A TRADITION OF ACHIEVEMENT Annual Report 2013 Fig. 1 and 2: Gas-powered engine invented by N. A. Otto in 1876 Nicolaus A.Otto DEUTZ GROUP: KEY FIGURES Change 2013 2012 in % € million New orders 1,649.7 1,237.1 33.4 Unit sales (units) 184,028 178,774 2.9 Revenue 1,453.2 1,291.9 12.5 thereof excluding Germany (%) 82.1 82.0 – EBITDA1) 142.0 121.7 16.7 EBIT1) 47.5 37.1 28.0 EBIT margin (%)1) 3.3 2.9 – Net income on continuing operations 36.0 22.1 62.9 Net income 36.0 21.0 71.4 Earnings per share for continuing operations 0.30 0.18 66.7 Earnings per share (€) 0.30 0.17 76.5 Total assets2) 1,121.0 1,035.9 8.2 Non-current assets 596.6 621.3 –4.0 Equity2) 504.7 452.6 11.5 Equity ratio (%) 45.0 43.7 – Cash flow from operating activities 105.0 104.9 0.1 Free cash flow3) 13.8 12.6 9.5 Net financial position4) –31.7 –48.6 34.8 Working capital5) 172.3 141.6 21.7 Working capital as a percentage of revenue (31 Dec, %)6) 11.9 11.0 – Capital expenditure (excluding capitalisation of R&D, after deducting grants) 42.5 66.4 –36.0 Depreciation and amortisation 94.5 84.6 11.7 Research and development (after deducting grants) 52.6 62.1 –15.3 Employees (31 Dec) 3,952 3,991 –1.0 1) Since 2013, the income statement has been structured according to the cost-of-sales method. Other taxes are no longer reported separately after operating profit/loss (EBIT) and are instead allocated to functional costs within operating profit/loss. In 2013 other taxes amounted to €1.2 million (2012: €1.4 million). The comparative prior-year figures have been restated accordingly to improve comparability for details, see page 63 in the notes to the annual report. 2) Because of a change in the accounting treatment of provisions for pensions and other post-retirement benefits, the prior-year figures were restated (for details, see page 62 et seq. in the notes to the annual report). 3) Free cash flow: cash flow from operating and investing activities minus interest expense. 4) Net financial position: cash and cash equivalents minus current and non-current interest-bearing financial liabilities. 5) Working capital: inventories plus trade receivables minus trade payables. 6) Working capital as percentage of revenue (31 Dec, %): Working Capital at 31 Dec divided by revenue of the past twelve months. DEUTZ Group: Revenue by regions DEUTZ Group: Revenue by application segment € million (2012 figures) € million (2012 figures) 107.2 (116.8) 30.1 (15.3) Asia/Pacific Miscellaneous 173.7 (204.2) 1,155.4 (984.2) 481.6 (477.5) Europe/Middle East/Africa Stationary equipment 190.6 (190.9) Mobile machinery Americas 188.5 (192.1) 1,453.2 1,453.2 Automotive (1,291.9) (1,291.9) 253.7 (250.3) 325.6 (152.5) Service Agricultural machinery DEUTZ AG DEUTZ AG is an independent manufacturer of diesel engines with a power output of 25 to 520kW and is headquartered in Cologne, Germany. The Company’s history stretches back 150 years, during which time it has been synonymous with leading technology and high-quality products. We employ around 4,000 people and have a presence in over 130 countries. WORLD WIDE Caption Productions/assembly/component plant Distribution company In addition: more than 800 independet DEUTZ distribution and service partners Sales office in more than 130 countries America Europe Africa Asia Australia Argentina United States Germany France Russia Turkey Algeria China Singapore Braeside/ Buenos Aires Atlanta Herschbach Gennevilliers/ Moscow Istanbul Algiers Dalian Singapore Melbourne Pendergrass Cologne Paris Beijing Brazil Spain Marocco Übersee Weifang UAE São Paulo United Kingdom Madrid Casablanca Ulm Linyi Abu Dhabi Cannock Zafra Wunstorf South Africa India Cape Town Pune OUR VISION No. 1 OUR MISSION "To offer the most successful "Since its foundation in 1864, Customer engine systems in the world" – benefit DEUTZ has stood for pioneer- this is our vision. In 1864, ing spirit, passion and inno- DEUTZ became the world’s Service vative strength. We invented Quality first engine manufacturer solutions the internal combustion ever. We intend to remain engine and have improved ‘No. 1’ when it comes to The world’s most it every day since then. We customer benefit, quality, successful engine are leading the way in de- technology and everything systems veloping environmentally- Techno­ System to do with engine system logy solutions friendly and efficient drive and service solutions; not technologies. Our customer- least, we intend to remain No. Market specific solutions offer long- 1 in the market. lasting high quality and reliable performance at an affordable total cost of ownership." DEUTZ seGMENTS DEUTZ Compact Engines DEUTZ Customised Solutions B Liquid-cooled engines of up to 8 litres cubic capacity for on and B Air-cooled engines