RENK Group AG (R3NK) Earnings Call Transcript & Summary

Welcome to the RENK Group H1 2026 Conference call. Please note today's call will be recorded. [Operator Instructions]. I would now like to turn the call over to Maximilian Konig, Senior Investor Relations Manager. Please go ahead.

Thank you very much, operator. Good morning everyone and welcome to the H1 2026 RENK Group Earnings Conference call. With me today are our CEO Dr. Alexander Sagel; and our CFO Anja Mänz-Siebje will dive in today's presentation. Afterwards, [indiscernible] for your question. Let me now on turn over to Alexander. Thank very much.

Thank you very much. Ladies and gentlemen, also from my side, a very warm welcome, and many thanks for joining today's H1 2026 conference call. For the sake of time, let me start directly by going into the presentation. However, please allow me just some very quick personal remarks upfront. The last 6 to 7 months were very successful for RENK in regards to financial performance, credibility, technological milestones and major steps forward towards strategy execution. We are fully on track to deliver our 2026 guidance and to position us, as always communicated, in the upper half of the adjusted EBIT range. Having said this, ladies and gentlemen, let's move now to Slide 1, showing a selection of highlights for the second quarter. The strong order intake is clearly one of these highlights, and therefore, let me start directly with a quick review of some of the larger key order intakes during Q2. First, we extended our framework agreement with [indiscernible] on the Lynx program, including transmissions and final trials worth up to EUR 270 million and including further options in the range of EUR 63 million. Furthermore, RENK America was awarded to follow-on to [ 4 frame ] contract by the U.S. Army up to USD 691 million over 5 years and also including further upside options. In Q2, we already booked around EUR 121 million order intake according to contract terms. In addition and staying in the domain land for a moment, you saw further orders for engines from an international customer, more spare parts orders in our lead plant here in Augsburg and the very first part [indiscernible] series orders which were further supported by a recent collaboration agreement between Finland, Norway and Latvia, during the NATO Summit in Ankara. Last but certainly not least, also our Navy business showed strong order momentum with orders from various international [ rebate ] programs. For example, the [ frem ] in Italy or the [ Milligan ] in Turkey, just to name a few of them. In total, we enjoyed a record H1 order intake of roughly EUR 1.2 billion, clearly demonstrating continued strong and international demand for our products and technologies. For your information, approximately 13%, [ 1-3 ] of the order intake from H1 comes from the German customer. Also during Q2, we proudly celebrated the 4,000 Leopard 2 transmission going into production. Needless to say that Leopard 2 is one of the most relevant NPT platforms worldwide and ranked truly is a proud sole-source supplier for this program in over 20 countries in over 40 years. A very important highlight of the second quarter was certainly the unitary in June. Together with Patria, we presented our concept of a heavy tracked UGV where the digitalization of our transmission is the core enabler for future unmanned mobility. Strong interest from various customers, MODs and the media was not only very impressive, but also underlining the leading role of RENK in this new product segment in combination with our today's strong market position. One milestone I'm personally very proud of, the signing of David Brown Defence, where we are doing nothing less than building the global leader in naval power transmissions with unique access to the 5 markets. And so far, at least for us, uncovered new product segments and technologies or in different words, consequently executing our M&A strategy. Ladies and gentlemen, let's move now to Slide 2, which summarizes the crew performance for H1. Before we are going into a more detailed discussion -- sorry, was the wrong page. As you can see in the orange box that the top, all relevant KPIs are showing a quite positive development, starting with the order intake. As mentioned before, a very strong H1 performance with a book-to-bill ratio of 1.9 where the approximately EUR 1.2 billion order intake is almost on a similar level as 2025 after 9 months. On the revenue side, growth is fully in line with our fixed order backlog and customer delivery schedules. Please let me remind you at this point of our well-known Israel effect. In the first 2 quarters of 2025, we had approximately EUR 20 million to EUR 25 million of revenues per quarter related to Israel. For 2026, the deliveries were and are scheduled according to our customer contracts to start at the end of Q2 and peaking during H2. For your information, the deliveries have started as planned. Adjusted EBIT grew strongly by around 10% year-on-year, once again clearly outpacing revenue growth, and the margin continued to expand to 15.4% and driven by the operating impact