DEUTZ Aktiengesellschaft (DEZ) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call and live webcast on full year 2024 results. I am Valentina, the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. Please note that this call is being recorded, and a replay will be available on the company's website at deutz.com later today. Your participation in the call implies your consent with this. At this time, it's my pleasure to hand over to Mark Schneider. Please go ahead.

Thank you, Valentina, and good morning from Frankfurt. To be more precise, hello from the Frankfurt Stock Exchange this morning, we had already the pleasure to celebrate the 125th anniversary of DEUTZ as a listed company. A special thank to you, the analysts and investors who took the time to attend our digital events. Our CEO, Sebastian Schulte; and our CFO, Oliver Neu, enjoyed ringing the famous opening bell of the stock exchange. And now they are with me in the room for our full year 2024 conference call. For the first time we have also journalists participating who had a [ separate ] call before. But as usual, Sebastian will walk you through the highlights of the performance of the group and the implementation of our strategy and then hand over to Oliver, who will provide some more details on our financial figures. Sebastian will close the presentation with our current market outlook and our guidance. After this introduction, we will be happy to answer your questions. As always, please note our disclaimer, especially regarding forward-looking statements. Having said this, I'm handing over to you, Sebastian. Thank you.

Thank you, Mark, and also good morning from my side here out of Frankfurt. Certainly a special moment, special day for us at DEUTZ with that long history behind us. I will not like to talk about the long history, I will talk about history of '24, but obviously focus also on the perspective of '25 and beyond throughout the presentation. Let me start with highlighting some of the key numbers for the year 2024. And the headline on that chart shows it pretty strong year. We were affected by an extremely difficult economic environment, particularly in selected markets in Europe, but also the sectors agri and construction equipment. So we did manage to stay on our strategic operational improvement course. What does it mean in particular? New orders, we closed the year with EUR 1.827 billion order intake. That is a plus 4.5% year-over-year increase, but let's not put that into the wrong perspective. The fact that order intake increased was mainly driven by the positive consolidation effects. What we mean by that [indiscernible] as you know, couple of major and very successful acquisitions, Rolls-Royce Power Systems, Daimler Truck and [indiscernible] recorded the order intake [indiscernible]. So that's why this number is not [ comparable ] with the year before. Revenue is EUR 1.814 billion. That's down 12%. And the reason for that decline is the aforementioned [indiscernible] sales, particularly in Europe [indiscernible] later in the details in Europe construction and agri. But it was supported by the service segment, which grew. Another year where the segment grew and the acquisitions [indiscernible]. EBIT at the close of the year was 4.2%. That is also down 2.8 percentage points if you compare it year-over-year. But that's one of the [ proceedings ] that is very important [indiscernible] the number of engines produced and sold. We have closed the year on a very, very low level, particularly in our heritage [ engine ] business. And [indiscernible] lead to negative profitability. So we're not happy with the 4.2% in absolute terms, of course, that's not the vision and we'll talk about the future later. But given the circumstances, it was actually quite a successful result. In the fourth quarter, DEUTZ benefited already substantially from the shift in the portfolio from the energy business, but also [indiscernible]. Free cash flow before M&A was positive EUR 30 million, also down 58.8% year-on-year. But here also we saw a very, very positive development, particularly in the fourth quarter. So these were the highlights in terms of KPIs. But if I now talk a bit about the revenues by region. That's what I just said earlier coming from '22 [indiscernible] in 2023 EUR 2.1 billion now to the level of EUR 1.8 billion. And what we see here is particular decline in Europe [indiscernible] significantly. We also saw the increase in America that is supported by a generally more stable U.S. market in 2024, but also [indiscernible] and we saw a reduction in China as well as in APAC without China. But on absolute terms [indiscernible] numbers [indiscernible] is that our services business, we managed to grow again. We have surpassed first time [ EUR 500 million ] revenue. When we look ahead and I will do that later, put a bit more flavor, but when we look at 2025, we do see already now positive signals from customers, particularly in agri, construction but also material handling. We expect the coming orders to pick up post the first half. As always, when the new orders are down for 12 months and longer than that, then we'll have -- we'll see obviously [indiscernible] characterized by sluggish demand. So it's normal that we see the positive effects [indiscernible]. Important and all relevant numbers, not relevant, but all numbers were in line with the guidance [indiscernible] construction sector. Let me walk you through that briefly. So we adjusted the guidance on unit sales from the level of below 150,000 units to 142,907 units. Revenue, we indicated around