Ladies and gentlemen, welcome to the nine-month results 2026 analyst conference call. I am Iruna, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero . The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Nicole Schillinger, Head of Investor Relations. Please go ahead, madam.
Good afternoon, ladies and gentlemen, and welcome to HENSOLDT's earnings call for the first nine months of 2026. We are aware it is a particularly busy day for the sector, with a number of companies reporting, so we really appreciate you taking the time to be with us today. Joining me on the call is our Chief Financial Officer, Christian Ladurner. He will take you through today's presentation, highlighting our strategic progress and business performance over the first nine months of the year. We will then open the floor for your questions. Please note that this call is being recorded and that the recording will be made available on our website following the call. With that, I hand over to you, Christian.
Thank you, Nicole, and a very warm welcome to all our investors and analysts. In the first nine months, we made tangible progress across all four of our North Star axes. Let me briefly take you through the key developments. First, Deliver at Scale. Our new Optronics campus in Oberkochen is now operational, and production of TRML-4D radars has increased significantly. Our capacity investments are turning into output. That is what industrialization looks like when it works. Deliver at scale also means managing transitions well. Let me briefly put last week's media report on ZEBEL into context. The central spare part logistics we operate for the Bundeswehr. This was not a HENSOLDT software issue. The delays had several causes, and they came together as we moved the operation to a new contract and a new site.
We have taken, together with our partners, comprehensive measures, including additional staff and extra shifts. Priority requirements are being served, and the situation is improving every day, and the readiness of the German Armed Forces was never endangered. The new warehouse is now in operation since 1st of September and progressively ramping up, and we expect to clear the remaining backlog by year-end. There is also no financial impact on HENSOLDT from this topic. Returning to our North Star axes, the second is Pioneer Software Defined Defence. Value is shifting from the individual sensor to the integration orchestration of sensors and effectors. That is the role we want HENSOLDT to play. First prototypes are under negotiation with our customers, and with a new center near Stuttgart, plan to create around 100 jobs. We are strengthening our software engineering capabilities. Third, Grow with Focus.
Focus means growing where our technology is a strong fit. Our MOU with the Ukrainian Ministry of Defense provides for further large-scale radar deliveries. I will come back to what that means operationally in the next slide. In India, our avionics suite has been ordered for the country's first electric air taxi. It shows that our expertise in sensing and avionics can be applied in new markets. Fourth, Lead our Team into the Future. Capacity means more than buildings and production lines. The ramp-up also needs people. We will hire around 1,600 employees this year, and the number of apprentices is up 56% compared to 2023. This is how we build the talent we need for the years ahead. I just mentioned our MOU with the Ukrainian Ministry of Defense. It reflects growing demands for air defense, but Ukraine also shows how requirements themselves are changing.
We are in direct exchange with the country, and our CEO's meeting with President Zelenskyy in October is one example. Three aspects stand out. Mass shifts the bottleneck. When many threats arrive at once, the number of effectors is not the only limit. What matters is how fast we detect each threat and assign it to the right effector. The sensors picture and the time it buys become decisive. Spectrum rules out a single answer. A small drone and a ballistic missile are very different targets. They need different sensors and different effectors. So air defense has to work in layers, and every layer needs the sensors that fits it. Network is what it turns these layers into one system. Sensors share the data, and part of the network is mobile. That way, the picture adapts as the situation changes, and operators can choose the right effector for each threat.
This is why only a connected air picture puts the right effector on the right target. Our sensors cover every layer, and the orchestration role is about bringing them together. The task is now to deliver this with a scale. Let me show you how we are expanding our industrial footprint to meet this goal. Delivering at scale means more than producing high volumes. The three sites on the slide each stand for different parts of the chain. The Optronics campus is where development, production, and integration sit under one roof. It is operational, and it connects the engineering site directly with series production. The radar production site is where volume is created. Series production of TRML-4D inspects is on track. These are the medium and short-range layers I have just described. T he MRO center addresses what happens after delivery. It is still in preparation.
