DEUTZ Aktiengesellschaft ($DEZ)

Good morning, ladies and gentlemen, and a warm welcome to the Full Year 2025 Conference Call of the DEUTZ AG. Please note that this call is being recorded, and a replay will be available on deutz.com later today, and your participation in the call implies a concern to this. I'm pleased to welcome DEUTZ CEO, Sebastian Schulte; and CFO, Oliver Neu. So Sebastian will begin the presentation with the key figures of the financial year 2025 and then walk you through the progress made in the business units. Oliver will then provide you with the financial details and Sebastian again, will conclude the presentation with a look on the guidance, after which we will move over to the Q&A session. And then as always, please note our disclaimer, especially regarding forward-looking statements. But before we start the presentation, I'm handing over to Lars Berger, the new Head of Investor Relations, Communications and Marketing of DEUTZ. So Lars, the stage is yours.

Thank you very much, Sarah, and a warm welcome from my side as well, both to the guests joining here physically in the room and obviously also virtually participating. Yes, we had a very exciting barring surrounding this morning. We enjoyed it a lot, and we are delighted to present to you our business results, the latest developments, obviously. And last but least, the outlook for 2 in more detail. However, before I hand over to Sebastian and Oliver to kick it off, let me take quickly the opportunity to introduce myself. I'm Lars Berger. I'm very delighted to be part of the DEUTZ family since mid-March, and I'm leading with a great team behind obviously, a Communication, Investor Relations and Marketing. Please feel free to reach out to me and the whole team at any time. If you need anything, we're happy to be at your service. And obviously, I'm very much looking forward to an exciting time ahead in the [indiscernible] now because DEUTZ has a great team, a convincing strategy and fantastic products and services in place. And I would think it's a perfect timing to be here. DEUTZ is back in [indiscernible]. DEUTZ is successfully transforming. And DEUTZ is growing, how this, for sure, will be presented to you by our CEO and CFO, who will guide you through today's presentation. Afterwards, we are, of course, more than happy to take your questions. So let's kick it off. Sebastian, over to you.

