OHB SE (OHB) Earnings Call Transcript & Summary

Good morning to OHB's Q2 6-month conference call. Quickly, obviously, I will cover that -- the OHB business model, value chain, starting from development, integration and testing of satellites; and of course, launches; in-orbit operations and services; the exploitation of data. And the business model and the overall organizational chart has been -- remained unchanged since the last month. Just to remind you that we are now, of course, working with our 3 business divisions: Space Systems, Aerospace and Digital. This has been the reporting scheme starting from this year onwards. A few news in the Space Systems division. LuxSpace has signed the agreement with ESA recently for the development of the large Triton-X microsatellite platform. It's a new space microsatellite platform for launch mass up to 200 kilograms for low earth orbit applications. So we are very happy that after the successful mission of Triton in 2020, now we're working to be ready mid-'23 for the first machine based on this significantly enhanced Triton-X platform. Another important order intake, we have talked about this since a long time is the Gateway. Lunar Gateway contract has been signed and made on May 25 between Thales Alenia Space and us. Contract volume, about [Foreign Language] Okay. Good. So sorry that I walked over a few slides that you didn't see. So I had to quick run-through at Triton-X and Lunar Gateway. So let's move to Slide 6 then. Other activities on the Space Systems department were: recently, we have been successfully starting, together with Thales, our role in our EnVision Venus mission. This is obviously very significant for us because Venus has been since a long time a very significant destination. We are also leading the design of the future sovereign European missile defense program, and I assume, it's a better design. And it's called ODIN'S EYE program that we're doing together with the European Defense Agency. In order to catch up a little bit, maybe we should jump to the next slide, 7. MT Aerospace has signed the supply agreement between MT and ArianeGroup in April. So this obviously is another very important step in the overall Ariane 6 evolution. This contract is based on currents of 9 to 12. It seems that we're working together with the European Space Agency and the member states supporting the Ariane program towards currents in the range of 6 to 7, probably 7. This would be very positive. And for MT, this was -- would help us to have an efficient production of our shipset in Augsburg. First launch of Ariane 6 is still planned for mid-'22. Next slide. Recently, MT Aerospace signed an agreement with Boeing. Two companies will continue to work together. We have been involved since a long time in the big SLS launcher. We are doing the domes. So we are having -- other than Ariane 6, we are having also other customers in the launch manufacturing industry that obviously helps us in diversifying our MT Aerospace's business portfolio beyond Ariane business, which obviously has been very important in the Ariane 5 type, but now with Ariane 6 coming up. Our strategy has always been to diversify into other products. And this, obviously, with NASA's SLS launcher, we're very honored to be part of that. Keeping in mind that this is a U.S. taxpayer-funded program and having components on this product is -- signed that MT is very competitive and technically very skilled. Our investment in micro-launchers in the Rocket Factory Augsburg is moving along quite well. So recently, Rocket Factory Augsburg has tested the entire engine with the staged combustion for more than 8 seconds positively, and this is a very significant achievement showing that the engine is fully functional. And this is core to our idea of Rocket Factory having very -- having a very high performance engine because, as you know, obviously, in the rocket, the engine efficiency and performance is key to the overall, let's say, success of the micro-launcher. Recently, Rocket Factory also signed an agreement with Norway, with Andøya, for its launch -- future launch Spaceport activities. So we're very happy to team up with Andøya as our launch operation partner. A couple of other developments you can see here, just quickly glance over, because we lost a few minutes in the hiccups in the beginning. So I think what is important to see is that our aerospace launcher business with MT Aerospace but also Rocket Factory Augsburg is developing quite nicely now into the more and more competitive world of launching. Our third business division, Digital, recently signed another contract for e-GEOS telescope. This has been -- or this is more like a small series of telescopes over the last couple of years. The newest customer is e-GEOS Italian operator working together with Italian space agencies. So we are very happy that we are continuing this successful product line. Another important activity here is in our OHB Teledata. OHB Teledata is active since many years with all kinds of downstream technologies from checking and tracing telematics, but also the -- in the rail technology, station control technology for converter plants. We have recently signed a significant agreement with the DB Energie, which is the operator -- or which is the part of the Deutsche Bahn group, in charge of power supply. So this has been quite a nice contract for the Digital area. Our share buyback program is moving along slowly. We have so far acquired about 27,000 shares. And yes, quite happy to collect slowly up to the volume that we have announced probably in the range of up to 170,000 shares over the next couple of months. If you see, the order backlog is still very solid, about EUR 2.5 billion. So we are quite happy. The vast majority of that is in the Space Systems domain. This is a chart showing an overview of our products in the micro platform domain, small satellites, microsatellites. So we do have in 3 locations, in Italy, in Sweden and in Luxembourg, products here. Initially, I talked about Triton-X contract, building on the success of the Triton mission in 2020. Similarly, in Italy, we have as a second mission coming up. That was the first Eaglet mission, and now product, more generic as a product is called a multi-mission microsatellite. It's a bit bigger, up to 25 kilos, and it is supposed to launch next year. Also very actively in our Swedish subsidiary, the InnoSat series. So we are playing on 3 fronts in this market segment, all the way from 5 kilo up to the 200 kilo class, which makes us very comfortable in having competitive solutions for the microsatellite market because this obviously is the product that is important for constellations. And all 3 of those are active already in different constellations starting from Arctic Weather with our InnoSat product, earth observation; and also our Italian