DEUTZ releases new forecast based on third quarter financial results

Upon the release of its third quarter 2014 financial results, DEUTZ has lowered its forecast for the current financial year.

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DEUTZ AG has published its financial results for the first three quarters of 2014. Recent economic trends have caused the company to lower its forecast for the current financial year.

The general slowdown in the economy had a marked negative impact on new orders, which amounted to
€330.0 million in the third quarter of 2014 – 8.4% below the figure of €360.1 million reported a year
earlier. The volume of new orders in the first nine months of the year stood at €1,076.8 million, down by 10.5% on the record level achieved in the same period of the previous year (Q1 to Q3 2013: €1,203.6 million).

By contrast, unit sales increased both in the quarter under review and in the nine-month period. The company
sold 56,020 engines in the third quarter, almost 15% more than in the corresponding period of last year
(Q3 2013: 48,792 engines). Unit sales amounted to 155,099 engines in the nine months to September 2014,
representing a year-on-year rise of 15.1% (Q1 to Q3 2013: 134,699 engines).

Revenue went up in the third quarter of 2014, partly due to changes to the emissions standards for engines
under 130 kW, which came into force on October 1, 2014 in Europe. The resulting effects of the advance
production of engines, plus other factors, meant that revenue climbed by 11.4% to €424.5 million
(Q3 2013: €381.0 million). In the first nine months of this year, revenue increased by 12.9 per cent to €1,177.9
million (Q1-Q3 2013: €1,043.1 million).

As reported by DEUTZ when it released its preliminary results on October 21,  2014, an unexpected charge of
€20.4 million arising from additional provisions for warranty costs has been made against earnings. Excluding
this extraordinary item, operating profit (EBIT) improved to €23.1 million in the third quarter of 2014 thanks to
the increase in the volume of business (Q3 2013: €17.1 million). After taking the recognition of provisions into
account, operating profit (EBIT) came to €2.7 million. For the nine-month period, operating profit before one-off
items (EBIT before one-off items), taking the recognition of provisions into account, amounted to
€22.8 million (Q1-Q3 2013: €27.2 million).

The growth in free cash flow was particularly encouraging in the first nine months of 2014, rising by
€43.7 million year on year to €39.6 million. "We mainly used the free cash flow to improve our net financial
position, but also to pay a dividend. We are pleased that our net financial position had just returned to positive
figures again at September 30, 2014 – the first time that it has done so since 2009," comments Dr. Margarete
Haase, Chief Financial Officer of DEUTZ AG.

The program of structural optimization that was decided upon and begun in recent months is being
implemented as planned. This involves consolidating the sites in Cologne and integrating the exchange
engine plant in Übersee on Lake Chiemsee into the plant in Ulm. DEUTZ expects these measures to generate
a sustained increase in efficiency.

As the market environment in China remains difficult – particularly in the construction equipment sector – the
company and its partner AB Volvo have conducted a strategic reassessment of their joint venture DEUTZ
Engine (China) Co., Ltd. "Until this reassessment is complete, we will put on hold the implementation work
and thus the bulk of the capital expenditure. Nevertheless, we continue to have every faith in the Chinese
market's long-term potential and aim to satisfy local demand from AB Volvo and other target customers using
local Chinese production operations in future," explains Dr Helmut Leube, Chairman of the Board of
Management of DEUTZ AG.

In view of the conditions described above, the company expects to generate revenue of around €1.5 billion in
2014 as a whole. This equates to an increase of about 3% on 2013 as a whole compared with the
previous forecast of revenue growth in excess of 10%, i.e. revenue of more than €1.6 billion. As a
result of the unexpected charge against earnings and the lower volume of business, the previous earnings
forecast – an EBIT margin (before one-off items) of over 4.0% – is no longer achievable. The operating
profit margin (EBIT margin before one-off items) is now predicted to be around 2%. The company
continues to believe that one-off items in connection with the optimization of our site network will not exceed
€20 million.

A forecast for 2015 will be published on March 19, 2015 when the results for 2014 as a whole are released.