Yes. Thank you very much, Lars and Sarah and also welcome to the team Lars in this exciting phase of our transformation. Yes. So first of all, first things first, this morning, it was a great moment for us, celebrating here in Frankfurt, entering the [indiscernible], ringing the bell, opening the daily trading year, and you see a picture of Oliver and myself, Catarina HR Boss as well as 3 of our business unit heads who were with us celebrated because it's a team effort as we say, with a lot of pride. But let's move on. And before looking ahead, let me look back because that's the purpose of today's annual results conference. I want to guide you through what we achieved as a company in 2025. With a bit of an executive summary. And the headlines shows it actually pretty nicely. We managed to achieve growth, and we managed to achieve profitable growth without the support of our core markets, our long-term core markets. So obviously, we guide you through that later, now presenting or represented in many, many attractive markets, but the core markets, which were extremely relevant for DAUs, like maybe between 2000 and 2021, 2022, basically didn't help, but even more importantly, that we actually managed to sell through quite successful. But let me guide you through that step by step. New orders went up almost 14% year-over-year to a level of almost EUR 2.1 billion. And of course, the changes, the growth, the additions of our portfolio, they did help to compensate our weak engine demand. I'll come to that later. Revenues slightly below new orders, EUR 2.04 billion, but also a growth of almost 13% year-over-year. And here, the driver was clearly our new business areas as well as -- and let's not underestimate that our service business, which continues to grow in a healthy way, and we'll also give you more flavor on that later. More important, from my point of view, then only the top line growth is the bottom line growth, the 5.5%. So that's 1.3 percentage point better year-over-year. And for that increase in profitability, our margin accretive M&A and also our cost reduction program, Oliver will talk about it a bit in his part did help. And so that's a good result given the circumstances and our core markets. And last but not least, we also managed to significantly improve increase free cash flow before M&A to EUR 44.2 million. That's also a significant increase of almost 50% year-over-year, especially driven by a strong cash flow in the final quarter of the year. Important will give you a bit of a mixed view between purely sort of revenue but also units. I know that many of the analysts and investors covering and following us for years, we've always been looking at a number of engines as a key driver, and it is still an important driver, but mainly not only for the engine business. So you see that, and that's in the ellipses in a way, you see that from 161,000 engines 2021 and then up 181, 187, down 142, down 133 in '25. And you see that sort of in this core market, and that was exactly the point I was referring to earlier. The -- there was no much support from the industrial activity, in particular, construction equipment, agri and so on. So that means engine business becomes, in relative terms, less relevant to the group, 64% out of that 2.044 revenue. In turn, the service business continues to be in relative terms on a level, a bit above 25%. But important is also that our new business units, particularly at this point in time, energy is becoming more and more relevant. I'll guide you through that later. But let me summarize that. despite these lower volumes in the engine business, we actually managed to deliver 1 of the strongest results in our recent history of the company. Performance quality improved. Margins became more and more solid and strong. And that's mainly because across our business units, we were actually executing with a high degree of discipline. And the broader business mix increasingly pays off. We are not as dependent on the traditional engine cycle anymore. And that's, as I said, it's driven by the service business, by the energy business and most recently also by the defense business. We are building based on what we already have shown in the last month as we are building a significantly more diversified and also resilient setup. And we call that our new strategy, our strategy update, let me put it that way. We're building here the next dots. And the DEUTZ, let me summarize that. That's both our ambition and our strategy. And as we show later, also our structure, which in an ideal world, and that's what we're trying to achieve here following the strategy. So the next DEUTZ will comprise and it's already comprising of 5 business units that [indiscernible] business models. On the 1 hand, the defense business, that's still in absolute terms, 1 of the smaller units, but with a high growth. So here, we're building an ecosystem. Then the energy business, which we have grown also with acquisitions over the last years. I'll come to that later. Here it's about really building a global business, moving from a fairly regional focused business to a global business. And engine, of course, still when we talk about revenue, when we talk about headcount, that's still the largest business. But the profit pools are shifting. The new business lines become more anyone. So here is what streamlining the business driving performance, but still growing. New tech is driving innovation. It's a bit for me an option value in a way. The markets are not yet picking up as we would like to, but it's important to be in that business in order to be ready when the market picking up. So let's hear about innovation. And last but certainly not least, our service business that we are a global setup. Our footprint, extremely strong asset of the company where we want to broaden our position and the service business traditionally or historically helped the engine business, the customers of the engine business, but we are ideally set up to also support our new business units, defense and energy and new tech. So that's our vision and strategy, and that let us move on. So I said it already, structure needs to follow strategy. Since the beginning of this year, January 26, we are also -- we have reorganized the self formally. So since first of January, we have introduced 5 business units, the defense business, led by Marco Heather. The Energy business, led by David Evans, out of the United States, the Engines business, led by Marcus Fillinger, the new tech business led by Bevan Haswell and last, but again, not least, the service business led by Andreas mint. And group-wide leadership, you will see -- you see here in this conference call, Oliver as the CFO, by so and last but not least, Catarina, who focuses on human resources, strategy and transformation are. So that's a nice mixture between, let's say, a lean group-wide setup the [indiscernible] leadership topic and very clearly P&L responsible business leaders in their respective business areas. Let me walk you through the units item by item. So first of all, when I look back at defense, the contribution we had hoped for, we had planned for out of defense. We managed to exceed because there is. I think that's not a surprise, strong momentum in that business. We established our initial footprint now also in the Def tech. We acquired Sobi, as you all know, we see partnerships with AX robotics for unmanned ground vehicle systems. And then we secured and also executed first direct orders. And that's very, very , very promising, both in sort of the traditional field, i.e., we are delivering DEUTZ diesel engines to defense customers but also in the field of the defense tech companies where we talk mainly over about battery electric systems in military drones. So we managed to establish ourselves as a player. And I can tell as much that we work on that and we continue on that because here, profitable growth lies ahead of us. The outlook, and that's a number which we have in mind for 2030, EUR 300 million revenue, step-by-step with high growth rates. We want to further expand our footprint in Def tech, a lot through