Good morning and welcome to DEUTZ Conference Call on the Acquisition of Sobek Group. Please note that this call is being recorded and a replay will be available on deutz.com later today. By participating in this call, you are consenting to this. I'm pleased to welcome DEUTZ CEO Sebastian Schulte and CFO Oliver Neu, so Sebastian will provide an overview of the acquired company, Sobek, and the transaction. Afterwards, we will open the floor for your questions. For your information, we are planning for this call around 30 minutes. As always, please note the disclaimer, especially with regards to forward-looking statements, and with that, I'm handing over to you, Sebastian.
Yeah, thank you very much, Sarah, and good morning to everyone who has dialed in. And indeed, last night, we updated the public, the capital market, with an ad hoc release about our acquisition of Sobek. And it's really the headline as we have it here that we as a company are strengthening our defense business with that acquisition. And Sobek, and I will talk about that later, it's a drive system specialist for drones, but also for other applications. So a true sort of dual-use business, but obviously with a strong focus on military and drones. What we're going to cover today is, first of all, spend some time on the market perspective, well, defense market, but obviously with a focus on the UAVs, the unmanned aerial vehicles.
We will introduce you to Sobek, their technology, their positioning, and of course, we will also introduce, you know, what drove us, what's the strategic rationale behind DEUTZ acquiring Sobek and how this is going to fit to our Dual+ strategy. What I can say before going into this is that Sobek is an established and profitable business. So it's not a startup, it's an established and profitable business. And you know, that will help us to strategically really enter into sort of new technologies, but around what has made us strong in the past already, the drive, but utilizing particularly this rapidly growing defense market and this one beyond the conventional drives. Let me start with a market perspective. And I think this is not a left part of that chart, it's not a surprise.
I mean, this is an assessment of the ramp-up of the European NATO defense budgets. And due to the change in geopolitical situation, particularly since 2022, we observe a much, much stronger CAGR of these budgets since 2022, and we expect this all to continue. Whether it's going to move into that case, which we here depict as a base case in the brown, or whether, you know, we see a bit even more ambitious acceleration or even the ramp-up to the 3.5% budget purpose, budget objective that we will see. But what is clear that the market is growing significantly. And why is that? Defense sovereignty is extremely important. And obviously that leads to the need for industrial players also to locally produce, establishing new partnerships.
For companies like DEUTZ, you know, who are trusted companies in German industry, it's important that we are able to grow very quickly, to participate not only in the budgets, but really make here a contribution. Important, and that's what brings us over to the topic of drones, that the spending, the budgets we see here, there's going to be a shift from the sort of defense traditionalist companies towards so-called DefTech s, tech companies in defense, and obviously particular with the focus on UAVs. Just three examples here to use is that in Germany, of course, drone and also the loitering munition, that's one of the top four priorities. Obviously that also impacts other top priorities in these cross-domain operations, using drone and counter UAV operations to just give you one example.
In the U.K., the statements of the U.K. military are even sort of more ambitious towards UAVs and drones and related technologies seen in the future as up to 80% of the army. That really means that the military doctrine is changing rapidly, obviously based on the experiences made and currently still being made in the Ukraine. Similar, but not overly relevant for us in that field in the future, is the United States, but it's also a prioritized system, gaining significantly more relevance besides or top sort of the established major weapon systems.
When we move on to the UAV market in particular, and we're talking here about the European UAV market, we see consequently a very strong CA_GR as well. We see numbers, and there are many studies which all provide more or less the same picture, the same growth phase, the same growth ambition.
We see a lot of growth, particularly in the next years, 23% CAGR until 2030, and that, of course, sometime there will be a stabilization, so that's pretty much consensus. When we look at what's behind the drones, there is a very important focus on particularly also small and mid-sized UAV, which are essential for modern defense strategies because that allows scalable, quickly scalable, and also very flexible operations. Of course, they are faster and also cheaper to deploy than traditional platforms where it's partially the development and then the production takes not only months, but years, partially even decades. What's also sort of a benefit for newcomers, for newbies in that market is that this tactical drone market is opening now up to new players. The entry barriers are lower. Innovation cycles are significantly faster.
Also political support is here creating space for specialized suppliers. It's important to really have scale-up capability in order to really capture that growth. That's why this drone market with a focus also on small and mid-sized is a very interesting one. Let me give you a bit of a glance on what Sobek is and what Sobek is doing. I said it earlier in the introduction. It's not a startup, it's actually an established company. It's been founded in 1975 by a company owner at that point, Mr. Sobek, and is led by Mr. Hahn since 2009, who's the 100% owner nowadays, or before the acquisition. 70 to 80 employees, so not a large company, but as we will explain later, highly specialized. It's Sobek, an established drive specialist.
