Montana Aerospace AG (AERO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Popi, your Chorus Call operator. Welcome and thank you for joining the Montana Aerospace AG First Quarter 2024 Conference Call hosted by the co-CEO and CFO, Michael Pistauer; as well as by the co-CEO, Kai Arndt. [Operator Instructions] I would now like to turn the conference over to Michael Pistauer, Co-CEO and CFO of Montana Aerospace. Please go ahead.

Thank you very much, and a warm welcome from my side. Michael Pistauer, my name, Co-CEO and CFO of Montana Aerospace. I will guide you together with my colleague, Kai Arndt, Co-CEO of the company through today's earnings call for the first quarter 2024. We are very proud to present today's quarterly results and happy to answer then any questions after the presentation. Now let me directly jump into the key financial highlights of the first quarter 2024. And here you see that, again, we can proudly present the growth within the most crucial KPIs, so like net sales and EBITDA or net income. We'll start with net sales. Here, we have a growth in comparison to last year's first quarter of, again, double-digit, 12% to almost EUR 400 million for the first quarter. And let me explain it like this. We had to grow exactly at the right areas exactly there where we wanted it. And this is the reason when you have a look at the adjusted EBITDA, while we grew over proportionately on the adjusted EBITDA. Strong growth came, as you will see later in the details in the segments Aerospace, mainly followed by Energy and these are areas where over-proportional EBITDA is also [indiscernible] ending the first quarter with EUR 38.2 million adjusted EBITDA, while reflecting a growth of over 60% on a year-on-year change. Very proud and recording also our guidance the positive net income. We guided for 2024 on a positive income for the total year. But we show in comparison to last year also in the first quarter. And this [ EUR 2.7 million ] is a growth in comparison to the negative net income in 2023. CapEx spend, more or less the same, I would say, level of what we had last year, absolutely in line with our guidance and internal plans for 2024. As said besides the capacity extension in energy, all major CapEx projects are finished or closed even the ramp up or are already in the production phase and the serial production and therefore, [indiscernible] in comparison to the last year's a much lower CapEx has resulted, which is sustainable capital maintenance and as said, expansion in the Energy segment. Trade Working Capital, please note that trade working capital total assets, net debt as shown here on this slide are always compared to the last quarter 2023. Yes, there is an increase in the trade working capital to a level of EUR 346 million. But if you compare it to the first quarter 2023, the amount was EUR 391 million. You see what we guided that since the year 2022, we gradually continuously reduce the trade working capital and streamline it to a more normal level in the different segments where we think that we have to finalize everything -- to find the right levels by the end of the year 2024 and gradually develop in the right direction. Total assets also the same picture, more or less the same amount, but in comparison to last year, together refinancing the structure of the balance sheet. We reduced approximately EUR 200 million of total assets, balance sheet, some less debt to be fair. And in comparison to last year's first quarter, which was at the level of EUR 2.220 billion. We ceded around EUR 200 million total assets were reduced. The net debt position slightly increased in comparison to last quarter 2023. So last year's final numbers that we had some, I would say, optimization programs in place by the end of the year in comparison to -- last year's first quarter, the net debt was those days, EUR 391 million. We see the positive cash flow over 12 years [ run in ] time but with now a net debt of EUR 322 million. So therefore, we reduced on a year-to-year basis, around EUR 70 million on net debt position, reflecting the positive cash flow structure of our business in general and also this year in the numbers in detail. Free cash flow; yes, we had a very negative free cash flow in 2023 due to optimization topics which were taking place in the end of 2022. As said although some of it was taking place at the end of 2023. Therefore, a negative free cash flow for the first quarter, which will level out over the next quarters to come to end up with -- as our guidance is clearly indicating a positive free cash flow for the total year, which was already positive also in the last year 2023, but on a higher level than we expected for 2024. Let me shortly show the total numbers in the, I would say, time row on the comparison on a year-to-year basis here, the growth plan of Montana Aerospace as a Group. Clearly it's seen we grew net sales over the last three years to four years, 134%, another 12% in the last year comparison and what is more important and what we are really proud of and what we always guided is with every single euro sales, additionally, we over-proportionately feel not only our capacities, but earn more EBITDA. And therefore, this is resulting in not only better margin level, but therefore, also in, I would say, over-proportionate growth of EBITDA, which was almost tripling in the last three, four years and over 60% growth in the last year in comparison to first quarter 2024. With that, I would like to hand over to Kai, giving you more details on the first segment, our most important and mainly the Aerostructures to give you some details and background and of development discussion on this segment with the customers and other [indiscernible]. Please, Kai.

