OHB SE (OHB) Earnings Call Transcript & Summary

Good morning from Bremen. This is OHB Bremen. I hope the tone as well and can be received over our analyst conference Q3 9-month results conference. I welcome you here, actually with Kurt and Lutz, I was about to say, but Lutz is still in a call and will join us in a couple of minutes. So we're very happy to present the 9-month results. I hope you have been able to download it. The Martina has put it on the net earlier with the press release and the Q3 report. And as always, I'd like to quickly walk you through our slides, explain a little bit the highlights of last quarter. Then of course, we will open up for Q&A. So we are basically back to a 9-month call here in Bremen with the [ normal ] team. Martina will moderate the Q&A session later on. And again, I'll start walking you through the slides. So we'll now put on the slides to our own monitor. It's very nice. We can see that business segment overview has a little bit changed. So a lot of detailed print, but the reality is that the companies itself has not changed in the 3 segments, its Space segment, Aerospace and Digital. But what you can see is that we tried to a little bit explain the content of the 3 segments. It's work in progress, and I think we will aim for this to be more worked out at our Capital Markets Day in January. Now Lutz is coming. Lutz you're coming and join us here on the moon. We are already online.

Hello, everybody.

So now the next astronaut has landed.

Yes.

Very good. I'll just walk quickly through the business segment overview. And of course, if you look at the descriptive part that we have added in the upper part, it's not a big surprise. So being greener, more secure, more connected. Yes, our product environmental and weather satellites, reconnaissance satellites, space state safety missions, telecom and navigation satellites, obviously, address that market since many years, and I just want to make that point. Stay curious and aspiring is our model for science and exploration. And yes, that's a big area of activities that we are pursuing since many years, and we believe this encapsules a little bit the products and the content of our space system division. In our Aerospace division, access to space is the big topic. We are developing with our participation in micro launcher. We are, of course, since many years, providing into other big launches, Ariane, mainly Ariane 5 was a big success, now Ariane 6, but also other launches like SLS also in the U.S., the origin of the customer. So that's a significant part in the Aerospace division. And the Aero Engine business from ATP, which is not consolidated, but it's a significant participation. That obviously contributes to resource-efficient supplying our resource efficient air traffic. The digital division is described by of course, establishing secure connectivity, secure connections with our ground systems, with our satellite operations, with the telescopes. A big part that is growing fast is cybersecurity especially in the rail infrastructure but also other applications. And yes, downstream, we are since 2 years with the Digital division, very much putting efforts into data analytics, certain applications, and that is our aim to utilize more potential out of the data. So -- but again, this is work in progress that will evolve over the next couple of weeks, encapsule our -- the art of our activities from, let's say, achieving mission implementation also flying and transporting satellites into space and then obviously operating it. Another change that has taken place. Actually, it was -- became effective on October 1. So it's not implemented in the numbers that we see of Q3 is that the establishment of the Fuchs Family Foundation has been completed. The shares are transferred. So my personal shares, my mother's shares and also from our [indiscernible] Holding company have been transfer to newly established Family Foundation that obviously changes from my perspective, things in a legal structure but not in a day-to-day operation, I remain in control as the Chairman of this Foundation. And yes, the plan to do that has been explained in a couple of -- in the recent calls and conversations. Of course, it's about long-term stabilization of the ownership structure. And yes, we want to make sure that the OHB shares in the Fuchs family are stable and not interrupted by any unforeseen events. So that is a big success, I believe, and is, I think, a good sign for OHB so that we all can focus now on stock price evolution and not legal concerns around that. What has happened in the recent weeks. Actually, this has also not happened in Q3, but in October. So as you can see, [ October 18 ], we successfully placed the promissory note loan in the volume of EUR 70 million. Maturities are 3, 5, 7 years. It's really a general corporate financing has been the goal of that. We are very thankful to Commerzbank and Landesbank Baden-Württemberg to implement that with us has been very positively received. So we are stabilizing our debt side. Of course, we have the syn loan in place, actually until '27, that has -- we also have taken recently an extension option there. So the syndicated loan runs now in its current [ form until 2027 ]. And this promissory launch secures the group financing in addition to that. So that has been a big success. So we're obviously adopting like many other companies to the uncertainties and of course, also interest are raises we want to walk this in. This was a very positive placement. Debt Capital Markets oversubscribed significantly. And we, again, very happy that, that was completed. And now it's obviously focused more in the next weeks on operating and business development topics. Just to remind, our Strategy 2025 is still in place. Nothing has changed. This is a slide you have seen many, many times. So I don't want to walk you through is just the messages. We're still pursuing exactly this strategy. And we believe this is a good strategy. We believe it's still the right strategy. Everything we see in the markets, we believe that underlines that there are obviously shifts in the markets with regard to commercial projects being more difficult to get financing, some of the ventures, obviously, like always, in a venture industry are not successful. We have ourselves also, we've been exposed to that with partners where we had some optimism of implementing space infrastructure and obviously, you had to learn that they were not fully able to finance it. So -- but still, the whole idea of becoming an end-to-end space system provider, we believe, is to very, very alive and the right thing for us to do focusing in the next couple of weeks, of course, on the institutional business, but this is something we will walk you through in general. A few highlights from the segments Space System. We had a very important contract in OHB Italy. So we are really benefiting from the massive investment that Italy is doing in space with the Flyeye telescopes. First batch has been contracted to us for additional Flyeye telescopes. The first one being developed under an ESA contract since quite some time will now be -- finally be in full operational mode in Sicily. These are now for additional ones, and we do expect more to come. Another very important project for us has moved ahead, which is for us the Hera project, but that is part of the AIDA cooperation between NASA and ESA Europe and the United States around asteroid protection. So both of these topics are really about space safety, protecting earth and identifying asteroids from the ground with the Flyeye telescope and, of course, preparing mankind, I mean, of course, in a very early stage against the potential threats coming from asteroids approaching us as partners in Europe with big success that United States had with its start mission that really very, very precisely landed -- or hit. Landed is not the right way. Hit the tiny moon of an asteroid. Didymos has a tiny moon. Didymos is an asteroid, not approaching earth, but as a test case, and it has a tiny little moon. And what I understood actually is that we even have already some data that the circle of this tiny moon around Didymos has been [indiscernible] by 30 minutes noting this is information that reached us for NASA. We're very happy and obviously, our mission -- Europe's mission here are to fly there and investigate it much, much closer. It's very, very important now exciting now. And we hope, by the way, that this will be completely financed, as it has always been intended at the next Ministerial Conference in 2 weeks from now. Well, less than 2 weeks, actually. More or less 2 weeks. I will talk about that. We have been able to sell a couple of satellites. OHB Sweden sold to InnoSat platforms to our partners, SATLANTIS. We're very happy for that to happen. And you see the Managing Director Benoit Mathieu, hands with our customer. So that's the fifth mission up for that platform. So we are now really successful contender in this product range. Also LuxSpace was able to sell the new Triton-X platform to SeRANIS. SeRANIS mission is a mission the University of Bundeswehr. It was a competitive process, actually on both, competitive processes. We have been able to succeed on both of them that makes us very proud that we are really successful in this segment of smaller satellites in the class of 100 kilo. And actually, we had a successful launch there as well. As you can see here on November 4, the second MATS, the midsized MATS. We had an earlier success with the GMS-T that was -- Lutz, when was it? 1.5 year ago, maybe that, that was launched early.

