Hensoldt Ag Unsp/Adr

Good afternoon, everybody, and welcome to Hensoldt's 3M2026 results call. Thank you for joining us today. I'm Tim Schmid, part of Investor Relations at Hensoldt, and with me is our CFO, Christian Ladona. Christian will guide you through this presentation today, which is always followed by a Q&A session. And with that, I hand over to you, Christian.

Thank you very much, Tim. And a very warm welcome to all our investors and analysts following Hensoldt. It's great to have you with us today. So let me start with a quick update on execution against our strategy. Across our four strategic priorities, the pace of progress has genuinely picked up. Within deliberate scale, two things stand out. First, the order of 900,000 gallon nitrate semiconductors secured in the supply chain backbone for radar capacity through 2030. Second, the ability to print expansion by automotive suppliers. we are industrializing our footprint model deliberately ahead of the volumes we anticipate. In the area of Pioneer Software-Defined Defense, we are moving from frameworks that then we use into concrete operational programs. This applies both to our cooperation with Schwarz Digits, where we will demonstrate our sovereign defense cloud at ELA in Berlin, and to our cooperation with Helsing, which is now moving into execution with multiple German projects currently under negotiation. Our Ukraine Innovation Hub shows what growth focus means in practice. It combines accelerated development cycles in a way no lab setting can replicate. With rapid industrial execution, a model that reflects exactly how we need to operate in a faster, more contested world. And to lead our team into the future, Inga Tiefs joined as our new CHO on May 1st. With her background in scaling organizations and workforce transformation, she brings exactly the expertise we need at this stage. Let me now turn to our acquisition of Nadinsco because it's directly linked to our ability to deliver at scale. Scaling is not only about expanding final assembly, it starts much deeper in the industrial value chain. Delivered scale requires control over critical technologies, secure supply chains, and sufficient engineering production capacity across all relevant components. This is precisely where Nadinsko comes in. Nadinsko brings highly specialized capabilities in optomechanical optronics systems, which are essential for a wide range of European plant platforms. By integrating these capabilities, we strengthen our control over key subsystems and reduce dependencies on an increasingly constrained supplier environment. The closing is in preparation, and we will update you on that as soon as we are finished. Now, I want to address something that sits in the intersection of geopolitics and our business. And that is what the Iran conflict has revealed about the structural state of air defense. We saw hybrid high volume air warfare with missiles and drone swarms deployed simultaneously to saturate and overwhelm existing air defense architectures. The often debated questions of drones versus conventional systems has been answered in the field. It's both. At the same time and in large numbers. and many existing systems, frankly, were not built for that scenario. They are under-equipped for sustained saturation and too fragmented for cross-domain effectiveness. In addition, availability has become a decisive factor. For Henzold, this confirms the assumptions we have built on strategy and our portfolio around. Multi-sensors to multi-effector integration is mission critical. software-enabled architectures are inevitable. This leads to a demand that is structural and long-term, anchored in a fundamental gap between what air defense systems can do today and what they will need to do. This gap creates a significant mid-term upside opportunity for HENSA. What Iran has revealed operationally, Germany is now co-defying strategically. The new military strategy is not another budget announcement. It is a doctrinal shift away from platform-centric procurement towards capability architectures. It prioritizes air defense, electronic warfare, and information security and superiority. It mandates software enablement and rapid innovation cycles. And with planning visibility extend to 2039 and beyond, It represents a level of structural commitment to the defense buildup that we have not seen before in Germany. Let me walk through what this means for us concretely. Capability-driven procurement validates our neo-system house positioning. In this logic, the architecture defines the requirement. The platform follows. We act as a key integrator in the emerging defense ecosystem. where integration becomes the decisive capability. Moreover, the prioritization of air defense and electronic warfare aligns precisely with our core growth platforms. Software-defined defense moves from differentiator to key requirement. And the efficient Mars ambition combined with the 2039 plus horizon validates our delivered scale investments as structural mode. The draft budget 2027, we call it , published just recently, puts concrete numbers behind this commitment. The defense budget is set to rise over 105 million euros, a larger increase than expected. By 2030, military spending is then expected to reach 180 billion euros in the core budget alone, compared to a defense budget of approximately 82 billion euros in 2026. These numbers make it