EUR 1.8 billion, we adjusted to EUR 1.814 billion. We indicated a margin range between 4% and 5% and we closed at 4.2% and the free cash flow, we guided that we would end up at least balanced, as I said earlier, we were at EUR 30 million positive. So the guidance of October was confirmed or we are pleased to confirm in our results today. There are -- as always, when you look back in the year, there are some important takeaways for 2024. And 2 things, 2 themes [ followed ] that. First of all, we are very much on the right track with our Dual+ strategy, a strategy we developed 3 years ago and fine-tuned last year. And what are the main takeaways from that? So diversification for us is important because it helps us currently to balance the market long term and particular more stable service business, currently the regional business in America and of course the energy business where we see a very, very strong demand not only now but also in the years to come. And obviously we did take some important portfolio measures last year. We talked a lot about Blue Star Power Systems with a significant earnings contribution. So we'll give some details later in the presentation. We also talked a lot about the RRPS transaction that's the takeover of the Daimler Truck engines [indiscernible] business. So that supported as well. And almost I would say forgotten, but quite a while ago was the divesture of Torqeedo because that was closed in the first quarter of 2024. And that sale really took a lot of burden away from us and released also a significant amount of funds, [indiscernible] EUR 80 million cash flow business [indiscernible] very happy that we got that deal done in early 2024 because well, the numbers say that without that divestment, obviously, '24 [indiscernible] fast also. EBIT as well as [ CapEx ] side. And if we now look at the 4.2%, as said earlier, this is not our ambition level. But given the circumstance top line sold engines 142,000, it's very solid if you compare to the past because if you look in the long term in the last 5, 10, 15 years, 45% was sort of the top level we were able to achieve, but only in times when the factories were pretty much fully utilized, 140,000 units, the factory is powered to utilize. So it's important, that is an important milestone. It also shows that as soon as we get more utilization in the factories, and that's what we expect over the course of this year [indiscernible]. The other takeaway is that growth, and that's what we've kicked off quite successfully over the last years is one thing, but obviously cost reduction is another thing. And we kicked off our so-called Future Fit program where we are targeting sustainable savings of EUR 50 million from 2026 onwards. Oliver will walk you through that a bit more detail later because we want to [ show ] not only the long-term competitiveness but also the short-term profitability. And it's one thing very clear, and that's nothing which you read in the press releases. When we adjusted the guidance in the autumn of '24, sometimes you need a bit of a momentum also to implement some measures which are not very popular within the company. So that's why it's not a coincidence that 2 days after our guidance adjustment, we said, okay, we're going to reduce follow-up headcount in R&D because this is not very popular, but sometimes we need a bit of a [ broader ] platform [indiscernible] that's what we did last year as well. And as the [indiscernible] we are pretty good on track -- pretty well on track with that. A lot of what I said, it works and you see here now the indicated numbers. '23 was a very, very good year for DEUTZ, EUR 144 million adjusted EBIT already taking out the Torqeedo effect because that was already considered at that point as discontinued. And then you see a huge backlog, which is pretty much the volume effect taking account the reduction in sales from almost 190,000 units to the aforementioned [ 243,000 ] units. Scale effects or lack of that pretty much wiped away majority of the profit [indiscernible] production. But then you see the small but very, very relevant green bars, [indiscernible] optimizing the classic business [indiscernible] with the [indiscernible] '24 was lost business otherwise. So we still continue doing so. Service we managed to grow. Service business, as you know, is extremely profitable. So every year we get more top line. Well, significant share of [ precent will ] remain bottom line. And then on the portfolio side, Blue Star Power Systems, Daimler Truck [indiscernible] fourth quarter where we kicked [indiscernible] off [indiscernible] some smaller other impacts [indiscernible]. So very, very important, something you can influence and something that is difficult to influence. The top line effect was difficult [indiscernible] how we walk against that and achieve a result which was below '23 [indiscernible]. And I mentioned earlier that we did realign our Dual+ strategy in 2024 and let me walk you quickly through that. It's nothing new compared to what we presented at the Capital Markets Day. Classic business, we want to grow. We want to get not only top line, but we also want to improve the margins further. On the service side, we want to expand. We are now at above EUR 500 million. So the next step is the EUR 600 million that we mentioned already 2 or 3 years ago. So far, we were able to fulfill or meet sort of every target we set ourselves. And we have to go further from the sort of traditional parts and maintenance business also into taking care of third-party engines. By the way, like the Daimler Truck engines [indiscernible] market is [indiscernible] it's not produced by us at the moment. So it is already sort of third-party business [indiscernible] so that enables us also to continue the growth path further. And on the solutions side, we used to call [indiscernible] we expand the business and formulate [indiscernible] much wider, including that very, very profitable and growth-oriented energy business because we want to increase our coverage of the value chain. Investments organic, but also inorganic [indiscernible] showed a very, very successful [indiscernible]. Let me now touch a bit on the progress we did with Classic. So first of all, the completion of the takeover of the Daimler Truck business. So first of all, it's very important when you take over a business, obviously [indiscernible] and you don't lose any business. And we can say that more than 90% of the customers also stay with us, in particular the ones [indiscernible] you see on the bottom [indiscernible] largest customers, extremely big, extremely relevant, extremely profitable customers for us [indiscernible] are also providing business for cross-selling [ power ] engines, which are not coming through Daimler Truck portfolio. The signing of the deal took place [indiscernible] 9 months later we closed this deal. It was a challenging process and we had to [indiscernible]. We are expecting revenue of more than EUR 250 million with very attractive margin. That business is significantly above the margin of [indiscernible] engine business. And obviously, from a strategic marketing point of view, we were able to expand our engine portfolio, particularly in the field of medium-duty and heavy-duty engines. And that was very, very important for us because a lot of the growth over the last 10, 15 years, we [indiscernible] which is good, particularly in the U.S. But obviously consider taking into consideration the future of these engines [indiscernible] highway, very, very important to have offerings in the medium-duty and heavy-duty engines [indiscernible]. So that business had an immediate effect. A bit more midterm is the contract with TAFE, they are the Indian company. We signed a contract operation with TAFE mid last year, that TAFE will produce DEUTZ engines under license from 2027 onwards [indiscernible] smaller ones. And there's going to be a dedicated production line for those engines all over India. And the concept is, as most of you know, that they will produce up to 30,000 engines there, which are used in one block [ by half ] themselves for their tractors. But on the other hand, we will also market these engines in markets where -- which are more price sensitive where the cost position is not really [ competitive ]. And that's why that is an important sort of structure of that deal because we want to have a structure in place unlike the one that previous management implemented in China where our partner is not the only customer. It's important that we have -- both parties have to get benefits of going to the party. And that was for us, for me in particular was [indiscernible] done that. Otherwise [indiscernible] customers [indiscernible] we avoided that talk. And so very good progress in the Classic segment. In Services, we managed to continue our growth path from the 450, 484 year before last year, 512 last year, so it was a 7% CAGR that was [ all past ] the market rate. And we're growing pretty much in all -- in absolute terms in all of our regions. So you see the regional split remains more or less unchanged. Americas, we just kicked off additional growth project with our DEUTZ power centers, but effects we will see in '25 and particular in '26 and beyond. Some of the highlights of the service growth was further acquisitions. We integrated the DEUTZ Nordic and saw long-term [indiscernible] acting under the name DEUTZ Nordic. We also integrated our South American Peru and Chile business Mauricio Hochschild. We did acquire BTH Fast [indiscernible] Poland. And we started integrating [indiscernible] Daimler Truck engines. We expect for this year a top line of about EUR 30 million. Last year, the top line was only about EUR 5 million. Reason was that the parts we transferred a little later in the engine business just to reduce complexity in that acquisition. So we will see quite a significant boost of [indiscernible] '25. And let me highlight a little bit how and why we're setting up or we have set up this new segment, this new unit DEUTZ Solutions because one thing is very important. I mean with the engine, particularly in power generation, we're managing -- we're developing, producing, managing probably the most complex product in the value chain. But we did analyze that although despite managing the most complex product, you don't get the largest share of the profitability in that value chain because that is a share which is then received by others. So we said, well, power generation is super important. And you know that the demand will double in the next 10 years. But there's no point in doubling the business if you don't get the bottom line with that. So we said we need to integrate further forward here and also closer to the customers, the energy business [indiscernible] other sort of engine companies much larger than us that [indiscernible] Cummins, Rolls-Royce Power Systems. If you look where they grew in the last years and where they grew particularly in terms of profitability, it's in large engines and power generation, right? So it doesn't surprise us at all. And we see the same thing in our business. We just build up a little later than that, but