RENK Group AG ($R3NK)

Welcome to the RENK Group AG Q1 2026 Pre-close Call. Please note that the call will be recorded. [Operator Instructions] I would now like to turn the call over to Christian Weiss, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and welcome to our Q1 2026 results conference call. My name is Christian from the IR team. With me today are our CEO, Dr. Alexander Sagel; and our CFO, Anja Manz-Siebje. Alexander and Anja will take you through the presentation. Afterwards, we will open the floor to your questions. But now I will hand over to Alexander, please go ahead.

Yes, Christian. Thank you very much. Ladies and gentlemen, also from my side, like always, a very warm welcome and many thanks for joining today's Q1 call. Today's presentation has, like always, 3 parts. I will start first with a quick review of Q1 2026, followed by Anja, who will guide you through our key financials in more detail before I will come back with our outlook and guidance for 2026, a quick review of our current R&D pipeline and the upcoming key order intakes and programs for 2026. Ladies and gentlemen, before we go into details, let me quickly summarize the key messages upfront. First, RENK has delivered a solid start into 2026. Q1 confirms the strength of our business model, the strong momentum in our Defense segment and operational execution of our entire team. Second, the strongest Q1 order intake in our history at EUR 582 million, resulting in a book-to-bill ratio of 2.1. Third, the total order backlog at a new all-time high of EUR 6.9 billion. And importantly, also our fixed order backlog grew further to EUR 2.6 billion versus year-end 2025. Our defense business continues to be the clear driving force with plus 27% in order intake. Fifth and finally, we fully reconfirm our 2026 guidance. Revenues above EUR 1.5 billion and adjusted EBIT between EUR 255 million and EUR 285 million. And again, let me be crystal clear again here. We are clearly targeting the upper half of our adjusted EBIT range. All to sum it up, RENK is on track. Let me now walk you through the details during the next slides. Therefore, ladies and gentlemen, let's move to Slide 1, which summarize the 4 key takeaways I just walked you through. Record order intake in Q1, all-time high backlog, VMS as the clear growth engine and more than 90% of planned 2026 revenues already covered by our fixed order backlog. So let me focus directly on the key order intakes for Q1 2026. Most of these programs, I'm sure it should be very familiar to you. First, an international MBT program with our transmissions at approx EUR 157 million. This program is quite relevant for RENK by providing access to a growing market in the NATO environment. Also, the second Puma batch with transmissions and suspensions at approx EUR 140 million, a quite important step for the modernization of the German Army. Also, the U.S. M88 recovery tank program with engines at approximately EUR 49 million. And finally, two orders from international howitzer programs at approximately EUR 25 million. If we move to Slide 2. Slide 2 summarizes the group performance for Q1 2026. And as you can see in the 4 orange boxes at the top, all KPIs show a very positive development. The order intake we already covered, so let's move directly to the revenue. The revenue came in at EUR 284 million, plus 4% year-on-year. Important to note when comparing Q1 2026 revenue with previous year's first quarter, Q1 2025 did include Israel-related revenues in the range between EUR 20 million to EUR 25 million for Q1 2026 and as already communicated during our full year 2025 call, we did not have such Israel volumes in our production planning and consequently, no Israel-related revenue contribution. The adjusted EBIT stands at EUR 42 million, plus 10% year-on-year and once again clearly outpacing revenue growth and reflecting the operating leverage in our business model. The adjusted EBIT margin improved by over 9 percentage points to 15.0%. Regarding the end markets, we are now at a defense share of 74% on a LTM basis, fully consistent with our sector strategy. The New Build versus Aftermarket split is at 64% to 36% and within our typical current range, depending, like always, on the specific product mix quarter by quarter. Let's move to Slide 3. As you all know, defense is the core of our business and the main driving force behind our group performance. While the defense-related order intake increased strongly by plus 27% to EUR 495 million versus EUR 390 million in Q1 2021, the revenue side came in at EUR 209 million, plus 3% year-on-year. Important to emphasize if we would, and this is just for reference, included in this revenue figure, the missing Israel volumes from Q1 2025, as described before, the defense-related revenue would have been above EUR 230 million with a corresponding growth of approximate 14% year-on-year. One final word to Israel at this point. Since November 2025, the German export embargo has been lifted, and we are now ramping up the production and shipments for Israel during Q2. We continue to expect EUR 80 million to EUR 100 million revenue contribution for the full year. Ladies and gentlemen, let's move on to a quick view on our divisional performance and starting with our largest and most important division, vehicle mobility solution. VMS is, once again, our clear growth engine. Revenue grew strongly by plus 11% to EUR 191 million, fully in line with our customer contracts and delivery schedules. Our modular production concept in Augsburg ramped up during Q3 2025 is fully running and supporting ongoing margin improvement. The order intake was outstanding, a record Q1 of EUR 478 million, plus 21% year-on-year with a book-to-bill of 2.5x, driven by the main programs mentioned earlier. All to sum it up, VMS is performing, both commercially and operationally. Let me now turn to Slide 5 in our Marine & Industry division. M&I had a softer Q1 2026 with revenues at EUR 65 million or minus 11% year-on-year, driven by two specific effects, as already mentioned, during our Pre-close core. First, customer-induced delays in outbound logistics on certain naval projects, approximately EUR 10 million impact on the revenue side; and second, supplier-related schedule issues. These effects are temporary and will be fully recovered during Q2 and Q3. The underlying performance and the order pipeline of our naval business remains fully intact. On top of this, our industrial business is still under pressure due to the GDP-related overall weak market environment. The order intake of EUR 70 million confirms a solid level of activity, and we expect several larger naval order intakes during this year, which I will touch later on in the third part of the presentation. Last but not least, a few words on slide bearings. Slide bearings showed with EUR 30 million of revenues, a flattish performance in Q1 2026 reflecting the ongoing headwinds from the weak industrial market mentioned before, the quarterly driven lower aftermarket and a negative impact by U.S. tariffs, which we did not have in Q1 2025. The order intake at EUR 35 million is slightly above the revenue level. Ladies and gentlemen, now let's move on to the last slide, at least of my introduction, our total order backlog for [ Q1 ]. We have reached a new record level of EUR 6.9 billion, up from EUR 6.7 billion at year-end 2025, which corresponds to approximately 5x our LTM revenue. Very important to highlight, our fixed order backlog has continued to grow from EUR 2.3 billion at year-end 2025 to EUR 2.6 billion driven by the strong Q1 order intake and despite our high revenue conversion. The third order backlog stands at EUR 3.5 billion, slightly below year-end 2025, driven by the conversion of soft into fixed during the quarter. On top, we have over EUR 9 billion of frame backlog, plus our significant recurring aftermarket business outside our framework contracts. Having said this, I would like now to hand over to Anna for a deeper look into our Q1 financials. Anja, over to you.

