Foreword

Dear shareholders,

friends and partners of our company,

We can look back over the past twelve months with pride. Not only did DEUTZ turn the corner, it emerged from the economic crisis stronger and with impressive growth figures. While the German economy grew by 3.6 per cent in 2010, our revenue growth of 37.7 per cent was many times higher.

In terms of actual figures, we produced around 168,000 engines last year, generating revenue of about €1.2 billion – around 50,000 engines and over €300 million more than in 2009. We returned to profitability with an operating profit (EBIT before one-off items) of €42.2 million, after incurring an operating loss of €46.3 million in 2009. Our return on revenue for 2010 was 3.5 per cent, putting us on the right track for our target EBIT margin of 10 per cent in the medium term. These figures indicate that we not only met the targets we had set ourselves at the start of the year but actually exceeded them! We were also able to expand production from short-time working to multi-shift operation within a very short period of time without increasing our fixed cost base.

Our excellent business performance was reflected in the performance of DEUTZ shares, which rose to €6.25, up 84 per cent, by the end of 2010. This means they outperformed the market trend, doing roughly twice as well as the benchmark SDAX and Prime Industrial Standard – definitive proof of the stock market's confidence in DEUTZ.

Further evidence of this faith in the future of our company came in December, when SAME, our largest shareholder (as well as one of our most important customers), reduced its stake in DEUTZ from 45.0 per cent to 25.11 per cent and sold 24 million no-par-value shares in the capital markets. All of them were taken up by institutional investors in a matter of hours – without any significant repercussions for our share price. The quick and smooth sale of these shares not only confirmed the considerable appeal of DEUTZ shares, it also increased the company's free float – paving the way for DEUTZ's return to the MDAX index.

Another success at the end of last year was the restructuring of our funding, which secures it in the medium term. In December 2010 we were able to replace the US private placement with a bank loan, a variable facility that gives us far greater flexibility and is much better suited to our liquidity requirements. This has secured the financial basis for our planned growth over the next few years. The confidence in DEUTZ shown by the nine syndicate banks is yet more proof of the high regard in which we are held by the financial markets generally.

DEUTZ’s operating activities returned to profitability after the massive collapse of 2009. We faced up to the crisis and were able to return to our previous growth trajectory very quickly. This was due in no small part to the comprehensive restructuring measures that we implemented over the last 15 months – and which we intend to continue during the recovery. Although the position of the Company has been secured, there is still room for optimisation, so MOVE has become MOVE FAST, a programme aimed at achieving further cost savings and efficiency improvements. We are expecting an annual net benefit of €35 million from this programme. MOVE FAST will primarily strengthen our top-line revenue growth, i. e. sales and service, and optimise our process efficiency across all sites, thus improving our margins.

We are optimistic for 2011. We will be producing more than 200,000 engines and increasing our revenue to €1.4 billion. However, we are looking even further ahead and took key strategic decisions in 2010: profitable growth, technology leading products and operational excellence are the three strategic pillars on which we will build our future, with MOVE and MOVE FAST as the foundation. The strategic focus will be on expanding our Asian business, improving our sales organisation, redesigning our value chain, extending our range of integrated system solutions, strengthening process orientation throughout the business and – last but not least – creating a high-performance organisation. You can find more details about our plans in the strategy section of this annual report.

During 2011 we will be building on our previous successes and positioning DEUTZ “one step ahead” once again. The improvements in 2010 were only possible due to the energy and commitment of our employees, the loyalty of our shareholders, the confidence of our customers and the reliability of our suppliers and partners. Our special thanks go to all of you!

Kind regards from Cologne

Dr Helmut Leube         Dr Margarete Haase