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Operations Review. Phil Widman, Chief Financial Officer Tom Riordan, President & Chief Operating Officer. Agenda. Horizontal Integration Opportunities Information Systems Emerging Markets Global Manufacturing Footprint Supply Chain Management Lean Emphasis Financial Services

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Operations Review

Phil Widman, Chief Financial Officer

Tom Riordan, President & Chief Operating Officer


Agenda
Agenda

Horizontal Integration Opportunities

Information Systems

Emerging Markets

Global Manufacturing Footprint

Supply Chain Management

Lean Emphasis

Financial Services

Cash Utilization Priorities

New Product Development



Opportunities within information systems
Opportunities within Information Systems

Terex Management System

Multi-year implementation

Benefits realized through information availability to make better decisions

Initial focus on major geographies of USA, UK and Germany

An enabler to assist in the integration of information across our operations


Common vs. Unique System Requirements

More Common

Chart of

Accounts

Legal Entity / Organization Structure

Common Processes

Uniqueness

Customer / Supplier Numbering

Commodity Classification

More Unique

Mode of Manufacturing

BOM Configurations

A

a

Redmond

Watertown

Cedar Rapids

Waverly

Motherwell

Dortmund

Perugia

Zweibrücken


Opportunities within information systems1
Opportunities within Information Systems

E-cost – supply management

Service Part Demand Planning

Customer facing processes

Email and collaboration capabilities

Global IT network infrastructure

Other initiatives justified on their merits, pursued in parallel to ERP implementation


Operations overview
Operations Overview

  • Near term and longer term opportunities for Terex include:

  • Strategy

  • Growth in emerging markets

  • Supply management

  • Process improvement and emphasis on lean

  • New product development


Corporate strategy map
Corporate Strategy Map

OPERATIONAL EXCELLENCE

INTENSE CUSTOMER FOCUS

PROFITABLE GROWTH

Most Customer Responsive – Delighting Customers with a Superior Ownership Experience

People to People Solutions“Relationships that I can depend on to help me ”

Customer-Defined Value

“Deliver highly competitive entry, operating and exit value”

Make My Job Easier“Make it easy for me to run my business”

Most Profitable

Drive Shareholder Value (After-tax ROIC)

Financial

Increase Operating Margin

Generate Cash Flow

Grow Revenue

Customers

World-Class Business Model

Build a lean quality enterprise

Know the customer

Expand competitive positionin low or emerging market share areas

Build a global supply chain that creates a competitive advantage

Execute service delivery models

Develop and expand channels best aligned to customer value

Processes

Optimize the asset base

Establish win-win relationships with customers, dealers, & channel partners

Leverage voice of the customer for effective new product development

Implement closed-loop customer feedback process

Excel at profitable acquisition and integration process

Speed & deployment of know-how

Preferred Place to Work – Energized People who Think Terex

Team

Acquire, develop, and retain diverse and agile Team Members

Provide optimal team member experience & engagement

Intentionally build theTerex culture

Live the Terex Values


Background situation
Background/Situation

  • Terex is underrepresented in several key growth economies around the world

  • These economies present both opportunities and risks for our company that can only be addressed through significant and decisive action

  • Success will require facing global realities as one company, not a collection of businesses operating independently and at small scale

  • In 2008, we will:

    • Establish one company strategies in major developing markets

    • Put an organization in place that is equipped to execute these strategies

    • Increase intensity in developing markets by investing significant new talent and capital where long term strategic value is the greatest


Why emerging market growth
Why Emerging Market Growth?

2006

2016

62 %

57 %

56 %

44 %

18 %

33 %

?

80 %

N. America, W. Europe, ANZ

Japan,

South Korea

BRIC + Mexico

Other Countries

Sources: Analysis of data from the Economist, Global Insights, and Terex internal sources


Where emerging market growth
Where Emerging Market Growth?

