Deutz Business report FY2009

Business Highlights

Recent Years

Business Overview

-The Company's Compact Engine Segment generated revenue of 636.0 million Euros in 2009, 44% below the figure achieved in 2008 (2008: 1,143.2 million Euros). The trend in this segment was similar to that in the Group as a whole: a drop in revenue of just under 40% in European countries other than Germany, almost 50% in Germany itself, and more than two thirds in the Americas. However, the fourth quarter of 2009 witnessed a significant recovery in a number of regions: revenue growth of 11.5% in Europe (excluding Germany), as much as 32.4% in the Middle East and even 77.3% in Africa year-on-year. Unfortunately, the Middle East and Africa markets with total annual revenue of 13.2 million Euros and 11 million Euros respectively are too small to help the Company bring about a turnaround overall.


-In June 2009, the Company and the Volvo Group started negotiations on the extension of their current co-operative contract which expires at the end of 2013. The two companies concluded an agreement to develop and supply of diesel engines with 4-7 liter displacement in 1998. One of the catalysts for the early start of the negotiations - 4 years ahead of the completion of term - is the decision of Volvo to develop their own automotive engine for the next emission stage Euro 6. (From a press release on June 16, 2009)

Joint Venture

-In December 2006, the Company and FAW Jiefang Automotive Co., Ltd., which is based in Changchun, China, signed a contract to set up a joint venture to manufacture and sell diesel engines. DEUTZ and FAW will each own a 50% stake in the joint venture, which will operate under the name of DEUTZ (Dalian) Engine Co., Ltd. (DEUTZ Dalian). DEUTZ will assume industrial leadership of the company and will invest the equivalent of EUR 60 million in the new company. The establishment of DEUTZ Dalian will considerably expand the co-operation that has already existed for over 10 years between DEUTZ and FAW Group.

-The DEUTZ Dalian ended 2008 its first full year of production, having manufactured a total of around 97,000 engines; of this total, approximately 7,000 engines were produced on the basis of DEUTZ technology. The total revenue generated amounted to more than 226 million euros. In addition to the supply of engines to the Company's largest customer, FAW Jiefang Automotive Co., Ltd., which is also its partner in the joint venture of which it owns 50%, the Company was also able to develop its supply relationship with other Company's customers in China.

-In December 2009, Bosch, Eberspaecher and the Company signed an agreement to set up a joint venture in the area of diesel exhaust control technology. The joint venture will offer modular-based diesel exhaust aftertreatment systems for construction and agricultural machinery, as well as for commercial vehicles. The new entity is to be known as "Bosch Emission Systems GmbH & Co. KG" and to be headquartered in Stuttgart, Germany. It will start operations in January 2010. Series production will likely start in the third quarter of 2010. (From a press release on December 10, 2009)


-In July 2007, the Company signed an agreement to sell its gas engines and diesel engines business for decentralized power generation (DEUTZ Power Systems) to 3i. The agreed purchase price is EUR360 million. DEUTZ Power Systems is a world leading provider of efficient and environmentally-friendly decentralized power generation systems, primarily based on gas engines. Deutz concluded that it cannot exploit the full potential of the compact engines business as well as the medium and large sized stationary gas engines business in parallel. Following the sale of DEUTZ Power Systems, the Company will focus on its core competence: the development and production of compact diesel engines.


R&D Expenditure

(in million euros)
  FY2009 FY2008 FY2007
Overall 104.6 90.3 55.8
Compact engines segment 93.1 78.7 47.3

R&D Structure

-The Company holds its research and development center in Cologne, Germany.

R&D Activities

-In 2007, the most important production start-ups for engine series complying with the Stage III A/TIER 3 standard for engines with outputs of 75 kW to 130kW were the engine series with four-valve technology, common-rail injection system and cooled external exhaust-gas recirculation, and those variants with mechanical injection and internal exhaust- gas recirculation. Depending on customer requirements and the emissions standard, designs were further optimized in the application. The 2012 and 2013 series achieved outstanding results in terms of both engine characteristics and fuel consumption, when tested in tractor application.

-In 2008, the Company laid down the foundations for the development of engines with outputs of less than 130kW which the TIER 4 Interim emission standard applies from 2012.

Investment Activities

Capital Investment

(in million euros)
  FY2009 FY2008 FY2007
Overall 119.5 118.1 167.8
Compact Engine segment 110.3 106.6 160.5
Customized Solutions 9.2 11.5 7.3

-Capital expenditure will be higher in 2010 than in 2009, with more than a third of investment being made in connection with the development of new products. To a lesser extent, the Company will also be investing in its joint venture with Bosch and Eberspacher (Bosch Emission Systems GmbH & Co. KG).

Compact Engine Segment
-In 2007, apart from the Company's investment in the Chinese joint venture, the focus of this capital expenditure was on projects to expand capacity. These projects included the TDC 2013 4V engine series for commercial-vehicle and industrial applications, the 2011 series for industrial applications and the expansion of capacity at the Company's production facilities in Cologne(Germany), Zafra(Spain) and the assembly facilities in Cologne. This resulted in the creation of numerous processing centers and the purchase of lathes and grinding and milling machines allowing the Company to expand the manufacturing of crankcases, camshafts, crankshafts, conrods and cylinder heads. There was also a considerable amount of capital expenditure on tools to be used by suppliers.

-In 2008, almost half of the Compact Engine Segment's expenditure (45.1mil. euros) was accounted for by capitalized development costs in connection with the development and refinement of engines in line with existing and future exhaust-gas emission standards.