Results of operations
|Overview of DEUTZ AG’s results of operations|
|Cost of sales||–1,280.6||–1,229.2|
|Research and development costs||–54.0||–53.9|
|Selling and administrative expenses||–68.8||–68.6|
|Other operating income||31.1||22.1|
|Other operating expenses||–15.9||–9.2|
|Net investment income||–7.3||21.9|
|Write-downs of investments||–0.7||–|
|Operating profit (EBIT)||41.6||49.7|
|Interest expenses, net||–11.6||–12.0|
|Profit from ordinary activities||30.0||37.7|
|Net extraordinary expense||–19.4||–2.3|
In 2014, the revenue generated by DEUTZ AG increased by 5.2 per cent to €1,437.8 million (2013: €1,366.6 million), largely driven by higher demand in our largest application segment, Mobile Machinery. Our revenue in this segment grew substantially to €677.8 million, a rise of 46.7 per cent (2013: €462.0 million). The service business and the Stationary Equipment application segment managed modest increases of 3.1 per cent and 3.4 per cent respectively, but Agricultural Machinery generated 19.0 per cent less revenue. Revenue in the Automotive application segment more than halved because, as already mentioned above, DEUTZ has not introduced the Euro 6 emissions standard. Our automotive business is shifting strongly towards Asia, particularly to our DEUTZ (Dalian) Engine Co., Ltd. joint venture.
In terms of regions, our revenue in the Americas region was up significantly, rising by 42.7 per cent to €209.7 million. In the EMEA region (Europe, Middle East and Africa) revenue amounted to €1,135.9 million, roughly at its prior-year level, while the revenue generated in the Asia-Pacific region declined by 2.0 per cent to €92.2 million.
In 2014, DEUTZ AG generated operating profit (EBIT) of €41.6 million (2013: €49.7 million), a year-on-year fall of €8.1 million that was primarily attributable to the sharp decline in net investment income. Because of declining demand in the Chinese market and a resultant change in our strategy, the carrying amounts for our shareholdings in DEUTZ Engine (Shandong) Co., Ltd. and DEUTZ Engine (China) Co., Ltd. were reduced at the level of our holding companies DEUTZ Asien Verwaltungs GmbH and DEUTZ Engine (China) GmbH. The profits distributed by our subsidiaries DEUTZ Corporation and DEUTZ Spain S.A. were also lower than in 2013. The unexpected addition to provisions for warranty costs also had a negative impact on operating profit.
Earnings before interest, tax, depreciation and amortisation (EBITDA) at DEUTZ AG amounted to €90.0 million in 2014 compared with €96.9 million in 2013.
Cost of sales
DEUTZ AG’s cost of sales in 2014 amounted to €1,280.6 million (2013: €1,229.2 million). The year-on-year increase of €51.4 million was mainly attributable to the volume-related rise in the costs of materials, staff and contract workers, but an unexpected addition to provisions for warranty costs also played a part. As a percentage of revenue, the cost of sales improved year on year from 89.9 per cent to 89.1 per cent.
Research and development costs
Research and development costs remained virtually unchanged on the previous year, rising by €0.1 million to €54.0 million (2013: €53.9 million). Research and development costs largely comprised staff costs and cost of materials. Any investment grants received were deducted from this expenditure. Unlike the development expenditure in the DEUTZ Group, which is recognised in accordance with IFRS requirements, the development expenditure in DEUTZ AG is recognised in accordance with the provisions of the German Commercial Code (HGB) and is not capitalised on the basis that the projects started before the initial application of the requirements of the German Accounting Law Modernisation Act (BilMoG).
Selling and administrative expenses
Selling and administrative expenses in 2014 came to €68.8 million, an increase of €0.2 million compared with 2013 (€68.6 million). On the other hand, when measured as a proportion of revenue, selling and administrative expenses declined slightly, from 5.0 per cent in 2013 to 4.8 per cent in 2014, owing to the higher volume of business.
Other operating income
There was a sharp rise in other operating income in 2014, which was €9.0 million higher at €31.1 million (2013: €22.1 million). This was primarily attributable to positive effects arising on the translation of foreign currency positions. However, the year-on-year increase in foreign currency gains was offset by a rise in foreign currency losses in the same period. Foreign currency losses are reported in other operating expenses. We also recognised a higher value for our shareholding in our subsidiary DEUTZ Australia (Pty), Ltd. due to its improved earnings prospects.
Other operating expenses
Other operating expenses were also up year on year, rising by €6.7 million to €15.9 million (2013: €9.2 million). This rise was mainly the result of an addition to provisions for pensions and other post-retirement benefits because of changes in measurement parameters. It was also attributable to the impairment loss recognised on other receivables due from our DEUTZ AGCO Motores S.A. joint venture owing to the company’s poorer earnings prospects. Finally, higher expenses resulting from foreign-currency transaction also contributed to the change.
Net investment income
Net investment income was significantly down on the previous year, declining by €29.2 million to minus €7.3 million (2013: €21.9 million). This was primarily the result of the transfer of losses from the DEUTZ Asien Verwaltungs GmbH and DEUTZ Engine (China) GmbH holding companies. Because of the revised assessment of the Chinese market, we reviewed our strategy regarding our Chinese equity investments DEUTZ Engine (Shandong) Co., Ltd. and DEUTZ Engine (China) Co., Ltd. As a consequence, the carrying amounts for these two companies were reduced at holding-company level. In the case of DEUTZ Engine (China) GmbH, the negative impact of currency translation also accounted for a large proportion of the loss. Furthermore, the profits distributed by our subsidiaries DEUTZ Corporation and DEUTZ Spain S.A. were lower than in 2013.
Impairment of investments
In 2014, we adjusted the carrying amount of our equity investment in our Argentinian joint venture DEUTZ AGCO Motores S.A. due to adverse market conditions in South America.
Net interest expense
Net interest expense in 2014 amounted to €11.6 million (2013: net expense of €12.0 million) representing a small year-on-year improvement of €0.4 million.
In 2014, extraordinary items amounting to minus €19.4 million largely comprised expenses in connection with the optimisation of our sites. As in 2013, an addition was also made to the provisions for pensions and other post-retirement benefits of the difference arising under the initial application of BilMoG. This difference came about as a result of the remeasurement of the provisions for pensions and other post-retirement benefits on 1 January 2010.
The income tax income of €15.0 million arose from the recognition of higher provisions under HGB compared with the tax accounts and partly from increased deferred tax assets due to the findings of the tax audit carried out for 2009 to 2011. These findings led to restatement of the tax accounts as at 31 December 2014. Furthermore, deferred tax assets related to the possible utilisation of loss carryforwards in the future have been recognised.
Owing to the negative extraordinary item, the net income for the reporting year fell by €14.8 million year on year to €24.4 million (2013: €39.2 million).
At the Annual General Meeting, the Board of Management, in agreement with the Supervisory Board, will propose using €8.5 million of the accumulated income to pay a dividend of €0.07 per share.