tangible. We are seeing higher spending. But equally important, we are seeing a structural shift in the composition of demand, marking the beginning of a long-term growth dynamic. Let me now turn to operations, because this is where strategy becomes execution. And we are expanding simultaneously on three levels, on capacity on the left-hand side, industrialization on the mid, and workforce at the right-hand side. We started expanding our footprint early, ahead of the demand wave, not only in response to it. This covers both existing sites and new ones, across the full range of what scaling at this pace requires. What gives us equal confidence in this is the industrialization side. More than 100 measures are in progress and first results are visible. The built-to-print model means we are not dependent solely on our own infrastructure to scale. Lead times are coming down. First-past-heals improvements are measurable. These are metrics that turn procurement commitments into reliable delivery. And on workforce, the partnerships with Amovium and Floyd give us structured access to industrial talent at a pace organic hiring alone cannot match. And let's be clear, there is more to come in the near future. To sum it up, the ramp-up is progressing as planned, the decisions are taken, and now we are delivering. So let me now walk you through our financial results. First and foremost, the first quarter marked the strongest Q1 in Hensel's history, and that strength is consistently reflected across all our key KPIs. Let me begin with order intake, which was exceptionally strong. Orders more than doubled year on year, reaching nearly 1.5 billion euro. This clearly shows that defense procurement dynamics are further translating into tangible and long-term contracts. Key drivers behind this performance were orders for the armored vehicle programs Charcal and Puma, as well as the Eurofighter in the air domain. With 25% growth, revenue performance was well on track in the first quarter, building strong momentum for the full year 2026. The increase to nearly 500 million was driven by the accelerations of our electronics business, as well as continued progress in key programs such as Eurofighter MK1 and Pegasus. As expected, successful milestone achievements resulted in higher pass-through revenue. This temporary effect will gradually phase out over the course of the year. Revenue, excluding pass-through revenue, increased by 15%, underlying the momentum of our core business. Our strong order book increased by 41%, driving order backlog to a new record level of approximately 10 billion euro. This further enhances our high revenue visibility, a substantial part for the orders currently booked extend well into the 2030s, underpinning our long-term growth trajectory and strong positioning in key European defense programs. To sum it up, the increasing investment in defense by our German international customers continue to translate into record order intake and dynamically growing revenues. Our strong top line is also reflected in our bottom line performance, Adjusted EBITDA increased by 47% to €44 million, corresponding to a margin of 8.9%. This excellent performance was driven by higher volumes, particularly in the optronics segment. In sensors, the adjusted EBITDA increase benefited from volumes, temporarily diluted by higher pass-through volumes as well as planned R&D investments. Adjusted EBIT rose to €12 million, benefiting from volume effects as well. As a result, the adjusted EBIT margin improved to 2.3%. Adjusted free cash flow developed in line with the typical seasonal profile. Investments in working capital for the growth ahead were partly mitigated by a higher level of customer advance payments. As a result, adjusted free cash flow improved by 11% year-on-year to minus 95 million euro. In summary, bottom line performance is well on track and set to gain further momentum as the year progresses. Let me now turn to our segment performance, starting with the sensors. The sensor segment delivered a sustained high level of order intake of €725 million, corresponding to a book-to-bill ratio of 1.8 times. Order intake was primarily driven by contracts for the Eurofighter, including the HICOM program, as well as orders from Turkey. This demonstrates that recurring demand for electronics upgrades from our international customer base. Revenue incentives increased by 18% year-on-year to €4.2 million. The development was supported by successful milestone achievements, particularly in the Eurofighter MK1 program, including planned pass-through elements. For the full year, we continue to expect a total pass-through revenue at a level of around €150 million. Core revenue in the census segment increased by 6% to $348 million, reflecting solid underlying momentum. Overall, census continues to deliver sustained profitable growth with a double-digit increase. Adjusted EBITDA amounted to $32 million, corresponding to an adjusted EBITDA margin of 8.1%. As expected, the margin was temporarily diluted by higher partial revenue and continued R&D investments, which support our technology roadmap. Let me now turn to Optronics, which delivered an exceptionally strong start into the year. We achieved a new record first quarter order intake of €759 million, boosting the Optronics order backlog to over €3 billion. E-drivers were orders for major armored vehicle programs, including Chacal and