we're picking up [indiscernible]. We're focusing more on what the customer actually wants. We're very positive that throughout the year we'll be able to announce significant businesses rather than only the prototypes, nothing to say today, but certainly very, very positive about the future. And we want to continue to expand our energy business, the energy business to achieve the revenue of more than EUR 500 million by 2030. [indiscernible] for '25 below EUR 200 million. So there is growth ahead, including also for M&A activity. And with that solutions business, obviously, this is the focus right now, but we always reserve the right optionality if we identify other businesses or other lines which what we can that we then attach that on that part as well. New technology, I mean, a little what happened in 2024. First of all, we focused -- from a technology point of view, we divested Torqeedo, reducing the losses, I mentioned earlier. We sorted our activities and we've gotten all [indiscernible] range of products in particular, that includes retrofits. That's important thing for the next 5, 6, 7, maybe 10 years, retrofitting in particular of large-scale applications is going to be more than bridging way to bring climate neutrality into these sort of complex machines, but also it includes hybrid systems, ranging centers and so on and so forth. We do have -- moving now from e to hydrogen, we do have a market-ready engine, but the market is still very, very reluctant for that. So we also said as long as the market is not picking up, we'll keep what we have, but we do not significantly invest for that and we keep the engines. You saw it also present here in Frankfurt [indiscernible] hydrogen engine as a showcase. We're not going to develop a new one unless there's market what the market wants. We did set up our New Tech unit as an independent unit so that the teams are at more freedom [indiscernible] slowed down by the long established well-functioning processes for our Classic business. Our CEO, Bert van Hasselt [indiscernible] at our Capital Market Day. And now we're filling up quite a decent sales pipeline. I mean this year, the sales pipeline is already EUR 15 million, still a low number compared to the [indiscernible] business, but there are very, very promising projects with OEMs [indiscernible] applications where with a bit of [indiscernible] will see pickup larger scale in the future. And I talked already about the [indiscernible] expectation for 2025. So very excited about that now going forward with the new setup [indiscernible]. What we also did last year is setting up the demonstration plant. We opened it this year, but we set it up last year. In Spain, we inaugurated here hydrogen genset with a green ecosystem. And you see that on that picture on the bottom right, you see the genset or [ DEUTZ's ] hydrogen storage. So that plant is our component [indiscernible] Spain. So we have a full photovoltaic facility there. So there's a lot of green energy. So we produce that [indiscernible] produce green hydrogen store and put it back to electricity with our genset at night or on the rare days sort of staying [indiscernible] so that's a showcase [indiscernible] standalone solution, which really shows how hydrogen can be used. But it's at this point in time, nothing for full scalability, but it shows what we can do with that. We've seen a lot of interest of customers and partners. And interestingly enough, I was there myself inaugurating that plant. There are so many companies who don't want to talk about hydrogen, but then also want to talk about the offering we have in battery electric technology. It's very important to be present in that market as well. Moving on to energy. We entered the energy business with our -- with the acquisition in Blue Star. And still keep in mind what's the reason for that? The infrastructure is terrible in many countries, particular in the U.S., the weather events will increase energy transition towards renewables, will make the supply much more unstable. And so it's important that we benefit as a company from that. We acquired Blue Star. Now we are a system provider there, and that's only the first step. We're now investigating further growth within and outside the U.S., taking into account what we already have, Morocco setup, but also production facilities in China. So there's a lot to come in the future. In terms of numbers, and that's obviously very important [indiscernible] has been really good success case. And the history here on top line and bottom line is pretty impressive, so impressive that the numbers [indiscernible]. But what we expect initially at this M&A project, we expect the top line in '24 a little above EUR 100 million company, also full year with almost EUR 150 million revenue. Only 4 months of that were in our books but we expect this year to be more successful than 2024. And the growth, which looks incredible and is incredible is mainly driven by also the microgrids, which are being installed in the United States. There are a couple of [indiscernible] last year was only one, but now second large supermarket chain joined the customer portfolio [indiscernible] data centers and so on and so forth. So we do expect '24 also growth. I mean we don't expect to double in '24 but still growth. And we also [indiscernible] one of the questions that may come up later [indiscernible] when we will also pass this on to the customers as [indiscernible] in the same way. With that sort of first 25 minutes or so, I would pause and hand over to Oliver, who goes into more details on the numbers.

