Vol. 11, Issue 12

News, Information & Analysis for the Ag Equipment Marketer April 15, 2005 Self-Propelled Sprayers Top Equipment Forecasts for 2005 The Assn.of Equipment Manufacturers predicted to decline by 8.8% and 5.2%, the year-to-date data (through March) released its 2005 State of the Ag respectively. Self-propelled combines generally supports the AEM forecast. Industry Outlook on April 6. Manufac- are also seeing negative retail sales in Most other categories of farm turers increased their 2005 forecasts the U.S. and Canada, with declines of equipment are expected to see an for farm equipment sales compared to 2.9% and 6.6%, respectively. increase in sales.The strongest growth the previous 2005 forecast issued in “The revised 2005 outlook for in the U.S. is predicted for self- June of 2004, likely in response to farm equipment revealed improved, propelled sprayers, with an increase stronger-than-expected 2004 retail yet still negative,growth expectations of 8.8%, followed by gains in farm sales and modestly higher year-to-date for combines and row crop tractors,” loaders (3.9%),field cultivators (3.8%), demand. All major categories in the says Robert McCarthy,R.W.Baird.“Four- air seeders/drills (3.2%).The greatest U.S.and Canada,with the exception of wheel drive tractors are now expected slowdown in U.S.sales is predicted for 4WD tractors,were revised upwards in to decline 9% year-year,vs.a previously forage harvesters and rectangular the latest forecast, with the most forecast 7% decline, while utility balers, at declines of 4.7% and 4.4% noticeable uptick seen in combines tractor sales are expected to increase respectively. (now -5% vs. -16%). 1% this year, vs. the previously In Canada, self-propelled sprayer Based on survey responses from expected 6% decline.” He added that sales are also expected to lead all 40 farm equipment manufacturers,the Continued on page 2 results of the survey are found in Table TABLE 2. FACTORS 1. As shown, retail sales of 2-wheel drive tractors are expected to grow INFLUENCING FUTURE U.S. SALES 2005 1.4% in the U.S. and 6.2% in Canada, Factor Significantly Modestly About Modestly Significantly while sales of 4WD tractors are Up Up the Same Down Down

FINANCIAL TABLE 1. 2005 AG Credit Availability 3% 39% 59% Interest Rates 3% 78% 14% 5% EQUIPMENT SALES Government Programs 3% 22% 50% 25% PREDICTIONS FOR THE Farm Cash Receipts 6% 44% 11% 39% U.S. AND CANADA Net Farm Income 3% 44% 14% 36% 3% CROP PRICES/ACREAGE U.S. Canada Corn 21% 46% 25% 7% 2WD Tractors +1.4% +6.2% Soybeans 21% 36% 29% 14% 2WD Under 40 PTO +3% +9% Wheat 28% 48% 21% 3% 2WD 40-100 PTO HP 0 +6% Planted Acreage 21% 69% 10% 2WD Over 100 PTO HP -4.8% +1.2% Grain Exports 7% 39% 36% 18% 4WD Tractors -8.8% -5.2% Self-Propelled Combines -2.9% -6.6% LIVESTOCK/DAIRY PRICES Rectangular Balers -4.4% +7.6% Beef 3% 39% 39% 19% Round Balers +0.5% +5.3% Milk/Dairy Products 16% 56% 28% Forage Harvesters -4.7% +3.7% Hogs 21% 55% 21% 3% Planters (all) -3.1% +3.5% FARM EQUIPMENT Mower Conditioners -0.5% +6.2% Operator Attitude Windrowers/Swathers +0.1% -4.4% Toward Purchase 6% 42% 47% 6% Field Cultivators (all) +3.8% -1.0% Prices of New Equipment 33% 56% 6% 3% 3% Farm Loaders +3.9% +4.3% Prices of Used Chisel Plows +1.4% -7.5% Equipment for Sale 14% 64% 14% 8% Disk Harrows (all) +2.5% 0 Quantity of Used Air Seeders/Drills (all) +3.2% -2.8% Equipment for Sale 33% 44% 22% Self-Propelled Sprayers +8.8% +8.5% Replacement Demand/Need 3% 39% 58%

