A sound basis for dynamic developments: strong core business paves the way to new areas of growth Presentation by Franz Fehrenbach,
chairman of the Bosch board of management,
and by Dr. Stefan Asenkerschbaumer, Dr. Bernd Bohr,
and Dr. Volkmar Denner, members of the Bosch board of management

  • at the annual press conference on April 26, 2012
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  • April 26, 2012
  • Business/economy
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press release

Ladies and gentlemen,

Today’s annual press conference, to which I, too, would like to welcome you most sincerely, takes place at a time of financial and economic turmoil. On both sides of the Atlantic, many states are over-indebted, and the future of the common European currency is being called into doubt. As if that were not enough, some of the important trends in the fields in which we do business are anything but easy to predict. Electromobility will come. But as we have already pointed out, it will come more slowly than many expected. The utilization of renewable forms of energy will come – indeed, it must come. But in most countries, the path toward this goal is far less clear than the goal itself. At today's annual press conference, the question we have to ask is this: How is Bosch dealing with this situation?

· On the one hand, we remain a company that orients to the long term. As a result, we never let up in our efforts to open up the growth areas of the future.
· On the other hand, we strive to take quick decisions, and to make the most of any opportunity for profitable growth that may present itself today.

This is precisely the reason we are still expanding our established divisions. Without their strength, we would not have the perseverance that is so typical of Bosch as it navigates the path toward new growth areas. With this in mind, today we aim to demonstrate how our company intends to move from its present to its future. We will touch on the following subjects:

· The company’s 125th year was one of strong growth. Despite a cooling economy, our sales revenue grew by 9 percent to 51.5 billion euros, with a return on sales of 5.1 percent.
· For 2012, we are preparing for slower economic growth in all regions. In Europe, we cannot rule out a stagnation of economic output. We expect Bosch sales to grow by between 3 and 5 percent, and result to be better.
· Beyond the current year, our innovative products and even greater global presence mean we have good prospects for profitable growth. However, we expect conditions to be volatile, both politically and economically. For us, this means we have to make our own company even more flexible and agile. This will give us the sound basis we need for the tasks that lie ahead.

First, however, a review of the past year. For this, let me hand over to Mr. Asenkerschbaumer.

Fiscal 2011: strong growth
Ladies and gentlemen, I would now like to guide you through the financial statements for 2011. As Mr. Fehrenbach just pointed out, we were able to significantly increase Bosch Group sales despite the slowdown of the global economy. The considerable efforts we made to strengthen our market position during the financial and economic crisis of 2008 and 2009 clearly paid off.

Let us first of all briefly remind ourselves of the economic environment in 2011, which was marked by considerable uncertainty from the second quarter. I would like to name just three salient features:
- the natural disaster in Japan, whose consequences for the global economy were limited in the end,
- the euro crisis, which has currently eased, but is still far from over,
- and the significant increases in prices of raw materials and crude oil as a result of political changes and tensions in North Africa and the Middle East.

The result of all this was that global GDP grew by just 3.2 percent in 2011. The pace of economic activity slackened especially in the second half of the year. This had differing effects on the various industries in which our company is involved. The economic slowdown meant that global automotive production grew less than originally expected, by 4 percent to 80 million units. In the capital goods industry, by contrast, which is traditionally late-cycle, the upswing continued. It was only toward the end of the year that signs of weakening became apparent. Private demand developed soundly, albeit with considerable regional differences.

Despite the slowdown in economic growth, we were able to increase Bosch Group sales by 9 percent, to 51.5 billion euros. Moreover, this growth was stronger than originally expected. Almost exclusively, we generated this growth internally. In 2011, consolidation effects resulting from acquisitions did not play any appreciable role. The acquisition of the Taiwanese manufacturer Unipoint, which will bolster our automotive spare-parts business, will only have an effect on our 2012 figures. Compared with previous years, the effect of exchange rates on sales revenue was also comparably slight, even though there were considerable swings in the euro-dollar exchange rate. As the table shows, sales increased by just under 10 percent after adjusting for currency effects. I will return briefly to the subject of exchange rates at the end of my presentation.

I will now turn to the development of sales revenue by business sector. In Automotive Technology, we increased our global sales by 8.2 percent. The demand for products that help raise fuel efficiency, safety, security, comfort, and convenience developed especially well. These include gasoline direct injection, our economical diesel systems, the start-stop system, and affordable yet high-performance navigation systems. Worldwide, there is also increasing demand for driver assistance systems such as the Parkpilot, adaptive cruise control, or the predictive emergency braking system.

