Earnings Call: Q2 2020

Aug 11, 2020

Good afternoon, and welcome to the conference call of Orab S. A. At our customers' request, this conference will be recorded. I now hand you over to Mr. Marco Fuchs. Yes. Thank you very much. Good morning, everybody. Good morning from Raymond. We would like to welcome you to our Q2 six months results for OHBSE. I hope you have been able to download materials and have been able to access this code. As usual, we will walk you through the slides quickly and then we will open up of course for questions and answers. I will start with the beginning slides and then I will hand over from our new business area, which we did you to Glusberling and Gretchen will introduce the numbers. Yes, quickly, of course, Q2 has been quite a challenging quarter for many. You will see some ups and downs on OHP and numbers in general. Top line is low last year for a number of reasons, some of them related to COVID. But overall, I guess, we can report quite a successful quarter. We're quite proud to results of the results that we have achieved. Maybe I start on Slide two with a quick recap of the overall OHP value chain. As you remember, as most of you recall, we have in February introduced a new business structure with regards to introducing a third business area, OHT Digital, and we will talk about that in more detail. So we are trying to cover the whole value chain from development integration testing of satellites. One of our activities in the launch of business and active space in general and in orbit operations and services and, of course, also exploration of data is important, coming more and more important. We'll talk about it in a few minutes. On slide three, just to remind the OHP shareholder structure has been pretty much unchanged for many years, slight changes from treasury stock to free float with regard to stock based compensation. On slide four, just a quick overview of the newly established business areas. Again, it's pretty much exactly implementing what was introduced in our February Capital Market Day half a year ago. We are now positioning the OHP Group in three business divisions, of course, the main and well known Space Systems, Satellites and Systems. With about two third of our employees, 3,000 people in the OHP Group, about 2,000 are working in OHP system, OHP Italy, OHP Sweden, Hamburg, Space, Hookspace, Checkspace and Hellas. Of course, OHM system being by far the largest entity and as a large system integrator, of course, our most important single entity. That has been like this since many years. What is new is that we have created of which we did it. As you can see, a number of companies in which we did it. It's about 500 people in total. So it looks like many, many companies have about 500 people in terms of headcount. Solutions and services, summarizing what we do there. So, Richey Digital Connect, the new lead company here, Lutz will talk about more details. The company names probably familiar, Digital Services, Digital Solutions and a number of smaller entities that you can see listed here. Yes, that is, of course, the approach to go for new market segments. It used to be Aerospace and Industrial Products has been split between those two, Aerospace and People. And aerospace is now compartment of the aerospace AG. And we have our share in the factory output here, which is the micro launcher company that we started some three years ago. We also released here our minority part in We hold a 30% share in our order price deck for many years. So it is not consolidated in numbers, but it's a equity share. Of course, the people there, the employees in that part, about six sixty and the RTK group, 20,000 people of HD. So you see, we're still very much dominated by the specific activities, but covering broader scope and we have shifted with our focus for the future development. I would like Rut now to give us a bit more details on the market segments where HD digital is already active and how we are approaching this to make this more successful and more coherent business area. So, Ludwig, if you can follow-up from slide five onwards. Yes. Thank you, Markus. Good morning from my side as well. Yes, a few words about where OHB gets present and where we intend to grow most as at least this is the first one that in one of our financial reporting we are going to that level of detail. Of course, I will not go line by line here that's becoming too much. But the important thing is where are we strong today and where do we need to grow. The strongest areas today in terms of entries and revenues antennas and telescopes operations and ground stations. And those three together with the Airborne and Ground Solutions, both are the entities which we are merging currently into the new company OHP Digital Connect. Actually, this has happened already for those parts which are coming from OHP System and from OHP satellite operations, which is operations, ground stations and airborne and ground solutions. And it will be concluded in Q3 for antennas and telegraphs, which is the former mines activity of MTMchatronics. Those three are the strongest or those four areas are the strongest segments today and are areas in which we intend to grow as well. Operations, we are looking for inorganic and organic growth at the moment. Airborne and Ground Solutions, we are participating to the Future Combat Air System, which is the largest defense procurement program which has happened in Europe since the Second World War. So growth but more importantly, we see strong growth potential in the upper right boxes, downstream applications for datacom and in particular, downstream applications for earth observation. We will benefit a lot from the successes which we had in the companions program. I will talk to this a little later. So the good thing for us is as we will provide such satellites, we will know earlier than others the future kind of data which will be available from space. And therefore, we simply have an advantage in developing downstream applications for data from centers, which are today not existing, but which we are developing and which we can't contribute to. RAIL is statistically strong. That's an area which we bought we bought Kaiser Frieder, our today Oberhafenhofer, Bavaria based business. And again, an area which has significant growth potential. We're doing the Energy Control Systems, but we are expanding our offering in the rail segment in the areas of traffic management and in particular, towards the so called digital rail track. So a rail track which does not need any signals anymore. And in particular, cybersecurity for the digital rail track is an area where we are strong. So without going into further detail, let's try the number of areas in which we are active here. The next months will, on the one hand, be focused on developing