OHB SE (OHB) Earnings Call Transcript & Summary

[Audio Gap] I'm here together with Martina and her team, and we have Kurt and Lutz also online. So I hope you have been able to also download the material which has been released earlier this morning. And as usual, I'll quickly walk you through the slides. I was just told by Martina that I should say that we would take this, but she wasn't sure if it works. Now she is sure that it works. Okay. So I guess we are taking it, and we will put the whole presentation, the Q&A session then online, as you are all used to. So -- and the only thing I'm supposed to do is to switch to [indiscernible]. Yes, it all works. Just quickly an overview, of course, the group has not changed in the last months a lot. So it's the Space System, Aerospace and Digital format we have since now. Well, basically 2 years. The only small change that occurred in July is that the company OHB Infosys has been renamed to OHB Information Technology Service due to discussion about name rights. There was a company that was called Infosys that asked us not to use the same name. And now this company is Information Technology Services. But other than that, is the identical set of consolidated companies and activities. One thing I'd like to quickly update you on the shareholder structure. Nothing has changed there. But what we are going to do, what I'm planning to do with my mother is to create a family foundation, which is currently under preparation. It has not been done so that our shares will be transferred into this new family foundation. The foundation has been created, but the transfer will take place in the next weeks. And the objective of that is a long-term stability to secure a long-term ownership of my family. And obviously, keeping the OHB Group, let's say, beyond generations family -- let's say, stable. I personally will remain the -- obviously, the person in control, even though it's now in a -- what it will be in a foundation structure and -- so the Fuchs pool will remain, but it's just not individual people anymore, but it's a foundation that is then pooling the majority of those shares. But that will be when it is finally implemented will be published, and there will be notifications to the [indiscernible] and so on and so on, but just as an information and an up front information. Strategy has not really changed at all. Still, of course, our scope is to broaden our end-to-end Space System spectrum actually over the last months, and this is why we always come back to the strategy. We have been more and more confirmed that this strategy, which we believe is a good balance between the institutional and existing business and the opportunities from the commercial business are very well balanced. So we are making good progress in implementing that strategy. Downstream portfolio is growing -- has been growing earlier this year through the acquisition of GEOSYSTEMS and a couple of other activities that you might have seen also in the Q2 report in the part where we are describing it. The other strategic -- let's say, goal we are doing with regard to our participation in the Rocket factory is moving well. You will see slides on that. Overall, we're very busy here. We are very much striving to improved performance. We're working very hard also to work on the culture and people to remain an attractive employer to make sure that productivity of the team is doing well, but of course, this is going on in all the industries and in space. I guess, we have the advantage of it being in attractive growing industry. In terms of numbers, the strategy is unchanged, and you will see where we are at half year. Highlights from the Space Systems segment, a significant contract has been signed for the FORUM mission. That's a ESA contract. We work with Airbus U.K. It's another, let's say, environmentally important mission, the ninth so-called Earth Explorer, measurement of the far-infrared [indiscernible] is called in Germany in order to measure the electromagnetic radiation. And yes, will be launched in '27, the main work we are doing is the payload, the optical part. So what you see on the chart, the lower part, so it's significant work with for our [indiscernible] for Munich facility, orchestration [indiscernible] and the technology work on this infrared we believe, has been a good opportunity. And we are very happy, by the way, also to work on the Airbus team. So this has been since a long time to time we are doing a satellite together in this configuration. So we're very thankful and enthusiastic to work with our colleagues at Airbus U.K. Other progress we did in Space Systems with the launch Well, I'll start with the photo, which is, by the way, one of the lower [indiscernible]. The launch of LARES. There was a Vega-C inaugural launch on July 13, and the main payload was the LARES2 satellite, it's a passive satellite, which has been deployed very successfully by Vega. We have also built the first LARES a couple of years ago. It's also a scientific geophysical experiment. We're very happy as OHB Italy to be part of that successful Vega mission. Other important stuff in SARah Next Generation contract was signed. So that's for the next generation already. We are still in the implementation of the SARah generation currently. There has been a launch successfully done in July for the first SARah satellite, which is a [indiscernible] satellite to be developed by Airbus, Germany under our prime contractorship that has been launched successfully. And we are preparing the launch of our [indiscernible] later this year. A couple of other improvements. I think what is notable is that the InnoSat platform from which Sweden is developing into a very strong contender in the 100 kilo class of platforms. So we're very happy to have successes there. Another big area of business development