Montana Aerospace AG (MTASF) Earnings Call Transcript & Summary

Good afternoon, and hello from our side for today's earnings call. We are very proud to present today the first half year's numbers of Montana Aerospace. We, Kai Arndt, co-CEO of the company, dialing in today from Belgium and me, Michael Pistauer, dialing in from Austria. And we will not only present today's numbers, but later also answer hopefully your questions in a Q&A session. When we talk about Montana Aerospace, we still talk about 2 segments where we are mission critical. We get more and more -- become more and more mission-critical in Aerostructures, being a crucial part to the worldwide supply chain and for the OEMs. And also in energy, where we support the OEMs in the mission-critical parts for the transformers and generators so heavily needed by the worldwide market. Still 2 segments. However, we already posted today in the ad hoc in the morning that we have a very good progress in achieving our goal, which we pursued since 2023 to become an Aerostructures-only company and concentrate on this segment with this heavy potential on growth and the earnings. Goal, which we partly achieved with the sale of the E-mobility segment in 2024. Right now, we already posted today in the ad hoc, we are in a very good progress concerning the final negotiations for sale of the Energy segment at the level of NAV clearly above, together with the earnout, clearly above EUR 200 million, which we think that we hopefully can bring to it in a final talk and announcement and signing within the next weeks from now. Nevertheless, when we talk about the half year's numbers, we talk about, as said, Montana Aerospace as a whole, where we're extremely proud on the development, which we see here on this slide. We have again despite in many cases, a flattish market, but we have again increased quite heavily the sales. We had a growth of more than 14% in sales and the overproportional growth in EBITDA and earnings. We always claimed it in the previous calls since the IPO that our business model is structured in a way that once we have a certain amount of sales, every single sale increase leads to a better usage of capacity of internal resources with a decent fixed costs, and therefore, to overproportional development of EBITDA and also cash flow and also net income. That's exactly what you see in the first half year in comparison to the first half year 2024. As I said, increase in net sales of 14%, but EBITDA by almost 35%, 34.9% to a very comfortable amount of over EUR 100 million to be exact, EUR 101.4 million EBITDA and therefore, more in line than whatever we expected also for the guidance 2025. Net income impacted by a noncash impact, which I'll explain a bit later, but still a very strong increase from minus EUR 17 million to plus EUR 6.4 million. Let me once again, remember or remind that usually our stronger quarters are the third quarter and the fourth quarter in cash flow but also in earnings and therefore, having already achieved this very comfortable with net income in the first half year 2025 is something we present with proud and therefore, also gives us very good comfort for the full year 2025 and the further development of Montana Aerospace. CapEx in line. We always claimed that CapEx is to be divided in 2 different areas. Energy segment on the one which needs capacity and recent therefore, is since 2024 a bit stronger in CapEx needs for the capacity increase. And on the other hand, Aerostructures, where we do have a comfortable situation concerning the capacities installed and are more or less slightly above the so-called sustainable capital. So therefore, the split here is mostly to the Energy segment and sustainable capital area within the area of Aerostructures, therefore, absolutely in line with last year and also our guidance for 2025. Net debt, please note that on the slide out of, I would say, conformity and legal reasons has always shown the last year's end number. If we compare it with the half year's number of 2024, which is on further slides further down the presentation, you will see that we had 1 year ago, more than EUR 100 million more net debt or in different words and expression, we reduced the net debt by more than EUR 100 million from EUR 342 million to EUR 237 million, which is definitely our also future goal to reduce further the net debt and be beyond -- below a net debt-to-EBITDA ratio of 1 or EBITDA to net debt ratio clearly above 1. Free cash flow from minus EUR 42 million to plus EUR 1 million. Reason behind it is always to be mentioned, Q1 and Q2 are the weaker and Q3 and Q4, the much stronger cash flow quarters. Reason is in the working capital. There's a lot of working capital needs in the first half of the year and this is shown later together with strong earnings, also by reducing this working capital for the year's end and in the deliveries. So having already reached a positive free cash flow gives us also a very comfortable view for the year 2025. Stepping with the basis of more than EUR 7 billion or EUR 7 billion on contracted sales, also we look quite comfortable in the future, not only for the following year, 2025, 2026, but something which helps us to fill our capacities and even increased sales for the next years to come, and therefore, a very comfortable basis to start with. Montana Aerospace Group, solid growth in net sales, EBITDA and net income, as shown on this slide here, a comparison between the quarters of the last 3 years. You will see later then in the explanations from Kai, that aerospace market with the build rate is not so fast, increasing by far, not so fast, increasing as our sales increase. So it's based on a good performance from our side on market share wins, which we had and also on tailwind in the energy market. But if you look in total, we have increased again the sales in comparison to Q2 2024. And what again is more important is the EBITDA growth and the margin increase. So from 2023, we raised the margin from 10% to 13%. And in the last year, again by 2 years -- 2% points from 2024 to 2025. Operating cash flow and free cash flow, as already mentioned, we do have in the first year, half year a positive free cash flow of around EUR 1 million in comparison to a negative free cash flow, which we had same period last year. Here, it's shown on the quarterly basis, which is, I guess, important to understand to see the usual development, which usually has a stronger development in the Q -- in the third and the fourth quarter of the year concerning operating and other free cash flow, as said, in connection with working capital and deliveries to be done. Same structure this year, but on a higher value on a higher level, and therefore, with a positive development already of EUR 26 million in this second quarter of free cash flow versus minus EUR 8.2 million in 2024. You see that the positive development concerning EBITDA and earnings is also mirrored in the cash flow and the operating and also the free cash flow. Trade working capital. Okay-ish, concerning the development, quite stable. We do still have on strategic purposes, certain buffers concerning inventory, a buffer which we think is still necessary to overcome and to balance out the irregularities concerning the pull rates of the Aerostructure supply chain and not to fall in any shortcuts concerning deliveries, which we now are lucky not ever have to be ever done. So we are performing and delivering. But on the other hand, still a need for a bit higher working capital, but with a 20 -- more or less fixed ratio of 23% from sales, it's okay-ish and gradually also reducing from year-to-year with the goal from now on and also for the future for Montana Aerospace. Net debt, as I said, a strong development compared to the Q2 2024. We reduced net debt, so we more or less had cash and reduced net debt position by more than EUR 100 million. We are right now at the level of EUR 237 million net debt. Our goal for this year 2025 year's end is to be clearly below net debt-EBITDA ratio of 1. And this is something, I guess, we can clearly achieve with the present situation of the results. Financial result is something to be explained. You will see in the details of the result, a very high negative financial result, EUR 47 million is also compared to the net debt. It's simple to question why? The reason is that there are FX positions, which are noncash impacted. There is no cash impact out of it. It's more or less if we grant IC loans to some of our non-Swiss non-euro-based companies, then the impact of exchanges of course, show up in the P&L. And with the negative development of the U.S. dollar versus the euro, we have an impact of almost [ EUR 35 million ] within the first half year 2025. So if you can compare it to 2024, U.S. dollar at year's end was something like $1.04 -- $1.05. Now it is $1.16, it's the difference behind. So for us, it's important, what is the comparison considering the cash impacted financial result and this is more or less stable at [ EUR 12 million versus EUR 11.4 ] million in 2024. Saying that and giving an overview of the P&L balance sheet and also Montana Aerospace in total, I would like to hand over to Kai to give you a bit more details on the aerospace Aerostructures segment.

