DEUTZ Aktiengesellschaft (DEZ) Earnings Call Transcript & Summary

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

Thank you very much and a very good morning from our side here in Cologne. Thanks for joining today's call. It's a kind of special call for us not only that DEUTZ grew double digit in the first half as you all know. But also that we, as you all know, recently announced our transaction that we'll also give a bit glance in this call. I'd also like to take the opportunity to thank all of you who we had the opportunity to meet in the recent weeks at various locations and occasions and of course that we're looking forward to further explain and discuss this really game-changing deal with you in the future. Having said this, I would like to hand over to you, Sebastian, and get our call started. Thank you.

Thank you very much, Lars. And also from my side, good morning to everyone. Great that you're all joining. Let me start giving a general overview on our first half year results before I will then, as usual not only go through the business units and the details before handing then over to Oliver; but also, as Lars indicated, we'll mention again a bit of content on our FFG transaction. Looking back at the first 6 months in 2026, we can say we are pretty pleased in how the year not only started, but how we actually moved through the first 6 months. So new orders the trend is still very positive, EUR 1.3 billion new orders. That is a 29% year-over-year improvement. Revenue was also up; EUR 1.1 billion, 11% over the respective period of last year. And the margin in the first 6 months at 7.1%. So on a very, very decent level particularly, and I will explain that later, given that in our sort of legacy business; the business unit engines, we are still seeing fairly low demand compared to historical standards. But with that in mind, 7.1% margin is actually an extraordinary development we've seen so far. If I just break that out to the second quarter, as you see in the bottom part of the page. New orders, EUR 560 million, revenue EUR 585 million. So new orders slightly below revenue. That's not a point of concern, as you'll see later, because we had a very, very decent Q1 in terms of order intake. So we're growing here across all business units and all regions. And the margin in the end, that's the most important thing that on the margin. So bottom line second quarter was up a bit again 7.2%, a little above the first quarter and 1.4 percentage points year-over-year. Highlights and there were quite a few. So just to keep that back in mind and most of you have been following us through the last 6 months. So we further increased our global footprint in energy with an acquisition in Latin America. We acquired the company Maxi Trust at Curitiba in Brazil. Closing happened in the second quarter as well. The profitability of engines rebounded and again, as I just said a couple of minutes ago, in spite of the still not perfect market environment, but we'll see later when we look on the margin how well we're developing here. And very important, our business unit Service pushes on for further growth. So that was also extremely pleasing and I will elaborate a bit further the landmark transaction with regards to the acquisition of FFG what was signed at the beginning of July. Look, we announced this acquisition of FFG, Flensburger Fahrzeugbau Gesellschaft, on July 9. And since then, myself, but also Oliver, we had the chance to speak to many of you. We spoke in London, Frankfurt and last week I spent a couple of days in New York. And the reception on virtually all these investor talks was extremely positive; not only constructive, but very, very positive. And that gives us a lot of confidence as we move forward to our Extraordinary General Meeting later this month on August 24. But let me use today also to build on the picture a bit further. I mean we are and I believe everyone who listened to us and spoke to us will feel that probably in every conversation. We are generally excited about what this combination will become and that, so to speak, is what I want to leave today with. So there are 3 things that matter. So first of all, FFG is generally an exceptional asset. It generated approximately EUR 760 million revenue in 2025, a CAGR of around 50% per year since 2023 and that makes it one of the fastest growing businesses in all of European defense. And the trajectory from here going forward is actually what really matters because we expect FFG to generate revenues above EUR 1 billion in the coming years starting next year at an EBITDA margin, we write here how we are very specific here, on above 20%. So that is really a best-in-class asset as you can see. And that is the destination this growth profile is heading towards and the order backlog at the moment standing above EUR 1.9 billion is what underwrites here this path. And we expect in the coming months and years obviously this order backlog to significantly increase. So more than 1,100 employees across 9 locations and more than 90% of the revenue comes from NATO customers as well as Ukraine with, at this point in time, less than 20% from the Bundeswehr alone. So important, FFG is not a German government contractor exclusively as many other assets are. It's a generally alliance-wide defense industrial platform and that's one of the reasons why it perfectly fits to DEUTZ. Second, the program network behind those numbers is the single most important nonfinancial asset in this transaction. FFG holds certified positions across more