Earnings call transcript: MTU Aero Engines hits 2024 EBIT target early

MTU Aero Engines (OTC:MTUAY) reported strong financial results for Q4 2024, with an 18% increase in total adjusted revenue to €7.5 billion and a 29% rise in adjusted EBIT to €1.05 billion. The company’s stock experienced a slight decline in after-hours trading despite surpassing earnings expectations, reflecting broader market trends and investor caution. According to InvestingPro analysis, the stock is currently trading near its 52-week low, suggesting potential value opportunity based on the platform’s Fair Value calculations.

Key Takeaways

• MTU Aero Engines achieved its mid-term EBIT target one year ahead of schedule.
• Adjusted net income rose by 29% to €764 million.
• The company secured $5.6 billion in commercial MRO contracts, indicating strong demand.
• MTU is advancing in sustainable flight technologies, with significant progress on the flying fuel cell development.

Company Performance

MTU Aero Engines demonstrated robust financial performance in Q4 2024, with significant growth in both revenue and EBIT. The company’s strategic focus on expanding its MRO capacities and advancing sustainable technologies has positioned it well in the competitive aerospace sector. The increased demand for spare and lease engines, coupled with limited new aircraft deliveries, has bolstered MTU’s market position.

Financial Highlights

• Revenue: €7.5 billion, up 18% year-over-year.
• Adjusted EBIT: €1.05 billion, up 29% year-over-year.
• Adjusted net income: €764 million, up 29% year-over-year.
• Free cash flow: €183 million.

Outlook & Guidance

MTU Aero Engines has set a revenue guidance range of €8.7-8.9 billion for 2025, with expectations of mid-to-high single-digit growth in its military business and mid-teens percentage growth in its commercial new engine business. Analyst consensus from InvestingPro shows strong confidence in the company’s prospects, with price targets ranging from €96 to €115, suggesting significant upside potential. Get access to 10+ additional ProTips and comprehensive valuation metrics with an InvestingPro subscription. The company anticipates a mid-teens percentage increase in adjusted EBIT and projects free cash flow in the low triple-digit millions.

Executive Commentary

Peter Kamaritz, CFO, stated, "Twenty twenty-four was indeed another exceptional year for MTU," highlighting the company’s achievements and growth. CEO Lars Wagner noted, "The market environment remains favorable for the A and D sector," underscoring the company’s strategic positioning.

Risks and Challenges

• Supply chain challenges could limit new aircraft deliveries, impacting engine sales.
• The evolving GTF fleet management plan requires careful execution to maintain efficiency.
• Macroeconomic pressures and geopolitical tensions could affect market stability and demand.

Q&A

During the earnings call, analysts inquired about the GTF fleet management plan and its accounting implications. For detailed financial analysis and expert insights on MTU Aero Engines, including comprehensive valuation metrics and peer comparisons, explore the full Pro Research Report available exclusively on InvestingPro, covering this and 1,400+ other top stocks. The company clarified the timing of receivables and payments for shop visits, providing insights into its leasing business, which contributed €500 million in revenues and €100 million in EBIT. Management succession plans were also discussed, ensuring continuity in leadership.

Full transcript - Minerals Technologies Inc (NYSE:MTX) Q4 2024:

Conference Moderator: Welcome to the conference call on MTU Aero Engines preliminary full year 2024 results. For your information, the management presentation, including the Q and A session, will be audiotaped and streamed live or made available on demand on the Internet. By attending in the conference call, you grant permission for audio recordings intended for publication on the Internet to be taken. The speakers of today’s conference call are Mr. Lars Wagner, Chief Executive Officer and Mr.

Peter Kamaritz, Chief Financial Officer. Firstly, I will hand over to Mr. Thomas Franz, Vice President, Investor Relations for some introductory words.

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines: Yes. Thank you, Heidi, and good morning, ladies and gentlemen. Welcome to our conference call for MTU’s preliminary full year results 2024. As usual, we will start with a review presented by Lars. Peter will give you the financial overview, a comparison to our initial guidance, as well as a more detailed look into our OEM and MRO segment.

Following that, Lars will walk you through the updated guidance for 2025. This will end the presentation part and we will open the call for questions. Let me now hand over to Lars for the review.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: All right.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Thank you, Thomas, and welcome from my side to all. Let me start with some words on the market environment. The market environment remains favorable for the A and D sector. We expect to see robust passenger and cargo traffic throughout 2025. IATA forecasts passenger traffic to grow by 8% and cargo traffic by 6%.

While demand for new aircraft remains very high, the level of new aircraft deliveries is still lagging following ongoing supply chain challenges. This allowed the delivery and sale of more spare and lease engines. Further, it led airlines to expand the services to extend the service life of older aircraft beyond their original plans, leading to increased demand for maintenance and spare parts. The already limited MRO capacities are facing an environment with high demand and supply chain constraints. This opens pricing opportunities for MRO services and lease equipment.

MTU is well positioned in all of these areas and has benefited accordingly in 2024. We witnessed limited growth in new aircraft deliveries, allowing an increase in spare and lease engine deliveries. And additionally, we saw solid MRO demand for mature engine programs like the V25, Gen X, GE90 or CF34. The spare parts business performed quite well in 2024, particularly for narrow body and mature wide body engine platforms. Moreover, our MRO business benefited nicely from the strong results of our engine lease and asset management business in Amsterdam.

With these market trends and MCU’s strategic positioning, we are confident to continue our success story in 2025. Let me now focus on the GTF fleet management plan. Firstly, I’d like to emphasize that it is no longer an emergency or crisis plan. It has evolved into a well structured set of measures that are being executed accordingly. Notably, we have seen a significant increase in powder metal output by RTX.

As mentioned before, on time spare parts availability is a key and allows us to reduce turnaround time well below one hundred days. However, we will continue to feel the effects of this plan in 2025 and 2026, both in terms of operational impact in our shops and financially on our free cash flow. Anyway, we do see the available capacity to increase and with that the ability to support our customers. The market confidence in the GTF engine is evident through the strong orders placed in 2024, including over two twenty GTF engine orders at the Farnborough International Airshow. And from the operation side, we reached a milestone with the delivery of the 1,000 GTF engine assembled at MTU here in Munich.

The GTF Advantage program is on track to receive its final FAA certification in H1 twenty twenty five with first deliveries expected within the year. Additionally, the first A321XLR with PW 11,000 gs engines is expected to be handed over to Wissier in Q1 twenty twenty five. Let me switch to some highlights from our business segments. In the commercial MRO sector, we secured contract wins totaling USD 5,600,000,000.0, mainly for narrow body and mature wide body engines in 2024. With over forty five years of experience, we have completed over 25,000 shop visits, demonstrating our expertise.

To meet growing demand, we expand our global MRO capacities, including a new shop in China dedicated to V2V and GTF engines. In our military business, we have important projects on the agenda. Very favorable environment for the Eurofighter aircraft with Spain and Italy ordering 49 Eurofighters. Germany is expected to follow with an order for 20 Eurofighters. Further interest from various export countries could lead to further Eurofighter engine orders.

Beyond that, we are concentrating on the Phase 1b development work for the new generation fighter engine. Negotiations for Phase two demonstrator work are expected in 2025 with flight demonstrator work to start in 2026. Additionally, we established the ERA joint venture for Europe’s next military helicopter generation with Zafran helicopter engines. Our industry is actively pursuing improvements towards more sustainable flight with the ultimate goal of emission free flying. In 2024, we made good progress in the development work for both, further improvements on gas turbine technology as well on the flying fuel cell.