a comprehensive strategy for OSP Digital, but as well on streamlining and at the same point in time, extending our portfolio. So some areas which you see here might at the end not remain as part of this, but we might divest in other areas. Might invest. But before deciding this, we need to have a comprehensive strategy which is under development, which clearly shows us which areas of the portfolio we want to focus. On Page six, a few words about Space Systems. Very important we've achieved for our Nmap program where these hyperfactual instruments, again, a kind of an instrument for Earth observation, which is not flying today and which will deliver in future data, which are not available from space in that particular form today. This instrument is now undergoing the environmental test campaign at our partner, IABG and Autobahn close to Munich. We have done all the functional testing, vibration testing, sound testing and so on. And now it's if you want, test it in a space conditions in IRBG, and we intend to launch this at the end of twenty twenty one. It's again coming back to which we can serve with this will deliver us a new data source on which we will build cloud application quantum applications. MTG is the next generation of better satellites for Europe, actually for the world, but driven by Europe. And here, we have satellite, the so called Sounder satellite, so beyond optical data, which you see every day in the news. This Sounder instrument will be able to detect the composition of clouds, the density, the temperature, the humidity in different areas of the cloud and will bring weather forecast to a new level. Satellites that just not existing as such. The Americans tried, they failed. We are very advanced here. We are in the critical design review with the customer. And up to now, it looks very good. So we are very, very confident that we will have a real technological breakthrough here with the new technologies. And we have first export customers, which have indicated interest in this technology. VTSC, this is a data relay satellite, which we launched in August 2009. Then we have all the in orbit testing and so on. The satellite is working flawlessly and has now been fully integrated in the so called space data highway, which is under Airbus control, Airbus project. Airbus was the customer for the satellite. So fully delivered, fully operational, no load efficiencies works very well. Interesting for us because for the first time, we are doing here in the satellite link by data. Let's come to Page seven. Order intake Q3 twenty twenty. Important thing is less the order intake, which we have at the end of Q2, but the selections which were done in Q2 and early Q3. And here at the Citadel in the Copernicus program, which is besides Galileo, the second flagship program of the European Union. In the first run of Copernicus, we were a tiny little supplier with a volume of few tens of million as a subcontractor to others. Now we have the second round, and our role has totally changed, totally changed. We have been selected and contracted by July by the European Space Agency as the prime contractor for the most noble and the largest mission in this program and the mission which has the highest probability for ongoing recurring business in the future, so for more satellites to be ordered. We signed the contract for €445,000,000 This includes two satellites. But the option for satellite number three is already in the contract with another €130,000,000 And actually, the first long lead time items for this option will need to be procured already by the end of this year, which means we expect that ESA will release to us an authorization to proceed for procurement of long lead time items for this option already by the end of this year, meaning that this option is not filed. In the frame of Copernicus, actually we made five offers in total, three of them were successful, which is a good rate because besides CO2M, which was the number one mission, as I said, in two other missions, we offered the payloads together with our partner, Tata Linears Base, And we have been selected for Chime, which is a highly effective imaging mission for environmental protection. This will be built in our Oberfaffenorfen factory in Bavaria. And for Cimre, which is a microwave radiometer, which will be done in OHV Italy. So companion goods for us was very successful. It totally changed our role. Actually, we can principally stay from a nobody. We are now not only an important player, we could say exchange from number whatever, number nobody to number two in the program, very significant success. On Page eight, you see it again. That in the Earth observation remain one more program, which is outside of the Eco Panels program, which is the Arctic weather satellite, which was won by our Swedish colleagues. So from the Earth observation program of the ESA and European Union, we expect an order intake of more than €900,000,000 more than 50% already contract signed. And for the other three, negotiations ongoing, but is a French driven company. And France closed in August as you all know. So the negotiations will only continue for the other three in September. But this is according to the planned schedule, actually we are impressed by the way how the European Space Agency was able to stick to its schedule under COVID-nineteen circumstances. Page nine shows the OLED backlog in billions. And you can see here the expected regular scheme every three years. We have a downturn in order backlog. By the end of this year, this will have changed. Now we have DKK one point five billion, which is still 1.5x our revenues. And as you can easily see on Page 10, sorry, there's lots to come to increase the order factor. So we expect the DKK 900,000,000 from the Copanics and the Arctic weather satellite. Galileo is the one thing which changes my prediction, which I made at the Capital Market Day. So not COVID, it's just Galileo. That was a pretty COVID driven decision by the European Union. Here, we expected an additional order for so called batch three satellites of the first generation of Galileo. The European Union has decided to change the sequence of this program. Originally, it was foreseen that after the first generation, there would be a transition program, this kind of interim satellite between generation one and generation two. And then after that, two. This has been decided differently now with the new commission and we think there's strong involvement by Commissioner Bertrand himself. So the European Commission goes directly to the second generation of Galileo. Therefore, the contract award, which was foreseen for Q4, will no longer be in Q4. It will be an accelerated program for JALDEO second generation with a contract award in the first half of twenty twenty one. So it's from my point view, more