Hensoldt Ag Unsp/Adr

Good afternoon, everybody, and welcome to Hensoldt's 3M 2025 results call. Thank you for joining us today. I'm Veronika Andries, Head of Investor Relations at Hensoldt, and with me are our CEO, Oliver Dörre, and our CFO, Christian Ladona. Oliver and Christian will guide you through this presentation today, which will be followed by a Q&A session. And with that, I hand over to you, Oliver.

Thank you very much, Veronika, and a warm and cordial welcome to our valued investors and analysts covering the Hensoldt stock. We are at a historic infliction point for defense and security markets, and Hensoldt is exceptionally well positioned to lead this transformation. In this first part of the presentation, I will give you an overview of the recent developments in the political and strategic landscape and how they will drive our business. Christian will then lead you through the details of the financial section, and I will conclude with a first estimate on how rising defense budget will drive our order pipeline and revenue development towards 2030. Tectonic shifts in geopolitics have again accelerated at an unprecedented pace recently, When we presented our strong full year 2024 figures to you, end of February, the speech of Vice President Vance at the Munich Security Conference was still fresh on our minds and gave us a first indication of the potential watershed in transatlantic relations. The dispute at the White House and the initiative of the US administration to end the war in Ukraine through unilateral negotiations with Russia excluding both Ukraine and Europe, showed a dangerous clash of cultures in the Western Alliance and triggered a strong reaction both in Germany and Europe. Commission President von der Leyen announced the Re-arm Europe initiative, mobilizing up to 800 billion euro for security and defense. This clearly underlines the strong ambition that Europe will take responsibility for building a self-sufficient and deterrence and defense capability and Even before the new government coalition has been sworn in we have seen a fundamental shift in Germany's fiscal framework marking the beginning of a site and vendor 2.0 as we call it the German Constitution has been amended to enable a multi-billion euro financing package dedicated to defense and infrastructure investments furthermore defense spending exceeding 1% of the GDP is now exempt from the country's debt break restrictions. In principle, this means there is no formal upper limit to defense spending. Importantly, defense procurement and budget allocations are now fully guided by NATO capability targets, moving from a procure-to-budget doctrine to a much more sustained and strategic investment path. This allows for long-term sustainable commitments covering an eight to 10 year timeframe to secure further ramp up of production and technology developments. Against this strategic backdrop, how will this ambition accelerate and expand defense procurement translate into a concrete timeline? With Friedrich Merz elected as chancellor and his cabinet sworn in yesterday, an important milestone has been reached. Our Berlin discussions confirm that parliamentary approvals for defense procurement projects that have been in the pipeline since last year will be relaunched quickly, even if it will take until after the summer break for the budget 2025 to be approved. Recent media statements by the president of the German Procurement Authority provide further proof that there is a very high level of commitment in the new administration to accelerate defense procurement on all levels. At the upcoming summit in June, we expect NATO to present its force goals to member states, providing additional guidance for the prioritization of new defense procurement projects in Germany in early fall. With the planning and procurement acceleration law passed together with the defense budget for 2026 in the third quarter, we will have high visibility on additional orders by the end of 2025. The majority of revenues, though, from these orders will then materialize in 2027 onwards. Even more important than the timeline is the scope of upcoming defense procurement. In Germany, the fundamental priorities have been set in the coalition treaty, showing a clear push for both mass and class in material. Air defense and the full equipment of the German Brigade in Lithuania have the highest priority, and Tenzolt is ready to deliver at scale in these areas. We are ramping up production of air defense radars and are pushing ahead with digital sites for armored vehicles from Oberkochen. The prioritization of electromagnetic warfare, cyber, AI, and cloud shows that we are on the right track with our software-defined defense strategy. Uncrewed systems and space-based reconnaissance are areas where we see further growth for Hensoldt in the coming years. We are confident that Hensoldt has the right strategy, products, technologies, and operational capacities to play a major role in the upcoming near- and mid-term German and EU procurement programs. As mentioned, many of the upcoming procurement initiatives in Germany center around software-defined defense. These initiatives are well aligned with our SDD roadmap. Already today, our high-performance sensor products provide the foundation, enabling us to add new functionality through software and future-proofing our hardware platforms like the TML4D, for example. With major initiatives, like the digital battlefield and the Bundeswehr new reconnaissance vehicle on the horizon, Hensoldt is set to play a central role in SDD-centric development projects. And at the same time, our R&D investments are paving the way for innovative business models that will sustain our leadership. This increasingly software and data-centric portfolio positions us as a key player in the software-defined defense space both in Germany and beyond. Building a new defense ecosystem that combines