OHB SE (OHB) Earnings Call Transcript & Summary

Thank you very much welcome this afternoon. Thanks for your interest in OHB and for joining our Annual Report 2022 Analyst Conference. So we do it this time only digitally. So we're not having a personal meeting in Frankfurt. I hope you have been able to download the documents. Martina will share the presentation with you, and Kurt I will answer questions. As always, it's a quick run through the update slides and then obviously, I'm sure there will be questions. So we have put our results on the website earlier this morning. And again, maybe let's walk quickly through. I think I have the -- this should now work -- who we are. Yes, here we are. We do the business segments. Nothing has changed here. This is the chart you all know since our Capital Market Day. No change in the consolidation area, other than that we are looking at the Rocket Factory participation as in the IFRS 5 so-called discontinued operation company. This has been cited recently that that's the right thing to put it has been decided in late '22. Kurt can answer a few questions that other than that, basically always similar to what it used to be. And moving onwards quickly, just to give you an update on our, let's say, business model or how we see space-based application, becoming more and more important. Starting from our purpose, utilizing space and finance to completion of our times. Of course, it's the quality of life on earth, climate change, environmental aspect, security aspect that creates urgency, complexity and where space provides solutions. And obviously, for -- as a tool in the digitalization age for resilient and reliable infrastructure availability, that data integrity is also a major mega trend where we believe Space Solutions will have a good future and solid growth coming up. If we look very briefly at the takeaways of the year 2022. Of course, we had a very good year. Profitability, slightly exceeding our guidance. We had an EBITDA of EUR 99 million. We predicted EUR 97 million. So that's good. We had an EBIT of EUR 63 million versus a guidance of EUR 60 million. Total revenue reached EUR 1.001 billion. The guidance we gave at our Capital Markets Day for this year was between EUR 950 million and EUR 1 billion. The previous guidance from early '22 was higher, around EUR 1.2 billion. So we reached the reduced guidance that we gave earlier in this year. And again, the profitability was exceeding even the previous -- the long-term guidance. So of course, they had a positive impact on margins. First time since 2009, we are more than 6% overall EBIT margin. The earnings per share are at a historic peak of 197 million and we increased our dividend recommendation to EUR 0.60 per share. So that's a 23% EBIT margin plus, and it's a 25% dividend increase. And I guess that's summarizing quite well the key numbers of '22. So it was a very good year, and we are happy with what we achieved. We look at the bigger context over the last 5 years. You see that we are recovering with regard to revenues after the pandemic COVID slowdown. Basically, we're at the same level where we were in 2018 with regard to revenues. And obviously, after '19 and 2020, we had a reduction based on slowdown of deliveries and generally related to supply chain. And of course, let's say, shutdown related influences from the pandemic, and we're recovering from that. Profitability is going well. It was actually a record year with the numbers that we have. So we are quite happy with that. Looking briefly through the 3 business divisions, same trend here in Space Systems, overall slight increases over the last couple of years, returning to the level of 2018. In terms of profitability, record years with EUR 74 million in EBITDA and EUR 48 million in EBIT doing quite well and margin increased to 5.9% over the previous year, 4.5%. Going to the next point. Here's aerospace. Very good, Aerospace. Of course, at a lower level, same story here. Of course, Aerospace has its own set of difficulties. The transition of Ariane 5 and Ariane 6 is an issue. And you see at the profitability recovery here. We are back at positive numbers. Last year, we had a slightly positive EBIT. Now we are up to EUR 6 million. So this is at least the right trend. We're not where we want to be in aerospace, but I think it's a recovery. Digital is moving ahead on its growth, EUR 106 million. Profitability is slightly lower than it was in 2021, but that's mainly the case because in 2021, we had an extraordinary profitable onetime project. So overall, we are quite happy with the margin of 10% EBIT margin. So digital is doing good. Again, the summary of it all is positive. We had a good year and within our expectations. Looking to the balance sheet side Yes, in principle, not much has changed. One change that we mentioned briefly that I mentioned briefly is the way how we see the RFA, the rocket factory. It is now part of others under current assets. That's why this number increased significantly. Everything else is basically the same balance sheet structure. Obviously, we're still having a quite significant part in contract assets. We expect a couple of those long running, long-lasting programs to close this year with just before closing the Heinrich Hertz Program in near future. Cash was at EUR 106 million. So we did receive a couple of late receivables in '22. Looking to the other side of the balance sheet, equity and liabilities, what is notable is a significant increase in equity from 252 up to 293. Obviously, that's the accumulation of the profits we made in '22 plus the decrease in provisions for pensions assessment another effect resulting of an increase in interest rates, obviously, the provisions have been reduced because there is a higher interest rate, reducing that. But other than that, I don't see many specifically points worth mentioning on the balance sheet. But maybe there are some questions in the Q&A sessions of that. Free cash flow overall was minus EUR 14 million. The operational cash flow was plus, I think, EUR 8 million, EUR 9 million. So we did have some cash flow out of investments. So it's on the same level as it was last year. That is okay. It's -- the net debt is still at a high level. It's at EUR 102 million. If we exclude the pensions, CapEx was at EUR 20 million, so pretty much the same level. We had a lower rate of own work capitalized in last year, EUR 12 million. So it's actually now if you look at it, decreasing overall asset balls, so we amortize more than we capitalize and that's, I guess, shows how prudent we are dealing with this yes. What I expect on the net debt side is that it will hopefully be -- have a positive impact this year coming from the conclusion of a couple of long-lasting larger programs, Heinrich Hertz and SARah, which are scheduled to be launched this year. Yes. This is what I talked about. The overall net debt development was