The latter includes successful tests on a liquid hydrogen fuel system or the establishment of a new test facility for the flying fuel cell at our Munich site. The flying fuel cell is also focus of the EU technology program called HERAFFS. Let me say some words on our upcoming management change in 2025. Already in our Q3 call, I elaborated on my personal decision of leaving my professional home, MTU, and taking on a new role at Airbus. In the meantime, our supervisor awards nominated Doctor.

Johannes Bussmann as my successor at the helm of MTU. Johannes is an esteemed aviation expert with extensive high level management experience. He has been a trusted companion for MTU over many years in his former role at Lufthander Technik as well as a member of our Supervisory Board. We know, respect and appreciate each other and will ensure a smooth transition between us. However, time of this transition is still work in progress.

Johannes will assume his role as CEO at MTU in the course of 2025. A specific date is not yet fixed. The reason is that currently, Johannes serves as CEO of a Certification Specialist, Tufsluit AG, and the company is currently in the process of finding a successor for him. Independently from my decision, Peter has also decided not to extend his contract, which expires by the end of this year. After over twenty five years at MTU, including eight successful years as CFO, he wants to move on to next phase in his career.

In the future, he plans to focus more on Supervisory Board mandates. In January, the Supervisory Board chose Katja Garcia Villa as its successor as our CFO. Katya joined the aerospace world after a long track record in the automotive industry. She served twenty seven years in various functions at Continental AGI, including the role as CFO. She will join MTU already in April 1 and take over as CFO on 07/01/2025, after an intense transition period with Peter.

I know this is more change on board level than MTU had in the past. Nevertheless, MTU is an outstanding company and our successors deserve your full support. I’m speaking also on the behalf of Peter when I express our full commitment to ensure the smooth transition to Katya and Johannes. Both of them can rely on a stable, very capable and performing organization. We are sure that they will continue to enhance MCU’s operational and financial performance on the path of profitable growth.

In the remaining time, Pete and I will continue to drive MCU forward, working together with our colleagues to set the course for a positive, constructive and value based future. Let me now hand over to Peter for the financials.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Yes. Thanks, Lars. Twenty twenty four was indeed another exceptional year for MTU. We achieved for the first time an EBIT exceeding EUR 1,000,000,000, 1 year earlier than anticipated. I will provide you with the driving factors in a few moments.

This impressive performance combined with our positive outlook for 2025 was also reflected in our share price, which reached a new all time high of almost at the January. As part of our 2025 outlook, we announced our dividend proposal for the fiscal year 2024. We intend to propose a dividend of per share at the upcoming AGM on 05/08/2025. This represents a $0.2 increase compared to last year’s dividend. It is important to note that our dividend proposal for this year strikes a thoughtful balance between the financial obligations associated with the GTF fleet management plan and the promising outlook for MTU.

Furthermore, in September, we successfully launched our largest corporate bond in history, raising EUR $750,000,000. The bond carries a coupon of 3.875% and has a seven year term. These funds will be utilized to refinance MTU’s existing corporate bond and for general corporate financing. Additionally, in April, we secured a promissory note of EUR 300,000,000. Now let’s move on to the key financials 2024.

And let’s kick off with a comparison of our full year 2024 numbers versus our initial guidance for the year. Adjusted revenues came in at the higher end of our guidance range, showing the robust growth across all of our business segments. With EBIT adjusted slightly exceeding EUR 1,000,000,000, we have already achieved our mid term target one year earlier ahead of schedule. The corresponding EBIT margin stood at 14%. Our free cash flow adjusted of EUR 183,000,000 met our full year expectation.

It was primarily influenced by payments for the GTF fleet management plan and the volatile supply chain leading to a higher level of working capital. In addition to that, we see an impact of higher receivables on the GTF program. They are built on our balance sheet when shop visits are performed earlier than initially anticipated, triggering payment at a later point in time. The cash conversion rate stood at 24%. Turning to the page and comparing adjusted figures 2024 with those of 2023.

Total (EPA:TTEF) adjusted revenue showed an 18% increase in both euros and U. S. Dollars, reaching a new record high of approximately EUR 7,500,000,000.0. This growth was driven by all of our business segments. EBIT adjusted saw a 29% increase to EUR 1,050,000,000.00, resulting in an EBIT adjusted margin of 14.

This positive performance was supported by a favorable business mix across all segments. Net income adjusted grew as expected in line with EBIT adjusted and improved by 29% to EUR $764,000,000. Entry cash flow adjusted as mentioned stood at EUR 183,000,000, down 48% as expected by the as expected impacted by the effects mentioned earlier. So now let’s move on to the business segment and starting with our OEM segment. Total OEM revenue saw a 14% increase to more than EUR 2,500,000,000.0.

Military revenues grew 14% to EUR $612,000,000 in line with our full year guidance. The main drivers to have this growth were the increases in funded development work for the next generation fighter engine as well as higher volumes for the TP400 and each A200 engines. Commercial business revenues in euros and dollars rose by 15% to EUR 1,900,000,000.0. And within that, organic OE revenues in dollars increased in the low 20% range in line with our guidance. The main growth drivers were higher GTF engine deliveries and a healthy mix of spare and lease engines.

On a quarterly basis, OE sales also grew in the low 20% range. Organic spare parts sales in dollars increased in the low teens. Main growth drivers were mature wide body platforms and narrow body engines. On a quarterly basis, spare parts sales experienced high teens growth. EBIT adjusted benefited from the favorable business mix mentioned earlier, resulting in a 26% increase to EUR $612,000,000.

The corresponding EBIT margin improved to 24.2%. Moving on to the MO segment. MO revenues experienced a 20% increase reaching nearly EUR 5,100,000,000.0. We saw solid demand across all engine platforms. Main drivers of revenue growth in our core MRO business were the G90, the V2five, the Gen X as well as our leasing and asset management business in Amsterdam.

The share of GTF MRO revenues accounted for approximately 31%, slightly below our full year expectation of 35%. Throughout 2024, we experienced lower material intensity, while the number of shop visits was in line with expectations. EBIT adjusted showed a strong growth of 33% to EUR $438,000,000, resulting in a margin of 8.7%. The higher EBIT margin was supported by the robust leasing and asset management business and in addition, a better contract mix independent MRO business as well as a lower share and material intensity as mentioned of the GTF MRO that’s besides the inflow upside. At this point, I would like hand back to Lars for some insights on our guidance for 2025.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Peter, thank you. The results of the year 2024 demonstrated that MTU was well positioned in the market and will accordingly benefit from the ongoing market trends. This gives us confidence in the outlook for 2025. Compared with the numbers we issued in late November of last year, we can confirm the organic growth rates and basic assumptions while we adjust the guidance to the changed FX environment. We are now guiding based on the U.

S. Dollar FX rate of 1.05 compared with 1.1 before. Therefore, we expect group revenues to grow stronger to a value between EUR 8,700,000,000.0 and EUR 8,900,000,000.0. Within that, we expect the military business to grow in the mid- to high single digit percentage range, mainly driven by increasing deliveries of the EJ200 and T48 engines as well as by growth in funded development work for the new generation fighter engine. The commercial new engine business is expected to be up in the mid teens percentage range, mainly due to higher production volumes for the GTF engines, Gen X and the delivery of the first GE9X engines.

Compared to 2024, we expect a normalized ratio of spare and lease engines compared to installed engines. The commercial spare parts business is expected to grow in the low teens percentage range, benefiting from strong demand for narrow body engines, especially the V25 engine will benefit from robust market demand and higher utilization. Commercial MRO will experience growth in the low to mid teens percentage, driven by increased GTF MRO work, high demand for freighter engines and strong contributions from our engine lease and asset management business. Overall, this should result in a mid teens percentage increase in adjusted EBIT in absolute numbers compared to 2024. We expect some normalization in the delivery of spare and lease engines as well as some slowdown in the asset management contribution from MLS in Amsterdam.

