Hensoldt Ag Unsp/Adr

Good afternoon, everybody, and welcome to Hensoldt's 9M2025 results call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at Hensoldt, and with me today is our CFO, Christian Ladone. Christian will guide you through this presentation today, which will be followed by a Q&A. And with that, over to you, Christian.

Thank you very much, Veronika, and a very warm welcome to all of our investors and analysts following our company. It's great to have you with us today. I'd like to begin with a quick update of this timeline, which you may remember from our recent analyst calls. Since then, our assumptions have further materialized. Right after the adoption of Germany's 2025 defense budget in September, the parliamentary sessions for procurement approvals gained strong momentum. By the end of 2025, a total of more than a high double-digit number of so-called 25 million approvals will have been passed, many of them with direct hands-on involvement. The first tangible evidence was our recent guidance upgrade for the 2025 book-to-bill ratio, published two weeks ago. While the majority of expected orders are still anticipated to enter our books in 2026, The increased guidance for this year already reflects the early materialization of these strong dynamics. This sets the stage for a strong finish to 2025, with significant orders to be expected in the near term. Let me start with the census segment. In October, we booked a major sustainment contract for the German P8 Poseidon program worth 130 million euros. Alongside the procurement of the German Eurofighter Tranche 5, the contract of our MK1 radar is now in the flowdown and we expect to book the order with approximately 180 million euros shortly. The same applies to further orders for TLM-4D air defense radar for Ukraine for Switzerland with a combined volume of around 200 million euros. Notably, the optronics segment will contribute significantly to our order intake in 2025, combining both upcoming and recently booked contracts worth approximately €1.4 billion. This is predominantly driven by the land domain. The contract for the new reconnaissance vehicle named LUX2 is currently in the flow-down process. This landmark order represents a volume of approximately €850 million for Hensoldt. In addition, we anticipate further orders for the Leopard 2 main battle tank and for the Chakal, the boxer platform equipped with the Puma turret. The latter we expect in 2026. Further key contributors are projects for Algeria's border surveillance, as well as upgrades for the German U-212A submarines, both recently booked. I will give an overview how these orders will contribute to our race book to build guidance for 2025 in a minute. Of course, all of you know that ramping up capacity is key to meet increased customer demand. Therefore, we have started our operations 2.0 initiative, which we have introduced in H1 of this year. Since 2022, we have been expanding production capacity for continuous improvement automation and outsourcing integrated into our annual CapEx plan. And this will continue. And of course, we will provide more details at our Capital Markets Day next week. Nevertheless, a first concrete initiative. This is our new production site, which will significantly increase our production capacity for air defense radars. This strategic capacity expansion will enable us to substantially ramp up production from 2027 onwards, especially for TLM4D and SPEXA raters. We are investing around 80 million euros in this rented site, combining resilience with synergies across our existing footprint. Let me now come to our financials for the first nine months of this year. After outlining our promising growth outlook, let's now shift to what we have accomplished so far. So let me walk through our financial results for the first nine months. To begin with, I'm very pleased with the performance we have once again achieved. Order intake developed as planned, reaching more than 2 billion euro. All for this year's orders placement from Germany are heavily weighted towards year end. We exceeded the high prior year figure by 9%. Key drivers behind this performance was the Eurofighter program as well as TLM40 radars. Revenue performance was strong, increasing to 1.5 billion euro. Optronics continued its strong momentum while sensors further gained traction in Q3, as anticipated following a slower start in the first half of the year. Pass-through revenue continued to decline, in line with our planning. Excluding pass-through revenue, core revenue grew strongly by 14%. reflecting the strength of our underlying business. With a book-to-bill of 1.3 times, our order backlog again reached a new record level of 7.1 billion euro, providing us with an excellent visibility. To sum it up, the increasing investments in defense by our German international customers continue to translate into higher order intake and revenues. The strong performance of our top line is also reflected in our profitability. Adjusted EBITDA increased to €211 million with an adjusted EBITDA margin of 13.7%. The increase was primarily driven by higher volumes in the German optronics business. In a sensor segment, product mix effects partly offset this growth, while the impact on margin from the logistical ramp-up has further diminished. Additionally, we continue to capture costs and revenue synergies from the ESG acquisition, further strengthening our bottom line. Adjusted EBIT increased to 122 million in 9M 2025. Cash generation was excellent in Q3. Adjusted free cash flow increased to minus 119 million euro per 9M 2025, supported by advanced payments received. While on the other hand, investments in our working capital continued as planned to manage the business volume in Q4. To conclude, our bottom