Good morning, ladies and gentlemen, and a warm welcome to the Q1 2026 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. Your participation in that call implies your consent to this. I'm pleased to welcome DEUTZ CEO Sebastian Schulte and CFO Oliver Neu. As always, please take a note at our disclaimers, especially regarding forward-looking statements. With this, we start the presentation, and I'm handing over to the Head of Investor Relations, Communications and Marketing, Lars Boelke.
Thank you, Sarah, very good morning from my side as well here in Cologne. Thank you for participating in our today's conference call. I'm glad to welcome you as it is the first time we report in our new structure with five business units, reflecting the different markets and thus providing even more transparency and clarity. At the beginning of presentation, Sebastian Schulte will share with you on key figures of Q1 and then provide an implementation update of our strategy along these five new business units. Obviously, next, our CFO, Oliver, will give a detailed overview on the group's financial performance. With a look at the guidance and how the strong Q1 momentum is pushing financial year performance, Sebastian will wrap up before, of course, we move forward to your questions. Sebastian, please go ahead.
Thank you very much, Lars, for the introductory words. From my side, a very warm welcome as well to our Q1 earnings call 2026. You know, we started really, really positively into this exciting but also challenging year 2026. DEUTZ 2026 is all in the light of transformation, but also in the light of growth, profitability, and a successful start, as I said. Couple of highlights, which are behind us or where we're in the middle of it, let me be more precise. First of all, that was really an exciting moment for all of us, we were promoted from the SDAX to the MDAX, which is a nice milestone, a nice recognition of successful work the teams at DEUTZ have been performing. Obviously, that's a result also of an above-market share price performance.
We see it here for the last half a year, where we compare our stock performance with the MDAX performance. We're clearly ahead of the index. If you were to look back at 2024, the gap is even more significant. That's a sign that our work's paying off. FRAC, the acquisition in our energy business unit, I'll come to that later, gave us an order intake impact of almost EUR 150 million. That's contributing to the growth, but it's not the only contributor to the growth.
What's, I find particularly encouraging, quite frankly, is that next to all the successful ramp-up of new business units, also the sort of heritage business unit, our engine business unit, but also supported by service, sees quite positive momentum in very relevant markets, namely construction and agricultural. All in all, a lot of positive points in our transformation. No surprise that with all these positive points, we also see that reflected in the numbers. New orders been up significantly, 41% year-over-year, EUR 771 million order intake, new orders. That's great. Revenue at EUR 530 million, it's also up 8%, so one of the highest numbers on a quarterly basis DEUTZ has delivered, well, in the company's history.
The same applies for the EBIT margin. We are now at 7% EBIT margin, which is also 1.8 percentage point better year-over-year. We always need to bear in mind that the first quarter of the year is typically not the seasonally strongest quarter of DEUTZ. In fact, that's also underlined by the fact that since the start of the downturn, the end of 2023, that is the best quarter we have achieved. Very encouraging news. Important, I'd like to repeat that we've shown that at the annual results call earlier this year. We've also started, Lars said it in his introduction words, into the new year with a new structure, and a structure which clearly follows the company strategy. You know, we introduced business unit set up in January 2026.
Next to the group wide management, Oliver, the CFO, Katharina, EVP for HR, strategy, and transformation. We have now in charge dedicated business unit leads, Marco for defense, David for energy, Marcus for engines, Bert for NewTech, and Andreas for service. That's more than just an organigram. It just shows that we take our strategy seriously. We've implemented the structure to have a responsibility on a P&L basis for each of the business units, even though they are at this point in time, still different in size, but all extremely relevant. That's why we needed this clear responsibility. I can tell you the setup is working extremely well since we implemented it. Let me now walk you through the business unit by business unit.
I start with the largest business unit, with the business unit engines. What happened at engines in the first quarter? It is positive again. Back in black, that is great. We also see very positive momentum in order intake. I show that here on these numbers. We will not go through this all in detail, but what you see is particular if you compare Q1 2026 with Q1 2025. In terms of revenue, only slightly up, 5.3%. Well, see where we were in Q3, for example. In terms of new orders, up 26%. That means the fundamentals become stronger. There is a certain recovery in certain sectors, particularly the very important construction and agri sectors for us.
