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DEUTZ AG Annual Report 2023

The CEO interview

DEUTZ’s engines and drive systems help keep the world moving. And the Company itself is moving forward to ensure that this remains the case. CEO Dr. Sebastian C. Schulte reflects on a successful year and looks ahead to a promising future.

At the beginning of 2023, the Board of Management presented a new strategy – called Dual+. What’s the thinking behind it?

Dr. Sebastian C. Schulte: Everything we do is based on the demands and requirements of our customers and the markets. They guide our actions, but they are changing quite substantially. The sectors that make up our customer base are in the middle of a fundamental shift toward greater climate neutrality. Irrespective of whether they produce construction equipment, combine harvesters, or forklift trucks, manufacturers are facing the same challenges across the board: They need to transition to climate-friendly drive systems and digital business models. This transformation is a huge task, but it also represents a tremendous economic opportunity for us. Dual+ provides a framework that will allow DEUTZ to fully capitalize on this potential in the years ahead.

What will that look like in practice?

Dr. Sebastian C. Schulte: Whereas some industries have already reached consensus about how they will achieve carbon-neutrality, the situation is different in the sectors we supply. We have to be honest about this. If you want an electric combine harvester, for example, well the battery alone would weigh over 15 tonnes. So for machines that move heavy loads and are constantly in use, we also need to think about technologies other than pure electrification. And we’re still going to need the combustion engine. In the way that we use it today, but also powered by alternative fuels and with hydrogen. Taking the combustion engine forward is therefore also part of our new strategy.

You have already notched up your first successes this year.

Dr. Sebastian C. Schulte: We follow through on our commitments and are delivering, step by step. And the approach we’ve taken appears to be working. We grew organically in the Classic segment, selling over 187,000 of DEUTZ’s con­ventional internal combustion engines that are now powering machines on construction sites, in agriculture, and in logistics all over the world. That’s a year-on-year increase of 3.2 percent. Our profit margin in the Classic segment went up as well, to 8.8 percent. This is the result of our excellent teamwork and shows that the steps taken to improve performance over the last 18 months are bearing fruit.

As well as optimizing its own production, DEUTZ entered into various alliances in 2023. What are you hoping to achieve from these?

Dr. Sebastian C. Schulte: We want to be among the top three independent drive manufacturers by 2030. That’s something we will only achieve if we play an active role in the nascent consolidation of the engine market. The partnership agreed with Daimler Truck at the start of the year is an important first step in this direction. It gives us access to state-of-the-art internal combustion engines that perfectly complement our own models, and that, for certain engine sizes, will also allow a leap forward in terms of modernization. As a result, DEUTZ will be able to attract new customer groups, save on development costs, and expand its range of modern internal combustion engines.

Everything we do is based on the demands and requirements of our customers and the markets.«


Chairman of the Board of Management, responsible for head-office and technical functions and for sustainability

But the Daimler Truck engine variants that will be sold by DEUTZ are not scheduled to go into production until 2028. When are you expecting to see the first results?

Dr. Sebastian C. Schulte: We have entered into a long-term partnership with Daimler Truck. Indeed, the agreement means that Daimler Truck has become one of the largest shareholders in DEUTZ AG. And this has put us in an excellent position to drive further consolidation in the market, as the collaboration with Rolls-Royce Power Systems announced at the end of last year makes clear.

What can you tell us about that?

Dr. Sebastian C. Schulte: The agreement in principle reached in December will see us take over – provisionally from mid-2024 – the sales and servicing of engines that Daimler Truck supplies to Rolls-Royce Power Systems for use in off-high-way applications. DEUTZ will also take over the servicing of the engines already in operation. Overall, we expect these activities to generate additional revenue of €300 million a year.

The second pillar of the new strategy is the development of a Green product portfolio. What are your plans here?

Dr. Sebastian C. Schulte: Our Green segment focuses on the development of alternative drives. This means improving the carbon footprint of the internal combustion engine, for example through the use of hydrogen or synthetic fuels, and developing alternative drive systems such as electric drives. To reflect the changing demands on the infrastructure that is required to keep an engine running, we plan to extend our service offering across the entire product ecosystem. The aim is to harness new value chains, for example when it comes to charging electric machines or supplying the fuel for hydrogen engines.

So where does DEUTZ currently stand with the development of its green product portfolio?