We achieved the greatest increase in sales in Industrial Technology, which grew by 21 percent. While we recorded especially good developments in automation technology – in our Drive and Control Technology division, in other words – and also in packaging technology, developments in the Solar Energy division were very unsatisfactory. Despite a more than 10 percent increase in unit sales, sales revenue fell significantly. This is due to the dramatic drop in prices in the market, which was as high as 40 percent. We were unable to offset this decline on the cost side.

The Consumer Goods and Building Technology business sector continued to record steady growth in 2011. Sales rose by 4.4 percent to 13.1 billion euros. Sales of power tools and household appliances developed especially positively. However, the business environment in Europe meant that the thermotechnology business was subdued. In our security systems business, the product business outperformed the market.

Regionally, our sales developed relatively evenly last year. It is encouraging that we have now surpassed our 2007, pre-crisis levels in Europe, where our sales grew 9.6 percent last year. In North America, the nominal growth of 5.7 percent does not truly reflect developments. In local currencies, we were able to grow 10 percent there – a very positive development given the modest economic growth in the region. In South America, our sales rose by 11 percent. We were also successful in Asia Pacific, with our sales rising by 8.9 percent. Nonetheless, this rate of growth was lower than the exceptional figure of more than 40 percent recorded the previous year. Among other things, this was due to the phase-out of government incentive programs in China. In Japan, we made up for the sales losses following the natural disaster over the course of the year.

The strong growth we achieved on the basis of our own efforts also involved considerable capital expenditure. Catch-up effects following the economic crisis of 2008 and 2009 also played a role here. Globally, we spent some 3.2 billion euros. The graph shows that this puts us back nearly on the level of 2008.
However, the annual sum we disclose is also always affected by large-scale projects or product roll-outs. In 2011, these included generation 9 of the ABS and ESP® brake systems. Of the total spend in 2011, some 2.1 billion euros were allocated to Europe, 800 million euros to Asia Pacific, and some 350 million euros to the Americas. However, given economic uncertainty and the flexibility it requires of us, we need to focus more on the issue of whether to produce in-house or source externally. Nonetheless, capital expenditure will likely increase year on year in 2012.

This brings me to our figures for result. EBIT shows a return on sales of 5.3 percent, while the figure for pre-tax result is 5.1 percent. This means we fell significantly short of our 7 to 8 percent target for pre-tax result. Four factors played a key role here:
- The difficult situation in photovoltaics, which resulted in an impairment of some 560 million euros.
- The considerable rise in raw materials prices placed an additional 400-million-euro burden on result, and the negative effect of exchange rates was 150 million euros.
- There is also the effect of currently heavy upfront investments in both electromobility and renewable energy, which come to more than half a billion euros.
- In addition, our financial result is negative, at roughly minus 80 million euros. This is due to upfront investments in the SB LiMotive and Bosch Mahle Turbo Systems joint ventures, which are not consolidated on a pro rata basis. In addition, the 2010 financial result showed the positive effect of the sale of a publicly listed affiliated company.

Among our business sectors, Automotive Technology achieved EBIT on a par with the previous year, despite increased raw materials prices. At 2.3 billion euros, this meant return on sales was 7.7 percent. The negative EBIT recorded in Industrial Technology is due solely to the difficult situation in photovoltaics, and the impairment connected with it. In Consumer Goods and Building Technology as well, EBIT was on a par with the previous year. However, the result was burdened by high raw materials prices and increased price pressure in consumer goods. On top of this, there were the subdued developments in thermotechnology.

This brings me to our statement of financial position. It remains very sound. We disclose an equity ratio of 49 percent. Financial liabilities rose due to a loan from the European Investment Bank and borrowing by our BSH Bosch und Siemens Hausgeräte joint venture. The due dates for these liabilities are spread evenly over the period from 2013 to 2019. At year end, cash and cash equivalents came to 3.3 billion euros.

In total, our liquidity as per the statement of financial position stands at 11.8 billion euros. Despite a considerable increase in capital expenditure and inventories, therefore, we again disclose a positive net financial position. In other words, liquidity as per the statement of financial position exceeds financial liabilities and pension obligations by a good 600 million euros. The year-on-year decline in the net financial position was also due to an increase in pension provisions following the lowering of the interest rates applied outside the euro zone.

