Welcome, and thank you for joining us for Hensoldt's presentation of the nine months 2020 results today. This is the first quarterly earnings call after our IPO at the end of September. My name is Veronika Zimmermann, and I'm Head of Investor Relations at Hensoldt. With me today are our CEO, Thomas Müller, and our CFO, Axel Salzmann. With that, I would like to turn the call over to Thomas.
Yeah, thank you very much, Veronika. And hello to everyone listening to us today. I would like really to welcome you to our first earnings call as a publicly listed company. There have been some developments in the past couple of months. Before Axel is going to guide you through our strong nine months financials, I would like to take you through some of the current developments. Now, COVID-19, the so-called second wave, hit all of us. We at Hensoldt are closely monitoring the situation at all our sites. It goes without saying that this is our top priority to protect the health and well-being of all our employees, customers, and business partners. Our local management teams have reviewed and updated their plans to ensure maximum resilience of our operations. That's exactly what we could realize during the last couple of weeks.
We have tested, and where necessary, adapted key processes in order to both safeguard our operations and minimize the spread of this damned virus. Having this challenging time in mind, I'm extremely proud of our employees who have made it possible that we were able, in these troubling times, to continue and even accelerate our growth trajectory during the first nine months in 2020. The second part, and here I also want to go to page number three, please, we again can confirm that we are fully on track. We are the European pure play sensor solutions leader. As you remember, we presented during our roadshow. We are addressing multiple markets, but our key market again is the defense market.
I remember, well, a lot of you asked us the question, "Hey guys, what's happening if Joe Biden wins the election in the United States?" I always said at this time, prior to our IPO, it doesn't matter if Joe Biden or Donald Trump wins the election, the pressure on Europe to spend more in defense in order to give some freedom to rebuild the U.S. economy will be exactly the same. This turns out to be absolutely true. You remember what we said? Germany is our key reference market. Europe is following this key reference market. Two-thirds of our business are Germany and the rest of the world.
Now, if you listen to the European, especially the German politicians, by the way, of all parties, which is also very important, taking into account that next year we have an election in Germany, all parties confirm, if we want to avoid having a situation like under Trump again, or facing the same situation like under Trump in Europe, we have to spend more money on our own European defense in order to be a more reliable and more stable partner to the U.S. ally. And that's exactly what we are expecting. And we have a proof on this. You remember the Corona fund. And in Germany and out of the Corona fund, we will get additional EUR 1.4 billion for procurement next year on top of the already growing budget. Now, this is really good news.
This has materialized more and more in the last couple of weeks since our IPO. Now, on this page, you see that we are well positioned, that our growth momentum we communicated about in September is still on the right track, and we walk the talk. If you flip to page number four, it is an outstanding year for Hensoldt in its young history. We successfully made the IPO, which, by the way, is the very first time that a defense company in Germany after the Second World War in 70 years has gone public as a new company. As we said, our backlog is at the record level. I can report today that just last week we received the first EUR 100 million additional MK1 contract.
You remember we talked about prior to the IPO in our roadshow that this is a follow-on contract which is defining our EUR 5 billion soft backlog. I also can report that last week, Thursday, the German Parliament fully approved now the 38 additional Eurofighter planes in Germany. We had already the approval for the long items, long lead items like our MK1 radar. In addition, now we have the full approval for the 38 fighters, which, by the way, is not only EUR 0.4 billion euro we are then cascading down contract we are expecting in the first quarter of next year in the early months. Also we see nearly EUR 0.1 billion euro in our Spectrum Dominance due to the fact that we get additional contracts in this Quadriga approval for our Euro Defensive Aids system on the fighter. We walk the talk.
We are following what we talked, what we told to the markets. Now, on top of this, we are really going ahead with our efficiency gains to enable us to safeguard our industry-leading margins. And as we already indicated, we finalized a smaller size acquisition in South Africa, Tellumat, which completes our overall strategic product portfolio in South Africa, reflecting the Hensoldt total one. Now, on page five, you see some of our products. And these are the pictures, the images of our products. And I want immediately to go to page six. You can shift between the two pages. And remember what I said, the first milestones of MK1, additional order intakes we made. We walked the talk.
