International joint ventures

China has been a very challenging market for some time. Growth forecasts have been revised down, and there is considerable capacity in the engine production sector. At the start of 2015, we decided to consolidate our Chinese production operations in our established DEUTZ (Dalian) Engine Co., Ltd. joint venture in Dalian, China, which has adequate capacity.

We have been operating the DEUTZ Dalian joint venture with the First Automotive Works Group, one of China’s leading vehicle manufacturers, since 2007. Here, we produce three to eight litre diesel engines, mainly for automotive applications for the Chinese market. The unit sales figure for 2015 was just short of 75,000 engines, a year on year decrease of 29.5 per cent. DEUTZ Dalian’s business performance was severely affected by market conditions in China, especially in the truck and construction machinery segments. An improved product mix brought in revenue equivalent to roughly €340 million, down by 5.6 per cent year on year. Measured in the local currency, the fall in revenue was 19.6 per cent compared with 2014. The company, accounted for under the equity method, had a negative impact of €7.0 million on the DEUTZ Group’s operating profit, having contributed €3.5 million to operating profit in 2014. We expect the market situation to remain challenging but predict a smaller negative impact on operating profit. Nevertheless, capacity utilisation will continue to have a strong influence on earnings.

We made significant progress in consolidating our other Chinese production activities in the year under review. The DEUTZ Engine (China) Co., Ltd. joint venture in Linyi, China, was wound up at the end of 2015. We had originally founded the company, which never made any substantial investments, with AB Volvo.

At the end of 2015, we sold our WEIFANG WEICHAI-DEUTZ DIESEL ENGINE CO., LTD. joint venture in Weifang, China, to our previous co-shareholder, Weichai Power. The company only produces the 226B engine series under licence and we no longer considered it to be strategically important.

We have also begun the process of closing the DEUTZ Engine (Shandong) Co., Ltd. joint venture in Linyi, China, in which we have a 70 per cent shareholding. It is expected to be fully wound up during 2016. Implementation work in connection with this company was suspended and terminated at an early stage.

Overall, the winding-up and sale of the aforementioned companies – i.e. DEUTZ Engine China, WEIFANG WEICHAI-DEUTZ DIESEL ENGINE CO., LTD. and DEUTZ Engine (Shandong) Co., Ltd. – resulted in a small contribution to earnings in the reporting year.

DEUTZ AGCO MOTORES S.A. (DAMSA), our Argentinian joint venture with the AGCO Group, produces engines for the local market, with a particular focus on agricultural machinery, buses and industrial applications. In 2015, the company sold around 1,150 engines in very challenging market conditions. It generated revenue of around €19 million, which was about a fifth more than in 2014 owing to price increases. The company made a loss of €0.1 million.

We hold a stake of 30 per cent in D.D. Power Holdings (Pty) Ltd., our South African joint venture. This sales and service company is active in the local market, focusing on sectors such as the local mining business. In the year under review, the company achieved revenue of around €20 million and a profit of approximately €2.5 million, with both figures increasing year on year.