Adjusted net income will grow in line with adjusted EBIT. And The free cash flow for 2025 will be significantly influenced by payments for the GTF fleet management plan and the volatile supply chain. Therefore, we guide again for a low triple digit million euro number, but we’re aiming at the up end of this range as the underlying business is growing profitably. Thank you very much for your attention, and we’re ready now to answer your question.

Conference Moderator: Thank you very much. We will now begin the question and answer session. David Perry from JPMorgan, may we have your question?

David Perry, Analyst, JPMorgan: Yes. Hi. Good morning, Peter, Lars and Thomas. I hope you’re all well. You’re going to hate me starting the Q and A like this, I apologize.

There’s just a few accounting things I’m a bit confused by this morning. So I’d like to start with three questions, maybe they’re all for you, Peter. Apologies Lars. The first one is, can you just on Slide 21, your free cash flow, the $96,000,000 the acquisition payments in program shares, could you just clarify what that relates to please? The next one is the Slide 23, I think it is, with your net debt.

There’s a few numbers there that came out quite differently to what I expected. So in particular, the payments due to program participations. I feel sort of financial lease liabilities went up, if you could just comment on that. But I think those three things I’ve just asked about seem to lead to a net financial debt a lot higher than certainly I expected, maybe bad housekeeping by me. And then just the third one, on the other side of the balance sheet on Page 24, can you just explain the big jump in receivables, please?

Thank you very much.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Okay. Then let’s start with acquisition of the cash flow statement. So we made in Q4, we made an investment in, let’s say, further business opportunities where we cannot really talk about. So we will disclose that in the coming weeks and months, maybe in Q1 twenty twenty five. So that’s nothing to communicate at the current point of time, but these are positive investments into further business opportunities.

I don’t know if you want to add anything last, but Okay. Then on the net debt page, so going to financial lease liabilities, you know, in Amsterdam, we in some cases, we buy engines or used engines. And in some cases, we also lease in used engines. So we leased in a lot of engines at MLS. And under IFRS 16, you know what you have to do when you lease in a lease engine.

You have to capitalize the value of use on the asset side of the balance sheet. And the net present value of all the lease payments of the future you have to account for on the net debt. So that is it’s not it has not an impact on cash flow. It’s just an accounting issue as you said.

David Perry, Analyst, JPMorgan: Regarding the PONCE?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Pardon me?

David Perry, Analyst, JPMorgan: Yes, that’s right. The $3.50

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: We had that I think also I think one year ago, we have to account. So we have agreed with Pratt on a long term payment plan for certain payments we have to do. I mean, we have we are a program partner in the GTF engine, so and have to contribute 18% of all costs. And in some cases, when you contribute only, let’s say, 50% or 60% of manufacturing costs, you have to compensate the consortium for the shortfall of manufacturing cost. And in the past, they were part of working capital.

But when you agree on a long term payment plan, which goes beyond the twelve months, you have to account for that as a financial liability. Also, just an accounting issue, it’s not part of working capital anymore, it’s part of financial liabilities. So it’s like the pure reclassification of their respective liability. And then receivables, so we have I mean, you have you cannot only look on receivables here. You have to look on the net value of receivables and liabilities.

But what we saw is, I mean, we had a very, very strong Q4, that’s the one thing. So when you have a very strong, let’s say, December revenue, everything you book in December, you find it in receivables. Then we have obviously FX impact. So the U. S.

Dollar moved significantly in December, so going from to 103 at year end. So receivables were valued upwards. And we have the receivables also reflect the high workload in our MRO shops. I mean, it’s not part of inventories. If you have some unfinished engine in the shop, it’s part of receivables.

So these are so called percentage of completion receivables. And so we have also a lot of, let’s say, GTF shop visits where the payment comes at a later point of time, as I said in my statement. So the work is pulled forward and the payment in these fleet management plans come at a later point of time. That is reflected as a high receivable on the balance sheet.

David Perry, Analyst, JPMorgan: Okay. Thank you for being so patient explaining all that. If I can just be greedy and ask two follow ons. I mean, should we assume some of these issues like the receivables could reverse then in 2025? I mean, the guidance is the same on free cash flow, a low single digit figure.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: I would

Lars Wagner, Chief Executive Officer, MTU Aero Engines: say that’s That’s also

David Perry, Analyst, JPMorgan: in 2025 and 2024?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: There will be some reverse effect, yes. I mean, as Lars mentioned, so we our target for 2025 free cash flow is rather at the upper end of the low triple digit range. So significantly better than the 2024 free cash flow, yes.

David Perry, Analyst, JPMorgan: Well, that’s very meaningful.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So we have saw, let’s say, an unlucky combination of different factors, especially in Q4, as I just mentioned, yes.

David Perry, Analyst, JPMorgan: Thank you so much.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Thanks, David.

Conference Moderator: Thank you. We will take our next question. Ian Douglas Pennant from UBS, may we have your question?

Ian Douglas Pennant, Analyst, UBS: Hi, it’s Ian Douglas Pennant at UBS. I hope you can hear me. My line’s been a bit crackly. I’ve got two questions, please. The first on management turnover.

Look, I’m very sorry to see both of you leave in quick succession, obviously a blow for your investors. Are you able to speak on behalf of the board? What criteria were prioritized in the search for your replacements? And I guess, especially I’m thinking of Peter here given that that was more recent news and how long this transition has been planned for, please, at least at the C4S report level. The second question, I’m afraid I’m going to get back to David’s question because I think it’s important.

There’s been a lot of accounting style questions in the engine space recently on both sides of the Atlantic. So I think it’s important to get on top of this. Can you help us understand why exactly there’s lots of GTF shop visits happening today where the payment comes later? Is this yes, I mean, maybe you could just go in a little bit more detail on exactly how that mechanism works? Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: I mean, the pull forward of shop visits is predominantly triggered by the GTF fleet management plan. So that you do the work today when you get the engine in the shop, but the payment comes at a later point of time. That is not a regular shop visit. And so that leads to a buildup of receivables. Certainly, you do the work and the payment comes at a later point of time.

Ian Douglas Pennant, Analyst, UBS: And that work that you’re doing then is not captured within the $6,000,000,000 to $7,000,000,000 program provision that was taken?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: The program provision for our share, the 1,000,000,000 we built up we booked in Q3 twenty twenty three, that’s purely the support payments to airlines. So that has nothing to do with the shop visit work. So the material, the labor, transportation costs and so on. So the physical work we do on the engine. So the payments for the fleet management plan are purely the support payments to Alliance for their AOG situation.

Ian Douglas Pennant, Analyst, UBS: Thank you. And sorry, what were the support payments made in 2024? Can you disclose that for us, please, against that $1,000,000,000

Speaker 6: Sure.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: It was in the high US300 million dollars range, so US380 million dollars 3 90 million dollars So that’s I mean, the rate here that’s been said on the ARK1.1 billion, and you can say they have roughly 51% program share of 2018, so you can scale it down, it’s more or less the same.

Speaker 6: Thank you.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Scaled

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: down, so USD $390,000,000. That is the number for MTU. And the majority happened in the fourth quarter of twenty twenty four. That’s why the cash flow in the fourth quarter is slightly negative.

Ian Douglas Pennant, Analyst, UBS: And then the other question on the priorities of the board, if you could if you’re able to comment, please.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Not really. I mean, the transition we have named Katya is coming in on the April 1, transitioning with Peter for three months and then the change of responsibility will happen on July 1 and the board needs to speak for itself. But obviously, we were looking for an experienced CFO, both on the financial, but also on the NT environment. That is the responsibility that Peter currently holds. And we believe we have found a decent successor, if that is ever possible.