It will extend our capacity to maintain, repair and overhaul of Optronics systems already in the field. And a system only protects for as long as it remains operational. Three sites at three different stages with one purpose, to deliver at scale and to make sure that we make, we deliver, keep working. As committed, we are building that capacity. Let me now walk you through financial performance in the first nine months 2026. The key message is clear: HENSOLDT sustained its strong momentum across all top-line KPIs. The substantial order growth, dynamically expanding core revenue, and another record order backlog. Starting with order intake, we booked almost EUR 3.6 billion in the first nine months, an increase of 77% year-over-year. This corresponds to a book-to-bill ratio of 1.9x compared with 1.3x in the prior year period.
Growth was broad-based across both segments, with major contributions from armored vehicle programs and Eurofighter, as well as orders for Nightfish prototypes and additional TRML-4D radars. Turning to revenue, growth was 21% to almost EUR 1.9 billion. This was driven particularly by continued strong execution in air defense and the significant ramp-up in Optronics, as well as our service business gaining traction. Importantly, core revenue excluding pass-through increased by 18%. This demonstrates the strength of the underlying business, while pass-through revenue developed in line with our expectations. Finally, order backlog reached a new record of EUR 10.4 billion, an increase of EUR 3.3 billion year-over-year. With a substantial share in the backlog extending well into the next decade, this gives us excellent visibility for future growth. The top-line picture is very strong.
High demand is converting into orders, core revenue is growing at a strong pace, and our record order backlog provides increasing long-term visibility. Let me now turn to earnings and cash flow. Profitability continued to grow significantly faster than revenue, demonstrating the operating leverage in our business. Adjusted EBITDA increased by 32% to EUR 281 million, resulting in a margin of 15.1%, up 1.4 percentage points year-over-year. This development was driven by higher volumes in both segments, particularly accelerating air defense activity in Sensors and strong operating leverage in Optronics. Continued cost discipline provided additional support. Adjusted EBIT grew even faster, increasing by 45% to EUR 177 million. As depreciation and amortization increased at a lower rate, the adjusted EBIT margin expanded by 1.6 percentage points to 9.5%. Turning to cash flow, adjusted free cash flow improved to minus EUR 104 million compared with minus EUR 119 million in the prior year period.
We generated positive adjusted free cash flow of EUR 32 million in the third quarter, in line with the usual seasonal development of our business. Strong advance payments continue to support balancing our investments in working capital, CapEx, as well as technology for future growth. In summary, earnings are outpacing revenue, margins are expanding, and cash generation is developing in line with our expected seasonal profile. Moving on to the segments, starting with Sensors. Sensors delivered strong growth across all major KPIs, combining sustained order backlog with high revenue and improved profitability. Order intake increased by 54% to EUR 2.6 billion, resulting in a book-to-bill ratio of 1.7x . Segment order backlog consequently reached a new record of EUR 7.4 billion, up EUR 1.6 billion year-over-year. Key contributors include Eurofighter, initial orders for Nightfish program with the first prototypes, and additional TRML-4D radars.
Revenue increased by 16% to EUR 1.5 billion, driven particularly by growing momentum in air defense and multi-domain activities. Pass-through revenue began to materialize in Q3 following the elevated level recorded in the first half. More importantly, core revenue increased by 11%, demonstrating healthy underlying growth in the segment. This translates into higher earnings, with adjusted EBITDA increasing by 19% to EUR 236 million. The adjusted EBITDA margin improved by around 40 basis points to 15.5%, supporting higher volumes and disciplined cost management. Overall, Sensors continues to combine strong demand visibility with double-digit core growth and improving profitability. Turning to Optronics. Optronics continued its strong growth trajectory, converting its substantial backlog into rapid revenue growth and significant margin expansion. Order intake surpassed the EUR 1 billion mark, taking the book-to-bill ratio to 3.3x . The segment order backlog reached EUR 3.2 billion, providing a strong foundation for the continued ramp-up.
