Earnings Call: Q2 2021

Aug 11, 2021

Good morning to OHB's Q2 6 month conference call. Quickly, obviously, I recover that the OHB business model value chain starting from development integration, just suppliers and of course, launches in orbit operations and services, to the exploitation of data. The business model and the overall Organizational chart has been remained unchanged since the last month. Just to remind you that we are now, of course, working with our 3 Business Division, Space Systems, Aerospace and Digital. This has been the reporting scheme starting from this year onwards. A few news in the Space Systems division. BlackSpace has signed the agreement with ESA recently for the development of the large Triton X microsatellite platform. It's a new space microsatellite platform for launch mass up to 200 kilograms for low earth orbit applications. So we're very happy that after the successful mission of Triton in 2020. Now we're working to be ready mid-twenty 23 for the first mission based on this significantly enhanced Triton X platform. Another important order intake, we have talked about this since a long time, is the Gateway, Lunar Gateway contract has been signed on May 25 between Thales Aligner Space and us contract volume about something soke started. So Lunar Gateway. Okay, good. So sorry that I walked over a few slides that you Currently, you didn't see, so I had a quick run through the Triton X and Una Gateway. So let's move to Slide 6 then. Other activities on the Space System Department were recently we have been successfully starting together with Thales, our role in our Envision Venus mission. This is obviously very significant for us because Venus has been since a long time a very significant destination. We are also leading the design of the future sovereign European missile defense program and since it's a fighter leaderner, It's called ODIN's Eye program that we're together with the European Defense Agency. In order to catch up a little bit, maybe we just jump to the next Slide 7. MT Aerospace has signed the supply agreement between MT and Ayaan Group in April. So this obviously is another very important step in the overall Ariane six evolution. This contract is based on patents of 9 to 12. It seems that we're working together with the European Space Agency and the member states supporting the IRRAN program towards a cadence in the range of 6% to 7%, probably 7%. This would be very positive. And for MG, this would help us to have an efficient production of our shipset in Altscor. First launch of Ion6 is still planned for mid-twenty 2. Jester? Recently, MT Aerospace signed an agreement with Boeing. Two companies will continue to work together. We have been involved since a long time in the big SLS launcher. We're doing the domes. So we are having other than Ayaan6, we're having also other customers in the Launch Manufacturing Industry that obviously helps us in diversifying Anti Aerospace's business portfolio beyond Ion Business, which obviously has been very important in the Ion 5x, but now with Ion 6 coming up. Our strategy has always been to diversify into other products. And this obviously, with NASA's SLS Launcher, We're very honored to be part of that, keeping in mind that this is a U. S. Taxpayer funded program having components on this product, is a sign that MT is very competitive and technically very skilled. Our investment in microlaunches in the rocket factory Augsburg is moving along quite well. So recently Rocket Factory Augsburg has tested the entire engine with the stage combustion for more than 8 seconds positively, and this is a very significant achievement showing that the Engine is fully functional, and this is core to our idea of Rocket Factory having a very high performance engine because as you know, obviously, in the rocket, the engine efficiency and performance is key to the overall, let's say, success of the micro launcher. Recently, Rocket Factory also signed an agreement with Norway, with Andoja for its launch, future launch, spaceport activities. So we're very happy to team up with Andoja as our launch operation partner. A couple of other developments you can see here, I'll just Quickly glance over because we lost a few minutes in the hiccups in the beginning. So I think what is important to see is that our Aerospace Launcher business with anti aerospace, but also Rocket Factory Augs Group is developing quite nicely now into the more and more competitive world of launching. Our 3rd business division, Digital, recently signed another contract for a BGOS telescope. This has been or this is more like a small series of telescopes over the last couple of years. The newest customer is Aegios, an Italian operator working together with the Italian Space Agency. So we are very happy that we are continuing this successful product line. Another important activity here is in our OHP TeleData. HPT Teradata is active since many years with all kinds of downstream technologies from checking and tracing, telematics, but also in the rail technology, station control technology for converter plants. We have recently signed a significant agreement with the DB NRE, which is the operator, which a part of the Deutsche Bahn Group in charge of the power supply. So this has