Ian Douglas Pennant, Analyst, UBS: Deep, big shoes to Phil. Thank you for having me on. I appreciate it. Thank you.

Conference Moderator: Thank you. We will take our next question. Robert Stallard from Vertical Research, may we have your question?

Robert Stallard, Analyst, Vertical Research: Thanks so much. Good morning.

Speaker 6: Good morning.

Robert Stallard, Analyst, Vertical Research: A couple from me. First of all, on the leasing business, I was wondering how much EBIT or cash flow is generated in 2024, ballpark number, if you could provide that. How much capital is tied up in this business? And where do you expect the normal level to be? Because that’s what you’ve included in your 2025 guidance.

And then secondly, on the GTF fleet management plan, can you give us an update of your latest expectations on what the cash payments will be on this program during 2025 and 2026? Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So I mean, we don’t split that really down. What we say on MLS or Asset Leasing Management business is that business contributes roughly EUR 500,000,000 million of lost revenues in 2024 and roughly EUR 100,000,000 of EBIT. So that’s the contribution and that’s all part of our of the consolidated MRO revenue and EBIT figures. And I mean, that is a very, let’s say, opportunistic business. You scan several hundreds of engine every year and you do transactions on a very limited number.

So it’s a very opportunistic business. So in part, we buy the engines, in part, we lease them in. We in part, we basically we trade engines to buy it and sell it more or less immediately and so on. So it’s but what we can say is that we really want to invest into the business because it’s a very good business and we want to grow the business significantly in the coming years now. Regarding TDF’s fleet management plan, I just said that we had an impact of USD $390,000,000 in roughly 2024.

That’s the pretax number, I have to say. And we expect a similar impact in 2025 and some spillover to the remaining portion than in 2026. So the impact 2026 will be far lower compared to the 2025 impact. Unchanged to previous guidance. Exactly, unchanged to our previous guidance.

Robert Stallard, Analyst, Vertical Research: Okay. Pete, just a quick follow-up on the leasing business. You said you include expected normal level of activity in the guidance. What is a normal level? Is it half what you did last year?

Just some ballpark there.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: We would miss I believe with normal speed, I mean that the rates are normalizing because we used to have a very good favorable rate for the engines after COVID. The business itself is growing top line, but the rates, leasing rates and this will be normalizing over the years. We see that already in 2024 starting.

Speaker 6: Okay. Thank you very much.

Conference Moderator: Thank you. We will take our next question. Chloe Lemaire from Jefferies. May we have your question?

Chloe Lemaire, Analyst, Jefferies: Yes, good morning. I actually had a follow-up from David’s question. If I look at the your free cash flow, the CapEx was quite higher than what I expected, but a relatively large chunk of it was retreated out of your free cash flow in Q4. So could you confirm that this were entry fees that you paid? And I guess we’ll need to wait further disclosure to know which program it is.

But is that really the driver or anything else you can share with us to kind of understand what drove that? And then second question would be on the evolution of turnaround times in your shop. If you can update us on what you saw into the end of the year, that would be great. Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Chloe, first question, entry fees, yes, I can confirm that. So we paid roughly US100 million dollars in Q4 twenty twenty four for, as just mentioned, different business opportunities. So you find it in the line net investments in intangible assets, that’s the jump from SEK 80,000,000 to SEK 181,000,000. And it’s adjusted according to our policy, which we also described in our annual report, it’s adjusted for calculating the free cash flow. So that’s the story.

Turnaround times in

Lars Wagner, Chief Executive Officer, MTU Aero Engines: the GTF, we see continuous decrease of turnaround times. We are well below an average below one hundred days, and it all depends on material availability. But as we have communicated previously, seventy day plus turnaround time is also possible if material is available.

Chloe Lemaire, Analyst, Jefferies: Very clear. Thank you.

Conference Moderator: Thank you. We will take our next question. Ben Heelan from Bank of America. May we have your question?

Ben Heelan, Analyst, Bank of America: Yes. Good morning, guys. Thank you for taking the question. I’ve got a few follow ups on some of the questions already asked as well, unfortunately. So on the program acquisition costs, can you confirm whether or not this is actually a new engine program or is this a payment associated with a program like the GTF?

Because my understanding is there are still payments that are due on the GTF Advantage. I think some of your peers are paying payments on that over the next couple of years. And when we think about this program acquisition cost, can you talk about what this line is going to look like in the next two to three years and what we should be adding in because it was definitely a step up versus what I was assuming? Secondly, on kind of your PPE CapEx, it was also a decent amount higher than what I was expecting. So if there’s any color that you can give us around that as well.

And then a third, just quickly again, sorry, on these receivables to kind of lay but the point, I mean, you talked about some payments for GTF shop visits coming in late or later than the work being done because of the GTF program. But how late are these how late is it going to be for these payments to be received, right? Is this something that you will receive in 2027, ’20 ’20 ’8? Or do you think actually the catch up effect that you talked about with David, is that going to be something that happens in 2025 and 2026? Just any color you can give us that will be helpful.

Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So I start with your latest question. So that is a difficult enabler because I mean, it’s that’s a mixture between, let’s say, sixty, seventy different fleet hour contracts with different airlines. And it’s very so the point of payment is very different. So the distance between payment and actual performance of the shop is very different in a different in each and every fleet hour agreement. So I would rather expect, so over the next one or two years, a slight moving up of that receivable position.

You get payments, but you do also additional work. So it’s and as the number of shoppers increases, so the position will rather increase slightly over the next one, two years, and then it will rather go down. So that is the rough shape of that receivable curve. Then you referred to the I think to the net debt page, the compensation payment due to program participation that has nothing to do with the payments for GTFA or new programs. So that is especially for the GTF program.

As I said, we are an 18% program partner and maybe deliver only 15% or 60% of the manufacturing costs. And so that is the compensation, therefore, and that line will rather will be paid over the next two, three years. So that will go down over the next years now. But the payment term is longer than twelve months. So that’s why it’s part of that’s why it’s technically part of net debt.

Ben Heelan, Analyst, Bank of America: Yes. No. So I was kind of talking more, Pete, sorry, about the EUR 96,000,000 payment on Programme shares. Over the next two to three years, what does that line look like?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: There will be additional payments but later, later the decade.

Ben Heelan, Analyst, Bank of America: Okay. Do you have any view around how

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: It’s not the GTFA. So it’s definitely not the GTFA.

Ben Heelan, Analyst, Bank of America: Okay. Okay. And we

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: are already program partner of the GTF, so there are no more for that for the entry fees.

Ben Heelan, Analyst, Bank of America: Okay. And just quickly on the kind of PPE CapEx costs which stepped up?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: A good chunk comes from acquisition of lease engine at MLF. So the case where we buy engines ourselves and have it on the balance sheet.

Ben Heelan, Analyst, Bank of America: Okay. Okay, cool. All right, awesome. All right, thank you, Peter. Thank you.

Thank

Conference Moderator: We will take our next question. Christoph Manard from Deutsche Bank (ETR:DBKGn), may we have your question?

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines0: Yes, good afternoon. Thank you for taking my question. I have three quick ones. The first one is on turnaround times. I mean, one of your clients complained about turnaround times above three hundred days recently, filed something in The U.

S. It I mean, it comes a little bit in contrast to what you said. So just wanted to have your view on this. And I heard you on turnaround times being down. So my question is also, does it mean that we could have a reduction in the cash payment versus the initial expectation because you’re reducing the turnaround time?