product, Eaglet. So this seems to be taking off globally. You see many, many constellations being developed. We believe very strongly in these kind of constellations for the earth observation markets but also obviously for certain aspects in connectivity. And as always, with OHB, we're trying to serve both markets, the institutional and the commercial market. And yes, as you can see, there have been the first missions already successfully. They've been implemented. And we're hopeful that in this domain, in this area, in the next weeks and months, we will see further successes coming into our order book. Coming to the numbers. Q2 '21 has been a successful quarter. First 6 months '21 have been quite successful, as you can see here. Of course, we need to take into account that 6 months 2020 has been a weak period. So order backlog is much stronger because the contracts have been signed. And the significant volume of those contracts to be signed have been programs decided, and then in a competition one after the last ministerial conference of ESA 2019. So of course, in the Copernicus domain mainly. But you see in terms of the numbers, total revenue is slightly up. Profitability has developed nicely. EBITDA, EBIT and all ends in the earnings per share, up EUR 0.09 from EUR 0.62 to EUR 0.71. Slight decrease in headcount, as you can see here. So -- but that's mainly taking place in our Aerospace division, where we are adapting to the market challenges that we have with Ariane business. If you look at the revenue and profitability evolution over the last 5 years, after 6 months, you can see we had the growth from '17, '18, '19, then basically flat 2021. So this obviously has also to do with the COVID slowdown that we also encountered. In terms of profitability, we were pretty steady over those years. Looking at the dark blue, which is EBIT being at EUR 21.4 million, slightly better than last year but at the same level as '18 and '19. Space Systems, yes, a steady evolution. You have to keep in mind, if you look at those numbers, that certain parts of the Space Systems activity have been regrouped into the Digital area. So this explains a little bit why the volume is flat here, but we're quite happy with what is going on in Space Systems. Going to the next. But we're not that happy with Aerospace and Industrial Products, mainly due to the Ariane business. We are encountering a decline in business volume over the last 3, 4 years. We believe that we hit bottom now where we are. We believe that business is stabilizing. Overall, the Ariane scenario has been able to reach agreements with regard to the development contracts, how to complete that, but also then so-called exploitation, that means the long-term safeguarding of Ariane 6 as a key -- or as the key product for European independent access to space. And this is something that you will see over the next quarters, improving those numbers again, maybe not all the way to the old levels where we used to be years ago, but this activity around Ariane 6 should be a balanced activity in the next quarters. Our new Digital division, quite successful after 6 months. You see EUR 52 million revenues. Yes, the comparison with last year is just a pro forma representation, which doesn't say a lot because, obviously, starting on January 1, there was reporting. It's not very, let's say, significant to have a pro forma comparison. But what you can see here is a strong EBIT with EUR 10.7 million. We're very happy about this. Strong margin in the range of 20%, EBIT margin. So it's moving well, even though, obviously, the biggest part of the substance here are activities that used to be part of the previous 2 business units, Space Systems and Aerospace and Industrial Products as it was called before. But we're seeing a dynamic positive evolution here. Our guidance is confirmed. Of course, we are confirming the guidance that we gave in February, the EUR 1 billion revenue. We're well underway in order to achieve that. And this also, of course, not just applies for the total revenue but also for the EBITDA of EUR 80 million and the EBIT of EUR 45 million, which I don't see on this chart. But since the next chart is already moving to the balance sheet, I might add it to this chart. Balance sheet has not really changed a lot. If you look at the asset side, it's the normal cycle over the year as it's a little bit up from last year's ending, mainly up in contract assets, which is the ongoing business. That's the biggest change you see on the asset side. Yes. Maybe moving to the next slide. You can see that equity has been significantly up from EUR 223 million at year's end, now to about EUR 239 million, which is positive. So we're very happy about that. So the overall development of the company is quite good. Also, the OCI has developed quite nicely because the appreciation, for example, in the -- in our investment in outcome due to the increase of the stock price of outcome has been quite significant. So overall, we're very happy with the evolution of the balance sheet. Financial ratios. Yes, I think it's not very spectacularly different than it used to be the previous 2 years. You can see net debt in the range of EUR 200 million, a little bit lower than '19, a little bit higher than '20. Excluding the pensions, it's a little bit lower, which is good, EUR 107 million compared to the EUR 139 million 2 years ago and a little bit slightly higher than last year, but you can read those numbers yourself. So we are pretty much stably moving on and implementing our plans and guidance. This just shows again graphically what I just said. Overall, investing is slightly lower than we had it in the previous year with EUR 9 million instead of EUR 12 million or -- and EUR 11 million, overcapitalized, the low level. So we're amortizing significantly more than we are adding to this, as you can see in the balance sheet at a healthy level with about EUR 5 million. It's a little bit less than EUR 5 million. Yes, those numbers, I think, they talk to -- for themselves. So free cash flow in the mid of the year is not very meaningful for us because our cycle of cash, obviously, is more significant at the end of the year. Good. That brings me to the last slide. It's 9:29, so within half an hour, I was able to catch up a little bit. Of course, we have now in the fall a couple of investment conferences. September 1 with the Commerzbank. Late November, it's with the German Equity Forum and DZ Bank conference. And in between, on November 10, we will see our third quarter numbers in the webcast again, hopefully, a little bit better prepared webcast next time, but I promise you that we'll rehearse a little bit upfront. But I would like to use the time now for questions. And so I open the floor to the audience to go to questions. I think Martina will moderate that. Thank you very much for the time being.