I mean, their focus in the past has been really developing high-performance electric drive and hydraulic systems for drones, but where they come from, particularly for motorsports and not for driving, for driving motorsports cars, but for auxiliary systems around pumps, as I will explain later, and also for aerospace. It's all German-made, high-tech made in Germany, so that's why it's very important. It's a very important component in the military drone supply chain for the future. Three production sites in the south and west of Germany, in Kassel, Hirschberg, near Heidelberg, and Rottenburg, near Stuttgart, and also that's why it's fitting pretty well to the DEUTZ setup. The product portfolio Sobek is offering, I use the word quite a lot already, scalable, high-quality manufacturing across the core products.
That's brushless DC motors, so small but powerful electric motors, control electronics, pumps and valves, whereas the pumps and valves include these highly specialized BLDC motors. The control electronics is own development, also own produced, very important for this resilience in the supply chain, particularly in the field of military. The performance, our company's performing very well, revenue, so between low and mid-double-digit million EUR range, EBITDA approximately EUR 10-12 million on an annual basis. We don't disclose the margin in detail, but it is double-digit and it is actually quite significant double-digit. When we look at 2024, and I'm just providing here the view of the past products and applications, product side, it's pretty much third third third between motors and control electronics, pumps and valves.
The applications, and that's where they come from in 2024, is with more than 60% for motorsports, defense, a growing field, and aviation, but also some very niche applications like robotics, MedTechs, and others. This year, the focus has already shifted quite significantly because 2024, the top line was also lower, 2025 top lines gone up significantly, and the growth is very much coming from defense, from selling these components to a number of pretty known European-based def techs, where we did not disclose the names here for contractual and competitive reasons, but they are very well-known names.
Going forward, what is the sort of growth we expect? So I said it already earlier, we expect a CAGR of 16%, maybe 15, maybe 20. I mean, this is very difficult to predict, but we're all in agreement that we see a significant growth.
We do not see a significant growth coming out of the motorsports business. It's a very niche application. Having said that, that product providing today to Formula 1, Formula E, and also Le Mans. There is still growth potential outside Europe, some serious in Japan, some serious in the United States, but that's not the focus as of now, but it provides additional growth potential. We have a very strong starting point here given the foundations and the high-end motors, but the expansion into military drones and that what we see here with a red bar, I mean, that's underway and driven already by strong orders from, as I said earlier, hand-picked def techs. You see the 12% share in 2024 increasing significantly, almost 50% in 2025. We expect in the future the share be at or above 50%.
Additional potential like in aviation, robotics and MedTech, that is there, but it is something which Sobek has not very actively pursued in the past, but what we also see as on top growth potential in the future. To explain a bit, you know, the role of the components within a drone. As I said, there are two products. It's the brushless DC motor. These are electromagnetic motors to power the propellers. They're often obviously combined with control electronics to ensure redundancy. It's extremely important. You have between one and but rather four or even eight of these engines per drone because the drone needs to be steered very accurately with no margin for error, literally with no margin for error. That's why you also have in a drone like that between one and eight control electronics.
Both of them, both of them produced in Germany and using very, very few components imported from outside the country, which makes these products very qualified for the military market, where obviously independency and resilience of the supply chain is key. Maximum power of these motors is 10,000 watts from the control electronics. We see up to 200 amperes. But again, as I said earlier, from on the motor side, superior power density is extremely important, energy efficiency, precise controllability.
So power to weight is an extremely important aspect because you can imagine these drones, they need to be light, they need to be fast, and they need to be able to carry a very effective payload when they're in military use. I mentioned it already earlier, but I would like to highlight Sobek is already a trusted partner to European dev techs.
And it's not only a trusted, but an early partner to these future defense primes. I said today's defense techs turning into future defense primes. So Sobek already supplies electric drive systems, a system comprising, as shown on the previous page, of a motor, control elements, and the software to these leading European drone manufacturers. And it's obviously a key component supplier for this new sort of European defense ecosystem, which we are currently seeing emerging pretty quickly in that DefTech sector.
