Deutz Ag Akt

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Deutz AG conference call on its full year 2023 results. Throughout today's recorded presentation, all participants will be in the listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Christian Ludwig, Senior Vice President, Corporate Communication and Investor Relations. Please go ahead, sir.

Thank you very much, operator. You all are very well welcome from my side to our fiscal year 2023 earnings call. Please note that this call is being recorded and a replay will be available on our website at deutz.com later today. Your participation in the call implies your consent with this. Joining me today are our CEO, Sebastian Schulze, as well as our CFO, Timo Kuttow, and our Head of Finance, Oliver Neu. Also on board today is my successor, Marc Schneider, as this is going to be our last earnings call for Deutz. As usual, Sebastian will walk you through the highlights of the performance of the group and then head over to Timo, who will provide some more details on our financial figures. Sebastian will close the presentation with our current market outlook and our guidance. After this introduction, we will be happy to answer your questions. Please note that management comments during this call will include forward-looking statements which involve risks and uncertainties. For discussion of risk factors, I encourage you to review the disclaimer contained in your annual report and this presentation. All documents relating to our full year 2023 reporting are also available on our website. And without much further ado, I'll hand over to Sebastian.

Thank you very much, Christian. And also from my side, welcome to 2023 full year earnings call. And well, as the picture here, the initial picture shows, obviously 2024 is for Deutz an important year as we're celebrating our 160 year anniversary. But today we want to focus obviously looking back on the numbers and the results we achieved in 2023. because the 23 was again a year of a very profitable growth for Deutz. Let me walk you through some of the highlights before going into details. So in terms of growth, we grew on many, many fronts and the growth in numbers of engines sold was 3%. So in a classic segment, we sold eventually 186,718 engines. What we're particularly pleased with is that we managed to further grow our service business, our very profitable service business, by 7.6% to an end-year figure of 484 million euros. So that's a really, really solid development of this important business segment for us. And the group revenue grew again by almost 8% to a level of 2.1 billion euro. We'll hear later, particularly when Timo is running you through the numbers, that these 2.1 billion includes also the discontinued operations Takedo, but we'll show later on the numbers also for continued operations in more detail. But one thing is growing top line. The other thing, much more important, is growing bottom line as well. And on the group level, so including discontinued operations, we achieved an EBIT margin of 5.7%, which translates into 120 million euro EBIT, which is an increase of 35% over the already successful numbers of 2022. And if we look at our continued operations business, so excluding Tokido, we achieved a level of 7% EBIT margin, translating into 144 million euro EBIT. And let's bear in mind that a couple of years ago, we introduced our 2025 midterm targets, where we said in terms of profitability, We would expect by 2025 an EBIT margin level between 6% and 7%. So in terms of continued operations, we are already there in 2023, which is a great success at this for the time being. Classic business, our profitable sort of bread and butter business, we achieved an EBIT margin of 8.8% in the year 2023. Also very important, if you're looking back on the last years, 21, 22, and now also 23, we delivered what we promised. So we are very proud of that, that we build up credibility towards the capital market as well. So in 21, the guidance we gave in terms of unit sales, revenue, EBIT margin, free cash flow, we gave a guidance, we delivered. In 22, we gave a guidance, we delivered. And in 23, the latest guidance we gave was in unit sales, a range of 185,000 to 190,000. We achieved 186,718,000 engines. We promised a revenue level of roughly €2.1 billion. We delivered €2.1 billion. We promised an EBIT margin range between 5.3% and 5.8%. We delivered at the upper end 5.7%. And bear in mind, continued operations, we delivered 7.0%. And last but certainly not least, Free cash flow, we promised a mid double-digit million euro amount. We delivered 56 million euro free cash flow before M&A. So we know and we have always been convinced that Deutz as a company has a lot of potential and now we are able to show that we are able to use it, to utilize it and to unleash it. Looking now on the development of auto-intake. That has been, to be frank, in Q2 and Q3 a little bit of a point of concern because order intake has decreased. Book-to-bill went down, went down particularly in Q3 and also still in Q4. But we see a positive trend moving now into Q1. Order intake goes up again. And now we've explained that several times in actually all of our capital market communications. We had some, let's say, special effects, special developments in the last years, you may remember. When the market demand was so strong, particularly for our business SAP 4.0 Litter, we introduced the so-called fixed volume program, where customers were able to reserve limited capacity against paying a premium. And that program was actually taken very, very strongly from our major customers in that range. And obviously that led to a bit of an early booking effect at the beginning of this program. And now this has been normalized, normalizing over the last over the last month. And also 22 and first half of 23, we still saw a lot of instability in the supply chain. The supply chain is now, despite ongoing crisis at the Suez Canal, is getting much, much more stable. So obviously we have not yet, we don't have the situation anymore that customers order significantly more than they actually need and use. So orders on hand. are now in the level of three to four months. We were much higher before, six to eight months, but three to four months is a level which we also saw prior to the various crises of the last three years. So that's again showing a level of normalization. And what's a very important observation, wouldn't surprise most of us, the U.S. remains the most dynamic region also going forward, and I will elaborate on that later when I talk about the Outlook 24. And it's very important that we as Deutz are growing strongly in the U.S., that we decided actively to put a lot of our focus on the U.S. rather than other geographic regions which are not developing that well. And last but not least, we see now a positive trend in new orders for the first quarter. Let me now give a bit of a recap when it comes to our strategy, the Deutz-Stewart strategy. We introduced that January 23 and just walk you through briefly. Most of you know us pretty well, so I'll keep it short. We introduced the pillars Deutz Classic, Deutz Green and Deutz Service