DEUTZ AG: DEUTZ records growth in revenue and earnings

• New orders reflect weakening of
  demand as a result of the economic climate
• Revenue rises in all regions and major application
  segments; high-margin service business grows by around 7 percent
• Sharp increase in operating profit and corresponding
  profit margin even before exceptional items
• Full-year revenue and EBIT guidance¹⁾ for 2019 confirmed
• New orders reflect weakening of demand as a result of
  the economic climate
• Revenue rises in all regions and major application
  segments; high-margin service business grows by around 7 percent
• Sharp increase in operating profit and corresponding
  profit margin even before exceptional items
• Full-year revenue and EBIT guidance¹⁾ for
  2019 confirmed

Key figures for the DEUTZ Group

EUR million	Q1-Q3 2019	YoY change	Q3 2019	YoY change
New orders	1,315.2	-15.1%	361.9	-20.0%
Unit sales (units)	155,780	-0.5%	54,189	+5.6%
Revenue	1,379.9	+6.4%	450.1	+7.2%
EBIT	78.5	+71.0%	22.0	+76.0%
EBIT before exceptional items	69.2	+50.8%	22.0	+76.0%
EBIT margin	5.7%	+220 bps	4.9%	+190 bps
EBIT margin before exceptional items	5.0%	+150 bps	4.9%	+190 bps
Net income	54.7	+53.7%	9.4	-8.7%
Net income before exceptional items	46.8	+31.5	9.3	-9.7%

COLOGNE, GERMANY�- EQS Newswire – 7 November 2019 - DEUTZ, one of
the world’s leading manufacturers of innovative drive systems, recorded further
growth in revenue and earnings in the first nine months of 2019.

“Despite a general slowdown in market growth, we saw revenue advance in
all regions and major application segments and also demonstrated our
operational strength by delivering a high double-digit percentage increase in
earnings,” says Dr. Frank Hiller, CEO of the DEUTZ Group, commenting on
the results for the first three quarters of 2019. “Overall, we believe
that we are on track to achieve the current full-year guidance for revenue and
earnings. We also reached important milestones in the implementation of our
growth strategy. Preparations for our joint venture with SANY to commence
production as planned in 2021 are progressing very well. At the end of
September, the foundation stone was laid for the new high-performance engine
factory in the Chinese city of Changsha. And at the beginning of the fourth
quarter, we added high-voltage battery technology as a key component of our
E-DEUTZ strategy by acquiring the battery specialist Futavis, taking us another
big step closer to a future of carbon-neutral off-highway vehicles.”

New orders reflect slowdown in market growth

DEUTZ received orders worth EUR1,315.2 million in the period under review. This
was 15.1 percent lower than the robust volume reported for the prior-year
period, which had been positively influenced by a change in customers’ ordering
patterns. In addition to this year-on-year effect, a weakening of demand as a
result of the economic climate had an adverse impact from the end of the second
quarter. New orders in the third quarter decreased by 20.0 percent year on year
to EUR361.9 million.

Unit sales close to the level of the prior-year period 

DEUTZ sold a total of 155,780 engines in the first nine months of this year,
meaning the Group’s overall unit sales were close to the level of the
prior-year period. By contrast, unit sales of Torqeedo’s drive systems, which are
included within that figure, rose by a significant 44.7 percent to reach
12,990. Looking at the third quarter in isolation, the Group’s unit sales fell
by 5.6 percent to 54,189 engines. This was due to a high double-digit
percentage increase in unit sales in the Agricultural Machinery application
segment and, in particular, to the boat drive business. At 6,832, Torqeedo’s
unit sales of boat drives were more than twice as high as in the prior-year
quarter, primarily due to an increase in demand for smaller outboard motors.

Year-on-year increase in revenue 

In the first three quarters of 2019, DEUTZ’s revenue grew by 6.4 percent to
EUR1,379.9 million. The Material Handling application segment performed
particularly strongly, delivering double-digit revenue growth of 11.3 percent,
as did the Agricultural Machinery application segment and high-margin service
business, whose revenues were up by 9.5 percent and 7.3 percent respectively.
The Americas and Asia-Pacific were especially buoyant, with business in these
regions expanding by 16.3 percent and 14.8 percent respectively. In the
Americas region, DEUTZ particularly benefited from the ramp-up of new engine
series, the service business with Xchange products, and higher demand for
electric boat drives. The main factors in the substantial increase in revenue
generated in the Asia-Pacific region were revenue growth in China and the
expansion of business with new customers.

Sharp increase in operating profit even before exceptional items 

In the first three quarters of 2019, operating profit (EBIT before exceptional
items) went up by 50.8 percent year on year to reach EUR69.2 million. Besides
the growth in revenue, this significant increase was predominantly due to a low
figure being reported in the prior-year period, which had been adversely
affected by a drag on earnings resulting from the joint venture DEUTZ Dalian
Engine Co. Ltd. The joint venture has since been sold. However, there were also
negative effects on earnings in the first nine months of 2019 relating to the
deconsolidation of the Argentinian company DEUTZ AGCO Motores S.A. Furthermore,
provisions had to be recognized in the first half of the year due to a product
recall involving Torqeedo companies. Operating profit in the third quarter of
2019 was also adversely affected by the opening of insolvency proceedings at a
major supplier. The EBIT margin before exceptional items rose from 3.5 percent
to 5.0 percent during the reporting period.

