Montana Aerospace AG (AERO) Earnings Call Transcript & Summary

A wonderful good afternoon, ladies and gentlemen. Welcome to the Montana Aerospace AG H1 2024 Earnings Call, hosted by the Co-CEO and CFO, Michael Pistauer as well by Co-CEO, Kai Arndt. My name is Franzi, the Chorus Call operator. [Operator Instructions] and that the conference is being recorded. [Operator Instructions] At this time, it is my pleasure to hand over to Michael Pistauer, Co-CEO and CFO of Montana Aerospace. Please go ahead, sir.

Everyone will come from our side to everybody attending today's earnings call for the first half year's financial of Montana Aerospace. Great to have you here and attending. As always, me, Michael Pistauer and my colleague, Kai Arndt, will guide you through the presentation. Kai will give you more detail also and more color on the development of Aerospace and Aerostructures in detail within the presentation. And after the presentation, we are happy also to answer your questions and to discuss the following developments of the next quarters. Before we start with the highlights, let me shortly tell you what we expected. We expected, as many of you know, volatile times. We expected that although within high announcements of build rates, the build rates in aerospace might not develop in 2024 as they were announced. Kai will give you more detail on that one. And exactly that happened. And we expected also that within this, I would say, very volatile times, Montana Aerospace has not only to compensate maybe those topics, but also to exceed expectations by adding new market share and industrialize this. Saying that, we are extremely proud of our numbers of the highlights and therefore, want to like to start with the highlights of 2024 and upfront, I think we can claim that we at least achieved what we announced or even overcompensated what was not given from the market to us and therefore over-exceeded also the expectations. Saying that, in H1 2024, we achieved a net sales for the so-called continued operations. And before I come to the numbers, let me shortly explain it, what does it mean. In May 2024, we signed the sale of one of our segments, the E-Mobility, the loss-making segment, come to that one later. And therefore, starting with May 2024, first time now with the H1 numbers, we continue to show our business only for the main KPIs for the so-called continued operations, meaning the segment of Energy, meaning Aerostructures and those 2 consolidated ensuring the so-called discontinued operations, the signed sale of the E-Mobility segment on the one line below the results, and also sub-summarized in one line on each side of the balance sheet till the closing, and the closing is something we expect in the fourth quarter 2024. Cash will come then in. And from then on, only those 2 continued operations will continue in the balance sheet and the PL. Saying that for the continued operations, our net sales increased by more than 17% in comparison to last year. And what we are really proud of is what we always announced is with additional sales, we are able to overproportionately let the EBITDA, the profitability of the company grow. And the adjusted EBITDA grew by more than 44%, so more than 2 or 2.5x almost faster growth or CAGR on the EBITDA in comparison to the net sales. The result from the continued operations, so the net income from those 2 not sold areas, so from Aerostructures and Energy was positive from -- with an amount of EUR 9.2 million. But as it's not possible to show in percentage, grew in comparison to last year by EUR 30 million. And I guess, this shows the potential of profitability and the definite profitability of our Montana Aerospace. Balance sheet highlight is net debt, which is by seasonality and the increase of inventory compared with 1 later, usually slightly higher than at year's end, is at EUR 342 million, trade working capital due to the inventory buildup for the higher sales in 2024 second half of the year at EUR 342 million. And with a very solid equity ratio, which we have at 48%. Let me shortly highlight the main KPIs of the 2 so-called segments, Aerostructures and Energy segment. Aerostructures grew by 22%, more than 22% to total net sales of EUR 409 million versus 2023 and what is really very positive, and to highlight is the adjusted EBITDA surged by EUR 63 million or more than 68%. Energy segment, where we built up capacities due to the present capacity constraints in the market, the strong market tailwind. We increased sales to EUR 311 million or 10%, and the adjusted EBITDA rose by EUR 18 million or more than 3x that fast as the sales by 35% in comparison to last year. Noting that also last year was already a record within those segments, and therefore, we're exceeding those records within those 2 segments. As announced, we signed the sale -- the [ M&A ] transaction of the so-called E-Mobility segment. We did not have this, I would say a majority market share on a worldwide scale in the E-Mobility segment. It was loss-making at the end of the day. Therefore, it was sold concerning our strategy to the Mengtai Group, the SPA was signed in May. And as said previously, we expect the closing by the fourth quarter, which means that at this time, the cash in -- should come in and the cash will be used by 2/3 to deleverage, to reduce the net debt and 1/3 by strategic to strategic CapEx to increase the path of growth in Aerostructures or smart M&A. And therefore, with this -- with the backup of the development and our capability even to compensate turmoils in the markets quite well. We give a guidance for 2024 with -- excluding the E-Mobility segment, so we reconfirm it with a net sales of above EUR 1.5 billion and adjusted EBITDA without the E-Mobility segment of more than EUR 165 million, a positive free cash flow and a positive net income, and give also a reconfirmed guidance for the segments of a bit slighter sales in Aerostructures, but good profitability, higher profitability with around EUR 900 million on net sales and Energy segments, whatever is possible to produce of more than EUR 580 million in the direction of more than EUR 580 million. 2025 guidance also here reconfirmed with net sales on those 2 segments, so excluding E-Mobility already with more than EUR 1.7 billion of total sales and the EBITDA of more than EUR 240 million with a very strong free cash flow and cash flow conversion. If you flip to the next page, the key KPIs on one Slide, sales plus 17% versus last year. The profitability, which is growing faster than the sales by an amount of almost [ triple ] in almost more than 2.5x, it's 44%. Besides of continued operations as already stated before, positive with EUR 9.2 million, a very crucial milestone for us as we want to achieve on a continued basis also this year for the full year, the positive result. So having as a backup already in the first half year as a positive result is a good start. CapEx as within the guidance. So including the expansion on the Energy segment, with EUR 38 million plus/minus in the amount of what we had in the first half year 2023. Trade working capital even. So we now have high inventory due to the expected higher sales in the second half of 2024, slightly lower than what we had in 2023. Absolute terms in relation to the sales quite massively improved with EUR 342 million, total assets plus/minus the same amount like in the last year, the net debt slightly increased by EUR 20 million due to the net debt is always compared to the last year end of the -- sorry, last year, mid of the year. And the free cash flow, which is by the development of the year, EUR 42 million negative but we expect to have a very strong cash flow by the second half of the year. And please not forget that also the divestment of the Energy segment -- of the E-Mobility segment will happen in the second half of the year. Net debt comparison is always in comparison to the first quarter. We do have a slightly higher net debt in comparison to the first quarter 2024 due to the higher inventory, which was built up by strategic plan concerning the expected higher sales in the second half of this year. As in a time line, it's easier to see the development of Montana Aerospace. We started our journey in the second quarter 2021 as a stock-listed company with the sales in the second quarter 2021 of EUR 154 million. We more than doubled it within the last 2 or 3 years more than 135% growth. More than 18% growth, which is mainly when we come to the different segments, I guess, a very astonishing positive number knowing that the underlying market is not developing as fast, which means that we are gaining in all the areas, market share and therefore exceeds, I would say, the market development. And I said, with the continuous higher sales, the result is a higher margin level, not only in the percentage, but mostly in absolute terms also which increased by more than 200% over the last 3 years or more than 27% in comparison to last year. If you flip to the segments, Aerostructures, the name giver with a solid growth overproportionately to the market and the over-proportional development on EBITDA. And saying that, we'd like to continue to hand over to Kai to continue with details on the aerospace market and our development within.

