Deutz embarks on bridging the gap
Deutz Bolsters Defense Sector Presence with Acquisitions
German engine manufacturer Deutz has made a significant comeback in the second quarter, as the company continues to transform into a more diversified and resilient entity. The company's net debt increased by a third to 259 million euros by June 30, but remains moderate at 1.5 times EBITDA, providing "room for further M&A activities."
Deutz's classic business with engines and services is expected to achieve an EBIT margin of 6 to 7%, while the solutions segment may just break even. However, the solutions segment, which combines the energy business and new technologies, saw a significant increase in revenue to 83.7 million euros due to acquisitions.
The company's CEO, Sebastian Schulte, stated that Deutz's transformation into a more diversified, resilient company is paying off. Recent acquisitions played a role in Deutz's comeback, with more than half of the cost reduction under the "Future Fit" program expected to be achieved in the current financial year.
Blue Star Power Systems, acquired last year, achieved double-digit revenue growth. Overall, Deutz's revenue for the company increased by almost 7% to 923 million euros in the reporting quarter. Sales in the engines & services segment decreased by around 10% in the first six months of the year.
Despite recent share price pressure linked to waning defense sector optimism, Deutz's acquisition-driven portfolio development has fueled profitable growth. New orders rose by over 30% year-over-year, and revenue increased by 15% in H1 2025. This growth was partially financed by accepting increased net debt to support these strategic acquisitions and business expansions, particularly in energy and defense-related segments.
Deutz intends to expand its activities in the defense sector as part of its future acquisition plans, leveraging its strong financial performance and positive order growth. The company announced its intention to grow in the defense industry during 2025, a move that has previously contributed to increases in new orders and revenue through acquisitions and healthy service business segments.
The "Future Fit" cost program aims to permanently reduce costs by more than 50 million euros by the end of 2026. The company is creating conditions for further growth, including through acquisitions, according to CFO Oliver Neu. Free cash flow is expected to be in the mid-double-digit million range.
In summary, Deutz is actively pursuing acquisitions to bolster its defense sector footprint, supported by its improved financial results and willingness to manage higher net debt for strategic growth in this market. The company's transformation into a more diversified, resilient entity is evident in its recent performance, and it continues to look forward to future opportunities for growth and expansion.
References: 1. Deutz announces growth plans in defense sector 2. Deutz reports Q2 results 3. Deutz's H1 2025 interim report
Deutz's acquisition-driven strategy in the defense sector is reinforced by its expansion plans, demonstrating its commitment to the industry. The company's financial performance, improved by strategic acquisitions and cost-reduction programs, will enable continued investment in the defense and related business segments.
Moreover, Deutz's aim to grow in the defense industry, as announced recently, is anticipated to be facilitated by its strong financial position and strategic M&A activities, shaping a more resilient and diversified business portfolio across finance, industry, and services.