a delay. It will be a dual sourcing of satellites, which are significantly larger and more expensive than a of Generation one. To give you an indication, Galileo Generation one satellite is about 600 kilograms total mass. Galileo Generation two satellite will be about 2.4x, so 4x as big as the Generation one satellite. We see the probability to win one of the contractors of the tool sourcing significantly above 50%. And this is a cautious wording, I would say. So the likelihood that we will be one of the two is very, very high. If it's only because at the end, it's politicians which are awarding such a contract, we are the incumbent and tell you the generation one, the satellites are working perfectly. We actually got any incentive which wasn't the program, we made it. And it's very unlikely somebody with such a heritage competing with two other companies which have zero heritage would not be selected. Of course, we need to come with a good offer. But with all what we have as know how of the Lead Generation one, we are very confident that our offer will be very good. Kira is space safety, decided by the Ministerial Council in negotiation, I would even say, in final stage of negotiation, no questions will come. Guyana launched Elekta, not in negotiation now, but both batches decided by the Ministerial Conference, the budget secured. Lunar Gateway will be negotiated in September, budget secured. And the portfolio from various other topics, more than 50% of this DKK400 million is either already contracted or we are selected and we are in the finalization of the negotiations. So Page 11 summarizes the whole thing, and I start with the measures on the bottom. It will likely not be 2,000,000,000, but it will be significantly above DKK 1,500,000,000.0 and somewhere in the middle between DKK 1,500,000,000.0 and DKK 1,200,000,000.0 might be the truth at the end. So we will end up with a book to bill, which is significantly above DKK 1,500,000,000.0. Looking at the impact of COVID-nineteen, the first thing I would like to stress is we have really customers you like to have in such a situation. All our institutional customers have implemented strong initiatives to support the industry, not only OHP, the overall space industry, as well in particular with liquidity, with partial milestone payments, advanced milestone payments and so on. And I would really say in particular the Europeans, as I said it before, they have done an outstanding job in securing all the contract awards very close to the originally planned dates. Therefore, with the European Space Agency, no impact beyond the shift of contracts by some weeks or months. Nothing has been canceled. EU, the one thing I mentioned already, Galileo, the program setup has changed, but there's no reduction of budget. On the national side, national customers not only in Germany, we see no negative impact on programs which are in the planning. And we see that some procurements are or might be advanced. So for example, in the stimulus program or the €10,000,000,000 stimulus program of the German government, the list of the final programs which are between trucks and flights and airplanes and whatever you can imagine helicopters. When we decided September 23, so too early to say if we will benefit from this, but at least we see a more negative impact and we see the chance that some procurements might be advanced. The commercial markets, clearly news based companies have a hard time to find money on the markets. Venture capital market comes back now a bit. That was a total shutdown from my perspective in Q2. And the telecom market remains to be in strong difficulties. Launch, will turn to the next page. Look more for the midterm and here, but 2022 is important for us, which was at the next ministerial conference on the level of significant base efficiency. I can only say too early to say simply because what we decided there will be will have or will depend a lot on the economic recovery and our crystal ball is not clear enough to tell us what it will be. Yes, so pretty too early to say. My last remarks on Page 12 are concerning our launch of business. This is, I would say, currently the headache we have. Luckily enough, the launch of business in the meantime is a relatively small part of our business and Arianne six is less than 10% of our business. But clearly, we have a strong negative effect here. One is that, again, we see postponement of the Karyana six first launch. This is a heavy impact of COVID-nineteen. French Guiana was very much impacted. So all the activities for preparation of the launch sites were coming to a standstill. And it's only ramped up very, very slowly now. The development of the launch itself has been impacted by the closure of activities in France, Italy and Spain. Therefore, clearly the first launch will slip, the ramp up of launches will slip and the production rates will be lower than what was originally expected. This comes together with a market position of AI Analytics which is let's say challenging. So clearly we have needs for restructuring in Augsburg and we are doing so. We have very strong cost cutting measures in place there. And we are very active and successfully active in other markets. So Aultif will no longer be dependent fully on the IFRS 16. We have increasing market success in American and Indian programs. So we expect that we can partially recover from the Ionis six impact by participation trial and launch of program. But we need to be open for the headaches as well and the auto business is a headache at the moment. With this, I would like to hand over to Kurt Maeschen who will present the figures in detail. Yes. Here's Kurt Maeschen. Good morning to everybody. I would like to give you a brief overview of the main financial figures from the first six months of SOHB Group. On Page 13, you see, as already mentioned, the order backlog is now €1,600,000,000 that's in line with our expectations and will be improved in the next month significantly. The total revenues were 30 percent behind the last year period for the first June. This has really to do with latest year COVID-nineteen impact in our supply chain is an average delay in the first six months, delivery delay of ten weeks, this effect by COVID-nineteen. And this is the reason why the revenues are behind expectations. The profitability is still good and would expect to be good from my point of view. You see it here with an EBITDA of €37,000,000 it's 2% higher compared to last year, even the total revenue is lower than last year at this point of time. EBIT figure is also below last year, 8%. But you see the beef, especially later, this has to do with an influence of the different segments we have. Space segment has good impact and good results. And the Aerospace and Industrial Products segment was negative compared to