We launched in January 2021.

Yes. So almost 2 years ago. Now we launched MATS, which is the midsize and GMS-T was a smaller version. And that was launched on a RocketLab launch in New Zealand a couple of days ago. The satellite works well. And we're very happy that this is a product line that now our Swedish colleagues are really successfully marketing into much broader applications. And we thought, by the way, there is another mission going on, on the Arctic weather and a couple of other services. So this is a quite exciting thing. Few news from the second segment, the Aerospace segment, here, you see the upper stage, Rocket Factory upper-stage completely integrated before it was shipped to Sweden for the upper stage test. The campaign is running now the stage is in Sweden on the test stand and hopefully, in the next days and weeks, there will be the first test. And this is really an exciting moment for Rocket Factory. So we proved the engine to work earlier this year with a couple of tests. And now we want this engine not only to run on a longer duration, but also run basically feed it out of the upper stage, the tank system, the propellent system, in a way that is very representative of then, of course, eventually the upper stage flight. So everybody is very excited. Let's see if we can complete that campaign by the end of '22. And this engine being the same one also for the first stage, would also then be tested in the much bigger first stage, let's say, mid- next year in the configuration really at the location of the launch. So it's exciting times for Rocket Factory Augsburg. And yes, we can only hold our breath to see if everything goes well. And it's not for sure and not certain that on the Rocket and Rocket engine test, everything goes well. So we saw many, many rockets. And I'm -- that I did this and had difficulties, have delays and failures, and I just want to manage the level of expectation. Testing at an upper stage doesn't mean that everything goes smooth. So we are a little bit nervous and excited. But yes, still the message is hot-firing tests on a rocket means there is a real program that moves on to orbit soon. And again, if you look to the early days even of rockets-like space is, they also had on their smaller rockets, some learning curve. And again, it's better to learn early than to learn late. On Ariane 6, yes, of course, this is also moving on well. We have delivered our part of the rocket since a long time. Now we have recently signed a very important contract called Phoebus, together with our partners of ArianeGroup. And we are building a demonstrator for carbon fiber reinforced polymer, as it is fully spelled out, CFRP. And obviously, this is about mass savings. And that means that there will be a new upper stage for Ariane 6 in a couple of years that optimizes the performance of Ariane 6. So our fundamental strategy, as this slide proves, is to be on both sides, to be in both camps with the big rockets in the institutional market with Araine being a core partner in Ariane, but of course, also have microlauncher in the low-cost, smaller satellite market. We believe this is a very a good footprint to contribute to the rocket and the launching industry. But of course, both of these rockets have not flown yet. So this is a minor little hurdle that we have to make. And we're trying to do this next year. Here, you see a photo of ESA announcing a couple of weeks ago that the first flight of Ariane 6 will take place by the end of '23. Yes. And this is obviously something when ESA and prime contractors, ArianeGroup and [indiscernible] for the ground infrastructure come up with this plan. We are very optimistic, and we are very confident and we are obviously very supportive, obviously, also very much interested that Ariane 6 launches soon because we are a supplier that wants to deliver into this program, obviously, our parts that we manufacture in Augsburg. And as the quote here as [indiscernible] said, Ariane 6 is very important to maintain an European independent access to space. And as he also says, and we are, I can only concur, fully committed to make that happen as soon as possible. Araine has a strong order book, 29 launches for Araine 6. So we are very optimistic that this program will soon take off a year from now. And our microlauncher is around the same time thought, we believe that we will see a first launch. So '23 will be an extremely exciting year for our Aerospace division. On Digital, a couple of updates. We had another successful current turnkey delivery for a [ big ] antenna. This one is the one in -- actually, it's not on the slide, but I know it's the one in Thailand, the project we worked on since some time. And actually, there's -- on this photo, you don't see it, but you see some jungle around it. There is a much nicer photo where you can see all these green trees around it and this antenna looking basically 90 degrees to the skies. So Thailand is representative of ever-growing group of countries that is really excited about astronomical science, astronomy in general. And it's a market for us. It's a market for our OHB Digital Connect team in Mines. So as it says here on the slide, world's first capability of fully automatic system for switching between primary and secondary options -- operations. And basically, what it means is that there's constant innovation in this product range, and we have a very strong export market position because, again, Thailand is a country and a customer that basically selected us because they believe that they got the best service there and I think they are a very happy customer. Some positive developments in GEOSYSTEMS. We have a new framework contract for our geo-IT [indiscernible] operation that's very important for our GEOSYSTEMS. And yes, GEOSYSTEMS system, we are very happy, actually, and it has been a very successful acquisition. I looked at the specific numbers, they also have a good year this year. They are maintaining very high profitability. So I'm very happy with the GEOSYSTEMS acquisition that we just completed. I don't know, in January, I think it was January when we finalized it. So it shows that...

