Annual Report Investors Tognum AG by ihuangpingba

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									Annual Report 2010   Engines are our driving force
                                                                                                  key figures




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.
» For more than 100 years, we have
  been driven by the fascination for
  off-highway engines to reach the
  heights of technological achieve-
  ment. With a strategy geared to
  long-term growth, our innovative
  power and technological strength,
  we have set our sights on achieving
  profitable growth – today and
  tomorrow.«
 Volker Heuer | Chairman of Tognum AG
Key Figures of the Tognum Group
                                                                                                                                     2009/2010
IN E UR MIL L IO N                                                    2007               2008              2009             2010       Changes


Order intake                                                         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 %
Adjusted EBI T DA                                                       457             481.7              287.5           341.7         18.9 %
      as % of revenues                                              16.1 %             15.4 %            11.4 %           13.3 %
Adjusted EBI T                                                         390              406.9              198.6           242.1         21.9 %
      as % of revenues                                              13.8 %             13.0 %              7.9 %           9.4 %
Adjusted consolidated net income                                       199              264.3              121.3           159.2         31.2 %
Adjusted earnings per share in euro 1                                  1.58              2.01               0.92            1.21         31.5 %
Dividend payout                                                          79                 92                46             662         42.9 %
Dividend in euro                                                       0.60              0.70               0.35            0.502        42.9 %
Market capitalisation at the end
of the financial year                                                 2,708            1,182.4            1,524.0          2,592.0        70.1 %
Total assets                                                         2,361            2,554.2            2,469.3          2,745.7        11.2 %
Equity ratio 3                                                      22.7 %             26.3 %             27.6 %          26.8 %
Net financial debt                                                      294              335.8              192.2            57.2       – 70.2 %

Investments in property, plant and
equipment and intangible assets 4                                      140              172.6              141.7           152.8          7.8 %
R D expenses 5                                                         168              183.1              202.7           192.6         – 5.0 %
Free cash flow 6                                                          52              64.8              223.6           199.4       – 10.8 %
Employees (end of year)                                              8,179              8,929              8,726           9,046          3.7 %




                                                                                                                                    Asia/Pacific
North America (NAFTA)                 23 %

                                                                                                                                Other countries


Europe without Germany                28 %
                                                                                                                                      Germany


                                                                EUR 2,563.6 MILLION




1
    Earnings per share are determined on the basis of the weighted average number of shares outstanding;
    125,902,123 in 2007; 131,375,000 in 2008, 2009 and 2010
2
    Subject to approval at the general shareholders’ meeting on May 11, 2011
3
    Ratio of shareholders’ equity to total assets
4
    Excluding additions to the group of consolidated companies resulting from acquisition of companies
5
    Development expenditure, capitalised development costs and development activities paid for by third parties
6
    Free cash fl ow is comprised of the cash fl ow from operating activities and the cash fl ow from investment activities
The Tognum Group




                                                                                                                                                            key figures
The Tognum Group is a combination of powerful brands. With the MTU brand
in the Engines division and the MTU Onsite Energy and L’Orange brands in the
Onsite Energy Components division, as well as Mercedes Benz and Detroit Diesel,
Tognum covers a broad range of applications.




                                                                                   &

Our engines and propulsion sys-         The development and production         Our range of engines and power        High-torque and exceptionally
tems are used in ships operated by      of diesel traction systems for rail-   generation systems developed          reliable MTU powertrains for
coast guards and other govern-          way trains is one of the core skills   specifically for the oil and gas in-   armoured personnel carriers, self-
ment bodies as well as in work-         of MTU . Other application sectors:    dustry for pumps, compressors         propelled howitzers, transporters
boats and luxury yachts. With           mining, harbour equipment, mo-         and fire extinguishing equipment       and specialised military vehicles.
its innovation power, reliability and   bile cranes and construction and       on oil and gas rigs prove their       Detroit Diesel two-stroke en-
system engineering capabilities,        agricultural machinery. Distribu-      qualities day in and day out in the   gines for heavy military trucks.
MTU has unique propulsion system        tion of Mercedes Benz and Detroit      toughest conditions anywhere
expertise.                              Diesel engines in the power range      in the world.
                                        up to 500 kilowatts.




                                   &




                      &



MTU Onsite Energy diesel engines        Modular combined heat and power        Electronically controlled high-       MTU sees itself as a reliable global
and systems for generating backup       (CHP ) plants based on gas en-         pressure fuel injection systems       partner for the after sales ser-
power in an emergency, covering         gines. They save primary energy        made by L’Orange (common-rail         vice needs of its clients in all ap-
power demand peaks and provid-          resources and run on climate-          fuel injection) designed specifi-      plication areas, off ering rapid
ing decentralised continuous            neutral regenerative fuels such as     cally for large-scale diesel en-      and expert onsite assistance: dur-
power. The diesel gensets are dis-      biogas, sewage gas and landfill         gines in order to achieve low ex-     ing normal operation, for pre-
tinguished in particular by their       gas.                                   haust emissions, efficient fuel         ventive maintenance, for corrective
outstanding reliability and effi -                                               consumption and long engine life.     repairs, for changes in deploy-
ciency and their low emissions.                                                                                      ment conditions and the supply of
                                                                                                                     spare parts.
6
Overview

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                                     Contents




                                     Overview                             04   Group Management report                 18
                                     04 Chairman’s letter                       20   Company Profile
                                     08 Tognum AG’s executive Board             31   Business and General
                                     10 report of the Supervisory Board              Background Conditions
                                     14 Highlights 2010                         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
                                                                                             3




Consolidated Financial
Statements                            110      Service                                 192
112   Consolidated Statement of                192     Figures at a glance 2007-2010
      Comprehensive income                     196     Glossary
113   Consolidated Statement of Cash Flows     200     Contact | imprint
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                        Legend to symbol
190   responsibility Statement
191   Auditor’s report                               Weblink
4
OVERVIEW
Chairman’s letter

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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
                                                                                                                 5




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
6
OVERVIEW
Chairman’s letter

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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 concepts,
                                     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 becom-
                                     ing increasingly more stringent. In the majority of applications in the markets in which we are in-
                                     volved, 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.
                                                                                                              7




   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 Heuer
Chairman and CEO
Tognum AG’s executive Board
Peter Kneipp                             Joachim Coers                            Volker Heuer
In the Executive Board since 1 January   Member of Tognum AG’s Executive          Chairman of Tognum AG’s Executive
2011. Member of Tognum AG’s Executive    Board, CFO , responsible for Corporate   Board, chairman of the Management
Board, responsible for the Engines       Services and Human Resources,            Board of MTU Friedrichshafen GmbH.
divison, member of the Management        Member of the Management Board of        Appointed until 30 September 2011.
Board of MTU Friedrichshafen GmbH.       MTU Friedrichshafen GmbH.
Appointed until 31 December 2013.        Appointed until 30 September 2013.
Dr. Ing. Ulrich Dohle                   Christof von Branconi                    Detailed biographies of
Member of Tognum AG’s Executive         Member of Tognum AG’s Executive Board,   the executive Board members:
Board, responsible for the Technology   responsible for the Onsite Energy        www.tognum.com/company/
Operations division, member of the      Components division, member of the       board-of-management
Management Board of MTU Friedrichs-     Management Board of MTU Friedrichs-
hafen GmbH.                             hafen GmbH.                              Resigned from the Executive Board by
Appointed until 30 April 2014.          Appointed until 28 Februar 2013.         31 December 2010: Rainer Breidenbach


                                                                                 Engine shown in the background:
                                                                                 12V 1600 G60
10
OVERVIEW
report of the Supervisory Board

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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 ended.
                       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-
                     cutive 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.

                                                                                  . 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 individ-
                     ual 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.
                                                                                                                                 11




Rolf Eckrodt
Chairman of the Supervisory
Board of Tognum AG




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
Supervisory 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
details 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
12
OVERVIEW
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                     the 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.

                                                   . 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
                     individual committees and their members is included on page 186 of this annual report.

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

                                                 . e Executive Committee held a total of eleven meetings in 2010. It dealt in depth with the
                     legal 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).

                                          . 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.

                                                  . 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.

                                                . 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




                               . 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 con icts 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 speci c item of the agenda and voluntarily agreed not to be given the associated document and minutes.

                                                          . PricewaterhouseCoopers Aktiengesellscha Wirtscha sprü-
fungsgesellscha , Stuttgart, who were appointed as auditors by the Annual General Meeting, audited the annual and group
 nancial statements as at 31 December 2010, including the combined management report for the 2010 nancial year, and
subsequently issued an unquali ed audit certi cate.

Based on the preliminary nancial statements prepared by PricewaterhouseCoopers Aktiengesellscha Wirtscha sprüfungsge-
sellscha , 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 nancial statements, the
combined management report for the 2010 nancial year and the Executive Board’s proposal for the appropriation of the
net pro t. e audit reports prepared by the auditors and the nancial statements to be examined were presented to each
member of the Supervisory Board in good time. e 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 nancial statements and
raised no objections. e Supervisory Board formally accepted the annual and group nancial statements for the 2010
 nancial year in the Supervisory Board meeting on 7 March 2011. e annual nancial statements are thus approved. A er
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 pro t in the meeting on 7 March 2011.

                                                                            . 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.

   ere was also a change on the Executive Board of Tognum AG in the 2010 nancial year: Rainer Breidenbach resigned
from the Executive Board e ective 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.

   e 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. anks 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 con dence in Tognum AG in the 2010 nancial year just ended.

Friedrichshafen, 8 March 2011

For the Supervisory Board




Rolf Eckrodt
Chairman of the Supervisory Board
14
OVERVIEW
Highlights 2010

GrOUP MANAGeMeNT rePOrT

CON S OL iD AT eD F iN A N C i A L
S TAT e Me N T S

ServiCe




                     Highlights 2010




                                     | DoWn on THe farM (picTure)               | accolaDes                                   | fuTure
                     MTU Onsite Energy Gas Systems use a cow           Tognum is Germany’s »Top Employer 2010«,         Tognum plays host to 125 young people at the
                     in their new campaign that answers to the         having already been awarded the quality seal     »Tognum Youth Future Forum«. The event
                     name of RESIE – RESource-friendly, Intelligent    of approval in 2009 as the »TOP Employer for     enables them to experience how a global com-
                     Energy generation. RESIE provides farmers         Engineers«. One of the reasons why Tognum        pany prepares itself for the challenges of the
                     with information on the effi cient use of bio-      qualifi ed for the award is that it took on 47    future, but also off ers them an opportunity
                     gas with cogeneration plants.                     skilled workers who had just completed their     to present their own ideas for the future.
                                                                       vocational training.
                               | poWer up                                                                                     | TargeTeD
                    Ten gensets supplied by MTU Onsite Energy                    | islanD paraDise (picTure)            At the Annual General Meeting, the Executive
                    secure the emergency standby power supply          In Dubai, on the »Jumeirah Palm Island«, the     Board confirms its forecast for 2010. The
                    in a new medical centre in Calgary (Canada).       Tognum brand MTU Onsite Energy presents          company at this time expects an adjusted
                    Equipped with Series 4000 engines, the             its new family of standard gensets to custom-    EBIT margin of 6 % to 9 % with revenues
                    gensets together deliver 28 megawatts of           ers and partners, who are shown how sudden       of 2.3 to 2.5 billion euros.
                    power and also balance peak loads. They            power failures or energy bottlenecks can be
                    can run up to full load in just ten seconds.       dealt with eff ectively. Engines supplied by            | MoVing aHeaD
                                                                       MTU Onsite Energy have safeguarded the sup-      V-TRAC is the name of the new distributor
                                      | groWTH MarkeT                  ply of electric power and drinking water on      for Tognum’s subsidiary MTU in Vietnam.
                     MTU India’s new corporate headquarters            the island since autumn 2008.                    The agreement with the leading company for
                     is opened in Pune. It includes a development                                                       sales, repair and maintenance will enable
                     centre, training centre and workshop, in                  | conTinuiT y                            MTU to improve its sales and service access
                     addition to providing support for sales and       Change at the top of Tognum is announced:        to the market in South East Asia.
                     after sales. The service and sales network        Joachim Coers, CFO and Deputy Chairman,
                     continues to expand in 2010.                      is to take over as Chairman of the Executive            | spacesHip (picTure)
                                                                       Board from Volker Heuer as of September          A catamaran commissioned by the customer
                                  | bosporus liners                    2011. This ensures continuity of the Executive   to be a »spaceship on water« and designed by
                     Production of cylinder liners for Series 4000     Board’s work.                                    the Porsche Design Group, is powered by
                     engines starts in Istanbul and represents                                                          two Series 4000 MTU engines. Each engine
                     the first large-scale production of engine parts           | WorlD’s firsT                          delivers 3,440 kilowatts to give the catama-
                     outside Friedrichshafen. Ten assembly line        Two Series 2000 MTU engines provide the          ran a top speed of 35 knots.
                     workers and two service technicians are em-       propulsion for the world’s first SWATH wind
                     ployed in production.                             farm tender, a vessel designed specifi cally
                                                                       for the supply and maintenance of off shore
                                                                       wind farms. The propulsion system is con-
                                                                       trolled by MTU ’s Callosum ship automation
                                                                       system.
                                                                                                                                                15




