Deutz Ag Akt

Good morning ladies and gentlemen and a warm welcome to today's Deutz conference call on the first half year 2026. 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 consent to this. As always, please note the disclaimer regarding today's presentation including the FFG transaction covered in this call. To get started right away, I'm pleased to welcome Deutz CEO Sebastian Schulte, the CFO Oliver Neu and Lars Boelke, Head of Investor Relations and Communications, who are joining us from Cologne today. After the presentation, we will be happy to receive your questions in person via the audio line. And with this, I will hand over to Lars Boelke. Lars, the stage is yours.

Thank you very much and a very good morning from our site here in Cologne. Thanks for joining today's call. It's a kind of special call for us, not only that Deutz grew double digit in the first half, as you all know, but also that we, as you all know, recently announced our transaction that will also give a little glimpse in this call. I'd also like to take this opportunity to thank all of you whom we had the opportunity Thank you very much.

Thank you very much Lars and also from my side a good morning to everyone. Great that you're all joining. Let me start giving a general overview on our first half year results before I will then as usual not only go through the business units and the details before handing them over to Oliver but also as Lars indicated will I'll mention again a bit of content on our FFG transaction. Looking back at the first six months in 2026, we can say we are pretty pleased in how the year not only started, but how we actually moved through the first six months. So new orders, the trend is still very positive. 1.3 billion new orders, that is a 29% year-over-year improvement. Revenue was also up 1.1 billion, 11% over the respective period of last year, and the margin in the first six months at 7.1%. So on a very, very decent level, particularly, and I will explain that later, given that in our sort of legacy business, the business unit engines, We are still seeing a fairly low demand compared to historical standards. But with that in mind, 7.1% margin is actually an extraordinary development we've seen so far. If I just break that down to the second quarter, as you see in the bottom part of the page, new orders 560, revenue 585. So slightly, new orders slightly below revenue. that's not a point of concern I will see later because we had a very very decent Q1 in terms of order intake so we're growing here across all business units and all regions and the margin in the end that's I mean most of the most important thing that on the margin so the bottom line second quarter was up a bit again 7.2 percent a little above the first quarter and 1.4 percentage points year over year Highlights, and there were quite a few. So just to keep that back in mind, and most of you have been following us over the last six months. So we further increased our global footprint in energy with an acquisition in Latin America. We acquired the company Maxitrust in Coitiba in Brazil. Closing happened in the second quarter as well. The profitability of engines rebounded. And again, as I just said a couple of minutes ago, in spite of the still not perfect market environment but we'll see later when we look on the margin how well we're developing here and very important our business unit service pushes on for further growth so that was also extremely pleasing and and I will work I will elaborate a bit further the landmark transaction with regard to the acquisition of FFG was signed at the beginning of July Look, we announced this acquisition of FFG, Flensburger Fahrzeugbaugesellschaft, on July 9th. And since then, myself, but also Oliver, we had the chance to speak to many of you. We spoke in London, Frankfurt, and last week I spent a couple of days in New York. And the reception on all these, virtually all these investor talks was extremely positive, not only constructive, but very, very positive. And that gives us a lot of confidence as we move forward to our extraordinary general meeting later this month on August 24th. But let me use today also to build on the picture a bit further. I mean, we are, and I believe everyone who listened to us and spoke to us will feel that probably in every conversation. We are generally excited about what this combination will become. And that, so to speak, is what I want to leave today with. So there are three things that matter. So first of all, FFG is generally an exceptional asset. It generated approximately 760 million euro revenue in 2025, a CAGR of around 50% per year since 2023. And that makes it one of the fastest growing businesses in all of European defense. and the trajectory from here going forward is actually what really matters because we expect FFG to generate revenues above 1 billion euro in the coming years starting next year at an EBITDA margin we write here, now we are very specific here, on above 20%. So that is really a best-in-class asset as you can see. and that is the destination this growth profile is heading towards and the order backlog at the moment standing above 1.9 billion euro is what underwrites here this path. And we expect in the coming months and years obviously this order backlog to significantly increase. So more than 1,100 employees across nine locations and more than 90% of the revenue comes from NATO customers as well as Ukraine with at this point in time less than 20% from the Bundeswehr alone. important is FFG is not a German government contractor exclusively as many other assets are it's a generally alliance-wide defense industrial platform and that's one of the reasons why it perfectly fits to Deutz second The program network behind those numbers is the single most important non-financial asset in this transaction. FFG holds certified positions across more than 30 NATO platform types, including the Leopard 2, the Boxer, the Puma, the Marder, the Fox, the Fennec, the M113, serving more than 15 NATO nations and the Ukraine. And these are not just commercial relationships, they are formally certified, technically embedded program positions built over decades. and that kind of institutional depths that cannot be replicated quickly by no one. And certainly not in time to capture this outstanding procurement cycle that is opening right now. So from the moment this deal closes, that entire network becomes part of Deutz. and third ffg is not just an mo operator that happens to be growing that itself would be exciting but ffg is more than that it is a systems integrator with his own proprietary platform pipeline the vcent2 a multifunctional Leopard 2 based armoured recovery and engineering vehicle, the ACSV, a modular armoured combat support vehicle already delivered across NATO nations, and the next program waves, the TA and the CAFs, representing substantial additional volume potential. So this OA, this original equipment pipeline, is what gives the order backlog its duration and what gives the growth profile its structural character. Let me now turn to the structure, because it tells you something about the nature of this partnership. The total consideration, as you will already know, is approximately 1.6 billion Euro. And around 1 billion Euro will be paid in cash, financed through a secured debt from a consortium of international banks. All secured, all signed, all without remaining risk. and the remaining around 0.6 billion Euro will be paid in newly issued Deutz AG shares which the seller family receives, the families, the more receive and will hold as long-term shareholders in the combined group. And third, strategic alignment, further variable performance link components, long-term focused investment agreement and a supervisory board representation for the FFG families. And that last element was not incidental to this deal. It was central to it, quite frankly, because we did not want the seller who just disappears at closing. We wanted anchor shareholders who literally have skin in the game and will keep skin in the game and because then the incentives from day one are totally aligned with every other Deutz shareholder and that makes it actually not only exciting it makes it also extremely trustworthy and built for the medium and long run. So the FFG families as I outlined they will join at a 29.9% stake and that is a structure I'm extremely proud of because it serves as I just explained our shareholders it serves the interest of the combined Let me now turn to the earnings profile because I want to be as precise as possible about how the accretion picture will build. So the share issuance creates initially a dilution of approximately 65 million euro new shares. But FFG's standalone earnings contribution on a revenue base of approximately 760 million, taking the 25 numbers, and at the best-in-class margins provides already a very strong starting point and offsets that dilution on a pro forma basis pretty much immediately. From there, the accretion picture compounds in two further stages. So the early cross-business synergies, such as engines, service network, logistics, they will add further earnings uplift. But more importantly, The conversion of FFG's already contracted order backlog and the