Okay. Thank you, [ Mickey ]. I'd like to start with some questions I received over the last day. So there were colleagues, investors asking me about how we are managing the crisis, and I was a bit confused getting this question because I think many, many companies would be extremely happy to be in such a so-called crisis. So this -- having said this, you'll see that we are constantly growing and we are completely in line with the projection we had for the next years to come, not only for a couple of months, but also for the next years to come. But on the other side, it's very obvious that the problems of the 2 main customers we have Airbus and Boeing, to achieve the rates. This is also having some significant impacts on our sales. So we can see this already in quarter 2, but it will continue also in quarter 3 from our assumptions. So we see that the lower rates and the problems to get up to speed from the big customers will continue into the third quarter. But for the fourth quarter, at least from our perspective, we see the ramp-up coming. And hopefully, for 2025, it will speed up and come really to the numbers, which are announced by the big OEMs. But despite the lower sales we see for this year, in the first quarter review in the first quarter call, I mentioned already the risk of seeing lower sales in the range of around EUR 50 million. At that time, I called it a risk, but now we see this numbers materializing, so I think we will end up with EUR 50 million to EUR 70 million less sales. But despite this lower sales, we also see that we can hold our EBITDA numbers meaning that the profitability is increasing further. How do we do this? We -- first of all, we are winning new packages. We won new packages already last year, but it's continuing to -- we are continuing to win new packages that's extremely positive. And with these new packages, we are also achieving better margins in terms of our profitability. This is helpful but on the other side, of course, only kicking in '25, '26 and later. We are now industrializing all these packages. But then there, we see, of course, some positive developments on this side. On the other side, as a second point, we have new customers for us, for the Aerospace group, which are not coming from the classic aerospace business, talking about space, for example. And with the lower volumes they're getting from the, let's say, traditional customers, [Technical Difficulty] they open capacities even with these new customers. There is a chance for us to balance somehow the portfolio with this and I think that's also reflected in our positive development of EBITDA. And as a third point, I mentioned it already in the in the first quarter that we started a huge project where we are cleaning up the portfolio. So we are moving work packages between the divisions where we think and these packages fits best. And we started this 5 months ago. And I'm pretty sure we will see also this positive impact materializing later than 2025. So all of these 3 main topics are helping us to maintain our EBITDA numbers despite the lower sales we see based on what is happening from the big OEMs. And coming to the delivery number because I'm pretty sure this will be a question later in the Q&A. Everybody has seen the massive problems of the 737 MAX with the blowout of the door. We saw a heavy impact in the second quarter in terms of the pull rates. This is definitely having some impacts on us in the deliveries. But yesterday, Boeing announced that they achieved a delivery of 31 for the 737 MAX, which for me at least is a sign that they are now coming back and I'm quite positive that [ latest ] in quarter 4, Boeing will speed up again, and then we will also see a ramp-up on the 737. And also with the announcement of Airbus to lower their delivery targets for 2024. Also here, we see an impact mainly on ASCO with this announcement. So we are in good talks with Airbus to find solutions to somehow cover the underutilization we have in ASCO, and I'm pretty positive that we will find a solution very soon also with Airbus. In terms of the outlook and how do we take this current situation into 2025. And we were already more conservative in terms of the numbers in '24 and this will definitely also continue in 2025. As I expect that also the big OEMs have to burn down in their inventories, we have to be very careful what we plan for 2025 but this doesn't mean that we change our guidance because, as said, we see new customers at the horizon, and we have also additional work packages coming in, which definitely makes the situation for us, very positive. Having said this, on the rates, I think the instability of messages we get from the big 2 OEMs. That's one of the main problems we face at the moment. So for us, and I think that's valid for every single supplier to the big OEMs, we need clarity in terms of what is expected from the 2 OEMs so that we can plan our resources, switching on and off resources, that's definitely not possible. So we need stability in terms of the guidance from the big OEMs to make sure that we are in a position to deliver to whatever their needs are. I think for the rates, that's it. If we can move on one Slide, please. So here, you see the comparison in terms of the quarter and this is clearly underlining what has been said. We see now stable net sales quarter-by-quarter, which are still on a very good level, I would like to say, EUR 200 million per quarter is okay, it will grow in the next quarters to come. But in addition, we definitely see also that our EBITDA is increasing quarter-by-quarter. And as said, we are still very positive to achieve the guidance for 2024, with all the mitigation actions I just explained. I think that's it from the Aerostructures segment, and I'm happy to receive your questions later on. Pretty sure that you have a lot of questions in terms of our guidance and the way forward. Thank you.