      | faMily-frienDly (picTure)                                | eXpansion                                   | DeVelopMenT
Tognum and its largest subsidiary MTU            Tognum and China North Industries Group Cor-      At the BioEnergy Decentral trade fair, MTU
Friedrichshafen are recertifi ed as family-       poration (Norinco) open an engine and gen-        Onsite Energy GmbH Gas Power Systems
friendly companies.                              set facility in Datong. The joint venture will    presents gensets and cogeneration modules
                                                 assemble large MTU diesel engines emer-           equipped with the new Series 4000 biogas
      | business in russia                       gency power supply gensets.                       engines for outputs of between 770 and
Tognum and a Russian government working                                                            2,000 kilowatts.
group sign a letter of intent for the joint                    | pioneer
production and sale of engines for Russia.       Tognum’s subsidiary MTU Friedrichshafen                         | neW faciliT y (picTure)
Moreover, MTU closes a contract with             presents forward-looking drive solutions          The new engine production facility in Aiken in
Russian train manufacturer Metrowagonmash        at the Innotrans trade fair for transport tech-   the US State of South Carolina goes into
for the delivery of over 100 PowerPacks.         nology. Besides the new generation of             operation: the plant will assemble Series 2000
                                                 Series 4000 engines, the newly developed          and 4000 engines primarily for the US mar-
      | neW recorD                               Series 1600 engine is also on show. Both          ket. Parts production in Aiken is scheduled to
Tognum subsidiary L’Orange produces its          already meet the EU Stage III B emission regu-    start in spring 2011. The higher value added
500,000th fuel injector. The event marks a       lations that will come into force as from         in the USA increases the chances for obtaining
new production record for the manufacturer       2012. MTU is performing trials with a hybrid      American public contracts.
of high-pressure fuel injection systems for      drive system installed in a railcar in collab-
diesel and heavy oil engines.                    oration with a Deutsche Bahn subsidiary.                        | successor
                                                                                                   Peter Kneipp succeeds Rainer Breidenbach as
         | Turbogas                                         | generaTing poWer                     member of the Tognum Executive Board.
Tognum delivers two gas turbine plants with      An Indonesian textile manufacturer takes          Breidenbach, member of the Executive Board
an estimated value of over 40 million euros      delivery of eight cogeneration plants sup-        responsible for the Business Unit Engines,
to two German energy providers. The turbines     plied by the Tognum brand MTU Onsite Energy.      at his own request leaves the company at the
are highly effi cient, off er fl exible power        They are driven by 20-cylinder gas engines.       end of year to take early retirement. Kneipp,
output and are designed to meet the specifi c                                                       former head of MTU Asia, takes up his new
needs of the customers.                                      | MTu To THe rescue (picTure)         role as of 1 January 2011.
                                                 An engine manufactured by Tognum’s sub-
          | efficienT                            sidiary MTU powers the drill rig used to                        | fareWell
Tognum’s subsidiary MTU Friedrichshafen          rescue 33 Chilean miners trapped at a depth       Tognum announces to discontinue its fuel cell
starts construction of a new materials man-      of 700 metres. The Series 2000 12- cylinder       activities for stationary power generation.
agement centre in the Friedrichshafen district   engine is in continuous operation. After 69       Under the current market and financing con-
of Kluftern. Beginning in 2012, it will supply   days, all of the 33 men are brought safely to     ditions that are evident worldwide, it has
production in Friedrichshafen and other loca-    the surface.                                      become clear that this business will not be
tions with parts and will replace several                                                          commercially viable in the medium term.
external storage areas.                                                                            The resultant one-time charge has no impact
                                                                                                   on the adjusted results for the year 2010.
onsiTe energy




                »   e demand for energy is increasing
Onsite energy systems
                 worldwide. As is the demand
                 for e cient onsite energy systems.«
are a source of growth
                    Kevin McKinney | regional Sales Manager, MTU Onsite energy Mankato




for us.
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.




                     Large 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
Group Management
Report


  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
     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
Items in this report may contain differences between individual figures and the resultant totals due to rounding.
20
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                      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
             Annual revenues of       Today, Tognum is one of the world’s leading providers of high-speed diesel engines and complete propulsion
             2,563.6 million euros    systems for ships, drive systems for heavy agricultural and rail vehicles, and industrial drives (off-highway
             and 9,046 employees
                                      applications); Tognum’s product portfolio also includes onsite energy systems. In the 2010 financial year,
             worldwide
                                      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.

             Rich product portfolio   PROD UC T PO RT FOLIO.   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.
                                                                                                                                                                     21
                                                                                                                                                                     21




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

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




                                                                     Photo	Siemens	AG




                                                                                                                                                             ©	KMW
marine                               industrial                                         oil & gas                             defense systems
-	 Yachts                            -	 Railcars                                           O
                                                                                        -	 	 nshore                              L
                                                                                                                              -	 	 ight	and	medium-weight	
-	 Commercial	vessels                -	 Agricultural	equipment                          -	 Offshore                              military	vehicles

-	 Vessels	for	public	authorities    -	 	 onstruction	equipment,		
                                        C                                               -	 	 echanical	drives,	e.	g.	pumps	
                                                                                           M                                  -	 Heavy	military	vehicles
                                        industrial	applications                            fire	extinguishing	systems	and	
                                     -	 	 ining
                                        M                                                  drilling	units



segment onsite energy & components




diesel systems &                                                                         
engines                              gas systems                                        injection systems
-	 Emergency	standby	systems         -	 Base-load	plants                                   H
                                                                                        -	 	 igh-speed	engines

-	 Base-load	plants                  -	 Peak-load	plants                                -	 Medium-speed	engines

-	 Peak-load	plants



GROUP STRUCTURE.                Tognum continues to develop its corporate and brand strategy. Under the corporate
umbrella of the U R E . Tognum continues to develop its corporate and brand strategy. Under the into the
G R O U P S T R U C T Tognum AG strategic holding company, the business activities are broken downcorporate
following three Tognum segments – holding Onsite Energy & Components (OE& broken down into the
umbrella of the reportingAG strategic Engines, company, the business activities are C) and Distribution.
following three and measurement – Engines, Onsite of the & Components (OE&C) and Distribution.
Internal controlreporting segmentsof the performanceEnergy individual segments is carried out by the
Internal control and measurement of the performance decision maker with the aid of adjusted EBIT
Executive Board of Tognum AG as the chief operating of the individual segments is carried out by the
figures. External reporting in accordance with IFRS 8 decision maker with the based on this segment
Executive Board of Tognum AG as the chief operating »Operating Segments« is aid of adjusted EBIT
figures. External reporting the legal entities to the three reporting segments is based in this segment
structure. The allocation ofin accordance with IFRS 8 »Operating Segments«is shown on the diagram
below:
structure. The allocation of the legal entities to the three reporting segments is shown in the diagram
below:
22
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                   O V E RV 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 AT E D C O M PA N I E S
                                   A S AT 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.

             Diverse application   The engines are used in a variety of application areas with different operational requirements. These are
             areas                 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).

                                   ONSITE ENERGY & COMPONENTS.        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
                                                                                                                                                            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.

FU RTH ER DE VE LOPME NT O F TH E SEGM ENT S TRUCT UR E AS O F 201 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                                       Enlarged group of
consolidated companies of Tognum AG and one company is no longer included in the Group. The sub-                                        consolidated
                                                                                                                                        companies
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.

                      Effective 31 October 2009, Tognum AG completed the sale of its Propeller Shaft unit,
S T R AT E G I C F O C U S .
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.
24
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                      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.

             Monitoring of all        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
             factors that enable us   indicator system, we monitor all the factors that will enable us to achieve our goals. These include our
             to achieve our goals
                                      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 RV I E W O F K E Y P E R F O R M A N C E I N D I C ATO R S




             Revenue increase of at   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
             least 10% expected       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.
                                                                                                                                        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.

                                                               A rolling forecast of sales/revenues at product
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 .
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.

                                Beyond the purely monetary aspects of corporate management and the
C U S T O M E R S AT I S FA C T I O N .
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.

                            Satisfied and motivated employees are vital to the company and are of prime
E M P L O Y E E S AT I S FA C T I O N .                                                                                 Increased employee
importance for achieving our corporate goals. For this reason, we attach great importance to the con-                   satisfaction
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 AT E G I C G R O W T H I N I T I AT 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
26
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                      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.

             Systematic               Our portfolio of gensets based on MTU diesel engines, which is marketed worldwide, begins in the lower
             development of           range with the recently introduced Series 1600 engine, which delivers a power output of approx. 210
             additional markets
                                      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.

             Overall efficiency       Our portfolio of gas-based gensets consists of Series 400 and Series 4000 engines with power outputs
             increased to over 90%    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.

             Individual solutions     Business involving gas turbines purchased from General Electric, which covers the power range from
             designed to meet         approx. 20 to 50 megawatts, is another key pillar of our onsite energy activities. Our customers place
             customers‘ specific
                                      great value on the high efficiency ratings of the gas turbines and their flexible power adaption character-
             needs
                                      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.

             Growth through           PROPULSION.    In the supply of propulsion systems for ships, drive systems for the oil and gas industry,
             further expansion of     rail and industrial applications, and for military vehicles, we have for decades had a traditionally strong
             our strong position in
                                      position on the market, based on the high quality of our products, our consultancy expertise, the long-
             propulsion and drive
             systems
                                      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.
                                                                                                                                27




In the marine sector, our propulsion systems are valued for their high level of reliability and their excel-   Propulsion systems for
lent product features. In addition to the traditionally strong segments, such as government contract           commercial vessels
                                                                                                               offer interesting
business and challenging yacht applications, in which we have a competitive edge as a result of our ability
                                                                                                               growth potential
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-       Hybrid PowerPack in
tions. Since 1996, for example, Tognum has delivered more than 4,000 PowerPacks for rail applications          development stage
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-         Series 4000 for
porting year. It benefited primarily from high-volume deliveries of Series 4000 engines to US OEM part-        onshore applications
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.
28
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




             Expansion of business   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
             activities              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.

             Generating growth       In future, we will also generate growth with telemetry products and services. To this end, we launched
             with telemetry          our new »Remote Services« product onto the market in 2010. This enables our customers to transmit
             products and services
                                     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.

             New engines comply      PROD UC T PO RT FOLIO.   The fourth pillar of our growth strategy is the continuing development of our
             with much tougher       product portfolio. A key element of this is the new Series 1600 engine, which we have been supplying in
             emission regulations
                                     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
                                                                                                               29




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.

PROD UC T PO RT FOLIO SH OWIN G POWER R ANG ES


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.
30
OVERVIEW

GROUP MANAGEMENT REPORT
Company Profile | Business and General
Background Conditions

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                         REGIO NAL E XPANSION.      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.

              Increased efficiency       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.

              Relocation of US           The relocation of the US assembly lines for our Series 2000 and 4000 engines from Detroit/Michigan to
              assembly lines             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
              Significant reduction      For planned investments and for possible future acquisitions, the Tognum Group has sufficient liquid
              in net financial debt      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.
                                                                                                                                         31




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%).

GROWTH OF GLOBAL ECONOMY                                                                       Source: Global Insight

2007                                                                                            + 3.9%
2008                                                             + 1.4%
2009   - 2.2%
2010                                                                                            + 4.0%




The emerging countries were among the most important pillars supporting the global economic devel-                      Emerging countries –
opment. Strong domestic economies in these areas resulted in growth; countries exporting raw materials                  vital pillars of
                                                                                                                        global economic
also benefited from the sharp rise in commodities prices again on the stock markets. The Chinese na-
                                                                                                                        development
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%.

GROWTH OF US ECONOMY                                                                           Source: Global Insight

2007                                                                            + 1.9%
2008                                              0.0%
2009   – 2.6%
2010                                                                                           + 2.9%




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%.
32
OVERVIEW

GROUP MANAGEMENT REPORT
Business and General
Background Conditions

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                    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.

                                    GROSS DOMESTIC PRODUCT IN GERMANY                                                                 Source: Global Insight

                                    2007                                                                                     + 2.8%
                                    2008                                                                 + 0.7%
                                    2009    – 4.7%
                                    2010                                                                                                + 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.

             German mechanical      The German mechanical engineering industry recovered noticeably in the course of 2010; this recovery
             engineering industry   was evident in almost all areas of the industry. Orders received rose in 2-digit figures compared with
             recovered during
                                    2009. Especially strong new order growth rates were achieved by industry players in the first half-year,
             the 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%.
                                                                                                                                        33




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

 80
 60
 40
 20
  0
– 20
– 40
– 60
– 80

        2007                           2008                           2009                       2010




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                 High-speed
the 150 kilowatt to 10 megawatt power range. The main competitors of Tognum are Caterpillar, Cum-                      diesel engines from
                                                                                                                       150 kilowatts to
mins and MAN Diesel.
                                                                                                                       10 megawatts

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.              Strong
This surprisingly positive development coming in the wake of the severe collapses seen in 2009 was                     economic growth in
                                                                                                                       BRIC countries
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.
34
OVERVIEW

GROUP MANAGEMENT REPORT
Business and General
Background Conditions

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                     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.

             Sharp increase in       Commodities markets saw a very sharp price hike for the reporting year of 2010. Prices of many metals
             prices on commodities   almost reached the peak levels of 2008, and copper and zinc climbed even higher. Mining production
             markets
                                     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.
                                                                                                                                 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.

