Deborah Wadsworth

Note: The example only includes a few slides from the presentation deck Global Gas Genset Deep Dive Cummins Gas Genset Business Overview ▪2005 Cummins Gas Genset total revenue $102.7M with gross margin 18%. ▪Cummins overall share in <3MW gas genset market is about 7%. 2005 Cummins Gas Genset Revenue 2005 Cummins Gas Genset Revenue and Gross Margin Residential, 4.87% <150KW (Commercial), 38.17% Lean burn , 43.82% 30% 40 25% 20% 30 15% 20 125~880KW (Stoichiomtric) , 13.15% Note: the data shown here only includes gas genset sales, do not include revenues from the adjacent businesses. 50 10% 10 0 2005 Revenue ($M) Overall Gross Margin % 5% Consumer (Residential) <150KW 125~880KW (Commerical) (Stoichiometric) 0% Lean burn 5 39.2 13.5 45 25% 19.77% 13.50% 17.02% •Information about 125~880kw Stoichimetric gensets comes from Cummins NPower •Revenue of lean burn genset based on 2005 shipment 2 Source: Cummins Internal Global Gas Genset Market By Region 2011 Global Gas Reciprocating Genset (0~3MW) Market ~$2B 2005 Global Gas Reciprocating Genset (0~3MW) Market 4% ~$1.4 Billion 4% 4% 3% North America 4% E.Europe&Russia 5% North America W.Europe 4% W.Europe 4% 6% 6% E.Europe&Russia 4% China China 47% India 6% India 54% Latin American Latin American 22% Middle East & Africa 23% Middle East & Africa Asian Pacific Asian Pacific 22% 16% 2005 11% 8% 466 11% Ind ia La tin Am M eri idd can le Ea st & Af ric a As ian Pa cifi c Ch ina E.E uro pe &R uss ia 115 55 W .Eu rop e - No rth Am eri ca 50 85 As ian Pa cif ic 50 80 Ch ina 70 120 10% 12% 4% 2011 316 Ind ia La tin Am eri ca Mi n dd le Ea st &A fric a 3 2005~2011 CAGR by Region 963 W. Eu rop e E.E uro pe &R us sia No rth Am eri c a - $M- Sources: 1. Frost & Sullivan,; 2. 2005 Worldwide Diesel Engine& Gas Turbine Survey 3. Parkinson data 4. Cummins Internal Market environment is changing •Rapid growth of gas consumption in major markets around the world drives6 gassegments price up. •Emission regulations in North America and Western Europe will be more stringent. Major countries in Nonregulated emissions markets are expected to adopt sort of emission regulations either nationwide or in major cities in 5~6 years . •Market and window time remaining to low efficiency, high emissions gensets are diminishing. Emission regulations Category 4 Marketsthe arebubbles migratingare as size red arrows show. Numbers besides of the sub-market in 2005. Low-BTU gas 7 18 Normally regulated emissions Standby Category 3 Oil & gas industry 18 Highly regulated emissions 92 Standard Gas Non-std. Low -BTU Category 2 Category 1 4 85 33 97 92 468 72 15 321 105 Nonregulated emissions Non-Std. Low-BTU Non-Std. High-BTU Std. gas, Low Std. gas Medium price or price or sensitivity sensitivity Std. gas High price or sensitivity Non-Std., High-BTU CPG Market Segments Planned Usage Primary Source / Secondary Source of Power Standby Unplanned Use Primary Application (Reason for Purchase) 2005 Market Size is $7-8 Billion Globally Basic Power: $1.5B Power Plants: $1B Gas $250 Gas $200 Diesel $450 Turbine $350 Diesel $1,250 Diesel $500 Basic Protection: $2.5B Gas $500 Energy Gas $500Management: Advanced Protection: $1B Diesel $1,000 Diesel $2,000 $1B Diesel $440 Critical Protection: $440M High Low Economic Value of Electricity to Customer 5 Sources: Diesel & Gas Turbine Worldwide, Frost & Sullivan Segment Assessment Size of the bubbles reflects both segment size and growth Standby Attractiveness 60 50 #5 Monitoring #1 40 Defend and Grow #3 #6 30 #4 20 Leverage existing product and technology Non-regulated emissions Oil & Gas Industry #2 Further research 10 Highly-regulated emissions 0 0 10 20 30 40 Cummins Capability 6 Normally regulated emissions 50 60 Low-BTU Nonstandard gas Market Segmentation: Methodology & Results Identify customer needs / genset performance Group the correlated drivers into independent factors Customer needs /genset performance Drivers Correlations Independent Factors Efficiency Sensitivity to gas price Independent Sensitivity to gas cost operating hours Correlated with application Application Emission regulation Independent Emission Regulation Load Acceptance / transient performance application Correlated with operating hours Application BMEP Sensitivity to initial cost of genset Correlated with application, cost of gas, and operating hours Sensitivity to gas cost, Application Power Density Sensitivity to initial cost of genset Correlated with application, cost of gas, and operating hours Sensitivity to gas cost, Application Maintenance Maintenance cost Correlated with application Application operating hours Correlated with application Application loss from genset failure Correlated with application Application Reliability 7 Identify drivers for those needs / performance Find out correlations among drivers •Sensitivity to gas cost •Application •Emissions Overall SWOT analysis for Cummins Gas Genset business Strength ▪Leading position in commercial standby market ▪Technology development capability ▪Existing 1~2MW lean burn gas engine platforms and below 1M stochiometric gas engine platforms ▪“Power of One”: cross BU synergy & cross LoB synergy ▪Worldwide distribution network ▪Strong brand name in all major markets Weakness ▪Current market limited to a few countries in N.A., EMEA and Latin America ▪Lack of offerings in 0.5~1MW range (both lean burn and stoichiometric). Core lean burn 1~2MW products not quite competitive in efficiency, price , and low-BTU ▪Lack of capable channels or partners in most gas product markets: for basic power / CHP customers, system integration / total solution are differentiators. ▪Lack of resources to pursue good opportunities 8 Opportunities ▪International markets: Russia, China, India, Threat Nigeria, Indonesia, Pakistan, Bangladesh, Brazil, Argentina… ▪Oil & Gas industry ▪Low-BTU non-standard gas sector genset performance. ▪Emission regulations are likely adopted in major non-regulated emissions markets. ▪Rising gas price will raise the bar for gas Product Mix •Lean Burn genset sales grow rapidly in recent couple of years. 