line is on track and set to gain further momentum as the year progresses. Now let's have a look at our segments. The census segment delivered a solid order intake of 1.7 billion euro, exceeding previous year's high comparison base. This corresponds to a book-to-bill ratio of 1.3 times. The development was driven by orders for the Eurofighter rebaselining and HALCOM program, as well as TRM-40 radars for Ukraine. Revenue in sensors increased to 1.3 billion euro. Despite the slower start in our radar production during the first half year, revenue growth was strong and fully in line with our expectations. Excluding the declining share of parcel revenue, core revenue in sensors rose by 12%. Adjusted EBITDA in sensors increased to €199 million. Product mix effects had a minor impact, while the effect of the ramp-up of the logistics center in H1 is further diluting. This is reflected in the adjusted EBITDA margin of 15.1%, catching further up as the year progresses. As mentioned, cost and revenues energies from the ESG acquisition contribute to this as planned. Optronics realized a strong order intake with orders summing up to €328 million, resulting in a book-to-bill ratio of 1.4 times. This was primarily driven by orders for the U-212A submarine retrofit, gimbals, and side systems for ground-based systems. Revenue performance in Optronics was excellent, continuing the momentum from the previous quarters. This was boosted by the sustained strong performance of the German entity, which achieved revenue growth of 27% in the first nine months. Main driver was accelerated production in ground-based systems. At this stage, we are also pleased to have successfully the first step of the move of the ground-based systems business in Oberkochen from the former size building to the new build Optronics Campus. This milestone will provide our business with the capacity to continue the strong growth path ahead. In terms of margins, Optronics continued to show a significant improvement compared to prior year, with adjusted EBITDA reaching 12 million euro. This development was driven by higher volumes from the German unit. Let's now have a look how our order book will develop until year end. In addition to the orders mentioned at the beginning, we are preparing for a broad series of additional contracts across our business areas. such as for air defense, the Eurofighter program, our naval business, as well as self-protection systems and services and integration. To sum it up, we are very well on track to secure major orders that will drive our order intake from around 2 billion euro in the first nine months to approximately 4.4 billion euro per year end. Let me now come to our guidance for 2025, updated two weeks ago. First and foremost, order intake. Following the recent development, we have significantly raised our book-to-bill guidance from around 1.2 times to a range of 1.6 to 1.9 times. As highlighted earlier, we expect to book key programs like Eurofight and Lux2 already within this year, pushing the book-to-bill notably upwards. Furthermore, we specified our revenue guidance to approximately 2.5 billion euro. As outlined in our recent analyst calls, the rollout of our new logistics center represents a strategic investment in long-term competitiveness and operational efficiency. While this go-life has temporarily moderated the pace of revenue growth in 2025, it is a critical enabler of sustainable growth and scalability in the years ahead. For adjusted EBITDA margin, we specified our guidance to 18% or higher. This reflects our focus on sustained strong profitability by investing in our capacity to secure long-term success. For adjusted free cash flow, we continue to expect strong performance with an unchanged cash conversion target of approximately 50% to 60%. And our net leverage target remains at around 1.5 times, reflecting our disciplined financial management. Finally, our dividend payout ratio will continue to be in the range of 30 to 40% of adjusted net income, in line with our commitment to shareholder returns. So coming now to a conclusion, let me mention the following key takeaways. There'll be increasing demand for our products and solutions as reflected in substantial order intake across both segments. driving order book to a record high of 7.1 billion. This continues to provide excellent visibility for the years to come. Our revenue performance remains strong, driven by sustained high momentum in optronics and accelerated growth in sensors during the second half of the year. This is reflected in our solid profitability, supported by high volumes in optronics, while the impact of sensors margins from the logistical ramp-up is further diluting. Our outlook remains promising and we are strongly positioned for the upcoming growth. Germany is taking the leadership role for defense in Europe and Hensel has the right strategy, products and capacities to play a major role in upcoming German and European procurement programs. This is now increasingly reflected in concrete orders, driving our book to build guidance significantly upwards and with further major contracts on the horizon. So in short, SiteInventor 2.0 starts to materialize. Through targeted investments in capacity and processes, we are safeguarding our delivery capability. We proactively secured the further ramp up of our air defense production from 2027 onwards, safeguarding our delivery capability and long-term sustainable growth. Thank you very much for listening. And with that, I'm now happy to open the floor to your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only headsets while asking a question. Anyone who has a question may press star and one at this time. First question comes from Sebastian Groh from BNPA Paribas Exxon. Please go ahead.