So it means that the engines are less grounded than they initially thought. Second question is several times on the call you mentioned volatile supply chain. Can you just explain a little bit more what it is because it seems to be impacting your working cap? And the last question is just for better understanding. You say your free cash flow guidance low triple digit million and you are more at the high end of this.

What does it mean? I mean, does it mean million or million? Just trying to understand the English here. Thank you.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: So maybe Christophe, on the first one, yes, we said the shop turnaround time at MTU and other shops are in average below one hundred days. But we always talk about the wing to wing turnaround time, which will be higher because of ongoing capacity increase over these three years. So that means that there is a longer time above these one hundred days that the engine is going back and forth between the customer and our shafts. So that is the natural delta. And some of them, as the customer said, we need to expect that this is a proper timing.

And while there is still no wing to wing time higher, we don’t see any reason now why we should decrease the charge. So we are in line with our expectation.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Okay. Then supply chain, I think predominantly in our MO business, we have seen across the board higher turnaround times compared to, let’s say, the pre corona NLS part supply, but also the performance of our outside vendor network is not as it should be. So and that drives working capital upwards. So the general type in our shop is maybe 30%, forty % higher compared to pre corona levels. And that means higher work in progress in all of our ML shops.

So you carry excess working capital on the balance sheet. Free cash flow guidance, I mean, what is low triple digit? Low triple digit, we consider something between EUR 100,000,000 and EUR 300,000,000 at the upper end. This is then somewhere between EUR $2.50 and EUR 300 or so.

Speaker 6: Thank you. Very clear. Thank you very much.

Conference Moderator: Thank you. This concludes today’s question and answer session. I’ll now hand back for closing remarks.

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines: Yes. Thank you, Heidi. And thank you all participants. Thank you, Lars. Thank you, Peter.

For further questions as usual, reach out to us and, yes, see you soon. Bye bye.

Conference Moderator: Thank you. We want to thank Mr. Lars Wagner and Mr. Peter Kamaszurec and all the participants of this conference. Goodbye.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Okay.

David Perry, Analyst, JPMorgan: You

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Okay. Okay.

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines: Good morning, ladies and gentlemen. Welcome to our conference call for MTU’s preliminary full year results 2024. As usual, we will start with a review presented by Lars. Peter will give you the financial overview, a comparison to our initial guidance, as well as a more detailed look into our OEM and MRO segment. Following that, Lars will walk you through the updated guidance for 2025.

This will end the presentation part and we will open the call for questions. Let me now hand over to Lars for the review.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: All right.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Thank you, Thomas, and welcome from my side to all. Let me start with some words on the market environment. The market environment remains favorable for the A and D sector. We expect to see robust passenger and cargo traffic throughout 2025. IATA forecasts passenger traffic to grow by 8% and cargo traffic by 6%.

While demand for new aircraft remains very high, the level of new aircraft deliveries is still lagging following ongoing supply chain challenges, which allowed the delivery and sale of more spare and lease engines. Further, it led airlines to expand the services to extend the service life of older aircraft beyond their original plans, leading to increased demand for maintenance and spare parts. The already limited MRO capacities are facing an environment with high demand and supply chain constraints. This opens pricing opportunities for MRO services and lease equipment. MCU is well positioned in all of these areas and has benefited accordingly in 2024.

We witnessed limited growth in new aircraft deliveries, allowing an increase in spare and lease engine deliveries. And additionally, we saw solid MRO demand for mature engine programs like the V25, Gen X, GE90 or CF34. The spare parts business performed quite well in 2024, particularly for narrow body and mature wide body engine platforms. Moreover, our MRO business benefited nicely from the strong results of our engine lease and asset management business in Amsterdam. With these market trends and MCU’s strategic positioning, we are confident to continue our success story in 2025.

Let me now focus on the GTF fleet management plan. Firstly, I’d like to emphasize that it is no longer an emergency or crisis plan. It has evolved into a well structured set of measures that are being executed accordingly. Notably, we have seen a significant increase in powder metal output by RTX. As mentioned before, on time spare parts availability is a key and allows us to reduce turnaround time well below one hundred days.

However, we will continue to feel the effects of this plan in 2025 and 2026, both in terms of operational impact in our shops and financially on our free cash flow. Anyway, we do see the available capacity to increase and with that the ability to support our customers. The market confidence in the GTF engine is evident through the strong orders placed in 2024, including over two twenty GTF engine orders at the Farnborough International Airshow. And from the operation side, we reached a milestone with the delivery of the 1,000 GTF engine assembled at MTU here in Munich. The GTF Advantage program is on track to receive its final FAA certification in H1 twenty twenty five with first deliveries expected within the year.

Additionally, the first A321XLR with PW 11,000 gs engines is expected to be handed over to Wissier in Q1 twenty twenty five. Let me switch to some highlights from our business segments. In the commercial MRO sector, we secured contract wins totaling USD 5,600,000,000.0, mainly for narrow body and mature wide body engines in 2024. With over forty five years of experience, we have completed over 25,000 shop visits, demonstrating our expertise. To meet growing demand, we expand our global MRO capacities, including a new shop in China dedicated to V25 and GTF engines.

In our military business, we have important projects on the agenda. Very favorable environment for the Eurofighter aircraft, with Spain and Italy ordering 49 Eurofighters. Germany is expected to follow with an order for 20 Eurofighters. Further interest from various export countries could lead to further Eurofighter engine orders. Beyond that, we are concentrating on the Phase 1b development work for the new generation fighter engine.

Negotiations for Phase two demonstrator work are expected in 2025 with flight demonstrator work to start in 2026. Additionally, we established the Euro joint venture for Europe’s next military helicopter generation with Zafran helicopter engines. Our industry is actively pursuing improvements towards more sustainable flight with the ultimate goal of emission free flying. In 2024, we made good progress in the development work for both, further improvements on gas turbine technology as well on the flying fuel cell. The latter includes successful tests on a liquid hydrogen fuel system or the establishment of a new test facility for the flying fuel cell at our Munich site.

The flying fuel cell is also focus of the EU technology program called HERAFF. Let me say some words on our upcoming management change in 2025. Already in our Q3 call, I elaborated on my personal decision of leaving my professional home, MTU, and taking on a new role at Airbus. In the meantime, our supervisor rewards nominated Doctor. Johannes Bussmann as my successor at the helm of MTU.

Johannes is an esteemed aviation expert with extensive high level management experience. He has been a trusted companion for MTU over many years in his former role at Lufthander Technik as well as a member of our Supervisory Board. We know, respect and appreciate each other and will ensure a smooth transition between us. However, time of this transition is still work in progress. Johannes will assume his role as CEO at MTU in the course of 2025.

A specific date is not yet fixed. The reason is that currently, Johannes serves as CEO of a certification specialist, Tufsluyt AG, and the company is currently in the process of finding a successor for him. Independently from my decision, Peter has also decided not to extend his contract, which expires by the end of this year. After over twenty five years at MCU, including eight successful years as CFO, he wants to move on to next phase in his career. In the future, he plans to focus more on Supervisory Board mandates.

In January, the Supervisory Board chose Katja Garcia Villa as its successor as our CFO. Katya joined the aerospace world after a long track record in the automotive industry. She served twenty seven years in various functions at Continental AGI, including the role as CFO. She will join MTU already in April 1 and take over as CFO on 07/01/2025, after an intense transition period with Peter. I know this is more change on board level than MTU had in the past.

Nevertheless, MTU is an outstanding company and our successors deserve your full support. I’m speaking also on the behalf of Peter when I express our full commitment to ensure the smooth transition to CATIA and Johannes. Both of them can rely on a stable, very capable and performing organization. We are sure that they will continue to enhance MCU’s operational and financial performance on the path of profitable growth. In the remaining time, Peter and I will continue to drive MCU forward, working together with our colleagues to set the course for a positive, constructive and value based future.

