dec. 2009 31 Dec. 2010

Non-current assets

Intangible assets 11.0 72.3 55.2

Property, plant and equipment 0.2 40.2 42.4

Assets, accounted according to the equity method 1.4 1.5

Other long-term financial assets 1.5 4.2

Current assets

Inventories 23.4 44.7 0.3 0.2

Trade receivables 0.5 3.8 0.2 0.6

Cash and cash equivalents 0.4

Other short-term financial assets 4.2 4.2

Other short-term assets 0.1 0.4

Non-current liabilities

Provisions for pensions 37.8 29.1 0.2 2.2

Other long-term provisions 0.8 3.9 17.4 35.3

Long-term financial liabilities 2.1 3.7

Advance payments received 0.2

Other long-term liabilities 2.5 0.1

Current liabilities

Trade payables 0.1

Other short-term provisions 20.7 47.1 4.2 0.2

Short-term financial and other liabilities 2.2 7.0 0.1 0.1

Advance payments received 1.9

Other short-term liabilities 0.9 0.9

Tax loss carry forwards/tax credits 5.1

94.0 151.7 146.2 146.6

Set-off – 53.7 – 73.0 – 53.7 – 73.0

Total deferred taxes 40.5 78.7 92.5 73.6

Consolidation-related deferred tax assets amounted to 16.9 million euros (previous year: 8.5 million euros).

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S E R V I C E

The calculation of deferred taxes is based on the tax rates expected on the reporting date in the respective countries. These were between 17% and 46% in the 2010 financial year (previous year: between 18% and 38%).


Balance sheet carrying amount (net) as at 1 Jan. 2010 – 51.4 – 52.0

Deferred tax income/expenses 1.1 54.6

Change in consolidated companies – 0.4 0.3

Exchange differences – 1.3 2.2

Balance sheet carrying amount (net) as at 31 Dec. 2010 – 52.0 5.1

Of the deferred taxes amounting to 54.6 million euros recognised in the consolidated statement of com-prehensive income, 54.6 million euros (previous year: 1.2 million euros) are attributable to the creation or reversal of temporary differences.

TA X LO S S E S C A R R I E D F O R WA R D The future business performance which, based on the corporate planning for the following five years, was expected when the consolidated financial statements were being prepared, was taken as the basis for the valuation of deferred tax assets.

As at the consolidated statement of financial position date, the Tognum Group had unused tax losses carried forward and tax credits of around 31.0 million euros (previous year: 27.3 million euros). The total amount of deferred tax assets includes no deferred taxes from losses carried forward or tax reduc-tion claims (previous year: 5.1 million euros). Unused tax losses, for which no deferred tax assets were reported in the consolidated statement of financial position, amounted to 31.0 million euros (previous year: 10.2 million euros). The attributable, unrecognised deferred tax assets amounted to 8.9 million euros (previous year: 3.0 million euros). Of this amount, 5.5 million euros (previous year: 2.8 million euros) were attributed to tax losses carried forward that are available for use for an unlimited period of time. These include the tax losses carried forward of German group companies only, with the deferred tax assets involved made up of trade tax amounting to 2.4 million euros (previous year: 1.2 million euros) and corporation tax, including a solidarity surcharge of 3.1 million euros (previous year: 1.6 mil-lion euros).

C U R R E N T I N CO M E TA X E S Income tax claims and obligations include the unassessed profits of domestic and foreign companies.

TA X R E C O N C I L I AT I O N S TAT E M E N T The reported tax expenditure for the financial year amounting to 22.3 million euros (previous year: 44.1 million euros) was 2.9 million euros lower (previous year: 0.7 million euros higher) than the actual tax expenditure expected on the pre-tax income of 25.2 million euros (previous year: 43.4 million euros).

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The difference between the current and the expected income tax expenditure is due to the following:


Income before tax 147.0 85.5

Group tax rate 29.5% 29.5%

Expected tax expenses – 43.4 – 25.2

Impacts of differing tax rates 3.8 9.6

Impacts of tax-exempt income 2.2 1.9

Impacts of expenses non-deductible for tax purposes – 1.4 – 2.7

Trade tax adjustments – 1.3 – 0.5

Income from taxes of previous years collected in actual year 5.8 7.8

Impacts of changes in tax rates 0.1

Impacts from non-valuation of deferred taxes – 7.2 – 14.6

Change of permanent differences on the balance sheet – 2.6 1.0

Other effects 0.3

Current income tax expenses – 44.1 – 22.3

Effective tax rate in % 30.03% 26.06%

24 | Non-current financial assets


Other investments 57.9 49.6

Other loans and receivables 74.2 75.8

132.1 125.4

Other investments include financial instruments classified as available for sale that were valued at their acquisition cost, since a reliable determination of fair value was not possible. These financial instruments comprise shares in limited companies as well as shares in comparable foreign legal entities. The carrying amount of the shares at the balance sheet date amounted to 22.9 million euros (previous year: 27.0 mil-lion euros). These shares are not listed and there is no active market. A reliable determination of fair value would only be possible if there were concrete sales negotiations. A disposal of these shares is cur-rently not anticipated. The reduced carrying amount results to a large extent from the first-time inclusion of MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey and its subsidiary MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Şubesi, Çorlu/Turkey in the group of consolidated com-panies of Tognum AG. Additional information is included in section 3 | »Changes in the group of con-solidated companies« in the notes to the consolidated financial statements.

In the previous reporting period, other investments included shares in the publicly traded company Fuel Cell Energy Inc., Danbury/USA that were classified as an available-for-sale financial instrument mea-sured at fair value. The shares were sold in the reporting year (previous year: 7.2 million euros).

Other investments also include the shareholding in IFA-Rotorion Holding GmbH, Haldensleben, which was acquired as part of the sale of the Propeller Shaft unit in the previous year. The shares in IFA-Rotorion Holding GmbH, Haldensleben were assessed at fair value through profit or loss and amounted to 26.6 million euros as at the reporting date (previous year: 23.7 million euros). The value was deter-mined using the discounted cash flow method.

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S E R V I C E

Other non-current financial assets include the financial receivables resulting from the sale of the Pro-peller Shaft unit that was sold in 2009. As at the balance sheet date, they amounted to 67.5 million euros (previous year: 74.0 million euros). Of this amount, 30.0 million euros (previous year: 30.0 million euros) were attributable to a receivable originally granted as a company loan to Rotorion North America LLC, Charleston/USA. The remaining financial receivables amounting to 37.5 million euros (previous year: 44.0 million euros) are loans granted as part of the transaction or deferred components of the purchase price.

As part of the sale of the Propeller Shaft unit, Tognum AG acquired the right to resell the shares acquired in IFA-Rotorion Holding GmbH, Haldensleben to the existing shareholders (put option). This put option is classified as a financial instrument in accordance with IAS 39.9 and is included in the other non-current financial assets. The fair value of the put option as at the balance sheet date amounted to 8.1 million euros (previous year: 0.0 million euros).

In the 2010 financial year, as in the previous year, no non-current financial assets were pledged as securi-ty for liabilities.

25 | Inventories


Raw materials, consumables and supplies 244.4 249.9

Unfinished goods 202.5 270.8

Finished goods, parts for resale 156.5 187.9

Advance payments made 32.6 42.4

635.9 751.1

In the 2010 financial year, the manufacturing costs of the inventories which were recognised in the consolidated statement of comprehensive income as expenses included in cost of sales, amounted to 1,335.7 million euros (previous year: 1,363.3 million euros). Raw materials, consumables and supplies as well as unfinished and finished goods are measured at acquisition/manufacturing cost or at the lowest net selling price. In the year under review, the associated impairment amounts to 33.8 million euros (pre-vious year: 11.9 million euros). The impairment includes extraordinary impairment losses for inventories relating to the exit from Onsite Energy Fuel Cell Systems business activities amounting to 8.3 million euros.

Of the total inventories, 55.2 million euros (previous year: 72.8 million euros) were capitalised at the net selling price. As in the previous year, no inventories were pledged as security for own liabilities.

26 | Trade receivables and other current assets


Trade receivables, gross 524.0 526.1

Valuation allowances on trade receivables – 30.4 – 30.5

Total trade receivables 493.6 495.7

The carrying amounts of trade receivables that are recognised at carried over acquisition cost primarily correspond to their fair value.

163

The impairments for presumably irrecoverable trade receivables of – 30.5 million euros (previous year: – 30.4 million euros) were calculated taking into account individual risks and on the basis of past expe-rience with payment defaults. The impairment of trade receivables changed as follows:


Allowances at the beginning of reporting period – 27.5 – 30.4

Additions – 10.6 – 18.8

Reversal 5.7 15.8

Utilisation 2.4 2.8

Transfer – 0.7

Exchange rate adjustments and others 0.3 0.2

Allowance at the end of the year – 30.4 – 30.5

Trade receivables were impaired individually and generalised due to a portfolio approach. The general-ised individual impairments were distributed by percentage across the age structure of the receivables. As a rule, receivables were impaired at 100% as part of the individual impairment. After taking into account these impairments, the carrying amount of these receivables at the balance sheet date were 495.7 mil-lion euros (previous year: 493.6 million euros). The calculation of impairments of doubtful receivables rests to a large extent on estimations and judgements of individual receivables which, besides the credit rating and payment defaults of the respective customers, also take into account current economic devel-opments as well as past experience regarding default. All expenses and income from value adjustments and derecognition of trade receivables are reported under selling costs.

The following table shows the carrying amount of the overdue receivables that have not yet been individ-ually impaired:


Receivables neither impaired nor past due on the reporting date 356.3 383.2

Receivables not impaired on the reporting date and past due in the following periods

less than 30 days 82.7 55.9

between 30 and 59 days 13.4 10.7



more than 120 days 33.3 31.7

Carrying amount as at 31 December 493.6 495.7

As at the reporting date, there was no indication that the debtors would not fulfil their payment obliga-tions with regard to the stock of trade receivables where no impairment has been determined and where payment is not late. The credit rating is based on an actively driven receivables management which takes into account the credit history of our clients as well as a continuous monitoring of their credit worthiness on the basis of internally and externally generated information.

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S E R V I C E

The Tognum Group implements industry-standard instruments such as guarantees, letters of credit or commercial credit insurance to hedge its receivables. As at 31 December 2010, trade receivables amount-ing to approximately 117.3 million euros (previous year: 93.6 million euros) were hedged by means of such instruments. In the case of trade receivables that are hedged by means of trade credit insurance pol-icies, a 15% deductible is applied in the event of default. To a large extent, the fair value of these hedging instruments corresponds to the nominal value of the hedged receivables.

As in the previous year, trade receivables and other assets were not pledged as securities for liabilities.


Tax reduction benefits from other taxes 16.5 26.0

Other non-financial assets 34.2 31.1

Deferred expenses 1.5 2.7

Total other assets 52.2 59.7

All receivables of the Tognum Group from the tax authorities (e.g. input tax) are disclosed under tax re-duction benefits from other taxes.

Other non-financial assets primarily include advance payments for services to be rendered, creditors with debit balances, commission advances to sales representatives, and advance payments to employees for travel costs and similar expenses. Deposit receivables from Reman business (refurbishment of used parts) amounting to 10.7 million euros (previous year: 14.0 million euros) are also reported under »Other non-financial assets«.

27 | Cash and cash equivalents

Cash and cash equivalents are broken down as follows:


Checks 0.5

Cash and deposits at banks 118.3 238.1

Cash in transit 0.1 1.8

118.4 240.5

As in the previous year, there were no disposal restrictions of cash and cash equivalents as at the balance sheet date.

28 | Current financial assets


Positive market values of derivative instruments 8.9 6.4

Other 23.1 25.9

31.9 32.3

Financial receivables from related parties, associated and joint venture companies, in addition to invest-ments, are disclosed under »Other« in the current financial assets. As at the balance sheet date, they amounted to 25.9 million euros (previous year: 23.1 million euros). The carrying amounts of receivables

165

from affiliated companies that were recognised at carried-over acquisition cost primarily correspond to their fair values. Additional notes on related party disclosures can be found in section 42 | »Related party disclosures« in the notes to the consolidated financial statements.

Explanatory notes on derivative financial instruments can be found in section 36 | »Derivative financial instruments« in the notes to the consolidated financial statements.

29 | Assets held for sale

As at the balance sheet date, there were no assets held for sale.

30 | Equity

S H A R E C A P I TA L The share capital of Tognum AG amounts to 131,375,000 no-par-value bearer shares, with a proportional amount of the share capital of 1.00 euro for each individual share. All shares have been issued and fully paid in. Each share guarantees the owner a voting right at the Annual General Meeting of Tognum AG as well as a right to share in the profits in accordance with the dividend distributions declared at the Annual General Meeting.