                                                            With its product portfolio, the Tognum Group
ECO N O M I C A N D L EG A L FAC TO R S A F F E C T I N G B U S I N E S S .                                   Tognum is less
covers numerous application areas and is represented in a large number of markets worldwide. For this         vulnerable to negative
                                                                                                              trends on the
reason, primarily in its key sales regions of Europe, America and Asia, it cannot be completely decoupled
                                                                                                              individual markets due
from economic developments on the individual markets. However, since we maintain a broadly diversi-           to its application and
fied product portfolio and our business is spread evenly worldwide, our group of companies is compara-        regional diversification
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         Supplier risk
primary materials are high-grade steel, cast products, semi-finished products, aluminium alloys in addi-      management enables
                                                                                                              responses to change
tion to other metals and alloys. Mineral oil (diesel) and electricity are also important. Most of the pri-
                                                                                                              to be made in good
mary materials relevant for our costs increased in price compared with the previous year as a result of the   time
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.
36
OVERVIEW

GROUP MANAGEMENT REPORT
Business and General Background
Conditions | Income, Assets and Financial
Position of the Tognum Group

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                            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 AT I O N T O T H E E U R O

                                            1.70
                                            1.60
                                            1.50
                                            1.40
                                            1.30
                                            1.20
                                            1.10

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




                                            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
              Forecast met                  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%.

              Overall economic              KEY EVENTS AFFECTING OUR BUSINESS PERFORMANCE.               The economic turnaround resulted in stable
              situation and exchange        sales revenues and a strong increase in new orders (additional information on the order intake is pro-
              rate with respect to
                                            vided in the section entitled »Segments« beginning on page 52). A key influence on our business per-
              the US dollar have a
              positive impact
                                            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.

                                                                                                                     In the 2010 financial year, we
                                            CO M PA R I S O N O F AC T UA 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 .
                                            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.
                                                                                                                                 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-     Product and market-
ing the Rotorion activities, which were sold as at 31 October 2009, the increase would have been 6.0%. At       driven goals met
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               Investments secure
increase in adjusted expenditure for research and development of 15.3% to 164.5 million euros (previous         technology leadership
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
TOGNUM GROUP
IN EUR MILLION                                                  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%
38
OVERVIEW

GROUP MANAGEMENT REPORT
Income, Assets and Financial Position
of the Tognum Group

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




              Increase in                                 The order intake of the Tognum Group was up 21.5% in 2010 to 2,830.5 million euros
                                        O R D E R I N TA K E .
              order intake              (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 TA K E
                                        In EUR million                                                      2007 – 2009 including Rotorion Group    2009 without Rotorion Group

                                        2007                                                                                                            3,107
                                        2008                                                                                                                 3,230.6
                                        2009
                                                                                                                    2,330.4
                                                                                                                2,220.1
                                        2010                                                                                                2,830.5




                                        REVENUES.    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.

                                        REVENUES
                                        In EUR million                                                      2007 – 2009 including Rotorion Group    2009 without Rotorion Group

                                        2007                                                                                                2,835
                                        2008                                                                                                             3,133.1
                                        2009
                                                                                                                             2,529.4
                                                                                                                         2,419.1
                                        2010                                                                                    2,563.6




                                        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.

                                        REVENUES BY REGION

                                                                      29.5%         Europe w/o Germany              27.6%

                                                                       7.9%         Other countries                   8.6%

                                                                      19.9%         Asia/Pacific                     22.1%

                                                                       19.1%        Germany                          18.7%

                                                                      23.5%         North America (NAFTA)           22.9%
                                                     2009                                                                                                 2010
                                                                                                                                                             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%).

ADJUSTED EBIT
In EUR million                                                                        2007 – 2009 including Rotorion Group     2009 without Rotorion Group

2007                                                                                                                 390
2008                                                                                                                         406.9
2009
                                                           198.6
                                                           197.5
2010                                                                  242.1




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

TOGNUM GROUP: EBIT ADJUSTMENT
IN EUR MILLION                                                                                                    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
OVERVIEW

GROUP MANAGEMENT REPORT
Income, Assets and Financial Position
of the Tognum Group

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




              Improved adjusted          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
              gross profit margin        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.

                                         ADJUSTED GROSS PROFIT
                                         In EUR million                                                                         Adjusted cost of sales   Adjusted gross profit (margin)

                                                      2,132                                                                   703 (24.8%)
                                         2007                                                                                                               2,835
                                                      2,345.3                                                                         787.8 (25.2%)
                                         2008                                                                                                                               3,133.1
                                                      1,905.1                                                         624.3 (24.7%)
                                         2009                                                                                                  2,529.4
                                                      1,859.3                                                       704.2 (27.5%)
                                         2010                                                                                                   2,563.5




                                         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).

                                                                 To present the total return on capital, we use the key performance indicator
                                         R E T U R N O N C A P I TA L .
                                         »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.

              At 19.6%, clearly above    Applying the average net assets amounting to 1,236.2 million euros and the adjusted EBIT of
              the cost of capital rate   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
                                                                                                                                                      41




CHANGES IN COSTS AND PRICES.         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 AT E D S TAT E M E N T O F F I N A N C I A L P O S I T I O N
ASSETS
IN EUR MILLION                                                                                         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


LIABILITIES
IN EUR MILLION                                                                                         31 Dec. 2009   31 Dec. 2010


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-                               First-time
dated statement of financial position as at 31 December 2010 includes additional assets amounting to                                 consolidation
                                                                                                                                     of Turkish companies
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).
42
OVERVIEW

GROUP MANAGEMENT REPORT
Income, Assets and Financial Position
of the Tognum Group

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                        ASSET STRUCTURE                                                                   Cash and cash equivalents    Current assets     Non-current assets

                                                   2.6% 56.1%                                               41.3%
                                        2007                                                                                                               2,361
                                                   2.2% 56.4%                                                    41.4%
                                        2008                                                                                                                            2,554.2
                                                   4.7% 48.1%                                            47.2%
                                        2009                                                                                                                      2,469.3
                                                   8.8%        48.7%                                                42.5%
                                        2010                                                                                                                                      2,745.7




              Net working capital       Net working capital3 was down primarily as a result of the increase in trade payables and advance pay-
              down                      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 TA L
                                        In EUR million

                                        2007                                                                                                            769
                                        2008                                                                                                                                   908.6
                                        2009                                                                                                   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
                                                                                                                                                                                   43




LIABILITY STRUCTURE                                                                                      Equity   Financial liabilities     Other debt capital

           22.7%                    18.0%              59.3%
2007                                                                                                                      2,361
           26.3%                          19.3%                  54.4%
2008                                                                                                                                      2,554.2
           27.6%                           15.3%            57.1%
2009                                                                                                                              2,469.3
           26.8%                             13.6%            59.6%
2010                                                                                                                                                2,745.7




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.

                                                                             In accordance with IAS 19.92,
E F F E C T S O F A CCO U N T I N G D I S C LO S U R E S O N T H E F I N A N C I A L S I T UAT I O N .
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.

NON-DISCLOSED FINANCIAL INSTRUMENTS.              We use leasing agreements for property, our vehicle fleet                                                      Use of leasing
and IT systems to limit the investment of capital and investment risks. In the year under review, new                                                            agreements for
                                                                                                                                                                 property, the vehicle
leasing agreements were concluded, e.g. for the new Tognum administration building and for multi-level
                                                                                                                                                                 fleet and IT systems
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 TAT 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 AT I O N O F
                        We pursue a permanent accounting policy. Compared with the previous year 2009,
T H E T O G N U M G R O U P.
the exercise of voting rights remained unchanged.
44
OVERVIEW

GROUP MANAGEMENT REPORT
Income, Assets and Financial Position
of the Tognum Group

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                        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.

                                        TOGNUM GROUP: CASH FLOW
                                        IN EUR MILLION                                                              2009                   2010          Change


                                        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            Cash flow from operating activities amounting to 342.4 million euros was 10.4% below the level of the
              operating activities      previous year (previous year: 382.3 million euros); however, it continues to remain on a high level. The
              remains at a high level
                                        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.

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

              Ground-breaking           In 2010, we mainly purchased production and production-related plant and equipment, in addition to
              ceremony for materials    special-purpose equipment for new products and engines. The regional focus was on North America,
              management centre in
                                        where we set up a new assembly and manufacturing plant in the US State of South Carolina. In the third
              Friedrichshafen
                                        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
                                                                                                                                                                           45




INVESTMENTS
In EUR million                                                                                                     Tangible assets    Intangible assets

             101                                                    39
2007                                                                                           140
             127.0                                                                     71.4
2008                                                                                                                                        198.4
             101.2                                                  40.5
2009                                                                                            141.7
             113.7                                                      39.1
2010                                                                                            152.8



NET FINANCIAL DEBT
In EUR million                                            Net financial debt   Funded status pension commitments    Unrecognised actuarial gains/losses

             294                                              319                                                                       71
2007

                                          335.8                    319.9                                                                78.3
2008

             192.2                                331.5                                                                              72.5
2009
             57.2                 353.2                                                                                                 46.5
2010




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.

                       The term of our syndicated loan amounting to 450 million euros and 260 million
C R E D I T FAC I L I T I E S .                                                                                                                           Syndicated loan runs
US dollars runs until July 2013. The loan agreement contains certain framework conditions, such as the                                                    until July 2013
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.
46
OVERVIEW

GROUP MANAGEMENT REPORT
Income, Assets and Financial Position of
the Tognum Group | Management Report
on the Individual Financial Statements of
Tognum AG prepared in accordance with
the German Commercial Code (HGB)

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                            Overall Statement on the Business Situation
                                            by the Executive Board
              2010 – a transition year      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.
                                                                                                                              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 TAT E M E N T
A S AT 3 1 D E C E M B E R 2 0 1 0
IN EUR MILLION                                                              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
OVERVIEW

GROUP MANAGEMENT REPORT
Management Report on the Individual
Financial Statements of Tognum AG
prepared in accordance with the
German Commercial Code (HGB)

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




              Increased personnel     The result was negatively affected by general administration costs amounting to 83.4 million euros (pre-
              costs                   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 TAT 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 AT 3 1 D E C E M B E R 2 0 1 0
                                      ASSETS
                                      IN EUR MILLION                                                                                        31 Dec. 2009              31 Dec. 2010


                                      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
                                         Cash and cash equivalents                                                                                    94.5                      196.5
                                                                                                                                                    287.1                       368.7


                                      Prepaid expenses                                                                                                 0.0                         0.0
                                      Deferred taxes                                                                                                   0.0                       23.9
                                      Total assets                                                                                                1,296.9                      1,376.2


                                      LIABILITIES
                                      IN EUR MILLION                                                                                        31 Dec. 2009              31 Dec. 2010


                                      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
                                      Total equity and liabilities                                                                                1,296.9                      1,376.2
                                                                                                                                    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         Equity ratio of 58.2%
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.
 propulsion sysTeMs




»Tognum stands for bundled expertise
 Tailor-made system
 and key technologies in the eld of
 engine design, electronics, turbocharg-
 solutions are a source
 ing, fuel injection and propulsion.«
 Cornelia Friedrich | Application Center Marine, MTU Friedrichshafen


 of growth.
                                        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.




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




»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
52
OVERVIEW

GROUP MANAGEMENT REPORT
Segments

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                            Segments
                                                                   5




                            Our business activities include the following segments –
                            Engines, Onsite Energy & Components (OE&C) and Distribution.


                            Engines
                            OVERVIEW OF THE ENGINES SEGMENT
                            IN EUR MILLION                                                               2009                    2010                      Change


                            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%
                            EBIT Margin (adjusted EBIT/revenues)                                         8.1%                  10.6%




           High growth in                     At 1,860.7 million euros (previous year: 1,507.7 million euros), the order intake in 2010
                            O R D E R I N TA K E .
           Oil & Gas        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 TA K E E N G I N E S
                            In EUR million

                            2007                                                                                                                  2,081
                            2008                                                                                                                   2,095.6
                            2009                                                                                  1,507.7
                            2010                                                                                                      1,860.7



                            REVENUES ENGINES
                            In EUR million

                            2007                                                                                                         1,915
                            2008                                                                                                                 2,052.5
                            2009                                                                                            1,680.5
                            2010                                                                                               1,758.1




                            5
                                All data include intersegment relations, i.e. transactions between the segments
                                                                                                                                    53




REVENUES.    Segment revenues amounted to 1,758.1 million euros in the reporting period and were thus              4.6% growth in
4.6% above the level of the previous year (1,680.5 million euros). A decline in revenues in the Marine             revenues
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.

REVENUE DISTRIBUTION ENGINES

                                       33.6%   Marine                      29.0%

                                       38.4%   After Sales/Other           39.2%

                                        2.5%   Oil & Gas                    4.1%

                                       10.7%   Defense                      5.3%

                                       14.8%   Industrial                  22.5%
               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
OVERVIEW OF THE ONSITE ENERGY & COMPONENTS SEGMENT
IN EUR MILLION                                                     2009             2010              Change


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%
EBIT Margin (adjusted EBIT/revenues)                               3.8%             4.4%




                 The order intake increased in 2010 by 28.4% to 903.8 million euros (previous year:
O R D E R I N TA K E .                                                                                             Order intake up 28.4%
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.
54
OVERVIEW

GROUP MANAGEMENT REPORT
Segments

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                          O R D E R I N TA 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                                                                        2007 – 2009 including Rotorion Group   2009 without Rotorion Group

                          2007                                                                                                                         960
                          2008                                                                                                                                 1,036.6

                          2009
                                                                                                                   704.1
                                                                                                       593.8
                          2010                                                                                                                 903.8




                          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.