ongoing MAO business. So that backlog as I just explained stands give or take about 1.9 billion euros and it is awarded, it is contracted, it's signed and it is converting. So that is the near-term earnings engine which will support this combined business. It does not depend on integration, execution or qualification cycles. That's important and that's a message we kept sharing in all our investor talks. This business, this acquisition makes already commercially, financially sense without additional synergy potential. Obviously, it doesn't mean we're not going for that, but it's important. It makes sense without the synergy. The synergy add on top of that. And longer term, the conversion of FFGs brought a program pipeline into contracted revenue. The CAFs, as I mentioned, the ACSV expansion, VZ2 growth beyond the current three nations extend the profile considerably and well beyond 2030. We do expect revenue growth in line with double digit NATO defense budget growth rates. And that is a structural tailwind, not a cyclical one. And that adds to the resilience of Deutz. So what I can say today is that the direction on earnings, on cash and on leverage is clearly positive from the point of close. The headline is this. We did not do a dilutive deal and we hope for synergies to catch up. So the equation is there from the start, from the very beginning, grounded in contracted revenue, and it compounds from there. And we will, of course, provide further guidance once we are through to closing. Right. Having said that, let me now move on to the development of our business units. Let me start with the business unit engines. Headline is very clear. Profitability recovery accelerates. We are continuing here with an outstanding team to implement our portfolio and footprint strategy. And just a few highlights. So at our POTS plant, the largest DEUTZ plant here in Cologne, the performance program shows already first savings. There's a lot of efficiency improvement, double digit efficiency improvement on the assembly line five. We do see higher cost savings due to a quicker relocation of products from Cologne Calc that's a bit of a satellite plant here which we just closed literally last week was the last last week Friday we finally closed it and we moved the products from Calc here in Cologne to Spain at much much better cost base that went in line or that goes in line both aspects here with the voluntary leave program for the Cologne site production but also production overheads and non-value adding positions here where we'll see around 100 to 120 FTEs leaving to further improve efficiency at conditions which are fair but for the employees but also favorable for the business. Then moving a bit on portfolio and the new G-Drive program. Here we talk about a couple of new engines, including actually a 24 liter engine for Genset customers. So here we're starting already with the first fixed orders. The next year we'll see further growth in that. But important is it works. Customers are ordering these products. Very, very structurally strong demand. and a very very good cost base to the use of partners here. Partner is a good point and we are bringing a very long lasting but long sort of hibernating partnership with Chinese FAW. We bring that back on track. and here for the best-cost country supply of some of the legacy engines which does not make sense to deliver them from high-cost Germany anymore but there is still a structural demand all over the world and we do that together with a partner in China. China is the next point here as well. Our joint venture with Sani in China in Changsha It's progressing quite well now. First time I can really truly say we're making really good progress here. In particular, not only compared to the previous years, and it's also because we made a bit of a change there. We're using also more engines there for power generation, rather than what it was initially designed for, for the use in heavy duty trucks. So things are moving quite well, despite and the fact that the order intake is not on the level we'd like to have it going forward. But it's important to focus on what we can influence and we're doing that here pretty well. But bring that to numbers as well. So the demand in the second quarter slightly increased year over year. Market is still a bit under pressure, but this is really not to be seen with a point of concern. It's moving pretty well. We also now have a fairly healthy order backlog of 385 million euros that's significantly higher than the 315 million we had a year ago and the profitability I just gave I just gave sort of the qualitative information on that cost savings from our future fit program that was not the program I was just mentioning with the efficiency and ports and the closure and the closure of the facility in Kalk that was taking out mainly engineering resources last year here in Cologne as well. That program is pretty much not only fully on track, it's completed. All the savings we had aspired to achieve have been realized, so that's very, very successful. Then, obviously, there are always cost increases, labor costs, material prices, but we manage pretty well to offset these cost increases with respective price increases as well. And you see here, and I will not go through all the numbers in detail, but you see that we moved significantly up from 25 to 26 in the first quarter already, with 3.7% margin. Now in the second quarter, 3.8%. that is still you know far away from seven or eight percent but again given the occupation of the factory that's pretty good and important news going forward as soon as there will be an uptick in new orders Grossmargin in this business will immediately kick in at double digit level and then we'll actually see a perspective which we will enjoy very much. Let me move on to the next business unit, which will be service. So it's about growth. It's about growth and performance. And we have also and we'll show the numbers in a bit. a very very healthy order backlog. So we're expanding here as Deutz Service as an authorized service partner also for machine manufacturers and service partners beyond the Deutz engine, particularly in the United States and the Nordics as well as with the implementation of our service business for the Daimler truck engines because we exclusively sell to off-highway customers. The expansion in particular has continued in the United States. We made another acquisition in California, GMT Truck Repair, that we acquired in June 26, so the footprint in the US and in this case in California, which was a bit of an untapped area beforehand, is now improving. The Deutz Power Centers in the United States, they grow quite nicely, solid, solid field service growth. and very important also that we are realigning our dealer organization in the DACH region, particularly in Germany. Those who follow us for longer know that we've been working in the last four or five years quite successfully on insourcing or in-housing external dealers, but we didn't really touch the German network here. We're changing that now. We did actually terminate quite a few contracts and are now renegotiating them. And that's what we mean when we're talking about realignment of the dealer organization here. So we see a very, very good progress as well. Parts trading business, traditionally the one, the part of service with the highest margin is continuously expanding as well. and and that's really but going forward obviously thought service is that what is that asset what will in our ambition going forward not only support engines but more and more actually support also the other business units most notably energy as well as defense and we're working here quite nicely particularly on the genset service expansion with FRAG in Europe but also in the US with Bluestar. Let me go to numbers as well. So new orders are up. You see in the second quarter, focus on the second quarter now, new orders 152 million, revenue for the first time above 150. So obviously you're showing or benefiting from all the growth initiatives I've just mentioned earlier. and the order intake in the first half is now a 16.1% increase year over year and that is exactly the level we would like to see in growing this important business. Order backlog is not as relevant of a number like in engines because the because the through time of the business is as you can see by 57 million. I mean, it's much, much quicker. So but important is compared with the number from June 25, where it was only 42 million. So you see also here a healthy development. and very nice and we're celebrating every record of course to keep the team motivated in June was the so far highest monthly revenue of 55 million euro so that means obviously the entire team is aspiring to beat that number at the next possible Thank you very much. focus more and more also on efficiency, on technician utilization. So that's why it's not a point of concern that the margin is slightly diluted, but also bear in mind on a very, very high level. And on top of that, obviously, we grow more in working on the machine than selling spare parts. So that also contributes to that slight dilution of the business. But bear in mind on a group level, whatever we do here is always margin