Montana Aerospace AG (AERO) Earnings Call Transcript & Summary

Hello, everybody to today's earnings call. A very welcome from our side to -- as we think, today's presentation, which shows very favorable results of Montana Aerospace Group. And despite all discussions about different industries, tariffs and other things, a very promising guidance for the year 2025 and 2026. We did some, as you can see on the slide, my colleague, Kai Arndt, me, Michael Pistauer and also Marc Recte Riha, we will guide you through today's presentation. And in the -- after the presentation, we will be happy to give as good as we can and provide as good as we can answers to your questions. As a global company with sites in the U.S., in Canada, in South America, in Europe, of course, in many places and also in Asia, as for instance in China, India or Vietnam, also us, Kai, Marc and me, we are somewhere around the world. And for today's call, we are dialing in, Kai from somewhere between Belgium and U.S.A. and me from Vietnam back to Europe, most probably similar to you. Let's start with the executive summary for the results 2024, which we are extremely proud of. As we know, it was not an easy year. And still, we were able to increase our sales by much more than the market growth over 17% to almost EUR 1.5 billion to be exact to EUR 1.493 million 2024. Also the adjusted growth or the growth in EBITDA for the adjusted EBITDA grew faster due also to the economies of scale impacts and market situation. It grew by over 40% to over EUR 164 million in 2024 and resulted in a positive net income of EUR 35 million in comparison to 2023. It is an increase of over EUR 74 million more income in the last year in comparison to 2023. Balance sheet, again, very important at least for us, keep guide the reduction of net debt. Here, we were able to reduce to EUR 210 million, which represents, as we think, a very promising also start to 2025 concerning the net debt-EBITDA ratio. Only the trade working capital is a big cloud on the sky as it's still high. We come to that one later due also the Boeing strike and similar topics but backed by a very positive equity ratio over 50%, to be exact 50.8%. When we talk about the segments, a bit more in detail, Aerostructures grew by over 15% in a market where the OEMs had less build rate than in 2023, and that's something we want to stress again to over EUR 850 million and adjusted EBITDA rose by triple the speed by 46% to EUR 130 million last year. Also Energy segment still backed by a huge storm in the market for energy transition and electrification of the world rose by 13% to EUR 640 million in net sales and adjusted EBITDA rose almost 3x that speed of 41% to EUR 35 million in 2024. E-Mobility, a noncore segment, we divested, I guess, successfully the proceeds already in 2024 in the balance sheet. And therefore, also for the future, we talk about the 2 segments, Aerostructures and Energy when talking about Montana Aerospace. Guidance for 2025, we're going to reiterate. Despite all discussions on tariffs, trade war, build rates and similar topics, we keep on our guidance 2025 with a net sale of above EUR 1.6 billion and an adjusted EBITDA of around plus EUR 200 million for the year '25 is backed by a strong positive net income and a good cash conversion, and therefore, strong free cash flow and a further reduction of the net debt. In detail, segment guidance, Aerostructures above EUR 850 million on sales, backed by a strong profitability increase in energy net sales is around EUR 680 million in sales over here, backed by margin expansion as in Aerostructures so also in Energy. Rough guidance for 2026. Here, our clear goal is to reach around EUR 2 billion on total sales for the 2 segments with above EUR 250 million adjusted EBITDA, again, backed by strong income and a good free cash flow. When talking about Montana Aerospace, we're talking now about concerning 2 segments. So Aerostructures and Energy. E-Mobility once again, shortly mentioned, was successfully divested. And so we are on the step from an industrial group to more and more what we already announced since a couple of calls to pure-play Aerostructures business or company or integrator. We think that there is unbroken growth opportunities in the strong position from our side and there are also best possibilities to profitable growth in the next years in this pure-play Aerostructures industry for us. So therefore, we concentrate on Aerostructures and look for opportunities to separately let Energy grow beside Montana Aerospace Group. What was achieved 2024 here in detail is a relative constant sales growth quarter-to-quarter, as you can see on the left side of this slide, the fourth quarter, a very strong fourth quarter, which brought us then a growth of 17.6% in total. The fourth quarter was, of course, impacted by strong growth in Energy and Aerostructures, a bit relieved in Aerostructures from the strike, which was hitting hard on Boeing in the third -- mostly in the third quarter, but also partly fourth quarter. Adjusted EBITDA, the same development. You see in 2024 on a quarterly basis, that sales transfer accordingly to higher margin. And therefore, we are proud to have increased in total the so-called adjusted EBITDA margin by around 2 percent points to over 10 or let's say, to be specific, 11% of sales. We envisage further growth of this EBITDA margins in our guidances for 2025 and 2026. Important KPI, the cash flow. By history and seasonality, we always had a weaker than average cash flow in the first quarter due to, I would say, certain industry-specific topics concerning deliveries, working capital and similar issues and also CapEx spending from our side, which we usually do by the first quarter of the year. But we see the impact -- the negative impact of the operating cash flow was weaker already in 2024 than in the previous years, and it went out stronger throughout the years from quarter-to-quarter with a very strong finish in the fourth quarter due to mostly inflationary costs with payments and price increases and strong deliveries, which were mostly in the fourth quarter and showing up in the P&L. The free cash flow, of course, impacted also by the divestment of the e-mobility Group in the fourth quarter, but the same impact also which we saw in the operating cash flow weak in the first quarter, strong in the fourth quarter is also shown here. As I said at the beginning, in the executive summary, there was a small cloud and in principle, bright sky and that's the trade working capital. The trade working capital in comparison to fourth quarter 2023 rose by around EUR 50 million, a bit more than EUR 50 million. Even so the percentage in sales is okayish and in line which was expected more or less with the knowledge that, of course, a good impact of the inventory and the trade working capital was impacted by the strike of Boeing and the aftermath of it. We think that we can further reduce the percentage of trade working capital to sales further in 2025. But the net debt as a result of the strong cash flow and also the divestment of the e-mobility segment was able to be reduced quite significantly by another EUR 60 million versus 2023, and this journey should be also continued in 2025. Cash flow mentioned and also net debt here once again shown as one chart. Important KPIs for Montana Aerospace, we always indicated and also mentioned in the earnings call that in principle, our businesses once ramped up on a decent high utilization, a strong cash flow business. Yes, higher investments, but once it's ramped up, the cash conversion is at a high percentage. And I think this cash conversion, the free cash flow what we see in 2024 and the net debt reduction exactly reflects the statements, which should be also intensified by 2025 further. If we go to the segments, I would like to hand over for Aerostructures to Kai. And please, Kai, elaborate on the situation of Aerostructure.