We also see the growth dynamics in all regions. There's even a particular momentum in China. That's the smallest region for us. That was contributing here with high-margin business as well. Profitability went up significantly. You see that. At that point, last year, we were slightly negative. This is a like for like comparison, you will not see these numbers in the presentations of last year Q1 2025 because we're bringing here the numbers into place so that we compare apples with apples. Profitability went up significantly. Yes, of course, high utilization, but also the cost savings of Future Fit program, we will hear from Oliver later, as well as the positive order momentum. Sales growth with new products, you know, there is a significant strong interest also in our new engines.
We introduced a couple of weeks ago our G-Drive initiative, like engines for power generation. We hosted that here in Cologne after an important trade fair in Dubai was canceled, so we hosted that here. We received strong interest. More than 30 potential customers were there. This is something we do not even see in the new orders yet, but we expect that to materialize in new orders in the coming quarters. Of course, very important strategic work we're doing with the team, Marcus and his team are doing. We are streamlining and aligning here our portfolio and also the footprint in order to further push the profitability because obviously 3.7% is a great development compared to previous years, but that should not be the end of what is possible.
We're working also on efficiency here in our main assembly plant in Cologne Porz. Noticeable savings potential has been identified and is being implemented. Here we clearly see that the new responsibility we put in place is beginning already to pay off. In all, engines on a good development, both from a top line, from a market driven, but also obviously from what we have under control in our internal measures. Let me move on to service. Service, you see here a picture. It's a great picture, actually. This is our material, our logistics center, also here in Cologne, where we implemented a new AutoStore. That's AI-driven storage management, which significantly reduces cost but also increases capacity for our spare parts.
Both is extremely relevant given that in service we are on a growth path. In March, and I'll come to the quarterly numbers in a bit, but in March, the service business for the first time yielded revenue significantly above EUR 50 million, and that's great. I mean, two years ago, three years ago, we were always around EUR 40 million. Now we're at EUR 50 million, and that shows that on a monthly basis, we are improving here the run rate significantly. You see that here also in the numbers. In the last year, we're always between EUR 130 million-EUR 138 million. Now in Q1, we're at EUR 148 million, and that's particular driven by February and March, given January is always a bit of a weak month.
This growth came across all regions, both driven by parts but also aftersales business and integration of our acquisitions. We did a few acquisitions in the United States as well as in Europe. I mentioned the EUR 50 million revenue already. The traction we are improving is also by our international network expansion. The logic is very simple. The more service center we have, the more profit we achieve, right? We do have, we do follow further growth investment in our regional infrastructure, particularly in Europe and the Americas.
We're opening new power centers across the nation in the U.S. That is the only sort of critical point we'll see at this point in time is that the ramp up reduced the margins a little bit, but on a very, very high level. Also the margin Q1 2025 was a little higher than normal because at that point, we had a very high share in spare part business, we expect a normalization across 2026. By no means, this is a problem with margins. It's actually a very healthy, profitable growth going forward. Let me move on to energy. Energy, our, besides to defense, our sort of biggest growth case at this point in time, I showed it, I said it initially.
Growth momentum comes obviously in particular from the new acquisition of FRAC, which is, as you know, active particularly in the data center business, which is a market which enjoys not only now but also in the next three, four, five years at least, a very high growth momentum. Looking at numbers, Q1 was also first time here. The revenue was at EUR 50 million. Obviously, a bit driven already by the anorganic effect from the acquisition of FRAC, which joined us. The closing was happened in the middle of the first quarter. That's why here it's not really a like for like comparison if I compare Q1 2026 with Q1 2025. EUR 145 million of order intake was contributed by FRAC.
Now we have new orders of just above EUR 200 million. We have an order backlog of EUR 240 million in the business unit Energy. That means the visibility of this business is extremely strong, and that applies to both top line as well as bottom line. I will come to that in a minute. We are making extremely positive progress with the business unit Energy to really create a global unit. FRAC is obviously supporting in Germany but also in neighboring countries. DPX, our Chinese setup, is supporting out of China to also drive growth in Europe and of course in Asia.