of our modular production line and group-wide performance measures. Finally, our defense business is slightly up to now 75% while our higher aftermarket share remained stable with a strong aftermarket performance in Q2. For the information, we are currently in the process to finalize our aftermarket strategy 2035. From today's perspective, we are confident to secure a stable aftermarket share of approximately 35% to 40% by 2030 despite a significant increase of new business. Beyond 2030, we do see further substantial growth potential of in total up to EUR 2 billion of revenues per year towards 2035. Ladies and gentlemen, before we are going into a more detailed discussion of our business performance, please allow me to briefly put a couple of recent and important events during H1 into our rent perspective. The bigger picture is straightforward. NATO and relevant member countries are clearly on the move, committed to increasing defense spendings and defined capability requirements and growing into a new role of responsibility or so-called burden sharing. The NATO Summit in Ankara confirm the 5% total defense spending target from last year and the focus has shifted from [indiscernible] to implementation with faster execution and faster delivery expectations. The United States will further increase defense spending, and the same is true for countries like, for example, Germany and U.K., which are planning to invest more than EUR 900 billion during the next 4 years. Equally important is the so-called capability mix, the alliance had defined already during last year's summit in [indiscernible], including besides air defense, long-range position strike, ISR and space, the so-called conventional mass, which covers land and sea platforms, ammunition, drones and unmanned platform. Nothing more, but also nothing less was confirmed in uncover. From a strategic perspective, it is important to understand that armored land and sea platforms continue to play a key important role in the future combat readiness of the alliance. Germany, for example, already awarded during the last 12 months contracts for armored land platforms of more than EUR 18 billion by the so-called recruitment authorizations, as with more than EUR 44 billion still on a very high level. From a RENK perspective, it is important to understand that the current budgets and capability mix are fully in line with our scenarios and midterm targets for 2030 and beyond. Let's move now to Slide #4. As you all know, defense is the core of our business and the main driving force behind our crew performance. Defense-related order intake grew strongly to roughly EUR 1 billion in H1, plus 48% compared to last year, driven by strong and ongoing demand across our international core markets. On the revenue side, defense grew to around EUR 488 million or plus 6% versus H1 2025. Normalizing the H1 2026 defense revenue for the before mentioned Israel effect, the underlying growth would be higher in the mid-teens. Ladies and gentlemen, please allow me to have a quick and -- really only a quick view on our divisions, starting with MS on Page 5. More details will come later, of course, from Anja. VMS is once again our clear and absolute growth engine. Revenue grew by around 8% in H1 2026, fully in line with customer contracts and delivery schedules. Order intake showed a new record H1 of EUR 970 million, so almost EUR 1 billion, which is plus 43% year-on-year and related to a book-to-bill ratio of 2.3. The modular assembly line in Augsburg, no news is up and running, showing good performance and supporting strong margin improvement. Moving now quickly to our Marine & Industry division. Regarding revenues, 2026 started slow during Q1 but showed a significantly better performance during Q2, including a partial recovery of customer-induced delays from Q1. The Navy business is clearly the driver of the M&I performance while the industrial part remains under cyclical market pressure. As a result, H1 revenues came in 6% below last year's performance. Regarding order intake, we do see a similar picture, strong Q2 performance compared to Q1, but overall, with EUR 164 million for H1 at a lower level compared to H1 2025. Last but not least, a few words on Slide Bearings. Revenues came in slightly below prior year, reflecting ongoing headwinds from weak industrial end markets and lower aftermarket business in H1 2026. Ladies and gentlemen, let's move now to the last slide of my introduction, our total order backlog. Despite a strong revenue conversion, our fixed order backlog further increased to now EUR 2.8 billion, driven by the strong order intake. And finally, leading to a total order backlog of EUR 7.4 billion, which is roughly 5.3x our LTM revenues. Also important to note that approximately 75% of our total order backlog is widely spread across our international customer base, where Germany contributes with approximately 24%. This geographic diversification truly is, besides our strong aftermarket business, a very important USP offering. Having said this, I would like now to hand over to Anja for a deeper look into our Q2 financials. Anja, over to you.

