The Changing Structure of The Global Construction Equipment Industry March 2016, Dusseldorf

A Management Consultancy that specialises in the research and analysis of international construction equipment markets. The largest of its kind in the world. Formed in 1981 as part of the Economist Intelligence Unit. Management Buy-Out in Now owned by KHL Offices in: - London, England- New York, USA- Tokyo, Japan - Beijing, China - New Delhi, India WHO WE ARE

Products Included in This Presentation Articulated Dump Trucks Asphalt Finishers Backhoe Loaders Crawler Dozers Crawler Excavators Crawler Loaders Mini Excavators Motor Graders Motor Scrapers Rigid Dump Trucks RTLTs – Masted RTLTs – Telescopic Skid-Steer Loaders Wheeled Excavators Wheeled Loaders

WE ARE FACING A MOST UNCERTAIN FUTURE

Some Positives … But Many Negatives

The Road Ahead is Far From Straight and Clear

Global Overview Global Equipment Sales * Forecast 2012: $99 billion 2013: $93 billion 2014: $93 billion 2007: $98 billion 2009: $55 billion 2010: $77 billion 2011: $102 billion Sales ($ Billion) 2015*: $84 billion 2019*: $92 billion *2019* ­ China $11$35 $24$21 $19$12$16 ­ North America $28$20 $25$26 $29$30$29 ­ Europe $20$12 $13$12$13 ­ India $2$3 $2 $3 ­ Japan $5$3 $4$6 $5 ­ Rest of World $32$29 $32$25 $24$23$27 ­ TOTAL WORLD $98$102 $99 $93 $84 $92

Global Value of Construction Equipment, by Type 2014 ($ Billion) Total: $93.3 billion

Key Sales Trends, by Region, * (Units) * Forecast

Key Production Trends, by Region, (Units)

Global Recovery: Governments’ Investment is Essential They Influence 80% of Machinery Demand

Global Sales of Construction Equipment 2000 – 2019* (Units) * Forecast Average : 880,762 Average *: 768,435

Changing Structure of Global Demand, * (% of Total) 2007 *Forecast * 2011

A Long and Winding Road To Recovery Europe

Europe: Development of Sales, * (Units) * Forecast Average : 116,407 Average *: 130,695

Europe: Structure of Sales, by Product, * (% of Total) * 2014 *Forecast

Europe: Structure of Sales, by Country, * (% of Total) *Forecast 2019*

Europe: Development of Production, (Units) Average : 180,805 Average : 141,015

North America Still Fragile, But Positive Signs of Recovery

North America: Development of Sales, * (Units) * Forecast Average : 138,061 Average *: 173,632

North America: Structure of Sales, by Product, * (% of Total) *Forecast 2019*

North America: Development of Production, (Units) Average : 166,262 Average : 113,179

India Growth Will Be Stronger and More Dependable Than in The Past

India: Development of Sales, * (Units) * Forecast Average : 45,212 Average *: 52,296

India: Structure of Sales, by Product, * (% of Total) * * Forecast

India: Development of Production, (Units) Average : 25,543 Average : 44,398

China Rapid Increase, Rapid Decline – Stable Future?

China: Development of Sales, * (Units) * Forecast Average : 321,888 Average *: 148,591

China: Focus on The Crisis Sales, Wheeled Loaders * (Units) * Forecast Average : 163,022 Average *: 58,800 29

China: Focus on The Crisis Sales, Crawler Excavators * (Units) * Forecast Average : 113,244 Average *: 53,200 30

China: Development of Production, (Units) Average : 225,062 Average : 358,552

China: Structure of Sales, by Product, * (% of Total) * *Forecast

China: Excess Capacity By Product Type, 2015 (Units) Wheeled Loaders Chinese Theoretical Capacity: 420,000 Global Sales: 125,500** Excess Capacity: 274,500** * Crawler, Wheeled, Mini ** Forecast 2015 Excess Capacity: 274,500 Excess Capacity: 175,000 China Sales: 60,000 China Sales: 63,500 Excavators* Chinese Theoretical Capacity: 548,000 Global Sales: 373,000 ** Excess Capacity: 175,000**

Crucial Role of Exports China: Exports of Construction Equipment, Units

Excess capacity – probably 75% too much Large machine population and stock of used machines blocking new equipment sales Easy financing – very dangerous indeed -Must do better credit checks -Very high % of repossessions Too many suppliers offering similar ‘solutions’ -Products, financing, distribution -But little cash for R&D, or future expansion Top 10 manufacturers gaining greater market share – but not rapidly recently -2002: 49% -2009: 64% -2014: 63% Smaller manufacturers diluting the market -Consolidation? -Mergers and Acquisitions? -Exit from the industry altogether China: Current Challenges Facing The Industry Domestic

China: Current Challenges Facing The Industry International ‘Brand China’ seen to be a problem - Poor machine quality - Poor customer support - More of a perception than reality – many machines now very good indeed. Problem of brand differentiation in ‘Gong’ approach. Standards and emissions in developed countries. Focus on developing countries - Customer expectations are lower - Less brand loyalty - Lower margins Crucial problems of creating distribution network Urgent need for: - Global brand recognition - International management - First world distribution customer support Probably only achievable short term through acquisition - But do they now have the cash?

Global Summary Still A Most Uncertain Future

Telephone: +44 (0) DAVID C A PHILLIPS Managing Director Please do not hesitate to contact the team for help at: THANK YOU!