Dr. Sebastian C. Schulte: We already have a great deal of expertise that we are able to build on. And that is precisely what we are doing, for example with the hydrogen combustion engine. While the objectives and development paths are relatively straightforward in the Classic segment, our Green segment has to contend with several unknowns. For example, what is the optimum climate-friendly drive technology for the various fields of application? But also where is the demand in the market and which new partners should we choose when creating a green ecosystem?

How are you dealing with these challenges?

Dr. Sebastian C. Schulte: We need to do some things differently, and so in 2023 we began to reorganize the segment and to give Green an independent structure. The aim is to become more agile and accelerate our business development. If we want to target new customer groups, create new business models, and make our Green business profitable,
we need to systematically align our activities and development work with the market and the needs of our customers. This reorganization has not yet been completed, but it has already started to bear fruit.

Are you referring to the first major order for a DEUTZ
hydrogen engine?

Dr. Sebastian C. Schulte: For example. In September, we booked our first large order, for 100 hydrogen-powered gensets, from China, and the first engine in the series rolled off the production line in Cologne-Porz in February 2024. The order represents a major strategic milestone in many regards, as it shows that we can fulfill market requirements with our full range of products, and not just with our technology-neutral drive portfolio. This will allow us, and our customers, to gain invaluable experience with this pioneering technology. And, looking forward, it brings us another step closer to becoming climate-neutral.

There are lots of different areas where we can see that the way we work together is changing and improving. I take a lot of personal pleasure in that.«

Where do you see the Green segment achieving further success?

Dr. Sebastian C. Schulte: In the middle of last year, we announced that we would be discontinuing our investment in Torqeedo. In January 2024, we signed the contract of sale with Yamaha Motors. Now, Torqeedo has its real ‘best owner’, and we have given ourselves more freedom to properly develop our green product portfolio and align it more closely with the market. Unfortunately, Torqeedo’s performance proved disappointing from the start. Nevertheless, the transfer of technology that we were also looking for has largely been realized and completed. We can now put the resources freed up by the sale to use in the Green segment, where DEUTZ has greater potential and can be profitable. The sale of Torqeedo is an important step for us in the restructuring of this business.

The third pillar of the new strategy is the service business – the plus in Dual+. Are you satisfied with how things are going here?

Dr. Sebastian C. Schulte: A clear target that we have set ourselves under the strategy is for the service business, over the coming years, to be generating around €600 million in revenue annually, while maintaining at least the same level of profitability. We took an important step toward achieving this in 2023, with our revenue rising by 7.6 percent to €484 million. The global expansion of our service outlets was the main factor here and included acquisitions on two continents. But it’s not just in terms of volume that the service business is becoming ever more important for us. Because in the future we want to focus even more on selling an engine lifecycle rather than just the engine itself, and service is of course key to this. It’s why we put so much emphasis on intelligent maintenance and smart services.

You say that DEUTZ also needs to move forward as an organization in order to be successful in the future. What do you mean by that?

Dr. Sebastian C. Schulte: We want to improve the way we work together. This is just as much a part of the new strategy as

the evolution of our business. One example is the cascade of workshops that we held last year to present our new strategy. Across more than 55 workshops, we have already given well over 2,000 employees worldwide the opportunity to translate the strategy into actionable steps for their own area of work and provide us – the Board of Management – with important feedback. We will ultimately only be successful if everyone at DEUTZ understands the direction we want to take as a Company and how each one of us can play our part.

Can you summarize or describe this new way of working together?

Dr. Sebastian C. Schulte: There are lots of different areas where we can see that the way we work together is changing and improving. I take a lot of personal pleasure in that, and much of it is down to the 5 Ts – trust, transparency, truth, team, and tenacity. These are the principles that we believe define good working relationships and should therefore guide our actions. They are themselves the product of a collaborative process and are how we want to become more successful and effective together at DEUTZ.

Do you think these values can also be applied to the current debate around democracy, diversity, and tolerance?

Dr. Sebastian C. Schulte: We defined our 5 Ts together, internally. For DEUTZ, for our organization. It would be presumptuous of us to go any further than that. But I personally believe that we have a duty to stand up and speak out in support of openness and tolerance. And for remembering what history teaches us. To make it clear that a diverse Germany is one that benefits us all.

Further Reading