But on top of this, we successfully passed already the first key milestone, technical milestone, at the end of September, which has been very important for us also for the cash flow. On top of this, in the Radar division, we could have the first series production of the non-rotating Identification Friend or Foe system for the Norwegian customer. And we have the first frigate equipped with a full radar sensor package, navigation, surveillance, and IFF. If you look at the page where we see the Kalaetron, some of you have been participating in the presentation of the division. One back, please, where we are talking about the Kalaetron, which is an artificial intelligence-based radar warning receiver. And we again, in a couple of campaigns in the last weeks, could successfully prove the high, I say, globally benchmarking performance of this artificial intelligence-based radar warning receiver.
Now, if you take from our Optronics business the nice helicopter you see here from the German police, we have now installed the first gimbal on the police, so we are, as you remember, also going into adjacent markets, but only if we know these markets well and if we know that our products fit well to the markets. And by the way, also in Optronics, you see the future meteorological, sorry, I have to repeat it, Focus Meteorological Systems, which is a super accurate system for ASML, where we are an exclusive provider of this absolutely edge-of-technology system, and we delivered the 105th system, very profitable, and we also had a success on the U.S. market where we could deliver the range finder, the laser range finder for the M1 Abrams tank, so we went ahead with success.
We are going ahead also with adjacent markets and taking our products also into civil and security markets. Now, if you look at page seven, you see that we successfully finalized the contract on our counter UAV system. And it's dedicated to camp protection for the German armed forces. But you can easily imagine there are a lot of campaigns running that we can enhance this on civil applications like airport security and other big sites, which we want to protect against UAV systems. Now, on page eight, and this will finalize my short introduction, for us, it is a step-changing year. And it's not only a step-changing year for the young company Hensoldt, but it's also entering into the step change, you remember, of a fast, fast-growing market, especially in defense electronics and sensor solutions, where we are as a pure play in.
We are fully on track with all KPIs being above 2019 level. The firm order backlog and the substantial growth in the future is supported by the recent order intake, the EUR 100 million out of the MK1 and additional order incomes coming from Quadriga in the Eurofighter programs. As I said, we are going ahead with our PEGASUS program here. We will deliver in very close conjunction with the German customer the contract and then sign it beginning of next year, as we said. We are a trusted partner. We see that the pipeline we talked about on top of our fixed and soft backlog, the EUR 10 billion we always talked about, is maturing on a day-by-day basis. We stay edge-of-technology. This is Hensoldt all about. We are edge-of-technology in the area we are in as a pure play sensor solutions house.
And we go ahead with the implementation of our strategy to be a global player. And as you remember, we said we will not go short-term to acquire a mid-sized company. Mid-term, long-term we will do. But currently, we go ahead where we have additional completion of our product portfolio with dedicated smaller acquisitions. And the next will come very soon. It's a small one, which is in the virtual reality world. So as we said during the IPO and prior to the IPO, we are perfectly positioned to benefit from the sustainable growth and momentum in our industry, which will be further supported by the political development we see in a closer cooperation between the U.S. and Europe as a whole, but which will drive further spending in defense, especially in defense electronics in Europe. And with this, I'm happy to pass to Axel for the financials.
Yeah, thank you, Thomas. A warm welcome to this first earnings call of Hensoldt from my side as well. I'm pleased to provide you with details on our strong nine-month financials. This being said, I would like to emphasize that we have experienced a very strong momentum in the first nine months of 2020. With the EUR 1.4 billion Eurofighter contract, Hensoldt has secured the biggest order in its history. Overall, we achieved orders worth EUR 2 billion and thereby increased our order intake by 200%. As you can see, all divisions achieved order intakes according to our expectations, especially the development of the customer service division progresses well. This results in an increase and an impressive book-to-bill ratio of three times, which shows our strong revenue availability. Order backlog now is at EUR 3.4 billion and thereby EUR 1.3 billion higher compared to year-end 2019.