Puma second batch, underpinning our positioning in core land platforms and supporting long-term revenue visibility. Revenue momentum accelerated further with a 64% increase compared to the prior year period. This excellent top-line development reflects our anticipated ramp-up of production capacities. In addition, our investment in software-defined defense capabilities for the LUX2 program started to contribute to revenue. In terms of profitability, our chronics delivered a very strong performance as well, with adjusted EBITDA reaching €12 million. The significant improvement reflects the strong volume growth, including economies of scale. In summary, our 3M performance demonstrates a strong start into the year. creating momentum for the full year. And let us now take a closer look at the key orders we continue to expect this year. Let me start with an update on the census segment. We have presented these programs during our last analyst call in February. Since then, several expected Eurofighter orders have materialized, including orders for the Spanish HELCOM, as well as for the Turkey, highlighted in green. Beyond Eurofighter, visibility for the remaining key expected orders on the slide has further improved. We continue to anticipate significant order intake from core programs such as TLM4D air defense radars and Pegasus, further strengthening our position in airborne ISR and signal intelligence. In addition, programs such as NYFISH highlight the increasing prioritization of electronic magnetic spectrum capabilities across European armed forces. Finally, a brief update on LUVIS, the airborne electronic magnetic standoff capability. As outlined in February, analysts call LUVIS represents a significant strategic opportunity for Hensoldt, with potential order volumes ranging from several hundred million euros up to billion euro levels. Our positioning is strong. supported by proven technological capabilities and our solution expertise from Pegasus. We therefore see good prospects to take a leading role in this program, which could meaningfully drive our order intake. Overall, these technology-rich, high-volume programs are expected to materialize over the course of the year and will support our order intake towards the full-year target. In Optronics, order intake was front-loaded as expected. This reflects the ability to leverage existing framework contracts, allowing our customers to procure more of the same quickly and efficiently. As a result, 2026 has started with an excellent momentum. Of the planned total order volume of around €450 million for the Shakal platform, €350 million have already been booked in the first quarter, covering commander and gunner sites. For the PUMA platform, all planned orders have been booked in Q1 as well, including commander and gunner sites as well as self-protection systems. LAPR2 represents a further driver for the year. Thermal images for gunner sites as well as for the commander and driver sites are expected to contribute to a total order volume of around 180 million in 2026, of which 20 million were already booked in the first quarter. These major orders are further boosting the electronics order backlog and provide exceptional visibility well into the 2030s. At the same time, the expanding installed base and the increased focus on equipment availability in the armed forces will support the growth of our service business over the mid to long term. Let me now turn to our 2026 guidance. Building on a very strong first quarter, we are well positioned to deliver on our full year guidance. Starting with order intake, driven with the sustained high demand and order momentum, we expect a book-to-bill ratio between 1.5 and 2 times in 2026. Revenue is expected to increase to approximately 2.75 billion euros. We forecast an adjusted EBITDA margin in the range between 18.5% and 19%, reflecting our focus on sustained strong profitability. For adjusted free cash flow, we continue to expect cash conversion of around 40%, reflecting our planned cutbacks for infrastructure expansion, particularly the new radar production site. Net leverage is expected to remain at around 1.5 times, And our dividend payout ratio will continue to be in the range of 30% to 40% of adjusted net income. To summarize today's 3M 2020-26 presentation, here are my key takeaways. Site Manager 2.0 is further picking up speed, translating into substantial order intake and driving our order book to a record high of nearly 10 billion euros. This provides excellent visibility well into the next decade. Our strong revenue performance provides tailwind as we move through 2026, while profitability significantly increased, driven by high volumes, particularly in electronics. And we have taken key strategic decisions to expand our industrial footprint, preparing our organization for sustained scaling and further growth. Looking ahead, our outlook remains strong. A pipeline of major contracts expected in 2026 and beyond underlines the sustainability of our growth, support by funded procurement decisions, multi-year force planning, and a lasting shift in European defense policy. We continue to prepare for the closing of the Nedinsko acquisition by mid-year, while the signed partnerships with Amovion further strengthen our access to industrial capabilities and talent. With that, thank you very much for your attention, and I'm now happy to take your questions.