I also said it earlier, local supply chains are a key differentiator. ITAR-free sourcing is extremely important. Not only that, it's actually mission-critical. Sobek, with their setup in Germany, offers these local-to-local sourcing and very, very resilient European manufacturing. And with that drone business, I mean, the first prototypes or even the first series, like they were relying a lot on Asian, sometimes Chinese components.
And obviously that for obvious reasons is not longer possible. So that's where a company like Sobek comes into play. And the preconditions for drone OEM, particularly the certifications, and these are fairly high entry barriers, they're already fulfilled to technically perform. So everything is set to grow, and but on a, as I said earlier, on a very solid basis.
When we put two companies together, I mean, Sobek is obviously still a small company. But when we, after we acquire or why we acquire Sobek as a company, first of all, and it's the headline, and I keep repeating, it's profitable and it's ideally positioned in defense, two extremely important preconditions. When you look at Sobek from a standalone perspective, it's already an extremely strong case because technology leadership in these advanced drive systems and a strong market position. So purely on a standalone, it's already attractive.
But we as DEUTZ will contribute in the localization scale. So manufacturing, sourcing, service infrastructure, homologation capabilities, but also access to markets outside the country. So that's where we come into play. And on the other hand, we benefit a lot from Sobek as well, because it's our aim to develop ourselves from a sort of pure product supplier to system integrator. And Sobek brings here knowledge, products, and business models which help us doing that. We are expected to gain quite some technological edge. We also, you know, see the perspective to be able to jointly develop modular system platforms, for example, powertrain kits tailored to defense, but also to adjacent markets.
With Sobek as an established supplier, drivetrain supplier, we are also expecting to gain and fast gain the strategic access to these new defense ecosystems because it's one of our imperatives to actually quickly expand into that business, in particular in the business where we can apply a fast entry, where the development cycles are short or fast, to be precise, to really, you know, participate here from the growth. I mean, to round it up, right, it's an additional milestone in our Dual+ strategy. You all know that we're coming from a very, very ICE-focused business, internal combustion engine, our classic business. We're working on that to make it better, stronger, and we're well on the way. It's still a business which is fairly dependent, or very dependent actually, on economic cycles.
Obviously, there is, at least in the mid and long term, there is the need to transform, right? So we have, as with Dual+, set ourselves up to make ourselves less dependent on this still very volatile combustion engine business. We want to move from this sort of one product, the engine and the service, to a multi-business company, which acts also as a system integrator. We've done that. We've kicked that off in the last years with our market entrance in energy with the acquisition of Blue Star. So that's all worked pretty well.
We also want to boost our defense business unit, which we founded very recently. We want to boost it in the market where obviously trust, experience, commitment are differentiators. We are also expecting some cross-selling opportunities with the products which we now consider sort of our traditional customers.
And high-tech made in Germany, I mean, that sums it also up. It's a claim, but it's an important claim. We want to utilize that claim where it makes sense. With all the discussions in this very, very intense due diligence we've undertaken, we learned how important that is to be a high-tech player made in Germany or made in Europe, but in this case, made in Germany, because, as I said, resilience in the supply chain is a must. How we proceed in terms of next steps and also some details on the transaction. The M&A deal has been negotiated and signed based on an EBITDA multiple of 11 times, which is for an asset in that space we consider pretty favorable.
Given that it's a German company, acquiring a German company and not with a high overlap in business, we expect the transaction to close imminently. Financing is secured through credit lines with our old banks. And we also put in the ad hoc release that depending on the market conditions, we're also intending or considering financing the transaction with a capital increase from an ABB procedure, no more than 10% of the current share capital, depending on market conditions.
Moving on, we have made very good experiences in the last three years with acquiring successful niche players. And part of that is obviously selecting the right targets, but another part is also selecting the right integration approach. And when I say that, I mean a low-touch integration approach because we consider or we appreciate very, very clearly what made that company fantastic.
That's the scalability, that's entrepreneurial dynamics, and also the tech expertise of the team. This is why integration only where it's necessary. I want to do it the same way we did it with Blue Star and UMS, which both has worked so far pretty well. That's pretty much the next steps. And yeah, wanted to take the time to give you a brief, a quick first glance into what we've done with that acquisition, why we've done that, and what to expect on that. Now we've got a couple of minutes left for questions.
Thank you so much for your presentation, Sebastian. Ladies and gentlemen, we are now happy to take your questions if you may have. And if, like you know from previous calls from DEUTZ, we accept questions in person via the audio line.
