Steyr Motors AG (4X0) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to the second day of the first Deutsche Boerse Scale Summit. My name is [indiscernible], and I'm very pleased to welcome you on behalf of Deutsche Boerse. This new format brings together investors and high-growth scale issuers to enable a direct exchange on strategies, positioning and investment stories. Each presentation will last 20 minutes and will be followed by a 10-minute Q&A session. We warmly encourage you to actively participate in these discussions. And with that, I am pleased to welcome CEO, Julian Cassutti, who will guide us through the presentation on Steyr Motors AG. And with no further ado, I'd like to hand over to you, Mr. Cassutti.

Thank you. Thanks for the introduction and also a warm welcome from my side to Steyr Motors' presentation. So we've prepared, of course, a short presentation, and I suggest before the official Q&A, let's go through the presentation. So what is Steyr Motors? What are we doing? Steyr Motors, we are -- we define ourselves as global leader for customized diesel engines in special, especially, military, but also some civil applications. Here, on this very first slide, you see some final applications. We are producing, as just said, diesel engines, and we only have B2B customers. But the final customer is, in most cases, the government, the MODs, the Ministry of Defenses, and therefore, you can see here some final applications of the products where our engines are built into. So for instance, our engines are built in the Leopard 2 main battle tank produced by KNDS. They are built in the Panther, the KF51, the main battle tank competitive product produced by Rheinmetall or our engines are built into military vehicles, like you see here on the left of the slide for the instance -- for instance, for the Spanish MOD, for the Australian MOD, just to give you some examples on the vehicle side, but also our engines are built into boats, into defense boat applications like you see here on the left bottom of the page, such as 7-meter Ribcraft boats produced for the U.S. Navy Seals. And here, also our engines are built into. And here, this also shows our technical USP because our -- why are our engines used on a worldwide scale in Australia, in the U.S., in Germany and so on? Because our engines are -- have a superior power-to-weight ratio. This means, and this is perfectly explained with the picture of the boat for the U.S. Navy Seals. Just by using our engine, 2 more soldiers, 2 more Navy Seals. So 20 soldiers instead of 18 soldiers can be on such a boat just by using our engines and everything else being equal. And therefore, of course, weight matters in the defense industry, and this is the main technical reason besides other reasons, of course, why our engines are built into and why our engines are needed. So -- but let's move on, just to give you some examples of the final applications of our products. We can see in some more details this here. Here, we have the classification where our engines are built into. We have here engines for the military vehicles section on the left. We have also engines for the marine industry, as just said, for instance, for the boats for the U.S. Navy Seals, but also some aggregates, so-called APUs, for instance, for the main battle tanks for KNDS and Rheinmetall, but also for our largest civilian customer, this is Siemens. They are producing locomotives, including our APU. And those locomotives are produced for the Finnish railway system and because our engines, our APUs, are cold start capable up to minus 50 degrees Celsius. And therefore, Dutch locomotives produced by Siemens are included, our engines, just because this cold start capability up to minus 50 degrees Celsius. Also worth to mention, as just said, we only produce B2B. The final customers are the Ministry of Defenses worldwide. But B2B customers, customers worldwide like KNDS in Germany, Rheinmetall in Germany, BAE Systems in the U.S. or U.K., Thales in France, Mahindra in India, just to mention -- General Dynamics in the U.S., just to mention some of them. And Siemens, as just said, is the largest civilian customer for producing such locomotives. The final customers, that means the MODs, the Ministry of Defenses worldwide, more or less each and every MOD worldwide relies on our engines in the end, U.S., U.K., the German Bundeswehr, the Austrian Bundesheer, Navy Seals and so on and so on. So our engines are on a worldwide scale in use cases. And this is, therefore, of course, for us, an exceptional example that our engines are clearly -- have clearly USPs in comparison to other diesel-producing corporations. Also here, to mention the value chain, we not only produce the engines, our USPs, we develop together with our customers with the -- and including the MODs, such specific engines. And this explains also our business model. This means in the engineering phase, when we completely customize these engines because in the military industry, you normally don't have standardized vehicles, standardized tanks, whatever, you have customized vehicles because each and every specification is unique. And therefore, also, you need to have customized engines. So we produce and develop such customized engines. Such engines are built into the main battle tank or the respective vehicle or boat. And then the Ministry of Defenses, they certify such vehicles, including the engine. And this clearly means a strong advantage for us because once a vehicle or tank is certified, then the logical consequence out of it is that we are, from a legal point of view, single source supplier because once our customers, our B2B customers want to change the engine, they lose the certification for the complete vehicle, for the complete main battle tank. Therefore, this is clearly -- they don't clearly do that. And therefore, we have long-term frame contracts and as a single-source supplier because we are legally protected by the certification given by the respective Ministry of Defense. And this, of course, for us, we've just signed -- just to give you an example, we've just signed a couple of -- 3 months ago, a new frame contract with the German KNDS, main battle tank producer, the frame contract is up to -- until 2034. So -- and here, it is written that we can produce and will produce 500 engines for 500 new Leopard 2 main battle tanks in the next couple of years. And this, of course, as you all know, gives us stability regarding stable cash flow, stable revenues in the next couple of years, which is, of course, also from an investment perspective, a very strong signal for us and for the Steyr Motors AG story. But let's move on, some more details. And also, I want to highlight new applications and new products. What is now also in the mass media more and more common and what you could read and watch in the last couple of weeks is the so-called marine drones, so the so-called USVs. A couple of weeks ago, it was in the media that in the Middle East region, some U.S. soldiers have been rescued by unmanned surface vessels, a so-called USV. And this is clearly what we see here at Steyr Motors. This is clearly the most impressive growth what we can -- what we see in the last couple of months. And also upcoming, this will be the most impressive growth driver for us because -- these USVs, unmanned surface vessels, marine drones in the end. This new kind of applications for our engines will have tremendous growth. The U.S. administration just