Thank you, Michey. I hope everybody can hear me good. Thanks for the introduction and the explanation on the numbers. Coming to the Aerostructures segment. First of all, you can see that compared to the quarter 2 of '24, the net sales is not -- well, it's not that big in terms of the growth rate. But fortunately, of course, our EBITDA, the margin is going up. This is thanks to the continuous efforts we are doing in cleaning up the portfolio, moving packages into sites where they make sense and where they can deliver better margins. So this will be an ongoing task inside of Aerostructures for the next, let's say, 18 to 24 months. Continuously, we will move packages as said, where they should be. And that's -- thanks to that, we are increasing our margins. Overall, the market is still driven by a very, very high volatility in terms of the pull rates. So we see some packages which are delivered and ordered on the volume that is already 70% and in the first half year of the complete volume we expected for the full year and other packages are only at 30%. So that tells me that still in the market, in the supply chain, there is a very, very high difference in terms of the inventory levels on several packages. And I guess this is also one of the reasons why we don't see the fast ramp-up as announced by the 2 OEMs. I definitely think it will continue like this for the next 2 years until there is really a bit of a stability in terms of supply chain and the inventory levels in the supply chain. Of course, we are happy to see the growth in EBITDA margins and of course, we will also continue to work on this. So overall, this is giving me the yes, one confidence that we will achieve our guidance for this year which still is in the range of EUR 850 million in sales, and it will be around EUR 150 million in EBITDA. So that's still very likely to be achieved. We definitely see also in the second half of the year that the volatility will be -- continue. And that means we need to be very, very flexible in terms of how we allocate the resources, how we utilize our machines in the best way. But for the moment, I definitely can say that we are quite happy how we did that in the past, and we were very fast in terms of adjusting capacity where it's needed. So that's a very good progress in the company. And I guess this is giving us some tailwind for the next months to come. Outlook from what I've said about the build rates, if we move one slide forward. Yes, this is exactly what I was referring to. If you see the build rates for the 2 OEMs. You can see that there is -- I don't want to call it a stagnation, but we can also read it in the newspaper day by day and that Airbus is struggling a little bit to come to the rates. I think they have to deliver 90 aircraft a month until year-end to achieve their own guidance. So that's not impossible, but it's definitely a big challenge also Airbus. And of course, we continue and we follow this trend, and we are trying to maneuver in terms of inventory levels and the build rates and deliveries. Fortunately, and of course, this is also for us, extremely important. Boeing is catching up. Boeing is definitely bouncing back, and that's very good to see. In the last months, they were always at the limit of current block of the FAA. So they were always at the limit of the 38, 737 aircraft, which they are allowed to deliver. And of course, this is now reducing in the supply chain, all the inventory levels and hopefully will end up in a steady growth also on the Boeing side and hopefully, very soon in the relief of this block of the 38 aircraft. So I guess there's at least what I got from the Boeing side, there is quite an optimism that they will get their belief on 38 in the next months to come, which, again, will then allow Boeing but also us to deliver more and coming back to volumes, which we need in the end. So that's a good tendency on the Boeing side. And also on the Airbus side, I definitely expect it's just a question of time that they will come back to the higher rates. So there is quite definitely insurance to be optimistic. But as I said, we need to be flexible. We need to take our own assumptions. And we have been questioned a little bit about being too conservative in terms of our own guidance and the rate assumptions, but after 6 months now, I definitely think that this was proven and there is a good reason on our side to stay conservative and yes, being very, very agile in terms of adjusting capacity where needed when the higher rates will come. So we have the ability to follow the higher rates. And of course, as soon as the OEMs will deliver more and we will follow this trend. Overall, I guess the numbers are showing it. We are on our path to become a very profitable company and delivering also the cash flow, which is expected by the shareholders. I guess the first half year was a very successful half year for the Aerostructures segment. That's so far from my side. And of course, I'm open to answer all questions, which will come.