This brings me to the end of my review of the financial statements. In the current year, we again expect exchange rates to fluctuate significantly. Political standstill in the U.S. ahead of the presidential elections on the one hand and continuing uncertainty about the prospects for Europe on the other suggest that the dollar and the euro will each be as weak as the other, and that the exchange rate will be anything but stable. Our strategy is to cushion currency risks as far as possible by purchasing and producing locally, and in this way to limit the need for hedging. Uncertainty about future economic developments has a decisive effect on the development of raw materials prices, but here there is very limited scope for hedging.

Mr. Fehrenbach will now set out our expectations for economic developments in more detail.

Outlook for 2012: economic uncertainty remains
Ladies and gentlemen, I would now like to give you our outlook for 2012. Once I have done that, Dr. Bohr, Dr. Denner, and I will go into a number of strategic issues in greater detail.

There is still a great deal of uncertainty as concerns further economic developments. Even though the sovereign debt crisis in the euro zone has been defused slightly, the fundamental problems are still unsolved. Governments now have to redouble their efforts to consolidate their finances. Above all, they have to introduce structural reforms that will improve their international competitiveness. The development of unit labor costs shows just how urgently action is needed. My graph, which starts from an index value of 100 for the year 2002, compares selected countries with Germany. It clearly shows that these countries are still at least 15 percent above German levels, despite a number of improvements.

The necessary reforms will initially mean considerable burdens for the people in the countries shown here. This is why positive prospects are important. This is also why it is necessary to stimulate growth in a targeted manner – by investing in the infrastructure needed for business, for example, or in education and research. This may make budget consolidation difficult for a while. It is a balancing act that governments will have to perform in order to reduce their debt to a tolerable level within a clearly defined period.

But it is not only the euro crisis that is causing considerable economic uncertainty. There is also the significant hike in oil prices, which is increasingly placing a burden on companies and consumers, and thus inhibiting investment and consumption.

Given this situation, we do not expect global economic growth to exceed 2½ percent in 2012. In fact in Europe, we expect growth to be less than 1 percent. Indeed, as I said earlier, we do not rule out stagnation. By contrast, economic output in North America and Japan should grow by roughly 2 percent. Most of the emerging markets will continue their catching-up process, albeit at a slower pace.

In the Bosch Group as well, we are feeling the effects of the global economic slowdown. In the first quarter, we increased our sales year on year by some 5 percent. Here, we recorded the strongest growth in industrial technology and automotive technology. Developments in the Consumer Goods and Building Technology business sector were more modest.

Over the year as a whole, we expect Bosch Group sales to grow between 3 and 5 percent. Nonetheless, we want to improve pre-tax result compared with last year, especially with innovative products, cost improvements, and lower one-off burdens. However, given the persistence of high raw materials prices and heavy upfront investments in new areas of business, it will be difficult to achieve our target rate of return on sales this year. This rate, you will recall, is between 7 and 8 percent.

The slower rate of growth is also affecting the number of new hires. Depending on business developments, and including new companies, headcount will increase to roughly 315,000 worldwide in the course of the year. Most of this growth will take place in Asia Pacific. In Germany, we expect to see a slight increase in associate numbers.

All in all, 2012 will not be an easy year. But despite uncertainty, we can see attractive market opportunities that we will seize.

Our strategy: expand core business, seize new opportunities
Ladies and gentlemen, this brings me to our business outlook beyond the current year. Bosch is a company that orients to the long term, and so the main strands of our strategy, which are derived from our strategic imperative “Invented for life,” remain valid:
· We are expanding our global presence, both in the 150 countries in which Bosch is already present and beyond them.
· We are constantly enhancing our core competencies, both in our existing 15 divisions and beyond them.
· As always, the key to this is Bosch's special innovative strength in both established and new product fields.

Over the years, we have shown just how much Bosch can use synergy effects to develop across regional and sectoral boundaries. It is a networked company in the true sense of the word. Today, we want to show how our present and future areas of business are interlinked. To put it in a nutshell, Bosch opens up the growth areas of the future without neglecting those of the present. But the two areas are not pursued in isolation. On the contrary, they feed on each other. We can create the reserves and the momentum we need to exploit future opportunities only by cultivating our existing business. Our strong core business paves the way to new areas of growth. Our core message is that Bosch can gain momentum thanks to its strong foundation.