announced that until end of September, they want to invest USD 300 billion more and mainly for drones, anti-drone systems and explicitly for USVs. So we have active customer relationships with international customers for producing engines for such kind of USVs, several active customer relationships. And they are all -- and already until now, until year-to-date, we have produced everything what we had in the books and what we have planned for the complete year, full year 2026 regarding USVs. And we now got many, many new orders. So that in the end, until end of this year, at least best estimate is at least we will triple the output for 2026 regarding the engines for these USV applications. In the next couple of years, several customers tell us, okay, we want to produce at least 1,000 of such USVs. Can you scale up? Can you ramp up fast? Because the demand for such kind of new boats, new USVs is increasingly very, very strong. And therefore, this is clearly the most impressive growth driver for us this year and especially for the next couple of years. But also -- not only this USV topic, but also we have a new product, the Mobile Power Unit. I come to that on the next couple of slides. This is a power generator, mobile transportable power generator. We are actively testing this new product currently with the German Bundeswehr, with the German MOD, together with a well-known German drone manufacturer. And our power generator is used and will be used as a charging system for such kind of drones or anti-drone systems which run by battery or electrical and our power generator can be used next to the battlefield because it's transportable, it's light. Also here, our clear product advantage is that the power-to-weight ratio comes into -- is relevant here. And therefore, we -- as just said, we are actively testing this product at the moment with the German Bundeswehr together with the German well-known drone manufacturer. And we strongly believe that in the next couple of months, we will get respective purchase orders for that. And the good thing for Steyr Motors, for you as investors, these opportunities regarding the power unit, the power generator are not at all in the business plan included, not at all in the order backlog included. So each and every euro we earn regarding that kind of new product is or will be on top because so far it's not included in the order backlog -- not included in our business plan. Yes. Here are some technical details. We can skip that. But it's also what we see so far, what I can clearly confirm the customer feedback and the final customer feedback, so the feedback of the respective MODs worldwide is very, very positive, very, very strong. Pricing for that, we could sell this product each for around about EUR 70,000. So also here, from a margin perspective, very strong product, which -- as just emphasized -- and I want to emphasize that once again, which is each and every euro will be on top as it's so far not included in the order backlog. Yes, you can also find such respective details in our investor presentation on our homepage. But so far, don't want to go into more technical details. So maybe 1 or 2 additional comments regarding our recent acquisitions in Denmark. We've acquired the Danish corporation called BUKH. It's a marine diesel engine producer. And it was acquired or it has been acquired by us because in the end, it's also a top line case. And if you see the kind of products they offer, they offer product engines from 24 to 700 horsepower. Steyr Motors' core business, the clear focus is from around about 100 to 300 horsepower. So completely logical step that we broaden our product portfolio and also regarding sales, regions, geographies, of course, it's a strategic fit that we are more focusing on the U.S. and the rest of Europe and BUKH is focusing more on Asia and South America. And what we see so far, we bought that quite cheap. So they are generating around about EUR 10 million revenues a year with around about 10% EBIT margin. We paid rather cheap. So around about 5x for that kind of business, which is quite cheap given the profitability and also this profitability is so far on a stand-alone base. So -- but we clearly see we strongly believe in sales synergies here so that we are more than confident that we can increase the margin, the EBIT margin, in the next couple of months, next couple of years. So all in all, in our opinion, a very accretive deal for us given the sales synergies. Yes, some highlights what we have achieved so far. I mean the major highlight or one of the major highlights is the new frame contract with KNDS for the production of 500 new KNDS main battle tanks, Leopard 2. But also the way going forward, of course, the USV market, the marine drone market, which will be the most impressive growth driver for our business in the next couple of months, next couple of years. And also one last thing, we've just entered and for those investors who have attended the defense show in Paris, the Eurosatory last week, you could see the respective vehicle -- unmanned vehicle, so-called UGV vehicle, where now also our -- one of our engines are built into -- is built into. And this will also be, of course, in the next couple of years or decades, the complete unmanned defense industry will, of course, ramp up massively. In my opinion, in the USV market, the marine unmanned market, will be the highest -- the market with the highest momentum, but also UGV and of course, air drones will become more and more important. And now we are -- with all of our products with the engines, with the power generator active in the air and the sea and also now in the -- at land in the UGV market. What we have achieved in Q1, which is always the weakest quarter. We've achieved around about EUR 12 million of revenues, EUR 11.7 million with an adjusted EBIT margin of -- or adjusted EBIT EUR 0.9 million. This means 7.5% -- margin by 7.5% on a percentage scale, which is or more importantly, in my opinion, is clearly the order backlog, so more than EUR 300 million order backlog until 2030, thereof around about EUR 200 million legally binding. So not soft order backlog, but EUR 200 million out of those more than EUR 300 million legally binding until 2030. Besides that, just given the time and besides that, there are concrete other opportunities beyond order backlog. I've just mentioned that our new product, the power generator, the power unit is not included in the order backlog at all. And currently, there's a live testing at the German Bundeswehr. So there will be revenues in the next couple of months, next couple of years. And each and every euro we will generate with that is not included in the order backlog. So therefore, of course, there are other opportunities even beyond order backlog. Also KNDS, we met the management team of KNDS last week in Paris. They clearly confirmed that there will be a further Leopard 2 main battle tank ramp-up with the German Bundeswehr with the German government. And this, of course, will also generate, as we are single-source supplier for the APUs, this will also generate additional revenues for us. And given the volume, which is promised by the German government, this will be additional EUR 70 million in the next couple of years, additional revenue for us. So yes, I think that's it from my side so far. Current situation at Steyr Motors and some figures. So given the time, I'd say, let's skip the rest of the presentation and move on to some questions.