increasing over the last couple of this related to work in progress, as I said, Heinrich Hertz program, SARah project. Investment is at a pretty stable level with EUR 20 million, slightly below what we used to be before. In the past year, we had a significant investment here in IT infrastructure. So this was a little bit lower. The own work capitalized, as I said, a little bit lower than the amortization because overall, this number is slightly going down. So that's a healthy level. So it basically neutralizes itself. In terms of return on capital employed, we are at 12% as we were in the last year. And the free cash flow overall has been slightly negative due to the investments we have happy or okay with a positive operating cash flow as we predicted. So that's not, I guess, a surprise we were within our expectations. Looking at the order backlog. This is a chart you all know since 20 years and with EUR 1.875 billion. This has been slightly higher than it was at the last cycle when the year of the ministerial consent because this somehow reflects the Ministry of conferences, there was 1 in '22. There was one in 2019. And there was one in 2016, whether it's where the decisions are made for new programs from our ASA business and then in the following years, it's always the challenge to turn that into contracts, and this is what we are currently working on. So we are quite optimistic that in this year 2023, '24, it will increase again. But we do feel quite comfortable with the work in backlog of EUR 1.8 million compared to a company that has a turnover of slightly below EUR 1.2 billion this year. That's what you see here. So we do expect total revenues of EUR 1.176 billion. We do expect a compound annual growth rate of 11% in the coming couple of years. So we will see growth. This is an identical guidance and identical outlook that was given 2 months ago at the Capital Markets place, nothing has changed here. The significant number I see on the financial results is that EBIT was developing as planned from EUR 47 million that we had last year, exceeding EUR 60 million, so slightly above our guidance, which was EUR 60 million. That makes us very comfortable that we move on, on our path into the future, having EUR 70 million EBIT this year. And that's why, again, we confirm our guidance for this year, and we confirm our outlook for the next couple of years that that's what we are planning to achieve. Now there is no specific chart, but has been mentioned before, on the numbers, our recommendation of EUR 0.60 as a dividend is based on the development and profitability. We believe that now we should increase that number significantly, 25% is a healthy dividend plus was slowly we're moving in the direction of having a balance between, of course, space industry high-tech growth start but also having an aspect of value there that for in the future, we hopefully show more and more growing dividend policy. Quickly running through the business segment highlights. We had a couple of successful launches last year we launched. And this is obviously for a satellite manufacturer, the things that are most important. All that being successful, all satellites work very well. Hera was launched in April. And with the March launch was done successfully, then in December, the Meteors generation satellite was launched. We're very happy to provide with those satellites, especially with Matan MTG, significant part of, let's say, the data basis for climate monitoring, weather monitoring, the whole environmental mapping is a core part of our, let's say, business legacy and our business successes in '22. Order intake was rather low last year. We had 4 home payload, which was important, has been another 4 Flyeye telescopes in, I think it says delivery of ordinal, but I think it has been the order for additional Flyeye telescope. It was an order intake. And then we have the Eridanus constellation was sold by OHB Italia and the prime contractor ship actually also to the OHB for the science is a science vision come in the sector. So a good year, a big success in terms of public appearance was also the success of the Astro deflection mission that NASA's component of the IE division, the DAT which was successfully implemented and touching down on the Didymos asteroid. We are working obviously on our Hera machine to be launched next year then. In the segment, aerospace, what can I say? Of course, we are moving along with our RFA development 1. That's moving along very well. We had successful engine tests. That's the most important achievement of 22. There has been a long list of stuff that we achieved. There has also been our at the aerospace get component business sentiment, successful launch of the SLS where we provide a couple of structural parts we sell to Boeing. Ariane had good order intake with 18 launches so to the Kuiper constellation of Amazon, and that's basically moving on. But obviously, overall, the whole, let's say, Ariane community is waiting for the inauguration launch of Ariane 6. Ariane 5 will be completed this year with 2 more launches. And actually, the last one will be in June the launch with our Heinrich Hertz satellite. And let's see when Ariane 6 will launch for the first time. On the digital business, we had a very successful acquisition of Geosystems. We're very happy with that company. It is basically a profitable mix, the numbers that we expected it to make expands our downstream competence in terms of data downstream applications. So that has been significant. Even though it's a small company, but it adds a lot of understanding and knowledge on our side. And we have delivered a big telescope. But this is a very specific success that we had as a group is that we have been on 3 levels with 3 different products, actually from 3 daughter companies or we been successful in the small satellite portfolio. That obviously OHB is known as a big satellite manufacturer. We built geostationary satellites, weather satellites, ton glass, especially on these 3 missions of these key product lines [indiscernible] We had significant market success. So this is the typical class of new sale type of 100 kilo type of satellites. And that Swedish product had a couple of successes again. And most notable one is the progress. I actually the constellation to be implemented in the so-called arctic weather constellation, 2 more satellites have been sold to [indiscernible] So it's really a standard platform that our Swedish colleagues are -- have been developing over the years, successfully flying with the support of the Swedish Space Agency, now still being a very successful platform also in a very competitive environment. 3 is a very small platform, 30-kilo platform, and we have been selected for a constellation from Italian government funding, Rede, Earth Observation Constellation. 