accretive. So let me move on to the next business unit which is energy. I mentioned it in the highlight page at the beginning already. We acquired Maxitrust in Brazil with that acquisition expanding the coverage to Latin America as well and also very important growing market. There's further diversification of our US customers with Bluestar distributor orders on record high. We like direct orders as much as we like distributor orders, of course, but it's always good, you know, to improve, increase both. Both foots were standing on here, both legs were standing on here. The ramp up of FRAG for the second half is going quite well and the new assembly facility in Schwerin and in Niedersachsen is well on track, the commissioning here. And now, obviously, very important that this great business unit we have been creating over the last three years is now showing and proving that the equation one plus one equals more than two will hold true. Our teams working together, the international teams working together pretty well here to really expanding and building a global business. And this year, We are already targeting and when I say targeting it's actually we're planning and we're clearly building on achieving more than 300 million very profitable revenue and the team's been super excited to grow that number to above 1 billion in the next five years. The market is supporting that, teams are excited to do that, so that's another great growth story here developed. and a little bit also an exciting outlook. We are working here and elaborating a pilot case for the use of Agendic AI in the business development in sales in actually two facilities. There will be something probably we can present in the next month is because obviously it's important to support this strong growth without adding proportionally human resources on that because we want to ensure that more growth gives extraordinary more profitability. Let me turn into the numbers for energy already. And here you see an ever growing business. So new orders in the second quarter at 55 million euros. And that includes 10 million euros from the Maxitrust consultation. But there's also now an extremely strong order backlog, now 220 million euros. So that shows sort of the forecastability, planability, reliability, in this business model is one of the strongest in our portfolio, particularly if you compare to the first half of last year. Across our five business units, energy is the strongest growth contributor. Up 37 million Euro year over year, driven obviously by the companies who joined us throughout this year, FREG in Germany and MaxiTrust in Brazil, but also organic growth, especially in the United States and also in Morocco and China. There is now, speaking on the margins, a significant recovery in the second quarter compared to the first quarter. So we're now at 13.7% in the second quarter. We explained that when we showed the first quarter numbers that the first quarter was a bit of an outlier. due to the consolidation effects and some seasonality and here you clearly see that we're moving already significantly up and the outlook for the rest of the year is also even higher than that both obviously in terms of revenue I mentioned the 300 earlier but also the margin level so the good thing is here As you can take that from the strong order backlog, the predictability not only in terms of revenue, but also in terms of profitability is extremely solid here. Let me move on to business unit NewTek. Revenue nearly doubles. That sounds super exciting, but it's still on a fairly moderate level. We do however work here obviously on our presence. Deutz will now act under the brand Deutz New Tech. Urban Mobility Systems as well as Futavis have been renamed and are now operating under the Deutz New Tech brand. It's important to position ourselves here with the strong brand we have. We're now in this business converting the pipeline into revenue, scaling further projects, scaling production delivery capabilities, enhancing also efficiency and R&D. It's all about focus, focus, focus. And there are many, many market opportunities, but we are always, as you know, very transparent on The outlooks in the different business areas. This is obviously the business unit which is most difficult to predict because it depends a lot on sort of overarching market and industry trends. Important for Deutz is that we have to be here, we have to be ready when the market, when the demand picks up. Then we are there and it's a bit of an option value. You know, if at some point the engines business gets under more pressure from conversion to battery electric products, important is to be ready. And that's exactly what we achieve with our new tech business. So in terms of numbers, new orders in the first half, you see already we talk about completely different levels, about 7 million a year new order. And that is still reflecting that muted demand, which I just mentioned. Backup is at 6.5. It's even a little lower than what we had last year. But again, with these sort of single digit or low double digit numbers, sort of percentage improvements or deteriorations are not as meaningful as obviously in other more established business units. The revenue in the first half nearly doubled, particular from the delivery of a few electrified excavators. Those go with solid gross margins, but obviously not strong enough. The business is not strong enough to bring the EBIT into breakeven. But you can also see profitability has been improving compared to previous years because again, focus, focus, focus on R&D activities as well as cost discipline. That brings me now to Deutz Defense. Deutz Defense becomes really like a core pillar of the business. We are continuously committed and working on the DevTech ecosystem. You all know about our investment and partnerships in ARX as well as in Titan. With Agkt we launched the first series production of the Gereon ground system in Ulm at our facility. It's not a huge series, but it's more than just a proof of concept, so that's great. There's more we are developing, particularly also in terms of resilient energy solutions. We introduced at the EuroCentury in Paris a partnership with HTC Solutions. We do also further ramp up the Sobeck activities. We're talking Sobeck, as you know, we're talking about battery electric drive systems for unmanned drones. And we're working also continuously with R&D and new powertrain solutions. There is a lot of interest. There are also, after the EuroCentury, quite promising orders. Not all of them we can disclose for confidentiality reasons, The vector is here clearly positives. Also new orders from a drone package for the German army for one of the three suppliers of the German army they built on our Sobeck drives. and, as I've just mentioned, Eurostudio was a success for us. Many, many, many leads for military engines, power packs and hybrid systems. And of course, as I mentioned earlier, the FFG acquisition was signed. However, in terms of numbers, we see substantial order growth in the second quarter of 26 versus the previous year. The order backlog is now at 43 million euros compared to 27 beforehand. also the revenue is 47% above above previous year now to 52 million and the growth is primarily coming from defense and not from others bear in mind we have also Hyot S the engine after treatment specialist part of this of this sub-segment here for which by the way the successful turnaround continues results are moving very much in the right direction but that is certainly not the focus of what I'm mentioning here and the EBIT is also developing as expected in a nice way. It's a bit lumpy, both revenue and EBIT is always a bit lumpy because we don't talk about serial business. So one quarter you have more, one quarter you have less. Important is obviously to look in the trend together. However, before moving on, what you've just seen here is Deutz Defense as it stands right now. Obviously, FFG, the acquisition of FFG will change the scale of that picture totally. Our defense business will then exceed, as I mentioned earlier on the call, one billion in revenue already in next year, 2027. And with that becoming a really, really not only an integral part of the strategy, but a very, very relevant part of the business in all aspects, revenue, profitability, number of employees and so on. FFG will operate as a standalone unit within our defense business unit. Its management, its workforce, its customer relationships, they will be fully preserved. So we will create one strong defense business unit around FFG. and what Deutz adds is industrial manufacturing scale, propulsion technology across the full power range relevant obviously to FFG's platform portfolio and that's extremely important a NATO-wide service network. So together and we can be quite proud of that. Together this defense business unit will become the only European domicile platform covering the full land vehicle lifecycle, propulsion, integration, MRO and modernization and that under one roof. So that opportunity exists in European defense today and we together with FFG, we are able to capture it. Right. Thanks for listening so far. I will hand over now to Oliver, who will focus on the financials a bit more detail.