that is very promising is the future after the international space station. So we are part of the Orbital Reef space station team. We signed with MoU recently because as you probably followed that the International Space Station will come to an end, hopefully, in 2030 and until then dominated by the initiative of NASA in the U.S. there will be a number potentially of private space stations in lower orbit taking over the role of that, and we are working with a couple of them Orbital Reef, but also in discussions with other. Our LSAS project is moving along, but this is hopefully something to talk about at later stages. It's lunar exploration -- or lunar surface that we are working on since quite some time. Highlights in the Aerospace sector, Aerospace did quite well. If you look at the numbers, so we're happy with that development. Of course, the big point is still Ariane 6. We're moving along to launch the Ariane 6, that is supposed to happen somewhat mid next year. Tests are going on overall in Ariane at group level. So we are, of course, very happy to see that now Ariane 6 will come into service soon within the next year, and we're proud to be part of that team with our [indiscernible] space contributions. But of course, we are still already working on improvements there and carbon fiber improvements are a significant part to lower the weight and increase the efficiency long-term. So the PHOEBUS project for a new upper stage from carbon fiber is this project where we have a very significant role that has been developing quite nicely. A few other smaller things with regard to also the vertical lending. There is a TMS project where we have a participation in the project, which is called SALTO where happy to research that as well. So this is the future activities around the European access to space programs together with Ariane Group and ESA. A couple of other activities in the hydrogen technology are going on, and I don't want to go to that, but this has been a significant point of business development and now already engineering and developing products and projects at this stage at our [indiscernible] MTA empty facility. Rocket Factory, you see the engine here. We had a successful long-duration a hot-fire test, 3 tests conducted a ton of 74 seconds. So the last one, the longest one was 40 seconds, and that has been a major success. So the engine is working. And the durability has been very, very positive. So multiple ignition works. And we even see improvement potential for up to 130% from the nominal design point of the performance. So next step here will be the integrated upper stage test, which will follow later this year. So this program moves along quite well, and we are very confident that the first RFA launch will take place later next year, so end of next year. We'll see that we should be able to launch our [indiscernible]. So that excites us, of course. But yes, but it's rocket science. So it might also -- there might be some challenges popping up, but this thing this step with the engine being reliable has been a very, very big relief and the team is very proud, and we are also very proud that this engine test. Because at the end of the day, a rocket engine is the core thing of a rocket, so if the engine works a lot has already been achieved in rocket science. The digital highlights of last couple of months has been very much around in my view very much around OHB Teledata's successes with the German railway infrastructure, Deutsche Bahn. The digitalization is a big, big, broad investment initiative. And we as OHB, with our OHB Teledata subsidiary are a part of that. So we're very happy to have the successes. And if you look at this chart, it's called the German Lösungen für die Digitalisierung Elektrifizierung des Schienenverkehrs. So that's the rail infrastructure itself. So the rails are measured and controlled. And that, again, is a very let's say, long-term activity. We do this since a long time, but we now see really a boom in this area that is very happy, and we're very happy to work with Deutsche Bahn. We're very proud to be selected for these activities. Another new release or continuation of services, which also continues an activity that is going on since a long time is around AIS, the ships identification where we, with our LuxSpace activity are working since many, many years, you see 2011, more than 10 years already, 250,000 vessels per day, we are monitoring -- so different type of subscribers. And I'd like to mention this here mainly because we have now shaped our service in a more improved way with the OrbitSailor service platform there. So it's a significant extension of our downstream service market. And again, we're very happy that we have been very much at the beginning of AIS services. As you see here, out of the claim founders of the AIS satellite -- AIS satellite systems. We have started very early on, and we are very much a successful player in this market. But obviously, it's competitive. Others are doing it as well. So we always have to keep up improving our solutions and services there. Good. So I move on order backlog. You see that we have an order backlog on June 30 at EUR 1.8 billion, it has decreased, which is not a big surprise. As you can see, if you look over the last couple of years, always in the months or year of the ministerial conference of ESA the long-term volume of the Space System contracts is a little bit declining. And yes, of course, we hope that later this year in November, there is a minister conference will initiate significant new projects so that in 2023, we will see significant increase here as well. So we still feel comfortable with the order backlog. But yes, it is lower than where it was a year or 2 years ago at this time. But again, you see the cycles there. If we look briefly to what the 6 months numbers