Major contributions came from Schakal and Puma, complemented by a good momentum in the service business. Revenue increased by 52% to EUR 354 million, with double-digit growth across all business units. Ground-based systems, the Luchs 2 program, and service activities were particularly strong. This higher scale is translating very clearly into earnings. Adjusted EBITDA increased from EUR 12 million to EUR 45 million, and adjusted EBITDA margin more than doubled from 5.1% to 12.6%. This substantial improvement reflects the combination of high volumes, increasing economies of scale as production continues to ramp up. Optronics is delivering on both dimensions. Strong backlog conversion is driving rapid growth, while increasing scale is translating into considerable improvement in profitability. With nine months now behind us, let me now provide some more visibility on what we expect for order intake in the fourth quarter and how this translates into our full-year expectations.
As you know, order intake in our industry tends to be weighted towards the end of the year, and we expect the fourth quarter to once again be the strongest quarter of 2026. We start with EUR 3.6 billion of order intake after nine months. In the fourth quarter, we expect around EUR 1.7 billion of additional orders across the business. The key contributors are expected to be Electromagnetic Warfare, including Nightfish, Air Defence, including TRML-4D, as well as Ground-Based Systems and Multi-Domain Solutions. In addition, we expect continued good order momentum from our service activities and the Eurofighter program. Taken together, this will bring us to around EUR 5.3 billion of order intake for the full year, corresponding to a book-to-bill ratio of around 1.9x , and therefore the upper end of our guidance range. Importantly, this does not include the second PEGASUS batch.
Based on the current status, we now expect the order for the three additional PEGASUS aircraft to be more likely materialized in the first quarter of 2027 rather than before year-end. We expect the PEGASUS to represent an overall order intake of at least EUR 1.1 billion. To purely illustrate the magnitude, including PEGASUS, order intake would reach at least EUR 6.4 billion, equivalent to a book-to-bill ratio of approximately 2.3 x. The key message is that even without PEGASUS, we expect to finish 2026 at the upper end of our book-to-bill guidance, reflecting the broad-based strength of demand across our portfolio. Taken together, our strong order momentum and substantial backlog provide us with excellent visibility and a very solid foundation for sustained growth in the years ahead. Let me now bring this together in our full-year guidance.
Based on our strong performance in the first nine months and the visibility we have for the fourth quarter, we confirm every element of the 2026 guidance while refining several KPIs toward the upper end of our previous expectations. As just discussed, we expect our book-to-bill ratio to be towards the upper end of the 1.5 x- 2 x range. For revenue, we now expect approximately EUR 2.8 billion compared with approximately EUR 2.75 billion previously. For the adjusted EBITDA margin, we now expect approximately 19% at the top of our previous range. Our expectations for the remaining KPIs are unchanged, an adjusted free cash flow conversion rate of around 50% of adjusted EBITDA, net leverage of approximately 1.5x , and a dividend payout ratio of 30%-40% of adjusted net income.
As far as our midterm targets are concerned, we will provide an updated outlook at our Capital Markets Day next week. Let me now give you a brief update on the key orders this year and beyond our Sensors segment. We continue to convert major opportunities into firm orders while maintaining substantial pipeline for 2027 and beyond. Starting with Eurofighter, we see a total opportunity of approximately EUR 700 million, of which around EUR 600 million are already booked. This comprises the Spanish Halcón program, the Turkish Eurofighter program, and the re-baselining of existing contracts. I can tell you that yesterday in the budget committee, the further EUR 100 million was approved. N ow we are in the flow-down of the contract to our books.
For TRML-4D, order intake expectations this year amount to approximately EUR 400 million, covering further radars with the European Sky Shield Initiative, support for the Ukraine, and additional export customers. Around EUR 100 million has already been booked. For Nightfish, we already secured around EUR 150 million in initial prototype orders, and we expect approximately EUR 400 million for the series contract of the land electronic warfare systems. Turning to PEGASUS, as mentioned earlier, we expect an order intake of at least EUR 1.1 billion for the second German batch, which order intake currently expected in early 2027. Finally, luWES represents another significant long-term opportunity. Building on the technology and experience developed for PEGASUS, we continue to see ourselves well-positioned to play a meaningful role in Germany's future airborne electromagnetic attack capability. Turning to Optronics, we have successfully converted a significant share of our key opportunities already into firm orders.
