Deutz Ag Akt

Good morning, ladies and gentlemen, and a warm welcome to the H1 2025 conference call of the Deutz AG. Please note that this call is being recorded and a replay will be available on deutz.com later today. Your participation in the call implies your content to this. In Cologne, I'm pleased to welcome Deutz CEO Sebastian Schulte and CEO Oliver Neu. Sebastian will begin the presentation with the key figures of the first half year of 2025 and then walk you through the progress made in the business unit. Oliver will then provide you with the financial details of H1 and an update on the future FITCROSS program. And Sebastian again will conclude the presentation with a look on the guidance in which we will move over to the Q&A session. And as always, please note the disclaimer, especially regarding forward-looking statements. With this, I hand over to you, Sebastian.

Yeah, thank you very much, Sarah, and good morning here out of Cologne to everyone who dialed in for our half-one numbers presentation 2025. And indeed, we are quite pleased to look back on a sort of very decent start into the year 2025. Although we're all, as everyone playing in this industry currently, are certainly facing quite an interesting situation from an economic point of view. But you will see with our numbers that we're progressing pretty well. And that's our headline as well. We have started into this year with a very, very profitable growth and a particularly the development of our portfolio particular the transformation of deutz from a pure engine player to a solutions company is beginning or is increasingly paying off what does it mean in numbers New orders were up 30% year-over-year, now yielding a bit above 1 billion euros, and, sure, strongly supported also by the effects from our latest acquisitions, particularly in the business unit energy. And these effects from the latest acquisitions, they did overcompensate the still fairly weak engine demand, which is still in a challenging situation. Revenue was up 15% year over year, a bit above 1 billion euro as well. And here also our M&A activities are supporting strongly, but also the service business, which we continued to grow if you compare to the previous year's number as well. EBIT margin, 4.7% after six months, second quarter a bit up against the first quarter. still one percentage point down year over year, and there is still some negative impact from the low production volumes in our heritage engine business, but as said, we see a positive trend in the second quarter, and also the transformation of our business models with M&A, but also, as Oliver will point out later, the effect of the very successful cost programs supporting here the bottom line. And free cash flow was at 14.4 million euros, significantly up compared to year over year. And we have a bit of a normalization in the second quarter after a very, very strong quarter one. But all in all, I think we can proudly say it's been a decent start into this first half year. If we move on to the next page, please. I want to give a couple of highlights in each of our articles. So let me start with engines. Very good sign that, you know, one of our recent developments, own developments, in the Deutsch TCD 3.9 engine, that's been an engine, or that is an engine, which Deutz co-developed with John Deere out of the United States, so a very successful partnership. Both engineering teams and purchasing teams worked together and shared work packages. It's a brand-new engine, state-of-the-art technical concept, one platform which ranges from 75 kilowatt up to 130 kilowatt and has a significantly better peak performance than its predecessors. And we see now quite a good and strong demand from very, very good and strong international OEMs. We did also sign the first large-scale contract with a leading European construction machinery company. For reasons of confidentiality, we are not disclosing the name as of yet. But that is filling the pipeline for the second half of the sort of next five years when the demand and then the production for the 3.9 will ramp up as planned. Another successful milestone or cooperation is regarding our cooperation with Indian agricultural company TAFA. Just a couple of weeks ago, we celebrated the groundbreaking for the production line in Alwar in India. A group of us, including myself, was there in India together with the CEO of Tafel. We celebrated this groundbreaking, as I said, so that means the project is very well on track for the start of production beginning of 2027. This year, 2025, we concluded the supplier nomination because it's not only about assembly in India, it's also about sourcing of parts in India to realize cost improvements, but also resilience in the supply chain. Design approval processes have been concluded and we are now finalizing the IT interface because in the future the production and obviously the supply chain for these engines will be fully integrated in our DEUTZ IT systems next year. We're working on the sea sample readiness, validating the engine, and obviously then also inaugurating the assembly line so that we, early 2027, will be able to start serial production out of Alva, complementing our production footprint, which is then even more global than it is right now. If you move on to the next vertical, the service business, in service, as you all know, It's always been, I would say, a cash cow, very successful in supporting a foundation of our business. One thing is obviously bringing great engines into the market the other thing is then to be able to service these engines