DEUTZ: High hopes for 2021 following a successful start to the year

DEUTZ Dr Ing Frank HillerHaving finished a year dominated by coronavirus with a much improved fourth quarter in 2020, the uptrend for DEUTZ continued into the first quarter of 2021. This could be seen from the recently published preliminary results, which the company confirmed on 6 May

“The successful start to the year shows that DEUTZ is back on course for growth. Our new orders were up by around a third year on year in the first quarter of 2021, while orders on hand rose by almost a half. And although we will be dealing with the coronavirus pandemic for quite some time to come, we anticipate a sustained increase in customers’ propensity to proceed with capital expenditure in all of the main application segments,” said DEUTZ CEO Dr Frank Hiller.

As well as a healthy operating performance, further strategic milestones were reached. In China, the world’s largest engine market, the joint venture with SANY continues to operate profitably. Its unit sales amounted to around 8,000 engines in the first quarter of this year and the aim is to increase this to between 35,000 and 40,000 engines in 2021. At the Tianjin site, DEUTZ and BEINEI have begun to manufacture the 2.9 engine series as planned.

Establishment of the purchasing organisation in China is also proceeding according to schedule. The intention behind this is to achieve the highest possible localisation rate and thus significantly lower costs for materials and logistics. 

DEUTZ also forged ahead with the ongoing expansion of its high-margin service portfolio in the reporting period. At the start of 2021, the company added to its analog service concepts by launching a Lifetime Parts Warranty for engines that have been registered with DEUTZ online. Recording these engines in the internal service systems is an important step to be able to further optimize DEUTZ’s service offering and strengthen customer loyalty. Activity under the regional growth initiatives included expansion of the service network in the USA: the establishment of a new DEUTZ Power Center got under way in the Dallas metropolitan area; the ongoing expansion supports the planned increase in total revenue of the profitable service business to around €400mn (US$482mn) by the end of 2021; at the start of February, DEUTZ signed a long-term supply agreement with agricultural equipment manufacturer SDF. As well as the supply of engines with a capacity of below and above 4 litres, the agreement includes expansion of the service business between the two companies and is expected to result in additional annual revenue in the low-double-digit millions of euros.

DEUTZ CFO Dr Sebastian C. Schulte reported on the progress with the efficiency program, “The restructuring measures that we have initiated are already having a noticeable positive impact. For example, the cost-savings achieved enabled us to significantly improve our profitability in the reporting period. This shows that we are on the right track to be able to lower the break-even point to our target of 130,000 DEUTZ engines.”

By the end of 2022, DEUTZ intends to realise potential cost-savings of around €100mn (US$120mn) gross per year, compared with the base year of 2019. Another important milestone in this context was achieved with regard to the voluntary redundancy program, which originally aimed to reduce the number of positions by 350 but had been taken up 361 employees by the time that the program ended.

New orders up sharply by around a third
On the back of market demand that was better than originally expected, new orders received by DEUTZ in the first quarter of 2021 jumped by 30.3% compared with the first quarter of 2020 to reach €464.8mn (US$561mn). All of the regions and main application segments recorded double-digit percentage increases. As at March 31, 2021, orders on hand stood at €394.3mn (US$476mn), which was up by a substantial 47.6% year on year. Within this figure, orders on hand in the high-margin service business rose by an impressive 50.0% to €31.8mn (US$38mn).

Year-on-year rise in unit sales of DEUTZ engines
The group’s sales totaled 38,384 units in the first quarter of 2021, which was 4.2% fewer than in the prior-year period owing to substantial decreases in the Stationary Equipment and Miscellaneous application segments. The decrease in the Miscellaneous application segment was mainly attributable to the business with electric drives for boats at Torqeedo, whose unit sales fell by 28% year on year to 6,135 electric motors. The reasons for this included a decline in demand in the US recreational sector, delays in the procurement of materials, and longer logistics lead times. By contrast, the other application segments saw increases in unit sales. Unit sales of DEUTZ engines rose by 2.2% year on year to reach 32,249 engines sold.

Revenue increased only slightly year on year due to coronavirus
Despite the fall in the group’s unit sales, consolidated revenue went up by 1.1% to €343.4mn (US$414.5mn) owing to the increase in the number of higher-value DEUTZ engines sold in the reporting period. The application segments and regions presented a disparate picture.

As a result of the ongoing lockdowns in Europe, revenue in the EMEA region was at more or less the same level as in the prior-year period, whereas the Asia-Pacific region’s revenue went up sharply thanks, in particular, to the significant expansion of business in the Construction Equipment application segment. There was a decline in the Americas that was mainly attributable to the effects of the coronavirus pandemic combined with longer lead times, which had been less pronounced in the first quarter of 2020. 

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