with all with very relevant significance for us. Deutz Classic, it's really important that we're growing that business, that we're making it performing stronger, performing higher and we achieve growth also by market consolidation. So here the focus is both profitability and growth. When I move on to build to Deutz Green, here the focus is very clear to build the green ecosystems with products and technologies, which may focus on the drive frame, but will may also go into ecosystems around the drive frame. So here we're talking about investments, growth, and particular long-term profitability. Here we're building the long-term future of the company. And last but certainly not least, our Deutz Service business, where we are already strong, They are already highly profitable, but because we are that strong and because we are that profitable, we decided actively to further and stronger push the growth with a particular focus on the US and Europe. So here it's about really increasing the absolute profitability via growth, organic as well as unorganic. If we look at, you know, one thing is developing a strategy. painting it, bringing it on some nice PowerPoint charts. The other thing is really the consistent implementation, the consistent execution of the strategy. And here on all aspects, classic green on service. And what we show when looking back at the results 23, how our strategy execution begins to pay off very nicely. So we started with an adjusted EBIT in 22 at the level of 89 million euros, which in the grand scheme of Deutz performances over the last decade was already a very, very good year, a very good starting point. It was in fact one of the top results of the company's history. So now if we walk through what was achieved last year, and Timo will go through that in more detail later in the financial part, but we grew the classic business, we grew the classic EBIT, by margin as well as growth. We grew the service business by margin as well as growth through the acquisitions as well. In terms of EBIT, we had an adverse effect of green because we did spend more on R&D, particularly in the area of hydrogen. And by the way, we do not capitalize our green R&D. We put it all in the P&L to be fully transparent on what we do here. But that's our investment in the long-term viability of the company. And we've signed an agreement to sell our loss-making Tokido business here. and when we bridge it here from adjusted EBIT 22 to adjusted EBIT continued operations 23 we already take this result out in that bridge. So coming up summing all that up together says in terms of continuous operations we were able to improve EBIT by more than 60 percent to 144 million euro which equals a margin of seven percent. But even without that torpedo effect we would have achieved 120 million adjusted EBIT 23, which even without that effect, it would have been the most successful EBIT of Deutz in recent history. Let me start now with walking through the individual segments. Let me start with highlights in the classic segment. So in classic, we're focusing on both partnerships and also focusing on improving performance. And in both aspects, we made progress, significant progress. When I talk about strategic partnership, we did clearly initiate an active role, playing an active role in market consolidation. And it's not just a statement, it's actually showing that we're showing actions here. We want to establish Deutz as one of the top three independent engine producers by 2030. And we did initiate the first partnerships, one with Daimler Truck for the heavy-duty and medium-duty engines for the off-highway use for the Focus. And that's a bit of a longer shot implementation, and thus top and bottom line is only going to start by the end of the decade, around 2028. But as a second step, with a much more immediate effect, we agreed in principle with Rolls-Royce power systems that we are already taking over the sales activity for these Daimler engines, heavy duty and medium duty for the off-highway sector much earlier. At the moment, we're looking here at the beginning of the second half of 2024. So here we are on good track in making this happen. So that's the second great puzzle piece of our market consolidation. But also in our organic business, performance improvements have taken place and begin to pay off. We have continued throughout 23, our very successful pricing campaign of 22, really fixed a lot of accounts which used to be problematic, to say the least. So here we are, we made sure that we healed the revenue quality significantly. Also in production, We enhanced efficiency significantly. We introduced more automation, particular in the main production site here in Cologne. And we also shown that we are able to flexibly manage capacity. We established a third shift, a night shift here in our Cologne site on the production line, which runs for the sub-4 liter engines in summer 23, when the demand was so incredibly strong that we had no other choice than doing that. And we managed also to reduce it swiftly in February 24, by the way, all with temp labor. So that made it actually very, very flexible to react here. So that's been a successful way of managing capacity. And in 23... Before the tide turned a little bit when it comes to the power battle between customers and suppliers, obviously our suppliers also tried to face us with partially significant price increase requests. We were very good in fighting back on a broad front. And now, in 2024, we'll actively target our suppliers to reduce material costs because, again, the tide has turned, and that's one of the important aspects of cost control for 2024. If I move on to service, And looking back the last 10 years in a way, you know, we show already that we have grown the service business significantly with a kegger of give or take 7%. But since 2020, 2021, we really increased speed here. We grew from 2020 348 million to 421 to 450 and now to 484 and we are well on track supported by specific measures to achieve our midterm target of 600 million service revenue in 2025. How are we doing that? On the one hand, we are further developing our existing business. That's going to be a key driver. We're expanding our service center network, particularly in the U.S. That's also part of the very successful growth in the United States that Deutz has achieved in the last three years. We're using particular there also innovative approaches, such as the technician in the van, so to bring the business closer to the customer and not force the customer to travel to Deutz. And there's still so much potential out there in the market, which we're actively approaching right now. But we also work here with Anorganic, with M&A. And 2023 was the first year where we saw the full year contribution of our previous acquisitions in Ireland, South Coast Diesel and the Benelux countries and AUSMA. And, as you know, last year we closed two more acquisitions in Scandinavia, Deutz Nordic, used to be Diesel Motor Nordic, now renamed as Deutz Nordic, and in South America, particularly Peru and Chile, the long-term Deutz-Dieler Hochschild. We don't see the full year numbers yet in our figures