C H A N G E S I N E Q U I T Y A N D S H A R E H O L D E R S T R U C T U R E Capital reserves include the premium from the share issue less the directly attributable transaction costs at the time of capital acquisition. Capital reserves also include the amounts to be created as a statutory reserve in accordance with Section 150 (1) of the German Stock Corporation Act (AktG). The provisions of Section 150 (3) and (4) of the German Stock Corporation Act (AktG) apply to the utilisation of the capital reserves. Capital reserves amounted to 257.7 million euros and remained unchanged from the previous year.

Profit reserves and other reserves include past, undistributed profits earned by subsidiaries included in the consolidated financial statements insofar as they have not been distributed. Equity also includes the addition of profit reserves resulting from the first-time consolidation of the two Turkish subsidiaries and the foreign currency translation of the financial statements of foreign subsidiaries that is recognised directly in equity. A detailed overview of the composition and the changes in profit reserves and other reserves in the 2010 financial year and in the previous year is presented in the table under »Consolidated Statement of Changes in Equity« on page 116.

A U T H O R I S E D C A P I TA L The Annual General Meeting held on 18 May 2010 authorised the Executive Board to increase the share capital, with the approval of the Supervisory Board, on one or several occasions to a maximum of 48,662,500 euros until 17 May 2015 by issuing new bearer shares for cash or compensation in kind.

C O N T I N G E N T C A P I TA L Contingent capital of 13,000,000 euros was raised by a resolution at the Annual General Meeting held on 5 June 2007. This contingent capital is used for the granting of shares to authorised persons of still-to-be-endorsed warrants and convertible bonds.

P R O P O S E D A P P R O P R I AT I O N O F P R O F I T In accordance with the German Stock Corporation Act, the dividends for distribution are determined by the net profit recognised by Tognum AG in the annual financial statements (individual financial state-ments), which are prepared in accordance with the regulations of the German Commercial Code. In the 2010 financial year, Tognum AG distributed to the shareholders dividends amounting to 46.0 million euros (0.35 euros per share) from the net retained profit of the 2009 financial year.

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S E R V I C E

For the 2010 financial year, the Executive Board proposes a dividend of 0.50 euros per share from the net retained profit of Tognum AG from the 2010 financial year, which represents an anticipated total payout of 65.7 million euros. The payment of this dividend is subject to approval by the Annual General Meet-ing to be held on 11 May 2011.

M I N O R I T Y I N T E R E S T S Minority interests include third-party interests in the consolidated equity of MTU Marubeni Co. Ltd., Tokyo/Japan and amounted to 2.6 million euros (previous year: 1.9 million euros) in the 2010 financial year.

31 | Provisions for pensions

The Tognum Group has obligations from defined contribution schemes (cf. section 17 | »Personnel ex-penses« in the notes to the consolidated financial statements) as well as defined benefit pension schemes.

D E F I N E D C O N T R I B U T I O N S C H E M E S Expenses for defined contribution pension schemes at Tognum AG relate primarily to the amounts of the statutory pension scheme. In 2010, the expense for defined contribution schemes amounted to 42.2 mil-lion euros (previous year: 41.6 million euros).

D E F I N E D B E N E F I T S C H E M E S Defined benefits in Germany differ according to the position of the employee in the company and cor-respond to industry-standard defined benefits. Special regulations are in place for members of the Exec-utive Board.

Employees covered by collective agreements and members of management are entitled to retirement and early retirement benefits, disability benefits, as well as benefits for dependants from the employer’s pen-sion commitments.

At the beginning of 2010, the pension commitments for some of the employees covered by collective agreements were reformed. A defined sum, which is converted into a retirement capital module and paid into a fictitious account, is now made available every year for every employee as part of the reformed scheme. When pension payments begin, the modules are converted into a life annuity and paid out as such. As part of the pension commitment, these employees also have the possibility of increasing their retirement accounts by converting parts of their wages into retirement capital modules.

Commitments for company executives based on a retirement module scheme and certain regulations covering the conversion of salaries remain unchanged.

For all those entitled to receive retirement benefits, the widow’s/widower’s pension amounts to 60% of the retirement or disability pension, as the case may be. Some employees also receive benefits from the Karl Maybach-Hilfe GmbH, Friedrichshafen in the form of an annual supplementary grant.

Defined benefits abroad include pension benefits in the US. The plans are structured according to cir-cumstances in that country.

167

The amounts of the pension provisions developed as follows in the 2010 financial year:


Balance sheet value at the beginning of the year 398.2 403.9

Transactions – 1.4

Pension expense 24.7 10.8

Contributions to plan assets – 2.3

Direct payment of benefits by the company – 15.3 – 16.0

Transfer/(acquisition) of capital 0.7

Foreign exchange differences – 0.2 0.5

Balance sheet value at the end of the year 403.9 399.9

The experience-based adjustments of the cash value to the earned pension benefits amounted to 4.3 mil-lion euros (previous year: – 0.1 million euros) in the 2010 financial year. For the 2011 financial year, the anticipated retirement payout amounts to 17.1 million euros.

The cash value of defined benefit obligations can be transferred to the figures in the consolidated state-ment of financial position as follows:


Present value of defined benefit obligations 336.0 358.5

Market value of plan assets – 4.6 – 5.3

Funded status at the end of the period 331.5 353.2

Unrecognised past service cost 0.3

Unrecognised actuarial gains/(losses) 72.5 46.5

Balance sheet value at the end of the year 403.9 399.9

The financing status shows the coverage for pension obligations through the plan asset as at valuation date. The defined benefits existing at the Tognum Group are financed almost exclusively internally. Tognum AG implements the so-called corridor approach in accordance with IAS 19.92 for taking into account actuarial gains/losses from existing pension obligations.

As part of the sale of Rotorion GmbH, Friedrichshafen in the 2009 financial year, Tognum AG acquired an entitlement to reimbursement from the acquiring company for pension commitments to employees who, in accordance with Section 613a of the German Civil Code (BGB), were against a transfer of opera-tions to Rotorion GmbH, Friedrichshafen which was spun off by MTU Friedrichshafen GmbH, Fried-richshafen in 2008. The entitlement to reimbursement covers all pension claims earned until the spin-off date. The balance as at 31 December 2010 was as follows:


Balance as at the beginning of the year 10.6

Change in consolidated companies 10.5

Accumulation 0.1 0.3

Balance as at the end of the year 10.6 10.9

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S E R V I C E

C H A N G E S I N T H E S C O P E O F O B L I G AT I O N S ( D B O ) The cash value of pension benefit commitments changed as follows:


Present value of pension benefit commitments at the beginning of the year 322.1 336.0

Transactions – 1.0

Current service cost 9.5 10.8

Interest expense 18.3 18.2

Curtailments and settlements – 1.9

Past service cost – 13.8

Actuarial gains/(losses) 3.2 23.8

Transfer/(acquisition) of capital 0.7

Payment of benefits – 15.7 – 16.3


Present value of pension benefit commitments at the end of the year 336.0 358.5

thereof internally financed (without plan assets) 329.9 351.5

thereof paid from plan assets 6.1 7.0

C H A N G E S I N T H E P L A N A S S E T The plan asset available for financing benefit commitments changed as follows:


Market value of plan assets at the beginning of the period 2.2 4.6

Expected income 0.2 0.3

Employer contributions 2.3

Actuarial gains/(losses) 0.5 0.3

Payment of benefits – 0.4 – 0.2


Market value of plan assets at the end of the period 4.6 5.3

Actual income from plan assets 0.6 0.6

The experience-based adjustments to the plan asset amounted to – 0.3 million euros in the 2010 financial year (previous year: -0.4 million euros; 2008: 0.4 million euros; 2007: 0.0 million euros; 2006: 0.0 mil-lion euros).

D I S T R I B U T I O N O F T H E P L A N A S S E T The distribution of the existing assets into asset classes is as follows as at the balance sheet date:

IN % 31 Dec. 2009 31 Dec. 2010

Equity investments 60.96 60.44

Fixed income securities 34.23 36.79


Total 100.00 100.00

169

C O M P O N E N T S O F T H E P E R I O D - R E L AT E D N E T P E N S I O N E X P E N S E F O R D E F I N E D B E N E F I T S The total expense recognised for defined benefit pension schemes is broken down as follows:


Current service cost – 9.5 – 10.8

Interest expense – 18.3 – 18.2

Expected income from assets 0.2 0.3

Reduction of

actuarial gains/(losses) 2.8 2.5

past service cost 13.4

Effects of curtailments and settlements 0.1 1.9

Total – 24.7 – 10.8

The service cost and the cost for plan adjustments are recognised according to the allocation of person-nel expenses for employees to the following items of the consolidated statement on comprehensive in-come: cost of sales, selling costs, general administrative costs and research and development costs.

The interest cost and the anticipated income from the plan asset are recorded in the interest result.

H I S T O R I C A L D E V E LO P M E N T

IN EUR MILL ION

1 May –

31 Dec. 2006

1 Jan. –

31 Dec. 2007

1 Jan. –

31 Dec. 2008

1 Jan. –

31 Dec. 2009

1 Jan. –

31 Dec. 2010

Present value of pension benefit commitments 346.1 319.8 322.1 336.0 358.5

Present value of plan assets 0.9 2.2 4.6 5.3

Balance 346.1 318.9 319.9 331.5 353.2

P R E M I S E S The underlying assumptions on interest rates, changes in salaries and retirement benefits as well as the long-term returns of the plan asset for calculating the extent of the obligations and the net pension expense vary depending, amongst others, on the economic circumstances of the currency in which the defined benefits exist or the investment has been made, and on capital market expectations.

The actuarial calculation of the extent of the obligations at the respective valuation date is based on the following assumptions (weighted average):

IN % 31 Dec. 2009 31 Dec. 2010

Actuarial interest rate 5.76% 5.22%

Trends in salaries and pension entitlements 2.51% 2.54%

Expected rate of return on plan assets 6.96% 6.96%

Trend in pensions 1.94% 1.83%

The premises used for the calculation of the obligations at the respective balance sheet date also apply for the calculation of the ongoing service cost and the interest expense in the following financial year.

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S E R V I C E

The assumed discount factors reflect the current yields that are measured on the valuation day of the re-spective pension scheme for fixed-interest first-class company loans with terms that correspond to the obligations. The assumptions on the anticipated returns of the plan asset are selected on the basis of long-term expectations. The actuarial assumptions not mentioned in the previous tables such as fluctua-tion, mortality, invalidity, etc. were determined according to the expectations in the respective country under consideration of the circumstances and expectations of the concerned companies.

32 | Other provisions

P R O V I S I O N F O R WA R R A N T Y A N D A C C O M M O D AT I O N O B L I G AT I O N S Tognum AG grants various product guarantees that generally guarantee the performance of a product for a specified period. The provision for these guarantees includes anticipated expenses from statutory and contractual guarantee claims as well as anticipated expenses for accommodation, or fair dealing. These obligations could have several causes, such as litigation or measures for ensuring customer satisfaction. The time of accessing this depends on when the guarantee claim occurs and can continue over the entire guarantee and accommodation period.

P R O V I S I O N F O R P E R S O N N E L O B L I G AT I O N S A N D PA RT I A L R E T I R E M E N T The provisions for personnel and social security benefits are created for employee anniversaries, special compensation and obligations from partial retirement.

OT H E R P R O V I S I O N S Other provisions include provisions for deposits paid by customers when purchasing refurbishable re-placement parts, for follow-up expenses or unrealised costs for previously invoiced orders, for checking the prices of public authorities awarding contracts, sales expenses, for obligations from service and main-tenance agreements, and for personnel obligations resulting from the sale of Rotorion GmbH, Friedrichs-hafen and Rotorion North America LLC, Charleston/USA. Other provisions also include commitments from restructuring activities relating to the exit from Onsite Energy Fuel Cell Systems business activities amounting to 24.7 million euros. Additional information regarding the provision for restructuring activities is shown in section 4 | »Exit from Onsite Energy Fuel Cell Systems« on page 144.

IN EUR MILL ION

Balance

as at

1 Jan. 2010

Change in

consolidated

companies Usage Additions Reversals

Reclas-

sifications

Interest

expense

Currency

conversion

Balance

as at

31 Dec. 2010

Warranty and voluntary

concessions obligation 273.4 – 75.8 64.5 – 9.1 10.9 2.5 266.5

Personnel/social benefit

obligations and partial

retirement 58.9 1.2 – 29.6 55.2 – 2.1 – 1.3 0.1 0.1 82.6

Restructuring activities 24.7 24.7

Other provisions 109.0 – 52.7 117.6 – 28.6 0.2 2.7 148.2

441.4 1.2 – 158.0 262.0 – 39.7 – 1.2 11.2 5.3 522.1

171

Breakdown of current and non-current provisions:

31 Dec. 2009 31 Dec. 2010

IN EUR MILL ION short-term long-term short-term long-term

Warranty and voluntary concessions obligation 111.5 161.9 113.3 153.3

Personnel/social benefit obligations and partial retirement 26.8 32.1 45.2 37.5

Restructuring activities 23.5 1.2

Other provisions 96.5 12.5 135.6 12.6

234.8 206.5 317.5 204.6

It is assumed that non-current provisions will be claimed in no more than five years, provisions for par-tial retirement possibly even later.