Yeah. Good morning from Canton in Georgia. So you might know in Canton, we have the origin of the Aerostructures segment, and we are operating roughly 20 [indiscernible] this year. I hope the connection will be stable over the call. It's important that I'm here because I can see by hand what is the current demand coming from the suppliers who are delivering to the big OEMs. So here, we see on a day-to-day basis what is happening in terms of the demand from the big OEMs but also from the suppliers in the market. And I'm pretty sure some of your questions will be related to what we see in terms of the [ rate 727, 787 ] but even also for Airbus. So I will come back later to this one. We are starting in the Aerostructures segment with the picture, and you might say, well, okay, it's a bit boring and maybe not too sexy what you see here on the picture. But this picture, I think, explains in a very simple way what we think is our USP for the market. So every single structural part you see on the picture is built by us. So that means that we exclude every after the part, we machine every after part. We surface treatment every after part. And we also assemble then the complete floor structure for the A350 freighter. So that's the latest -- the big package we won, and we delivered in time to our dear customer Airbus Aerostructure. So this picture shows what we call the USP of Aerostructures. And what we think why we get more and more work packages like this into our company. So that's a real success story, and this is why I thought this picture is worth to show what we do and why we are successful in winning new packages. And based on this USP, also this year, we won some quite significant packages again. And this is why we saw that it's a good start for this presentation. What does it mean in terms of numbers? If we go to the next page, definitely, you see the good development in the Aerostructures segment. We are proud that we are in line with our strategy, even though the times are really challenging and giving us some headaches in terms of what is coming from the big OEMs in terms of rate. And it's not the demand I'm focusing on. It's more the volatility of information you get -- so it's very unstable and the communication about what is really demanded over the year is not really concrete and that's giving us some headaches. I will also come to it a little bit later. You see the year-on-year development, as mentioned by Mr. Pistauer already. So the growth in net sales is in line with what we guided. But even more important, you see the EBITDA development, and this is definitely based on the volume. If the volume is kicking in, you see that our industrial model is delivering. So the performance in terms of what we deliver is quite significantly good. Unfortunately, as mentioned, with the rate development in the market, we definitely see that in the second quarter and maybe also across the year, we don't see the big ramp-up in the 737. In the last call, we already mentioned that we were more conservative in our guidance. So it will not hit as hard as maybe others, but there will definitely also an impact on our side. What means impact, it means that in terms of net sales, currently, if we don't mitigate the impact, we see an impact of, let's say, EUR 30 million to EUR 60 million over the year in net sales. But as we are very diversified and we still have energy and also the automotive sector in our portfolio we definitely think that we can mitigate the impact on the EBITDA to a certain extent. So that's very good. But for the net sales, we definitely see a drop in terms of the demand from the big OEMs. This is what we will manage over the year, but I'm quite positive that we will find mitigation actions to overcome this impact. This is for me, short term. As I said, I think we are completely in line with our strategy and for investors, and I'm also an investor in our company. For me, mid- and long-term, we are definitely in good shape and in line with the strategy. And I also see for the next year to come with the additional packages we win that we will definitely stay in our guidance for the next year to come. So I think that's quite a positive outlook. I'm expecting some more questions in terms of the rate developments in the Q&A session. But for the moment, I think the numbers speaking for itself and definitely confirming and the testimony of our strategy. Thank you.