Quick overview over the development of the Energy segment. I stated also in the last quarters, there was a big storm in the market. The need for new generators, transformators (sic) [ transformers ] for infrastructure and the energy worldwide is unbroken. This delivers us the strong market demand. The only constraint is the ongoing constraints of capacity worldwide and also in our terms. So therefore, we started, as you know, and I informed the capacity increase program. And the more we go on with the capacity increase program, we are able to deliver also more on sales and therefore, tons for those transformators (sic) [ transformers ] and generators. That's exactly what you see also on this page. So ongoing, we are able to deliver higher sales with 15% in comparison growth to last year, and this also materializes in the EBITDA, not only by better utilization of the capacity and the economies of scale, but mostly also by the strong market position we have and the good pricing we achieved with our partners, as we say, and long-term contracts [ we need ]. Better view on this development is shown on the next page, where it's shown on a, I would say, quarterly basis. So continue strong, constant, I would say, increase of sales with an increased margin level quarter-by-quarter. This is a development we think we can also continue for the next years to come quarter-by-quarter stronger sales and better EBITDA. Some general statements also to E-Mobility very shortly. Difficult market situation, but they did -- they have expected a very strong second half of the year. As it is discontinued, as [ Sean ] has said, is one single line in the so-called results of the continued operations. E-Mobility showed a negative impact to the net income. Therefore, the continued operations were positive with over EUR 9 million for the first half year and negative over EUR 20 million. The E-Mobility segment, as said, we expect the closing somewhere in the fourth quarter, which reside within the cash in and the consolidation of the segment, which is still sub-summarized in one single line and they're also in the balance sheet and this will bring them the possibility to reduce the net debt by 2/3 of the purchase price what we get is a cash-in situation and on 1/3 will be used out of the use of proceeds for strategic M&A and CapEx. As a total, maybe only short development, you see the operating cash flow, which is always a bit was impacted in the first quarter due to the seasonality of the business in comparison to 2023, you see that it's much on a better high level. So a similar development on a quarterly basis, but on a higher scale, we expect those for this year, which then reiterate us with the possibility to give reiteration of the -- reconfirmation of the guidance 2024 with a positive cash flow for the total year. This is same for the operating, but also for the free cash flow. Last topic is the trade working capital and the result from continued operations. I'll start with the later one. The result from the continued operations. Both quarters positive, very crucial and for us, essential milestone, even so impacted by the turmoil of the market, but therefore, with this strong position, we are quite positive concerning the further development in the next quarters. Trade working capital by strategic decision due to high inventory for the sales, which we still expect a higher sales in the second half of the year, a bit higher than, for instance, in the fourth quarter 2023 but on a good level and in comparison to sales also on a lower percentage, so definitely in line with our strategic development and guidance which we gave. Therefore, once again, only shortly a reconfirmation of our guidance, slightly lower sales in Aerostructures, but more than overcompensated in EBITDA, which is, I guess, the good message, very strong continued operations in the Energy segment, more than EUR 1.5 billion sales for the continued operations, and I said, positive free cash flow, positive net income, and the streamlining of -- continuous streamlining of the trade working capital. And again, a reconfirmation also for 2025, not maybe only built on as we said, lower build rates than what we expected in comparison to some of the market announcements or expectations, but mostly by market share wins and our strong position within. Thank you very much for this overview -- for listening to today's overview for the half year's results, and we are happy to answer your questions now.