Yes, good morning. We will now start the Q&A session. [Operator Instructions] The first questioner is Mr. Hauenstein from DZ Bank.

I have a couple of questions. Maybe we can go one by one. First of all, with regard to Space Systems, what could be the absolute level of the segment within Q3? And especially looking into Q4, is there any reason to believe that the margin overall in H2 should be below H1? And if so, why?

This sounds like a good question to Kurt Melching. Melching, want you to jump in.

Our -- the margin we actually have in Space Systems is quite below 5%. But at the end of the day, we believe at year's end, we will be back to around 5% at least of EBIT margin in Space Systems.

Okay. So the absolute level, obviously, in Space Systems for Q4 should be quite higher then, as we are going probably for a strong Q4 output again, right?

Yes. Our forecast shows us very clearly, and it's also relatively normal that we have in the first half and 6 months of the year, and -- a comparable low total revenues. And we expect really what you were saying, a significant increase in Q4 of the revenues in Space Systems.

Great. Okay. Coming to the next question, in Aerospace, in Q2, I understand that there is maybe a one-off effect included in the numbers. Could you a bit speak about it? And do you think this will be done for now? Or is there anything further to come in Q3 and maybe even in Q4? And related to that, Mr. Fuchs, you mentioned that you're looking for a quite balanced next quarters you meant. Does that mean a balanced full year actually? Or does that mean, a balanced means around the 0 line EBIT for the next 2 quarters?