33 | Financial liabilities N O N - C U R R E N T F I N A N C I A L L I A B I L I T I E S



Other liabilities 7.5 2.0

315.8 296.8

Tognum AG has taken out a syndicated loan for corporate financing purposes. As at 31 December 2010, non-current liabilities to banks that bear variable interest rates related primarily to this loan agreement (Facility A). Interest swaps were concluded for hedging the interest rate risk.

The financial liabilities are broken down as follows:

Nominal value

(nominal currency in million) Fair value (in EUR million)

Currency 31 Dec. 2009 31 Dec. 2010

Weighted

maturity

(in years)

Weighted

effective interest

rate (in %) 31 Dec. 2009 31 Dec. 2010

Facility A

Facility A1 USD 260.0 260.0 2.5 USD-LIBOR + 30BP 179.9 194.4

Facility A2 EUR 100.0 100.0 2.5 EURIBOR + 30BP 99.6 99.7

Facility B

Facility B1 USD 40.0 USD-LIBOR + 30BP 27.7

Others EUR 1.1 0.8 3.0 5.3 1.1 0.8

308.3 294.9

Facilities A1 and A2 are financial liability bullet facilities. Facility B is a revolving credit line that can be accessed and repaid at any time. Loan drawings from facility B can also be made in euros or in other cur-rencies (such as US dollars and pounds sterling in particular; multi-currency facility). As part of facility B, two ancillary facilities were set up, each amounting to 41.7 million euros, that can also be accessed as guarantee lines.

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S E R V I C E

The decrease in non-current financial liabilities results primarily from the repayment of facility B1 in the year under review. This was offset by the exchange rate valuation of the US dollar loan portion of the long-term financial liabilities. The valuation of the loan in accordance with IFRS under application of the effective interest method (IAS 39.43 and 39.47) led to an addition of accrued interest of 0.5 million euros.

The Tognum Group has no liabilities with a term of more than five years. As in the previous year, there were no mortgages or assignments of assets, inventories and receivables for security purposes as at the balance sheet date.

C U R R E N T F I N A N C I A L A N D O T H E R L I A B I L I T I E S


Liabilities to related companies 2.3 2.8

Liabilities from derivatives (negative market values) 2.1 13.7

Other liabilities 58.4 60.8

62.8 77.2

Liabilities from derivates include negative market values from the valuation of foreign exchange forward transactions and interest swaps. The market values of current financial liabilities correspond approxi-mately to the carrying amounts. Explanatory notes to derivative financial instruments are included in section 36 | »Derivative financial instruments«.

As part of the sale of the Propeller Shaft unit, IFA-Rotorion Holding GmbH, Haldensleben acquired the right to buy back the shares that Tognum AG holds in IFA-Rotorion Holding GmbH, Haldensleben. This call option is classified as a financial instrument in accordance with IAS 39.9 and is reported under »Lia-bilities from derivatives«. The fair value of the call option as at the balance sheet date amounted to 5.7 million euros (previous year: 0.0 million euros).

Other liabilities include commitments arising from wages and salaries, in addition to outstanding leave and overtime payments.

As in the previous year, there were no mortgages and assignments of securities for assets, inventories and receivables as at the balance sheet date. Standard market interest rates have been agreed on for liabilities to related parties.

34 | Trade payables and other liabilities

The total amount of trade payables is due for payment within one year. The carrying amounts of trade payables correspond to their fair value.


Trade payables 223.6 316.6

223.6 316.6

173

35 | Other current liabilities


Other taxes 23.4 9.7

Others 6.1 7.0

29.5 16.7

The decrease in liabilities from other taxes of 13.7 million euros to 9.7 million euros (previous year: 23.4 million euros) results primarily from the reversal of tax risk positions as a result of successfully completed audits in the current financial year.

Other Disclosures 36 | Derivative financial instruments to hedge business operations

As at the balance sheet date, the Tognum Group held derivative financial instruments to hedge risks from currency and interest rate changes. The hedges involve foreign exchange derivatives and interest swaps. Foreign exchange forwards exist in US dollars, Singapore dollars, pounds sterling, Swiss francs and South African rands, plus interest swaps in euros and US dollars.

Foreign exchange forward transactions were concluded with contract partners both inside and outside the Group; interest swaps were concluded solely with external contract partners.

All derivative financial instruments are treated as stand-alone derivatives.

The following table shows the type and extent of the currency and interest hedges held, including the rec-ognised fair value as at the balance sheet date:

Fair value

3 1 D EC . 201 0

Nominal amount in

foreign currency

Financial assets

in EUR million

Financial liabilities

in EUR million Maturity

Currency hedge

USD 206.0 5.9 0.8 2011

SGD 42.0 0.4 2011

GBP 10.3 0.2 0.2 2011

CHF 0.3 2011

ZAR 19.0 0.1 2011

6.4 1.1

Interest rate hedge

EUR interest rate swap 100.0 1.4 2013

USD interest rate swap 260.0 5.4 2013

6.8

6.4 7.9

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S E R V I C E

Fair value

3 1 D EC . 200 9

Nominal amount in

foreign currency

Financial assets

in EUR million

Financial liabilities

in EUR million Maturity

Currency hedge

USD 184.7 6.5 1.6 2010

SGD 23.5 0.1 0.1 2010

GBP 9.0 0.2 0.2 2010

CHF 1.9 2010

ZAR 33.0 0.1 2010

6.8 2.1

Interest rate hedge

EUR interest rate swap 100.0 0.5 2013

USD interest rate swap 260.0 1.5 2013

2.1

8.9 2.1

The fair value of the derivative financial instruments is determined on the basis of market information as at the balance sheet date. The fair value of foreign exchange derivatives is determined from the price of the forward exchange rates. The fair value of interest derivatives is determined by the yield curve.

37 | Additional disclosures on financial instruments

The following table, which is classified according to the measurement categories of IAS 39, presents the net gains and losses (before taxes) from financial instruments reported in the consolidated statement on comprehensive income:


Financial assets and liabilities recognised at fair value through profit or loss 24.9 – 7.8

Available-for-sale financial assets

recognised directly in equity – 0.5 0.5

recognised through profit or loss 0.2 – 2.5

Loans and receivables – 4.9 – 2.9

Financial liabilities recognised at acquisition cost 7.3 – 15.8

27.1 – 28.5

The net gains or losses from the financial asset or liability recognised at fair value through profit or loss include the recognised gain or loss of the interest swaps and foreign exchange forward transactions. Val-uation effects also include put and call options that were contractually agreed as part of the sale of the Propeller Shaft unit.

The net gains or losses of available-for-sale financial assets include recovered dividend payments and the impairment losses of the investment in Fuel Cell Energy Inc., Danbury/USA which was sold in the third quarter of 2010.

The net gains or losses from loans and receivables comprise the gains or losses from impairments, appre-ciation in value and the effects of currency translation.

The net gains or losses from financial liabilities recognised at acquisition cost include the gains or losses from the effects of currency translation.

175

The following table represents the carrying amount and the fair value of the financial instruments in-cluded in the individual consolidated statement of financial position items according to IAS 39 classes and measurement categories. In addition, the definitions of the individual categories are presented on page 176.

IN EUR MILL ION

Categories

of IAS 39

Carrying

amount as of

31 Dec. 2010 Amortised cost

Fair value

recognised

in equity

Fair value

recognised

through

profit or loss

Fair value as of

31 Dec. 2010

Assets

Trade receivables LaR 495.7 495.7 495.7

Cash and cash equivalents 240.5 240.5 240.5

Other financial assets

Available-for-sale financial assets1 AfS 22.9 22.9 22.9

Financial assets at fair value through

profit or loss FAHfT/FVO 41.1 41.1 41.1

Other accounts receivable and assets LaR 93.6 93.6 93.6

Total financial assets 893.8 852.7 41.1 893.8

Equity and liabilities

Financial liabilities FLAC 297.7 297.7 297.7

Trade liabilities FLAC 316.6 316.6 316.6

Miscellaneous financial liabilities

Financial liabilities at fair value through

profit or loss FLHfT 13.7 13.7 13.7

Other financial liabilities FLAC 62.7 62.7 62.7

Total financial liabilities 690.6 677.0 13.7 690.6

1 For the available-for-sale financial assets at carried-forward acquisition cost, the fair value of the instruments cannot be determined reliably.

IN EUR MILL ION

Categories

of IAS 39

Carrying

amount

as of

31 Dec. 2009 Amortised cost

Fair value

recognised

in equity

Fair value

recognised

through profit

or loss

Fair value

as of

31 Dec. 2009

Assets

Trade receivables LaR 493.6 493.6 493.6

Cash and cash equivalents 118.4 118.4 118.4

Other financial assets

Available-for-sale financial assets1 AfS 34.2 27.0 7.2 34.2

Financial assets at fair value through

profit or loss

FAHfT/FVO

32.6 32.6 32.6

Other accounts receivable and assets LaR 97.2 97.2 97.2

Total financial assets 776.0 736.2 7.2 32.6 776.0

Equity and liabilities

Financial liabilities FLAC 310.6 310.6 310.6

Trade liabilities FLAC 223.6 223.6 223.6

Miscellaneous financial liabilities

Financial liabilities at fair value through

profit or loss

FLHfT

2.1 2.1 2.1

Other financial liabilities FLAC 65.9 65.9 65.9

Total financial liabilities 602.2 600.1 2.1 602.2

1 For the available-for-sale financial assets at carried-forward acquisition cost, the fair value of the instruments cannot be determined reliably.

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S E R V I C E

In accordance with IAS 39, the following were aggregated into categories:


Financial assets at fair value through profit or loss

thereof fair value option 23.7 26.6

thereof financial assets held for trading (FAHfT) 8.9 14.5

Loans and receivables (LaR) 590.8 589.3

Available-for-sale financial assets (AfS) 34.2 22.9

thereof measured at amortised cost 27.0 22.9

thereof measured at fair value 7.2

Financial liabilities measured at amortised cost (FLAC) 600.1 677.0

Financial liabilities held for trading (FLHfT) 2.1 13.7

Due to the short terms of cash and cash equivalents, of trade receivables and trade payables and of other current receivables and assets, it is assumed that the fair values correspond to the carrying amounts.

The non-current other receivables and assets, financial liabilities and non-current other liabilities are determined as cash values of future, anticipated cash flow. Standard market rates are used for discounting based on the respective terms.

Available-for-sale financial assets that are valued at the carried-forward acquisition cost are non-listed shares for which the fair value could not be determined reliably.

Provided no market prices (e.g. stock market prices) are available for assets, and liabilities are to be rec-ognised at fair value through profit or loss, the market values are calculated using approved financial valuation models (valuation methods) based on instrument-specific market parameters. These include in particular the discounted cash flow method, whereby the individual credit ratings and other market cir-cumstances in the form of current credit and liquidity spreads are taken into account for determining the fair values. In foreign exchange forward transactions, the foreign exchange rate is used, and the market interest rates in the case of interest derivatives, as the basis for valuation, in each case at the respective balance sheet date.

177

The following table shows the allocation of our financial assets and liabilities measured at fair value to the three levels of the fair value hierarchy:

31 Dec. 2010

IN EUR MILL ION Level 1 Level 2 Level 3

Financial assets measured at fair value

Financial assets at fair value through profit or loss 26.6

Derivative financial instruments 6.4 8.1

Total 6.4 34.7

Financial liabilities measured at fair value

Derivative financial instruments 7.9 5.7

Total 7.9 5.7

31 Dec. 2009

IN EUR MILL ION Level 1 Level 2 Level 3

Financial assets measured at fair value

Financial assets at fair value through profit or loss 23.7

Available for sale financial assets 7.2

Derivative financial instruments 8.9

Total 7.2 8.9 23.7

Financial liabilities measured at fair value

Derivative financial instruments 2.1

Total 2.1

The levels of the fair value hierarchy and its application to our financial assets and liabilities are described below:

L E V E L 1 : There are quoted market prices for identical assets or liabilities in active markets. As a result of the market and currency price, the shareholding in Fuel Cell Energy Inc., Danbury/USA was allocated to level 1 in the previous reporting period.

L E V E L 2 : There is other information besides that on quoted market prices that is directly (e.g. as prices) or indirectly (e.g. derived from prices) observable. In the Tognum Group, foreign exchange forward transactions and interest swaps are allocated to level 2.