partnerships, potentially joint projects. Every now and again, we're also considering investing, but it's always important for us when we enter into a partnership that we have a right to play and the right to win that we bring something to the table to the partners. Important is, of course, there is an extremely promising sales pipeline, both in traditional drive systems as well as in the def tech drive systems, and it's about strengthening execution in here, but we're all good track here. And of course, there will always be opportunities around because that field is developing quickly. Budgets are there, budgets are growing. Everyone is aware that this is a field which is important to also support from government side. So we're always open for partnerships and also M&A. Energy, really a highlight, looking back in 2025. BostaPower Systems, our U.S. American footprint has delivered above plan growth and also profitability, expanding the network in the United States, improving in terms of growing but also execution on the operations. Our Moroccan asset are serving mainly Northern but also Central Africa. It's a completely different market, but the turnaround we had to initiate here after this asset was a bit left at the site for many, many years within DEUTZ. The turnaround is progressing. Leadership has been set up a great guy. We've got there leading that business now. And we already see now in the first weeks and months of 2026 that is paying off. Order intake is increasing. So that's great. And we concluded the acquisition of frac. I mean, technically speaking, the closing was this year, but the signing was in December last year. And with Frac, I will speak about that also later. We are establishing our presence in Europe, out of Germany, but also growing into neighboring countries, particularly in the field of emergency power supply for data center and creating momentum for further growth. Outlook is here very clear. Our objective or target is achieving EUR 500 million revenue it's 20% CAGR, not a low number, but we are very, very optimistic to achieve that. We've dedicated plan on that, and we're certainly ahead of the plan that we initially put it here. We're driving the organic growth with the companies and the operations we've got in the business footprint right now, Blue Star Maggie, of course, now we have to execute the integration of a like integration because these companies, they have developed very well without the support of corporate, so we want to continue enabling them. Obviously, they are agility and their freedom. But on the other hand, we will bring what we really have to support the business, such as our service network to the table in order to achieve that the equation 1 plus 1 is above 2. That's what I also mean with synergies across the business unit because we've got engines in the portfolio, as I will point out later, we've got the service footprint. So here, everything is set up for profitable growth. Moving on to engines. Looking back in 2025, I said earlier, the market has been challenging. Demand has been challenging across the regions. As you know, our main regions or main sales regions is Europe and the United States. So still the recovery, which we are waiting for hadn't picked up to '25. I will speak about the outlook in a minute. But from a portfolio and strategic point of view, we did launch a new engine, the 3.9, 4.0 liter engine. The customer response is extremely promising. A lot of orders we already caught and secured. So that's fantastic. Also, our engines, which come from Daimler Truck, the so-called hardened heavy-duty and medium-duty engines. We've successfully integrated them both in our sales product portfolio as well as our service portfolio. And that's important because it's crucial for us that we are expanding our portfolio towards higher power ranges like that one, because particularly in medium and higher power ranges, the internal combustion engine will play a significant role in the next, not only years but potentially decades to come. So here, we are extremely well set we did rightsize i.e., reduce our R&D capital capacities. Oliver, we'll talk about future program later. We're ahead of player as well, and market consolidation efficiency plays an important drug. If I look ahead for '25 and beyond, you see we foresee a growth here. we foresee a growth. And why is that? Because we want to integrate or we will integrate more of our partner in this large engines like a 24-liter engine the V12 engine in our portfolio. We have already first orders from power generation customers. So that's great. We're driving further performance. We're now with the business unit structure under the leadership of Mark filling set up really strongly in a way that we have now a strong focus on performance, also both in sales but also in operations. like we haven't had that always. So that's a great progress going forward. And let me give a bit of a glimpse as well. We're talking here, of course, about the long-term outlook. But we started quite well into the financial year 2026. So we see a good order momentum both from the United States as well as from the as well as from Europe despite the geopolitical uncertainties. So order intake is quite promising, and that makes us also confident even in that field, which was under pressure in the last years going into 2026 and beyond. New tech, now we acquired UMS in Holland in the Netherlands. We initiated integration. We managed first shift from sort of small one-offs to small series still not into large series, but that's not because we are not successful. It's just because there's nothing like that happening in large series of the market. But we are continuously strengthening our portfolio and also our production capabilities. So important is when, and that brings me to the outlook. We are able to convert the pipeline into revenue. We're also able to scale up the projects, bring our production excellence here to force into play and deliver to the needs of the customers. So we want to be also more efficient in terms of R&D, faster, more cost-effective using artificial intelligence here. So this is an interesting and very promising field to simply become better and faster. And that's also needed in that field where the change in shift of technology is certainly faster than in our traditional fields. Last but not least, moving to service. And as always, in the last year, service is really a business we're extremely proud of looking at the development. We further expanded our network. We integrated also the larger engines coming from Daimler Truck, the HBM index engines. We complete further acquisitions in Turkey and in the United States. So we are -- because in terms of service, it's extremely important to be there where the customer is. particular in rural areas. When I think about United States. So we are growing our U.S. footprint in a very good way and focusing now also on Europe, including the DACH region, Germany, as well. Going ahead, looking ahead, no, no, one back please. Looking ahead, we're continuously driving this growth, especially America and Europe, as I said, but also expanding our portfolio exchange in the remanufacturing where we are able to bring new engines into a new life. That's something extremely important and now making use of our portfolio also for the new business units, expanding our offering in service business for the PowerGen business, with the focus on Europe and the United States. Yes, let me conclude that we want to obviously confirm, reconfirm, give the confidence that we, as a management team, remain more than committed to our 2030 revenue targets, and we've got plans laid out in very much detail that every -- all of the business units has to make and will make their contribution to bring the status quo up to the target. And this -- yes, we're good on track, well on track here. the support of defense business, energy business engines with new tech business and service business to bring us to the target to become more relevant and more profitable, but that's a perfect transition point to Oliver talking about numbers and I will be back in a second.