Yes. The one-off effect is the principle we have booked this in Q2 due to relatively -- well, like finally, agreements with the work council concerning the German interest house. Like in English, I think the word is reconciliation interest. And this is more or less finalized. And accordingly, we have booked an additional accruals of 1.2 -- EUR 1.9 million, and this is the final accrual as they become no more in the fourth quarter. And it's also right to expectation that we expect an increase in revenues and an increase of the EBIT in Q3 and Q4. And at year's end, we hope -- still hope that we can achieve an EBIT between 0 and minus EUR 1 million. That's our expectation for the full year.

Okay. Great. And looking again at Space Systems, Mr. Fuchs, maybe that's one for you. I'm wondering whether you could give us an update about the filing against the Galileo decision. And related to that, is there any chance that you get soon another kind of project having kind of a similar workforce necessarities and skill requirements? Or to put it differently, is there any scenario where you will not need to find new and completely other work for your Galileo technicians and retrain them, which I understand is quite costly?

Yes, of course, this has been one of the areas where we're working hard in the last couple of months. And maybe to the status, I don't want to go into the detail, but the case is pending with the European Court. The quick case, or the [Foreign Language], as we call it in German, has been completed. So now the main case is going on. And yes, this will probably take some time. In terms of the -- your second question, of course, we are working very hard in order to use the skills we have, the skills obviously for the first generation of Galileo, building 34 satellites of a certain class at a very competitive price. And that's the backbone. The team and the skill set is the backbone why we are very confident that for commercial constellations, we will be successful in the next couple of weeks and months. And that's also the plan why we believe that we will be able to load those skills with new incoming work. So we do not foresee a headcount reduction around those teams. Obviously, this means that we need to also successfully acquire new contracts. But again, I'm very confident over the next weeks that we will be successful in this domain.

Okay. Sounds good. All the best for that. And final question, Mr. Melching, could you please give us an update on the free cash flow targets and maybe also on the CapEx side, what you're looking for? This has been in this half year a bit different in terms of CapEx than the years before. So maybe you can lead us through with some color here, what to expect on the free cash flow side in total?

What I expect on the free cash flow side is really an ambitious question. At the end of the day, we expect the same as we had in the last years that we have this increase of net debt in the first 9 months of the year. And we hope -- we expect a significant reduction of net debt in the fourth quarter. If this will lead to a positive free cash flow at year's end is I cannot promise because this depends on achievement of certain milestones in certain programs, and this also achieved -- depends on the order intake in the next 6 months with potential advanced payments.

The next contribution comes from Zafer Rüzgar from Pareto Securities.

I have some follow-ups. First, on the space. Let's start with the revenues here. A bit lower than in the prior year's quarter, but we have seen some progress against Q1. How is the situation now in the supply chain? It seems that we will not have again hard lockdowns as in the last year. Do you think the situation is easing? And are you more confident for the rest of the year with regard to your milestone achievements? And maybe a follow-up on the profitability here. We have seen the second quarter in a row with declining margins. Is that decline related to the shift of business into the new segment, Digital? Or do you currently suffer from difficulties in the underlying business or from a weaker revenue mix? That would be my first question.

It's -- concerning the supply chain, we expect, as I already mentioned, an increase of material costs in the next 6 months. But there are -- our experience over the last 6 months is there are some unexpected delays, not due to COVID-19 is our assumption. This comes -- also sometimes we have unexpected delays due to missing electrical parts in the -- in our supply chain. This comes to the worldwide delays in the supply chain at the end of the day. And this may have -- may also lead to some surprises in the next 6 months, but we are pretty confident, if you are looking in our applicable commitments, that it shouldn't have no major impact on our guidance as well as the total revenues. Concerning profitability of Space Systems, it's -- the first answer is concerning, as you mentioned, the movement from some business to Digital have some impact, but it's not so absolutely substantial. And we have some -- as mentioned in our 6 months report, we have also some minor projects, some delays and some cost overruns. There's no substantial one big cost overrun. There are some cost overruns with some projects and some with different companies of the Space Systems area, but this is not a major event. So at the year's end, our -- as I mentioned, I still believe that we can achieve an EBIT margin more than 5% in -- for example, in OHB System, the core company of this segment, the EBIT margin is still at [indiscernible] in the first 6 months. This -- there's some problems and some projects are also at OHB Sweden, at LuxSpace and Aerospace, but in some -- to some extent, also in Aerospace system. But as I mentioned, there are no one major event, and we believe that there will be no more surprises or negative surprises in the next 6 months.

