Hensoldt Ag Unsp/Adr

Good afternoon, everybody, and welcome to Hensoldt's full year 2025 preliminary results call. Thank you for joining us today. I'm Veronika Endres, 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, Veronica, and a warm and cordial welcome to our valued investors and the analysts covering the hands-on stock. Let me begin with a clear statement. In 2025, we delivered on our commitments. Our book-to-bill ratio reached 1.9 times. Revenue came in within the guided range, adjusted EBITDA increased by 12% on a year-on-year to €452 million, resulting in a margin of 18.4%, fully in line with the guidance we updated in October. And free cash flow significantly exceeded expectations at a level of €347 million. These figures tell an important story. A book-to-bill ratio of 1.9 times is not just a strong order intake number. It is tangible evidence that the Seidenwende 2.0, as we call it, has moved from political announcement to contractual execution. Accelerated defense budgets are translating into funded procurement decisions. And those decisions are arriving in our order books. Demand is concrete and operational. At the same time, the increase in adjusted EBITDA to 452 million shows that we are managing growth with discipline. A 12% improvement in comparison to 2024 reflects emerging scaling effects while we continue to focus on efficiency. Free cash flow of 347 million reflects a strong operational execution, but also a structural evolution in contract arrangements, which, for example, now increasingly include advanced payments. In other words, our customers are co-financing development and production ramp-ups. That strengthens our liquidity position and supports disciplined industrial expansions. Revenue development within guidance underlines another important reality. Scaling defense electronics production is a complex multi-year process. It requires stable supply chains, industrial precision, and a careful ramp-up management. We are giving this maximum attention because reliability in delivery remains our first obligation to the customers. Taken together, 2025 was a strong and balanced year for Henzhold, financially, operationally and strategically. The figures you have just seen do not stand on their own. They are embedded in a geopolitical environment that has changed fundamentally. The Munich Security Conference 2026 made this shift unmistakably clear. The international order has entered a new phase of open great power competition, from Russia's ongoing war of aggression to China's expanding global ambitions and multiple overlapping crises from the Middle East to East Asia. At the same time, the transatlantic relationship remains defined by strategic necessity, yet also by increasing uncertainty. While the United States continue to emphasize burden sharing under America's first priorities, Europe is debating greater military self-reliance amid declining confidence in long-term U.S. predictability. Yet the conference also signaled recalibration rather than fragmentation. NATO cohesion and G7 coordination remain central, while Europe is positioning itself as a more autonomous security actor, strengthening its defense, industrial base and expanding partnerships beyond the traditional Western framework, for example, with India. Against this backdrop, we are operating in a phase of persistent instability. Capability gaps are accumulated over decades and now being addressed with urgency. The demand we see is structural. It is not headline driven and it does not depend on the precise trajectory of the war in Ukraine. Even in a scenario of reduced hostilities, strengthen air defense and expand ISR and electromagnetic warfare capabilities, the deficits are known. Political decisions have been taken. Funding frameworks are in place. Temporary market reactions to ceasefire discussions do not alter this underlying reality. The rebuilding of European defence capacity is a multi-year undertaking embedded in national force planning and procurement pipelines. For Europe, this has translated into a clear shift in posture. Budgets are structurally higher, commitments are framed as multi-year contracts, and the sovereignty in critical technologies has become central. The European industrial base is being strengthened deliberately, not only to secure supply chains, but to ensure autonomy in such domains, such as sensors, data processing and the electromagnetic spectrum. For Henshaw, this environment has very concrete implications. The immediate priority for many customers is what we call fight tonight. operational readiness today. And this is where software-defined defense becomes a central lever. Real-time multi-domain data fusion and AI-supported analysis shorten the sensor-to-shooter cycle and increase resilience in a contested environment. Software upgrades enhance capabilities without waiting for new hardware platforms. Modular architectures enable sovereign agility and scalable deployment under European control. In short, the geopolitical shift drives demand. Europe's response provides funding. Software-defined defense translate both into deployable capability. Let me connect the geopolitical backdrop to something very concrete, procurement execution. Throughout 2025, we have tracked these milestones carefully. And the central point today is this, the assumptions we made about acceleration have materialized exactly as expected. Three developments define the end of the year 2025. First, the 2026 budget has been formally approved, with the regular defense budget rising to around 82.7 billion. At the same time, the Sondervermögenbundeswehr is effectively fully committed through authorization frameworks. The transition from extraordinary funding to structurally higher annual budgets is underway. Second, the planning and procurement acceleration law has been enacted. This is structurally important. It shortens administrative cycles and reduces procedural delays, enabling faster contract awards. In addition, we are seeing an increasing number of projects with limited competition or even direct contracts reinforcing our position as national champion. Third, and most telling, is the parliamentary approval dynamic. In 2025 alone, the Budget Committee of the German Bundestag approved 103 so-called 25 million euro proposals. One hundred and three. The total volume amounted to approximately 83 billion. To put this a little bit into perspective, before 2022, Germany's annual defense procurement spending typically ranged between 15 and 20 billion euro. What we saw in 2025 is therefore not a marginal increase. It