We do have a little margin dilution in the 1st quarter, particularly driven by FX in the United States as well as change in the product mix. We expect a significant improvement in the 2nd quarter. The numbers we see here in Q1 2025, that's more the level of profitability we expect throughout the year. That's why this is a temporary thing. We will come later in this presentation also on the guidance for the full year, where we will also give you a little bit of details on the guidance for the business unit. The guidance we provide you for energy is very safe and sound at this point in time.
The growth perspective, as I said already, is continuing to remain extremely dynamic, particular because of that data center opportunities we have in Europe, but also Blue Star continues to grow above what we initially had foreseen. On a smaller scale, but very encouraging, our North African genset business in Casablanca and Morocco, Magideutz, we always explained that was a bit of a turnaround case. The turnaround has now been achieved. Company is EBIT positive and also enjoys growth, obviously on a smaller scale, with annual top line in the mid 20 million EUR.
Of course, one important aspect of creating a global energy business is obviously that we are now implementing more and more synergies, not only within the business unit Energy, but because we're building really something global. Applying the capabilities in data centers we have with FRAC in also other parts of the planet. But also, utilizing our service footprint, which historically has been created for a combustion engine, but now we're beginning to utilize this for our energy business. Let me move on to the business unit NewTech. I call it internally and also externally at this point in time, a bit like a growth option. A growth option with very, very positive dynamics and outlook.
At this point in time, it's still rather an option than a already secured top line. You see that in the numbers here. The revenue is still on a low level. I mean, it's growing, but growth here from Q1 2025 to Q1 2026, that is not a relevant number, of course. 64% sounds much better than it is. It is still a small business. We do see new orders coming in. We have obviously also an order backlog, but that is still on a sort of prototype on small series scale. We do, in this point in time, work particular to improve the earnings, because it is obviously still a lot of upfront investment, R&D activities, and that's why we managed here to significantly reduce the quarterly losses.
We cut them in half, pretty much coming from -12 to -6. A big focus in this business unit is obviously converting the very promising large pipeline into actual revenue. We're working here with a couple of promising large customers. Part of the truth is also that we have not yet secured a large order, but we're working on that. Why I consider this a bit of an option value, because obviously as soon as we see, or we would see pressure from electrification in particular, into the lower power ranges, in, let's say, our construction business, then obviously this business here will start to pick up speed. That's why it's an important option value.
It's an important business to be involved in. We can and will further support obviously the growth in NewTech. That brings me to the last but certainly not least business unit, Defense. To be very accurate, Defense as well as others. We also include here the business of HJS Emission Technology, the emission aftertreatment specialist. Defense, you see here that fantastic picture where our Ulm plant has shown that we have the capabilities of assembling here unmanned vehicle systems from our partner, ARX Robotics. That's an exciting project we're working on together with ARX. Here it's about increasing relevance and really building a strong business model.
Looking at numbers, here this is a business unit which has only been created by the end of last year, pretty much. Beforehand it was more rather a collection of own businesses, of own projects, but latest with the acquisition of the SOBEK Group, we really created then that business unit. That's why we don't have a meaningful quarter-over-quarter comparison in terms of profitability. What we see here is that the business becomes more and more relevant. Q4 2025 was driven by a few large-ish orders. Very strong with almost EUR 30 million. Now we're at EUR 22.1 million in Q1. We enjoy a lot of new orders, EUR 26 million order intake. Here also growth dynamics is in place. The order backlog is at almost EUR 40 million right now.
Without at this point here, being able to release names of the customers, but we did receive in the 1st quarter, 1st significant or relevant orders relating to the loitering drone package that the German Army ordered at a couple of drone OEMs. In 1 of them we are the supplier of the drive systems. That relates to the ramp-up of SOBEK, because that's the part of DEUTZ which actually provides here the drive systems. We are also continuing to invest R&D in particular in new powertrain solutions. That applies especially also to the field of the diesel engines, where we are enhancing our current product portfolio to make it sort of defense ready.