this year are in terms of the backlog we just looked at. So that has been decreasing on a year-over-year comparison. Total revenues are up 10%, which is nice; EBITDA, up 9%; EBIT, up 19%. That's even nicer. And you see that the lower we get, the higher is the increase with 26% of before tax increase from EUR 18.9 million to EUR 23.9 million and the net profit up 24%. So this has been a good first half year '22. Head count a little bit up, around 90 people more, mainly in the Aerospace area that has been the most significant increase of people. So just briefly looking through the comparison here. Of course, overall, you see the increase here compared to last year. EBIT margin slightly up which is nice from 5.3% last year to 5.7% this year. We break it down to the 3 divisions, Space Systems has a slight increase also in total revenues and also in profitability going from the EBIT from EUR 15.2 million to EUR 17.4 million. Happy about that. If we look at Aerospace, you see a significant increase in revenue from EUR 40 million to EUR 54 million. And obviously, on profitability, of course, last year has been loss-making at this time of the year. And this year, you see that we have an improvement from minus EUR 4.8 million to plus EUR 3.2 million. So this is EUR 8 million improvement compared to where we were last year. So this is obviously just confirming what we already communicated earlier this year, that we see Aerospace on a solid track to regain its profitability. And yes, let's see if this happens. But obviously, it depends very much on what I said earlier. The development of Ariane 6 and also, of course, the development of the other services or [indiscernible] Aerospace. [indiscernible] as would be not consolidated here. So that's not part of these numbers. So this is mainly in the Aerospace numbers that we can see here. Our Digital division. Yes, we see a significant decrease in the profitability at this stage of the year. It's around EUR 50 million revenues, so that's stable. But obviously, the significant number here is to see that the EBIT margin decreased from 20% to 10%. Still a good number, still high, but this had to do with a very strong performance of last year. We do see this activity as very profitable. You see that 10% is still basically double the profitability than we have in other areas. So let's see how the next quarters play out, but we're still very optimistic about the Digital development, and we will, I think, see a significant growth and also a much stronger profitability than what we had in the past with the exception, obviously, of the very successful first half of 2021. And here you see the outlook, we do confirm our guidance of this year. So we do see a path to reach the EUR 1.2 billion revenues. But mainly, obviously, we are looking, as we always have much more to the profitability numbers. EBIT of EUR 60 million is the core number that we feel good about that is reachable for the year '22. And yes, EBITDA then obviously, will also be at a similar level. So -- of course, we are following a challenging path of growth, also the outer years that we have given as an outlook. We look at that. This is something we obviously keep a constant eye on. But this obviously has to do a lot about our capability to generate new orders. So it will be exciting to see if we are generating significant new orders in the time between now and the end of the year. But this is actually what we are working on. So the ministerial conference will be important and also a couple of commercial satellite initiatives that we have already discussed in the past. Some of them have been delayed. Some had difficulties to get financed. So this is an exciting game to follow to see how to make this outlook become actually reality then. Balance sheet. There's not much to say on the balance sheet. I think the biggest issue here is that, as always, over the years, from year-end, December 31, '21 to now, we have a significant increase in contract assets, EUR 100 million more, EUR 110 million more. We have a significant increase in trade receivables more than doubled from EUR 53 million to EUR 109 million. So that's blowing up of after balance sheet that will go in cycles again and we are confident that at year's end, we will see that going down. On the other side of the balance sheet, what you obviously see here is that this is also reflected in a significant increase in current financial liabilities, moving from EUR 146 million to EUR 252 million. So it's very significant increase of EUR 100 million more which basically directly reflects what we just saw on the other side. So this has to do with a couple of big programs approaching the end. Obviously, the biggest of them will be the SARah contract, which were the 2 satellites planned for launching later this year and [indiscernible], which just plan for launching early next year. So those are very significant points that you see in our balance sheet now being then hopefully, successfully being launched and turned into operation. Financial ratios, as I explained, at this point in time, weak compared to last year, the net debt of INR 292 million is higher than where we were a year ago to EUR 212 million, net debt ex-pensions as well. CapEx has been at the same level, more or less. Well, we are at EUR 11 million at this point where we were at EUR 9 million last year. So we are pretty much on a stable path. Own work capitalized very low, even lower than it was last year. So we are not capitalizing or significantly less capitalizing than what we amortize. So we are in the phase, but we have obviously capitalized a lot 10 years ago. So we're now amortizing this 10 years in the last decade. So we're amortizing that. But -- that obviously reflects the status where we are in terms of being an established satellite manufacturer from very small sales