Edited Transcript of DEZ.DE earnings conference call or presentation 18-Mar-20 10:00am GMT

We have launched an efficiency program, taking into account the down cooling of the market, and for sure, now also the coronavirus amplifications. So this program — efficiency program is called, Transform for Growth. And it’s addressing all the functions worldwide, operation, R&D overhead functions as well as sales and service network. It’s a cost reduction program which gives more stability for our future targets on business performance.

So we confirm our medium-term targets for 2022. So we are confident that we will reach revenue above 2 million — EUR 2 billion and an EBIT margin of 7% to 8%. And sorry here, I see there’s a mistake in the presentation, we have to correct that.

Coming to the strategic highlights, one of our major focus activities is the growth strategy in Asia and especially in China, with the target to reach more than around EUR 500 million turnover in 2022. So this is good on the way. So we signed the joint venture agreement — we sign. We’re expecting, and we are still expecting this also taking the amplification of the coronavirus in China into account. We are expecting 75,000 engines in 2022. And also the integration of the existing SANY-engine plant in Kunshan is — into the DEUTZ production network is right now on the way. We are doing a lot of localization on the purchasing parts. This is running quite well. And even if we had some difficulties within the last weeks, the team was still working on that out-of-home offices and so on. And here, we are very optimistic that there will be no different strategy. There will be no different or no implications on the strategy, maybe a short postponement, but this will not affect our 2022 targets.

Another topic is the electrification strategy, which we started more than 2 years ago. In 2019, we made the acquisition of Futavis. This gives us the possibility to go more into the battery technology and also to create more added value and come up with own battery packs in the future. So there’s a lot of interest, a lot of projects, prototype applications for our customer. And the first product will be launched beginning of next year.

Important for us is, as already mentioned, the service business. And here, we go in a further expansion. Also in the last year, we made some acquisitions in Benelux. We made the acquisition of DPS Power Group. And in the U.S., we established additional power centers to have the possibility to sell more parts and also ours on maintenance and give our customer emergency services for DEUTZ engines.

So group-wide sustainability strategy has been implemented in 2019. This is called, Taking Responsibility. And we have defined some tough targets for the DEUTZ Sustainability Vision in 2023.

Having a closer look on our E-DEUTZ activities on Page 6. The acquisition of Futavis in quarter 4, 2019. I think this will be an essential part for our strategy. This gives us the possibility to produce in the future battery packs for our customer which fit into their applications. So Futavis is a specialist on battery technology and battery testing. They are the experts for battery management systems. Also, what you see on the right side, that’s our plan, which we announced more than 2 years ago when we acquired Torqeedo. This is still in place and valid. So 2020, there will be the first marketable hybrid and all-electric products. We will start with serial production in 2021. And the target, and this is also a target of our sustainability strategy is to have 5% to 10% revenue share of electrified products in 2022.

Having a closer look at our service activities. We started a lot of measures within the last years. And also, 2019 was an important year on the service side. So we implemented new sales channels. Important topic is to have a higher density of the existing network by improving external partners, but also going into more investment with own workshops. Digitalization is a big topic where we also want to reach the end customer and have a direct access to the end customer. Expansion of the product portfolio, especially on the service parts. And new service concepts. Also, for example, maintenance and repair for third-party motors and complete devices. That’s a topic and this pays off you. See here the growth rate within the last years on the right side. So we have a yearly growth rate of more than 6%. And right now, we are at more than EUR 350 million, and this target of the EUR 400 million will be brought forward to the year 2021.

So far on the service side and then some words about our sustainability program, Taking Responsibility. Our objective is to strive for commercial success while fulfilling our corporate social and environmental responsibilities. So this goes into the direction of corporate citizenship, environmental and climate protection, supplier management, corporate governance and compliance, for sure, occupational health and safety, personal development and also product compliance. This is an important program for us, and we have defined tough targets for the year 2023, which you will see in our annual report.