Thank you very much, Sebastian. Good morning. Welcome also from my side. Let's dip into the numbers immediately, and we heard it was a good year even though we are not receiving that much of support from the engine market, at least, it was a good year and a good year also means we met our guidance. That is where we are committed to, same as we are committed to our 2030 guidance our targets, we are committed to our yearly guidance. And on the revenue side, we guided the roughly EUR 2.1 billion. We achieved it on the adjusted EBIT. Last guidance was midpoint of the middle range of the guidance range expected. We made it straight on the point with 5.5% adjusted EBT. And also the free cash flow, mid-double-digit euro amount guided before M&A, we met it was EUR 44.2 million. So very positive information on this slide. Moving ahead, what was driving the results. And 1 topic we continue to report on and it's addressing directly our structural cost structure is our future fit program. Just to remember, we have a target of EUR 50 million cost reduction, structural cost reduction 2026 compared to the baseline year 2024. We are absolutely well on track there. So we have more than EUR 25 million already fully effective in the accounts. All measures are identified, implemented running, so effects are ramping up continuously into the results, and that will continue throughout the year 2026 as well. costs related to the Future Fit program. EUR 25 million was booked as you know, already in Q1 last year, so Q1 2025. Looking a bit on the key figures of fiscal year 2025, we see, first of all, new orders ramping up 13.7% plus. That is book-to-bill ratio once again higher than 1, which is good, a trend which seems to continue also in the current quarter. The order backlog at roughly EUR 500 million, so positive sign there on the revenue side, a 12.7% increase application areas, especially construction, 14%; agriculture, machinery, plus 10% compared to the year before. Those areas particularly benefited from the contribution of the Daimler Truck industrial engines while material handling, which is mainly on the engine side in the U.S. was a bit weaker due to the overall economic situation in the United States service business. Very positive news continues the growth path, plus 9% year-over-year, so continuously contributing both in top and bottom line. Coming to the bottom line, talking about earnings, 5.5% adjusted EBIT margin, which is a 46% increase year-over-year. So cost saving from the Future Fit program supported the results, but also the portfolio measures. And this was somewhat offsetting missing fixed absorption due to the overall lower production volume. On the net income side, EUR 54.1 million. This is a bit lower -- higher than last year but a little bit lower due to the future fit provision that was booked in Q1. On the next slide, we see further KPIs or the same KPIs basically on the quarterly development. And we see that new orders, revenue and EBIT increased and showed the strongest quarter in Q4, especially nice the trend on the EBIT side with a very strong Q4 at a margin level of 6.8% and several factors that were supporting us there on the 1 hand, of course, the future fit savings, which continuously grew and grew over the year, but also higher sales volume on the engine side, roughly EUR 35 million higher volume than the quarters before. So that also had a very stable production with a good shift model and of course, also M&A activities like Zubek or service acquisitions, which were kicking in, in September last year or throughout the last quarter of 2025. Looking a bit in the segment reporting. It's the last time we're going to see the traditional segmentation. So here we look at engines and services. We see also here all KPIs growing, purely looking at the business unit engine side. We sold 133,000 units. So total sales volume was a bit lower, 5%, 5.5% lower year-over-year. Also in-house production was 4.5% lower than the previous year. So they were kind of negative economies of scale. These were, however, offset from Daimler Truck off-hire engines and also especially from the future cost reduction program. very successful also HS emission technology, the turnaround case we acquired and we turned positively, so also contributing positively with the results. On the business unit service side, revenues at EUR 545 million, 9% year-over-year. And also besides the this year slightly lower organic growth, especially in organic growth. So the U.S. acquisitions on-site diesel double down, which we reported early on in Q4, we're supporting, but of course, also the Daimler truck service business we acquired, which is developing very well and nicely. Looking into the second segment, DEUTZ Solutions, combining here, as you know, energy and the business unit, new tech, quite 2 different businesses. On the energy side, order intake remains strong, EUR 165 million. That's a book-to-bill ratio of by around 1 order intake is not naturally distributed equally throughout the quarter. So there are some peak quarters. That's why it's overall growing, even though book-to-bill is around 1 in the entire fiscal year. On the revenue side, strong EUR 170 million and the EUR 15 million EBIT. Important to know here, this is an EBIT after these technical accounting purchase price allocation effects, you can see in the footnote. So purely operational and must even better 237 million, which is a 14% EBIT margin on the energy side and supports a strong growth and teeth group financials. New Tech are still low on the new order level and also on the revenue level, it was only EUR 14 million revenue on the area, EUR 34 million losses, same level as 2024 on 1 hand, R&D expenses came down, of course, as you know, due to the Future Fit program. But we also build up a bit of a structure to be prepared and properly address the market side to be ready once orders are kicking in and of course, also to ensure that orders are coping. Looking a bit more in the financial KPIs, R&D, CapEx, working capital, all KPIs go in the right direction. R&D spending reduced to a level of EUR 85 million, so 9% reduction, direct consequence of the future it program. coming down to EUR 95 million. This is including leasing. So among others, some assembly lines test benches, logistic facilities, but also this year, a bit of IT infrastructure. And on the working capital side, in absolute terms, it remained almost exactly on the same level as in 2024. However, the ratio significantly reduced. So the trend is definitely going in the right direction and also inventory wise. We only saw a slight increase even though we had several acquisitions in, so there was an efficient inventory management in place as well. Looking at the cash side and net debt. So cash flow from operating activities up by EUR 33 million to a level of EUR 143 million. That results in a free cash flow before M&A of EUR 44 million. So also here an increase compared to 2024. A and net debt position then going up slightly going up, of course, mainly due to the M&A activities, which -- where we spend between EUR 160 million and EUR 170 million last year, while on the other hand, the capital increase we conducted in September was, of course, contributing in the other direction. That brings us to the balance sheet and the financing side. Balance sheet remains strong. Equity ratio remains strong, 51.3% equity ratio, also leverage here, including leasing at a level of 1.3%. If you exclude leasing, you are slightly below in the leverage. And this combination of the figures we present here, of course, shows that we continue to have strong financial firepower also for further acquisitions. So for example, the acquisition of the frac Group, which we closed beginning of February and which was financed on via debt completely. Dividend proposal is going to be EUR 0.18 per share. That's a proposal Supervisory Board and Management Board will propose to the Annual General Meeting that takes place on the 13th of May. Last but not least, just a quick outlook on the change of reporting structure follows strategy. So also reporting structure for our strategy. We're going to report beginning Q1 2026 in the new logic here alongside our business units, thereby increasing again, transparency towards the capital market, and also, of course, considering the differences in the business units, the different focus points and structures and challenges and opportunities those business units are having. Then I hand over to Sebastian for the guidance 2026.

