OHB SE (OHB) Earnings Call Transcript & Summary

Good morning to the 9 months 2024 results of OHB. I hope you have been able to download our documents. So this is a call where we are all in different locations. You see Markus is in Munich, and Kurt and Marcel are in Bremen, and I'm in Berlin office. So I would like to walk you quickly through the slides, and then we have time for Q&A. So let me just start quickly here. So just to start with the overview of the group. Actually, the only thing that has changed in the last couple of months is that our OHB Digital Solutions company has been renamed OHB Austria. Other than that, everything is in the same shape, our 3 business segments: SPACE SYSTEMS, AEROSPACE and DIGITAL. The strategy, OHB 2025 - Shaping the Future, is the old strategy that has been created in 2019 and then it had been updated in 2021. So it's our long-term strategy. And obviously, just being 6 weeks away from 2025, at our Capital Markets Day in January, we'll update that. And we work this, but I guess it's a good reference to see that over the last 5, 6 years, we have been pretty consistent and are on a good way to, let's say, shape our future and achieve our goals. But I don't want to spend that much time on this. An update on the voluntary public takeover offer by KKR. The investment has been completed. Last outstanding regulatory approval from Belgium was granted in August. So you see the share as it is now. So we have 19.2 million shares: 12.55 million with my family, 65.4%; now 28.6%, 5.5 million shares, are owned by KKR through their Orchid Lux holding company; another 1.09 million shares, 5.7%, are free float; and 62,000 shares, roughly 0.3%, are treasury stock that is owned by OHB SE. So the closing was in September, so it was in the third quarter. I guess the information is very well-known, so I don't want to walk through this. But just as an update on this, this is now the cap table. A few highlights from the segments, I'll start with the SPACE SYSTEMS division. We have won a contract for Harmony satellites, about EUR 280 million for an earth observation satellite. That's Earth Explorer 10, so-called Earth Explorer 10 mission. It's a radar mission. So that's fitting us very well. And yes, so we are having a payload. You see the image here, a payload that is also with phased array. That's a technology that, of course, is very much in use. And we're very happy also to be in charge of this overall system. There will be 2 satellites manufactured over the years. Second mission that was signed recently was the Ramses space safety mission. That is a contract of EUR 60 million, and OHB Italy is the prime contractor. It's not a follow-up to Hera, but it's a similar mission based on technologies that have been developed for Hera. And yes, now the first phase is working, and we are expecting to get funding commitments at the ministerial conference next year. We had a couple of successful launches in the last months. There was, on August 16, the Arctic Weather Satellite launch. That's a prototype for the so-called EPS-Sterna constellation for Eumetsat. It's based on our Swedish InnoSat platform. So it's a small satellite. Then on September 18, we had another launch of 2 Galileo satellites. There will be now 6 more satellites or there are 6 more satellites from the third batch that are still on ground that will be launched in '25 and '26. And then on October 7, the Hera spacecraft was launched. It was so far a big success. In just 4 years, we designed and built the Hera spacecraft that is now on its way to the Didymos asteroid. So it's a joint mission, the DART mission with our American partners from NASA, that had already launched the DART mission 2 years ago. So all these launches have been carried out with different Falcon 9s from United States, and they have all been successful. In our AEROSPACE segment, Ariane 6 launch was actually, in terms of calendar, it was in the third quarter because it was on July 9, the first launch of Ariane 6, but we already talked about it and it has been well published already over the summer. So now obviously, Ariane 6 is in a different phase, and we're very happy to see that now the exploitation of Ariane 6 is moving forward. On our Rocket Factory Augsburg participation, there was an unsuccessful first-stage test in August. So that, let's say, led to quite a significant fire. The first stage was lost, it was a total loss of that first stage. Many of you have probably seen the footage, it was more or less by accident, just a random camera team there from BBC that filmed everything. But since then, since August, in the last 3 months, we have obviously restarted. More than 100 improvements of the design of the first stage have been identified and agreed to be implemented. So testing has restarted again. We are in Sweden testing new engines, but we will have a postponement of the first launch into next year. On our DIGITAL segment, things go quite well. When we have been more focusing on expanding, Teledata has now signed an agreement with an Austrian company. So I guess, our success in the rail business that we have so far in Germany mainly is now underway to also be distributed in other countries and other markets. Order backlog in the last couple of months was developing well. We had a low point of EUR 1.749 at the beginning of 2023, and now we are back to EUR 2.1 billion. Markus is ready to answer questions about the order intake because that has been quite significant over the last 3 months. Just summarizing the numbers that we have reported. I hope you had a chance to look at it. Order backlog is up, as I said, revenues are slightly down. EBITDA is at EUR 62.3 million (sic) [ EUR 62.4 million ]. Adjusted EBITDA, which is the number we are focusing on, is up to EUR 72.5 million. And you see then, compared to last year, the other numbers are slightly below in terms of earnings per share and the net profit up a minority. Slight increase in head count, which is now up to 3,456 people as of September 30. This again is the comparison over the last 5 years, the 9-month result. So total revenue slightly below the record we had in 2023 but higher than in the years '20, '21 and '22. And the same is true for profitability. Actually, the profitability, the adjusted EBITDA is a record high in 2024 after 9 months. You see it here with EUR 72.5 million. But Kurt is here to answer more questions on numbers. And this is the order intake summarized and compared to last year. At this time of the year, after 3 quarters, last year, we had EUR 920 million order intake, and this year, we have EUR 1.479 billion, so roughly EUR 1.5 billion. So book-to-bill, more than 1, that's good. There's more to come. So the year '24 so far is a good year in terms of order intake. And that has been anticipated. So this is according to plan. But I guess we're on a good trajectory here. We look at our financial calendar, just to conclude with a few slides before we go into the Q&A session. Next thing we have coming up is our Capital Markets Day on January 23, and then we will report our annual report for 2024 on March 20. And so you see here the typical dates we have. Annual meeting is planned to be in late May. Good. So that was a bit quick maybe. If I look at the clock, it's just 12 minutes past 9. But anyway, I'll open the floor for questions. Marcel, do you have any questions already?