12 satellites have been firmly contracted and 12 more hopefully will be added to that. So it creates a little constellation for optical surveillance of the military in Northern Africa. So we are quite happy that, that product range is also well covered in OHB and an industrial format. Frankfurt is another success has been a competitive tender for the SeRANIS mission, and we won that. So we are quite happy to complete that satellite now out of Bats. So the message here is that even though OHB known for a large, more institutional satellites, we are very active also on these smaller satellites. And those of you following OHB know that, that has been in our planning and strategy for a long time, but this is now the time where we really deliver and were the first missions are actually successful launching. And by the way, last year, the MATS satellite that I was just mentioning a few slides ago has also been on the InnoSat platform and also the M3 satellite called IgA2 that had been completed. So this is not new. Those are established product lines that are now more and more successful. Yes, as observation remains our, let's say, key area of activity. Hana mentioned it, Fora mentioned it, it reads more satellite constellation, I mentioned it. And also the ESA Ministerial Conference has been very successful in terms of earth observation. So we have been quite happy with ESA Ministerial Conference observation. Again, the biggest budget was EUR 2.7 billion out of the EUR 16.9 billion overall subscription. And we have been happy with Germany remaining the largest contributor. So this hopefully will be converted into orders this year. This is just to remind you about the overall budget of ESA around 5 billion annual budget. ESA is increasing its investments. And this is the EUR 5 billion member states and then there are about another EUR 2 billion coming from European Union, mainly a small portion also from human others. So the institutional market, that's the message. The institutional space market is very healthy in Europe, and we are very happy to be a strong part of that on the industrial side. We look at, of course, what has changed in '22, obviously, the whole view of sovereignty, European sovereignty has taken a very different view. Our major success here is that we are the leading company for the next phase of the so-called ODIN's EYE study. That is an early warning missile defense concept from Europe. It's a big consortium with dozens of companies. Germany is leading and OHB's the leading company. The next study phase is about EUR 70 million. And obviously, we're hoping that we also move on to implement a missile defense phases, the defense infrastructure under OHB's leadership. Of course, sovereignty is important with regard to access to space. Our Rocket Factory Augsburg is moving along. We will have the integrated system test of the upper stage that's going on now. The other activities around sovereign access to space is our participation in the German offshore launch alliance. Of course, that's something that moves along in line with the micro launch developments around Europe. And of course, it's Ariane 6. We are hoping that Ariane 6 will soon become available. And our participation through our LT Aerospace work share will play an important role then in the implementation of Ariane 6,but also, of course, in the return to previous profitability that we saw in MTRs as an outflow. What else is going on, yes, we are bidding in a strong consortium for SATCOM BBL3. We are very confident that this consortium has a very good chance that we win, but it's too early to talk publicly about that. And what is another major story that we are aiming for is a participation in the European commissions, IRIS² Constellation, that's a Constellation of a robust and safe telecom satellites that Europe is building, the European Union building. Basically, as the third project after Galileo and Copernicus. Now it's IRIS² after navigation and earth operation. This is now telecommunication that Europe is implementing. That has been decided as a program. Now obviously, it will be put to a competitive process, and we'll see if we are able to bring a share in that, which is obviously our aim. This is basically the IRIS² infrastructure, our Resilience, Interconnection and Security Satellite. That's what the acronym stands for secured communication capabilities, it's resilient networks. Of course, I don't have to explain that this is the warning of what has been realized over the last months with the external threats that Europe is facing has been obviously supported by that. Overall, the volume is foreseen in the range of EUR 6 million. We'll see. There will be operational capabilities fully implemented in 2027. That means with new satellites. The initial satellites will be based on existing space capabilities, and we'll see that will be then implemented by European industry. We look at the world, obviously, many things have changed. Everybody has now to deal with inflation. Of course, we have higher energy costs that is a burden on our operating expenses. Of course, wages are increasing faster than what we were used to in previous years. Of course, this increase, the inflation you see, needs to be passed on to the market. And that's something we have to do, which is not always easy, but I guess that's the same for all industries. In terms of the major factor supply chain, we do not have the general delays coming from the supply chain. But yes, in specific incidents, we do see a downturn in timing and seed and there is a certain reliability but also occasionally impacts us. In terms of the war in Ukraine, there is no negative financial implications on OHB. So far, there has also not been a big order wave on military customer side, but obviously, the whole view of security and space, global satellite networks, also for military applications has fundamentally changed because obviously, we're now in a situation where the opponent is also a space power with all kinds of capabilities, and that obviously changes of course, the surges. Yes, in order to conclude quickly after today's annual report and this analyst call, we will have in May 10, the 3 months report and we have our Annual General Meeting make it by the way, this will be a fully digital annual report -- I mean, Annual General Meeting. So we will have interactive participations. We have brought digital, let's say, outreach there. And we are not doing a presence meeting here in Ramon as it used to be in the past for one. And I guess the rest is pretty much the regular story. In August, we have 6-month report in November, then the third quarter. I guess that concludes more or less the slides. If I'm not mistaken. And here it is. The Q&A session, and I guess, they should return to Martina to coordinate. I see that you have on your screen already a list of questions or maybe even specific questions on your -- on the chat line. But Martina, I'll hand it over to you. Thank you very much.

