Results of operations
Revenue up by a third on 2009
Revenue for the DEUTZ Group rose by approximately 38 per cent to €1,189.1 million in 2010, a slightly lower growth rate than that of unit sales. The reason for this was a slight shift in the engine mix towards smaller engines – in particular as a result of demand in the USA.
Service revenue was especially encouraging at €215.8 million. This year-on-year increase of 23 per cent was in fact the highest figure ever achieved in relation to continuing operations. The fact that our highly profitable service business now accounts for 18.1 per cent of total revenue indicates that we are pursuing the right strategy with our measures to improve the efficiency of our service partners.
A comparison of the third and fourth quarters of 2010 shows the strength and sustainability of the recovery. Revenue for the fourth quarter increased by 29 per cent compared to the third quarter of 2010 and by more than 60 per cent compared to the fourth quarter of 2009 (Q4 2009: €229.5 million).
The largest of our application segments, mobile machinery, was the most significant for the DEUTZ Group in terms of revenue growth. Revenue from engines in this segment doubled to roughly €370 million in 2010, primarily due to the boom in engines for construction equipment, where we recorded growth rates of over 122 per cent. This growth was not only generated by our key customer Volvo but also by the strong demand from all customers in all regions – but above all the USA. Engines for the stationary equipment segment, which are traditionally among our key revenue drivers, reported a rise in revenue of almost 15 per cent. This segment had seen a much smaller slump in revenue than the mobile Machinery segment in 2009, which means that it now has less pent-up demand. Having been down on 2009 during the first nine months of 2010, the agricultural machinery segment eventually picked up and revenue rose by 13.6 per cent year on year. To a certain extent, this was due to the advance production of engines that customers had ordered to avoid the new emissions standards for 2011.
After Germany, the second-biggest source of revenue was the rest of western Europe at €630.6 million, which equates to more than half of our consolidated revenue. We generated especially strong revenue growth in the United States, where we primarily benefited from the buoyant construction sector, achieving revenue growth of around 67 per cent. Revenue in the EMEA (Europe, Middle East and Africa) region grew by 38.5 per cent. This geographical distribution is only limited in terms of the information it provides about the final destinations and exports of our engines because it does not indicate where our customers – most of which are export-oriented engineering companies – deliver their machinery containing our engines.
Operating profit
The benign business conditions were also reflected in our operating profit (EBIT before one-off items) of €42.2 million, which was far higher than we had forecast and a vast improvement on the operating loss of €46.3 million that we had incurred in 2009.The critical factor in this extremely positive trend was firstly the almost 38 per cent increase in revenue. Secondly, there was a continued effect from the programmes initiated in 2009 to improve DEUTZ's profitability and safeguard it for the future. The core elements of these action programmes are an appropriate pricing policy and a permanent reduction in fixed costs. Their success can also be seen in the staff costs ratio of approximately 20 per cent, which has returned to its 2008 level despite the fact that revenue is still down by around a fifth on 2008. The EBIT margin was also encouraging at plus 3.5 per cent, having been minus 5.4 per cent in 2009.
After one-off items, DEUTZ's EBIT for 2010 came to €22.3 million (2009: loss of €89.2 million). The one-off items, which primarily consisted of consultancy costs, fees and other expenses related to the funding negotiations and the early repayment of the US private placement, amounted to €19.9 million (2009: €42.9 million).
Overview of the DEUTZ Group's results of operations |
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|
2010 |
2009 |
|
|
€ million |
||
|
Revenue |
1,189.1 |
863.4 |
|
Changes in inventories and other own work capitalised |
46.4 |
–9.8 |
|
Total output |
1,235.5 |
853.6 |
|
Other operating income |
55.3 |
72.8 |
|
Cost of materials |
–781.1 |
–567.9 |
|
Staff costs |
–253.0 |
–265.3 |
|
Depreciation and amortisation |
–63.3 |
–66.3 |
|
Impairment |
–7.1 |
–14.1 |
|
Other operating expenses |
–163.1 |
–99.3 |
|
Net investment income |
–0.9 |
–2.7 |
|
EBIT |
22.3 |
–89.2 |
|
One-off items |
–19.9 |
–42.9 |
|
EBIT (before one-off items) |
42.2 |
–46.3 |
|
Interest expenses, net |
–26.2 |
–10.0 |
|
Other taxes |
–1.4 |
–1.9 |
|
Income taxes |
–10.6 |
–18.7 |
|
Net income on continuing operations |
–15.9 |
–119.8 |
|
% |
||
|
EBIT margin |
1.9 |
–10.3 |
|
EBIT margin (before one-off items) |
3.5 |
–5.4 |
|
Cost of materials |
63.2 |
66.5 |
|
Staff costs |
20.5 |
31.1 |
|
Staff costs (before one-off items) |
20.5 |
28.1 |
Cost of materials
The cost-of-materials ratio fell by 3.3 percentage points to 63.2 per cent largely as a result of the cost-cutting programmes and a shift in the product mix towards engines that are less material-intensive. Increases in the price of foundry scrap steel, which is the most important raw material for DEUTZ, impact with a certain time lag and so had only a slightly adverse effect on the cost of materials in 2010.
Staff costs
Although the volume of business increased and short-time working was discontinued, staff costs remained stable at €253.0 million in 2010. They had amounted to €265.3 million in 2009, when they had been adversely impacted by headcount reduction expenses of €25.4 million. However, staff costs as a proportion of total output declined. In the year under review, the staff costs ratio decreased by 10.6 percentage points to 20.5 per cent, or by 7.6 percentage points excluding the aforementioned one-off items.
Other operating expenses
The rise in other operating expenses is largely a result of the growth in revenue and the associated higher variable costs, such as expenditure on services, freight and temporary staff as well as warranty costs, which are dependent on unit sales. There were also expenses related to the funding negotiations and the early repayment of the US private placement.
Interest expenses, net
Two factors negatively impacted on net interest expense: on the one hand, the rise in interest charges arose from the funding negotiations for the US private placement and, on the other, the decline in interest and similar income resulted from the smaller volume of investments and lower level of interest earned on investments.
Income taxes
Income taxes fell sharply to €10.6 million in 2010 (2009: €18.7 million). Although deferred tax liabilities rose due to higher temporary differences between the IFRS consolidated financial statements and the tax accounts in connection with the capitalisation of development expenditure, this rise was more than compensated for by the higher deferred tax assets recognised on future tax assets arising from loss and interest carryforwards.
Net income
Despite its operating profit, DEUTZ still posted a net loss of €15.9 million on continuing operations – above all due to its net interest expense – although this was significantly smaller than the net loss of €119.8 million in 2009. In that year, there had also been a net loss on discontinued operations of €4.2 million resulting from a tax expense in connection with the discontinued DEUTZ Power Systems segment.