Thank you, Kai. Energy segment, similar development, also growth within the last multiple years, but here it's shown only for the year 2023 to 2024 and 2025. The reason is the ongoing transition in the energy area or industry, the need for generators, high-voltage solutions and transformers is unbroken. This is the tailwind, which drives the company. And therefore, also with the capacity, which is constantly ongoing more and more installed. This is also then used and delivered and shown in the better net sales. Yesterday, we announced a long-term contract. Another one, this is a trend. So as already announced a couple of quarters ago, or initiated in 2024, the OEMs, the Tier like Siemens and now GE and others, they try to secure the capacities for the future. They know that they are dependent on the copper cores for their generator transformers. Without them, we would not be able to deliver. We are mission critically. We have a substantial market share worldwide. We are a needed partner in this area with our energy segment. And therefore, for our better planning position on the other hand, for long term, capacity also increased possibilities on the one hand side and on the other hand, for securing their demand from the OEMs, long-term contract contracted and another one was announced yesterday with GE with a value far above of triple million euro amount on sales for the next few years. This is a tendency and this gives us also the strengths to keep up -- to build up the capacity needed. In total, with a strong result in 2025 in the first half year in sales, but mainly in the earnings, cash flow generation, net income, we would like to at least reiterate our guidance and confirm our guidance for 2025. We have shown a guidance for the sales above EUR 1.6 billion, something we reconfirm. What is in our point of view is more important is cash flow, net income and EBITDA on also positive development path. Here, also we want to reconfirm so-called adjusted EBITDA clear above EUR 200 million with the ongoing positive net income, which we have already seen in the first quarter, but clearly, higher in the second quarter -- second half year and positive development further also considering the positive free cash flow with the streamlining working capital. And therefore, also we want to confirm to finalize the year 2025 with a position which gives us all the strengths for 2026, where we -- on the basis as we see it right now, see a sales increase to above -- to around EUR 2 billion and the adjusted EBITDA close to above EUR 250 million. Our presentation is closed with the reconfirmation of the guidance. And we, Kai, and me, we're happy right now to answer your questions.