Thank you, Alexander, and a warm welcome from my side as well. The first half of '26 combined record order momentum with further progress in profitability. Group order intake reached almost EUR 1.2 billion, book-to-bill improved to 1.9x and fixed order backlog increased around EUR 2.8 billion. Revenues grew more moderately, reflecting strong execution in VMS and lower volumes in M&I and Slide Bearings. Adjusted EBIT increased by 10.1%, clearly ahead of revenue and the margin improved to 15.4%. This was driven by higher output and better capacity utilization in VMS. Reported earnings, however, were affected by higher M&A and transformation-related expenses. At the divisional level, VMS delivered strong growth across orders, revenues and earnings. M&I remained below the prior year for the first half, but improved materially in the second quarter. Slide Bearings continued to face pressure from weak industrial demand, lower utilization and product mix. Free cash flow increased to approximately EUR 42 million, while net working capital remained broadly stable and leverage stayed at 1.5x. Overall, the first half confirms strong demand improving operating leverage and significantly strong cash generation. Let's start with our group performance in the first half of '26. Order intake increased by 29.7% year-over-year from EUR 921 million to a record high of around EUR 1.2 billion. The second quarter was particularly strong with order intake increasing by 64% to EUR 630 million. As Alexander described already in more detail, this development was mainly driven by VMS and continued high demand for land-based defense mobility solutions. Revenue increased moderately by 2.7% from EUR 620 million to EUR 637 million. In the second quarter, revenue grew by 2% to EUR 354 million. Higher output and continued execution in VMS more than compensated for lower first half revenue in Marine & Industry and Slide Bearings. As a result, our book-to-bill ratio improved from 1.5x to a very strong 1.9x for the first half year of '26, with a second quarter ratio of 1.7x order intake remained at a high level. This strong demand environment translated into further growth in our fixed order backlog. Compared with year-end '25, fixed order backlog increased by 25.9% from approximately EUR 2.3 billion to approximately EUR 2.8 billion. This provides us with a high degree of visibility for the coming periods. The key takeaway is that RENK continued to strengthen its future business base. Demand remains very strong. Backlog reached a new level, and we are progressively translating this demand into higher revenue through the ongoing production ramp-up. Moving on to profitability and leverage. Adjusted gross profit increased by 7.8% from EUR 171 million in the first half of '25 to EUR 184 million in the first half of '26. The adjusted gross profit margin improved from 27.6% to 28.9%. This development was primarily supported by higher output and positive scale effects in VMS, which more than offset the volume and mix-related pressures in M&I and Slide Bearings. The second quarter confirms the same pattern. Adjusted gross profit increased by 8% to EUR 100 million, while the margin improved from 26.7% to 28.3%. Adjusted EBIT increased even more strongly by 10.1% from EUR 89 million to EUR 98 million. As a result, the adjusted EBIT margin expanded by 1 percentage points from 14.4% to 15.4%. In the second quarter, adjusted EBIT increased by 10% to EUR 56 million, with the margin improving from 14.6% to 15.8%. This is an important point because earnings growth, again, clearly outpaced revenue growth. It demonstrates the operating leverage within the group and in particular, the benefits from the continued production ramp-up and higher capacity utilization in VMS. On the balance sheet, net debt increased moderately by EUR 60 million or 4.1% from EUR 391 million at year-end to EUR 407 million at the end of June '26. At the same time, leverage remained stable at 1.5x last 12-month adjusted EBITDA. This development also needs to be seen in the context of the EUR 58 million dividend payment during the first half of '26. In summary, RENK continued to deliver profitable growth and margin expansion while maintaining stable leverage and a disciplined financial position. Let us turn to VMS, where business momentum strengthened further during the first half of '26, its role as our growth engine was already highlighted by Alexander. The division secured EUR 970 million of new orders, an increase of 42.6% compared with the prior year period. Almost half of this amount was booked in the second quarter when order intake rose by 73% to EUR 492 million. This reflects the sustained pace of customer demand for land-based defense application and further enhances the vision's already strong revenue visibility. Revenue reached EUR 419 million, up 