Deutz Ag Akt

Good morning everyone. Please note that this call is being recorded and the replay will be available on our website joids.com later today. Your participation in the call implies your consent with this As this is my first call being responsible for IR, I'd like to thank Christian Ludwig for his commitment over the past years. It's his final day at Deutz. Joining me today are our CEO Sebastian Schulte as well as our CFO Timo Kruter. As usual, Sebastian will walk you through the highlights of the performance of the group and then hand over to Timo who provides some 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 the discussion of risk factors, I encourage you to review the disclaimer contained in our annual report and this presentation. All documents relating to our Q1-24 reporting are available on our website. With that, I would like to hand over to our CEO, Sebastian Schulte.

Thank you very much, Marc, and good morning, good day, also from my side to our first earnings call for the financial year 24. And, yeah, it's been an interesting but overall a good start into the year because we started, obviously, in that year with a very solid performance in the first quarter, and, you know, the economic situation has certainly improved softened or weakened up a little bit particularly for compared with a very strong demand situation in 22 and most of the time through the year 23 as well where clearly the demand for our products and the products of our competitors exceeded the supply, not only caused by the various supply chain disruptions we were experiencing, but also caused by the strong sort of rebound recovery after the COVID crisis. And so, yes, the economic situation has been backdropping a little bit, and we'll see that later in the order intake and revenue figures in detail. But also here on the highlights in a way. So new orders in the first quarter have been just shy of 420 million euros. That's almost 19% down year on year due to this, as mentioned, weakened economic conditions. And also, to be fair, in comparison with a fairly strong prior year quarter. But, and that's a bit of the light at the end of the tunnel to be seen, new orders for this first quarter are sharply, while also almost 20%, if we compare to the fourth quarter of 23. So it's a down and a bit of an up on the level of 419 million euros when it comes to new orders. Speaking of revenue, we're at 455. That's 10.3% down on our prior year period. We do experience some positive effects from product mix and price. We'll come to that also later. But obviously, again, it's a bit of a downtick compared to prior period. What is positive clearly is that the revenue share for service business is further increased to now 28%. I'll give a bit of a bigger context also later on through the presentation. And coming from the sort of weakening top line to a very solid, stable bottom line, EBIT margin in the first quarter is 6.1%. So that shows, and that's one of the core messages of our call today, that shows that the Deutz business is really fairly robust now, increasingly robust. We've done a lot on making the business more robust, even in these tough economic climate, what we have right now. And we clearly attribute that to the successful implementation of our strategic initiative as part of the dual plus strategy. To give that in a bit of a longer period, and this is looking a long way back, but we did that on purpose to show really the period between 28 and now, pretty much. And what we show here is two lines. One is the revenue growth, always percent in terms of changing to the prior year numbers. That's the red line, as well as the EBIT margin. That's the gray line. And we see the couple of the two crisis, the financial crisis in eight or nine, as well as the COVID crisis in 2020. And what we see, if we look at the past, that those lines revenue growth or revenue shrinking as well as even margin go fairly hand in hand. So, in other words, If we are at the top of the cycle, margin has been all right, the level of up to 6%, but not a single time above that. And if we are at the bottom end of the cycle, either we are just scratching at the zero margin line, or if it's a bigger crisis like the financial crisis and COVID, we're going heavily negative. We cannot say and we will never say that obviously we overcome the cycle because the simplicity of the business that will remain and that's a given. However, with the changes we've done to the portfolio, with the changes we've done to cost structure as well as revenue structure, We managed to decouple this issue between top line and bottom line. And you see that actually quite nicely now in the first quarter, 24, but also going back in 23 already, right, that even though revenue has been going down, profitability is going up and remaining on a stable level. So first quarter, 6.1%. is a level that in the past we've had only, let's say, once or twice on the top end of the cycle. So that's why we say, well, really with that consequent implementation of our dual plus strategy, we've made the business much more resilient. And in other words, it also means if we're going uphill on the cycle again, we expect, we are very confident that we are getting the margins way off, way above the 6.1% that we have right now. But that's really looking into the midterm future. Speaking of a couple of the mentioned topics here. So first of all, the big contributor to that driver making the business less