for on-road, off-road and marine applications off-road applications B Liquid-cooled engines of over 8 litres for on-road, off-road and marine B Large number of modular approaches to design applications B Major joint ventures in China B Reconditioned (Xchange) engines for all DEUTZ engine series DEUTZ Compact Change DEUTZ Customised Change Engines 2013 2012 in % Solutions 2013 2012 in % € million € million New orders 1,385.5 960.6 44.2 New orders 264.2 276.5 –4.4 Unit sales (units) 167,964 161,899 3.7 Unit sales (units) 16,064 16,875 –4.8 Revenue 1,188.8 1,005.0 18.3 Revenue 264.4 286.9 –7.8 EBIT 8.7 –16.51) – EBIT 39.0 46.31) –15.8 1) Since 2013, the income statement has been structured according to the function-of-expense method. Other taxes are no longer reported separately after operating profit/loss and are instead allocated to functional costs within operating profit/loss. The comparative prior-year figures have been restated accordingly to improve comparability. A TRADITION OF ACHIEVEMENT A key moment in our history: In 1876 Nicolaus August Otto developed the world’s first four-stroke engine, paving the way for motorised vehicles. His passion, unbridled ambition and vision remain a part of us to this day. 150 years on, DEUTZ, is a globally successful group that is still keeping the world moving with its engine technologies – and a tradition of achievement. CONTENTS 2 Foreword 4 DEUTZ shares 8 A tradition of achievement 18 Strategy 21 Group management report 57 Consolidated financial statements 62 Notes to the consolidated financial statements 116 Miscellaneous 120 Report of the Supervisory Board 124 Corporate management declaration and corporate governance report 2 DEUTZ AG Annual Report 2013 FOREWORD Global economic growth remained muted overall in 2013, despite the sentiment indicators offering a somewhat brighter outlook towards the end of the year. Taking this into consideration DEUTZ can look back on a fine year. A strong upturn in business led to a record level of new orders for the current corporate structure. These had a total value of €1.65 billion, outstripping the previous year’s amount by around one third. Revenue from the 184,028 engines that we sold came to €1.45 billion, a 12.5 per cent increase on 2012. Our operating profit (EBIT) rose from €37.1 million to €47.5 million. The EBIT margin went up from 2.9 per cent to 3.3 per cent. Revenue and earnings were therefore in line with our forecasts. You will be pleased to hear that these positive figures were reflected in the share price. After ending the year up 83.2 per cent at €6.49, DEUTZ shares outperformed all benchmark indices, demonstrating that the capital markets are also taking note of our successful strategy and prospects for growth. Now that we meet the conditions laid down in the German Commercial Code (HGB) for a distribution of profits, we and the Supervisory Board recommend the payment of a dividend of €0.07 per share for 2013. Going forward, we intend to continue sharing profits with you through regular dividend payments. All in all, 2013 was a good year for DEUTZ. The high level of new orders, our large number of new customer projects and new applications with existing customers prove that our product offensive is bearing fruit, particularly with regard to our new TCD 2.9 and 3.6 engines. These have been extremely well received in the market and are helping us to win new customers. Overall, we believe we are well placed in the global market thanks to our modern, eco-friendly, high- performance products. We continue to be fully convinced of China being an important growth market. In the year under review, our Chinese joint venture DEUTZ Dalian was able to grow approx. 30 per cent and to generate a positive result. Last year, we teamed up with our customer and development partner AB Volvo to establish a production company in China. We have now been granted a business licence for this enterprise, in which DEUTZ is the majority shareholder. By the end of 2015 the intention is for it to be producing medium-duty engines for construction equipment required by the AB Volvo Group and other customers. Combined Consolidated financial Notes to the consolidated To our shareholders management report statements financial statements Miscellaneous 3 Foreword From left to right: Dr Margarete Haase Member of the Board of Management with responsibility for Finance, Human Resources and Investor Relations Dr Ing Helmut Leube Chairman of the Board of Management with responsibility for Technical and Head-office Functions Michael Wellenzohn Member of the Board of Management with responsibility for Sales, Service and Marketing As you can see, the title of our annual report this year is ‘A tradition of achievement’.