Yes. Just raise your hand if you have any questions like Alexander Hauenstein already did. I will add you as a panelist real quick. Mr. Hauenstein, can you hear us?

I can hear you. Can you hear me as well?

Yes.

I have three questions actually. First, can you give us an update about the benefits in midterm, long-term value KKR can contribute to OHB? Or differently, how is the cooperation unfolding its fruits so far? So maybe some words on that, maybe on a, let's say, midterm view, but also what you discussed already, what you see already in terms of your new partners. Second question, can you give us an update, please, about the delisting process with regard to time line, milestones, et cetera, everything we need to know and beyond what you have published maybe. And last question, I'm curious to hear about your new military contracts. And if you can, it would be interesting to hear some comments what is in the pipeline here going forward and for whom.

Yes. Maybe I start and Kurt and Markus can add to that. Yes, now obviously, after the closing with KKR and having 28.6% of the shares, we are now implementing our improvement program, which is called Up to Champ internally. So we have a long list of activities where we are improving from efficiency, IT, all kinds of organizational things we look at. So this is now going full steam. We see first results. Kurt can a little bit better go into details on that. But I guess this process is keeping everybody busy at OHB. So I don't know, Kurt and Markus, you want to add to this first question?

As at the end of the day, what we are doing, it's a permanent work with KKR in kind of working groups, let's say, in transformation, in order to charge the transformation process we have here. It's focused on operational expenditures. It's focused on indirect staff cost. It's focused on project profitability. These are the main areas we have permanent discussions with KKR in order to improve the company and improve the overall situation. I think at the end of the day, it's a good transformation process we have actually as this will, at the end of the day, bring us to more profitability and to more success in several areas. Especially in terms of project profitability, we are really hardworking in each area, in technical disciplines and in all disciplines, in order to get better, to save money and to achieve better profitability in projects. And we are doing this permanently together with KKR.