Also, the HJS I mentioned earlier, HJS emission, it's been bought by us as a turnaround case. Now it's working actually quite successful. We were able to integrate some of their production into our supply chain. That's important. We're continuously committing also to that defense tech ecosystems with, I mentioned it earlier already, the investment in ARX Robotics, but also the investment and the supplier relationship to TYTAN Technologies. What's about here? It's a conversion really of an extremely strong pipeline into sales. We have a lot of very promising conversations, project negotiations, discussions. Obviously, the Ukraine plays an important role here, we're continuously working on exploring more and more opportunities, both in terms of drive systems, but also in terms of military energy solutions.
That will always include partnerships and M&As. There's certainly more interesting news in the making throughout this year. 13% margin level, I think that's a fair margin quality given the combination here of the traditional sort of defense business as well as the SOBEK contribution. We have created here a pillar which is attractive to the business and which is enjoying significant growth in the next months to come. Right. With that short run through the business units, I will hand over to Oliver, who will bring some more light on the financial aspects of our first quarter.
Thank you, Sebastian, and good morning. Warm welcome also from my side. Let me start with some figures that show quite nicely the strategic development DEUTZ has undergone over the last years. You see here the quarterly EBIT development of DEUTZ since beginning of 2024. Just to remember, that was a year where the crisis in the traditional core business, the engine market, was kicking in quite heavily. We see here on the one hand, on a yearly basis, significant EBIT improvements, starting from a bit more than 4% to a bit more than 5.5% to 7% in Q1, but also on a quarterly basis. This chart basically shows the increased resilience of the DEUTZ business.
Just to remember, in Q3 2024, that was where we acquired the Daimler Truck engine portfolio, where we acquired Blue Star Power Systems, entered into the energy business. In Q3 2025, we additionally acquired SOBEK as a strong entry point into the defense business. Overall, of course, a continuous growth on service side, organically as well as inorganically, and the Future Fit program, with cost reductions then driving that profitability up. That's nice to see that we see here a record result in Q1. As we heard initially from Sebastian, that is typically a seasonally rather weaker quarter. That's why we are proud to having achieved that. Let me come to a bit more detail on the key figures. We see here new order development increased by 41% or EUR 225 million.
145 out of that increase is related to the first time consolidation of Frerk Aggregatebau, so our recent energy acquisition, and EUR 80 million then organically. The growth on the new order side is driven organically as well as inorganically. On the revenue side, lower increase to a level of EUR 530 million. That is typically a weaker Q1 on the revenue side. You cannot just take it times 4 to derive the yearly values. We have to take into consideration, first, the high order intake, and second, of course, also synergy effects within the year. Growth here on the revenue side, mainly in absolute terms, with similar contributions from the engine service and energy business, while NewTech still remains on a low level.
On the earnings side, also here we see a substantial increase of 45%, 46% compared to the first quarter last year. Ending up at the 7%, driven by various factors, cost savings from Future Fit coming into place again, especially on the R&D side, but also improved plant utilization. That is also what brings us to a higher net income, EUR 21.8 million. That is EUR 10 million compared to minus EUR 10 million last year. Last year, Q1 was also impacted by the Future Fit provision. Even adjusted for that, it was a significant increase. EBIT logically is also turning into higher net income. Looking at some more key figures, on the R&D side, we see a decrease of 4%. That is a consequence of our Future Fit program.
We gave some more details on, in the text line here on the split between the different business units. We see a very strong cost discipline on the engine side. We see our cost discipline also as announced on the Future Fit program on the NewTech side to tailor the R&D spends a bit more to what the market is demanding. Of course, we are not saving on the R&D stuff when it comes to defense. There are some first R&D expenses here in order to get our portfolio ready and even more attractive on that defense side. When it comes to CapEx, it's predominantly a slight increase predominantly for IT infrastructure, production equipment and software. As I mentioned last time, the SAP S/4HANA transformation ongoing, which requires a bit of CapEx.
We are overall on a rather low level on the CapEx side. Q1 2025 was exceptionally low. On the working capital side, we see an increase that has two effects. On the one hand, it's the acquisition of Frerk Aggregatebau, first time acquisition of Frerk Aggregatebau or consolidation of Frerk Aggregatebau, which contributes roughly EUR 25 million to that working capital increase. On the other hand, there's also a slight increase in the remaining working capital, basically also driven by inventories, where we are getting ready for delivering on the orders which we achieved and realized and ensuring delivery in the future. That brings me to cash flow. Cash flow for operations went down by EUR 25 million.
