• Measures under the Transform for Growth efficiency program defined and initiated - annual cost savings of around €100 million expected from 2022
• Group guidance for 2020 remains under review; medium-term targets confirmed
• Revenue target for China in 2022 raised to €800 million^[1]

 

DEUTZ Group: overview of key figures

€ million	H1 2020	Change	Q2 2020	Change
New orders	623.6	-34.6%	266.9	-39.2%
Unit sales (units)	73,859	-27.3%	33,790	-37.3%
Revenue	620.0	-33.3%	280.2	-41.3%
EBIT	-49.9	<-100%	-38.1	<-100%
EBIT before exceptional items	-49.9	<-100%	-38.1	<-100%
EBIT margin	-8.0	-	-13.6	-
EBIT margin before exceptional items (%)	-8.0	-	-13.6	-
Net income	-52.3	<-100%	-42.3	<-100%
Net income before exceptional items	-52.3	<-100%	-42.3	<-100%
Earnings per share (€)	-0.43	<-100%	-0.35	<-100%
Earnings per share before exceptional items (€)	-0.43	<-100%	-0.35	<-100%
Equity ratio (%)	48.5	-	48.5	-
Cash flow from operating activities	-43.7	<-100%	-31.8	<-100%
Free cash flow	-85.7	-85.5%	-50.2	<+100%
Net financial position (at Jun. 30)	-117.8	<-100%	-117.8	<-100%
Employees (number as at Jun. 30)	4,673	-3.9%	4,673	-3.9%

 

COLOGNE, GERMANY - EQSNewswire - 11 August 2020 - DEUTZ, a leading globalmanufacturer of innovative drive systems, registered a significant overalldecline in business performance in the first half of 2020 as a result of thecoronavirus crisis. Demand slumped due to customers continuing to sell theinventories of engines they had built up before new emissions standards cameinto force, which had already led to a low level of orders on hand at the endof 2019, and due to the macroeconomic impact of the coronavirus pandemic in whatwas already a challenging market environment. Furthermore, business operationswere significantly disrupted in the second quarter as a result of a temporaryproduction shutdown and the introduction of short-time working.

 

"The adverse effects of the coronavirus pandemic on the global economyand thus on our engine business cannot be ignored. At present, nobody canpredict how the coronavirus crisis will continue to unfold. However, it isclear that the entire DEUTZ team will do everything they can to ensure that weemerge stronger from the crisis. Despite the current situation, we believe weare on the right track to be able to achieve our medium-term targets,"said DEUTZ CEO Dr. Frank Hiller. Commenting on the Transform for Growthefficiency program launched at the start of this year, he added: "To becompetitive in the long term and ensure the Company stays on course forsuccess, it is vital that we regularly review our processes and structures. Wehave done this and we expect implementation of the resulting action plan togenerate annual cost savings totaling around €100 million from the end of2022."

 

Sharp decline in sales figures as a result of the coronavirus crisis

 

In the period under review, the new orders received by DEUTZ fell by34.6 percent year on year to €623.6 million. This was due not only to the sharpdrop in new orders triggered by the coronavirus crisis but also to the highlevel of new orders in the prior-year period as a result of customers buildingup their inventories of engines before new emissions standards came into force.Customers then sold these engines, putting a further strain on the business.

 

The Construction Equipment, Material Handling, Agricultural Machinery, andStationary Equipment application segments recorded double-digit percentagereductions in new orders. By contrast, the Miscellaneous application segmentand the service business notched up further increases of 16.4 percent and 0.8percent respectively. The sharp rise in the Miscellaneous application segmentwas primarily due to the growth in new orders for rail vehicle drive systems.

 

As at June 30, 2020, orders on hand stood at €253.5 million (June 30, 2019:€462.6 million).

 

The DEUTZ Group sold a total of 73,859 engines in the reporting period,which was 27.3 percent fewer than in the first half of 2019. Miscellaneous wasthe only application segment with an increase in unit sales, registeringa substantial rise of 112.7 percent that was largely attributable to theintroduction of small outboard motors known as trolling motors. The ramp-up ofthese motors enabled DEUTZ subsidiary Torqeedo to more than double its sales ofboat motors to a total of 16,244, which equates to a year-on-year rise of 163.8percent.

 

In the EMEA region (Europe, Middle East, and Africa), DEUTZ's biggest salesmarket, unit sales went down by 30.5 percent compared with the prior-yearperiod to 37,763 engines. In the Americas region, unit sales fell by 47.4percent to 14,726 engines. By contrast, unit sales in the Asia-Pacific regiongrew by 10.8 percent owing to the aforementioned ramp-up at Torqeedo.

 

The DEUTZ Group's revenue fell by 33.3 percent compared with thefirst six months of 2019 to €620.0 million. Revenue declined across the board,from both a regional and an application segment perspective.

