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.
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 €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 factors including 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”, said Deutz chief executive officer Dr. Frank Hiller.
”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.”
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.
This story first appeared on the website of our sister magazine, Diesel Progress.