Yes. Thank you very much, Oliver, for the numbers and for the -- also all the details on capital structure and funding I mentioned it earlier. We're building the next touch. You see the next dots again on the left part of that chart, but I'd like to also translate that a bit on what are the levers that will create value for the shareholders here. And it's very traditional. We've got a couple of important levers. So we see growth. Selective. What do I mean with selective, not at any cost. It has to be profitable, structural in areas which are ready for growth and resilient. We want to build something which is there for the long run and not just for a high. And what do I mean with that in terms of our portfolio, we can scale up. We will further scale up our energy and defense business that is clearly backed up by market growth, not much cyclicity. We want to further gain market share in service is also resilient and it's there for the long term even if -- even in the engine business, the engines will remain in the field for decades and we will grow very focused also in our engine business, particularly in terms of using larger, more powerful engines. Then second, lever margins, quality before volume. We like volume, but we'll like quality even more. So quality before volume, ideally both. We will increase the share of our margin-accretive businesses. service is clearly margin-accretive, energy, clearly margin accretive and defense is clearly margin accretive. And there will be a focus on performance, especially in engine, not limited, but especially on engine. These are here. the big levers is the big levers in terms of margin. And then, of course, cash is king, discipline, orientation on ROCE. We've continued to allocate capital in a profit optimized way. we will obviously put a focus on working capital. I mean keep the focus, let me put it that way, especially when there is a market uptick in the Tradition Engine business. Managing working capital is key here. not being built up too much, but also be there when the customer orders. And of course, there is integration potential in our new business as well. And then last but not least, there is strategic upside on top of gross margins and cash. It's an option approach, leverage really partnership options, which may appear on the road and new tech certainly is a market-driven strategic upside. We are there. We invest in a limited but focused way. But once the market is picking up, we are there and then we will benefit, so that's an extremely important perspective on our next DEUTZ. And when we look at 26, the outlook we will be giving in a minute. I mean that's clearly driven by our strategic value transformation. Of course, you all know that macro geopolitical volatility and uncertainty is there and will likely remain However, the end markets and all of the end markets are improving. Some of them are already in a good shape, like energy, defense. Others are cautiously improving. The engine business is picking up, has been picking up already in the first days and weeks of 2026. So these signs are very, very good. Time will tell how strong we will continue here there. But we are very positive right now, the first time, quite frankly, in, let's say, 15, 16 months are really, really positive in that out of the Ben market. And then, of course, the Doug's perspective, the more resilient structure we have been building, the benefits will increase. They're already there, but they will increase. We see in 2026, the full P&L impact of our acquisitions, which we concluded in 2025. And Frac we closed in February 2026. So it's almost a full year effect, which will support our numbers here and of course, also other portfolio models as well as, of course, efficiency and cost improvements like we just heard from Oliver, the Future Fit program. we wanted to achieve EUR 50 million P&L effective, we are above that. So that's 1 of the clear points when we talk to our investors as well. We make announcements which we will deliver. And with that, we are positive to grow and to also grow in 2026. Let me give you the numbers now. So of course, let me start with revenue. We're expecting here a range between EUR 2.3 billion and EUR 2.5 billion. We provide you also the midpoint for the business units. I will not read them in detail. We see a margin range between 6.5% and 8%. Also, again, midpoint in engines, midpoint in the business units. And free cash flow, we expect to be high double-digit million euro. I mean there are certain important points, which I show you on the left-hand side. There is good positive momentum right now. in Energy Services and Defense and also most recently in Engine. So I would be a bit more bullish than what's written here on the chart. This sounds a bit like, oh, let's see what happens. Actually, first quarter order intake shows in a very good direction. That gives us confidence already for the second quarter and also leading into the third quarter. And so that's what we have somehow expected here a bit of a stronger second half. It's actually well supported by the KPIs we're following here right now. So yes, that's the look ahead. And we hope that you feel a bit the confidence we have coming out of a strong-ish 2025 with a new setup with building the next tech and we are now looking ahead or looking forward to lead this great company not only through 2026, but beyond with our ambitious but yet realistic targets. In that sense, thank you very much for your attention. And of course, as usual, we are open for questions.

