DEUTZ Reports Significant Improvement in Earnings

Having announced preliminary results on July 11, 2018, DEUTZ AG has published its interim report for the first half of 2018. New orders rose by €803.0 million to €1,096.5 million, an increase of 36.6%. At €521.6 million, the level of new orders remained very high in the second quarter of 2018 and was up by 30.5% on the figure for the prior-year period (Q2 2017: €399.8 million). 

Unit sales in the first half of 2018 came to 105,201, which included 6,345 electric motors sold under the Torqeedo brand. This was an increase of 32.2% on the number of engines sold in the prior year period (H1 2017: unit sales of 75,599). Revenue amounted to €877.6 million, which was 19.5% higher than the €734.5 million generated in the first half of last year. DEUTZ also saw a further double-digit percentage increase in revenue in the second quarter of 2018, relative to both the first quarter of the current year and the second quarter of 2017. 

Operating profit (EBIT before exceptional items) came to €33.4 million in the first half of 2018. Adjusted for effects on earnings in connection with the DEUTZ Dalian joint venture, it stood at €47.5 million. This represents a significant improvement in operating profit. Consequently, the EBIT margin (before exceptional items) rose to 5.4% after adjusting for the effects on earnings in connection with the DEUTZ Dalian joint venture and to 3.8% including these effects (H1 2017: 3.0%). The EBIT margin for the second quarter of 2018 (before the aforementioned effects on earnings) was 5.7%. 

“DEUTZ’s business performance in the first half of 2018 exceeded our expectations,” says the Chairman of the DEUTZ Board of Management Dr. Frank Hiller, before adding: “The steps that have been taken to improve efficiency are having the desired impact. By making changes to our market presence in China, we are looking to bolster our successful growth strategy.” DEUTZ is currently reorganizing its activities in China, the world’s largest engine market, in order to make better use of opportunities there in future. The company’s 50% stake in the DEUTZ Dalian joint venture is to be sold to the joint venture partner, FAW. Talks with new Chinese partners in the construction equipment and agricultural machinery industries are already at an advanced stage. 

The thorough review of the carrying amounts for DEUTZ Dalian revealed that the carrying amount calculated using the equity method would have to be written down by a total of €23.1 million. Of this figure, €14.9 million relates to prior financial years and, in line with the applicable IFRSs, is to be applied retrospectively by adjusting the carrying of DEUTZ Dalian and by adjusting group equity as at December 31, 2017 and earlier. 

The remaining €8.2 million relates to the current financial year and thus reduces the share of profit/loss under the equity method attributable to DEUTZ Dalian in the first half of 2018, which amounted to a total loss of €2.8 million. In addition, the carrying amount of the DEUTZ Dalian shares was tested for impairment and was written down by €11.3 million to the total proceeds of €9.7 million that are expected to be obtained from the disposal. The amount of €14.1 million by which earnings for the first half of 2018 has been reduced is likely to be fully offset before the end of the year as a result of the planned disposal of the joint venture. 

For 2018 as a whole, DEUTZ is forecasting a significant increase in revenue to more than €1.6 billion and a moderate increase of at least 4.5% in the EBIT margin (before exceptional items). This revised guidance was communicated on July 27, 2018. Previously, DEUTZ had forecast a significant rise in revenue and a moderate improvement in the EBIT margin (before exceptional item), but had not provided any specific figures. These projections rest on the assumption that there will be no further disruption related to the strike at Halberg and that the arbitration process that has started there will result in a definitive end to the industrial action.