[Operator Instructions] Our first question today comes from Phill Buller from Berenberg.

A couple of questions, please. Firstly, on margins in Aerospace, I believe in the past, you talked about potentially 20% margins at full utilization levels in the Aerostructures business. So I guess I'm pleasantly surprised to see you're at 17% in Q2 '24, already when rates are quite low. So are there any nuances in the Q2 margin performance we should consider, please? And I ask because if we were to assume that the H2 margin is the same as H1, it looks as though there's perhaps some upside risk to the EBITDA guidance for the year. So anything to consider that may have supported the Q2 margin in Aerostructures, please? That's question one.

Maybe upfront from my side and maybe Kai, you want to jump in, then later on. It's extremely volatile market. And we showed it also with the slides. So it's more or less not really calculated what is coming in, considering pull rates on the different areas of the planes or plane to platform types. What we were able to is even so in some cases, the pull rates dropped for good industrialization of new market share or market wins which brought us on better EBITDA margin. So the better, I would say, at the end, show better profitability than maybe those packages and those topics, which were partly within the business already. And the other thing is also new customers. We named in the last call also not only aero, but also space, for instance, and those 2 topics together, together with also the possibility, which Kai also mentioned, that we internally transfer to the best place to produce within our group. This makes our EBITDA stronger. So that's why we keep to our guidance for the Aerostructures. But of course, we are happy and upfront. No, there is no extra ordinary topic within the second quarter within the margin level. Maybe, Kai, you want to add something to that point?