                          REVENUES ONSITE ENERGY & COMPONENTS
                          In EUR million                                                                        2007 – 2009 including Rotorion Group   2009 without Rotorion Group

                          2007                                                                                                             878
                          2008                                                                                                                               1,014.6
                          2009
                                                                                                                    719.1
                                                                                                        608.8
                          2010                                                                                          742.6




                          REVENUES.    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.

                          REVENUE DISTRIBUTION ONSITE ENERGY & COMPONENTS

                                                                   5.3%            OE Gas & Fuel Cell Systems             6.6%

                                                                 50.8%             OE Diesel Systems & Engines          60.3%

                                                                  16.7%            Injection Systems                    20.6%

                                                                   7.8%            After Sales                           12.4%

                                                                  19.4%            Propeller Shafts
                                      2009                                                                                                                   2010
                                                                                                                     55




EARNINGS PERFORMANCE.        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
OVERVIEW OF THE DISTRIBUTION SEGMENT
IN EUR MILLION                                                2009                   2010                   Change


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%
EBIT Margin (adjusted EBIT/revenues)                          9.5%                   9.5%




                  Compared with the same period in the previous year, the order volume increased sig-
O R D E R I N TA K E .
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 TA K E D I S T R I B U T I O N
In EUR million

2007                                                                                                  674
2008                                                                                561.3
2009                                                                     501.0
2010                                                                                                653.0



REVENUES.   The segment’s revenue volume was up 13.4% in the reporting period to 594.2 million euros
(previous year: 524.1 million euros).

REVENUES DISTRIBUTION
In EUR million

2007                                                                       523
2008                                                                                        601.5
2009                                                                        524.1
2010                                                                                    594.2




EARNINGS PERFORMANCE.          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
OVERVIEW

GROUP MANAGEMENT REPORT
Research and Development

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                   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   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.

                                   ADJUSTED R&D ACTIVITIES
                                   In EUR million                                 Adjusted development expenditures   Capitalised development costs    Paid development activities

                                           92                                          25                51
                                   2007                                                                                                       168
                                           110.4                                                    33.6                   39.1
                                   2008                                                                                                                    183.1
                                           142.7                                                                          32.1                      27.9
                                   2009                                                                                                                                202.7
                                           164.5                                                                                        9.6         18.5
                                   2010                                                                                                                        192.6
                                                                                                                                   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           87 patent applications
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           Internal engine
during the combustion process. For this reason, back in the 1980s, MTU began to reduce engine emissions.         optimisation to
                                                                                                                 comply with
With the perfect combination of key technologies that had been developed and produced in-house, such
                                                                                                                 emission limits
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.
58
OVERVIEW

GROUP MANAGEMENT REPORT
Research and Development

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                    Products
            Meeting customers’      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
            specific requirements   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.




            Newly developed         SERIES 2000.   The key focus in the development of the new Series 2000 is on the future 12- and 16-cylinder
            engine management       engines for the C&I and Oil & Gas application areas; these engines will comply with the future US EPA
            system
                                    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.
                                                                                                                                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   Reduced fuel
customers now have an 8V, 12V and 16V workboat engine with low fuel consumption and very long service           consumption
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.




SERIES 8000.   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           Engine continues
a propulsion system that has been designed to meet particularly challenging requirements. The engines,          to operate in an
                                                                                                                environment
the development of which we have now successfully completed, are certified by German Lloyd and have
                                                                                                                contaminated with
now completed sea trials, with the result that the vessel was able to enter service in the North Sea on 1       explosive gases
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.
60
OVERVIEW

GROUP MANAGEMENT REPORT
Research and Development |
The Tognum Share

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




             Further development     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
             of the Series 1163      propulsion systems of both civil and government vessels, such as catamaran ferries and coast guard ships.
             engine to meet IMO II
                                     Tognum also continues to develop these new generations of engines to meet future emission standards.
             and III
                                     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.

             Debut of first Series   Another highlight in 2010 was the debut of the first Series 4000 biogas engine at the »EURO TIER« trade
             4000 biogas engine      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.
                                                                                                                                                        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                                       Inauguration of the
the Indian city of Pune on 28 September 2010 with an official ceremony. It is the first time a design and                              new research and
                                                                                                                                       development centre
calculation department has been set up outside the Group head office in Friedrichshafen/Germany. This
                                                                                                                                       in India
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 TA I LS O F T HE TO G 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


PERFORMANCE OF THE MARKETS.           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%.
62
OVERVIEW

GROUP MANAGEMENT REPORT
The Tognum Share

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                    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.

                                    TO G N U M S H A R E P E R FO R M A N C E CO M PA R E D W I T H M DA X 2 0 1 0
                                    Indexed, from 2 January to 30 December 2010 based on the Xetra daily closing price                               Tognum-Share     MDAX

                                    180
                                    160
                                    140
                                    120
                                    100
                                        80

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




            Market capitalisation   Market capitalisation at the end of 2010 was up 70.1% to 2.592 billion euros (previous year: 1.524 billion
            up 70.1% to 2.592       euros). The average daily trading volume amounted to 475,000 shares (previous year: 443,000). The most
            million euros
                                    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                                                      1,182
                                    2009                                                                     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.

                                    SHAREHOLDING STRUCTURE.       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.
                                                                                                                                         63




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



Free float, incl.                    < 75%                                                       > 25%   Daimler AG
- Top Management                      ~ 6%
  (Supervisory Board and
  Executive Board members)
- ING Groep, Netherlands              > 5%
- First Eagle Investment
  Management, USA                     > 3%
- BlackRock, USA                      > 3%



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              Dividend policy
Supervisory Board will propose that a dividend of 0.50 euros per share be paid for the 2010 financial year            remains stable
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.

                         Transparent communications and open dialogue with our investors and analysts
I N V E S T O R R E L AT I O N S .
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                 Additional up-to-date
determine the day-to-day business of our investor relations team (IR). The Executive Board also invests a             information for
                                                                                                                      investors available at:
lot of its time maintaining contact with institutional investors. Last year, the Executive Board together
                                                                                                                      http://investors.
with the IR-team had numerous meetings with individual investors and presented the company through                    tognum.com
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                                     Contact
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:       ir@tognum.com                                      E-mail:       pr@tognum.com
Internet: http://investors.tognum.com                            Internet: http://www.tognum.com
afTer sales business




Service solutions isare forpart of theand
              »Remote diagnostics
               systems an integral
                                     engines


a source of growth,all over the world.« er
               all-round service package we o
               to customers
because they allow our Mirko Butscher | Product Support, MTU Onsite energy,
                                        Gas Power Systems, Augsburg



customers to focus
on their core business.
                                              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.


in modern biogas plants, cogeneration units
from MTU Onsite energy are frequently used.
afTer sales business




                       »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
66
OVERVIEW

GROUP MANAGEMENT REPORT
Corporate Governance Report

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                      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«

             Further information      SHAREHOLDERS AND ANNUAL GENERAL MEETING.               The shareholders of Tognum AG exercise their rights
             relating to our Annual   prior to or during the Annual General Meeting within the possibilities available to them as provided by the
             General Meeting on
                                      Articles of Association of the company. In accordance with Section 20 (1) of the company’sArticles of
             our website
                                      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
                                                                                                                                                     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           Five members of the
two persons. It currently has five members, four of whom have international experience due to extended                           Executive Board
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.

SUP ERVIS ORY B OARD.    The Supervisory Board of Tognum AG, in accordance with the legal provisions,                            Supervisory Board
consists of six representatives each of both the shareholders and the employees. It supervises and advises                       consists of six
                                                                                                                                 representatives each
the Executive Board in managing the company’s business and appoints the members of the Executive Board.
                                                                                                                                 of both the
All members of the Supervisory Board perform their duties with due diligence. The Supervisory Board                              shareholders and the
determines on a regular basis whether any conflicts of interest have arisen with respect to its members in                       employees
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.

                                                                                               Key princi-
R E S P O N S I B L E C O - O P E R AT 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 RV I S O RY B O A R D .   Goal: sustainable
ples of good corporate governance include an efficient working relationship between members of the                               increase in
                                                                                                                                 shareholder value
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.
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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.

             Group financial        FINANCIAL REPORTING AND AUDITING.             The group financial statements for the Tognum Group are
             statements according   prepared in accordance with the principles of the International Financial Reporting Standards (IFRS ).
             to 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.

                                    DIAGRAM OF COMPLIANCE MANAGEMENT SYSTEM IN THE TOGNUM GROUP
                                                                                                                               69




Remuneration Report
In accordance with Item 4.2.5 and Item 5.4.6 of the German Corporate Governance 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.

                                The total remuneration for the members of the Executive Board is speci-
R E M U N E R AT I O N S T R U C T U R E .
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    New target
a new target remuneration structure took place for these members. However, since the entire Executive         remuneration
                                                                                                              structure based on
Board voluntarily agreed to waive any change in the basic remuneration and variable remuneration in the
                                                                                                              sustainable corporate
2010 financial year (in the case of a 100% achievement of target), for all practical purposes the new remu-   governance
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«).
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                              The following applies for the reporting period:

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

                              -                                      The amount of the success-related component (variable remunera-
                                  S U C C E S S - R E L A T E D C O M P O N E N T.
                                  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




                                Tognum AG has for a long time pursued the goal now codified by the
L O N G -T E R M R E M U N E R A T I O N .                                                                                                        Long-term
legislature, of basing the remuneration structure on sustainable corporate development. The long-term                                             remuneration of
                                                                                                                                                  the Executive Board
remuneration of the Executive Board is based on the Long-Term Incentive Concept, a share-based re-
                                                                                                                                                  based on the LTIC
muneration concept (known as the LTIC programme). This is a remuneration concept that includes                                                    programme
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«.

FRINGE BENEFITS.     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 OA R D R E M U N E R AT I O N ( I N D I V I D UA L I S E D ) F O R 2 0 1 0 :
                                                                                                                  Long-term                     Long-term
                                   Fixed remuneration                   Success-related remuneration           remuneration      Subtotal    remuneration          Total
                                                                                                                                                 Acquired
                                                                                                                     Dividend                  share from
                                                                                                                   equivalent                        LTIC:
                                                                                                    Share in             2010                2008 – 2012,
                                           Basic              Fringe         Variable              corporate   (cash payment    Total cash   2009 – 2013,
IN EUR                              remuneration            benefits     remuneration                success       from LTIC)    payment     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 OA R D R E M U N E R AT I O N ( I N D I V I D UA L I S E D ) F O R 2 0 0 9 :
                                                                                                                  Long-term                     Long-term
                                   Fixed remuneration                   Success-related remuneration           remuneration      Subtotal    remuneration          Total
                                                                                                                     Dividend                    Acquired
                                                                                                                   equivalent                  share from
                                                                                                    Share in             2009                        LTIC:
                                           Basic              Fringe         Variable              corporate   (cash payment    Total cash   2008 – 2012,
IN EUR                              remuneration            benefits     remuneration                success       from LTIC)    payment     2009 – 2013


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
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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    Allotted number of                          Allotted number of   Allotted values as   Allotted number of
                                                  at 31 Dec. 2009        phantom shares         Allotted values      phantom shares      at 31 Dec. 2010       phantom shares
                                                           in EUR     as at 31 Dec. 2009        in 2010 in EUR               in 2010              in EUR    as at 31 Dec. 2010


             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    Allotted number of                          Allotted number of   Allotted values as   Allotted number of
                                                  at 31 Dec. 2008        phantom shares         Allotted values      phantom shares      at 31 Dec. 2009       phantom shares
                                                           in EUR     as at 31 Dec. 2008        in 2009 in EUR               in 2009              in EUR    as at 31 Dec. 2009


             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




PENSION COMMITMENTS FOR EXECUTIVE BOARD MEMBERS:
IN 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).

                                      Each member of the Supervisory Board is entitled to receive a
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.
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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                              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.

                                                                           The variable remuneration consists of a basic annual amount
                              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.
                              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 RV I S O RY B O A R D R E M U N E R AT 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
                                                                                                                       Overall
                                                      Remuneration           Attendance             Other       performance:                                Other
                                             Fixed    for committee              fee for      (withholding       amount paid      Virtual credit 1    (withholding
IN EUR                                    payment           activities         meetings               tax)           for 2010      (bonus bank)               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 RV I S O RY B O A R D R E M U N E R AT I O N ( I N D I V I D U A L I S E D ) F O R 2 0 0 9 :
                                                                                                Success-related
                                                          Fixed remuneration                    remuneration                                      Total
IN EUR                                                              Salary            Other 1           Royalty             Other 2


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.
76
OVERVIEW

GROUP MANAGEMENT REPORT
Corporate Governance Report

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                              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 E CU T I VE B O A R D M E M B E 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 RV I S O RY B OA R D A N D E X EC U T I V E B OA R D O F T H E TO 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.

