ANNUAL REPORT 2011 Technology that moves Group figures and indicators 2011 2010 Order backlog € mill. 1,496 1,085 Income statement data Net sales € mill. 1,197.2 1,351.3 thereof Rail Infrastructure € mill. 778.8 891.5 Transportation € mill. 420.0 459.7 EBIT € mill. 96.5 152.1 Net interest expense € mill. (12.3) (11.7) EBT € mill. 84.2 140.4 Net income from continuing operations € mill. 60.5 105.8 Group earnings € mill. 55.7 97.5 Earnings per share (EpS) € 4.28 7.32 EpS from continuing operations € 4.28 6.92 EBIT margin % 8.1 11.3 Pretax return on equity (ROE) % 17.4 24.2 Return on capital employed (ROCE)1 % 11.9 17.2 Value added1 € mill. 15.4 54.8 Balance sheet data Fixed assets2 € mill. 625.6 590.7 capital expenditures € mill. 65.6 57.9 amortization/depreciation € mill. 38.2 39.5 Closing working capital € mill. 200.3 258.0 Year-end working capital intensity % 16.7 19.1 Closing capital employed € mill. 825.9 848.6 Total equity € mill. 482.8 580.0 thereof minority interests € mill. 14.0 27.9 Net financial debt € mill. 238.8 136.6 Net leverage % 49.5 23.5 Total assets € mill. 1,512.3 1,405.8 Equity ratio % 31.9 41.3 Cash flow statement data Gross cash flow € mill. 120.2 187.7 Cash flow from operating activities € mill. 138.5 137.1 Cash flow from investing activities € mill. (90.6) (151.1) Cash flow from financing activities € mill. (47.3) (71.8) Net cash inflow/(outflow) € mill. 0.6 (85.8) Workforce data Annual average headcount 5,000 4,984 thereof Rail Infrastructure 3,206 3,155 Transportation 1,748 1,781 Vossloh AG 46 48 Payroll intensity % 72.1 61.5 Personnel expenses € mill. 259.7 249.5 Share data Annual closing price € 74.07 95.50 Closing market capitalization € mill. 888.3 1,272.6 1 Based on average capital employed 2 Fixed assets = intangible and tangible assets + investment properties + shares in associated affiliate + other noncurrent financial instruments Vossloh’s corporate structure The operations of Vossloh’s Rail Infrastructure and Transportation divisions are organized under the umbrella of Vossloh AG. The individual companies are coordinated centrally yet operate flexibly and independently of each other. Rail Infrastructure division This division bundles our rail infrastructure products and services. It has three business units. The rail fasteners developed by Vossloh Fastening Systems ensure safe rail traffic in over 65 countries. Vossloh Switch Systems commands a foremost international position in the market for advanced-engineered rail switches. Vossloh Rail Services provides wide-ranging rail-related services including welding and logistics as well as rail care, preventive maintenance and reconditioning. Transportation division This division builds locomotives and (sub)urban trains, and manufactures electrical components for various types of light rail vehicles (LRVs) and locomotives. It has two business units: Vossloh Transportation Systems is Europe’s leading supplier of diesel locomotives along with related financing arrangements and all-in services. We also build ultramodern (sub)urban trains for a variety of operations. Vossloh Electrical Systems develops and produces key electrical components and systems for LRVs and locomotives. Business units: Indicators 2011 2010 Net sales € mill. 778.8 891.5 Vossloh Fastening Systems EBITDA € mill. 110.3 167.8 EBIT € mill. 86.2 141.9 Vossloh Switch Systems EBIT margin % 11.1 15.9 Vossloh Rail Services Closing working capital € mill. 249.2 234.5 Year-end working capital intensity % 32.0 26.3 Fixed assets € mill. 455.0 431.9 Capital expenditures € mill. 38.9 29.3 Amortization/depreciation € mill. 24.1 25.5 Closing capital employed € mill. 704.2 666.5 Average capital employed € mill. 683.1 688.7 ROCE1 % 12.6 20.6 Value added1 € mill. 17.9 66.1 Business units: Indicators 2011 2010 Net sales € mill. 420.0 459.7 Vossloh Transportation Systems EBITDA € mill. 41.3 40.7 EBIT € mill. 27.8 27.5 Vossloh Electrical Systems EBIT margin % 6.6 6.0 Closing working capital € mill. (41.4) 31.3 Year-end working capital intensity % (9.9) 6.8 Fixed assets € mill. 159.2 149.1 Capital expenditures € mill. 23.7 25.2 Amortization/depreciation € mill. 13.5 13.3 Closing capital employed € mill. 117.8 180.3 Average capital employed € mill. 124.6 189.5 ROCE1 % 22.3 14.5 Value added1 € mill. 15.3 6.6 1 Based on average capital employed Executive Board letter 3 Summary of key criteria of the accounting-related Vossloh stock 6 Internal Control and Technology that moves 14 Risk Management Systems (ICS/RMS) 108 Supervisory Board report 31 Reference to the corporate governance report 111 Corporate governance report 36 Subsequent events 111 Combined management report 45 Prospects 113 Business and market environment 47 Business report 50 Consolidated financial statements of Vossloh AG 119 Business environment 50 Income statement 120 M&A transactions 51 Statement of comprehensive income 120 Results of operations 52 Cash flow statement 121 Financial position and investing activities 58 Balance sheet 122 Asset and capital structure 61 Statement of changes in equity 123 Shareholder value management 63 Segment information Rail Infrastructure business trend 64 by division and business unit 124 Transportation business trend 70 Notes (Group) 126 Vossloh AG 76 Analysis of separate financial statements 76 Management representation 183 Board compensation report 78 Group auditor’s opinion 184 Takeover-related disclosures of the Executive Board 81 Service Workforce 86 Index 186 Research and development 92 Glossary 188 Environmental protection 96 Financial diary 2012/2013 190 Risk and reward management 99 Addresses 191 Imprint 192 Ten-year overview 1 Dr.