The larger contributions continue to come from Puma and Schakal, with around EUR 800 million in total already booked. These programs provide us with strong visibility for the coming years. At the same time, we expect more to come for Leopard 2 from further international customer nations, while initial orders of around EUR 65 million have already been secured. The opportunity set goes beyond land platforms. U212 CD is a good example of the breadth of our portfolio and our ability to participate in major international programs. With TKMS selected as preferred bidder in Canada, our Optronics mast systems is part of the proposed solution, representing a meaningful opportunity for us. Before we now conclude, let me summarize the key takeaways. We are delivering profitable growth. Order intake has increased significantly.
Our backlog stands at a record level above EUR 10 billion, and strong revenue growth is translating into earnings growth and higher margins. We have excellent visibility and remain on track to deliver our full-year commitments. Book-to-bill ratio is expected at the upper end of our guidance range, even with PEGASUS to materialize in early 2027. We have also refined upwards our revenue and adjusted EBITDA margin expectations. We are investing to sustain this momentum over the long term. Our industrial footprint expansion is progressing as planned, increasing our capacity in radar, Optronics, and services from 2027.
At the same time, the multi-year defense investment cycle continues to create substantial opportunities across our portfolio and core markets. Taken together, with a very strong visibility, we are executing on our growth plans, and we are building the capacity required to capture the opportunity ahead of us. W ith that, I am happy to take your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. Once again, anyone who has a question may press star and one at this time. The first question from the phone comes from Sam Burgess with Goldman Sachs. Please go ahead.
Great. Good afternoon, and thank you for taking my questions. First question, the PEGASUS contract, was that always excluded from your FY 2026 guidance, or is this a more recent adjustment? If it is more recent, should I assume you could have beaten your 50% cash conversion guidance if it was still included? My second question, the upgraded guidance seems to imply a pretty modest Q4 revenue growth. Does this reflect anything in particular, or does the outlook just retain some room for upside? Thanks.
Hi, Sam. Thanks for your questions. PEGASUS was recently now shifted to 2027. I can also elaborate on that. It is purely administration in the procurement agency of the German Armed Forces. We are currently in the final negotiations, I think until end of November, we are through, and then it has to go to parliament. Currently, I see no obstacle why this should not happen. Now to the cash conversion, the 50% is still valid. PEGASUS itself has no standard advance payment in it. We have early milestones in it, but not a classical advance payment. I do not see any substantial impact from this shift. In general, we have seen during the year that approximately 18% of order intake is in our books as advance payments. In Q4, I would model with 15%, so that this turns out in a rather good 50% cash conversion.
The second question, the modest revenue guidance. You see our guidance meeting the expectations currently. Of course, there is some room for improvement. We will see, but you see that our Q4 is the heaviest one. Let's now see how it turns out, but there might be the one or the other upside potential, but we have to make some milestones on that.
Great. Thank you very much. Really helpful.
The next question from the phone comes from David Holmes with Bank of America. Please go ahead.
Hi. Good afternoon, guys. Thanks for your time. A couple of questions. The first one is on the margins in Q3. I think you delivered nearly 300 basis points of margin expansion in Q3, which is exceptionally strong in the context of H1. Can you just walk us through what drove that margin expansion, please?
Hi, David. I can do that. First of all, of course, we see, especially in our product businesses, that with the improved volume, we see economies of scale ramping up because the number of units we deliver clearly increases. I would say this is the strongest impact on our figures. I would say margin mix is rather limited this year. We see a comparable one to last year, so I would not go for margin mix. It is really volume. Of course, currently, you see, or we see that costs grow not as high as our gross margins, and this then has an impact on margin, on bottom line. In a nutshell, it is volume-driven, it is economies of scales driven in the products, and with disciplined cost management, we see currently that we improve quarter by quarter, also bottom line.