This covers three times our guided revenues. Our revenue increased by more than 5% to EUR 712 million . The main reason for this growth is related to the acquisition of Nexeya. We also saw a strong organic and inorganic development in our customer service business. Please flip to the next slide. We are very proud that we did not only grow top line. We also improved on our profitability. On this slide, you can see the growth in our Adjusted EBITDA and Adjusted EBIT. We track both financial KPIs, while the EBITDA is a more important one. Our Adjusted EBITDA increased by 3% to 103 million EUR. Our Adjusted EBIT grew by more than 7% compared to the same period in 2019. By the end of the third quarter, our EBITDA margin lies at 14.4%, our EBIT margin at 9.4 percentage points.
These profitability improvements were not only driven by increased volumes. They are, among others, the result of a more efficient project execution. Let me reiterate at this point that Hensoldt operates in a rather seasonal business. This means that a large share of our business is typically booked in the second half of the year. This will also be reflected in our profitability KPIs. For the full year, we confirm our guidance. The first nine months of 2020, we also generated a very strong operational cash flow. Our free cash flow improved in all dimensions, no matter if reported or adjusted, pre or after tax, and interest. The adjusted pre-tax unlevered free cash flow increased by more than 200 percentage points compared to the first nine months of 2019.
The key driver of this positive delivery is the underlying cash flow from operating activities as we improved our working capital management. Thanks to an improved cash conversion of more than 65%, we also strengthened our liquidity position. Please flip to the next page. Let me now give you an update on our financial position. We were able to significantly decrease our net debt from 4.6 times per nine months 2019 to 3.1 times per nine months 2020. As promised during the IPO process, Hensoldt expects the net debt to be at three times at the end of 2020. There are three key drivers for this development: successful refinancing in the IPO process, our capital cost decreased by 100 basis points, and our strong operating cash flow generation. This is partly offset by the acquisition of Nexeya in Q4 2019, which was successfully integrated and contributes to our service portfolio.
As you can see, the delivery train develops as planned. Another great example that we deliver on what we promised. Please to the next page. Let me summarize the main points for the first nine months of 2020. We are fully on track in all KPIs, and we confirm the overall guidance for all KPIs. We achieved growth in both top line and bottom line in the first nine months of the year. We became more efficient in our project execution and thereby improved on our profitability. We generated a strong cash flow and delivered significant deleveraging since our IPO, and last but not least, Hensoldt's business develops as planned. We have developed into a trusted partner of our client, which is reflected in our strong order intake and order backlog. At the same time, we become more efficient. We become more international, and we have increased our financial flexibility.
With this, I now would like to open the floor for your questions.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. Our first question is from Jamie Rowbotham, Deutsche Bank. Please go ahead. Your line is now open.
Thanks. Good afternoon, gentlemen. Two questions from me to kick off, please.
The first one's probably for Thomas, which relates to the good news you mentioned about the German government approving the purchase of 38 further Typhoons. Does that mean you might sign your EUR 400 million Quadriga contract in Q4 of this year, or is that more likely to take place in Q1? And perhaps you could let us know if you have any update on the Spanish opportunities like Halcon. And the second question for Axel, I think no one can deny year-on-year, Axel, a good improvement when it comes to cash generation. But the nine-month operating cash flow was EUR 72 million. The nine-month CapEx and capitalized R&D was minus EUR 70 million. So on a post-tax, post-interest definition of free cash, neutral pretty much after nine months compared to something very negative this time last year. So a big improvement.
But in terms of going into the fourth quarter last year, the fourth quarter was very good when it came to cash generation. Do you think Hensoldt can repeat that again with a good fourth quarter performance on cash generation, or is the step change on cash generation maybe more likely a 2021 story? Grateful for your thoughts on that. Thanks.