To do so, just raise up your virtual hand. We have dialed in by phone. You can use the key combination star key nine to enter the queue, followed by pressing star key six to unmute yourself. We received two virtual hands. Let's start with, I think we do like ladies first. We go with Anna. Please go ahead and ask your questions.
[Foreign language]
Please feel free to speak to ask in German. I would ask and I would answer in English if that's okay.
[Foreign language]
Yeah, so for everyone listening and speaking English, the questions about our new business unit, defense, is when we do have that. And you know, what's the plan with that? How we want to grow it and so on and so forth. So I mean, speaking on the business unit, defense in general, we call it a bit of a sort of go-to-market business unit because we want to market products we have already in our portfolio, both in the traditional portfolio, like our combustion engine, but also new businesses like we're speaking now about Sobek. We want to market these products, which are in principle suitable for military as well as for civil use. We want to market them properly for military use. And that's where, you know, that's why we founded the business unit.
We founded that business unit formally at the beginning of the year. Informally, it was already working as a project beforehand. And so far, I mean, this year, and that's what we've been saying in the past months very consistently, we're expecting roughly a double-digit million EUR sales volume in military business. O`bviously, with that acquisition, that's adding up. So we're establishing this business unit to grow it over the next three, four, five years for us to be a significant, but not overly sort of dominating part of DEUTZ teams. The teams are excited because DEUTZ is driven by sort of entrepreneurs, by committed engineers, and engineers like to solve challenges. And obviously, the military business, I mean, they bring new challenges, and our engineers are super excited to solve them.
[Foreign language]
In terms of numbers of employees, it's a small sort of handpicked group of less than 50 employees. That should not look too small because, as I said, these are the teams marketing the products. They're being produced by our sort of overall workforce. And relevant, but not significant, or how do I phrased it, means I do not expect, you know, I will not, let's put it that way, I will not set here growth targets in the triple digit million amount for the next years. We're going to start developing this market. And what's even more important than pure top line is that this is a successful bottom line.
[Foreign language]
[Foreign language] . So thank you so much for your questions.
We will move on with Jonas Janssen. So please go ahead and ask your questions.
Hi, good morning. Just one clarification question regarding the EBITDA multiple. Compared to the other number you said, like the EUR 10-12 million for this year, or is that another year range you have there? And the second one is looking at the other businesses you already bought and had an idea with also in the defense spending with UMS, for example, do you already see there also a raising interest from customers?
Yeah, let me first answer, Mr. Janssen, first answer the question on the EBIT. So there are two things. We named we explained that Sobek generates an EBITDA between EUR 10 and 12 million. So that's an absolute number, and the multiple is the valuation. The valuation which sort of connects the EBITDA and the purchase price we paid, right?
So the one is an absolute number and the other one is a relative valuation. When I spoke about valuation earlier, the 11 times is what we consider favorable because in the defense space, you see a lot of companies, particularly stockless companies, with a higher valuation. Moving on to the second question, we do see increased interest. We're working on quite a lot of promising partnerships. But unfortunately, I always, before something is signed and announced, have to say this is all very highly confidential.
But what I can say is that these partnerships, I mean, the most interesting and promising ones are the ones where we're talking about innovation in our drive systems, where we are bringing sort of capabilities that we have around the drivetrain, in some combinations from the traditional ICE combustion engine, but also battery electric technologies, how we bring that into, you know, with new players. So there is a lot of interest, obviously focused in Germany and Europe. But as always, once something is ready to announce, like this acquisition, we're very happy to do so.
Thank you.
Thank you so much for your questions. So then we move forward with the questions from Wolf from DPA. So please go ahead and ask your questions, Wolf.
Hi, good morning. Wolf, DPA, German Press Agency. Many thanks to you. I just have one-digit question.
What is your turnover share of your new defense unit? You said double-digit million turnover each year. What how many % would this be of your full of all your DEUTZ? And the second question is, you said that actually Sobek is about to expand into military drones. Did I understand it correctly that right now it has nothing to do with military drones? I mean, right now there's no business.
No, no, no.
Actually, there is significant business in military drones. Let me start with your second question. In this year, 2025, the share of Sobek drives going into military drones is around 50%. It's a very important pillar already. The history of Sobek was they came from motorsports, from Formula 1, not the engines to drive the race cars, obviously.