reliably fast and really meeting the customer's demand because that's one of the aspects which distinguishes deutz from its competitors and in this successful business for us is about growing including organic growth of course but also inorganic growth by emergent acquisitions and a couple of examples we brought today is our strengthening of the industrial fleet service in spain We have been appointed as the authorized technical service partner for JLG. JLG is one of our largest U.S. American customers, obviously with sales equipment operating all over the world. JLG, as you may know, is a leading manufacturer of aerial work platforms and tailor handlers, and now we are accompanying their journey together also in Europe. So the idea is that we're becoming a one-stop shop for all what their customer needs for the engine, but also beyond the engine. And so that means including the entire machine. We do on top of that partnership in Spain, we're also expanding our network together with JLG also in the U.S., most recently in Nevada. The other aspect or the other milestone we'd like to share with you is that we have signed the purchase agreement for our long-lasting Turkish distributor. And so that we are able of this growing on interesting, very important market to growing, continue, but also grow our business in this region. We're talking not about a huge transaction or huge acquisition here, but it's revenue of roughly 10 million on an annual basis. And as always, in service with a double-digit EBIT margin achieved by, give or take, 50 employees. The application areas here in Turkey is mainly mining, construction, and power generation. And these are all application areas where the combustion engine, the ICE, will become or will remain relevant in many, many years to come. Let me move on to the next vertical new technology. Last time, we already mentioned the acquisition of UMS, Urban Mobility System, a Dutch specialist for the electrification of off-highway vehicles, but also increasingly working on the military space. The closing occurred at the beginning of June 2025. Following on here, fairly light integration approach, similar to what we've been doing with Blue Star Power Systems in the United States. We want to keep the entrepreneurial spirit and their strength. Why it's also obviously leveraging and utilizing what Deutz brings to the table, the scalability, competence, the network, customer access, financial strength, all these sort of things. But the most important thing is we don't want to kill what made them very, very interesting and attractive for us. That founder and previous owner, Lars Kohl, he's fully integrated in our business unit leadership for new technology, and he's now leading the technology part in the business unit new technology. And we can give a couple of examples what UMS has been doing since we acquired UMS. One nice example is an electrification of a Liebherr 916E excavator for a German construction company. And this Liebherr 916 is a 24-ton crawler escalator, which when it comes out of the factory is equipped with a 115-kilowatt engine. So, you know, it's on a sort of larger scale, and it shows that electrification is not only a sort of a niche technology for very, very small and compact construction equipment, but also for construction. medium sized and potentially also for larger size in the future the other example which we like to share the hyundai hx85 that is a compact excavator that is an eight and a half ton um equipment where um when it comes out of the factory with an ice it's just uh it's just powered by a 48.5 kilowatt uh ice so here it's a bit more obvious uh to use electrification but um we are showing here in ums and we'll continue to show that this technology fits for a large area of applications. And as you write here, there is more to come and we will share more in the coming months and quarters. Let's move on to the next vertical energy. um last year a bit more uh roughly roughly one year ago we closed uh bluestar power systems and bluestar is continuing their growth they're very profitable blows their goals are very happy with the development market demand is still strong Bluestar, under the ownership of Deutz, is continuing to acquire new customers. Profitability the first half was roughly 20% operationally, so that's really strongly supporting our P&L development. Bluestar secured an important contract with a major U.S. retailer, so adding to the already very, very successful business with another very large U.S. American retailer. And obviously now it's about creating and harvesting synergies and further growth opportunities with our service network, which is in the U.S. very strong and we're still getting stronger there day by day. So we're using our technicians from the various power centers across the nation in the U.S. from all over the all over the country. They've been visited. They're visiting to be trained on the gen set. that we do more than just bringing the equipment into the field, but also training it, servicing it, maintaining it. So that's a success story so far, and we're extremely confident to continue this success story. The other asset we have in our portfolio when it comes to Genset is Maggi Deutz in Casablanca, Morocco. Here is the transformation. We're developing here an asset which comes out of a very difficult situation, but we've appointed a new managing director early this year, coming from a global state-of-the-art competitor. There's a new technical director about to start, and we're seeing great first progress here in developing Maggi