7.6% year-over-year. Second quarter revenue increased by 5% to EUR 227 million. The progress reflects tangible improvements in production throughput, including the modular setup in Augsburg, together with a strong contribution from our operations in [indiscernible]. The quality of this growth is particularly visible in earnings. Adjusted EBIT rose by 20.5% to EUR 80 million, considerably faster than revenue and the adjusted EBIT margin increased from 7.1% to 19.2%. In the second quarter, the margin reached 19.9% and supported by higher volumes, improved utilization and resulting fixed cost absorption. The widening gap between revenue growth and earnings growth illustrates how the ongoing industrial ramp-up is translating into stronger operating leverage. VMS combined exceptional order momentum with higher output and a further step-up in profitability. Turning next to M&I. The first half year figures show a mixed picture with a noticeably strong second quarter. New orders totaled EUR 164 million, 9.9% below the prior year level of EUR 183 million. The quarterly development, however, moved in the positive direction. Second quarter order intake reached EUR 94 million, up 57% year-over-year. This rebound was supported by the naval and aftermarket businesses and materially reduce the shortfall recorded after the first quarter. Revenue for the first month period amounted to EUR 165 million compared with EUR 176 million a year earlier. The decline [indiscernible] to only 3% in the second quarter when revenue reached EUR 100 million. Some plant deliveries were not finalized within the reported period and will therefore contribute in later quarters. Adjusted EBIT came in at EUR 16 million versus EUR 19 million in the first half of '25, corresponding to a margin of 9.9% compared to 10.7% in the prior year period. Lower first half volumes, limited fixed cost absorption and consequently weighed on earnings. In the second quarter, adjusted EBIT increased by 5% to EUR 12 million, and the margin improved from 11.1% to 11.9%, supported by a stronger business mix and higher-margin naval activities. Overall, the first half comparison remains below last year, but the direction of travel improved materially during the second quarter. The recovery in order intake and profitability supports the view that naval business remains fundamentally sound, while the remaining revenue gap is predominantly linked to delivery phasing. Slide Bearings continued to face weaker industrial headwinds during the first half with a limited top line movement but a more pronounced impact on earnings. Order intake amounted to EUR 64 million compared with EUR 66 million in the prior year period. The second quarter was stable at EUR 30 million, indicating that demand did not deteriorate fundamentally, although the division has yet to see a meaningful recovery in its industrial end markets. Revenue came in at EUR 60 million, 4.4% below the previous year. Second quarter revenue declined by 7% to EUR 30 million. Overall, the top line remained comparatively resilient despite the lack of broader market growth. The earnings effect was more substantial. Adjusted EBIT decreased from EUR 10 million to EUR 8 million in the first half, resulting in a margin of 12.5% compared with 16.6% a year earlier. In the second quarter, adjusted EBIT was EUR 3 million, and the margin stood at 11.7%. This difference between the relative moderate revenue decline and the above average reduction in earnings reflects lower factory utilization and a less supportive product mix with fuel volumes passing through the existing cost base, the division was unable to maintain the exceptionally strong profitability recorded in the prior year. In essence, Slide Bearings preserved a broadly stable business base but the current industrial environment constrained both operating leverage and mix. A more visible improvement in profitability will therefore depend on the recovery in volumes and the normalization of the product mix. Now let me move on to our bridge from reported operating profit to the underlying earnings performance of the group. Operating profit was broadly stable at EUR 58 million compared with EUR 59 million in the first half of last year. Purchase price allocation effects were also virtually unchanged with EUR 21.9 million. The main year-over-year movement, therefore, came from the remaining adjustments, which increased from EUR 7.8 million to EUR 18.3 million, around EUR 10 million related to M&A activities, primarily related to the acquisition of David Brown Defence. The balance mainly reflects the implementation of [ Group Rights ] process standard, system improvements and severance-related expenses. After accounting for these items, adjusted EBIT reached around EUR 98 million, up from EUR 89 million in the prior year period. Adjusted EBITDA increased