ANNUAL CONSTRUCTION SPENDING,

2006 + GROWTH TO 2016 ($B, ’07)

10 YR CAGR

GLOBAL PRIORITIES

3 %

  • Existing core, although lower growth, remains a significant opportunity

  • China is, by far, the greatest developing world opportunity

  • Terex is aggressively establishing a presence in India, Russia & Brazil in order to grow with the market as it develops

  • Significant opportunities in other countries as these markets continue to emerge

2 %

15 %

10 %

8 %

5 %

6 %

7 %

Sources: Analysis of data from Global Insights


Supporting footprint objectives
Supporting Footprint Objectives

  • Increase manufacturing presence in the emerging countries (China, India, Brazil, etc.)

  • Establish local product and corresponding cost positions to appropriately serve local market needs

  • Leverage product and cost positions internationally


Investment In China–Foundation for Future Growth

Baotou

Terex NHL

Manufacture trucks

Terex NHL Atlas

Manufacture hydraulic

excavators

Terex NHL Unit Rig

Sales/service and

fabricate dump bodies

Beijing

Terex China Management

Material processing & Mining

Sales and service

Terex O&K

Sales and service

Terex Hypac

Sales and service

Demag

Sales and service

Beijing

Baotou

Sanhe

Tianjin

Sanhe

Sanhe Factory

Manufacture mini excavators

Shanghai

Shanghai

Genie

Sales and service

with manufacturing in 2009

Roadbuilding

Sales and service

Demag Shanghai

Technical Service

Center

Luzhou

Tianjin

Tianjin Factory

Manufacture

tower cranes sections

Luzhou

Changjiang CraneManufacture truckcranes


Metrics for success
Metrics for Success

Measures of success are straightforward: revenues by country, earnings by country, assets by country – need to globalize sustainably

Goal is for emerging markets to be additive to success in existing core markets

Globalization will increase competitiveness everywhere


Supply management vision statement
Supply Management Vision Statement

Terex Global Supply Management Vision

“The Terex Supply Management team exists to create value and competitive advantage by reducing total cost and improving supply chain performance”


Global sourcing initiative progress in 2006
Global Sourcing Initiative: Progress in 2006

Purchasing: Progress in 2006

  • Developed with the collaboration

  • of 40 individuals from all five divisions

  • Global access through Internet

Commodity

Q1 2006

ecost

– a tool that tells us who buys what from which supplier

Supplier

BU

Q2 2006

External communication with suppliers

  • Letter to inform 2,100 incumbent suppliers

  • 1,700 new suppliers committed to challenge incumbents

Q3 2006

Cost regression analyses

-combines ecost data with technical specifications

  • 10 multivariate regression models with in average 20 cost drivers

  • Involved 100 buyers and engineers

Q4 2006

Supplier bids

-based on comprehensive technical specifications

  • First negotiations conducted


Category s being sourced
Category’s Being Sourced

Commodity Prioritization

Expectedaverage savings

Valves, hydraulic

Other consumables,tools & dispatch kits

Documentation

Clamps, ties & straps

Plastic,polymers& rubber

Paint & coatings

Fittings & adaptors

Aluminum

Cabs, accessories& ropes

Other hydraulic & pneumatic components

Transmissions,hydrostatic

Bearings, bushings & accessories

Machined components, steel

Othermechanicalcompo-nents

Otherhardware

Otherelectrical & controlcomponents

Gearboxes& gears

Indirectspend

Pumps & pumpassemblies, hydraulic

Product identification & labeling

Motors,hydraulic

Other materials

Cylinders

Fluid transfer& control,non-hydraulic

Fasteners & retainer rings

Other structural fabricated components

Otherpowertrain

Hoseassemblies

Controllers, timers, control modules & PBC

Batteries

Crawler trackassemblies

Complexassemblies

Axles

Other running gear

Other powerplants, IC engine

Steel

Tire &wheelassemblies

Tires,rubber

Castings &forgings

Engine,diesel

Weldment,steel

Third priority

Second priority

High priority

Ease of Implementation

Difficult

Easy

Size of bubble: Total spend of respective commodity


Manage

Suppliers

Preferred

Suppliers

Supplier

Integration

Supplier

Partnerships

Strategic Sourcing

Supplier

Development

World Class Supply Base

Supplier

Exit

Advanced

Sourcing

2008 - 2009

2009 - 2011

2008

Near Term Objective

Building and Qualifying Supplier Relationships


Total Direct Spend Country Distribution

$130.5 M (2%)