the strength of traditional players and innovative startups is one of our strategic priorities. As announced yesterday, I'm excited to share that Hensoldt has entered into a strategic partnership with Quantum Systems, one of the most dynamic players in the defense tech space. In addition to a cooperation framework, this partnership is accompanied by an investment of Hensoldt in quantum systems. This collaboration brings together our strengths in sensors and sensor fusion with quantum's cutting-edge unmanned aerial platforms and mission software. By joining forces, we are accelerating the next generation of software-defined defense, creating faster, smarter, and more modular solutions across land and air domains. This partnership not only strengthens our innovation pipeline, but also positions us powerfully for key initiatives like the future combat air system, while also opening international market opportunities. Before I pass on to Christian, I'd like to have a look at expected orders for 2025. With orders for more than 700 million euros already in our books by the end of the first quarter, we see this strong momentum continuing for the rest of 2025 with a series of key orders on the horizon. We expect major contracts across air defense radars, Eurofighter programs, ground-based systems, and sustainment projects like the German P-8 Poseidon. Notably, we anticipate orders exceeding 500 million for optronics and self-protection systems for platforms such as the new reconnaissance vehicle Leopard 2 and Boxer RCT, so new reconnaissance vehicle named Corsac. Our radars continue to sell exceptionally well with additional orders for TML-4D and SPEXA coming up. New projects for the Eurofighter and Algeria's border surveillance will further contribute significantly. And on this positive note, I would like to hand over to Christian for a deep dive into our financials for the first quarter.

Yeah, thank you very much, Oliver. And I'm happy to provide you now with our financials for the first three months of 2025. Once again, we were able to realize a solid top-line performance in the first three months of this year. Order intake developed strongly, with orders summing up to €701 million. Main drivers were the Eurofighter MK1 rebaselining contract, as well as the Spanish Eurofighter HALCOM program. Last year's fire order intake included contracts for the NMBS air defense system and further orders for the TLM-40 radar. Revenue for the group increased to €395 million, and was driven by a strong performance of our electronics business. As anticipated, the sensor segment had a slower start into the year. This was due to the ramp up of our new centralized logistics center and the resulting slower production start in the first quarter. The impact on production and therefore on revenue is a temporary effect, as we explained in our last analyst call in February. And I'm happy to give you further insight from the ramp up in a few minutes' time. ESG, which was not part of Henselt in the first quarter of last year, contributed to group revenue as planned with 74 million euro. The level of the pass-through revenue further declined in line with our planning. Excluding pass-through, our core revenue grew strongly by 31%. Organically, Core revenue increased by 6 percent. With a book-to-bill ratio of 1.8 times, our order backlog once again reached a new record level of over 6.9 billion euros. This continues to provide us with an excellent visibility. The bottom line met our expectations. Adjusted EBITDA reached 30 million euro with an adjusted EBITDA margin of 7.6%. This development was driven by product mix effects as well as the ramp up of our new logistics center. Consequently, this led to a temporarily lower productivity within the sensor segment during the first quarter. However, these impacts were anticipated and are expected to phase out as the year progresses. Adjusted EBIT was impacted similarly by this effect, amounting to 3 million euro in Q1 2025. Cash flow followed our usual CISO profile with an adjusted free cash flow of minus 107 million euro. The development was driven by investments in our working capital to manage the planned business volume in the following quarters. To conclude, bottom line performed in line with our expectations and we are fully on track to achieve our full year guidance. Let's now have a look at our segments. In a sensor segment, we achieved an excellent order intake of €664 million, surpassing last year's high comparison base by 7%. This corresponds to a book-to-bill of two times and was driven by the Eurofighter rebase lining contract, as well as the Eurofighter HALCON program. ESG also contributed to order intake as planned. Revenue in the sensor segment increased to €339 million. Despite the slower start in our radar production due to the ramp-up of the new logistics center, revenue performance was solid and in line with plan. Excluding the declining share of past revenue, sensor core revenue increased by 31%, including ESG, and by 2% organically. Adjusted EBITDA in sensors amounted to €29 million, Besides product mix effects, the margin development reflected the lower productivity in the segment due to the ramp-up of the logistics center. As mentioned, these temporary effects were anticipated and expected to phase out during this year. Optronics achieved a solid order intake, with orders summing up to €50 million again last year's strong comparison base. This was primarily driven by ground-based systems. And as mentioned by Oliver, we're expecting a number of significant orders in this area over the course of this year. Revenue performance in Optronics was excellent, continuing the momentum from the previous quarter. This was boosted by the sustained strong performance of the German entity, which realized revenue growth of 45%. Main driver were accelerated production and ground-based systems. The South African entity was still