International joint ventures
China has been a very challenging market for some time. Growth forecasts have been revised down, and there is considerable capacity in the engine production sector. Although we continue to have every faith in the potential of the Chinese market, we made a decision after the balance sheet date to consolidate our Chinese operations and sites. Our intention is to focus our production operations in China on our established and successful joint venture DEUTZ (Dalian) Engine Co., Ltd. in Dalian, China, which has plenty of capacity at present.
DEUTZ has been operating the DEUTZ Dalian joint venture with the First Automotive Works Group, one of China’s leading vehicle manufacturers, since 2007. Here, we produce three to eight litre diesel engines, mainly for automotive applications for the Chinese market. The unit sales figure for 2014 was just short of 106,000 engines. An improved product mix brought in revenue equivalent to roughly €360 million, up by 12.8 per cent year on year, as a result of which the business significantly outperformed the market, as it did the previous year. The company, accounted for under the equity method, contributed around €3.5 million to the DEUTZ Group’s operating profit (2013: €1.3 million). For the current year, we are assuming that the company will continue to grow strongly in the Chinese market and will benefit from the China IV (similar to Euro 4) automotive emissions standard being introduced across the country from 1 January 2015 and from our continuing initiatives to reduce costs and increase efficiency.
In February 2015, together with our partner AB Volvo, we took a joint decision – because of the significantly downgraded growth forecasts – to wind up our DEUTZ Engine (China) Co., Ltd. joint venture in Linyi, China that had been established at the end of 2013. We have a 65 per cent shareholding in the company. It was originally intended to produce medium-duty diesel engines primarily for mobile machinery in the Asian market and the joint venture has not made any substantial investments to date. Going forward, we aim to continue satisfying local demand from our partners and other target customers using local Chinese production operations.
It was in 2012 that we established the DEUTZ Engine (Shandong) Co., Ltd. in Linyi, China, in order to assemble diesel engines of up to four litres cubic capacity. We have a 70 per cent shareholding in this production company, which has not yet begun to operate commercially. Due to the market situation, we have put on hold any further implementation work and capital expenditure for the time being.
Another joint venture, WEIFANG WEICHAI-DEUTZ DIESEL ENGINE CO., LTD. based in Weifang, China, has been run by DEUTZ for many years in collaboration with Chinese engine manufacturer Weichai Power. It produces 226B series engines under licence. Because the joint venture is no longer considered strategically important, we are in talks with our partner Weichai Power about its future.
DEUTZ AGCO MOTORES S.A. (DAMSA), our Argentinian joint venture with the AGCO Group, produces engines for the local market, with a particular focus on agricultural machinery, buses and industrial applications. In 2014, the company sold around 1,400 engines in very challenging market conditions. It generated revenue of around €16 million, which was about a quarter less than in 2013, and the company made a loss of almost €1 million.
We hold a stake of 30 per cent in D.D. Power Holdings (Pty) Ltd., our South African joint venture. This sales and service company is active in the local market, focusing on sectors such as the local mining business. In the year under review, the company achieved revenue of around €17 million and a profit of approximately €2 million, with both figures at the same level as last year.