than 30 NATO platform types, including the Leopard 2, the Boxer, the Puma, the Marder, the Fuchs, the Fennek, the M113, serving more than 15 NATO nations and the Ukraine and these are not just commercial relationships. They are formally certified, technically embedded program positions built over decades. And that kind of institutional depth, that cannot be replicated quickly by no one and certainly not in time to capture this outstanding procurement cycle that is opening right now. So from the moment this deal closes, that entire network becomes part of DEUTZ. And third, FFG is not just an MRO operator that happens to be growing. That itself would be exciting, but FFG is more than that. It is a systems integrator with its own proprietary platform pipeline. The WiSENT 2, a multifunctional Leopard 2-based armored recovery and engineering vehicle; the ACSV, a modular armored combat support vehicle already delivered across NATO nations; and the next program base, the TAHR and the CAVS, representing substantial additional volume potential. So this OE, this original equipment pipeline, is what gives the order backlog its duration and what gives the growth profile its structural character. Let me now turn to the structure because it tells you something about the nature of this partnership. The total consideration, as you will already know, is approximately EUR 1.6 billion. And around EUR 1 billion will be paid in cash financed through secured debt from a consortium of international banks; all secured, all signed, all without remaining risk. And the remaining around EUR 0.6 billion will be paid in newly issued DEUTZ AG shares, which the seller family receives --families and more receive and will hold as long-term shareholders in the combined group. And third, strategic alignment, further variable performance in components, a long-term focused investment agreement and the Supervisory Board representation for the FFG families. And that last element was not incidental to this deal. It was central to it, quite frankly, because we did not want a seller who just disappears at closing. We wanted anchor shareholders who literally have skin in the game and will keep skin in the game because then the incentives from day 1 are totally aligned with every other DEUTZ shareholder. And that makes it actually not only exciting, it makes it also extremely trustworthy and built for the medium and long run. So the FMG families, as I outlined, they will join at a 29.9% stake. And that is a structure I'm extremely proud of because it serves, as I just explained, our shareholders; it serves the interest of the combined group. Let me now turn to the earnings profile because I want to be as precise as possible about how the accretion picture will build. So the share issuance creates initially a dilution of approximately EUR 65 million new shares. But FFG's stand-alone earnings contribution on a revenue base of approximately EUR 760 million taking the '25 numbers and at the best-in-class margins provides already a very strong starting point that offsets that dilution on a pro forma basis pretty much immediately. From there, the accretion picture compounds in 2 further stages. So the early cross-business synergies such as engines, service network, logistics; they will add further earnings up. But more importantly, the conversion of FFG's already contracted order backlog and the ongoing MRO business. So that backlog, as I just explained, stands give or take about EUR 1.9 billion and it is awarded, it is contracted, it's signed and it is converting. So that is the near-term earnings engine, which will support this combined business. It does not depend on integration execution or qualification cycles. That's important and that's a message we kept sharing in all our investor talks. This business, this acquisition makes already commercially, financially sense without additional synergy potential. Obviously it doesn't mean we're not going for that, but it's important. It makes sense without the synergy, the synergy add on top of that. And longer term the conversion of FFG's broader program pipeline into contracted revenue; the CAVS as I mentioned, the ACSV expansion, WiSENT 2 growth beyond the current 3 nations; extend the profile considerably and well beyond 2030. We do expect revenue growth in line with double-digit NATO defense budget growth rates and that is a structural tailwind not a cyclical one and that adds to the resilience of DEUTZ as a group. So what I can say today is that the direction on earnings, on cash and on leverage is clearly positive from the point of close. The headline is this, we did not do a dilutive deal and we hope for synergies to catch up. So the accretion is there from the start, from the very beginning grounded in contracted revenue and it compounds from there and we will of course provide further guidance once we are through to closing. Right. Having said that, let me now move on to the development of our business units. Let me start with the business unit Engines. The headline is very clear, profitability recovery accelerates. So we are continuing here with an outstanding team to implement our portfolio and footprint strategy and just a few highlights. So at our Porz plant, one of the largest DEUTZ plants here in Cologne, the performance program shows already first savings. There's a lot of efficiency improvement -- double-digit efficiency improvement on the assembly line 5. We do see higher cost savings due to a quicker relocation of products from Cologne Kalk. That's a bit of a