[Operator Instructions] Our first question comes from Christian Bader, Zürcher Kantonalbank.

I have 3 questions, and I'd like to do them one after the other. So first of all, can you maybe talk a little bit more detail about your business mix in the Aerostructure segment? And how you expect it to develop in the next 1.5 years, please?

Yes, this is an easy one. Thank you. I mean, clearly, we indicated on all of our websites, et cetera, that we want to follow our so-called cost strength to be a vertically integrated supplier of Aerostructures solutions. This is what we do today, and we want to be as far as possible vertically integrated in the company. What does it mean? So we, from the very raw material over the recycling extrusion, then, of course, the machining, surface treatment and the smaller assemblies, we want to deliver everything out of -- under one roof. That's the philosophy we are following. And also with the integration of ASCO, this is what I mentioned at the beginning. We are now trying to even move more of the supply chain in-house so that we can deliver also to ASCO the single parts that are needed all out of one hand, so out of our own portfolio. So that's basically our business philosophy. This is where we are building on. And of course, if we think about further developments, then don't want to get more into the assembly business. So we are fine with the smaller assemblies we have. That's not our strategy to even become a Tier 1. This is not what we are willing to do. So we want to stay in the core business, maybe even enlarge our portfolio into the raw material side. So that's what we are aiming for. This model is proven by the 2 OEMs. We are winning packages continuously based on this model. And I guess that's the philosophy and the strategy we want to integrate and implement in the company.

Okay. That's very clear. And then maybe a follow-up on what you said. In terms of the customer mix, do you expect, say, significant changes in the near term?

There will be no significant changes because I think we have a very diversified portfolio in terms of the different platforms and the programs which definitely is a very, very good strength of the company. There might be some more diversification in terms of the space business, which is a very fast-growing market where flexibility and speed is of essence. And we see that with the current customers, we are winning significant market share. This is a very good business for us because it's also building on the core strengths I mentioned for the commercial aircraft. And we make use of the same philosophy then also on the space business, and that's paying off in the moment. So we are winning market share continuously with the customers. That's very good. This is a further diversification. And of course, it's in the trend that we also think about some defense business. But again, this will never become our core business. It's just an add-on and where we can build on the strengths we anyhow have in the company. And this is what we are further elaborating and continuously developing in our company.

Okay. Now my next question has to do with the disposal of the Energy segment. Does this imply that you will do an acquisition in the Aerostructures business relatively soon? Or are these, let's say, 2 things are completely separate?

So the main goal is to be -- to have a potential growth in Aerostructures. It's growing fast. We heard it from Kai. The demand in the future from the homes, it will be even much higher. We will be prepared. So there is, at some point, a need for organic and inorganic growth and organic in the direction what Kai just mentioned in some of the areas we want to expand. And on the other hand, also organic concerning here and there due to high demand from customers in the future capacity increases and this is something we want to be prepared for. And yes, it's the main use then for those use of proceeds.

Okay. And my last question is basically, I mean, in terms of balance sheet, let's say, indebtedness. What is the -- can you give us, let's say, a maximum level of gearing ratio that you are -- would not go above in case you do an acquisition?

So 2x net debt EBITDA is the maximum. We don't want to be above. Why? Because things can happen, and there is something then which is -- then it's getting not so comfortable to leaves still enough headroom for also topics where you have maybe an unprepared macroeconomic issues, trade issues or whatever. And we know that times are volatile. So therefore -- but this is also for acquisitions within an acquisition. So right now, we are below toward the year's end, below 1 at year's end, and this should give us more than enough also headroom for organic and inorganic growth in the Aerostructures.

Our next question comes from George Mcwhirter, Berenberg.

I have 3 please. Firstly, on Aerostructures. Can you just comment a bit about how you expect that to trend in H2? And what are the moving parts to the performance there? You mentioned about strategic delivery sequencing in H1. Do you expect that to remain a factor in H2? And linked to that, can you comment a bit more about the rationale for moving the work packages between different locations in Aerostructures and how that helped the performance in the half? That's the first one.