Good morning, ladies and gentlemen, and a warm welcome to today's DEUTZ conference call on the financial figures 2026 nine-month report. 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. To get started right away, I am pleased to welcome DEUTZ 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 via audio line. I will now hand over to you, Lars. Please.
Thank you very much, Judith, and a warm welcome, of course, from us, from Cologne, on this very significant and great day for DEUTZ. As you all are aware, as of today, FFG is part of DEUTZ Group, and we extend a very warm welcome to our more than 1,100 new colleagues joining the group. Therefore, obviously, the closing of the transaction is key for us, and we are very glad we made it as promised, even earlier than expected. Of course, also we want to discuss with you our nine-month results, strong results, and looking forward to discuss them into more detail. This can be best presented and explained, obviously, by our CFO Oliver and our CEO Sebastian. Sebastian, over to you, please.
Yeah, thank you very much, Lars, and also good morning from my side to this other exciting, or another exciting earnings call. Let me start, as usual, giving you an overview about sort of the major highlights, and of course, as we just heard, on a bit more context on the FFG acquisition. Nine months 2026, and the headline, I think, says it all. The new orders are growing quite significantly, our revenue is growing significantly, and margin, even more importantly, as well. So new orders up 30%, almost EUR 2 billion after nine months. That is really sort of the next level already. Also, if you look at the third quarter, comparing year-over-year, 34% growth. So that is significant. Revenue growing, lagging a bit behind new orders, but that is a good sign because higher new orders than revenue means actually a further growth to be expected going forward.
But even though 11% year-over-year growth in revenue, I think that says it all, EUR 1.7 billion, and also in the third quarter, 12% year-over-year. So here the growth trend is also more than intact. If we look at the EBIT margin, we are now at 7.1% after nine months, so that is a good 1.3 percentage points better than the comparable period of time last year, and in the third quarter, 7% as well. We are going to go through the details a bit later, particularly when Oliver is going to review the numbers. Some highlights, and of course, Lars said it, and our press release said it as well, the acquisition of FFG has been closed in record time, from beginning of the talks with the previous FFG owners, to the negotiations, to the announcement of the transaction, and now obviously the preparation of the closing.
We were particularly waiting for a couple of regulatory approvals. They all have been granted, so that's why the closing has taken place now. Looking also at our operational development, the Energy business in particular had a very strong Q3 order intake as well as revenues, so that's important. A lot about DEUTZ has been talking about Defense, but obviously that's an important growth driver, but there are others as well, as we'll point out throughout this presentation. Also in our sort of legacy business engines, we are further improving our setup here, pushing efficiency, including more and more partner engines. You see here German and Indian flag, that shows that we're making good progress when it comes to certain partnerships here, in this case with Indian partners. Last but not least, we successfully raised additional capital, optimizing our financing structure.
What's not on that chart, I'm also very pleased that we can announce today that the contract of my fellow board member, Oliver, as CFO, has been prolonged. So the supervisory board as well as Oliver have committed to continue the collaboration for another five years, and I think that is also fantastic news for us as a company. Looking now at FFG. Let me start with that major strategic milestone we announced this morning, the closing. We announced the acquisition itself on July 9, and we told you at that point that we were expecting a closing late 2026 or Q1 2027. Our shareholders, as you know, approved this acquisition, or the related capital increase, at our extraordinary general meeting on August 24, with almost 100% approval rate. Now, we already successfully closed the transaction, as Lars said initially, a little earlier than anticipated.
With a purchase consideration, including cash and paper, of almost EUR 1.6 billion, I mean, this is clearly the largest acquisition in the history of DEUTZ. This broad support of our shareholders, that matters a lot, because this deal, this transaction, was never only about buying a business. It was really about continuing the evolvement of Next DEUTZ industrial platform and building a true partnership here. This is also, as you can see here, reflected in our new governance structure. We did not want a seller who just leaves at closing. We wanted seller turning into anchor shareholders who really have skin in the game, right? Where the incentive from day one after the closing is 100% aligned with all the other DEUTZ shareholders.
With a 29.9% stake, the FFG families, it's a bit of a weird name, the FFG families, but the previous owners of FFG, they are now an anchor shareholder of DEUTZ, bound also by a long-term investor agreement, including, as you know, a two-year lockup period and a one-year standstill. Also, in order to reflect that in the governance structure, two shareholder representatives will step down from the supervisory board, and two representatives of the FFG previous owners, Norbert Erichsen and Gorm Iver Gondesen , are to be appointed in due course. As I mentioned earlier, said it already, Oliver's contract has been extended until 2032. But closing of that transaction, I mean, that's not the finish line by no means. It's actually the start of a new chapter for DEUTZ. This next chapter, and we keep naming it internally and externally, we call it Next DEUTZ.
The addition of FFG to that portfolio clearly accelerates our transition to one of Europe's leading industrial platforms. Today, DEUTZ is no longer the company some of you began following, let's say, five, six, seven years ago, because since 2022, we have been transforming DEUTZ from a cyclical engine manufacturer into a more and more resilient industrial platform, with actually more than 10 acquisitions reflecting our buy-and-build approach, a very disciplined buy-and-build approach. We now have five business units: engines, service, energy, NewTech, and Defense. Each of these business units, they carry, each of them carry their own P&L responsibility. You saw that already in the overview, and you will see that certainly in the details we're going to show you later. This transformation is already reflected in the numbers.