Let me now hand over to Peter for the financials.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Yes. Thanks, Lars.

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines: Twenty twenty

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: four was indeed another exceptional year for MTU. We achieved for the first time an EBIT exceeding EUR 1,000,000,000, 1 year earlier than anticipated. I will provide you with the driving factors in a few moments. This impressive performance combined with our positive outlook for 2025 was also reflected in our share price, which reached a new all time high of almost at the January. As part of our 2025 outlook, we announced our dividend proposal for the fiscal year 2024.

We intend to propose a dividend of per share at the upcoming AGM on 05/08/2025. This represents a $0.2 increase compared to last year’s dividend. It is important to note that our dividend proposal for this year strikes a thoughtful balance between the financial obligations associated with the GTF fleet management plan and the promising outlook for MTU. Furthermore, in September, we successfully launched our largest corporate bond in history, raising €750,000,000 The bond carries a coupon of 3.875% and has a seven year term. These funds will be utilized to refinance MTU’s existing corporate bond and for general corporate financing.

Additionally, in April, we secured a promissory note of EUR 300,000,000. Now let’s move on to the key financials 2024, and let’s kick off with a comparison of our full year 2024 numbers versus our initial guidance for the year. Adjusted revenues came in at the higher end of our guidance range, showing the robust growth across all of our business segments. With EBIT adjusted slightly exceeding EUR 1,000,000,000, we have already achieved our mid term target one year earlier ahead of schedule. The corresponding EBIT margin stood at 14.

Our free cash flow adjusted of EUR 183,000,000 met our full year expectation. It was primarily influenced by payments for the GTF fleet management plan and the volatile supply chain leading to a higher level of working capital. In addition to that, we see an impact of higher receivables on the GTF program. They are built on our balance sheet when shop visits are performed earlier than initially anticipated, triggering payment at a later point in time. The cash conversion rate stood at 24%.

Turning to the page and comparing adjusted figures 2024 with those of 2023. Total adjusted revenue showed an 18% increase in both eurus and U. S. Dollars, reaching a new record high of approximately EUR 7,500,000,000.0. This growth was driven by all of our business segments.

EBIT adjusted saw a 29% increase to EUR 1,050,000,000.00, resulting in an EBIT adjusted margin of 14%. This positive performance was supported by a favorable business mix across all segments. Net income adjusted grew as expected in line with EBIT adjusted and improved by 29% to EUR $764,000,000. Entry cash flow adjusted as mentioned stood at EUR 183,000,000, down 48% as expected by the as expected impacted by the effects mentioned earlier. So now let’s move on to the business segment and starting with our OEM segment.

Total OEM revenue saw a 14% increase to more than EUR 2,500,000,000.0. In military, revenues grew 14% to EUR $612,000,000 in line with our full year guidance. The main drivers behind this growth were the increases in funded development work for the next generation fighter engine as well as higher volumes for the TP400 and each A200 engines. Commercial business revenues in euros and dollars rose by 15% to EUR 1,900,000,000.0. And within that, organic OE revenues in dollars increased in the low 20% range in line with our guidance.

The main growth drivers were higher GTF engine deliveries and a healthy mix of spare and lease engines. On a quarterly basis, OE sales also grew in the low 20% range. Organic spare parts sales in dollars increased in the low teens, main growth drivers were mature wide body platforms and narrow body engines. On a quarterly basis, spare parts sales experienced high teens growth. EBIT adjusted benefited from the favorable business mix mentioned earlier, resulting in a 26% increase to EUR612 million.

The corresponding EBIT margin improved to 24.2. Moving on to the MO segment. MO revenues experienced a 20% increase reaching nearly EUR 5,100,000,000.0. We saw solid demand across all engine platforms. Main drivers of revenue growth in our core MRO business were the G90, the V2 V, the Gen X as well as our leasing and asset management business in Epsilon.

The share of GTF MRO revenues accounted for approximately 31%, slightly below our full year expectation of 35%. Throughout 2024, we experienced lower material intensity, while the number of shop visits was in line with expectations. EBIT adjusted showed a strong growth of 33% to EUR438 million, resulting in a margin of 8.7%. The higher EBIT margin was supported by the robust leasing and asset management business and in addition, a better contract mix in the independent MRO business as well as a lower share and material intensity as mentioned of the GTF MRO that resulted in the third upside. At this point, I would like hand back to Lars for some insights along our guidance for 2025.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: All right, Peter. Thank you. The results of the year 2024 demonstrated that MTU is well positioned in the market and will accordingly benefit from the ongoing market trends. This gives us confidence in the outlook for 2025. Compared with the numbers we issued in late November of last year, we can confirm the organic growth rates and basic assumptions while we adjust the guidance to the changed FX environment.

We are now guiding based on a U. S. Dollar FX rate of 1.05 compared with 1.1 before. Therefore, we expect group revenues to grow stronger to a value between EUR 8,700,000,000.0 and EUR 8,900,000,000.0. Within that, we expect the military business to grow in the mid to high single digit percentage range, mainly driven by increasing deliveries of the EJ200 and T48 engines as well as by growth in funded development work for the new generation fighter engine.

The commercial new engine business is expected to be up in the mid teens percentage range, mainly due to higher production volumes for the GTF engines, Gen X and the delivery of the first GE9X engines. Compared to 2024, we expect a normalized ratio of spare and lease engines compared to installed engines. The commercial spare parts business is expected to grow in the low teens percentage range, benefiting from strong demand for narrow body engines. Especially the V25 engine will benefit from robust market demand and higher utilization. Commercial MRO will experience growth in the low to mid teens percentage, driven by increased GTF MRO work, high demand for freighter engines and strong contributions from our engine lease and asset management business.

Overall, this should result in a mid teens percentage increase in adjusted EBIT in absolute numbers compared to 2024. We expect some normalization in the delivery of spare and lease engines as well as some slowdown in the asset management contribution from MLS in Amsterdam. Adjusted net income will grow in line with adjusted EBIT. And the free cash flow for 2025 will be significantly influenced by payments for the GTF fleet management plan and the volatile supply chain. Therefore, we guide again for a low triple digit million euro number, but we’re aiming at the upper end of the trench as the underlying business is growing profitably.

Thank you very much for your attention and we are ready now to answer your question.

Conference Moderator: Thank you very much. We will now begin the question and answer session. David Perry from JPMorgan, may we have your question?

David Perry, Analyst, JPMorgan: Yes. Hi. Good morning, Peter, Lars and Thomas. I hope you’re all well. You’re going to hate me starting the Q and A like this.

I apologize. There’s just a few accounting things I’m a bit confused by this morning. So I’d like to start with three questions, maybe they’re all for you, Peter. Apologies Lars. The first one is, can you just on Slide 21, your free cash flow, the $96,000,000 the acquisition payments in program shares, could you just clarify what that relates to please?

The next one is the Slide 23, I think it is, with your net debt. There’s a few numbers there that came out quite differently to what I expected. So in particular, the payments due to program participations. I feel sort of financial lease liabilities went up, if you could just comment on that. But I think those three things I’ve just asked about seem to lead to a net financial debt a lot higher than certainly I expected, maybe bad housekeeping by me.

And then just the third one, on the other side of the balance sheet on Page 24, can you just explain the big jump in receivables, please? Thank you very much.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Okay. Then let’s start with acquisition of the cash flow statement. So we made in Q4, we made an investment in, let’s say, further business opportunities where we cannot really talk about. So we will disclose that in the coming weeks and months, maybe in Q1 twenty twenty five. So that’s nothing to communicate at the current point of time, but these are positive investments into further business opportunities.