muted. While achieving slight growth in order intake, revenue development was still affected by the ongoing technology change and strategic realignment. And as you know, our German electronics business is moving to the new build campus in the second half of the year, which will support the substantial growth in the coming years. To handle this transition smoothly, we have initiated pre-production activities during the first quarter. This will soften the impact from a certain downturn of production during the move, as explained in our last analyst call. In terms of margins, Optronics also showed strong improvement compared to the prior year quarter. This was driven by higher volumes in the German unit, which returned clear profitability. Also, the South African business was still impacted by lower volumes. The action plan we have implemented is starting to show results. Overall, Optronics realized an adjusted EBITDA of €1 million. Let me now share some insights into the successful realignment of our financing structure achieved in April. I'm very pleased that we have completed the comprehensive refinancing of our previous syndicated loan agreements with a new €1.8 billion syndicated loan agreement. This marks a decisive step for Hensoldt towards even greater financial independence and flexibility. Let me point out the key highlights of the new financing agreement. First, we have successfully released fundamental securities from the previous LBO structure, enhancing our financial flexibility. Our financing is now prematurely secured up to 2032, providing long-term stability. Third, we've optimized our margin ratchet, significantly improving our cost structure. And fourth, this realignment enables a more diversified and flexible debt profile, reducing risk and increasing resilience. In a nutshell, With a new financing structure, we are creating the economic basis to consistently pursue our growth targets. At the same time, the high financial flexibility ensures that we can respond even faster in a more targeted manner to new market opportunities. I would now like to give you some more color on the ramp-up process of our logistics center. Two years ago, we decided to build this new centralized hub for our German sites. Together with our new electronics campus, this is forming the basis to ramp up and scale our production both in the sensors and electronics business. Having reached a performance limit on our reverse warehouse, the new centralized setup will significantly enhance both capacity and process efficiency. With the move into the new logistics center end of last year, we initiated a transition phase with key implementation steps, including the optimization of various processes and integrated data management. This also involves the first module of S4HANA going live with the HENZEL group, enabling real-time monitoring of stock levels and tracking material movements. As anticipated, during this transition phase, material flow was temporarily reduced during the first quarter, as illustrated on the slide. This mainly affected radar production in sensors, as Optronix is currently operating independently from the center. This led to a softer Q1 in sensors, which was accounted for in our production planning for the year. Within the second quarter, we established normalized operations at a new capacity level, allowing us to handle noticeably higher material flows than our previous warehouse setup. This enables us to gradually ramp up production sensors. Consequently, we expect an acceleration in sensors predominantly in the last two quarters of this year. This goes hand in hand with the further scaling of our logistics capacity in H2. so that we will be able to increase material flow by at least 85% in total. To summarize, with a new logistics center, we are not only able to meet the current demand, but we are also establishing a significant capacity reserve. This gives us the opportunity to scale up our production well beyond previous levels and to meet the further growth in customer demand that we see ahead. Let me now come to our guidance for the fiscal year 2025. First and foremost, we are fully on track to meet our targets and therefore confirm our guidance published in February. Starting with the top line, we continue to expect strong order intake performance with a book-to-bill ratio of around 1.2 times in 2025. We expect revenue to increase to between 2.5 and 2.6 billion euros. We focused and adjusted EBITDA margin of around 18%. As a reminder, we have simplified the definition of this guidance KPI, which previously did not include pass-through revenue. For adjusted free cash flow, we expect a continued strong performance with a cash conversion target of around 50% to 60%. And that leverage is expected at a level of 1.5 times. Dividend payout ratio will continue to be between 30 and 40 percent of adjusted net income. In a nutshell, in 2025, we expect to continue high demand for our solutions, resulting again in a strong order intake as well as a solid revenue growth paired with excellent profitability. Please let me also give you some color on the business profile that we expect within 2025. As pointed out in our last analyst call in February, we anticipate our growth to be weighted towards the second half of this year. This is driven by the transition to our logistics that I explained, enabling sensors to start ramping up in Q2 and further accelerate production in the third and fourth quarter. Please note that this is in line with our production plan and reflected in our guidance. Beyond the current year, it goes without saying that we see a strong tailwind from the additional defense budgets in Germany and internationally. And I'm pleased to hand back to Oliver, who will elaborate more on our first estimate, how rising defense budgets will drive our order pipeline and revenue development towards 2030. Thank you very much. And back to you, Oliver.