Thank you, Alexander, for handing over. A warm welcome also from my side, and thank you all for joining us today. In accordance with our usual agenda, I will guide you through our Q1 financial performance, the development of our divisions and then net working capital as well as cash generation. Overall, Q1 '26 marked a strong and profitable start into the year for RENK Group. We continue to benefit from the favorable demand environment in defense-related mobility solutions while at the same time, demonstrating solid execution, especially within VMS. Most importantly, our profitability developed ahead of revenue growth confirming once again the operating leverage and our ability to make use of it. This was supported by a favorable product mix and positive scale effects, particularly in VMS, which remains the key growth and earnings driver in the quarter. At the same time, we also saw some headwinds in parts of the business, especially in M&I and slide bearings. These effects were mainly driven by customer-induced delivery delays, supplier bottlenecks and postponed order awards. Nevertheless, we do not regard this as structural. From a balance sheet perspective, net debt remained stable and our leverage stayed at its normal level. Net working capital increased in line with production activity and short-term delivery obligations. So to sum up the first quarter, RENK delivered profitable growth, maintained a strong financial position and continued to benefit from high visibility in its core defense markets. Moving to our group performance in the first quarter. Order intake increased by 6.1% year-over-year from EUR 549 million in Q1 '25 to EUR 582 million in Q1 '26. This is a record-breaking start into the year and was mainly driven by VMS, which contributed the vast majority of group order intake in the quarter. Revenue increased moderately by 4% from EUR 273 million to EUR 284 million. The main driver here was again VMS supported by higher output realized based on our modular production process in Augsburg and continued execution of the order book. At the same time, M&I had a counteracting effect mainly due to customer-induced delivery delays in the Marine business and the supplier bottleneck at RENK American Marine industry. As Alexander already highlighted, our book-to-bill ratio remained very strong at 2.1x. This means that order intake, again, clearly exceeded revenue conversion in the quarter. As a result, fixed order backlog increased by 14% compared to year-end '25 from about EUR 2.3 billion to about EUR 2.6 billion. The key takeaway is that Q1 confirms the strength of demand, the quality of our backlog and our ability to translate that backlog into execution. Turning to profitability and leverage. Adjusted gross profit margin increased from EUR 78 million in Q1 '25 to EUR 84 million in Q1 '26. This corresponds to growth of 7.4%. This adjusted gross profit margin improved from 28.7% to 29.7%. The reflecting positive scale effects and a favorable product mix in the quarter. Adjusted EBIT increased even more strongly by 10.4% from EUR 38 million to EUR 42 million. The adjusted EBIT margin improved from 14.1% to 15%. This is an important point because earnings growth outpaced revenue growth, confirming the already mentioned operating leverage that allows us to benefit from positive scale effects. On the balance sheet, net debt remained essentially stable at EUR 391 million. In relation to last 12-month adjusted EBITDA, leverage remained at around 1.5x. This means that we continued to combine profitable growth with financial discipline. The cash position, I will comment on that in detail later on, also remained stable compared to year-end. Operating cash flow in the quarter was sufficient to cover investing cash flow and financing cash flow. We, therefore, see the Q1 development as a constructive signal. The business is growing profitably while leverage and liquidity remain well under control. Let me now move to our divisions, starting with VMS. VMS once again confirmed its role as the group's key growth and earnings engine. Order intake increased by 20.5% from EUR 397 million to EUR 478 million. This strong development was driven by continued demand for land-based drive systems. It is worth noting that the prior year quarter had already included significant order intake. Against that comparison base, the Q1 '26 order intake performance is particularly encouraging and driven by two major order intakes. Revenue increased by 11.2% from EUR 172 million to EUR 191 million. The main driver was higher output in Augsburg, supported by the [ modular ] production set up. This shows that the current growth profile is not only demand-driven but also execution and capacity driven. Adjusted EBIT increased by 22.3% from EUR 29 million to EUR 35 million. The adjusted EBIT margin improved from 16.6% to 18.3%. This margin improvement was mainly supported by growth in the margin-accretive Augsburg business. To sum up, VMS had a strong first quarter with order intake, revenue and adjusted EBIT, all growing double digit. The division continues to scale, and it remains the center pillar of RENK's growth and profitability profile. Now let's have a look at M&I. M&I had a weaker first quarter compared to prior year period. Order intake decreased from EUR 122 million to EUR 70 million. The main reason is that Q1 '25 had included an exceptionally high order intake level in the Navy business. So the year-over-year decline should be seen against a demanding comparison base. Revenue declined from EUR 73 million to EUR 65 million. This was mainly caused by customer-induced delivery delays in the Navy business and the supplier bottleneck, which led to extended production processes and downstream delays. In addition, aftermarket revenue was below the prior year level, especially in [ turbo ] products. Adjusted EBIT decreased from EUR 7 million to EUR 4 million, and the adjusted EBIT margin declined from 10.2% to 6.7%. The main drivers were lower revenue, negative scale effects and missing margins from the delayed deliveries. At the same time, it is important to put this into perspective. The weaker Q1 performance does not indicate a structural change in the division's demand profile. It is primarily driven by timing effects, customer-induced ships and supply chain constraints. Based on the current view, we expect compensation of these effects in the following quarters. So the key message for M&I is Q1 was below the prior year, but the reasons are identifiable, managed fleet timing and supply related. Turning to Slide bearings. Order intake decreased moderately from EUR 37 million to EUR 35 million. This development was mainly driven by postponed order awards for marine and e-bearings despite stronger aftermarket activity. Revenue was broadly stable at EUR 30 million compared to EUR 31 million in the prior year quarter. Performance continued to be affected by the subdued industrial market environment, as Alexander already pointed out. Adjusted EBIT declined from EUR 5 million to EUR 4 million. This adjusted EBIT margin came down from 73% to 30.3%. The decrease was mainly attributable to an unfavorable product mix and negative effects related to U.S. tariffs. The key takeaway is that slide bearings remained relatively stable on the revenue side, but profitability was burdened by market conditions and the regulatory setup in the U.S. We continue to see the division as a high quality contributor to the group, but Q1 reflects a more challenging environment. Let me continue with the reconciliation from operating profit to adjusted EBIT and adjusted EBITDA. Operating profit increased from around EUR 24 million in Q1 '25 to around EUR 27 million in Q1 '26. Purchase price allocation effects were stable at around EUR 11 million. As a result, operating profit before PPA depreciation and amortization as well as income and losses from PPA asset disposals increased from around EUR 35 million to around EUR 38 million. Adjustments amounted to EUR 4.8 million in Q1 '26 compared to EUR 3 million in the prior year quarter. These adjustments were limited in size and mainly related to global system and process improvements severance payment, M&A-related costs and tax compliance standards. In total, adjusted EBIT increased from around EUR 38 million to around EUR 42 million. Adjusted EBITDA increased from around EUR 46 million to EUR 51 million. The main message is that the increase in adjusted EBIT and adjusted EBITDA was supported by the operating performance of the business, while adjustments remained modest. Now let's have a look at net working capital. Net working capital increased from EUR 345 million at the end of '25 to EUR 380 million at the end of March '26. As a percentage of last 12-month revenue, this corresponds to 27.6% compared to 25.2% at year-end. The increase was mainly driven by inventories, which rose from EUR 436 million to EUR 496 million. This reflects short-term delivery obligations and higher production activity. Importantly, around 69% of inventories are customer related, which means the increase is closely related to existing customer demand. Customer receivables decreased from EUR 375 million to EUR 356 million, and this development was mainly shaped by reporting date effects. On the funding side, prepayments received increased moderately to EUR 343 million, while trade payables declined to EUR 129 million. Overall, the development of net working capital is in line with the production activity and subject to timing effects. Our higher working capital supports revenue conversion and delivery readiness. At the same time, we remain focused on managing the managers, particularly when it comes to inventory discipline. Finally, let me turn to the key free cash flow items for Q1. The starting point is adjusted EBITDA of EUR 51 million. Adjustments amounted to minus EUR 5 million, and the change in net working capital had a negative effect of EUR 31 million. As just discussed, this working capital increase is closely linked to production activity, inventories and timing effects. CapEx amounted to EUR 5 million in the quarter and income taxes paid were around EUR 10 million. including the positive effects from other items, unlevered free cash flow come in of EUR 8 million after the interest result of minus EUR 6 million, free cash flow amounted to around EUR 1 million. This means that we generated positive free cash flow in Q1 despite the working capital buildup. The last 12-month cash conversion rate stood at 59%, which is consistent with our current growth path and scale up of production. Put differently, operating performance clearly outpaced the net working capital increase in the first quarter. We will continue to focus on disciplined working capital management, but the Q1 cash flow profile supports the overall message of profitable growth with a stable leverage. With that, I would like to hand back to Alexander again, and thank you for your attention.