And the new frame contract allows -- the 3-year frame contract, and it would allow German forces to more than double the annual revenue with GEOSYSTEMS.

But the big thing up on the agenda this month is the ESA Ministerial Council in Paris, November 22, 23. Of course, it's all about financing the ambitious agenda. As you can see here on the quote from ESA, the proposal of the ESA Director General is a total envelope of around EUR 18.7 million, which is a new record compared to what was proposed 3 years ago and was decided at Space 19 plus 3 years ago. Of course, during these days, there are still a lot of speculation exactly how much money, what country will do. We have good signals from all the countries we are operating in that ESA will be successful in implementing its agenda. And of course, we believe Germany and also the other countries where OHB companies are active, should benefit from, it should participate in it because I think it proves very much that ESA as an organization is a very successful model for Europe, and European countries to participate in the endeavors of space. So still, we are making a few calls. And I think Lutz the fact that you came a few minutes later, I had to do with preparing for the Ministerial Conference. So this is obviously a very important moment in the 3-year cycle for us. And yes, what's on the agenda? It's applications. Of course, the main topic is our operation. I think it's the biggest single budget again. has been the single biggest budget in the recent years. Of course, we believe Germany will invest. We are absolutely sure other big countries like France and Italy will invest massively in our [ earth observation ] and other applications. We work very hard for that to happen. Copernicus program has a next generation coming up. First explorer emissions are up like the 1 is the harmony. We believe also in the future of telecom, there will be investments, the SAGA project, [ Quantum Key Distribution ] is a program we need in a European consortium. And the big thing we believe will be decided and we are very hopeful is the European secured Communication Constellation. A proposal on the desk, what we believe, again, also Germany, will participate, but also other countries will come in with a significant claim leadership. Science and exploration, yes, the cosmic region moves on. The missions are implemented. Athena is a mission where we have been very interested in or still are interested in is moving out a little bit on the timeline. Space safety is a big thing. We talked about [indiscernible], Flyeye to be launched also in a cooperation between us and the Italian Space Agency and ESA. And what's called enabling and support is basically the rockets. It's Araine 6. It's the independent access to Lunar surface, where we work very hard on the European [ Lunar ] program, of course, with a sizable land hopefully being financed by the European countries, Italy and Germany, [ 3 years ] at the name. And [ LSS ] is a project that we lead, and we hope Germany will finance as well. So there is a lot of talks going on. We are in many of these programs, and we believe that the European Space Agency needs all the and deserves all the support to make this a successful conference. Military moves on. A lot of proposals on the German special fund still not much has been implemented so far. But what is, I think, clear after what we have seen in the last 8, 8.5 months is that Germany has to invest heavily in its defense, and this is going on. So we believe that this, in the midterm, will also generate significant opportunities for OHB. Overall order backlog, obviously, as you can see on this chart that you have seen over the years, we're now going down because this is basically defined by ESA Ministerial Conference in the sequence of every 3 years having a peak -- and that peak hopefully comes after this conference this year and then the implementation of contracts back here. So we do believe that by the end of '23, a year from now, we should have a significantly higher order backlog. We don't feel very uncomfortable with the 18 -- 1859 -- 1.8 billion. But yes, we used to have higher order backlog. Yes.

But if you look 3 years ago, it was at [ 19 similar to 40s ], similar thing.

Yes, yes. So this is something we'll track very, very diligently. Now let's look to the numbers after 9 months. So yes, order backlog is slightly down or significantly down just to be fair over 12 months comparison. Total revenues are up about EUR 700 million. EBITDA, up, and we like the fact that profitability grows more than the total revenues, EBITDA, up to EUR 68 million. EBIT, even up to EUR 41 million. And the increase in EBIT is, as you can see, 27%, whereas, total revenues only increased 13%. And it's even more by earnings before tax, which have been at EUR 40 million compared to EUR 29 million a year ago, being at 38%. So the big, big message is we are growing, and we are growing much faster on the bottom line than on the top line. And this is obviously exactly what we wanted to prove that we can increase our margins, and this is what's going on. So we are very happy about the earnings per share being up 38% because this is really what at the end accounts. Slight growth in headcount, still around 3,000. Now it's 3,077. We mainly grow in smaller companies. It's not so much OHB System. I think OHB System, we made a slight reduction. And it's the other companies around that, that grow, and this is also strategically nice because we want to diversify a little bit in our activities. Yes. Basically, those numbers I already walked through. It's revenue growth, that is not as quick as the growth in profitability. The EBIT margin has been at 6%. I remember our discussions about our desire to go to 8%. And I think we are very well on track with 6% EBIT margin compared to 5% where we have been recently. So that's good. Space Systems, a slight increase of margin at 5.4%. So we are kind of happy here. Aerospace turnaround moves along. It's good. We are profitable again. That's nice. But obviously, still at a small level with the overall volume being only EUR 87 million of total revenue. So it's a small activity. But you have to keep in mind that in this division, significant activities are not in those numbers. So Rocket Factory output is obviously not consolidated, and also all the activities around aero engine components are not consolidated in those numbers. So this is basically the MT Aerospace or the MT Holding, a little group of companies. But we're on a good way, and we do believe that with success of Ariane 6 coming soon, MT Aerospace will have a good future. Digital, interesting numbers because they are going down. And -- but this is obviously something that had to do more with where they have been last year. We have still optimistic, and I'm looking to Lutz and Kurt, and we had a debate about that last night that we will see a double-digit EBIT margin by the end of the year.