Thanks, Sebastian. Also from my side, welcome. I will give you more insights on our '24 financial performance. Let me start to recap a bit on the Capital Markets Day, which we had in October '24. And we basically present our vision of doubling the size of the group until the end of the decade. And I mentioned at that point in time that besides financing on growth, my contribution will also be ensuring execution and performance. And that is exactly what we do with our Future Fit program, which we see here on the next slide. So just to recap, we launched in October, as Sebastian mentioned, the cost reduction program besides the short-term cost discipline [indiscernible] last year. So we launched the structural cost reduction program. We gave the name. We call it Future Fit. We divided the areas of savings in 5 building blocks, especially on the Classic R&D side [indiscernible] we see a significant potential of reducing headcount. On the New Tech side, tailor-made investments towards future proof areas. On the regions side, supply chain side and organizational setup basically going to the organization and reducing structural cost. We are well on track there. We identified even more than EUR 50 million in terms of savings. We want to achieve EUR 20 million full P&L effect, at least EUR 20 million this year. We are well on track on having the full EUR 50 million bottom line impact in 2026. [indiscernible] degree of implementation structured program, so running pretty well. We received a lot of questions about potential onetime costs on that program, especially a good portion of that is related to the reduction [indiscernible]. And from the current perspective, we are seeing somewhere EUR 20 million to EUR 30 million as onetime effect, mainly for severance payments, which we would classify as an exceptional item and like Q1 figures. For financial figures in a bit more detail, we saw new orders basically increasing by 4.4% to EUR 1.827 billion. This is driven, as you heard initially, by the M&A effect. So roughly EUR 300 million of that increase is coming due to the acquisitions of Blue Star Power Systems and the former Rolls-Royce Power Systems business. Besides that, adjusted for that, the order intake would be in the range of 50% to 70% lower on a comparable basis. In terms of unit sales, we went down 23.6% to almost 143,000 units. And on the revenue side, we decreased by 12%. So the decrease on the revenue side is significantly lower than the decrease in the unit side. That's basically also showing that we are well on track in making our business more resilient. Service growth for example [indiscernible] last year is not reflected in unit sales, but stabilized in terms of the revenue. And also so the new acquisitions, they come into a different pricing structure. So that is also one of the reasons why we are not giving specific guidance on the units going forward but rather focusing on the revenue side that is very important [indiscernible] strategic initiative. Having a bit more look on the revenue. And on the left-hand side you can see the revenue breakdown by application segment [indiscernible] and on the right-hand side the breakdown by region. And we see basically on the application segment that service business was growing by 5.7% to almost EUR 512 million. So the first time we passed through the order of EUR 0.5 billion. On the material handling side, there was a slight decline, 2.3%, mainly due to the fact that our Americas business is running quite stable. On the machinery or agriculture machinery and construction, we saw the biggest declines that's mainly driven by Europe. And [indiscernible] Blue Star mainly part of stationary equipments, gensets [indiscernible] roughly EUR 60 million, EUR 65 million in terms of revenue besides [indiscernible] on the revenue side [indiscernible]. On the revenue side by region, mainly reductions in here Germany [indiscernible] 13%. There is a stabilizing effect also on the acquisitions [indiscernible]. Coming to the bottom line on the EBIT for exceptional items, we saw a decline, yes, we saw that earlier to almost EUR 77 million, [indiscernible] solid margin [indiscernible] in the past, we have only seen very, very high sales [indiscernible] that we are well on track with our strategic preservation. On the net income side, we ended up at EUR 41.8 million including the discontinued operations. On the net income side here, that's a decline from EUR 82 million the year before. And in terms of earnings per share for the entire group, so including the discontinued operations, we ended up at EUR 0.39 per share [indiscernible]. Some more words on further [indiscernible] KPIs. R&D spending in absolute terms slightly decreased in relative terms slightly decreased at a ratio of 5.1% of sales. CapEx went down to EUR 102.4 million, so 12% decline. Main [ items ] were the CapEx investment in the new lines of [indiscernible] which is affecting that [indiscernible]. On the working capital side, we saw slight increase, so EUR 383 million, that's 21.1% of sales. Here we need to keep in mind that we added working capital with [indiscernible] operationally we were able to compensate that fully. So that we add the second aspect is that the sales figures of course are not reflecting the full 12 months of sales of the [indiscernible] acquisition. So we expect that ratio to improve, especially since we acquired business [indiscernible]. Talking about cash flow and net debt situation. The cash flow from operating activities reduced to EUR 110 million. That's mainly [indiscernible] of the operational performance [indiscernible]. On the free cash flow side, we see here the free cash flow on the group level. So including M&A activities and discontinued operations [indiscernible] continued operations [indiscernible] positive figure there. In terms of bridging, bridging the 2 figures, we have to keep in the mind that we invested about EUR 383 million in M&A acquisitions and on the other hand we got EUR 75 million from sale of Torqeedo [indiscernible]. In terms of net debt, we saw an increase. That increase is mainly driven by the cash out from the M&A activities, which I mentioned earlier, compensating effect was the [ cash ] and capital increase [indiscernible] EUR 70 million mid of the last year. Talking about balance sheet. Equity ratio remains very solid. The increase in the total assets is mainly driven by the acquisitions we did. Equity ratio at 50.4%, which gives us room for further debt financing. Financial leverage defined as net debt divided by EBITDA, also including the [ leverage ] went up slightly to 1.3. I think that is completely in line what we also mentioned as [indiscernible] levels at the Capital Markets Day where we said increasing operational stability with increasing resilience [indiscernible] and of course here this is also driven by the fact that the EBITDA figure from the acquisition is not hedged for a 12-month period. And so that is the most [indiscernible] leverage ratio. Dividend announced at the Capital Markets Day that our dividend policy is stable or increasing dividend in absolute terms on a euro per share basis [indiscernible]. That is exactly what we will propose also to the Annual General Meeting in May. So Board management and Supervisory Board are proposing a dividend payment of EUR 0.17 per share, considering that we have 139, almost 139 million shares outstanding that some cash effect of [indiscernible] in terms of payout. And let me close with one more technical slide, but just to highlight that again since it is important [indiscernible] for Q1. As we announced on the Capital Market Day, we are changing our segment reporting. So moving forward [indiscernible] have 2 reported sectors. One is the DEUTZ Engines & Services. This is the [indiscernible] DEUTZ business [indiscernible] and also the service business related to that, as we said already. And on the other hand, we are marketing our energy business [indiscernible] but also our New Technology business, former Green business, and second segment called DEUTZ Solutions [indiscernible] business. With that, I would like to hand over to Sebastian.