I presented the headlines, the encouraging headlines, and we achieved all of them in a still very, very challenging market environment. FFG now accelerates this transformation, and I would like to highlight three, let's say, of the key aspects of that deal. First, FFG we can consider genuinely as an exceptional asset with probably one of the strongest growth and margin profiles in European land defense. Approximately EUR 760 million revenue in 2025, around 90% at that point coming from MRO, and an order backlog of almost EUR 2 billion. Second, it's hard to replicate, and it really provides a competitive advantage, FFG supports more than 30 NATO platforms.
That reflects not only customer relationships, but actually formal qualifications, deep access to the programs, to the proprietary OEM platforms, and obviously also established production capacity and capabilities that have been built over decades and cannot be replicated quickly. Third, of course, it's the timing. I mean, Europe's defense procurement window is open, and it continues to accelerate. Finding an asset like that is rare. Finding it at the right moment is even rarer. We will now, as I said, it's the beginning of a new chapter, we will seamlessly integrate the existing FFG business into our Next DEUTZ structure. But what does it mean in particular? FFG will be the new anchor of our business unit, DEUTZ Defense, with clear responsibilities and synergies also from the beginning of 2027 onwards.
Very important is that FFG remains operationally largely independent, preserving their identity, also their management and their workforce, and thus their strength, because it's not only a rare asset, it's also a very successful asset. There's no need to tell them how to do their business because they've done that exceptionally well. Obviously, we want to grow together even stronger, but the precondition for that is a large degree of independence. The management of FFG has built something exceptional, and as I said, we did not buy it in order to restructure it because there's no need to do so. We bought it to make it even stronger. What changes? Marco Herre and his team, they have built up DEUTZ Defense over the last year. They've done an exceptional job. I mean, military engines, drone drives from our successful subsidiary, SOBEK, our defense partnerships.
A lot has happened over the last years, and that is a good precondition for further growth. Now, FFG becomes the anchor of that unit, and we decided that Jörg Kamper and Christian Kunz, who both come from FFG, who both spent many, many years with FFG, they will lead the whole unit as CEO and CFO in a team jointly together with Marco Herre. Marco will continue to drive the businesses he and his team have built over the last years, including obviously the collaboration with our partners. I would like to say and to emphasize that what our small but extremely motivated defense team has accomplished here over the past two years is really remarkable. Not only are we generating highly profitable revenue in our existing defense business, but we have also become a sought-after partner for both established and new defense companies in a very short time.
We intend to continue on this path with these businesses, of course, going forward. In July, we told you that the direction on earnings and cash and leverage is clearly positive pretty much from the point of closing, from today. Obviously today, we can be a bit more precise because for 2027, we do expect FFG revenue of a bit more than EUR 1 billion and an adjusted EBITDA margin of above 20%. That is FFG on its own. The synergies which we are working on, obviously they are in addition to the standalone business, and that is why one plus one becomes more than two. We start where the fit is most obvious, our service capabilities, especially with our remanufacturing know-how. Particularly our Ulm facility has a lot to offer here.
DEUTZ drivetrains and FFG's vehicles and FFG's platforms, where it makes sense, where the customer is convinced of that, of course. We are also working on certain bundling and procurement where we already explored 20-plus specific areas for potential cost improvements. First contributions we expect, as I said, from early 2027 onwards, and we will give you more details as we go through the integration process. Which brings me now to immediate next steps. FFG will be consolidated in our IFRS numbers for around two months this year, and obviously I will come back to the 2026 guidance and FFG's contribution to that in the outlook later throughout this presentation. The real picture, of course, comes with 2027. on March 30, with our full year results for 2026, we will give you our 2027 guidance, and Q1 2027 will then be our first full quarter including FFG.
In the second quarter, we plan to host a Capital Markets Day step by step. Step by step, we are delivering and getting momentum on our promise here of Next DEUTZ, building DEUTZ AG into one of Europe's leading industrial platforms. Let me now come back to the quarter and walk you through our existing business units, starting with DEUTZ engines, where we continue our efficiency measures and our portfolio optimization. As I said, portfolio optimization, efficiency measures, that is extremely important in engines. Engines is the business where the market is slowly picking up. The Americas customers, they are increasing orders, as I said, slowly but steadily. But we are not waiting for markets to pick up. We are actually acting so that we can control what we can control, and that means, in particular, continuing working on efficiency.
At our Cologne site, we announced it in one of the last quarterly presentations, there has been another voluntary relief program completed with around 100 positions reduced. That went fairly smoothly and successfully, leading to immediate cost savings, not only beginning next year, but already starting to kick in now. We have also identified up to 300 further positions in our business unit engines here at the Cologne site that may be affected over the next two years. Why is that? Because with our new business unit leadership, we are continuing to identify here more efficient production methods, and we are also continuing to drive up our best-cost-country assemblies in India, in China, to increase utilization over there, and also some really old-fashioned, not old-fashioned, that is the wrong word, but really legacy engine series moving into end of production.
The final scope, of course, of these positions that may no longer be needed, that will also depend on demand. Is there going to be a quicker recovery than we are currently expecting or not? But in principle, we are here now on track when it comes to further operational and efficiency improvements. As I said, partner engines become more and more important. We can only be successful in the diesel engine business if not every product we sell is 100% developed and manufactured, assembled here in Cologne, where we can benefit from partners' competencies or from partners' cost advantages. We are using that, we are doing that, and most recently, we expanded here our portfolio on the lower end of the power range with a 1.6 L engine, which is produced in India with our partner Kirloskar Oil Engines, particularly relevant for the U.S. market.
