Annual Report Engines 2019 MTU Aero ANNUAL REPORT 2019 From evolution to revolution Table of contents 25 TO OUR SHAREHOLDERS 26 The Executive Board 28 The MTU share 33 CORPORATE GOVERNANCE 34 Corporate governance report 35 Declaration of conformity 40 Report of the Supervisory Board 44 The Supervisory Board 47 COMBINED MANAGEMENT REPORT 48 The MTU Group 57 Business environment 72 MTU AG (disclosures in accordance with the German Commercial Code [HGB]) 77 Forecast 80 Risk and opportunity report 90 Management compensation report 101 Internal control and risk management system for the group accounting process 103 Disclosures under takeover law 108 Other disclosures 109 Non-financial statement 123 CONSOLIDATED FINANCIAL STATEMENTS 124 Consolidated income statement 125 Consolidated statement of comprehensive income 126 Consolidated balance sheet 128 Consolidated statement of changes in equity 129 Consolidated cash flow statement 130 Consolidated segment report (part of the Notes to the consolidated financial statements) 132 Notes to the consolidated financial statements 215 ADDITIONAL INFORMATION 216 Glossary of engine terms 218 Overview of engines 219 Index 220 List of charts and tables 222 Financial calendar 222 Contacts IBC Information on MTU shares OBC Key facts and figures with year-on-year comparison Information on MTU shares > MTU listed in the German stock index (DAX) since September 23, 2019 > Price performance in 2019 much better than the DAX and MDAX [T1] Share performance over the past five years 2015 2016 2017 2018 2019 Year-end price €90.10 €109.80 €149.40 €158.40 €254.60 Annual performance 25% 22% 36% 6% 61% 250 200 150 100 50 2015 2016 2017 2018 2019 Key facts and figures with year-on-year comparison [T2] Selected consolidated financial information and key figures at a glance Change against previous year in € million (unless stated otherwise) 2019 2018 in % Revenue and earnings Revenue 4,628.4 4,567.1 1.3 thereof: commercial engine business 1) (prior-year amounts adjusted, see segment reporting) 1,536.9 1,395.6 10.1 thereof: military engine business 1) 458.7 431.1 6.4 thereof: commercial maintenance business 1) 2,711.4 2,799.8 –3.2 Gross profit 931.3 851.3 9.4 Earnings before interest and taxes (EBIT) 705.6 620.2 13.8 Net income 488.4 453.3 7.7 Adjusted earnings Adjusted earnings before interest and taxes (adjusted EBIT) 756.9 671.4 12.7 Adjusted EBIT margin (in %) 16.4 14.7 facts and figures Key Net income 537.6 479.1 12.2 und Kennzahlen Fakten Balance sheet Total assets 7,765.3 6,850.8 13.3 Equity 2,421.2 2,144.2 12.9 Equity ratio (in %) 31.2 31.3 Net financial debt 960.7 854.0 12.5 Cash flow Cash flow from operating activities 831.7 594.7 39.9 Cash flow from investing activities –471.6 –336.1 –40.3 Free cash flow 358.3 202.9 76.6 Cash flow from financing activities –323.6 –262.7 –23.2 Number of employees at year end Commercial and military engine business 6,698 6,109 9.6 Commercial maintenance business 3,962 3,622 9.4 Total number of employees 10,660 9,731 9.5 Share indicators Earnings per share in € Basic earnings per share 9.23 8.67 6.5 Diluted earnings per share 8.46 8.10 4.4 1) Before consolidation. From evolution to revolution MTU Aero Engines is aware of its responsibility for sustainable, emissions-free flight and is already investing today in pioneering technologies for the commercial aviation of tomorrow—and the day after tomorrow. To this end, MTU conducts evolutionary technology- development that, combined with the use of sustainable fuels, directly reduces emissions. At the same time, it pursues revolutionary propulsion concepts—including two concepts made by MTU that combine the tried-and-true gas turbine engine with brand new technologies. The company is also investigating the potential advantages of parallel hybrid-electric systems and engines based on fuel cells. revolution to MTU holds a prime position for this: never before has the company had 03 such pioneering answers to the challenges of aviation as today. evolution The ambitious goal: From 100 % performance. 0 % emissions. THE FUTURE OF AVIATION STARTS TODAY. ANNUAL REPORT 2019 Blazing new trails: the MTU roadmap. Paving the way for emissions-free flight. FUTURE ENGINES TECHNOLOGY OPERATIONAL ENVIRONMENT STATUS Propulsion system Urban Commuter Short & Long haul Technological maturity mobility medium haul (Idea [1] – Industrialized [6]) G Gas turbine E Electric propulsion system 2nd 2nd-generation GTF G Refinement of geared 4 turbofan technology 67+33+WS Revolutionary engine concepts G Composite cycle and 2 steam-injected and water- 33+67+WS recovering gas turbine Sustainable fuels G Generated from renewable 2 – 6 energy 70100+30+WS Parallel hybrid- electric G systems E Combination of turbo- 3 machinery and electric motor 3550+65+WS Batteries E Electric propulsion systems 3 – 6 for small aircraft 35100+65+WS Flying fuel cells A propulsion technology E H2 2 with excellent potential 2534+75+WS MTU is conscious of its responsibility for