ANNUAL REPORT 2017 A NEW DYNAMIC

Transcription

1 ANNUAL REPORT 2017 A NEW DYNAMIC

2 DEUTZ GROUP: KEY FIGURES million Change (%) New orders 1, , Unit sales (units) 161, , Revenue 1, , EBITDA EBITDA (before exceptional items) EBIT EBIT (before exceptional items) EBIT margin (%) %-age points EBIT margin (before exceptional items, %) %-age points Net income Earnings per share ( ) Dividend per share ( ) Total assets 1, , Non-current assets Equity Equity ratio (%) %-age points Cash flow from operating activities Free cash flow 1) Net financial position 2) Working capital 3) Working capital ratio at the balance sheet date (average, %) 4) %-age points Capital expenditure (excluding capitalisation of R&D, after deducting grants) Depreciation and amortisation Research and development thereof capitalised Employees (31 December) 4,154 3, ) Free cash flow: cash flow from operating and investing activities less net interest expense. 2) Net financial position: cash and cash equivalents minus current and non-current interest-bearing financial liabilities. 3) Working capital: inventories plus trade receivables minus trade payables. 4) Working capital ratio (average, %): average working capital at the four quarterly reporting dates divided by revenue for the previous twelve months. DEUTZ Group: Revenue by region million (2016 figures) DEUTZ Group: Revenue by application segment million (2016 figures) 28.3 (32.9) Miscellaneous (350.0) Construction Equipment (147.9) Asia-Pacific 1,063.5 (872.7) Europe/Middle East/Africa 56.1 (77.2) Automotive (147.3) Stationary Equipment (239.6) Americas 1,479.1 (1,260.2) (176.5) Agricultural Machinery 1,479.1 (1,260.2) (189.0) Material Handling (287.3) Service

3 DEUTZ GROUP: MULTI-YEAR OVERVIEW million New orders 1, , , , ,556.5 Unit sales (units) 184, , , , ,646 DEUTZ Compact Engines 167, , , , ,671 DEUTZ Customised Solutions 16,064 13,278 12,567 9,360 8,740 Other 1,235 Revenue 1, , , , ,479.1 DEUTZ Compact Engines 1, , , ,227.5 DEUTZ Customised Solutions Other 3.7 EBITDA EBITDA (before exceptional items) EBIT EBIT (before exceptional items) EBIT margin (%) EBIT margin (before exceptional items, %) Net income thereof from continuing Earnings per share (basic/diluted, ) thereof from continuing Dividend per share ( ) Total assets 1, , , , ,213.1 Non-current assets Equity Equity ratio (%) Cash flow from operating activities Free cash flow Net financial position 1) Working capital 2) Working capital ratio (average, %) Capital expenditure (excl. capitalisation of R&D, after deducting grants) Depreciation and amortisation Research and development (after deducting grants) thereof capitalised Employees (31 Dec) 3,952 3,916 3,730 3,665 4,154 1) Net financial position: cash and cash equivalents less current and non-current interest-bearing financial debt. 2) Working capital: inventories plus trade receivables less trade payables.

4 Revenue by region million 1, , , , ,479.1 Europe/Middle East/Africa 1, , ,063.5 Americas Asia-Pacific Revenue by application segment million 1, , , , ,479.1 Construction Machinery Material Handling Stationary Equipment Agricultural Machinery Automotive Service Miscellaneous Key figures for DEUTZ shares Number of shares (31 Dec) 120,861, ,861, ,861, ,861, ,861,783 Number of shares (average) 120,861, ,861, ,861, ,861, ,861,783 Share price (31 Dec, ) Share price high ( ) Share price low ( ) Market capitalisation (31 Dec, million) Earnings per share (basic/diluted, ) thereof from continuing thereof from discontinued

5 CONTENTS 2 Interview with the Chairman of the Board of Management 8 DEUTZ shares 12 A new dynamic 28 Strategic highlights 30 Combined management report 66 Separate combined non-financial report 80 Consolidated financial statements 86 Notes to the consolidated financial statements 142 Miscellaneous 150 Report of the Supervisory Board 153 Corporate management declaration and corporate governance report

6 2 INTERVIEW WITH THE CHAIRMAN OF THE BOARD OF MANAGEMENT Dr Ing Frank Hiller, Chairman of the Board of Management of DEUTZ AG, on the past and the future of DEUTZ Dr Ing Frank Hiller, Chairman of the Board of Management