Our first question comes from Marco Vitale with Mediobanca. Please go ahead.

Good afternoon, everyone, and thank you for taking my question. A couple of questions from my side. The first one is one on the, say, generic question on the growth pace that you expect for the full year. Q1 was marked an acceleration to 25%. I understand that you expect some phasing of say past two revenues throughout the next quarter, but if we just focus on core revenues, the top line increase was 16% for Q1. So the question is how this compare with your 2026 guidance of around 10% growth is just including some degree of cautiousness or something else in terms of facing of other key contracts that we should be aware of. The second question is about the larger contracts that you have booked for the optronics. I'm referring to the Lux 2 that you already announced, but also Puma and Chacal. If you could provide us with some, say, additional details on the timing that you expect these orders that are likely to contribute to CNS. Thank you.

Hi, Marco. Thanks for your question. So here are my answers. So first of all, we should really focus on core revenues. It's 15%. In Q1, we have guided for a 12% increase when I compare the results for the year 2025 with for the year 2026. So I would say a very good tailwind, very good indications. Also, the last years have shown that. even if it's only the first quarter, it gives us a good indication for the full year. So here, I'm fully convinced that we deliver on the guidance. Secondly, the pass-through, we expect approximately 150 million. I expect a more linear growth of the pass-through revenues in the next quarter, but there should be not more than 150, which is slightly more than last year, but not driving our Our revenues is simply coming from the core. Yeah, large contracts. We have now booked looks to last year. We have now a very strong Q1. When you look at the order backlogs, 3 billion is referring to the optronics. So it gives us a really long-term visibility for seven, eight years plus. So this is fine, and we will see some more land topics during the year for Leopard, which you have seen that are not all are there. I also expect some major programs in the submarine area. So there is more to come, all currently in line with our expectations. So very, very solid, very confidential.

The next question comes from Sebastian Groh with BNP Paribas. Please go ahead.

Hi, Christian. Can I check before if you can hear me well?

Yeah, perfect.

Okay, good stuff. So, then I would like to start on the electronics business. Apparently, an exceptionally strong start to the year. I recall from the quarter 325 call that you had indicated at least to see an improvement in the margin every year three percentage points up. Now we have seen this incredible improvement year on year. I was just trying to find out if you now see this upside to this three percentage points improvement, or how should we think about the trajectory? Maybe we can start there and then have two more.

Yeah, sure, Sebastian. Yes, I said approximately three percentage points is realistic. But for the moment, I would like to stay with that. On the one hand, it's really a very good Q1. On the other hand, as we know in our defense business, the majority is in Q3 and Q4 of our business. There is where the truth lies in our performance, to be honest. And this is why, as you say, the start was tremendous. But let's now focus on the upcoming quarters.

Okay, makes sense. I might get back to that question then on the next quarter. Let's move on to the order type then. Apparently, the German government has now been saying that they want to hike the budget by about a high single digit billion euro amount in the year 27. I was just wondering to what extent you might benefit from that.