Okay. And the second one is related to Digital and to get a better understanding of the operational development here. How much of the increase is related to real business? And how much is just the shift of revenues from other 2 segments? And again, here, related to the very, very strong profitability, shall we start thinking your margin target of around 10% in that segment? And what could be the effect for the group profitably at the end of the year? And in particular, if we consider what Mr. Melching has said with regard to Aerospace earnings target, and probably, also with regard to space segment, it could be that you will be at the end with that profitability level above the EUR 45 million EBIT?

I can answer -- starting -- speaking -- I can answer for the Digital part. We actually said that the EBIT target for year-end will be above 10%. So at Capital Market Day and Q1 results, we spoke about something between 12% and 15%. And this, from my point of view, is still realistic. Why is Q1 and Q2 stronger than that? Two reasons. One is we are building up, we are investing into Digital, and we are building our sales force and so on. So there will be slightly higher cost levels in Q3 and Q4. And Digital, like the rest of our business, is a project business. But the -- actually, the cycles of projects in Digital is sometimes shorter than with -- and significantly shorter than with satellite projects. And in Q1 and Q2, we benefited a lot from a service contract, which actually is a new one, not transferred from Space Systems or Aerospace, where we are delivering signals from space. I cannot go too much into detail here, but our product is actually delivering of services -- of data services from space. And this has been a project for testing, particularly profitable in Q1 and Q2. So project mix obviously has an impact as well. So we can still confirm from my point of view that EBIT in Digital by the end of the year will be in the range of what we said, between -- somewhere between 12% and 15%.

Okay. And finally, on the order intake, it has been somewhat quiet here, the last months. And do you expect a similar pattern as in the last year with a very strong H2 in terms of orders? And what is the overall expectations for the order intake in 2021?

As you know, this is typically a cycle of institutional projects, which are very much driven by these cycles of so-called ministerial conferences of the European Space Agency and of large projects by the European Commission where, obviously, we have one, Galileo, as discussed earlier. Otherwise, our order intake would, of course, be significantly higher already this year. So 2021 is just by the volumes which are addressable in the institutional market, a year which is not as strong as the last year has been. But you should not forget that with the order backlog we have at the moment, we are still at an all-time high. And 2020 was an all-time high, and now it's still above EUR 2.5 billion, it's still an all-time high. And we are following quite a number of very serious and larger prospects in the commercial arena. So that I would not exclude significant order intake to come within Q3 and Q4. Martina, we have further questions?

No. For the moment, we have no further questions, but I would like to give Alexander Hauenstein because his hand is still raised. Maybe he has got a follow-up question. If that is not the case, then we have no further questions. Mr. Hauenstein?

Sorry, I didn't take the hand down.

All right. Then we have no further questions. Yes.

No. So it's a last chance to ask questions. Looking at the watch, it's already 9:45. So if you have more questions, please feel free. But if you're not raising the digital hand within the next minute or so, then I assume that -- so I think Mr. Hauenstein's question answered all the open points. I can just tell you that the year is developing quite nicely for OHB. I think we are moving along very significantly on a couple of fronts that Lutz was talking about diversifying our customer base, having significant successes also beyond the traditional institutional customer base. Of course, space overall is booming. We see a very dynamic, very -- live with the space industry in Europe, in North America, in Asia, and that just obviously confirms that space is contributing a lot of value in many regards to what's going on, on earth. And we're very grateful and happy to be part of that overall movement. So I can just share with you that we feel very comfortable in '21, and going into '22, obviously, hopefully, we'll then provide new perspectives on the institutional side but, again, also beyond that. So this was just to fill the 1-minute waiting time for further questions. So I look to Martina. If nobody else has raised his digital finger, then, of course, I take the opportunity to thank you all for your interest in OHB, for covering OHB. And again, in early November, we will then reconvene for our Q3 numbers. So here from Bremen, thank you very much. And should you have any further investigational questions, obviously, Martina is available. So thanks to the whole team, thanks to preparing this Q2 report from my side. All the best. Thank you. Bye-bye. Have a good day.