Earnings call transcript: Hensoldt AG Q1 2025 sees record order backlog

In its first-quarter earnings call for 2025, Hensoldt AG reported a significant boost in revenue and a record order backlog, reflecting strong market momentum in the defense sector. The company’s stock has shown remarkable momentum, with a 111.8% return over the past six months and a 101.53% year-to-date gain, according to InvestingPro data. Despite a challenging macroeconomic environment, the company demonstrated robust performance, with revenue reaching €395 million, marking a 31% increase in core revenue growth. The order intake surged to €711 million, while the book-to-bill ratio stood at an impressive 1.8x. However, the company reported an adjusted free cash flow of -€107 million.

Key Takeaways

• Hensoldt AG achieved a record order backlog of €6.9 billion.
• The company reported a 31% increase in core revenue growth.
• Strategic partnerships and innovation in unmanned aerial platforms were highlighted.
• The company is expanding its capabilities in air defense and reconnaissance.
• European defense spending is expected to rise, providing a favorable market environment.

Company Performance

Hensoldt AG’s performance in Q1 2025 underscores its strategic positioning in the defense industry, particularly within the European market. The company’s focus on innovation and strategic partnerships, such as its recent collaboration with Quantum Systems, has bolstered its capabilities in unmanned aerial platforms and software-defined defense strategies. The ramp-up of production and the implementation of a new logistics center are expected to further enhance operational efficiency in the coming quarters.

Financial Highlights

• Revenue: €395 million (+31% core revenue growth)
• Order intake: €711 million
• Book-to-bill ratio: 1.8x
• Order backlog: €6.9 billion (new record)
• Adjusted EBITDA: €30 million (7.6% margin)
• Adjusted free cash flow: -€107 million

Outlook & Guidance

Looking ahead, Hensoldt AG has set a revenue guidance of €2.5-2.6 billion for 2025, with an adjusted EBITDA margin target of approximately 18%. The company’s historical performance supports this ambitious target, with InvestingPro data showing a strong revenue CAGR of 15% over the past five years and current revenue growth of 21.28%. The company aims for a cash conversion target of 50-60% and expects its net leverage to be around 1.5x. The long-term outlook includes a potential revenue target of €6 billion by 2030, with an increased organic growth target from 10% to 15% CAGR.

Executive Commentary

Oliver Dove, CEO of Hensoldt AG, stated, "We are scaling responsibly, innovating relentlessly, growing strategically," highlighting the company’s commitment to sustainable growth and innovation. CFO Christian Madonna noted, "We see a strong tailwind from additional defense budgets in Germany and internationally," reflecting the positive market dynamics driven by increased defense spending.

Risks and Challenges

• Supply chain scalability remains a concern, with potential implications for production timelines.
• The company must navigate geopolitical tensions that could impact international operations.
• Externalization of engineering is currently at 10%, with a target of 20-25%, posing a challenge in terms of resource allocation.
• The negative adjusted free cash flow indicates potential liquidity challenges.
• Maintaining competitive advantage in a rapidly evolving defense market.

Q&A

During the earnings call, analysts inquired about the potential for additional Pegasus aircraft orders and the scalability of the supply chain. The company emphasized a conservative growth approach while highlighting opportunities in the aftermarket and service business.

Full transcript - Hensoldt AG (HAG) Q1 2025:

Moritz, Chorus Call Operator: Ladies and gentlemen, welcome to the Hensold AG three months results twenty twenty five analyst call. I’m Moritz, a Chorus Call operator. I would like to remind you that all participants will be in a listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session. The conference must not be recorded for publication or broadcast.

At this time, it’s my pleasure to hand over to Veronika Andress, Head of Investor Relations. Please go ahead.

Veronika Andress/Endres, Head of Investor Relations, Handshold AG: Thank you. Good afternoon, everybody, and welcome to Handshold’s three ms twenty twenty five results call. Thank you for joining us today. I’m Jeronika Endres, Head of Investor Relations at Handshold. And with me are our CEO, Oliver Dove and our CFO, Christian Madonna.

Oliver and Christian will guide you through this presentation today, which will be followed by a Q and A session. And with that, I hand over to you, Oliver.

Oliver Dove, CEO, Handshold AG: Well, thank you very much, Veronika, and warm and cordial welcome to our valued investors and analysts covering the Handsalt stock. We are at a historic inflection point for defense and security markets, and HENSOLT is exceptionally well positioned to lead this transformation. In this first part of the presentation, I will give you an overview of the recent developments in the political and strategic landscape and how they will drive our business. Christian will then lead you through the details of the financial section and I will conclude with a first estimate on how rising defense budget will drive our order pipeline and revenue development towards 02/1930. Tectonic shifts in geopolitics have again accelerated at an unprecedented pace recently.

When we presented our strong full year 2024 figures to you February, the speech of Vice President Vance at the Munich Security Conference was still fresh on our minds and gave us a first indication of the potential watershed in transatlantic relations. The dispute at the White House and the initiative of the U. S. Administration to end the war in Ukraine through unilateral negotiations with Russia, excluding both Ukraine and Europe showed a dangerous clash of cultures in the Western alliance and triggered a strong reaction both in Germany and Europe. Commission President Von Der Leyen announced the Rearm Europe initiative mobilizing up to €800,000,000,000 for security and defense.

This clearly underlines the strong ambition that Europe will take responsibility for building a self sufficient deterrence and defense capability. And even before the new government coalition has been sworn in, we have seen a fundamental shift in Germany’s fiscal framework, marking the beginning of a Seitenwender two point zero as we call it. The German constitution has been amended to enable a multibillion euro financing package dedicated to defense and infrastructure investments. Furthermore, defense spending exceeding 1% of the GDP is now exempt from the country’s debt break restrictions. In principle, this means there is no former upper limit to defense spending.