Good morning. Warm welcome also from my side. Let's get started. After a strong Q1, we saw an even stronger Q2. And that shows our transformation is on track. Building the next DOITS is on track. So just to remember, beginning of 2024, We still were in a three shift operation on the engine business and that was where the economic downturn on the engine side, the cyclical part of our business kicked in. Since then, since the mid of 2024, we saw that we increased our margins in six out of seven consecutive quarters in a row. That is a great achievement. That is a direct result of our strategic transformation. That is a direct result of our top line measures, of our bottom line measures, cost discipline, cost reduction on the engine side, but especially also growing service, growing defense, growing energy. And as we heard earlier, we need to keep in mind The cyclical part of the business or the engine business still remains on a rather low level. That means the 7.2% margin we achieved in Q2 is the margin we achieved in a weak engine market. And once the recovery kicks in, we're going to see the full positive operational leverage driving margins even higher. Going to a bit more details on the financials, we see here, as we heard, the new orders 28.7% up. Yes, there is some inorganic effects in that, especially due to the first-time consolidation and the contributions of FREAG, Maxitrust and G&T. That total adds up to somewhere around 170 million euros in the new orders, but even taking that out, there is a positive book-to-bill ratio above one, which means the business is also organically growing, which is a good sign. On the revenue side, we see an increase here of 10.7%. All business units are growing, especially growth is driven here by the energy business, so the highest growth in absolute terms. In terms of regional split, 55% revenue in Europe, 27% in the Americas, 11% in APMEA, and only 7% in China, so no relevant dependency, as you know, from the Chinese business. In terms of EBIT we saw a significant improvement going up 43.1% to almost 80 million euros. That is a good achievement and of course consequently also net income increased significantly to 33.5 million and that is even after taking into account a 12.5 million provision we booked for the voluntary program. So not the FutureFit program we saw last year but the voluntary program now where we're addressing also the operational are all part of the engine business, especially here in Cologne.