Yes, we will open the floor for questions now. [Operator Instructions] And the first question comes from Alexander Hauenstein. Alexander told me that he has dialed in via telephone, and I'm not able to identify the right one. So I will allow all the telephone participants to speak now, and I hope one of them is Mr. Hauenstein.

I've got 3 questions, please. First of all, is there anything interesting in terms of an update from the aftermath of the ministerial conference, i.e., from the outcome of the envelope programs, which we can discuss here? So that means is there a potential increase from the EUR 16.9 billion in budget committed that in reality is becoming maybe EUR 18 million or even more? That would be my first question, please.

Maybe quickly on that one. Yes, we had the EUR 16.9 billion was the overall story. What is important for us has been the LEO PMG. LEO PMG there was not a commitment from Germany, but there was a significant, let's say, in our eager anticipation. And that seems -- that has been confirmed, so we are optimistic on that. But other than that, I don't really recall significant fresh money that has been concerned. I'm looking to Martina and Kurt, have you view more -- because I have to apologize, Lutz is not on this call. He's in Washington at the satellite conference, and he, I guess, is in meetings around this time. But yes, that this LEO PMG example has been confirmed. But other than that, I'm not aware of any.

Okay. So maybe I'll come back to you later on this the next page or so. The second question is regarding Aerospace, please. Can you comment a bit on the outlook regarding Ariane 6? What is the first launch expected as we speak? And how can the earnings progression look like here in terms of timing? Anything that have changed recently?

No, I don't think there has been much change but up to my knowledge from our Capital Markets Day 2 months ago. I guess, obviously, the official announcement from Ariane is that the target date is by the end of this year. Let's see if that will be achieved, but we don't have -- I mean we are as a supplier, not in these now ongoing critical activity. So I'm hopeful that the launch will be as soon as possible. And then, yes, of course, there is a long list of European missions that are ready to launch. I mean we know from our satellite from Galileo satellites from here or machine from other satellites that would be ready to launch in '24 or even '23, actually Galileo satellite, but it depends on the availability of the rate. So otherwise, some of these satellites might have to be launched somewhere else. So the bottom line is, yes, of course, we're still in the critical phase of Ariane transition from 5 to 6. And as Director Chairman of its ESA, Josef Aschbacher, calls it, it's the moment of crisis in the European launch industry, and that has to be turned into an opportunity. And Ariane 6 will be a major part of that because I don't think anybody expects [indiscernible] to return to future. So yes, we need Ariane 6 to come in operation as quick as possible.

Okay. And the third question is can you remind us, please, how contributions from the Rocket Factory Augsburg are treated in your midterm guidance 2026?

Midterm guidance is nothing included from Rocket Factory Augsburg. We have now consolidated out that spoke for '22. So first time via this IFRS 5 method and which takes the principle we are prepared to sell substantial shares, which we already have, we have actually to other investors. That's the way how we translate this year in PSL and in our balance sheet, you see the directly marked that it's included now. And in our guidance, we have not foreseen or expect to be outflow, which -- what will happen in '23 is that Rocket Factory Augsburg will be no more included by the IFRS 5 method. It was included by equity consolidation. That's our expectation for '23. And so it's no major impact for EBIT, EBITDA and top line.