Importantly, defense procurement and budget allocations are now fully guided by NATO capability targets moving from a procure to budget doctrine to a much more sustained and strategic investment path. This allows for long term sustainable commitments covering an eight to ten year timeframe to secure further ramp up of production and technology development. Against this strategic backdrop, how will this ambition accelerate and expand defense procurement translate into a concrete timeline? With Friedrich Maerts elected as Chancellor and his cabinet sworn in yesterday, an important milestone has been reached. Our Berlin discussions confirm that parliamentary approvals for defense procurement projects that have been in the pipeline since last year will be relaunched quickly, even if it will take until after the summer break for the budget 2025 to be approved.

Recent media statements by the President of the German Procurement Authority provide further proof that there is a very high level of commitment in the new administration to accelerate defense procurement on all levels. At the upcoming summit in June, we expect NATO to present its Force Goals to member states, providing additional guidance for the prioritization of new defense procurement projects in Germany in early fall. With the planning and procurement acceleration law passed together with the defense budget for 2026 in the third quarter, we will have high visibility on additional orders by the end of twenty twenty five. The majority of revenues though from these orders will then materialize in 2027 onwards. Even more important than the timeline is the scope of upcoming defense procurement.

In Germany, the fundamental priorities have been set in the coalition treaty showing a clear push for both mass and class in material. Air defense and the full equipment of the German brigade in Lithuania have the highest priority and HENSOILD is ready to deliver at scale in these areas. We are ramping up production of air defense radars and are pushing ahead with digital sites for armored vehicles from Oberkochen. The prioritization of electromagnetic warfare, Cyber AI and cloud shows that we are on the right track with our software defined defense strategy. Uncrewed systems and space based reconnaissance are areas where we see further growth for HENSOID in the coming years.

We are confident that HENSOID has the right strategy, products, technologies and operational capacities to play a major role in the upcoming near and midterm German and EU procurement programs. As mentioned, many of the upcoming procurement initiatives in Germany center around Software Defined Defense. These initiatives are well aligned with our FDD roadmap. Already today, our high performance sensor products provide the foundation enabling us to add new functionality through software and future proofing our hardware platforms like the TML4D for example. With major initiatives like the digital battlefield and the Bundeswehr new reconnaissance vehicle on the horizon, HENSOIT is set to play a central role in FDD centric development projects.

And at the same time, our R and D investments are paving the way for innovative business models that will sustain our leadership. This increasingly software and data centric portfolio positions us as a key player in the software defined defense space both in Germany and beyond. Building a new defense ecosystem that combines the strength of traditional players and innovative startups in one of is one of our strategic priorities. As announced yesterday, I’m excited to share that Henselt has entered into a strategic partnership with Quantum Systems, one of the most dynamic players in the defense tech space. In addition to a cooperation framework, this partnership is accompanied by an investment of Hensold in Quantum Systems.

This collaboration brings together our strength in sensors and sensor fusion with Quantum’s cutting edge unmanned aerial platforms and mission software. By joining forces, we are accelerating the next generation of software defined defense, creating faster, smarter and more modular solutions across land and air domains. This partnership not only strengthens our innovation pipeline, but also positions us powerfully for key initiatives like the Future Combat Air System, while also opening international market opportunities. Before I pass on to Christian, I’d like to have a look at expected orders for twenty twenty five. With orders for more than €700,000,000 already in our books by the end of the first quarter, we see the strong momentum continuing for the rest of 2025 with a series of key orders on the horizon.

We expect major contracts across air defense radars, Eurofighter programs, ground based systems and sustainment projects like the German P-eight Poseidon. Notably, we anticipate orders exceeding €500,000,000 for optronics and self protection system for platforms such as the new reconnaissance vehicle Leopard two and Boxer RCT, so new reconnaissance vehicle named Corsak. Our radars continue to sell exceptionally well with additional orders for TML4D and specs are coming up. New projects for the Eurofighter and Algeria’s border surveillance will further contribute significantly. And on this positive note, I would like to hand over to Christian for a deep dive into our financials for the first quarter.

Christian Madonna, CFO, Handshold AG: Yes. Thank you very much, Oliver. And I’m happy to provide you now with our financials for the first three months of twenty twenty five. Once again, we were able to realize a solid top line performance in the first three months of this year. Order intake developed strongly with orders summing up $7.00 €1,000,000 Main drivers were the Eurofighter MK1 rebaselining contract as well as the Spanish Eurofighter Halcon program.

Last year’s order intake included contracts for the NNBS air defense system and further orders for the CLM-4D radar. Revenue for the group increased to €395,000,000 and was driven by a strong performance of our Electronics business. As anticipated, the Sensors segment had a slower start into the year. This was due to the ramp up of our new centralized logistics center and the resulting slower production start in the first quarter. The impact on production and therefore on revenue is a temporary effect as we explained in our last analyst call in February.

And I’m happy to giving you further insights in the ramp up in a few minutes time. ESG, which was not part of Hands On in the first quarter of last year, contributed to group revenue as planned with EUR74 million. The level of pass through revenue further declined in line with our planning. Excluding pass through, our core revenue grew strongly by 31%. Organically, core revenue increased by 6%.