Even stronger across the board: sectoral and regional success
The high pace of our business can be demonstrated along the main strategic lines I just sketched out. Apart from innovative ability, these are diversification and, above all, global presence. A number of striking examples show just how much we are strengthening our position beyond automotive technology:

· Sales of our power tools are growing faster than the global market. In 2011, our sales grew by 7 percent, 2 percentage points more than the market. In measuring technology, our new business field, we increased our market share for the second successive year. Growth of two percentage points last year now brings our market share to 21 percent. Here, we are launching a world-first in the shape of a surface laser.
· In the field of security systems, we are growing especially strongly with video-surveillance systems, the industry’s fastest-growing segment. Its global market volume is growing by 8 percent a year. And we are growing by one percentage point more.
· Strong rates of growth in sales and order intake mean that Industrial Technology is returning to the good business developments it enjoyed prior to the crisis. And again and again, Bosch Rexroth lands outstanding orders. The latest example is the world's largest mobile lifting mechanism for offshore installations.

The determination with which we are pursuing our strategic objective of internationalization is evident in all the world’s major economic regions. Within three years, we have set up seven new regional companies around the world. Further new companies are planned - this year in Bangladesh and Laos. The countries in which Bosch is present now account for 97 percent of global GDP. In 2009, this figure was still 93 percent. In Africa, we want to nearly double our sales by 2015, from some 300 million euros in 2011 to nearly 600 million euros. In eastern Europe, we are extending our manufacturing base – by increasing the number of engineers in Hungary to 700, and by expanding our manufacturing facility in Blaj, Romania. And at the start of 2013, we will start production of automotive windshield-wiper systems near Belgrade – our first plant in Serbia. And finally, there are signs of a trend toward diesel in North America. In the U.S., the number of passenger car brands with diesel engines will more than double by 2015. Increasingly, these will include U.S. automakers. We will also supply them with our systems. Diesel cars for the U.S. from the U.S. – this will give the market a boost.

Above all, Asia Pacific will remain an especially dynamic growth region. And it is here that Bosch will make most of its investments and hire most of its new people. This also means expanding our presence in countries such as Vietnam, for example, in the shape of a software engineering center. By 2015, the number of associates in Vietnam will more than triple, to 1,600.

Even now, the countries with the largest contingents of Bosch associates outside Germany are China and India. And while these two countries are already significant for us, this significance will increase even more. In this year alone, associate numbers in India will increase from some 24,000 to 26,000, and in China from some 30,000 to 35,000. More than ever, we are looking for highly qualified people in both countries. In 2012, we want to take on more than 5,000 university graduates in China and India. And in these countries, associate development is especially important for us. Keeping first-rate people on board is not just a question of money, but also of career opportunities. In all regions, we are stepping up our training efforts. In Asia Pacific, for example, participant numbers at our seminars rose 54 percent in 2011, to nearly 200,000 – upwardly mobile associates in upwardly mobile markets.

These are the people with whom we will expand our manufacturing base in Asia’s emerging markets, and especially in its two largest countries. In India, a new plant for electrical drives will go into operation in Chennai this year. Within China, we are supporting the “go west” strategy. This means that the next wave of spending for new locations will focus more on the interior than on the east coast. More specifically, we are currently building new plants for brake control systems and packaging technology in Chengdu, central China – in each case the second such plant in the country.

Manufacturing locally is one recipe for success in the emerging markets. Another is local engineering. This has brought us remarkable success. One example is the development of the T-edition power tool for the Chinese market. This product range is in the mid-price segment, making it a good third less expensive than the premium segment served by international brands. Yet it is precisely due to the T-edition that our power tools grew twice as fast as the market in China in 2011. We are currently starting initiatives like this in all Asian countries where price is a sensitive issue. The lesson to be learned here is that localization of know-how is crucial, especially in the powerhouses of globalization. It also plays a key role in the success story of our automotive technology, as Mr. Bohr will now show.

Automotive technology: a lasting success story
Thank you, Mr. Fehrenbach. It is certainly true that, right from the start, situating close to automakers around the world was decisive for our success in automotive technology. But a new aspect is now emerging: the global networking of local experience. Let me give you a specific example. Vehicles with one to three cylinders make up a significant share of the Indian market. For these vehicles, we have developed a common-rail system with a high-pressure pump integrated into the engine. This cost-effective design is also suitable for small vehicles in other countries. So “local for local” isn’t the end of the story. Increasingly, our special effectiveness in automotive technology is a result of a “local for global” exchange of findings and experience.

However, this effectiveness would be inconceivable without the sound technical foundation we have, especially when it comes to our automotive systems for accident prevention and environmental protection. This also contributes to the lasting success story of Bosch Automotive Technology. This year, our sales revenue per vehicle worldwide will reach nearly 400 euros. In all three major economic regions, this value is increasing. And with the advent of electromobility, it could rise further over the long term. Like Bosch as a whole, Automotive Technology moves between the pillars of established and new growth areas.