                                                                           Executive Board and Supervisory Board members are com-
                              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.
                              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




                                     Both the Executive Board and the Supervisory Board wish to strengthen
CO M P R E H E N S I V E I N F O R M AT I O N .                                                                                       www.tognum.com
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:

                                                                   Financial instrument   Type of       Price per share   Number of
T R A D E DAT E    Name                 Reason for disclosure      and ISIN               transaction           in EUR       shares


                                                                   Tognum share
25 June 2010       Dr. Jutta Nübel      Supervisory Board member   DE000A0N4P43           Purchase               15.80        1,260
                   BJC Equity KG                                   Tognum share
10 Aug. 2010       Joachim Coers        Executive Board member     DE000A0N4P43           Sale                   15.75      750,000
                                                                   Tognum share
09 Nov. 2010       Rudolf Eckrodt       Supervisory Board member   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).
 proDucT porTfolio




 We are growing because
»We’re o ering solutions today that
 comply with the emission stand-
 we offer our customers
 ards that will be in force in 2012
 and consume even less fuel.«
 the best solutions for
 Geo Bailey | Manager industrial Markets, MTU Detroit Diesel Australia




 the future.
                                                            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.




MTU ’s Series 4000 engines for rail applications that are
being produced today are already configured to meet
tomorrow’s emission standards. As a result of their high
efficiency and long service life, they lead to a significant
reduction in operating costs.
 proDucT porTfolio




»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.«
 Geo Bailey | Manager industrial Markets, MTU Detroit Diesel Australia
80
OVERVIEW

GROUP MANAGEMENT REPORT
Employees

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                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 AT E D C O M PA N I E S ) :
                                EMPLOYEES BY REGION
                                                                                                      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%




            532 new employees   As at 31 December 2010, 9,046 employees (previous year: 8,726 employees), trainees and interns in-
            appointed by the    cluded, were employed, of which 6,013 were employees at Friedrichshafen. The 57.6% increase in per-
            Tognum Group
                                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.
                                                                                                                                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,             Competence model
and a competence model tailored to the Tognum Group’s management levels was developed. The model              for the management
                                                                                                              levels
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            Tognum employee
three-year planning and construction phase, has been on its planned trip to our international locations       yacht for personnel
                                                                                                              development
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          Comprehensive and
role in 2010. We aim to secure our competitiveness and develop it further through the sustainable pro-        targeted further
                                                                                                              education for our
motion and further development of the potentials and capacities of our staff, as it is only as a learning
                                                                                                              employees
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).
82
OVERVIEW

GROUP MANAGEMENT REPORT
Employees | Sustainability Report

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                     Health Promotion
              Health is a            The health and well-being of our employees are the best prerequisites for their performance, satisfaction
              prerequisite for       and innovativeness. Healthy and capable employees are the foundation of productivity and efficiency in
              performance
                                     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
              Intensive engagement   If you want to go successfully into the future, you had best take part in its design. We follow this principle
              in the promotion of    not only when developing new products and markets but also when competing for the management and
              young professionals
                                     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.
                                                                                                                                 83




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        Commitment to the
and the environment. To lay the foundation for this, Tognum is committed to the ten principles of the         principles of the Global
                                                                                                              Compact
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      Sustainability aspects
and ecological self-image is strategically anchored in its own guideline: »We assume corporate and social     anchored in the
                                                                                                              guideline
responsibility and continuously improve the environmental track record of our products and locations«.
84
OVERVIEW

GROUP MANAGEMENT REPORT
Sustainability Report

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                        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.

              Proven standards –        In the operational implementation of measures, established management systems for environmental
              worldwide                 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.

              Continuous                This leads to a continuous improvement process. The main drivers for this are global megatrends such as
              improvement process       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.

              Responsibility along      At Tognum, we keep our eye on sustainability at all levels of our value creation chain: from research and
              the entire global value   development to purchasing, logistics and production, right through to marketing, sales and maintenance,
              creation chain
                                        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
              Responsibility            Our products are used in areas which have a direct effect on people and the environment. For instance,
              throughout the entire     they provide hospitals and power plants with emergency electricity, thereby ensuring their safety. They
              product lifecycle
                                        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
                                                                                                                                           85




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                   Engines meet the
during the combustion process: nitrogen oxides (NOx), hydrocarbons (HC) and particulate matter (PM).                     strictest emissions
                                                                                                                         requirements
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                       Environmentally
emissions as low as possible. If internal engine technologies such as exhaust gas recirculation and dual-                friendly technologies
                                                                                                                         reduce the emission of
stage charging are not enough, the after treatment of exhaust gases comes into play. Diesel particulate
                                                                                                                         pollutants
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.               Clean gas engines rely
Our gas engines work with both natural gas and biogas. The latter belong to the regenerative fuels which                 on climate-neutral
                                                                                                                         regenerative energies
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                  Alternative drive with
packages from diesel and electric engines promise to become a successful solution. On braking these                      hybrid technology
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-                    Flexible solutions for
tries, time and again lead to supply gaps which need to be bridged in the short term. If the requirement is              rapidly growing energy
                                                                                                                         requirements
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         Protecting resources
not only ensure stability of value and security of investment, but also handle resources with care. We                   and securing value
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
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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 FA C T U R I N G




                                              4     The	spare	part	is	subsequently	                                1   W
                                                                                                                       	 hen	a	customer	buys	a	spare	part	
                                                     
                                                    sold	as	a	remanufactured	or	                                       from	the	MTU _ValueExchange	
                                                    »Reman«	part.                                                      portfolio,	a	core	deposit	is	included	
                                                                                                                       in	the	price.




                                              3     In	the	Reman	Centre,	the	used	                                 2   When	he	returns	the	used	part	
                                                     
                                                    part	(core)	is	refurbished	based		
                                                                                                                        
                                                                                                                       (core)	to	Tognum’s	core	collection	
                                                    on	a	standardised	process.                                         centre,	it	is	initially	inspected		
                                                                                                                       to	see	if	it	meets	the	acceptance		
                                                                                                                       criteria.	If	this	is	the	case,	the		
                                                                                                                       core	deposit	is	reimbursed.




              Selecting suppliers       PURCHASING AND SUPPLIER MANAGEMENT.               We aim for a long-term and reliable partnership with our
              according to              suppliers, who make an important contribution to our value creation chain. We expect from them that
              sustainability criteria
                                        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
              Group-wide key                                            Quality, environmental protection as well as occupational health and
                                        P R O D U C T I O N A N D A S S E M B LY .
              indicator system          safety will go hand in hand at Tognum in the future. We are thus currently developing an integrated
              developed
                                        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.
                                                                                                                                                                                         87




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

E N V I RO N M E N TA L CE RT I F I C AT I O N S I N ACCO R DA N C E W I T H I S O 1 4 0 0 2 , VA L I D U N T I L M AY 2 0 1 3


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                                                               Self-produced
and heat. At the two factories in Friedrichshafen, cogeneration power plants with MTU Onsite Energy                                                                   electricity and heat for
                                                                                                                                                                      the factory buildings
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                                                                   Vehicle fleet
heavy trucks of MTU Logistics have a modern exhaust cleaning system (BlueTECdiesel technology) and                                                                    management
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                                                                 Centralised materials
which was started in 2010, will make an important contribution to ensuring that the logistics structures                                                              management centre
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.
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                                       Social Responsibility to our Employees
              Top Employer in          Approximately 9,000 people and their families are behind the Tognum Group and its companies. Fluc-
              Germany 2010             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).

              Securing employment      SECURE WORKPLACES.     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.

              International            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
              education according to   extensive customer and product support,and as a research technology company with distinctive expertise
              the German example
                                       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.

              Occupational health                                                Tognum places high value on maximum safety and occupational
                                       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 .
              and safety               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.
                                                                                                                                 89




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       Donations and
the donation and sponsoring activities for the entire Tognum Group. The guidelines prescribe the correct      sponsorships
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                Lake Concstance
environmental and nature protection projects at Lake Constance. In the past year, the foundation offered      Grant from MTU’s
                                                                                                              environmental
a grant for 2011 amounting to 20,000 euros. A research project by the Institute for the »Physiological
                                                                                                              foundation
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-             Karl Maybach-Hilfe
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.
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Takeover Directive Implementation Act

CONSOLIDATED FINANCIAL
STATEMENTS

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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:

                                                                                   The subscribed capital of Tognum AG amounts to
                                        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 TA L .
                                        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.

             No limitations with        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          respect to voting rights or the transfer of shares. The underwriting agreement and lock-up agreement
             rights or the transfer
                                        concluded on the same day between the consortium banks, Tognum AG, and the issuing shareholder, in
             of shares
                                        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.
                                                                                                                                                           91




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 TA L A N D T H E I R C O N T R O L
                                         There are no employees who have invested in the capital of the
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.
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 RT I C L E S O F A S S O C I AT I O N R E L AT I N G T O T H E   Executive Board
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 AT I N G T O           members appointed
                                                                                                                                         by the Supervisory
                                               The appointment and dismissal of members of the
C H A N G E S T O T H E A RT I C L E S O F A S S O C I AT I O N .
                                                                                                                                         Board for no more
Executive Board is governed by Sections 84 and 85 of the German Stock Corporation Law and Section 31                                     than five years
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                                     Amendment to the
Association requires a resolution of the Annual General Meeting. Authorisation to make changes that                                      Articles of Association
                                                                                                                                         requires resolution of
affect the wording of the amendment only, in accordance with Section 23 of the Articles of Association,
                                                                                                                                         the Annual General
is transferred to the Supervisory Board. The Supervisory Board, in accordance with Article 5.4 of the                                    Meeting
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).
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Declaration on Corporate Governance

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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.

              Tognum authorised to        At the ordinary Annual General Meeting held on 18 May 2010, the company was authorised to acquire
              acquire and make use        and the Executive Board to make use of own shares. The authorisation to acquire own shares is valid
              of its own shares
                                          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 PA R E N T C O M PA N Y T H AT A R E S U B J E C T T O A C H A N G E I N C O N -
                                                                                              There is a credit agreement with a bank for a revolving
                                          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 .
                                          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.

              No compensation             C O M P E N S AT I O N A G R E E M E N T S O F T H E PA R E N T C O M PA 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
              agreements in the           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
              event of a takeover
                                          agreements with the members of the Executive Board or employees in the event of a takeover offer.
              offer
                                                                                                                                                                 93




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 AT 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 -
            The complete text of the declaration of compliance in accordance with Section 161 of the
R A T I O N A C T.
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                                              Personal initiative and
its support for personal initiative and personal responsibility. Only internationally competitive and fi-                                      personal responsibility
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.
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Declaration on Corporate Governance |
Events after the Balance Sheet Date |
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              Key guidelines            Tognum AG has also summarised key guidelines in a code of conduct called the »Integrity Code«, which
              summarised in the         is valid for each individual employee within the Group and includes the following core statements:
              Integrity Code

                                        - 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

              Working relationship      WO RKING S OF T HE E XECU TIVE BOA RD AND SU PERVIS ORY B OA RD, INCLUDIN G THE CO MP OSI TION
              between Executive         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
              Board and Supervisory
                                        with each other in a spirit of mutual trust and confidence to further the interests of Tognum AG. The
              Board based on
              mutual trust and
                                        Executive Board runs the company and manages its business. The Supervisory Board monitors and
              confidence                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.

                                        WORK IN THE COMMITTEES.         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.
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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                    Opportunities
manner. At the operational level, we also assess the market and sales opportunities. For this purpose,               identified, controlled
                                                                                                                     and monitored in a
order and customer project lists are prepared, prioritised and subsequently dealt with together with the
                                                                                                                     decentralised manner
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             Significant
Group in the years ahead:                                                                                            opportunities for
                                                                                                                     sustainable
                                                                                                                     development
DYNAMIC EMERGING ECONOMIES.        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.

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

                                             Globalisation ultimately increases the demand for products and systems that can be used to
                                 S E C U R I T Y.
                                 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.

             Powerful risk       In order to reduce the effects of such risks to a minimum, Tognum has introduced a powerful risk man-
             management system   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.
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Identified group-wide risks are collected, consolidated, analysed and evaluated by central risk manage-        Central risk
ment, with special attention given to the singular, cumulative or additive features of the risks, without      management
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            Internal group audit
examination of the risk management system is also part of the annual audit performed by the German             examines compliance
                                                                                                               with the risk
Public Auditors. In addition, the Supervisory Board’s Audit Committee is required to examine the effec-
                                                                                                               management
tiveness of the risk management system.                                                                        processes

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.

TYPES OF RISK
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                                MARKET RISKS
                                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
                                                                                                                                       99




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            Joint ventures seen as
our activities in Asia in particular, counter high risk exposure and are seen as opportunities.                    opportunities for our
                                                                                                                   company

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.

QUALITY RISKS
Not least as a result of the recognised quality of its products and its global service presence, the Tognum        Careful selection
Group also considers itself to be well positioned. The technical specification of the products requires            of suppliers
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.
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                                      PERSONNEL RISKS
             Personnel marketing      To attract highly qualified employees to our company, we present ourselves as an attractive and modern
             activities intensified   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.

             Flexible employment      In the event of an extended period of low demand for our products, we counter any possible impact on
             strategy                 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.

                                      IT RISKS
             Standardised IT          The central business processes of the Tognum Group and its individual companies are dependent to a
             infrastructure           considerable extent on its IT processes and activities. The security of the computer systems and data are
             throughout the Group
                                      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.
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FINANCIAL RISKS
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-   Limitation of interest
pected cash flows which are expressed in currencies other than the euro. In order to limit such risks or                   change risks through
                                                                                                                           interest derivatives
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.
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             Conservative financing   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
             strategy                 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.