Having a look at the sales figures, you see we are down on the new orders in 2009 (sic) [2019], a minus of more than 15%. So this started in the second half of 2019. And for sure, we had some implication by this lower order intake in quarter 4. So order intake overall was EUR 1.65 billion. On the unit sales, this was also a little bit lower, minus 1.4% in total, more than 211,000 engines. Here, we have to take into account that nearly 21,000 engines or products were included by Torqeedo by electrical motor solution. They had a a quite good market development in 2019. They had an increase of more than 100% on their products and on their unit sales. Revenue went up 3.5%. This comes out of a very positive product mix, which gave us, in the end, this revenue which is above EUR 1.8 billion.

Revenue by region on Page 10. You will see here that we are still strong in Europe and in Germany. But our intention is to grow further in Asia Pacific with plus 7.6%, in Americas with a plus of 10.7%. Especially Asia Pacific will develop very much stronger within the next years by our China strategy.

Then the revenue by application segments on Page 11. Biggest application segment, for sure, is Construction Equipment. We had here quite a challenging year in 2019, coming from a very strong year 2018, so a minus of minus 1.8%. Second biggest segment is Material Handling. This is a growing business, increasing by nearly 7%. Our service business, I talked already about that. And Agricultural Machinery developed quite well coming out of a weak 2018, and the market has developed quite well in 2019, with a plus of more than 12%.

So far from my side, and I’m handing over now to Andreas Strecker for the key financials in detail.

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [4]

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Good morning from my side as well. If we look at Page 13, we can see that the EBIT increased from EUR 82 million to EUR 88 million. This includes a EUR 9 million gain of the sale of a property. If you look before exceptional items, we reached an EBIT of EUR 78.8 million and a return on sales of 4.3%. If we eliminate certain items like the provision for Torqeedo and the deconsolidation of the joint venture in Argentina. We would’ve reached an EBIT margin of 5.1%. If we look on the next page to the segment results, we need to consider that the series 2011 engines moved from Cologne to Ulm. And there they also switched them the segment from Compact Engines to Customized Solutions.

So we see that on Page 14 on the operating profit and net income. The EBITDA was EUR 166.2 million before exceptional items was higher than the year 2018. We had slightly higher D&A. Then we find again the EUR 78.8 million and the exceptional items. On the net financial expense, you know this increased to EUR 13 million. That is the result of the depreciation of a loan that we gave to a supplier. The income taxes increased to EUR 22.8 million, but that is not the critical amount. We had reduced loss carryforwards for the 2020. Again, that is only on paper. Net income then came in at EUR 52.3 million.

On Page 15, if you look at Compact Engines, you can notice that the unit sales were down, but again, major factor here was that the 2011 engine is not included in the segment anymore. We had, nevertheless, a very good revenue development even without a 2011 engine. And also on the EBIT side, a slight reduction because the volume was lower, and we also allocated some cost of insolvency proceedings to the segment Compact Engines.

If you look at Page 16, it’s the other way around. The unit sales increased heavily through the 2011 engine. That same thing for the revenue. The EBIT was increasing because we had a very strong development on the after sales side. There, especially the Xchange business where we retrofit engines, developed very well. The EBIT margin in percent is slightly lower because the 2011 engine has a lower margin profile than the service business.

On Page 17, you can see the R&D expenditure that was increasing as planned by EUR 10 million. We had new engine projects, we had China for initial development, we had E-DEUTZ. So that all went according to plan. The R&D ratio of 5.2% is good for a technology company like DEUTZ.

On the capital expenditure, you see the increase from EUR 59 million to EUR 86 million. That was also planned. We have moved the 2011 to Ulm. We have invested in a new line. We have a new assembly line in Cologne. We also start to invest in China and in extend then for E-DEUTZ partners. And so that’s the explanation behind the increase, but again, that was planned.

On Page 18, you can notice that the working capital ratio increased slightly. Reason is, we increased the inventory for casting parts in other parts where we saw insolvency is coming, had to make sure that we don’t get any stoppages. And also then the decrease in trade liabilities is another factor because we be paid to certain suppliers directly on delivery and not fixed it at that as we usually did. The cash flow from operating activities is better than last year because the working capital development was better compared to 2018.