Talking about R&D, CapEx and working capital.

R&D quota is going down in terms of sales of 4.0% after having seen 4.5% in first half 2025. So that is an achievement. The absolute figures here stay rather constant. However, we need to be aware that we shift especially R&D expenses from new tech where we show way more R&D activities, streamline and focus towards what market is demanding. And on the other hand, increasing it accordingly in the defense business. On the capex side, what looks as a big increase here at the first glance is actually mainly driven by the renewal of a lease contract for one of the sites which contributes to 12 to 13 million out of that increase. So the biggest portion of that, while the traditional classical capex outside lease is only slightly increasing, that slight increase is mainly due to some IT infrastructure projects and software projects which we are currently conducting around SAP. On the working capital side, you see an increase to buy by 21% to 21.5% of sales. While here, we need to keep in mind that the figure is a bit distorted due to the acquisition effects. We acquired several companies, as you know, of DERC, Maxitrust, G&T. The working capital is included here. However, not a 12-month sales figures included. So if you would normalize that, Working capital quota would be reduced by 1.4 or 1.5 percentage points, roughly bringing it to a lower level. However, we also see that inventory is increasing, was increasing throughout the first half of the year. That is, of course, also a direct result of being prepared for delivering on the improved order situation going forward, especially in the second half of the year. Well, talking about inventory, that was also main driver for the cash flow development in Q1 besides the operational results. So we see the cash flow from operating activities went down a bit to 32 million. That is mainly caused by higher inventories, as I just pointed out, also and especially to be prepared for delivery on the good order backlog. But also some severance payments for people that were leaving as a result of the FutureFit program. So result effect last year cash flow effect coming in once people are leaving and those were the two main drivers. That means in terms of free cash flow it converts to before M&A minus 29.7 million. Here we need to keep in mind that the year before was positively distorted by a few items as we pointed out at that point in time. So we come back here more to a normalized level where we see the typical cyclicity that H2 is significantly stronger on the cash flow side. In terms of net debt, that's the consequence of the free cash flow before M&A but of course also then reflecting our several M&A transactions and that is the reason why we are going up here to 520.5 million including roughly 92 million of leasing. On the equity side, equity ratio remains strong. Yes, however, it dropped a bit from 51.3% to 43%. That's the result of the acquisitions we conducted. So we have the debt finance positions, all of them debt finance. And that is basically bringing down the equity ratio, but still to a very solid level and our targeted level of above 40%. In terms of leverage, yes, we went up 2.1. That is including leasing here. If you take out leasing, we are the 0.3 lower, so at 1.8 without leasing. That is a moderate level still, however, as you know, we will go up a bit in the leverage as of closing of the FFG transaction, as we explained it over the last weeks, so that will bring us to a leverage in a range of more or less three, but with a very strong deleveraging potential of the combined group going forward. With that, I hand over to Sebastian again. Thank you very much.

Thank you Oliver for providing the details on the numbers. Let me first give an update on, or update, confirmation of the guidance.

Okay, sorry.