For the time being, however, we will take advantage of the still considerable growth potential of our systems for clean and economical, safe and comfortable driving. In 2011, 44 percent of all newly registered vehicles were equipped with ESP, the anti-skid system first developed by Bosch. By 2016, this figure will be close to 60 percent. Driver assistance systems are also becoming more widespread, though for the time being mainly in the developed countries. In Europe, the share of new vehicles featuring radar sensors will grow fourfold by 2016, to 16 percent. And our business with products that make driving more economical is already in full swing. Between 2011 and 2014, we expect annual unit sales of our systems to grow significantly: from 7.2 to 9.6 million in the case of common rail, from 4.0 to 8.6 million in the case of gasoline direct injection, and from 2.7 to 5.7 million in the case of start-stop. In this way, Bosch is making a significant contribution to climate protection. And once again, we see that climate protection means significant growth for Bosch.

But how do we ensure that this success continues? First, there is our very specialized expertise in manufacturing processes, which guarantee million-fold production with tolerances measured in micrometers. It is equally important to develop our systems further. Using our systems alone, we can cut the fuel consumption of gasoline and diesel engines by another third. We place special hope in the interplay between our direct injection systems and turbocharging in downsized engines – a combination that is increasingly in demand. This is evidenced by the brisk ramp-up of production at our Bosch Mahle Turbo Systems joint venture, as well as by the rising share of new vehicles with four cylinders or fewer. To express this as a formula: keep the power, cut the consumption.

While technology is advancing in great numbers of small steps, it is still directed to a definite end. As far as driving safety and comfort are concerned, our vision is an autopilot button for traffic jams, and an accident-free trip. This kind of support will first become established in discrete situations, such as automatic driving in stop-and-go traffic. “Car-2-X” communication will open up more possibilities, with vehicles warning each other of slippery roads, possible collisions, and other dangers, in a kind of information relay. This is currently being tested in a large-scale field trial in the Frankfurt area. And Bosch is involved. Having all the major areas of expertise within the walls of the company is important to us: from powertrains, brake control systems, and steering systems to sensors and software.

We especially have what it takes for the new area of electromobility - not just an annual budget of 400 million euros, but also, once again, a broad portfolio. Together with our partners, we already offer a diverse portfolio: five models of automotive electrical drives, three inverter variants for energy management, and lithium-ion battery systems for both hybrid and electric vehicles. This broad footing gives rise to our decisive advantage: our systems competence. Only a company that knows how to network systems will be able to integrate power electronics into the electrical powertrain, for example.

Intensive though our work to promote technical developments is, we expect to see more of an evolution than a revolution in the market as it moves toward electromobility. Worldwide, we expect to see 12 million new vehicles with an electrical powertrain by the end of the decade, of which a full 2.5 million will be all-electric vehicles. But the decade from 2010 to 2020 will be one of experiment. And we will benefit from the number and diversity of products in our portfolio. For example, it is still not certain which drive configuration will win the day – whether the electric motor will be integrated into the powertrain or into the rear axle. This is why we keep a watchful eye on each vehicle model we equip, and treat it as a kind of market sensor.

Though our approach may be exploratory, we expect to see all-electric drives initially in small vehicles for city driving, while hybrid drives will tend to become established in larger sedans – not least because of the need to reduce fleet consumption in the premium class. We see good market opportunities for the plug-in hybrid, which offers the best of both powertrain worlds: it allows long distances to be travelled economically using diesel or gasoline, and electrical driving in the city. We will be launching a first small series in China in 2013. The first solutions for Europe will likely be launched in 2014.

As a matter of principle, we are using the restrained market development of electromobility to restructure our competencies. Above all, we are enhancing our own know-how when it comes to batteries, also independently of Asian partners and suppliers. To this end, we aim to create a European network comprising researchers, suppliers of materials and machinery, and Bosch as a producer of cells and battery packs. As soon as the middle of this year, Robert Bosch Battery Solutions in Eisenach will manufacture its first power cells for maritime applications. In doing so, we are striking out on new paths, with the aim of making a true business area for electromobility out of an experimental one. And with that, I would now like to hand back to Mr. Fehrenbach …

More than acquisitions: managing a diverse portfolio
Thank you, Mr. Bohr. The example of Automotive Technology clearly shows how Bosch is strengthening its core business, and at the same time growing beyond it. We also use active portfolio management to achieve these objectives. For us, this is much more than divestments and acquisitions. It also includes turnarounds of the kind we have demonstrated in the Car Multimedia division, which has now struck out in a new, lastingly viable direction. Three years ago, we abandoned this division’s aftermarket and components business. Above all, we provided a clear focus for its new business model: driver information systems as original equipment, systems integration capability in the vehicle, and the possibility of selling hardware and software separately. The success of this model speaks for itself: we achieved break-even as early as 2010. Since then, we have recorded double-digit growth, and current order intake suggests this will continue in the years ahead.