The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. 2-Wheel Drive 4-Wheel Drive Total Farm Tractors Retail Sales Tractors Retail Sales Tractors Retail Sales 230,000 20,000 4,000 800 235,000 20,000 227,848 3,604 231,135 225,000 224,795 19,000 3,500 750 230,000 228,399 18,794 19,000 3,287 18,114 718 220,000 18,000 3,000 680 700 225,000 17,767 18,000 17,049 215,000 17,000 2,500 650 220,000 17,000

210,000 16,000 2,000 600 215,000 16,000

205,000 15,000 1,500 550 210,000 15,000

0 6.5% 0 0 6.5% 0 0 6.5% 0 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 U.S. Canada U.S. Canada U.S. Canada machinery sales with a gain of 8.5%, by 59% of respondents. followed by rectangular balers (7.6%) For U.S. sales, 44% see farm cash Self-Propelled and mower conditioners (6.2%). receipts and net farm income as being Combines Retail Sales Lagging sales are anticipated for chisel modestly up,with similar numbers for 7,000 1,564 1,600 plows (down by 7.5%) and Canada (45% and 48%, respectively). 6,683 6,500 6,436 1,500 windrowers/swathers (down by The majority said planted acreage will 1,426 4.4%). be about the same as last year (69% 6,000 1,400 Risk Factors — Agricultural equip- U.S. and 74% Canada). U.S. grain 5,500 1,300 ment manufacturers forecast antici- exports are expected to be about the 5,000 1,200 pated changes in 20 factors that have same by 36% and modestly up by 39%, emerged as key influences on the sale and Canada exports about the same 4,500 1,100 of new equipment.Table 2 shows the say 52% and modestly up say 35%.The 0 6.5% 0 results. A summary of how manufac- impact of beef prices is expected to 2004 2005 2004 2005 U.S. Canada turers view these risk factors for the have a greater impact on Canadian U.S. market is shown in Table 2. sales than on U.S. sales (modestly up Interest rates are expected to be 39% U.S. and 48% Canada).A total of equipment is seen as modestly or signif- “modestly up”in the U.S. and Canada, 94% of the manufacturers expect the icantly up as a factor for U.S.and Cana- as noted by 78% and 55% of the attitude toward purchases to make an dian sales by the majority of respon- respondents,respectively.Credit avail- equal or positive contribution to dents. Less changes are expected for ability is predicted to be about the demand growth in 2005. the quantity of used equipment and same in the U.S. and Canada, as noted The prices of new as well as used replacement demand. Chart Omission President Backs Off Cutting Aid to U.S. Farmers McCormick Tractors pointed out an omission in “U.K. Tractor Sales: After two months of fierce resistance from of government payments. According to Deere Loses Ground,Yet Retains Top farmers and Congress,the Bush adminis- the Dept.of Agriculture,8% of producers Position Over New Holland,”which tration dropped an effort to cut govern- receive 78% of subsidies. appeared in the March 15, 2005 ment payments to farmers on April 12. Agriculture Secretary Mike edition. While the text contained The president asked Congress in Johanns told key senators that while the appropriate figures, the pie February to slash billions of dollars from spending must be reduced to hold chart did not reflect McCormick’s payments to large farm operations,drop- down the federal deficit, he is willing 1.1% market share gain in 2003.“In ping the maximum farmers are allowed to look elsewhere in agriculture reality, 1,060 McCormick tractors to collect from $360,000 to $250,000 and programs for cuts. Republican were registered by new owners, closing loopholes allowing some growers committee chairmen have suggested representing a 7% market share — to obtain millions of dollars. He also reductions in spending on land conser- not bad in only our third year,”says proposed to cut all farm payments by 5%. vation and nutrition programs,such as Vikky Morley, McCormick Tractors The argument surrounds the fact that food stamps, also run by the Agricul- International Ltd. bigger operations collect too big a share ture Dept.