Got it. The second question I had, I wanted to ask around the SPEXER ramp-up. I think you have previously said you expect to ramp up to over 1,000 annual deliveries. I just wanted to check if there would be any change to that, given any scope changes to the Arminius order, or do you still see that 1,000 annual delivery fully in play?
We see that 1,000. The time-frame is more or less 2029 until we reach that, and now we gradually ramp up. Currently, we are in the industrialization phase of this radar. It is a very important one. We should keep in mind that it is not only used for Skyranger, it is also used for border security. It can also use, as you have seen in the picture, equipping trucks with the SPEXER to create a network for anti-drones. I t is a variable radar for many, many topics to be used. We see a big demand, and this is why we plan currently to this 1,000 reach by 2029. Of course, the second production line, which will go live next year, Q2 2027, will support that.
Okay. Thank you very much.
The next question comes from Marco Vitale with Mediobanca. Please go ahead.
Good afternoon. Thank you for taking my question. The first one is a follow-up on the 2026 new guidance, starting from the, say, EUR 50 million around of pass-through revenues that you guided for the second half of this year, and deducting what you reported in Q3. Does this include around EUR 20 million for the Q4? Could you confirm this, and would this, say, imply a deceleration compared to last year, Q4 pass-through revenues of around EUR 50 million? The second one, you mentioned within the pipeline of Optronics, the, say, potential opportunity for the submarine segment. Do you still expect also potential upside from the frigates programs in Germany? I am referring to the F126 second batch or the F127 for next year. Thank you.
Yeah, thanks for your question. I can confirm that we will have approximately EUR 170 million of pass-through revenues in our books by end of year, so there is a clear yes on the question. Secondly, TKMS. It will not be a contract by end of this year, but if you follow the media, I think it's very promising that this deal will be done with Canada, and we are a vital part of it. Last but not least, for the MEKO, the F126, on the MEKO, HENSOLDT is not present with the radars. It's a Saab solution. But we see the TRS-4D still as a very competitive radar. It's a competitive radar family.
On top of that, we can currently easily change between TRS-4D and TRML-4D because the base configuration is more or less the same until it goes for air defense, radar being on land or on a ship. Currently, the MEKO, no contribution from HENSOLDT, but we have various opportunities for the TRS-4D radar.
Understood. Thank you.
The next question from the phone comes from Sebastian Growe with BNP Paribas. Please go ahead.
Hi, Nicole. Hi, Christian. Thanks for taking my questions. The first one would be on Optronics. You had pointed on an earlier call to a return to a 20% margin. This looks firmly on track to say the least after 2026, I guess. Based on this very strong momentum that you see both in execution but also in the order activity, I was wondering if you could help us with how we should think of the margin trajectory going forward, and if really the 20% is the last word here. On a more general note on large contracts, I think you also gave some helpful comments around how to think about the SPEXER dependence eventually on the Skyranger or not.
I take from your earlier comments that it's an allocation question, so you can easily flex that if and when one program would be delayed, then you sell it elsewhere. More generally, is there a risk for other large programs where you would see that it's not so easy to shift? If you could comment on this on a more structural note. Thank you.
Thanks, Sebastian, for your question. We expect this year that the Optronics margin will be around 16%. We have done a very good step forward this year in this regard. I think between 2027 and 2028, we could reach this 20%. I think especially next year will depend on how fast we can move into the new service center. If we manage that by summer, I see a good opportunity for that. I N the next two years, I expect that we will come to that. Your question, the SPEXER. I know that there are some topics around the Skyranger, that there could be a delay or something like that.