Let me continue with the other two segments but before we start with the other two segments we want to reiterate our mid-term and long-term strategies here to develop more and more into a pure-play Aerostructures. This is the emphasis we are relying on. Also we are very proud also of the other segments. And as you saw also the fastest growth, the most growth and the fastest over-proportional EBITDA is coming out of Aerostructures. E-mobility on a general blue sky, slight cloud, I would say. Yes, we had a not very strong Q1 in sales, also in comparison to the other quarters of the last years in terms of margin or EBITDA. However, to be fair, we also guided for this year to be a quite difficult year for E-mobility in general. And here, in comparison to our guidance and also our internal plan the first quarter was more or less in line with our net sales expectation and slightly but even what we expected considering the adjusted EBITDA. So we expect a slightly increasing and stronger market demand. We see it already in our order intake from the second quarter onwards and therefore, keep on also hear to guide concerning the profitability and the sales of E-mobility as guided in the previous sessions and discussions. The reason for the, I would say, slightly lower sales in comparison to the last year is mostly the weakness of our customer industries and the shift into the second and third quarter of the demand. E-mobility, we discussed energy constantly strong. We continue to produce what capacities allow. We increased stability capacities. This is also a good push out of the CapEx, which we showed. Why? Because the market demand is unbroken extremely high. And every single ton of production is already presold and sold. So the only constraint is the speed of the capacity increase which is taking place. And so therefore, you see also constant growth. Again, a growth of a very good quarter 2023 to an even better quarter 2024, not only in sales is plus near 6%, but mostly, again, also with the EBITDA with a 14% growth to a good level over 6% margin level or EUR 8 million, which we are quite proud of it. We expect the Energy segment to continue this path continuously also for the next quarters quite constantly. As said, with a very -- in the meantime, over the last year has developed very stable and reliable demand structure and the strong payment. Some KPIs of the company; operating cash flow as a cash flow, free cash flow negative in the first quarter 2024, as announced in the overview. Reason was some, I would say, optimization progress taking place in the last quarter 2023, which you see here on the slides. But as said also in comparison to what was in 2023, the first quarter, a highly positive impact so much positively developed, and we continue to guide also for free cash flow for the full year 2024 on a much higher level than what we have seen in 2023. Trade working capital, also as already explained, EUR 391 million in comparison 2023 -- reduced right now to a level of EUR 346 million. We continuously develop more streamline our trade working capital. Two topics around were behind it, the reasons behind it on the one topic is ramp-up is taking place. So the inventory is ready to be produced is produced. Therefore, reducing the trade working capital levers, better conditions also with customers and suppliers, but mainly also the other optimization of our own supply and this at the end results in a better portion [indiscernible] of trade working capital in comparison to sales. And very proud of it -- first quarter 2024 is the net income reflecting our clear guidance to be a very positive net income company. And the first step is done, obviously, with this quarter. Production performance, personnel expenses, other operating expenses was reflect the reasons why we have a proportional EBITDA growth. So in comparison to the performance or the sales we have under-proportional personnel expenses and all the other expenses, and therefore, they reside this positive net income. This in short term, and this is more or less the existing capacity. So every single euro or sales is resulting in an additional over-proportional growth of EBITDA. Therefore, we want to end the very short presentation, which we are very proud to present those, I think, very positive numbers with our iteration of the guidance in general tendency to more and more structure [indiscernible] in a pure-play Aerostructures company. 2024 numbers, around EUR 1.7 billion in total sales. Adjusted EBITDA continuously at this level of [ 180 ] plus a positive free cash flow on a full year basis, a positive net income continuously to be shown and also for the full year and the streamlining trade working capital, where we think we have reached a good portion at the end of the year 2024 for the different segments. Outlook as already Kai announced, yes, there are topics around in a very volatile discussion on build rates and the OEMs, but still for the mid-term and long-term, there is an extremely strong demand for airplanes. The backlog is enormous. There's a massive need, however, to build more planes. And therefore, we continuously also guide for around EUR 2 billion of total sales for 2025 and around above EUR 250 million adjusted EBITDA. Saying that, we would like to close the presentation part of this earnings call and over to the moderator, and we're happy to answer your questions.

[Operator Instructions] The first question comes from the line of Philip Buller with Berenberg.

Well done on the Q1. I've got three questions, please. The first one is for Kai. I fully understood on the 737 situation that comes with no surprise. But the comments, we're mentioning demand volatility from the big OEMs more generally. So I guess that would suggest it's not just the MAX. And I understand this is all temporary, but perhaps you can talk us through what you're seeing on the ground in recent months on the 787, the 777 and perhaps we could go through the same process in some of the key Airbus program as well. I guess it's helpful to understand what has got better or slightly harder on any program in particular, please? That's question one.