Thank you, Anja. Ladies and gentlemen, let me now come back with a few comments on our outlook and guidance for 2026. Let's move directly to Slide 18, where we fully reconfirm our 2026 guidance. Revenues above EUR 1.5 billion and adjusted EBIT range between EUR 255 million and EUR 285 million. And as mentioned before, we are fully targeting the upper half of the adjusted EBIT range. The main operational levers, which are key for our 2026 guidance are summarized on the right side of this slide. First and clear strict delivery and revenue conversion based on our customer contracts. We have the order book, we have to fix backlog, and now we execute it, [ full store ]. Second, a stronger back-end loaded H2, fully in line with our customer delivery schedules and our investment plan for 2026. Third, full focus on operational excellence and our capacity expansion in Augsburg and Rheine, the modular production line is fully running and the next investment steps are coming online during Q2 and Q3. Fourth, the continued rollout of the RENK production system from Augsburg to [indiscernible] and now further towards [indiscernible]. And finally, further improvements of our operational efficiency. The overall market environment for 2026, even including a potential peace deal in Ukraine, we do see as strong and positive, and we expect major order intakes during 2026 which I will touch and describe on the next page. Moving now to Slide 19 and having a quick view on our order intake situation for the rest of the year, meaning Q2 up to Q4. Regarding Q2, we do currently see a range between approx EUR 400 million to EUR 500 million for order intake, depending on the timing of the specific programs. For the full year 2026, we confirm our high visibility of approx EUR 2 billion in order intake, which we have already indicated during the full year 2025 call. Let me highlight a few key programs. Regarding main battle tanks, we do expect further orders from Germany for the Leopard 2A8 and related MBT-based family platforms, but also further MBT orders from various international customers. Staying in Germany, we have the Boxer Arminius program, most likely a first contract for approximately 1,800 vehicles expected during half year to 2026. We also see further orders for the Panzerhaubitze 2000 tracked howitzer during Q2 and Q3. And then, of course, the U.S. Thor IV frame contract and related first contracts for 2026 currently in the final phase of negotiations. And new orders from various IFV programs such as Italy, Romania and Austria. On the Navy side, the F-127, the MEKO A200 and the R&D project for the German Navy and also her various international frigate programs, including the two programs which shifted by the way, from Q4 2025 into 2026. Also, and as a first highlight, and if you want a kind of sneak preview for Q2, we were nominated in April with the very first serious contract volume for the Patria TRACKX APC, a great success. By the way, the press release will follow soon. Fair to say, the potential order intake pipeline is full and the underlying momentum is strong. Now let's have a quick look on our production portfolio initiatives, and let's move to Slide 20. Slide 20 is, from my point of view, at least, a very important slide, which demonstrates very clearly that RENK is doing a lot in terms of R&D and new product development for the land and the sea domain. Our next-gen mobility road map is fully in execution with important milestones through the entire year 2026. Let me just walk you through 4 of our recent R&D projects where two are focused on new transmission for land platforms, while the other two are related to unmanned platforms. First, the HSWL 354B transition for the future Leopard platform, a development contract from KNDS. Second, the ESM280, the development of a high-performing transmission for heavy wheeled platforms above 30 tonnes. Third, the Heavy Tracked UGV concept. Here, we are working together with Patria on a new UGV concept between 10 to 20 tonnes platform weight for multiple use cases. And fourth, the ASV project, a development contract for an autonomous surface vehicle in the Navy domain for an international customer. The UGV and the ASV are underlining our strategy in the field of unmanned platforms for land and sea domains, a new product segment, which we believe will be a structural growth area and volume market for the coming decade. Important to mention 3 of these 4 projects will be shown at the Eurosatory in Paris from June 15 to 17 at the RENK booth. And of course, we are very much looking forward to welcome many of you in person. Ladies and gentlemen, you did it almost. We are close to the end of our today's presentation. So let's move on to Slide 21, the key takeaways of today's call. If I had to summarize Q1 in one sentence: Strong demand, good execution and very high visibility. We are seeing this very clearly in our order intake and total order backlog. This is not just a good quarter. It reflects the underlying strength of our markets. At the same time, VMS is stepping up exactly as planned. Growth is strong. And importantly, we see the operational improvements coming through in margins. For Marine & Industry and Slide bearings, the picture is more mixed. What we see here is largely timing and external effect, not a change in the fundamentals behind these segments. Finally, more than 90% of our 2026 revenues are already in the fixed order backlog. Fair to say that we are exactly where we want to be and fully confident in delivering on our guidance. Very last but not least, a few words on our financial calendar. Our capital market activities continue to be very busy, and we are very much looking forward to meeting many of you in the coming weeks and months at road shows, conferences, [indiscernible], et cetera. Some of the key dates are shown on this slide. Let me highlight one date, in particular, our Annual General Meeting on June 10, 2026, but also, and as already mentioned, please mark that in your calendar, the Eurosatory investor meetings in Paris on June 16 and 17, a great opportunity to see our R&D pipeline live and in color. Ladies and gentlemen, RENK has delivered a solid start into 2026. We are fully on track. The order book is full. The team is ready and the focus is crystal clear. Thank you very much for your attention. We are now looking forward to your questions.