represents a historic step change in procurement scale. The December sessions alone illustrate this acceleration. In a single meeting on 17 December, 30 major projects with a combined value of nearly 50 billion were approved. For us, many of these approvals are directly relevant. Eurofighter Mark I, Pegasus, reinforcement of Iris-T, and major land system upgrades such as LUX-2, UMA, and the remotely controlled Howitzer RCH-155. These are not abstract budget lines. They are funded programs entering execution. And this is precisely the procurement environment behind our 1.9 times to bill ratio. The order momentum we reported is not speculative. It is rooted in a historically unprecedented approval dynamic. Looking into 2026, the pace remains elevated. More than 70 major proposals are planned. with an expected volume of at least 48 billion. While this may not repeat the exceptional peak of 2025, it confirms that the acceleration is embedded in a multi-year force planning. In short, 2025 marked the transition from political intent to structural procurement execution at a scale Germany has not seen before and at a scale that will be sustained over the coming years. Let me now move from parliamentary approvals to what has actually entered our order book. The orders we secured in 2025 reflect three characteristics, scale, technological depth, and geographic breadth. In our sensor segment, intake was driven by major European air defense and reconnaissance programs, including Eurofighter, radar developments, Pegasus re-baselining, sustainment activities for maritime petrol aircraft, and next generation radar systems such as SPEXA Mark III. These programs underline our strong positioning in air defense, ISR, and electromagnetic spectrum capabilities, domains that are clearly prioritized in Europe and the overall force planning. At the same time, the portfolio is not limited to Germany or Europe. A 60 million contract for an obstacle avoidance system for the Indian Advanced Light Helicopters illustrates the effectiveness of our Grow with Focus strategy. It shows that our technology is competitive in selected international markets and that we are expanding in a targeted and disciplined way. In our optronics segment, the picture is equally compelling. The landmark LUX2 contract with its Ceretron sensor suite and integrated self-protection systems represents a structural upgrade in how LAN platforms are equipped. It moves us further towards connected, software-enabled architectures. In addition, we secured substantial orders for siting systems, self-protection solutions, and border surveillance sensor suites across Europe and North Africa. These contracts confirm strong demand not only for new platforms, but also for upgrades and capability enhancements of existing systems. Taken together, The two slides demonstrate that our order momentum is not concentrated in a single program or geographical area. It spans air, land, and maritime domains. It covers new development, upgrades, and sustainment. And it reflects both domestic strength and selective international expansion. This spread is important. It increases resilience, improves visibility, and supports margin quality across the portfolio. Let me now turn to partnerships, because the next phase of defense capability cannot be built in isolation. I would first like to address a topic that has been mentioned by some of our analysts in their reports, namely the statements Leonardo CEO Roberto Cingolani made in his analyst call yesterday. Leonardo is a constructive shareholder and an important long-term industrial partner for Henzholdt. We maintain a close and trustful dialogue. However, it is not our role and we are not in a position to comment on shareholders' intentions or potential changes in ordership. Any decisions regarding shareholdings in Henzhold are solely a matter for the respective shareholders. This applies to both Leonardo and the German federal government. What I can say is this. Hensoldt is strongly positioned. We are delivering on our commitments. We are scaling our industrial capabilities and we are consistently advancing our role as a leading European sensor house and increasingly as a neo-system house. Our focus is clear. It is on execution, on performance and on creating long-term value. Now on to our recent partnerships. Over the past two years, we have deliberately positioned Hensoldt as a bridge builder within the evolving defense ecosystem. The partnerships announced in the past weeks are clear proof that this positioning is now operational. With Titan, we integrate cost-efficient interceptor drones into our Elysion mission core. This strengthens our UAS, counter UAS architecture, particularly for domestic critical infrastructures and selected international programs, including Ukraine. It connects startup agility with our system integration capability. With SchwarzDigits, we combine hands-on sensors and MDO core with a sovereign classified cloud fog and edge infrastructure. This enables secure data-centric defense architectures under European control and connects our hardware and software backbone with large-scale digital infrastructure. And with Helsing, we have entered into a long-term industrial cooperation to operationalize software-defined defense in deployable multi-domain sensor-to-shooter chains. This is about execution architecture, not conceptual cooperation. What unites these partnerships is more important than the individual agreements. They show that Hensoldt connects three layers of the emerging defense landscape. Disruptive startups, sovereign digital platform providers, and new generation system primes. Modern defense capability is increasingly built as an interoperable multi-domain architecture. In such an environment, integration becomes the decisive function integrating sensors, fusing data, combining software layers and effectors across domains. That is the role we are assuming. We are evolving beyond a traditional sensor champion. We are becoming what I would describe as a neo-system house, a system integrator built around data, software and electromagnetic spectrum superiority, capable of operating across air and space, land, sea and cyber domains. To our knowledge, no other company in Germany combines this breadth of multi-domain capability under a unified software-defined defense architecture. This role strengthens our strategic relevance in future procurement programs and increases our resilience in a rapidly evolving ecosystem. And with this, I hand over to Christian with an update on operations and the financials.