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2 Ag Industry Watch/April/2005 French Farm Equipment Sees 5% Growth in 2004 According to a recent report in result of rising steel prices. sales up by 1% and self-propelled Farmer’s Weekly, sales of tractors and Despite lower milk prices, sales of forage harvesters falling by 5%. Even farm machinery in France, a 3-billion self-propelled forage harvesters and so, initial forecasts concluded that Euro equipment market and the largest mower conditioners also rose by 9% and 2004 levels, which represented a 5% in Europe, were up 5% in 2004. 6%, respectively.According to Jean-Paul increase over 2003,were within reach. Specifically, tractors saw a 5% Papillon of the French Farm Machinery Exports remain a high priority for increase to 40,300 units while Assn. SYGMA, this trend reflects the French machinery makers. In 2003, combines rose 12% to 1,600 units.As growing significance of agricultural the total value of exports was 1.5 in other parts of the world, sales contractors as individual farmers try to billion Euros,a 4% increase over 2002. received a shot in the arm by those reduce their machinery costs. In the first three quarters of 2004, attempting to place early orders to Forecasts for 2005 placed tractor exports were 13% higher than in the avoid higher machinery prices as a sales down by about 2%, combine same period in 2003.

UAW, CNH Settle on 4-Year Deal The United Auto Workers union ratified CNH’s 6-year contract last May) were to get something. CNH’s 600-or-so a 4-year contract with CNH Global on not disclosed. Benefits and wages for union members are at only four loca- March 17, resolving the dispute that new hires and escalating insurance tions and are only about 10% of the kept members off the job since costs were among the contested issues. union membership at Deere.I bet CNH November 3. CNH had used a combi- Noting that he has not seen the put the hammer to them,”he says. nation of salaried employees and particulars,Charles Rentschler,Langen- CNH acknowledged that it under- replacement workers to replace the berg & Co., says, “My conjecture is performed the industry in retail sales of 600-plus workers at plants in CNH was able to cut a really good deal farm and construction equipment in Wisconsin, Illinois, Iowa and for itself, since it looked as if the two February.Merrill Lynch’s Andrew Obin Minnesota. parties had reached a stalemate —in attributed this poor performance partly Terms of the deal (UAW rejected other words,the UAW slunk back,just due to product availability issues.

Shortline Manufacturers Ahead by 14%, Suppliers by 12% YTD At the April Farm Equipment Manu- Several noted that sales were ahead of they were, for the first time, actively facturers Assn.in Phoenix, Ag Industry last year by as much as 20-30%, and exploring overseas sources for compo- Watch polled both equipment manu- were constrained by their own nents, particularly in India and China. facturers and suppliers on business production capacity limitations. Suppliers to the manufacturers conditions relative to last year. Several manufacturers expressed also noted that their farm-related busi- Equipment manufacturers, on an increasing concern over the rising ness was up considerably by an average, noted that first-quarter sales cost of domestic components.Several average of 11.75% over the same were roughly 14% ahead of April 2004. small manufacturers indicated that period last year.

FARM MACHINERY TICKER (AS OF 4/13/2005) 4/13/05 3/11/05 1-Year 1-Year P/E Avg. Market Mfr. Symbol Price Price High Low Ratio Volume Cap.

AGCO AG $17.27 $19.82 $23.13 $17.07 10.11 1.33 M 1.56 B Alamo ALG $23.91 $24.80 $29.23 $14.40 17.58 24,400 232.98 M Art’s Way ARTW $7.87 $6.58 $11.50 $3.98 8.94 91,000 15.25 M Caterpillar CAT $88.60 $99.00 $99.96 $68.50 15.41 2.64 M 30.38 B CNH CNH $18.26 $18.67 $21.90 $16.18 22.00 80,400 2.42 B Deere DE $64.62 $69.39 $74.93 $56.72 11.20 2.09 M 15.93 B Gehl GEHL $25.24 $29.74 $30.83 $14.85 11.47 38,300 167.71 M Kubota KUB $26.45 $27.85 $28.46 $19.05 64.51 6,200 7.09 B