Let me first start giving an update or confirmation of the guidance. So, as you know, we initially gave that guidance with, at that point, a bit limited market visibility at the end of February. The limitation of visibility we, at that point, took because there was this various crisis Iran, a war, the Ukraine war and so on. But we can now again confirm that there is no direct impact, nothing substantial. I mean, always impacts, but it's all very manageable, as you can see also from our numbers. And we also see that our portfolio diversification is now really paying off. You know, we used to be a cyclical company, a cyclical business, a cyclical share with that high exposure on the combustion engine, on the construction sector, the agri sector and obviously that still is there but it is becoming less and less relevant because our service business, our defense business, our energy business is not due to those cycles it's actually embedded in a very very strong economic environment. and in that sense we're very happy to confirm the guidance. The revenue range between 2.3 and 2.5 billion euros, the EBIT margin between six and a half and eight percent, half year down at 7.1 so it's pretty in the middle but we're expecting as usual a bit of a stronger second half and this is not due just some hope on the engine recovery we see signals here as well we see signals here as well also moving into July orders are picking up nicely on still not like you know plus 20 percent level that's also clear but things are picking up nicely but even more important the new additions to the portfolio most notably energy and defense and we expect for both of them a stronger second half than a That's pretty much my confirmation of guidance. Let me just briefly reflect on what Oliver and myself have just shared with you. So we're continuing to grow in energy. Two acquisitions, but also that business or that part of the business which is already with Deutz for longer is developing very, very nicely. The US, Morocco, China. Profitability of engines rebounded. I cannot reiterate or repeat that more often because you know we have to focus on what we can influence and the global development of the construction market we cannot influence but we can influence in which markets are we active in which fields are we playing so that shows why are we moving in energy and defense why are we building doubling down on service and of course we can influence cost position as well as product portfolio and engines and that is exactly what we're doing and that's why we're now in the engine business on a level of profitability that was at low level of occupation in the past completely unthinkable but that means also in turn once the market is picking up even stronger than it's been picking up in the last months here we're actually moving on really nicely there as well Service Growth I mentioned and the deal with FFG I also spoke about. But on the deal with FFG I mean we will obviously over the next months we will give the more we have we give more updates but it's really a transformational transaction for Deutz because we are adding more than 1 billion very profitable revenue to the business and that will bring Deutz not only on revenue basis but more importantly on profitability level on EBITDA, EBIT as well as free cash flow in a completely different area. In a completely different area. and we are still as you know valued a bit like an engine maker with a multiple depending on where we are in the valuation sometimes six sometimes seven in terms of EBITDA multiple and we truly believe that with the portfolio we're now working in energy and defense in particular It's not nearly reflected what valuation potential Deutz has. So time will obviously support that. But we are looking ahead quite excitedly about what's here to come. Let's move on now, please. In terms of time ahead of us, the signing of the transaction we did at the beginning of July were now first half year results. In three weeks, 24th of August, we'll have the extraordinary general meeting. It's going to be a virtual meeting where we'll invite or we have invited shareholders to vote on the Capital Increase, relevant for the acquisition of FFG. So far, we received a lot of extremely positive feedback from many, many institutional investors. Also, their proxy advisors have issued recommendations to vote for that. So we received that extraordinary result. By the way, the first relevant and very relevant antitrust approval from the German Federal Competition Authority has been received last week. So that's also another sort of implementation risk. which we never considered as a risk but it's always good if these steps have been completed. So we expect by the end of this year, we're riding here potentially by the first quarter but at the moment our assessment is rather the end of this year, we expect the final regulatory approvals from other jurisdictions to be granted and thus a closing of the transaction. So that's where we stand right now and in that sense we would like to thank you for listening and obviously as usual look forward to your questions.

Thank you very much for the update Sebastian and Oliver. We will now move on to our Q&A session. For a dynamic conversation we kindly ask you to ask questions in person via the audio line. To do so please click on the raise your hand button If you are dialed in by phone, please use the key combination star 9 followed by star 6 to unmute yourself and please note that questions via chat will not be submitted today. We already have the first hand up from Lasse Stüben.

Hi, good morning. My first question would just be on the general market environment you're seeing and how Q2 progressed versus your expectations from Q1. I'm just wondering if generally the order in type dynamics, I'm guessing May wasn't fantastic, particularly for engines, but I could be wrong. So I'm just wondering, you briefly commented on orders picking up nicely in July, but would it be good to just get a bit more colour on the run rate coming out of the second quarter into Q3?

Yeah, Lasse, thanks for your question. So first of all, it was actually fully according to our expectation. Not beyond, but also not below. So we always need to bear in mind that we had a very nice jump in order intakes in the first quarter, and that obviously leads in terms of engines to higher revenue than before in the second quarter. And we were slightly below revenue in terms of order intake in the second quarter. But that's very slightly. That's pretty much, I would say. and not relevant. What we see here at the moment is a particular construction. They are very positive signs. If you look on our geographic end markets, just take a look at the United States. You know that our main customers in the United States are Terex, JLG. Their end customers, for example, is our main customer, United Rentals. Look at how they develop. They have given also updated numbers last week and very positive signs and so that's obviously translates also into all the intake at us always with a bit of a delay they need to work off the inventories however that's as much as I want to say about how we moved into July obviously July will report in October when we report Q3 but in principle I can say to give you a bit of light US is going nicely In Europe, some customers are increasing orders. Others are still a little reluctant. Also bear in mind, it's July, August now. So that is not the time in the year where construction customers are really ordering. But what we feel is that, you know, potentially after the summer break, Things will become more clear, but in principle, as I said, fully according to expectations and fully according to also what we put out on guidance. So the year is pretty safe.

Okay, perfect. The second question is on gross margins. These were down a little bit in the second quarter. It looks like you had the same dynamic last year. So I'm just wondering, what's the driver of that effect in the second quarter versus Q1?

Yeah, I mean, that's a typical seasonal pattern. You saw a little bit on the gross margin side that you two correctly pointed out is slightly lower. However, we are expecting that, especially if you look towards the second half of the increase again what we're going to see then is basically that especially the newly acquired or newly built up businesses especially energy, especially defense, especially also the service business is structurally going up. The only in fact margin kind of dilution we see is a bit on the service side due to the effect that Sebastian pointed out earlier and that is you know if you acquire businesses which are slightly below the current marginal level significantly more critical group level That should work also out on the second lap. And of course, the biggest impact is the expected recovery on the engine side, which has, of course, the most important impact on the gross mileage.

Thank you. And then the third one is on the OPEX level in the second quarter. I mean, so that was up again. I mean, that's up materially year on year, but also on the first quarter. So just wondering, is that sort of the right run rate for the remainder of the year and also looking into 27 or how should we think about that?

Well, I wouldn't call that the right. We acquired Fred, we acquired Double Down at the end of last year, we acquired Oxide Evil at the end of last year, we acquired Anomalaxy first and so on. So on the operating costs, also SGMA costs, you see that those costs are coming into the game. And ultimately, you know, we look at the EBIT margin, and that is what counts, the EBIT margin, and that is what we're expecting, the further increases.