Yes.

But obviously, what we -- the number we had last year was very profitable at the beginning. And so it's still, by far, the most profitable division. We will see good numbers in Q4. So we believe this is not a trend that you can see compared to last year, I guess, Lutz.

No, actually true. I mean, last year, we had very specific impact out of a service project. We delivered service from space as the satellites still being owned by us. So this was very profitable. This year, in particular, in the third quarter, there were few impacts or impacts -- a few decisions actually, which we did. One is that we have new products and service ready for market. And this is why, in particular, in Q3, we have spent a lot of money into sales and marketing activities, have been at major trade shows in Madrid, in Hamburg, in Berlin and so on, that cost a lot of money. And as well for the specific markets, we needed to have ISO9000 and ISO27000 certifications in some of the subsidiaries of OHB Digital, which we did as well, which has cost money. So there were [ few ] special effects in Q3, which actually are, I would say, preparation for future growth. There was one operational impact, which I don't want to ignore as well, and this is that in the cybersecurity area, our growth is that fast that we needed to do some buys of equipment of [ EEE ] equipments and components outside of the frame contracts, which we had, and this was a bit more expensive than what we thought. That's cured now because we have increased the frame contracts. So we are safe again, but this was a small operational thing only. The main thing is, as I said, on the sales and marketing side, including certification tool. But the quarterly impact, it has nothing to do with overall general performance by the end of the year, Digital will be a double digit.

Thanks. Yes. Moving to the guidance and the outlook. Total revenues. And I think you saw it, we are a little bit careful about the guidance on top level -- on top line with it at EUR 1.2 billion. This has been something that we are concerned about of being able to hit it. And I'm sure in the Q&A session, we will talk about it a little bit more in detail. But we are confirming, we are explicitly confirming our guidance for EBITDA with the EUR 97 million and also with EBIT with the EUR 60 million. So this means, obviously, that the margins are developing better than we expected it. And this is -- this means that we see ourselves in terms of profitability on a good trajectory to be on the successful path as we anticipated it. But again, I'm sure we'll talk about that, and there will be some questions, and Kurt is eager to explain more details on that.

Yes.

Looking to the balance sheet. Not much different here. Still it's a year like every year where there's a long balance sheet at Q3, and we hope to shorten that balance sheet in the next couple of weeks by mainly basically turning contract assets into cash, and this is something that we all work hard on. And also, this is something I think that conversion to cash is something that Kurt will explain a little bit. But other than that, no major changes here on noncurrent assets, it's pretty much where we have been last -- at the years end -- over the year hasn't changed, but the current assets have changed significantly in the sense that [ contract ] assets have increased. On the equity side, I guess the big change has been a healthy growth in equity at EUR 287 million. And of course, we are very happy about that, that equity increases significantly. This is probably a trend that we will foresee also for Q4. And so we are probably aiming at an equity position in the range of EUR 300 million or something provided by years end, [indiscernible] this is something you can elaborate a little bit on. Other than that, I guess, the problem of the balance sheet is not the problem also here is that a short-term financial liabilities have increased. We have taken our measures to that. We are obviously working very hard to collect money coming in. This is an unpredictable game between now and December 31. And so we have a few ideas how this could end, but this is something "He knows much better than I do." Here is basically a summary of what I just said, not very different from where it used to be a year ago, pretty much the same in principle. And the net debt is still on a very high level, and we don't like it to be there. But it has moved this way based on a couple of long-running projects that are now entering its final stages. Investment spending is pretty much where it was a year ago. If you can see, no, it's not pretty much it is exactly where it was a year ago, [ 14 and 6, 14 and 6 ], so basically a stable development here. And that probably will also be the case for the full year, I guess, that we have pretty much a level of CapEx there. Cash flow has been compared to 6 months results, slightly positive. But compared to last year, at this point in time, negative from EUR 83 million, minus to [ EUR 129 million ] minus -- but this is again something I guess going have to explain a little bit more in detail. So concluding the overview, I'll just remind you of what's coming up next. We will be this year presenting a bit at an equity conference in Frankfurt and then, of course, the Deutsche Eigenkapitalforum, also in Frankfurt later in November. Early January, we have the ODDO BHF Forum, UniCredit & Kepler Corporate Conference in Frankfurt. So a lot of things moving on in the next couple of weeks to explain our story. Then a big event is the Capital Market Day in Bremen January 18. And obviously, you're all invited to join us. And I'm sure we'll have lots of updates on the ESA Ministerial Conference, on a number of programs there. Yes, and the rest, I guess, is just the regular. The regular agenda for 2023. So now we thought basically more than half an hour. And I'll now turn it over to Martina to moderate our Q&A session.

Yes, we are happy to receive your questions now. If you would like to address it to [indiscernible], just raise your hand, and I will allow you as a panelist. First question that in line is Alexander Hauenstein from DZ Bank.

Can you hear me?

Yes, very well.