Yeah. Thanks for the question. And of course, this question is no surprise. Yeah, so what do we see? And as mentioned, sitting here in Canton, I'd like to give you some perspective what that means. So we are roughly 12 months before the parts are getting installed in the final assembly line or delivered into the final assembly line. So we definitely see what is going on in the [ demand ] market. And then there, the volatility is extreme. So there are some of the suppliers are still demanding on a, let's say, 40-plus rate for the next 12 to 18 months and some others are around 20%. So that's what we see a strong volatility in the market. And I think that's due to the fact that we don't have the clear communication to the supplier from the big OEMs, what is really expected. So what do we see in terms for this year because we are also machining on the [indiscernible] part and there we see the more recent demand. I think we see that we will end up with the average in the low 30s for the 737. We also announced that the 787 rate increase will not come as speed as announced a couple of months ago. So we also see an impact there. I think they guided in the -- for the full year [ 80 ], and now they reduced it to somehow [ 60 ] in terms of the deliveries. Deliveries do not mean that we have to deliver from our side. So deliveries mean really aircraft. And this is, of course, going along with inventory, how they manage the supply chain, how much inventory they build up. And I think in the Boeing call, you have seen how much inventory they build up already. And that means they want to stabilize the supply chain and they can only support this initiative. We need that. Otherwise, we will fail at the industry to do the ramp-up in 12, 18 months, and I'm pretty sure that it will come like this. And for Airbus, I think a different picture. So there's a stable rate increase. And this 320 is running like expected. For the moment, we also hear that there are some problems in the supply chain, which might cause some delivery delays in Airbus. But from the procurement side, we still see the demand as announced to us for the full year. So there is really a stable demand, except the wing areas where we deliver from ASCO, the wing movables. And also there, we saw a drop in terms of the demand for the full year. But overall, Airbus seems to be far more stable than Boeing. And I think that's also no surprise. You mentioned the other programs. And you saw on the first picture I showed in the presentation, A350, that's a A350 freighter. So there we see a steep increase in the demand, which is really good, and it's backing some of the -- or balancing some of the impact we see on the other programs. For the 787, we are mainly impacted in the U.S. for ASCO. But also there, we -- there is an increase, but it's not as fast as maybe announced before. So that's in terms of the rate what we see. And I think based on the fact that we control the complete supply chain from the very upfront end, I think we should have a very good overview what is really happening in the market. And this is also giving us the possibility to react and to manage our inventory on our side. So it's definitely a difficult time to manage with the OEMs, and we are more or less in day-to-day talks with them to see how we can manage the situation and to make sure that we see the demand, which is needed for the ramp-up.

Just a follow-up on that answer, if I may. Montana isn't the bottleneck. Is that correct? You're ebbing and flowing based on the demands of the OEMs who have bottlenecks in the wider supply chain as opposed to Montana being a bottleneck in some way more recently?

That's -- I think that's my most favorite question of the day because we received recently from Airbus, from Boeing, from the first-tier suppliers a recognition of our delivery performance. I think we are in all of the KPIs. We are definitely not the bottleneck. It's vice versa. So we are getting awards for our quality and also the delivery performance, and there is definitely no bottleneck in terms of what we deliver. And as I said, for the extrusion, there we see a quite different situation in terms of demand, but we are delivering to our customers, and that's also one of the aspects why we see also that is ending up in the financials.

And my second question related to that, I guess, is since the last update, it now looks increasingly likely or imminent that Spirit is going to be acquired by Boeing and a small part by Airbus. So how should we think about your competitive positioning in the medium term? Is this ultimately positive news from Montana in terms of the ability to win more work scope or an ability to look for preferable pricing or better contract terms? Or does it make it tougher in some way? Perhaps you can just talk us through the pros and cons of that development, specifically, please?

