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DEUTZ AG Annual Report 2020

Foreword by the Chairman of the Board of Management

The past year was a challenging one for DEUTZ, a year in which expectations were not met and revenue – and therefore profit – fell. We will continue to use our innovative strength to ensure that we emerge from these turbulent times even stronger than before and to deliver what we promised you in the medium term.

Dr. Ing. Frank Hiller Head of the Board of Management

The coronavirus pandemic dominated everything in 2020 and changed the world. The virus created unprecedented challenges for DEUTZ too, as a global player with international sales markets and supply chains. We responded with rapid and decisive action, for example temporarily suspending production in Europe in April last year to protect the health of our employees. One key achievement was the swift formulation and implementation of our ‘Vision of Success’, a set of guidelines that served as a compass in these extraordinary times, steering DEUTZ through the crisis in the best way possible.

Despite all the measures we put in place, there is no denying that the economic fallout from the coronavirus pandemic took its toll on our 2020 financial results. The massive slump in demand in what was already a challenging market environment resulted in a year-on-year decline in revenue of 29.6 percent to €1,295.6 million and an EBIT margin before exceptional items of minus 5.8 percent. The Company reported a net loss adjusted for exceptional items of € 75.7 million, which translated into earnings per share of minus € 0.63.

The DEUTZ share price was also severely impacted by the coronavirus crisis in 2020. Encouragingly, it had almost completely recovered by the end of the year, and at the end of February 2021 our share price was even higher than the high of 2020.

We implemented a number of measures during the year under review to protect the liquidity of the Group. In addition to general cost-cutting measures, these included the Board of Management and the Supervisory Board forgoing their variable remuneration and/or part of their fixed remuneration for 2020 and our senior managers voluntarily sacrificing a substantial part of their variable remuneration. In addition, with your consent, we suspended the dividend payment for 2019. This has allowed us to not only secure our financial stability but also make sure the growth projects we have already begun can be delivered as planned.

“We have taken the steps that are needed to secure the Company's future success.”Dr. Ing. Frank Hiller

The successful implementation of our China strategy is evidence of the benefit of following through with strategic capital spending projects even when it means having to accept certain sacrifices. Despite the coronavirus crisis, our business in that region was already in profit in the first half of 2020 and, on the basis of market demand, we were able to increase our sales target for 2022 in the world’s largest market for construction equipment from around €500 million to around €800 million.

We firmly believe that we can capture tomorrow’s markets today. And, as an innovative engine manufacturer, we know that the climate targets in the Paris Agreement can only be achieved with a realistic combination of different drive technologies. This is why we regard the continued rigorous implementation of our E-DEUTZ strategy as essential and are especially proud that in 2020, with our DEUTZ-Torqeedo-Futavis group of companies, we were able to put everything in place for the industrialization of electric and hybrid drive systems. We will go to market with the first all-electric E-DEUTZ product, the 360-volt base drive system, in spring 2021 – an achievement that is testament to the strategic success of past acquisitions.

In addition to acquisitions, we rely on strategic partnerships to offer our customers additional expertise. At the end of 2020, we entered into an agreement with John Deere Power Systems to develop an engine together. This will enable us to combine our production volumes and benefit from global economies of scale.

With regard to our high-margin service business, we also continued to expand our global network in 2020, because being close to our customers is key to our success as an international Group. The acquisition of DEUTZ Austria GmbH, Motorcenter Austria GmbH, and Pro Motor Servis CZ gives us direct access to the markets in Austria, the Czech Republic, Hungary, Slovakia, and Slovenia. We are also expanding our service portfolio, particularly with a view to digital services, transforming from a spare parts specialist to a full service provider with ever better, faster, and more convenient solutions that aim to deliver maximum benefit to our customers.

Looking ahead to 2021, it is still unclear exactly how the coronavirus crisis will play out. Although there are signs of a slight upward trend, it seems likely that it will be a long time before we get back to pre-crisis levels. We would expect to sell a minimum of 130,000 DEUTZ engines in 2021, and to generate revenue of at least €1.40 billion. The EBIT margin before exceptional items is therefore likely to be at break-even level, at the very least.

Despite the cautious outlook for 2021, we remain very optimistic about the future.
As an additional measure to safeguard earnings performance in a challenging environment and to ensure that the Company remains competitive in the long term, we launched a review of our existing processes and structures at the beginning of 2020. This resulted in ‘Transform for Growth’ – our global efficiency program that we hope will lead to annual cost savings of approximately €100 million (gross) from the end of 2022. Through this program and the rigorous implementation of our growth initiatives, we are taking the steps now that are needed to secure the Company’s future success. And although the impact of the pandemic means we now expect to achieve our medium-term targets in 2023/24 rather than in 2022 as originally planned, the objectives are clear: more than €2 billion revenue with an EBIT margin before exceptional items of 7 to 8 percent, and electric drive systems accounting for 5 to 10 percent of revenue.

In the true spirit of our corporate values, we will continue to do everything we can – with innovative strength, pioneering spirit and, above all, our team mentality – to ensure that we emerge from these turbulent times even stronger than before and to deliver what we promised you. Our employees are the key driving force in this endeavor, and I would like to take this opportunity to extend my very special thanks to them. With their tireless efforts even under the most challenging conditions they ensure – day in, day out – that the engine of DEUTZ never stands still. My thanks also go to our customers and business partners and to you, our valued shareholders, for the confidence you have shown in us.

Cologne, February 2021

Dr. Ing. Frank Hiller, Head of the Board of Management

The Board of Management

Michael Wellenzohn

Board Member Sales, Marketing, and Service

  • Born on November 22, 1966 in Chur, Switzerland
  • Member of the Board of Management since March 1, 2013, appointed until December 31, 2023
“Thanks to our increasingly digitalized service business, we now offer our customers even more added value.”

Michael Wellenzohn

Dr. Sebastian C. Schulte

Board Member Finance, Human Resources, Purchasing, and Information Services

since March 1, 2021

  • Born on December 13, 1978 in Wiesbaden, Germany
  • Member of the Board of Management since January 1, 2021, appointed until December 31, 2023
“Thanks to our greatly reduced cost base, we are aiming, at the very least, to break even in terms of operating profit in 2021.”

Dr. Sebastian C. Schulte

Dr. Ing. Frank Hiller

Chairman of the Board Technical and Head-office Functions, Sustainability

  • Born on May 23, 1966 in Stuttgart, Germany
  • Chairman of the Board of Management since January 1, 2017, appointed until December 31, 2026
“The world is changing and we are taking action. DEUTZ is a pioneer of efficient and sustainable drive technologies and is ready to serve the market of the future.”

Dr. Ing. Frank Hiller

Dr. Andreas Strecker

Board Member Finance, Human Resources, Purchasing, and Information Services

until February 28, 2021

  • Born on August 16, 1961 in Rastatt, Germany
  • Member of the Board of Management since March 1, 2018, appointed until February 28, 2021
“In 2020, a year dominated by coronavirus, we set the course for a successful future with our efficiency program.”