Yes. This was a pleasure. I mean, we discussed it already also in Q1, if I remember correctly. And the target to reach 20% margin is still there. And you see that we are increasing, improving the margins quarter-by-quarter. This is based on what [ Mickey ] has just explained, our customers, better contracts. So that's kicking in now. In terms of the utilization, this is still more or less on the same level, but it's better balanced. So I mentioned the huge program we started in February, where we move packages to the places where they fit best, meaning that we use machines for packages in Vietnam, where we have -- maybe today, we are using the same or we are -- yes, we are producing the same packages, maybe in Romania. So there is a lot of movement ongoing. And by this, of course, we are increasing or balancing the utilization of the machines. We have more than 300 machines in our portfolio, 400 spenders. So you can easily imagine if you clean the portfolio and put the packages where they fit best then, of course, this is also increasing the margins. This is ongoing. It will last another 12 to 18 months until we finalize this initiative. And on top, we are trying to in-source as much as we can from the supply base so that we are managing our own destiny, so to say, in terms of the supply chain. The main topic of the suppliers and also the OEMs is always instability of the supply chain. And this is what we will definitely reduce in the months to come so that we are more or less our own supplier inside of our system. All this is giving us the tailwind to come to the 20% EBITDA margin, which we should be very close to in 2025.

And just one clarification on the topic of revenue in Aerostructures because it's quite easy from the outside to model build rates. Well, that's tricky as well these days. But it's very difficult from the outside to model some of these topics like space and things like that from a revenue standpoint. So how should we think about the Aerostructures revenue in Q3? Should we be -- I'm just trying to get the Q3, Q4 phasing broadly right in the model. So close to the EUR 200 million level we've seen in Q1 and Q2 or something closer to the EUR 250 million, I guess?

We gave a guidance for around EUR 900 million, bit lower than before. We have around EUR 408 million (sic) [ EUR 409 million ] right now for the first half year in Aerostructures only. So you can expect -- so the median would be something like a bit less than EUR 250 million on a quarterly basis. But we expect, of course, that the fourth quarter will be the strongest in comparison to Q3. [indiscernible] a bit lower than the EUR 250 million, and the other one a bit higher.

And then on E-Mobility, I know it's in discontinued operations now. So perhaps it doesn't matter too much. But how was that result compared to plan? And is that evolving or impacting the timing or terms of the negotiations for the disposal, please?

No, because it's -- while that's a fixed price or closed books structure, which we chose for the E-Mobility business, with the potential buyers. So more or less to '23 numbers are the ones who won't change, if you may call it the purchase price at the end of the day. But we expect it to be very -- to have a very weak, I would say, first half of the year. This was also in, I would say, close discussion done with the potential buyer. We know that the market in some areas right now in E-Mobility Europe and other areas, made some changes. Second quarter -- second half of the year, third quarter and fourth quarter will be much better, developing and showing higher sales. So also here with the old guidance, we think that it can be reached to old guidance of E-Mobility and also concerning the profitability. But please note that out of the segment, some topics were kept back. So we are not sold. Those Aerostructures, relevant areas were kept within our business. So -- but I would say the second half year is much better than the first half of the year. So more or less in plan or let's say, in line with our plans and budgets, as said, we expected a very weak first half of the year.

Perfect. I've got 2 quick follow-ups, if I may. So Energy, what's the current thinking there in terms of the importance of the asset in the portfolio, would you consider going down the same path that you are on with E-Mobility? And secondly, the -- you mentioned that the use of proceeds, 2/3 to delever the other 1/3 for strategic CapEx and smart M&A. What's the current view on shareholder returns, but dividend, I guess, is what I'm thinking for 2025 because if you close this asset in Q4, I think the balance sheet looks nice and healthy.