Yes. Thank you very much for guiding us through here for giving the outlook, which is quite promising, if I may say so. Of course, we're happy to take your questions now. We would like to start with in this room, to make it a bit easier, I guess. So is there any questions here, please go ahead. And afterwards, of course, we will also give all the colleagues died in opportunity to ask additional questions. [indiscernible] go ahead. You need to please use [indiscernible].

Okay. I don't need to go cross. So thank you for the [indiscernible] Sebastian and congratulations on entering in the index. I mean it's a great milestone. Regarding the guidance, if I may, I see that the target in terms of engines is more or less the same result than this year, I think, making the math myself. So this means that you are quite cautious even in the midpoint? Or is there any reason to be these cautious are part obviously of the geopolitical events that we are suffering these days. That will be my first question, please.

Yes. I mean -- and we really rather give an outlook and then slightly over deliver. That's what I believe we've shown in the last 3, 4 years. So it takes some time to build up trust that takes a second to destroy it and we want to remain within that sort of mindset. And of course, as I said, February order intake engines has been promising March. It's not over yet, but it's also promising. So I look quite forward to Q1, but especially Q2. And I'd rather wait until the end of Q2 when we have order intake numbers for Q2 and then to potentially be a bit more optimistic right now. At the moment, we see -- and you're almost right in the guidance for engines, it's a slight recovery expected, but certainly not a moderate or even large recovery. and the operating leverage. You know that very well and the engine business is extreme. So we're coming from that 130,000, 135,000 engines. And once this is going up, it will be certainly moving not only in revenue towards and potentially beyond what we have here at the upper end, but especially profitability will benefit significantly. But let me be a bit cautious with that guidance right now. and then see what happens. And I mean the more in Iran, that's obviously was to do not feel any negative impacts right now. It's terrible as that obviously is on a broad personal perspective. However, we all know that the higher oil price is not good for the economy. So that's why we're a little bit cautious. I believe this is not the moment with that geopolitical uncertainty to say, right, there's only some China markets in the second half of the year, and that's a bit of background for providing that. I would still say actually quite positive guidance. I mean, in a year like that 6.5% to 8%, DEUTZ has never shown numbers of 8% even in booming phases. So don't make me feel too bad about being slightly optimistic.

No, no, don't take me wrong, but it's -- I feel also that the year has started in the right direction. So I was used to know how this was fitting into the optimism that you have or not. And so maybe following up with this, can you give us a little bit of feedback of your conversations these days with the OEMs and how they see the investment plans in Europe. If this is something that -- is it still not driving really the demand or do you think that we can see some -- at some point, some good push to the demand maybe end of the year or next year or something that is going to happen?

Yes. I mean, I obviously don't want to talk about individual customers yet at this point in time. I think that -- those who are listed, obviously, provide their numbers also publicly. What we see at the moment is a couple of customers and a couple of meaning more than to ordering relatively large quantities, and this both comes from the U.S., it's more customer who's quite optimistic in the United States, but also a group of customers in construction quite optimistic in Europe. We still have to bear in mind with starting we were taking off from a low level. We're talking about numbers on a monthly basis, maybe 13,500, 14,000 engines, what we see recently on a monthly basis, and that's significantly more than what we've had through last year. But again, it's 1 month, right? It's 1 month. But what I take positive is that this is happening. This has not happened before the beginning of the year on more, but during or after enduring and that means that we will see some recovery. And so yes, so it fits probably very much to what these customers particularly in construction, say openly. Bear in mind, wait until we release the Q1 numbers because then we've got the Q1 in the books, and we've got already a good indication of what's happening in April and also towards May.

Okay. Maybe last 1 from my side. And regarding defense, the target for 2030 is really strong. And is interesting that you have already a number in your mind about it. Also, you mentioned that the pipeline looks quite nice. How do you feel or see to been recognized in the market. Are you positioning all your different products together? Or how you are managing this growth in defense that will be interesting to know.

Yes. Our defense business unit, it's a small but pretty fast moving, fast-acting units. You know the guys a bit from several interactions. And I would describe them a bit as a market-oriented business unit. So they don't have their own products, but they market the products we have in the portfolio towards defense customers. and it's extremely important because the go-to-market in defense is extremely different than a go-to-market in industry, right? So let me give you an example when it's about placing a diesel engine into a military vehicle. Typically, the go-to-market takes not just weeks and months, but can take years because it has to be sort of baked into the specifications and a bit of lobbying sometimes as well, as we all know, right? And that's why -- and of course, on our side, also the application engineering is different. And we do not talk about volumes as high in terms of units as in industrial applications. So when we are -- if we manage to place, let's say, an order of 300 or 400 engines to a defense customer, because margins are higher and justified because there's more work to be done, right? So -- but if that happens, our engineering teams need to obviously do the work on the machine and they need to do the work pretty quickly. And a normal circumstances, you would always prioritize the industrial customer who wants 5,000 or 6,000 or 7,000 units, but that margin level is different. So it's a bit also managing internally the resources. And that's actually proven to be quite successful to have a dedicated team who work dedicatedly with defense customers but also who manage the internal complexity in a different way. And that is just the example for the ICE, but the same applies for products for power for gen sets, for example, because there's also increasing demand by defense customers as well as in the whole def tech field with our battery electric products. So go-to-market business unit fit for market and also managing the internal complexity. It's a proven recipe, which pays off every day more.

[indiscernible], please go ahead.

Actually, we'll start with the guidance for this year. And if you could remind us of the unfolding of the remaining cost savings of this more than EUR 50 million and connected to this. Last year, we saw a rather linear development of profitability through the year in terms of margins quarter-by-quarter. Would you expect the same picture or something like a seasonality through the quarter. So that's most [indiscernible].