to very big satellites and obviously, waiting very, very carefully where we invest and we capitalize those investments. Many of the activities we do, we're just expensing out and we're just not putting on the balance sheet. As you can see, with EUR 2 million per quarter, it is a comparably low number. Yes. This is just a chart showing looking backwards where we are. And as I said, the net debt is higher than it was last year to compare. And again, this has to do with the completion of big programs that have and payment milestones. There's a very significant payment scenario at the end of the SARah contract, which has a big part in this. And obviously, we're aiming in closing that what is hopefully a successful launch before the year end. Investment I talked about, it's rather low. So we will see if we come at the same investment level as last year, but most likely, this is the point of orientation compared to where we stand now, the EUR 23 million total investment might still be a number where we end up, maybe slightly lower. The cash I talked about and the main reason for this negative cash so far is really in the national German domestic business of OHB Systems, Space System. So this has to do with always, let's say, transparent to us the payment cycle of major national programs, which require a very significant, let's say, working capital finance in there. Good. So let's look to the future. I don't know how I'm in time. It's 9:00 already. I guess the key points I just quickly wanted to mention before going into Q&A is the -- what we see as the sources of future news flow coming in. Of course, it's the ministerial conference from the European Space Agency in November. Of course, we see a number of projects. Of course, it's around Earth observation. This is the main activity Copernicus, but also Earth Explorer. EE10 is an interesting point. Yes, there is a telecommunication on the agenda. We do believe that the quantum key distribution technology will be supported and will be developed in Europe. And of course, there is this big European secured communication constellation, which is coming, hopefully, in the next couple of years and hopefully with German and of course, also OHB participation. Science and exploration always a big topic. that's the normal work of ESA, the traditional, the so-called mandatory programs are important there we see when those programs will be initiated, but we definitely, after the successes we have with our Plateau program, also exploration with [indiscernible] and others, you see a very good route to more work coming from that. Other news for here, we see space safety being a significant point. HERA, [indiscernible] , Flyeye is important. So a number of topics. The [ moon ] is very much on the agenda with a big program that Europe is planning to do the so-called EL3 Lunar Lander we are preparing ourselves for this. And in the midterm with the last the Lunar surface. So this needs to be, of course, implemented and yes, -- but I guess Europe is very determined to move also in this direction. I talked a little bit already about the upgrades in the future of the Ariane program. We are very committed to Ariane 6. We believe that now after the [indiscernible] contract was signed earlier this year that Ariane 6 is on a good way. But of course, what is the most important thing on Ariane 6 is now to successfully have the first launch and then quickly also resume the commercial launches for Europe and commercial customers and continuing the successes we saw over the last years and decades with Ariane 5 so far. Good. In terms of the German military, the German so-called [Foreign Language], as I call it, I don't know what that means in English, but it is special fund, right? That's the term. We are obviously following this, we believe that Germany is making very good steps in implementing this now. Of course, now almost half a year into the war in Ukraine, we all have learned that this is a situation that is not just briefly coming and growing immediately. So this seems to be a very long-term fundamental change. And yes, of course, we see NATO is changing and the applications of Finland and Sweden have been approved and are under ratification. And of course, all dimensions of defense are changing, and this obviously will also include space. So we are hopeful that this works. We -- just had the number we have seen -- we have delivered more than 30 proposals for the Federal Ministry of Defense recently. So there's a lot of activities going on, but it's too early to see exactly what the outcome is, but it's clear that Germany is very, very engaged in implementing the -- let's say, the measures that have been taken by the German government in February have now been announced in February and now half a year into this, we can already see quite some movement on this. And by the way, the legal implementations have taken place, so there have been changes to the laws and the regulations. Good. So this basically concludes the quick update. I just wanted to end a look at what we are looking for in terms of our calendar. The next step in September is a couple of events in Frankfurt and Malta on conferences where we physically participate. And of course, November 10 is the next quarter Q3 report. And then after that, we see again a Frankfurt DZ Equity Conference and also Equity Capital Forum in late November and in January. This leads up then to our next Capital Market Day on January 18, here in Bremen. And obviously, you're all invited to that, and I hope we will all have at the latest then an opportunity to meet again in person. So that concludes my quick overview, and I'm looking over to Martina because she said she's running the Q&A session, and I guess she has a list already of questions to us. So thank you very much from my side, and I hand it over to Martina.