Thank you, Oliver, for the numbers and the details on [indiscernible]. Let me give a bit of an outline on what we expect in 2025. We start with the global market [indiscernible]. So when we look at the global market trends, we see the outlook. They all say pretty much the same thing. There is a cautious recovery for the second half year predicted. And that's supported by investments and also by this improved market sentiment. And that's just the global outlook. Obviously, the things that happen in individual countries like the implication or potential implications on the German spending programs which [ our company ] negotiated not factored into that because they still need to understand better what it actually means and when particular the spending programs translate into spending [indiscernible]. If you look at the regions, Europe and Germany are currently weak growth, but as I said, first signs of recovery from the second half of 2025 [indiscernible]. In the United States, well, in principle [ steady ] growth, our PMI slightly improved. However, a bit of uncertainty in the country also due to the tariffs, what does it mean to the domestic market in the U.S. And China, we again expect a slight stabilization in 2025. I mean just [indiscernible] later, I will go more to the details on our guidance, particularly in our joint venture, for example, with [indiscernible] I mean the numbers increased, but still on a low level, but it's getting a little better [indiscernible]. You look at the segments you see on the right part of that chart, agricultural, CEMA business climate index shows strongest increase since the start of the recession. And for the fourth time in a row, [indiscernible] slightly more positive. That's an early indicator. Typically, it takes 4, 5, 6 months from early indicators improving into order intake, but at least it's the fourth time in a row that we see an improvement here. Construction equipment are currently in terms of order intake and sales stable on previous year's level. But again, there are first signs of recovery. Some of our key customers are indicating in the still informal discussions with our sales team that they [indiscernible] growth pickup of demand in the second quarter already, and there have been players expressing to us already the concerns of engines potentially becoming bottleneck component in the second half of the year. Our response is always, well, when you're concerned, the easiest way is to place an order, and that's not happened yet. But I believe these are the conversations which start -- which begin to indicate that things are happening. Material handling, I mean, we're talking about [indiscernible] electrification trend continues strongly. On the other hand, that's particular for the United States. Diesel remains extremely relevant. Bear in mind, material handling for us is mainly the customers, tariffs, very dominant in the U.S. where [indiscernible] trend to say very carefully. But here is also one of the concerns [indiscernible] in the second half of the year. We see increasing client orders also in the United States. We're trying to ship engines a little earlier than needed in order to mitigate potential tariff [ implications ]. That's a good thing. Customers preorder. We don't talk about [indiscernible]. Power generation, you heard from myself earlier [indiscernible] performance classes, small to mid to large, power generation is [indiscernible] we see that the power booster as well will take is -- is extremely [indiscernible] solid cash flow and no sign of slow down in that market growth [indiscernible]. So we do expect a positive development throughout '25, not the usual, but we do expect positive development particularly in the second half of the year. That's top line. On the bottom line, Oliver talked earlier about the cost program. We expect EUR 20 million from the future for already P&L effect [indiscernible] EUR 50 million '26, EUR 20 million hopefully a little more, we expect to support the bottom line this year. There will be a couple of one-off program costs for particular for the layoffs in the R&D department that [indiscernible] very transparent [indiscernible] exceptional items. And we do also expect continuous development of the portfolio very much focusing on service as well as [indiscernible]. What is in the numbers? Revenue on the group level, we expect currently a range between EUR 2.1 billion and EUR 2.3 billion as the strongest contributor, Engines & Services segment [indiscernible] EUR 2.0 billion to EUR 2.2 billion and EUR 150 million to EUR 200 million was in Solutions segment, out of which predominantly the engine business is contributing but we think it's just ramping up. EBIT margin on a group level, we expect improvement to 5.0% to 6.0%. In DEUTZ Engines & Services well above 6% to 7%. Solutions segment at between minus 10% to breakeven. However, here within Solutions, the margin quality is very, very different. So the Energy business will contribute to the margin of between 10% and 13% to that range. And free cash flow before M&A, we expect mid-double-digit million-euro amount for 2025. With that guidance of '25, we confirm the midterm targets for '28 and also the ambition level for 2030 as indicated in the Capital Market Day. We expect particularly strong growth at Solutions with 30% CAGR, more than EUR 500 million, as showed earlier, revenue at the very end of that horizon from energy, and that will drive both organically but also by M&A and about EUR 30 million New Tech. So this will grow in line with DEUTZ overall and will contribute or continue to contribute to the quarter of the top line. But when you look at the bottom line, this is proportionally high [ figure contribution ]. We want to keep the high margin for the Service and [indiscernible] relative contribution will increase. And if you look at that altogether in our models, sales growth, further development of the business model, we expect the end of that horizon [indiscernible]. Now looking into specifically the year 2028 midterm targets, pretty much halfway on that journey. Revenue, we expect to range between EUR 3.2 billion and EUR 3.4 billion. We want to get the profitability level to 8% to 9% and dividend per share, what Oliver said earlier, continuing here sort of the journey, we've initiated upward trajectory in a year like '24, where we don't exceed the previous year. We want to remain stable. But if we get -- if we increase top and bottom line, of course, we also want to continue to increase the dividend in order to have our shareholders participating in the success of the business. So briefly summing it up again before then coming to the Q&A. Looking back at '24, I mean, solid performance. I think that we can really say that it's important for us to say that because if you just look at the numbers to the right, top line reduced, bottom line reduced, but let's bear in mind that the segments -- the end market segments, [indiscernible] Construction, Agriculture was down 30-plus percent in the past, that would have been -- we would have lost [ money ]. So this is why I'm saying solid performance. Book-to-bill at 1.0, supported by the strategic initiatives. Unit sales down 23%, revenue down 12%. Here we see already our revenue down, but obviously not as down as unit sales because we acted against that trend [indiscernible] and energy in particular. EBIT adjusted just shy of EUR 80 million, [indiscernible] 4.3%, free cash flow supported by a strong final quarter dividend of EUR 0.17 and portfolio development Torqeedo, loss-maker -- acquisition of profit-maker Blue Star, smaller acquisitions [indiscernible] talked about right now. And of course, that's not for the numbers, but we celebrate 160 years [indiscernible] to increase [indiscernible] company even further. So that will be our presentation and just invite everyone who is keen to see our engines, I wouldn't say in action, but at least [indiscernible] on our Investor Day on April 8 to be aligned with [indiscernible] this relationship. Yes, but that will be from us for our 2024 results. Thank you.

