Brian Melka – President, Kohler EnginesPresentation to OPEESA • Monday, March 4, 2019

Agenda

• Kohler Company overview

• Trends and issues affecting the Outdoor Power

Equipment industry

Strong Legacy

KOHLER has

manufactured

engines for nearly

100 years.

KOHLERPOWER.IT- 6

Commercial Focus

Committed to commercial

applications

Highest investment in new product

development

Technology Leadership

KOHLER pioneered the use of EFI

technology in commercial lawn

mowers and no-DPF solutions for

Tier IV equipment.

Today, we power a wide variety of

equipment from lawn mowers to skid

steers.

Diesel Expertise

KDI line launched in 2011

Tier 4 Final without a DPF

Enhanced power and torque

in a compact footprint.

Committed to

Independent Distribution

Distributors and dealers play a vital

role in our success.

We are dedicated to providing the

tools and technology needed for

everyone to win in the market.

#1 Commercial focus is on

improving distribution and dealer

relationships

KOHLER Engines Today

• #1 producer of 20-40hp commercial gasoline engines in the world

• #1 producer of commercial twin engines for commercial turf markets

• #2 producer of premium consumer ride mower engines

• #1 brand among NA service dealers

• #3 volume producer of Diesel engines in the world

• Market leader in gasoline Electronic Fuel Injection (EFI) and no-DPF Diesel technology

• Broadest offering of engines from 3.5hp to 40hp air and liquid cooled gasoline and 3hp to 133hp air and liquid cooled Diesel

• Vitality is >30%

*sources: OPEI, OPE Magazine, Kohler research

Leading Global Brands

OPEI 10-year Shipment History – Gasoline Powered

Source: The Stevenson Company for OPEI

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019(F)

Consum

er

& C

om

merc

ial R

iders

/ZT

Rs (

thousands u

nits)

Tota

l, H

and-H

eld

& W

alk

(th

ousands u

nits)

Hand-Held (Gas) Walk-Behind Rotary (Gas) Total (Gas) Consumer Riders & ZTRs Commercial Riders & ZTRs

US Residential Housing Starts

0

500

1,000

1,500

2,000

2,500

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Industry Macro Trends

Regulatory Compliance

Alternate Technologies

Channel Influence

Trade & Tariffs

Industry Macro Trends

Regulatory Compliance

Industry Trends - Regulatory Compliance

Emissions Compliance – US Diesel

Significant reduction in off-road diesel emissions requiring new technologies

Emissions Compliance – US Gasoline

• California implementing stricter testing & reporting methods for small off-road engines

• New evaporative emissions testing requirements

• Moving from design-based certification to testing-based certification

• Exhaust - potential 80% NOx & 40% HC reductions in CA, as soon as 2023

Emissions Compliance - Europe

• European Stage V significantly tightening emissions beginning in 2019

• No provisions AB&T credits

Diesel Emissions Comparison

0

2

4

6

8

10

12

14

16

18

Class I - <225cc Class 2 - ≥225cc

Spark Ignited Non-Hand-Held Emissions Changes –HC+NOx

Stage II Stage V

Emissions Compliance - China

Implementation of China Emissions Standards

• Diesel Tier IV proposal is equivalent to Europe Stage V

• Adds engines with net power >560kW and <37kW

• Stage II for spark ignited engines added NOx limits for non-hand-held engines

Material Compliance

REACH & RoHS 2

• European directives to reduce harmful

chemicals/substances in products

• REACH

– Registration/notification procedures for

hundreds of harmful chemicals

– Full implementation in 2018

• RoHS 2

– Applies to electrical and electronic equipment

– Restricts 10 specific substances

• e.g. lead, cadmium, mercury

– Fully through channel by July 2019

California Prop 65

• Passed in 1986 as the Safe Drinking Water &

Toxic Enforcement Act of 1986

• New label requirements August 30, 2018

– Any product containing any of nearly 900

specified chemicals

– Must be visible at point of purchase

All steps of the distribution channel carry responsibility!

Industry Macro Trends

Alternate Technologies

Electric vs. Gasoline Trends

Source: The Stevenson Company for OPEI (includes corded & battery)

• Growth in electric continues to outpace gasoline in smaller applications, driven primarily by battery

• Electric has now surpassed gasoline in hand-held equipment

• Increasing investment in robotic technology. Expected to be $2B globally by 2022, with 20% CAGR

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2013 2014 2015 2016 2017 2018 2019(F)

Th

ou

san

ds U

nits

Walk-Behind Rotary (Gas) Electric Walk-Behind Electric Hand-Held Hand-Held (Gas)

Electric vs. Gasoline Trends

• While battery-powered equipment is trending up quickly, the majority of consumers are still not strongly

considering battery over gas

• Consideration of battery-powered OPE is not increasing

• Approximately two-thirds of consumers have concerns about the length of an OPE’s battery charge and

power

*Source: The Farnsworth Group

Electric vs. Gasoline Trends

• Mass commercial acceptance of battery will require a step-change in cost/technology for

larger equipment

• In the short-term, automotive battery usage will outpace much of the supply chain

*Source: Bloomberg New Energy Finance, Techno Systems Research Co.

Kohler hybrid electric platform

• ICE (Internal Combustion Engine)

downsizing with e-boost

• Noise and gas emission reduction

• Improvement of transient response

• Lower Total Cost of Ownership:

– Better fuel economy

– Better power management for traction and for

the auxiliaries

– Higher electrical power availability for engine

auxiliaries and machine implements (e-PTO)

Industry Macro Trends

Channel Influence

Independent dealers continue to increase market share

Data Source: OPEI, Traqline, Kohler Marketing

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Home Depot/Lowe's Sears Independent Dealer Others

Ride Mower Sales by Channel (Units)

2013 2018-1.4% Combined CAGR

3.4% CAGR

-12.5% CAGR

4.5% CAGR

4.3% CAGR

• Home Depot & Lowe’s

gaining some of Sears’

loss, but not all

• Independent dealer

growth outpacing other

channels

• Growth in “Others’ led

by TSC, Walmart & e-

commerce channels

4.5%

30.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2001 2017

% of Dealers >$2m Rev

Dealer Trends Percent of Total Dealer Sales

• Dealer are getting bigger and their mix is shifting

• >15% increase in reliance on whole good sales

• 14% reduction in parts/service as a percent of total sales

Data Source: OPEI, Rural Lifecycle Dealer, Kohler Marketing

Dealer Trends

Source: Rural Lifestyle Dealer

• Dealers challenged to find good labor

Industry Macro Trends

Trade & Tariffs

US tariff landscape presenting cost pressures

• United States Trade Representative tariffs on China imports

– Section 232 – effective May, 2018• 25% tariff on steel & 10% on aluminum – effective May, 2018

– Section 301 Lists 1 & 2 – effective July 6, 2018

• ~$50B in imports affected

• 25% on items including small spark-ignited engines

– Section 301 List 3 – effective September 24, 2018

• ~$200B in imports affected

• Currently 10% with threat to go to 25%

Q&A

KOHLERPOWER.COM / 36