because the closings happen in the second half of the year, but they give us a solid basis for further growth in 2024. Let me move on to green. And before, you know, going on the growth area of Deutz Green, let me spend a few words on the sale, the divestiture of Tokido. so um we sold torquedo or we are in the process in the final steps i'll tell a bit more in a minute of torquedo to yamaha motors and we truly found here best owner for the company it's a very professional experienced company and we believe torquedo is in best hands with yamaha motors and we're very very happy um to have found this agreement and um the sale of torquedo has really been or is a very important step in our ongoing process of repositioning and focusing our green segment because um we want to ensure that the resources we have the resources we are willing to spend for the green transformation and that we will see that later is a substantial part of our resources but we need to ensure that we really focus them in the markets we are currently working in, and the customers we're currently serving, so that we really focus here on areas where we have a right to play and most importantly a right to win. Let me give you some key aspects of the transaction. So Torquedo in 23 lost approximately 23 million euros, so EBIT was more or less give or take minus 23 million euros. So we signed the transaction with Yamaha Motors in January 24, and we expect the closing to occur shortly after Easter. So the vast majority of preconditions have been met. There's just one merger control clearance still missing, but that's rather formality. So sometimes it takes a bit of time, but we are very optimistic that we're going to get this done shortly. We do expect as of closing or with closing a cash-in to Deutz in a high double-digit million euro range and we also do expect a book gain out of that transaction in the low double-digit million euro range. So, but let me conclude on Torquedo. The divestiture of Torquedo, the sale, is really an important step in refocusing our green segment. It also shows, it also proves that it'll significantly improve profitability for the company. But there are also other highlights than green than just, you know, optimizing the portfolio. We have put a lot of money and efforts and dedication in the last years into research and development in our green projects and our green technologies, both hydrogen-based as well as battery electric-based. And we can't talk about all of those projects because many of them are actually under confidentiality clauses with our customers. But let me just guide you through two projects in particular. The one, and we are particularly fond of that. is the first serial order for hydrogen engines as part of power generation, decentral power generation. We received in October 23 the first major order for 100 hydrogen engines, hydrogen gensets to be more precise, from China. And we started now the serial production of this Deutz TCG 7.8 H2 engine here in our facility in Cologne. We've been one of the first to develop a hydrogen combustion engine, and we certainly are one of the first, if not the first, who is able to produce such product on their serial production line, which obviously helps us incredibly fast in gaining scale effects and getting actually this product into the market also at competitive prices. First engines are already being shipped, so here we're well on track. Another example, another project example I'd like to share with you is the example with Kärcher. As I said, there are many other projects ongoing, but this is something we are able to talk about. And with Kärcher, we agreed to deliver in the first step Gen 2 batteries, Gen 2 ADOT batteries for sweeper vehicles, 39 kilowatt hours capacity. We're starting this year with three prototypes, but we do see the potential for more than 200 units and not only focusing on the battery, but potentially going further, including also the drive. And it's important. Green transformation takes time and also money to an extent. So we continue a high level of future investment. we continue to allocate a significant part of R&D into green, particularly into hydrogen. So to give you some numbers, in 2023, we spend a bit more than 100 million in R&D and out of which 36% on the green business. So that is a clear sign that we'll take the green transformation seriously, but we want to do it more focused and less using a scattergun approach than in the past. So that's why the sale of torpedo has been one of the fundamental basis to get that done properly now. And as I said earlier, R&D costs for green are expensed rather than capitalized. So the numbers you see, the EBIT you see with Deutz, they tell you the truth and it's not hidden somewhere in capitalized balance sheet positions, which may be of questionable nature. But before handing over to Timo to walk you in more detail through the numbers, I would like to give a first outlook on what is important for Deutz, for the Deutz management team, for the strategy implementation for 2024. Because one thing is clear, we will continue to execute our strategy with the required tenacity to be successful also in 2024 and beyond. On the classic side, that is obviously the integration of the Rolls-Royce power systems business. We do expect this to boost our earnings from mid-24 onwards. We want to continue to implement and further implement the performance focus in the organization. I mentioned some of the aspects earlier, material cost reduction, capacity optimization through more flexible shift operation, also on other assembly lines than the one for sub-4 liter. So in a volatile environment, being flexible pays off immediately. And more mid to long term, we want to continue playing an active role in the market consolidation. We do screen, we continuously screen acquisition targets to be able and to be able to be ready when there's the opportunity there. And then we will inform whenever this is the case. Very importantly as well, for our products larger than four liters, we need to win more new customers and our sales team has really done a fantastic job in repositioning themselves, getting very, very many new qualified people aboard. So sales is really the biggest change we've seen with the Deutz before 2022. On Doit's screen, important implementing the China hydrogen genset order, expanding other orders and customer projects, both in the field of hydrogen as well as battery electric products, obviously closing the sale of Torquedo, the M&A, and really then focusing stronger within Doit. organization on green. Last but certainly not least, we will continue our growth path in service organically as well as unorganically. Further M&As are in preparation. We'll work here, let's say, a little bit, not in the shadow, that is sounding too negative, but we don't want to, you know, publicize big things before they're ready. So we're working very well on service M&A. And we also want to expand into new business models like telemetrics, which opens up another revenue and thus profit pool for Deutz. Having said that, I will now hand over to Timo to give you more than a glimpse of financial year 23 in numbers.