Thank you, Sebastian. Thank you, Oliver. And due to the live conditions at the stock exchange, we generate rounding noise and I'm sorry for that. Now we have 10 minutes left for your questions. And Valentina, I'm giving back to you and moderating the questions.

[Operator Instructions] The first question comes from Stefan Augustin from Warburg.

I have a couple of questions. As the line is a little bit bad, I will phrase the questions more or less in yes or no questions, so I can get the answer a bit more easy. So the first one is a clarification. You mentioned that the service business from the Rolls-Royce acquisition was around EUR 5 million in 2024, and you expect around EUR 30 million for 2025 on the longer consolidation period. Is that correct?

That is correct. And the reason why it's only EUR 5 million is that the parts, which form an important contribution of that business were transferred only beginning of December and some only beginning of January from the Rolls-Royce Power Systems warehouse to the DEUTZ warehouses because here the implementation took a little longer, but your understanding is correct.

Great. With respect to the outlook, I got that, let's say, effects from the German package, whatever it takes is more or less not really in the numbers. That it is based on a global perspective that there should be a replacement cycle coming in by the second half. Is that correct?

That's also correct. I mean the way we forecast our sales, our top line is like -- I mean it's in principle bottom up that our sales guys speak to the customers or the purchasing guys of the customers on a regular basis, at least monthly and assemble all the market data and then aggregate that and then we've got a view on the next year. And what we've implemented in our guidance is pretty much the result of that process. But obviously there's always a time delay. So if there's -- like you just mentioned the program from the German government or previous years like the era in the U.S. I mean the first thing is obviously the program is being packaged. But then it will take time until -- in this case, let's say, in the case of construction equipment, until projects are being kicked off, are being awarded to construction companies, construction companies then need to buy or rent or whatever equipment and then the equipment makers need to get components. So I'm just exaggerating a little bit, but that's a change. And so until -- it takes time until the effects of that sort of curve chain arrive via the normal process via the purchaser of the OEMs to the sales guys of us. So that's why we do not incorporate that into the bottom of planning. But obviously we include that into the sentiment. So yes, but you won't see that yet. So with a bit of hope, we can improve our outlook throughout the year. But at the moment, that's what we have.

Okay. Understood. A question here, maybe when you have a look at -- or you probably expect something of your revenue or your installed base to be affected by such a program in Germany. And as I think that a lot of the, let's say, installed engines in the construction part are also, let's say, deployed around Central Europe, I would assume this can be a quite significant effect if it kicks in. Is that correct from your point of view?

Yes. If it kicks in, once it kicks in, we expect it to certainly have a significant effect. And I mean that's the second piece in this market. When it kicks off, it kicks off really, right? I mean we went through that last time in 2021, where we came from nothing. And suddenly, we were unable to produce because the whole supply chain is broken and we were suddenly from being completely underutilized of having demand, which is 2x as much as what we can do. So yes, it can be. But we also -- Stefan, we also want to be sort of serious in what we say. And we want to provide numbers which we can currently support with solid information, and we don't want to sell pure hope and speculation because that will be not serious.

Okay. Great. When it comes to the forecast for the solutions part. So I understood roughly that Blue Star made in '24 something like EUR 130 million in sales. You expect the Solutions part to add or be able to have something like EUR 15 million in '25. And then there would be DEUTZ Magi on top to eventually come out with the forecast for the EUR 150 million to EUR 250 million. So does the upper end include possible acquisitions? Or is that a projection of how good the energy business actually could run?