There we need to keep in mind that the operating cash flow in Q1 2025 was extraordinary high, driven by some effects at that point in time. That explains basically the decrease. On the free cash flow side here before M&A, we are slightly negative. Basically, I would say we are coming back to a more normal season pattern where Q1 is on the free cash flow side typically the weakest quarter. After M&A, we have been ended up at roughly minus EUR 100 million because we acquired Frerk Aggregatebau, we had those investments in ARX Robotics and TYTAN Technologies. That's then also the reason why overall net debt went up to a level of EUR 385 million, including roughly EUR 80 million leasing. That brings me to the chart on equity leverage and dividend proposals.
Equity ratio remains very strong, 47.3%. It came down slightly driven by the debt finance acquisition of Frerk. The leverage remains moderate, 1.7. Keep in mind that this leverage includes leasing, taking leasing out would bring us 0.3, 0.4 lower on that level. On a still good and absolutely solid level. Dividend proposal, as already announced, slightly increased to EUR 0.18 per share for our annual general meeting next week. Final the figures, I hand over to Sebastian again for guidance and outlook.
Thank you, Oliver, for the view and the numbers. Yeah, let me speak a bit about the guidance first. First of all, some context. We gave the guidance initially with obviously, as always, the beginning of the year, fairly limited market visibility, particularly given the geopolitical challenges. What we can say, I mean, the growth we've given or we've implemented in our guidance is clearly supported by the momentum we have, the positive momentum. In Energy Service and Defense, that is strengthening the overall resilience. When we gave the guidance initially, we said we expect a bit of a recovery in the engine markets also over the course in 2026 with a stronger H2.
We were a bit sort of taken by positive surprise that already in the 1st quarter, as we shown in the numbers earlier, the order intake's been picking up speed. Let's see how in which speed that will continue. Obviously, geopolitically, there's still a bit of a challenge out there, but so far, so good also what we've seen in April so far, preliminaries. It's good. Let me reiterate here, revenue EUR 2.3 billion-EUR 2.5 billion. We see that very much also from our bottom-up planning right now.
Obviously, the business units contribute, as stated here, the midpoint 1.33, Service 635, Energy, almost 300 with a bit of luck and further movements, potentially even above. NewTech 35, and Defense and Others 110. In all of them, we see obviously a bit of potential up, but obviously also a bit of risks, but in the end, that's a good thing of having a portfolio of business models and business units. All in all, it's a very solid view on the future, which we have here right now. On the margin, we provided in March fairly wide range, 6.5%-8%.
We got feedback from many analysts and investors that was perceived as a bit too broad. We will take that point, but that the visibility we had at that point really didn't allow us to be more specific. It seems like we're narrowing that down on a positive side right now. Engines, I mean, you can just compare what we've shown earlier for the last half an hour, compare with the midpoints here. We are well above that, the large engines business. Service, we are already at that level. Energy, well, in the Q1, we were slightly below, but the view we have on Q2 to Q4 is actually very much on that number we see here.
Defense will also probably expect a number slightly above that. That actually confirms not only the guidance, but gives me personally optimism that we'll narrow down here on that corridor on the better side. Free cash flow, we heard also from Oliver, the view on cash flow right now, we expect high double-digit million EUR amount positive. Yeah. I mean, I said a bit about the outlook for 2026, confidence is extremely important which we have right now. The transformation of the company is paying off.
I mean, we've shown already in the first quarter a very decent level of profitability, 7%, given where we come from at DEUTZ and given that in engines, despite the recovery we are seeing, we're still way below what the factories can deliver. Economies of scale are paying off, but only on a low level. It's, you know, if the recovery continues, we will see massive contributions from economies of scale. The other good thing is, we have a lot of positive contributions from pretty much all business units. I mean, in engines, we are doing our homework. Cost-cutting, you heard it earlier on the Future Fit program, but also new initiatives in the factory. We're growing, you know, step-by-step in Service.