With a book to bill ratio of 1.8 times, our order backlog once again reached a new record level of over €6,900,000,000 This continues to provide us with an excellent visibility. The bottom line met our expectations. Adjusted EBITDA reached €30,000,000 with an adjusted EBITDA margin of 7.6%. This development was driven by product mix effects as well as the ramp up of our new logistics center. Consequently, this led to a temporarily lower productivity within the Sensors segment during the first quarter.

However, these impacts were anticipated and are expected to phase out as the year progresses. Adjusted EBIT was impacted similarly by this effect amounting to €3,000,000 in Q1 twenty twenty five. Cash flow followed our usual CECL profile with an adjusted free cash flow of minus €107,000,000 The development was driven by investments in our working capital to manage the plant business volume in the following quarters. To conclude, bottom line performed in line with our expectations and we are fully on track to achieve our full year guidance. Let’s now have a look at our segments.

In the Sensors segment, we achieved an excellent order intake of EUR $664,000,000, surpassing last year’s high comparison base by 7%. This corresponds to a book to bill of two times and was driven by the Eurofighter rebaselining contract as well as the Eurofighter HALCON program. ESG also contributed to order intake as planned. Revenue in the Sensors segment increased to €339,000,000 Despite the slower start in our RADAR production due to the ramp up of the new logistics center, revenue performance was solid and in line with plan. Excluding the declining share of pass revenue, Sensor core revenue increased by 31%, including ESG and by 2% organically.

Adjusted EBITDA in Sensors amounted to €29,000,000 Besides product mix effects, the margin development reflected the lower productivity in the segment due to the ramp up of the logistics center. As mentioned, these temporary effects were anticipated and expected to phase out during this year. Optronics achieved a solid order intake with orders summing up to EUR 50,000,000, again, year’s strong comparison base. This was primarily driven by ground based systems. And as mentioned by Oliver, we’re expecting a number of significant orders in this area over the course of this year.

Revenue performance in Optronics was excellent, continuing the momentum from the previous quarter. This was boosted by the sustained strong performance of the German entity, which realized revenue growth of 45%. Main driver were accelerated production in ground based systems. The South African entity was still muted. While achieving slight growth in order intake, revenue development was still affected by the ongoing technology change and strategic realignment.

And as you know, our German Electronics business is moving to the new build campus in the second half of the year, which will support a substantial growth in the coming years. To handle this transition smoothly, we have initiated pre production activities during the first quarter. This will soften the impact from a certain downturn of production during the move as explained in our last analyst call. In terms of margins, Optronics also showed strong improvement compared to the prior year quarter. This was driven by higher volumes in the German unit, which returned to clear profitability.

Also, South African business was still impacted by lower volumes. The action plan we have implemented is starting to show results. Overall, Optronics realized an adjusted EBITDA of EUR 1,000,000. Let me now share some insights into the successful realignment of our financing structure achieved in April. I’m very pleased that we have completed the comprehensive refinancing of our previous syndicated loan agreements with a new EUR 1,800,000,000.0 syndicated loan agreement.

This marks a decisive step for Ensold towards even greater financial independence and flexibility. Let me point out the key highlights of the new financing agreement. First, we have successfully released fundamental securities from the previous LBO structure, enhancing our financial flexibility. Second, our financing is now prematurely secured up to 02/1932 providing long term stability. Third, we’ve optimized our margin ratchet significantly improving our cost structure.

And fourth, this realignment enables a more diversified and flexible debt profile, reducing risk and increasing resilience. In a nutshell, with the new financing structure, are creating the economic basis to consistently pursue our growth targets. At the same time, the high financial flexibility ensures that we can respond even faster in a more targeted manner to new market opportunities. I would now like to give you some more color on the ramp up process of our logistics center. Two years ago, we decided to build this new centralized hub for our German sites.

Together with our new Optronics campus, this is forming the basis to ramp up and scale our production both in the sensors and Optronics business. Having reached a performance limit on our reverse warehouse, the new centralized setup will significantly enhance both capacity and process efficiency. With the move into the new logistics center end of last year, we initiated a transition phase with key implementation steps, including the optimization of various processes and integrated data management. This also involves the first module of S4HANA going live with the Henselt Group, enabling real time monitoring of stock levels and tracking material movements. As anticipated, during this transition phase, material flow was temporarily reduced during the first quarter as illustrated on this slide.

This mainly affected radar production in Sensors as Optronics is currently operating independently from the center. This led to a softer Q1 in Sensors, which was accounted for in our production planning for the year. Within the second quarter, we established normalized operations at a new capacity level, allowing us to handle noticeably higher material flows than our previous warehouse setup. This enables us to gradually ramp up production sensors. Consequently, we expect an acceleration sensors predominantly in the last February of this year.

This goes hand in hand with the further scaling of our logistics capacity in H2, so that we will be able to increase material flow by at least 85% in total. To summarize, with the new logistics center, we are not only able to meet the current demand, but we are also establishing a significant capacity reserve. This gives us the opportunity to scale up our production well beyond previous levels and to meet the further growth in customer demand that we see ahead. Let me now come to our guidance for the fiscal year 2025. First and foremost, we are fully on track to meet our targets and therefore confirm our guidance published in February.

Starting with the top line, we continue to expect strong order intake performance with a book to bill ratio of around 1.2 times in 2025. We expect revenue to increase to between 2,500,000,000.0 and €2,600,000,000 We forecast an adjusted EBITDA margin of around 18. As a reminder, we have simplified the definition of this guidance KPI, which previously did not include pass through revenue. For adjusted free cash flow, we expect a continued strong performance with a cash conversion target of around 50% to 60%. And net leverage is expected at a level of 1.5 times.