On the cost savings, so that EUR 50 million -- call it EUR 50 million plus, so it's going to be around 55 million or even slightly higher. 25 to 30 already in the P&L. The rest will then come 26. So that is fully P&L effective, then it's not big coming only in 27. This matter us being in the mid last second, but it's really like we want to see the full [indiscernible] 26 versus probably 24. And the ramp-up curve, I would expect that rather linearly. So part of those savings are related to employees. Majority are out already, some are still to come through the year. So that's a bit more front-loaded then. But on the other hand, they are certain other measures included, so linear ramp-up is a fair assumption, yes.

And second 1 would be on the, let's say, 2030 targets for the business in the future, we'll report on you gave us the sales figures you're targeting? Can you remind us also of margin conditions for the [indiscernible].

We gave the overall ambition level of a 10% adjusted EBIT margin. That's going to be distributed accordingly. But what we can say is that service and energy will be accretive, engines will be probably below the 10%, but also not at 0, right?

Thank you. Any additional questions in the room?

[indiscernible] Deutsche Bank. New kid on the block here.

Welcome to the show.

Looking at your target of a high single -- sorry, high double-digit euro million free cash flow I saw the working capital to sales ratio coming down from 21-ish to 18.7%. Is that the new normal? Or do you have a specific target ratio in mind to improve cash flow even further?

On the cash flow side, I wouldn't consider that as a new normal. I would consider that as a rather careful guidance on that end. So free cash flow generation was not the strongest KPI of Dos over the past years. So we are a bit more cautious on that, but we are working on the right things. Working capital, you mentioned is exactly 1 of those where we are getting continuously better also new business models, changing it towards a bit less working capital efficient model. So we are targeting more towards the 15% in the midterm there. And on the cash flow side, we are overall see continuous improvement.

15% target?

The midterm.

Midterm. Sorry.

Not for the year, 26, that we gave the specific guidance on the [indiscernible]. And I mean also on the different business, models or business units. I mean, the engine business typically comes with a very traditional sort of serial production or serial business model terms, whereas we have other business models, which work with down payments or with milestone payments. So it's even more difficult to purely say, all right, it's between, let's say, 15% or 20% because the business mix changes as well. But we want to, and that's a positive thing about that. Obviously, we want to also utilize this faculties in the group as well. mixing different business models also, that's what I meant when I talked about the cash lever to hear a mix of match in a better way.

Perfect. And then your service business was continuously mentioned as 1 of the growth pillars, high margin. Of course, we appreciate that if it grows. How do you intend to grow that? Is it digitization, predictive maintenance offering. So are you also trying to take market share or convince your customers to do less and let you do more?

It's -- the many growth levers. One lever is simply winning market share, mainly when I talk about the engine business, service comprised of pretty much 3 levers. One is parts. And we have already a good market share, still a bit room to grow, but not undergo to grow, of course. The other lever is work at the machine, so like sort of labor technician work. There we have a still fairly low market share. over the last years. I mean, 5 or 10 years ago, we had -- we weren't doing that at all. We were just selling parts. And now we're already doing much more work at machine. So that's 1 of the focus points to grow. And then thirdly is indeed digital offerings like telematics solutions, we have quite a few promising opportunities in that. And the fourth point is also small -- serious smallish M&A buying former external dealerships in order to increase the fee and bring that margin in-house. These other -- and of course, last but not least, also offering or utilizing our footprint for the new business model. And that's why we're pretty confident on that growth, the number you just mentioned because they are supported by at least 4 pillars.

Maybe last question, staying with M&A. You said smallish in service, completely understood. You were quite successful with the recent bolt-on acquisitions, also targeting higher-margin product offering services. Where would you see remaining white spots rather, I guess, it's rather products or technologies than regions? And thinking about your leverage ratio of 1.3x. What would be the maximum to accept in this regard?

Let me start with the areas and then Oli will talk on funding. So first of all, I mean, as you said, service, we'll continue to work on that. These are not large acquisitions. So we've shown a proven track cord to do -- to be able to do quite a lot of them on an annual basis. We are certainly open to grow also more in both energy and defense business, and we have quite a good overview of what could be what could happen in the next years, but you will understand that this is exactly the field where transparency has very strong limitations. And we can just say we are working on a lot of opportunities and options. But with M&A, you never know, it always takes 2 to tango. And we'll keep you updated as soon as we can.

And on the leverage question, we have a strong balance sheet. We have a decent leverage was the level of 1.4% leasing without leasing even below 1. So we have that capacity. That also means and as you saw transition recently. We added additional debt because the balance sheet supports that with the increasing resilience of our business model growing energy, growing defense, growing service volatility gets out of the results. That means we can support higher leverage. -- specific numbers. It depends a bit on -- if you ask the CEO or the CFO, the CFO is always a bit more careful. So I can easily imagine a leverage of 2.5. But of course, it needs to fit to the development of the business.

Thank you so much for your questions, and I hope you got the answers that you were looking for. There's 1 more in the room. And I think afterwards, we're going to move into the virtual world. Please.

Yes. You mentioned that your book-to-bill ratio in your new energy unit was below the rest of 1. You painted out clearly growth path until 2030. Can you give us an indication how this order intake is currently developing where you stand at the book-to-bill ratio?

In energy, you mean?

In energy, yes.