last year. The earnings before tax is also lower compared to last year, but this has to do mainly with the worsening financial result in the second quarter due to the establishment of our new credit facility of €300,000,000 and there are some financial costs incurred in Q2 due to this event. But on the other hand, this new credit facility of EUR 300,000,000 gives us a lot of security and possibilities in the placement acquisition areas over the next five to seven years versus the running time of the credit facility. EPS is also 8% behind the expectations, but still on a good level. Number of employees, as already mentioned, is now close to 3,000. It turns now to the overall figures compared to the on Page 14 compared to the last three years, where you see now that we have still a good development in EBITDA figure from 25.8% in 2017 to 36.6% this year. And the EBIT figures are no major improvements, but we have still an acceptable margin of 5% overall. But what I would say, good margin is expected to be later on, relatively poor margin in the segment, Aerospace and Industrial Products. Considering the development of total revenues, I have explained the reasons for the decrease compared to last year. But at the end of the our forecast shows that maybe we guarantee around EUR 1,000,000,000 total revenues, but we are expecting some uncertainties due to unclear COVID-nineteen impact in the next five months. Space Systems on Page 15, we see also the decrease in total revenues. But on the other side, on the right side of the slide, you see the extremely positive development of EBITDA in the last three years coming from 15.1% in 2017. They are now 55.5%. It's more than double the figure. And also more than double is the figure, the EBIT figure in this last three years. And this is really a good development. The EBIT margin is now in the area of 7%. But I must say to be also very clear, this EBIT margin improvement has to do on the one hand on improvements and cost saving methods measures we have implemented in the last six months. Yes, this will we'll see this effect also in the next months and quarters with this cost saving programs and our products to improve the efficiency will result in better margins and better profitability in the second. But on the other hand, it's also clear that the amount of subcontracts are comparable low in the first six months as already explained and this will lead also to an increase of margin. That was as mentioned several times ago, contracts we are not allowed due to our institutional customers to calculate any margin or profit. The next page, Aerospace and Industrial Products. As already mentioned, you see the decrease in revenues. So this may lead at the end of the year only to a comparable core revenue of €130,000,000,000 And also the EBITDA on EBIT figures are going down as in last year substantially. Now to the first time, we have a negative EBIT of €2,500,000 in this segment. I personally expect, following our actual forecast, that at year's end, this figure may be in the same order of magnitude. But I hopefully expect no major negative development in the six months. We will be stable in the next six months in order to stay at least on this level. Financial guidance on Page 17. Yes, we have announced in the Capital Markets Day €1,100,000,000 total revenues and €80,000,000 EBITDA and 44,000,000 EBIT. We have all we give you now a same statement. We have done it in the three months report that we need to confirm nor withdraw the guidance. I have already mentioned that what may be the result at year end, but due to the uncertainties and due to the increasing number of COVID-nineteen, in fact, in the last weeks and the unclear development of the next months, we see no possibility to give you a clear statement concerning our expectations for the year end. Now we come to the balance sheet. There are no major changes in the balance sheet. There's perhaps remarkable an increase in inventories. This clearly has to do with different increases caused by MT Aerospace and Augsburg. But this show clearly that if these inventories can be delivered in the next six months, then this may result in an improvement of the figures from the aerospace. There are no other major deviations in the balance sheet on the asset side. And on the equity side, on the next page, there is an increase of equity around 6%. And also, on the other hand, no major change of the decrease of trade payables you see here. And all other figures are more or less payable. It's an increase of the current financial liabilities, but this is absolutely in line with our expectations. Later on, I'll you another slide and give an overview of our cash flow development in the first six months. On the next page, you can see this. The free cash flow and also the operating cash flow is better compared to last year at the same point of time, and it's also better than expected. Also, we have in the first six months of negative free cash flow. And usually, also, had in the last four years, a positive free cash flow and positive cash flow at year end. This is the nature of our business. And I've also not very affected from uncertainties and development at year end, but still an opportunity to the possibility that we achieve at year end positive of rate of cash flow, positive free cash flow. Uncertainties. CapEx figure is a definite increase compared to last year and compared also to the first quarter. So you see we are still making investments, especially in software issues and IT infrastructure and issues like that. So on the next page, you see the development of that effect. And this is quite normal at this point of time. And that's better than expected. And if you compare those figures over the last years, then you'd see the net debt, there's no increase in the OHB group. Even if we have substantial growth in the last year, the net debt, absolute figures, if no increase is stable or also decreases. So we have earned money, obviously, in twenty years, and people earn money this year. Next, you should see the development of investment spending, but the figures are more than already mentioned. And guess, get an overview also on overcapitalized. Overcapitalized figures going down. We have EUR 600,000,000 at this point of time and 3,000,000. We have actually had this we expect that this development will proceed in the next quarters. Page 23. You can see again, the cash flow development, free cash flow development and the early development. More or less, there are no surprises. So these are the same areas now at 12%, so it's not good. Area free cash flow development, I have already explained what will happen, what has happened in the past. On the last page, just a presentation for our financial commander with some virtual events. These all these events, capital markets events, will be