On Page 19. And then the free cash flow, you notice the minus EUR 36.6 million. We had originally planned that we receive some EUR 50 million for the property sale in Cologne, but did not come to reality because the final plan, how many square meters will be built on that property, was not finalized by the city of Cologne, but that is going to happen in 2020. In the minus EUR 36 million also is included the close to [EUR 50 million capital increase for the joint venture in China and the acquisitions of Futavis and DEUTZ Power Systems in Netherlands. If you look at the net financial acquisition, we have a method change with the IFRS 16 Leases. We have to account EUR 41.9 million in lease liabilities that we are not in that position in 2018. So there’s a lot of change, again, of EUR 42 million.

If you look on Page 20, equity ratio is very healthy. The equity at EUR 650 million is rock solid. And on the funding side, we are in good shape. We have basically nothing drawn on the line as we speak and also with the working capital optimization. We are liquidity wise in good shape.

So how is the outlook for this year? Mr. Hiller will tell you that.

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [5]

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Thank you. First, on our dividend proposal. So our proposal for the year 2019 is EUR 0.15, which we will propose to the Annual General Meeting. So the intention is to have continuation in consistent dividend policy. Our objective is for a payout ratio of around 30% of net income over a multiyear period. And this dividend yield based on the year 2019 end stock price is 2.7%.

I’m coming to the group forecast for 2020 on Page 23. And this is based on our information, which we sent out more or less 2 weeks ago. So coming from a revenue of this a little bit more than EUR 1.8 billion. We see for the year 2020, a low double-digit percentage decline compared to 2019. On the EBIT margin, we see a mid-double-digit percentage decline compared to 2019 and compared to the 4.2 — 4.3%.

R&D expenditure and CapEx in 2019 came out with nearly EUR 96 million. And on the CapEx side with nearly EUR 87 million. Here we see for both figures, a corridor of EUR 80 million to EUR 90 million. And so we have to see what will come out of the coronavirus and the economical climate. That’s quite unpredictable right now. But still, this is our forecast, which we see for the year 2020.

Having a short look on the forecast for the key end customer markets in 2020. And also, these figures are based on sources from February 2020. So we see, yes, quite challenging situation in China. North America, at that time, was even more stable and also declining situation in Europe. We see the Construction Equipment in our segments quite under pressure because it’s coming from a very high level in the past. So Material Handling and Agricultural Machinery is a little bit more stable. So we have to see how this develops within the next days.

I want to spend some words on our midterm target 2022. This is — see on Page 25. We announced that target in the beginning of 2017. The clear target was to grow the company to have a growth story behind and also to increase our profitability. We started to that time on a level — revenue level of EUR 1.2 billion and an EBIT margin a little bit below 2%. And now I think we are more or less on the halfway concerning the time period and also concerning fulfilling our targets on the revenue side. We have to go another EUR 150 million. I think that could be easily done also by our China strategy, also the E-DEUTZ strategy will deliver revenue within the next 2 years.

On the EBIT margin, also, I think we are halfway to our target. So the margin of 4.3%. We have to take into account that there was a lot of spending and ramp-up costs and covered already in 2019 for our China strategy for E-DEUTZ and also Torqeedo. Taking this out, we have to talk about around 2% EBIT margin, which will turn around within the next 2 years and will not be just neutral. So also these activities, China, E-DEUTZ and Torqeedo, they will deliver profit in in 2022. So we are convinced that we will fulfill our targets in 2022.

Maybe so far from our side, and we are now open for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from the line of Frederik Bitter from Hauck & Aufhauser.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [2]

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I would have a few questions, and I’d like to start with if you could quantify the prebuy reversal effect in 2021 on your sales guidance. Obviously, I know there’s a big difference or there is a market. There’s a significant difference between the underlying performance of your end markets, and also, obviously, what you imply in your sales guidance. Just if you could quantify that for that. So we get fast. So we get a bit of better understanding about those effects.

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [3]

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Yes, Mr. Bitter. So overall, the effect of prebuy was around EUR 200 million. And this was more or less shared EUR 100 million in 2018 and 2019, another EUR 100 million. And now the situation is that our customers, they have the possibility to bring that engines into market within the next 18 months. So this means the prebuy engines, which we have sold 2018, they will have an amplification until mid of this year. And the other EUR 100 million, which was sold in 2019, they will have an amplification until the mid of 2021.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [4]

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Okay, that’s helpful. And then the next one I had is on your new group-wide efficiency program. Could you talk a bit about cost that are involved for the implementation and the execution of these programs?. And then, I guess, also very importantly, of course, savings you want to target, be it like in a basis points of essential sales or in absolute numbers, obviously, it will be very helpful.

