DEUTZ AG: DEUTZ with record growth in 2018

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– Revenue target comfortably exceeded, sharp increase in profitability
– Strong order book ensures good capacity utilization
– Further growth and further increase in profitability expected in 2019 

"2018 was a very successful year for DEUTZ," says Dr Frank Hiller, Chairman of the Board of Management of DEUTZ AG. "We comfortably exceeded our revenue target and registered a sharp increase in profitability. Our E-DEUTZ strategy is already bearing fruit and is an important step on our path to becoming a leading global manufacturer of innovative drive systems. And our new three-pillar growth strategy for China means that we are now also strengthening our position in the world’s biggest engine market. For 2019, we expect a further increase in revenue and a further improvement in profitability towards our medium-term target of an EBIT margin before exceptional items of 7 to 8 per cent."

Double-digit growth in new orders and revenue

In 2018, the DEUTZ Group received orders worth EUR1,952.6 million, which was an improvement of 25.4 per cent compared with the prior-year figure of EUR1,556.5 million. All off-highway application segments as well as the service business registered increases. Orders on hand totalled EUR438.9 million as at 31 December 2018, a rise of 62.0 per cent compared with the figure of EUR270.9 million at the end of 2017. DEUTZ generated revenue of EUR1,778.8 million in 2018, which was 20.3 per cent higher than the figure of EUR1,479.1 million achieved in 2017. DEUTZ therefore comfortably exceeded the forecast, published in its 2017 annual report and reiterated in July 2018, of a marked rise in revenue to more than EUR1.6 billion.

Substantial increase in operating profit

Operating profit (EBIT before exceptional items) more than doubled in 2018, going up by EUR42.3 million to reach EUR82.0 million (2017: EUR39.7 million). This was mainly because of the higher volume of business and the resulting economies of scale as well as positive effects from the efficiency program. It was achieved in spite of several weeks of strike action at a supplier. Most of the negative effects resulting from this disruption, which occurred in the third quarter of 2018, were compensated for by reconfiguring production plans and initiating catch-up measures. DEUTZ also withdrew from the DEUTZ Dalian joint venture last year. The negative impact on earnings attributable to the joint venture in the first half of 2018 was slightly outweighed, as had been anticipated, by the proceeds generated from the sale of the shares in the fourth quarter of 2018. The EBIT margin before exceptional items improved from 2.7 per cent in 2017 to 4.6 per cent last year. At the start of the year, DEUTZ had expected a moderate increase in the EBIT margin before exceptional items. The improvement of 1.9 percentage points in the EBIT margin more than exceeded this initial forecast as well as the more specific forecast made in July 2018 of an EBIT margin of at least 4.5 per cent.

Prior-year result inflated by positive effects from exceptional items

Net income fell by EUR48.6 million to EUR69.9 million in 2018. This resulted in earnings per share of EUR0.58 (2017: EUR0.98). When adjusted for exceptional items recorded in the prior year, which mainly related to the sale of property and totalled EUR85.5 million after taxes, net income rose by EUR36.9 million. Adjusted earnings per share thus improved from EUR0.27 in the prior year to EUR0.58 last year.

Segment: DEUTZ Compact Engines

– Significant increase in new orders 
– Double-digit revenue growth in the main application segments: Material Handling up by 41.9 per cent, Construction Equipment up by 25.8 per cent, Agricultural Machinery up by 12.9 per cent 
– Substantial improvement in the EBIT margin before exceptional items to 4.3 per cent (up by 270 basis points) due to economies of scale and efficiency gains

DEUTZ Customised Solutions segment

– Very good performance in Q4 2018 due to the high level of orders on hand
– Service revenue advances by 10.1 per cent in 2018
– EBIT margin before exceptional items rises to 12.1 per cent (up by 220 basis points) on the back of an improved product mix and efficiency gains

Consistent dividend 

As in the prior year, the Board of Management and Supervisory Board of DEUTZ AG propose using EUR18.1 million of the accumulated income to pay a dividend of EUR0.15 per share. The dividend per share is therefore at the same level as in 2017. However, it has been funded exclusively from the operational business, whereas last year the intention of the dividend was to allow the shareholders to benefit from the completed property transactions. DEUTZ is aiming to maintain a dividend ratio of around 30 per cent of net income over a number of years.