satellite plant here, which we just closed. Literally last week was the last. Last week Friday, we finally closed it and we moved the product from Kalk here in Cologne to Spain at much, much better cost base. That went in line or that goes in line, both aspects here, with the voluntary leave program for the Cologne site production, but also production overhead so nonvalue-adding positions here where we'll see around 100 to 120 FTEs leaving to further improve efficiency at conditions which are fair for the employees, but also favorable for the business. Then moving a bit on portfolio. The new G-Drive program. Here we talk about a couple of new engines, including actually a 24-liter engine for genset customers. So here we're starting already with the first fixed orders. Next year we'll see further growth in that, but important is it works. Customers are ordering these products. Very, very structurally strong demand and a very, very good cost base with the use of partners here. Partner is a good point. We are bringing a very long-lasting, but long sort of hibernating partnership with Chinese FAW. We bring that back on track. And here for the best cost country supply of some of the legacy engines, which does not make sense to deliver them from high-cost Germany anymore. But there is still a structural demand all over the world and we do that together with a partner in China. China is the next point here as well, our joint venture with Sany in China in Changsha. It's progressing quite well now. First time I can really truly say we're making really good progress here, particularly not only compared to the previous years, and that's also because we made a bit of a change there. We're using also more engines there for power generation rather than what it was initially designed for for the use in heavy-duty trucks. So things are moving quite well despite the fact that the order intake is not on the level we'd like to have it going forward, but it's important to focus on what we can influence and we're doing that here pretty well. But bring that to numbers as well. So the demand in the second quarter slightly increased year-over-year. Market is still a bit under pressure, but this is really not to be seen with a point of concern. It's moving pretty well. We also now have a fairly healthy order backlog of EUR 385 million. That's significantly higher than the EUR 315 million we had a year ago. And profitability, I just gave sort of the qualitative information on that. Cost savings from our Future Fit program. That was not the program I was just mentioning with the efficiency in Porz and the closure of the facility in Kalk. That was taking out mainly engineering resources last year here in Cologne as well. That program is pretty much not only fully on track, it's completed. All the savings we had aspired to achieve have been realized. So that's very, very successful. Then obviously there are always cost increases; labor costs, material prices; but we managed pretty well to offset these cost increases with respective price increases as well. And you see here and I will not go through all the numbers in detail, but you see that we moved significantly up from '25 to '26 in the first quarter already with 3.7% margin. Now in the second quarter, 3.8%. That is still far away from 7% or 8%. But again given the occupation of the factory, that's pretty good. And important news going forward. As soon as there will be an uptick in new orders, gross margin in this business will immediately kick in at double-digit level and then we'll actually see a perspective, which we will enjoy very much. Let me move on to the next business unit, which will be Service. So here's about growth. It's about growth and performance and we have also, and we'll show the numbers in a bit, a very, very healthy order backlog. So we're expanding here as DEUTZ Service as an authorized service partner also for machine manufacturers and service partners beyond the DEUTZ Engine, particularly in the United States, in the Nordics as well as with the implementation of our service business for the Daimler Truck engines because we exclusively sell to off-highway customers. The expansion particularly has continued in the United States. We made another acquisition in California, G&T Truck Repair that we acquired in June '26. So the footprint in the U.S. and in this case in California, which was a bit of an untapped area before, is now improving. The DEUTZ power centers in the United States, they grow quite nicely; solid, solid field service growth. And very important also that we are realigning our dealer organization in the DACH region, particularly in Germany. Those who follow us for longer know that we've been working in the last 4, 5 years quite successfully on in-sourcing or in-housing external dealers, but we didn't really touch the German network here. We're changing that now. We did actually terminate quite a few contracts and are now renegotiating them and that's what we mean when we're talking about realignment of the dealer organization here. So we see a very, very good progress as well. Parts trading business traditionally the one -- the part of service with the highest margin is continuously expanding as well and that's really a bit going forward. Obviously DEUTZ Services is that asset what will in our ambition going forward not only support engines, but more and more actually support also the other business units, most notably Energy as well as Defense. And we're working here quite nicely, particularly on the genset service