Thank you, Sebastian, and good morning to everyone. I'm very happy to now be able to give you some more details on this, again, very successful year in our financial numbers. Let me start with one special topic from the financial perspective. I would like to clarify this right at the beginning. We've heard Sebastian talk a little bit about it already, but for the financial numbers, it's really important that you understand the difference here between our continued operations numbers and discontinued operations numbers. So if we talk about continued operations, we talk about the DOTS business without Tokido the way it is supposed to be in the future. So to give you an idea of what that means, we start out here with a comparison of both main numbers. If we look at unit sales, for example, yes, there is a significant change if we take out the torpedo numbers because we roughly sold 36,000 engines. for Tokido. But if we then look at the revenues, we see that revenue decline is only 1.9%. So not a very, very big difference here from a revenue perspective. The biggest and by far most important part is then if we looked at the EBIT. The EBIT, including the discontinued operations, was 120 million euro already. That is already a very, very successful number again for us. But if we then take out the losses from Tokido, we end up at 143.6 million euros. That leads us to an EBIT margin of 7.0%. And many of you might remember that we had a guidance out for 2025, where we said we are going to aim for a margin between 6% and 7% by 2025. Well, if we are now looking at the new setup of DEUTS, we already achieved this number in the last fiscal year. So from now on, I would mainly focus on the new setup, just the continued operations and give you now a comparison between 2022 and 2023. So yes, order intake went down a little bit compared to the very high numbers of the year before and without especially the special topics we had because of the disruption in the supply chain. But in general, 11.7% lower from today's perspective is not a bad number. Looking at the unit sales and then on the other side, yes, we did increase sales by 3.2% selling 187,000 Deutz engines. And then if we look at the revenue side, and this shows very well, again, how good we did on our pricing initiative. Revenue grew by 9%. So unit sales 3.2, revenue 9% is a clear indicator of what we do on the pricing side, especially since we did sell a little bit more on the sub 4 meter engine segment, which in general is a little cheaper. That was a very good level. If we look at orders on hand, we're now at a normal level of 450 million. Again, this is roughly what we had before the after Corona special effects. So a very typical number for a Deutz with 190,000 unit sales, 400 million euro, I think is a healthy amount for us. Now I would like to focus a little bit on the service segment because it is really a very, very important segment for us. Not only from a margin perspective where it is very healthy, but also from a volatility perspective because we know that the service business, it doesn't really matter what's happening elsewhere is a very, very stable business and especially in times where the engine sales might be a little more difficult. This really gives us some significant leverage on the revenue and especially on our EBIT side. So we were able to grow this business again, which of course is our clear strategy to get to 600 million by 2025. So last year we increased it from roughly 450 million to 484 million, so an increase of 7.6%. And also the order intake in this segment is higher than the year before, so this is in line with a revenue of 480%. As Sebastian already said before, the two acquisitions we did last year were in the second half of the year, so they didn't really make a big difference on the sales side, but they'll be fully included, of course, then in 2024 and also should help us with the growth and reaching our target of 600 million. Some details on the revenue breakdown, first by region and then by application segment. So the first big thing for us on the regional thing is that we did grow in all regions. You always see here the different regions and the percentage of sales of Deutz below that and the sales volume in absolute numbers and then the growth compared to the year before. So we can see that Europe and Germany, yes, were growing nicely, but not with huge amounts, Europe with 3.9, Germany with 5.3%. And then if we look to the bottom left side, we see the Americas, which grew by 16.4%. So a clear push from this region. And now the Americas is exactly one quarter of our sales volume, which from a diversification perspective also helps us. Asia Pacific is almost flat on, again, a very low level. We don't see any downside there anymore, but hopefully some upside potential for the future when this market is going to pick up. Looking now at the applications on the right side, the two ones where Deutz is often known for, the construction equipment segment was flat, similar to the agricultural machinery segment, which was a little bit declining, but in general, these two, again, didn't change much. On the other hand, we saw the two very important segments for our service, again, 7.6% increase, but also material handling, where we saw a 31.7% increase and is now with almost a quarter of our business helping us also on the growth path. EBIT, in general, was, yes, 143 million. Very, very, very successful. We're very happy with this number, but also if we look at the development over the year. In general, we saw that we had a very stable EBIT. If we look at absolute numbers, around 36 million every quarter. So not much deviation here. Stability on the EBIT side, if it goes in the right direction in general. if we like, of course, but we can also see the improvement compared to the year before. The last quarter always is a weak quarter because December and the Christmas holiday always leads to lower sales and usually also to lower EBIT. But here, if we compare the last quarter of 2024 to the last quarter of 2023, We see an increase in the margin of one percentage point and this is also very nice to see if we look at the absolute numbers. The Q4 of last year was even the strongest quarter of the whole year, which of course carries them into the beginning of this year and gives us some very nice starting position. The improvement in general on the EBIT side, yes, came from the service business. I've already mentioned that, but also, of course, from the pricing initiative end. And this is very important now in times that we're not just looking on the pricing side or can't look as much anymore, but from the cost measurements where we go do a very strict cost management here at Deutz. There is one thing, if we look at the EBIT margin, we're talking about the EBIT before exceptional items. We do have extraordinary items in the last year of 20 million euros as a negative amount. The fact that was mainly an impairment on some of the older R&D projects that were capitalized. This also, of course, is never very nice for the single year, but for the future, it does also help us because there's no depreciation anymore. And in general, we have now reached a very low amount of capitalized R&D costs, which is good for the future. Consolidated net income, therefore, because of the special item is 82 million euros, a little higher than the year before, and the earnings per share at 66 euros and also stable. R&D spending, yes, we are still investing very heavily in our future. That is great. We see that if we look at the left side, 4.7% of sales is 0.2 percentage points higher than the year before and also in absolute numbers, roughly 13 million more than the year before. And Sebastian already mentioned that almost all of that goes into the bottom line directly. So no burden for the future here. Capital expenditure was a little special. If we look at the IP and license fees we acquired from Daimler last year. But on top of that, you see that in the diagram part, we are also investing here, especially in improvements in our production. And on the working capital side, not much change. a little bit on the inventory side, on the receivables, a little less factoring, so just operational issues in line with our sales volume. Cash flow, of course, the very positive thing on the very left side here is the operational cash flow, which increased by over 81 million euros. That did give us a strong push, and that also leads to a much better performance The other numbers we show also here on the left side, the numbers including Tokido, which then ended up in 56 million euros positive free cash flow. If we then also take out Tokido, and here you can see that Tokido is not only EBIT negative, but also cash negative, then we end up at almost 73 million positive free cash flow. Net debt didn't change much a little bit because of the dividend payment and the M&A projects, but in general, we're very well positioned here. And this we can also see if we look at equity and equity ratios, we already had a very good stable level in 2022 with 45.3%. We were able to increase that even a little more to 46.7%. Net debt to EBITDA also on a very A good level, very far away from any issues with any covenants or something like that. So from these numbers, you can see that we are very well positioned for further growth, either on the organic or unorganic side. Dividend per share. Our proposal for this year's payment is 17 euros per cent. So again, a two cent increase compared to the year before. Also, I think something that is a positive information for our shareholders. Quick look, because we do have the two segments and there is some change in the green segment, especially here we are looking at the classic segment. These numbers are very much in line with what I've presented to you already. So I would just like to focus on one last number. And this is the EBIT margin and absolute EBIT in the classic segment. You see here that we have 180 million euros EBIT with an 8.8% margin. So this is everything without the green segment. And this, I think, also in the benchmark compared to other companies, we are very good on track. Now, the bigger change, if we look at the green segment, of course, if we take out Takedo, which was the bulk of the green business, then the numbers, especially on order intake, new orders and revenue are significantly lower without Takedo side. But the important part here is if we look at R&D and on EBIT adjusted, then you see that, yes, we do invest 31.4 million in R&D. And this is mainly in hydrogen, but also, of course, in the electrification. And then you also see the effect on the EBIT adjusted, which is almost only the R&D costs, which then leads to a 37 million negative effect on our EBIT. Okay, that's all from my side for now. And I would hand over to Sebastian to give you an outlook for this financial year.