You know, this is not done with these small electric engines, but the engines using driving pumps and valves for cooling and so on. But Sobek successfully managed to transfer that technology into the military drones use case. And that's why they are set in a number of military drones manufacturers' products, which are currently also in use in that war in the Ukraine. So it's already established there, and we expect further growth. That's what I'm saying. The other question, your first question on the share, I said, well, look, we didn't disclose the numbers very detailed in detail. That's why I'm saying double-digit million EUR revenue number. That's the one statement. And the other statement today was it's still a small portion. Our group revenue is above 2 billion EUR per year.
And so what we can say is today, before that acquisition, before the growth, it's below 5%, but we expect it to increase. That's as much as we can say on this number. So I regret.
Okay, great. Thanks a lot. And Sobek will be put to this new defense unit also.
That's correct.
But it's not fully military, right? It's not fully defense. It is also some from the racing unit.
Yeah, that's correct. But the main growth path and the main share today of that company is in defense. So that's why we decided to also allocate it to defense, obviously without neglecting the other business verticals. But it is for us clearly considered a part of that defense growth threads.
But as I said earlier, you know, these products are obviously suitable for dual use, such as the engines DEUTZ has produced traditionally. So there's always and that's good. In order to be resilient, there is always, obviously, the marketability given not only in defense, but also in others, but we're doubling down here on the defense part.
And my last question. So in the Ukraine war, actually, are they using drones which have Sobek components?
Yes.
Yes.
I mean, the Ukraine is using, not the Russians. Very precise. Yeah.
Yeah. Okay. Thank you.
Thank you so much for your questions. And then by now we have the first virtual hand, the last virtual hand, sorry, from Klaus Stöhr. So please go ahead.
Lost him.
Oh, Klaus, unfortunately, we cannot hear you. Okay, maybe his questions are already answered.
We have a question from a person who is not able to speak. It's Klaus Schilling from Warburg. Hi, Sebastian, can you give a bit more granularity regarding margins at the motorsports unit and where you think defense share of Sobek total will look like in three years from here?
Sure, Klaus. We've shown that on the, I think, the third or the fourth page. Maybe we're just flipping back here. Give us a second. Exactly. Currently in 2025, the share is about 50% of defense. In three years, the share we expect to be a little above that. Obviously, we expect the total business to grow significantly, right? That's the current prediction.
And the rationale behind that is, of course, that, as I said earlier, these UAVs, particularly the Type 1, Type 2, they become a much more relevant component or part of the military doctrine in NATO as well. And so that's why there is growth. There is growth expected, supported by a lot of market studies. We do not disclose margins in detail, particularly not in relation to the verticals. The only thing I can say is there are attractive margins all over the business. And that's purely because it's high tech. It's not easy to be copied. And you know, so that's why we're buying a successful business.
Thank you so much. And the last question by now, can you please explain your thoughts or the process?
What would let you choose to do a capital increase versus keeping the related debt on your BS?
Well, we're keeping it open right now. But the thing is, we are on a growth pace, on the growth phase as DEUTZ. We have ambitious targets to make DEUTZ more successful, to grow DEUTZ, to grow not only top line, but particularly also bottom line. All of you who are following us more closely know that with our dual path strategy, we also announced to make DEUTZ a EUR 4 billion business by the end of the decade with a 10% margin. And that will only work as a combination of organic as well as inorganic growth. And particularly the inorganic part will require every now and again capital. That's what we've done last year in relation to the acquisition of Blue Star, where we have successfully placed new shares.
I think everyone who entered is now one year later pretty happy about that. That's why we're keeping it open because this has not been our last acquisition.
All right. Thank you so much. In view of the time and in the chat or in the queue, it seems there are no further questions. And then I'll just, having said this, there is always a question. Why is the price so low? 11 times EBITDA. Normally we would expect in such a demanded sector 15 to 20 times EBITDA.
I would not consider the price as low. I would consider the price as fair. I think that's the only statement I can make. A price negotiation is obviously a result of seller and buyer negotiating and coming to a mutual agreement. We consider this a fair agreement for both parties.
And when you look at comparables, you always find businesses that may be valued higher, but also may be valued lower. So please bear with me that I would not consider the price as low, but simply as fair.
All right. Thank you so much. And answering that question, we will come to the end of today's conference call. And we thank you for your shown interest. And yeah, have all a lovely remaining Tuesday. Also big thank you to you, Sebastian, for the presentation. And last sentence belongs to you. That concludes our call.
Thank you very much. Thank you very much for listening, for dialing in and listening, and for continuing being interested in DEUTZ. I can tell you it's a lot of fun shaping that transformation, and we look forward to be in touch and remain in touch with you in the future. Thanks.