expansion with Frerk in Europe, but also in the U.S. with BlueStar. Let me go to numbers as well. So new orders are up. You see in the second quarter, I'll focus on the second quarter now, new orders EUR 152 million, revenue for the first time above EUR 150 million. So obviously here showing or benefiting from all the growth initiatives I've just mentioned earlier. And the order intake in the first half is now the 16.1% increase year-over-year and that is exactly the level we would like to see in growing this important business. Order backlog is not as relevant of a number like in engines because the through time of the business is, as you can see, by EUR 57 million. I mean it's much, much quicker. But important is compared with the number from June '25 where it was only EUR 42 million. So you see also here a healthy development. Very nice and we are celebrating every record of course to keep the team motivated. And June was the so far highest monthly revenue of EUR 55 million. So that means obviously the entire team is aspiring to beat that number at the next possible opportunity and things are looking quite nicely that this will obviously happen still in the year 2026. The margin is a little bit diluted, but that's not a point of concern. That is simply because we're preparing for future growth. Adding more structures, adding technicians because a lot of that growth only works with technicians. We do of course focus more and more also on efficiency, on technician utilization. So that's why it's not a point of concern that the margin is slightly diluted, but also bear in mind on a very, very high level. And on top of that, obviously we grow more in working on the machine than selling spare parts. So that also contributes to that slight dilution of the business. But bear in mind on a group level, whatever we do here is always margin accretive. So let me move on to the next business unit, which is Energy. I mentioned it in the highlight page at the beginning already. We acquired Maxi Trust in Brazil with that acquisition expanding the coverage to Latin America as well, but also very important growing market. There's further diversification of our U.S. customers with BlueStar. Distributor orders are record high. We like direct orders as much as we like distributor orders of course, but it's always good to improve and increase both foots we're standing on here, both legs are standing on here. The ramp-up of Frerk for the second half is going quite well. The new assembly facility in Schweringen and Niedersachsen is well on track, the commissioning here. And now obviously, very important that this great business unit we have been creating over the last 3 years is now showing and proving that the equation 1 plus 1 equals more than 2 still holds true. The teams working together, the international teams working together pretty well here to really expanding and building a global business. And this year, we are already targeting and when I say targeting, it's actually we're planning and we're clearly building on achieving more than EUR 300 million very profitable revenue. And the team has been super excited to grow that number to above EUR 1 billion in the next 5 years. The market is supporting that. Teams are excited to do that. So that's another great growth story that's developing. And a little bit also an exciting outlook. We are working here and elaborating a pilot case for the use of Agentic AI in the business development in sales in actually 2 facilities. There will be something probably we can present in the next months because obviously it's important to support this strong growth without adding proportionally human resources on that because we want to ensure that more growth gives extraordinary more profitability. Let me turn into the numbers for Energy already and here you see an ever-growing business. So new orders in the second quarter at EUR 55 million and that includes EUR 10 million from the Maxi Trust consolidation. But there's also now an extremely strong order backlog now of EUR 220 million. So that shows sort of the forecastability, planability, reliability in this business model is one of the strongest in our portfolio particularly as you compare it to the first half of last year. Across our 5 business units, Energy is the strongest growth contributor up EUR 37 million year-over-year driven obviously by the companies who joined us throughout this year, Frerk in Germany and Maxi Trust in Brazil, but also organic growth especially in the United States and also in Morocco and China. There is now, speaking on the margins, significant recovery in the second quarter compared to the first quarter. So we're now at 13.7% in the second quarter. We explained that when we showed the first quarter numbers that the first quarter was a bit of an outlier due to the consolidation effects and some seasonality. And here you clearly see that we're moving already significantly up and the outlook for the rest of the year is also even higher than that both obviously in terms of revenue. I mentioned the EUR 300 million earlier, but also the margin level. So the good thing is here, as you can take that from the strong order backlog, the predictability not only in terms of revenue, but also in terms of profitability is extremely solid here. Let me move on to business unit NewTech. Revenue nearly doubled. That sounds super exciting, but it's still on a fairly moderate level. We do, however, work here obviously on our presence. DEUTZ will now act under the brand DEUTZ NewTech. And Urban Mobility