This is also reflected in the numbers here. We see, let me start with order intake, it is up 29% year-over-year in, as I said, a very demanding or challenging business environment. Of course, the third quarter, when it comes to revenue and profitability, is, as usual in the third quarter, impacted by the seasonally low July and August production volumes. Not only our factory is in Cologne, in Ulm, they are partially in the summer break or have been in the summer break because the same happens to the customers. So Q3 is always a bit challenging. However, as I said, we control what we can control. The cost savings from our numerous efficiency programs in all functions, and most notably its production, supply chain, R&D, and sales, they are actually more than compensating the pressure we see on the various effects from the Iran crisis.
Revenue and new orders in particular, we expect to increase further for the fourth quarter. As I said some moments ago, the U.S. market is driving quite nicely at this point in time. Let me move on to DEUTZ Service. In DEUTZ Service, it is really all about the network expansion, and that is beginning to pay off. Also here, the U.S. mentioned first. Across all regions, the U.S. service business has enjoyed the highest growth, 38% up in Q3 year-over-year. Yes, there will also be a smaller acquisition, G&T Truck Repair in California, but there is also a lot of organic sales improvement over there. We have also realigned our DACH dealer organization. Many, many dealers we have been working together with for decades, we renegotiated the contracts in order that the contract reflects a bit more also the, let us say, economic reality between DEUTZ and the distribution partners.
On top of that, we are also growing here our own service organization. Germany, in particular, has always been a bit of a different setup than other European countries, but this year, we started to address that as well, and we can proudly announce that this reorganization is almost completed. The remaining to-dos are going to be completed over the next couple of weeks. We are also improving here or moving more and more into partnerships with larger fleet owners and new OEM customers. Very important is actually what I put down here in the last bullet point, that our service business is increasingly working also for new business units, in particular for Energy. That is already very concrete. On top of that, obviously, as I said, in the context of the FFG acquisition, we are also bringing in the competencies we have here in the Defense business.
The first noticeable and touchable effects we see, particularly when it comes to partnering up or supporting our Energy business, particularly with Frerk. Let me move on to the numbers here. Double-digit growth in orders and revenues, as I said, is exceptionally high in the United States. Nine-month revenue is now at EUR 451 million. That is 10% year-over-year. The order backlog at EUR 60 million, order backlog is not that relevant key figure when it comes to Service. That is clear. But it also shows that we are here on a growth path as well. Year to date, the third quarter has been the quarter in the Service business with the highest profit margin, despite our investments in our regional growth initiatives, where we are investing upfront in new capacities.
In this case, it is mainly technicians, a little bit of equipment as well, but mainly technicians in order to prepare our organization for the growth to come. Let me move on to DEUTZ Energy. To give you context again, we are building here a global distributed energy platform, and we continue to build that. The data center business continues to gain importance. Frerk, which is something which made us very happy, wins a major data center contract in October. That is after the completion of Q3 numbers. So, these order intake will also only show in the fourth quarter, and we are currently in the quoting process of several data center projects also outside Germany. So we are really setting up everything for further growth. The U.S. customer base could be almost further diversified. 60 new distributors year to date have been added by Blue Star Power Systems, so that is great news.
Blue Star is generally great news for DEUTZ, but also here diversifying the customer base more. Very important, we are now preparing actually this platform to work under one global brand. By the end of next year, there will be a single, very strong DEUTZ Energy brand all over the world, which somehow just fits to our strong ambition that we are very happy to confirm that we want to grow here at the top line to a number of EUR 1 billion revenue within five years. So the team is working day and night on building that business to a really sizable business. Actually with more than EUR 300 million, it is already sizable, but even being even stronger. So it is a very, very strong growth case, which is underlined by the numbers as well. New orders in Q3, EUR 80 million, 208% year-over-year.
Nine months order intake, EUR 342 million, also almost 200% year-over-year. Of course, benefiting from acquisitions, but that is, as I said, part of the build, buy, and build strategy, so nothing to be ashamed of. The energy business now carries a very strong order backlog of EUR 250 million, which is significantly higher than what we had 12 months ago. Revenue is growing also strongly and steadily quarter-over-quarter. Q3 was particularly supported by strong performance at Frerk and Maxi Trust in Brazil. Nine months revenue at EUR 195 million. Also the adjusted EBITDA doubled in Q3 with a solid margin of 14%. Nine months adjusted EBITDA was EUR 23 million and growing here 11% year-over-year at a 12% margin.
We showed earlier that when there were some questions on, okay, what was wrong with the margin in Q1 and Q2, we always said, "We are going to improve throughout the rest of the year." You can see here clearly that this has happened, and we continue to expect this to happen. I mentioned earlier when I talked about size of that business, the outlook for this year is above EUR 300 million revenue at a further increasing EBITDA margin level. So very much well on track. Let me move on to NewTech. NewTech, a bit of a different picture. Focusing here on obviously our core applications, but also more and more to collaborate with other business units, supporting both DEUTZ Energy and DEUTZ Defense going forward as well.
We talked in the context of DEUTZ Defense, or we will talk about collaboration with Hypercraft, but also here introduced our first touch points with FFG when it comes to hybridization of military vehicles, and of course, with business unit DEUTZ Energy when it comes to BESS, so battery energy storage systems. Important here stays the task to convert a very good pipeline into revenue, because that is the challenge. This is certainly the market which is driven by a bit of uncertainties in if and when certain technological changes will materialize. So there is uncertainty, but on the other hand, we are very well positioned here. Now we actually also begin to see some market tailwind, because why? What is happening? Battery cell prices are falling, and of course, high fuel prices. I mean, they will change TCO calculations throughout the board, and that we expect this to pay off in the midterm.