Yes. For the upcoming Q&A session, please note that in addition to Marco Fuchs, also Kurt Melching and Lutz Bertling will be available to answer your questions. [Operator Instructions] The first contribution will come from Alexander Hauenstein from DZ Bank.

Yes. Can you hear me?

Yes.

Perfect. I have 3 blocks of questions. So first, let's take it one by one. Could you please elaborate a bit about the impact of your business from the Russian withdrawal from the International Space Corporation and projects. I know it's probably difficult to say, but is there any idea. Is there any impact on the EBIT for this year or maybe for next year? Is that possible to quantify at least roughly? Are there maybe on the other hand, opportunities for you instead?

Yes. Maybe I quickly can start this question. Of course, this has been a negative surprise. The most, let's say, direct impact to us has been that the Soyuz rockets stopped launching in French Guiana and this impacted Galileo satellite. So there have been already Galileo's satellite has been ready for launch earlier this year in the spring that could not be launched. So yes, the 10 Galileo satellites that we have manufactured are currently not manifested for launch, and it's unclear how they will be launched. However, this is not our responsibility. This is with the customer, with the European Space Agency in the European Union, and they are working on a concept when those satellites will be launched. So this has no impact on our numbers. But obviously, it's not our intent to put these satellites in storage, even though this obviously, I mean putting them in storage will be compensated. So it's not an economic question for us, so putting them in storage and then retesting them again might even have some economic benefits for us, but we would like these satellites to be launched as quick as possible. So no negative impact here. The second negative impact on Europe has been ExoMars, that program has been stopped the cooperation with Russia. It's reassessed. There are ideas how to relaunch ExoMars, of course, without Russia. And that means most likely a scenario will be things thought about that we'll work with the United States. Yes. And this obviously provides for additional work because we are in charge of the carrier and the Russian contribution had been also, among other things, the Lander has been a lava stream. And obviously, the only country in the world that had successfully landed on Mars is the United States. And this being said, the carrier would be impacted. So we would expect if there will be a continuation of ExoMars that there will be quite significant and the patience required also for the work that we have done, but this is uncertain. So it's completely uncertain. But that has no negative impact because our contributions to ExoMars has been completed. Our products have been delivered. As the whole European ExoMars program has been completed and was basically waiting to be shipped for launch around these. I guess it was planned to be around these days in '22. The last point of Russia, obviously, is the story of ISS, the future of the ISS. I guess that's uncertainty with Russia leads the ISS since '94. I suppose that the West -- I mean, the Americans and the remaining partners will continue the ISS up until 2030. But this is obviously something that is currently under evaluation. But I don't see any impact on OHB's work coming from that. Other than, obviously, that the question of the replacement and the future as infrastructure in the lower or it is now very much an imminent question. So I guess this probably results more in opportunities. So long story short, no, we don't see any negative impact from this Russian withdrawal.

Okay. Thanks a lot for clarification here on that side. Coming to the next part of my question, it's for the EUR 100 billion military extra budget in Germany. How could it be -- or how could your slice of the cake end up at the end? And what kind of space equipment would this be? I mean what is behind the more than 30% -- 30 proposals. Is there any -- I understand there's a certain amount that is headed to space, but have you an idea how much of that is probably something which you can go for and how much could be realistic. Any flavor on that side would be helpful.

Yes. Maybe Lutz is best positioned to take that answer. Lutz are you...

Yes, and I can take that one. First, Lutz Bertling speaking. So on this EUR 100 billion program, obviously, space is the smaller part of it. It's mainly about ground systems, fighters and so on and so on. There are 3 elements which are interesting for us. The first one is the Next System for satellite communication in Germany, where we expect an ITT to come out before the end of the year. The second one is early warning. Europe wants to develop its own early warning system space-based early warning system for detection of missiles, but as well hypersonic patents. Here, this is clearly mentioned as a priority in the BM program and OHB on a European level, is leading this. So it will go finally through a combination of national funding and the European Defense Fund. And we, as OHB are leading a consortium of overall roughly 30 companies all over Europe, including the other large SIs. We are the lead and within the program, we are responsible not only for the overall leader for the leader in the space segment. So we expect significant opportunities there. But it will take a time. We had a study phase at the moment. I would expect only single- to double-digit million order intake 2023 -- '22 and '23. The real bunch, the big order intake will, from my point of view, not before 2024. And the third element is the so-called [indiscernible], this center for situational awareness of the German forces and OHB digital connectors heavily involved and this shall be significantly extended. Overall, take all these things together, I would expect that out of the EUR 100 billion number in the single-digit billions mid-single digit, I would say, will end up with space activities. And in those, we are really well positioned.

Okay. Great. Looking forward to see what's going on there in the future. And coming to the third part of my question, it's regarding the outlook for 2022. It seems like you're quite on track to reach your EUR 68 million target despite all the different difficulties around in the markets and around you. Nevertheless, you need a very Q4, a very strong Q4 probably. So could you could you let us know about your confidence level here regarding the target achievement and explain a bit to us why this is as it is? And how Q4 back-end loaded will be in the different divisions? Maybe you can lead us through here, please?

Yes. I think Kurt, you want to take that question, right?

Yes. Okay. Yes, in the Space Systems segment, we expect in Q4 some order intakes we expect in Q3 already. Then we have, obviously, hopefully, some positive developments and projects. We have -- believe we can achieve the launch in '22 for the SARah satellites. This also will have an impact on revenues and profitability. And we still expect that the long or since a long time, announced [indiscernible] program will now become reality in very new future. This will also have some impact. And so we see strong development in revenue to Space System and we also see strong development in profitability in Q4 with some special good project effects concerns of profitability. This is what we are looking for, and we believe that this can be achieved still. And so that's the reason why we have confirmed our outlook. In the Aerospace segment, you see significant progress already. And first 6 months compared to last year. This has to do, as already mentioned, with our -- so on the one hand, this Ariane program. On the other hand, it's very important that we have achieved significant progress in turnover with our other customers in Aerospace segment, Boeing and other customers in the U.S.A. will also have positive impact on the development or has already a positive impact on the development of the segment. In the Digital segment, we have achieved again a double-digit positive EBIT margin in the first 6 months. And we see here -- this is absolutely in line with our expectations since in the last year, the same point of that last year, overall, we had very significant positive impact on Bank special program. This is this year not the case. This year, we have a stable development in all the companies, which are under the segment, and we have significant what to highlight is as already shown in our presentation that in the our rail business is we really expect not only for this year but also for the upcoming years, significant growth in revenues and profitability but already they are contributing a lot to the result of the first 6 months. Yes, this is our -- mainly our -- the reasons why we are still more or less confident that we can achieve this profitability margin for '22.