100% Lean burn 2003~05 Growth (CAGR) • <150KW Commercial standby and 125~880KW Stoichiometric gas gensets have stable market position and share in North America. 20% Residential •Residential gas genset business is also catching up in revenue and market share. Stoichiomtric 125~880kw 0 Market Share Commercial <150kw 30% (To save the scale, positions of the businesses are relative not actual.) 9 Cummins Current Gas Engine G-drive rating Engine Engine Plant Released to Cummins system Standby (KW) Prime (KW) Continuous (KW) G/GTA5.9 CNGE Y 49~116bhp G/GTA8.3 CNGE Y 99~190bhp GTA855G1 CNGE Y 188-286bhp 185 160 130 GTA855G2 CNGE Y 188-286bhp 215 190 150 GTA855G3 CNGE Y 188-286bhp 250 190 160 GTA14G2 / G1 CNGE N 280 235 210 GTA19G1 CNGE N 325 260 220 GTA19G2 CNGE N 350 320 270 500 450 380 GTA28 10 Gas Compression rating EBU is going to drop this engine due to low volume. CNGE N GTA38G1 CNGE N 575 520 435 GTA38G2 CNGE N 625 565 470 GTA38G3 CNGE N 680 615 520 GTA50G1 CNGE N 750 675 560 GTA50G2 CNGE N 800 720 600 GTA50G3 CNGE N 880 795 670 KTA 19GC CIC Y 265~420bhp KTA 38GC DAV Y 760~850bhp CNGE says they don’t have experience and confidence to support prime and continuous applications of these engine. Overall competitive assessments ▪CAT ▪ Remains the dominant player globally ▪ Continues to be a leader in virtually all market need categories ▪ A broad and mature product range, funds for continued product investment, extensive experience in most markets, and the volume support from Industrial and Oil and Gas ▪ Applications to generate economies of scale and allow price flexibility depending on the level of competition ▪Jenbacher ▪ Very good product line in efficiency and ability to serve specialty markets, e.g. biogas. ▪ Dominant in Europe with highest efficiency products ▪ Weaker presence in the US ▪Deutz ▪ Has had a long presence in the market, well known product line by engineers and packagers ▪ Has fallen behind in Europe based on product and support issues ▪Waukesha ▪ Strong decline in Power Generation market presence ▪ Continues to rely on old technology with limited or no improvement in Total Lifecycle Cost ▪ Appears to be focusing mostly on the Oil & Gas markets ▪ Reasonable range of products with established packagers and distributors, particularly in oil and gas ▪Cummins ▪ Competitive but still need to catch up in technology and products. ▪ Brand name is strong and in the few places where our distribution capabilities is particularly strong we have been able to gain some penetration. 11 Product Line Cummins Perkins Waukesha Deutz Lean burn Stoichiometric CAT Jenbacher 0 500 50 & 60 HZ 1000 1500 2000 2500 3000 3500 4000 Power (KWe) •Caterpillar, Jenbacher, Deutz and Waukesha all have fairly complete product lines from 200KWe to 3 MWe using lean burn technology. •Cummins does not have lean burn products between 500 – 1100 KWe and above 2MWe, and stoichiometric products above 880KW. 12 Note: Dots stand for start / end of output range of a particular gas engine / genset model. Lines stand for output ranges that engines /gensets cover. Source: Secondary Research & Cummins Internal Low BTU Gas Competitor Capabilities CAT Fuel Energy Content (BTU/ft 3) 1000 13 - Jenbacher Deutz Waukesha Cummins Reasons for North America Standby Customers to buy Diesel or Gas Genset Diesel: 1.) Code. Code requires a self sustaining emergency system. This is interpreted to mean that an emergency system can not rely on another utility (i.e. the natural gas utility) for it's fuel source. 2.) Cost. The cost of a natural gas set becomes significantly higher than diesel as the set size increases. This price difference begins above 200 kW. 3.) Perception of durability that is associated with a diesel. 4.) Better block load starting performance and transient performance. Natural Gas: 1.) Fuel storage. No need for onsite diesel fuel storage and the problems associated with it such as need to clean fuel if not used, EPA issues, code requirements that limit the amount of on site fuel storage allowed. 2.) Run time. As long as the gas utility is up, the gas genset is not limited on run time by the amount of fuel available. This was a big issue and increased awareness of the issue during the Northeast blackout in 8/2003. The outage was over 24 hours, covered a huge area, and diesel fuel stations couldn't provide fuel as they didn't have power. Customers with diesel sets ran out of fuel and couldn't get fuel delivered. 3.) Fuel access. Gensets installed on roof tops can be difficult to refuel with diesel and natural gas can be readily available at the roof top. 4.) Smell / smoke. Depending on genset location, customers may not want that diesel smell or black smoke and a natural gas set can be a better fit. 5.) Emissions. NOx and particulate matter considerations. 14