Gabler Group AG (XK4) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to the last event of the first Deutsche Boerse Scale Summit. My name is Ingmar Grapenbrade, and I'm very pleased to welcome you on behalf of Deutsche Boerse. This new format brings together investors and high-growth scale issuers to enable a direct exchange on strategies, positioning, and investment stories. The company's presentation will last 20 minutes and will be followed by a 10-minute Q&A session, and we warmly encourage all participants to actively participate in the discussion. We are pleased to welcome Gabler Group AG represented by CEO, David Schirm, who will guide us through the company's presentation. And having said this, I hand over to you, Mr. Schirm.

Thanks a lot, and a warm welcome from my side as well. Talking about a warm welcome, I think, for everybody in Germany or Central Europe. It's literally speaking [indiscernible]. I hope I can -- yes, have the -- as the last slot, keep you excited on the Gabler Group presentation. And yes, give you an insight to whomever I don't see all the participants right now, whether you are already a fan or an investor or a deep know-how about Gabler Group. However, looking forward to also get the question -- answer your questions and having a great last event. Starting with the Gabler Group, what it's all about. The Gabler Group, to explain the Gabler Group, its portfolio, its strength, I usually take this picture because it just shows we are the ones that are enabling critical subsea missions in all kind of aspects temporarily, and we all know the geographical constraints and situation, of course, pretty much defense driven. What do we mean by enabling critical subsea missions? On the one hand side, on the business area, Submarine Systems, we are the one supplying Submarine Systems like hoistable masts, radar machines, and enabling the -- like the eyes of the submarine, but also for autonomous vehicles, AUVs or UUVs. On the other hand side, we are connecting all kind of participants within the ocean, assets within the ocean, because we are the company providing underwater network, underwater communication skills and data management of those data. And finally, we are also the company providing power. All the assets, everything, all kind of data management, all kind of communication that we are doing, we need power. Also, the AUVs, the UUVs, the unmanned and autonomous underwater vehicles, they need power, and this is also the technology we are providing. Putting all this together, we are delivering the critical-subsea mission technologies, as said, the Submarine Systems, Subsea Comms & Data, and power. Our company is on a track since 1962, and I will give you some highlights after introducing, of course, myself and Ole Johannsen, who unfortunately cannot participate today. He's on his flight to Korea, and he's doing what the CEO should do. He's on the way to a huge customer from our side. My name is David Schirm. I'm the CEO, having nearly 20 years of experience in different management roles, different management position. I'm with Gabler for over 10 years now in the management position, and I would say the architect of the today's structure and group of Gabler Group transforming from the Gabler Maschinenbau into the Gabler Group nowadays, making the IPO and now, of course, accountant and in charge of making the huge next steps to the success of the future. As mentioned, Gabler Maschinenbau, so the original company has been established in 1962. So over 60 years of experience. Specifically, as you may know, in the field of defense, it's really something that is necessary to have the credibility. There are many, many smaller companies, a lot of start-ups now coming up in this area. And there's simply question normally been asked from the procurement arms of the navies, whether you are able to support and maintain the supply chain for the next 25 years and then some smaller companies start struggling. So we have the credibility. We have all the navies we are allowed to serve. We have them as a client. We allowed to serve that is meant by, of course, German export control law. We equipped over 185 submarines. That's a huge number for those knowing the -- or not knowing the submarine business, specifically because this is the backbone in terms of like bread and butter business from the Gabler Group in the Submarine Systems because the submarine normally between -- sorry, 30 to 60 years of a life cycle. So and -- to equip the submarine once, you are the one in like a monopole actually, who is then serving spare parts, maintenance, refits, upgrades, et cetera. End of '25, we had an order backlog of close to EUR 360 million divided into soft order backlog and fixed order backlog. I will give you some additional information on it on the other slides. We made a revenue pro forma last year of EUR 62 million and an adjusted EBIT of EUR 25 million. The adjustment is only linked to the situation that we are in German GAAP and not in IFRS. And because we also did M&A, so we have the goodwill, and that is a bit different treated from German GAAP to IFRS. In German GAAP, it's above the EBIT, in IFRS below, and this is what we adjusted, nothing else. The organic revenue growth rate, '24 to '25 was over 30% and also from '23 to '24 already was close to 30%. So a strong growth over the past years and an adjusted EBIT margin of 28%. So established in the market, highly profitable, strong growth, a strong momentum, tailwinds, of course, from the situations on the global -- on the globe in terms of geopolitical tensions. As mentioned, the business areas we are in, the Submarine Systems, that's where it all started with and still the biggest part in terms of revenue, having close to 70% in shares. The Subsea Comms & Data, about 11% in '25 and the Subsea Power of 20%. If we just look a bit to the future also on mid-term, we will see that this might change a bit. So the Submarine System will a bit drop. That is only due to the fact that the Submarine System is not like a scalable model like Subsea Comms & Data and Subsea Power due to the fact that we are pretty much linked to the number of submarines in the world on the one hand side. On the other hand side, the speed of the shipyards we are serving with our systems. And you might be aware, even if a shipyard today is building 1 sub a year, even if they can make it to 2 subs a year, that's not a dramatic growth in terms of quantity for us in that case. What are the concrete products? And I was just showing right at the beginning, the big picture, so to say. If we look into the Submarine Systems, it's all about everything outside of the pressure hull. And this makes it highly complex. And this is also why there are in terms of competition, we actually have only one huge competitor. It's L3Harris