[Operator Instructions] Our first question comes from Sebastian Growe with BNP Paribas.

So then I would start quickly on the recap on the quarter 1 of [indiscernible] so the first one would be around the VMS segment. Firstly, on the mix, and I would be interested in getting a bit more color on the drivers behind the strong margin development. I was generally surprised to see a contribution margin of more than 30% when at the same time, the segment was confronted with limited fixed cost absorption, relatively speaking, at least, and then also the missing Israel deliveries and conversely related ramp-up costs. So if there's anything that you would like to highlight here, then I would appreciate that. And the other question around VMS is in regards to Israel. You mentioned the lifted [indiscernible] but on the other side, it apparently also requires an export approval. So where do we stand here? And then I have two more.

Sebastian, I will try to answer your profound questions as soon as possible. If there's not enough, Anja needs to chime in. Maybe first, on the margin development of VMS, I think it's fair to say, and Anja mentioned it before, the center of gravity of margin development and improvement is clearly Augsburg. So if you want to call it VTA, it's on the land side. What we simply see here is the fact that the -- I mean, the operational efficiency improvements from the modular production line is just kicking in. We see constant improvements in the reduction of assembly time, et cetera. So this is clearly the driver for the margin development. Having said this, I'm not saying that the other VMS companies are not performing. But if you ask me personally about what -- who is the main driver, it's absolutely VTA. Absolutely. And I can jump on this later on, if you want. Israel, you summarized this perfectly. The export embargo is lifted. And all what I can say is we are in full swing in order to ramp up our production starting the first deliveries, and this includes, of course, a certain legal framework, which is given.

Okay. So just on the latter, you have approved those licenses that are required?

We are preparing, and we will deliver according to our customer contracts and then the delivery schedules. Yes.

Okay. Good. Sorry, I don't want to interrupt you, Anja.

Yes. I only wanted to state that I fully agree with what Alexander said on the margin development. It's VTA, it's really -- what we can see is what we always told is that more of the same just supports us at VTA. It's really the scaling up topic because we really produced a 16% more compared quarter-to-quarter. So -- and that's really mostly driven by our scaling up.

Okay. Sounds fair and [indiscernible] and sorry, just as a quick reminder, when did these kind of tailwinds start to come in from VTA? So you rolled out this modular concept. And I recall it was sort of later summer. So maybe the first statements really were visible into the fourth quarter of '25. Is that the right way to look at things, so that you have still two quarters with those related step-ups and tailwinds?

