Deutz said it registered “a significant overall decline in business performance” in the first half of 2020 as a result of the Coronavirus crisis with new orders received falling by 34.6% year on year to €623.6 million.
The group sold a total of 73,859 engines in the reporting period, which was 27.3% fewer than in the first half of 2019.
Deutz said demand slumped due to customers continuing to sell the inventories of engines they had built up before new emissions standards came into force, which had already led to a low level of orders on hand at the end of 2019, and due to the macroeconomic impact of the Coronavirus pandemic in what was already a challenging market environment.
The impact of the pandemic on the business activities of the Deutz Group and its customers meant that Deutz reported an operating loss (EBIT before exceptional items) of €49.9 million in the first half of 2020.
In the first six months of this year, the operating profit of the Deutz Compact Engines segment deteriorated by a substantial €84.7 million to a loss due to the collapse in demand triggered by the coronavirus pandemic. The segment’s operating profit was weighed down by a fall in revenue of almost 38%, payments to suppliers going through insolvency proceedings to enable them to continue supplying Deutz, and impairment losses on a development project.
Furthermore, business operations were significantly disrupted in the second quarter as a result of a temporary production shutdown and the introduction of short-time working, it said.
“The adverse effects of the coronavirus pandemic on the global economy and thus on our engine business cannot be ignored. At present, nobody can predict how the coronavirus crisis will continue to unfold. Despite the current situation, we believe we are on the right track to be able to achieve our medium-term targets,” said Deutz chief executive officer Dr. Frank Hiller. Commenting on the Transform for Growth efficiency program launched at the start of this year, he added: “To be competitive in the long term and ensure the Company stays on course for success, it is vital that we regularly review our processes and structures. We have done this and we expect implementation of the resulting action plan to generate annual cost savings totaling around €100 million from the end of 2022.”
The fall in new orders was due not only to the sharp drop in new orders triggered by the coronavirus crisis but also to the high level of new orders in the prior-year period as a result of customers building up their inventories of engines before new emissions standards came into force. Customers then sold these engines, putting a further strain on the business, said Deutz.
The Construction Equipment, Material Handling, Agricultural Machinery, and Stationary Equipment application segments recorded double-digit percentage reductions in new orders.
By contrast, the Miscellaneous application segment and the service business notched up further increases of 16.4% and 0.8% respectively. The sharp rise in the Miscellaneous application segment was primarily due to the growth in new orders for rail vehicle drive systems.
As at June 30, 2020, orders on hand stood at €253.5 million (June 30, 2019: €462.6 million).
Miscellaneous was the only application segment with an increase in unit sales, registering a substantial rise of 112.7% that was largely attributable to the introduction of small outboard motors known as trolling motors. The ramp-up of these motors enabled Deutz subsidiary Torqeedo to more than double its sales of boat motors to a total of 16,244, which equates to a year-on-year rise of 163.8%.
In the EMEA region (Europe, Middle East, and Africa), Deutz’s biggest sales market, unit sales went down by 30.5% compared with the prior-year period to 37,763 engines. In the Americas region, unit sales fell by 47.4% to 14,726 engines. By contrast, unit sales in the Asia-Pacific region grew by 10.8% owing to the ramp-up at Torqeedo.
The Deutz Group’s revenue fell by 33.3% compared with the first six months of 2019 to €620.0 million. Revenue declined across the board, from both a regional and an application segment perspective, it said.
Looking ahead Deutz said the progression and timeline of the coronavirus crisis going forward is “very difficult to predict”, as is its impact on the economy and thus on Deutz’s engine business. Consequently, it is still not possible to provide updated guidance for 2020 at the present time, it added.
Fundamentally, it can be assumed that the remainder of 2020, particularly the third quarter, will continue to be heavily affected by the impact of the coronavirus crisis, although to a lesser extent than the second quarter, said Deutz