I think, Sebastian, the note is quite good. It's very solid. It's too early at this stage to really give you some upside in the short and medium term. What we see, and I can only refer to that, when we look what happened in the last weeks in Iran, we have seen many decision-takers in Germany again reflecting on our ability to to be prepared in the regard for the air defense and maybe to remind you Germany has ordered six TLM4D to have a really broad defense and air defense we would require 10 times more. So this is from my point of view a topic which we could and will benefit. But this is more now coming from a different threat scenario. rather than from this immediate increase. But we will evaluate on that and see when we can give you some more news on that.

Okay, sorry for just following up on the comment that you just made, but the 10 times more, that is sort of, you could see the potential of up to 600 of those TMR4D radars?

Sorry, 6T. So 6 is currently ordered. And 10 times 60 systems would be needed to cover Germany. So I do not expect that they order 60 this year. But I think it shows that as we see in the Middle East or other areas that air defense is substantially underinvested still. So there will be also more orders coming from Germany. And let's see what the upcoming quarter brings. But my comment was really referring on the ability to cover Germany from an air defense perspective.

Got it. Thank you for that. And then the last one on Nidinsko. Can you provide us with some financials for the asset, like the order of sales, adjusted EBITDA? And if you could also comment on expected sales or cost synergies, if that is of relevance really for the asset?

Yeah, we are still in the finalization of the closing. So I would ask for a little bit patience, but there are still some minor weeks. But when we have the closing done, we will provide some slides on that where we can give you some insights on revenues, on business towards us, to business with others in margins that you have a feeling for the modeling.

All right. Thank you.

Welcome to the group. Welcome.

The next question comes from Ben Brown and Jeffery. Please go ahead.

Hi, Christian. Thank you for taking my questions. I've got two, please. Could you give us an idea on what we should expect for the census margin progression for the rest of the year? Forgive me if my maths is wrong, but I get excluding pass-throughs around 40 basis points of expansion in Q1. So I'd be interested to see your thoughts on this as pass-throughs normalize. And then my second question would be, do you see any impact on the business from rising energy costs or any other supply chain related bottlenecks from the Middle East conflict? Thanks very much.

Thanks for your question. So first answer. So we've done last year approximately 19% in the sensor segment adjusted at the DA expect. that we are in this region also for this year. So the increased volumes will be more balanced by increasing investments we have to do on the one hand in R&D, but on the other hand on structural investments such as the second production line for TLM4D and SPEXA. So this is my estimation for sensor segment. And the second is... We do not expect significant ones. So energy costs are in our business below 5% of the P&L. So even if there is the one or the other increase, we will not see it in a material perspective. Supply chain, I have to say, first and second tier is approximately 90% coming from Europe. Here we benefit. And on top of that, regardless of cost, we have price escalation clauses in our contracts. This protects us more or less. from having impacts on our P&L. So in this regard, I'm currently quite relaxed. So we do not see any big issues coming out from this conflict hitting our supply chain.

Very clear. Thank you very much.

The next question comes from Roslo and Morgan Stanley. Please go ahead.

Hi, Christian. Hi, Tim. Thanks so much for the questions. So the first is just Middle East. What's your revenue exposure today and what do you think that could be medium term? Secondly, just going back on the Dinsco, can you maybe just give us an idea of the acquisition price that you have agreed? And then lastly, just on medium term guidance, I noticed that you didn't include the usual slide confirming your medium term view. So just an update there would be great. Thank you.

Yeah, thanks for that. So Middle East is a minor single percentage. There is, from my point of view, some upside, but because I think what will happen, so today there are some news that there might be a kind of a peace scenario, but I'm definitely sure that all these states who were now heavily affected with closed airspace and enclosed maritime space will heavily invest into air defense. And this will last from classic TLM4D to anti-drone so that we will see some updates and see approximately 10% in the midterm where the Middle East business would go. This is quite in line with our 50-30-20 strategy in the mid to long term. On the DIN score, the question was the equity value. Here again, please have some patience. But as soon as we close, we can give you some details on that. And last but not least, medium-term guidance. We did not put it in because it's Q1, but we confirm all our midterm targets we have published. So this is very clear.

Thanks very much.

The next question comes from Shastusa with HSE Partners. Please go ahead.