You mentioned that it's still possible. Has there been any loss of confidence due to all these other issues around or?

Really a loss of confidence, but for example, it's necessary that SARah launch really take place this year. This is planned. This is forcing the schedule by space business, things can happen at the end of the day. A delay in the next year will have some impact on the total revenue and also profitability for this year. This is -- that's the reason why I mentioned not 100% sure, but we are confident that we achieved this, but we promise for this year. That's all.

Thank you, Mr. Hauenstein. The next contribution will come from Richard Schramm from HSBC.

I have one question concerning the private satellite business. You mentioned that there are obviously delays with projects and there are problems with financing that some projects are obviously in this respect under pressure. So what's your view on this customer group here. And going forward, how important is this to fulfill your midterm targets and especially. So wouldn't you need also a push from this side because I think you not only can rely on the ESA projects for the future, right?

Yes. Maybe, Lutz will take this. Obviously, you're making reference to also but we [indiscernible] here on space link, and Lutz is as much closer to this. So you want to take that question?

Yes, absolutely. And actually, I'm sitting here on my way to fly over to Space Link. So we are very close to the commercial customers that we are working with. You're right, financing for them has become more difficult due to different reasons, interest rates going up, which means there's less risk sharing capital available, 2 spots in the U.S. in the space area, which have not performed well and so on. But we haven't seen projects being canceled. We see products which are rescheduled, I would say, because it's more complex to get financing done. Overall, in our plan, including in our strategy, we have assumed that only every fourth commercial project we are working on will actually materialize, which means, yes, we need a commercial business on top of the institution business. But the institution business, by far, will remain our backbone. And we see in the institutional business still significant growth potential upcoming, not only because the overall business will grow, but as well, we intend to continue to expand our market share and into new markets like exploration and so on. So the backbone will be institutional. On commercial, we are working on different opportunities at the moment on lower orbit telecom consolidations and lower its observation consolidations on medium earth orbit relay consolidation, that spacing and so on. So not only one opportunity we are counting off on. We need to make something happen. That's true. But as I said, if we can make every fourth of them happen, then our plan would still work, and this is significantly below the success rate is not even half the success rate we have in institutional business. So we are cautious in our planning because we know that in the commercial world, not everything we just started will, at the end, come up. And we are even cautious in which commercial activities we are involving ourselves. On the other hand, we have some, like, for example, our participation in [indiscernible], which is an earth observation consolidation for improving productivity in agriculture. This works very well. It's a small startup, but in their next financing round now in which we have participated as well. By far over signed, we will deliver to them as well the optical payload for the satellite, financing of first satellite secured now and so on. So it's not all difficult. Some of them are really performing very well.

So just as you mentioned, Space Link, this project is going on as planned. I take from your remarks, right?

I would not say it's going on like originally planned, it's going on like it had been planned in, let's say, from the beginning of this year. So the Space Link guys originally, if you look 2 years back, they want to go for a full operational capability in the first step. Their assessment was that the market is not there for such a high capacity, so they have changed their planning to implement kind of initial operation capability. That's a track as the following. But honestly, I'm just now on my way to fly over to them and to see where they are. So Monday, I will be more in a better situation to answer the question than today, simply because my next update with them is this actually tomorrow in Virginia.

Okay. And just one follow-up on the Rocket Factory Augsburg, which I understand this correctly that the engine is now successfully running. So that's no longer a problem here? Or are there still possible obstacles in this respect and further have to be made, so it's not a final goal in this respect?

No. The engine test, the so-called long-duration engine test has been successfully completed. We are happy with the results. Of course, that doesn't mean that the whole rocket works, but we move on now. So the test phase we are now in and what we are preparing is complete stages. So we will first test the upper stage to the second stage. But the full stage, of course, an engine, of course, the tank system and everything integrated. So there will be a full stage test of the second stage later this year. And then early next year, there will be a test of the first stage, the lower stage, which is, of course, much bigger, has more engines and so on and so on. But yes, we completed the phase of separate engine tests successfully this summer, I think it was finished in July. So the engine works and now hopefully, also the complete stages will work. So yes, that has been a significant success. So we're very happy about this. Yes. But that does not mean that all the risks are behind us. So there are fundamental risks behind us, but there are still big risks also ahead of us. So we're working very hard on this. But again, as I said, stage testing is a big thing. And then at the end of next year, hopefully, maiden flight is the biggest thing that we are aiming for.