I think it's actually a projection of how good the energy business could run. So Blue Star, you mentioned the '24 figures a pure contribution. So the DEUTZ revenue was somewhere mid of EUR 60 million, EUR 65 million [indiscernible] was only part of the group from August onwards. We see it running solid. Growth is intact, as we heard earlier. And MagiDEUTZ is somewhere contributing EUR 25 million, EUR 30 million to the equation. So as I said, it's a solid growth we expect to continue. And on top of that of course we are looking into potential M&A activities [ screening ] the market to widen our global footprint.

But the EUR 200 million [ upright ] does not include [M&A].

Exactly.

First question is in fact a follow-up on the question of Stefan that I think is [indiscernible]. So you mentioned a couple of times that you are seeing -- you are having conversations with your customers, they are worried about this potential bottleneck for the second part of the year. So these conversations were happening before the [ Basuka ] was announced. And obviously this had -- this environment started to boom. And now are even getting more common this conversation. So are you going...

The conversation started indeed before the [ Basuka ] I don't like the name. What we expect to be quite a very good platform for these conversations [indiscernible] it's in 2 weeks, 3 weeks.

Beginning of April.

Beginning of April. We'll meet all of the relevant customers in the construction segment in Munich [indiscernible]. So [indiscernible] 3 days is really full meeting with pretty much the CEOs and they have purchasing all our customers. And that will be really important to get more because they will -- I mean, what we hear from conversations now on the [ Basuka ] well, at the moment, we hear about a huge hundreds of billion euro budgets. But first of all, the government needs to be formed. And then details need to be worked out. So as I said earlier, it's a chain, right? And everyone in that chain is investigating. And then there are 2 sort of ways of dealing with that. One way is when we decided very, very actively to pursue that we said, we rather analyze first and indicate to investors when we know what's in for us. And there are others who just bluntly say, yes, this is going to be huge effect, going to be -- but we don't like that.

You being here, I would say we continue the conversation in a moment, staying at the stock exchange. We have another question that [ Lazar Magowich ] from [indiscernible].

This is [ Lazar ]. I just wanted to ask you on your expansion on the defense sector. You said several times that you plan an expansion of your presence in the business. So what are your revenue expectations for this segment when it comes to the end of the decade? And maybe can you also comment on the rumors surrounding the possible acquisition of TKMS?

Well, on the rumors, we will not comment other than that also press reports, I think, are very clear and indicate that thyssenkrupp is going to spin off that business as part of, I believe, minority spin [indiscernible] right on that very, very recently. And for us, defense is a very important and interesting market, and we are currently -- we have a project team in place for quite some weeks already now. [indiscernible] large list of opportunities in all [indiscernible] very, very many relevant countries around engines, around power packs, around retrofit, around repowering, particular in the field of, let's say, smaller and medium-sized military vehicles. So not large battle tanks because for large battle tanks, we do not have an engine in our portfolio, but for everything below the large battle tanks, I mean our understanding is very clearly that engines we produce for heavy use in construction equipment and under extreme conditions, well, they work very much on the battlefield as well and even our new tank products which were designed to produce CO2-free or to provide CO2-free drive systems. I mean they are interesting for defense applications, not for the CO2 freeness, but for the avoidance of noise, right? So it's almost like a side effect was one of the ideas in defense [indiscernible] move silently and quickly to the front and then you may want to shy away quite quickly. So that's why like hybrid solutions, which we have in our portfolio can become quite interesting. Very specifically on the expectations on numbers for this year, we see potential for revenue in a sort of middle double-digit million euro area. And we do expect that potential to grow also significantly in the next years, but we do not provide yet a specific outlook on that. Reason for that is that, as I said earlier, when you sell sort of new engines into platforms, the way I just mentioned, it always takes a bit of time to qualify to start production. So nothing like that, nothing will have an immediate effect because we need to win the business first on the other hand, so in terms of repowering and MRO and other sort of going into what's in the field right now, well, that can have an immediate effect. So it's a combination of both. Similar to what I said earlier to [ Robert's ] question, we will announce specifics when we can. But when it comes to sort of winning new projects, these projects are also subject to even higher [indiscernible]. So that's why we -- in all the early leads, all the leads following, we are subject to quite [indiscernible].

Thank you. There doesn't seem to be another question at least in our virtual round, and we still have the opportunity for some conversation here at the stock exchange. I would like to close the conference call. Thank you once again. Sorry for the conditions due to our special anniversary here. If you have any further questions, be it journalists, please reach out to the PR team, or be it investors or analysts, please do reach out to our Investor Relations team. With that, I would like to thank everyone here in Frankfurt for joining us, everyone on the Chorus Call, Valentina, for your moderation, and have a successful day. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.