virtual in the next months. Also, the German Equity Forum is planned as a virtual event in November 2020. And there are some other events, so we are proceeding with this, but only virtual. Okay. Yes. Thank you, Kurt. Thank you, Kurt and Lutz. I guess, we just now quickly go through the Q and A session because I think that you can basically see that Space Systems is doing well and Aerospace and Electric Product is having a specific release. And I guess that summarizes Q2 numbers. But I would like now to hand back to our moderator to help us start in the Q and A session. Thank you very much. We will now begin the question and answer session. Just a moment please. There are two questioners. Just a moment. Mr. Adrian Peel from Commerzbank AG, it's your turn. Yes. Hi, everybody. Good morning. Actually, couple of questions from my side. First of all, on the A and IP division. Actually, as you, Mr. Maojing, rightfully said, there has to be an increase in inventories. Obviously, the revenue line was relatively weak. I was just wondering, given that probably there's a very limited number of ships out there. Is that the revenue level we should familiarize within the next two quarters? Or is there a chance that we see an increase there to some extent? The question linked to that actually, could you ship any shipset in the second quarter? Or was that number actually zero? And then more starting with a bit technical question, as you were referring to the segment or HP Digital. I was just wondering whether that will lead actually to new reporting line in the future as of Q3? Or how should we think of it? And will it be actually helpful to give us some indication on what's the current revenue line and actually profitability of that segment? And then Mr. Bething, you also mentioned, maybe I did not get it right, but in satellites communication by laser, a project that you're doing, I was wondering if there's any interference with a listed company called Manerik. Anything that you say on that is could be helpful. And then lastly, before I might have some follow-up on the Patch three. You were mentioning quite some changes on the program. And I was wondering what is the basis of the decision to have this as dual sourcing? And relative, let's say, to the business you made before in Galileo, despite you're saying profitability is more than 50%, do you feel losing at the grip of the program or revenue volumes in this one also going forward? Yes. Thank you. It's okay, Mario. Just want start with the Ariane deliveries. So yes, there have been deliveries. The remaining deliveries out of the Ariane five have been done in the first half of this year. And they have also been deliveries on Ariane six so far. But of course, it's ramping up slower. So it's not easy to count it in ship sets because Mayank six, since it's a new start, the need dates are not always very much at the same time like in an ongoing pre production qualification phase and it's the first launch. Year it's not so easy to really cut ships as I said the remaining of high end sales type deliveries and the starting point of high end sales that basically disrupts the issue. On the revenue side, I leave it to Kurt. From my side on Telenier, of course, I mean, has been always intended by the European Commission and Tiv to have dual sourcing. This has been also the plan for the fourth generation. Eventually, it was then decided after the competitive processes to only award the order to OHV. We know since a very long time that transition satellites, which was mentioned, have also been intended to be dual sourcing. Obviously, the second generation is the same case because dual sourcing obviously makes sense at the beginning of the program. The first generation, there was an attempt to go for multiple sourcing in later batches, but that doesn't really make a lot of sense anymore. But now it has been clear for us and everybody that the customers will attempt to go from multiple thousand for the frontlines. That defines basically also the number that Luke mentioned because there will be three bidders. And it's probably likely that there will be two awards. So that defines the statistical likelihood at two thirds. We get to see this and forget something that's when it comes out. And second generation satellite, and then I hand it over. Second generation satellite that is now being procured very different from what used to be the so called transitional satellite. I mean this has evolved a little bit, but it's very similar what used to be transitional satellite is now pretty much what it's now for second generation satellites. That has been why we can't maybe, Cord, you want to say something to the OEM or to the MT top line? Yes. In principle, simply your assumption is right. What happened in the first six months was really a potential increase of inventories about €17,000,000 on MT side and relatively poor revenues of around €40,000,000 on MT side. And this will be changed in the six months to an improvement of the revenue figure and the decrease of inventories for the next six months. This is then has to do with the deliveries of ships at Variano. And this obviously, is why I mentioned that we expect no further substantial decrease of profitability figures in the next six months for MT Aerospace. And I can perhaps add a few words to the Galileo question, particularly on the why do it sorting and to reduce risk. There's one significant difference between KALILEO generation one and KALILEO generation two. And this simply is that there is a system in place already. So if KALILEO generation one would have come let's say two years later or so then the capability would have been installed two years later and two years later people would have started to depend on the Galileo capability. Now there's operational capability in space, which means that lots of systems are relying on Galileo data. What has to be avoided in all circumstances is an operational gap. And what the original idea is to buy additional batch one supplies just to avoid the operation gap. Now the commission has decided to do this with the new commission and to go for an accelerated program for Generation two. But this means for risk reduction reasons, if I would be the commission, I would have decided for dual sourcing asset just to avoid. But if one of the two suppliers or if a single supplier runs into significant delay technical problems whatever it is, there would be an operational shutdown of Galileo when the first generation of satellite comes to end of lifetime. On the other hand and then I'm coming to the loss of grip on our revenues for OHP, the number of satellites will be the same. You simply need to have a number of orbital position equipped because you can only start using the system when you see three satellites at some point in time and more satellites