ANALYSTS‘ TRIP: Dürr in China

www.durr.com www.durr.com

DÜRR IN CHINA

ANALYSTS‘ TRIP

Shanghai, October 8, 2012

WELCOME

Ralf W. Dieter, CEO Dürr AG

CONTINUED STRONG EMERGING MARKETS GROWTH EXPECTED

© Dürr AG, CCI, Dürr in China, October 8, 2012 2

China, India, Russia, Thailand & Indonesia with expected growth >10%

Light vehicle production increase by 27 m units over 5 years!

CAGR in %

17,3 19,3 20,4 21,5 22,7 23,7

19,9 19,3 20,5 21,9 22,7 23,6 19,6 21,7 23,0 24,2 24,9 25,7 15,3 16,9

19,5 22,2 24,4 25,9

2,5 2,4 2,6

2,7 2,8 2,9

0102030405060708090

100110

2011 2012 2013 2014 2015 2016

America Europe Asia (without China) China othersource: own estimates, PwC

last update: July 2012

in m units

6.5

3.0

11.1

5.6

3.5

74.6 79.6

86.0 92.5

97.5 101.8

Incoming orders Q3 2011-Q2 2012

(Q3 2010-Q2 2011)

Incoming orders Q3 2011-Q2 2012

(Q3 2010-Q2 2011)

15% (14%)

25% (24%)

24% (22%)

7% (10%)

29% (30%)

Sales revenues Q3 2011-Q2 2012

(Q3 2010-Q2 2011)

12% (19%)

24% (26%)

25% (19%)

8% (10%)

31% (26%)

■ Germany ■ Europe without Germany, incl. Eastern Europe ■ North and South America ■ Asia (without China), Afrika, Australia ■ China

CHINA: DÜRR‘S BIGGEST MARKET


Regional business split will remain largely unchanged in future

Emerging markets 59% (57%)

Mature markets 41% (43%)

DÜRR IN CHINA: ESTABLISHED FOR MORE THAN 25 YEARS


new production plant operational since 2012

new common facility in 2013

Shanghai: Doubling of capacities to around 67,000 m2 until 2013

Comparison: Dürr headquarters in Bietigheim-Bissingen 70,000 m2

Wholly owned subsidaries (100%)

since 1991 Schenck Shanghai Machinery

since 2003 Dürr Ecoclean China

since 1985 Dürr Paintshop Systems Engineering

CHINA: STRONG INCREASE IN BUSINESS VOLUME OVER THE LAST 7 YEARS


2005 … 2012 (e) CAGR

in %

Incoming orders (in € m) 146 900 30

Sales revenues (in € m) 83 700 36

Employees (12/31) 271 1,250 1 25

Orders on hand (in € m) 119 1,050 37

¹ plus external workers (~400)


STRONG RELATIONS WITH ALL CHINESE AND FOREIGN OEMS

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DÜRR‘S BUSINESS STRATEGY IN CHINA


Expansion of local added value („Local Content“): >75%

Import: only core products, e. g. robots

Increase local capacities and competencies: in the midterm: >1,500 employees, Chinese executives in the 2nd management level

Positioning as „Chinese Player”: strong local presence, less expatriates, more well trained local staff

Become centre of Dürr’s business in the Asia-Pacific region, close collaboration with Dürr in Germany

Product Strategy

develop products for China: automation, handling, high quality

„First Mover” regarding reduction of energy saving and cost per unit

Future opportunities

paint and balancing technologies: grow with the market, maintain share

environmental, cleaning, filling and testing technologies: gain market share, localize design and value-added

Cost leadership, localization and innovation

BENEFITS OF LOCALIZATION IN CHINA


Import and localization (since 1985) Customer proximity and development of know-how among local employees Competitive advantages in terms of labor, purchasing, transport costs etc. Basis for improving our competitiveness against local suppliers Less reliance on external factors such as currency, import regulations etc. Fulfillment of local content requirements of the automobile industry Image synthesis: German quality supplier and Chinese player (‘buy local’ argument) Product development geared towards Chinese market requirements Local service network and local project execution with high level of customer satisfaction