L E V E L 3 : Information on assets and liabilities is available that is not based on observable market data. The fair values are calculated using approved financial valuation models (valuation methods) based on instrument-specific market parameters. Recognition of the acquired shareholding in IFA Rotorion Hold-ing GmbH, Haldensleben is made at fair value through profit or loss, which results in an allocation to level 3. As part of the sale of the Propeller Shaft unit, Tognum AG acquired the right to resell the shares acquired in IFA-Rotorion Holding GmbH, Haldensleben to the previous shareholders (put option) and IFA-Rotorion Holding GmbH, Haldensleben acquired the right to buy back the shares that Tognum AG holds in IFA-Rotorion Holding GmbH, Haldensleben (call option). Both options are recognised at fair value through profit or loss and allocated to level 3.

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S E R V I C E

The carrying amount of the investment in IFA-Rotorion Holding GmbH, Haldensleben amounted to 23.7 million euros in the previous year. In the reporting year, 2.9 million euros were recognised as profit in the consolidated statement of comprehensive income and resulted in a carrying amount for the invest-ment amounting to 26.6 million euros as at 31 December 2010.

The valuation of the put option in the reporting year resulted in profit totalling 8.1 million euros, which were recognised in the consolidated statement of comprehensive income. The carrying amount of the put option thus amounted to 8.1 million euros as at the balance sheet date.

The valuation of the contractually agreed call option resulted in a loss amounting to 5.7 million euros in the reporting year, which was also recognised in the consolidated statement of comprehensive income. As at the balance sheet date, the carrying amount of the call option was 5.7 million euros.

38 | Leases

The Tognum Group is the lessee in various operating lease agreements. The lease agreements concern leases for off-premise warehouses, fixtures, PCs, printers and copying machines.

The minimum future lease payments on account of non-terminable operating leases are broken down as follows for the different periods:


Future minimum lease payments

due within 1 year 32.7 34.4

due between 1 and 5 years 56.8 54.5

due later than 5 years 34.6 24.4

124.1 113.3

As part of lease agreements in the 2010 financial year, expenditure amounting to 38.2 million euros (pre-vious year: 39.9 million euros) was recognised through profit or loss. Expenses benefited with an amount of 5.9 million euros (previous year: 1.0 million euros) from the temporary leasing of buildings to third parties.

39 | Contingent liabilities and other financial obligations

C O N T I N G E N T L I A B I L I T I E S As at 31 December 2010, there were contingent liabilities from contingencies amounting to 26.4 million euros (previous year: 8.4 million euros). These also include guarantees for financing in favour of affili-ated companies.

OT H E R F I N A N C I A L O B L I G AT I O N S IN EUR MILL ION 31 Dec. 2009 31 Dec. 2010

Other financial obligations 1,079.1 1,296.8

Other financial obligations include liabilities arising from the acquisition of property, plant and equip-ment amounting to 24.7 million euros (previous year: 14.3 million euros). Other financial obligations from order commitments for investments, maintenance agreements and general operating expenses fell within the usual range.

The sum of 1,158.3 million euros for other financial obligations is due for payment within one year. The amounts involved are nominal.

179

40 | Segment reporting

O R G A N I S AT I O N A L S T R U C T U R E A N D S E G M E N TAT I O N As a result of the continuing development of the corporate and brand strategy, Tognum has organised its business activities under the corporate umbrella of the strategic holding company Tognum AG into three reporting segments – Engines, Onsite Energy & Components (OE&C) and Distribution.

Engines. The development, production and sales of diesel engines, including the associated services and the after sales business are included in the Engines segment. In addition to parts of MTU Friedrichshafen GmbH, Friedrichshafen and parts of MTU Detroit Diesel Inc., Detroit/USA, including parts of their consolidated subsidiaries and SKL Motor GmbH, Magdeburg, the segment also includes the two Turkish companies MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadımköy/Turkey and MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Şubesi, Çorlu/Turkey, which have been included in the consolidated financial statements of Tognum AG since 1 January 2010 (cf. section 3 | »Change in scope of consolidated companies« in the notes to the consolidated financial statements).

Onsite Energy & Components. The OE&C segment includes on the one hand business activities in onsite energy systems (Onsite Energy) based on diesel engines (OE Diesel Systems & Engines), gas engines and fuel cells (OE Gas & Fuel Cell Systems) including the related after sales activities, and on the other hand components (Components) for engines (Injection Systems). In addition to parts of MTU Friedrichshafen GmbH, Friedrichshafen and parts of MTU Detroit Diesel Inc., Detroit/USA, including parts of their con-solidated subsidiaries, this segment also includes MTU Onsite Energy Corp., Mankato, Minnesota/USA (onsite energy systems based on diesel engines), MTU Onsite Energy GmbH, Augsburg (onsite energy systems based on gas engines), MTU Onsite Energy GmbH, Friedrichshafen (onsite energy systems based on fuel cells) and L’Orange GmbH, Stuttgart.

Distribution. The third reporting segment of Distribution includes the sales companies represented in the regions of Europe and Asia/Pacific, which are owned by the Group. These include MTU Australia Pty. Ltd., Kings Park/Australia, MTU Asia Pte. Ltd., Singapore/Singapore, including their consolidated sub-sidiaries, plus MTU Italia S.r.l., Arcola/Italia and MTU Benelux B.V., Dordrecht/Netherlands, in addition to MTU Ibérica Propulsión y Energía S.L., Coslada/Spain.

The continuous systematic development of the segment structure that has been in place since 2008 has resulted in a change in the importance of individual legal entities within the Tognum Group. To take into account the ongoing interpretation of the above logic, the allocation of individual entities to the structure of the three reporting segments will be adjusted on 1 January 2011.

Reporting in the adjusted segment structure will be carried out for the first time in the quarterly state-ment as at 31 March 2011. If necessary, the comparative segment figures for Q1 2010 will be adjusted retroactively in the quarterly statement as at 31 March 2011.

I N T E R N A L C O N T R O L A N D C A LC U L AT I O N O F S E G M E N T I N F O R M AT I O N The internal control and measurement of the performance of the individual segments takes place with the adjusted EBIT by the Executive Board of Tognum AG as the chief operating decision maker within the meaning of IFRS 8. In the view of the Executive Board of Tognum AG, the adjusted EBIT provides the most appropriate information for assessing the performance of the various segments.

The adjusted EBIT is calculated from the gross profit on sales, selling costs, general administrative costs, R&D costs, other operating profit, earnings on shares valued for at equity, other financial results, and from the adjustment effects on these earnings components.

180 O V E R V I E W



S E R V I C E

The disclosures of segment investments and segment amortisation always result from allocating intan-gible assets and property, plant and equipment to the relevant segments. In the event that, in the produc-tion process of the OE&C segment, it becomes necessary to resort to assets originally allocated to the Engines segment, any amortisation attributable to this production will be included in the adjusted EBIT of the OE&C segment. In the 2010 financial year, amortisation amounting to 23.2 million euros (previous year: 14.0 million euros) were allocated to the OE&C segment.

The calculation of transfer prices for transactions within and between segments is based on market prices.

R E C O N C I L I AT I O N O F C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S In the reconciliation statement, business activities and issues will be presented that are not directly re-lated to the reportable segments of the Tognum Group. The item »Central items« will include issues that are dealt with at the Group head offices. The consolidation of business relations between the segments will be presented under »Reconciliation«. Adjustment effects will relate to increased depreciation from acquisitions and exchange rate effects from the valuation of loan/currency holdings and hedging trans-actions. The reconciliation statement will also include interest income and interest expenses that are not allocated to the segments of the Tognum Group and subsequently do not affect the control of the seg-ments.

Income tax is also not an integral part of net income since tax expenditure is only allocated to legal enti-ties. Generally, the legal entities do not correspond to the structure of the segments.

I N F O R M AT I O N O N G E O G R A P H I C S E G M E N T S Segment control is carried out by the Executive Board of Tognum AG on a global basis, with production facilities and customer relations on different continents. The allocation of revenues with external third parties in addition to non-current assets and investments in non-current assets can be shown below in the main regions of »Germany«, »Europe excluding Germany«, »North America«, »Asia/Pacific« and »Other countries«. Not included in non-current assets are long-term financial instruments and deferred tax assets. The allocation of revenues takes place on the basis of the geographic location of our end cus-tomers (the physical place where our product will be used can deviate, however, from our customer’s premises), the allocation of the asset and the investment is based on the geographic location of the assets.

I N F O R M AT I O N O N VA R I O U S P R O D U C T G R O U P S / K E Y C U S T O M E R R E L AT I O N S On the external revenues of the Distribution segment, 431.1 million euros (previous year: 408.0 million euros) was attributable to products from the Engines segment and 148.3 million euros (previous year: 101.7 million euros) to products from the Onsite Energy Systems & Components segment.

In the 2010 financial year just ended, sales revenues of at least 10% of the total sales revenues were gen-erated with none of our customers.

181

41 | Supplementary information to the statement of cash flows

In the statement of cash flows in accordance with IAS 7 »Statement of Cash Flows», payment flows of a financial year are reported in order to present information on the movements of the company’s cash and cash equivalents. A distinction is made between payment flows from operational activities and from investing and financing activities.

The cash funds considered in the statement of cash flows include all the cash and cash equivalents re-ported in the consolidated statement of financial position, such as cash funds, demand deposits and short-term (residual term of no more than approximately three months), extremely liquid financial in-vestments that are readily convertible to known amounts of cash, and are subject to an insignificant risk of change in value.

Cash flow from operating activities is determined indirectly by correcting consolidated net profit or loss for changes in the balance of derivative financial instruments, stocks, accounts payable, trade liabilities and non-cash items, with all other items reporting the cash flows in areas of investment or financing. The calculation of cash flows from investing and financing activities is based on payments, with adjustments made for effects of currency translations and changes to the group of consolidated companies.

42 | Related party disclosures

R E L AT E D PA RT I E S In accordance with IAS 24, Tognum AG is required to make disclosures relating to its business relations with subsidiaries, associated companies, joint ventures, companies with significant influence, members of the Executive Board and the Supervisory Board. Related parties controlled by the Tognum Group or on which the Tognum Group is able to exert a significant influence, are listed in the list of shareholdings. The complete list of shareholdings of the Tognum Group as at 31 December 2010 is included in section 46 | »List of shareholdings of Tognum AG, Friedrichshafen«.

Subsidiaries included in the consolidated financial statements of Tognum AG in the course of full consol-idation are included in section 2 | »Accounting and valuation methods« in the notes to the consolidated financial statements. Tognum AG maintains normal business relations with non-consolidated subsidiaries resulting from transactions that take place in the ordinary course of business. The non-consolidated subsidiaries are of no significance for the income, asset and financial position of the Tognum Group. Transactions conducted by group companies with joint ventures, associated companies and companies with significant influence are to be included without exception in the normal business activities of the company concerned in each case and took place under arm’s length conditions.

Business transactions between companies included in the consolidated financial statements were elimi-nated in the course of consolidation and are, therefore, not included in this disclosure.

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S E R V I C E

Transaction volume (1 Jan. – 31 Dec. 2009) Transaction volume (1 Jan. – 31 Dec. 2010)

IN EUR MILL ION

Volume of

work performed

Volume of

work received

Volume of

work performed

Volume of

work received

Subsidiaries 154.5 32.5 120.5 17.1

Associates and entities with joint

control 55.8 8.6 62.6 1.9

Companies with significant

influence 163.7 320.8 43.0 442.0

374.0 361.9 226.1 461.0

Outstanding balances 31 Dec. 2009 Outstanding balances 31 Dec. 2010

IN EUR MILL ION Receivables Payables Receivables Payables

Subsidiaries 46.8 7.7 44.0 2.8

Associates and entities with joint

control 22.8 0.1 8.8 1.0

Companies with significant

influence 7.0 37.5 5.0 95.3

76.6 45.3 57.8 99.1

The transaction volume arising from the business relations with the companies of the Daimler Group and the resulting liabilities and receivables as at the balance sheet date are included in the table above un-der »Companies with significant influence«. The decline in volume of work performed by companies with significant influence of 120.7 million euros to 43.0 million euros (previous year: 163.7 million euros) is due primarily to the sale of the Propeller Shaft unit.

R E L AT E D PA RT I E S Group companies have not concluded any reportable transactions with members of the Executive Board or the Supervisory Board of the Tognum Group, members of management in key positions or with com-panies in which these persons hold positions on the executive or supervisory boards. This also applies to close family members of this group of persons. For information relating to the acquisition or sale of shares by members of the Executive Board or Supervisory Board of Tognum AG, please refer to the Cor-porate Governance Report which is part of the group management report.

Remuneration for members of management of the Tognum Group in key positions that, in accordance with IAS 24, is subject to disclosure includes remuneration for the active Executive Board and Super-visory Board. The composition of the Executive Board and Supervisory Board is included in section 43 | »Executive bodies« in the notes to the consolidated financial statements.