Yeah, thank you very much, Oliver. So when we talk about growth, one key aspect is the systematic expansion of our industrial footprint. Thanks to early anticipation, we started implementing footprint expansions and efficiency measures already some time ago. Our operations 2.0 targets reflect our ambitions growth trajectory with further expansions planned, especially for air defense radars and ground based systems. ensuring we can fully deliver on customer requirements and sustain growth well into the next decade. To enable this kind of scale, we are also continuously expanding our physical footprint and strengthening our industrial base. End of last year, we announced plans to increase production capacity for air defense radars from 2027 onwards. Already in 2026, we will launch a new repair center for ground-based systems, to meet customer demand for spare parts and MRO services. Further expansions, including additional capacity for infantry sites, are currently under evaluation. And beyond that, we are assessing strategic partnerships and selective M&A opportunities, as well as outsourced manufacturing. Together, these initiatives lay the foundation for scale, efficiency, and profitability. Let me now guide you through our preliminary results for the year 2025. And I'm really proud for our achievements and the strong performance in the last year. We once exceeded most of our KPIs. Let's now have a closer look on them. Starting with the top line, order intake came in at the upper end of the race guidance, resulting in a book-to-bill ratio of 1.9 times. This significant order intake was driven by both segments and several major programs, including LUX2, air defense radars such as SPEXA and TLM4D, as well as the Eurofighter program and Pegasus. Overall, order intake increased by 62% year-on-year, reaching an impressive figure of €5.7 billion. Revenue increased to €2.46 billion, with a strong growth in core revenue of 11%. despite the slower start in sensors in the first half of the year, due to the ramp-up of our logistics center. Opchronix continued its strong momentum with revenue growth of 20%, primarily driven by ground-based systems. At the same time, pass-through revenue decreased by 12%, leading to an improved quality of revenue. Building on previous year's strong order book, we substantially increased our order backlog by 33% in 2025, reaching a new record level of 8.8 billion euro. This provides sustained strong revenue visibility for the future. And to sum it up and to reinforce what Oliver highlighted earlier, the acceleration in defense spending is now converting into material orders. underpinning a sustained growth path for the years ahead. The strong pipeline performance in 2025 is also clearly reflected in our profitability and cash generation. Adjusted EBITDA increased by 12% to €452 million with an adjusted EBITDA margin of 18.4%. The strong performance was driven by high volumes and scaling effects. particularly optronics, and supported by material synergies from the ESG acquisition. This was partly offset by the impact of the logistics ramp-up, which continued to diminish over the course of 2025, and by an unfavorable product mix in sensors. Adjustability also increased by 11% to €327 million, benefiting from volume effects in economies of scale. As a result, the adjusted EBIT margin improved year-on-year to 13.3%. Cash generation in 2025 was excellent. Adjusted free cash flow increased by 39% to €347 million. With a cash conversion rate of 77%, we clearly outperformed our guidance range of 50% to 60%. This strong performance was supported by advanced payments. While investments and inventories developed as planned, to support the growing business volume. To conclude, the strong bottom line performance exceeded our guidance, reflecting sibilant execution and operating leverage. Now let's take a closer look at our segments. In the sensor segment, we realized a strong order intake with an increase of 42% compared to previous year. In total, orders summed up to more than 3.1 billion, resulting in a book-to-bill ratio of 1.5 times. Key drivers were orders for air defense radars, the Eurofighter program, Pegasus and P-8 Poseidon. Core revenue in sensors increased by 10% to over 1.9 billion. Despite the slower start in our radar production in the first half of the year, revenue growth was strong and fully in line with our expectations. The share of pass-through revenue further declined to an amount of 132 million euros. Adjusted EBITDA incentives increased to 394 million with an adjusted EBITDA margin of 19.2%. Product mix effects had a minor impact on margins, while the effect from the logistical ramp-up felt diluted until year-end. Synergies from the ESG acquisition materialized as planned and supported profitability. Turning now to our optronics segment, we delivered an outstanding