 

Operating profit falls sharply, partly as a result of diseconomies ofscale

 

The impact of the coronavirus pandemic on the business activities of theDEUTZ Group and its customers meant that DEUTZ reported an operating loss (EBITbefore exceptional items) of €49.9 million in the first half of 2020. Thissignificant decline compared with the prior-year period was attributable, inparticular, to the fall in revenue and the resulting diseconomies of scale.There was also a heavy drag on operating profit from payments of around €10million made under continuation agreements with suppliers that are goingthrough insolvency proceedings and demand-related impairment losses of around€5 million recognized on capitalized development projects. However, there were somepositive influences on earnings performance in addition to the general costreductions and the use of short-time working: The Board of Management waivedits one-year variable remuneration for 2020 and senior managers waived asubstantial part of their variable remuneration for 2020. The EBIT margin stoodat minus 8.0 percent in the reporting period, compared with 5.1 percent in theprior-year period.

 

DEUTZ Compact Engines (DCE): key figures for the segment

 

€ million	H1 2020	Change	Q2 2020	Change
New orders	439.9	-41.8%	184.6	-46.8%
Unit sales (units)	48,173	-41.2%	21,180	-50.7%
Revenue	453.7	-37.8%	197.8	-47.1%
EBIT before exceptional items	-49.8	<-100%	-33.1	<-100%
EBIT margin before exceptional items (%)	-11.0	-	-16.7	-

 

In the first half of 2020, the DCE segment's sales figures declinedoverall compared with the prior-year period. New orders came to €439.9 million,which was 41.8 percent lower than in the first six months of 2019. Thebreakdown by application segment reveals that only the service businessrecorded a rise in new orders, with an increase of 6.0 percent to €89.0 millionthat was primarily attributable to the expansion of on-site customer service business.The segment's unit sales declined by 41.2 percent to 48,173 engines and revenuecontracted by 37.8 percent to €453.7 million, with decreases in all regions andapplication segments.

 

In the first six months of this year, the operating profit of the DEUTZCompact Engines segment deteriorated by a substantial €84.7 million to aloss due to the collapse in demand triggered by the coronavirus pandemic. Thesegment's operating profit was weighed down by a fall in revenue of almost 38percent, payments to suppliers going through insolvency proceedings to enablethem to continue supplying DEUTZ, and impairment losses on a developmentproject. These impairment losses were recognized due to the expected decreasein demand for the affected engine series.

 

DEUTZ Customized Solutions (DCS): key figures for the segment

€ million	H1 2020	Change	Q2 2020	Change
New orders	165.4	-8.4%	72.9	-12.8%
Unit sales (units)	9,442	-30.1%	4,889	-23.8%
Revenue	145.0	-21.6%	70.2	-25.2%
EBIT before exceptional items	6.6	-72.0%	-1.7	<-100%
EBIT margin before exceptional items (%)	4.6	-	-2.4	-

 

The DCS segment's sales figures also deteriorated in the period underreview. New orders fell by 8.4 percent year on year to €165.4 million.Miscellaneous was the only application segment with an increase in new orders,registering a substantial rise of 52.6 percent to €29.6 million that waslargely attributable to new orders for rail vehicle drive systems. Thesegment's total unit sales dropped by 30.1 percent to 9,442 engines. Only theConstruction Equipment application segment recorded an increase, with its unitsales advancing by 13.7 percent to 1,755 engines thanks to the businessinvolving drives for mining equipment. Revenue decreased across all regions andapplication segments, falling by 21.6 percent year on year to €145.0 million.

 

The operating profit for the segment deteriorated markedly compared with thefirst half of 2019. This was mainly due to the sharp decline caused by theglobal coronavirus pandemic in the reporting period. The segment's operatingprofit was also weighed down by impairment losses on two development projectsthat were recognized due to the expected decrease in demand for the affectedengine series.

Other: key figures for the segment

€ million	H1 2020	Change	Q2 2020	Change
New orders	19.5	+4.8%	9.8	+4.3%
Unit sales (units)	16,244	>+100%	7,721	+72.1%
Revenue	22.5	+32.4%	12.6	+17.8%
EBIT before exceptional items	-6.7	+40.7%	-3.3	+35.3%
EBIT margin before exceptional items (%)	-29.8	-	-26.2	-

 

The Other segment includes not only Torqeedo's business with electric motorsfor boats but also Futavis GmbH, which was acquired in October 2019. Overall,the segment's business performance was positive in the reporting period.Despite the coronavirus crisis, new orders rose by 4.8 percent year on year to€19.5 million. In the first half of 2020, unit sales more than doubled to atotal of 16,244 electric motors. This was primarily thanks to the ramp-up oftrolling engines and led to a 32.4 percent jump in revenue to €22.5 million.All regions contributed to this growth.