However, also particularly when it comes to construction, agricultural, so the previous DEUTZ core markets, obviously the overall economic situation is still affecting investment activity. So that is a bit the context for NewTech. On numbers, not very representative because still on a lower scale. Nine months new orders a bit below EUR 10 million. That is even below previous year, but that is very much, there is one project in or one project out. So on this low absolute level, these sort of percentage changes, which work for both ways, they are not that representative. So here it is about also in terms of EBITDA after nine months, we are at EUR -21.6 million, so reducing the losses a little bit compared to previous years. Why is that? Because we are focusing more and more on actually what we spend for R&D, and there is more cost discipline.
But the biggest challenge is not further cost savings here. The biggest challenge is, as I said a bit earlier, actually turning pipeline into revenue, because once we achieve that, we will have immediate a very, very good effect also on profitability. So that's a bit the context for NewTech, which leaves me with the Defense business. Yes, I talked a lot about DEUTZ Defense. FFG transaction has been closed. Now DEUTZ Defense, or Defense within DEUTZ, becomes a core pillar. But also, independent on the FFG transaction, because that we will, on the numbers we will report for the first time in March, as I said, but also the business of Defense prior to that acquisition has performed pretty well. Obviously, November, December, we will now see then the first supporting numbers by FFG.
That, by the way, and I will come back to that later, will also lead to an increase in our margin expectation for the group. But before moving to that later, give a bit of update on the Defense business prior to FFG. Within that sort of defense tech ecosystem, we are expanding our various collaborations. We invested, as you know, in ARX Robotics and TYTAN Technologies. Some months ago, we signed an MoU with Hypercraft, a U.S.-based UGV business, where it's on unmanned ground vehicles, which also opens our access to U.S. military customers. So another partnership to be kicked off, and very pleased with that. Our SOBEK business also expands beyond the European core customers.
Of course, also in the really traditional DEUTZ business, our diesel engines, we have more than a strong prospect for the German army with a partner, a Northern German partner who works here with military gensets, where we are the supplier of choice with our engines. In terms of numbers, see here, high order growth in Q3. Nine-month orders now at EUR 90 million, up 12% year-over-year. Order backlog now at EUR 52 million, also significantly up compared to previous year's revenue. It's up 52% year-over-year to now EUR 83 million. The main drivers have been here engines for air defense systems and wheeled vehicles, but also moving to SOBEK, the electric drives for military drones. The order behavior from certain key customers has underlined here really that we made the right move to go into that field. That also translates into profitability.
Nine months numbers at almost EUR 11 million, at 13% margin, with a very strong Q3 result of almost 18% margin, which is a particular result driven by the growth in the SOBEK business. The HJS Emission Technology, that is the part standing for other next to Defense, has also been fairly solid in the summer quarter, Q3. But that's certainly not the core here of this segment, DEUTZ Defense and other. Good. After that introduction to where we stand operationally and strategically, happy to hand over to Oliver to walk us in more detail through the group financials for the first nine months.
Thank you very much, Sebastian, and also warm welcome from my side. Well, let me start with one of our highlights of the last quarter. We successfully conducted a capital increase, 10%, against cash. As you know, we placed 15.3 million new shares at a placement price of EUR 11.70. That resulted in gross proceeds of almost EUR 180 million. There was very strong demand from investors, new investors, also good balanced investors portfolio, and it was several times oversubscribed in a very short time. We are going to use the proceeds to optimize our capital structure and also to really enhance financial flexibility for future growth. After that capital increase, we had a total number of shares of 167.9, and now including the 71.6 million new shares of the FFG transaction after the closing yesterday, we are at 239.5 million DEUTZ shares outstanding.
Let us go in a bit more details through the numbers, and that chart here shows quite nicely the quarterly development of our EBIT figures over the last three years. What we see coming from the beginning, starting still, and you might remember that there was still a boom on the engine side beginning of 2024 when the cyclical down was kicking in. Like two years ago, we were on a 1.7% margin in the Q3 2024. We increased significantly and also steadily since then. That development shows nicely that we basically did our homework because the engine business is cyclical part that still remains on a very low level, even though we have significantly and steadily increased our margins. I mean, it is on the one hand the portfolio measures that contributed.
You remember Blue Star since, and then the Daimler Truck engine since August 2024, SOBEK on the defense side kicking in in Q3 2025, and also then Frerk in February 2026, and Maxi Trust, and also service transactions, of course, all over the time. But it was also supported by organic growth, especially in the growth areas, service, energy, and defense, and of course, also by strict cost measures, efficiency measures, especially on the engine side, but also on NewTech side. That brought us to the 7% + margin now, the third quarter in a row, which shows that we really move away from a cyclical business to a resilient industrial platform. Looking a bit more detail on the nine months figures. We see here new orders going up 30%.