Okay. Jamie, thank you for your question. First, we are carefully looking to the flow down, cascading down of the Quadriga MK1 contract. I don't want to be in a hurry. I like to see that the flow down is exactly what we are expecting. So let's go for the first quarter of next year. Second, as you remember, we always reported on this that we will see this soft backlog in brackets coming in the first quarter of next year, the first half of next year.
Now, on the second part of the Quadriga program, which is the spectrum dominance, the electronic warfare part, we will see if it's even end of this year or beginning of next year, same like for the radar. The EUR 100 million we are expecting here nearly anyhow, it will be in the first weeks of next year at the latest. Now, on Halcon, the Germans are currently in-depth discussions with Spain. I think everyone—and here, I think, because I'm not quite sure if this mood and understanding is the same in all European countries, but as in Germany, and by the way, as I'm learning more and more in Great Britain and the U.K., as we said, every euro invested into defense, and especially edge-of-technology defense, is multiplying by four for the recovery of the economy. The Spanish are exactly following the same line.
We are expecting the Halcon contract to come in first quarter of next year.
Hi, Jamie. It's Axel. Relating to the free cash flow generation, I'm not so sure if I really would agree on your interpretation about the investment in our R&D. As we have said, also during our IPO process, I think I'm very proud that the company is able to generate the cash to invest into the future of the company. And exactly that is what we have done. We are exactly on the path which we have shared with you that during our guidance, that we will invest on the same level as we did in 2019 in R&D. I think that shows that the management in total is really looking very carefully about investment and about planning and forecasting on R&D.
From my side of view, I'm very proud that we are doing so in this direction. Second, yeah, we are very much focused on cash flow generation. I think we have improved there a lot. Is that something which could come up also for the year 2021? I think we will stick with the guidance, which is right now out, and that is meaning that we are improving further our cash flow situation to reduce our leveraging. And so therefore, when I'm looking from my perspective as CFO of this company to my cash generation, I think it works perfectly.
Okay. Thanks, gentlemen.
Our next question is from Ben Heelan, Bank of America. Your line is now open.
Yes. Morning, gentlemen. Thank you for the questions. I had two. How much of the extra EUR 1.4 billion of procurement spending announced by Germany do you think can be captured by Hensoldt? Is there a realistic rule of thumb that we should be thinking about? And then secondly, a kind of similar question to Jamie's on cash flow and working capital. Obviously, working capital is a very strong tailwind in the first nine months of the year. Now, I might have this wrong, but I was under the impression that working capital for 2020 was expected to be roughly neutral and stay like that progressing into 2021 and 2022. So does that imply that we're going to see a relatively big working capital reversal in Q4? And if so, what is the driving force behind that? Thank you.
Okay. Then first, to your question, taking into account that we say the EUR 1.4 billion, as we have said, is the one big fish we got as one of the big fishes to come. And it's for sure supporting sustainable growth in the future. But what we are experiencing too, and I think this is a little bit similar to other companies in our industry, is that, as I said, the awareness that spending in defense, especially in a high-end technological defense, is helping to recover industry and economy. And what we are currently experiencing is that the growth we have expected, even in our non-Eurofighter business, is coming through, as we said. And this is good news.
Hi, Ben. Very warm welcome from my side. I think concerning working capital, I would not like to rephrase my guidance, which I have shared with you. I think we are fully on track, and we have a full focus on working capital in all aspects, I have to say, and therefore, I'm quite confident that we really could achieve what we have said in terms of leveraging and in terms of cash flow generation, so from my side, I'm fully on track with the situation.
Okay. Very clear. Thank you, guys.
Our next question is from Nikolas Mauder, Kepler Cheuvreux. Your line is now open.
Good afternoon, gentlemen. Two questions from my side as well. The first one on the comments made by the German Chancellor earlier this week, I think. She said she wanted to support the U.S. government with spending more on defense, and you already talked about it.