Systems as well as Futavis have been renamed and they're now operating under the DEUTZ NewTech brand. It's important now to position ourselves here with the strong brand we have. We're now in this business converting the pipeline into revenue. scaling further projects, scaling production delivery capabilities, enhancing also efficiency in R&D. It's all about focus, focus, focus. And there are many, many market opportunities; but we are always, as you know, very transparent on the outlook in the different business areas. This is obviously the business unit, which is most difficult to predict because it depends a lot on sort of overarching market and industry trends. Important for DEUTZ is that we have to be here, we have to be ready when the market -- when the demand picks up. Then we are there. And it's a bit of an option value if at some point the engines business gets under more pressure from conversion to battery electric products, important is to be ready and that's exactly what we achieve with our NewTech business. So in terms of numbers. New orders in the first half, you see already we talk about completely different levels, but EUR 7 million in new orders. That is still reflecting that muted demand which I just mentioned. Backlog is at EUR 6.5 million. It's even a little lower than what we had last year. But again with the sort of single-digit or low double-digit numbers, sort of percentage improvements or deteriorations are not as meaningful as obviously in other more established businesses. The revenue in the first half nearly doubled, particular from the delivery of a few electrified excavators. Those go with solid gross margins, but obviously not strong enough. The business is not strong enough to bring the EBIT into breakeven. But you can also see profitability has been improving compared to previous years because again focus, focus, focus on R&D activities as well as cost discipline. That brings me now to DUETZ Defense. DUETZ Defense becomes really like a core pillar of the business. We are continuously committed and working on the DefTech ecosystem. You all know about our investment and partnerships in ARX as well as in TYTAN. With ARX, we launched the first series production of the GEREON ground system in Ulm at our facility. It's not a huge series, but it's more than just a proof of concept. So that's great. There is more we are developing, particularly also in terms of resilient energy solutions. We introduced at the Eurosatory in Paris a partnership with HDC Solutions. We do also further ramp up the SOBEK activities. We are talking SOBEK, as you know, we talk about battery electric drive systems for unmanned drones -- for drones. And we're working also continuously with R&D and new powertrain solutions. There is a lot of interest. There are, also after the Eurosatory, quite promising orders. Not all of them we can disclose for confidentiality reasons, but the vector is clearly positive. Also new orders from a drone package for the German Army. One of the 3 suppliers of the German Army, they build on our SOBEK drives. And as I've just mentioned, Eurosatory was a success for us. Many, many, many leads for military engines, power packs and hybrid systems. And of course, as I mentioned earlier, the FFG acquisition was signed. In terms of numbers, we see substantial order growth in the second quarter '26 versus the previous year. The order backlog is now at EUR 43 million compared to EUR 27 million beforehand. Also the revenue is 47% above previous year now at EUR 52 million and the growth is primarily coming from defense and not from others. Bear in mind that we have also hired HJS, the engine aftertreatment specialist part of this subsegment here, for which by the way the successful turnaround continues. Results are moving very much in the right direction. That is certainly not the focus of what I'm mentioning here. And the EBIT is also developing as expected in a nice way. It's a bit lumpy, both revenue and EBIT is always a bit lumpy because we don't talk about serial business. So 1 quarter you have more, 1 quarter you have less. Important is obviously to look in the trends together. However, before moving on, what you've just seen here is DEUTZ Defense as it stands right now. Obviously, the acquisition of FFG will change the scale of that picture totally. Our defense business will then exceed, as I mentioned earlier in the call, EUR 1 billion in revenue already next year 2027. And with that becoming a really, really not only an integral part of the strategy, but a very, very relevant part of the business in all aspects; revenue, profitability, number of employees and so on. FFG will operate as a stand-alone unit within our Defense business unit. Its management, its workforce, its customer relationships; they will be fully preserved. So we will create 1 strong Defense business unit around FFG. And what DEUTZ adds is industrial manufacturing scale, propulsion technology across the full power range relevant obviously to FFG's platform portfolio and as extremely important a NATO-wide service network and we can be quite proud of that. Together, this Defense business unit will become the only European domicile platform covering the full land vehicle life cycle; propulsion, integration, MRO and modernization; that under one roof. So that opportunity exists in European defense today and we together with FFG, we are able to capture it. Right. Thanks for listening so far. And with that, I will hand over now to Oliver, who will focus on the financials in a bit more detail.