7 TO OUR SHAREHOLDERS Interview with the Chairman of the Board of Management 2017 COMBINED MANAGEMENT REPORT NON-FINANCIAL REPORT FINANCIAL STATEMENTS NOTES MISCELLANEOUS has been a success. We have mapped out the strategic course we intend to follow and got people excited about the new era we are about to enter into. Dr Hiller, what is your view of the last financial year? What do you think have been the biggest successes of 2017? DEUTZ has a long and successful tradition. To what extent does this influence today's business? Dr Ing Frank Hiller: 2017 has been a successful year for DEUTZ. We have made improvements to how we operate, mapped out the strategic course we intend to follow and got people excited about the new era we are about to enter into. I am thinking, in particular, of the new E-DEUTZ strategy, the acquisitions of electric engine specialist Torqeedo and Italian dealer IML Motori S.r.l., the expansion of our product port folio through the partnership with Liebherr, and the EU Stage V certification, which we are the first engine manufacturer in the world to receive. Our financial results have greatly improved in 2017, and we have significantly increased important KPIs such as new orders, revenue and operating profit. The capital markets have recognised this our share price rose by more than 40 per cent in Dr Ing Frank Hiller: Looking back, we can see that from the outset DEUTZ was a technology leader in the manufacture and supply of engines, and employed the best engineers of their time: Daimler, Maybach and Bugatti. Our ambition remains to attract the best engineers who can help us to develop the drive systems of the future. The discovery of the fourstroke principle marked the birth of the combustion engine and paved the way for the global motorisation we see on and off our roads today. DEUTZ and its engineers have always been at the vanguard of change, and DEUTZ will continue to produce innovative and technologically advanced solutions in the future. DEUTZ and its engineers have always been at the vanguard of change. The discovery of the four-stroke principle marked the birth of the combustion engine and paved the way for global motorisation and DEUTZ will continue to produce innovative and technologically advanced solutions in the future.

8 4 Diesel engines are a hot topic at the moment what is your opinion on the matter and how do you assess the development in your markets in this regard? Dr Ing Frank Hiller: One of the key demands in society today is to save energy and make engines cleaner and more environmentally friendly. A major discussion has evolved around diesel engines, but we firmly believe that diesel technology will continue to be the dominant type of drive in off-highway applications, such as agricultural machinery, for a long while yet. Nonetheless, the reality is that there has been a paradigm shift in the public acceptance of diesel engines. And we are addressing this. We want to actively promote change and benefit from it, and there is a good reason why we are the first engine manufacturer to be EU Stage V certified. But we want to do even more to meet the growing demand for efficient and more eco-friendly drive systems. There has been a paradigm shift in the public acceptance of diesel engines, and we are addressing this. We want to actively promote change and benefit from it. What does that mean specifically? What is the strategy at DEUTZ? Dr Ing Frank Hiller: We implemented a new strategy in 2017 with the ambition of becoming the leading manufacturer of inno vative drive systems. We will continue to invest in clean diesel engines, as we still see good potential for DEUTZ in this segment. The new family of large engines we are developing in partnership with Liebherr will enable us to extend our product portfolio at the upper end of the power output range, for example. At the same time, we want to expand our tech nology portfolio. In the future, we will offer drive system solutions using alternative fuels initially with liquefied petroleum gas and biogenic fuels. Through the E-DEUTZ strategy we aim to take the lead in the development of techni cally sophisticated and economical electrification solutions for off-highway applications. Our ambition is for electric drive systems to account for 5 to 10 per cent of our revenue in five years time. What happens after that will depend on a variety of factors, including infrastructure, battery development and customer behaviour.