But how ever successful we are on our own, acquisitions are still part of portfolio management, provided they fit into our core competencies. The deliberate expansion of our Automotive Aftermarket division is an excellent example. In this division, we have acquired 14 companies in the past five years – in clearly defined areas of growth. For example, the planned acquisition of the Service Solutions business of the U.S. company SPX Corporation is a good fit for the strategically important area of diagnostics activities – an area that is currently growing more than twice as fast as the aftermarket business itself.

Finally, we are using internal start-ups to make our company more dynamic. One typical feature of them is that we use our special know-how in electronics as the basis from which we derive new solutions – in mobility, for example. A number of activities illustrate this:

· As a service provider, Bosch Engineering transfers automotive innovations from series production to special vehicles. One example is a radar sensor for shunting locomotives. Each year, some 500 different customer projects are carried out, and the unit’s headcount has risen from 1,000 to nearly 1,500 within five years.
· Bosch Sensortec supplies micromechanical sensors, especially to smartphone manufacturers. These sensors include a pressure sensor that will allow 3D navigation within a high-rise building. Each working day, we manufacture nearly 1.5 million micromechanical sensors. Half of these are for consumer electronics. This business is fast, and has a positive effect on the further development of automotive sensors.
· Bosch Powertec supplies inverters for photovoltaics. This is a new branch of business, but one in which we have already become a full-liner thanks to acquisitions. This way, we can offer solutions for sizable solar parks as well as for individual homes. Here as well, we take advantage of synergy effects, especially when it comes to power electronics for hybrid and electric vehicles.
· And last but not least, our activities in the e-bike industry are a truly “emerging business.” After starting out in the market in 2011, we now already supply nearly 40 bicycle manufacturers with our drive systems. Our aim for the next few years is a market share of over 20 percent in Europe. And here as well, we benefit from our experience in other industries. For example, we pool our purchases of battery cells for e-bikes and power tools. And for servicing, we have our own diagnostics tool.

All these companies within the company open up new business opportunities for us. They are small yet at the same time effective. Our own venture capital fund, which has an annual investment volume of up to 50 million euros, gives us a source of information about ideas for new products and markets in up-and-coming companies, also beyond our core businesses. And increasingly, we want to go beyond our classic hardware business to include software services. Each provides support for the other, as Mr. Denner will now explain in more detail.

Research and development: even more software expertise
Thank you, Mr. Fehrenbach. Looking ahead, one could say we face a dual task: preserving our core competence of combining precision mechanics and electronics on the one hand, and enhancing our software expertise on the other. Both require significant ability on the part of our researchers and developers. To see just how far we have come in enhancing our innovative strength, let's look first of all at some indicators:

· In 2011, we applied for some 4,100 patents, which is equivalent to 16 per working day, and 260 more than in the previous year.
· In 2012, we expect to spend 4.6 billion euros for research and development, 400 million euros more than in 2011.
· By the end of 2012, we expect to employ some 43,000 researchers and developers, roughly 4,500 more than at the start of 2012.
· We are also strengthening our research and development teams in regional terms. By year end, they will comprise 26,600 associates in Europe, 2,800 in the Americas, and 13,800 in Asia Pacific. It is especially this strong local presence that makes the above-mentioned success stories in emerging markets possible.
· We are deliberately improving our technological competence for strategically important issues. One example is power electronics, which we need to control large power flows in electric cars and photovoltaic arrays. Nearly 700 engineers are now working on this at Bosch, and they are expected to be joined by a further 500 over the next three years. Especially in this area, we are investing in securing young talent over the long term. Together with the universities of Reutlingen and Stuttgart, we have set up the Robert Bosch Center for Power Electronics, the first research and teaching network of its kind in Germany.

Equally, we are cultivating our software expertise, and have been doing so for some time now. Even now, every fourth R&D associate works on software. This share is especially high in India, a country in which we will employ some 8,000 engineers by year end. Most of them are software specialists who work for our divisions the world over.