Yes. I mean first of all, the book-to-bill in engines is more an is indicator of growth if it's above 1. In energy, it's -- we talk about a bit more or less sort of lumpy orders. So there is a lumpy order and then you suddenly have in a quarter potentially even a book-to-bill of 2. And then in the next, you have a book-to-bill of 0.4, 0.5. So that's why I would not put too much emphasis on the book-to-bill in energy. Again, in engines in service is highly relevant. So here, what we can say is that with our 2 larger assets in energy, which is Blue Star and frac, we do see a very solid perspective on growth both in the United States as well as in Europe and also in our smaller asset Morocco. Here, the book-to-bill is actually above 1, but the same applies what I just said earlier. So that's why we see here based on the sales funnel. So here we rather think in the sales funnel, typical logic. You start with a fairly large sales funnel you put in go and get probabilities on there, you calculate them. And so here we see quite a good of supporting information for the growth we put in here into the numbers.

Once again, thank you very much. And with that, I would hand it over to Sarah to the virtually it in colleagues. I don't know why my microphone is a bit of a -- we have noise. I hope you can still understand me, but Sarah, please take it.

Absolutely. [indiscernible] good last. Thank you for handing over. So ladies and gentlemen, we have a couple of minutes left for you and the [indiscernible] to ask your questions in person by the audio line. [Operator Instructions] [indiscernible], forgive us, we cannot cover all the questions in the chat today, but we will take them and come back to you afterwards. And in the meantime, we have a virtual hand from Stefan Augustin.

Yes. The question is actually on the guidance and the new business unit guidance. So there is defense and it's a defense and others. Could you remind us what else is in others in there? And possibly also if there is a huge differentiation between the profitability of these businesses. And maybe a technicality, but to understand the rest a bit better? If you sell a genset to the [indiscernible]. Is it then accounted for under defense or on the energy? And maybe also then connected here if I look at these business units guidance, is there anyone where you include M&A perspective? Or shall we take these separate BU guidances as organic growth opportunity guidances for '26?

Yes. Let me start with your first question on the defense and other segments. So basically, it's defense, but we also will allocate our recent acquisition, HS, which we acquired beginning of January 2025. So from a margin perspective, obviously, defense business is way more profitable than HCS, which is also slightly profitable, and that is then the combination of how we derive that overall guidance. But that is basically the only relevant part, which is covered by other. And the second question, if you send a gene to the Bundes were, for example, yes, that's defense. And on the third question, to which degree M&A is impacting the guidance here. Naturally, we see some M&A activities on the service side, where we have a good track record of 2, 3 or more M&A transactions per year. That is also what we are expecting then so certain M&A contribution on the service side, along what we achieved over the last years while the other business units are not M&A drivers in the guidance.

Which doesn't mean we're not doing that. It doesn't we're not doing that, but we do not put -- unlaid ags into the guidance. Let's put it that way.

It's just that very clear, but it gives a better picture of what you think is organically happening. Lastly is on new tech, and how do you feel about the loss allowance here? So you outlined that some of the cost is for setting up structures. In case there would in first half or so '26, nothing materially happened on the opportunity side. How quickly could you reduce the cost base and how willing would you be to do so?

Yes. First of all, we couldn't reduce it to 0, obviously. I mean, we could, but that would not be wise because I talked about an option value, and that would destroy the option value also to 0. So -- but in fact, we are obviously always evaluating here the cost base and the structures because, again, cost structure or structure is cost. So in case -- and I'm not saying that is happening, but in case we wouldn't see the first sort of serial small material order, we obviously would be able to scratch projects to reduce the losses here and we're well prepared to do so, but we are actually quite optimistic that this will not be necessary. But it's important to be always ready for both potential developments.

Thank you so much for your questions. So in the meantime, we did not receive any further virtual hands. So we therefore, come to the end of today's conference call. So thank you, everyone, for joining and has shown interest. And also a big thank you to you Sebastian and Oliver for guiding us through the presentation and for answering all those questions. From my side, it was a pleasure to be a digital host today, and I hand back to Sebastian for some final remarks, which concludes our call for today.

Yes. Thank you very much for dialing in. Thank you very much for asking all these very valuable questions. Thank you very much for accompanying us in DEUTZ. And it's really a great time in a way to guide and lead this company through this transformation. That's also great to see how our measures are paying off. And that's also bear in mind, it's been a challenging year in 2025, given the environment. And we have managed quite successfully through that, and we are with a bit of caution, as we just heard also in the Q&A here, we're going with a bit of caution into 2026, but everything is set up to make this another success, and that's extremely important. We need a bit of support from the end markets, from the traditional end markets, but we are ready to also grow both in terms of top line and profitability even if that support is not as strong as we all hope for. So we're looking forward to a great year 2026 and looking forward to the continuous dialogue with all of you throughout the year. And the financial calendar is the port on the chart. I mean, we will release Q1 on May 7, AGM in Cologne, this time a physical AGM again in May 13. We are happy to welcome as many as possible for you, also physically in Cologne and then will be by H1, i.e., Q2 beginning of August. And obviously, looking forward to talk to many of you through the, I don't know, more than 20, 25 Investor Relations opportunities throughout the year. Thanks for your attention. Stay tuned, there will be more to come.