I don’t know if you want to add anything last. Okay. Then on the net debt page, so going to financial lease liabilities, you know, in Amsterdam, we in some cases, we buy engines used engines and in some cases, we also lease in used engines. So we leased in a lot of engines at MLS. And under IFRS 16, you know what you have to do when you lease in a lease engine.

You have to capitalize the value of use on the asset side of the balance sheet. And this net present value of all the lease payments of the future you have to account for on the net debt. So that is it’s not it has not an impact on cash flow. It’s just an accounting issue as you said. Regarding

David Perry, Analyst, JPMorgan: the portfolio.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Pardon me?

David Perry, Analyst, JPMorgan: Yes, that’s right. The free

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: We had that I think also I think one year ago, we have to account. So we have agreed with Sprint on a long term payment plan for certain payments we have to do. I mean, we are a program partner in the GTF engine, so and have to contribute 18% of all costs. And in some cases, when you contribute only, let’s say, 50% or 60% of manufacturing costs, you have to compensate the consortium for the shortfall of manufacturing cost. And in the past, they were part of working capital.

But when you agree on a long term payment plan, which goes beyond the twelve months, you have to account for that as a financial liability. Also, just an accounting issue, it’s not part of working capital anymore, it’s part of financial liabilities. So it’s like the pure reclassification of their respective liability. And then receivables, so we had I mean, you have you cannot only look on receivables here. You have to look on the net net value of receivables and liabilities.

But what we saw is, I mean, we had a very, very strong Q4,

Lars Wagner, Chief Executive Officer, MTU Aero Engines: that’s

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: the one thing. So when you have a very strong, let’s say, December revenue, everything you book in December, you find it in receivables. Then we have obviously FX impact. So the U. S.

Dollar moved significantly in December, so going from to 103 at year end. So receivables were valued upwards. And we have the receivables also reflect the high workload in our MRO shops. I mean, it’s not part of inventories. If you have some unfinished engine in the shop, it’s part of receivables.

So these are so called percentage of completion receivables. And so we have also a lot of, let’s say, GTF shop visits where the payment comes at a later point of time, as I said in my statement. So the work is pulled forward and the payment in these fleet management plans come at a later point of time. That is reflected as a high receivable on the balance sheet.

David Perry, Analyst, JPMorgan: Okay. Thank you for being so patient explaining all that. If I can just be greedy and ask two follow ons. I mean, should we assume some of these issues like the receivables could reverse then in 2025? I mean, the guidance is the same on free cash flow, a low positive figure.

Chloe Lemaire, Analyst, Jefferies: Is that also in

David Perry, Analyst, JPMorgan: 2025 and 2024?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: There will be some reverse effect, yes. I mean, as Lars mentioned, so our target for 2025 free cash flow is rather at the upper end of the low triple digit range. So significantly better than the 2024 free cash flow, yes.

David Perry, Analyst, JPMorgan: Well, that’s very real.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So we have saw, let’s say, an unlucky combination of different factors, especially in Q4, as I just mentioned, yes.

David Perry, Analyst, JPMorgan: Thank you so much.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Thanks, David.

Conference Moderator: Thank you. We will take our next question. Ian Douglas Pennant from UBS. May we have your question?

Ian Douglas Pennant, Analyst, UBS: Hi. It’s Ian Douglas Pennant at UBS. I hope you can hear me. My line’s been a bit crackly. I’ve got two questions, please.

The first on management turnover. Look, I’m very sorry to see both of you leave in quick succession, obviously a blow for your investors. Are you able to speak on behalf of the Board, what criteria were prioritized in the search for your replacements? And I guess, especially I’m thinking of Peter here given that that was more recent news and how long this transition has been planned for, please, at least at the Supervisory Board level? The second question, I’m afraid I’m going to get back to David’s question, because I think it’s important.

There’s been a lot of accounting style questions in the engine space recently on both sides of the Atlantic. So I think it’s important to get on top of this. Can you help us understand why exactly there’s lots of GTF shop visits happening today where the payment comes later? Is this yes, I mean, maybe you could just go in a little bit more detail on exactly how that mechanism works? Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: I mean, the pull forward of shop visits is predominantly triggered by the GTF fleet management plan. So that you do the work today when you get the engine in the shop, but the payment comes at a later point of time. That is not a a regular shop visit. And so that leads to a buildup of receivables. Certainly, you do the work and the payment comes at a later point of time.

Ian Douglas Pennant, Analyst, UBS: And that work that you’re doing then is not captured within the SEK 6,000,000,000 to SEK 7,000,000,000 program provision that was taken?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: The program provision for our share, the SEK 1,000,000,000 we built up we booked in Q3 twenty twenty three, that’s purely the support payments to airlines. So that has nothing to do with the shop visit work. So the material, the labor, transportation cost and so on. So the physical work we do on the engine. So the payments for the fleet management plan are purely the support payments to airlines for their AOG situation.

Ian Douglas Pennant, Analyst, UBS: Thank you. And sorry, what were the support payments made in 2024? Can you disclose that for us, please, against that $1,000,000,000

Speaker 6: Sure.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: It was in the high US300 million dollars range, so US380 million dollars 3 90 million dollars So that’s I mean, rate here that’s been said on the ARK1.1 billion, and you can say they have roughly 51% program share of twenty eighteen, so you can scale it down, it’s more or less the same. Scaled down, so USD $390,000,000, that is the number for MTU. And the majority happened in the fourth quarter of twenty twenty four. That’s why the cash flow in the fourth quarter is slightly negative.

Ian Douglas Pennant, Analyst, UBS: And then the other question on the priorities of the board, if you could if you’re able to comment, please.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: Not really. I mean, the transition we have named, Katya is coming in on the April 1, transitioning with Peter for three months, and then the change of responsibility will happen on July 1. And the board needs to speak for itself, but obviously, we were looking for an experienced CFO, both on the financial, but also on the IT environment. That is the responsibility that Peter currently holds. And we believe we have found a decent successor, if that is ever possible.

Ian Douglas Pennant, Analyst, UBS: Big, big shoes to Phil. Thank you for having me on. I appreciate it. Thank you.

Conference Moderator: Thank you. We will take our next question. Robert Stallard from Vertical Research, may we have your question?

Robert Stallard, Analyst, Vertical Research: Thanks so much. Good morning.

Speaker 6: Good morning.

Robert Stallard, Analyst, Vertical Research: A couple from me. First of all, on the leasing business, I was wondering how much EBIT or cash flow is generated in twenty twenty four ballpark number, if you could provide that. How much capital is tied up in this business and where do you expect a normal level to be because that’s what you’ve included in your 2025 guidance? And then secondly, on the GTF fleet management plan, can you give us an update of your latest expectations on what the cash payments will be on this program during 2025 and 2026? Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So I mean, we don’t split that really down. What we say on MLS or asset leasing management business is that business contributes roughly EUR 500,000,000 million of lost revenues in 2024 and roughly EUR 100,000,000 of EBIT. So that’s the contribution and that’s all part of our of the consolidated MRO revenue and EBIT figures. And I mean, that is a very, let’s say, opportunistic business. You scan several hundreds of engine every year and you do transactions on a very limited number.

So it’s a very opportunistic business. So in part, we buy the engines, in part, we lease them in. We in part, we basically we trade engines to buy it and sell it more or less immediately and so on. So it’s but what we can say is that we really want to invest into the business because it’s a very good business and we want to grow the business significantly in the coming years. Regarding TTS fleet management plan, I just said that we had an impact of USD $390,000,000 in roughly 2024.

That’s the pretax number, I have to say. And we expect a similar impact in 2025 and some spillover, so the remaining portion than in 2026. So the impact 2026 will be far lower compared to the 2025 impact, unchanged to previous guidance. Exactly, unchanged to our previous guidance.