been quite a nice contract for the digital area. Our share buyback program is moving along Slowly, we have so far acquired about 20,000 shares and yes, quite happy to collect slowly up to the volume that we have announced, probably in the range of up to 170,000 shares over the next couple of months. Here you see the order backlog still very solid, about SEK 2,500,000,000. So we are quite happy. The vast majority of that is in the space system domain. This is a chart showing an overview of our products in the micro platform domain, small satellites, microsatellites. So we do have in 3 locations in Italy, in Sweden and in Luxembourg Products here. Initially, I talked about Triton X contract building on the success of the Triton mission in 2020. Similarly, in Italy, we have as a second mission coming up. That was the first eTouch mission and now Product, more generic as a product, is called Multi Mission Microsatellite. It's a bit bigger, up to 25 kilo and it's supposed to launch next year. Also very actively in our Swedish subsidiary, the Innosat series. So we are playing on 3 fronts in this market segment, all the way from 5 kilo up to the 200 kilo class, which makes us very comfortable in having competitive solutions for the microsatellite market. Because this obviously is the product that is important for constellations And all 3 of those are active already in different constellations, starting from Arctic Weather with our Innosat product, Earth Observation and also our Italian product, Iglad. So this seems to be taking off globally. You see many, many constellations being developed. We believe very strongly in these kind of constellations for the Earth observation markets, but also obviously for certain aspects in connectivity. And as always with OHP, we're trying to serve both markets, the institutional and the commercial market. And then yes, As you could see, they have been the first missions already successfully been implemented. And we're hopeful that in this domain, in this area, in the next weeks months, we will see further success is coming into our order book. Coming to the numbers, Q2 2021 has been a successful quarter. 1st 6 months 2021 have been quite successful as you can see here. Of course, you need to take into account that 6 months 2020 has been a week period. So order backlog is much stronger because contracts have been signed and the significant volume of those contracts to be signed have been programs decided and then in a competition won after the last ministerial conference of EASA 2019, so of course, in the Copernicus domain mainly. You see in terms of the numbers, total revenue is slightly up, profitability has developed nicely, EBITDA, EBIT and all ends in the earnings per share up €0.09 from €0.62 to €0.71. A slight decrease in headcount as you can see here. So but that's mainly taking place in our Aerospace a division where we are adapting to the market challenges that we have with Aeryon business. If you look at the revenue and profitability evolution over the last 5 years, after 6 months, you can see we had the growth from 'seventeen, 'eighteen, 'nineteen and then basically flat 2021. So this obviously has also to do with the COVID slowdown that we also encountered. In terms of profitability, we were pretty steady over those years looking at the dark blue, which is EBIT being at 21.4 percent, slightly better than last year, but at the same level as 2018 2019. Space Systems, yes, a steady evolution. You have to keep in mind, if you look at those numbers, certain parts of the space system activity have been regrouped into the digital area. So this explains a little bit why the volume is flat here, but we're quite happy with what is going on at Space Systems. Going to the next, but we're not that happy with Aerospace and Industrial Products, mainly due to the I'm business. We are encountering a decline in business volume over the last 3, 4 years. We believe that we hit bottom now where we are. We believe that business is stabilizing. Overall, the Arian scenario has been able to reach agreements with regard to the development contracts, how to complete that, but also then so called exploitation. That means the long term safeguarding of ION6 as a key or as the key product for European independent access to space. And this is something that you will see over the next quarter is improving those numbers again. Maybe not all the way to the old levels where we used to be years ago, but This activity around AYAN6 should be a balanced activity in the next quarters. Our new digital division quite successful. After 6 months, you see €52,000,000 revenues. Yes, the comparison with last year is just a pro form a representation, which doesn't say a lot because obviously starting on January 1, it was reporting. It's not very, let's say, significant to have a pro form a comparison. But what you can see here is strong EBIT with €10,700,000 We're very happy about this strong margin in the range of 20% EBIT margin. So It's moving well, even though obviously the biggest part of the substance here are activities that used to be part of the previous 2 business units, Space Systems and Aerospace and Industrial Products as it was called before. But we're seeing a dynamic positive evolution here. Our