Dividend payout ratio will continue to be between 3040% of adjusted net income. In a nutshell, in 2025, we expect to continue high demand for our solutions, resulting again in a strong order intake as well as a solid revenue growth paired with excellent profitability. Please let me also give you some color on the business profile that we expect within 2025. As pointed out in the last analyst call in February, we anticipate our growth to be weighted towards the second half of this year. This is driven by the transition to our logistics that I explained, enabling sensors to start ramping up in Q2 and further accelerate production in the third and fourth quarter.

Please note that this is in line with our production plan and reflected in our guidance. Beyond the current year, it goes without saying that we see a strong tailwind from the additional defense budgets in Germany and internationally. And I’m pleased to hand back to Oliver, who will elaborate more on our first estimate, Horizon Defense budgets will drive our order pipeline and revenue development towards 2,030. Thank you very much. And back to you, Oliver.

Oliver Dove, CEO, Handshold AG: Well, thanks, Christian. With solid figures in the first quarter of twenty twenty five and exciting prospects for the coming years, we are of course aware of what I would call the billion dollar question. Question is what does all of this mean in terms of mid term revenue development for HENSWORD? As explained earlier in the presentation, it is still too early to touch our mid term guidance. Nevertheless, we have run a thorough bottom up analysis of our pipeline.

With the increasing defense budget throughout Europe, we see the pipeline for 2025 to 2027 to increase by roughly €3,000,000,000 to around 40,000,000,000 For the extended timeframe to 02/1930, we expect the pipeline to grow by approximately EUR 9,000,000,000 to a total pipeline size of EUR 55,000,000,000. Using this slide, which you might remember from our Capital Markets Day end of last year, we have identified an additional revenue growth potential that is mainly driven by higher volumes of our key products, an extension of our maintenance and service offering as well as advanced solutions development floating in. All in all, we see the potential to increase our organic growth from the current 10% CAGR to around 15% and achieve revenues of €6,000,000,000 in 02/1930. Ladies and gentlemen, to summarize today’s three ms twenty twenty five results presentation, here are my key takeaways along our four strategic axis. First, we continue to grow with focus.

Our strong foundation in German programs lays the groundwork for expansion across NATO and EU nations. As a result, our regional revenue mix is becoming more strongly anchored in Germany and Europe, exactly where we see both demand and strategic opportunity. Second, we continue to deliver at scale. Our investments, particularly in strengthening our logistics backbone, building the new optronic site in Oberkochen and upgrading our IT infrastructure ensure that we have sufficient capacity to support our growth ambitions well into 2028. Top of that, we are prepared to scale further depending on the volumes of orders flowing in.

Third, we see increasing proof that our initiative to pioneer Software Defined Defense starts to bear fruit. Handheld is not only providing mass through increased production, but also introducing a completely new class of digital software defined solutions. At the same time, we are positioning ourselves as a bridge builder, actively connecting startups and innovators to create a next generation defense ecosystem and Quantum as described is one fine example. And finally, we are working hard to lead our team into the future. Defense has clearly become an industry of choice for purpose driven high performing talents.

Hence, benefits tremendously from excellent access to human resources, including top talent migrating from the automotive industry into defense technology. In short, we are scaling responsibly, innovating relentlessly, growing strategically and investing in the people who will drive our mission forward. Thank you very much. I’m looking forward to go to the Q and A session.

Moritz, Chorus Call Operator: If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking your question. Anyone who has a question may press star and one at this time. One moment for the first question, please. And first question comes from Ross Law from Morgan Stanley.

Please go ahead.

Ross Law, Analyst, Morgan Stanley: Hi, afternoon everyone. Thanks very much for taking my questions. So the first is just on Sensors division and the acceleration of growth throughout the year. What are the main risks or bottlenecks to achieving this ramp up? And the second question is just on the €1,000,000,000 of additional revenues in 02/1930.

What does that assume in terms of percentage of PDP spending in Europe by then? And more specifically, what do you expect for Germany over that time period? Thank you.

Christian Madonna, CFO, Handshold AG: Hi, Russ. Thanks for this question. In terms of sensors, I do not see substantial risk. I think the processes within sorry, getting much better. So this is happening.

This is good. So I do not see big substantial risk on that. So we progress as planned. And of course, the weighing towards the second half year is always there, but it’s something we are used to in our business.

Oliver Dove, CEO, Handshold AG: So and the second question, I we are not sure if we got it right. So it was the assumption on the GDP spending as far as the €1,000,000,000 increase is concerned. So that is currently still looking at a conservative 2.5% GDP spending.

Ross Law, Analyst, Morgan Stanley: Okay. So is that 2.5% for both Germany and Europe? Or is that

Oliver Dove, CEO, Handshold AG: Yes, as an average. Yes. So again, this is the first estimate that we have put in mind. And still the thriller we went through yesterday with electing our chancellor shows us that we remain cautious on the time line, but not on the overall spending. And here 2.5%, I think, is a good assumption as a starting point.

Ross Law, Analyst, Morgan Stanley: Okay. Thank you. And if I may just ask one follow-up. If indeed Europe and Germany go to 3%, potentially Germany above 3%, do we add another €1,000,000,000 to 2,030?

Oliver Dove, CEO, Handshold AG: Nice try.

Christian Madonna, CFO, Handshold AG: Yes. I think, Ross, if I may answer and maybe also Oliver to elaborate. I think let’s be clear. We thoroughly calculate as we also did this with the €6,000,000,000 In case there is another 0.5% on top, we clearly will start with programs, with capabilities and then ask ourselves what does it mean for Ensolid. But I think there is no doubt that it will, of course, create further headwind.