The team's doing a fantastic job here, particularly in the United States and in Europe, really growing step-by-step hundreds of initiatives, but they're being implemented with tenacity. We're growing in Defense and Energy. It's a growth case. It's exciting. Yes, the business units are not massive yet, but they are significantly growing and improving profitability and resilience, which is extremely important. Last but not least, we've got the option value of NewTech. Of course, the market perspective is a challenge. It certainly doesn't provide much tailwind, that geopolitical situation where every day we seem to have a new development. It's our conviction as management team of DEUTZ here not to complain. There's no reason to complain.
There's only one thing to control what you can control, and that's what we're focusing on. There is a lot we can control to navigate strongly through that difficult environment. The results we've achieved in the last years and now obviously paying off with this really solid quarter just confirm that it's the right approach. Stop complain, rather act, because there's so much opportunity out there. That's why what brings us, me particular myself also, to have a very positive view on the future. We're creating something we call here the Next DEUTZ. I mentioned it before, the more resilient business units, the structure, but also the business models behind that, you know, they pay off, the benefits pay off.
We see already now a lot of positive P&L impact from acquisitions and other portfolio measures and as I said, the efficiency and the cost improvement. We're creating an industrial platform, industrial business, the DEUTZ, which with a strong heritage, but a lot of upsides and potentials in growing markets supported by macro trends, defense and energy in particular. With that, we feel more than confident to achieve our growth, which is significantly above the market, and also bring the margin performance not only on that level, the 7% we are right now, but step by step also further increase here the performance and thus increase also shareholder value. Yeah. Next DEUTZ, I mentioned it. Strong growth across the businesses, organic as well as inorganic.
We are working very structured on M&A projects. We have delivered in the past. We have shown that we can deliver. Margin will increase further. One important thing, quality before volume, that applies particular to engines. Five years ago, DEUTZ was more volume before quality, now we changed that around. We rather sell less, but at high margin. In the end, well, effectively, we'd rather sell much at high margin. If we need to make a compromise, it's always quality before volume. Obviously, cash is relevant. We are very sort of comfortably set up, this should not give us a false sense of security. We're working here on discipline.
ROCE is an important KPI also for the executive board. That's at least a reason to take that extremely seriously. We are very much on track for the free cash flow guidance for 2026. I mentioned already more than once that we follow a prudent option approach that we continue to support or to grow in the NewTech business, even if that is, at this point in time, the only unit which is not profitable. Given where we are right now in other parts of the group, that is something we not only can afford, but we must afford in order to be ready when the market dynamics eventually will change in this business. Right.
That brings me to the end of our presentation, and we would pay back obviously, and we're looking forward to receive and answer questions.
Thank you so much for the presentation, Sebastian, and for sure also to Oliver, and for the dive into your first quarter. Ladies and gentlemen, we're now happy to take your questions in person via the audio line. To do so, just raise your virtual hand, and if you have dialed in via phone, you can raise your hand by pressing the key combination star key followed by 9. We received the first question from Lasse Stueben, so you should be able to unmute yourself and ask your questions.
Hi, good morning. First question would be on the order intake in the engines, which you mentioned, you know, is up very nicely in the first quarter. You mentioned construction and agri is better, but can you just give more color on what's going on and maybe how that's looked into Q2, just, you know, thinking about higher oil prices, generally not great for some of these sectors. Just generally what you're seeing from customers. Just on the same point in terms of the margins in engines, as you said, you're already above kind of where the midpoint guide is for this year.
I guess my question is should we expect kind of that to flatline from here in terms of the margin or, you know, should we expect further operating leverage in the remaining quarters of the year? I'll ask my questions one by one.
Sure. Let me start. Thank you, Lasse, for the question. Let me start with the order intake. The order intake in engines was around, sorry, the book-to-bill was just shy of 1.2 in engines. That's first of all the pure numbers, and it's driven by orders as well from the United States, from Europe, and as I mentioned in the presentation, also from China. There were a couple of individual customers, and I don't wanna disclose the names here for confidentiality reasons, but it's been driven by particular one customer in the United States, two European customers, larger customers in the construction sector.