Deutz in the field of our assets. We are also, which is not written on here, we're also continuously scanning the market in Europe, but also in other jurisdictions to see where we can realize further growth, including also purchase and acquisitions. Let me move on to the final vertical, our very recently established business unit defense. We have established that business because we, as an engine company still, you know, that's where we come from. We want to provide power for those who protect. And I think that's a very strong statement, which makes us very proud to be more and more active in this field. we created a business unit defense which bundles technology and offerings deutz already had in the past years but never really utilized for the defense sector the focus market here is uh is currently twofold it's mobility and energy solutions particularly obviously for the european defense segment but also service spare parts business to ensure that these engines these equipment remains operationally ready and stable when it's needed. So it's our ambition here to merge our different technologies to deliver specific solutions for the customer needs and then become more and more like a recognized market participants among all defense stakeholders. So when a customer thinks about an engine, in a mobile equipment or an agent set, well, we want them to think immediately about Deutz, and we see over the last month more and more interest in that. We are, for reasons of confidentiality, we cannot provide as many details as of yet, but what we can say is that we are engaged in a number of promising projects. One is the V8 power pack, which we are developing together with RENG for a repowering project. Another one is that we are delivering quite a large number of engines for the power supply of very renowned air defense systems, which is in use by many, many NATO countries. And we are also delivering engines for military vehicles, also in the sense of repowering, which are active in the Ukraine. And there is also more to come. Let's move on, please. And with that having said, I would like to hand over to Oliver, a CFO, who will provide more details on the numbers. Thank you very much.

Thanks, Sebastian, and also good morning, and welcome from my side to our H1 earnings call. So let me start giving you some more background and update on our future BIT program. As you know, just to recap, our FutureFit program is targeting for at least 50 million euros sustainable structural cost reduction by the end of 2026. And let me say, we are very well on track there. So, we recently increased our 25 target, the 25 share out of that to at least 25 million from originally 20 million. So, measures are being implemented quicker than originally expected. We have almost 80% of the measures either completed or implemented and running, and they're delivering the effects already. So, that means in Euros, roughly 10 million savings are already in our H1 results. Another 15 million, at least 15 million is still to come in the current fiscal year. One of the most important measures today is the headcount reduction, so the 300 FTEs, which we are reconfirming. 225 out of that in Germany, 75 in the rest of the world. 90 left already, 120 will leave at the end of the year, and the remainder in 2026. On the next slide, we see a bit more detail on the H1 business figures. The new orders, they went up by 30%, 30.7% precisely. So that looks very positive, and in fact, it is positive. It's a clear sign that DOI is getting more resilient. 250 million out of the new orders roughly are allocated to M&A transactions. And that means the adjusted order intake, looking purely at the original core business, is being more or less flat, H124 over H125. So we are not seeing any downturn anymore in the market. We reached the bottom of the question as well, when is the order intake taking up again? On the revenue side, we increased 15%. 250 million out of the increase or out of the total order intake in H1 2025 is due to the portfolio measures we've taken, so especially the acquisitions of the dynamo truck engines and bluestar power systems and the additional M&A transactions we had. So that means organically or adjusted for that there was a decrease in the revenue reflecting basically the weaker order intake, which we have seen in the second half of last year. On the EBIT side, in the big picture, you can see a slight drop of 3 million, which is almost constant, compared to H1 2024. However, what we need to keep in mind there, that both production volume and also sales volume of the engine segment have been significantly lower adjusted for the portfolio measures. So, that is, of course, leading to a lack of fixed-cost absorption. On the other hand, we compensated those effects clearly, almost entirely, by both the portfolio measures, but also our FutureFit program, which is delivering clear cost reductions. We keep the strict cost discipline, and that is supporting our margins. And even then, that is nice to see on a quarter-over-quarter view within the H1 2025. We see that the first quarter was a 4.3% margin. The second quarter, we increased it to 5% so that we are year-to-date on that 4.7% margin. Let me move on to the segment view. So, here, our segment, reporting segment, Deutz Engines and Services. So, the combustion engine business and the service business for our classic . You see here that overall margin was dropping, and that is from 7.8 to 6.1%. That is basically a direct consequence of what I told a slide before. So basically, we see that there was a 12,000-unit