Perfect. I've got a couple of them. Maybe we go one by one. First of all, I'm wondering whether you could share a bit more light in the -- with the profitability in Space Systems in Q3? And what that could actually mean for Q4? How should we think here about the progression? I mean, it was quite strong, a bit stronger than I had expected in this quarter. And how strong should we see the fourth quarter here actually? What are the drivers here potentially?

Yes. This is Lutz. Yes, for this question, we had really a good profitability in Q3 in Space System area. This has to do major with well running projects. In some areas in Space Systems and the big -- some big programs are running better than expected and profitability will be better than expected at the year's end. And we have less negative impact from our -- some smaller daughter companies compared to last year. There's a little weak result at [indiscernible] Space, but all the other companies are running more in line with what we have expected. And for Q4, we see or we expect a similar development at the end of the year. We have no major change. So we see and we expect further increase in profitability in Space Systems. This will lead at the end of the year. for the overall group that results will be in line with our expectations and in what we have guided in January this year for the whole year around EUR 60 million EBIT.

Okay. A follow-up on that. Q3 being EUR 13.1 million, so meaning having a similar development in Q4, that actually mean a similar absolute number? Or does it mean the trend is even similar, but it might be even further as you probably get a bit more output on the top line?

Both at the end of the day. We expect -- margin, we expect a similar absolute result in EBIT for Q4 compared to the first 9 months. And so that will be at least around EUR 40 million -- more than EUR 40 million EBIT is our expectation, actually. The output, as already mentioned, in Q4, it's a little bit uncertain because it always depends on the achievement of some major milestones in December this year, but it will be also an increase in the output compared to the previous quarters. But -- and this also will lead at the end of the day to just to say it in advance before the question you will raise improvement of our cash situation. The cash situation is -- will have a similar development as in all the years in previous years, there is a substantial improvement in Q4. So the net debt result we actually have, which is pretty high or quite high, will be substantially improved in Q4. This is our expectations for the whole year. So -- but this is quite normal in our business. I think Q4, especially in December, we will have a pretty good cash flow.

Okay. That is understood. And when you look at Aerospace, the Q3 number was actually a bit fluctuating compared to the first quarters, but these are also kind an uptake in downward path to Q3 again. So I'm wondering, in Q4, is that something in between Q2 and Q3? Or what is the driver? I understand that you explained a bit why it was a bit less in Aerospace, and do I understand also that it's getting probably better. But how much will it be better at the end of the day? Because from the path, we struggled to get a certain feeling about Q4 profitability.

Yes, Q3 has always a problem in each of our segments. That's just a lot of vacation time, holiday time and less productive number of hours and compared to Q2 and Q1. This will be improved in Q4. So that -- and if you see no major other effects in this segment in Q4. But nevertheless, you see it will happen at the end of the year and an improvement of the result previous and also in the Aerospace segment.

But it won't be in Q4 higher than in Q3, I guess?

Yes.

Okay. Okay. And coming to Digital, you spoke about a 2-digit number by the end. Is that an absolute number, I understand? So you're talking EUR 10 million? Or is that a margin number you pictures out?

And by the end of the year, we will be about 10%.

10% full year?

I said above 10%. So for the first time since the existence of OHB Digital, we are below 10% this quarter, which I don't like too much, honestly. And it was investing in future business. So we took the decision to invest very significantly in the sales efforts, sales and marketing efforts this quarter, which brought us to 9.4%. But it will be -- I just stick to it, it will be above 10% by -- for the full year.

But I think what the answer is also in terms of absolute numbers, not far away from that as well, I guess. I mean if we look at now I mean, the implication -- the question was implicitly also about volume question. Are we moving from [ EUR 70 million to EUR 100 million ] and then being 10%, double digit? Or are we moving from [ EUR 69 million ] to something very different, I guess? That was also within the...

Yes, yes, it has both.

Some of its above 10% in both cases because as the -- you could be above EUR 100 million, the 10% will be more than EUR 10 million.

I think this was the confirmation Alexander was asking for.

Got it. Okay. Perfect. I know it's difficult to talk about next year, but when I look at your guidance on the output side, which has been a bit taken back to the delays you spoke about and you put on your slides and you explained that especially in Space Systems, there are some delays and some milestone payments are a bit uncertain whether they will come in Q4. Is it fair to say that if they don't come in Q4, then they will flow into early Q1 2023? So that means at the end of the day, 2023 on a full group side will be a bit higher? Or is it the case that due to the whole uncertainty around and the things, which has been developing since you brought out your guidance in January, that you more or less stick into your 2024 -- '23 numbers on the guidance side being on the top line, but also on the bottom line?

Jumping to the questions of the Capital Market Day. I mean this is obviously something that between now and mid-December, we are working on the plan. And in mid-December or mid- to late December -- not late December, that wrong. But mid-December, we are concluding on this planning and verifying it in early January. So the bottom line is -- maybe you want to add to that, but it's not so -- it's not stage where we want to go completely public on this. I don't know, Kurt, what would you...

Yes, in principal, you are right. Nevertheless, it's correct. It's the mark from Alexander at some of the revenues, which we have originally expected in '22 flow in '23 that's obviously the case. For example, [indiscernible] launch will not take place.

But what we need to look at in the planning as is if there's something moving from '23 to '24 as well because the point is what we all here is the impact of the Ukraine war or the Russian war in Ukraine on the launches situation. And then this has a major impact. The Soyuz is no longer flying from [indiscernible]. Ariane 6 is not flying when we expected it. So launch, which were kind of oversupply in the past, suddenly are becoming a rare thing. And therefore, this is really what we need to look at. It's just an impact, which we need to assess in the planning if it hits as well some things which were foreseen for late '23. So it's really more to be answered at the Capital Market Day.