It has almost no impact on our SPEXER because currently, I have really to say that the demand is so high for this radar that our main focus is to make it as fast as possible industrialized that we can deliver it. This 1,000 per year is, for me, a very realistic figure, taking everything into account. This is why I say again, the main focus is now to keep this radar running and to produce as many as possible because we can sell this radar like hell if we deliver. The third one, structural of big programs. Yeah, we see it in some big programs delays. W hen you refer to the Arminius topic, I can clearly say there is no impact on HENSOLDT.
We have the Schakal, which is this Boxer platform, but with a Puma turret, and you see that the Schakal is contracted because the main emphasis of the German MOD was clearly to get the mechanic vehicles, the heavy vehicles, and the battle tanks into contract, and this is why we benefited from that. The second platform is the RCH 30, it's a light howitzer. Also, these contracts we see coming in. We do not see any impact from this delay of Arminius on our topics. As a general remark, yeah, currently we are not affected by any of these delays. I've commented on PEGASUS, which is more an administrative one, but negotiation full in place. Our view currently is that it's progressing in line with our expectations and our plans we did. This is, for me, very stable currently.
Okay, that's helpful. If I may just quickly follow up on the Optronics framework, and if you could provide more color around 2026 and what you had planned for prior, because these are my numbers I had, kind of zero growth in Q4, which, given where we stand after nine months, it makes no sense. I f you could just help us with some sort of indication by the segments for this year.
Yeah, sure. We have guided EUR 2.8 billion. I think that in Sensors, we will be around EUR 2.3 billion. In Optronics, we will be EUR 500 million, maybe a little bit more. We have also some eliminations between the segments, we need approximately EUR 30 million-EUR 40 million more in revenues, which are between the segments before eliminations takes place. These are roughly the figures I can tell you now. As I have said before, maybe there is a chance to overshoot this EUR 2.8 billion by the one or the other notch, but there are some more milestones to go now in Q4. In margins, I have elaborated on 16% approximately for Optronics. In Sensors, we see the dynamics we have now in Q3, similar in Q4. That means between 0.2% and 0.4% upside. Sensors comparing year-by-year should be the figures to go.
Okay. Sounds like, I think, the particular Optronics has room for being just a little bit more than a little bit more. See you next week then, and thank you.
See you. Bye.
For any further questions, please press star and one on your telephone. The next question from the phone comes from Ross Law with Morgan Stanley. Please go ahead, sir.
Hi, good afternoon. Thanks for my questions. A couple of follow-ups. Firstly, on the guidance, just looking at the implied Q4 for free cash flow, looks quite significantly down year-over-year. If you just walk us through the drivers of why that would be the case, please. Secondly, on the FREYJA project, I think recently President Zelensky has announced that Ukraine has effectively done its part for the program and is now awaiting contributions from allied partners. Can you just update us on where you are here? Thanks.
Yeah, first of all, cash flow, you see that we are better than last year. Q4, there is always a very high dynamics. I think with the profile we have now set up with this 50%, from my point of view, it's a good figure. We should have to keep in mind that 2026 is the highest one in CapEx, so we will invest 5.5% of our revenues into CapEx for PPE, and there will be outflows in Q4. I n total, I have a very good feeling with this 50% cash conversion year-over-year, even if it's from a conversion view a little bit lower than last year. But this is implied by the investments we take currently in PPE. Secondly, FREYJA, yes, I can confirm what you say. There is a very intense exchange currently between the MODs and the companies.
But please understand, due to confidentiality, I cannot give you more details. But the things you have said, I can confirm.
Okay. Thanks very much.
Welcome.
Gentlemen, there are no more questions so far.
Thank you, everyone, for your questions. What we have shared today provides just a glimpse of the broader story we will be discussing at our upcoming Capital Markets Day next Tuesday. We will then take a much deeper dive into our growth strategy, the progress of our capacity extension, and of course, our key financial performance driver. If you have not registered yet, simply reach out to us by email at investorrelations@hensoldt.net. We would be delighted to welcome you in person in London or to have you join us online. With that, thank you once again for your time and interest, and we look forward to seeing you next Tuesday. Have a great day.