Ag Industry Watch/April/2005 3 Distributors Measure the Challenges of Offshore Arrangements Ag Industry Watch’s correspondent at the process. In these cases, there is of engineering and safety standards. the SIMA Show in Paris in late February great uncertainty that a level of under- This distributor assumes several noticed the surfacing of several distri- standing has occurred. responsibilities that are traditionally bution trends among farm equipment Quality control is also an area of viewed as the responsibilities of the manufacturing and distributing concern.While the distributor is confi- manufacturer.He must be more actively personnel, and a few offered novel dent that he ultimately communicated involved in issues such as translating ideas for expanding globally.A couple all details necessary for a successful marketing materials,operator manuals, relate to what many consider the manufacturing arrangement,doubt still service manuals and parts books. He biggest hurdles in global expansion — remains on whether the products will also must handle warranty claim namely the language barrier and labor, meet specifications.Monitoring quality handling and reimbursement, due to material and transportation costs. is difficult because of the distance the lack of representation from the With ever-increasing labor costs, between the distributor, the foreign manufacturing company in the distrib- one French distributor is pursuing manufacturer and the original utor’s home country. licensing arrangements between estab- licensing manufacturer. While the jury is still out on his lished farm equipment manufacturers Another U.S. distributor/manufac- venture,he cautions others to account in Europe and up-and-coming manu- turer’s arrangement complicates things for each of these additional responsi- facturers in China (where the equip- further. He is licensing European- bilities.While the savings for labor and ment will also be remarketed).While designed equipment to be built in material may be far less,the additional materials and transportation costs can China and shipped to the U.S. While costs merit careful consideration. be reduced,he points out several other engineering and safety standards are It will be interesting to see the cost-adding challenges. addressed on the production lines evolution of the role of distributors in The language barrier is the biggest when sold in the nation of manufac- the future globalization of farm equip- challenge so far for this distributor,with ture,he,as the distributor,must assume ment manufacturing and distribution. simple communications becoming responsibility for standards for equip- Several discussions were heard major obstacles. Phone calls, e-mails ment shipped to the U.S. throughout SIMA that indicated that and letters all must be translated before What he is finding are three “anything and everything” is being they can be useful to either party.Words involved parties,in three different parts tossed around and considered to and terminology often do not exist to of the world, speaking three different address future farm equipment distri- describe something very important to languages,and using three different sets bution needs.

Farm Equipment Industry Newsmakers Agco announced on April 7 that it received formal approval leading supplier of GPS products for agricultural markets.The from the Brazilian competition authority for its January Outback business will be combined with CSI's GPS Business 2004 purchase of Finish ag equipment maker Valtra.The Unit to create “Hemisphere GPS,”which will market Satloc approval allays concerns over regulatory approval and and Outback branded products with all of CSI's other GPS whether the company could maintain the acquired business products. CSI currently manufactures the Outback branded without conditions and restrictions, including a partial line exclusively for RHS.On a pro-forma basis the combined divestiture. Agco can now move forward in its focus on revenue of CSI's GPS Business Unit and the Outback Business operations, integration and execution. would have been $45 million in 2004. Manitoba-based grain handling manufacturer Ag India-based Escorts received a farm equipment order Growth Income Fund entered into an agreement to valued at $8.56 million from the government of Ghana. acquire all of the assets of the Edwards Group for $20 Caterpillar Inc. acquired minority ownership in million. Edwards primary products include drying equip- Shandong SEM Machinery Co., Ltd. (SEM), one of ment,aeration fans and low-temperature heaters marketed China’s leading wheel loader manufacturers.The firm had under Grain Guard, Keho and Rocket names.The firm has pursued SEM for more than a year to leverage its expertise, two manufacturing facilities in Alberta. product quality and market position for expanding Cat’s The decades-old relationship between Ford Motor presence in China. Co. and India tractor and utility vehicle maker Mahindra Agri-Products, Inc., York, Neb., moved to a new came to a close in late March following a stake sale.Ford sold facility several miles away in late February.The relocation its 5.1% stake (5.98 million shares) in Mahindra while doubles the amount of space for the firm and gets the busi- Mahindra relinquished its 15.5% stake in Ford India. ness under one roof.The firm produces tank mounts,grain CSI Wireless is purchasing RHS Inc.’s sales,marketing handling equipment and tillage equipment for its dealer and distribution assets associated with the Outback line of network throughout the U.S. and Canada. GPS guidance products for ag applications.CSI will purchase Claas North America has appointed Russ Green as the Outback assets for $9.6 million in cash, 4.4 million executive vice president of sales and business develop- common shares of CSI and the assumption of RHS debt of ment. Green, who will be responsible for leading both the $1.2 million.The letter of agreement calls for the firms to Claas Hay & Forage and the Lexion combine sales force in combine their respective GPS operations to create the world’s North America, previously worked at CNH Global.