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [5]

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Yes. Yes, for numbers, it’s too early. We started that program 2 months ago. We also took a lot of actions, I would say, middle of last year. For example, if we had fluctuation in some departments, we did not come up with replacements and things like that. But 2 months ago, we started a big benchmarking — worldwide benchmarking to all our costs in the company. And here, we see some opportunities. And right now, we are working together also with an external consultant to define the measures that this has started 2 weeks ago. And this phase will now take around 3 months in total, so another 2.5 months. And then we will come up with the savings, also the costs, which we will have. And this program really goes over all function worldwide to give you a little bit of feeling what we are doing. So it’s consolidating functions in the worldwide setup. For example, looking into a function like purchasing you have a lot of buyers still in other functions in other departments. And here, we see a potential to more or less consolidate that and have a worldwide approach to even go for stronger metrics, organizational metrics approach. What the implements the amplifications on headcount will be that is also a question which we can answer within the next 2.5 months.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [6]

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Understood. I’m looking forward to the update then. And then also something perhaps slightly relating to that is, what were your supplier related extra costs in 2019 and what you’re budgeting for 2020, in fact?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [7]

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Andreas, can you say?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [8]

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So there is, of course, a bundle of impact that you have to consider. One is to eliminate the losses at the supplier, because if the company is influencing and they cannot produce losses. The second is you have to buy second tool sets, if you look for second quarter, you have to order more inventory to make possible that the second supplier comes online. And if you look at all these activities as a bundle, then you talk overall between ’19 and ’20 together double-digit millions that we had to invest there. Yes. For 2020, we still have some after effects of that, it’s declining. We have things under control. They go as planned. But these things cost money, overall, I’d say it’s double-digit millions that we are to bid there between ’19 and ’20.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [9]

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Okay. I mean, the numbers I had to sort of on top of my head, well about around EUR 15 million to EUR 20 million…

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [10]

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Yes, that’s about right, yes.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [11]

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Yes, that will be the total impact on the — impact?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [12]

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Yes, yes.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [13]

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Okay. And rather, how does it split between the 2 years? I’m not sure if I still have it on top of my head, it’s like the majority more in ’19 and then — or is it half-half even? Just a majority in…

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [14]

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I think majority — majority was in ’19, with 2/3, 1/3 roughly.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [15]

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Okay, I understand. And then the last one I had was on what kind of contribution of the acquisitions of dealers and service partners contributed to the aftermarket revenue in 2019. So, I think the total was EUR 352 million, which is an increase of about EUR 23 million or so, year-on-year. How much of that is coming from acquisitions and how much is organic?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [16]

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Can continue the — what we — the Dutch deal, the closing work of the transaction was in 30th of December. So there, we haven’t seen anything, of course in 2019, but we see a sizable impact in 2020. And the same is true for the expansion in the United States. That we also see a major impact in 2020. For the most part, the revenue increase that we’ve seen on the service side in 2019 was organic.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division – Analyst [17]

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Okay, perfect. That’s quite rational, and that’s obviously a very nice improvement. Could you — and then just the last one and then I must have been asking so many questions. The last one is really also relating to that, what’s the impact then in 2020 on the aftermarket revenue, not obviously fully consolidating at least the 2 acquisitions?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [18]

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Given on the revenue side, it will be double-digit million if you add everything into account and then, of course, the service business is it’s profitable and that is really important for us to stabilize the overall numbers when the market for new equipment is in Italy.