There is a certain first-time consolidation effect included, that is EUR 155 million, but even if you take that out, it is still a 20% growth in new orders, and that is, of course, also quite good backlog then if we consider the Q4 revenue expectations. On the revenue side, talking about that, we see an 11% increase, 11.3% exactly, so that also shows that we are continuing the growth path both organically as well as inorganically. Slightly above EUR 100 million of that has been due to acquisitions we conducted since the end of Q3 last year. The remaining part then also is the organic growth. On the EBIT side, also nice growth there, 36% up, comes to EUR 118.2 million or 7.1% adjusted EBIT. The improvement is driven, well, on the one hand, of course, by the portfolio mix, the M&A transactions.
On the other hand, also the Future Fit program and the other efficiency programs and initiatives we are running, and also by scale effects. What I personally also like, that we almost doubled, or not almost, we doubled our net income, to a level of EUR 40 million from EUR 20 million the year before, and that even though that net income was affected by a provision for the voluntary program of EUR 13 million. Adjusted for that, it would have been even higher. Let me touch some more KPIs. Net R&D spending, we see that basically the quota at a level of 4.3% year-over-year stays constant. The total R&D spending increased slightly by EUR 8 million, but that is mainly reflecting then also a shift within the R&D portfolio or an extension of the R&D portfolio.
We see especially the increase on the Defense side, on the other hand, the reduction on the NewTech side. You also see a slight increase on the engine side that's basically, and then partially at least driven by the 3.9 L, 4.0 L engine portfolio. So we are tailoring our investments here and R&D spendings where the growth is. On the CapEx side, it looks like a bit increase, but we need to keep in mind here, that is mainly by an IFRS effect of a new leasing contract or an extension of a leasing contract. So that is more like a technical accounting effect. The underlying CapEx besides leasing stays more or less constant, slight increase, and that's mainly due to IT infrastructure and software. You remember that we are doing the SAP S/4HANA transformation this year. Working capital, while in absolute numbers and also percentage-wise, it increased.
There are basically two reasons behind that. First reason is that we obviously did some M&A transactions, especially Frerk and Maxi Trust. So they contributed all the M&A transactions with EUR 35 million out of that total increase here, euros in absolute numbers. The second effect, of course, is a rather statistical one, that it relates to the last 12 months revenue, and of course, not all of those M&A transactions have been part of the deal or the business the entire 12 months. Last but not least, of course, also we are preparing ourselves, and you see that in the inventory figures, for a strong quarter Q4, where we're going to see, and then of course also a reduction throughout the end of the year on the working capital side. Talking about cash flow, operating cash flow at a level of EUR 55.8 million. That is a decrease.
That decrease is mainly caused by the just mentioned higher inventory level to be prepared for Q4 deliveries and then delivering on the orders, but also as a consequence of severance payments. You remember the Future Fit program and the other voluntary program. Of course, at some point, the cash effects come into game as well. That is what we see here. Free cash flow before M&A, then basically the consequence of that, also affected by slightly higher interest payments, and the net debt increased. It increased to a level of EUR 378 million. We're going to capture the leverage ratio in a minute, and we see that we are actually pretty much on track and even quicker delevering than originally anticipated, but we're going to see that on the next slide. So here, the leverage, here it is in the middle.
I assume many of you are interested in that leverage. Here, we need to keep in mind, it's a figure including leasing of that debt side. If you take that out, we are not at 1.5x, but even at 1.1x level. We are successfully delevering. Of course, the capital increase had an impact on that, but now, on a pro forma basis, even including FFG figures, we are around 2.5x without leasing, slightly lower even, and that's going to decrease substantially again throughout Q4 towards the end of the year. That means we are extremely quick in delevering, and we're going to achieve the year-end figure, which is significantly below what we originally expected when we communicated the expected leverage level of 3.0x.
We're going to end up significantly better, also due to the strong underlying cash profile of FFG, which comes with a lot of cash on hands also into our group. Dividends, no changes, of course. We're going to cover that next year. With that, I hand over to Sebastian.
Thank you, Oliver, for all this insight on our numbers. Let me now turn to our outlook. This slide here shows our guidance for 2026, and let me first emphasize we can obviously clearly and fully confirm our guidance. It's very important, I think, these days. The revenue is in the range between EUR 2.3 billion and EUR 2.5 billion. Free cash flow before M&A, we expect a high double-digit million euro amount. We gave this guidance at the end of February based on the market visibility we had at that time, which was obviously limited, particularly in our sort of heritage markets. However, clearly so since then, the market environment has certainly not become easier. Obviously, I mean, geopolitically, there's still a little bit of challenge in there, and I don't expect this to fade away.
In engines, I tried to indicate it earlier, we're still not seeing a broad-based market recovery. We see positive signs from the United States very, very clearly so, and it's good that we're well-positioned over there. But on top of that, obviously, as said, we want to control what we can control, and that's what we're doing. At the same time here, the efficiency measures we have taken are paying off and helping us actually navigating through this environment. But overall, our businesses are holding up pretty well. In particular, as we tried to outline in the last 40 minutes or so, our fast-growing new business units, Energy and Defense. That is actually exactly the resilience we have been building over the last years. And you can see here clearly, they are not only beginning, but they're already really paying off.
But as promised, let me come back to FFG. You know, from those of you who know us longer, you know that we do not put unrelated assets into one guidance. Now that the transaction is closed, FFG is in. That is logic. FFG, we heard it, will be consolidated now from November, so pretty much from today or yesterday, and will become part for this year of the segment DEUTZ Defense and Other. And we are very, very pleased to have completed this acquisition, and we now can actually start bringing the two businesses together. With FFG now included, we do expect our adjusted EBIT margin to come in at the upper end of the 6.5%-8% range. So, that is, let us say, it is a bit of a giving more specific outlook on the guidance.