Makes sense. And then the final question is just, can you give the organic revenue growth figure for H1 or the second quarter?

Yes, I can give it for H1. If you take the acquisitions we conducted in H1, so where actually the maxitrust into the game, into the equation, they accounted for approximately 170 and 170 million auto intake and 30 and last year, H2. So it's all by double count, because in total, including the others, of approximately 200 million impact on the odd intake and approximately 50 million impact on the revenue. So if you want to do a like-for-like comparison, H1, 25 against H1, 26.

Perfect, very helpful. And just final one, would you be happy to disclose the engine volumes for the first half? It might be in the report. I might have missed it.

Yes, I'm super happy. 68.x units. 1,068.x. That's important.

Okay, perfect. Thanks very much.

Thank you very much, Lars, for your questions. And in between, Mr. Neu, could you get closer to the laptop of the microphone? Yes, thank you very much. And next in line is Stefan Augustin. You may unmute yourself. Thank you.

Thank you very much. First, actually, a clarification because You mentioned the 1 billion for FFG and then for defense, so I just want to clarify, do you see for FFG as a standalone? On an organic base, the 1 billion for 27, or has there been a statement for the defense business unit overall, including...

So, indeed, I mentioned that FFG will achieve a revenue above 1 billion next year, probably a bit above 1 billion. And the statement that the defense business unit will be above 1 billion also holds true, of course, because it doesn't have a negative revenue. but we're working we're expecting on the sort of defense and others as it is right now also grows year over year so but what we're not providing as of yet is a very detailed number for 27 very simply as you know we're conducting our planning only later this year and I don't want to by accident give an outlook or like a guidance for the next year so that's why Unfortunately, we'll have to keep it a bit more on a high level with above 1 billion at a very attractive margin and everything else will follow later through the year.

I hope you understand that. Sure, fully understood. The second one is then a bit on the order intake in the energy business. We know it is lumpy. There might be possible projects at FERC. There might be dealer orders at Blue Star. So do we need to brace ourselves a little bit for Q3 also being a bit low and then a large chunk in Q4? Or is that a bit more evenly distributed in the second half? Because for the annual run rate, we would need to see a bit of a pickup from where we stand.

Yeah, yeah, but we see that. I mean, our current assessment, when I said earlier about above 300, I think, Oliver, the right number is 320, 330. That's what we expect on a full year basis at the moment. And there's very, very little risk in that because that's almost covered by fixed orders, a little bit of distributed business in the US, but that comes in pretty reliably. Here we do, I see hardly any concern, honestly speaking. But of course, the second half is stronger than the first half. First of all, because in the first half neither FRAG nor MaxiTrust has been part of the entire six months. I mean, they both joined a bit later. And secondly, we do have a bit of a seasonal effect at FRAG. They had that last year as well. Obviously you can't explain that it was something like harvesting season but it seems to be a bit typical in this business that orders are being placed throughout the first half but they've been delivered rather in the second half so we are very very very bullish or let's say positive on the outlook on energy in the second half. I believe that's probably the strongest the strongest foundation we have for in terms of so if I were to bet money I would put a lot of money on everything but the more I would even put more money on this on the second half of energy if you understand okay the final one is actually a bit of a combination first of all you had some one-offs in

for closing more efficiency measures in the engine business. Now, FFG comes a bit on top and understanding that, or to my understanding, we will have some serial production, which is largely taking up for the brunt of the sales increases of FFG. So is there an idea that you can... Harvest a bit more like sending out employees maybe from the direction of Cologne rather to Flensburg all together with the idea of India and then do we need to brace ourselves for a bit more one-offs in the second half?

Not significantly. I mean, so first of all, obviously, FFG is building up a third plant. It's well on track. It's in Handewitt, which is a neighboring district to Flensburg. We've actually visited it on Monday. It's looking very nice in terms of development. They will have The Richtfest, I don't know what it is in English, honestly speaking, but you know, one of the important milestones where you celebrate that the building is, the structure of the building is completed. So that'll happen soon. And obviously they require also additional personnel. Of course, we'll offer people working here to move there as well. Let's see whether that's interesting. It's a very nice area up there, so I wouldn't necessarily say no because other people go on vacation there, so we may actually send people to work there. It's a bit of a privilege. However, we also do not see beyond the 100 to 120 FTEs, which we'll take out as part of that redundancy or that voluntary redundancy program here. We, at this point in time, do not see any additional need to structure reductions here at the engine business. Obviously, we're continuously working on efficiency gains, but probably The number we mentioned will be more than sufficient for this year as well, because bear in mind, we've done a lot of work in terms of reducing permanent or replacing permanent by TEMs already in the past years. But efficiency measures will continue year after year, but not necessary for the second half of the year.

On your questions regarding one-offs, yes, there are going to be a few millions more one-offs, of course, but that is typically in line with what you are expecting with a transaction of that size, a bit on the typical professional consultants who need it on the financing side, of course, but nothing extraordinary high.

Right. Thank you very much.

Thank you very much, Stefan, for your questions. And with an eye on the time, we have two more risen hands. The first one is from Paul Skirta. You may be able to speak now, Paul.

Hi, Paul. Can you hear us? We can't hear you.