Yes. Just quick confirmation as the launcher capacity, as you mentioned, this is, of course, now limited due to the withdrawal of Russia. But -- this will have no impact for your planned projects here, especially SARah that's already fixed and the -- not a risk that there would be a delay here.

No. SARah is launched in the United States at a [indiscernible]. This has been decided a long time ago, so this has not been changed by anything. [indiscernible] is going to be launched by Ariane 5 in the winter, most likely. And so we do not have any in our -- other than the Galileo story that I mentioned. So we do not have any other satellites that have -- that I'm aware of that had been impacted by the Soyuz or the Russian story.

Okay. We don't have -- okay, it's Harry Breach, who will be next speaker. Harry, you can ask your question now.

Sorry for the mix-up. Just 3 quick ones, please. Firstly, the Aerospace, the second quarter performance was really strong. It was a really impressive recovery. Was there anything unusual there in terms of EBIT performance in the quarter, any unusual, I don't know, gains, or provision releases, anything abnormal? And -- is that second quarter margin? Is that something we can expect to continue for the rest of the year? Second question, I understand that there's been an anomaly with the performance of one of the Copernicus satellites. Does this bring any -- well, firstly, I guess -- can you provide any extra detail about the nature of that? Does it bring any opportunities for replacement satellite for OHB? And then final question, maybe to Lutz. Lutz, for the upcoming Ministerial, I know that you'll be talking to key stakeholders about the ministerial, about budget levels, about program opportunities. Would you say today, are you sort of more optimistic about the size of budget increase for OHB you were when we last spoke back in late April or May or about the same or maybe a little bit less optimistic? And can you help us to understand a little bit how you're thinking about it?

Lutz, maybe you start with this question, and you should maybe also take the question on the Copernicus anomaly.

I haven't got the question on the Copernicus anomaly. So this would mean to be repeated because I have a bit of difficult connection here. But I'll take the first one on the ministerial now. So here, I would say, over the last weeks, I'm getting more and more confident for 2 reasons. One is that the budgets, which we see in the countries where we are most involved in, of course, at first in Germany, but as well Italy, Sweden and so on, are going into the right direction. So if you would have asked me 4 months ago, I would have been a bit skeptic because at that point in time, in particular in Germany, the budget which was allocated to ministerial was a bit limited, let's say. In the meantime, I need to say the new coordinator for Aerospace has done a good job. Overall, budget available has gone up significantly already. The experience in Germany is the real number, you will only know at the ministeria itself because in Germany, the space budgets are in different ministerials, it's always a bit of a collecting here and thereby the coordinator for Aerospace of the German government. What I see as progress is promising. What is more promising even is that we had a presentation by her about 2 weeks ago on the German priorities. And this was a pleasing one because -- there were things mentioned as a priority. I take, for example, the Lunar [indiscernible], which Marco had on one of the slides earlier, which is an OHB thing, we are alone there, and it popped up as one of the priorities of the German government. So that's only one example. So one thing is the evolution of budget makes me much more positive thinking now. And in particular, look where they want to spend the budget on, it's promising for us as well. It's not only Lunar thing.It's Saga, for example, which is cybersecurity, [indiscernible] distribution and so on and space where we are very well positioned. So I could add a few more examples, we're actually very well positioned and has very why I'm not really concerned about the reduction of order backlog we have at the moment. It's quite typical every 3 years, if you look at the '16, the '19, now the '22 figure, it's always in the year of the ministry, which is more business development than an order intake year. And I'm pretty optimistic regarding order intake, which we will have then in 2013 and a bit 2014 as a result of the ministerial. So from my point of view, the outlook, which we see at the moment should support our growth strategy. Could you just repeat shortly the Copernicus question. Harry? Can't hear you. Or somebody from OHB repeat the question because I haven't got it.

Yes, sorry, guys. Sorry for the noise. My understanding is that in the recent months, one of the Copernicus first batch has developed an in an orbit -- I can't quite remember the nature of it. I was wondering if that creates any potential opportunities positively for OHB for replacement catalog?

So first, it's true that this anomaly and SentinelOne has happened. It actually [indiscernible] known since long, actually since the launch phase, but which materializes now, which means the lifetime of the satellite is limited. The function of the satellite will be taken over by satellites, which are already contracted at Airbus and at OHB. So there's no additional business opportunity out of coming out of that, which means there's no specific new order for replacement satellites. These 2 other satellites which are already on order one was us, one with Airbus will take over the SentinelOne functionality. Unfortunately, it's a no.

To say which one is the one that we are contracting that takes over. That's the [ SentinelOne ] or what's that like?

No, no. Partially, this will be taken over by [indiscernible].

