DEUTZ SUCCESSFULLY OVERCOMES THE CHALLENGES POSED BY THE CRISIS IN 2009

Global economic crisis

The collapse of the Lehman Brothers investment bank in September 2008 was the trigger that caused the economic crisis – which began as a banking crisis - to spread to the real economy. In the first quarter of 2009, the German economy contracted by over 13 per cent compared with the previous quarter, the worst crisis since the 1920s and unprecedented in post-war history. It was difficult to carry out planning with any degree of certainty in such conditions. As a result, in place of our normal annual planning, we developed various scenarios depending on future trends.

Dramatic slump in business

Business performance fell well short of our original forecasts. Revenue and unit sales more than halved.

Capacity adjustment

In response to the extremely sharp downturn, we adjusted production capacity as quickly as possible. At an early stage, we initiated an action plan – in the form of the MOVE restructuring programme – to cut costs and increase efficiency. This also included measures to reduce the workforce. Back in January 2009, we introduced extensive short-time working. We also terminated temporary employment contracts, did not renew fixed-term contracts when they expired and introduced early retirement schemes. Within a short period of time, we were thereby able to make staff savings roughly equivalent to the cost of 25 per cent of our workforce and in a manner that minimised the impact on staff as far as possible. In a second stage, the workforce was reduced by a further 600 employees as part of a redundancy scheme. Again, we were able to achieve most of these job cuts in a socially responsible manner. Nevertheless, we were still unable to compensate in full for the contraction in volume with the result that the DEUTZ Group reported a significant operating loss (EBIT before one-off items) of €46.3 million.

Challenges surmounted

Given the economic crisis in 2009, the order of the day was to scale back inventories and ensure the necessary liquidity. We achieved impressive results in this regard:

inventories were almost halved and there was even a slight increase in liquidity without any decrease in capital expenditure. In fact, we managed to further increase research and development expenditure in order to consolidate and build on our position as a technology leader in the market.

Our equity ratio remains at a high level. The economic situation jeopardised our ability to comply with the financial covenants that form part of our funding arrangements. We therefore instigated negotiations as soon as possible with our US investors. We have now taken a significant step towards a long-term restructuring of our funding following the agreements we have now reached with our bankers and the investors. Considerable cash resources continue to be required for research and development, but we have been able to place ourselves in an excellent position to begin the financial year in 2010 with new vigour.