The range has been quite broad at the beginning of the year due to the uncertainty we saw. And now, the uncertainty is obviously fading away. Well, there is just two months left, of course, but also we have got the FFG businesses in. So in total, we are now very, very confident that we are actually well-positioned to deliver our targets for the year. And then when we enter into 2027, obviously, there are more, bigger, better numbers to come. Well, thanks for listening and, well, yeah, some highlights. Sorry, this was just to finish with a few nice pictures, but I have mentioned it all. But I want to just show, you know, a very important message for DEUTZ is we are becoming a very resilient industrial platform, not only with defense, not only with energy, not only with drivetrain, but with all three of that.
And I think that is exactly the road to success. So, thanks for listening, and obviously now we are open to your questions.
Thank you very much for this update, Sebastian and Oliver. We will now move on to the Q&A session. For a dynamic conversation, we kindly ask you to ask questions in person via the audio line. To do so, please click on the raise hand button, and if you hear your name, please accept the allowance to speak and also unmute yourself on the microphone symbol. If you have dialed in via phone, please use the key combination star key nine to raise your hand and star key six to unmute yourself. Please note that questions via chat cannot be submitted today, and we already have the first four hands up. We are starting with Lasse Stüben from Berenberg. Welcome, Lasse.
Good morning. I hope you can hear me.
Loud and clear.
Perfect. Very good. Thanks very much for taking my questions. The first one, I do not know if you are going to answer this. I am going to try anyway. Are you able to share the rough contribution that you expect for FFG? The main reason I ask is, on an underlying basis, you would have needed quite a big Q4 to sort of hit your targets, especially on revenue. So I am just wondering sort of roughly where you see FFG contributing for November and December. I understand you have the backdrop of engines orders were pretty good in Q3, but just to get some more color on that would be helpful.
Yeah, I mean, obviously, we can give a bit of a It is a very rough number. It is only a rough number. Why is it only a rough number? Because of FFG now, I mean, so far they have been reporting their numbers on German HGB and moving into IFRS numbers now, and obviously, that is a first for them and us together. So that is why the numbers are rough. Revenues, give or take EUR 100 million, with a bit of uncertainties, can be lower, can be higher. And on the profitability, I do not want to give a number. I just gave the number that we are going to move towards the upper end of the guidance. I think as you did not expect a full answer, I think that is probably more than you expected.
That is perfect. I will take it. Then the second question I would have is, there has been a bit of a discussion in the market in the last couple of weeks around sort of the subsidiary holdings and FFG, and I am sure you are sort of aware of that with sort of FFG Industries and the 55% consolidation. I was just wondering if you can comment on sort of your ability to get the cash flow out of that subsidiary and how that structure works with the 45% shareholder in that subsidiary. I was just wondering if you could comment on that as well.
Yeah. I think I can give a bit of flavor on that. We heard about these discussions, and you are talking about the FFG Industries, and the FFG Industries business, as you said, has a 45% local shareholder, which is a bit of precondition to do this business as well. But obviously, all the numbers we have been indicating, they are according to IFRS full consolidation rules. Very important is that DEUTZ and FFG have full access to the cash. So I would say, non-technically speaking, it is like a cash pool, right, Oliver? Can we say that? It is a cash pool, so there is full access to the cash. But obviously, minority interest when it comes to profitability and distributions needs to be taken into account. So yeah, that is pretty much what I can say on that.
But also important, obviously, when we negotiated the transaction, there has, of course, been an adjustment to reflect the fact that there is a minority shareholder involved. So, I think it is a very smart structure, and we are very happy with FFG and DEUTZ together. Very important that we can actually access the cash pools, both when it comes to down payments, but also when it comes, obviously, to the profit distributions. They are flowing according to the percentage of the shareholding into the FFG DEUTZ accounts. But we will not comment on exact numbers, of course, going forward. That would be a bit too much transparency. But yeah, so it is a very good structure.
Okay, understood. Then the final question is just generally on sort of how you are managing, I guess, cost inflation on things like steel. I guess, I know energy is not a huge part of Energy costs are not a huge part of it, but just more generally, I do not know, are you increasing prices on engines, or how are you handling the sort of general cost inflation?
Yeah, we're working on both, as typical. What I'm saying now reflects, as your question indicates, mostly to the engines business. Of course, there is a bit of an annual price increases as well, but it's not in the levels we had, like 2022, 2023, where also the input factors rose more highly than nowadays. It's a combination of price increases across the board, but also working on efficiency measures when it comes to assembly, and also having always intense discussions with our suppliers. In the end, we don't want to just defend margin, we want to increase margin, and we do that pretty successfully, also in the tough market environment in engines.
But as you said, energy is not so much of a factor for us, not for our direct assembly cost structure, because the most energy-intensive parts when it comes to engine making, they come from suppliers, and obviously, the problem is on their end. Obviously, this has also been reflected in the negotiations. But most of our long-term contracts, in particular, they have clauses which include adjustments for certain raw materials and input factors. That's, I would say, established practice. It needs to be managed. I don't want to say it doesn't matter, but it doesn't bother me because that's day-to-day business. That's why we don't talk about it very much.
Great. Thank you very much. I'll go back to the queue. Cheers.
Thank you, Lasse, for your questions. We're moving on to Klaus Ringel. Klaus, can you unmute yourself, please?
Yeah. Hi. Good morning. Can you hear me?
Hello. Yes.