by a similar rate of around EUR 150 million. The important distinction here is between the reported results and the underlying operating development. Reported operating profit absorbed a higher level of transaction and transformation expenditure, whereas the adjusted figure reflect the clear earnings improvement generated by the business. Looking at net working capital, the overall position was virtually unchanged over the first 6 months. Net working capital closed June 2026 at EUR 344 million compared with EUR 345 million at year-end. Relative to last 12 months revenue, the ratio adds down from 25.2% to 24.9% despite the continued expansion of production activity. The composition, however, shifted meaningfully. Inventories rose by EUR 71 million to EUR 507 million as we increased work in progress and secured materials for the planned output ramp-up for the second half year, particularly within VMS Augsburg. This build is, therefore, closely linked to scheduled customer deliveries and the conversion of our order book. This increase in inventory was offset by favorable movements related to the remaining components mainly driven by cutoff effects. Customer receivables declined by EUR 44 million to EUR 331 million, while prepayments received increased by EUR 25 million to EUR 347 million. Trade payables also provided a modest contribution rising to EUR 147 million. Taken together, these developments kept group's net working capital broadly flat while enabling a higher level of operational activity. Going forward, our priority remains to control the elevated inventory position and to turn it into deliveries, revenue and cash as planned. The first half cash flow bridge shows a marked improvement in cash generation compared with the prior year period. Adjusted EBITDA provided a starting point at around EUR 150 million. From this amount, EUR 18 million of adjustments were deducted reflecting the transaction and transformation-related items covered in the previous slide. Working capital contributed approximately EUR 6 million to cash flow. The positive overall effect resulted from lower receivables and higher customer prepayments which more than compensated for the continued increase in inventories required for the production ramp up. Cash outflow was also included around EUR 17 million to capital expenditure and around EUR 20 million to tax payments. After other cash flow effects, unlevered free cash flow amounted to EUR 54 million, following the interest results of around EUR 12 million. Reported free cash flow reached around EUR 42 million. Compared with EUR 11.5 million in the first half of last year, this represents a substantial step-up. The improvement was supported by stronger working capital performance although part of the development reflects payment patterns and reporting date effects. On a last 12-month basis, the cash conversion reached 65.9%. It is also worth noting that on a stand-alone Q2 basis, cash conversion rate reached an outstanding 130.1%. This demonstrates that the group generated meaningful cash while continuing to fund higher output inventory requirements and future profitable growth. Overall, the first half bridge shows that RENK's earnings were converted into significantly stronger free cash flow. Let me briefly cover the refinancing we successfully completed after the reporting date. We replaced our previous financing structure with a new unsecured syndicated financing package of around EUR 1 billion. The package consists of EUR 450 million term loan, a EUR 225 million revolving credit facility and EUR 375 million of syndicated guarantee lines, with a 5-year maturity and 2 1-year extension options. Additional bilateral guarantee lines of EUR 80 million were also agreed. The refinancing was strongly supported by our international banking consortium with commitments clearly exceeding the required volume. We see this as a strong sign of confidence and RENK's strategic positioning, business development and future growth path. Economically, the new structure comes with significantly improved credit margin and is expected to reduce annual financing costs by around EUR 7 million. This compares with one-off costs of around EUR 2.5 million for the new financing and around EUR 1 million for the unwinding of existing interest rate hedges. Equally important, the new financing is unsecured. The previous collateral package and restrictive conditions for raising additional financing have been removed. This gives us materially more flexibility for future profitable growth steps, investments and potential acquisitions. In summary, thanks to the trust of our banking partners placed in RENK, we prolonged our robust capital structure, lower financing costs and gained more strategic flexibility. Said that, I would like to hand back to Alexander, who will proceed with our outlook.