Positive outlook for 2019

This year, DEUTZ’s engine business will benefit from persistently strong demand from customers. The start of 2019 has been characterised by a high level of orders on hand, which bodes very well for business in the first half of the year in particular.

For 2019 as a whole, DEUTZ expects revenue to increase to more than EUR1.8 billion. The EBIT margin (before exceptional items) is also forecast to improve to at least 5.0 per cent. This increase is likely to result mainly from the anticipated growth in revenue, but also from the various initiatives aimed at continuously increasing efficiency. The ongoing expansion of the service business will also help to improve overall profitability relative to 2018. DEUTZ is therefore expecting to take a further step towards its medium-term target (for 2022) of an EBIT margin before exceptional items of 7 to 8 per cent. The payment of the final instalment of the purchase consideration from the disposal of the Cologne-Deutz site could result in an exceptional item that would increase earnings by around EUR50 million in 2019.

Forward-looking statements

This release may contain forward-looking statements based on current assumptions and forecasts made by DEUTZ management. Various known and unknown risks, uncertainties and other factors could lead to material differences between the actual future results, financial situation or development of the company and the estimates given here. These factors include those discussed in DEUTZ’s public reports which are available at www.deutz.com. The company assumes no liability whatsoever to update these forward-looking statements or to conform them to future events or developments.

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DEUTZ AG: Neue 3-Säulen Wachstumsstrategie in China

  • Joint Venture mit führendem Baumaschinen-Konzern SANY
    Ausbau Servicegeschäft mit HORIZON
    Produktionskooperation mit BEINEI
    Halbe Milliarde Euro Umsatz in 2022 erwartet

Die DEUTZ AG stellt ihren Marktauftritt in China neu auf. Über Partnerschaften mit gleich drei bedeutenden chinesischen Unternehmen – SANY, HORIZON und BEINEI – will die DEUTZ AG an dem dynamischen Wachstumsmarkt in China partizipieren. „China ist der größte Einzelmarkt für Motoren weltweit. Mit den neuen Partnern verfügt DEUTZ nun über ein attraktives Produktionsnetzwerk, um Kunden vor Ort bestmöglich mit Antriebssystemen zu versorgen. Gleichzeitig haben wir Zugriff auf ein großflächiges Servicenetz, das wir mit digitalen Lösungen konsequent weiterentwickeln werden“, sagt DEUTZ Vorstandsvorsitzender Dr. Frank Hiller.

In Peking wurde eine Absichtserklärung (Memorandum of Understanding) mit SANY, dem größten Baumaschinen-Konzern Chinas unterzeichnet. Die beiden Unternehmen gründen ein Joint Venture, an dem die DEUTZ AG mit 51 % die Mehrheit halten wird. In einem ersten Schritt sollen für SANY in 2022 rund 75.000 neue Motoren der Emissionsstufe IV (China IV) bzw. der Abgasstufe 6 (China 6) für Off- und On-Road-Anwendungen geliefert werden. Damit weitet die DEUTZ AG, die zu den führenden Motoren-Herstellern im Off-Highway Bereich gehört, ihre Aktivitäten auch auf den On-Highway Bereich aus. Die DEUTZ AG investiert zum Start in das neue Joint Venture einen mittleren zweistelligen Millionenbetrag.

"Mit DEUTZ haben wir uns für einen weltweit führenden Motorenhersteller entschieden. Bei diesem Joint Venture profitieren wir von einem agilen und zukunftsgerichteten Unternehmen, das technische Innovation aktiv vorantreibt. Damit bringt DEUTZ genau das mit, was wir für unsere Motorenentwicklung brauchen," sagt Lincoln Liang, Mitglied des Vorstands der Sany Gruppe.

Um auch im attraktiven Service-Geschäft stärker präsent zu sein, schließt die DEUTZ AG zusätzlich einen Kooperationsvertrag mit HORIZON. Das Unternehmen ist mit über 80 Filialen der größte Anbieter im chinesischen Baumaschinen-Vermietungsgeschäft und wird zukünftig als lokaler Service-Partner für DEUTZ die Betreuung der Motoren im Feld sowie den Aftermarket-Vertrieb in China übernehmen. HORIZON ist zudem ein idealer Partner im Hinblick auf digitale Flottenservice-Lösungen.