guidance is confirmed, of course. We're confirming the guidance that we gave in February, the SEK1 1,000,000,000 revenue well underway in order to achieve that. And this also, of course, not just applies for the total revenue, but also for the EBITDA of SEK 80,000,000 and the EBIT of SEK 45,000,000, which I don't see on this chart. But since the next chart is already moving to the balance sheet, I might added here to this chart. Balance sheet has not really changed a lot. If you look at the asset side, it's the normal cycle over the year as it's So a little bit up from last year's ending, mainly up in contract assets, which is the ongoing business. That's the biggest change you see on the asset side. Yes, maybe moving to the next slide. You can see that equity has been significantly up from €223,000,000 at year's end now to about 2 €39,000,000 which is positive. So we're very happy about that. So the overall development of the company is quite good. Also, the OCI has developed quite nicely because the appreciation, for example, and our investment in Opcom due to the increase of the stock price of Opcom has been quite significant. So overall, we're very happy with the evolution of the balance sheet. Financial ratios, yes, I think it's not very spectacularly different than it used to be the previous 2 years. You can see net debt in the range of €200,000,000 a little bit lower than a little bit higher than €20,000,000 Excluding the pensions, it's a little bit lower, which is good, €7,000,000 compared to €139,000,000 2 years ago and a little bit slightly higher than last year. But you can read those numbers yourself. So we are pretty much stably moving on and implementing our plans and guidance. This Just shows again graphically what I just said. Overall investing, slightly lower than we had it in the previous year with €9,000,000 instead of €12,000,000 or €11,000,000 overcapitalized at a low level, so we're amortized significantly more than we're adding to this, as you can see in the balance sheet, at a healthy level with about €5,000,000 It's a little bit less than €5,000,000 Yes. Those numbers I think They talked for themselves. So free cash flow in the mid of the year is not very meaningful for us because our cycle of cash obviously is far significant at the end of the year. Good. That brings me to the last slide. It's 929. So within half an hour, I was able to catch up a little bit. Of course, we have now in the fall a couple of investment conferences, September 1 with the Commerzbank, late November. It's with the Eigencapital Forum and the Zeltbank Conference. And in between, on November 10, we will see our 3rd quarter numbers in a webcast again. Hopefully, a little bit better prepared webcast next time, but I promise you that We'll rehearse a little bit upfront, but I would like to use the time now for questions. And so I open the floor to the audience to go to questions. I think Martina will moderate that. Thank you very much for the time being. Yes, good morning. We will now start the Q and A session. If you would like to ask a question, you've got 2 options. You could raise Your hands and I will allow you as a panelist then. Well, the other option would be to write the question in the chat and I would read it out loud. The first questioner is Mr. Hauenstein from Die Zeb Bank. Mr. Hauenstein, I will allow you as a panelist now. Yes. Hello, Alex von Stein. Can you hear me? Yes. Hello, Mr. Fuchs. Hello, everyone. I have a couple of questions. Maybe we can go 1 by 1. 1st of all, with regards to Space Systems, what could be the absolute level of the segment within Q3? 3 and especially looking into Q4, is there any reason to believe that the margin overall in H2 should be below H1? And if so, why? This sounds like a good question to Kurt Meycken. So margin we actually have in Space Systems is quite below 5%. But at the end of the day, We believe at year's end, we will be back to around 5% at least of EBIT margin in Space Systems. Okay. Thank you. So the absolute level, obviously, in Space Systems for Q4 should be quite Higher than as we are going probably for a strong Q4 output again, right? Yes. Our forecast shows us very clearly, and it's also relatively normal that we have in the first half and the first six months of the year and comparable low total revenues. And we expect really what we were saying, a significant increase in Q4 of the revenues in Space Systems. Great. Okay. Thanks for that. Coming to the next question, in Aerospace, in Q2, I understand that there's maybe a one off effect included in the numbers. Could you a bit speak about it? And do you think this will be done for now? Or is there anything further to come in Q3 and maybe even in Q4? And related to that, Mr. Fuchs, you mentioned that you're Looking for a quite balanced next quarters you meant. Does that mean a balanced full year actually? Or does that mean A balanced means around the 0 line EBIT for the next two quarters? Yes. The one off effect But finally, agreements with the Work Council concerning the in German, Ingersnausgeorg. In English, I think, the word is reconciliation interest, and this is more or less finalized. And accordingly, we have booked an additional accruals of 1.2 €1,900,000 And this is the final accrual. They