$388.5 M (7%)

  • China procurement office with ~ 20 team members

  • India procurement office with ~ 10 team members

  • Goal of 20-25% of sourcing from Low-Cost countries by 2010

$4.8 B (91%)

Total Direct Spend: US$ 5.3B


Critical issues status
Critical Issues Status

Improve supplier deliveries by 25% each of the next three years

Reduce re-order lead-times by 10% for each of the next 3 years

Support new product development program by integrating key suppliers

Improve supplier quality by 30% year over year

Reduce cost to manage suppliers by 30% in 2010

A 2-3% incremental margin improvement on supplier spend is a reasonable objective


Supply base restructure us steel fabrications
Supply Base Restructure – US Steel Fabrications

  • Competitive selections made through strategic sourcing process

  • Develop long term relationships based on cost transparency, collaborative material management and joint continuous improvement

  • Lead division approach expansion to other Terex North American facilities during 4Q2008

Total Cash Flow Savings = $7.3M, or 16.47%

  • 3 Preferred Fabrication Suppliers in North America:

    • Lead Time Reduction

    • Quality Improvement

    • On Time Delivery

    • Cost Productivity

A

A


Supply base restructure europe direct steel
Supply Base Restructure – Europe Direct Steel

  • Competitive selections made through strategic sourcing process

  • Consolidate multi-site Terex direct and key fabricator steel usage into regional supply agreements, i.e., One Terex

  • Develop long-term relationships with select mills based on product portfolio, distribution/service center capabilities, and price transparency linked to index movement

  • Lead regional approach to global expansion during 2008, with emphasis on LCC steel mill partner

2008 Forecasted Cash Flow Savings of $1.9 million plus cost avoidance benefit of $4.8 million

  • 2 Preferred Steel Suppliers in Europe (consolidation from 7):

    • Price Stability

    • Reduced Waste

    • Supply Continuity

    • Quality Improvement


Commodity savings
Commodity Savings

Tracking to original estimates


Lean manufacturing what is it
Lean Manufacturing: What is it?

Lean manufacturing is about:

The core applications of lean thinking involve our promotion of a culture of continuous improvement and the removal of waste (anything that does not add value).

  • getting the right material,

  • to the right location,

  • at the right time,

  • in the appropriate quantity,

  • while minimizing waste,

  • and continually looking for ways to improve.


Lean manufacturing benefits for terex
Lean Manufacturing: Benefits for Terex

Some of the many benefits of lean include:

  • Improvemargin from efficiency/productivity gains

  • Increase production capacity with existing facilities

  • Higher customer satisfaction and lower warranty costs from improved quality

  • Lower inventory, particularly raw materials and work-in-process, leads to improved cash flow

  • Flexible manufacturing allows Terex to more easily move or replicate production lines around the globe

  • Empowers team members, enriching their work experience


Lean manufacturing a terex example
Lean Manufacturing: A Terex Example

Before and After product flow at the Waverly, Iowa Terex Cranes facility after the intensive application of lean principles

  • Daily crane production has more than doubled over the past 1 ½ years

  • Lead time to produce a crane has been reduced by 40%

  • Distance traveled per machine has decreased by 75%

  • Space utilized (sq ft) has decreased 35%


Terex financial services tfs timeline
Terex Financial Services (TFS) Timeline

’06 - ’08

’09 +

’03 – ’05

Transform

Expand

impact

Launch

  • Limited Geography

  • Low Coverage & Penetration

  • Functions Outsourced

  • Reflect Terex Global Footprint

  • Segment Coverage & Penetration

  • Influence Customer Experience

  • True Global Captive

  • Enable Terex Growth Globally

  • Optimize Partnerships

  • Expand Customer Touch Point

Customer Focused Operations

Rigorous Underwriting & Diligent Residual Risk Management

Integrity & Compliance

A

A


Building leasing capability
Building Leasing Capability

People

“Build an experienced global team, deep in functional expertise.”