Yeah, thank you very much, Timo, for the detailed view on those really fantastic numbers for 23. Give you an outlook for 24. If you look at the end markets, we're present in the main end markets, agri, construction, and material handling, and the three regions, EMEA, Americas, and APEC. We see overall, let's say, a slightly weaker or stable situation in 2024 than 2023. And that doesn't come as a surprise neither to us nor to any other market observance because it's not a surprise that – Agri development is a little downhill, a little more, let's say, more conservative. Construction depends on the market, on the country, as well as on the segment. So in Americas, for example, we see it on a very stable level. Material handling, you'd be surprised. Initially, I thought we would even see a green arrow here in material handling in Americas, but actually it comes from a very, very high level in demand in the U.S., in the last two years was actually so strong that we weren't even able to fulfill it. So that's why I was saying slightly weaker or stable, but overall, let's say a mixed picture, but certainly with a positive trend in the recent numbers which we see already. But one thing is obviously the the overall market situation and the other thing is how we as Deutz look into 24. And our guidance which we published today is in unit sales reflects the lower demand that we are now seeing a range of between 160 and 180,000 Deutz engines are to be achieved in the fiscal year 24. We see revenue on a stable level 1.9 to 2.1 billion euro and we see EBIT margin and that's actually for us let's say the most important aspects to mention also let's say on a stable level 5.0 to 6.5% because we do have now a significantly more robust pricing after all the initiatives we've taken and also the cost structure where we've worked a lot over the last years And now, as I said earlier, we'll put additional focus, particularly on material cost programs. And we expect this improved cost structure also to offset lower unit sales volumes. And let's not forget one thing. We continue to grow our service business. Service has such a high profitability. And the more service we sell, the more parts we sell, the more robust is here our bottom line performance. And also if you compare it with revenue levels four or five years ago, where we were also at some point in the range of 1.8, 1.9. I mean, back in the days, the share of service in the total business was in the range of 17, 18%. Now it's 27, 28%. So already that's... That shift in mix from new engines to service supports here really the strong development and the higher resilience of our bottom line performance. And as Timo said earlier, we're coming actually from the Q4 with a fairly strong momentum. Our Q4 result was great, was the best EBIT in the year and also over many, many years. And what we see at the moment, you know, Q1 is not over yet, of course, but we see particularly on bottom line that this momentum we seem to be able to carry into 2024 as well. So we are still fairly optimistic looking in this year 2024. despite the little more challenging market environment than what we had in 2023. But before closing the presentation with the outlook, it is the presentation focusing on 2023. So we do take a lot of pride in looking back. 2023 was a year for Deutz with strong performance in a volatile environment. We had the new orders going down a bit to 1.8 billion. That's been explained. Unit sales have been up 3% to 186,718 units. Revenue up by almost 8%. So here again, we see the development also of pricing in our portfolio. Revenue of 2.1 billion euro and most important, the bottom line. 120 million euro plus 31 million of the adjusted EBIT, EBIT margin 5.7%, and considering the continued operations, which again is the basis for the future, we were at a level of 7% already, having achieved the upper end of our midterm guidance that we expected. announced a few years ago, 425. Free cash flow, we're able not only to be profitable, we're also keeping more cash in than spending, 56 million euro. And dividend, 17 euro cents per share, even slightly below our communicated payout ratio. But it is important for us that we are showing very clearly, we want to, despite the fact that we are in a transformation, we want to ensure that our shareholders receive their fair share also of ongoing payments via dividends and we want to continue this dividend policy. We want to continue, keep or grow the dividend year by year. We've made significant strategic successful moves with selling Tokido in the first place and growing the business via the partnerships with Daimler Truck and Rolls-Royce Power Systems, and that led us to the guidance for 24. But we take pride in looking back in 23. On the other hand, this is just the beginning, so we're going to be excited to lead and guide this fantastic company through the next years and phases of our transformation. Thank you for your attention, and as usual, we're now available for questions.