And maybe to add to this, it also helps us to, I would say, identify resources and free them up for the delivery of the contracts that are now coming in given that we have growth in the company and we have to engage new production lines. The optimization that we're having in the transformation program helps us also to then build up the production lines required to deliver the new contracts. It's maybe a third aspect to it.

Okay. And maybe strategically, any view on that?

Well, obviously, KKR helps us strategically to also look to the U.S. I mean, obviously, it's an international partner. We are comparing ourselves with best-of-class examples in North America. Obviously, at 28.6%, it's a strategic investment, but it's not a controlling share. It's a minority share. But we are discussing our strategies. And I think at this point in time, it's clear that our strategy is around focusing on becoming a space champion, focusing on becoming the European space company from building satellites, launching satellites, operating satellites, having ground infrastructure, having downstream value from space. So that has been a little bit more the focus than over the process then on that slide that I showed earlier, which is the strategy slide we did before in 2019. So we're a bit more focused on the space activities. Maybe if I give you a quick update on the process where we stand, on the second question, Mr. Hauenstein. We have closed this transaction, as I showed in September. So that's not that long ago. And you saw also my slide of the upcoming calendar, and you see that we are planning to be a listed company actually for 2025 because the message is that, that shows that it's unclear exactly how we go about in terms of timing. We're not in a hurry. We plan to be listed as we are. And so if you look at it, jointly combined, my family and KKR at about 94% of the shares. So not that far away from the 95%. That, procedure-wise, has a meaning. But long story short, we have not clearly decided how the next steps will look like and when they will be taken. We feel quite comfortable in this position as it is now. So KKR is onboard. We're doing all these improvements that also Kurt and Markus were talking about. But since we are doing our listing rather in a streamlined way, it's not about massive, let's say, cost savings or anything if it changes. So if you look at the stock, it's pretty much always at the level where the takeover price was. So long story short, we are not in an urgency to take the next steps in going private. But it remains our goal. Of course, we want to be a private company because we believe this is helping us to strengthen the company and to grow. The last question on military projects, actually, new military projects in space have not materialized, if I thinking it right. I'm looking to the screen through to Markus, he knows what has happened, but no major comes to my mind. But Markus, you know much better.

Yes. A quick overview. So we booked to date 1,200 order intake, so EUR 1.2 billion. And 1/3 of this is with military customers. So we've seen, specifically with a large order in July, an increased activity with the military. We have 3 types of customers. One is direct military customers like MODs, intelligence services. We have also the European Union with the European Defence Fund in which we have taken multiple projects, specifically ODIN's EYE, which is the early warning system for Europe that we lead. And we also have engaged in a transformation program together with our unit, MT Aerospace, as the large military platform companies that build a hardware need a strategic partner actually to deliver what they have signed. So we've done a little over EUR 100 million order intake in that field together with MT this year, which really the strategy is paying off that we devised last year to diversify MT, the direct MODs I talked about. And then we will see specifically in 2026, as planning goes, we think 3 large projects of continued investment of the military in space technology. Maybe one interesting point. We looked at some of the German budget and how it compares to the United States in terms of space. Given some of the investments that have been made in the long-term plan, it's actually very comparable to what the DoD in the United States in percent spends on space. So that gives us also a confidence in projects beyond '26 that there will be continued investments, actually an encouraging sign.

Okay. Can you clarify this EUR 1.2 billion. I'm not sure if it was a billion number, which you spoke about, with 1/3 of it being military. What's that?

Yes. So we said roughly EUR 400 million in military to date in 2024 in terms of order intake.

Sorry, EUR 200 million?

So we gave a commitment of EUR 1.479 billion. I think we will be beyond that. Given the current commercial activity, we see, I think, a higher order intake. It depends on how fast one of our institutional customers can process the papers. We booked to date EUR 1.2 billion out of the EUR 1.479 billion that you've seen, and 1/3 of that has been with customers from the military.