Calzoni from the U.S./Italy, and there's a minor one called MacTaggart Scott. So high hurdles, boundaries to step into this market. And to create those masts, you have to be, on the one hand side, aware of salty water. You're in the water, it has to be pressure tight, long-lasting over a couple of years because it's really mission-critical for the crew because all the little sensors or even the bigger sensors, of course, they need to be raised to keep the submarine unseen and in a low signature. And that's also the other challenge we have. The submarine is existing because nobody can detect it. And so do we. So even our parts, they need to be high silent. And even if we have a mast in the water column, that shouldn't be created any wake and wash. And so many, many things that we have to consider in creating that kind of parts. And finally, also electromagnetic needs to be considered and also like the shock. So if we have sea mines or something, been exploding around, even then this mast have to work. So this is why it's not just a mast. This is why it's really a high-tech product. Beside the mast systems, we have radar machines, the actuators, snorkel flaps, and many, many more outer pressure hull laying pressure tight components so that the amount of the entire shares we can generate per sub is roughly about 30 million. The mast system itself because the question that is frequently asked a mast system in average is about EUR 1.5 million in newbuild. Talk -- or have been talking about the backbone of the installed base. Also to give you an idea, there are specific defined refit programs, each 7 years. There's a huge refit. So the entire sub is into the dock and needs to be refurbished to keep the system running and to make sure that no risks, of course. That means for us, we get back all the systems. We are sandblasting them, disassembling them, and really like renew the entire system, and that's worth 60% to 70% of a newbuild price to give you an idea. Stepping to the Subsea Communication. Here, everything is about the data, to generate the data from the sea floor. Our company in the background is Develogic for this business area. The company also since -- for 25 years on the market, having started in the 2000s or '90s with a lot of ocean science. But of course, over the past 10 years, I would say, totally transformed into a defense model. And this is specifically because of generating acoustic data profiles to check different acoustic profiles and compare it and yes, actually define any kind of threats or enemies around. And the product in the background is the Modular Seafloor Lander you see below in the middle and Sonartransponder. So actually, we are providing the ears of the subsea areas. And just one application, for example, because it's the German Navy, they have 10 of them for the beginning. And what they can do with those platforms is creating an adhoc network. It's called Baltic Barriers. So wherever in the Baltic Sea, they just drop those kind of lander systems for a while, they get connected, they're recording whatever is happening above them, and they can immediately define any kind of moving parameters from subs from normally from -- coming from the east side of the Baltic Sea. And, of course, this is something not only in the Baltic Sea, also navies from North Sea, Atlantic, et cetera, Mediterranean Sea are customers on our side. Coming finally to the Subsea Power. Here is everything as the name said, with regards to the power solutions. On the one hand side, part of the business is maximum driven by the amount of AUVs and UUVs in the ocean, and that's an exploding number of developers and quantities we have because they become an even more relevant aspect in terms of doing surveillance and doing monitoring for pipelines, submarine cables, not only because of the conditions of those, but also in terms of being aware who is probably manipulating my infrastructure. And here, we're delivering the battery systems. Here, we are in competition, for example, with Kraken Robotics, I guess, well known also from your side. On the other hand side, we have energy storage systems, originally developed together with an oil and gas customer for an energy backup system in deep sea, 1,200 meters gas field, equipped with 3 submarine cables in order to make this field working. But of course, it's an aging cable. It could always happen that suddenly the power is broken for just a second, but it's enough to totally ramp down a gas field and make it out of production for the next 10 days. So they are really, really wanting to have a backup system right there. So we created the only worldwide available 1 megawatt hour energy storage systems. This is now something we are pushing into the market. And now it's not only the condition of a submarine cable anymore, for example, now being highly asked from the Middle East countries, Saudi Arabia, Abu Dhabi, Dubai, et cetera, they are absolutely willing also to have this kind of backup system to preventing from manipulation of submarine cables. We all know this topic from Baltic Sea, for example, those shadow fleets and pulling or putting the anchor on the seabed can create a lot of damage, and it will just shut down all kind of gas or oil production for that case. So this is where we can use it not only now for the original idea, backing up an older system, it's also now for securing. And the last point, what we are also working on and is existing technology. It's about everything what I'm telling is existing and in-market technology. It's about the inductive charging of AUVs and UUVs. Everybody nowadays, it feels like is creating, developing new underwater vehicles. Not too many so far, but we do, are caring about how to operate that kind of fleet. And having like a swarm of 100 AUVs, you will never be able to manage it with human hands, pulling it out of the water for charging it again, pulling it back or throwing it back in the water. So what we have is this inductive charging together with a partner, having a mobile energy system like this. So the AUV can just land on top of it, gets recharged and you have a 24/7 availability [besides the charging time], but the system will do its job and have a continuous surveillance of like harbors, of coastlines, whatever needs to be surveyed autonomously. As mentioned, all the navies we are allowed to work with, we are working with. We, of course, have a lot of industrial partners as well. It's on the one hand side, the navies, specifically for the aftersale market. And for the newbuild market, it's typically the shipyards we are working with, like, we all know TKMS, BAE System, Fincantieri, Hanwha, MDL in India, whomever. So the big ones, well known. And on the industrial side, whether it's Chevron, Saab, JFD, Schlumberger, Equinor, a lot of the big names are in our