needs more accuracy. So the number of satellites will be the same. The size of the satellites will be 4x larger. So if you have the same number, 4x larger satellites, but divide it by two, two suppliers, then actually, it still means that there's an increase of revenues. So I would not say we lose any grip of revenue due to the fact that the new capability, which is intended to be installed is such superior to the first generation. There will be a huge development program. There will be significantly more expensive satellites. So I don't see a risk there. And I see very, very little risk that OHP would not be one of the selected companies. And then you had a the answer sorry, just wanted to quickly say the answer to the conversion of the reporting. Of course, we are still currently reporting based on the two existing business units, Space Systems and Aerospace and Industrial Products, that's a set of numbers. And of course, during the year starting from Capital Market Day and now we're introducing the future structure with three business units. We are moving over to report in three business units. We have not yet completed that. We have not even completed the detailed changes that was mentioning. So yes, of course, this is a project in in motion, but it, of course, will be also following the reporting structure. We'll also follow the operational unit structure. So this is something that will come in the next quarters. But I don't know if you want to add to this, but we have not fully decided if that will be done by year's end or maybe at Q3. But more likely, I would guess it's something that will come after the full year. I don't know said Yes. In on principle, absolutely right what you are saying. We have decided that at least in beginning of next year, we start reporting in these three different business units. And then there was the question about Laser Communication and Mineric. Of course, we know the Mineric guys and we know what they are doing and so on. Our current business volume with Manerik is zero and our volume with ongoing tenders with Manerik is zero as well. Yes. Just to be explained because the EDIS that Luc was mentioning is also laser based, but that's from from Airbus Group. So this is an Airbus Group. There is a product that is working for many years, but it's working reliably in the ongoing EASC plus EASA satellite that has been launched some time ago. So that is not based base the highway is not based has not been the primary. Understood. That's been helpful. Just actually two, three follow ups on what you just mentioned. Coming back to the segmentation, I mean, a bit phrased provocatively. I mean, we discussed that also at the Capital Markets Day. It seems like with Peisenberg and then to Aerospace, you seem to group entities where you might not necessarily see a bright future going forward. So I was wondering if that's an expression of focus of turning around the business or potentially thinking about a disposal, if possible? And a question probably for Mr. Mailcheng, which is, again, sorry to bother on this one related to MT. I mean given, nevertheless, even if you are projecting some improvements on the revenue line in H2 from the reversal of the inventories being built up, do we actually run into the risk of asset impairments in this provision? Lastly, I think it was also part of Mr. Berndtin's presentation when you were talking about Deutsche Digital. You were mentioning to look out for M and A. Could you be a little bit more specific? Well, obviously, not giving any names or so, but do you go for rather bolt on technology acquisitions? Is there already kind of a shortlist in place so that you have already an idea which target to look at? Or is that just more intention and the plan will follow then thereafter? Maybe I'll start with the reasoning. Yes, of course, I'm afraid to say in the aerospace and different products like aerobic pricing that is not included, it will not be included because it's a minority position that is only equity. So I think the creation of the digital area has to be more of a strategic and operational ambition than with numbers. So it's not I think it's more transparent what will be seen in the future. Aerospace activity currently also includes some of the activities that go into digital. So it's a little bit mixture now. So I think it's partially cleaning up and it's partially making clear our ambition of where we want to grow, which is the digital area. Of course, that is now currently in a situation where empty aerospace is a difficult situation. But I think it just underlines the reasoning why we do this. It has nothing to do that we want to stop or dispose of or sell or change anything in our empty aerospace activity. We have our plans how to work with outlook, explain that and we will move on. And we know it's a couple of years in front of us, yes, that's what it would also be if we would not have touched the business structure flow. Again, the main issue is that IAN five business at that time was a very successful product in the market. It was more positive and we are now moving into more difficult years around the business. That's basically what it is. But again, has nothing to do with picking up on that activity. Think there were maybe parts of the other part of the question. The asset impairment question, there is really absolutely no risk of any asset impairment due to the development of Aerospace. This also has to do with the fact there is no zero goodwill in our overall balance sheet for MG Aerospace because we have bought them in 2005 for just €1 and there is no goodwill and nothing else. We have to be particularly concerning any impairment evaluation and the year end for MG Aerospace. And then there was the M and A question. As I said, we are currently in the phase where we are consolidating this digital portfolio. So consolidate what we have, which was very much distributed about over many different entities in the group. We're consolidating it. We are restructuring it. We in particular by market segments, less particular entities as it was in the past, but now more by market segments. We're defining our strategy as the outcome of the strategy definition, which will last the full Q3 before we finalized it. For sure, we will define certain areas in which we intend to strengthen our portfolio not only organically as well well and organically. But this is as you hear from the process, that's too early now. We are in the one or the other discussion because sometimes opportunities are coming up where you are pretty certain that they will fit. But as you can imagine, when we are under such discussions, we are under NDA, of course. And even if we would not be under NDA, we would not publicly discuss about it, not even about the areas. None of these things is very much advanced. We are