cyclical is certainly the growth of our service activities. Having said that, also in the past 15 years, we've grown our service business with a CAGR of 5% between 2012 and 2021. So in line with the market, so solid development. led to the fact that by 2022, the revenue share of service was at 24%, coming from much lower numbers previously. And in the last year, since we kicked off really dual plus with that, also with that M&A activities, we doubled the CAGR from 5% to 10%, which brought us also already in the last year to almost like to a bit more than 480 million euros revenue. And for 24, we're expecting a number north of 500. And for 25, We are stick with our midterm target from announced a couple of years ago at 600Million euros and in 24 already now revenue share of services at 28% translating into 126Million euro. So, both in absolute as well as in relative terms and increase and what we don't disclose you for a good reason. is the margin on the service business, but you can see by the overall group margins that relative growth of service revenue also pushed up the group margin, and that's one of the reasons why we're doing that. Focusing or continuing on what I know beyond the service business, our operational focus points for this year. Briefly looking back, what helped us tremendously in 2022 and 2023 was the optimization of the portfolio, both within the engine business as well as within our portfolio companies. mentioning here the sale of Tokido. We'll come to that later. Also in the service business, there's strong expansion in the United States with our Deutz Power Center, where we've added every year one to two of these DPCs, really increasing the coverage of that profitable business in the States. And this is not the end. We're continuing like that. And we've talked a lot in the previous calls about our pricing initiative, which we kicked off in February 22, and really Managed that through all the way to the end of last year where we somehow repaired the portfolio and managed to increase prices and pass on the cost increases to the customers, you know, being, let's say, Defending our position here, but obviously that 1 has a lasting effect and we can, we expect this levels now to remain a bit more than stable. It's important to push back when they're when it comes to request to reduce. But we're pretty successful here and also on operational point of view. We are. able to manage our capacities fairly flexible. You may remember that in summer last year, we experienced a super strong demand in our compact engine sub four liter. We added at fairly short notice a third shift in our assembly line five here, all with All with temp labors, by the way. So we didn't bring up fixed costs here, which made it easier for us when the demand dropped a little bit into this year to also take off this shift again without having significant issues here with labor costs. So that was a good learning and a good experience. gives us confidence that also in the future when we have similar fluctuations, we're able to react quickly and effectively. Meaning going to this year beyond, whereas pricing and production and portfolio was a focus for performance and a boost for performance last year, now it's important really for this year beyond to switch the focus stronger to material cost reduction and also capital allocation. I'll come to that in a minute. So, um, you know, we, we come from a situation which was clearly sellers market. Now we're going to a situation which is strong or strongly like a bit of a So we've got a fairly huge material and component spent and we have been focusing now on reducing direct and indirect material costs. And I'll come to that in a minute. But before doing that, also, let me briefly mention our now increased rigourosity in the management of our capital allocation, primarily in R&D. when it comes to the green segment we'll certainly focus a bit more on our hydrogen business here specifically speaking of the hydrogen combustion engine including the use of that product in a power generation unit in a gen set but also we informed you on a regular basis about our new partnerships in the classic segment with the alliance with diamond truck as well as rolls-royce power systems that also allows us also in R&D when it comes to development activities for new combustion engines. So that's what we'll already start feeding this year, but also in the years to come. um purchasing was uh just you know mentioned by myself um so we will not be able to provide here detailed numbers but we want to explain to you the mechanics and principle um so we have fairly large purchasing volume and we'll work here both on cost cutting as well as on capex reduction we do have obviously some counter effects from some suppliers, but we actually are quite confident that we are able to fight most of that back. And we started with the beginning of the year, holistic cost reduction program, focusing on direct material, indirect material, as well as capital expenditure. And we work here with a sort of traditional or standard cost reduction initiatives, demand management, target cost analysis, Design to cost, et cetera. So that's been going quite well. We also will increase our best cost procurement spend, which is still on a fairly low level. Twenty three at four percent. We're going to go bring it up to six percent. So there's still room for improvement without increasing dependencies on. on certain regional countries