183

The remuneration for members of the Executive Board of Tognum AG was as follows:


Short-term benefits 4.1 4.8

thereof fixed remuneration 2.3 2.2

thereof success-related remuneration 1.8 2.6

Long-term benefits (share-based remuneration) 0.6 1.4

Post-employment benefits 0.9 1.2

thereof current service costs resulting from the increase in provisions

for pensions 0.9 1.2

5.6 7.4

Short-term benefits primarily include salaries and performance-related remuneration. Post-employment benefits in the financial year include the service cost considered for pension obligations.

For pension obligations to former members of the Executive Board of Tognum AG, 136,308 euros (previous year: 90,000 euros) were expended in the 2010 financial year. As at 31 December 2010, our reserves for these pension payments amounted to 2,019,991 euros (previous year: 2,031,691 euros).

In the 2010 financial year just ended, the Supervisory Board members received a total remuneration of 1.1 million euros (previous year: 0.3 million euros).

The remuneration report summarises the basic principles that apply in determining the remuneration of the Executive Board of Tognum AG, and it explains the amount and structure of the income for Execu-tive Board members. The basic principles and amount of remuneration for the Supervisory Board is also described. The remuneration report is guided by the recommendations of the German Corporate Gover-nance Code and includes disclosures that, in accordance with the requirements of German commercial law, form part of the group management report in accordance with Article 315 (2) (4) of the German Commercial Code (HGB).

Tognum AG grants home loans to employees who have a permanent employment contract. In October 2006, a loan for 3,100 euros was granted to an employee representative on the Supervisory Board. This loan was redeemed in full as at 31 December 2010 (previous year: 1,186 euros).

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43 | Executive bodies

M E M B E R S O F T H E E X E C U T I V E B O A R D Rainer Breidenbach retired from his position on the Executive Board as at 31 December 2010. He was succeeded by Peter Kneipp, who has been the new member of the Executive Board of Tognum AG re-sponsible for the »Engines« business unit since 1 January 2011.

The composition of the Executive Board of Tognum AG as at the balance sheet date is thus as follows:

V O L K E R H E U E R

Chairman of the Executive Board – Chief Executive Officer (CEO) Chairman of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

R A I N E R B R E I D E N B A C H (until 31 December 2010) »Engines« Business Unit Member of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

J O A C H I M C O E R S

Deputy Chairman of the Executive Board »Corporate Services« Division – Chief Financial Officer (CFO) Deputy Chairman of the Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Advisory Board of IFA-Rotorion Holding GmbH, Haldensleben

D R . - I N G . U L R I C H D O H L E

»Technology & Operations« Division Member of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

C H R I S T O F V O N B R A N C O N I

»Onsite Energy & Components« Business Unit Member of the Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Advisory Board of IFA-Rotorion Holding GmbH, Haldensleben

S U P E RV I S O RY B O A R D By comparison with 31 December 2009, there were changes in the composition of the Supervisory Board of Tognum AG. Giulio Mazzalupi retired from his position on the Supervisory Board as at 18 May 2010. Axel Arendt was appointed as the new member of the Supervisory Board by the Annual General Meeting held on 18 May 2010.

The following members have been appointed to the Supervisory Board of Tognum AG:

R O L F E C K R O D T (Chairman) Chairman of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of Benteler AG, Paderborn Member of the Supervisory Board of CNC-Communications & Network Consulting AG, Munich Chairman of the Board of Directors of Leclanché SA, Yverdon-les-Bains/Switzerland

185

A X E L A R E N D T (since 18 May 2010) Self-employed business consultant Member of the Advisory Board of Bilfinger Berger Industrial Services GmbH, Munich Member of the Advisory Board of Tital GmbH, Bestwig Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen A N D R E A S B E M E R L*

Economist (VWA) Commercial clerk (Corporate Controlling Engines), Tognum AG, Friedrichshafen Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Board of Christliche Gewerkschaft Metall (CGM)

F R A N Z B E N Z *

Full-time member of the works council, MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Chairman of the Regional Board of Christliche Gewerkschaft Metall (CGM)

H E I N Z B R E C H T E L*

Dipl.-Ing. (FH) Commercial clerk (specialist for Health & Social Services), Tognum AG, Friedrichshafen Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen

S U N E K A R L S S O N

Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of Eldon-Group AB, Nässjö/Sweden Member of the Supervisory Board of Nefab AB, Jönköping/Sweden Member of the Supervisory Board of New Russian Generation Ltd., Guernsey/Great Britain Member of the Advisory Board of SAG GmbH, Langen D R . E D G A R K R Ö K E L

Vice President Mergers & Acquisitions and Corporate Real Estate of Daimler AG, Stuttgart Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of Daimler Luft- und Raumfahrt Holding AG, Ottobrunn Member of the Supervisory Board of Daimler North East Asia Ltd., Peking/China Member of the Supervisory Board of National Automobile Industry Company Ltd., Jeddah/Saudi Arabia Chairman of the Advisory Board of Daimler Verwaltungsgesellschaft für Grundbesitz mbH, Schönefeld Member of the Advisory Board of MBtech Verwaltungs-GmbH, Sindelfingen Member of the Advisory Board of Toll Collect GmbH, Berlin

P A T R I C K M Ü L L E R * (Deputy Chairman) Head of Health & Social Services/HR Organisation, Tognum AG, Friedrichshafen Deputy Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen

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S E R V I C E

D R . J U T T A N Ü B E L*

Departmental Manager Technical Information, MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen

L I L O R A D E M A C H E R *

First representative of IG Metall Friedrichshafen-Oberschwaben, Managing Director Member of the Supervisory Board of ZF Friedrichshafen AG, Friedrichshafen

A N D R E A S R E N S C H L E R

Member of the Management Board of Daimler AG, Stuttgart Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of Daimler Financial Services AG, Berlin Member of the Supervisory Board of EvoBus GmbH, Stuttgart Member of the Supervisory Board of Mitsubishi Fuso Truck and Bus Corporation, Kanagawa/Japan Member of the Supervisory Board of Deutsche Messe AG, Hannover Member of the Economic Advisory Board of the Bayerischen Landesbank, Munich D R . C L E T U S V O N P I C H L E R

Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen Member of the Supervisory Board of Smit Transformatoren B.V., Nijmegen/Netherlands Member of the Supervisory Board of Comline Computer+Softwarelösungen AG, Hamburg Member of the Supervisory Board of Dr. Joachim Schmidt AG & Co. Holding KG, Berlin Chairman of the Advisory Board of Otto Krahn (GmbH & Co.) KG, Hamburg Chairman of the Executive Board of the Kranich Stiftung, Hamburg

* Employee representative

An Executive Committee, a Mediation Committee, an Audit Committee, a Nominations Committee and a Strategy Committee (since 18 October 2010) have been created within the Supervisory Board.

The Executive and Mediation Committees are composed of Rolf Eckrodt, Patrick Müller, Sune Karlsson and Lilo Rademacher. The Chairman in each case is Rolf Eckrodt, Patrick Müller being the Deputy Chairman.

The Audit Committee is composed of Dr. Edgar Krökel (Chairman), Heinz Brechtel (Deputy Chairman), Patrick Müller and Sune Karlsson.

The Nominations Committee consists of Rolf Eckrodt, Sune Karlsson and Andreas Renschler.

The Strategy Committee that was created on 18 October 2010 is composed of Dr. Cletus von Pichler (Chairman), Axel Arendt, Dr. Jutta Nübel and Lilo Rademacher.

187

44 | Declaration of conformity

The declaration required in accordance with Section 161 of the German Stock Corporation Act (AktG) was submitted and is accessible to shareholders at all times.

45 | Disclosures in accordance with the German Securities Trading Act (WpHG)

ING Groep N.V. with its registered offices at 1081 KL Amsterdam/Netherlands informed us in writing on November 14, 2007, pursuant to Article 21 (1) WpHG, that its voting right share in Tognum AG, Friedrichshafen/Germany, ISIN: DE000A0N4P43, WKN: A0N4P4 had exceeded the threshold of 5% of the votes on October 24, 2007 and amounted to 5.02% (which corresponds to 6,590,983 votes) on that day. Of this amount, their 5.02% (6,590,983 votes) are to be assigned pursuant to Article 22 (1) Sent. 1 No. 1 and Article 22 (2) WpHG. The assigned votes are held via the following companies controlled by them and whose voting share in Tognum AG amounts to 3% or more in each case:

- Nationale Nederlanden Levensverzekering Maatschappij N.V. - Nationale-Nederlanden Nederland B.V. - ING SFE B.V. - ING Verzekeringen Nederland N.V. - ING Verzekeringen N.V.

Daimler AG, Stuttgart/Germany, in accordance with Article 21 paragraph 1 WpHG, informed us on 25 July 2008 that the voting share of Daimler Vermögens- und Beteiligungsgesellschaft mbH, Stuttgart/Germany in Tognum AG Friedrichshafen/Germany, ISIN: DE000A0N4P43, WKN: A0N4P4 exceeded the threshold of 25% of the votes on 23 July 2008 and now amounts to 25.000000 76% (which corresponds to 32,843,751 votes). Daimler AG, Stuttgart/Germany, in accordance with Article 21 paragraph 1 WpHG, further informed us on 25 July 2008 that their voting share in Tognum AG Friedrichshafen/Germany, ISIN: DE000A0N4P43, WKN: A0N4P4 exceeded the threshold of 25% of the votes on 23 July 2008 and now amounts to 25.00000076% (which corresponds to 32,843,751 votes).

The following voting rights announcement was published in English:

On 25 February 2009, Arnhold and S. Bleichroeder Holdings, Inc., New York/USA informed us according to Section 21 (1) of the WpHG that, via shares, its voting rights on Tognum AG, Friedrichshafen/Deutschland, ISIN: DE000A0N4P43, WKN: A0N4P4 have exceeded the 3% limit of the voting rights on 24 February 2009 and amount to 3.08% (this corresponds to 4,045,130 voting rights) on this date. All of these voting rights (this corresponds to 4,045,130 voting rights) are attributed to Arnhold and S. Bleichroeder Holdings, Inc. according to Section 22 (1) (1) (6) in connection with Section 22 (2) WpHG.

BlackRock, Inc., New York, USA has notified us pursuant to section 21 (1) WpHG that its percentage of voting rights in our company exceeded the threshold of 3% on October 5, 2010 and amounts to 3.006% (3949203 voting rights) as per this date. Of these voting rights, 3.006% (3949203 voting rights) are to be attributed to BlackRock, Inc. pursuant to section 22 (1) sentence 1 no. 6 WpHG in connection with sentence 2 WpHG.

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46 | List of shareholdings of Tognum AG, Friedrichshafen

NAME AND REGI ST ERED OFFICE OF THE CO M PANY

D IRECT/ INDIRECT EQ UIT Y HO LDING:

Share of

capital

in % Remarks

Equity

in EUR

thousand Remarks

Profit

in EUR

thousand Remarks

MTU Friedrichshafen GmbH, Friedrichshafen 100% 205,174 0 3)

MTU Australia Pty. Ltd., Kings Park/Australia 100% 25,829 – 421

MTU Detroit Diesel Australia Pty. Ltd., Altona North/Australia 50% 46,598 2) 3,373 2)

MTU Asia Pte. Ltd., Singapore/Singapore 100% 119,535 32,740

MTU Hong Kong Ltd., Hong Kong/China 100% 17,704 7,204

MTU Engineering (Suzhou) Co. Ltd., Suzhou/China 100% 14,497 1,004

MTU India Pvt. Ltd., Pune/India 100% 2,728 432

PT MTU Indonesia, Jakarta/Indonesia 100% 6,543 2,001

MTU Marubeni Co. Ltd., Tokyo/Japan 51% 5,277 739

MTU China Co. Ltd., Shanghai/China 100% 535 145

Shanxi North MTU Diesel Co. Ltd., Datong/China 49% 22,890 – 649

MTU Vietnam Co. Ltd., Hanoi/Vietnam 100% 33 165

L’Orange GmbH, Stuttgart 100% 9,799 0 4)

L'Orange Fuel Injection Trading (Suzhou) Co. Ltd., Suzhou/China 100% 6) 700 0 5)

MTU Onsite Energy GmbH, Friedrichshafen 100% 12,898 0 4)

MTU Anlagenvermietung GmbH, Friedrichshafen 100% 2,822 0 4)

MTU Onsite Energy GmbH, Augsburg 100% 5,080 0 4)

MTU Italia S.r.l., Arcola/Italy 100% 18,365 1,789

MTU Benelux B.V., Dordrecht/Netherlands 100% 11,079 1,721

MTU do Brasil Ltda., São Paulo/Brazil 100% 8,365 2) 1,608 2)

MTU Detroit Diesel Inc., Detroit/USA 100% 180,180 32,683

Detroit Diesel Distribution Center B.V., Ridderkerk/Netherlands 100% 1,167 121

Detroit Diesel (Switzerland) AG, Studen/Switzerland, in liquidation 100% – 34 – 36