Next phase (since 2009) Focus on China as export location International use of local engineering and design

Export from China in addition to import and localization

PHASES OF LOCALIZATION


Four phases according to Edward Tse (‘The China Strategy’, 2010)

Phase 4 now until approx. 2020

Current challenge: Greater focus on the role as global integrator and integration of Chinese activities into the global network

Phase 1 early/mid 1990s

R&D Product dev. Purchasing Production Marketing Sales Service

Phase 2 mid/late 1990s


Phase 3 early 2000



Dürr has achieved the highest level of localization

LIMITS OF LOCALIZATION


Customer requirements: Request for imports (quality, western standards)

Reputation as high-quality German company: Involvement of German employees necessary

Socio-economic changes in China:

Decrease in labor supply: One-child policy, migrant workers less willing to travel

New politics: Government calls for “end of cheap labor” and “social justice”, wages expected to rise faster

Increasing shift of mass production: From Beijing, Pearl River and Yangtze Delta to western provinces (e.g. Sichuan) and to more cost-effective ASEAN neighboring countries (e.g. Indonesia, Vietnam)

Prevention of loss of know-how and intellectual property:

Import of high-tech products (e.g. painting robots)

Allocation strategy when awarding manufacturing contracts

R&D center in Germany

SUCCESS FACTOR LOCAL DESIGN


Chinese product development, also for export to emerging markets

Early presence in China has paid off

Continuous learning curve

Today: Independent development and production of small and mid-sized balancing machines

Products suitable for the requirements of emerging markets

Significantly lower costs / higher margins

Schenck headquarters in Germany

Group-wide R&D coordination

Quality inspection

Development of export business

Asia-Pacific region, but also US/Europe for standard machines

Example: Schenck balancing machines

Product development and production in Shanghai

SUCCESS FACTOR ORDER EXECUTION


Example: Paint shop for Changan Ford, Chongqing

Dürr Mexico Basic + Detail Engineering

Dürr Korea Basic + Detail Engineering

Commissioning

Dürr China Detail Engineering

Production Site Management

Assembly Commissioning

Dürr India Detail Engineering

Dürr Germany Project Management

Global Sourcing Basic Engineering Lead Engineering

ERP / CAX Standardized ERP system

Standardised CAX interfaces

Systems projects in emerging markets have up to 75% local content

SUCCESS FACTOR LOCAL SOURCING


Example: Dürr purchasing organization

Local Purchasing China (approx. 30 employees)

International Purchasing Center (Germany)

Operational support

Structural development support

Tools + qualification

Coordination/pooling

50% international presence

Processing

Contacts

Acquisition

Monitoring/quality assurance

Current challenges

Covering large project volume

Building supplier structure in new regions (e.g. Chengdu, Gouangzhou)

Further development of export business

SUCCESS FACTOR IT INTEGRATION


Enterprise Resource Planning (ERP)

CAX

Management Reporting/Consolidation

Dürr Projects

etc.

Dürr investment > € 20 m (2006-2009)

Benefits

Fast data exchange

Transparency of information across the Group

International project execution and capacity management

Standardized IT tools support localization

SUCCESS FACTOR HUMAN RESOURCES


HR challenges in China

Recruitment of well qualified employees

Retention of experienced employees

Minimizing attrition

Loyalty + employee retention

Strong brand, market leading image

Prospects, career opportunities

Appreciation Corporate community culture

Remuneration Delegation, independence

SUMMARY: STRONG LOCAL POSITION


Early penetration of Chinese market has resulted in a major competitive advantage

Up to 100% localization possible (depending on customer), 50 to 75% on average

Hub for Asia-Pacific business, increasingly as export base for global business

Strategy

Further development of localization (quantitative and qualitative)

Further integration into global value-added structure (export from China)

Development of “Chinese products” for the global market: automation, operation, quality

Leadership in terms of investment, operating and energy costs (total cost of ownership)

www.durr.com www.durr.com

DÜRR IN CHINA

ANALYSTS‘ TRIP

Shanghai, October 8, 2012

Ralf W. Dieter, CEO Dürr AG

Business

ANALYSTS‘ TRIP: Dürr in China