nowhere in a detailed due diligence yet, which means it's far too early to discuss this more in detail. All right. Thanks for your answers. Appreciate it. The next question comes from Mr. Tisha Cham, HSBC. Please. Yes. Good morning, gentlemen. So it's already very extensive discussion here. Maybe just allow me to work on again, Adriana six for this whole larger project. As you mentioned, it's only 6% of total sales at the moment and it has a good chance to decline even more in future as the other businesses have obviously much better growth prospects here. Shouldn't you really think it's worth to stay in the launcher business, which obviously has fundamentally changed over the recent years with new competitors coming up And Ariana six quite obviously is losing ground here and will never be a commercial success, I dare to say this, but will always depend on the heavy subsidies from European politicians. And we know the story with keeping Europe an independent access to space and so on. But the question is, is it worth really for you to stick there? And even with mini launcher business, a lot of competition going on there, a lot of hard money in there. Is it worth for OHB to be there? Or are there not better opportunities around? Maybe it's worth to think about this. I don't expect an answer on this one. My question would be on a small thing you mentioned here with digital markets, where you again mentioned this rail segment, which always has been obviously very successful, but also a niche development. And you mentioned that their digital rail tracks is one project, meaning that the technology could become obsolete if changed the whole process here. I'm not an expert, but to me, this sounds as this would be really a big thing, but maybe too big for OHB alone to develop such fundamental new technology and wouldn't it make sense to partner here for some specialists from the segment? Thank you. Actually, on the radar Let me with the launch. Let me start with the first question. First of all, I think all content launches all over the world are very close to governments. So when you say that there will be such uncertainties in the future on the Arian operations? Probably, yes. But that's also the case in a different way also on the American launches, which is a very big part of government involvement and government money. So that is just part of the game. That is part of the game in good years. And now, of course, in more than two countries, that's also the case. But Europe is not, let's say, worse than other players in that, that governments invest in access displays. And that's, I guess, also going to be the future here in Europe and elsewhere. What we see, of course, is a shift in market. First of all, the commercial market is smaller because of lower numbers in open telco launch opportunities. So, of course, we use international telecom satellites in the open accessible markets reachable for launch services rather than they are currently. Institutional business has become more important. Having said all this, Launcher remain integral in the space industry. I don't think that we should be a space company that is not active in all those segments, not active in the whole value chain. In that respect, I think we should remain in launch and we should remain in Ariane. We should work off these prices. We should be, as Europe, be in the business of launching. We should be in the business of trying to compete and regain competitiveness. Of course, the market will change, micro launcher project. We are involved in micro launchers, other time also micro launchers. It's hard to predict who will be successful. It's hard to predict if our hockey pickets will be successful. We're not pretending to have a crystal ball to know all this, but we are strongly believing that we should be part of evolving overall value chain with regard to space industry. When you said, should we look to more promising activities? Should we look to more, let's say, attractive things? Yes. And in twofold, we are doing. I mean, you see that we are creating with OHPD Digital an area that is focused very much on the other side of the value chain, the downstream services operations. That is a strong attempt of doing exactly that. The second thing, what you can also see in our numbers, is that the Space Systems part is growing and growing. So of course, we are focusing our growth efforts in the last years strongly in the Space Systems area. We have invested heavily in the range of satellite product five kilo up to five tons. There has been a major investment we did. And I think now it starts to pay off what we have invested there. So growing strongly in Space Systems, moving on to digital and downstream, of course, leaves the launch of business looking a bit weak now. But I guess it's paying off what we anticipated what is going on now some years ago. And we have been making our strategic decisions already having that in mind. So I guess, it doesn't mean that we should now leave the larger business, but we should just see that we can become part of a more competitive European commercial industry in the future and regaining market share. Chris, do you want to take the question? Two words on the rail part. This is more about harvesting in the next years from the seeds which we have put in the soil in the last years I would say. So I would expect for our rail business in the next five years that it will minimum duplicate if not more. And regarding are we too small? If we would be probably alone we might have been too small. But actually we are here cooperating with two of the biggest and most successful technology groups in this area in Europe with one of them exclusively. And together OSD plus its partners we are easily strong enough to compete with whoever is on the market there. So if I understood you correctly, you have already product development finished and you are just now starting to roll that out with your partners in the broader No. In the digital areas product development never finishes. We have reached a level of product maturity which allows us to roll out a generation of devices in the market. But in the digital area you can never lay back and say now I have a product for the next five years then you are lost. So yes, we have reached maturity. Yes, we have ready to market products. We have products which are already in prototype installations. But in this area, it's a continuous development process where you come up with new generations in a relatively short sequence. But as I said, this is not done by us alone, but we have two very strong international groups as partners here. Okay. And when you say you expect doubling of sales over the next five years, could you please remind us where we come from last year? I think it's really a pretty low figure about $1,015,000,000 or so? It's less, 