For a long time now, many of our innovations have been software-driven. One striking example is our navigation app, now available in version 1.5. It has an integrated ride-share service. This means that drivers are automatically notified by a mobility portal if they can offer someone in the vicinity a ride. This year, we will start series production of the world’s first original equipment driver information system with open-source, Linux-based software. This will allow rapid integration of innovative applications from the software community, even during the product’s service life.

In the future, openness will take on a new quality. Up to now, software has generally been embedded in our hardware, like a kind of necessary extra. On the internet of things and services, however, technical devices of all kinds will communicate with each other, via suitable interfaces. And this will mean that their software intelligence can be transferred to service platforms. In its turn, this will result in new business models, such as the smart grid, where power generation and power consumption are harmonized to save money. Bosch wants to be involved in the creation of such models, and has what it takes to do so.

Technically, the first thing we have to do is to make our devices web-enabled. We are creating the conditions needed for this. In Thermotechnology, for example, we will launch the first heating system with a web interface this summer. At Security Systems, every second video camera is already web-enabled.

However, the decisive basis for deriving completely new business models from the internet of things and services is Bosch Software Innovations GmbH, our software and systems unit. We have increased the number of associates working there from 100 in 2008 to some 450 today, and want to increase this still further to nearly 1,000 by 2015. Above all, however, it is the quality of the know-how that matters – know-how which we have again extended by acquiring the Berlin-based company Inubit.

Graphics-based engineering tools that generate software even faster and more flexibly than before contribute to this special quality. To give an example, users without profound programming knowledge can use graphic diagrams to model their business processes and rules, such as when a machine automatically triggers remote maintenance. What makes this so exciting is that the necessary software can be generated without the need for an IT specialist. Moreover, this software can then been easily distributed and updated. The important thing for Bosch is that we can use this software-generating technology to very quickly connect different hardware domains on a web-based systems and services platform.

But how do we connect our software and systems unit organizationally with our core business? We aim to achieve this by setting up innovation clusters, initially for connected mobility, connected energy, and the connected building. In each of these clusters, our systems unit plays the role of an incubator. Far removed from the pressures of everyday business, it tests new business ideas. Such tests can be very realistic – in electromobility alone, our service platform is involved in eight pilot projects. Following Singapore and Milan, these also include projects in Berlin and Stuttgart. As soon as self-supporting growth emerges from these tests, an innovation can be transferred to the operational business. But first the ideas have to grow, and this works best in an incubator that does not operate within existing organizational structures. Moreover, we are also working in an “innovation lab” with the University of St. Gallen. Externally and internally, we are pursuing new forms of alliances.

Whatever comes of them, Bosch will always be a company that stands for technical systems. But in the future, however, we will also make mobility, energy, or security services possible, and we will do so by connecting many diverse systems. And we have one strategic advantage over the IT industry: we are establishing special software expertise, but in many industries our measuring, governing, and controlling know-how means we are more familiar with the hardware than others. The one area indeed supports the other. This brings me to the end of my part, and I would now like to hand back to Mr. Fehrenbach.

The energy of the future: both technology and service
Thank you, Mr. Denner. Wherever we look, then, our future areas of business are based on existing ones. And nowhere is this nexus more apparent than when it comes to energy. In Canada and in Germany, for example, we have built “energy plus” homes that generate more power than they consume. Not only have photovoltaic arrays and heat pumps been installed in these homes, but also household appliances that consume two-thirds less electricity than the models of 15 years ago. As a matter of principle, our approach is always a two-pronged one: using the technologies of the future to harness renewable energy on the one hand, and making established technologies even more economical on the other.

As it is, energy efficiency offers great business opportunities for Bosch. Just as Automotive Technology is making diesel and gasoline engines even more economical on the long road to all-electric driving, our other business sectors also pursue a dual strategy. By combining condensing boilers with solar thermal and geothermal systems, for example, we can reduce oil and gas consumption by up to 60 percent. In Industrial Technology, we supply not only large gearboxes for wind turbines but also a series of solutions for saving electricity in factory automation – from variable-speed pump drives to “smart energy software” for machine tools. And our advisory services for energy efficiency can reduce the power consumption of entire factories by as much as 50 percent.

This example alone shows that especially when it comes to energy, we see ourselves as a supplier of both technology and services. Within Consumer Goods and Building Technology, we have even established a new company with this purpose: Bosch Energy and Building Solutions. Its business model is aimed at small and medium-sized operators of commercial buildings, who are generally not in a position to optimize energy flows in a cost-saving way. We offer these operators solution packages for reducing energy costs, no matter what hardware they have installed.