4 Ag Industry Watch/April/2005 No. 4 Claas Continues to Stake its Claim as Big-Leaguer Claas consolidated its position as the In France, sales revenues almost Outlook 2005 — Claas anticipates world’s fourth largest manufacturer of doubled thanks largely to the Renault moderate growth for itself and the agri- farm equipment behind Deere, CNH Agriculture contribution — Claas lifted cultural engineering industry as a Global and Agco in its 2003-04 fiscal its share of harvest machinery sales by whole this year. It agrees with other year by lifting ag sector net sales by more than 25%.Market recovery in the forecasts in seeing no greater than 5% 32.5% to Euro 1.77 billion ($2.35 U.K., where any effect of switching market growth in North America and billion) and group revenues by 28.9% tractors to Claas branding and distri- flat-to-moderate market growth in to Euro 1.92 billion ($2.55 billion). bution will only show up in this year’s Western Europe, which is largely Much of the growth — which figures, saw sales up by 21.6%. dependent upon an improvement in puts the privately owned Claas further These strong gains were offset by farm incomes, especially in Germany ahead of Italian rivals Argo Group and continued market weakness in and the Scandinavian countries. Same Deutz-Fahr with revenues esti- Germany where industrywide Heavy rain that spoiled the U.K.grain mated at Euro 830 to 850 million ($1- combine sales were down 15%.Claas, harvest and weaker farm incomes in 1.2 billion) — came from its first full- however, bucked the trend and France will put a damper on sales growth year with Renault Agriculture. improved its combine sales by 1.1%. prospects, while developments in Italy Renault Acquisition — Claas paid Euro Outside Europe — Outside Europe, and Spain are expected to be steady. 74.7 million ($99 million) in 2003 to where the effect of the Renault acquisi- Persistently high demand for ag acquire a 51% controlling stake in tion has less impact, Claas enjoyed a machinery in Central Europe and the Renault’s tractor manufacturing and 31% increase in ag equipment sales. Its likelihood of a more rapid pace of machinery retailing operations in France. U.S. companies, Claas of America (hay change in countries that joined the It has an option to buy another 29% of tools) and Claas Omaha (assembling European Union last year have raised the equity within 3 years of the initial combines for sale through the Cater- Claas’expectations significantly above purchase and the balance by 2010. pillar dealer network),increased sales by those of the previous year. The tractor business produces 12.9%,although Claas concedes it bene- Similarly, despite growing local over 9,000 tractors a year at the Le fited only slightly from the rapid growth competition,the company still sees great Mans plant west of Paris,almost 70% of in the combine market. potential for Western manufacturers in which have traditionally been sold in Cost Savings —While beginning the Eastern Europe,particularly Ukraine and France. The stronger international process of integrating Renault Agri- Russia — which is largely why Claas has reach of Claas and its distribution culture into group operations and built a new combine assembly plant in network is beginning to shift the seeking out purchasing, engineering the Russian town of Krasnodar. balance by improving sales volumes and other synergies, Claas has been Fears that Claas harvest machinery in markets outside France. concentrating on efficiency gains. might suffer through management “The introduction of the Claas Investment in a streamlined produc- being distracted by the demands of its tractor in Europe has been extremely tion facility at the headquarters plant new tractor business have not yet successful,”says Rüdiger Günther,CFO. in Harsewinkel, Germany, and easier materialized. Equally, the firm’s deter- “We’ve increased production at Le to assemble combine designs make mination to become a more significant Mans, raised productivity and the company’s core product cheaper player in the tractor sector is evident improved quality and we’ve increased to produce.These and other initiatives from the quicker-than-planned rolling our position in all regions.In Germany, increased gross profit on sales by out of Claas branding and distribution our market share has tripled.” 19.5% or Euro 78.5 million to Euro and a 23% increase last year in R&D at Having contributed only 5 481.8 million ($104m to $637m), the Le Mans plant. months’revenue to Claas group figures while operating income surged 39.5% in the prior year, the Renault tractor to Euro 63.1 million ($83.5m). WHERE CLAAS operations had a much bigger impact DOES BUSINESS in 2003-04.At Euro 1.4 billion ($1.85 WHAT CLAAS billion), Claas agricultural sales in Other Outside Europe Western Europe are 37.5% higher than SELLS WORLDWIDE European 10.7% the year before. Revenue Share Nations (in U.S. $) of Total 10.8% Sales CLAAS FISCAL 2003-04 Combines, 2,352.8m 92.1% Revenue Change tractors, (in U.S. $) hay tools EU Countries (Excluding Net sales Automotive/ 169.9m 6.6% Germany) – group 2.55b +28.9% aircraft Germany 55.3% – agriculture 2.35b +32.5% production 23.2% engineering Net income 28.4m +20% Driveline/ 31.7m 1.3% EBIT 94.6m +34% hydraulics EBITDA 164.4m +36.6% components