I think the figure how much exactly is too fast or too early to answer.

Ross Law, Analyst, Morgan Stanley: Okay. Thank you. I’ll wait for the next quarterly results. Thanks.

Moritz, Chorus Call Operator: Thanks. And the next question comes from Carlos Ilano Perez from Bank of America. Please go ahead.

Carlos Ilano Perez, Analyst, Bank of America: Hi, good afternoon. Thanks for taking my questions. I actually have two, if I may. The first one is on margin. How should we think about midterm margins?

If you can reach 6,000,000,000 sales by 02/1930, should we expect incremental operating leverage and therefore EBITDA margins potentially above 19% through 02/1930?

Christian Madonna, CFO, Handshold AG: Hi, Carlos. Nice to hear you. Yeah. I think in margins, we were guiding and performing in the last years always approximately 0.5% per year then increase. I think this is a fair assumption currently, but we did not really have done some extra work on that.

But that we still that we are a business, which also increases margin by growing. I think we have shown in the last four, five years. And this would also a point we will focus on going forward.

Carlos Ilano Perez, Analyst, Bank of America: Okay. Understood. And then any update on potential further orders on the Pegasus program? Obviously, Germany is going to ramp up defense spending significantly. Are further Pegasus orders part of the wish list of the German government?

Oliver Dove, CEO, Handshold AG: Thank you, Carlos. This is Oliver speaking again. Indeed, our focus in Pegasus at the moment is clearly on delivering the three birds that we have currently in the scope of our program. So we are still progressing well on these ones. The flight test program from Bombardier is running in The U.

S. And we expect that we will transfer the first bird to Germany in November. At the same time, we all know that this is aiming on delivering a full operational capability mid-twenty twenty nine. And if we consider the German shot who says that they expect a Russian attack aggression against NATO in the timeframe of 2027 to 2029, I definitely see a strong focus and a strong discussion intensive discussion with our customer on the Pegasus program. And this discussion includes the fact that three berths will not be sufficient to cover the full Eastern Flank.

On top of that, I think the pressure will rise with the NATO force goals coming in June where definitely ISR, signal intelligence is a key requirement. And there’s another lever or pressure point rising up that most of these assets today come from The U. S. So if Europe will develop a sovereign signal intelligence capability, then this will depend on Pegasus where Germany is most advanced in the program. And we are discussing and are seeing a potential of additional three to six birds as we move forward.

Carlos Ilano Perez, Analyst, Bank of America: Very clear. Thank you, guys.

Moritz, Chorus Call Operator: Then the next question comes from Sebastian Grover from BNP Paribas Exane. Please go ahead.

Sebastian Grover, Analyst, BNP Paribas Exane: Good afternoon, everybody. Firstly, I would have a question around the Sender segment and a quick recap on the quarter one development. Would it be fair to assume that excluding the ramp up costs for the new logistics center that adjusted EBITDA at centers would have been rightly stable year on year? And as you also highlighted adverse mix effects, how should we think about mix for the rest of ’25 in that segment? I would have two more questions, but please start here.

Christian Madonna, CFO, Handshold AG: Hi, Sebastian. Thanks for this question. I think when you look now at the first quarter, I think there was a figure around CHF 10,000,000 to CHF 12,000,000, which was really due to the effect of the ramp up of logistics center. But to be very concrete, what did it mean? So we closed down more or less production for two, two point five weeks because we had to reconnect the logistics center to our own site and this is why production was simply down for two to three weeks.

Now people are working again. So this is one effect. The project mix effect is from my point of view 0.5% on EBITDA in Q1. So this will also phase out during the year, so that our margin, which we project now for this year will be in a percentage in a region slightly lower than last year, 0.5, something like that lower than last year, but still in a very good position.

Sebastian Grover, Analyst, BNP Paribas Exane: Okay. That’s helpful. And then coming back to the growth ambition through 02/1930, how does this improved visibility vis a vis the five percentage points step up in your organic revenue growth target through the next years impact your capacity planning? So I understand from the logistics center part, you should be fine to also handle materially bigger volume. But are there any other impacts that we should foresee when it comes to CapEx spending in the sort of production as such?

Or what is the thinking there?

Christian Madonna, CFO, Handshold AG: Yes. Thanks, Sebastian. So I’ll start and Oliver maybe adds. So what we are currently doing this year, we run three transformation programs. The one is logistics center, as we have already now are in conclusion.

The next one is Optronics site. And the last one is Sfour. With all the measures we have now taken, we have a good visibility on our capacities until 2027, ’20 ’20 ’8 to be in a good shape. But as Oliver has indicated, as pipeline is growing, as demand is growing, we have to take care and look what does it mean for the period 2028 and beyond. And this is why we have now started our so called Operations two point zero exercise and program that means going along with the political developments, we will closely analyze from now onwards what does it mean for the next ten years for this company, which and what do we have to produce compared with our capacities and then derive what we will concretely do to be prepared for the period after 2028.

So this is our overall plan, how to progress in this. It’s too early now to give concrete figures. I’m also still convinced that we stay a CapEx light company. That means if we need more capacities in terms of holes or sites that it will still be a CapEx light business maybe with the 0.5% to 1% more CapEx, but not more. But as we move forward in the next months, we will give you some more details on that.