                                      ACCOUNTING RISKS
                                      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
                                      Tognum 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 Reporting Standards
                                      (IFRS), unless the individual financial statements of the subsidiaries have already been prepared in accor-
                                      dance 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 require-
                                      ments. 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.

             Manual and automatic     As a result of the number of companies and differing regional distribution of subsidiaries, there are risks
             controls in the          with regard to the goal of achieving reliable accounting that could be reflected in delayed publication,
             accounting software
                                      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.
                                                                                                                             103




There is an intrinsic value risk when carrying out general evaluations, e.g. to ascertain goodwill or imma-    Impairment test
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.

OTHER RISKS
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.
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                                  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.

TRENDS IN GDP GROWTH IN THE ECONOMIC REGIONS
(forecast growth rates are adjusted for inflation)                         Germany   EU-27   Asia/Pacific   North America

 6.0%
 5.0%
 4.0%
 3.0%
 2.0%
 1.0%
 0.0%
– 1.0%
– 2.0%
– 3.0%
– 4.0%

              2007            2008             2009            2010              2011                   2012




As far as the development of the US economy is concerned, there are some imponderables: while on the                        3.2% growth of
one hand, the debt reduction of both private households and the financial sector is hampering the econ-                     US economy
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.
106
OVERVIEW

GROUP MANAGEMENT REPORT
Report on Expected Developments

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE




                                  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.

             Sector outlook       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.

             Growth of the        We are always looking for qualified employees to support us in the implementation of our company
             workforce in Asia    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.

             Increasing           In order to increase our technological lead further, we will again increase our adjusted expenditure for
             technological lead   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.

             Investments remain   In 2011, our investments will increase project-related: further investments are planned in the new US
             at high level        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.

             Sound financing      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.
                                                                                                                              107




Based on current knowledge, it is assumed that revenues will increase by at least 10% during the 2011          Revenue forecast
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        Results forecast
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.

OVERVIEW FORECAST 2011 VS. 2010
                                                                              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            Outlook for 2012
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
 regional eXpansion




» We are expanding our international
  activities along the entire value
 We are growing in
  chain. In China, we assemble both
  MTU ’s large high-speed diesel
 all regions worldwide.
  engines and emergency backup gen-
  sets for nuclear power plants.«
 Yue Chun Hong | Sales Manager, MTU engineering, Suzhou
                                                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.




MTU ’s Series 956 engines are incorporated in
emergency backup gensets from MTU Onsite
energy for use in nuclear power plants.
 regional eXpansion




» 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 gen-
  sets for nuclear power plants.«
 Yue Chun Hong | Sales Manager, MTU engineering, Suzhou
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
112
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Statement of
Comprehensive Income |
Consolidated Statement of Cash Flows

SERVICE




                                       Consolidated Statement of
                                       Comprehensive Income
                                       of Tognum AG, Friedrichshafen, for the period 1 January to 31 December 2010

                                       IN EUR MILLION                                                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


                                       Net profit or loss                                                                  102.9                    63.2
                                          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 MILLION                                                                     1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


Net profit or loss                                                                                102.9                    63.2
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




The following explanatory notes are an integral part of the audited consolidated financial statements.
114
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Statement of
Financial Position

SERVICE




                            Consolidated Statement of
                            Financial Position
                            of Tognum AG, Friedrichshafen, as at 31 December 2010


                            ASSETS
                            IN EUR MILLION                                                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




                            The following explanatory notes are an integral part of the audited consolidated financial statements.
                                                                                                                                                            115




LIABILITIES
IN EUR MILLION                                                                              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
Advance payments received                                                                                                 4.4                        10.4
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
Advance payments received                                                                                              190.8                       247.3
Other current liabilities                                                                     35                        29.5                         16.7
Current liabilities                                                                                                    761.7                     1,022.0
Total equity and liabilities                                                                                         2,469.3                     2,745.7

 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)


The following explanatory notes are an integral part of the audited consolidated financial statements.
116
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Statement of
Changes in Equity

SERVICE




                            Consolidated Statement of
                            Changes in Equity
                            of Tognum AG, Friedrichshafen, as at 31 December 2010




                            IN EUR MILLION                                          Share capital   Capital reserves


                            Balance as at 1 Jan. 2009                                      131.4              257.7
                            Net profit or loss
                            Other comprehensive income
                            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
                            Other comprehensive income
                            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



                                  Change in                                                 Total equity
                              fair values of                          Total retained     attributable to
       Accumulated       available-for-sale               Currency     earnings and    the shareholders
        net income         financial assets    translation reserves   other reserves      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




The following explanatory notes are an integral part of the audited consolidated financial statements.
118
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Group Segment Reporting

SERVICE




             Group Segment Reporting
             of Tognum AG, Friedrichshafen, as at 31 December 2010

                                                                                                                                                           Consolidation/
                                                                                                                                                         corporate service
             IN EUR MILLION                                                         Engines                 OE & C        Distribution      Sum segments      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 MILLION                                                                                 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
Financial liabilities                                                                                              310.6                    297.7
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)
EUR MILLION                                      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
EUR MILLION                                      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
120
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.
                                                                                                                 121




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.
122
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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:

                          S H A R E HO L D 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., Hadmköy/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«.
                                                                                                                                          123




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:

S H A R E HO L D 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 C O 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.

STA N DAR D/ I N T E R P R E TAT I O N                                                                 Effective date 1   Endorsement 2


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
124
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Notes

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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.
                                                                                                                                          125




- 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.

STA N DAR D/ I N T E R P R E TAT I O N                                                                 Effective date 1   Endorsement 2


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
126
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STATEMENTS
Notes

SERVICE




                          - 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.

                          STA N DAR D/ I N T E R P R E TAT I O N


                          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
                                                                                                               127




- 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
128
OVERVIEW

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CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                                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
                                                                                                                                 1 Jan. –        1 Jan. –
                          CO U N T RY                                       Currency      31 Dec. 2009     31 Dec. 2010     31 Dec. 2009    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.
                                                                                                                129




The assumptions and estimates relate primarily to

-   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.
130
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.

                          RECOGNITION OF INCOME AND EXPENSES
                          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.
                                                                                                                           131




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.
132
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          These may include the following costs:

                          D I R E C T CO STS                                      O V E R H E AD CO STS (D I R E C T LY A L LO C A B L E )


                          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.

                          GOODWILL.    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.
                                                                                                                            133




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.

INVENTORIES
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.
134
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          NON-CURRENT ASSETS AND LIABILITIES HELD FOR SALE
                          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.

                          ORIGINAL FINANCIAL INSTRUMENTS
                          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.
                                                                                                                 135




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.
136
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.
                                                                                                                137




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.

GOVERNMENT GRANTS
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.
138
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.

                          OTHER PROVISIONS
                          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.

                          LEASING
                          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.
                                                                                                                                             139




S U M M A RY O F S E L EC T E D ACCO U N T I N G P R I N C I P L E S
ITEM                                                                   ACCO U N T I N G P R I N CI P L E


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




FINANCIAL RISK MANAGEMENT
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.

FOREIGN CURRENCY RISK.        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
140
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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).

                                            The customer structure of the Tognum Group entails no significant concentration of
                          D E F A U LT R I S K .
                          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.
                                                                                                                                                                  141




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:

                                         Carrying
                                     amount as at Cash flows 2011         Cash flows 2012         Cash flows 2013         Cash flows ≥2014
IN EUR MILLION                       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




                                         Carrying
                                     amount as at Cash flows 2010         Cash flows 2011         Cash flows 2012         Cash flows ≥2013
IN EUR MILLION                       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.

                                   In accordance with the requirements of IFRS 7, the effects of the main
I N T E R E S T R A T E S E N S I T I V I T Y.
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)
142
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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 MILLION                                            Profit or loss               Equity effect
                          3 1 D EC . 2 0 1 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 MILLION                                            Profit or loss               Equity effect
                          3 1 D EC . 2 0 0 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




                          CURRENCY SENSITIVITY.      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.
                                                                                                                            143




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.
144
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          IN EUR MILLION                                                              31 Dec. 2009        31 Dec. 2010


                          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:
                                                                                                                                     145




                                                                    Statement of Special effects                    Statement of
                                                                  comprehensive Extraordinary                      comprehensive
                                                                   income before   impairment      Restructuring     income after
IN EUR MILLION                                                    special effects         losses           costs   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


Other comprehensive income
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
146
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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:

                          IN EUR MILLION                                                       1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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:

                          IN EUR MILLION                                                       1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                          IN EUR MILLION                                                       1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                                                                                                                 147




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.
148
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          11 | Other operating expenses
                          IN EUR MILLION                                                        1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                          IN EUR MILLION                                                        1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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.
                                                                                                                         149




13 | Interest result
IN EUR MILLION                                                           1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


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.
150
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CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          17 | Personnel expenses
                          IN EUR MILLION                                                        1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                          IN EUR MILLION                                                        1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                                                                                                                           151




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.
152
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CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.
                                                                                                             153




Notes to the Consolidated Statement
of Financial Position
20 | Intangible assets
                                                                                      Advance
                                         Concessions,                               payments
                                            industrial     Capitalised                made on
                                             property    development                intangible
IN EUR MILLION                                 rights            costs   Goodwill       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
Change in consolidated companies                  7.0                                                  7.0
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.
154
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CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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:

                                                                                                   Customer         Other
                          IN EUR MILLION                                Brands    Technology   relationships   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
                          Disposals                                                                                  – 0.3      – 0.3
                          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
                          Change in consolidated companies                                                             0.4        0.4
                          Additions                                                                                    9.7        9.7
                          Transfers                                                                                    0.6        0.6
                          Disposals                                                                                  – 0.1      – 0.1
                          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
                          Amortisation and impairment
                          Balance at 1 Jan. 2009                          – 0.9       – 74.8         – 23.7        – 50.8     – 150.2
                          Change in consolidated companies                                               7.0                      7.0
                          Amortisation                                    – 2.0       – 27.3         – 10.0         – 11.8     – 51.1
                          Disposals                                                                                    0.2        0.2
                          Exchange differences                             0.1                           0.1           0.3        0.5
                          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.
                                                                                                                  155




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 MILLION                                           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.
156
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.
                                                                                                                157




21 | Property, plant and equipment
                                                                              Other       Payments
                                                                        equipment,          made in
                                                                      operating and    advance and
                                             Land and    Plant and            office    plant under
IN EUR MILLION                               buildings   machinery       equipment     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
Amortisation and impairment
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
Disposals                                                       1.4             0.2                       1.7
Exchange differences                               0.1          0.2             0.2                       0.5
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
Disposals                                                       0.7             0.5                       1.2
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.
158
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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:

                          IN EUR MILLION                                                             31 Dec. 2009        31 Dec. 2010


                          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).

                          JOINT VENTURES
                          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:

                          IN EUR MILLION                                                             31 Dec. 2009        31 Dec. 2010


                          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%.
                                                                                                                            159




Taxes on income are broken down as follows:

IN EUR MILLION                                                           1 Jan. – 31 Dec. 2009     1 Jan. – 31 Dec. 2010


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 MILLION                                         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).
160
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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%).

                          IN EUR MILLION                                                               31 Dec. 2009        31 Dec. 2010


                          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 C O 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).
                                                                                                                      161




The difference between the current and the expected income tax expenditure is due to the following:

IN EUR MILLION                                                        1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


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
IN EUR MILLION                                                                31 Dec. 2009            31 Dec. 2010


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.
162
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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
                          IN EUR MILLION                                                                31 Dec. 2009        31 Dec. 2010


                          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
                          IN EUR MILLION                                                                31 Dec. 2009        31 Dec. 2010


                          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:

IN EUR MILLION                                                                         31 Dec. 2009   31 Dec. 2010


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:

IN EUR MILLION                                                                         31 Dec. 2009   31 Dec. 2010


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
   between 60 and 89 days                                                                       5.6           11.1
   between 90 and 119 days                                                                      2.3            3.1
   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.
164
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.

                          IN EUR MILLION                                                                 31 Dec. 2009         31 Dec. 2010


                          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:

                          IN EUR MILLION                                                                 31 Dec. 2009         31 Dec. 2010


                          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
                          IN EUR MILLION                                                                 31 Dec. 2009         31 Dec. 2010


                          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.

CHANGES IN EQUITY AND SHAREHOLDER STRUCTURE
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.
166
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.

                          MINORITY INTERESTS
                          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.

                          DEFINED CONTRIBUTION SCHEMES
                          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).

                          DEFINED BENEFIT SCHEMES
                          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:

IN EUR MILLION                                                         1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


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:

IN EUR MILLION                                                         1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


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:

IN EUR MILLION                                                                 31 Dec. 2009            31 Dec. 2010


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
168
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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:

                          IN EUR MILLION                                                              1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                          Foreign exchange differences                                                                – 0.3                     0.8
                          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




                          CHANGES IN THE PLAN ASSET
                          The plan asset available for financing benefit commitments changed as follows:

                          IN EUR MILLION                                                              1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


                          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
                          Foreign exchange differences                                                                – 0.2                     0.3
                          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).