Thank you, Sebastian. Thank you, Timo. Operator, please open the line for the Q&A.

Ladies and gentlemen, at this time we begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handsets before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question comes from Toro Fengman from Berenberg. Please go ahead.

Good morning and thank you for taking my questions. Two from my side. First would be on general pricing, how you see it into 2024. Do you see pushback starting from your customers that also want to take a bit of the share of the lower input cost that you see now? And the second question is, This time you do not have the slide on the 25 guidance. In general, you mentioned it a little bit. How do you feel about the 25 guidance given that you would need from the midpoint of the 24 guidance a further 25% increase in 25 to reach the revenue goal? Thank you.

Right, yeah. In terms of pricing, good question. Let me first state, we will not be able to continue increasing prices on the levels we've done in 2022 and 2023. I think the market dynamics is different. We still have a very sort of selected approach in some products with some customers where we may be in a niche or where we have a very unique situation. And there we are still able to adjust prices a little bit. On the other hand, There are a few... customers already requesting reductions, but so far we were able to keep prices on the stable level. Obviously, we need to always look that it's in sync with also our cost situation. So in the end, if prices do not increase further, it's important that we reduce the costs from our material and component suppliers. And so far, it's looking good that we'll manage to uh play that game to ride that wave in a in a different shape than we've done it in the last two years are but uh so far it's it seems like that we're actually here on good track yeah your question on the 25 guidance is a good one um because um we still we believe that uh the top line uh is in principle achievable obviously with a couple of mnas uh coming in i mean the one and um the the transaction i mentioned several times the rolls royce power systems business uh we explained that the top line revenue is 300 million on an annual basis. So obviously in this year we won't see the full year end because it only starts materializing the second half of the year. Next year is going to be the full year effect. In combination with further growth in M&A in service, with further M&A in service, we are well set to get to the guidance. Obviously it all depends a little bit on what is the top line with new engines. But in principle, if we are in the level of today, slightly above maybe then for 24, adding up the Rolls-Royce business, adding up further service growth, actually we're on good track. So we see no reason to adjust that guidance, neither downwards nor upwards in terms of top line. In terms of bottom line, we need to see how the market develops. So maybe we can come up with a positive surprise later this year. Thank you.

And the next question comes from Stefan Augustin from Warburg Research. Please go ahead.

Yes, hello, gentlemen. Some questions. So the first one is actually on green. When I'm looking at the segment, in 2022, we had losses in green on the continued basis, roughly on the scope of the R&D expenses. And in 23, this is a a little bit higher than the R&D expenses. And if I look in the forward-looking statements of the annual report, you expect roughly losses in green to be stable in 24 versus 23. So where is this additional investment actually coming from? And when we go into If I extrapolate this amount, this is a bit higher than the initial 100 million you wanted to spend in the segment. So can we expect that, for example, in 25 or so, we see a little bit less investment and this is currently the peak you're looking for when it comes to the green investment? My first question, I take the other ones later. Okay.