Ag Industry Watch/April/2005 5 Norway’s Kverneland Group Addressing Growing Pains Norway-based Kverneland Group,one maintenance equipment companies. being made to the Australian organiza- of the industry’s biggest farm imple- Difficult trading conditions in this tion and distribution networks in ment manufacturers,is striving to drive sector saw 2004 sales rise less than 2% France,Italy and Spain. down costs and improve the perform- with the poor performance blamed on With evidence of an upward trend in ance of its vineyard machinery divi- sales at the end of 2004 and so far in 2005, sion to halt a slide in profits. Kverneland is cautiously optimistic about While equipment sales improved its current year performance. in 2004 over the prior year, net profit “While sales fell 14% Farmers in the 10 new countries in slumped from a modest Euro 3.9m in the important German the European Union have enjoyed a 53% ($5.2m) in 2003 to a loss of Euro market, Kverneland made increase in income, according to the 10.6m ($14.1m) last year. significant headway in company, so prospects in those states Profitability of farm equipment are seen as positive as farmers in the operations slipped 15% to Euro 12.4m Central and Eastern region improve their competitiveness. ($16.5m),while the losses in the vine- Europe with a 9% gain. Likewise, the positive trend in Eastern yard machinery business increased Europe and CIS is expected to continue. from Euro 0.4m to Euro 4.9m ($0.5m Furthermore, a “It will be essential for the Kver- to $6.5m). 250% growth in sales was neland Group to adapt the production The company has charged a total of seen among the Central set-up to improve profitability from Euro 15.4m ($20.5m) of infrequent Independent States...” future sales in these markets,”says Berg. expenses and costs related to change “The European Union has decided to processes in 2004, as well as property continue the program of modernizing sale gains of Euro 1.2m ($1.6m).Restruc- European vineyards, which we expect turing charges were Euro 2.9m ($3.8m). increased material costs and opera- to have a positive market effect in 2005, Excluding these influences eases tional problems at the Gregoire plant although severe over-production could the vineyard sector’s loss to Euro 1.2m in Cognac, France. jeopardize this development.” ($1.6m) while improving its agricul- Agricultural equip- ture sector to a positive Euro 17.9m ment sales — plows,culti- ($23.9m) vators, drills, sprayers, KVERNELAND GROUP (IN EUROS) “Major operational improvements balers and other hay tools 2003 2004 Change are required, particularly at the Klepp — improved by the same factory and within the Vineyard busi- degree but with big varia- Group revenues 507.4 502.8 -0.9% ness,”says Frode Berg,Kverneland pres- tions in individual markets. Net sales – agriculture 429.3 437.1 +1.8% ident/CEO.“Improvement initiatives While sales fell 14% in the Net sales – vineyard 63.4 64.5 +1.8% will mainly focus on increasing flexi- important German market, bility and reducing fixed costs. Kverneland made signifi- Increased sourcing to Central and cant headway in Central EARNINGS INCLUDING Eastern Europe,increased automation, and Eastern Europe with a INFREQUENT EXPENSES temporary staff and flexible working 9% gain. Furthermore, a AND COSTS RELATED TO hours are all necessary to improve 250% growth in sales was CHANGE PROCESSES (IN EUROS) performance.” seen among the Central The board will also continue to Independent States (CIS). 2003 2004 Change evaluate the number of production Kverneland reorgan- EBITDA 42.5 19.2 -54.8% sites operated by the group, most of ized its operations at the which came with Kverneland’s high- end of last year to EBIT 17.0 (2.9) -117% profile acquisitions in the 1990s.This strengthen local focus on Group net profit 3.9 (10.6) -371% saw the moldboard plow and cultiva- profitability and improve Net profit – agriculture 14.6 12.4 -15% tion equipment company diversify into decision-making by Net profit – vineyard (0.4) (4.9) -1125% hay tools with Taarup of Denmark and creating four divisions with later, Greenland Industries, owner of locally responsible busi- the Vicon business. Cultivation and ness units within each and EARNINGS EXCLUDING seed drilling manufacturers in centralizing all transaction- INFREQUENT EXPENSES Germany (Accord, Becker and Rau) based support services. AND COSTS RELATED TO and Italy (Maletti) were also brought Manufacturing opera- into the Kverneland fold. tions are being made more CHANGE PROCESSES (IN EUROS) In the past 5 years, Kverneland has efficient at farm equipment 2003 2004 Change become the world’s biggest supplier of plants in Norway and vineyard equipment, acquiring grape Germany as well as EBITDA 27.6 28.4 +2.8% harvester manufacturers Gregoire of throughout the vineyard EBIT 10.0 14.2 +42% France and UR Machinery (Vinestar) in division, says Kverneland. Net profit – agriculture 14.6 17.9 +22.6% Australia,along with a handful of vineyard Substantial changes are also Net profit – vineyard (0.4) (1.2) -200%