Yes. Thank you, Michi. Good afternoon, everyone. Yesterday, I got a call from a colleague of yours. Maybe he's even connected to the call, and he asked me about the headline of 2024. And I gave him the answer that it was resilience, flexibility and agility. That's the name of the game for 2024 with all the challenges we faced over the year, starting with the door blew out on the 5th of January. And by this, from one day to the other, the drop in terms of demand from our customer, Boeing, which -- who still represents roughly 50% of our complete portfolio. And then by the end of the year, another 8 weeks of strike and with an impact of roughly 12 weeks of demand, which is lasting until today. And also Airbus reduced in the first quarter '24, their demand by roughly -- or the delivery target by roughly 30 to 40. So this is why I answered that resilience in terms of what you do and then how you follow up on your strategy, flexibility in terms of how fast can you react to such challenges and agility, of course, how fast can you ramp up again and be ready for the ramp-up, which will definitely come. So that was my name of the game for 2024. And during such challenges, you see how mission-critical or not you are for the industry. And we got excellent support by our customers. So I definitely think that's granted that we meanwhile are seen as mission-critical also for their ramp-up, especially Boeing was very helpful and was very understandable in terms of how can we help Montana Aerospace. What is needed to make sure that Montana is also ready for the ramp-up, which will definitely come. So I don't have any doubts that Boeing will come back. It's just a question of timing, and we will see better rates, I hope very soon. So in the last call, I think it was a question in the call, and I answered about the so-called crisis. I mean, talking about a crisis in times when you increase your EBITDA by roughly 40%, and I'm not sure if we can call it a crisis. But with all what I've mentioned before, I think there's also relevance to name it a crisis. So the question is how you make use of such crisis. So Guillaume Faury, the CEO of Airbus is always saying, never waste a good crisis. And this is exactly what we did. So we streamlined the organization, the processes, our way of working. We created a service center in Vietnam to move more indirect, more expensive work into Vietnam, working fantastic. And of course, we are cleaning up the portfolio. We are still moving packages where they fit best in our portfolio, and this will also continue for 2025. So overall, '24, a very challenging year. But with the latest news from yesterday evening, especially, you can easily imagine that also 2025 will have some challenges, some surprises for us. But as I said, the flexibility and agility of our team, of our employees was outstanding. And I guess this is also seen and the result we achieved with more than EUR 130 million of EBITDA with a growth of 46%. That's definitely underlining that we are still on the path of our strategy and that we are still confident in terms of what can be achieved with our current assets. Yes, we are below our targeted net sales and also the net sales for 2025 is below of what we have targeted last year for 2025. So that's correct. But also if you compare then the profitability, then you see that all the initiatives we initiated during the so-called crisis are paying off, and we will see some further gains in 2025. So I'm very optimistic even though there are some challenges, I guess we showed the flexibility to work with it. And I'm pretty sure that we will have again a year of confirming our guidance and achieving the targets. On the next slide, you will see what I've just mentioned. This is -- these are the deliveries. This is not what -- is not the demand. As you know, we are very upstream in the process with extrusions and the detailed parts business. So we see and feel first if there is a change in the demand, but it's ending up in the deliveries. And you can see that Airbus only had a 4% increase and Boeing has had a very, very deep drop in terms of their deliveries. And this is reflected also in the current demand. As you read every day in the newspaper, they are still improving their delivery rates, but they are still not at the capped rate 38, for example, on the 737. So they are progressing in the right direction, and we will follow up. There's no question that we are follow up and that we will achieve whatever is needed in terms of volume from our customers. Yes, so that's for Aerostructures and, let's say, the trajectory for 2025. As said, also for 2025, resilience, flexibility, agility, I think that will be the same headline when we have the call 1 year upfront. So that's definitely still how we have to react to the current challenges, and I'm 100% sure we will find the right measures and actions to overcome whatever challenges are in 2025. With that I will get back to Michi.