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Operator [19]

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Next question is from the line of Charlotte Friedrichs from Berenberg.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [20]

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I had one question about the EBIT bridge that you showed on Page 25 of your presentation, the 2 percentage points margin drag from the China strategy, E-DEUTZ, et cetera. What is your expectation here for 2020?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [21]

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So we will cut the losses by Torqeedo by half, more or less. On the E-DEUTZ side, this is also a reduction and the maturity will come out of our China strategy. So this will, in 2020, will stay more or less on the same level, but the amplifications will mainly come by the ramp-up cost of China.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [22]

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Okay, understood. And in terms of operations and if you look around your supply chain, obviously, with the insolvency of your one supplier. And aside from that, are you seeing any impact on supplies from the coronavirus?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [23]

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To be honest, I think we learned quite a lot out of the trouble we had with (inaudible) company. And we improved and increased also our stock. So I think from the inbound, we are quite stable. Challenging is more the question of the outbound. Maybe some of our customers, they will shut down their factory, this could have some amplifications for us. And also production here right now is running very stable. We have taken a lot of measures to make it safe for our people, but also if corona case comes up, which we have luckily, not now, but if such a situation will come up, we have separated the team so that it will be feasible to keep up our production. But the question will be decided by government and so on there. It’s — they are daily news. And so far, I can say we are quite stable. It’s not a headache on the inbound side from suppliers, it’s more, I would say, on the outbound side.

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Charlotte Friedrichs, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [24]

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Okay. And in terms of book-to-bill, and could you give us a feel for where you are now sort of ending the first quarter? I’m getting you’re below 1x?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [25]

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Yes. I think it will be — book-to-bill ratio will be not that bad, but it’s always a question where you are. So looking into the last months, we have book-to-bill ratio, which is more or less near to, yes 1.0x, but the situation will be and now we cannot foresee the amplifications of the coronavirus. But I think it will be — it will stay on the same level than Q4.

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Operator [26]

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(Operator Instructions) Next question is from the line of Richard Schramm from HSBC.

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Richard Schramm, HSBC, Research Division – Analyst [27]

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Yes. Just one follow-up on this additional costs from the supplier side you incurred last year and obviously also this year. So it’s really just to make sure this known issue with the casting companies in supporting and livestock, so there is no new other supplier issue popped up here where you see a problem. And the second point I would like to know is this impairment or write-down of development costs you mentioned, what is behind this? And is there obviously further risk of such a step in the current year?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [28]

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Yes, I can answer that. When it comes to insolvencies, I think we have these items under control. We had, in ’19, i.e. number make of those newspaper, but we came out of that strong. At the moment, there is no further thing on the horizon that we are concerned about. When it comes to R&D write-downs, these are mainly older lines where we just had to revise the market outlook, we do that on a regular basis, of course. And that is nothing of a big concern on the cost that we have on the balance sheet for the bigger values for the 4-liter engines on as I have lots of headroom so I don’t foresee any issue there.

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Richard Schramm, HSBC, Research Division – Analyst [29]

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What was the volume of this impairment?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [30]

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Well, the impairment is EUR 0, yes, but what we have on the balance sheet is EUR 120 million of accrued.

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Richard Schramm, HSBC, Research Division – Analyst [31]

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I’m a bit puzzled now. But you mentioned that you would have made a correction here to the value or was it neutral and did not touch your P&L?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [32]

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It did touch the P&L for an engine line. So that we wrote that down close to 0. And all the other engine lines where we have accrued our (inaudible) on the balance sheet in the amount of EUR 120 million, there we see no risk of further impairment.

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Richard Schramm, HSBC, Research Division – Analyst [33]

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Okay. And then a question concerning your midterm outlook. I mean, if we see now real serious dip in the current year, which will give you then a pretty low basis to start from and to recover from for 2021 and 2022. Do you really think that there is no risk of having to push out the targets here?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [34]

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Excuse me, about a midterm target 2022?

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Richard Schramm, HSBC, Research Division – Analyst [35]

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Yes.

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [36]

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So here we are it’s — this is based on, I would say, a normal market. When 2022 will come up a situation like coronavirus and completely downturn of the market, this will be challenging. But taking into account, it is a normal year. So all these investments, which we are doing now and covering in our result in the result of this EBIT margin of 4.3%. They will turn turnaround, not only to be neutral. So they will really contribute to our EBIT margin. So this will be the case, especially in China but also for E-DEUTZ and Torqeedo. So 7% to 8%, we see very much realistic. What we are now doing to have even some protection by rough market conditions is our efficiency program Transform for Growth. So that will also, I would say, give security on the 7% to 8%.