drop in production volume, a 6,000 to 7,000-unit drop in sales volume of the classic engines, like for like, so contributing to the fixed cost, like a fixed cost absorption. On the other hand, the positive measures, especially on the cost side, are coming into place more and more, and that were clearly supporting the margin view. HJS, the mission after treatment supplier, we consolidated since beginning of January, so they are fully in our accounts. On the business unit service, we see a continuous growth. That's 8% in the year over year. A comparison that is driven both by continuous organic growth, but also by the portfolio measures, especially the service business of the acquisition last year from Daimler Truck, which is since the beginning of January on the service side also fully into our accounts. So, service is keeping the strong momentum, is keeping the strong performance, and is thereby, of course, with a strong margin supporting our business. Coming to the second reporting segment, which is our, the next slide, the solutions business. Here we go. We see here the two, yeah, fairly different businesses combined currently under that segment here. That's our energy business with the Gensets, Luster Power Systems and Magidol, Sebastian mentioned earlier, and on the other hand, our new technology business. And those two businesses are driven by a complete different structure when it comes to earnings. On the energy side, We see that we have a, we keep the solid auto momentum in our H1 figures. So the book-to-bill ratio was at 1.1. This new order is at 100, sorry, at 79 million. The revenue at 79 million, sorry, new order slightly higher. The adjusted EBIT was at 8 million, and there it's important to mention that we have the purchase price which is already deducted here. So, you can see that in the footnote of that slide. Adjusted for that, we have been almost at 14 million adjusted EBIT with 80 million revenue. So, that's a very, very solid model. We saw earlier that especially BlueStar is running at an operational model of around 20%. That brings stability, and it's running very stable and growing. The business unit new technology on the other side, It's a bit more in the development phase, so we saw new orders of 12 million, but that is also driven by the first-time consolidation of mobility systems in June. So revenue overall remained rather low at 4.4 million on an H1 level. We are addressing that continuously. We are bundling the sales efforts. We're going to see improvements there over time over the next quarters. On the EBIT side, we see now year-to-date minus 18.2 million euros. So that is basically what I mentioned also in the Q1 results. So we had a front-loaded negative result in the Q1 of minus 11 million, while Q2 was significantly better, minus 6.8 million, so thereby being on track on the new tech business where we also see the cost reduction, the well-focused R&D efforts that are really focused on what the market is demanding. Coming to some more KPIs, basically, All on track, so starting with the R&D spending, we are at a quarter of 4.5% over sales, 45 million. Reduction compared to first half 2024 is basically driven by our future fit program, where R&D, as you know, is a significant area of savings. On the CapEx side, we are reducing CapEx to what is necessary. That means, in figures, a reduction of 20% year-over-year in the reporting period. which brought us down to 36.4 million in H1. On the working capital side, we are on track here as well, 18.8%. The quota improved. That's a bit driven by accounts payable this time, but structurally, it's completely on track and also showing continuous improvements here. Talking about cash flow. or cash flow from operating activities that's driven, that's improving, that's besides reflecting the earnings development, of course, and also positively impacted, especially by working capital developments that we can directly translate and also in the free cash flow. Free cash flow before M&A activities at 14.4, thereby significantly better than last year. Adjusted for the M&A activities of free cash flow after M&A was roughly 10 million lower, so even there on the positive side. That debt is increasing, increasing slightly. That's partially driven to the M&A activity, but also dividend payments and also some cash out on the future fit side for redundancy payments. But still, that level totally on track and nothing special on that end. Financing dividend, just a few figures here. So, our equity ratio is still on a very solid level of almost 46%. There are two effects why it's coming down a bit. So, on the one hand, the assets increased. That's mainly driven by the acquisitions, especially HJS, which I mentioned earlier, but also UMS. And on the other side, the equity is coming down. On the one hand, you have the positive effect of the positive net income. On the other side, you, of course, have also negative translation effects due to the US dollar development, which then brought down with the net asset value of the foreign subsidiaries denominated in US dollar. Leverage at 1.5, so completely within our target range, it came up slightly, consequences of the net debt development we saw earlier, but also they are fully in line with our governance. And it gives us sufficient room For M&A activities, the balance sheet remains strong, so we have that capacity and are not limited here on the M&A side. Dividends nothing new, the 17 euro cent you know, which resided in a payout of 24 million being paid out after the AGM beginning of May. With that, I hand over to Sebastian.