Good morning. Warm welcome also from my side. Well, let's get started. After a strong Q1, we saw an even stronger Q2 and that shows our transformation is on track. Building the next DEUTZ is on track. So just to remember, beginning of 2024 we still were in a 3-shift operation on the engine business and that was where the economic downturn on the engine side, the cyclical part of our business kicked in. Since then since the mid of 2024, we saw that we increased our margins in 6 out of 7 consecutive quarters in a row. That is a great achievement. That is a direct result of our strategic transformation. That is a direct result of our top line measures, of our bottom line measures; cost discipline, cost reduction on the engine side; but especially also growing service, growing defense, growing energy. And as you heard earlier, we need to keep in mind the cyclical part of the business so the engine business still remains on a rather low level. That means the 7.2% margin we achieved in Q2 is a margin we achieved in a weak engine market. And once the recovery kicks in, we're going to see the full positive operational leverage driving margins even higher. Going to a bit more details on the financials. We see here, as you heard, the new orders 28.7% up. Yes, there is some inorganic effects in that especially due to the first-time consolidation of the contributions of Frerk, Maxi Trust and G&T. That in total adds up to somewhere around EUR 170 million in the new orders. But even taking that out, there is a positive book-to-bill ratio above 1, which means the business is also organically growing, which is a good sign. On the revenue side, we see an increase here of 10.7%. All Business Units are growing, especially growth is driven here by the energy business with the highest growth in absolute terms. In terms of regional split: 55% revenue in Europe, 27% in the Americas, 11% in APAMEA and only 7% in China. So no relevant dependency, as you know, from the Chinese business. In terms of EBIT, we saw a significant improvement going up 43.1% to almost EUR 80 million. That is a good achievement. And of course consequently, also net income increased significantly to EUR 33.5 million and that is even after taking into account the EUR 12.5 million provision we booked for the voluntary program. So not the Future Fit program we saw last year, but the voluntary program now where we're addressing also the operational part of the engine business especially here in Cologne. Talking about R&D, CapEx and working capital. R&D quota is going down in terms of sales to 4.0% after having seen 4.5% in first half 2025. So that is an achievement. The absolute figures here stay rather constant. However, we need to be aware that we shift especially R&D expenses from NewTech where we show way more R&D activities streamlined and focused towards what market is demanding and on the other hand, increasing it accordingly in the defense business. On the CapEx side, what looks as a big increase here at the first glance is actually mainly driven by the renewal of a lease contract for one of the sites, which contributes EUR 12 million to EUR 13 million out of that increase. So the biggest portion of that while the traditional classical CapEx outside lease is only slightly increasing, that slight increase is mainly due to some IT infrastructure projects and software projects, which we are currently conducting around SAP. On the working capital side, you see an increase by 21% to 21.5% of sales. While here we need to keep in mind that the figure is a bit distorted due to the acquisition effect. We acquired several companies as you know; Frerk, Maxi Trust and G&T. The working capital is included here. However, not the 12-month sales figure is included. So if you would normalize that, working capital quota would be reduced by 1.4 percentage points or 1.5 percentage points roughly bringing it to a lower level. However, we also see that inventory was increasing throughout the first half of the year. That is of course also a direct result of being prepared for delivering on the improved order situation going forward especially in the second half of the year. Well, talking about inventory, that was also the main driver for the cash flow development in Q1 besides the operational results. So we see the cash flow from operating activities went down a bit to EUR 32 million. That is mainly caused by higher inventories as I just pointed out, also especially to be prepared for delivery on the good order backlog, but also some severance payments of people that were leaving as a result of the Future Fit program. So result effect last year, cash flow effect coming in once the people are leaving and those were the 2 main drivers. That means in terms of free cash flow, it converts to before M&A minus EUR 29.7 million. Here we need to keep in mind that the year before was positively distorted by a few items as we pointed out at that point in time. So we come back here more to a normalized level where we see the typical simplicity that H2 is significantly stronger on the cash flow side. In terms of net debt, that's a consequence on the free cash flow before M&A, but of course also then reflecting our several M&A transactions. And that is the reason why we are going up here to EUR 520.5 million, including roughly EUR 92 million of leasing. On the equity side, equity ratio remains strong. Yes. However, it dropped a bit from 51.3% to 43%. That's the result of the acquisitions we conducted. So we have the debt finance acquisitions, all of them debt finance, and that is basically bringing down the equity ratio, but still to a very solid level and our targeted level of above 40%. In terms of leverage, yes, we went up, 2.1x. That is including leasing here. If you take out leasing, we are 0.3x lower so at 1.8x without leasing and that is a moderate level. Still. however, as you know, we will go up a bit in the leverage as of closing of the FFG transaction as we explained it over the last weeks. So that will bring us to a leverage in the range of more or less 3x, but with a very strong deleveraging potential of the combined group going forward. With that, I hand over to Sebastian again. Thank you very much.