Thank you, Kai. With energy had much calmer waters to guide through in 2024, again, tailwinds, the energy transition, the electrification of the world is something which is unbroken and the pipeline is full for many, many years with our customers. And these shifts are reflected to our case that we -- every milligram which we produce is already presold. Nevertheless, besides the growth, there is some milestones which were achieved and I guess, which reflect a bit this change of the market per se. In the past years, the energy business where we are in, where we produce the copper cores for the transformers and generators for this world with a decent high market share was mostly a project-based business. And we see on the next page is then -- there was one signing of the contract, multiple year signing of the contracts, which reflects a bit also this transition in the market. In the meantime, it's a more partnership style with the customers instead of a purchase order, project-based business, it transferred into a business with long-term contracts with take-or-pay with increased capabilities and also larger amounts of tonnages to be sent to our customers. And this led, of course, much easier than calculate also the expansions, which are so heavily needed in this energy market to supporting our customers. Therefore, not only growth but growth in sales, extremely high manufacturing sales, which is for us the basis also for profitability, manufacturing sales, which are more or less the amount of sales without the high material costs for copper, which is, in our case, a complete pass-through. And therefore, if you see that we were able to increase the manufacturing sales over the last 4 years, more or less by factor 2 to over EUR 139 million. This, of course, reflects the strong growth of the market and our standing within this industry. So we keep on going by adding capacities to build the energy segment into a EUR 1 billion sales company for the next years. We keep on going to pass through the risk of material to our customers to add highly accretive conflicts and margin business and stick to our general asset-light business model also for the next years. That's for energy. And saying that, we would finish the presentation and then step further on to the Q&A with a reiteration of our guidance. As said, despite all discussions, we stick to our -- in the industries and also in the worldwide economy and trade issues, we stick to our guidance, which is sales above EUR 1.6 billion in 2025 adjusted growth of around plus EUR 200 million EBITDA, strong positive net income, positive free cash flow, streamlining trade working capital, hopefully not impacted again by some strikes or similar topics and therefore, a further reduction of the net debt. We also give a guidance very shortly concerning 2026 with a further growth based on mostly our attractive sales pipeline and with an adjusted EBITDA of around above EUR 250 million. Thank you for listening to the presentation, and we are happy now to answer your questions in the Q&A session. With that, I would like to hand over to the moderator.