Thank you. Good afternoon, Christian. I've just got a follow-up question on the Middle East. Several of your peers in Europe have said that they actually did some shipments of air defense systems to the Middle East in their first quarter. Have you had any shipments yet, and have you received any orders in the first quarter as a direct result of the war?

Very clear answer. There were some shipments. There were some light howitzers from KNDS equipped with our optics in to Qatar. And they were immediately used. So I can say a clear yes on that. In terms of orders, it's currently a little bit complex because our order books are more or less full. But you should understand that there are currently government to government talks And maybe to prioritize one of these states out of the Middle East with air defense that maybe other nations wait for that. There could be come something too early now to be detailed on that. But there are talks on a government to government perspective.

Thank you very much.

Welcome.

The next question comes from David Perry with JP Morgan. Please go ahead.

David?

David? Mr. Perry, your line is open.

Sorry, can you hear me now? No, it's perfect. Hi, David. Yes, sorry about that. OK, so listen, as the presentation sort of suggests, you have a very good product portfolio. You're positioned to win a lot of business, potentially Middle East air defense. Question I want to ask is how much of it could you accommodate? So what is your ability today? Well, how much today's air defense, classic air defense systems in your business as a percent of sales and how much? Could you ramp it up if the demand comes in? How quickly and how much could you do? Thank you.

Yeah, David, thanks for the question. So approximately, I would say 10% of our business is towards air defense when it comes to drones and other areas. Second question, very honest. So we are already ramping up like hell to... to really serving the demand which we have currently in our order. So I have to say the next two years, I do not see that there could be a further upside on the potential. If there is some order from these regions, there will be or there have to be agreements between governments. As I said before, that the one or the other nation who is not urgently needing it steps back and that we then deliver in this region. So this could happen. This is why I see in the next one to two years not a significant upside for our business. But in the mid to long term, I see that this region will give us also more demand in terms of business potential.

Okay. So I mean, is there a scenario in your planning, and I know it's very fluid, but where air defense becomes 20% of sales? Is air defense just TRML and SPEX, or is there anything else in that 10?

It's also from a volume basis, of course, TRML for the and SPEX, and maybe when you have a look into our backup of the presentation, we'll be including some counter drone portfolio where you see, for example, the Elysion, system from ESG, then TAROS in the optronics, which is mounted on some vehicles. So these are further topics. So it's mainly SPEXA, it's CLM4D, it's Elysion, it's TAROS. So there is a product family around that. But yes, why not? That air defense could come from 10% to 20%. So we want to grow every year 15% to 20% from 2027. And of course, air defense will contribute heavily to this growth.

Okay. All right. Thank you very much. That was all I had. Thanks.

The next question comes from Christoph Menard with Deutsche Bank. Please go ahead.

Yes, thank you very much for taking my question. Two, on my side, you mentioned in sensors the impact of pass-through and R&D product development. Could you remind us of the roadmap technology roadmap you have in sensors, where is the money going at the moment? And what is the duration, so to say, over the coming years? The second question was more on F126 and your exposure to that platform. Are you, I mean, I think you're supplying the radar systems. Are you seeing any potential changes of allocation of those radars? Is it fluid at the moment or is it a known? Thank you.

Yeah, thanks for the question. So first of all, maybe again to remind us, Q1 margin is a little bit lower due to fast run R&D. The structure of our business is very clear that costs more or less run linearly, whilst our revenue is more in a curve that in Q4 we have 40-50% of revenues. And this is why the impact from costs in the first quarter is always higher than it is in the outer quarters. Currently, so we invest, of course, in our R&D. In total weeks, we invest 5.5% to 6% this year in our R&D, whilst approximately 10%, 11% go to theronics and the rest is in sensors. And secondly, infrastructure. So we built a second production line now for TLM4D and Spexa. So these are infrastructure investments and the rest is pure OPEX costs for SG&A. So this is the structure where we currently invest. And this is why I see that from next year on when the investments pay off, that there is more to come in terms of margins also from the sensor segment. And your second question, F126, yes, you're right. We deploy the radar for the F-126. It is currently, so we have a clear commitment from the customer that they want to have it. They want to use it in a different scenario for surveillance. And this is why we are quite relaxed on that, that we will not have a negative revenue impact from this program. So it will be used for surveillance in another domain.