I would like to answer this, Sebastian. I think we have a continuous improvement of our performance in the line. I think I mentioned last year or during the full year 2025 call that I mean, just comparing the output figures of October '25 to October '24, we had an improvement. I think it was in the range of 14% to 15%. So what we see is simply the line is running since the end of Q3, and we have a permanent improvement of the parts flow of all the warehousing. And for this reason, we see that simply the time our people need to assemble one transmission is reducing further and as I just said, I think I said it before, I mean, our modular production concept, and we just talk about the final assembly. Please keep in mind that because of this year, we will roll out the modular production concept from the final assembly, which is running where we are benefiting, as you can see in the margin development towards the subcomponents, but also towards the end of the year in our [ MRO ] line. So we will see a continuous further improvement.

Okay. Good message. Then quickly on the order pipeline. You mentioned a couple of programs. I would just like to take it to a higher level for a second because we saw a bit of news for last week that the German government is about [indiscernible] earlier planned budget in '27 by about a high single-digit euro billion amount. I was just wondering to what extent you might benefit here? And similarly, if you could also provide an update in regards to the potential configuration of the circular reserve for the German army that would be appreciated.

Yes. I think we always shared very openly what are the relevant platforms for RENK. And I think from this point of view, my main comment and you see it, for example, in the booking of the second batch of the Puma, we are fully on track in regards to the visibility, planned visibility and the entire process. So I do not see that we will have a significant upside swing by the German budget. I think we are exactly running as we have since -- by the way, since 10 months or even more, communicated this. What was the second part of your question, Sebastian, sorry?

On the circular reserve, I think that was still unclear how many brigades, et cetera what configuration. So if you have any sort of update here, that would be great.

Well, I think the German customer is, how to say, on the move, and this includes but only the new platforms and the new projects, but this also includes on establishing during the next 4 years, please keep in mind the circular reserve was always targeted during the first phase of the German rearmament program. And I would -- all what we see is that the German customer is moving forward. Does it mean that he will have a circular reserve on the transmission side accomplished at the end of 2026? This is most likely not the case. It simply will take time, but we will execute it.

Okay. Good to know. And then the last one is just on the strategy part. Apparently, you have been [ kind of late ] been a potential exit of the Slide Bearings business. So maybe you can just provide an update where you stand here. And as you also mentioned, the ongoing developments in unmanned vehicles. Is there any sort of say, white spot in your offering that you would still need to close, so reinvest any potential funds from the potential Slide Bearing exit?

Yes. I would like to start maybe with the Slide Bearings discussion. In fact, to be honest, there is no update, as I just said, and as Anja has alluded on it, Slide bearings is [indiscernible] again in 2026 a value contributor to our overall crew business. And as I already indicated, there is, of course, a certain interest from the market because some companies are to recognize the performance and the market position of Slide Bearings. And we, as the Board, we have not only the responsibility, but it's also part of our strategy to constantly review and verify these potential interest indications from the market, and then we will make a decision if there's something attractive. If not, we have a nice round and sound running business, might have some headwinds in regards to industrial, but the overall market position, especially when we talk about alternative energies, energies in any kind of where the slide bearings is key. We are also happy to continue. But as I just said, this is an ongoing process, and we will see what is the outcome of this. Regarding unmanned platforms and [ client spot ], well, I mean, I think from a given RENK portfolio and product offering, we are focused on the domain, land and sea. This is the reason why so far organically and for example, by partnerships with ARX for smaller UGV, but if it comes to really full-sized UGVs can drive more than 90 kilometers and the payload of 3 up to 5 tonnes, et cetera, we are working with [indiscernible], for example, now with [indiscernible]. And I'm very happy to show you this 15-tonne UGV on the upcoming Eurosatory. So the question is, and it's the same, by the way for the autonomous surface vehicle or vessels where we got a development contract to provide if you want the entire propulsion system, not only transmissions, but e-generators, e-engines, condition monitoring, smart condition monitoring, couplings, et cetera. And as I just said before, we do see this as a structural growth market beyond 2030. It's absolutely sure. So we do feel that we are on a good way to position our product offerings in our today's domains. The question is, if you talk about blind spot, the question of what is missing are under the water, under the surface, unmanned vessels, vehicle platform, ships, boats, whatever. And of course, if you talk about area, I mean, UAVs, counter UAVs, and I mean -- or what I can say is we are observing and following the market and -- but I cannot give a more deeper and more detailed comment on this.

Our next question comes from Sam Burgess with Goldman Sachs.

I'll limit myself to two so that other people will have a go. Q1 VMS margins were very strong. And from the commentary there, it sounds like operating leverage is responsible predominantly. But Q1 is typically the seasonal low point on VMS margins. So can we expect quarter-on-quarter growth for the rest of the year? Or will there be mix changes that might weigh on future quarters? Any guidance there would be really helpful. And then just on M&I, I mean aside from the revenue deferral, I think the release also mentioned slightly softer aftermarket activity. Can you just give some more color here? And is that expected to persist?

I will try to, also here, to answer your questions. I mean the VMS margin development I think it's fair to say that Q1 showed a very positive trend. We will have a Q2, Q3, Q4. And as I just said, we will have, especially for Q3 and Q4 according to our customer delivery schedules and according to our investment planning and strategy, especially focused on Q2 and Q3, we have a stronger back-end loaded half year too from the revenue side. I think it's fair to assume that the overall margin development on VMS through the year should be a positive one. And I would say that if we look on the year-end 2026, we should see new all-time high in the margins on the VMS side. I hope this answered a little bit your question. The M&I, your second question, Sam, on the M&A side. the aftermarket business. I mean, as Anja said, we have aftermarket in M&I for the Navy segment and for the Civil or Industrial segment, for example, [indiscernible]. I mean there is, as I just said, we both highlighted this days still ongoing industrial headwind from -- for the industrial market coming from the current overall GDP sector-related market challenges. But from what we see is that this -- especially on the aftermarket side is what we would consider more a quarterly specific effect, not a structure because if you usually have weak market conditions, the new business is more impacted than the aftermarket business.

Next question comes from Chloe Lemarie with Jefferies.

