Foreword by the Chairman of the Board of Management
“Embracing new technologies will be key to the development of the drive solutions of tomorrow. Our objective is to keep moving forward – through innovation, on a global scale, and with a focus on sustainability.”
Dr. Ing. Frank Hiller, Chairman of the Board of Management
the world in which we live is changing faster than it has ever changed before. In 2019, we were once again provided with abundant evidence of this. Shareholders, employees, customers, and society in general all rightly expect that a global company such as DEUTZ not only recognizes and accepts this change but is also willing to act accordingly.
We want to shape the future – bringing transport closer to the goal of a zero-carbon future. We see this transition as an opportunity and as a challenge to capitalize on everything that has made DEUTZ great.
A pioneering spirit, strength in innovation, and passion for new technologies are what define DEUTZ. They give us confidence that we can play a part in shaping the future. We took some important steps along this path in 2019, reaching milestones and meeting the first objectives.
For the DEUTZ Group, the focus in 2019 was very much on the implementation of key strategic milestones. Our new China strategy, for example, has completely realigned our presence in the country. Last year, we showed that DEUTZ is ‘ready for China’ by entering into strategic alliances with local partners and laying the groundwork for a joint venture with the country’s biggest engine manufacturer, SANY. We also made good progress with the second element of our growth strategy, in which we are forging ahead with the electrification of drive systems, by acquiring a provider of development services. A further focus in 2019 was on the expansion of our profitable service business, which we strengthened through various acquisitions.
We can also offer a positive report in terms of our financial results. In 2019, we generated revenue in excess of €1.8 billion and achieved an EBIT margin before exceptional items of more than 4 percent – in both cases meeting our targets for the year.
In order to reach targets, however, you need vision above all else. Strength in innovation is the key capability here.
2019 showed once again that the innovative spirit of our Company is what drives us forward. We continue to embrace new technologies as that is what enables us to create the zero-carbon drive solutions of the future.
We see the development of innovative drive systems as our core expertise. Powering machines is what we do and we offer our customers individual solutions that are tailored to their requirements. So it is vitally important that we take up the challenge anew each and every day to demonstrate the innovative strength of our Company. Our objective is to keep moving forward – through innovation, on a global scale, and with a focus on sustainability.
This is why our Company is undergoing a transformation – from a traditional manufacturer of combustion engines to an innovative and modern business that embraces the technologies of the future. Of course, this process will not be completed overnight. But rest assured that the DEUTZ Group is already well on the way. We want to play an active part in shaping and driving forward the future of mobility.
At the heart of this is our E-DEUTZ electrification strategy, which has been a key focus for us since 2018. The acquisition of Futavis, a development services provider for battery management hardware and software, has built on our inhouse capabilities in the key field of battery technology and means we are now able to offer our customers complete battery packs. For us, this means a significant gain in expertise that will benefit our customers and provide another opportunity to demonstrate the capabilities and dynamism of our Company.
In addition to the technological offering, DEUTZ is also growing its international presence. We are showing that we are a global player. Our international growth strategy is currently focused on the Chinese market, which is already the biggest in the world for off-highway applications and is continually expanding. The joint venture with SANY, which we announced had come into effect at the beginning of this year, will significantly expand our presence in the Chinese market. Last year, we quite literally laid the foundation for success there at the new assembly plant for high-performance engines in Changsha. In the initial stage, our plan is to be building around 75,000 new engines at this factory by 2022. We are also in the process of localizing our purchasing activities in China – not only for China itself but also for our European production. The strategy is rounded off by our manufacturing alliance with BEINEI and the expansion of the service business with FAR EAST HORIZON.