So the good thing is it's not said in the numbers, right? Let's say, that Rocket Factory is difficult.

Yes, that's right. Okay. Maybe one last question to you, Mr. Fuchs. Given that you and your family have recently changed the shareholder structure and the holding structure into a foundation. Have you somewhat changed your way of thinking regarding the free float here? This is some kind of a consistent point of criticism from some investors when we are marketing your story. So any update on this point would be helpful.

Well, of course, when you transfer a substantial part of your personal wealth into a trust or tin, of course, that changes your view of life. Yes, you look differently because you don't own anything anymore, but you just control assets that are in an independent entity like a system. So obviously, in many ways, my view on these things have changed in the sense that, yes, I still control it, but I don't own it anymore. And it has been obviously tax considerations and many considerations. But the fundamental view that has been strengthened by this is to give a solid basis for OHB to prosper as a company. So this is independent of the form of ownership. In terms of the free float, I think we always had the -- I mean, when we went public 2 years ago, basically actually exactly 22 years ago in these days, we always had the intent to raise more capital and to grow the company also by additional investors, lowering also the ratio of my family's investment, increasing the free float. So this is the whole idea of being a listed company. We have not done that because we did not need to. And obviously, it's an easier form of financing growth when the customer pays for it or when you have cheap debt paying for it. And this might change and we are ready. We have always been ready to increase the free float, but more likely than not, that will be done if we have specific opportunities where we need money and then we raise money. It's not about us as a family disinvesting our shares in OHB in order to balance our private asset allocation. That's not our intent. We want OLB to grow, and we have to as a family very well with OHB as our main asset. And this is what we also continue with the current structure with the Frankfurt System.

Okay. So I understand that you're looking into M&A a bit more closely than during the last couple of years when you were busy with setting up, for example, the Aerospace division, again, in terms of Ariane 6. So has anything come across in terms of interest for M&A recently that you might go for let's say, a reasonable time frame? Or has nothing happened during the last couple of months when on the one hand, the market has someone recovered, but on the one hand from potential disruptive events might have reduced valuation of some of the potential targets?

So this is exactly what's going on. Obviously, looking at the space industry, you see, on the one hand, I think, a broad consensus that space is promising, it's growing, it's increasing its significant many opportunities. On the other hand, you have seen in the last year or 2 that certain assets have been devalued as a number of companies have lost value. So an exaggeration that was going on maybe 2 years ago has been now normalized. So I think opportunities will increase. There will be consolidation in the space industry. Even though the broad trend -- the megatrend of the moving space industry with -- based on data, based on many, many services remains very much intact. I foresee opportunities coming much stronger than they were in the past. I think many of the ventures that were listed in the last years have been very highly valued. So this should open up opportunities for companies that are established that have significant operations and operating cash flows. And this is what we are obviously monitoring and trying to make work. We have massively invested in companies like Rocket Factory and obviously, in our product range with telecom satellites with our product range with earth observation, payloads. So this investment has been very strong in the last 10 years on a technical investment. Yes, now it comes a time where it might be cheaper to buy technologies and to develop technologies because of the overall adjustment in valuations.

The next set of questions come from Zafer Rüzgar from Pareto Securities.

A few questions from my side left. The first one on Rocket Factory Augsburg. You said you're reducing or already reduced the share. How it should be or is expected to be the portion to be reduced in the Rocket Factory Augsburg? And probably you can share your views with regard to the strategic rationale behind this decision? That would be my first question.

