Unexpected charge hits Deutz
21 October 2014
German-based engine manufacturer Deutz has issued a revised forecast for the 2014 financial year, blaming costs in connection with warranties and goodwill for engines from its compact engines segment, primarily relating to engines manufactured in 2011.
It said that this conclusion was a result of new information and analysis. In the third quarter of 2014, Deutz said there had been an unexpected charge against earnings of €20.4 million resulting from the recognition of provisions for warranty costs, net of limited insurance claims.
The company said it was currently examining whether it had any further insurance claims.
Its 2014 first half results showed revenues up by 13.8% to €753 million.
Preliminary results have indicated that new orders in the third quarter of 2014 stood at €330.0 million, down from €360.1 million for the same period a year earlier. Revenue amounted to €424.6 million compared to a third quarter 2013 figure of €381.0 million – a year-on-year increase of 11.4%.
Deutz said that excluding the unexpected charge against earnings, its earnings before interest and taxes (EBIT) amounted to €23.1 million. For the third quarter of 2013, this was €17.1 million, and so 2014 represented a year-on-year increase of 35.1%, and the EBIT margin was 5.4% compared to 4.5% a year earlier.
After taking the recognition of provisions into account, there was an operating profit (EBIT) of €2.7 million and the EBIT margin was 0.6%.
In the compact engines segment, new orders in the third quarter of 2014 totalled €270.4 million, said the company. In the third quarter of 2013, this was €303.1 million. Revenue stood at €368.3 million for the third quarter this year, compared with a figure of €315.1 million for the third quarter a year earlier.
The EBIT margin, excluding the unexpected charges – which Deutz pointed out affected this segment exclusively – was 5.3%, while the 2013 third quarter figure was 2.3%. After taking the recognition of provisions into account, Deutz said the EBIT margin came to -0.2%.
In its customised solutions segment, new orders stood at €59.6 million, rising from €57.0 million in the third quarter of 2013. Revenue totalled €56.3 million compared to €65.9 million in the same period of 2013, and the EBIT margin was 7.5% – 14.9% in the third quarter of 2013.
Deutz said that as a result of the general economic slowdown, new orders for the third quarter of 2014 fell below its expectations.
It said, “Against this background, we expect to generate revenue of around €1.5 billion in the current financial year. This represents an increase of around 3% compared with 2013.
“We will not be able to achieve our previous forecast for operating profit (EBIT), primarily as a result of the unexpected charges.”
It said a new earnings outlook and more detailed disclosures about the third quarter of 2014 would be provided when the full quarterly report was published in November.
In July, Deutz announced it was to leave its exchange engine production site in Übersee on Lake Chiemsee in southern Germany.
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