Deutz results on first half 2022

On the first half of 2022 Deutz orders on hand increase to around €770 million and PowerTree received the first volume production order. Let’s start with the very encouraging performance in the first six months of 2022. We will tell you in a next post about the PowerTree, requested by KTEG, a manufacturer of specialist construction machinery

Let us focus on Deutz first half

 “In spite of the outbreak of the war in Ukraine, we increased our revenue by around 21 percent to €930.4 million. At the same time, we raised our adjusted EBIT margin by 2.4 percentage points to 4.6 percent. We want to sustain this growth because we still have a long way to go to reach our envisaged target range. But we have taken the first important steps toward achieving this goal, for example by strengthening our focus on disciplined cost management,” says CEO Sebastian C. Schulte. Looking ahead to the second half of 2022, he adds: “Our orders on hand totaled more than three-quarters of a billion euros at the end of June and were thus at a very high level. This means that we are tackling the coming months from a solid position. Nonetheless, our full-year guidance is still subject to change. The supply situation remains challenging and the geopolitical implications of the war in Ukraine are very uncertain. The trajectory of macroeconomic conditions is a cause for concern and highlights once again that we need to make Deutz even more resilient to economic downturns. However, we are making good progress on this front.” 

Some informations about the German company

At the start of 2022, the company initiated a multi-phase strategy process called Powering Progress in order to secure its long-term competitiveness. Its objectives include improving the Company’s commercial performance and technological capabilities. To this end, four priority areas of action were defined together with a range of sub-initiatives, such as passing on increased costs to customers in the short term in the form of multiple rounds of price increases and establishing a process to completely overhaul pricing in the Classic business. The aim for 2022 is to implement price increases of between 8 and 12 percent for the new engine portfolio. Deutz also set itself the target of increasing the amount of annual revenue generated by its high-margin service business to over €500 million by 2025 through both organic growth and growth by acquisition. Two initial acquisitions for the service business were made at the start of May, with Deutz acquiring its former service partners AUSMA Motorenrevisie B.V. (Netherlands) and South Coast Diesels (Ireland). The two companies sell and service diesel engines in their home markets, where they operate as multi-brand dealers. The newly launched strategy program also aims to accelerate the development of alternative drive solutions. At the end of June, Deutz reached a key milestone on the path toward preparing its TCG 7.8 H2 hydrogen engine for volume production. An H2 genset has gone into operation in a joint pilot project between Deutz and Cologne-based energy provider RheinEnergie. The combination of a hydrogen engine and a generator will deliver electric power of up to 170 kilovolt-amperes during the initial six-month test phase. This electricity will be fed directly into the local power grid. In a second step, the genset’s waste heat is to be utilized. With an output of around 200 kilowatts, the hydrogen engine is generally suitable for all current Deutz applications. Volume production of this engine model is scheduled to begin in 2024. 

Rise in new orders

In the first half of 2022, new orders received by DEUTZ increased by 4.7 percent year on year to €1,077.6 million. All regions contributed to this growth.  Orders on hand climbed to a substantial €768.9 million as at June 30, 2022 (June 30, 2021: €531.3 million). This points to a consistently stable order situation in the months ahead. The proportion of orders on hand attributable to the service business stood at €36.6 million (June 30, 2021: €35.1 million). Having sold a total of 108,741 engines, the Deutz Group grew its unit sales by 16.1 percent in the first half of 2022 with the two largest sales regions, EMEA and the Americas, contributing double-digit percentage growth. Unit sales of Deutz engines rose by 19.9 percent to reach 90,462 engines sold. Unit sales of electric boat drives at subsidiary Torqeedo were slightly higher year on year at 18,279 (H1 2021: 18,196 electric drives). All the major segments generated significant growth, with Material Handling making the largest contribution to unit sales growth in absolute figures. 

Reflecting the growth in unit sales, Deutz’s revenue swelled by 20.8 percent to €930.4 million in the reporting period. This rise was driven by all regions and major application segments. Only the Miscellaneous application segment fell short of the figure for the prior-year period. This was due to lower revenue from engines with capacities over 8 liters and from older engine series, which the increase in revenue from electric boat drives at Torqeedo could not offset. 

Profitability and financial position

Despite a rise in research and development spending, EBIT before exceptional items (adjusted EBIT) improved significantly to €42.6 million in the first half of 2022, compared with €16.8 million in the prior-year period. This rise was mainly attributable to growth in the volume of business, economies of scale, and the effects of cost-saving measures. The impact of additional costs stemming from persistent supply bottlenecks and higher materials prices is being increasingly mitigated thanks to these costs being passed on to our customers through price increases. In addition, DEUTZ benefited from positive currency effects. However, the Group’s adjusted EBIT was once again squeezed by the loss reported by Torqeedo, which has not yet managed to break even. The adjusted EBIT margin made a strong year-on-year improvement from 2.2 percent to 4.6 percent. The increase in adjusted EBIT meant that net income before exceptional items improved to €34.0 million (H1 2021: €14.0 million) while earnings per share before exceptional items rose to €0.28 (H1 2021: €0.12).  Cash flow from operating activities amounted to €14.6 million in the first half of 2022 (H1 2021: €44.7 million). This reduction was predominantly driven by the need to increase inventories in order to manage the significant expansion in the volume of business and longer sea freight times and to secure production in a challenging procurement environment. As a result of the decrease in cash flow from operating activities, free cash flow amounted to minus €24.7 million. This equated to a deterioration of €34.4 million compared with the first half of 2021. As a result of drawing down an existing credit line in an amount of around €60 million, net financial debt rose to €123.2 million as at June 30, 2022. This equates to an increase of €43.5 million compared with the end of 2021. The equity ratio stood at 44.5 percent, compared with 45.6 percent at the end of 2021. The Deutz Group’s financial position therefore remains comfortable. The unused volume of the syndicated loan stood at around €155 million at the end of the reporting period.