Deep Functional Expertise

“Implement lean processes focused on speed to the customer and backed by rigorous policies and procedures.”

Process

Lean Built-In

Technology

“Surround the best people with proven, best-in-class technology to effectively originate high levels of volume with personalized service.”

A

A

Customer Driven Solutions


Tfs structural evolution
TFS Structural Evolution

Owning More of the Customer Experience

  • Tap into Broader Risk Appetite from Multiple Sources

  • Responsiveness – Take the Deal Off the Street

  • Increase Avenues to Competitive Capital

2010

$2.5B

Originate & Hold

Originate & Sell

2007

$1.0+B

2004

$500MM

3rd Party

Funding

A

A

Dealer


Tfs global expansion
TFS Global Expansion

Deploy TFS Resources to Key Geographies

Utilize Strong Partners to fund activity

Centralized Functional Team for consistent Compliance and Controllership Worldwide

Current TFS Locations

Next 24 months


Priorities for cash utilization
Priorities for Cash Utilization

Internal investment

Manufacturing capability / footprint

Information Systems

Terex Financial Services (TFS)

Acquisitions

Regional

Product – Superior Highwall Miners, ASV tender offer

Transformational

Returning cash to shareholders


New Product Development – an overview

Customer Insights/ Feedback

New Technologies

Competitive Benchmarking

Ideas for New Products / Product Enhancements

Customer Value Proposition

New Product Identification method

Business Strategy

Product Strategy

“Doing the Right Things”

Gate 0

New Product & Process Development method

“Doing Things Right”


Redirect

Redirect

Redirect

Redirect

Redirect

Redirect

Go

Go

Go

Go

Go

Go

No

No

No

No

No

No

New Product Development - Principlesof a Good NPD Process

  • Rapidly develop and deliver successful new products and services that exceed the needs of our customers

  • Benefits will accrue to our customers and stakeholders

    • Time-to-market improvements of 40% to 60%

    • Wasted product development reductions of 50% to 80%

    • Product Development productivity increases of 25% to 30%

    • New product revenue increases of as much as 100%

      Which all leads to: GREATER CUSTOMER SATISFACTION

Phase 0

Gate

0

Phase 1

Gate

1

Phase 2

Gate

2

Phase 3

Gate

3

Phase 4

Gate

4

Phase 5

Gate

5


Technology and engineering
Technology and Engineering

Priorities

Elevate product development capabilities and effectiveness

Growing product development demand

global markets

Tier 4

market opportunities/ customer-focused technologies

Rigorous Phase Gate Process

voice of the customer

integral to TBS

Strategic Alignment with Global Suppliers

Partner with Supply Chain Management


Technology and engineering1
Technology and Engineering

Priorities

R&D Centers in India and China

Develop products for local markets

Supplement existing engineering resources

cost efficiency

leverage talented and available skills

Product Standardization

Complexity Reduction

Platform Development

Intellectual Property Management


Conclusion
Conclusion

So, what you heard was:

We are working better as a team as we continue to transition to an operating company

Our Global Manufacturing Footprint is being driven by our strategy to produce closer to our customers

Our emphasis on Lean is helping us to better serve the customer and is generating financial benefits

Cash Utilization Priorities are targeted on investing in the business first

Terex Management System will begin providing better visibility into the business during 2008

Our Supply Chain Management focus is beginning to generate savings

Terex Financial Services is supporting the global growth of Terex


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