Hensoldt Ag Unsp/Adr

Good afternoon, everybody, and welcome to Henselt's three-month 2024 results call. Thank you for joining us today. I'm Veronika Endres, Head of Investor Relations at Henselt, and with me are our CEO, Oliver Dörre, and our CFO, Christian Ladona. Oliver and Christian will guide you through this presentation today, which is, as always, followed by a Q&A session. And with that, I hand over to Oliver.

Well, thank you very much, Veronika, and a very cordial welcome from my side as well to the audience. I'm very excited to lead you into today's presentation after having formally taken over as CEO on April 1st. During our preliminary full-year analyst call in February, I've already outlined my three focus areas for the medium term, operational excellence, digitalization, and internationalization. Our business performance remains strong and we have achieved a record order backlog of 5.9 billion euros in the first three months of this year. Reliably delivering on this huge order book is the number one priority of the Management Board. As a consequence, we have reallocated responsibilities in the Management Board and nominated Celia Pelas as Chief Operating Officer. Coordinated by Celia, we will massively increase our production figures while at the same time continuously improving the quality of our products. Further, we are expanding our solution expertise for the future. We are scaling and industrializing with progressive determination. This means, for example, that we are systematically expanding our production capacities, further strengthening our supply chains, diversifying our service business and overall continuing to grow along the value chain. A specific example. In the last three years, we have increased production and delivery of the TML4D radar, which is operated in Ukraine and a key element of the European SkyShield initiative, from 3 to 15 units per year, a five-fold increase. I also mentioned in February that our customers are increasingly focusing on the overarching concept of software-defined defense. Essentially, this means an improved combination of software-driven functionality, data centricity, network connectivity, and augmented hardware for edge computing to increase the capabilities of weapon systems. The recent acquisition of ESG that we closed on April 2nd will strongly support our drive towards a more digital and software-driven future. We hit the ground running for the post-merger integration of ESG and all work streams show very promising progress, both regarding synergies as well as operational integration. The next chapter of our success story has started. When we look at our market environment, we see sustainably positive trend in many areas. On the political side, we are in close and constructive dialogue with all political stakeholders in Germany. The exchange between industry and politics becomes increasingly broader. For example, Minister of Economics Robert Habeck recently hosted a meeting with the German defense industry and highlighted the need for an overarching industrial strategy that consistently promotes key technologies. While also the strategic dialogue with the Ministry of Defense is intensifying, the Minister of Defense, Boris Pistorius, initiated a structural reformer of the German Armed Forces to increase operational readiness. One element of this reform is the strengthening of the cyber and information security domain, which ties perfectly with our drive towards more digitalization, enhanced electromagnetic warfare capabilities, and intelligent networks. The increase of the defense budgets in Germany, Europe, and around the globe is structural and long-term. In Germany, there is a broad political consensus to sustainably spend 2% of the GDP on defense. Hence, there shall be no doubt about a future budget increase, and I'm confident that the question of how this increase can be achieved will be resolved by mid-year. Further to our key market, Germany, we see a strong budget dynamic across Europe, with Norway announcing an increase of their defense budget by 80% in the next 12 years. Poland has raised its defense budget ambition to 4% GDP and has recently joined the EFI initiative. The Baltic states are spending more than 2.5% of GDP on defense, and both France and UK have raised their budget ambition beyond 2% GDP. These are only a few examples for a manifesting trend of higher military spending. For the first time since decades, we see large-scale procurements initiative, especially in the area of armored vehicles, where, for example, Germany recently announced intends to buy more than 1,000 vehicles to replace the Fuchs armored personal carriers. Italy has announced to procure more than 100 tanks of the leopard family, and we see a similar dynamic in other European countries. This market situation confirms our still growing relevance and favorable conditions for long-term sustainable growth for hand salt. Let me now have a look at a few business highlights. Our order intake in the first quarter of 2024 was very strong and amounted to an impressive total of €665 million. We booked a big contract from our German customer for short and very short range air defense and received further orders for our TML4D radar, where we now have more than 50 units in our books. Ukraine and Iran's attack on Israel underline the inevitable importance of air defense. Our airborne self-protection systems will be integrated in Ukrainian Mi-24 helicopters, supporting the crews in their dangerous missions. And I am proud to report that we have booked the launch contract for our Quadome naval radar. The Spanish shipyard Navancia will integrate this radar, developed by our colleagues in South Africa, into the British Fleet Solid Support Vessels. This launch contract opens numerous opportunities for Quadom in a wide range of markets. It further strengthens our already strong positioning in the naval radars market based on our top-selling TRS-14. Dear audience, this slide has become a staple in our quarterly earning presentations. The point I would like to make here is that this rich opportunity set across all domains and many platforms stems from our position as holder of national key technology. It shows how deeply Hensoldt is embedded in key German programs and that we are the core of the German defense electronics capabilities. With high visibility of opportunities and close customer proximity, the German programs are our foundation for growth and our launchpad for upcoming next-generation programs. These programs are, besides R&D and new impulses from the ESG acquisition, the workbench for our mid-term priority to digitalize our product and solutions portfolio. Highlighted in yellow, you find the German key programs that have materialized in the past months and laid the foundation for the solid growth of our business. This will continue for the remainder of 2024 with high demand, especially in the area of air defense radars and armored vehicles. In addition to our very strong business in Germany, we continue to develop and expand our international business. We are leveraging our world-class product portfolio in combination with our excellent positioning in key markets and with key OEMs. With a mid-term priority on internationalization, we will more systematically develop our international customer base and our international footprint. Our key countries, France, United Kingdom, as well as South Africa, will be initial focus points in that endeavor. Ground and ship-based air defense under the umbrella of ESSI in Eastern Europe and self-protection for both airborne and ground-based platforms will drive our international order intake in 2024. In addition to that, optronics for armoured vehicles such as a Leopard and M1 Abrams tank and periscopes for submarines will constantly drive our initial order intake in the near as well the mid-term due to our strong relationship with the respective OEMs. Ladies and gentlemen, the market developments remain favorable. First quarter results confirm our progressive growth trajectory. And we have started a comprehensive action plan across operational excellence, digitalization, and internationalization for sustainable success. And on this positive note, I would like to hand over to Christian for an in-depth look at our once again strong figures.