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Operator [37]

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Next question comes from the line of Roland Konen from Value-Holdings Capital.

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Roland Könen, Value-Holdings Capital Partners Ag – Fund Advisor [38]

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Also from my side, just one question is left from my side. It concerns the China and SANY joint venture. How much additional cash outflow we will see in 2020 for the joint venture and also for the other China strategy investments?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [39]

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The investments, which we take in the JV, they will not affect our balance sheet. On the costs, we will have, this will be around, depending also on the period, will be around — yes, EUR 15 million to EUR 20 million for next year.

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Operator [40]

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(Operator Instructions) We have a follow-up question from the line of Richard Schramm from HSBC.

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Richard Schramm, HSBC, Research Division – Analyst [41]

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Yes, just coming because a 3-year outlook for the current year, where you said that you are not so concerned about your supply side and your production, but more to learn — yes, the side of your customers and that they are prepared to take your products. So what is your visibility in this respect? I could imagine that there are already signs that customers are more cautious on their planning and that you see this in their plan. Also what they call for the next weeks or months in orders. Is there a certain change over the last weeks compared to the situation we had at the beginning of the year?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [42]

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Schramm, this is really difficult to predict. So we have, for sure, already some customers based in Italy. They have shut down their factory. There are some other customers they put in even higher order numbers than 2 weeks ago, maybe to increase stock. So it’s really difficult to predict how this is really coming from the end market. What we see right now in our figures, order intake is still a stable situation. As I mentioned before, this is on a level which we have seen in Q4 and in the first 2 months in 2020. But can change really, I would say, right now every day. So it’s not really predictable.

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Operator [43]

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Next question comes from the line of Peter Rothenaicher from Baader Bank.

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Peter Rothenaicher, Baader-Helvea Equity Research – Analyst [44]

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Yes, gentlemen. Regarding the lower order backlog, and your production will likely be significant down in the first quarter and then definitely also in the second quarter, are you running already a short time work in your plans? And is there something you are currently planning?

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Frank Hiller, DEUTZ Aktiengesellschaft – Chairman of Management Board [45]

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No, we are not doing this right now. This could be a measure which will come up maybe in the future. But right now, we are still reducing temporary and — yes, temporary workers. So we have taken out all the workers, the temporary guys. But now we have still some potential with limited contracts, which has the potential also in the future to reduce. And then the next step will be a short term work.

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Peter Rothenaicher, Baader-Helvea Equity Research – Analyst [46]

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And second question, with regard to your procurement costs. What is the general view you currently have on prices for components? It’s already some price decrease? Or what is the general assumption here?

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Andreas Strecker, DEUTZ Aktiengesellschaft – CFO, Human Resource Director & Member of the Board of Management [47]

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I can take that. The overall activities we had on the purchasing side over the last year was we were always able to reduce the material cost. So we have a more international supply base. We localized parts in China now for the — for our activities there. So we see a negative development, positive for us. I mean, price reduction. Sure, if you buy less, if the volume goes down, then somebody would say, well, now you have to pay more, but we were able to avoid these impacts. So overall, the material costs will go down further in 2020 compared to 2019.

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Operator [48]

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There are no further questions at this time. And I would like to hand back to Leslie Iltgen for closing comments. Please go ahead.

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Leslie Isabelle Iltgen, DEUTZ Aktiengesellschaft – SVP Communications & IR [49]

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All right. Thank you, everybody then for joining the call today for your interest in our company. Should there be any follow-up questions after this call, don’t hesitate to contact us at Investor Relations. We’re happy to answer any questions you may still have. Other than that, I wish you a good remainder of the day. They all say cheers, and goodbye.

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Operator [50]

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Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much.

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Leslie Isabelle Iltgen, DEUTZ Aktiengesellschaft – SVP Communications & IR [51]

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Thank you very much.

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Operator [52]

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And have a pleasant day. Goodbye.

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Leslie Isabelle Iltgen, DEUTZ Aktiengesellschaft – SVP Communications & IR [53]

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You too, thank you very much.