Robert Stallard, Analyst, Vertical Research: Okay. Pete, just a quick follow-up on the leasing business. You said you include expected a normal level of activity in the guidance. What is a normal level? Is it half what you did last year?

Just some ballpark there.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: You mean, we would miss I believe with normal speed, I mean that the rates are normalizing because we used to have a very good favorable rate for the engines after COVID. The business itself is growing top line, but the rates leading rates and this will be normalizing over the years. We’ve seen that already in 2024 starting.

Speaker 6: Okay. Thank you very much. Thank you.

Conference Moderator: We will take our next question. Chloe Lamarre from Jefferies. May we have your question?

Chloe Lemaire, Analyst, Jefferies: Yes, good morning. I actually had a follow-up from David’s question. Because if I look at the your free cash flow, the CapEx was quite higher than what I expected, but a relatively large chunk of it was retreated out of your free cash flow in Q4. So could you confirm that these were entry fees that you paid? And I guess we’ll need to wait further disclosure to know which program it is.

Is that really the driver or anything else you can share with us to kind of understand what drove that? And then second question would be on the evolution of turnaround times in your shop. If you can update us on what you saw into the end of the year, that would be great. Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Chloe, first question, yes, I can confirm that. So we paid roughly US100 million dollars in Q4 twenty twenty four for, as just mentioned, different business opportunities. So you find it in the line net investments in intangible assets, that’s the jump from $80,000,000 to $181,000,000 and it’s adjusted according to our policy, which we also described in our annual report, it’s adjusted for calculating the free cash flow. So that’s the story. Turnaround times.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: On the GTF, we see continuous decrease of turnaround times. We are well below an average below one hundred days. And it all depends on material availability. But as we have communicated previously, seventy day plus turnaround time is also possible if material is available.

Chloe Lemaire, Analyst, Jefferies: Very clear. Thank you.

Conference Moderator: Thank you. We will take our next question. Ben Heelan from Bank of America. May we have your question?

Ben Heelan, Analyst, Bank of America: Yes. Good morning, guys. Thank you for taking the question. I’ve got a few follow ups on some of the questions already asked as well, unfortunately. So on the program acquisition costs, can you confirm whether or not this is actually a new engine program or is this a payment associated with a program like the GTF?

Because my understanding is there are still payments that are due on the GTF Advantage. I think some of your peers are paying payments on that over the next couple of years. And when we think about this program acquisition cost, can you talk about what this line is going to look like in the next two to three years and what we should be adding in because it was definitely a step up versus what I was assuming? Secondly, on kind of your PPE CapEx, it was also a decent amount higher than what I was expecting. So if there’s any color that you can give us around that as well.

And then, I thought just quickly again, sorry, on these receivables to kind of lay with the point. I mean, you’ve talked about some payments for GTF shop visits coming in late or later than the work being done because of the GTF program. But how late are these how late is it going to be for these payments to be received, right? Is this something that you will receive in 2027, ’20 ’20 ’8? Or do you think actually the catch up effect that you talked about with David, is that going to be something that happens in 2025 and 2026?

Just any color you can give us that will be helpful. Thank you.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: So I start with your latest question. So that is a difficult end of it because I mean it’s that’s a mixture between let’s say sixty, seventy different fleet hour contracts with different airlines. And it’s very so the point of payment is very different. So the distance between payment and actual performance of the shortlist is very different in the different in each and every fleet hour agreement. So I would rather expect, so over the next one or two years, a slight moving up of that receivable position.

You get payments, but you do also additional work. So it’s and as the number of shoppers increases, so the position will rather increase slightly over the next one, two years, and then it will rather go down. So that is the rough shape of that receivable curve. Then you referred to the I think to the net debt page, the compensation payment due to program participation that has nothing to do with the payments for GTFA or new programs. So that is especially for the GTF program, as I said.

We are an 18% program partner and maybe deliver only 15 or 16% of the manufacturing costs. And so that is the compensation, therefore. And that line will rather will be paid over the next two, three years. So that will go down over the next years now. But the payment term is longer than twelve months.

So that’s why it’s technically part of net debt.

Ben Heelan, Analyst, Bank of America: Yes. No. So I was kind of talking more, Pete, sorry, about the EUR 96,000,000 payment on Programme shares. Over the next two to three years, what does that line look like?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: There will be additional payments but later in the decade.

Ben Heelan, Analyst, Bank of America: Okay. Do you have any view around how

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: It’s not the GTFA. So it’s definitely not the GTFA.

Ben Heelan, Analyst, Bank of America: Okay. And then we

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: are already program partner on the GTF, so there are no more for that for the entry fees.

Ben Heelan, Analyst, Bank of America: Okay. And just quickly on the kind of PPE CapEx costs which stepped up?

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: A good chunk comes from acquisition of lease engine at MLF. So the case where we buy engines ourselves and have it on the balance sheet.

Ben Heelan, Analyst, Bank of America: Okay. Okay, cool. All right, awesome. All right, thank you, Peter. Thank you.

Conference Moderator: Thank you. We will take our next question. Christoph Menard from Deutsche Bank, may we have your question?

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines0: Yes. Good afternoon. Thank you for taking my question. I have three quick ones. The first one is on turnaround times.

I mean, one of your clients complained about turnaround times above three hundred days recently, filed something in The U. S. It I mean, it comes a little bit in contrast to what you said. So just wanted to have your view on this. And I heard you on turnaround times being down.

So my question is also, does it mean that we could have a reduction in the cash payment versus the initial expectation because you’re reducing the turnaround time. So it means that the engines are less grounded than they initially thought. Second question is several times on the call you mentioned volatile supply chain. Can you just explain a little bit more what it is because it seems to be impacting your working cap? And the last question is just for better understanding.

You say your free cash flow guidance low triple digit million and you are more at the high end of this. What does it mean? I mean, does it mean million or million? Just trying to understand the English here. Thank you.

Lars Wagner, Chief Executive Officer, MTU Aero Engines: So maybe Christophe on the first one, yes, we said the shop turnaround time at MTU and other shops are average below one hundred days. But we always talk about the wing to wing turnaround time, which will be higher because of ongoing capacity increase over these three years. So that means that there is a longer time above these one hundred days that the engine is going back and forth between the customer and our shops. So that is the natural delta. And some of them, as the customer said, we need to expect that this is a proper timing.

And while there is still no wing to wing time higher, we don’t see any reason now why we should decrease the charge. So we are in line with our expectation.

Peter Kamaritz, Chief Financial Officer, MTU Aero Engines: Okay. Then supply chain, I think predominantly in our MO business, we have seen across the board higher turnaround times compared to, let’s say, the pre corona level as part supply, but also the performance of our outside vendor network is not as it should be. So and that drives working capital upwards. So the general type in our shop is maybe 30%, forty % higher compared to pre corona levels. And that means higher work in progress in all of our emotions.

So you carry excess working capital on the balance sheet. Free cash flow guidance, yes, I mean, what is low triple digit? Low triple digit, we’ll consider something between EUR 100,000,000 and EUR 300,000,000 and the upper end, this has been somewhere between EUR $250,000,000 and EUR 300,000,000 or so.

Speaker 6: Thank you. Very clear. Thank you very much.

Conference Moderator: Thank you. This concludes today’s question and answer session. I’ll now hand back for closing remarks.

Thomas Franz, Vice President, Investor Relations, MTU Aero Engines: Yes. Thank you, Heidi. And thank you all participants. Thank you, Lars. Thank you, Peter.

For further questions as usual, reach out to us and, yes, see you soon. Bye bye.

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