Positive exceptional items of EUR9.3 million arose from the sale of a small
part of the land at the former Cologne-Deutz site and were recognized in the
second quarter of 2019 in accordance with the sale agreement from 2017. After
taking these items into account, EBIT amounted to EUR78.5 million, which was
71.0 percent higher than in the first three quarters of 2018. The corresponding
EBIT margin increased from 3.5 percent in the prior-year period to 5.7 percent.

Net financial income deteriorated by EUR9.4 million year on year due to the
write-down on a loan granted to a supplier at the end of 2018. The opening of
insolvency proceedings at the supplier in September 2019 resulted in the
receivable being written down by EUR9.4 million.

Because of the growth in EBIT and despite the deterioration in net financial
income, net income increased by 53.7 percent year on year to reach EUR54.7
million. Earnings per share rose from EUR0.29 to EUR0.45. Adjusted net income
went up by 31.5 percent to EUR46.8 million; adjusted earnings per share
improved to EUR0.39.

Segment: DEUTZ Compact Engines

EUR million	Q1-Q3 2019	YoY change	Q3 2019	YoY change
New orders	1,019.5	-22.3%	263.3	-31.0%
Unit sales (units)	122,638	-13.0%	40,714	-12.6%
Revenue	1,079.7	-0.5%	349.9	+0.7%
EBIT before exceptional items	45.8	+62.4%	10.9	+45.3%
EBIT margin before exceptional items	4.2%	+160 bps	3.1%	+90 bps

 

• Reassignment
  of the 2011 engine series to the DCS segment influences business performance
• Despite
  the reassignment of the engine series, revenue is close to the level of the
  prior-year period, mainly due to a favorable shift in the product mix toward
  higher-value engines
• Operating
  profit for the segment increases compared with the low figure reported for the
  prior-year period, which had been adversely affected by a drag on earnings
  resulting from the joint venture DEUTZ Dalian Engine Co. Ltd.
• EBIT
  margin improving, partly because of the engine series reassignment and positive
  effects resulting from a shift in the product mix

DEUTZ Customised Solutions segment

EUR million	Q1-Q3 2019	YoY change	Q3 2019	YoY change
New orders	267.2	+24.1%	86.7	+35.7%
Unit sales	20,152	+210.4%	6,643	+216.3%
Revenue	276.5	+44.2%	91.5	+38.6%
EBIT before exceptional items	37.6	+43.0%	14.0	+66.7%
EBIT margin before exceptional items	13.6%	-10 bps	15.3%	+260 bps

 

• Business
  performance influenced by inclusion in this segment of the 2011 engine series
• Strong
  revenue growth, partly due to the expansion of the service business with
  Xchange products in the Americas region
• Sharp
  increase in operating profit for the segment, mainly because of the greater
  proportion of earnings generated by the high-margin service business
• EBIT
  margin close to the level of the prior-year period because the profit margin of
  the 2011 engine series is lower than that of the other series

 

Full-year revenue and EBIT guidance¹⁾ for 2019 confirmed

Despite a persistently challenging macroeconomic and geopolitical
environment, the DEUTZ Board of Management confirms its full-year guidance for
revenue and EBIT. Revenue is still expected to rise to more than EUR1.8 billion
in 2019 and the EBIT margin before exceptional items is predicted to be in the
range of 4 to 5 percent.

DEUTZ had been expecting to register a positive exceptional item of around
EUR50 million in 2019 once it received the final installment of the purchase
price for the sale of the Cologne-Deutz site, whereby both the exact amount and
the date of payment were/are dependent on the development plan for the site
being formally adopted. Formal adoption has been delayed, however, and so, based
on current information, the payment is now not expected to be made until 2020.
Contrary to previous expectations, the final installment of the purchase price
is now likely to be in the region of EUR60 million (previously around EUR50
million).

Moreover, it is still possible that the outstanding payments for the
purchase of the shares in the joint venture with SANY could be made before the
end of 2019. In this event, DEUTZ’s free cash flow would, contrary to the
original full-year guidance of a positive mid double-digit million euro amount,
fall significantly into negative territory.

1) See the ad-hoc disclosure from DEUTZ AG dated September 20, 2019.

Conference call 

Dr. Frank Hiller, CEO, and Dr. Andreas Strecker, CFO, will explain the results
to analysts and investors during a conference call on November 7, 2019, 9 a.m.
CET. The link to the live webcast is available online at https://www.deutz.com/investor-relations/.

Upcoming financial dates 

March 18, 2020: 2019 annual report / annual results press conference
May 7, 2020: results for the first quarter of 2020
May 14, 2020: 2020 Annual General Meeting

Forward-looking statements 

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

The issuer is solely responsible for the content of this
announcement.