9 TO OUR SHAREHOLDERS Interview with the Chairman of the Board of Management 2017 COMBINED MANAGEMENT REPORT NON-FINANCIAL REPORT FINANCIAL STATEMENTS NOTES MISCELLANEOUS 5 How are you approaching electrification? After all, your sector is still taking its first steps in this area. How large is the capital expenditure on electrification? Dr Ing Frank Hiller: As I mentioned earlier, in autumn last year we bought Torqeedo GmbH, the market leader in electricpowered boats with twelve years experience and 70,000 systems in the field. The task now is to transfer this extensive knowledge to our own segments. We hope to present the first prototypes for electric and hybrid drives this year. The acquisition of Torqeedo gives DEUTZ access to expertise not only in battery management, electric motors and power electronics, but also in integrating these components into electric drive systems. In short, we are working on delivering a scalable product portfolio of hybrid and all-electric engines that meet our customers specific requirements. By investing in tech nology, DEUTZ is helping to reduce fuel consumption and emissions, while bringing down overall costs for end customers over the lifecycle. Dr Ing Frank Hiller: We currently have a budget of 100 million for the electrification of DEUTZ, including the acquisition of Torqeedo. The bulk of the capital investment was made in This demonstrates that we are taking the issue of electrification seriously. We have been able to finance this ourselves thanks to the sale of our former premises in Cologne-Deutz, which further bolstered our already healthy financial situation. We are working on delivering a scalable product portfolio of hybrid and all-electric engines that meet our customers specific requirements. By investing in technology, DEUTZ is helping to reduce fuel consumption and emissions. How is the acquisition of IML contributing to this? Dr Ing Frank Hiller: The acquisition of IML Motori, our long-standing Italian sales and service partner, which is now trading as DEUTZ Italy, has strengthened us in a different way. It has allowed us to bolster our profitable service business in the Mediterranean, and it brings us closer to our customers. This too is an important part of our successful strategy.

10 6 Our priority is the ongoing focus on customer satisfaction and superior product quality. As Chairman of the Board of Management, I want to work with all my colleagues to ensure that we continue to offer our customers the right solutions in the future. You have been the Chairman of the Board of Management of DEUTZ AG for over a year. How would you assess your time so far? Following on from a very successful 2017, what do you expect for 2018 (and beyond)? Dr Ing Frank Hiller: As I mentioned earlier, DEUTZ has seen positive developments in terms of strategy and over the course of Our priority is the ongoing focus on customer satisfaction and superior product quality. As Chairman of the Board of Management, I want to work with all my colleagues to ensure that we continue to offer our customers the right solutions in the future. We want to further strengthen our market position, reinforce our commercial success and thus make ourselves more attractive to our customers and the capital markets. Dr Ing Frank Hiller: I think we are on the right track now we just need to keep the momentum going. I am very optimistic that DEUTZ will continue its success in 2018 and that we will achieve our targets. Take profitability, for example. Our operating profit in 2016 was just under 2 per cent, which is unsatisfactory. In 2017, we improved that to almost 3 per cent. In the current year, we will again increase the EBIT margin significantly. In five years time, we aim to achieve an EBIT margin of 7 to 8 per cent. Dr Hiller, thank you for talking to us.

11 TO OUR SHAREHOLDERS Interview with the Chairman of the Board of Management 2017 COMBINED MANAGEMENT REPORT NON-FINANCIAL REPORT FINANCIAL STATEMENTS NOTES MISCELLANEOUS 7 Board of Management BOARD OF MANAGEMENT Dr Ing Frank Hiller Chairman of the Board of Management, responsible for technical and head-office functions Dr Margarete Haase Board of Management member (until 30 April 2018), responsible for finance, human resources, procurement and information services (until 31 March 2018) Michael Wellenzohn Board of Management member, responsible for sales, service and marketing Dr Andreas Strecker Board of Management member (from 1 March 2018), responsible for finance, human resources, procurement and information services (from 1 April 2018)

12 8 DEUTZ SHARES The global equity markets maintained their upward trajectory in Strong economic growth across the world, the passing of tax reforms in the US and the European Central Bank s decision to continue purchasing bonds were key factors in this positive market environment. Another factor was the ongoing low-interest-rate policy pursued by the major central banks, even though the Federal Reserve did begin to make small interest-rate hikes. On 29 December 2017, the DAX closed at 12, points, which was 12.5 per cent higher than at the end of DEUTZ SHARES MAKE SUBSTANTIAL GAINS The SDAX, in which DEUTZ shares are listed, rose in value by 24.9 per cent in 2017 and closed at 11, points (end of 2016: 9, points). The DAXsector Industrial, which comprises major German industrial companies, gained 16.3 per cent in the reporting year to close at 6, points (end of 2016: 5, points). DEUTZ shares significantly outperformed all benchmarks. The share price reached its lowest level for the year of 5.31 back in January. After this, it gained significantly to reach a high for the year of 7.78 on 21 June In the second half of the year, the share price initially fell again in part because of AB Volvo s decision to sell its 25 per cent holding in DEUTZ to institutional investors in July 2017 before rebounding strongly towards the end of the year. The year-end closing price of 7.58 was 41.7 per cent higher than the price twelve months earlier of Market capitalisation stood at million as at 29 December 2017, compared with million at the end of 2016.