become no more in this Q1. And it's also right to expectation that we expect an increase in revenues and an increase in, obviously, EBIT in Q3 and Q4. And that's the year's end. We hope still hope that we can achieve an EBIT between €0,000,000 and minus €1,000,000 That's our expectation for the full year. Okay, great. Thank you. And Looking again at Space Systems, Mr. Fuchs, maybe that's one for you. I'm wondering whether you could give us an update about Filing against the Galileo decision. And related to that, is there any chance that you get soon another kind of project having kind of a Similar workforce necessities and skill requirements? Or to put it differently, is there any scenario where you will not need to find New and completely other work for your Galileo technicians and retrain them, which I understand is quite costly? Yes, of course, this has been one of the areas where we're working hard in the last couple of months. And maybe to the starters. And I don't want to go into the detail, but the case is pending with the European Court. Has been completed. So now the main case is going on. And yes, this will probably take some time. In terms of your second question, of course, we're working very hard in order to We use the skills we have, the skills obviously for the 1st generation of Galileo, building 34 satellites of a certain class at a very competitive price. That's the backbone the team and the skill set is the backbone why we are very confident that for commercial constellations, we will be successful in the next couple of weeks months and that's also the plan why we believe that we will be able to load those skills with new incoming work. So we do not foresee headcount reduction around those teams. Obviously, this means that we need to also successfully acquired the contracts. But again, I'm very confident over the next weeks that we will be successful in this domain. Okay. Sounds good. All the best for that. And the final question, Mr. Mehthen, could you please give us an update on the free cash flow targets and maybe also on the CapEx side, what you're looking for? This has been in this half year a bit different in terms of CapEx than the years before. So maybe you can lead us through with some color here what to expect on the free cash flow side in total? Thank you. What I expect on the free cash flow side is really an Ambitious question, let's say, we expect the same as we had in the last year that we have this increase of net debt in the first 9 months of the year, and we hope or we expect a significant reduction of net debt in the Q4. If this is due lead to positive free cash flow at year's end is I cannot promise because this depends on achievement of certain milestones in certain programs and this also achieved depends on the order intake in the next 6 months with potential advance payments. The next contribution comes from Sava Ritzka from Pareto Securities. Mr. Ritzka, you can ask your question now. Yes. Good morning, and thank you for taking my questions. I have some follow ups. 1st, on the space, Let's start with the revenues here. A bit lower than in the prior year's quarter, but we have seen some progress against Q1. How is the situation now in the supply chain? It seems that we will not have again hard lockdowns As in the last year, do you think the situation is easing? And are you more confident for the rest of the year With regard to your milestone achievements. And maybe a follow-up on the profitability here. We have seen the 2nd quarter in a row with declining margins. Is that decline related to the shift of business Into the new segment, digital, or do you currently suffer from difficulties in the underlying business or from and weaker revenue mix? That would be my first question. Thank you. It's concerning the supply chain. We expect, as I already mentioned, an increase of material costs in the next 6 months. But there are our experience of the last 6 months is there are some unexpected delays, not due to COVID-nineteen. Is our assumption. This comes also sometimes we have unexpected delays due to missing electrical parts in our supply chain. This comes with worldwide delays there in the supply chain at the end of the day. And this may have may also lead to some surprises in the next 6 months, but we are pretty confident, if you are looking in our optical commitments, That this will have no major impact on our guidance, so is the total revenues. Concerning profitability of Space Systems, It's first answer is concerning, as you mentioned, the Movement from some business to digital has some impact, but it's not so absolutely substantial. And we have some, as mentioned in our 6 months report, we have also some minor projects, some delays and some cost overruns. There's no substantial one big cost overruns. There are some cost overruns in some projects in some different companies of the space in some area, but this is not a major event. So at the years and our as I mentioned, I So believes that we can achieve an EBIT margin more than 5% in for example, in OHB Systems, the core company of this segment. The EBIT margin is 36% in the 1st 6 months. Some problems and some projects are also at OHT B3, Netlax space and also weekly, but in some to some extent also in Austria system. But