That's rather a larger number of customers with smaller individual orders out of China for fairly special equipment. Not the sort of bread and butter business, but special equipment, which also typically has the advantage of being quite high margin. That was particular February, March. January, as I said, was a slow start as usual. April, May, we expect further order intake, at least probably on that level what we've seen in the last couple of months. Do we expect now a further increase? At the moment I would be a bit more cautious here for exactly the reasons you mentioned. High oil prices are never great for our economy.
On the other hand, and, I did mention that earlier, we did not see any negative impact on the DEUTZ portfolio from the conflict so far. The Iran war, as terrible as it is, but it has not impacted our business, neither of the business units negatively. We didn't see any cancellations. It's more like, you know, one customer is shifting ahead, someone else is shifting forward. That's, yeah, we're pretty resilient at this point in time. That's on the order intake. On the margin level, we do expect a bit of purely operational leverage given that the current outlook on the second quarter in engine production is in terms of numbers here at the German facilities, a bit above what we've seen in the first quarter.
That's on a quarterly level. Because, mainly because of the seasonally very weak January. The second quarter, yes, I do expect operational leverage mainly driven by volume. I also expect further improvements in profitability due to the efficiency measures we've taken in the assembly line here in Cologne. That I do not yet expect significantly in the second quarter. That's more something for the third or the fourth quarter. I mean, what we do here is very simple measures. You know, we increase the so-called takt. How many engines we bring out on an hourly basis. We obviously wanna do that with less personnel.
We don't talk about massive restructuring, don't get me wrong, it is a difference when I, on one shift, you know, I can produce more with, let's say 2, 3, 4 FTEs less. That's currently what we're working on. It obviously has quite a significant and nice impact on production cost and thus on operational leverage. On top of that's more a question for the end of the year, we're working with our Indian partner on the setup of the facility for smaller, for sub-kilowatt engines in India. That only will go live in production in 2027.
We expect the first components to be sourced from India, also for some of our products here in Germany. The first components we expect to be shipped in the fourth quarter. That's not a game changer in this year, but step by step it will help boost profitability as well. That's a bit sort of the high level view on profitability as well as order volume and engines.
Super. I might have missed it in the report, but are you willing to share the unit number on engines for Q1? I'm not sure if you've given that this time around.
I think we should have this number in the detailed. We don't, but let me I'm happy to give it. Yeah.
It was around 30,000, 32,000 engines.
Okay, perfect. Very helpful.
If you take that number and, you know, 32,000 and multiply that with 4 and then you see the utilization is still fairly low. That's what I meant earlier when I was saying there's still a lot of upside potential if we bring that up from 32 to say 36, 37. That's a bit of, you know, the development we're expecting in the next months.
Yeah, makes sense. Very good. Then on energy, I think if I'm working it out correctly, if I kind of adjust for the FRAC order intake in Q1, the consolidation, I think orders are roughly down 10% organically. Is that the right number? If so, kind of can you give some color just on what's going on here? I know you sometimes have bigger orders from customers at Blue Star Power Systems, so maybe it's some lumpiness. Just some color around the organic development on order intake and energy.
Yeah, I mean, that's exactly the point. You answered the question almost by yourself. The orders at energy are, they're always a bit lumpy because if I look at Blue Star, a lot of business goes via dealers to sort of individual orders. There's one larger customer, that's a company setting up a microgrid in the supermarket themselves for a large supermarket customer in the United States. This customer is our premium customer in the United States. In Q1 we ordered a little or we sold a little less to this guy, compensated that with dealer business. That's what diluted the margin a bit. It's one of the explanation. Also the order intake.
These guys order, and when they order, they order for the next 6 months. That's why sort of the order intake, Blue Star, on a quarter by quarter doesn't have too much explanatory impact.
Yeah, maybe just adding to that point also, Q1 last year we had exactly the opposite effect. There was a large one order in the Q1. Q1 2025 was artificially low, so there's not a big relevant picture.
Okay. Okay. Understood. Final question, you partially answered this, just on the outlook for the EBIT margin for the full year. I mean, last year you started below the range in Q1, you kind of worked your way into the range throughout the year. This year you're starting, you know, Yeah. Within the range and based on kind of operating leverage, should we expect a similar sequential development? I understand maybe not quite as aggressive as last year, generally, should we expect margins to improve sequentially through the year?
