Interview with the Chairman of the Board of Management

Dr Ing Frank Hiller, Chairman of the Board of Management of DEUTZ AG, on the past and the future of DEUTZ

“2017 has been a success. We have mapped out the strategic course we intend to follow and got people excited about the new era we are about to enter into.”

Dr Hiller, what is your view of the last financial year? What do you think have been the biggest successes of 2017?

Dr Ing Frank Hiller: 2017 has been a successful year for DEUTZ. We have made improvements to how we operate, mapped out the strategic course we intend to follow and got people excited about the new era we are about to enter into. I am thinking, in particular, of the new E-DEUTZ strategy, the acquisitions of electric engine specialist Torqeedo and Italian dealer IML Motori S.r.l., the expansion of our product portfolio through the partnership with Liebherr, and the EU Stage V certification, which we are the first engine manufacturer in the world to receive. Our financial results have greatly improved in 2017, and we have significantly increased important KPIs such as new orders, revenue and operating profit. The capital markets have recognised this – our share price rose by more than 40 per cent in 2017.

DEUTZ has a long and successful tradition. To what extent does this influence today's business?

Dr Ing Frank Hiller: Looking back, we can see that from the outset DEUTZ was a technology leader in the manufacture and supply of engines, and employed the best engineers of their time: Daimler, Maybach and Bugatti. Our ambition remains to attract the best engineers who can help us to develop the drive systems of the future. The discovery of the four-stroke principle marked the birth of the combustion engine and paved the way for the global motorisation we see on and off our roads today. DEUTZ and its engineers have always been at the vanguard of change, and DEUTZ will continue to produce innovative and technologically advanced solutions in the future.

“DEUTZ and its engineers have always been at the vanguard of change. The discovery of the four-stroke principle marked the birth of the combustion engine and paved the way for global motorisation – and DEUTZ will continue to produce innovative and technologically advanced solutions in the future.”

Diesel engines are a hot topic at the moment – what is your opinion on the matter and how do you assess the development in your markets in this regard?

Dr Ing Frank Hiller: One of the key demands in society today is to save energy and make engines cleaner and more environmentally friendly. A major discussion has evolved around diesel engines, but we firmly believe that diesel technology will continue to be the dominant type of drive in off-highway applications, such as agricultural machinery, for a long while yet. Nonetheless, the reality is that there has been a paradigm shift in the public acceptance of diesel engines. And we are addressing this. We want to actively promote change and benefit from it, and there is a good reason why we are the first engine manufacturer to be EU Stage V certified. But we want to do even more to meet the growing demand for efficient and more eco-friendly drive systems.

“There has been a paradigm shift in the public acceptance of diesel engines, and we are addressing this. We want to actively promote change and benefit from it.”

What does that mean specifically? What is the strategy at DEUTZ?

Dr Ing Frank Hiller: We implemented a new strategy in 2017 with the ambition of becoming the leading manufacturer of innovative drive systems. We will continue to invest in clean diesel engines, as we still see good potential for DEUTZ in this segment. The new family of large engines we are developing in partnership with Liebherr will enable us to extend our product portfolio at the upper end of the power output range, for example. At the same time, we want to expand our technology portfolio. In the future, we will offer drive system solutions using alternative fuels – initially with liquefied petroleum gas and biogenic fuels. Through the E-DEUTZ strategy we aim to take the lead in the development of technically sophisticated and economical electrification solutions for off-highway applications. Our ambition is for electric drive systems to account for 5 to 10 per cent of our revenue in five years’ time. What happens after that will depend on a variety of factors, including infrastructure, battery development and customer behaviour.

How are you approaching electrification? After all, your sector is still taking its first steps in this area.

Dr Ing Frank Hiller: As I mentioned earlier, in autumn last year we bought Torqeedo GmbH, the market leader in electric-powered boats with twelve years’ experience and 70,000 systems in the field. The task now is to transfer this extensive knowledge to our own segments. We hope to present the first prototypes for electric and hybrid drives this year. The acquisition of Torqeedo gives DEUTZ access to expertise not only in battery management, electric motors and power electronics, but also in integrating these components into electric drive systems. In short, we are working on delivering a scalable product portfolio of hybrid and all-electric engines that meet our customers’ specific requirements. By investing in technology, DEUTZ is helping to reduce fuel consumption and emissions, while bringing down overall costs for end customers over the lifecycle.

How large is the capital expenditure on electrification?

Dr Ing Frank Hiller: We currently have a budget of €100 million for the electrification of DEUTZ, including the acquisition of Torqeedo. The bulk of the capital investment was made in 2017. This demonstrates that we are taking the issue of electrification seriously. We have been able to finance this ourselves thanks to the sale of our former premises in Cologne-Deutz, which further bolstered our already healthy financial situation.

 

“We are working on delivering a scalable product portfolio of hybrid and all-electric engines that meet our customers’ specific requirements. By investing in technology, DEUTZ is helping to reduce fuel consumption and emissions.”

How is the acquisition of IML contributing to this?

Dr Ing Frank Hiller: The acquisition of IML Motori, our long-standing Italian sales and service partner, which is now trading as DEUTZ Italy, has strengthened us in a different way. It has allowed us to bolster our profitable service business in the Mediterranean, and it brings us closer to our customers. This too is an important part of our successful strategy.

“Our priority is the ongoing focus on customer satisfaction and superior product quality. As Chairman of the Board of Management, I want to work with all my colleagues to ensure that we continue to offer our customers the right solutions in the future.”

You have been the Chairman of the Board of Management of DEUTZ AG for over a year. How would you assess your time so far?

Dr Ing Frank Hiller: As I mentioned earlier, DEUTZ has seen positive developments in terms of strategy and operations over the course of 2017. Our priority is the ongoing focus on customer satisfaction and superior product quality. As Chairman of the Board of Management, I want to work with all my colleagues to ensure that we continue to offer our customers the right solutions in the future. We want to further strengthen our market position, reinforce our commercial success and thus make ourselves more attractive to our customers and the capital markets.

Following on from a very successful 2017, what do you expect for 2018 (and beyond)?

Dr Ing Frank Hiller: I think we are on the right track – now we just need to keep the momentum going. I am very optimistic that DEUTZ will continue its success in 2018 and that we will achieve our targets. Take profitability, for example. Our operating profit in 2016 was just under 2 per cent, which is unsatisfactory. In 2017, we improved that to almost 3 per cent. In the current year, we will again increase the EBIT margin significantly. In five years’ time, we aim to achieve an EBIT margin of 7 to 8 per cent.

Dr Hiller, thank you for talking to us.