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.