Thank you very much.

The next question comes from Ben Halen with Bank of America. Please go ahead.

Yes. Hi, Christian. Thank you for the question. I wanted to ask you on these automotive supplier agreements, can you go into that in a little bit more detail? Like, what are you actually using them for? Are there any particular programs or products? And are there more to come, like How should we think about that? And then secondly, on this part of my pronunciation, the LUAZ contract, the one billion that you mentioned at the beginning, is that potentially all for Hensel? Could you just remind us that? What are you actually contributing into that program? Thank you.

Yeah, thanks, Ben, for your question. Yeah, what are these programs all about? I think you're aware that in the automotive sector, the trend is going downwards. And that means that many resources and headcounts are released. And what we try currently to build a kind of an ecosystem to go into agreements with Amovio and Void. That means we have a kind of an open workplace where we partner with this company so that people get a direct access to our hiring department that we can say that we can do a matching between our capabilities we need and the capability the suppliers release and and this we have now good experience with them and there is a clear yes I think there will be two or three more Please understand that I cannot not talk about not yet to publish agreements because it's also, there are also negotiations, of course, with workers councils and so on ongoing. And before this is not done from the companies who have to release workforce, I cannot comment on that. There is a clear yes, we are working also with other companies on them so that we have a handful of these initiatives. Yeah, LUWES, I have to say it's maturing, but we cannot now give you more details. I think if this program comes, it is up to 12 aircrafts. We think that in total, it could be a single digit billion amount. And you have to understand that It depends a little bit on the configuration that approximately 50 to 60% are payload, which is then again, hands-on. And the duration is until the mid of the 2030s. So this is currently the frame numbers we can talk about, but the rest is too early because now we go into the request for proposal phase. And then there will be some negotiations. Then the industrial structure has to be shaped. And there are also other players in the market who are keen on that. And then the customer will decide which setup, which industrial setup and who is the preferred partner for that. But I see also out of our Pegasus program, where we are now in the final year before we deliver next year, we are in a very good position.

Okay, very clear, thank you. Thanks.

The next question comes from Afonso Sorio with Barclays. Please go ahead.

Hello, yes, thank you. I just have one. Please, on the cash flow, Christian, given the strong order intake in Q1, I would suspect that it would have come nicely through your cash flow this quarter. So can you explain a little bit about on the prepayments rate in Q1 and how you expect it to evolve over the course of this year? And then as a follow-up to that, and thank you for the explanation on waivers. What's baked into your guidance for 2026 in terms of order intake from that contract? Because it's a massive range. You can go to several hundred million to a billion plus. So just wondering what's factored into the guidance and if there's upside to that. Thank you.

Yeah, thanks for your question. So first, we have gained approximately 170 million of advanced payments, which is approximately 11% of order intake. Last 12 months is approximately 15% of order intake. So you see that Q1 was rather weak in a percentage comparison. And this is due to the fact that you can build now into your models approximately 15% of the order intake is an advanced payment. But it's not structural in each and every program. And it's not structurally each and every program the same amount. So we have programs where we reach up to 50%, 60%. With others, we do not get it once. But on a total full-year order intake figure, this 15% is a good figure to model with. So this is the first answer. The second, Lubes, we have only included a study which is minor, which is a small double-digit amount. I have to say, I do not think that the order will be done for this year. It will be early next year. But if it comes and if we win, it will be significant. And then we will give also some update on how this impacts our guidance.

Very clear. Thank you very much.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Tim Smith for any closing remarks.

Yeah, so with that, thank you all for listening. And as always, should you have any further questions, our team is around all day to follow up. With that, have a great day. Thank you and goodbye.