in the world. And what we do expect for 2024 is here material cost savings in a double-digit million euro range. We're using the same methodology and a very similar approach like what we did in our pricing initiatives in the last two years. So the organization is now used to work rigidly, rigorously on programs like that. Let me also briefly recap One of our portfolio optimization points we achieved. The sale of Tokido is now completed. We sold it to Yamaha Motors. That's known to most of you, which we believe is really a best owner for the business. And also recap in 23, Tokido recorded a net loss of around 23 million euros. So that's why not only financially it's an important point to fund a solution for all that former portfolio company. It's also an important step in refocusing our green business because Takedo was certainly interesting from a technology perspective and also isolatedly from a market perspective, but didn't have very many synergies with our core business. And now we can actually put a focus on developing product solutions, which meet the criteria of the markets relevant for us and the customers relevant for us. Looking back, what does it mean for our numbers apart from eliminating the loss of the business in the previous years? First of all, agreement was signed in January, transaction completed just beginning of the second quarter. So the cash-in was recorded already on April 3rd. So it also means that all the number effects for the sale will be recognized now in the second quarter. So you won't see neither of the effects in the numbers which Timo will be presenting in a minute. But the cash is in. It's almost 80 million euros that we made very clear. Again, we expect in the second quarter to be in the low double digit million area. An important step in our refocusing and reorganization and part of the dual plus strategy. And yeah, dual plus strategy, just short update what we're making progress. I mentioned a few of the points already. Classic focus on performance, performance, performance, very much now on efficiency and material cost reduction, as mentioned earlier. But also strategically, we have signed now the partnership agreement with Rolls-Royce Power System by the end of March. So it was an interesting time at the end of March and beginning of April with those two M&A deals being signed, respectively closed. The deal is expected to be closed, completed in the middle of this year, and thus we expect to benefit from the positive impact on revenue as well as bottom line throughout the second half of this fiscal year. Deutz Green sale of Tokido I mentioned already, but also operationally we're making great progress with our hydrogen genset order from China. The first four gensets have been shipped. Further ones are being assembled right now. So the situation here is well on track and shows that after the sale of Tokido, we're making good progress with green products, particularly when they are quite close to our core. And let's not forget service business. We'll see the numbers when Timo's presenting in detail, but what we see already in our year-on-year growth of almost 4%, and part of that is that the service market and parts market is typically much more stable than the new products market, but also the integration of the acquisitions we closed in the last year. I mean, well, they now begin to show here the full-year effect. And speaking of acquisitions, we could continue these sort of very targeted structured M&A activities, a few targets on the pipeline. Nothing to be reported yet, but on our road to 600 million, our road to 600 million is well defined and we see that with great confidence. Yeah, well, that was my first start through the highlights. And with that, I will hand over to Timo to give you more details of the numbers.

Yes, thank you, Sebastian, and a very good morning to all of you here from Cologne. Let me now give you a little more details on the financial numbers. Looking at the first three KPIs here, we're looking at new order intake, unit sales, and revenue. Sebastian already mentioned that the new order intake is down by 19%. So that in general, of course, isn't the best of three compared to the quarter one of last year, but quarter one last year was a very, very strong quarter. So in general, that's the effect. It wouldn't have been so big if we had a more normal quarter. But anyways, on the sales side, and this is more important sales and revenue side, we can see that unit sales were down 17%, but at the same time, revenue was only down 10%. And this is due to, yes, one topic we've heard already in the last year quite a few times is our very successful pricing strategy. But the other part, and this is really in times like that, I can't stress that point often enough is our service business. We see very little volatility in the service business. So in terms of downturn on the engine sales, this supports sales revenue and especially our EBIT side very strongly and is very good for us. The book to bell ratio is a little below one. That means exactly zero point and nine two. But in in line with what we expected. Looking now a little more into the breakdown of the regions and the applications. Let me start on the right side with the regions. I think this gives us a good picture of what's happening in the markets. Let me start with the good parts. So the U.S. is pretty much flat. We are down 1% compared to previous year, and the U.S. now makes up 26% of our