Mtu Aero Engines Hldgs Ag

Good morning, ladies and gentlemen. Welcome to our conference call for MTU's Q3 2023 results. As usual, we start with a review and some key messages presented by Lars. Peter will start with a look on overall financials and more details on our OEM and MRO segment. Lars will continue with some thoughts on the 2023 guidance and a more general outlook. This will end the presentation part and we will open the call for questions. Let me now hand over to Lars for the review.

Okay, thank you, Thomas, and also welcome from my side. Good to have you with us. As usual, let me start with the market environment. Passenger traffic improved to 96% of 2019 levels. Within that, domestic traffic exceeded pre-COVID levels already by 9%, whereas international traffic recovered to roughly 88%. Cargo flights remained robust with, as it is currently, 27% above 2019 level. This is despite a moderate gradual downward trend as cargo airlines slowly reduced capacity to take weaker demands into account. I would like to also give you a brief update about the GTF inspection program. As you heard and as discussed in early September, RTX has announced an enhanced GTF inspection program On this Tuesday, RTX provided further updates at their Q3 results release and confirmed the expectations of the impact operationally as well as financially. Further information has also been provided on the impact on other fleets, such as the smaller GTF variant as well as the V25. While these fleets might also be challenged with life limits to be applied on certain components, there will be only minor effects. on the operational and financial side from these programs. Key focus, and that's clear of all GTF partners, remains on limiting the impact on our airline customers. We are working very closely together with Pratt & Whitney to increase MRO capacity and to find intelligent and smart solutions to manage the shop visits and work scopes in the best possible way. Defining factors for the program remain the ability to speed up turnaround times and ensure the availability of spare parts. Increasing GTF MRO capacity at MTU and at other MRO sites is still under review. We are working on all areas like shifting non-GTF MRO work from, for example, our Hanover facility to other MTU MRO shops, as well as accelerating the ramp up at our EME Aero facility. In Q3 2023 numbers, we have reflected the current knowledge in our results. The encouraging market trends support the positive developments in all our business segments. This is well in line with the assumptions we made as we reiterated our guidance on adjusted numbers. Another topic, a four-year technology contract with the German government was signed for the FKS program. This includes the official order for additional technology studies for the demonstrator phase 1B. These span from prototype production of hybrid Titan Blisk to, for example, a new test cell concept for low and high pressure compressors. Also interesting news on the technology side, MTU's flying fuel cell concept was selected as one of three fuel cell concepts evaluated by Clean Aviation. MTU will take the lead in a new clean aviation research project, which is named Hydrogen Electronic Zero Emission Propulsion System, or in short, we call it EROPS. The program is funded with 30 million euros by the European Union. Together with our partners, the aim is to develop a flying fuel cell ground demonstrator within the next three years, which is capable of powering a 70-seater regional jet. This again reflects MTU's ongoing commitment to provide solution for emission-free flying. Let me now hand over to Peter for the financials. Yes, thank you, Lars, and also a warm welcome from my side. In our nine-month financial highlights, we present MTU's clean performance without the impact from powder metal. I will dive into the details on this topic on the next chart. In the first nine months, 2023, adjusted group revenues increased 21% to 4.6 billion euros. This growth was supported by all business segments as expected. In US dollar terms, revenue were up 23%. EBIT adjusted increased 33% to almost 600 billion euros, residing in an EBIT margin of 13%. Net income adjusted was up 37% to 438 billion euros. The free cash flow of 25.7 billion euros up 70% reflects a strong cash collection in the third quarter. Before we move on to our segments, let me guide you through the financial impact of the GTF inspection program, significantly burdening our reported key figures. The GTF inspection program has a significant impact on reported revenue and EBIT numbers. MTU has to share obligations for expected customer support costs as well as for expenses for additional MRO efforts. The largest effect results from a revenue reducing buildup of refund liabilities for MTU's expected share of customer support costs amounting to 961 million US dollars. The second effect results from sharing expected additional MRO efforts estimated at roughly 1.5 billion U.S. dollars for 100% of the program. These MRO efforts burdens MTO's profit share in the program's aftermarket contracts. And this results as a consequence in the need for a revenue effective buildup of corresponding refund liabilities by 52 million U.S. dollars and a small cost of goods sold effective devaluation of corresponding inventories by $17 million. The remaining charge for MTU from these expected additional MO efforts will be recognized when we recognize future profit shares from respective program aftermarket contracts. All in all, this results in a total impact on revenues and EBIT of slightly above $1 billion. On reported numbers, This leads to a revenue of 3.65 billion Euro for the first nine months of 2023 with a negative EBIT of 410 million Euros. The detailed reconciliation from reported to adjusted figures, including all items can be seen in the appendix as usual. So having said that, let's jump into the segments. And let me start with the OEM segment. Total adjusted OEM revenues increased 26% to roughly 1.6 billion Euros. Military business was up 19% to 367 million euros, representing a very strong third quarter in line with our full year expectations, especially driven by TP400 and the RB199 aftermarket. Adjusted commercial business revenues rose 29% to 1.2 billion, and within that, organic OE revenues were up in the 30% range, which is in line with our full year expectations. That was driven by a higher installed number of GTF, GenX, and business jet engines. Further, a slightly increased IGT output was supportive. On a quarterly basis, OE sales were also up roughly 30%. Organic spare part sales in dollars were up in the 20% range, driven by growth in all platforms, in particular, white bodies such as the CF6, GenX, GP7000, and also the PW2000. On a quarterly basis, spare part sales were up in the high teens range. So very similar. The overall favorable business mix, lower general cost, and the supportive FX rate resulted in EBIT adjusted of 374 million euros with a margin improvement to 23.6% for the nine months. Margin in Q3 was a bit weaker than the first half of the year following Cost impacts like salary increases in Germany starting in June and a higher share of installed engine deliveries in the quarter. So turning the page and let's move to the commercial MRO segment. Reported MRO revenues came in 18% up to the level of 3.1 billion euros. Dollar revenues were up 20% and all engine platforms saw solid demand. while the GTF MRO growth was mainly driven by a further ramp up at NTU Shuhai and EME Aero. Within the revenues, the GTF MRO share was roughly 35%. EBITDA trust has increased by 14% to 223 million euros, resulting in a margin of 7.2%. GTF share of revenue was in line with expectations, while the work scopes turn out to be less dilutive to margins compared to expectations. The mix of contracts and work scopes in the independent business was very profitable in the quarter. So at this point, I would like to hand back to Lars for some words on our guidance for 2023. All right, Peter, thank you. Well done. As already mentioned at the beginning of our presentation, we are once again confirming our guidance today on adjusted numbers. Based on the current FX environment, we expect revenues to reach the upper end of our 6.1 to 6.3 billion euro range. Growth rates within the business segments remain unchanged. Even adjusted should be slightly above 800 million euros, and free cash flow should slightly exceed previous year's levels of 326 million euros. Before we end here, let me say some words on the overall situation. beyond the dominating headline around the inspection program. As you can see and you know, there's a lot going on and a lot to like at MTU. The core of MTU and of our businesses is in tremendous shape. All business segments are performing smoothly. The positioning in new programs while having mature engines in the best phase of their lives gives us confidence that we are greatly positioned to work through the current challenges. At the same time, we contribute to technological solutions for the future of aviation. We will continue to benefit from the bright, long-term outlook in our industry. Of course, don't get me wrong, the current challenges are tough and we need to work through them. But we believe in the fundamental strengths of our company and the great future that lies ahead of us. We have a very strong and motivated management and workforce that works hard to justify the trust set in MTU. That was important for me and us with this. Thank you very much for attention.

And we're now ready to answer your questions.