Yeah. Thanks for taking my questions. Actually, it is two of them. One would be on the Q3 order intake, if you can give some details here, especially in terms if there are, let us say, some major projects and interesting projects in here. I remember that you talked about potentially some military orders, which might be in the pipeline, which could be included here. Maybe let us start with this question first here.
Yeah. Q3 order intake, as we showed, was very positive across all business units. There is not the one large project which stood out, right? What we see in engines, and I am happy if Oliver compliments me in a bit, but what we see in engines is that certain orders, particularly from U.S. customers, have picked up. That is good. We have three large customers in the U.S., and two of them have placed nice orders, so that is positive over there. In the defense business, we received both from a drone producer, we received good orders when it comes to the electric drive systems produced by SOBEK, but also from an international military vehicle maker, we received good orders. Going forward, and I think this is also not a secret, we are a partner of VINCORION.
They are, to our understanding, in very advanced process when it comes to military gensets for NATO customers, especially Germany, and we are sort of on the back of that with a supply of engines. But that one has not been booked in Q3. This is something which we expect either Q4 or beginning of next year. That is pretty much, from my point of view, the highlights, right? Oliver?
Yes. Basically, all the business units are growing compared to last year, at least the four except NewTech, and yeah, that is a strong growth trajectory. Also backing up, of course, a good revenue development for Q4, especially in the engine side.
Okay. Thanks for that. The second one would be, let us say, clarification for timing. I mean, now as FFG is closed, we talk about your medium-term targets, and the question is when you will update them. Will you wait for the CMD in Q2 2027, or could you also, let us say, give a sneak preview earlier sometime?
Yeah, it is Klaus, you know us. I am not that patient. We understand it.
I know.
I'm patient as well. We've got this already in our heads, what our new midterm target is. I can promise you one thing, I will not be able to stay quiet until the CMD in about, I don't know, eight months or so. Very likely that we'll share our ideas a bit earlier with you.
Can only confirm that.
Yeah, last, normally last person, I should not make promises like that, but we are fully aligned. No, seriously, on a serious note, I mean, obviously, we had to wait for the closing of FFG because we need really full access to the numbers. Last thing we want to do is provide some rough order of magnitude numbers, which we then have to correct in new calls afterwards. The FFG team, now, I mean, up to yesterday, we pretty much were not legally allowed to share all sorts of information because we didn't want to do any gun jumping. But now, obviously, this barrier is gone, and we are putting now our, let's say, our budgets for next year together under Oliver's leadership here. Now, then we can really ask a lot of questions and do a lot of analysis, not only for 2027, but also for beyond.
Then we feel pretty comfortable and confident to transform or to translate what we have now already developed as part of our strategic planning into a more substantiated planning. So, yeah, count on early 2027 with more flavor on that.
Okay, great. That's good to hear. Thanks, and going back to the queue.
Thank you very much, Klaus, for your questions. We are moving on to a participant joining via phone, Stefan Augustin from Warburg. Mr. Augustin, can you hear us?
[Non-English content]
Ja.
[Non-English Content ]
That works.
Great, thank you. Just to kick off, because I was not able to get your answer on Lasse's first question on the sales contribution of FFG, that is a minor detail before I want to do all the rest. Could you repeat that, please, that number?
Roughly EUR 100 million.
All right, thank you. We could read, beginning last week, that the Ministry of Defense in the Netherlands has decided for FFG, and that there would be a contract to be signed in the next couple of weeks. Two things here. Could you elaborate a little bit on that contract, even though they are not yet officially signed? The important question is this contract somehow part of your FFG guidance for 2027?
Yeah, it is always difficult to elaborate on contracts that are not signed yet, particularly when you are only on the first day of ownership of that company. What I can tell you is that, obviously, the publicly available information, I would consider fairly accurate, that the Dutch Army is considering, or is strongly considering, working with FFG on several platforms. The process, to my understanding at this point in time, is that it is in the parliamentary approval process, which is a precondition for signature. Your information seems accurate that this process will likely move or could likely move to a finish line in the next couple of weeks. In the end, it is a democratic decision, and you will always have to wait for parliament to approve before a contract can be signed. That is as much as we can say. We talk about vehicles here.
It is ACSV, the modular support vehicle platform, but also the recent vehicles. To our best understanding at this point in time, the ramp-up of production will only start very carefully next year. If that materializes, the chunk of that business, you will not see in 2027, but a little beyond. Which is a good thing because it shows, I mean, that obviously our business here has or could become more substantiated, not only in 2027, but also in 2028 and 2029, and it fits very much with our expectation to that business.
If we then go back to the, let us say, public information that is out on that contract, it would be quite fair to conclude that this has overall a substantial triple-digit million amount, overall from that contract?
Yeah. I believe that assumption may be accurate, yes.
All right, thank you. The other one is then maybe to Oliver. Would you be able to share, once you have now had a first glimpse into the FFG numbers, what is a gross cash and an advanced payments position that you see there?
Well, I would take it on the level of the leverage, actually. I mean, as you know, as you communicated, FFG is coming up actually paying now with a significant amount of cash into our group. You saw that on a, I can tell you that, as I mentioned throughout the call, on a pro forma basis, when it comes to the leverage, we are on a level even below 2.5x, talking about figures by end of September. Pro forma figures, anticipating the cash outs, cash ins that are coming from the transaction itself. That figure will substantially improve throughout the rest of the year. Yeah, we are anticipating a level even way below 2.5x till the end of the year.
