Results of operations

Overview of DEUTZ AG’s results of operations

€ million      
  2018 2017 Change
Revenue 1,601.5 1,356.0 245.5
Cost of sales –1,371.6 –1,171.5 –200.1
Research and development costs –59.9 –60.3 0.4
Selling and administrative expenses –82.7 –74.5 –8.2
Other operating income 28.3 145.5 –117.2
Other operating expenses –58.6 –55.4 –3.2
Net investment income –5.1 15.5 –20.6
Write-downs of investments –2.5 –0.5 –2.0
Operating profit (EBIT) 49.4 154.8 –105.4
Interest expenses, net –5.0 –6.8 1.8
Income taxes –11.9 –16.7 4.8
Other taxes –0.7 –2.6 1.9
Net income 31.8 128.7 –96.9
      

Revenue

DEUTZ AG’s revenue amounted to €1,601.5 million. This year-on-year rise of 18.1 per cent was primarily due to increased demand in the Material Handling, Construction Equipment and Agricultural Machinery application segments. In the Material Handling application segment, revenue surged by 42.5 per cent to €328.7 million (2017: €230.6 million). Revenue went up by 23.2 per cent to €525.5 million in the Construction Equipment application segment (2017: €426.6 million) and by 13.9 per cent to €263.2 million in the Agricultural Machinery application segment (2017: €231.0 million).

The region with the strongest revenue growth was our largest region, EMEA (Europe, Middle East and Africa), where revenue advanced by 19.1 per cent to €1,218.4 million (2017: €1,023.3 million). Revenue also increased significantly in the Americas region, where it went up by 15.7 per cent to €235.6 million (2017: €203.6 million), and in the Asia-Pacific region, where it went up by 14.3 per cent to €147.5 million (2017: €129.1 million).

Earnings performance

In 2018, DEUTZ AG generated an operating profit (EBIT) of €49.4 million. This was €105.4 million lower than in 2017, despite the sharp rise in the volume of business. The main reasons for this reduction were the gain realised in 2017 on the disposal of the land occupied by our former Cologne-Deutz site and the loss of €40.5 million recognised in 2018 on the disposal of our stake in DEUTZ (Dalian) Engine Co., Ltd. Dalian, China. Moreover, net investment income deteriorated markedly year on year.

Cost of sales

DEUTZ AG’s cost of sales came to €1,371.6 million in 2018. The year-on-year increase of €200.1 million was mainly attributable to the volume-related rise in the cost of materials and staff costs. The gross margin 1) continued to improve, advancing from 13.6 per cent to 14.4 per cent.

Other operating income

Other operating income fell by €117.2 million year on year to €28.3 million. This was predominantly due to income being realised in 2017 from the disposal of the land occupied by our former Cologne-Deutz site.

Other operating expenses

Other operating expenses rose by €3.2 million year on year to €58.6 million (2017: €55.4 million). The main influence on this item in 2017 had been expenses in connection with reversing the sale to Deutz-Mülheim Grundstücksgesellschaft mbH in 2001/2002 of the former Company premises at the Cologne-Deutz site. In 2018, this item primarily comprised the loss arising on the disposal of our stake in DEUTZ (Dalian) Engine Co., Ltd., Dalian, China.

Net investment income

Net investment income was down on the previous year, declining by €20.6 million to a net expense of €5.1 million. This was attributable, above all, to the transfer of losses from our subsidiary Torqeedo GmbH – the shares of which we had acquired on 1 October 2017 – and to the lower earnings of DEUTZ Asien Verwaltungs GmbH. In 2017, DEUTZ Asien Verwaltungs GmbH had posted particularly high earnings as a result of the reversal of the sale of land to Deutz-Mülheim Grundstücksgesellschaft mbH in 2001/2002.

Net interest expense

Net interest expense amounted to €5.0 million. This year-on-year improvement of €1.8 million was mainly due to lower interest expense paid to banks as a result of the reduction in the utilisation of credit lines. Interest expense for provisions for pensions and other post-retirement benefits also decreased because of the lower discount rate.

Income taxes

Income taxes fell by €4.8 million year on year. This was primarily attributable to the €7.5 million decrease in current tax expenses to €10.6 million (2017: €18.1 million) on the back of lower operating profit. Deferred tax expenses amounted to €1.3 million, whereas there had been deferred tax income of €1.4 million in 2017.

Net income

At €31.8 million, net income was down by €96.9 million compared with the previous year. The main reason for this reduction was that the figure for 2017 of €128.7 million had been boosted as a result of the disposal of the land occupied by our former Cologne-Deutz site, whereas the figure for 2018 was adversely affected by a loss of €40.5 million on the disposal of our stake in DEUTZ (Dalian) Engine Co., Ltd. Dalian, China.

At the start of 2018, we predicted that net income would increase when adjusted for the disposal of land. This adjusted net income had amounted to €57.1 million in 2017. We therefore fell short of our forecast, despite the sharp rise in the volume of business. This was due to the loss on the disposal of our stake in DEUTZ (Dalian) Engine Co., Ltd., Dalian, China, which had not been anticipated in our forecast.

In view of the positive level of net income, the Board of Management and Supervisory Board propose using €18.1 million of the accumulated income to pay a dividend of €0.15 per share.

1) Ratio of revenue less cost of sales to revenue (excluding amortisation relating to development expenditure).