Sebastian Grover, Analyst, BNP Paribas Exane: Okay, understood. And then the last

Oliver Dove, CEO, Handshold AG: one, go Yes, maybe if I just add because I think that also resonates with the initial question that Russ had put in. I mean that’s part of rather this conservative approach going on 2.5%, because once we go beyond in volume, but as well on the timeline, I think definitely we have to consider the next step of scaling our production. Today, take a lot of profit on the, let’s say bold and responsive decisions that Hanselt had taken in the past roughly €1,000,000,000 investment in infrastructure supply chain technology. But I think what Christian mentioned is now we are trying to anticipate the next scenarios and we are building that really in sense of scenarios. We are well prepared from that, because we can take profit from the experience we have from the first ramp up and first scaling.

So we know the levers, we just have to know at what scale do we put them. And then on top of that, what is of course helping us also steering CapEx and everything is that politically, we see a strong commitment. Last year, the government has put an initiative, a concept in place, defense security industry, defense strategy, which is clearly about building sovereign capabilities. I think that’s about Germany or Solar Thunder Alliance plan. And I had three meetings already with the EU Commissioner Kobilius taking care of the defense Europe ecosystem.

So we also expect that we get support from the political environment in further scaling infrastructure and supply chain. And then it is clearly based on all the activity we’re doing that Christian described, we are well prepared while orders are floating in starting end of the year over the next year to take the next step of the ramp up.

Sebastian Grover, Analyst, BNP Paribas Exane: Actually, a good segue to the other question I just wanted to bring in, and that is exactly around the supply chain. So I understand that the sort of bigger, especially listed companies in the sector who have the financial and also the intellectual capabilities and capacities and maybe also the financing leeway to indeed bring up as, in your case, the revenues by a factor of two and others are talking about three and some are thinking about four times or so until 2030. The question over the spinning mad is how can the supply chain, especially more medium sized companies, smaller companies handle that situation. So I would just be very much thankful for your views around how to make sure that also the kind of overlooked smaller suppliers can equally follow that very, very growth trajectory.

Oliver Dove, CEO, Handshold AG: Maybe before I give to Christian to go a little bit more on the details of Operations and Supply Chain, I think one thing is important also comparing to peers and bold statements on the market. First of all, very clearly our attitude so far has been conservative and rather scale up once we have the evidence and not being just simply bullish on the market, which of course is quite heated up at the moment. But let’s make sure that also we compare apples and pears. And I think it’s a big difference scaling, let’s say, the production of artillery shells, where short term we get a massive volume. And I think here we can go two times, four times whatever, but scaling complex products like a radar is a different story.

However, long term, I would consider that element, the radars as well as the technology inside as more value creative. And I think that’s my point, yes. The 2.4 looking at the value compared probably to 1.5 scale that we can promise at that stage. We will do further math as the year continues. But I think let’s make sure we compare apples and pears.

Christian Madonna, CFO, Handshold AG: Yes. And let me add, Sebastian. What is very important, also Oliver has indicated that, so when we look at our value chain and what we have really in our own hands and what is sourced out around 60% is our own value creation. So only 40% is with our suppliers. So it’s always a challenge then also to ramp up supply chain.

But it’s not the case that we buy 70%, eighty % of our revenues as others do. And this is why we have a focus on that. But the dependency on very complex supply chain is currently from our point

Moritz, Chorus Call Operator: And the next question comes from Christoph Menard from Deutsche Bank. Please go ahead.

Christoph Menard, Analyst, Deutsche Bank: Yes. Good afternoon. Thank you for taking my question. I have a rather naive question on sensor margin, and you may have answered it. I’m sorry, I joined the call a bit late.

It’s mean, you managed to grow sales by nineteen percent in sensors. The margin dropped quite obviously due to the logistic center impact. Can you ex I mean, I just I mean, you still delivered the product. So it still went through you you managed to grow the sales, but the margin dropped. So what exactly does it correspond to on the ground, I would say, in terms of that loss in margin?

And the the the second question into this is since you you I mean, thanks for the slide on page 15. You’re getting more better scalability. So should we say that in the future in sensors, what you may spend more you you will be spending more on r and d. So it will be a a drag on margin, but can that efficiency that you’re gaining on the logistics center actually offset the drag from increased r and d? And the second question or the third question is on on your backlog.

Do have you seen in recent months an increase in the repeat buys of existing programs? Or is it still stable? I mean I mean, by that, the programs that you’re currently developing, Pegasus would be indeed a good example. But is it something that is growing in your backlog at the moment? Thank you.

Christian Madonna, CFO, Handshold AG: Hi, Christoph. Thanks for the question. I think that the question on Sensors is not naive at all. So first of all, Sensors is a business out of project and product business. And the project business, what we do is not affected by this logistics.

What was affected is the production. And with that, really the people who work there. And since we had to reconnect from the old warehouse at Olmsted to the new one, we had approximately two to three weeks downtime in production. So people, who are not working, they were staying at home. And this is why they did not book productive hours.

And this was then the effect, which is temporary one. And at the moment, when I look at production, they work again. So it’s really a temporary effect, which will phase out during the years. Then you have mentioned the question of more R and D spending and weighing the margins. Yes, this is clearly a case.

We have indicated this also with a slightly lower margin in the Sensors segment as we were used to last year and the year before last year. But you’re right, when we are in full scaling up our production, this should add some economies of scale. But as you always know, I’m really careful and conservative on my margin projection. We first work on it and then realize.

Oliver Dove, CEO, Handshold AG: Okay. So, the more of the same, I’m not 100% sure to have understood the question really well Christophe. So please ask if I’m not fulfilling it. More of the same is basically all our products and volume business where I think we have sold those systems to our customer. And indeed as you rightfully point at, we are in discussions.