Ein weiterer Baustein der neuen China-Strategie ist eine Kooperation zur lokalen Auftragsfertigung mit dem Motorenbauer BEINEI. Diese wird als Produktions-Hub für den asiatischen Markt fungieren. In einer neuen Fabrik in Tianjin sollen unter der Leitung des DEUTZ-Managements in 2022 rund 20.000 Motoren hergestellt werden.

Die DEUTZ AG hatte im Oktober 2018 die Anteile an dem bisherigen chinesischen Joint Venture DEUTZ Dalian mit First Automotive Works (FAW) verkauft. Die Neuausrichtung ermöglicht jetzt einen grundlegend neuen Marktauftritt, um den steigenden Bedarf nach fortschrittlichen Motoren in China, aber auch in anderen asiatischen Märkten langfristig zu bedienen. Mit dieser 3-Säulenstrategie strebt DEUTZ in China für 2022 Umsätze in Höhe von rund einer halben Milliarde Euro an.1

1 Inwieweit diese Umsätze voll konsolidiert werden, wird noch geprüft.

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DEUTZ AG: New three-pillar growth strategy in China

  • Joint venture with leading construction equipment group SANY
  • Expansion of service business with HORIZON
  • Manufacturing alliance with BEINEI
  • Revenue of half a billion euros expected in 2022

DEUTZ AG is restructuring its market presence in China, entering into partnerships with three major Chinese companies – SANY, HORIZON and BEINEI – in order to benefit from the high-growth Chinese market. "China is the largest individual market for engines in the world," says Dr Frank Hiller, Chairman of the DEUTZ Board of Management. "Thanks to its new partners, DEUTZ now has the ideal production network for efficiently supplying local customers with DEUTZ drive systems. At the same time, we have access to an extensive service network that we will systematically enhance with digital solutions."

DEUTZ and SANY, China’s largest construction equipment group, signed a memorandum of understanding in Beijing. The two companies are forming a joint venture in which DEUTZ AG will be the majority shareholder with a stake of 51 per cent. Initially, the plan is to supply SANY with around 75,000 new engines for off- and on-road applications in 2022. These engines will comply with the China 4 and China 6 emissions standards. One of the leading engine manufacturers in the off-highway segment, DEUTZ AG is thus stepping up its activities in the on-highway segment as well. DEUTZ AG’s initial investment in the new joint venture is in the mid double-digit millions.

"We chose DEUTZ because it is one of the world’s top engine manufacturers," says Lincoln Liang, a member of the Sany Group’s board of directors. "In this joint venture, we will benefit from working with an agile company that is looking to the future and driving forward technological innovation. DEUTZ thus brings to the table exactly what we need for our engine development."

In addition, DEUTZ AG is entering into a cooperation agreement with HORIZON in order to strengthen its position in the attractive service business as well. With more than 80 branches, HORIZON is the largest player in the Chinese construction equipment rental business. It will become a local service partner for DEUTZ, servicing engines in the field and taking over the aftermarket sales business in China. HORIZON is also the ideal partner with regard to digital fleet service solutions.

Another element of the new strategy for China is a local contract manufacturing alliance with engine manufacturer BEINEI. This will act as a production hub for the Asian market. The DEUTZ management team is to oversee the manufacturing of approximately 20,000 engines in 2022 at a new factory in Tianjin.

In October 2018, DEUTZ AG sold its shares in DEUTZ Dalian, the Chinese joint venture that it had entered into with First Automotive Works (FAW). The new strategy now enables DEUTZ to fundamentally overhaul its market presence so that it can meet the growing demand for sophisticated engines not only in China but also in other Asian markets. On the back of its three pillar growth strategy, DEUTZ is aiming to generate revenue of around half a billion euros in China in 2022.

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Further strong growth at DEUTZ

  • Significant rise in new orders
  • Double-digit increase in revenue and significantly improved EBIT margin
  • DEUTZ focuses efforts on growth in China
  • Implementation of E-DEUTZ strategy continues to gather momentum

DEUTZ AG has today published its consolidated financial results for the first three quarters of 2018. New orders rose from €1,173.8 million to €1,548.7 million, an increase of 31.9 per cent. In the third quarter of 2018, new orders were up by 22.0 per cent to €452.2 million (Q3 2017: €370.8 million).