customer base. The revenue is mainly -- or not -- yes, mainly created in Europe. It's also a driver what we currently feel in terms of defense. It's -- the headline is Europe sovereignty. So even the European customers, they want even more European products and be a bit more independent from the U.S., of course, from [ BRICS ] as well, but this is a story that has lasted for longer already. Then we have Asia with roughly 40% and others, the 10% is mainly the South America, and that is due to the fact on the submarine side in the aftersale that after 30 years, normally, the subs of the western fleets, they normally get reactivated for a second life, and that is normally happening in South America, whether it's Peru or Chile or Argentina and countries like this. We are a clear defense company having 76% of defense business. And, of course, that was '25. It will grow in '26 as well due to the current situation. But nevertheless, we have a specific part also in civil, where we have some innovation topics. I'm just reading on the side, [ Mr. Heiner ], thanks for your question. Subsea7 is also a customer. It's not a competitor. And the list you see here is not a 100% list, absolutely not. So it's only like taking out the big ones we are serving, but we can -- or we totally have an active customer base of 250 customers, and there are a lot more in there. Hope that was answering your question. So coming to some of the key figures for the more financial part of the participants. Fixed order backlog, we are differentiating, as mentioned, in soft order backlog and fixed order backlog. So end of last year, we had EUR 90 million of fixed order backlog. No framework agreements or nothing really contract that needs to be delivered within specifically now '26 and a bit of '27 and the soft order backlog of EUR 270 million roughly. That is defined by our internal definition on a probability higher 50%. It's written on the right side of the slide as well. And that is when we know the competition landscape, we know we are 100% aligned to any kind of specifications, technical, and commercial specifications. And if we, for example, are asked for a refit on a, let's take the German sub because our home navy, that is immediately a level on -- just have to get rid of this -- it's a level of like 80% we're saying because there's no one else who can do it. There is a budget defined and it's only a matter of time when we get the order and getting the order, then it will go directly into the fixed order backlog. About the Q1 figures in that perspective, I also have some figures coming up with perspective to the time. I'm just rushing a bit through. Net sales development, that is, yes, as mentioned and as I said, the key highlights, a huge growth over the last years, 26% '23 to '24 and 34% now from '24 to '25. The dotted line is just mentioned because we took over SubCtech in '25. So we wanted to make it a bit in comparison to '24, but the growth rate is totally organic without SubCtech included. Our mid-term target is to achieve an annual net sales of over EUR 100 million, and this is also purely organically driven. Everything that we will do on top by acquiring companies, still part of our philosophy and strategy will come on top. On the EBIT side, same perspective here, we are able from '23 coming from an adjusted EBIT margin from 10.3%, we were able to increase over the years up to 28.2%. And seeing the company in these strong business areas, as mentioned, and in the market like it is, I'm pretty confident in having a company that is able to sustain a level of 20% to 30% of EBIT margin. Taking this wider range, why is that is, because, of course, we might have some short-term invests or OpEx as well by establishing -- and this is part of our strategy, establishing a worldwide sales network, for example. And this is, of course, something we will see on a short term, but mid-term, we can sustain that level. The CapEx, having a look here as well, we are a CapEx-light business. The roots being like this is like 6, 7 years ago when I started to transform our supply chain as well. And having the years before a quite high internal value creation, we outsourced specifically things we didn't see as a core, and that is more about the manufacturing of single parts. And what we see as a core is the assembly, the engineering and the testing, and that is where we concentrate on, but this is something where we don't need a huge CapEx as well. What has been reached in Q1 already, I think the most important thing is that we were able already to establish sales in the U.S. and Canada, we will -- in Q3, the latest, we will give you some information about the status on establishing our own U.S. company and also Canada company. We are on a good track to hire the sales manager as we wanted. The order backlog, you might have in mind, still in mind the EUR 359 million. It has been increased to EUR 377 million roughly. So it's still growing, and we will give you some information about bigger contracts we signed still in June, but I do not say more right now, but we will inform you accordingly via the existing processes or channels. And on the product side as well, everything that we wanted to do to improve our product baseline and the product portfolio, we are fully on track with everything. Total order backlog, we talked about expected H1. That is what I communicated in the Q1 call as well. We see EUR 24 million. That is for those who are not that aware about the Gabler business already. We are second half back loaded. That is due to the projects we have. It's pretty much driven by governmental arms we are working with. They have a lot of deadlines in November, December. We are not even able to deliver beforehand. And this is why we have always a bit weaker first half. Net cash, that is Q1 is EUR 38 million. So ready to invest and ready to invest organically like -- and organically. With regards to the guidance I gave net sales for '26 for the group, we say EUR 69 million to EUR 71 million, and we will deliver adjusted EBIT between EUR 17 million and EUR 19 million. So you see slightly below the adjusted EBIT of EUR 25 million, but due to the fact I've mentioned, of course, we are investing and hiring and creating a new sales structure worldwide is not from the first day on profiting or creating order intake/sales. This is why we are a bit dropping for the '26 figures. The business areas, we are in the same level of 70% Submarine Systems that in pushing the sales and the EBIT in Subsea Power still with 18% and Subsea Comms & Data. That's the guidance we have right here. As mentioned, mid-term business area targets, we see submarine more on 55%, Subsea Power increasing to 30%, and the Subsea Comms & Data to 15%. Having said this, I'm pretty much on time, I'm wondering. It worked out. So any...

No, pretty much on time if you name the 26 minutes instead of what I [indiscernible], but anyhow, we now move on to the Q&A session and every participant is invited to raise their hand, so I can allow to speak to us or we have a written question in the chat box. You might see that as well, Mr. Schirm, and you can refer to that.

I will do. So the answer here. So we've -- it's totally different from business area to business area. So the competitive landscape on the submarine side in the newbuild, it's L3Harris mainly. So there's only one. It's like a legal pole for us. And it's not seen in the last 10 years, and I'm not seeing it somewhere on the horizon that another competitor will come up. So that is really a great setup, specifically in the aftersale market where we're in the monopole. In the Comms & Data area, it is -- by Googling underwater communication, you will find a lot of companies saying, "I'm able to do so." Where we are specifically in is also in Europe and the German Navy. So we are in the pole position doing all kind of specific defense underwater communication for the German Navy and German Navy is leading in Europe. So this is why we have a specific position here as well, not openly -- not in the U.S. There we have customers, but it's not that we have a biggest share right there. In the submarine, in the Subsea Power area, there we have the competition with Kraken, as mentioned, on the AUV/UUV. On the ESS side, the big thing, 1 megawatt, there is really -- we are currently in a monopole. So there is no equivalent product in the world that will change definitely because people see what is happening there. But for now, we are in a great position.

And there was a follow-up from...

He is asking. So thanks a lot for the questions. I just need a second to read it.

I can read it out, if there's someone on the phone as well.

Yes. So Europe, of course, is a huge budget we have, specifically in Germany as well, as you know. We are, as I said, currently in entering -- it's already a market, but we want to work even more intensive on it is going into the U.S. That might seem a bit strange right now being a European country -- company wanted to go to the U.S. But the clear focus here is that L3Harris today has a monopole there. And everybody is complaining from the shipyard side and the Navy side because it's a monopole. So it's quite easy to be a second source. So this is why we will pretty on short term together with a partner building up a fully certified local production to make our parts designed in Germany, but for ITAR, for that market and establish it in the U.S. And there, we see a huge positive impact on our growth story.