I have two as well, if I may. The first one is actually on the updated German defense strategy and the budget highlights to 2030. Could you maybe comment on how these align with your expectations? Because there's definite skepticism in the market around, obviously, the relevance of conventional defense platform going forward so I'd be keen to hear your thoughts on this. The second one is on energy costs. If in case you foresee any kind of impact on your own business or maybe your supply chain due to rising cost on this front?

Sure. Always a pleasure. Also here, I will do my very best to answer your strategy. I mean, our reading of the updated German defense strategy and the discussions we are -- I mean, who are in the market about all conventional platform [ steps ] and we only have future unmanned [ UXV ], whatever domain air, domain land. Honestly, and I said it last time during our pre-close call, we do see our revenue and order intake planning according to the few platforms, which are relevant for us on the land side, still fully on track to make this absolutely clear. We had -- last week, we had a strategy meeting. We had a guest, a VIP guest, a 2-star General from the German Army, who was leading one of the tank divisions and we had extensive discussions about using conventional platforms. Do we need them? Do we not need them? And I simply would say, and this is in alignment with the Bundesliga strategy. If you talk about the main attack points of a potential Russian aggression, this will be not in the same geographic position like Ukraine. If you talk about the Baltics, you talk about the [ North Cup ]. If you talk about Finland, we talk about, for example, very dense forest, in these very dense forest, the entire effect of [indiscernible] is not given like in the open corn fields in Ukraine. So why I'm saying this, I think we need both, and this is part of our planning. And again, we see this fully on track. We need to have in the Bundesliga not only -- the Bundesliga need to have conventional platforms, more of them, especially beyond 2030 will become unmanned, especially when you need to supply certain use cases like ammunition, logistics, air defense, et cetera, et cetera. For this reason, we are focusing as a new product development area on these unmanned ground vehicles, for example, and it's the same for the unmanned surface vessels. So overall, we see no change in our prognosis in our forecast. And I think you know since two years, I'm talking about the same point. And I think it's a clear statement. We need both conventional and new innovations on the air, on the ground, whatever. Regarding your second questions, I mean, so far, and we are monitoring this on a biweekly basis about supply chain, energy costs, et cetera. It's a kind of pre crisis committee in order to evaluate the impact of the Gulf war. So far, we do not see a significant impact, and this includes also estimates including increasing energy prices and also increasing energy price to our supplier. For example, as you know, aluminum casting is always full of energy in all respects. And our big housings for the gearboxes are aluminum and casted aluminum parts. But so far, we do not see an effect and all what we see towards the end of this year, we believe we can manage it. But to be also crystal clear, Chloe, if there is -- for the next 6, 7 months, a total blockage of the Straight of Hormuz, if on the other side, Iran continues to blow away LPG terminals, whatever. Then I think sooner or later, the global economy as in the full glance, a different challenge.

And please also keep in mind our total energy costs really make up only 3% of our total production cost. So it's not a significant [ drop ].

Our next question comes from Benjamin [ Heelan ] with Bank of America.

I just had one. There was a follow-on from Chloe, I guess, at the full year, you talked about the Arminius program as an example being awarded in Q2 or Q3. And I think in your prepared remarks, you talked about it being in the second half of the year. I think what we see from some other companies as well, we are kind of seeing some of these big orders get pushed to the right. So I was just hoping you could talk about that a little bit. Is there -- is it just because of the scale of the orders, the amount of work investigations that needs to be done? Is there questions about do we need 1,800 vehicles or 2,000 vehicles. Just if you could give us a bit of color as to the discussions with the German customer because it does feel as though from the outside, some of these big programs are being moved to the right slightly.

Yes, again, I will try to do my very best to answer. I think first of all, before I talk specifically about the German customer programs, I think it's important to mention and you have seen this in our order intake of Q1 and you have seen this also in our outlook for the key order intakes of 2026 that we are not depending solely in our order intake in our revenues from the German customer. We have various international customers from West to East, and this gives a nice diversification of any kind of order intake risk. And for this reason, we are staying strong in our high visibility of this EUR 2 billion of order intake. I think this is -- if I could make some commercial for RENK. I think this is one of the strong points of RENK to have a fully diversified portfolio of customers and markets. Coming to Germany, Well, I think if you talk about the Boxer and you ask for the reasons, first of all, I think these are complex program is, I mean, from the contract negotiations and from an allocation of, for example, the 1,800 or 1,900 Boxers on different platforms. As you know, I mean, these 1,800, 1,900 Boxers are not going on to the IFV version or to 1 or 2 specific, there are 5, 6, 7 different platforms they need to serve and this needs to be arranged under these contracts. And there is obviously still the questions should the Bundesliga and the [indiscernible] use existing contracts of some of these frame contracts of some of these platforms who should get more of the Boxers or should they negotiate a full new frame contract out of this. So this is one thing. And the second thing is, I think part of the truth is also that part of the complexity is not only complexity from the political side or from the procurement department, from the MOD, it's also part of the industry, to be honest. I mean, the reason that the Boxer has a delay is that our customers could not provide a quote when it was requested. So it's not a driven delay by political decisions or by budget, the budget is there, but it needs to be finalized now in contracts. As I just said, it's not only one platform below this 1,800 or 1,900 Boxers, there are multiple platforms. In the industry, we all -- we have to perform in order to meet time lines when these programs should be submitted to the end customer and to the politics in order to start the political approval process. I hope this helped you a little bit.

No. That's super clear. Just a quick follow-on. As you sit here today, do you think that the customer will want to negotiate new frame contracts or use the existing contracts for that program? Do you have a strong view?

I mean a personal statement, I see this 50-50. It's not clear yet. I think the fastest move forward would be to use, at least for the majority of these programs, existing contracts.

Our next question comes from Marie-Therese Grubner with Cantor Fitzgerald. We will come back to Marie in just a moment. Our next question comes from George Mcwhirter with Berenberg.

