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Deutz AG (LSE:0E4K), a global player in the engine manufacturing sector, has reported its financial results for the first half of 2024. Despite facing a downturn in market demand, Deutz managed to maintain an adjusted EBIT margin of 5.7%. This performance is reflective of the company’s resilience and effective portfolio optimization. The margin remained relatively stable compared to the previous year, signaling the company’s ability to sustain profitability despite external economic pressures.
Decline in Orders and Sales
The first half of 2024 saw a decline in both new orders and unit sales for Deutz AG. New orders fell by 18.1%, while unit sales decreased by 18.9%. This decline can be attributed to a prolonged period of economic weakness affecting various markets. Deutz’s revenue decline was less severe, with a drop of 12.6% to €875.5 million. The company’s efforts to optimize costs and its focus on expanding its service business, which saw a revenue increase of 6.5%, helped mitigate the impact of falling unit sales.
Strategic Acquisitions and Alliances
During this period, Deutz achieved several strategic milestones. The company completed its acquisition of Blue Star Power Systems, a US manufacturer of electricity generators. This move is aimed at advancing Deutz’s transition from a component manufacturer to a system provider and expanding its presence in the decentralized energy sector. The acquisition is expected to contribute an additional revenue of over US$100 million annually in the medium term.
Additionally, Deutz finalized its acquisition of Rolls-Royce Power Systems’ sales and service activities for heavy-duty and medium-duty Daimler Truck engines. This transaction is projected to generate around €300 million in annual revenue and is part of Deutz’s strategy to enhance its Classic business.
Partnerships and Future Outlook
Deutz AG also formed an alliance with TAFE, a major agricultural machinery company in India. This partnership aims to strengthen internal combustion engine business and tap into one of the fastest-growing markets. The company’s financial stability has been bolstered by a capital increase in July, raising approximately €72 million. This financial flexibility supports ongoing operations and future growth initiatives.
Looking ahead, Deutz AG expects to achieve the lower end of its forecast range for unit sales in 2024, with anticipated sales between 160,000 and 180,000 engines. The company projects revenue within a range of €1.9 billion to €2.1 billion and maintains its forecast for an adjusted EBIT margin between 5.0% and 6.5%. The forecast will be reviewed and confirmed during the Capital Markets Day in October.
Financial Position and Performance Metrics
The financial metrics for the first half of 2024 reveal a decline in net income from continuing operations, which fell from €53.8 million to €25.6 million. Net income from discontinued operations related to the Torqeedo Group contributed €10.2 million, resulting in a combined net income of €35.8 million. The earnings per share decreased from €0.36 to €0.28.
Cash flow from operating activities was €3.3 million, down from €56.2 million in the previous year, primarily due to reduced earnings and changes in provisions. Free cash flow from continuing operations turned negative at €-35.1 million. Despite these challenges, Deutz’s equity ratio improved to 49.8%, reflecting a solid financial position.