Yes. I guess the strategic view we have on Rocket Factory has been the same over a long period of time. We believe that there is a market for micro launches, and we believe micro launches provide a good basis for developing a competitive launch offering also in Europe. So we believe that RFA, for us is an investment into a product that should be successful in the market for many small satellite missions. But also, of course, in the changing overall rocket environment, we believe that the RFA capabilities will be significant in the long term also in increasing payloads and more significant satellites. So we believe in RFA. And our offering obviously is in a separate company. It's very much a start-up setup. We have external investors in a significant way now. We obviously want to attract more investors into the company. So we have always been open for that. It's just a question of timing. It's just a question of what level of achievement we have. And yes, of course, in the rocket industry, there's one major event in life of every company or every rocket that's when you really have a rocket that goes to orbit. So many people do tests and many people do wonderful things with Rocket, same with us. But you only become a rocket company when your rocket really reaches orbit that has not been done with RFA and many others, and that's the major difference. So yes, we will see if we are continuing to finance it in the current setup. We would invite obviously potential investors to join in. We don't want to control RFA. We don't want to consolidate RFA. We do not want to limit RFA in the stope with their customer to OHB, and so it's not an in-house rocket. So it should be a rocket that attracts the whole market because of its price performance ratio. And that's the key thing. So we don't want this to be an OHB company. We want this to be a successful rocket company from Augsburg, Germany and Europe. And having said that, our main goal is to develop RFA to the point of successful first flight. That's our main goal for the foreseeable future. Everything else will follow then. So the bottom line of the financing is we have to either continue the financing in the current setup with OHB and our existing partners or we have to find significant investment coming into other days. What we are not going to do is we are not going to consolidate RFA completely into the OHB set of numbers. Even though that did not have a major impact, RFA had a loss in '22 of EUR 1.9 million. So it's not a major loss, but it was a loss-making company in '22. And we don't want to hide that in the overall OHB set of numbers, so we want to keep that separate. Again, it's not a major impact. But we don't want to send the signal to the market that RFA is only an OHB rocket. It should be a European rocket, it would be a German rocket. It would be hopefully a successful rocket serving the whole global markets that it might serve. So bottom line is we're struggling to complete the rocket first, and then we look to what else to do with the company.

Okay. Got it. I think that was very clear. And the second question is regarding your EBIT guidance. Can you please provide us the breakdown of the expected EUR 70 million on segment level? How should we think about the increase compared to 2022 EBIT. Are you expecting all segments to contribute to that improvement? I mean if I look at the EBIT in aerospace, I think a further increase looks quite challenging. Or am I wrong with my assumption?

In principle, we are having our guidance increase at improved profitability figures in each segment. We are completely right. And also as well, we have in the Aerospace segment. Even if in the Aerospace segment, the increase at least for '22 to '23, not so significant, but there is an increase. We strongly believe that the really weak years are behind us in the Aerospace segment and there is some stabilization in the Heinrich Hertz activities from -- in the aerospace sector despite Ariane 6, and we expect also improvements in steady growth in the digital segment, and we expect steady growth in the Space Systems segment at the end of the day. There is no really substantial deviation from the development we had in segments in '22. This in principle, we believe, will be continued in the next years.

Okay. And what is the expected contribution from your acquisition Geosystems? I think it was a rather smaller acquisition, but is there an EBIT contribution expected from this company?

Sure. There is already an EBIT contribution in '22 of a few hundred thousand euro. And this will probably improve, obviously, or hopefully in the next few years, but it's a small company at the end of the day, to be very clear. It's just a few hundred thousand euros per year. We have in our guidance that we have in our result of '22.

Okay. And one question from my side. With regards to your equity results, and here, we have seen that Aerotech Peissenberg have widened its losses to more than EUR 5 million. What was the reason for that? And yes, how do you want to come with that business in the future and go back to profitable results here?

Yes, that's true. That has been a correct observation, yes. And yes, we are waiting for the recovery of the aero engine part industry also for the bigger aircraft. Of course, Aerotech Peissenberg is very much depending on its major customer was voice, and that is the long haul aero engine part. So that, hopefully, we'll see an increase from last year to this year, but it was loss-making in '22, and it was also loss-making because it's a significant negative financial results because it's a debt finance company. So this is something we have to solve in '23. There is a challenge there. But what is developing well is the participation that RTP has in Mexico. There is a significant participation at Aerotech Mexico, which is now under production delivery. So we will see a past. This has been unpleasant burden in last year. And we have to find a solution for that. This is not a strategic participation like our space participation. It's an opportunistic participation in the area of aerospace. So we are open to find solutions for that. But yes, we cannot go on and have equity consolidations of losses in the future.

The next speaker will be Aymeric Poulain from Kepler Cheuvreux.

I've got a few. The first one is based on the pipeline of orders that you currently see. What's your best guess of the order intake trend in 2023 as of now? And more generally, what could you say about the general financial conditions and liquidity for your customers and how finance -- well financed these projects are today in your view? The second question is on the free cash flow. What would be your best guess again on the kind of free cash flow conversion for OHB in 2023 in terms of the translation of profit into cash flow. And then the third question is more kind of a sensitivity analysis. What would be your view, the biggest catalyst for upside in terms of your -- the current guidance. And at the same time, what will be the main risk in your view for your EBIT guidance 2023?

Yes, if we look at your first question, of course our profile of customers is very much institutional. And so the institutional customers, of course, we don't see any issues on financing. Yes, we do have financing issues with institutional customers to programmatic. We have seen, for example, there is a ministerial been very successful, and we have seen the decision now of the European Union to implement the IRIS² project. We are not heavily involved in private commercial biddings. We are not currently planning in our business plan, any commercial constellations in a significant manner, I suppose, if I look to core. So that obviously is dangerous these days. Yes, we are obviously living at a time when many satellite constellations are not able to finance their plans and some fine. Obviously, at a time when interest rates go up, all the business models look differently. The investments are not what they looked when there was no interest if you have, I don't know, 4%, 5% interest. So that's something that has changed, but our business model being more on the institutional side has been shown to be a pretty robust baseline there. In terms of the cash flow, Kurt, I'll leave it to you.