Yeah. Do you include in this 2.5x advanced payments, or do you leave them out on the debt side?
Well, the leverage is like net debt divided by EBITDA. Of course, if you have advanced payments on your accounts, that counts as cash, so it drives down the leverage. Of course, you have to keep in mind when receiving big amounts of advanced payments, there's a certain portion of that will lead to a cash out over time. If you receive a few hundred million, and you have a certain cash out and profit portion, of course, as well, that is what we, of course, have to be taking into account also when it comes to future guidance.
Great. Then, one on the engine business, as you already said, do you expect a steep increase going into Q4? Is it also right for the production, or do you have any, let's say, constraints on the supply side to not being able to fully produce what you see as a demand currently? I mean, you have a quite good order backlog moving into Q4.
Yeah. No, we see nothing major. I mean, there's always a little bit of issue here and there, but nothing significant. We've got a solid production plan throughout the rest of the year until just a couple of days before Christmas, when we shut down for the Christmas holiday and inventory. But there's no major issues right now. I mean, a bit, right, our social partners, IG Metall, they're doing a bit of like a couple of hour strikes here and there to support their overall tariff conflict with the employers unions, but that's nothing DEUTZ-specific, and we'll certainly handle that. But that's really, I mean, the biggest, I wouldn't even say concern. I mean, we have so much flexibility to react on that, but that's the only topic we see right now. Everything else is fairly smoothly.
Thank you. So there are just two minor housekeepings then. Do you have anything possibly already on PPA for FFG next year? Would you be able to share something on that data center order you mentioned that you have received in October? Is that something we should rather have in a single-digit scope size, or could that be substantially bigger?
I mean, the data center order, it is very low double digits, very low double digits, which is relevant for the DEUTZ Energy business, but it is not a EUR 100 million order. We are working on that too.
The purchase price allocation, let me cover that one. There is nothing to share yet. Of course, there will be some effects on purchase price allocation. I mean, obviously, so there will be substantial amount of goodwill as it is. We are buying a great asset here, and purchase price allocation will then be, basically according to the rules, be conducted over the next months, and then that will have an impact. Yes, that is a double-digit impact for sure, but the specific amount, we can only disclose once we have thoroughly conducted that analysis.
Right. Thank you very much.
Thank you, Stefan. With an eye on the time, we have one more question left. Maybe we can keep it short and sweet. Mr. Skirta Pal, you should be able to unmute yourself now via your phone. Yes. I see you free. Pal, we cannot hear you yet.
Yes. Good morning, and congrats on closing the deal. Can you hear me?
Yes.
Lovely to see you, Pal. Good to see you. Good to talk to you, I mean.
Great. I just have two questions. Maybe I will start with the first one. It's just a technical question. Do I understand this correctly that now that FFG is closed, the maximum shareholder right has been executed and the dilution is complete, so we shouldn't expect any further dilution?
Not as part of this transaction, but I cannot guarantee you that for eternity.
Yes. Okay.
Nothing planned.
Makes sense. The last question I have, it is more a strategic question on FFG and unmanned vehicles. Basically, I am trying to understand the service side. Is maintaining an unmanned vehicle very different from a manned one, looking at the electronics, software, content, and mechanical work required? Does it mean more or less annual revenue per vehicle for FFG? Your general thoughts on that would be very helpful.
My thoughts are now going to be very general, because the whole field of unmanned military ground vehicles is still evolving, and what you see at the moment what is on the market, there are many, many smallish vehicles, like the platform from ARX Robotics or Hypercraft. Many of them. There are many out there on the market. Obviously, the small platforms, when they are in conflict or in war, like in Ukraine right now, they are not vehicles which stay in service for 10 years or 20 years, like a large-scale main battle tank. Many of them actually have one mission and never come back. That is really the current status quo.
Going forward, that is what we know, is obviously that a lot of players in that field, they are also developing unmanned platforms which are significantly larger, which are pretty much unmanned autonomous versions of existing, let us say, support vehicles, which have the scale of, yeah, existing, whether that is FFG or other players' vehicles. My assessment on those ones is obviously they will have similar, or not similar, let me say comparable maintenance, repair, and overall requirements. However, the more you move then from sort of traditional drivetrain technology to battery electric or hybrid technology, that will also change. This is probably not a satisfying answer, but this is something which is pretty much in evolvement right now, and there are many, many vectors which guide on that.
We are not concerned because obviously the share of traditional manned and large vehicles which are in the field and which are still going to be brought into the field is very, very high, so that I do not see the revenue stream of MRO dropping down anytime soon in the next, not only year, but probably decades going forward now. But time will tell. Honestly speaking, time will tell.
Yeah. Okay, understood. That is helpful. Thanks, Sebastian.
Thank you, Pal, for your questions. With that, ladies and gentlemen, we come to the end of today's conference call. Thank you very much for joining and your shown interest in DEUTZ. Please send all follow-up questions to the investor relations team afterwards. A big thank you also to you, Sebastian and Oliver, for your presentation and your time. From my side, it was a pleasure to be your digital host today, and I wish you all the success around the world. Handing back to Sebastian for some final remarks.
Yeah, I will keep it short. Thank you very much for joining on a day which is such an important milestone for us, for DEUTZ. It is actually a pleasure combining a closing of a landmark transaction with a traditional earnings call, and really good talking to all of you. As promised, we will continue updating you on our various developments going forward. I can promise you one thing, we are not bored yet.