MTU Onsite Energy Corp., Mankato/USA 100% 43,908 1,156

Karl Maybach-Hilfe GmbH (Unterstützungskasse), Friedrichshafen 100% 7,225 0

MTU France SAS, Beauchamp/France 100% 5,194 2) 1,154 2)

MTU Israel Ltd., Nathanya/Israel 100% 411 2) 103 2)

MTU Motor Türbin Sanayi ve Ticaret A.Ş., Hadmköy/Turkey 100% 26,877 6,058

MTU Motor Türbin Sanayi ve Ticaret A.Ş. Avrupa Serbest Bölge Şubesi, Çorlu/Turkey 100% 262 – 559

SKL Motor GmbH, Magdeburg 100% 9,374 0 4)

Envirovent AG, Tägerwilen/Switzerland 60% 369 2) 32 2)

MTU South Africa Pty. Ltd., Cape Town/South Africa 100% 5,735 2) 659 2)

Prokura Diesel Services Pty. Ltd., Cape Town/South Africa 49% 30 2) – 2 2)

MTU UK Ltd., East Grinstead/Great Britain 100% 4,437 2) 1,731 2)

MTU Ibérica Propulsión y Energía S.L., Coslada/Spain 100% – 4,722 – 1,813

IFA-Rotorion Holding GmbH 7) 25% 40,376 2) – 3,846 2)

IFA-Maschinenbau GmbH, Haldensleben 8) 100% 257 2) 0 2)

IFA-Antriebstechnik GmbH, Haldensleben 75% 7,352 2) 3,313 2)

IFA-Technologies GmbH, Haldensleben 70% 1,822 2) – 105 2)

Shaft-Form-Engineering GmbH, Offenbach 50% 568 2) 109 2)

IFA Anlagen, Ukraine 100% 91 2) – 52 2)

IFA Kardan GmbH, Haldensleben 100% – 680 2) – 690 2)

Rotorion GmbH, Friedrichshafen 8) 100% 28,769 2) 16,449 2)

Rotorion North America LLC, Charleston/USA 100% 9,266 2) – 3,984 2)

1) 2010 figures 2) 2009 figures 3) Profit transfer agreement with Tognum AG 4) Profit transfer agreement with MTU Friedrichshafen GmbH 5) The annual report was not available when this list was prepared. 6) Newly founded in September 2009/Business license in November 2009 7) Thereof 18.7% direct and 6.3% indirect via MTU Friedrichshafen GmbH 8) Merged in 2010 to form IFA Rotorion Powertrain GmbH

189

47 | Events after the balance sheet date

There were no reportable events of significance between the balance sheet date and the date this report was prepared.


Tognum AG

Volker Heuer Chairman of the Executive Board

Chief Executive Officer (CEO)

Joachim Coers Dr.-Ing. Ulrich Dohle

Member of the Executive Board Member of the Executive Board

»Corporate Services« Division (CFO) »Technology & Operations« Division

Peter Kneipp Christof von Branconi Member of the Executive Board Member of the Executive Board

»Engines« Business Unit »Onsite Energy & Components« Business Unit

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C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S R e s p o n s i b i l i t y S t a t e m e n t |

A u d i t o r ’ s R e p o r t

S E R V I C E

Responsibility Statement »To the best of our knowledge, and in accordance with the applicable reporting principles, the con-solidated financial statements give a true and fair view of the net assets, financial position and results of operations of the Group, and the summarised group management report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.«


Tognum AG

Volker Heuer Chairman of the Executive Board

Chief Executive Officer (CEO)

Joachim Coers Dr.-Ing. Ulrich Dohle

Member of the Executive Board Member of the Executive Board

»Corporate Services« Division (CFO) »Technology & Operations« Division

Peter Kneipp Christof von Branconi Member of the Executive Board Member of the Executive Board

»Engines« Business Unit »Onsite Energy & Components« Business Unit

191

Auditor’s Report We have audited the consolidated financial statements prepared by Tognum AG, Friedrichshafen – con-sisting of the balance sheet, the consolidated statement on comprehensive income, the statement of changes in equity, the cash flow statement and the notes to the consolidated financial statements – in addition to the group management report, which is summarised with the company’s management report, for the financial year from 1 January to 31 December 2010. The preparation of the consolidated financial statements and the group management report in accordance with IFRS as adopted by the EU and the additional requirements of German commercial law in accordance with Section 315a (1) of the German Commercial Code (HGB) are the responsibility of the parent company’s Executive Board. Our respon-sibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Section 317 of the German Commercial Code and generally accepted German standards for the audit of financial statements promulgated by the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consoli-dated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial state-ments and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the entities included in consoli-dation, the determination of the entities to be included in consolidation, the accounting and consolida-tion principles used, and significant estimates made by the company’s Executive Board as well as evalu-ating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS as adopted by the EU and with the additional requirements of German commercial law in accord-ance with Section 315a (1) of the German Commercial Code and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides an accurate picture of the Group’s position and accurately presents the opportunities and risks of future development.

Stuttgart, 24 February 2011

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Franz Wagner Dieter Wißfeld Geman Public Auditor German Public Auditor

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S T A T E M E N T S

S E R V I C E F i g u r e s a t a g l a n c e 2 0 0 7 — 2 0 1 0

Figures at a glance 2007 — 20101

IN EUR MILL ION Q1 – Q4 2007 Q1 – Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Tognum Group

Order intake 3,107 3,230.6 650.6 625.3 488.2 566.3

Revenues 2,835 3,133.1 641.8 597.5 526.0 764.2

Cost of Sales – 2,170 – 2,401.6 – 492.1 – 461.4 – 410.6 – 579.5

= Gross Profit 666 731.5 149.7 136.0 115.4 184.6

Selling and general administrative costs – 233 – 258.4 – 72.6 – 78.3 – 57.7 – 75.1

Research and development costs – 92 – 110.4 – 30.3 – 38.6 – 33.3 – 40.5

Other operating expenses 3 0.0 1.9 0.3 1.1 5.8

= Results from operating activities 344 362.7 48.7 19.5 25.5 74.8

Financial result 22 – 33.1 – 10.5 12.7 6.5 – 4.9

= EBIT 366 329.6 38.2 32.1 32.1 69.9

Interest result – 58 – 47.3 – 9.9 0.1 – 9.9 – 5.7

Income taxes – 95 – 74.7 – 8.3 – 10.2 – 6.4 – 19.3

= Net profit/loss 212 207.6 20.1 22.0 15.8 44.9

Gross profit (adjusted) 703 787.8 165.7 137.8 124.0 196.8

in % of revenues 24.8% 25.1% 25.8% 23.1% 23.6% 25.8%

EBIT (adjusted) 390 406.9 63.8 19.2 32.9 82.7

in % of revenues 13.8% 13.0% 9.9% 3.2% 6.3% 10.8%

Adjusted depreciation 67 74.8 20.9 21.9 22.1 24.1

EBITDA (adjusted) 457 481.7 84.6 41.1 55.0 106.8

in % of revenues 16.1% 0.3% 13.2% 6.9% 10.5% 14.0%

Net profit/loss (adjusted) 199 264.3 38.2 12.7 16.5 53.9

adjusted earnings per share (EUR) 1.58 2.01 0.29 0.10 0.13 0.41

Net Working Capital3 769 908.6 905.7 861.0 750.1 710.7

Cashflow from operating activities 213 258.5 105.6 40.5 107.4 128.9

Cashflow from investing activities – 161 – 193.8 – 43.3 – 37.5 – 28.8 – 49.0

Net financial debt4 294 335.8 282.5 357.9 270.4 192.2

Provision for pensions 389 398.2 401.6 403.4 402.7 403.9

Equity 535 671.6 700.6 623.0 632.6 680.5

Equity ratio 22.7% 26.3% 27.4% 25.3% 26.3% 27.6%

1 A multiple periodical overview beyond the year 2007 is not possible. 2 Differences between the individual values and the sums derived from these may result from rounding off in some columns and lines of this table. 3 Net Working Capital = Inventories + Trade receivables ./. Trade payables ./. Payments on account 4 Net financial dept = Interest-bearing financial liabilities ./. liquid funds

193

2009 vs. 2010

Q1 – Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 – Q4 2010 Change absolute Change in %

2,330.4 696.5 693.0 650.0 791.0 2,830.5 500.1 21.5%

2,529.4 509.4 576.6 612.2 865.4 2,563.6 34.2 1.4%

– 1,943.6 – 379.5 – 431.0 – 440.1 – 690.8 – 1,941.4 2.2 0.1%

585.8 129.8 145.6 172.1 174.6 622.1 36.3 6.2%

– 283.6 – 66.3 – 71.6 – 73.7 – 96.5 – 308.1 – 24.5 – 8.6%

– 142.7 – 37.6 – 39.6 – 40.1 – 69.5 – 186.9 – 44.2 – 31.0%

9.1 0.9 0.6 1.9 7.3 10.7 1.6 17.6%

168.6 26.8 35.0 60.2 15.9 137.9 – 30.7 – 18.2%

3.7 – 17.9 – 24.0 22.2 – 6.0 – 25.6 – 29.3 – 791.9%

172.3 8.9 11.1 82.4 9.9 112.3 – 60.0 – 34.8%

– 25.3 – 10.1 – 8.7 – 6.1 – 1.9 – 26.8 – 1.5 – 5.9%

– 44.1 0.4 – 0.7 – 24.7 2.8 – 22.3 21.8 49.4%

102.9 – 0.8 1.6 51.6 10.9 63.2 – 39.7 – 38.6%

624.3 146.4 166.6 168.0 223.2 704.2 79.9 12.8%

24.7% 28.7% 28.9% 27.4% 25.8% 27.5%

198.6 42.8 54.2 56.2 88.9 242.1 43.5 21.9%

7.9% 8.4% 9.4% 9.2% 10.3% 9.4%

88.9 24.0 24.3 24.7 26.7 99.6 10.7 12.0%

287.5 66.8 78.5 80.8 115.6 341.7 54.2 18.9%

11.4% 13.1% 13.6% 13.2% 13.4% 13.3% 1.9%

121.3 22.3 30.5 33.9 72.5 159.2 37.9 31.2%

0.92 0.17 0.23 0.26 0.55 1.21 0.29 31.5%

710.7 646.9 735.6 740.2 672.4 672.4 – 38.3 – 5.4%

382.3 136.4 – 9.7 54.6 161.1 342.4 – 39.9 – 10.4%

– 158.7 – 12.5 – 28.6 – 36.6 – 65.4 – 143.0 15.7 9.9%

192.2 86.2 194.7 150.8 57.2 57.2 – 135.0 – 70.2%

403.9 403.1 403.0 403.3 399.9 399.9 – 4.0 – 1.0%

680.5 711.8 686.9 720.0 735.8 735.8 55.3 8.1%

27.6% 28.2% 26.9% 27.6% 26.8% 26.8% – 0.8%

194 O V E R V I E W



S T A T E M E N T S

S E R V I C E F i g u r e s a t a g l a n c e 2 0 0 7 — 2 0 1 0

IN EUR MILL ION Q1 – Q4 2007 Q1 – Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009

Engines

Order intake 2,081 2,095.6 436.4 449.9 282.1 339.4

Segment revenues 1,915 2,052.5 450.5 378.4 324.9 526.5

Marine 576 671.7 122.7 107.0 107.8 227.1

Industrial 416 408.8 78.6 58.7 42.6 68.5

Oil & Gas 124 94.2 22.2 14.4 2.3 3.0

Defense 221 249.5 65.4 42.0 27.1 45.9

After Sales/Other (Engines) 577 628.2 161.7 156.4 145.1 182.1

thereof external revenues n/a 1,701.5 380.8 321.6 274.5 415.8

EBIT (adjusted) 307 330.8 50.0 13.2 14.4 58.6

in % of revenues 16.0% 16.1% 11.1% 3.5% 4.4% 11.1%

Onsite Energy & Components

Order intake 960 1,036.6 177.7 151.1 180.0 195.2

Segment revenues 878 1,014.6 188.5 177.6 168.9 184.1

OE Diesel Systems & Engines 411 539.4 94.6 91.7 71.4 107.8

OE Gas & Fuel Cell Systems 56 42.8 6.8 4.6 8.4 18.0

After Sales/Other (Onsite Energy) 46 49.4 13.7 13.5 13.3 15.3

Injection Systems 143 157.3 36.4 30.0 28.5 25.6

Propeller Shafts 223 225.8 37.0 37.8 47.3 17.4

thereof external revenues n/a 843.2 166.0 158.7 149.3 153.0

EBIT (adjusted) 50 60.7 13.4 – 2.6 13.9 2.4

in % of revenues 5.7% 6.0% 7.1% – 1.5% 8.2% 1.3%

Distribution

Order intake 674 561.3 135.4 141.5 97.8 126.3

Segment revenues 523 601.5 97.7 119.5 105.9 201.0

Products 349 424.0 51.8 74.6 61.0 152.3

After Sales (Distribution) 173 177.5 45.9 44.9 44.9 48.7

thereof external revenues n/a 588.4 95.0 117.1 102.2 195.4

EBIT (adjusted) 44 47.8 7.8 13.5 7.8 20.4

in % of revenues 8.4% 7.9% 8.0% 11.3% 7.4% 10.1%

Central Effects/Eliminations

Segment order intake – 608 – 462.9 – 98.9 – 117.2 – 71.7 – 94.6

Segment revenues – 481 – 535.5 – 95.0 – 78.0 – 73.8 – 147.4

EBIT (adjusted) – 11 – 32.3 – 7.5 – 4.9 – 3.3 1.3

1 Differences between the individual values and the sums derived from these may result from rounding off in some columns and lines of this table.