[Operator Instructions] The first question comes from Aymeric Poulain from Kepler Cheuvreux.

The first question is on the guidance for 2025. If you add the EUR 850 million and EUR 680 million, you had EUR 1,530 million so well below the EUR 1.6 billion. So could you explain again what's the EUR 70-plus million extra that you assume for -- to be above EUR 1.6 billion? And for the 2026 guidance on the top line, if you assume a steady rate of growth for energy, it implies a very, very sharp growth in aerospace. So what does that assume in terms of the various delivery rate for the main customers you serve? That would be the first question. You mentioned tariff as one element that could -- that needs to be observed, but do you have an estimate of the impact of the tariff based on yesterday's announcements on your business? And what would be the main concern, if at all? That would be the second question. And on free cash flow, you expect a positive -- a strong positive free cash flow delivery in '25. But in '24, we had a significant contribution from disposal proceeds. So I'm just curious about your assumption for 2025. Does this include disposal proceeds or not? And how would you model the building block for the free cash flow improvement in 2025?

If you're fine, I'll start with answering it and then for the build rates I would like Kai, maybe you jump in later to give more color to the question. The guidance, you said there is some missing block. You're right. And if you calculate -- if you add energy guidance and also the Aerostructures guidance, you don't sum up EUR 1.6 billion on safety. The reason may be you remember [indiscernible] for E-Mobility business. And on the other hand, we integrated also in the other segment, the so-called AMT Group, also Metal Tech Group and they add on to the remaining amount of sales to reach this EUR 1.6 billion. When it comes to the tariffs, we have to -- first of all, tariffs exist already. For instance, we do have in the different segments like -- it's nothing new completely. Of course, the height and the impact of the changes is something which, of course, needs to be looked at and investigated extremely carefully. But if you look, for instance, at the copper business, this was always already impacted by 2.5% tariff when something was shipped to the U.S. And so it's nothing completely new. Nevertheless, we think that we investigated the first wave of tariffs and as good as it is possible already the second yesterday announced tariff announcements. And in the first wave, Aerostructures and also space structures were excluded for a good reason. So -- and also with today's announcement and what is included and what is excluded, yes, we will be impacted, but we think as per now that we will stay within a plus/minus single-digit amount of EBITDA for the end of the year, where not everything is clear who has to take it concerning pass-through to customers. We have in regards of tariffs in principle, very favorable contracts where we want to take the risk of the tariffs. Nevertheless, we count with something. It still doesn't change as per now our guidance for 2025. Of course, we have to look at what will be the countermeasures of any countries. But as per now, as I said, we would not change our guidance is what we calculate with and what we think that we are impacted is already integrated in our guidance 2025. Cash flow. In cash flow, 2024, you're right, is the disposal of the AMT, but it depends on which position you look at. So there is also despite the disposal of the e-mobility business, a strong cash flow shown. I'm happy to provide also here the details, but it's easy to read through when we look at the annual accounts. 2025, our guidance which is backed by a so-called strong cash flow doesn't foresee any proceeds of any disposals. So without the disposal, we guide for a strong cash flow. If there would be a disposal or a carve-out, it should be added on this free cash flow and positive cash flow and net debt reduction further. Kai, may I hand over to you concerning I think what the question on build rates and assumptions on Aerostructures.