6 Ag Industry Watch/April/2005 MARCH U.S. UNIT RETAIL SALES Beware the February March March Percent Percent Equipment YTD 2005 YTD 2004 2005 Field 2005 2004 Change Change Ides of March Inventory After better-than-expected sales in Farm Wheel February, the farm equipment sales Tractors-2WD data for March, the first month of the spring selling season, showed disap- Under 40 HP 10,110 10,778 -6.2 21,168 21,549 -1.8 62,759 pointing retail tractor sales. 6,105 4,918 +24.1 14,426 11,977 +20.4 29,208 Despite a 3% total sales increase 40-100 HP vs.a year ago,the key large farm equip- 100 HP Plus 1,891 1,924 -1.7 5,217 4,889 +6.7 5,925 ment segments — >100 HP 2WD trac- tors, 4WD tractors and combines — Total-2WD 18,106 17,620 +2.8 40,811 38,415 +6.2 97,892 fell 1%,the first year-over-year decline since February 2004.Specifically,retail Total-4WD 336 382 -12.0 762 766 -0.5 984 demand for 4WD tractors slipped 12% vs. last March, with sales of large trac- Total Tractors 18,442 18,002 +2.4 41,57339,181 +6.1 98,876 tors falling about 2% after a 5% SP Combines 313 265 +18.1 917 647 +41.7 1,151 increase in February. March sales were lower for small tractors (down 6.2%), row-crop trac- tors (down 1.7% after a 26.2% increase MARCH CANADIAN UNIT RETAIL SALES in March of 2004) and 4WD tractors February March March Percent Percent (down 12%), but were higher for Equipment YTD 2005 YTD 2004 2005 Field 2005 2004 Change Change utility tractors (up 24.1%) and Inventory combines (up 18.1%). Farm Wheel “March is the third most season- Tractors-2WD ally important month for row crop tractors, contributing 12% to annual Under 40 HP 399 375 +6.4 835 836 -0.1 3,786 sales over the last 5 years,” notes Robert McCarthy, R.W. Baird. Credit 40-100 HP 360 355 +1.4 949 960 -1.1 2,363 Suisse analyst John McGinty adds,“A 100 HP Plus 247 228 +8.3 578 495 +16.8 1,433 flat result in March, even against a strong year ago, has to be viewed as Total-2WD 1,006 958 +5.0 2,362 2,291 +3.1 7,582 disappointing.” Utility Tractors — Sales increased Total-4WD 51 66 -22.7 89 143 -37.8 199 24.1% in March vs. a 7.9% increase in March ‘04. Total Tractors 1,057 1,024 +3.2 2,451 2,434 +0.7 7,781 Row-Crop Tractors — Sales fell 1.7% SP Combines 60 52 +15.4 165 130 +26.9 415 in March vs.a 26.2% increase in March ‘04.UBS’David Bleustein now expects 2005 an annual rate of 17,200 units sold. U.S. UNIT RETAIL SALES OF 5 year Four-Wheel Drive Tractors — Sales 2-4 WHEEL DRIVE TRACTORS & COMBINES average fell 12% in March, following a 37.9% increase in March ‘04. 30,000 Combines — Sales increased 18.1% in 28,000 March vs.a 1.1% decline in March ‘04. 26,000 As far as inventories,stocks of row 24,000 crop tractors (-4.4%) and combines (-11.2%) are below year-ago levels, 22,000 while inventories of utility tractors 20,000 (+7.1%) and 4WD tractors (+4.6%) 18,000 exceeded last year’s levels. 