195

2009 vs. 2010

Q1 – Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 – Q4 2010 Change absolute Change in %

1,507.7 434.6 404.9 448.5 572.7 1,860.7 353.0 23.4%

1,680.5 362.6 380.7 414.8 600.0 1,758.1 77.6 4.6%

564.6 102.3 114.6 93.8 198.3 509.0 – 55.6 – 9.8%

248.4 58.3 70.2 87.5 179.0 395.0 146.6 59.0%

41.9 5.9 15.6 21.5 29.8 72.8 30.9 73.7%

180.4 30.8 22.6 19.2 19.9 92.4 – 88.0 – 48.8%

645.2 165.3 157.8 192.8 173.0 688.8 43.6 6.8%

1,392.8 309.0 316.1 334.7 481.8 1,441.6 48.8 3.5%

136.2 38.7 44.8 46.5 57.1 187.1 50.9 37.4%

8.1% 10.7% 11.8% 11.2% 9.5% 10.6% 2.5%

704.1 220.6 259.6 205.4 218.2 903.8 199.7 28.4%

719.1 143.9 178.3 203.7 216.7 742.6 23.5 3.3%

365.4 86.2 108.2 126.0 127.9 448.3 82.9 22.7%

37.8 3.9 5.0 11.9 28.5 49.4 11.6 30.7%

55.9 23.2 25.2 22.0 21.6 92.0 36.1 64.6%

120.4 30.5 39.8 43.9 38.6 152.9 32.5 27.0%

139.5 0.0 0.0 0.0 0.0 0.0 – 139.5 – 100.0%

627.0 109.6 127.7 146.4 158.8 542.5 – 84.5 – 13.5%

27.1 5.2 7.3 13.9 6.4 32.8 5.7 21.0%

3.8% 3.6% 4.1% 6.8% 3.0% 4.4% 0.6%

501.0 181.0 166.4 141.8 163.8 653.0 152.0 30.3%

524.1 92.9 137.0 134.5 229.8 594.2 70.1 13.4%

339.7 46.8 88.7 81.7 169.5 386.7 47.0 13.8%

184.4 46.1 48.3 52.8 60.2 207.4 23.0 12.5%

509.7 90.8 132.8 131.0 224.8 579.4 69.7 13.7%

49.6 10.4 10.8 9.0 26.0 56.3 6.7 13.5%

9.5% 11.2% 7.9% 6.7% 11.3% 9.5% 0.0%

– 382.4 – 139.8 – 138.0 – 145.6 – 163.7 – 587.1 – 204.7 – 53.5%

– 394.2 – 90.0 – 119.4 – 140.9 – 181.1 – 531.3 – 137.1 – 34.8%

– 14.3 – 11.6 – 8.7 – 13.2 – 0.6 – 34.0 – 19.7 – 137.8%

196 Ü B E R B L I C K

K O N Z E R N L A G E B E R I C H T

K O N Z E R N A B S C H L U S S

S E R V I C E G l o s s a r

Glossary Business Terms

C A S H F L O W . The flow of liquid funds

generated in a period, less significant non-

cash expenses and income.

C A S H F L O W S T A T E M E N T . Statement on

the changes in liquidity and cash flows,

which takes into account the sources and

uses of the funds.

C A S H V A L U E . Cash value (also: present

value) is the value a future cash flow has

today. Cash value is calculated by discount-

ing future payments.

C O N T R O L C O N C E P T. The inclusion of

companies in the consolidated financial

statements takes place in accordance with

IAS 27 based on the control concept. Control

exists when Tognum AG, either directly or

indirectly via subsidiaries, holds more than

half of the voting rights of a company.

Control also exists when Tognum AG is able

to determine the financial and business

policy or has the power to appoint or remove

a majority of the members of the executive

and/or supervisory boards.

C O R P O R A T E G O V E R N A N C E . Responsible

corporate management and controls focus-

ing on long-term value creation.

D E F E R R E D T A X E S . In accordance

with IAS 12, deferred taxes are recognised

for temporary differences between the

carrying amounts of an asset or liability in

the tax base and in the IFRS balance sheet.

In addition, deferred tax assets are also to

be recognised for tax losses carried forward,

provided that tax credits result in the fol-

lowing years from the anticipated use of

existing tax losses carried forward.

D I V I D E N D S . A portion of a company’s

profits that is paid to the shareholders

usually once a year. The amount paid divided

by the number of outstanding shares results

in the dividend per share, which can be paid

in cash or shares, or consist of a payment in

kind.

D I V I D E N D Y I E L D . The dividend expressed

as a percentage of the share price. The

dividend yield for the financial year 2009

amounts to 2.3 per cent (based on the price

of our share on the date of the Annual

General Meeting on 18 May 2010 [€ 15.50]).

D&O I N S U R A N C E . The directors and

officers insurance covers the personal liabil-

ity risks of the members of the executive

board, the supervisory board and the man-

aging directors.

E A R N I N G S P E R S H A R E . The earn-

ings per share are calculated by dividing the

consolidated net income to which the

shareholders of Tognum AG are entitled by

the weighted number of outstanding shares

in the period under review (1 January 2008 to

31 December 2010: 131,375,000 shares; 1

January to 31 December 2007: 125,902,123

shares). The weighted number of out-

standing shares was affected by the change

from the former Tognum Group Holding

GmbH to Tognum AG. In accordance with

IAS 33.64, the no-par-value shares resulting

from the change to Tognum AG were con-

sidered retrospectively for the purpose of

calculating the earnings per share for all the

previous periods, i.e. under consideration of

no-par-value shares from 2007.

E B I T. Earnings before interest and taxes;

operating earnings before interest and taxes

that are used to assess the earnings situa-

tion of the company. EBIT represents the

operating earnings before the financial and

investment results.

E B I T D A . Earnings before interest, taxes,

depreciation and amortisation.

E Q U I T Y M E T H O D . In accordance with IAS

28, associated companies are accounted for

using the equity method. An associated

company is one in which Tognum AG has a

significant influence and is neither a sub-

sidiary nor part of a joint venture. When the

equity method is applied, the shares held in

the associated company are initially recog-

nised at their acquisition cost. In subse-

quent valuations, the book value of the

shares in the associated company will in-

crease or decrease in relation to Tognum

AG’s share of the profit for the period or will

decrease by the dividend payments received

from the associated company.

F A I R V A L U E . Fair value is the amount

for which knowledgeable, willing parties are

prepared to exchange or settle a liability in

an arm's length transaction. Generally

speaking, the fair value of an asset can be

regarded as its market value, if such a value

exists for the asset under consideration.

F R E E F L O A T. Shares that are not held by

majority shareholders and can be purchased

and traded by the public. As at 31 December

2010, the free float shares of Tognum

amounted to over 70 per cent.

G O O D W I L L . The value of the company

after deducting the value of the assets, i.e.

in the case of a commercial business this

primarily covers all the relationships to other

companies and customers. See >PPA and >

Impairment Test.

H E D G I N G T R A N S A C T I O N S . The

purpose of hedging is to protect against

interest and/or currency risks of individual or

multiple business transactions. Offsetting

against such risks can be provided in the

form of derivative financial instruments.

C

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197

I F R S / I A S . The International Financial

Reporting Standards/International Account-

ing Standards are internationally accepted

standards to provide an international com-

parison of different consolidated financial

statements and to fulfil the information and

transparency expectations of investors and

other readers of financial statements. The

individual standards of the IFRS are known

as IAS.

I M P A I R M E N T T E S T. The > goodwill dis-

closed in the balance sheet is subject to an

impairment test at least once a year. See

> PPA.

I N T E R E S T S W A P. An interest swap in-

volves exchanging a variable interest pay-

ment for a fixed interest payment. Tognum

AG uses interest swaps to manage the risks

arising from changes in the interest rates of

its liabilities to banks.

J O I N T V E N T U R E . Pursues long-term

strategic corporate goals and can be either a

temporary alliance of autonomous compa-

nies or a newly formed international joint

venture company, e.g. for production, sales

or research purposes.

L I F E - C Y C L E C O S T S . The term refers

to all costs for the

acquisition and throughout the entire ser-

vice life.

M A R K E T C A P I T A L I S A T I O N . The

market price of a publicly traded company. It

is determined by multiplying the value of

the share by the total number of shares.

M O N T E C A R L O M E T H O D . A stochastic

method used to determine the fair value of

a phantom share from the LTIC scheme. This

is done by stochastically simulating the

performance of the earnings per share (EPS)

of the Tognum share and that of the MDAX

over the term of the plan. The calculated

value is then used to determine the number

of shares to be paid out at the end of each

three-year performance period or the payout

value for the beneficiary at the end of the

subsequent one-year holding period.

N E T W O R K I N G C A P I T A L . See >

Working Capital.

P U R C H A S E P R I C E A L L O C A T I O N

( P P A ) . The purchase price allocation de-

scribes the distribution of the acquisition

costs of a business combination to the

identifiable assets, liabilities and

C O N T I N G E N T L I A B I L I T I E S O F T H E

( A C Q U I R E D ) S U B S I D I A R Y C O M P A N Y.

It involves the initial disclosure of the lowest

possible goodwill of a newly acquired com-

pany less the company’s assets (remeasured

at fair value) in the current balance sheet.

The basis for this is the acquisition method

pursuant to IFRS.

Any other company assets or their purchase

price (after the deduction of goodwill) are

depreciated on the balance sheet as higher

valued assets. To eliminate the effect of the

appreciation in the value of goodwill to date

(of the newly acquired companies) in the

calculation of profits and losses, the actual

company profits or losses generated are

determined on the basis of the original, i.e.

likewise actual value basis.

The goodwill that is recognised on the

balance sheet as part of the first consolida-

tion but not subsequently amortised sys-

tematically is subject to an > impairment

test at least once a year. If this reveals that

the net present value from the discounted

annual > cash flows is lower than the assets

disclosed in the balance sheet, the goodwill

is impaired first.

R A T I N G . Periodically recurring stan-

dardised risk and creditworthiness assess-

ment of issuers and the securities issued by

them. The rating is performed by specialised

rating agencies.

R O N A ( R E T U R N O N N E T A S S E T S ) .

When presenting the total return on capital,

we use RONA as the performance indicator,

with net assets reflecting the tied up inter-

est-bearing capital in the Tognum Group. At

group level, net assets are derived from

disclosures on the liabilities side and include

the following items: equity, provisions for

pensions and interest-bearing borrowed

capital less cash and cash equivalents. This

gives us the amount of capital employed,

which we then place as an average value1 in

relation to our key performance indicator of

operating profit – the adjusted EBIT. The

resulting RONA is offset against the Group’s

cost of capital.

S E M I - A M E R I C A N C A L L O P T I O N O F

A B E R M U D A T Y P E . Tognum AG has intro-

duced a special share-based remuneration

programme for members of management

that represents an actuarial, semi-American

call option (to be exercised within a fixed

period of time) of the Bermuda type (to be

exercised on several predetermined dates).

S Y N D I C A T E D L O A N . A syndicated loan is

provided jointly by several banks on a pro

rata basis. Tognum AG has taken out a

syndicated loan with a bank consortium to

cover the Group’s financial requirements.

W O R K I N G C A P I T A L . This ratio is

calculated by deducting the current liabili-

ties from the current assets. Tognum also

calculates the net working capital (= inven-

tories plus trade receivables, less trade

payables and payments on account).

1 (Level at the beginning of the year + Level at the end

of the year)/2

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198 Ü B E R B L I C K

K O N Z E R N L A G E B E R I C H T

K O N Z E R N A B S C H L U S S

S E R V I C E G l o s s a r

Glossary Technical Terms

A D E C (Advanced Diesel Engine Control)

= electronic engine control, monitoring and

safety system

A F T E R S A L E S . See > MTU_ValueCare.