Yes, with pleasure. A very surprising one. I did not expect the question on the build rates. Of course, that's a joke. Yes, so what did we do with the build rates and what was our baseline assumption for planning the rates we have currently in the system. So I mean, easily, you can just see the inventory levels of the big OEMs, but also on the Tier 1s and the diversity in terms of the inventory. So some of them are sitting on a mountain of inventory and that, of course, is then reflected in our assumptions and the build rates. So I can give you one example in terms of the 737 for Boeing. Our planning assumption was 310 shipsets which is already below the delivery targets of Boeing for 2025. But if you then compare the different sections of an aircraft, let's say, wings or fuselages, then we also see here a variety of different rate assumptions. So for example, in Vietnam, we only plan with half of the shipset. So there's a big, big diversity, variety in terms of what we plan for. It's a very conservative approach. But as you can see in the first quarter, the big OEMs already changed some of their demands and some of their programs. So I think we are more on the stable side in terms of the rate assumptions set for the 737, but it's also valid for the 320 program as we deliver into the wings in Broughton, ASCO is one of the biggest contributors to our revenues here. Also there, the wing in Broughton has a demand by roughly 100 shipsets lower than fuselage, for example. So there is a big, big variety in terms of the rates, and this is reflected in our assumptions. And this is also why you only see, let's say, a slight improve in terms of the revenues from '24 to '25. But then, of course, for '26, our assumptions are that the inventory levels somehow are balanced in the OEMs. And then, of course, they will more or less have to adapt also the demand side on the supply chain. Having said this, you can easily imagine the complexity the big OEMs put into the system, and it's very difficult to plan and hold the resources for changes. But as I said, in the last year, we had massive support here from the customers to find the right balance, to find the right way forward. And this is how we planned 2025. For the moment, with what we see in the system, we feel quite comfortable with the rate assumptions in our planning, even though they are somehow below what you can see in the newspapers coming from the big OEMs. The second question was the steep increase of the EBITDA from '25, '26, even out -- in the outer years. And that's, of course, we are winning new packages. We are utilizing our assets more and more. So in some areas, we are already 90% utilized and others, we are around 70%. And of course, with this higher utilization, your cost absorption is better. And then, of course, hopefully, your margins will increase accordingly. So that's why we see, hopefully, a further increase in terms of the profitability in Aerostructures, and this is how we based on our assumptions.

The next question comes from Christian Bader from Zürcher Kantonalbank.

A couple of questions from me, please. First of all, I would like to know, will the Energy segment be affected by the Trump duties at all?

I'll try to answer it immediately. If this is okay, Christian? [indiscernible] not, be aware that already now for pure copper products, there is a 2.5% tariff pending for every copper-related product to the U.S. But as per now, copper should be excluded. Copper products, you have to be a bit more specific. And further, we don't deliver directly copper or more or less no copper directly copper cost to the U.S. It's only together with our customers. There are also no other capacities importing right now. So we don't expect any impact for our Energy segment for us as Montana Aerospace out of the tariffs right now.

I see. All right. Then the next question is referring to what you just said at the beginning that in your first assessment about this U.S. duties, you said that aerospace and space components are excluded, but what is now the latest? Are they still exempt from import duties in the U.S.? Or will they be duties on it?

There is no exact details, it's right now already available because then it means that all the CN codes needs to be provided, which are impacted and out of which country. But as I said, we calculate with impact in total also 2025. But the impact, which is then -- never forget, Christian, that sometimes it's good, sometimes it's bad. But in our case, I guess it's a very strong tailwind we get out of a global presence. We do have entities in Canada, in the U.S., in Asia and Europe. So what we always try also to promote and what we, of course, enforce is on a global scale, but local to local, and this also helps to support where there is a business which could be potentially impacted by tariffs. It's also something which is supported by Kai's statement that we try to optimize our production or split on production to the different size best and this also gives them further only further EBITDA growth, but also maybe the possibility to reduce potential tariffs. Nevertheless, we calculate the tariffs once again of an impact on our side. It's not 100% true if they are full digested or not. But in our guidance, we have already digested a certain amount, as I said, a single-digit amount of tariffs, and that's what we stick on also after reading what is published from yesterday's announcement.