                          DISTRIBUTION OF THE PLAN ASSET
                          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
                          Cash and cash equivalents                                                                   4.81                    2.78
                          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
FOR DEFINED BENEFITS
The total expense recognised for defined benefit pension schemes is broken down as follows:

IN EUR MILLION                                                                1 Jan. – 31 Dec. 2009     1 Jan. – 31 Dec. 2010


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
                                                    1 May –        1 Jan. –        1 Jan. –        1 Jan. –          1 Jan. –
IN EUR MILLION                                 31 Dec. 2006   31 Dec. 2007    31 Dec. 2008    31 Dec. 2009      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




PREMISES
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.
170
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                                       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.

                                       OTHER PROVISIONS
                                       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.

                                         Balance       Change in                                                                                        Balance
                                            as at   consolidated                                                Reclas-     Interest      Currency         as at
           IN EUR MILLION             1 Jan. 2010     companies       Usage      Additions     Reversals    sifications     expense     conversion 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 MILLION                                                          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
NON-CURRENT FINANCIAL LIABILITIES
IN EUR MILLION                                                                                   31 Dec. 2009            31 Dec. 2010


Financial liabilities                                                                                    308.3                  294.9
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                         Weighted               Weighted
                               (nominal currency in million)          maturity      effective interest Fair value (in EUR million)
                    Currency    31 Dec. 2009     31 Dec. 2010        (in years)            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.
172
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.


                          CURRENT FINANCIAL AND OTHER LIABILITIES
                          IN EUR MILLION                                                               31 Dec. 2009        31 Dec. 2010


                          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.

                          IN EUR MILLION                                                               31 Dec. 2009        31 Dec. 2010


                          Trade payables                                                                     223.6               316.6
                                                                                                             223.6               316.6
                                                                                                                     173




35 | Other current liabilities
IN EUR MILLION                                                                      31 Dec. 2009      31 Dec. 2010


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
                                Nominal amount in          Financial assets   Financial liabilities
3 1 D EC . 2 0 1 0                foreign currency           in EUR million       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
174
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                                                                                           Fair value
                                                                    Nominal amount in             Financial assets     Financial liabilities
                          3 1 D EC . 2 0 0 9                          foreign currency              in EUR million         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:

                          IN EUR MILLION                                                                             1 Jan. – 31 Dec. 2009     1 Jan. – 31 Dec. 2010


                          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.

                                                                                                                                                        Fair value
                                                                                         Carrying                                  Fair value          recognised
                                                                   Categories        amount as of                                 recognised              through     Fair value as of
IN EUR MILLION                                                      of IAS 39        31 Dec. 2010       Amortised cost              in equity        profit or loss     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.


                                                                                         Carrying                                                      Fair value
                                                                                          amount                                   Fair value         recognised           Fair value
                                                                   Categories                as of                                recognised       through profit               as of
IN EUR MILLION                                                      of IAS 39        31 Dec. 2009       Amortised cost              in equity             or loss       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.
176
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          In accordance with IAS 39, the following were aggregated into categories:

                          IN EUR MILLION                                                                31 Dec. 2009         31 Dec. 2010


                          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 MILLION                                                                 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 MILLION                                                                 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.

LEVEL 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.
178
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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:

                          IN EUR MILLION                                                               31 Dec. 2009        31 Dec. 2010


                          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
                          CONTINGENT LIABILITIES
                          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.

                          O T H E R F I N A N C I A L O B L I G AT I O N S
                          IN EUR MILLION                                                               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 L C 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
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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.
182
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                                                               Transaction volume (1 Jan. – 31 Dec. 2009)         Transaction volume (1 Jan. – 31 Dec. 2010)
                                                                          Volume of               Volume of                  Volume of               Volume of
                          IN EUR MILLION                             work performed            work received            work performed            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 MILLION                                 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:

IN EUR MILLION                                                              1 Jan. – 31 Dec. 2009   1 Jan. – 31 Dec. 2010


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).
184
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          43 | Executive bodies
                          MEMBERS OF THE EXECUTIVE BOARD
                          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:

                          VOLKER HEUER
                          Chairman of the Executive Board – Chief Executive Officer (CEO )
                          Chairman of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

                          RAINER BREIDENBACH     (until 31 December 2010)
                          »Engines« Business Unit
                          Member of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

                          JOACHIM COERS
                          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

                          DR.-ING. ULRICH DOHLE
                          »Technology & Operations« Division
                          Member of the Board of MTU Friedrichshafen GmbH, Friedrichshafen

                          CHRISTOF VON BRANCONI
                          »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:

                          ROLF ECKRODT   (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




AXEL ARENDT   (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 )

FRANZ BENZ*
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

SUNE KARLSSON
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

DR. EDGAR KRÖKEL
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

                  (Deputy Chairman)
PAT R I C K M Ü L L E R *
Head of Health & Social Services/HR Organisation, Tognum AG, Friedrichshafen
Deputy Member of the Supervisory Board of MTU Friedrichshafen GmbH, Friedrichshafen
186
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




                          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

                          LILO RADEMACHER*
                          First representative of IG Metall Friedrichshafen-Oberschwaben, Managing Director
                          Member of the Supervisory Board of ZF Friedrichshafen AG, Friedrichshafen

                          ANDREAS RENSCHLER
                          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

                          DR. CLETUS VON PICHLER
                          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.
188
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS
Notes

SERVICE




           46 | List of shareholdings of Tognum AG, Friedrichshafen
                                                                                                  Share of                Equity                Profit
           N A M E A N D R E GI ST E R E D O F F I CE O F T HE CO M PA N Y                         capital               in EUR                in EUR
           D I R E C T/ I N DI R E CT EQ U I T Y HO L D I N G :                                      in %    Remarks   thousand    Remarks   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., Hadmköy/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.

Friedrichshafen, 24 February 2011

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
190
OVERVIEW

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CONSOLIDATED FINANCIAL
STATEMENTS
Responsibility Statement | Auditor’s Report

SERVICE




                                              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.«



                                              Friedrichshafen, 24 February 2011

                                              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
192
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE
Figures at a glance 2007 — 2010




              Figures at a glance 2007 — 2010
                                                                                                                                                 1




              IN EUR MILLION                                            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
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE
Figures at a glance 2007 — 2010




              IN EUR MILLION                                       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
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE
Glossary




           Glossary
           Business Terms


             C
                 C A S H F L O W.   The flow of liquid funds      DIVIDENDS.        A portion of a company’s       EBITDA.     Earnings before interest, taxes,
           generated in a period, less significant non-           profits that is paid to the shareholders         depreciation and amortisation.
           cash expenses and income.                              usually once a year. The amount paid divided
                                                                  by the number of outstanding shares results      EQUITY METHOD.            In accordance with IAS
           C A S H F L O W S T A T E M E N T . Statement on       in the dividend per share, which can be paid     28, associated companies are accounted for
           the changes in liquidity and cash flows,               in cash or shares, or consist of a payment in    using the equity method. An associated
           which takes into account the sources and               kind.                                            company is one in which Tognum AG has a
           uses of the funds.                                                                                      significant influence and is neither a sub-
                                                                  DIVIDEND YIELD.         The dividend expressed   sidiary nor part of a joint venture. When the
           C A S H VA LUE .   Cash value (also: present           as a percentage of the share price. The          equity method is applied, the shares held in
           value) is the value a future cash flow has             dividend yield for the financial year 2009       the associated company are initially recog-
           today. Cash value is calculated by discount-           amounts to 2.3 per cent (based on the price      nised at their acquisition cost. In subse-
           ing future payments.                                   of our share on the date of the Annual           quent valuations, the book value of the
                                                                  General Meeting on 18 May 2010 [€ 15.50]).       shares in the associated company will in-
           C O N T R O L C O N C E P T.   The inclusion of                                                         crease or decrease in relation to Tognum
           companies in the consolidated financial                D&O INSURANCE.           The directors and       AG’s share of the profit for the period or will
           statements takes place in accordance with              officers insurance covers the personal liabil-   decrease by the dividend payments received
           IAS 27 based on the control concept. Control           ity risks of the members of the executive        from the associated company.
           exists when Tognum AG, either directly or              board, the supervisory board and the man-
                                                                                                                    F
           indirectly via subsidiaries, holds more than           aging directors.                                       FA I R VA LU E .   Fair value is the amount
           half of the voting rights of a company.                                                                 for which knowledgeable, willing parties are
                                                                   E
           Control also exists when Tognum AG is able                   EARNINGS PER SHARE.           The earn-    prepared to exchange or settle a liability in
           to determine the financial and business                ings per share are calculated by dividing the    an arm's length transaction. Generally
           policy or has the power to appoint or remove           consolidated net income to which the             speaking, the fair value of an asset can be
           a majority of the members of the executive             shareholders of Tognum AG are entitled by        regarded as its market value, if such a value
           and/or supervisory boards.                             the weighted number of outstanding shares        exists for the asset under consideration.
                                                                  in the period under review (1 January 2008 to
           C O R P O R AT E G O V E R N A N C E .   Responsible   31 December 2010: 131,375,000 shares; 1          F R E E F L O A T.   Shares that are not held by
           corporate management and controls focus-               January to 31 December 2007: 125,902,123         majority shareholders and can be purchased
           ing on long-term value creation.                       shares). The weighted number of out-             and traded by the public. As at 31 December
                                                                  standing shares was affected by the change       2010, the free float shares of Tognum
             D
                 D E F E R R E D TA X E S .   In accordance       from the former Tognum Group Holding             amounted to over 70 per cent.
           with IAS 12, deferred taxes are recognised             GmbH to Tognum AG. In accordance with
                                                                                                                    G
           for temporary differences between the                  IAS 33.64, the no-par-value shares resulting           GOODWILL.         The value of the company
           carrying amounts of an asset or liability in           from the change to Tognum AG were con-           after deducting the value of the assets, i.e.
           the tax base and in the IFRS balance sheet.            sidered retrospectively for the purpose of       in the case of a commercial business this
           In addition, deferred tax assets are also to           calculating the earnings per share for all the   primarily covers all the relationships to other
           be recognised for tax losses carried forward,          previous periods, i.e. under consideration of    companies and customers. See >PPA and >
           provided that tax credits result in the fol-           no-par-value shares from 2007.                   Impairment Test.
           lowing years from the anticipated use of
                                                                                                                    H
           existing tax losses carried forward.                   E B I T.   Earnings before interest and taxes;         HEDGING TRANSACTIONS.              The
                                                                  operating earnings before interest and taxes     purpose of hedging is to protect against
                                                                  that are used to assess the earnings situa-      interest and/or currency risks of individual or
                                                                  tion of the company. EBIT represents the         multiple business transactions. Offsetting
                                                                  operating earnings before the financial and      against such risks can be provided in the
                                                                  investment results.                              form of derivative financial instruments.
                                                                                                                                                                 197




 I                                                     N                                                           R
      IFRS/IAS.      The International Financial            N E T W O R K I N G C A P I TA L .    See >                R AT I N G .   Periodically recurring stan-
Reporting Standards/International Account-            Working Capital.                                         dardised risk and creditworthiness assess-
ing Standards are internationally accepted                                                                     ment of issuers and the securities issued by
                                                       P
standards to provide an international com-                  P U R C H A S E P R I C E A L L O C AT I O N       them. The rating is performed by specialised
parison of different consolidated financial           ( P PA) .   The purchase price allocation de-            rating agencies.
statements and to fulfil the information and          scribes the distribution of the acquisition
transparency expectations of investors and            costs of a business combination to the                   RONA (RETURN ON NET ASSETS).
other readers of financial statements. The            identifiable assets, liabilities and                     When presenting the total return on capital,
individual standards of the IFRS are known                                                                     we use RONA as the performance indicator,
as IAS.                                               CONTINGENT LIABILITIES OF THE                            with net assets reflecting the tied up inter-
                                                      ( 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.   est-bearing capital in the Tognum Group. At
I M P A I R M E N T T E S T.   The > goodwill dis-    It involves the initial disclosure of the lowest         group level, net assets are derived from
closed in the balance sheet is subject to an          possible goodwill of a newly acquired com-               disclosures on the liabilities side and include
impairment test at least once a year. See             pany less the company’s assets (remeasured               the following items: equity, provisions for
> PPA.                                                at fair value) in the current balance sheet.             pensions and interest-bearing borrowed
                                                      The basis for this is the acquisition method             capital less cash and cash equivalents. This
I N T E R E S T S W A P.   An interest swap in-       pursuant to IFRS.                                        gives us the amount of capital employed,
volves exchanging a variable interest pay-            Any other company assets or their purchase               which we then place as an average value1 in
ment for a fixed interest payment. Tognum             price (after the deduction of goodwill) are              relation to our key performance indicator of
AG uses interest swaps to manage the risks            depreciated on the balance sheet as higher               operating profit – the adjusted EBIT. The
arising from changes in the interest rates of         valued assets. To eliminate the effect of the            resulting RONA is offset against the Group’s
its liabilities to banks.                             appreciation in the value of goodwill to date            cost of capital.
                                                      (of the newly acquired companies) in the
 J                                                                                                                 S
      JOINT VENTURE.            Pursues long-term     calculation of profits and losses, the actual                    SEMI-AMERICAN CALL OPTION OF
strategic corporate goals and can be either a         company profits or losses generated are                  A BERMUDA TYPE.               Tognum AG has intro-
temporary alliance of autonomous compa-               determined on the basis of the original, i.e.            duced a special share-based remuneration
nies or a newly formed international joint            likewise actual value basis.                             programme for members of management
venture company, e.g. for production, sales           The goodwill that is recognised on the                   that represents an actuarial, semi-American
or research purposes.                                 balance sheet as part of the first consolida-            call option (to be exercised within a fixed
                                                      tion but not subsequently amortised sys-                 period of time) of the Bermuda type (to be
 L
      LIFE-CYCLE COSTS.            The term refers    tematically is subject to an > impairment                exercised on several predetermined dates).
to all costs for the                                  test at least once a year. If this reveals that
acquisition and throughout the entire ser-            the net present value from the discounted                S Y N D I C AT E D L O A N .   A syndicated loan is
vice life.                                            annual > cash flows is lower than the assets             provided jointly by several banks on a pro
                                                      disclosed in the balance sheet, the goodwill             rata basis. Tognum AG has taken out a
 M
      M A R K E T C A P I TA L I S AT I O N .   The   is impaired first.                                       syndicated loan with a bank consortium to
market price of a publicly traded company. It                                                                  cover the Group’s financial requirements.
is determined by multiplying the value of
                                                                                                                   W
the share by the total number of shares.                                                                               W O R K I N G C A P I TA L .   This ratio is
                                                                                                               calculated by deducting the current liabili-
MONTE CARLO METHOD.                 A stochastic                                                               ties from the current assets. Tognum also
method used to determine the fair value of                                                                     calculates the net working capital (= inven-
a phantom share from the LTIC scheme. This                                                                     tories plus trade receivables, less trade
is done by stochastically simulating the                                                                       payables and payments on account).
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.
                                                                                                               1
                                                                                                                   (Level at the beginning of the year + Level at the end
                                                                                                                   of the year)/2
198
OVERVIEW

GROUP MANAGEMENT REPORT

CONSOLIDATED FINANCIAL
STATEMENTS

SERVICE
Glossary




           Glossary
           Technical Terms


             A                                                 E
                 ADEC    (Advanced Diesel Engine Control)           E PA T I E R 1 , 2 , 3 A , 4 I A N D 4.             GENDRIVE ENGINES.           Diesel engines and
           = electronic engine control, monitoring and        Emission guidelines specified by the United               gas engines used to drive a generator for the
           safety system                                      States Environmental Protection Agency                    generation of electric power are known
                                                              (EPA).                                                    within MTU as gendrive engines.
           AFTER SALES.           See > MTU_ValueCare.        E U S TA G E I I I A A N D I I I B .   European
                                                              emission guidelines to reduce pollutants in               G E N S E T.   Engine-generator set to provide
           A U T O M AT I O N .   MTU uses the term to        exhaust emissions from off-highway appli-                 power generation independent of a power
           describe the electronic control and monitor-       cations See > EPA Tier 1, 2, 3a, 4i and 4.                grid. Gensets are available as stationary and
           ing of the performance of diesel engines,                                                                    mobile units and can be used as emergency
           propulsion and drive systems, and their            E X H A U S T A F T E R T R E A T M E N T.   Exhaust      power, continuous power and peak demand
           incorporation in the automation systems of         aftertreatment covers all the methods used                units.
           vehicles or ships.                                 to remove pollutants from combustion
                                                                                                                         H
                                                              gases. These primarily include > diesel                         HYBRID DRIVE SYSTEM.           The term
             C
                 CO M B I N E D H E AT A N D P O W E R        particulate filters, > SCR catalytic convert-             refers to a combination of different drive
           (CHP).    Refers to a system in which heat         ers and oxidation catalysts.                              principles or different energy sources de-
           produced in the generation of power with                                                                     signed to perform a drive task within an
           gas engines, for example, is used as process       E X H A U S T G A S R E C I R C U L AT I O N .   In       application. In the most popular form of
           heat or for heating purposes. This means           exhaust gas recirculation, some of the                    hybrid drive systems, the internal combus-
           that the fuel can be used very efficiently.        exhaust gases are returned to the fresh air               tion engine is supported by an electric motor
                                                              intake in the part-load range. The resultant              that operates as a generator in braking
           COMMON RAIL INJECTION.             Common rail     mixture of fresh air and exhaust gas has a                mode and stores, in rechargeable batteries,
           injection is a fuel injection system designed      lower calorific value in terms of the volume              the recovered energy that would otherwise
           to inject fuel under high pressure into the        and is thus unable to reach the temperature               be lost in the form of heat dissipated to the
           cylinders from a common distribution line          required in the combustion chamber to                     braking system (regenerative braking).
           (common rail). This enables common rail            produce nitrogen oxide (NOx).
                                                                                                                          I
           technology to deliver multiple injections,                                                                         IN-LINE ENGINE.        Internal combus-
                                                               F
           plus injection quantities and pressures                  FUEL INJECTION SYSTEMS.                    Inject   tion engine, the cylinders of which are
           regardless of the engine speed. Common rail        the fuel into the combustion chamber of the               arranged in a single line. This design princi-
           injection is used primarily in diesel engines.     engine.                                                   ple is used for most car engines and many
           The main purpose of using this technology                                                                    engines in commercial vehicles. The advan-
                                                               G
           is to optimise the combustion process to                 GAS ENGINE.        Internal combustion              tages of an in-line engine are its smooth
           achieve further improvements in engine             engines that use hydrogen, natural gas,                   running characteristics and the relatively
           running characteristics and a further reduc-       liquid petroleum gas, biogas or special gases             simple design. Drawbacks are the space
           tion in emissions, while reducing fuel con-        as fuels and have combustion chambers                     required and the limited number of cylinders
           sumption.                                          with pistons, in which the combustion of the              possible.
                                                              fuel takes place by means of spark plugs or
             D
                 DIESEL ENGINE.         An internal combus-   by spontaneous ignition.
           tion engine that operates on the principle
           developed by Rudolf Diesel. The characteris-       GAS TURBINE.         Internal combustion engine
           tic feature is that the injected fuel ignites      in which air is compressed as it passes
           spontaneously in the hot, compressed               through the blading of one or more com-
           combustion air.                                    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.
                                                                                                                                                               199




                                                                                                             S
M T U _VA LUEC A R E .     The Tognum Group               P O W E R PAC K ® .    Compact solution for the         S C R C A T A LY T I C C O N V E R T E R .   See >
markets its range of after sales services and             drive system. In addition to an internal          Selective Catalytic Reduction.
products under the term MTU_ValueCare.                    combustion engine, it contains a transmis-
These include maintenance, training and                   sion system, a generator, a hydraulic, cooling    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
technical documentation, for example, plus                and filter system, as well as other compo-        (SCR).    Refers to a method used to mini-
the sale of spare parts and consumables.                  nents, all of which are integrated into a         mise NOx particulates in exhaust emissions.
                                                          single drive unit mounted on a common             An aqueous urea solution is injected into the
 O
     O N S I T E E N E R G Y.   Refers to the com-        frame. It provides a lot of power with a very     exhaust gas upstream of the SCR catalytic
pany’s business in onsite energy systems for              small footprint. MTU produces PowerPacks®         converter, resulting in the production of
the generation of electric power, heat and                for railcars and military vehicles.               ammonia and carbon dioxide. In the SCR
cooling. In the Tognum Group’s product                                                                      catalytic converter, the ammonia produced
portfolio, these include diesel gensets for               P O W E R S H I F T.   An engine’s response to    in this way reacts with the NOx particulates
emergency power, base load and peak load                  changing loads.                                   in the exhaust gas to produce water and
applications, plus CHP plants for the co-                                                                   nitrogen.
generation of heat and power based on gas                 PUMP-LINE-NOZZLE INJECTION SYS-
engines or gas turbines. All onsite energy                TEM.     The pump-line-nozzle injection           SERVICE.      See > MTU_ValueCare.
solutions were combined under the »MTU                    system is a fuel injection system used for
                                                                                                             T
Onsite Energy« brand in 2008.                             internal combustion engines. Unlike the                 TURBOCHARGER.              The power output
                                                          common rail system, the injection pressure        of an internal combustion engine can be
ONSITE ENERGY SYSTEMS.                   Tognum           in the pump-line-nozzle injection system is       increased with the use of a turbocharger.
markets onsite energy systems under the                   generated separately for each cylinder. The       Driven by the flow of exhaust gases from
MTU Onsite Energy brand. They include                     unique feature of the system is the provi-        the engine, the turbocharger forces addi-
diesel gensets for emergency power, base                  sion of a fuel injection pump for each cylin-     tional air into the combustion chamber to
and peak load applications and CHP plants                 der with a very short pressure line to the        provide more efficient combustion.
for combined heat and power generation                    fuel injection nozzle.
                                                                                                             V
based on gas engines or gas turbines. A key                                                                       V-ENGINE.        In a V engine, the cylinders
                                                           R
feature of these systems is their location in                  R E M A N U FAC T U R I N G .   During a     are arranged in two rows to form a V. Next
close proximity to the consumer.                          remanufacturing process, engines or engine        to the in-line engine, the V-engine is the
                                                          components are reconditioned. At the end          most common engine design in use today.
 P
     P A R T I C U L A T E F I LT E R ( D I E S E L ) .   of this process, these engines or engine
Used to reduce particulates (soot particles               parts have properties and specifications
and unburned hydrocarbons) present in the                 comparable to those of new engines or new
exhaust emissions of diesel engines.                      parts.
200
Overview

GrOUP MANAGeMeNT rePOrT

CON S OL iD AT eD F iN A N C i A L
S TAT e Me N T S

Service
Contact | imprint




                                     Contact | imprint
                                     Contact                                                         imprint
                                     investors and Analysts                                          Tognum Aktiengesellschaft
                                     Phone +49 (0) 75 41 90 33 18                                    Maybachplatz 1
                                     Fax    +49 (0) 75 41 90 33 28                                   88045 Friedrichshafen
                                     E-mail ir@tognum.com                                            Germany
                                                                                                     Phone +49 (0) 75 41 90 91
                                     Media representatives                                           Fax    +49 (0) 75 41 90 97
                                     Phone +49 (0) 75 41 90 39 89                                    www.tognum.com
                                     Fax    +49 (0) 75 41 90 39 18
                                     E-mail pr@tognum.com

                                     customers
                                     E-mail info@tognum.com

                                     Human resources
                                     E-mail careers@tognum.com


                                     forward-looking statements and other information. This annual report contains forward-looking state-
                                     ments that are based on management’s current estimates of future developments. Such statements are subject to
                                     risks and uncertainties that Tognum cannot control or precisely estimate. These include e. g. future market conditions
                                     and the economic environment, the behaviour of other market participants, the successful integration of new acquisi-
                                     tions and the realisation of anticipated synergy effects as well as measures taken by government bodies. If one of these
                                     or other uncertainties or factors emerge or if the assumptions on which these statements are based prove to be
                                     incorrect, the actual results could materially deviate from the results explicitly stated or implicitly contained in these
                                     statements. Tognum is neither expected, nor shall Tognum accept special responsibility for updating forward-looking
                                     statements to adjust them to the events or developments after the date of this report. For technical reasons (e.g. con-
                                     version of electronic formats) there can be differences between the accounting documents contained in this annual
                                     report and the one published in the electronic Federal Gazette. In this case, the edition submitted to the electronic Ger-
                                     man Federal Gazette is considered the authoritative edition. The annual report is a translation of the original German-
                                     language document; in the event of deviations, the German version takes precedence over the English translation. The
                                     annual report is available in both languages online under http://www.tognum.com for download.

                                     photos: Anja Köhler (p. 4, 8/9, 11), Getty Images (p. 16/17, 50/51, 64/65, 108/109), Shutterstock (p. 78/79)
                                     concept and design: 3st kommunikation, Mainz
                                     Produced in-house using FIRE .sys

                                     All rights reserved and technical data subject to alteration. Printed in Germany. Copyright © 2011.
                                     This company report was published 10 March 2011.
                  Financial Calendar 2011
global presence




                         9 May                                     Publication of the first 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.
                  Global presence
global presence




                  Our customers are to be found in the off-highway business. They operate all over the
                  world, and frequently in extremely remote regions. They open up new frontiers. They
                  strike out in new directions. Whenever, wherever and for whatever they need us – we
                  are close at hand and that decisive step ahead for them. With 25 fully consolidated
                  subsidiaries and around 1,200 service centres and dealers, we are present in 130 countries
                  and on every continent.




                  Beauchamp | France               Datong | China
                  Dordrecht | Netherlands          Hanoi | Vietnam
                  East Grinstead | Great Britain   Hong Kong | China
                  Istanbul | Turkey                Jakarta | Indonesia
                  La Spezia | Italy                Pune | India
                  Madrid | Spain                   Shanghai | China
                                                   Singapore | Singapore
                                                   Suzhou | China
                  Augsburg                         Tokyo | Japan
                  Friedrichshafen
                  Glatten
                  Magdeburg                        Sydney
                  Stuttgart

                                                   Nathanya | Israel
                  Cape Town | South Africa

                                                   Aiken | USA
                                                   Detroit | USA
                                                   Mankato | USA



                                                   São Paulo | Brazil
Tognum Aktiengesellschaft
Maybachplatz 1
88045 Friedrichshafen
Germany
Phone +49 (0) 75 41 90 91
Fax    +49 (0) 75 41 90 97
www.tognum.com

								
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