A U T O M A T I O N . MTU uses the term to

describe the electronic control and monitor-

ing of the performance of diesel engines,

propulsion and drive systems, and their

incorporation in the automation systems of

vehicles or ships.

C O M B I N E D H E A T A N D P O W E R

( C H P ) . Refers to a system in which heat

produced in the generation of power with

gas engines, for example, is used as process

heat or for heating purposes. This means

that the fuel can be used very efficiently.

C O M M O N R A I L I N J E C T I O N . Common rail

injection is a fuel injection system designed

to inject fuel under high pressure into the

cylinders from a common distribution line

(common rail). This enables common rail

technology to deliver multiple injections,

plus injection quantities and pressures

regardless of the engine speed. Common rail

injection is used primarily in diesel engines.

The main purpose of using this technology

is to optimise the combustion process to

achieve further improvements in engine

running characteristics and a further reduc-

tion in emissions, while reducing fuel con-

sumption.

D I E S E L E N G I N E . An internal combus-

tion engine that operates on the principle

developed by Rudolf Diesel. The characteris-

tic feature is that the injected fuel ignites

spontaneously in the hot, compressed

combustion air.

E P A T I E R 1 , 2 , 3 A , 4 I A N D 4 .

Emission guidelines specified by the United

States Environmental Protection Agency

(EPA).

E U S T A G E I I I A A N D I I I B . European

emission guidelines to reduce pollutants in

exhaust emissions from off-highway appli-

cations See > EPA Tier 1, 2, 3a, 4i and 4.

E X H A U S T A F T E R T R E A T M E N T. Exhaust

aftertreatment covers all the methods used

to remove pollutants from combustion

gases. These primarily include > diesel

particulate filters, > SCR catalytic convert-

ers and oxidation catalysts.

E X H A U S T G A S R E C I R C U L A T I O N . In

exhaust gas recirculation, some of the

exhaust gases are returned to the fresh air

intake in the part-load range. The resultant

mixture of fresh air and exhaust gas has a

lower calorific value in terms of the volume

and is thus unable to reach the temperature

required in the combustion chamber to

produce nitrogen oxide (NOx).

F U E L I N J E C T I O N S Y S T E M S . Inject

the fuel into the combustion chamber of the

engine.

G A S E N G I N E . Internal combustion

engines that use hydrogen, natural gas,

liquid petroleum gas, biogas or special gases

as fuels and have combustion chambers

with pistons, in which the combustion of the

fuel takes place by means of spark plugs or

by spontaneous ignition.

G A S T U R B I N E . Internal combustion engine

in which air is compressed as it passes

through the blading of one or more com-

pression stages and is finally mixed with a

gaseous fuel in a combustion chamber,

where it is ignited and burned. Thermal

energy is generated in this process, which is

converted into mechanical energy in the

turbine. This can be used to drive a genera-

tor, a compressor, a pump or a thrust jet.

G E N D R I V E E N G I N E S . Diesel engines and

gas engines used to drive a generator for the

generation of electric power are known

within MTU as gendrive engines.

G E N S E T. Engine-generator set to provide

power generation independent of a power

grid. Gensets are available as stationary and

mobile units and can be used as emergency

power, continuous power and peak demand

units.

H Y B R I D D R I V E S Y S T E M . The term

refers to a combination of different drive

principles or different energy sources de-

signed to perform a drive task within an

application. In the most popular form of

hybrid drive systems, the internal combus-

tion engine is supported by an electric motor

that operates as a generator in braking

mode and stores, in rechargeable batteries,

the recovered energy that would otherwise

be lost in the form of heat dissipated to the

braking system (regenerative braking).

I N - L I N E E N G I N E . Internal combus-

tion engine, the cylinders of which are

arranged in a single line. This design princi-

ple is used for most car engines and many

engines in commercial vehicles. The advan-

tages of an in-line engine are its smooth

running characteristics and the relatively

simple design. Drawbacks are the space

required and the limited number of cylinders

possible.

M I L L E R P R O C E S S . The Miller cycle is

used to achieve low NOx emissions during

the combustion process. In the Miller cycle,

the inlet valves are closed earlier than is

usually the case in the combustion process,

which results in lower combustion tempera-

tures and subsequently leads to lower NOx

emissions from the engine.

A

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M T U _ V A L U E C A R E . The Tognum Group

markets its range of after sales services and

products under the term MTU_ValueCare.

These include maintenance, training and

technical documentation, for example, plus

the sale of spare parts and consumables.

O N S I T E E N E R G Y. Refers to the com-

pany’s business in onsite energy systems for

the generation of electric power, heat and

cooling. In the Tognum Group’s product

portfolio, these include diesel gensets for

emergency power, base load and peak load

applications, plus CHP plants for the co-

generation of heat and power based on gas

engines or gas turbines. All onsite energy

solutions were combined under the »MTU

Onsite Energy« brand in 2008.

O N S I T E E N E R G Y S Y S T E M S . Tognum

markets onsite energy systems under the

MTU Onsite Energy brand. They include

diesel gensets for emergency power, base

and peak load applications and CHP plants

for combined heat and power generation

based on gas engines or gas turbines. A key

feature of these systems is their location in

close proximity to the consumer.

P A R T I C U L A T E F I LT E R ( D I E S E L ) .

Used to reduce particulates (soot particles

and unburned hydrocarbons) present in the

exhaust emissions of diesel engines.

P O W E R P A C K ® . Compact solution for the

drive system. In addition to an internal

combustion engine, it contains a transmis-

sion system, a generator, a hydraulic, cooling

and filter system, as well as other compo-

nents, all of which are integrated into a

single drive unit mounted on a common

frame. It provides a lot of power with a very

small footprint. MTU produces PowerPacks®

for railcars and military vehicles.

P O W E R S H I F T. An engine’s response to

changing loads.

P U M P - L I N E - N O Z Z L E I N J E C T I O N S Y S -

T E M . The pump-line-nozzle injection

system is a fuel injection system used for

internal combustion engines. Unlike the

common rail system, the injection pressure

in the pump-line-nozzle injection system is

generated separately for each cylinder. The

unique feature of the system is the provi-

sion of a fuel injection pump for each cylin-

der with a very short pressure line to the

fuel injection nozzle.

R E M A N U F A C T U R I N G . During a

remanufacturing process, engines or engine

components are reconditioned. At the end

of this process, these engines or engine

parts have properties and specifications

comparable to those of new engines or new

parts.

S C R C A T A LY T I C C O N V E R T E R . See >

Selective Catalytic Reduction.

S E L E C T I V E C A T A LY T I C R E D U C T I O N

( S C R ) . Refers to a method used to mini-

mise NOx particulates in exhaust emissions.

An aqueous urea solution is injected into the

exhaust gas upstream of the SCR catalytic

converter, resulting in the production of

ammonia and carbon dioxide. In the SCR

catalytic converter, the ammonia produced

in this way reacts with the NOx particulates

in the exhaust gas to produce water and

nitrogen.

S E R V I C E . See > MTU_ValueCare.

T U R B O C H A R G E R . The power output

of an internal combustion engine can be

increased with the use of a turbocharger.

Driven by the flow of exhaust gases from

the engine, the turbocharger forces addi-

tional air into the combustion chamber to

provide more efficient combustion.

V - E N G I N E . In a V engine, the cylinders

are arranged in two rows to form a V. Next

to the in-line engine, the V-engine is the

most common engine design in use today.

O

P

R

S

T

V

200O V E R V I E W



S T A T E M E N T S

S E R V I C EContact | Imprint

Contact | Imprint

ContactInvestors and Analysts Phone +49(0)7541903318Fax +49(0)7541903328E-mail [email protected]

Media RepresentativesPhone +49(0)7541903989Fax +49(0)7541903918E-mail [email protected]

Customers E-mail [email protected]

Human Resources E-mail [email protected]

forWard-looKing statements and otHer information.Thisannualreportcontainsforward-lookingstate-mentsthatarebasedonmanagement’scurrentestimatesoffuturedevelopments.SuchstatementsaresubjecttorisksanduncertaintiesthatTognumcannotcontrolorpreciselyestimate.Theseincludee.g.futuremarketconditionsandtheeconomicenvironment,thebehaviourofothermarketparticipants,thesuccessfulintegrationofnewacquisi-tionsandtherealisationofanticipatedsynergyeff ectsaswellasmeasurestakenbygovernmentbodies.Ifoneoftheseorotheruncertaintiesorfactorsemergeoriftheassumptionsonwhichthesestatementsarebasedprovetobeincorrect,theactualresultscouldmateriallydeviatefromtheresultsexplicitlystatedorimplicitlycontainedinthesestatements.Tognumisneitherexpected,norshallTognumacceptspecialresponsibilityforupdatingforward-lookingstatementstoadjustthemtotheeventsordevelopmentsafterthedateofthisreport.Fortechnicalreasons(e.g.con-versionofelectronicformats)therecanbediff erencesbetweentheaccountingdocumentscontainedinthisannualreportandtheonepublishedintheelectronicFederalGazette.Inthiscase,theeditionsubmittedtotheelectronicGer-manFederalGazetteisconsideredtheauthoritativeedition.TheannualreportisatranslationoftheoriginalGerman-languagedocument;intheeventofdeviations,theGermanversiontakesprecedenceovertheEnglishtranslation.Theannualreportisavailableinbothlanguagesonlineunderhttp://www.tognum.comfordownload.

PHotos: AnjaKöhler(S.4,8/9,11),GettyImages(S.16/17,50/51,64/65,108/109),Shutterstock(S.78/79)concePt and design: 3stkommunikation,Mainz

Allrightsreservedandtechnicaldatasubjecttoalteration.PrintedinGermany.Copyright©2011.Thiscompanyreportwaspublished10March2011.

Imprint Tognum AktiengesellschaftMaybachplatz188045FriedrichshafenGermanyPhone +49(0)75419091Fax +49(0)75419097www.tognum.com

glob

al

pres

ence Financial Calendar 2011








Germany

Phone +49 (0) 75 41 90 91

Fax +49 (0) 75 41 90 97

www.tognum.com


Ann

ual R

epor

t 201

0To

gnum

AG












15 mm212 mm195 mm 213 mm 190 mm

key

figu

res

glob

al

pres


INEURMIL L ION 2007 2008 2009 20102009/2010

Changes

Orderintake 3,107 3,230.6 2,330.4 2,830.5 21.5%

Revenues 2,835 3,133.1 2,529.4 2,563.6 1.4%

AdjustedEBITDA 457 481.7 287.5 341.7 18.9%

as%ofrevenues 16.1% 15.4% 11.4% 13.3%

AdjustedEBIT 390 406.9 198.6 242.1 21.9%

as%ofrevenues 13.8% 13.0% 7.9% 9.4%




Dividendineuro 0.60 0.70 0.35 0.502 42.9%


Totalassets 2,361 2,554.2 2,469.3 2,745.7 11.2%

Equityratio3 22.7% 26.3% 27.6% 26.8%



R&Dexpenses5 168 183.1 202.7 192.6 –5.0%

Freecashflow6 52 64.8 223.6 199.4 –10.8%


















australiaSydney



Detroit|USA

Mankato|USA


marine


industrial


oil & gas


defense




gas systems


injection systems


after sales


segment engines


22 % Asia/Pacific

9 % Othercountries



EUR2,563.6MILLION


15 mm 212 mm 195 mm213 mm190 mm

key

figu

res

glob

al

pres


INEURMIL L ION 2007 2008 2009 20102009/2010

Changes

Orderintake 3,107 3,230.6 2,330.4 2,830.5 21.5%

Revenues 2,835 3,133.1 2,529.4 2,563.6 1.4%

AdjustedEBITDA 457 481.7 287.5 341.7 18.9%

as%ofrevenues 16.1% 15.4% 11.4% 13.3%

AdjustedEBIT 390 406.9 198.6 242.1 21.9%

as%ofrevenues 13.8% 13.0% 7.9% 9.4%




Dividendineuro 0.60 0.70 0.35 0.502 42.9%


Totalassets 2,361 2,554.2 2,469.3 2,745.7 11.2%

Equityratio3 22.7% 26.3% 27.6% 26.8%



R&Dexpenses5 168 183.1 202.7 192.6 –5.0%

Freecashflow6 52 64.8 223.6 199.4 –10.8%


















australiaSydney



Detroit|USA

Mankato|USA


marine


industrial


oil & gas


defense




gas systems


injection systems


after sales


segment engines


22 % Asia/Pacific

9 % Othercountries



EUR2,563.6MILLION


15 mm 212 mm 195 mm213 mm190 mm









Germany

Phone +49 (0) 75 41 90 91

Fax +49 (0) 75 41 90 97

www.tognum.com


Ann

ual R

epor

t 201

0To

gnum

AG












15 mm212 mm195 mm 213 mm 190 mm

Documents

Financial Calendar 2011 - mtu Solutions