Yes. Also, thank you for that question. I definitely see it positive. We have a good relationship with Boeing, and we also have a good relationship with Spirit. And so if there will be this takeover, as mentioned by you, I definitely see that positive. And they -- that's clearly a sign that they want to more and more go into the direction to have really risk sharing partners. So the partnership for the ramp-up is key for them. And that's where we are coming into play. I think we are a reliable partner. We now have a big work statement with both OEMs, also with Airbus and for all of our work statements we are delivering. So that will give us a good position for future work packages. And in the discussion of the new, let's say, split between Airbus, Boeing and the different types, I definitely see that very positive. And I hope this will even strengthen our position.

That's great. And just finally, I appreciate. This is one for Michael. I expect -- I appreciate there's no rush on the portfolio simplification topic, but the comment in the press release about targeting to streamline the portfolio and embark on this journey of becoming a more pure-play aerospace company. I know that, that's been the vision for a little while. What's your current view on the financial market conditions for that simplification today?

There are 2 aspects. The first thing is that you see that by far, the strongest growth is out of the segment in Aerostructures. So therefore, by also these basic numbers, we simply develop more into the direction of Aerostructures and pure-play. Nevertheless, yes, all the announcements we did, I would say somewhere in the last year starting immediately also reflected in some, I would say, good feedback from potential interested parties whether it's over potential carve-out IPO, like we did it to ASTA already. Think about it. Energy segment, think about it. Also for the immobility. And this is something we definitely look at very detailed. Therefore, also we guide in this direction, as we say, for the midterm basis, we -- we think that we develop more and stronger into pure-play Aerostructures. So considering the detailed time line, we don't give any guidance. As you know, there is always some back and forth. But as we guided already in this direction, let me say it's something which is supposed to take more substance within the next 24 months.

That makes sense.

Maybe only one thing to add, Phil, is concerning the topic of Spirit and Airbus, I would like to honor and Boeing, I only want to add that right now already, as mentioned in the last earnings call, we do have quite some effort and also some costs implied to secure our position and I would say, our receivables and inventory for Spirit. So therefore, if there is a more stronger partnership between Spirit and, for instance, Boeing, or even a takeover, it also would help us financially immediately.

The next question comes from the line of Carlos Iranzo Peris with Bank of America.

I actually have to -- the first one is on E-mobility. If you can provide some color on what has been limiting growth on E-mobility through the last 2, 3 quarters, and especially in Q1 '24? I'm following up on this one, how should we think about growth for the next 3 quarters of the year? Because we really need to see a material acceleration in growth through the next 3 quarters. You just still plan to deliver around EUR 200 million in 2024. And then the second one on ASCO, you have highlighted in the release supply chain issues. So could you expand a bit more on this, please?

So let me answer the first question. For the second one, I would maybe hand over to Kai. Mobility, it's a bit more, I would say, to be differentiated. We had already last year the impacts of the, I would say, grey imports. As you know, we have a very long value chain there also in E-mobility, recycled material. We then not only use the recycled material for ourselves, for our own products, but also partly sell the capacities to external market and this market of, I would say, recycled material to external partners was not existing in 2023. Why? Because there was, as we call it, grey imports out of maybe Russia or Iran over Turkey to the European market. And this, of course, not only ruined the total price, but also more or less met a very weak demand, and therefore, this business was not existing. E-mobility itself within E-mobility, so the battery cases and the crash relevant material, which is surrounding those battery boxes and cases for the mostly, I would say, U.K. and mostly German OEMs or Tier 1s was performing very strong and is still performing very strong. So here, the demand is very good. However, as such this, I would say, recycling material and third-party business out of it was not very strong, and it's something we expected already for the first quarter and also other industrial or other applications also of OEMs was not that strong, to be fair. However, it met our expectations. So we expect it to be the first quarter quite weak. We still guide for the around EUR 200 million in total sales for the full year. So you see that also for the full year, we expect the growth in the second, third and fourth quarter to come. And plus/minus an EBITDA basis, which is plus/minus the basis of what we have seen last year. So long term, no change of it. It's only I would say short term, and somewhere hopefully also there's a return of this recycling business, then we can reach above EUR 200 million back again also in sales there. For the supply chain issues, I would like to hand over to Kai and he can explain in a bit more detail concerning ASCO.