13 TO OUR SHAREHOLDERS DEUTZ shares 2017 COMBINED MANAGEMENT REPORT NON-FINANCIAL REPORT FINANCIAL STATEMENTS NOTES MISCELLANEOUS 9 Key figures for DEUTZ shares Number of shares (31 Dec) 120,861, ,861,783 Average number of shares 120,861, ,861,783 Share price as at 31 Dec ( ) Share price high ( ) Share price low ( ) Market capitalisation as at 31 Dec ( million) Earnings per share ( ) EARNINGS PER SHARE Earnings per share is calculated by dividing the net income for the year attributable to the share holders of DEUTZ AG by the weighted average number of shares in issue. In the year under review, the number of DEUTZ shares in issue was million. Basic earnings per share was therefore 1.00, compared with 0.14 in This sharp increase was primarily attributable to the high level of extraordinary income resulting from the sale of a property. Key data on stock market listing ISIN DE WKN Reuters DEZG.DE Bloomberg DEZ:GR Market segment Regulated Market/Prime Standard Xetra, Frankfurt/Main and all Trading platforms other German stock exchanges

14 10 DEUTZ share price performance in 2017 % 160 DEUTZ AG DAXsector Industrial SDAX January 2017 December 2017 DIVIDEND ENABLES SHAREHOLDERS TO SHARE IN PROFITS The Board of Management and Supervisory Board propose that a dividend of 0.15 be paid for With this substantial increase on the prior year (2016: dividend of 0.07), we intend to pass on to our shareholders some of the proceeds of our successful property sale. We plan to carry on enabling our shareholders to participate in the success of our Company in the form of a regular dividend. It is also our aim to pay a con sistent dividend, although as previously mentioned, the dividend for 2017 is influenced by the sale of a property. At the same time, we intend to continue funding a significant proportion of our growth ourselves, that is to say from our own capital. ALL DEUTZ SHARES IN FREE FLOAT DEUTZ shares are held by a broadly diversified range of private and institutional shareholders both in Germany and abroad. As mentioned pre viously, AB Volvo sold all of its approximately 25 per cent shareholding in DEUTZ AG to institutional investors in July. Since that time, all DEUTZ AG shares have been in free float. Most of the private investors are in Germany. At the end of 2017, Norges Bank ( Norway) held 5.0 per cent of our Company, while Union Investment (Germany) held 3.6 per cent and Dimensional Holdings Inc. (US) 3.0 per cent. These are also considered non-controlling shareholdings. Shareholder structure as at 31 December 2017 % 3.0 Dimensional Holdings Inc. 3.6 Union Investment 5.0 Norges Bank 88.4 Other free float

15 TO OUR SHAREHOLDERS DEUTZ shares 2017 COMBINED MANAGEMENT REPORT NON-FINANCIAL REPORT FINANCIAL STATEMENTS NOTES MISCELLANEOUS 11 DEUTZ share price high and low for 2017 Monthly average Share price high/low Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec INTENSIVE INVESTOR-RELATIONS WORK We provide all shareholders with prompt, transparent and comprehensive information about all significant events in our Company. Our objective is to maintain the high levels of acceptance and long-term trust of our shareholders. Last year, we again engaged in intensive dialogue with our shareholders, with analysts and with all other interested parties in the capital markets. The latest corporate information, such as presentations, financial reports, press releases and ad-hoc announcements, is always available on our website. At our annual results press conference and analysts meeting on 16 March 2017, we presented the DEUTZ annual financial statements and our future strategic direction. We also held conference calls when we published our quarterly results. In 2016, we were also involved in a total of 16 roadshows and investor conferences in Germany, the United Kingdom, France, Switzerland and the United States. We also met personally with analysts, institutional investors and private investors throughout the year. NINE ANALYSTS MONITOR DEUTZ SHARES As at the end of 2017, nine banks and securities houses were monitoring the performance of DEUTZ shares: Bankhaus Lampe, Commerzbank, DZ Bank, HSBC Trinkaus & Burkhardt, Kepler Cheuvreux, Metzler, M.M. Warburg, Quirin Privatbank and Solventis. Further information can be found on our website at under Investor Relations. If you need more information, visit our website or give us a call: INVESTOR RELATIONS Tel: +49 (0) Fax: +49 (0) ir@deutz.com Website: