Hensoldt AG (HAG) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the analyst call regarding our results for the first 9 months of 2021. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Veronika Endres. Please go ahead.

Good afternoon, everybody, and a warm welcome to HENSOLDT's 9-month 2021 results call. Thank you for joining us today. My name is Veronika Endres and I'm Head of Investor Relations at HENSOLDT. With me today are our CEO, Thomas Muller; and our CFO, Axel Salzmann, who will guide you through this results call now before we will enter into the Q&A. And with that, please, Thomas, go ahead.

Yes. Thank you, Veronika. Dear ladies and gentlemen, a very warm welcome from my side here. And I'm really happy to have this call this afternoon. You will see in a couple of minutes why. And thank you very much for joining today's earnings call, in which we would like to present our results for the first 9 months of the year 2021. After short presentation, we are happy to answer your questions. Before our CFO, Axel Salzmann, is going to guide you through our strong financial performance in this first 9 months 2021, I would like to give you an update on our business and talk about current developments. Yes, ladies and gentlemen, I'm very pleased and proud to report that the strong growth momentum keeps continuing as supported and as indicated in our H1 analyst call. We achieved further strong order intake of around EUR 700 million in the third quarter and increased our order backlog to a new record level of slightly EUR 5.4 billion. We never experienced such a big order intake in the third quarter as today. Due to market-leading high-tech platform-independent solutions, we were successful in winning additional high-volume projects and further converting our pipeline into firm order intake. Worth mentioning is the order for mobile system for tactical radio reconnaissance to 2 NATO countries. A corresponding contract worth a high 2-digit million-euro amount has been signed in the last quarter. The system is used for monitoring and analyzing enemy radio traffic and is integrated into armored vehicles or designed to be portable so that troops can be supported directly in the center of operations and detect threats at an early stage. As already mentioned, in our last analyst call, together with ELTA, we will modernize the F-124 frigates, as well as the long-range air surveillance system as part of the ballistic missile defense in Germany with modern X-Band radars. These contracts have been finally booked in Q3. Our Optronics segment also contributed very nicely with a strong order intake in Q3 by booking a contract for the equipment of the German Norwegian U212 CD submarines. The design of the boat includes a twin optronic mast, which moves the program into a kind of breakthrough due to digital periscopes. This is something which is brand-new and pushes us to the next-generation periscopes, as one of the key leaders in tactical periscopes globally. Together with our strong baseline business, order intake in the first 9 months amounted to a total of EUR 2.8 billion, significantly up from the same period in 2020. Our state-of-the-art technology portfolio is and will be, in the future, cornerstone of HENSOLDT's business success and an important growth vector. We do not only master the next-generation technologies, but this is in our genes, we transform them into sustainable business. Let me mention just only 3 examples. In September, we launched at the DSEI exhibition in London, our new generation, compact, lightweight, AESA radar for naval applications called Quadome. This cyber-resilient, software-defined, and future-proofed air and surface surveillance radar boosts our product portfolio in the Sensors segment. It has an outstanding price/performance ratio and has been extremely well received in the market. Furthermore, it also further strengthens our South African entity. I'm also very proud to announce today that very recently, we have signed a significant contract for our Passive Radar TwInvis with an export customer. This is also a very important milestone, and it paves way for a number of applications of this groundbreaking technology, ranging from air defense to support of air traffic management. And you remember what I always said, this radar is the only one which can detect stealth fighters. There is a lot in the pipeline, and the pipeline is maturing on a daily basis, and we see the program contracts are coming in. At the same time, ladies and gentlemen, as you all know and unfortunately see the nature of warfare is changing. We see an increase in asymmetric and hybrid conflicts and the global cyber threat we are all experiencing on a daily basis. The acquisition of SAIL LABS, even by the way not big in size, but with exceptional skills and the formation of HENSOLDT Analytics, we have made an important step to complement our sensor portfolio with this open-source intelligence. We see great potential in the new types of intelligent systems that complement our existing sensors of the electric magnetic spectrum with additional digital data sources, and to create intelligence on an entirely new level of quality. Ladies and gentlemen, before I hand over to Axel for a more detailed look at our financials of the first 9 months, let me quickly summarize. HENSOLDT is fully on track. We continue to walk the talk and deliver on our guidance. We continue to benefit on the growth momentum in the defense electronics sector, remember, I always said, we enter into a large cycle in this sector. And we further expanded our position in German and European -- let me repeat, especially European key programs. And if you allow me a very personal statement, as the CEO of HENSOLDT, I am especially proud that our order backlog is at a record level at EUR 5.4 billion at 9 months 2021. Our revenues will grow by around 24% from fiscal year 2020. Our adjusted EBITDA will grow by 14% in absolute terms, and we deleveraged our company due to our strong cash generation. We walk the talk. We deliver on our guideline, and I always say, the best is still to come. And I know this, I want to remind community, tomorrow, we will run our first Capital Markets Day, which will be held at our site in Ulm, but also virtually. It's not too late to join the event. If you want to get a more in-depth look at the state of affairs at HENSOLDT, our growth strategy and ESG ambition, please contact our IR department, Veronika Endres, and we will make sure to get an invite. And with this, I hand over to Axel Salzmann, our CFO. Thank you.

Yes. Thank you, Thomas. Also a warm welcome to this results call of HENSOLDT from my side. I'm pleased to provide you with the details on our financials for the first 9 months 2021. Overall, we have again managed a sustainable growth in our top line. After our successful first half year, with the most notable the PEGASUS contract and an additional order for the Eurofighter Quadriga program, we were again able to secure a number of big orders in the third quarter. Amongst others, we have booked contracts for delivery of long-range radars for the German airspace surveillance, the modernization of F-124 frigates, and for the equipment of the German Norwegian U212 CD submarines with twin optronic mast. As you can see, our pipeline further transformed into order intake. In total, orders summed up to more than EUR 2.8 billion and thereby increased our order intake by 41% compared to the first 9 months 2020. This results in a book-to-bill ratio of 3.3x. That again strengthened our excellent revenue visibility. Revenues are also growing nicely and increased by 19% to EUR 850 million in the first 9 months. This is due to the sustainable growth in both segments, most notably, of course, through key programs which develop as planned. All this results again in the firm order backlog at record levels. At the end of the 9 months of the year 2021, our order backlog was at EUR 5.4 billion and thereby nearly EUR 2 billion higher compared to the first 9 months 2020. This covers more than 3.5x our guided revenues for 2021. Overall, our bottom line follows the top line development and progressed well. Adjusted EBITDA increased to EUR 110 million and adjusted EBIT comes up with EUR 67 million. Relative profitability slightly decreased, which is clearly related to the lower project margins for past group revenues. In addition, we further invested in research and development and increased the budget to ensure future growth. For 9 months 2021, the adjusted pre-tax unlevered free cash flow is EUR 48 million. This is mainly driven by a planned investment into working capital, especially in inventory to prepare our strong revenue increase in Q4. To remind you, this reflects the typical cause of our business which is very much weighted to the second half of the year. We are fully on track for 2021 and will deliver all KPIs. In terms of order backlog, we will see an increase of EUR 1.8 billion in comparison to 2020 and a book-to-bill of 2.2x. This is a further increase in comparison to 2020 and slightly better than guided. Our revenues will be around EUR 1.5 billion. This reflects a 24% increase compared to 2020. Adjusted EBITDA margin, excluding pass-through revenues, will be above 18% and are also slightly better than guided. We confirm our expectation on adjusted pre-tax unlevered free cash flow. Net leverage will be around 2x and also slightly better than guided. We will stick to our guidance of up to 20% of adjusted net income. And further, we confirm short/medium-term guidance for this year will be presented in our full year 2021 preliminary call in February 2022. Coming to a conclusion, let me mention the following key financial takeaways. In terms of visibility, we see that soft order backlog mature and a high revenue coverage from firm order backlog. Our strong top line growth of plus 24% in revenue terms reflects a step change in growth momentum and a significant development in order intake and revenues. Profitability stays on a high level and combined by the gross profit increase, which enables further sustainable investments in the budget and R&D, and the growth in absolute bottom line margin continues. Liquidity of the company is in a good shape, reflected by a strong operating cash generation, our deleveraging, which developed according to plan. Our outlook is promising since that. Short and medium guidance is confirmed for all KPIs, and we stick to our dividend guidance of up to 20% of adjusted net income. And now we are happy to take your questions.

[Operator Instructions] As we have no questions in the line, I would like to hand back to Mrs. Endres for some closing remarks.

Ladies and gentlemen, thank you for listening today, and we are looking very much forward to welcoming you to HENSOLDT's first Capital Markets Day tomorrow. And in case you have not registered by now, just reach out, and we will provide you with the respective guidelines. And as usual, should you have any further questions, the Investor Relations team is happy to follow up by e-mail or via phone. And with that, have a great day. Thank you, all. Goodbye.

Bye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.