Maybe one add-on, Michi, if you allow. So just to give you the order of magnitude we are talking about here. So we are delivering a couple of million parts per month to 40, 50 customers around the world. So there is somehow a big complexity in terms of what we deliver to whom, but also with the contracts we have in place, the terms and conditions, a lot of our contracts, they are ex site. So when the parts leave the site, it's in the hand of our customers to control the shipment and also the border control. So there, we see ourselves for at least a good portion of our contracts secured. But as I said, the complexity and after just knowing it for a couple of hours now is not completely overseen and we are doing our analysis. We expect some impact, as Michi said, it's already planned also in the budget. But the magnitude, there's no easy answer to it. But as I said, I think that most of our contracts give us some protection against such things.

Okay. That's helpful. Maybe a follow-up on this answer. So the impact that you are calculating, is this -- where is the impact coming from? Is it due to that you lose business or that you have higher costs? Or what is it? What is the impact?

No, simply tariff spending on certain pre-products from one country to the other ones. It's not 100% clear if it's already not only contractual, but also perfect and taken by the customer.

Okay. All right. And the last one for me then for Kai, a question. You mentioned that within the Aerostructures business, Boeing represents 50%, if I understood correctly. That seems high -- relatively high for me. My understanding was that Boeing and Airbus each represent 40% and then there is other airplane producers and also some, let's say, satellite producers. So if you maybe can clarify this point, let's say, customer mix in the Aerostructures business, please?

Yes, no problem. So I'm talking about us and the current portfolio we have, of course, on the assumption of build rates that were higher than in 2024. With the drop of build rates and Boeing, this might change a little bit. But overall, we have roughly 40% with Airbus. We have roughly 40% with Boeing and 20% others like space or satellites or other business, this is the current share.

[Operator Instructions] Next question comes from Olfa Taamallah from ODDO BHF.

Just to follow up on the tariff question. Some of the Tier 1 have mentioned already that they see some disruption within the supply chain with some players slowed down or stopped at certain deliveries in order to request some prices increases to compensate the tariffs. Do you see such effect? Do you expect some disruption over the supply chain? And maybe if you can give your view around what's going on, on the supply chain, if you like to highlight specific problems, maybe, I mean, the impact of the fire that we have seen in February of SPS technologies. It could be -- it would be very helpful.

Yes. I mean the last -- this is for me, I guess, the fire in SPS. First of all, there's no direct deliveries from the supplier to us. So there's no direct impact. But of course, suppliers who are delivering parts to us, they are impacted. And of course, the OEMs are impacted by such a fire. And if they are impacted, finally, it could also impact their delivery rates and their forecast. So yes, you are right. There was an impact from the latest Boeing announcement. I think it was 3 weeks ago. They mentioned it in their call that this is under control, and they found solutions for, I think, 99% of the topics. So I think at least this fire is under control. And on the tariffs, I'm not sure if I get it -- if I got your question correctly, but you asked about the tariffs and the supply chain. Of course, again, the complexity is so huge that it's very difficult to answer it with a single sentence or with a single answer to the question. There will be impacts. That's for sure. Of course, this is also known by Boeing or Airbus, the big OEMs, and they already reached out and discussed with us or with all the suppliers solutions for it. In the end, I mean, our position at Montana Aerospace is crystal clear. So if there is an impact from the tariffs, then we definitely expect that this will be covered by our customers, and we will fight hard to protect our financials also for 2025. So there's no doubt that we will enter into tough discussions if there might be an impact on us.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Michael Pistauer for any closing remarks.

Thank you very much from our side. Maybe a short also, the guidance for the next months. We will then have the general meeting in May. From our side, we want also to propose a bit of a dividend like strategy. As you know, we already guided since 2021 that in principle, we as a management would like to propose to the shareholders and the general meeting an earn-out structure or similar for 2025, let's say, for 2024 results and paid in 2025, we would like to propose a small share back structure. And nevertheless, we are quite happy with our setup and looking forward for at least achieve what we have guided in 2025 and hopefully overachieve like in the last years. Thank you very much for listening, for your questions and happy if we see in one or the other occasion directly and discuss the space business in the industry.