-Ing. Norbert Schiedeck COO Werner Andree CEO Dear Stockholders: Following a series of very successful fiscal years marked by above-average growth rates Vossloh suffered setbacks in 2011. Contrary to our expectations, Group sales and earnings declined. The chief influencing factors were the slowdown in the progress of Chinese rail projects, which only became evident as the year proceeded, the suspension of shipments for a major project in Libya and, from the summer onward, weak demand in key European rail markets. Under these circumstances, the Rail Infrastructure division’s sales, which at around 65 percent of the Group’s continued to contribute the lion’s share of revenue, dropped for the first time in years, by some 13 percent. The sales shortfall at Vossloh Fastening Systems was especially severe at the Chinese location and could not be offset by business elsewhere. The Switch Systems unit also performed below expectations due to the military conflict in Libya, which prevented the planned extensive shipments to that country in 2011. In addition, in several European countries demand slackened and price pressure stepped up. In this challenging scenario Vossloh Switch Systems nonetheless managed to almost repeat its prior-year sales. In contrast, Vossloh Rail Services’ operations developed as budgeted. In spite of operating setbacks, Vossloh managed to again strengthen and expand its market position in the Rail Infrastructure division. Vossloh Fastening Systems will for the first time supply products for an international high-speed rail project on ballast tracks. This means that in addition to the world-leading market position for fastening systems on slab tracks a second strong technology reference has now been gained. Further new contracts were awarded in Asia and North Africa as well as in the Middle East (the so-called MENA region). The customer base was again greatly expanded in 2011 in the Americas. Vossloh Switch Systems booked further orders in 2011 likewise in the MENA countries and also in Scandinavia. Additional growth potential for this business unit exists in the USA, where orders on hand in 2011 soared in comparison with the previous year. Vossloh Rail Services, which is marketing an innovative and world-leading technique for preventive track maintenance known as high-speed grinding, won customers in Switzerland and Denmark in addition to more orders in Germany. At the start of 2012, the whole Rail Infrastructure division is more international and diversified than ever. The Transportation division did well in booking new orders in fiscal 2011, even though sales were down on the 2010 level. This was due to modest order influx in the preceding periods. While revenue from the center-cab locomotive business rebounded in 2011 as scheduled, sales at our production plant for locomotives and local transport trains in Valencia and at the Electrical Systems business unit in Düsseldorf receded sharply. Nonetheless, the Transportation division generated a higher EBIT thanks to the timely adjustment of cost structures. 3 Our strategy of accelerated development of new locomotives and local transport trains, launched in 2009, is bearing fruit. At some €765 million, orders placed were more than double that of the preceding year, with both the Valencia and Kiel rail vehicle plants as well as the Electrical Systems business unit contributing to this growth. Our new local transport trains, which are being jointly developed by Vossloh Electrical Systems in Düsseldorf and the Spanish production plant in Valencia, are going down exceptionally well with customers. The new center-cab locomotives from Kiel, which we have been offering with the option of our own diesel-electric driveline since 2010, are arousing great interest, too. Finally, we are continuing the success story of the most powerful diesel locomotive in Europe, the EURO 4000, with customers in new regions. The Vossloh Group entered 2012 with a brimming order book. Orders on hand total some €1.5 billion, in fact higher than the sales forecast for this year. For 2012 and 2013, order backlog at Rail Infrastructure at around €580 million is a reason for confidence even though we still perceive uncertainties as to the implementation speed of projects, especially in China.