Do you think she meant merely raising defense spending to 1.5% of GDP by 2024 as originally intended, or was she thinking about adding something to this? That's the first question, and the second question is on technicalities of your guidance. Compared to what we saw during the IPO process, the guidance has become more qualitative, and I'm sure you won't repeat the messages on all of these line items that you presented us with during the process, but how do you think about the way you will be guiding us going forward? Will you stick to making qualitative comments about revenue and EBITDA, or will you add some numbers and/or more line items? Thank you very much.
Nikolas, thank you for the question, and happy to talk to you again. Walking the talk, that's the motto we are following.
Yes, what the Chancellor said and the political mood in Germany, especially, I think is surprisingly positive. And it may help to further increase the German budget. You remember that always you have an increase in the following year, and then the corridor is kept stable. And what the Chancellor means, and we have some information about this without being able to talk about it, is that, yes, there is an intention to further increase it. If it's 1.5%, if it's 2%, if it's beyond 2%, all of this is subject to, for sure, also the economic development, but also the simple need to do more to get the German armed forces into a much more state-of-the-art operational mode again. Now, for the guidance, I would like to pass to Axel.
Hi, Nikolas. So for the guidance, first of all, I think you will understand that we have to stay after the IPO with the wording of the guidance as we did and outlined. Let's see and wait what we will go for when we are talking about the guidance for the full year 2021, which is right now, from my side at least, reiterated as we did it during our IPO process, if we go more in detail into more quantitative details. Let's see and wait. But so far, I cannot promise to you anything besides the fact what we have shared with you during our IPO process. I hope you will understand that.
Yep. Totally understood. I just thought that it might get complicated going forward if you were ever to make a change to this.
Nikolas. Yeah. You will see. Yeah. Yeah. What should I say? Happy to take your advice and considerations.
Yeah. Thank you.
Our next question is from Sash Tusa, Agency Partners, London. Your line is now open.
Thank you. It's Sash Tusa at Agency Partners. I've got two questions. One on your disclosure and then a follow-up question on guidance. I appreciate that you regard EBITDA as being the most important metric, but in all of your previous disclosures and indeed in the IPO documents, you very helpfully gave EBIT or EBITA, if you want, by division, which clearly aids comparability with all of your peers, and I just wondered whether you could therefore give us what the EBIT division numbers were for sensors and Optronics rather than the EBITDA, which is all there is in the press release and the presentation.
Then my question on the guidance is, could you just confirm in terms of the guidance for EBITDA growth for the current year, and where you were talking about getting close to the 2019 levels, is the 2019 level that you are referencing the EUR 216 million of Adjusted EBITDA, which is on, I think, page 18 of your IPO presentation? Thanks.
Hi, guys. It's Axel. Concerning the results that we have disclosed for the first five months, I think it's on page 16 of the quarter release. For Sensors, we had an EBIT of EUR 15.3 million and for Optronics, EUR 1.3 million. Concerning the guidance, I would not like to rephrase it again. Hopefully, you will understand, Sash, that we'll stick and keep what we have guided for. That is right now the best thing I could share with you.
I would like to reiterate and rephrase again. We are fully committing, and we are reassuring we will deliver all in all KPIs.
Right. Okay. No. Okay. Thank you very much , for the EBIT reference. That's my oversight. I just wanted to check what the reference for the, i.e., the starting point for the guidance was rather than what the absolute number is for this year. It's my understanding that it's the 200.
The starting point is based on the revenue. As you have seen, we have guided the revenue above 1,150, and then we have taken the calculation on a relative basis. That is what we have guided for.
Okay. All right. Thank you very much.
Thank you.
As a reminder, if you would like to ask a question, please dial zero one on your telephone keypad now to enter the queue. We haven't received further questions. I will hand back to the speakers.
So with that, thank you all for listening. The investor relations team will be around all day today and tomorrow if you have any follow-up questions. Have a great day. Stay healthy and take care. Thank you.
Thank you. Thank you to all of you.