I was misunderstanding your question, Mr. Hauenstein, about this quarter, but this is the annual number, the whole year. So it was also the GEO satellites and so on. And so that's the sum of the year. So in that respect, it is a significant part.

Okay. Great. All the best.

Thank you.

Next up is Henry Wendisch from NuWays.

I hope you can hear me. One quick question regarding the European space competitive environment. I've read some news flow that Thales and Airbus are considering a tie-up or a merger in that sense. Do you care to comment on that given that it's probably your 2 biggest competitors but also your 2 biggest partners in certain projects, forming a legal entity. How do you see this going forward and also with respect to your competitive standing in the field?

Yes. Thank you. Yes, we have also seen that news flow. I must say that this has been rumored over the years, actually over the decades, quite a few times. So I have not seen any firm news or any announcements. But I guess there are discussions about restructuring probably going on. This is probably pretty certain. What it means for OHB, of course, as you said, we are closely working with both companies, with Thales Alenia but also with Airbus Defence and Space. For us, this is an impact and potentially also a risk on our supply chain. We are teaming, we are using especially Thales' work shares on a number of our own ESA contracts and European contracts. So there's concern on our side with regard to that, that such a such a combination or such a potential merger would have a negative impact on our supply chain. That's clearly one thing to look at it. On the other hand, you always have an industry's changes. So this is going on everywhere. So we're not surprised about it. I mean you have seen in the space industry in the last years new companies, a new wave of new space companies. So of course, then that triggers consolidation. I don't know, Markus, you want to add to that, what your feeling is. But I guess the first point is that we have to safeguard our supply chain and our teaming capabilities.

Yes. I mean, first of all, we haven't seen any change from both partners towards us when it comes to cooperation. And there are many. So there's still an open dialogue, and they operate as if there is no project to merge. I think that's just important to know this. On the other hand, what we have done, though, is we've done a pretty in-depth analysis since March to see what could be a potential impact on us and what it means for the supply chain. At this point in time, we believe it's manageable as we have a diverse supply chain in the company. So also me being new onboard, looking at the numbers, it's less than I expected, which is good news. On the other hand, of course, we have to monitor it. As always, when you concentrate the offer, it's most likely that the customer will suffer. So that's something to watch. And for us, it's also an opportunity to be one of the alternatives to whatever that merger will be with the capabilities that we have. So we also see an opportunity in that merger if it comes. It's been in the industry ever since I entered the industry.

Okay. So not really that new but always a thing in the background.

I can't see any further raised hands, so no new questions for now.

Maybe from my side, now it's about half an hour into the call. Obviously, we are always available to discuss. Marcel is reachable but also Markus and myself. And certainly, at our upcoming Capital Markets Day in January, there's an opportunity to exchange what OHB is doing. We believe that 2025 will be a good year for the space industry. We clearly obviously now work for the upcoming ministerial conference of the European Space Agency, ESA ministerial conference, that is upcoming in November, actually in Bremen. So it has been decided by Germany and ESA that this will be taking place in Bremen. So that would be, of course, exciting to see if new programs are starting there. But in the short future, next week, there will be the Space Tech Expo also in Bremen. That's the big space fair. So if any of you is there, of course, get in touch with us. We are at the fair there, and we have a chance to exchange then. Good. So this was a little bridge for further questions. I'm looking to Marcel again. Do we have any further questions in these last moments?

No further questions.

If that's not the case, then I'll just say thank you to all of you, and let's stay in touch. And should we not be in touch again in this year, I wish you a good holiday season coming up in a couple of weeks. Everybody is still so busy that nobody really already thinks about that. But 5 weeks, they go quicker than we all think. And again, then coming back in January, and hopefully, we'll meet up again at OHB's Capital Markets Day. So thank you very much, and I'm closing the call. Bye-bye.