Thank you, Oliver, for providing the details on the numbers. Let me first give an update -- not update, confirmation of the guidance. Okay. Let me first start giving an update or confirmation of the guidance. So as you know, we initially gave that guidance with at that point a bit limited market visibility at the end of February. The limitation of visibility at that point because there was this various crisis; the Iran war, obviously the Ukraine war and so on. But we can now again confirm that there is no direct impact, nothing substantial. I mean always impact, but all very manageable as you can see also from our numbers. And we also see that our portfolio diversification is now really paying off. We used to be a cyclical company, a cyclical business, a cyclical share with that high exposure on the combustion engine, on the construction sector, the agri sector. And obviously that still is there, but it is becoming less and less relevant because our service business, our defense business, our energy business is not due to those cycles. It's actually embedded in a very, very strong economic environment. And in that sense, we're very happy to confirm the guidance. The revenue range between EUR 2.3 billion and EUR 2.5 billion. The EBIT margin between 6.5% and 8%. Half year down at 7.1% so it's pretty in the middle, but we're expecting as usual a bit of a stronger second half and this is not due just some hope on the engine recovery. We see signals here as well. We see signals here as well also moving into July. Orders are picking up nicely and still not like plus 20% level. That's also clear, but things are picking up nicely. But even more important, the new additions to the portfolio, most notably energy and defense, we expect for both of them a stronger second half than the first half. That's why we are extremely comfortable that we will achieve that guidance and probably not on the lower end. So yes, that's pretty much my confirmation of guidance. Let me just briefly reflect on what Oliver and myself have just shared with you. So we're continuing to grow in energy; 2 acquisitions, but also that business or that part of the business, which is already with DEUTZ for longer is developing very, very nicely; U.S., Morocco, China. Profitability of engines rebounded. I cannot reiterate or repeat that more often because we have to focus on what we can influence. And the global development of the construction market we cannot influence, but we can influence in which markets are we active, in which fields are we playing. So that shows why are we moving in energy and defense, why are we building -- doubling down on service. And of course we can influence cost position as well as product portfolio and engines. And that is exactly what we're doing. And that's why we're now in an engine business on a level of profitability that was at low level of occupation in the past completely unthinkable. But that means also in turn once the market is picking up even stronger than it's been picking up in the last month this year, we're actually moving on really nicely there as well. Service growth I mentioned and the deal with FFG I also spoke about. But on the deal with FFG, I mean we will -- obviously over the next months, we will give -- the more we have, we will give more updates. But it's really a transformational transaction for DEUTZ because we are adding more than EUR 1 billion very profitable revenue to the business. And that will bring DEUTZ not only on a revenue basis, but more importantly, on a profitability level on EBITDA, EBIT as well as free cash flow in a completely different area. And we are still, as you know, valued a bit like an engine maker with a multiple depending on where we are in the valuation, sometimes 6, sometimes 7 in terms of EBITDA multiple. And we truly believe that with the portfolio we're now working in energy and defense in particular, it's not nearly reflected what valuation potential DEUTZ has. So time will obviously support that, but we are looking ahead quite excitedly about what's yet to come. Let's move on now, please. So in terms of time ahead of us, the signing of the transaction we did at the beginning of July, we now first half year results. In 3 weeks, 24th of August, we'll have the Extraordinary General Meeting. It's going to be a virtual meeting where we'll invite or we have invited shareholders to vote on the capital increase relevant for the acquisition of FFG. So far, we received a lot of extremely positive feedback from many, many institutional investors. Also the proxy advisers have issued recommendations to vote for that. So we received that extraordinary result. By the way, the first relevant and very relevant antitrust approval from the German Federal Competition Authority has been received last week. So that's also another sort of implementation risk which we never considered as a risk, but it's always good if these steps have been completed. So we expect by the end of this year, we're writing here potentially by the first quarter. But at the moment, our assessment is rather the end of this year, we expect the final regulatory approvals from other jurisdictions to be granted and thus the closing of the transaction. So that's where we stand right now. And in that sense, we would like to thank you for listening and obviously, as usual, look forward to your questions.