16,000 Bleustein still expects 0-5% growth in farm machinery sales in 14,000 ‘05, saying generally lower farm 12,000 commodity prices are being offset 10,000 by strong livestock profitability, strong farmer balance sheets, lower 8,000 interested rates, a countercyclical 6,000 farm program and multiple years of JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC weak demand. —Assn.of Equipment Manufacturers Ag Industry Watch/April/2005 7 Canadian Farmers to See $1 Billion in Aid Canadian farmers hard hit by the be forced to contribute. “Following the discovery of mad cow closing of the U.S.border to cattle and “We are actually seeing negative disease in Canada in May 2003 and the other difficulties will get $1 billion farm income from the Canadian subsequent ban on live cattle imports more in income support, Canada’s marketplace,”says Mitchell,“and 2005 from the country, industry row crop Federal Agriculture Minister Andy is likely to be the third consecutive tractor sales in Canada declined Mitchell announced in late March. year that such a situation exists.” roughly 3% in the second half of 2003 Of the total, $300 million will be Weather problems, poor and 9% in 2004.” set aside for cattle ranchers who have commodity prices and border issues been devastated by the U.S. border ($7 billion lost in the 22 months that closure.Another $480 million will go the border has been closed to live USDA PROSPECTIVE to farmers in the hard-hit grains and cattle) have all contributed to the prob- PLANTING SURVEY oilseeds sectors, with an additional lems facing Canadian farmers,he says. $150 million for farmers of other field “We believe the subsidies Cana- (3/31/05) crops. The government is asking the dian farmers will receive could Soybeans ...... 73.9 million acres (-2%) provinces to share some of the costs in support farm equipment sales in Corn ...... 81.4 million acres (+0.6%) the aid package, but provinces won't Canada,” says David Bleustein, UBS.

JCB Announces Aggressive Growth Plans Following Record Sales Year JCB announced new expansion plans new JCB Heavy Products factory in with the backhoe loader line. JCB’s in mid-March.The British-based firm, Uttoxeter, Staffordshire, and the new sales turnover rose to record levels to which has a wide range of construc- dedicated JCB Power Systems factory over £1 billion while the company tion equipment as well as an agricul- at Church Broughton,Derbyshire.The retained its position as the world’s tural tractor line, has acquired land in two recent announcements bring the fifth largest manufacturer of construc- Pudong,south of Shanghai,which will number of JCB plants in the UK to 10, tion equipment. become JCB’s Chinese manufacturing with a further 5 worldwide. The firm has now launched a total headquarters. The firm is also The growth comes on JCB’s most of 18 products.“With the new prod- expanding in India, with a second successful sales year in history, ucts we are unveiling, we now have a factory in Pune that will produce fabri- reaching 37,260 machines in 2004. range which can help us achieve even cated and machined components. JCB’s worldwide market share rose stronger sales growth across the This global expansion is in addi- from 8.2% to 8.6% and the company world,”says John Patterson, managing tion to plans announced last year for a retained world market leadership director and CEO.

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