The unit sales figure for the nine-month period was 156,504 engines, including 8,977 electric motors sold under the Torqeedo brand. This equates to an increase of 32.3 per cent compared with unit sales in the prior-year period (Q1–Q3 2017: 118,279 engines). Revenue advanced from €1,093.2 million to €1,297.3 million, a rise of 18.7 per cent. In the third quarter, revenue was up by a substantial 17.0 per cent to €419.7 million (Q3 2017: €358.7 million).

Operating profit (EBIT before exceptional items) amounted to €45.9 million in the first three quarters of the year (Q1–Q3 2017 €26.7 million). Adjusted for effects on earnings in connection with the DEUTZ Dalian joint venture, it stood at €60.3 million. Operating profit thus improved at a significantly faster rate than revenue, despite the strike at one of the Company’s suppliers. Consequently, the EBIT margin (before exceptional items) improved to 4.6 per cent after adjusting for the temporary drag on earnings resulting from DEUTZ Dalian and to 3.5 per cent before adjustment for this drag on earnings (Q1–Q3 2017: 2.4 per cent). In the third quarter of 2018, the EBIT margin was 3.0 per cent (Q3 2017: 1.4 per cent).

“The strike at a supplier put a great deal of strain on management and staff at our Company,” says the Chairman of the DEUTZ Board of Management, Dr Ing Frank Hiller. “This makes our substantial revenue growth, to which all regions and segments contributed, and our significant increase in operating profit all the more pleasing. We took further important steps that are aimed at securing growth in the future. We have also succeeded in further expanding our licensing business in China and are making good progress with the implementation of our EDEUTZ strategy.”

In the Chinese market, DEUTZ plans to generally reorganise its presence so that it can generate stronger growth and be even more successful there. As previously announced, DEUTZ signed contracts for the sale of the former DEUTZ Dalian joint venture to its former partner FAW in October 2018. The Company is also currently in talks about entering into new alliances with major local partners in the construction equipment and agricultural machinery industries.

Our E-DEUTZ strategy, introduced in 2017, is continuing to gather momentum. Demonstrating fully working operational systems during the ELECTRIP Event Week was the best way to prove our expertise in this field. An interdisciplinary team of Torqeedo and DEUTZ design engineers succeeded in integrating our drive concept into two prototype machines in just six months. This shows that DEUTZ has mastered the technology and is in a position to supply marketable electrification solutions.

For 2018 as a whole, DEUTZ (assuming no further supply shortage) expects revenue to rise sharply to more than €1.6 billion. The EBIT margin (before exceptional items) is forecast to improve to at least 4.5 per cent.

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DEUTZ AG: Saarbrücken Regional Court orders Neue Halberg Guss GmbH to resume supply to DEUTZ AG immediately

Resounding success for DEUTZ in injunction proceedings Dr Frank Hiller, Chairman of the Board of Management: "The madness has come to an end." Planning certainty for employees and customers of DEUTZ AG.

At the request of DEUTZ AG, the Saarbrücken Regional Court today ruled that Neue Halberg Guss GmbH (NHG) must resume supplying cast parts to DEUTZ AG as contractually agreed with immediate effect. The decision, issued in the form of a mandatory injunction Leistungsverfügung, provides DEUTZ AG with security of supply in respect of crankcases and cylinder heads. The injunction is initially valid until the end of the year. Should it be necessary in the future, DEUTZ AG will not hesitate to use all legal means at its disposal to ensure it is able to maintain a reliable supply to its customers.

"The madness has come to an end. NHG will finally have to meet its commitments. This is a breakthrough for DEUTZ AG and our customers," said Dr Frank Hiller, Chairman of the Board of Management of DEUTZ AG, welcoming the decision. "We now have planning certainty – that’s the most important thing."

DEUTZ AG felt it had no option but to apply for an interim injunction when NHG, its partner of many years, demanded significant price increases, one-off payments amounting to millions of euros and firm purchase commitments in return for continuing to supply the parts, even though a valid contract was still in force and there was no legal basis for making such demands.

The court’s decision confirms our view that contracts must be honoured and, in a globalised world, suppliers must assume a special responsibility," commented Dr Frank Hiller.

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