For example, as Lutz said, it's really the completion of our Galileo Batch 3 is really also depending on exactly that story when is Europe able to launch the remaining 10 satellites, and it has to do also with revenue recognition. When are we really delivering all those satellites. I mean, we're putting some in storage, but also the delivery has really suffered.

Yes. We even have taken the satellites back, which were already in [indiscernible] or at ESA at ESTEC or so, we need to take them back and store them here. And this obviously has an impact. But as you have seen, although the top line is not where we intend it to be, the bottom line is developing very well.

Yes, I understand that. Nevertheless, I remember a statement from the recent past where you mentioned that these deliveries to [indiscernible] on the satellite side and delayed start. On the other hand, we're not having any negative effect for you. So now I hear that you're taking some back. Does that have any negative impact? Or will you even be paid for that, taking it back and taking it on to cruise on day again?

It will not have negative impact on the profitability of this program.

Now there's storage. I mean, storage is something that is a paid service. But obviously, completing the program has more top line consequences. And that might be drawn out, and that might be -- it will be drawn out because the program -- I mean, the Galileo satellites will launch later than technically possible because the satellites are already -- we should have had a launch already this summer. We would be ready to launch more satellites, but this is obviously slowing down because customer does not have the means to launch them because the Soyuz launches are obviously -- have been terminated from French Guiana, and Araine 6 launch has been delayed. So this results in a situation where we are keeping those satellites here, delaying the final acceptance and storing them. But as Kurt said, overall, it's -- it doesn't have a negative impact on OHB, but it's a negative impact on the program implementation.

Sure, sure. Okay. Understood. I'm looking forward to get the update in January. Last question, very quickly on the Ministerial Conference side, you pointed out on the slides and also on what you told us a couple of points which are in focus. Nevertheless, is there anything we can track from the outside in terms of numbers, in terms of news flow, news points and triggers we could look at, which we, from the outside, could eventually see and track a bit and do our own analysis of our own expectations management here, what has been on the agenda and what actually is coming out? Can we track that? Or is that impossible for us?

I think it's not that easy because for most of the programs, what the ministry decides as a budget, and then competition will follow. There's a few where it's obvious that it's sold out. So if the Hera budget is confirmed, which is more or less a certainty, then obviously, the money flows to OHB, but that's a minority of things. Most of the -- of what you have seen like Saga or Harmony or so, will, at the end, and in the competition, which we still have to win. So the important thing for us is securing budgets which we are interested in. But then we still have to win. If the ministerial conference is very negative, then obviously, there's something which one can derive out of it. That's what we don't hope and don't expect. If it's positive, it keeps our -- in the capital -- or at the Capital Market Day in the outlook, which we will give you for order intake. We obviously will inform you about any change of probability of order intake, which we see at the moment. Our current order intake planning for the next years shows numbers, which are even after having it made more conservative 3x. It still shows numbers, which are supporting our growth path, which we see in our strategy.

I think overall, what is important is that is a strives as an organization. So obviously, what you will see after the conference you have the press releases and the numbers that come out. And for us, as you know, ESA is a very, very important customer for the whole industry, actually, the European space industry. So yes, the biggest point is that ESA as such is a successful organization. This is what we really hope for, and I guess the whole industry hopes for. So if ESA succeeds in their plans more or less, it doesn't really make a difference is if this program is coming and that problem is coming. We are talking about budgets for our core customer ESA and hoping that, that budget is sizable and as close as possible to the number that ESA was trying to raise.

Which actually would be a very significant increase compared to last time.

Yes.

The next question in line is Harry Breach from Stifel.

Can you hear me?

Yes, very well.

Yes. Perfect. Can I -- probably just really simple questions, to be honest. With maybe Lutz, maybe starting with you. Back in August, Lutz, I had a feeling that you were maybe not so optimistic about the Ministerial and how the budget was shaping up. Do you feel better now about the Ministerial, about the budget? And with the number that you kindly put in the presentation, Mr. [indiscernible] " EUR 18.7 billion". How many years does that cover? Is that a 3-year budget? And next question, if I can, was just thinking about -- and Kurt, sorry for this. This is always an impossible question. But thinking about free cash flow for this year with the delay of the SARah launch, should we be thinking that maybe free cash flow breakeven, maybe a little less would be reasonable? The third question was just about the Ariane, the first launch delay. Does that have any impact in terms of the cadence of production for aerospace, for Ariane 6 and sort of performance when we think about next year? And final question is just in terms of supply chain performance guys, would you characterize generally your supplier performance as being sort of about the same as it was 1 quarter ago or 2 quarters ago or slightly improving or slightly worse?

Maybe I'll start off with the Ariane question, then I'll leave it to Lutz and Kurt. Yes, of course, being a core supplier when Ariane 6 launches later MT manufacturers later. That's obviously an impact. And yes, the contracts to go for the next batch of [ rockets, Araine 6 rockets ] that are procured from MT by ArianeGroup, is delayed because the launches are taking place later. So this has an impact. So yes, that's a downside in the MT's business case, and we're doing many things to mitigate that. But if you look at our outlook in the next couple of years on the contribution of Ariane 6, it is much lower now than it was maybe in the planning that we had 3 years ago, and we anticipated the launch to be the first launch and the ramp-up to be much earlier. Yes, that's an impact. I don't know who wants to jump in the questions.

So the cash situation, as already mentioned from my side, there will be a substantial improvement in Q3, Q4. That's always the case in Q4 in December, especially. And your assumption it's really hard to say what is the new and the cash flow at the end of this year. But nevertheless, the assumption to be around even or slightly negative or slightly positive, is principally correct. So that's what my expectations for the free cash flow at year's end.