Thank you, Anja. Ladies and gentlemen, let me now come back with a few concluding comments from my side and moving straight to Slide 20. Starting first with our guidance for 2026. To make it short and crisp, we confirm our 2026 guidance with revenues above EUR 1.5 billion and adjusted EBIT between EUR 255 million and EUR 285 million, and we are clearly targeting the upper half of the adjusted EBIT range. The main operational levers are unchanged and should be familiar to you from our Q1 call. Full focus on operational execution, performance and delivery, while in parallel moving straightforward with our capacity expansion. In terms of phasing, we always communicated that 2026 will be very back-end loaded with a stronger H2, and this is still the case. And you know it, more than 90% of our planned 2026 revenues is already covered by our fixed order backlog. Therefore, let me continue now with a quick view on our order intake situation for 2026 and moving to the next page. Regarding order intake, we are looking at a very attractive pipeline for the rest of the year. After roughly EUR 1.2 billion during H1 2026, we are on track towards our full year target to secure approximately EUR 2 billion of order intake in 2026. The H2 pipeline is geographically diversified and very tangible. On the [indiscernible] side, we do expect further frigates and destroyers during Q3 and Q4. While for our land business, we do see more significant orders for various armored platforms. You find this an actual on the right-hand side of this page. And if you want, we can go through this in the discussion afterwards. Regarding Q3 and driven by the timing of the specific projects, we do expect order intake on a lower level compared to Q1 and Q2 and also lower than expected for Q4, plus moving us in a range between EUR 300 million to EUR 400 million. Please allow me a few words regarding our operations and follow me to the next page, Page 22. To sum it up, we are absolutely focused while executing our capacity ramp-up plan in Germany for land transmission and especially Q2 and Q3 '26 are marking very important milestones on our way to almost triple our capacity towards 2030. Just to give you some quick impressions and starting with our lead plant in Augsburg where new fully automated and to be honest, quite massive CNC machining centers are getting installed and starting to run in 3 shifts, 5 days a week. Regarding our modular assembly line concept, we are currently in the process to further roll out this very successful approach from our final assembly shop into the subassembly and spare part operations followed by the MRO operations during Q4 '26 and in the beginning of Q1 2027. Also very important and related to David Brown Defence, we started machining of the first [ CAR 26 ] Frigate main gear here in Augsburg in order to prepare for future operational synergies regarding Type 26 deliveries and overall CapEx spending. Leaving now going to Riner, where we are step-by-step converting a former 100% industrial site into a defense operation by, for example, the installation of further CNC machining centers. not new, but maybe important to mention again, we are executing our capacity expansion for converting order backlog into future profitable growth in a very disciplined way with limited CapEx needs. 3% on average until 2030 and below 5% for 2026. Let's move to Slide 23 and some quick words on David Brown Defence or in short, DBD. As you -- as already said in the beginning of this call, the acquisition of DBD is the consequent execution of our M&A strategy. With transmissions for large surface combatants and submarines, including the Type 26 program, is providing us with a unique market access to the so-called 5 [indiscernible] nations, including U.S., U.K., Canada and Australia, RENK will be the only Navy transmission system supplier serving all those markets, thus expanding our global leadership in the naval domain. Regarding the domain land, David Brown contributes with transmission systems and [ Powerpack ] integrations for tracked and wheeled armored vehicles, like the Challenger 2, 3, [indiscernible]. While I will not run you through all the numbers on that slide, we did it, by the way, during our call on July 3, let me emphasize that the preparations for the [ PMI ] phase have already started even before the signing on July 3. Closing is targeted for Q4 2026. After closing, David Brown will be integrated into the M&I division. Our integration is structured in different phases. First, with a clear focus on improving operations, realizing operational synergies and safeguarding deliveries followed by leveraging new growth opportunities from joint market access, supported by our new technologies and product segments like unmanned or less crude surface methods. Ladies and gentlemen, I know it was long. We are finally close to the end of our today's presentation. So let's move on to Slide 24 and very briefly look at the key takeaways of today's call. If I, Alexander Sagel, to summarize H1 in one sentence, stellar order intake from strong demand for land and sea platforms, solid cash conversion, clear margin improvements and the confirmation of our full year 2026 guidance with a clear, I repeated and unchanged target to land in the upper half of the adjusted EBIT range. Very last but not least, a quick view on our financial calendar. Our capital market activities, like always, continue to be very busy, and we are very much looking forward to meeting many of you in the coming weeks and months, at roadshows conferences and of course, tons of bilaterals. Some of the key data are shown on this slide. Again, from all of us, thank you very much for your attention. We are now looking forward to your questions.