In terms of the cash flow, our forecast for the next 3 years show clearly an improvement in the operating cash flow, the free cash flow compared to last year and the previous year because the reason therefore is that the long-running programs like [indiscernible] or Heinrich Hertz come closer to the end and closer to the payment of the final settlement in these programs. And these final settlements will lead at least in '24 to substantial improvements of the cash flow, but also we expect already improvements in '23. This has to do with prefinancing issues they actually still have in these programs. Only for the TERA program, or actually prefinance effort is EUR 100 million, and this is exactly the figure which is the final payment in this program. That's the reason why contract assets are pretty high in our balance sheet, and that's the reason why the cash flow figures will be approved in the next years.

Have we covered all topics?

The last question was on the sensitivity analysis, perhaps for this year. What are the kind of key risks you can identify that could derail your guidance? And same time, is there any kind of positive catalysts that perhaps is not included in your guidance that could help beat your estimates?

At the end of the day, we have order intake planning with rate structures. We have addressed certain targets in our order intake planning and have weighted with a certain factor. And this then is reflected in our business plan for the next years. What may happen is that if, for an example, one big project, which may weighted to 50%, they came to 100%, we have a CSN's obviously an upside and a further boost for growth potential in the next year and in the year. That is the main issue concerning upside. The same is for downside, to my point of view, if we lose most of the -- do not get the contracts of what we expect in our order intake planning, that's really the risk we have in our guidance in our gold past we actually are looking for. This is a major issue. So at the end of the day, what I would like to say is order intake or not order intake is the main driver of the success story for OHB in the next years.

Okay. I do not see any more raised hands for the moment, and I do not see questions in the chat. So I think we wait for maybe 2 minutes. And if no further questions arrive, then we will conclude the call. But let's wait.

My point of view as CFO, I must say I'm quite happy with this annual report because what I said is that we have promised the profitability of EUR 60 million EBIT, which was already promising substantial improvement of our of our target figures. And now we have delivered EUR 63 million. And this is a major success from my point of view and should give confidence to OHB the profitability of this company.

Okay. I see Alexander Hauenstein again with a topic to discuss. Mr. Hauenstein, you should be able to talk now.

One follow-up question. Apart from the order intake, which is obviously crucial for the guidance going forward. What else are the 2, let's say, main triggers that we should look for and what we should closely monitor. And apart from that, can you give us a sense about what your ideas are in order to more to more industrialize the way of how you're producing your satellites going forward? I mean I understand there's always a lot of projects and manual work to do, and every project is different. But is there anything that can cross your mind recently, how you can kind of standardize more, how you can raise the economies of scale here and also improve further your margin progression?

Well, I think that in terms of industrialization, of course, the future lies in more sellers of the same kind and we have been the pioneers with the same there that has been pretty much optimizing the mass production. Now I can talk to the small satellites that we are building in big series, the 12 and 12 in Italy and also in Sweden and so on. So we are in the micro satellite domain, more successful than ever, and that's where the industrialization takes place. Yes, of course, you have a very different view on that when you build thousands of satellites like mega constellations. And so that is an interesting case that we are looking at to see what to learn there. But at the end of the day, I mean, the satellite is a massive investment, not just because of the production cost, but of the overall system cost, the ground segment, the user interfaces. And in that respect, I guess, the key thing is that not like develop or deliver value. So we need to keep that in a good balance and it's not just about the amount of investment in satellite. But I can tell you, satellite development is a very dynamic field. And we hear there is a lot of innovation. So keeps the industry very agile. We're trying to keep up with the pace of that development based on our business model with a strong institutional base to start from. But what can I say? We have been successful over the years as a satellite manufacturer and that has been getting proved to the fact that, I guess, our approach to this has been quite good. We have always been able to make money. I mean there are many, many people that are having big plans in satellite industry that have never made a euro, and we are a profitable company since ever. And that, I guess, is a significant point coming now into a period where money is more expensive, the cost of capital will become more and more critical.

That's right. Any comment on the 1 or 2 triggers and the news point to look for?