[Operator Instructions] We already have the first hand up from Lasse Stueben.

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

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

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

Yes. I mean that's a typical seasonal pattern that you saw. A little bit on the gross margin side that Q2, as you correctly pointed it out, is slightly lower. However, we're expecting that especially if you look towards the second half of the year, to increase again, What we're going to see then is basically especially the newly acquired or newly builtup businesses; especially energy, especially defense, especially also the service business; is structurally going up. The only impact in margin dilution we see is a bit on the service side to the effect that Sebastian pointed out earlier. That is if you acquire businesses which are slightly below the current margin level, but significantly margin accretive on group level, that should work also out on the second level. And of course the biggest impact is then from an expected recovery on the engine side, which has of course the most important impact on the gross margin due to the pricing power working leverage.

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

Well, I wouldn't talk about the right or wrong run rate. I think what you need to keep in mind we are consolidating additional businesses. So we acquired Frerk, we acquired Double Down end of last year, we acquired SOBEK end of last year, we acquired Maxi Trust and so on. So on the operating cost also SG&A cost, we see that those costs are coming into the game. And ultimately, we look at the EBIT margin and that is what counts and the EBITDA margin and that is where we're expecting the further increases.

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

Yes, I can give it. Let's say for H1, if you take the acquisitions we conducted in H1 so Frerk, G&T, Maxi Trust into the game, into the equation; then you have approximately EUR 170 million, 1-7-0 order intake and almost EUR 30 million revenue. If you include also the acquisitions we did last year in H2 so Solvay, DEUTX-FAHR Turkey, Double Down; we talk about in total including the others of approximately EUR 200 million impact on the order intake and approximately EUR 50 million impact on the revenue. If you want to have a pure like-for-like comparison H1 '25 against H1 '26.

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

Yes. I'm super happy. 68.x [indiscernible]

And in between, Mr. Neu, could you get closer to the laptop of the microphone. And next line is Stefan Augustin.

First is actually a clarification because you mentioned the EUR 1 billion for FFG and then for defense. So I just want to clarify do you see for FFG as a stand-alone on an organic base the EUR 1 billion for '27 or has there been a statement for the Defense business unit overall, including acquisitions?

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