And concerning your question for the supply chain, on the one hand, in the Space System area, we see some influence through this delayed delivery of some parts need again to some delays in some projects have some impact. But generally, I must say the performance of our major subcontractors and major suppliers are affected but not in an absolutely substantial manner or win.

And perhaps adding to that, when it comes to short-term supply, and that's what we faced this quarter in cybersecurity because actually, we are growing faster in our cybersecurity solutions for digital rail than what we even expected. Then sometimes, it's getting a bit more difficult, and you need to pay more. But overall, we have such long-term relationships, frame contracts and so on that even in the more serial business. I mean, in Digital, we are speaking about thousands of equipments which we deliver. So that's a bit unusual for a space company, but we are doing that. Even there, we are well covered and no big issues. Ministry of Conference, Harry, sorry when I -- when you perceive me as being depressive in August, actually, honestly, we had a bit an issue with the [ German ] position at that point in time. And obviously, the German 1 is very important for us. And this is mainly because we have a government which goes to its first ministerial conference and started a bit unstructured and uncoordinated. This has obviously been seen in the government as well. And recently, the preparation for the Ministerial Conference has been taken through the chances desk personally. So he himself is now taking all the different ministries together and is coordinating the preparation effect for the Ministerial Conference. There's another meeting on this level before the conference, which is actually in less than 2 weeks. So I'm -- if I would have had looked very pessimistic at that point in time, which hopefully I did not, but I can tell you, I'm looking much more optimistic now. We see as well that other nations in which we are present will be very strong, Italy, for example, and we will benefit from that. So yes, a quite optimistic. Look, the second thing is there has been quite a good alignment between some of these space agencies of different nations and the industrial setup, which we have chosen I think we were a bit lucky to set our priorities in expectation of what the agencies would do in the right way. I take one example, which is the large Lunar lander, EL3 or now with a new name Argonaut, where for long, Germany stated, we will need to be in the lead and so on. And we actually believe that likely at the end, they will not be. And we entered in a consortium with an Italian partner, in which we have a very, very significant role. And it turns out that the agencies agree that between Italy and Germany [indiscernible] in the lead, and Germany shall be the first follower, which fits exactly to our industrial consortium into no other industrial consortium, which we know. So partly, we were a bit lucky as well that we prepared ourselves for the right scenario, we believe. So looking from today's perspective, that's what I mean as well, when I look at our order intake planning, we have good reasons to be confident that our growth path will be supported.

And if I can, can I ask just specifically back on supply chain? I think [ Talos ] had mentioned recently, semiconductor supply issues for TAS, has LHP space system seen any issues with on-time delivery for semiconductors?

As mentioned, there are some issues, but actually, it's so significantly. There are issues which lead to some delays, as mentioned in our programs in a few months in some projects. And this is also the reason why we are concerning our statement of total revenues for the whole year that people believe that we will be a little bit under the expected EUR 1.2 billion for this year, but we see no absolutely substantial impact. There are some, but not substantial, but to jeopardize our profitability. And -- but as we jeopardize, as mentioned, the total revenues and the development of total revenues.

As far as I know from the [indiscernible] based colleagues, the main impact they are facing is in the area of digital payloads for telecom satellites. And telecom for them plays a role as big as earth observation does for us. So each company has a bit of setup rarity in different areas. TAS is one of the worldwide market leaders in telecom satellites and telecom satellites are particularly hit by the shortage. So it's a situation in TAS than in OHB.

Yes, that's really helpful. And sorry, at the risk of being even slower on my side than usual. When we think about the exogenous factors that you speak about in the press release in relation to the revenues maybe being a little below what you expected. Is that -- are those exogenous factors mainly linked to sort of prime contractor delays on their programs and launch delays? Is there anything that's -- anything I'm missing at all?

No, that's the main factor that you have just mentioned.

That's all at the end of the day.

The next contribution will come from Richard Schramm HSBC.

I have a quick follow-up on this shift in projects you signaled for the current year. And I didn't get it right if this really has now an impact on the earnings development as well? Or if this is just more or less a nonevent because for me, it seems that this shift? Is this very [indiscernible] happening on the top line, but look at your improved profitability for the 9 months and your confirmed earnings guidance suggests that this has no impact here on the earnings side and for the current year. And does this mean that we then also should not become more positive for next year when these contracts are now finally invoiced? So is this really only a top line matter, but nothing happening on the EBIT level?

In principle, it's a top line matter. But for the next years, it's really too early to say something definitely because we have also to consider for the next year, the increase in energy prices, for example, which will have -- obviously have an impact on profitability and things like that. And also the inflation will have some impact maybe in the profitability for next year, but this is under investigation, and we are just in the planning phase for our business plan for the next years, and we will come with details about that during our Capital Market Day in January.

What we should perhaps say is that we have launched a productivity improvement program because we see these factors. We see more inflation, which we'll see in wages and energy prices and so on. we intend to counter this by internal measures -- program is running. But as Kurt said, the planning will be done in the next week and we will form at the Capital Market Day. But clearly, we are not just visiting the evolution as it comes. We have already reacted since a few months now already. There's a productivity improvement program so that we can hopefully, mostly counterbalance at least these effects. But beyond this, Capital Market Day.

There may be also some support concerning the inflation development from our customers, yes. We are -- Marco Fuchs in discussion for especially either or other customers, and we will may be that we get to those markets. It's not clear. It's uncertain actually, but it's the best possibility also that we will get some help from them.