Yes, exactly. Please never forget that we right now have net debt of EUR 342 million. Operational and the free cash flow for the total year is supposed to be positive for the business. So therefore, we had a EUR 280 million approximately last year. We think that we have a net debt without the sale even which could be at the same level or even lower. But the year's end, then additionally it becomes the proceeds out of the M&A transaction of E-Mobility. So you're right, the net debt is supposed to be quite low at the year's end already. We made the statement. So I repeat or we repeat ourselves again and again, we made a statement last year, that we sit in the midterm run, we want to strategically focus on Aerostructures, pure-play Aerostructures business, which immediately called the potential interested parties on the plan to get contact with us, not over in E-Mobility, but also in Energy. That's something we, of course, carefully look at. But till now, no decision is done. But if, of course, at the end that, let's say, there is a good balance between the potential sale of this segment versus the possibilities, the potential and also the risk to achieving our plans, then we would make this decision, but it's not yet done. In the meantime, we develop Energy as it is, we see a very strong development. We think that over the next years, we'll show a very strong development. It's paying its capacity increase itself, but the cash flow generates, so therefore, there is no need for rush. But of course, if there is a good possibility in timing, we are completely open for that point. Last point I said on your question is therefore, yes, we still stick to our plan to at least propose a dividend, a decent dividend for the results 2024 [ ended ] January [indiscernible] , 2025.

The next question comes from Christian Bader.

I've got a couple of questions below the bottom line. So firstly, what is your CapEx guidance for this year, please?

It's very simple, its plus/minus double what we have right now, yes. So we had between EUR 60 million to EUR 70 million approximately.

All right, I see. And your free cash flow has been extremely seasonal, and so also in negative territory in the first semester. So can you maybe talk a little bit more in detail what shall we expect in terms of free cash flow development in the third quarter and fourth quarter?

If you look at -- we know what is the impact of the free cash flow. It's mostly out of the trade working capital in this regard for the first half of the year. That if you look at the quarterly development since many, many years, the first quarter is very negative any -- every year concerning the development of the trade working capital. This impacts, of course, therefore, also the cash flow. But it's already in a much better and higher level. It's what I tried to explain also in the slides in 2024 in comparison to 2023 or 2022. So therefore, for the full year, we expect to come down with the trade working capital from our operations, automatically by stronger deliveries and stronger sales in the second half of the year by December 2024. This will positively impact the free cash flow, the rest is the EBITDA. Also this is to be expected to be higher in the second half of the year than the second -- in the first half of the year. And this is -- if I take those 2 topics with the decent continuously reduced interest or financial results, we expect a positive free cash flow for the full year. So it's mostly triggered right now, a good chunk of the, I would say, the cash flow is parked or strategically parked within the inventory, the inventory is high by mid of 2024. As we prepared already for stronger deliveries in the second half of 2024. I hope this explains the cash flow development.

Yes. If I may follow up. I mean, last year, the free cash flow in the third quarter was still slightly negative. I believe, and it was only extremely positive in the fourth quarter. So shall we expect the same pattern this year?

No, it's more or less divided by the three and fourth, but of course, fourth will be always the strongest and the reason is that there are many topics, which, for instance, during the year are only preliminary calculated and invoiced, and then finally, calculated and invoiced and paid an this makes then a strong impact. Like, for instance, price increases or certain topical changes in certain developments and those are charged in the fourth quarter, paid in the fourth quarter, and this always gives a good extra impact also on the cash flow. Therefore, yes, you're right. The fourth quarter will be again the strongest one, but already a stronger development in the third one.

Okay. Good. And thirdly, I would be interested to hear your thoughts, whether you are considering to participate in whatever form in the bailout of a, let's say, struggling German battery maker?

No comment on that point. But we are focusing on the Aerostructures. It's a fantastic market, it's more than 15,000 planes in the backlog of the OEMs. So they need us and we need them. And that's exactly what we want and what we trigger for.

All right. So you will not participate?

No. Thank you very much.

[Operator Instructions] It seems to be no further questions at this time, and I will hand back to Michael Pistauer for closing comments.

Thank you very much for attending. The sun is shining at least here where we are, the sun is shining, I guess, also in Aerospace, even so we have really challenging times with extremely volatile markets, somehow challenging. But on the other hand, also the best, I would say, the best field to chain market share this what we do, what we continue and Kai and me and the whole team will do its best at least the strongest efforts to, again, also in the third quarter exceed the expectation. That's what we are here, what we are working for. And hopefully, we hear and see then again. Thank you very much.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining, and have a pleasant day. Goodbye.