sustainable and emissions-free flight. In its technology roadmap, it lays out answers to the challenges of the future. Detailing evolutionary solutions and revolutionary propulsion concepts, the roadmap paves the way to emissions-free flight. TIMELINE CO2 /NOX NOISE 2020 2030 2050 Reduction in carbon dioxide (CO2 ) Reduction in noise and nitrogen oxides (NOX ) (potential) (potential) 2030 revolution to 05 evolution 2030+ From From * Today * * 2025 * * with gas turbine 2025 2040 The low-emission and low-noise geared turbofan engines that power the Airbus A320neo are winning over airlines around the world; the engines are undergoing further optimization. FUTURE ENGINES TECHNOLOGY OPERATIONAL ENVIRONMENT STATUS Propulsion system Urban Commuter Short & Long haul Technological maturity mobility medium haul (Idea [1] – Industrialized [6]) G Gas turbine E Electric propulsion system 2nd 2nd-generation GTF G Refinement of geared 4 turbofan technology 67+33+WS Evolution: The GTF success story continues. revolution to 07 evolution From From TIMELINE CO2 /NOX NOISE 2020 2030 2050 Reduction in carbon dioxide (CO2 ) Reduction in noise and nitrogen oxides (NOX ) (potential) (potential) 2030 Even cleaner, quieter and more sparing of resources: The second generation of the geared turbofan. 2nd The geared turbofan (GTF) is a success story, setting standards for fuel and noise reduction. Development of the second generation is already underway with clear targets: further reductions in emissions, kerosene consumption and noise. SECOND-GENERATION GTF WITH ULTRA-HIGH BYPASS RATIO A 75 percent cut in CO2 per passenger kilometer and a 65 percent reduction in noise: these are the targets the European Union and the aviation sector have set to reach by 2050. However, the goal of limiting global warming to less than two degrees Celsius calls for all efforts to be accelerated. MTU has aligned these goals with its own business activities and laid them out in its Clean Air Engine (abbreviated: Claire) technology agenda. The first-generation geared turbofan marks the first milestone. A 16 percent reduction in fuel consump- tion and CO2 emissions as well as a 75 percent reduction in noise pollution has piqued the interest The second-generation geared turbofan will be even quieter and more efficient. of airlines all around the world. In its second stage, Claire aims to reduce the engines’ fuel consumption by 25 percent and halve noise emissions by 2030. The next step will then focus on revolutionary concepts that reduce energy consumption by 40 percent and have the potential to avoid all emis- sions that are damaging to the climate. „ There is huge potential to improve the geared turbofan concept. The developments laid out in our technology roadmap will pave the way for us to achieve a major reduction in fuel consumption and, with sustainable fuels, to make aviation largely carbon-neutral. DR. JÖRG HENNE, SENIOR VICE PRESIDENT, ENGINEERING AND TECHNOLOGY “ GTF engine on the test stand ___ MTU Aero Engines in Munich performs the final assembly and production acceptance tests on one-third of all A320neo engines. THE FIRST-GENERATION GEARED TURBOFAN The aim is to reduce fuel burn and noise emissions HAS HELPED SAVE SOME 1.4 MILLION TONS OF by as much as 10 percentage points compared CO2 EMISSIONS SO FAR; THE SECOND GENERATION with the current model. WILL BE EVEN BETTER: To achieve these figures, the developers are working on various aspects of the engine to make it lighter and more efficient overall. Optimizations revolution they are pursuing include an integrated design for to the low-pressure and high-pressure compressors, 09 and improvements to the high-speed low-pressure turbine—here, too, in an integrated approach. LOWER EMISSIONS, LESS NOISE* evolution Geared turbofan 1st generation 2nd generation New materials such as ceramic composites From will also come into play. At the same time, new coatings, additive manufacturing and increasing simulation capabilities will play an even greater role than they do in the current development and production process. When it comes to digitalization Noise – 40 % – 50 % and simulation capabilities, MTU is counting on a unique research institution: the DLR Institute for – 15 % – 25 % Test and Simulation for Gas Turbines (SG) in Augsburg, which focuses on the virtual engine. * Reduction compared to an engine from the year 2000. MTU is involved in its role as a partner and contributor of ideas. Advanced level of maturity For most of these technologies, development is In a separate development, sustainable fuels will at an advanced stage, and could be completed by have to be able to largely eliminate CO2 emissions. 2027. The success story continues By that point, the number of air passengers is likely While production of the first-generation GTF is still to rise further, making it all the more important ramping up, MTU’s engineers are already working that the engines are even cleaner and more on the next generation.