Yeah, you're right. I mean, first of all, the green continued operation loss is mainly attributable to the R&D. That's very clear. We do not see a significant reduction in the R&D next year. We see rather refocusing and we're setting up, as stated, we're setting up our green business in a new way. We'll also get a board meeting. a dedicated leadership position to manage that green business a bit more, I wouldn't say standalone, that's the wrong word, but with more focus and less integrated into the classic engine business because it just requires different focus, different processes, different speed in particular. And with that team, we're at the moment setting up the business case for the green business with specific targets, top line and bottom line, starting 25, 26, 27. And also including a bit of a refocusing. So we look at, you know, H2 obviously is a strong focus. That's for us. something where we've got a right to play and a right to win. But for example, with the battery electric technology, we will look into how we continue to put as much money in the low voltage products or are we rather refocusing on the high voltage products. So there may be a room for focusing a little bit, but in principle, we will not cut the spendings on green R&D significantly. We'll just refocus.

Okay, thank you. And then when it comes to your statements on Q1 versus Q4, can you outline a little bit on which verticals actually the demand is picking up, or is it not so much coming from the verticals, but rather, as you explained, from pre-booking and other anomalities? And the second is when you reflect on your indication for the bottom line development The starting point is that I just want to make sure the 6.7% margin you showed on the continued operations on Q4, right? So this is, let's say, actually the idea that we would be in Q1 rather on the upper end of the guidance range when it comes to profitability.

Yeah, I mean, when we look at Q1, obviously, we will not talk much about Q1 because we can only give you an indication or a glance on that. But we see at the moment, not surprisingly, still a very strong pull from the U.S. in particular. And then in other areas, it's not yet that clear where it comes from because we only have two months booked. And it's very difficult, particularly with January. January is always a special month because some of the customers only just, you know, open factory after January. first seven or ten days. So I would not be willing to be able to or willing to give too many details, you know, for top line, for breakdown of top line numbers. But what we see is at least January, February, and I won't say more than that, the strong momentum and profitability we had in Q4 is certainly seems to push us also into the first quarter at the moment.

You also indicate that you're rather rethinking midterm targets around 2024 in your outlook statement. So when should we expect that? Rather in the second half of this year?

Sorry, I didn't catch it exactly. So you meant the Rolls-Royce?

In the outlook statement of the annual report, you mentioned that you will reframe the mid-term targets also when it comes to green, and that would be due during 2024. So is that rather in the second half or...?

Yes, we are currently planning to organize a capital market day in autumn, probably around September. And that's the point in time when we have good progress, when we will have good progress made on reestablishing here or establishing our green business, including the person who's leading it. And part of the agenda for... capital market day in September is going to be a focus on you know the business plan for green or the outlook for green and then we will also see whether we can then specify the 25 targets or even come up with new midterm targets because 25 is it by the end of 24 25 is no midterm anymore yeah sure okay and finally one if I look at your free cash flow guidance

It feels a bit conservative to me. If I recall that correctly, the Rolls-Royce business has a lower working capital bound. Tokido was free cash flow negative in the business. And let's say all things more or less equal. We could imagine that the free cash flow generation, so when you spend a little lower on the overall R&D, if I saw that correctly in the outlook statement. So is there a missing point here to me that I'm overlooking some capex spending or so?

I know there's no – it's a very good analysis, I can say. There's no special topic you're looking at, but we gave an EBIT guidance, which has a fairly wide range. Depending on where we end up in the range, of course, it also has an effect on the free cash flow side. So, you know, mid-double digits is also a wider range in general. Let's see how the year progresses, where we end up at the EBIT side and when we are actually going to book the business from – the Rolls-Royce sides, but maybe there are some additional chances.

All right.

Thank you very much.

And the next question comes from George Gonzalez from Hawk Off-Weather Investment Banking. Please go ahead.

Hello. Good morning. First of all, congratulations, Sebastian and Timo, for this strong result. I have a couple of questions. The first one is also regarding the free cash flow. I was wondering if you can clarify how much is spending of the payments for the original Daimler track bill. I know that you were planning to pay through two or three years but I don't know if the pending payments are relevant or not, just to understand the net debt levels at the end of 23. And for 24, following also the question of my colleague, can you please give us some indication in terms of the working capital that you are expecting once Rolls-Royce power system distribution of Benelertrack is included? That I think is going to be very helpful. That will be my two first questions, please.

Yes, let me start with the second part of the question. That should be roughly a zero game on the network and capital side. But of course, we are not even yet in the signing phase. So it's a... yeah predator therefore we um need to be very cautious on um what we've seen so far not everything is open on the contractual side so again on our business plan we are very cautious with these numbers and can't give you any details on that so the question was On the Diamond Truck side, Diamond Truck is a total spending of 30 million euros, which we are spending over a six-year period with roughly very similar numbers every year, so you won't have much changes year over year on this one.

Okay, and then my last question is regarding the delay on the mission regulation for heavy-duty vehicles in the European Union. I was wondering how do you see this for your business? Obviously, it's giving more years of life to the diesel platforms, but it will be also interesting from your strategical approach to the new technologies. If this could mean that you could delay some of the investments or that could delay the consolidation of the sector or not. I will be very interested in your view. Thank you.