I think the first wave based on the budget, the precedent setting decision on the budget is that they will go into the framework contract and call for more orders. That is of course our TML4D where we see already discussions with Ukraine, with Germany that on top of the radars we have delivered, they want to go into the geographical dispersion in Germany. And that not only supplies applies to TML4D, Also we see some momentum building up on the passive radar at the moment where Germany so far has bought two. And given the nature of the technology, it’s a cost performance, but also speed wise something which can bring a very quick intelligence surveillance capability covering the full geography of Germany. Spexa is of course a topic as a counter UAV and here based on the Skyranger from Rheinmetall.

But also we see a strong discussion, for example, with the German Navy that they might want to have a counter UAV capability for their ships, where given the modular design of Spektra going full half and quarter tile with a containerized auxiliary system for the radar, this can be also very quickly fit into German warships. So that’s one element talking radar. Then the second element is for sure and I think I explained it during my presentation, digital sites based on the Leopard two, the Puma where so far we have the German Leopard tanks under contract. We see the RCT 30, the Puma turret on a boxer platform floating in that is has been under discussion and it’s one of the programs in the big pile that we are moving in front of us since last year. And it’s not only the digital sites, we have delivered to the remotely controlled howitzer to the vehicle based, howitzer our SITA system, see through armored systems.

And we have a lot of discussions, couldn’t we buy more of those systems to increase the capabilities of the German vehicles and that is also in the light of the Lithuania Brigade. Pegasus has been mentioned and just as a additional comment, the $326,000,000 I have mentioned is only talking Germany. Of course, you are well aware from previous discussions that we are talking to at least three additional countries in one country already in the RFI phase where we see additional potential for Pegasus export. And just to drop two more products, it’s for sure that we see in self protection systems where based also on the first references we have with Russian systems in Eastern NATO countries and also in Ukraine that this could pretty scale up in building legacy or upgrading legacy systems, which would also a volume driven business. And last but not least Precisor, which is now going with the first launching customers and that is looking also at the UAV also reflecting with Quantum and other drone suppliers rather larger drones where we also take advantage of the very modular design of this antenna and that could also scale up into space surveillance where we have an orbitizer ready and where very quickly on Precisely we could exponentially grow in volume.

Christoph Menard, Analyst, Deutsche Bank: Thank you very much. That’s very comprehensive. And I would think that repeat business is coming with good margin as well. So Absolutely. Absolutely.

Moritz, Chorus Call Operator: And the next question comes from the line of Christian Khoas from Warburg Research. Please go ahead.

Christian Khoas, Analyst, Warburg Research: Yes. Good afternoon, and thanks for having me. I have three questions actually. First is the aftermarket business. I hear in the in in the defense industry that there has been recently a strong demand for aftermarket products and services.

Can you confirm this? Is this also valid for Handelord? Secondly, coming back to the capacity question, with regards the capacity outlook for the years beyond twenty twenty seven, twenty twenty eight. At earlier occasions, you mentioned your plans regarding externalizing engineering capacity to free up internal resources. Is this already included in your capacity plan for twenty twenty seven, twenty twenty eight?

Or is this a potential reserve that you still have? Or has this reserve already been realized? And thirdly, very interestingly, you mentioned that you want to act as a bridge builder for start ups and build a defense ecosystem, and you mentioned the Quantum deal. Does this actually mean that you have more Quantum deals like the one with Quantum in the pipeline or on the agenda? Thank you.

Oliver Dove, CEO, Handshold AG: Okay. So Christian, thank you very much. And I would start with your first question, aftermarket business. Indeed, I can fully confirm that this is a growth element, which is probably underestimated still today. So as you know, we had a management change in our Service division.

So with Jens Nielsen, we have now somebody really ramping up the service business and we take also advantage from the experience we get with our ESG acquisition. So I would just underline that this what you call aftermarket business is threefold. First one is, of course, we are building a rather tsunami with coming back to the previous question, with all the products, the volume business we are selling out, we will of course create a massive demand with after sales services. And also we have to consider that with everything what we sell out, we sell spare part packages, which of course looking at margin and all of that is a very interesting business. The second element is what last year we have reported a three digit million contract table, which was I think the ninth iteration of this contract where we are deeply anchored into the German logistical system.

So together with partners, we will build up a new plant, which will be inaugurated in a couple of weeks. And also here I think looking also at the very tough discussion that the German Armed Forces Minister Pistorius is having on personnel that will be the limiting factors as capabilities grow up. And from several discussions with high level military and MOD representatives, we get the question where can the industry help out. And I think with Siebel and the very strong integration into the German logistical system, we are privileged partner on that one. And lastly, it’s of course FDD, where I would see a new set of services after market business, Software as a Service, Data as a Service coming up.

And definitely I can tell you together with Jens Nielsen and the team, as a matter of fact, have just discussed that last week in our Executive Committee, we are building as we are addressing Operations two point zero, we are addressing concepts how can we leverage on that aftermarket business going forward. And for the sake of Heinz Fahrheide to easiness simplicity, I would take your last question as well. Bridge Builder, yes, so Quantum is the first concrete way. I mean, you know very well, we will not disclose details on such discussions. But I have been part of several roundtable discussion also of the German administration where following those discussions and trying to bridge this gap, because I think the current media debate is a lot about dualism.

Do we buy tanks or do we buy drones? And Minister Pistorius made it very clear at one of those roundtables that we need both. And we need companies that bridge. And here we volunteered to take that role. And I can tell you at least as part of this discussions where we took place, where we presented ourselves in this bridge building role, we received a lot of requests from the players on the market.