I guess, lastly here, you gotta interpret a bit on what I'm saying because obviously we're, you know, we are following a very structured forecasting process. We're in the middle of the 1st update of our annual budget and, of course, if we would see substantial support for really narrowing down the margins or even increasing, we would have to update the guidance. We haven't updated the guidance today, that's why we are still in the process of working that out. I'm not pessimistic.
Okay. Very good. Thanks a lot.
Thank you for your questions, Mr. Stueben. By now, ladies and gentlemen, we have no further virtual hands, if you would like to ask a question, just let us know. If you've dialed in via phone, you can raise your hand by pressing star key and number nine. We received two questions from Mr. Ringer, Mr. Ringer would like to know: What's your view and visibility on growth momentum in the remaining quarters of this full year, when will the strong new bookings convert into sales and earnings?
Yeah, it's a bit what I said already, right, Claus? I mean, sort of the order intake in energy, the bit coming from FRAC, that also relates to the fact that we first time consolidated the business, right? We're talking about EUR 145 million, and that's pretty much the entire order backlog for the rest of the year and beyond. That explains that. The range of order intake in energy is typically a bit longer, especially when we talk about larger projects relating to the data center business because this is I mean, to build these products, that's also not a question of a day, that's a question of weeks. Build and implement, and install is a question of months, partially.
Here the conversion is really for throughout the end of the year and even beyond. It's different in engines, the conversion in Europe is typically below 3 months due to the short shipping times. The part which applies to China and America typically ranges rather 4-6 months. That's everything, you know, is for, let's say, Q2 and Q3. On the other business units, I mean, step by step. On service we have a fairly flat, fairly stable book-to-bill on a high level, but here the conversion is typically only 30 days. And on NewTech, it's no material order intake at this point in time, and in defense, the order intake also spans throughout the year.
That's sort of the most lumpy business, especially the order I mentioned, when walking you through defense, the order coming from the German Army regarding the loitering ammunition drones. You know, that's an order which has been placed, I believe it was in March, and the delivery is expected throughout the rest of the year. We rather expect a potential follow-up order throughout the year, which then would also be delivered throughout the end of this year, potentially in the beginning of 2027. That's and we appreciate, obviously, the question from you guys on that because the business model of DEUTZ is changing.
Also when Lasse asked earlier about the unit sizes, up to, let's say, 2, 3 years ago, you could explain the business performance of DEUTZ very simple by, you know, book to bill and unit size. Now with different business units, we have obviously different business models and different relationships of the KPIs. We want to also do that, you know, together with with you guys to, you know, help you building up your models on that by providing the transparency on a business unit by business unit level.
All right. Thank you. The second question from Mr. Ringer, but I guess we touched already that as well. Looking at your guidance for financial year 2026, where you're seeing yourself currently in the respective ranges?
Yeah, I think that was basically answered throughout the call, I think.
Great. Thank you, Mr. Ringer, for that questions. Let me take a quick look into our system. By now there are no virtual hands. Final call, ladies and gentlemen. If there are questions, just let us know. Otherwise, we would come to the end of today's conference call. Thank you for joining. You've shown interest, and also big thank you to you, Sebastian and Oliver, for your presentation. With that, I hand back to Sebastian or Lars. Not sure.
Yeah. No, that's fine.
Sounds like a friendly mark.
I can take that. I just can repeat what you just said. Thank you very much for joining. It's been a pleasure talking to you on that quarterly numbers and in particular with good numbers and good outlook. We look forward to see hopefully many of you next week in our AGM here in Cologne. For those, you know, who haven't realized, it's not in the trade fair show as usual, it's in the [unintelligible]. It's normally a carnival location, but we do something far more serious than carnival this time. We're doing AGM there. We're looking forward to that. It's the first physical AGM since COVID pretty much, right? That's gonna be good.
We'll also provide an update on our brand, because, you know, the transformation of DEUTZ will also become visible to the outside. We're extremely excited about that. Obviously the next steps, as we currently foresee, is the 1st half interim report in August, Q3 in November, and of course along the way, as many ideally also physical meetings with investors and analysts through various roadshows and conference, which we look very much forward to. Thanks for staying with us. Thanks for following us, for supporting us, and obviously thanks for buying our shares.