I've got two, please. Firstly, on the aftermarket business. I think you mentioned that the full year results that you plan to maximize the potential of this business. Can you just update us on how that's going? And the second one is just on the EBIT consolidation line. It came in a bit lower than expected, I think. So can you just remind us what you expect for the full year on that one?

George, I will start quickly with the first question. This I see more in my responsibility. Then I will hand over if it comes to the [ consol ] figures to Anja. You're absolutely right. You are referring to my statements on the rework or redefinition, new definition of our aftermarket strategy. And I can confirm, we are right in between. We have approximately done 50%. We have calculated 8 weeks for this program. The teams are running on full speed. We are through the first data analysis. We are in the modeling of the future perspective of the aftermarket development, MRO development because there will be, as we already discussed, there will be different drivers compared to the past and as of today, and the final step is then, of course, to define short, mid- and long-term measures in order to drive, as I said, my perspective in the next 10 years, is to develop towards a potentially towards a business model similar to [ aero ] engines and so far with a significantly higher aftermarket share. And -- but I'm confident that during -- for our next call, so this is for the Q2, we can give first insights about our aftermarket potential and our approach. Anja?

So for the consolidation line, if you look at Q1, you can see that they are slightly above prior year for '26. So -- and for our planning, I would say we're at the same -- at closely to be the same level as in prior year for the full year.

Our next question comes from Sven Sauer with Kepler Cheuvreux.

Just one left. On the 90% of revenues, in the fixed order backlog for -- sorry, 90% of the fixed order backlog, does this include aftermarket? Or is this just equipment orders?

Sven, this is Alexander. I mean this does include a certain share of aftermarket. But I mean, if you talk about equipment order, it's more or less fixed. And the data, what we see here is this is driven by the nature of the business, if you talk about our industry business like couplings, for example, or if you talk about slide bearings, we have usually very short lead times. So the majority or the -- I would say, almost 100% of this remaining 10% is not driven and triggered by the platform because they are fixed and sealed. It's driven by the nature of the business or industrial business will shortly [indiscernible].

Okay. That's clear. And then on the rollout of the RENK production system at Horstman, should we assume similar efficiency improvements than we are seeing in Augsburg?

You are asking a tricky question. I mean, I'm asking the same question to my CEO, to be honest. And I think what we have done, and this is not related to RENK production system. Fundamentally what we have done in Augsburg with the introduction of the assembly line is absolutely key. I think what we will see, and this is also a lessons learned from my time in automotive, by installing these kind of RENK production systems or these production systems, you are defining standards, processes and tools, how to run your operations. And there will be an impact on efficiency, on lean, on how to work, and there will be also a continuous improvement on process, and this will be also reflected on the margin. But most likely, you cannot expect such a kicker in the EBIT or in the EBIT margin development like in Augsburg by a fundamental new breakthrough step of introducing this modular production line. But yes, I mean, we -- as I just said, we had last week a strategy meeting. And one of the key things we did not only change our brand slogan. So from a trusted partner is not anymore existing. Our brand logo, we adapted from our [ RAM ] company in U.S. is now We Power Freedom, but one of the major things was also that we handed out to all of the 89 executives of RENK a booklet about a RENK production system. So we are now in the full swing to introduce it, and this will help us during the next year to have incremental improvements on top of major kickers like, for example, the modular production line on our margin.

Our next question comes from Joe Orchard with Rothschild & Co Redburn.

Just one, please. Please, could you expand a little on the press release yesterday and your decision to enter the transmission market for wheeled armored vehicles with the ESM280. Now wheel transmission seem to be more of a competitive environment. So it would be great to hear your reasoning here. What sort of demand you're seeing compared to tracked vehicles and how material this opportunity could be for RENK?

Joe, good question. we are working. I mean, to give a little bit of color on the ESM280, that's the name of our wheeled transmissions. We are working on this since 3, 4 years and the lead is here with RENK [ forms ]. And having the lead with RENK [ forms ] implies certain platforms, which are maybe more related in the first hand to the French customer. We also do this development for other international platforms, which are as of today, at least not in Europe. But for example, if we go towards the Middle East. So this is a kind of framing why we are doing this. The second thing is -- this could be an attractive market, but we are not going at least not now in the mass market. We are looking here on above 30 tonnes and especially for heavy wheeled vehicles with -- which are having heavy payloads or who need to carry a lot of weight somehow. There are certain platforms. And what is clear is during this development period, we focus very much not only on meeting the performance, which is, and you know my statement, you cannot compare the performance of a tracked transmission to a wheeled transmission, I mean to come from the tracked technology to a wheeled is significantly easier than to go from wheeled into tracked, it's a totally different number. But we focus on this in order to developed a very cost competitive transmission, a very cost-competitive real transmission for platforms above the 30 tons, where we are not giving the market prices for these specifics where we are not giving up our margin expectations towards 2030 and beyond. But to make it also clear, we are not targeting to go into a significant super mass market. We are focusing here on specific platforms. This will most likely bring us volumes. With these volumes, we can further improve our cost situation and then we just see.

Next question comes from Christophe Menard with Deutsche Bank.

Yes. I have two left. The first one was on M&I. You're saying you're going to recoup the lost sales in Q2, Q3. Will you also recoup the lost EBIT given the -- when the drop to margin, you had or negative drop to margin, it was quite big. So that's the first question. And the second question is on the next-gen mobility. The R&D investment and the CapEx can you -- is it all behind us? And what is the amount? If not, what is the amount that is coming? And also when do you think those products will be ready for deliveries, I would say, when will we see tangible revenues going through this?