[Operator Instructions]. Our first question comes from Chloe Lemarie with Jefferies.

So I'll have 2. The first one is on VMS assumption for margin in H2 because, obviously, you had a pretty good momentum in H1 without the benefit of the sales to Israel or not much. So any thought on where the margin could get to in H2 would be great. The second one is on the '27 draft budget for Germany. There's a pretty significant drop in the procurement iteration on armored vehicles. I just wanted to see what your thoughts were there in terms of the demand and how it can be impacted, for instance, by the [indiscernible] contract and the timing of the signing there.

This is many questions. In fact, you are doing a trick because we put 10 questions in one question, to be honest. But happy to answer. I will try my very best. If not, please ask again if I missed something, I'm getting older. First, on the VMS margin. I will not comment on the H2 because H2 is H1 plus H2. I will just comment on the full year expectation. The full year expectation on BMS is clearly well above the 21%. This is the first answer, I hope. Regarding Germany, procurement authority [ says ] and budget increase, I think it's very important to overall armored land platforms, and this is independent if you look on procurement authorizations or if you look on the EP4 development are key and are vital, full stop. The procurement authorizations, for example, the are currently at EUR 44 billion up to the end of next decade. They were reduced, but again, get it. I think this is really important. There is so much money considered in the EP4 in the next 2 or 3 years in the EP4 in the normal German national budget and it's the same for the procurement authorization. I think at least according to our rank growth scenario and capacity expansion scenario, we have not expected and seen any surprises, to be honest. You just asked about the Boxer program. Well, the Boxer program, I think we have it still in our order intake. We reduced a little bit the amount, but to be honest, I do not believe that this order will come this year to RENK. Why? I think the parliamentary approval of the Boxer program are [indiscernible] will take place maybe in December. But happily, we even have this or we even have this capability to compensate this potential shift of the Boxer order intake from '26 into by other international customers. So underlining our approx EUR 2 million target on the order intake side. Overall, and I think I said it in the beginning, what you have seen on the Ankara NATO Summit, the capabilities who were discussed and basically confirmed on what was decided in the [indiscernible], there is no surprise. It was always that there needs to be a lot of air defense. There needs to be a lot of long-range precision strikes. There will be a lot and tons of ISR projects running on. And of course, space is key. And there will be a lot of drones because the key is, besides all these air defense and long-range missile, conventional mass is key in order to increase future concert readiness of NATO. And this includes armored land platforms, wheeled and tracked manned, unmanned and we're looking on a perspective beyond 2030. So Chloe, I don't know if I manage everything, but feel free to ask.

Our next question comes from Sebastian Growe with BNP Paribas.

I have 2 follow-ups to Chloe's questions. I hope we can count them as half a question. I saw that I have one more. And the first one is on the orders part on [indiscernible], sorry for this point [indiscernible]. I was wondering whether there's been any discussions with the customer for the number of vehicles under the firm order tranche. I think you had put out [indiscernible] 8, 000 units. And on the VMS margin, the segment is running 200 basis points above prior year and that without Israel really. So the question is, is there anything to highlight from a big perspective, transmissions as opposed to suspensions, anything that might not be sustainable and can you also please remind us where you stand with regard to adding another shift in Augsburg? So these were the half questions. We start there and then I have one other on Slide Bearings, if I may.