When we look back at 2019, it is clear to see that the global expansion of our high-margin service business was an important driver of growth. At the beginning of the year, we further expanded our dealer and service network in the Middle East. The acquisition of our partner in Belgium and the Netherlands, DPS Power Group, meanwhile, strengthened our sales and service network in the Benelux countries and puts us in closer proximity to our customers in western Europe. True to our service slogan ‘We care. We support. We deliver.’, our focus is always on the customer. We want to provide fast and efficient solutions to individual problems. In the reporting year, we therefore particularly focused on digitalization in the form of data transfer and data analysis so that we can offer new services to our customers in the future. Digital services in the field of predictive maintenance are now going through the final tests. The services are aimed at reducing unplanned downtime and thereby lowering operating costs. These innovative concepts are paying off. The volume of revenue generated by the service business rose by 6.8 percent last year.
Our outlook for 2022 originally forecast that revenue in our service business would rise to around €400 million, but we have stepped up our activities in this sector and now hope to reach this revenue target a year earlier, in 2021. The primary drivers here have been the accelerated expansion of our Xchange business, the scaling up of the on-site repair and maintenance service for DEUTZ and third-party engines, and our success in securing new customers such as fleet operators. We also plan to open up new distribution channels for parts and, at the same time, integrate external platforms into our service concept. The expansion of our service activities is therefore an important factor in our growth strategy.
With everything that is going on in the world, the issue of sustainability is becoming increasingly important. An ever-growing global population and the steady march of climate change present society with fundamental challenges. The responsibility for addressing these challenges does not lie exclusively with politicians; business also has a key role to play. It is therefore essential that corporate policy takes greater account of the various aspects of sustainability. We adopted a Group-wide sustainability strategy last year for precisely this reason.
Our objective is to strive for commercial success while fulfilling our corporate, social, and environmental responsibilities.
This ambition is reflected in the name of our new sustainability strategy, ‘Taking Responsibility’. We have set ourselves various targets for 2023 as part of the strategy. They relate to aspects such as the reduction of emissions from our plants and employee engagement and enablement. All these targets are brought together in DEUTZ’s Sustainability Vision for 2023. As an innovative and agile business, we want to play our part in halting climate change. For us, this means promoting the use of alternative or synthetic fuels and thus reducing carbon and nitrogen oxide emissions. Last year, we signed a letter of intent with Munich-based start-up KEYOU regarding collaboration on developing commercially viable, carbon-neutral hydrogen engines for off-highway and on-highway applications and bringing them to production readiness. This represents a further step forward in the advancement of alternative drive technologies and fuels. We believe that this drive solution will complement our electrification strategy and play an integral role in the zero-emission vehicles of the future.
The world of tomorrow needs innovation today. The Nicolaus August Otto Award for innovation, which we presented for the first time in 2019, and our DEUTZ Business School in Zafra, Spain, are two shining examples of how innovative projects and people can be developed and acknowledged. Our efforts in this area have not gone unnoticed on the international stage. Last year, the German-Spanish Chamber of Commerce presented its Excellence Award for 2019 to the DEUTZ Business School. It was a particular honor for us and our Spanish colleagues and a fitting reward for their work.
We can and will achieve further technological progress in 2020. For example, we expect the first products from our E-DEUTZ portfolio to go into volume production by the end of 2020/start of 2021. Nevertheless, we are aware that 2020 will be a year of transition in which we will need to face up to various challenges. These include meeting the start-up costs for our engine production plant in China and our electrification projects. At the same time, however, we will be also be initiating new activities there. After all, the world of transport never stops moving!
Our Company stands for dynamism, strength in innovation, and a pioneering spirit. Every day, we work to put these values into practice in the interests of our customers, business partners, and employees.
In view of the strategic milestones that we have already reached, we believe that we are on track to achieve our medium-term targets, which for 2022 remain as follows: revenue in excess of €2 billion and an EBIT margin before exceptional items of between 7 percent and 8 percent.
Our corporate values, our willingness to embrace new technologies, and our leading position as a provider of efficient, versatile, and compact drive systems mean that DEUTZ is well equipped for the future and for a broad range of challenges, and is a strong partner when it comes to shaping the drive solutions of tomorrow.
Cologne, March 2020
Dr. Ing. Frank Hiller
Chairman of the Board of Management