The important element here is an energy management platform for governing and controlling all inputs and outputs. We believe there is a realistic chance to cut energy costs by an average of 20 percent in existing commercial buildings. The market volume for energy services such as these is growing by 12 percent a year worldwide – or from 14 to 40 billion euros in ten major countries over the course of this decade.

And while the energy-related service business is gaining significance, we are also driving technical progress forward. Nearly half our research and development budget, or more than two billion euros a year, goes into products that conserve resources and protect the environment. And we are stepping up this commitment. In photovoltaics, we want to significantly reduce our manufacturing costs in the crystalline segment.

We want to achieve this through both innovative technologies and optimized manufacturing processes. Technologically in particular, we are doing all we can to make our photovoltaics business profitable in the medium term. There is a clear trend toward consolidation in this industry. Coming through this phase will require financial and innovative strength. In the solar power business, as in all our businesses, our fundamental aim is to achieve sustained profitability and competitiveness.

The unreliability of government energy policy has also taken its toll on our business. True, harnessing renewable energy is high on the agenda of many countries, in China just as much as in the United States. But Germany is especially ambitious. Its move to alternative forms of energy is nothing less than a nationwide test of whether an entire national economy can be weaned off coal and nuclear power. Yet the more ambitious the aims, its appears that the road to be taken becomes all the more treacherous. At all events, we are still lacking a milestone plan for the move to alternative forms of energy – and as soon as an agreement is found, it is called into question again. The feed-in tariff for photovoltaics is one example. Just one year ago, this subsidy was still geared to the market. Now it is to be pared back considerably. This is not the way to give investors planning certainty. In this way, the future of a promising industry is being jeopardized – and even the subsidies granted so far will soon make no sense.

Speaking more positively, what would framework conditions for industry and society have to look like to ensure a successful move to alternative forms of energy? And on that note, there are four things I expect from our politicians:
· First, these conditions have to be stable over the long term.
· Second, there have to be clear rules for the expansion of the grid, with priority for decentralized systems.
· Third, research into smart networks and storage has to be encouraged.
· And fourth, efforts to improve energy efficiency, such as building modernization, must not be forgotten. The move to alternative forms of energy also has to take place in the central heating systems of houses.

All these points concern our activities for the energy of the future. They go far beyond our operations in photovoltaics. Two examples illustrate just how broad the range of our activities is:
· Off the coast of the Lofoten archipelago, Bosch Rexroth is equipping a floating tidal power station with hydrostatic gears. With an output of 1.5 megawatts, this marine power station has one of the largest capacities in the world.
· Bosch KWK Systeme is running pilot projects for waste-heat recycling, both on an energy crop farm and on a landfill site. In the end, the organic Rankine cycle technology they use will also find its way into commercial vehicles. Here as well, the energy from waste heat can be put to good use.

All this shows that Bosch is taking many paths toward the energy of the future. But however much our technical solutions may differ, they also complement and frequently fertilize each other.

At Bosch, the future has already arrived: the elements of success
Before I close, you might ask what all the things that currently concern us add up to. We have never pretended that the road to some of our objectives would be an easy one. But it is also clear that the road is well paved. And we can already point to a number of success factors:

· Our broad presence in all the world’s major economic regions, a presence we are now extending even further in the growth regions;
· The good reputation of our company around the world, which is based on both the skills of our associates and the close cooperation they engage in;
· Our strong position in many industries, which we are extending selectively with small, fast, and cross-divisional units;
· Our strength in automotive technology, which continues in existing and new markets;
· Our portfolio management, which is equally proficient in turnarounds and in acquisitions;
· Our researchers and developers, who combine their extensive know-how in hardware and software to create new business models;
· And finally our wealth of competence for the energy of the future, whether renewable or conventional, whether as technology provided or as services rendered.

All these elements have one thing in common: they show how far the future is already everyday reality at Bosch. We have ambitious aims, and want to go even further. We have already made good progress, however difficult some of the going has been. Our overriding objective is to secure the company’s existence and its viability for the future. This applied in the past and still applies today, in the 126th year of our company’s existence.

Further information:
   Bosch: strong core business is basis for further development

Curriculum vitae Franz Fehrenbach
Curriculum vitae Dr. Stefan Asenkerschbaumer
Curriculum vitae Dr. Volkmar Denner
Curriculum vitae Dr. Bernd Bohr

RF00151 - April 26, 2012

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