Yeah, as always, if you have a moving target, that's at least for planning purposes less than ideal. On the other hand, back when the emission regulations were updated more frequently, It obviously led for companies like us and competitors to sometimes difficult decisions, you know, how much money to spend for a new engine platform. And these decisions we are currently, let's say, we don't have to take under high time pressure. So if you look at our portfolio, we have a very, let's say, good and well-established and well-respected portfolio with our customers. In the sub-4 liter range, we've got our cash cows, the 3.6. We've got the Fairly new development, the 2.9 and the brand new development 3.9. So for this, at least we know we have products in our portfolio, which we can easily use in our customer with our customers for two, three, four years longer should the emission. guidelines not been updated earlier than what currently is foreseen. And on the portfolio of the larger engines we do have with our sort of brand new 5.2 liter engine a state-of-the-art product which is achieving start of production soon. On the other hand with the deal with Daimler Truck and also then subsequently with Rolls-Royce Power Assistant, it gives us pretty much a maximum flexibility, particularly the combination of those partnerships. Because with Daimler Truck, I mean, initially we were focusing on getting then access to the medium-duty and heavy-duty engines in a new emission platform, whether this is going to be from 28 onwards or from 30 or from 32. But now with the second puzzle piece, the the Rolls-Royce power systems business. I mean, we get access to the engines as they stand right now. So for us, it really doesn't matter in these fields when the switchover is because we will have products for both. So that's actually quite positive for us, but mainly because of the combination of those two transactions. So, yeah, sure. And on the other hand, we are We are looking at the moment in a dedicated project to the future of our product portfolio, and we will see whether there are other areas where we may or may not develop a new product by the end of the decade. But other than that, we're actually well positioned right now in the power ranges we're offering today.

Okay, so the research and development costs should remain at similar levels, right? than now.

Yeah, I think that's what I would, if I were you, I would reflect that in my model.

And just a last follow-up. On US, this is not the case, no? The emission regulations are still expected to arrive before the end of the decade.

We expect this to arrive at the end of the decade, but it's never sure. It could also delay a year or two. So at the moment, and that's by the way, whenever this happens, we will try to then bring a product into the market, which is then already fit for the U.S. regulations and potentially a little better product. than the current regulations in Europe. So we would then be a little bit like the frontrunner because we don't want to work with too many different products at the same period of time, at least between the US and Europe. Obviously, with other jurisdictions, it can be a bit more complex because other countries like China, like India, obviously also follow a different approach. It's not always 100% aligned, but we see with our development path that we look for maximum alignment The US to be precise, sorry, not the Americas.

Thank you, Sebastian. And sorry for my colleagues that are in the line. Just last one that just came in top of my head. Can you give us some feedback on Sunny in China? How the year ended and how the year started for the joint venture?

With a joint venture with Zani, we concluded the year with roughly 10,000 units. And are you expecting any improvement in 2024? Slight improvement, that's what we hear from them. Let's say not a major uptake, but a slight improvement we do expect. Sani is obviously also a customer in other areas. So, for example, in India, we are selling more engines to Sani India for port material handling to the Sani marine business, but in China itself, We should expect a slight increase, but we do not expect, let's say, major growth at the moment.

Perfect. Thank you very much. I'll go back to the line.

And the next question comes from Roland Koenen from Value Holdings. Please go ahead.

Yes, good morning from my side. Thanks for taking my question. Just for clarification on your guidance, Could you elaborate a bit on the anorganic effect of the Rolls-Royce deal? You mentioned roughly 150 million for a half year and also the full year effect on the acquired service businesses. And the second part of the question also on the guidance on page 26 of your presentation, you talked about the positive effect of the Torquedo. So the book gain of this deal would be in your EBIT guidance of 5% to 6.5%, and the operating loss of the first quarter will be in the discontinued operations. Maybe you could clarify that. Thanks a lot. Yeah, sure.

So first of all, you correctly state the annual effect of the Rolls-Royce power systems business is about 300 million. We do not have completely modeled it in, let's say, from the beginning of the second half. So I would roughly use 100 to 150 as a range in terms of top line. That'll fit pretty well. The Torquedo, sorry, another question was on the top line effect on the service acquisitions. And we'll see here from the two acquisitions we did last year. Sorry. Sorry, from the service business, from the acquisitions we've taken last year in the Nordics as well as in Chile, we do expect here roughly, from the service, it's roughly 20-25 million revenue on the service side because there's also new engine business on top. Then you asked about the effects of the Torquedo sales. So the book gain we would not include in the EBIT guidance because the book gain we would classify as a special item. So that's going to be adjusted. However, the loss of Torquedo in the first quarter prior to closing will then be shown as discontinued operations. That is correct. Great. Thanks a lot.

There are no further questions at this time, and I hand back to Christian Ludwig for closing comments.

Well, thank you very much, operator. Thank you very much for listening to our full year call. If you have any questions left, please contact us at the IR department. And the next point of touchpoint we will have is on the 30th of April when we will report the Q1 figures. That will not be with me. That will then be Mark Schneider, my successor. So for me also time to say goodbye. Thank you very much for the great discussions we've had and hope to see you around at some point in the future. Goodbye. Thank you.

Thank you.

Thank you.

Thank you, Costan.

Ladies and gentlemen, the conference is now concluded and you may disconnect. Thank you for joining.