as I mentioned, there are no one major event, and we believes that there will be no more surprises or negative surprises in the next 6 months. Okay. And the second one is related to digital, to get a better understanding of the operation development here. How much of the increase is related to real business? And how much is just the shift of revenues from other two segments? And again here, related to the very, very strong profitability. Shall we start thinking your margin target of around 10% in that segment. And what could be the effects for the group profitably And at the end of the year, and in particular, if we consider what Mr. Marcin said with regard to Aerospace earnings target and probably also with regard to Space segment, it could be that you will be at the end with that profitability level above the EUR 45,000,000 EBIT? So Yes, I can answer. So, Stefan speaking, perhaps I can answer for the digital part. We actually said that the EBIT target for year end will be above 10%. So at Capital Market Day and Q1 results, we spoke about something between 12% 15%. And this, from my point of view, is still realistic. Why is Q1 and Q2 stronger than that. Two reasons. One is we are building up and we are investing into digital, and we are building up a sales for us and so on. So there will be slightly higher cost levels in Q3 and Q4. And digital, like the rest of our business, is a business. But the actually, the cycles of projects in digital is sometimes shorter than and significantly shorter than with satellite projects. And in Q1 and Q2, we benefited a lot from a service contract, which actually is a new one not transferred from Space Systems or Aerospace, where we are delivering signals from space. I cannot go too much into detail here, but our product is actually delivering of services of data services from space. And this has been a project which has been particularly profitable in Q1 and Q2. So project mix obviously has an impact as well. So we can still confirm from my point of view that EBIT in digital by the end of the year will be in the range of what we said between somewhere between 12% 15%. Okay. And finally, on The order intake, it has been somewhat quiet here the last months. Do you expect a similar pattern as in the last year with a very strong H2 in terms of orders? And what is your overall expectations for order intake in 2021? This is the cycle of institutional projects, which are very much driven by these cycles of so called ministerial conferences of the European Space Agency and of large projects by the European Commission, where obviously, we haven't won Galileo as discussed earlier. Otherwise, our order intake would, of course, be significantly higher already this year. So 2021 is just by the volumes which which I address in the institutional market, a year which is not as strong as the last year has been. But you should not forget that with the order backlog we have the moment, we are still at an all time high. And 2020 was an all time high and now with still above SEK 2,500,000,000, It's still an all time high, and we are following quite a number of very serious and larger prospects in the commercial arena so that I would not exclude significant order intake to come within Q3 and Q4. Martina, we have further questions? No. For the moment, we have no further questions. But I would like to give Alexander Hauenstein because his hand is Still waived. Maybe he has got a follow-up question. If that is not the case, then we have no further questions. Mr. Hauenstein? Sorry, I didn't take that down. Thanks for that. We have no further questions. Yes. No. So it's a last chance to ask questions. Looking at the watch, it's already €945,000,000 So if you have more questions, please feel free. But if you're not raising the digital hand within the next minute or so. Then I assume that so it's going to be a Hansrans question, answered all the open points. I can just tell you that the year is developing quite nicely for HP. I think we are moving along very significantly on a couple of fronts. Lutz was talking about diversifying Customer base having significant successes also beyond the traditional institutional customer base. Of course, space overall is booming. We see a very dynamic, very little bit of space industry in Europe, in North America, in Asia. And that just obviously confirms that Space is contributing a lot of value in many regards to what's going on, on Earth. And we're very grateful and happy to be part of that overall movement. So I can just share with you that we feel very comfortable in 2021 and going into 2022. Obviously, hopefully, we'll then provide new perspectives on the institutional side, but again also beyond that. So this was just to fill the 1 minute waiting time for further questions. If nobody else has raised his digital finger, Then I'll, of course, take the opportunity to thank you all for your interest in OHB, for covering OHB. And again, in early November, we will then reconvene for our Q3 numbers. So here from Bremen, thank you very much. And should you have any further investigation or questions, obviously, Martina is available. So thanks to the whole team. Thanks to preparing this Q2 report. From my side, all the best. Thank you. Bye bye. Have a good day.