Results of operations
|Overview of DEUTZ AG’s results of operations|
|Cost of sales||–998.3||–978.0 1)|
|Research and development costs||–45.0||–43.6|
|Selling and administrative expenses||–69.3||–70.3 1)|
|Other operating income||37.7||38.6 1)|
|Other operating expenses||–21.4||–35.9 1)|
|Net investment income||4.4||5.6|
|Operating profit (EBIT)||59.9||37.2 1)|
|Interest expenses, net||–5.7||–8.2|
|1) Following the initial application of the German Accounting Directive Implementation Act (BilRUG) in the annual financial statements of DEUTZ AG for the year ended 31 December 2016, the prior-year figures have been restated to improve comparability.|
In 2016, the revenue generated by DEUTZ AG amounted to €1,151.8 million, an increase of 2.8 per cent compared with 2015 (€1,120.8 million). This trend was primarily due to increased demand in our largest application segments, Construction Equipment and Agricultural Machinery. In the Construction Equipment application segment, revenue rose by 8.3 per cent to €346.0 million (2015: €319.4 million). Agricultural Machinery saw an even bigger increase of 12.3 per cent to €177.0 million (2015: €157.6 million). As a result of the initial application of the German Accounting Directive Implementation Act (BilRUG) in the annual financial statements of DEUTZ AG for the year ended 31 December 2016, items amounting to €1.8 million are reported under revenue that were previously recognised under other operating income. To improve comparability, the prior-year figure has been adjusted by €2.2 million.
In terms of regions, revenue in the Asia-Pacific region rose by a substantial 17.2 per cent to €132.6 million. We also saw growth in our largest region, EMEA (Europe, Middle East and Africa), where revenue advanced by 3.1 per cent to €835.9 million. By contrast, revenue in the Americas region decreased by 5.5 per cent to €184.2 million.
In 2016, DEUTZ AG generated an operating profit (EBIT) of €59.9 million (2015: €37.2 million). The year-on-year increase of €22.7 million was mainly due to lower expenses resulting from the interest-rate-related adjustment to provisions for pensions and other post-retirement benefits, as well as the reversal of impairment losses recognised on our receivables from the equity investment Ad. Strüver KG. By disposing of the building lease for a plot of land that was no longer used for production purposes, Ad. Strüver KG improved its liquidity significantly, which means the receivables became recoverable again. The earnings of DEUTZ AG also benefited from the increased volume of business and lower cost of materials.
Earnings before interest, tax, depreciation and amortisation (EBITDA) at DEUTZ AG amounted to €105.6 million in 2016, compared with €93.5 million in 2015.
Cost of sales
DEUTZ AG’s cost of sales came to €998.3 million in 2016 (2015: €978.0 million). The year-on-year increase of €20.3 million was mainly attributable to the volume-related rise in the cost of materials. The gross margin improved from 12.7 per cent to 13.3 per cent. As the prior-year figure for revenue has been restated due to the initial application of the BilRUG, the prior-year figure for the cost of sales has also been adjusted upwards by €1.6 million in order to improve comparability. Correspondingly, selling expenses and general and administrative expenses have been reduced by €1.6 million.
Research and development costs
Research and development costs rose only slightly year on year, by €1.4 million, to reach €45.0 million (2015: €43.6 million). Research and development costs largely comprised staff costs and cost of materials. Investment grants received and capitalised development expenditure were deducted. 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 HGB provisions and only expenditure relating to projects that started after initial application of the German Accounting Law Modernisation Act (BilMoG) at DEUTZ AG is capitalised.
Selling and administrative expenses
Selling and administrative expenses in 2016 came to €69.3 million, a small decrease of €1.0 million compared with the previous year (2015: €70.3 million). This decrease was mainly the result of one-off transition costs in 2015 that were incurred in connection with the switch of IT service provider. When measured as a proportion of revenue, selling and administrative expenses also fell year on year, from 6.3 per cent in 2015 to 6.0 per cent in 2016. To improve comparability, the prior-year figure for selling and administrative expenses has been reduced by €1.6 million following the initial application of the BilRUG.
Other operating income
Other operating income fell by €0.9 million year on year to €37.7 million (2015: €38.6 million). This decline was mainly the result of lower exchange-rate gains and the absence of the income in connection with the disposal of the shares in WEIFANG WEICHAI DEUTZ DIESEL ENGINE CO., LTD. in Weifang, China, that had been recognised in the previous year. These effects were offset by the reversal of impairment losses recognised on our receivables from the equity investment Ad. Strüver KG. As a result of the initial application of the BilRUG in the annual financial statements of DEUTZ AG for the year ended 31 December 2016, items that were previously recognised under other operating income have been reported under revenue. To improve comparability, the prior-year figure for other operating income has been adjusted by €2.2 million.
Other operating expenses
Other operating expenses fell by €14.5 million year on year to €21.4 million (2015: €35.9 million). This decrease was predominantly caused by the much lower expenses relating to the interest-rate-related adjustment to provisions for pensions and other post-retirement benefits, as well as by foreign-currency transactions. The year-on-year reduction of €10.4 million in this interest-rate effect was due to using the ten-year average interest rate instead of the seven-year average interest rate to discount pension liabilities in 2016 for the first time following the implementation of new legal requirements.
As a result of the initial application of the BilRUG in the annual financial statements of DEUTZ AG, other operating expenses for 2016 include the annual addition of the difference of €2.3 million in provisions for pensions and other post-retirement benefits caused by the transition to the BilMoG. This was previously recognised under extraordinary expenses. To improve comparability, the prior-year figure has been adjusted.
Net investment income
Net investment income was down on the previous year, declining by €1.2 million to €4.4 million (2015: €5.6 million). This was primarily because the prior-year figure for net investment income had been boosted by an exchange-rate gain in connection with the winding-up of the equity investment DEUTZ Engine (China) Co., Ltd. in Linyi, China.
Net interest expense
Net interest expense amounted to €5.7 million in 2016 (2015: net expense of €8.2 million). This year-on-year improvement of €2.5 million was mainly attributable to reduced interest expenses for pensions and lower utilisation of credit lines.
Income taxes came to €8.6 million in 2016 (2015: €1.7 million). Of this total, current tax expenses accounted for €6.0 million (2015: €2.7 million) and deferred tax expenses for €2.6 million (2015: deferred tax income of €1.0 million). The main reason for the rise in current tax expenses is the improvement in results of operations.
Owing, in particular, to the much better level of operating profit, the net income for the reporting year increased significantly, rising by €18.3 million year on year to €45.1 million (2015: €26.8 million). At the start of 2016, we had predicted a year-on-year decrease in net income, which means we exceeded our forecast. One of the main reasons why we did better than the forecast was the reversal of impairment losses recognised on our receivables from the equity investment Ad. Strüver KG. Another reason was the change in the period, from seven years to ten years, used to determine the average interest rate for measuring pension liabilities. The contribution to earnings of €10.4 million from the positive effect arising from determination of the average interest rate cannot be distributed as a dividend.
In view of the positive level of net income, the Board of Management and Supervisory Board propose using €8.5 million of the accumulated income for the financial year to pay a dividend of €0.07 per share.