I will try also here to answer, and I would like to start with the next-gen mobility. I mean as you have seen this, we have, in principle, I mean, the [indiscernible] projects. We have some which are financed from our customers. If you talk about the next generation of the HSW 354, the Leopard transmission. So this is a funded development contract from KNDS. By the way, we will deliver on -- in the beginning of June, our 4,000 Leopard transmission. I mean, just as an information, so -- and if you take the ASV, for example, it's also customer funded. But if you take on the other side, as I just alluded before, the question from Joe regarding our ESM280 or if you talk about the average tracked UGV concept and other programs which are running, we are doing, of course, by self-funding, and we are staying, as we always communicated in our approx 3% of self-funded R&D, and you need to add overall, globally, around about 3%, 3% to 4% of customer-funded R&D. So we have a clear road map, and we are executing this [ enrollment ]. And we are very, very taking care according to our 4 technology segments that we are efficient in the spending of our precious euros. So it's pretty much about to focus where to spend the money, what are the future and also from the business case, of course, attractive development project. So this was my answer on the next-gen. Regarding M&I, I mean, I think I mentioned this in the pre-close call. The reason why we were about EUR 8 million below the revenues compared to Q1 2025, there are somehow ridiculous. When we talk about outbound logistics, there were two cases, and they triggered almost EUR 10 million of revenue shift out of Q1, where either we were shipping according to delivery, our transmission to the harbor and unfortunately, the customer missed to order right in time the boat. So we could not realize it as revenue, we will realize it in Q2. There was another reason it's difficult to explain this. A [ bloody ] captain was so dumb and he just loaded one transmission instead of two. So we could not realize the revenues. And the second one, also one driver, and this was an impact maybe on the lower single-digit euro figure. One of our suppliers in the U.S. had problems in scheduling their deliveries because they had quality issues, cracks in the weldings of housing. They fix it now, but of course, they could not deliver, and we could not integrate them in the building. So -- not in the building, in the transmissions. So these programs, they are coming during Q2 and Q3, and they are not lost this all what I can say. Did I answer your question? Or did I miss something? Christophe?

No. I was just wondering whether you will also recoup the lost EBIT. I mean the -- we had a [ short follow-up ].

Yes. Absolutely. The revenues are shifting and therefore, the EBIT will also shift.

Okay. No, that was just -- because the margin differential was quite big [indiscernible] margin.

Our next question comes from David Perry with JPMorgan.

I've got three questions. Hopefully, they're reasonably quick. First one, just on Israel. Can I just clarify something, I read an article that said the arms embargo had been lifted by Germany but not for heavy equipment like tanks. So I guess two parts of the question. One, is that true? And if it is true, does it exempt systems like transmissions or are your transmissions being delivered as spares? Is that how you get around it? That's the first one. The other two are probably quicker. And I think you used the word structural when you were talking about the slide bearing margin issues. Maybe I misheard, but just wondered what you're thinking for the margin through the year given some of the issues there? And then very quickly, Anja, could you just tell us what you're expecting for adjustments for -- excluding PPA, but the other adjustments for the full year?

I will take over the first two questions then regarding the adjustments, I would like to hand over to Anja. Regarding Israel, you're right. I read this article also, but I can confirm we are not impacted by this. So we are not considered as tanks or as heavy weapons. We are defense good, but we are not goods who are killing people. So from this point of view, I can clearly confirm we are not impacted by this. On our slide bearing business, we do expect to recover during this year on a similar margin level like we had maybe even slightly better like what we had in 2025. So I think this was my part of this, David. Was this okay before I hand over to Anja?

Crystal clear.

Thank you very much. Anja?

Okay. So let's talk about the adjustments. We're pretty much on a similar level if we look at the prior year not considering any, let's say, M&A, you can't really plan. So we need to see how that would come in. But on the other topics like process development and so on. And we are still working on our back to standard topics and so on to really get our systems up and running fully professionally. So that will remain in the same topics. So it could be that we have some payments to leading persons that could be [ coming too ], but that's it.

So for the full year, it was [ 13 ] last year -- excluding transaction and PPA, you had other costs of [ 13 ]. Is that kind of the number you've got in mind for the full year?

No. It's a little bit higher. We were like, I think probably it was like around [ 15 ] so what you need to add in is we might be kicking off in Q4, our SAP S/4HANA project. So if that would work out if we could hire people and so on. So -- but we really need to get the people first and onboard them. So there, we need to see whether that would fit in. So we would say around prior year or slightly above.

Okay. And then just -- and then once you've hit that level and you're rolling out the SAP, what would those numbers look like each year? Those exceptional items or adjustments you call them.

That's really a tough one. I mean we have said that SAP S/4HANA implementation would be a project running about 5 years and altogether, it's EUR 50 million. So there, it really depends on our contracts. So do we do that on time or not. And because then if we would do it on-prem, that means we would capitalize a portion of it. If we go into a cloud or whatever, we cannot capitalize that. So then that would be an exceptional item. But in order to really assess that, we would need to have the signed contract and really need to make the assessment on what parts and what features do we want to use for the S/4 system. That's for 2026, but that's not [indiscernible] because we will only have effects of Q4.

Our last question comes from Marie-Therese Grubner with Cantor Fitzgerald. I wanted to ask about USD hedging. What exchange rate are you hedged out for 2026?

Anja?

Yes, we do -- when you look at our setup, you can see that the big part is we have here of the production we really have in Germany. And we also have mostly suppliers here in Germany. So there is no hedging necessary. Then if you look at our U.S. business, which is basically the next biggest business, so there -- also here the suppliers mostly within the U.S. So typically, from the supply side, we do not have that big coverage. So we do a lot of, let's call it, natural hedging because we say in our currency domains, basically. When we contract big projects, let's, for example, take some RTS topics, yes, where we produce in Germany, where we have different suppliers then we do a hedging depending on the contract and on the currency. However, that hedging is being determined at the inception of the contract, and this is how we hedge.

This concludes the Q&A session. I will now hand back to Christian Weiss for closing remarks.

Yes. Thank you all for joining us today. We look forward to see many of you in person at the upcoming investor conferences and roadshows as well as the Eurosatory in Paris. We will, of course, remain available for follow-up questions in the meantime. And have a great day, and goodbye.

This concludes today's call.