year. We once again achieved a record order intake, reflecting continued momentum, with orders summing up to 1.6 billion euro, representing an increase of 114% compared to the prior year. Opchronix recorded a book-to-bill of 3.8 times. Key drivers were the orders for LUX2, the LAPR2, and orders for the Algerian Land Border Surveillance. Revenue performance in Optronics was excellent with a 20% increase to €419 million, driven by the sustained strong development of ground-based systems. The site move of ground-based systems was successfully completed and provides a solid foundation for further growth. In terms of margins, Optronics showed a substantial improvement with adjusted EBITDA increasing by 140% year-on-year, to 58 million euro. This development was driven by high volumes in economies of scale, materializing due to production ramp up. Now, let me briefly comment on our balance sheet and net leverage development. Over the recent years, we have continuously reduced our net debt. Following the ESG acquisition two years ago, we quickly returned to a deleveraging path and reached a net leverage of 1.6 times by the end of 2024. At the year-end 2025, net leverage remained stable at 1.6 times. While net debt excluding lease liabilities continued to decline, our increased lease liabilities kept net leverage stable. This reflects our planned investments in the sustained expansion of production capacity, including the move to our new optronics site in Oberkochen. Excluding lease liabilities, net leverage declined to 0.6 times compared to 0.9 times in 2024. This underlines our highly cash-generative business model and our ability to further reduce net leverage following an acquisition. To sum it up, Hensel is in excellent financial shape with a conservative balance sheet in place. Moving on to our dividend proposal, we have guided for a payout ratio of up to 30% to 40% of the adjusted net income 2025. Adjusted net income in 2025 summed up to €117 million, slightly below last year. Main driver were higher income taxes as the prior year still benefited from tax loss carry forwards. Due to the excellent business performance and strong cash generation, the management board intends to propose a dividend per share 55 euros sent to the supervisory board and the AGM. And this marks a 10% increase compared to dividend in 2024 and corresponds to a payout ratio of 37% of adjusted income 2025. So let me now present our specified guidance for 2026. First and foremost, order intake. Driven by the sustained high demand and order momentum, we expect the book-to-bill ratio in 2026 to remain strong between 1.5 and 2 times. For revenues, we are specifying our guidance to approximately 2.75 billion euro. Furthermore, we increase our guidance for adjusted EBITDA margin to a range between 18.5 and 19%. This reflects our focus on sustained strong profitability, while investing in our capacity to support long-term growth. For adjusted free cash flow, we continue to expect cash conversion of around 40%. As outlined in the capital market state, this reflects our planned capex for infrastructure expansion, in particular for our new radar production site. For net leverage target, we specify our guidance to around 1.5 times. As we expand our operational footprint, lease liabilities are expected to increase. Apart from this non-cash effect, net leverage would decrease even stronger. Finally, our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted income, in line with our commitment to shareholder returns. For the midterm, we confirm our targets outlined at our capital markets day in November. We expect order intake to continue outpacing revenue growth, translating into average annual organic revenue growth of around 15 to 20%, likely more back-end loaded as large programs ramp up. Margins will continue to expand by about 50 basis points per year, reflecting scale and productivity gains while cash conversion normalizes to around 50%, coming back to 50 to 60% from 2028 onwards. Finally, our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted income while maintaining a conservative financial profile. And going forward, our priorities for capital allocation remain unchanged. First, fueling the growth. We continue to invest Hensel 2.0, scaling production, strengthening technology, and developing our people. Sharing growth. We maintain a 30 to 40% dividend payout ratio of adjusted net income, ensuring shareholders participating in our success. And third, strategic acquisitions. We pursue value accretive M&A, focusing on technologies, markets, and capacities that strengthen our core capabilities in the value chain. Last but not least, we are adhering to a conservative financial debt profile and medium-term dividend payout guidance. And with that, I'm happy to hand back to Oliver for an outlook on expected key orders and priorities in 2026.