We are in discussions and let’s see how it matures. However, and that’s my final remark, we will stay focused on the business, on our strategy North Star. And very clearly, we will not also not dilute from that element. Wherever we see strategic relevance for our business, which is very clearly given for Quantum, we go forward. But again, in times where we’re focusing on scaling our operations, delivering on Software Defined Defense, we also have to avoid to get distracted from all of this.

Christian Madonna, CFO, Handshold AG: Yes. Hi, Christian. I’ll take the other two questions. So first of all, in terms of sites, when we run through this year and have now have then logistics center in Oberkochen done, We are good in shape until 2027, ’20 ’20 ’8. And beyond, I’ve mentioned the operations two point zero or two point zero exercise, which is ongoing.

In terms of externalization, we are currently at an externalization rate in engineering of around 10%. And our ambition is of course to go further up. So there is still potential to move up. I think a figure of 20% to 25% is a figure with an engineering, which is good, but still manageable. So this should be our target going forward.

Ross Law, Analyst, Morgan Stanley: Thank you.

Moritz, Chorus Call Operator: And the next question comes from Del Ochles from ODDO BHF. Please go ahead.

Del Ochles, Analyst, ODDO BHF: Yes. Good afternoon. Thank you for squeezing me in. Maybe two quick one. The first one, according to Reuters, Pistorio seems to want to increase the budget by, let’s say, EUR 60,000,000,000 as soon as 2025.

So I imagine that you have already had discussions in recent weeks with a high level person at the MOD. So can you give us a little more details about your sensitivity to this increase and about the the areas that would be of interest for for you? And I will try the the last one. I I I don’t know if it’s too early, but I already discussed the the role and the future of Leonardo’s stake with the new team of the new chancellor.

Oliver Dove, CEO, Handshold AG: Okay. So let me try and Christian, you support. So yes, again the statement of Pistorius, which of course we also read makes very clear that it was a wise choice to have Pistorius in place as the only minister of the new cabinet who comes from the old government. And I think also that is a strong sign together with clear votes from Friedrich Mertz in the German news television in his first interview as Chancellor where we clearly underlined defense and security will be the first priority of the new German government. Pistorio stands for that continuity and I’m absolutely sure that he will ramp up.

What I can confirm at that time, Derocles, is that of course we are in a very close dialogue with our customer day by day. We have also provided at least some ideas what our capabilities are to go forward. And as we have discussed before, I see a two phased approach. The first one, which hopefully and that depends on the budget decisions will float in 2025 is the increase in framework contracts buying additional volume and we discussed that during the Q and A. And the second phase is then based on the NATO force goals, the capability discussions, the requirement discussion that is ongoing, the new capability build up new programs that would probably start 2026 and rather move in early twenty twenty seven.

I think also that has been described. Looking rather at the quality of topics, I see from the discussions we are having Air Defense is really at the top of the priority. I mean looking what happens in Israel, Gaza, looking what happens in Ukraine, everybody knows and I had a couple of quotes, it’s about Air Defense, Air Defense and Air Defense. So that’s where I think we are very well positioned at Hanselt with having and if we take The U. S.

Debate at the same time, the only really battle proven non ITAR air defense system is the IRIS T SLM together with our TML4D radar. The second topic is the vehicles. I mean looking at the Lithuanian Brigades, probably the NATO force goals that we experienced and it’s about the middle forces of the Army where we have a big gap of investment in volume of vehicles where I would see and that’s the discussion we are having, how can we on one hand buy large quantities of tanks and infantry fighting vehicles as we go up. And the second thing is how can we augment improve the existing vehicles to deliver a better quality in the sense of also self protection against a potential enemy like Russia. And the last one and that is probably an element where also I think I leveraged that Hanford is very well positioned is we see a lot of pilot programs coming in where the customer wants to go into software defined defense developing future capabilities for the war fighters and trying to find of course, it will be a compromise.

I think we will never go to a war fighting lab as we see it in Ukraine. But I know that the German government had a lot of exchange with the Ukrainian forces. How can we build an ecosystem between industry armed forces and the procurement agency to drive in a rather iterative spiral development a new approach. And here we have at least three programs where Hansel today is shortlisted, where I would see the proofs and I referenced to that in my presentation for FDD as a next wave moving in. The other question, I mean, Leonardo, what I can say it has been very quiet in the past weeks.

I think Leonardo is taking care of their topics. You know that they have a JV with Rheinmetall on the vehicles. They are currently settling with Thales Airbus on the Space segment. And all of that I think is really strategic. We have a very good cooperation with Leonardo on the Eurofighter.

Let’s see now what kind of G2G agendas. So we had earlier this year a German Italian roundtable, which was a little bit with a foot on the brake due to the fact that the political landscape is redeveloping. So I think the second half of the year will show what will happen also from the new German government, German French corporation, German Italian corporation, what is the gap raise that the new government is giving. And that of course will have an impact on our very good dialogue, continuous dialogue with Leonardo. But so far, I think everybody is trying to put his focus on delivery and that’s what we are doing.

And as far as the strategic development of the ecosystem is concerned, I think I mentioned it before in my presentation and I reiterated a couple of times, I think with our financial performance and with our North Star strategy, we’re well prepared to very self confidently go into the system and take a leading role in shaping the ecosystem in Europe.

Del Ochles, Analyst, ODDO BHF: Thank you, Oliver.

Moritz, Chorus Call Operator: Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Veronika Endres for any closing remarks.

Veronika Andress/Endres, Head of Investor Relations, Handshold AG: Thank you everybody for joining us today. And as always, should you have any further questions, please do not hesitate and get in touch with the IR team. Have a great day. Thank you, and goodbye.

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