Okay. Good. And I think the last question, Harry. Kurt, you want to take the question on one-offs in the Aerospace result because there is something to explain Kurt and you're probably best suited to do this.

Yes, you're right. With special effect in the first half year, we have achieved an EBIT of EUR 3.2 million in the Aerospace segment. Nevertheless, we believes that in the second half of this year, the EBIT margin may be a bit a bit lower. But at the end of the year, hopefully, we can achieve our total EBIT level around EUR 6 million that's what I expect, EUR 6 million to EUR 7 million or perhaps only EUR 5 million to EUR 5.5 million but in this area. There was one special effect on holding level cast with financing activities. But at the end of the day, -- but we have still a good development and a good operating margin achieved in the first 6 months and believe that we will achieve in the segment, the guidance we have or not the guidance, but we have not given the guidance for the segment, but we believe what we have targeted as an EBIT and EBITDA level for this segment, we can achieve it -- overachieve it for the full year. We believe that the Aerospace segment will be better at year's end than expected.

What is important maybe to add because when we talked about the ministerial conference, I think there's 1 sentence to add also that, of course, the ministerial conference is also important for the future of the Ariane 6 and MTA because there are continuing programs that help Ariane 6 to be phased in to implement in the market. So the ministerial conference is not just important for the Space System work, but also there. So Harry, there is some hope and confidence that this also will be positive. And it's not only the first launch of Ariane 6, that is important, but also the overall European environment in making Ariane 6 in midterm, commercially viable competitor at this stage. So this is something we are also working on like in every ministerial conference very closely with our partners at our Ariane Group and the other suppliers. So we need to make sure that Europe supports Ariane 6 going forward. And this obviously comes down that also to the success of the recovery at into Aerospace, where we have done enormous cost cutting, headcount cutting, efficiency improvement, diversification, very significant business outside of Ariane 6. We just mentioned very few of that but it was mentioned with record with the international customers for launches. And by the way, also, we are on the SLS, which is a big American rocket from Boeing that will be launched, I guess, in the next couple of weeks. So -- so we are trying to diversify MT, and this is really the ultimate challenge to make MT independent from the single dependency on the Ariane system. But we're optimistic on that.

I can see 2 questions in the chat coming from Aymeric Poulain from Kepler Cheuvreux. I think Kurt Melching would be the right person to answer these questions. The first is -- could you give us your best guess of where free cash flow will end up given the delayed payments you anticipate in the second half of the year?

Yes. What we expect for this year is we're actually planning. First of all, I must say that cash development is in the area of what we expected at this point of time at the beginning of this year. It's not far away from that. It's a little bit worse, but only a few million in Europe. And for the year's end, if all the things happened, we just mentioned during this call, like the [indiscernible] launch and other issues, order intake links, et cetera, then we believe that we believe our actual planning showing that the actual net debt expansion, we have about EUR 211 million, going lower -- going under EUR 100 million. So do we expect significant improvement. And the free cash flow may be not be positive at years, but it's an area hopefully around something around 0 or small minus. That's if everything happened as we expected now. This is absolutely possible, and that's our expectations.

Okay. The second question is what is the maximum level of indebtedness. The group is ready to carry in order to finance new projects and forward-looking order growth.

Yes, as you know, as already announced in the past, we have a credit facility amounting to EUR 300 million. The below offsets. We have further possibilities for indebtedness around EUR 20 million to EUR 30 million of total level, maybe EUR 330 million of possible indebtedness. And there, you can see taking consideration of our improvements, we will achieve in the cash situation for -- in the second half -- second half of this year, then you can see there's still room available for M&A activities and for investments in what we have planned for digital activities and for other opportunities.

Great. Yes, I can't see any more questions in the chat. And I think there are no more raised hands for the moment. I would like to hand over again to Marco Fuchs.

Yes. Thank you very much. Thanks for your interest, and it's already 9:40, so we kept you with us for more than an hour. So thank you very much for your for your questions and the interest. Overall, I can just summarize OHB is on a good way in '22 to achieve our goals. And I think we are part of a very successful space industry globally. And as Lutz said, he's traveling to the U.S. to see how we move on there. I guess we're all excited about this upcoming ministerial conference and a couple of our missions coming to an end, hopefully, successfully being launched. So thanks for the interest in OHB. Thanks for the excitement -- of sharing the excitement about space. Our next quarter will be November 10, as anticipated. But of course, we'd like to meet you in person at either one of the investor conferences or at the latest, obviously, the Capital Market Day on January 18 and Bremen again. So I'm concluding this call. Thanks to everybody for your time and your interest. And of course, we are all available. Martina, Kurt, Lutz, myself, everybody for further questions and inquiries should you have any questions about OHB or space in general. So thank you very much, and have a nice day, and maybe some of you still have some vacation in front of them. Have a nice remaining summer. Thank you very much.