Because these organizations, of course, historically have inflation mechanisms, and they are obviously now dusted off because it hasn't been used since decades and now people are going back to how to deal with unpredictable inflation in multiyear contracts. And again, this used to be the case in, I don't know, the '80s and the '90s. And this is now reemerging as a topic and as Kurt said, yes, of course, customers like ESA go back to those rules. And this is something obviously industry at large is very interested and actually also depending on. And I guess we will see all over the economy for companies that sign contracts that are multiyear. We will see this as a topic reemerging in a way that we couldn't imagine 12 months ago.

Yes. That was actually my second question already, but you have answered it because the CEO from [ Talos ] also said that ESA so far had no indexing in their contracts, but it was more or less a fixed price contracts they had, but you expect this to change now in light of the current inflationary environment so that there might be new contracts kind of indexing or compensation component.

No, I think it's not correct to say there's not -- it's not existing. It does. It does exist in the -- maybe not in the individual contract, but in the overall set of regulations, it does exist. It just needs to be basically re-understood and applied again. So these rules are all dating back to the '70s, '80s when ESA was starting to do business. And yes, of course, at that time, we did have inflation. And yes, of course, at that time, we also had multiyear contracts, long-term contracts. So there is such a set of rules. But we -- again, we have to apply it again, and it will be applied. And yes, I can confirm what Kurt said. The industry as a whole is debating that with the customer side. On many levels, and again, it's unpredictable exactly how the outcome is, but it's obvious that a high inflation, actually, we call this hyperinflation, hyperinflation situation on long-term programs is an issue that I think the whole world has to deal with, by the way, not only in Europe. I'm sure everywhere where you have inflation, these topics are debated. So I'm sure the American companies have similar debates and similar provisions somewhere. Of course, it changes the budgeting because you need more money to address that. And obviously, money has to come from somewhere. That's obvious. Yes. But on the other hand, the governments have but more inflation governments have more money available, so it's a system that works everywhere.

Now we will have a call in user who I'm not able to identify. My guess is it is Mr. [ Will Scott ] from Pareto Securities.

I think not.

Okay. Then we will continue with the next one, I'm able to identify. This is Aymeric Poulain from Kepler Cheuvreux.

You're still on mute.

Yes. Can you hear me now?

Yes.

Yes.

I just want to pound on this the funding side of the business. And do you see given the very significant rise in interest rate, a change in behavior regarding the financing by the main traditions or even on the private sector, for your project? And do you see an evolution in that funding process, especially working capital cycle, given the burden of higher interest rate. And on that, I was first to see how is your cost of funding today? You just raised money. You said EUR 70 million in the private placement. What was the cost of borrowing you managed to get from that placement, just to get a sense of the funding issues.

When you have the introduction, of course, we see it mainly on private initiatives. Yes, the cost of capital growth is a significant part of financing very long-term. It's not an investment like satellite constellations, for example. So yes, of course, the space industry at large is impacted by a higher interest. The [ motions ] are lower inflow of capital has changed. And I believe that, that makes the [indiscernible] more risky, and it highlights the importance of a business model that has also a strong pillar of institutional business because we believe that the institutional business is more robust in that sense. But obviously, also on traditional decisions. There is uncertainty, as we have discussed earlier with the Ministerial Conference. So I believe the Ministerial Conference Europe is an important option like [indiscernible] Europe is able or if the European member states are willing to finance space even in times of high inflation and higher risk rates. This is, I think, the for some period, a very important one to see if that's the case. And I hope it's recognized by government how important that issue also is. The number the money raise [indiscernible]. It's obviously a case that's pace [indiscernible] significantly to interest in the market and has taken from the European Central Bank in the last during the [indiscernible] and also some impact next year on it, then we expect no reduction of interest rates next year. And then this will also have an impact on our financial result for next year and for this year -- and for this year, not for next.

And the cost of the [indiscernible].

Yes, the cost of [indiscernible] outside the interest rates were pretty low. This is not a substantial amount.

In the interest, I mean?

We have the fee we have paid for the interest for the sum rate increase was at the end of the day. Components the euro about 6 months, development we have to consider and the margin on its interest margin from the fees was pretty low. We have achieved really good results. So it was between 120 and 160 basis points for the margin on top of the year. This is on the left side we expected and on the low end of the additional indicated term sheet margin amount.

Okay. Since I do not see further questions, I would like to conclude the Q&A session by thanking everybody for the active participation and hand over again to Marco Fuchs.

Thank you. Thanks, Martina. Thanks, everybody. Thanks for your time and the questions. I think we are in exciting times in the space industry and, of course, the European space industry and here has OHB also. I think what you could see is the evolution of the company from its business model perspective is paying off. I think we have been able to recover Aerospace significantly. I think we are still on a very profitable path and a strategic right decision to do implement the digital sector. Space System now is moving to a next cycle in terms of the ESA business. I believe we have been very wise to be conservative with our overall business model, focusing on institutional business. We do see, I guess, a very changed big picture with regard to security, with regard to defense, with regard to the whole issue of how to protect and how to maintain critical infrastructure for Europe. I think this has been a major positive point. If I look back a year ago, we were all debating taxonomy issues if this industry is analyzed, but this is all of the agenda. So I think on a very big picture, I think space is doing very well in Europe. And now let's hope to see a successful Ministerial Conference and then moving into '23 also more and more programs being established. So I'm very optimistic about the outlook, and I thank you all for your continued interest in OHB. And I hope to see you all in person and latest at our Capital Market Day January 18 or in between these for investor conferences that we just have talked about and introduced. So again, thanks very much, and thanks for your interest. And if you have any questions, of course, feel free to call either Martina or any of us here on the stage. Thank you, and have a good and successful day and week. Thanks.