Again, unfair, but anyway, I love to answer your questions. We should stop this rule of the 2 questions by the way because anyway, everybody is putting everything. But on the order intake of [indiscernible], well, I think there is a vital discussion about the timing of the fixed orders for the [indiscernible] project. There is a discussion -- ongoing discussion and we had it before Sebastian regarding the total quantities who will be covered in the [ minus ] contract, while on the other side, additional elements of volumes of the [ A minus ] project might be procured and contracted under existing frame contracts like, for example, the [indiscernible]. I think at the very end, I think the total number from my perspective, if we would add the demand for the Boxer during the first phase now up to 2030 has not significantly changed. And I'm always talking about 1,700, 1, 800. The big question is, to be honest, how much of the 1,700, 1,800 will go into a fixed minus contract and how many of them will be awarded and contracted through existing frame contracts from other platforms. Looking on RENK, as I just said, we have still a certain order intake assumed for 2026. And as you have seen this before in our order intake chart, but we are not relaxed but confident that we can compensate this to other international programs. Regarding the VMS margin, as I just answered for Chloe, and we see above the 21%. I think the first half year was quite successful, and this is coming from one part from Augsburg, from the really good performing modular production line. I think the second part is also that we had good Q2 order intakes in regards to aftermarket business. And I think overall, the performance of the rest of the VMS group was as expected. So I think these are the main contributors for our half year 1 contribution. And of course, will be very much back-end loaded on the revenue side. So there will be additional impact on the cost coverage. Let's see, but I'm very, very optimistic that we will be above the 21%. And this is absolutely anyway our target.

The question was more like this business seems to be doing 22% and higher eventually. And then that is basically where I'm coming from. So to rather think about --

I'm not -- I'm not excluding this Sebastian, to put it in this way.

Okay. So good on the [ SHIFT ] question and --

What was the shift question because I cannot read my hands right in --

The question was simply, I think you're still operating on one shift only kind of --

Right, right. Yes. Yes, absolutely. We will drive the entire -- we will run the entire year 2026 in a single shift mode, which gives you an idea about the performance increases we have realized.

Our next question comes from Christophe Menard with Deutsche Bank. We will move on to the next question for now. Your next question comes from Sven Sauer with Kepler Cheuvreux.

The first one is on the Patria [ Track GV ]. You mentioned in the beginning that there was already an order received. I was wondering if you could give some more information who ordered this, how many units? And when will it be delivered? And the second question, sorry, again, is on the order intake for 2026. You mentioned that the Arminius project will likely slip into 2027. My understanding is that the F-127 will also slip into 2027. Those are just 2 of the orders that you list on this slide. To get to the EUR 2 billion, if we would have the -- let or the [indiscernible] so also slip into 2027. How confident are you to really reach the EUR 2 billion order intake?

Good question. I will start directly to answer your second question. In our scenarios, and as I just said, I mean, the Arminius most likely do not expect that we get the F-127, I think this is a very complicated, complex contract which needs to be negotiated. Despite maybe a personal view on the question, if these kind of massive 12,000-tonne destroyers are really needed in the future, but this is a separate thing. We are quite optimistic and positive that we can even -- could even compensate these 2 shifts of the Boxer and the F-127, for example, the F-127 could be and will be partially compensated from the F-128, the 4 [indiscernible], and I think also on the land side. So even considering a shift of the Arminius programs and even a most realistic likely shift of the F-127, we do confirm our approximately EUR 2 billion order intake target. And the second -- and the first question, sorry. The first question on the track side. We're very positive. The first customer is not unexpected Finland, and we are in the range of a high double-digit number of units. It's a kind of pre [ serious ] order. Deliveries will start at the end of Q2 2027. By the way, the number of potential customers and the interest, there are stockpiling in the meantime. We also talk about opportunities. And for this reason, we are very focused to get and to deliver the various [indiscernible] 76 transmission for the track as soon as possible because there is a strong interest from Ukraine, by the way.

We're going back to Christophe Menard with Deutsche Bank.