Yes. Of course, what is -- you talked about order intake. What is the significant trigger for us are these large institutional programs that are now being implemented, be it for the military purposes, the delivery of our reconnaissance program. And we do see that many of these products that we have will result in -- while at the moment they hit the operational sales will result in more demand for further satellites. So with a satellite where we built 2 off. We hope there will be a third one or fourth on a fifth one. So a small series of satellites are a key source of profitability in the institutional satellite world. We hope that Germany and Europe are stepping up their investment there. And we believe that with the commercialization moving along, consolidation will hit in. And let's say, the reality of real costs, the reality of long term every company being the urgency to make money or to show that they have to make money coming more and more important will help us and will play in our favor.

I see one question in the sets from Thomas April. We would like to hear our assumptions on wage increases.

Typical question. I don't know. I'm following the news flow every day to see if wage levels up. I guess the reality of life is we have inflation and inflation will create wage increases, and that will increase -- we continue further inflation. So I guess, we don't foresee that, that will be just disappearing again. So we do see inflation, we do see wage increases. It's a competitive market for the best talent out there. We have that already population in this industry, fluctuation in all high steel industries is higher than before COVID, and we have to deal with it. So we have to be attractive. I guess what we will see, and that's an interesting point is how this industry in an institutional frame will deal with inflation. What that means in terms of price developments. But we see higher salary increases coming in the next years than what we had in the past. I don't know, Kurt if we're more specific on that.

Yes, we have made for sure an assumption in our business plan for this year and for the next year. And obviously, the increase will be higher than we had in the past. And -- but I believe what may happen this year and the next year will not be an extremely big surprise for us.

One moment. I've just received one. It's from Christian Schmidt. Regarding the RFA OHB sale, can you tell me how big a portion was sold? I think the question was asked earlier, but not answered what was the selling price.

I just to make it clear, it was not -- nothing was sold. The RFA shares of OHB has not been sold. They have just been accounted for as ready for sale. So this is just an accounting change. So nothing has been sold. The last round of capital that has been increased by OHB and others have been at a valuation of EUR 13 per share. So we started, I don't know, 4 years ago with EUR 1 a share. And now over the last, I think it's 4.5 years, it was in the fall of 2018, EUR 1, and then it increased EUR 1 to 4 and so on and so on. So the last capital rounds have been at 13%, but nothing has been actually sold to others. It's just the so-called IFRS 5 accounting ready for sale, I guess, it's what is called.

Okay. We have one question from a call-in user. I cannot identify, but this person should now able to speak.

It's Harry Breach here from Stifel. Just if I can, and please forgive me, I was not able to join the call at the beginning. Can you maybe just help us a little more to think about margins at digital this year and Space Systems, which had a much stronger fourth quarter margin than I expected. Was there anything unusual at all in terms of program execution at Space Systems in the fourth quarter or in the mix? And should we expect margins at Space Systems to be improving year-on-year in 2023 against 2022?

Maybe I'll start and Kurt can add on. Of course, the margin improvement is part of our overall strategy, and we're making good steps on that with decent steps on that. Of course, when you look at the margins, what you asked first on digital, it's a double-digit margin on EBIT level. This is what we're aiming for, and it should also be the guideline for this year, certainly. When you look at Space Systems in the fourth quarter, yes, there was also included a one-off effect that had to do with the cleanout of an insurance claim that had a certain impact there. It was a balance calculation. So there was the old effort and there was compensation, but it has been concluded in that year. And overall, of course, you see that more and more projects in the Space System area have higher margins because of the size of the operation, but also because of the maturity of the products. So there's less overrun and there's more stability in the projects, and then you immediately see that change. So bottom line is, overall, it has been a good development. That's the whole idea. Kurt, I don't know if you want to add.

What Marco said is also totally my view. And you have to consider that if we become more and more stable in all areas of the group also in the past, some smaller companies have made losses or we have met years in the Aerospace sector. And we expect that these things are behind us. Now we expect also an Aerospace sector further improvement of merchant and we expect also to more stable business in all areas of our group and improvement of margin. This is automatically the case if everybody may no more or less anymore, and we have no projects in our operative work, which makes potential assets that's a very simple story at the end of the day.

Got it. Okay. So even guys, just to be very, very clear, with Space Systems, even if in 2022, the margins benefited from this insurance claim in 2023, should we still expect an improvement on the reported margin even with the benefit in '22 of the insurance claim?

Of course.

So that's what we expect.

No more raised hands for the moment and no further questions in the chat.

No more questions, no more hands. I guess, it's 2:10. So thank you very much for your time, for your attention, for the general interest in OHB. And of course, if you have any further questions, do not hesitate to contact Martina or Kurt or myself. And of course, we hope that you will participate in our upcoming Annual General Meeting in May. And let's see how the space industry evolves. We are very optimistic for 2023, actually, not just for OHB but for the overall industry, I guess. So again, thank you very much out there to all the participants and thanks to the team here, Martina team from OHB and Bremen. Have a good afternoon. Bye-bye.

Thank you.

Thank you. Bye-bye.