Yes, good morning. Thank you for hosting the call and for taking my question. I have a question on the free cash flow. You've confirmed high double-digit million for the year. and H1 came in at minus 30 million. That implies a swing of well over 100 million in the second half of the year. Could you please break that down between the working capital release and operating cash and specifically how much of it depends on the 79 million euro roughly inventory build-up converting in the second half of the year? Thank you.

Yeah, sure, I can do so. Basically, they are exactly the two elements you mentioned. So on the one hand, we are expecting a very strong operational performance throughout basically all business units or the four relevant business units in H2. That's going to convert to cash. And on the other hand, we are actively addressing the topic of working capital. and we started a program to bring that down a bit as you always do it every few years so we see good potential there and that's going to be like a compared to current levels we're expecting a 60-70 million reduction throughout all the layers of working capital and of course a big part of that is related to the inventories and that is also if you look at the history of Deutz you see typically that kind of simplicity that the H1 is weaker in terms of cash flow the H2 is stronger you're building up for seasonality patterns certain inventories throughout H1 and that is then reverting in H2 so I'm not at all concerned about that.

Okay got it thank you that's helpful.

Thank you very much Paul. and last but not least, the questions from Klaus Ringe. He also joins us via phone today and may I mute himself with Starkey 6. Mr. Ringe, yes.

Good morning.

Can you hear me now?

Loud and clear, loud and clear.

Yeah, hi, good morning and thanks for taking my questions. One would be on the outlook for 2026. I mean, you already mentioned that you're feeling quite comfortable with the guidance and looking at the H1 performance, you're already comfortably in the range for adjusted EBIT margin. In terms of revenue, you need a bit of a pickup in H2. So would be interested to hear a bit your view, what will be the drivers in terms of business units here for the pickup in revenue in H2? That's the first question.

Yeah, pretty much all but NewTek, because NewTek is just not relevant in terms of top line at the moment. But we'll see a bit of an uptick in engines, a bit, but that's well in line with the current sort of bottom-up projections from the teams. So there's no sort of hope in a way left. Secondly, I mentioned it earlier already that the second half in energy is larger or expected to be larger for two reasons. First reason, because MaxiTrust and FREAC haven't been part of the group since the 1st of January. So that's a very, very simple reason in a way. And secondly, the particular FREAC, we do Based on the visibility in the order book, we do see more in the second half than in the first half. So that's energy. On the fence, we received particular at Sobeck a few relevant orders to be delivered in the second half. They do relate. to the drone package that the German army has ordered with three drone suppliers, one of them working with Deutz in particular. These orders have been placed. There was actually an additional order very recently. Here we do not talk about a huge top line, but it's healthy margin. as well as some diesel engine orders from other NATO customers coming in and on the service side last but not least we have for the first time surpassed 150 million the run rate on the quarterly basis and the run rate in June and also in July is well above the 50 million so yeah that's pretty much supporting that top line prognosis for the second half.

Okay, thanks for that. And the second one would be more on the medium term. I mean, yeah, you have the medium term targets, more than 4 billion sales, 10% e-promotion plus. But obviously, including FFG, it will be much more than that. So in your view, what would be the right timing for updating these targets? Is it already when you get approval for FFG? It's when FFG is closed the deal or... What's your view here when we could hope for an update?

We do plan an update in the second half of this year. What I can say, well, this is very simple to say because we are already in the second half of this year. I know that we will give an update later this year. What I can say already, and I mean, you applied it with your question, Klaus, that our four billion target, which we initially We will achieve much, much, much, much faster, not only the top line, but also the bottom line. I wouldn't even rule out that we already achieved this next year or we are a little short of that. But we require, because this is a big, big statement to be made and obviously we'll need a bit of a more bottom-up planning particularly on FFG side. You know, there are changes in accounting principles. We're moving from Handelsgesetzbuch, from a German HGB into IFRS. So obviously that doesn't change the business, but it changes the realization of revenue and of profit. And we want to run that exercise diligently before informing the capital market on something because the worst thing we would be we say oh yeah we're going to be at the four billion which as i said could be could be possible and then due to some accounting uh accounting issues well we're at 3.5 only that'd be terrible so that's why we're working on that diligently but as always Klaus you and the other analysts you will be one of the first to know okay thanks thanks for that what you have for another day thank you

Thank you very much Klaus and with this we come to the end of today's conference call. Thank you everybody for joining and your shown interest in Deutz. A big thank you also to you Sebastian and Oliver for your presentation and your time. From my side it was a pleasure to be your digital host today. I wish you all a lovely remaining Thursday around the world. Stay safe. and with this I hand back over to Sebastian for some final remarks, which concludes our call for today.

Yeah, thank you very much. Thanks for being our digital host, but also thanks everyone for dialing in. Thanks for your interest in Deutz. Thanks for your trust in Deutz in the share and for your shared excitement on what is ahead of us. And I just want to conclude, you know, This is really a pivotal moment for Deutz as a company. We have always talked about a transformation. We have been also working on the transformation in the last years. We are on this journey since 2022, really waking up a company from a bit of a long-term sort of sleep. Sometimes it's the way it feels. and we did the homework in the first two years, fixing basics, bringing the company into a profitable position out of which we're then able to grow. I'm not saying it only started with that FFG transaction because obviously we've done a lot of very great things in the past but now this is the biggest step and it's a step which we tested and prepared very diligently and we feel we know that this is the right asset at the right moment. And what I can promise is that Deutz in 27 will be completely different, larger, more profitable and also eventually a more valuable company. So it's great that you're interested in Deutz for us, but also for yourself. Thank you very much.