 

In the period under review, the Other segment's operating loss improved by€4.6 million. This was mainly attributable to the deconsolidation of the jointventure DEUTZ AGCO Motores S.A., Haedo, Argentina, in the first half of 2019.As part of the deconsolidation, which was carried out for reasons ofmateriality, cumulative negative exchange differences were reclassified fromequity to the income statement, which had a significant adverse impact on thesegment's earnings in the prior-year period.

 

Full-year guidance for 2020 remains under review

 

The progression and timeline of the coronavirus crisis going forward is verydifficult to predict, as is its impact on the economy and thus on DEUTZ's enginebusiness. Consequently, it is still not possible to provide updated guidancefor 2020 at the present time.

 

Fundamentally, it can be assumed that the remainder of 2020, particularlythe third quarter, will continue to be heavily affected by the impact of thecoronavirus crisis, although to a lesser extent than the second quarter.

 

It is now anticipated that the final installment of the purchase price forthe Cologne-Deutz site, which had been expected as a positive exceptional item,will be paid in 2021 rather than this year. However, it is important to notethat the amount and the date of this payment continue to depend on when thedevelopment plan for the site is formally approved and so cannot be preciselydetermined yet.

 

Medium-term targets confirmed

 

Despite the currently difficult situation, the Company reaffirms its currentoutlook for 2022, when it expects to generate revenue in excess of €2.0 billionand an EBIT margin before exceptional items in the range of 7 percent to 8percent.

 

Growth is likely to be driven mainly by the continued internationalizationand rapid expansion of the service business, but also by the expansion of thecore business and the further development of the product portfolio. As aresult, DEUTZ is also adhering to its revenue target for the service business,which it has brought forward to 2021 and envisages revenue of over €400million.

 

In view of the restructuring of its business in China, DEUTZ raised itsoriginal revenue target for 2022 from around €500 million to around €800million. This significant increase is due, in particular, to the fact that theplanned volume for the joint venture already meets existing market demand andthe intention is to gain further market share from competitors by implementingthe China strategy.

Transform for Growth global efficiency program defined

 

At the start of the year, DEUTZ launched a Company-wide efficiency program,Transform for Growth, in order to further shore up its earnings performance inchallenging conditions. The details of the underlying action plan were drawn upin the second quarter. The main areas of action are optimization of the globalproduction network, automation and digitalization of production andadministrative processes, and groupwide streamlining of the organizationalstructure.

 

By taking these measures, DEUTZ hopes to generate annual cost savings ofaround €100 million, with the full effect expected to be achieved from 2022onward. As well as adjusting operating costs, a large part of the savings areto be achieved by reducing staff costs. This will involve a reduction inheadcount of up to 1,000 across the Group, which will be implemented with theminimum possible social impact.

 

A total of 380 jobs have already been cut in the first half of this year,partly by reducing the number of temporary workers. Following on from this,DEUTZ is planning to launch a voluntary program encompassing a further 350 jobsat its sites in Germany. The remaining reduction in headcount is to be achievedby the end of 2022 as fixed-term contracts come to an end and through naturalattrition.

 

"Our utmost objective is to avoid compulsory redundancies and find asocially responsible solution for our employees. We have therefore alreadyentered into an ongoing dialog with the employee representatives to discuss thedetails of a voluntary program," stressed DEUTZ CEO Hiller.

Forward-looking statements

 

This investor news maycontain certain forward-looking statements based on current assumptions andforecasts made by the DEUTZ management team. Various known and unknown risks,uncertainties, and other factors may lead to material differences between theactual results, the financial position, or the performance of the DEUTZ Groupand the estimates and assessments set out here. These factors include thosethat DEUTZ has described in published reports, which are available atwww.deutz.com. The Company does not undertake to update these forward-lookingstatements or to change them to reflect future events or developments.

About DEUTZ AG

DEUTZ AG, a publicly traded company headquartered in Cologne, Germany, isone of the world's leading manufacturers of innovative drive systems. Its corecompetencies are the development, production, distribution, and servicing ofdiesel, gas, and electric drive systems for professional applications. Itoffers a broad range of engines delivering up to 620 kW that are used inconstruction equipment, agricultural machinery, material handling equipment,stationary equipment, commercial vehicles, rail vehicles, and other applications.DEUTZ has around 4,900 employees worldwide and over 800 sales and servicepartners in more than 130 countries. It generated revenue of €1,840.8 millionin 2019.

 

Further information is available at www.deutz.com^[1]. The revenue target of approximately EUR800 million includes the revenuegenerated by the joint venture with SANY. Under the equity method, this revenueis not recognized in the consolidated financial statements.