Thank you very much, Oliver. and a very warm welcome also from my side. I'm happy to provide you now with our financials for the first three months of 2024. We again were able to realize a solid top-line performance in the first three months of this year. Order intake developed excellently, with orders summing up to €665 million, hence almost doubling compared to previous year. As mentioned by Oliver, Main drivers were NNBS air defense systems and further orders for the TLM-4D radar. The distribution of incoming orders was again well balanced between our home markets Germany and Europe. Revenue reached 329 million Euro in Q1, which is absolutely in line with our plan. In addition to the exceptionally strong quarter last year, This was due to this year's milestone pattern and a decrease of pass-through revenue. And let me point out that we will see increased revenue dynamics starting now. This will be driven, for example, by our TLM40 radar, of which we will deliver three in the second quarter. With a figure close to 6 billion euro, our order backlog reached a new record level in our history. This continues to provide us with an excellent visibility on our business. The solid performance of our top line is also reflected in our profitability. Adjusted EBITDA increased to 33 million euro with an adjusted EBITDA margin of 10.3%. Our core margin, excluding pass-through revenues, improved by 1 percentage point to 11.4%. The increase was driven by our product mix and economies of scale, partly offset by investments in our growth and into our product portfolio. Adjusted EBIT summed up to €11 million, with an adjusted EBIT margin of 3.2%, respectively 3.6%, excluding pass-through business. This slight decline is driven by increased amortization of capitalized R&D expenses. Cash generation in the first quarter 2024 followed our usual seasonal profile, with an adjusted free cash flow of minus 81 million euro. The significant improvement compared to last year's period was mainly driven by strong cash inflows from our customers. On the other hand, we continued to constantly invest into our planned growth. And let me share the good news. We have received first prepayments of our German customer in April with more to come. To wrap it up, our bottom line remains strong and develops as planned. Let me now give you an update on our net debt development. Over the past three years, we have continuously improved our net leverage. At the end of first quarter 2024, net leverage was at 0.6 times. This figure includes the capital increase we've conducted to partially finance the acquisition of ESG, with net proceeds of €234 million. Excluding the effects on the capital raise, net leverage would be at 1.3 times. As you know, we have successfully closed the acquisition of ESG beginning of April. Reflecting the funding of the acquisition, we've seen it leverage to increase to approximately three times in H1, which we then expect to decrease again to around two times by year end 2024, as outlined in our guide. Let me now have a look at our guidance for 2024, including the contribution of ESG as introduced in the last analyst call in April. First and foremost, we are fully on track to meet our full financial targets and confirm our positive guidance for all KPIs. For 2024, we expect the book to build between 1.1 and 1.2 times in 2024. Revenue to grow to around 2.3 billion euro. And please be reminded with a continued stronger growth in core revenue and a smaller share in pass-through sales than in the years before. Adjusted EBITDA margin before pass-through between 18 and 90%. For adjusted free cash flow, we expect cash conversion of around 50%. Net leverage at a level of two times. And dividend payout ratio between 30 to 40%. adjusted net income. For 2025, we continue to see orders growing faster than revenue. We expect a low double-digit percentage revenue growth rate for the whole group, with an adjusted EBITDA margin of 18% to 19% before pass-through. For the adjusted free cash flow, we expect around 50% to 60% cash conversion, resulting in a further declining net leverage to around 1.6 times. The dividend payout ratio will remain at between 30 to 40% of adjusted net income. We are convinced of sustainable decade-long growth potential which lies ahead of hands out. And this is reflected in our medium-term guidance. We expect a continuously high order intake over the next years with orders to grow significantly faster than revenue. As a result, we see an annual revenue growth of 10% on average for the medium term. We expect adjusted EBITDA margin to increase to above 19% before past revenue for the medium term, reflecting further economies of scale as well as the materialization of synergies. Together with strict working capital discipline, we will generate a cash flow conversion of 50% to 60% that we will be in a position to pay out 30% to 40% of our adjusted net income to our shareholders while maintaining a conservative financial profile. Coming to a conclusion, let me mention the following key financial takeaways. Our impressive order intake of 665 million euro leads to an order backlog at an all-time record level of 5.9 billion euro. This provides us with an excellent revenue visibility for the years to come. Our efficient project execution supports our excellent profitability and cash flow significantly improved year on year due to our successful receivable management. Therefore, we confirm our full year 2024 guidance for all of our KPIs as explained. Our outlook remains promising and we are strongly positioned for the upcoming growth. As mentioned before, we will see increased dynamics in revenue starting from now on. The production of TLM4D radars will continue to accelerate and we will deliver three of them in the second quarter. We have now received first prepayments from our German customer in April and there will be more to come. that underlies again the close and constructive dialogue we have with our German customers. As already mentioned, we are in close exchange regarding the programs and opportunities. This and the large-scale increase of defense budgets globally will generate long-term sustainable growth for Hensel. And now we are happy to take your questions.