[Operator Instructions] We have actually already received a question -- 2 questions. One from [indiscernible] asking, how much of your current growth is driven by a temporary defense spending cycle? And what part of your revenue could be lost once today's exceptional military procurement wave normalizes?

Well, what is temporary defense spending, I mean, everyone can ask themselves what is temporary. I mean Mr. Papperger, CEO of Rheinmetall, just gave an impressive interview saying that -- and I'm completely in line with his opinion, he clearly said the next 10 years, we will see a massive ramp-up, especially in Europe because of this rearming Europe situation. And then if there is no major war, we will have, starting 2035 to 2045, 10 years of stabilization. And this is absolutely in line with my personal opinion with our planning that despite the public opinion that we've already reached the peak. We believe that we have just started in this whole rearming Europe because what we see so far, especially in Europe, we have -- we are facing a tender in Spain for 1,000 vehicles. We are facing a tender in Austria for 800 new vehicles. We've just signed the contract for 500 new main battle tanks with Leopard 2. There will be an additional ramp-up. So the official or the public opinion is we've already reached the peak. My personal opinion and also alongside with many other industry insiders, we truly believe that we are at the beginning of a super cycle, which will last until 2034 around about.

The next question asks, what is your current production capacity? And are there specific engine types where you are already facing bottlenecks? Additionally, how would your operations respond if demand were to increase by another 30%?

Very good question because -- and this is also one of our clear USPs. At the moment, for this year, we project to produce around about 2,000 engines, customized engines for this year, the total capacity at our facility in Steyr. And now we have additional capacities in Denmark caused by our recent acquisition. But stand-alone Steyr in Austria, the capacity is up to 10,000 engines a year. So there's a lot of additional capacity and also the very good signal next year, we project to produce around about 3,000 to 3,500 engines. And we don't need to buy any new machine. There will be no CapEx for this ramp-up from 2026 to 2027, no expenses. The only thing we need to add some more blue collars, but there will be not many blue collars. And therefore, this is also the main reason of our highly increasing margins in the next couple of years because of the volume effect. Because if you don't need to invest, if you don't have any additional expenses regarding new machines, whatever, then, of course, the more we sell, the higher the top line, the higher the margin caused by the volume effect. And we are in the defense industry with -- in comparison to automotive industry, low volumes. All of our suppliers are used to automotive volumes. So for instance, Bosch, MAHLE, whatever. So there will be no bottleneck regarding our suppliers and also in our region in Upper Austria, in Steyr, many, many corporations around us. It's an industrial hub. So far, we have not faced any issues, any bottlenecks in recruiting new people. So we are totally prepared for the additional ramp-up. And this also given our competitive landscape, one of our clear advantages that we can -- if we want, we can deliver very, very fast in comparison to some of our competitors.

Another question asks, is your projection for 2028 still valid? And which numbers do you expect 2027 and 2028?