total GDP. Sales volume by region. So just a little over a quarter. So compared to when we look back in the past years, last year it was 24%. Now it's 26%. So the market's still growing for us in terms of percentage and flat if we look into absolute numbers. The German market doesn't look as bad as one might have expected as well, so minus 1.9%. I would still call that almost flat, so that is good. The thing where we do see a significant downturn is the European market without Germany, where we're down 20.4%, with a total market share from our side of 35%. That, of course, is a hit. On the other side, if we look at the applications per segment, then we can especially point out the material handling segment, which is still growing. It's up 8.2% compared to the previous year and also makes up 26% of our total sales. Looking at the number above that, the service segment now is our biggest segment. So that is very, very good. 28% of total sales volume this year. And Sebastian mentioned that already, also up 3.8%. So these two make up more than 50% of our sales volume and are on a good track. On the other hand, construction equipment, not surprising with everything we see in the market, and also the agricultural side, down 20%, 27%. So this is where the reduction in the end comes from. Looking at EBIT, yes, we did have a very, very successful last year. We shouldn't forget that. That was the most successful year of the DoS history, if we look at EBIT and the margins. Still, in a time like that where we see an economic downturn and sales volume is down, usually you have an issue because of your fixed cost allocation. And of course, we see that in our numbers as well. But if you look at it, we ended up at 6.1%, which means 27.7 million in absolute numbers. So we did have a guidance, also a midterm guidance. We're going to talk about that in a little bit, which was between 6% and 7% for 2025, which was always our goal to reach that in that year. And yes, we did reach that last year already, and we're still within this range. And I think in a time where you have more headwinds than tailwinds, it is very good that we are above the 6% still. Looking at the R&D spending and capital expenditure in general, yes, we're not saving on this still. So we are investing in the future of the company. You can still see that, especially on the R&D side. For those of you who are not aware of that, we are not capitalizing. Well, we almost capitalize nothing or anything on the R&D side. So that hits the bottom line right away. And so if you look at our EBIT result, we do. have an effect here, and we've still increased our R&D spending by almost 14%, which is, of course, good for the future of the company. But Sebastian mentioned that we are going to talk about reallocation of these spendings for the next month to come, and let's see what we're doing there. Capital expenditure looks like it's been much smaller than last year, but this is due to the special effect of quarter one of last year where we did do the deal with Daimler and had a huge effect of that. So in general here, I think we are in line with what a normal quarter for us means and also in line with what we have planned. On the working capital side, we did do a lot of optimization in the last year, coming from a very high number in the summer and reduced these, especially over the last two quarters and especially in Q4. So we did a lot of the optimization already and we're pretty happy that we could keep that low level now. So we're pretty much flat on the working capital side. A little bit on cash flow quite a few numbers here, I would like to focus, especially on the free cash flow from operations before and it's the 2nd from the right here. So we still have a positive free cash flow. That is also good in times like that. It shows the resilience of the company. We ended up at 5.1%, sorry, 5.1 million in absolute numbers. And as Sebastian mentioned, there's no money in yet from Tokido. Tokido was closed in quarter two, so we see the cash flow, the positive cash flow of that deal in quarter two. So that's going to give us a significant boost here. So therefore, net debt, not many changes, which is in line with Africa's development. Short look, and this is my last slide now, on the classic segment and the green segment. I think in the classic segment, at most numbers we've already looked at. In the end here, we see that R&D spending is pretty much flat on the classic side, and the EBIT adjusted with 37% is still a very, very good contribution to the company that is very successful. On the other side, we see, and this is maybe now some more information, the green segment If we look at new orders, unit sales and revenue, of course, these are now very small numbers since Tokido is not included anymore. But at least if we look at it from a percentage perspective, we should see. a little positive impact from the gensets going to China within the next month or quarters of this year. We can also see here that we are spending more on the R&D side, especially in the green segment. So we came from 6.2 million last year to 8.8 million here, and therefore significantly investing in the green segment. And there's also then that makes out the difference. If you look at EVIT adjusted, the green segment now is negative at 9.6 million, which is with 8.8 million R&D spending almost entirely from the R&D side. This is it from my side, and I'm going to hand back to Sebastian. Thank you.