7,000,000, 8,000,000 last year. But when I say doubling it then again that's a cautious statement. So I would say in '25 It will €20,000,000 €25,000,000 And it's a business which has good margins. At the end, size of the business is one thing. The margins you generate out of it is the other thing. Thanks a lot. The last question for now comes from Mr. Jasput Hercic, Bankhaus Lampe. Please. Yes. Hi. Most questions already answered, but some are left. And maybe the one that puzzles me the most. First of all, you said that you cannot really give a precise guidance for the second half of the year. However, you are pretty confident that those inventory buildup will be reversed in the aerospace and industrial segment. So can you, first of all, explain me again what is the reason why you're so unsure about the guidance? And secondly, how likely is it that those inventory buildup will also persist in the second half of the year? Yes. Of course, I mean, we were discussing that question internally as well. Eventually, we decided to stick where we are after where we have been after Q1. And of course, compared to other industries, probably we have much more solid view of what is going on. This is also when you listen to what we say, when you see that we are not saying we are not making our guidance, but we are just confirming it. And we are not saying we are able to do a better guidance now. So I guess it's a level of uncertainty that we see. That has to do that we are not completely we are not confident that we have really fully understood the consequences of downside on that side certainly. On the other hand, we also see a couple of positive things like the improved margins and the ongoing order intake. I think also included some numbers. If you have also the order intake, it's pretty critical in the sense, is it going to happen in a revenue meaningful way in 2020? Or is that already clear that it moves to 'twenty one? So again, the bottom line is not confirming or not giving a new guidance, not in itself just the story of negative, but it's an uncertainty story. But I don't know, maybe you have a few more. It's completely right what you're saying. It's an uncertainty story. As for example, as I mentioned, we had already ten weeks average delay in our supply chain. Maybe it's going be more. You see now that for example in Spain, the number of COVID-nineteen affected people are increasing a lot and they also affect again our supply chain. It's possible to do this. And we have the effects from COVID-nineteen also substantially in MT Aerospace, obviously, due to now we have some lack of work there. And this may be, as I mentioned, actually forecast shows for anti aerospace, it may be an improvement in the next six months, but this is not sure. There are a lot of uncertainties, especially also in anti aerospace. That's why we cannot confirm it. We are pretty sure, for example, that we have absolute difficulties to achieve the top line guidance in total revenues of €1,100,000,000 This from my point of view, I've mentioned that maybe around €1,000,000,000 but it's a lot of uncertainty. This has to do with our supply chain. This has to do with other effects also from COVID-nineteen. And that's why we cannot really it's not fair and not reasonable to say no clear figures what we expect for the year. And we say that we have no major impact of 2018, no major impact for sure. But I cannot give you a clear figure for sure not. Okay. Thank you. And then my final question is on the Copernicus project where I discovered the OHB suite and is also catching for project. And just to get it right, this would increase your formal guidance you have provided in February. This project is new, right? Not really. I mean it's not new. No, it has also been decided in November. So it's basically a part of the overall decision, but it's not formally part of Mechanical. It's in terms of what the program does, it's very similar to Mechanical because it's dark weather, but it's part of another line of ESA's Earth observation budget. I don't want to No, absolutely correct. And actually this was included already when we had the Capital Market Day. So and overall, this Arctic weather satellite project is around €50,000,000 So it's not a dimensional change. Okay. Thank you. Mr. Or Mrs. Menard from Kepler Cheuvreux, please. Yes. Good morning. Thank you for taking my question. Three quick questions. The first one is consultation in the sector. It's something that you've been talking about over the last years on and off. Have you seen any changes in the talks around consultation Or are we more looking at a frozen environment? The second one is, given the environment where we are at the moment, COVID-nineteen, given the past crisis we had, how are you gauging the response of the institutional marketing two to three years from now in terms of demand for satellites? I mean, I'm thinking about probably the next ministerial conference. Do you think budgets could be down or budgets could be still stable or growing? And the last question is more detail, but it's, again, that dual sourcing on Galileo, I understand it is dual sourcing, but will it be equal dual sourcing? Because you may not come up with the same prices. So could it be more weighted to one or the other player? How what are the rules basically on this one? Thank you. Maybe I'll start on the industrial structure. In the space industry in Europe, I don't see any particular consolidation efforts going on now. But the overall aerospace industry, of course, aircraft manufacturing has difficulties. Luckily, it's not that much impacted. Currently, probably the focus is not on restructuring in the space industry. So we are working on the assumption that the industrial landscape pretty much remains what it is now in Europe and in the world. That's basically our working assumption. On the Galileo question, no problem. I mean, currently, the second generation will first have two parallel developments. And then later on, obviously, it remains to be seen who will sell more satellites. Could be the one supply or the other one. But it's not for granted that there is an equal sharing of the market forever. But the idea is that the customer would have two sources in order to keep the whole thing competitive over the next coming years? And then obviously, there might be one source that's supplying more than the other or maybe they even also supply equally into the next generation. After we clear the next five years will be dominated by the development program. And this means you cannot do half a development. So dual sourcing for development means that there will be two full development programs. This at minimum the first batch of satellites is tied to both of them. Otherwise you don't end up with a dual source. Therefore for the time from now to let's say 2025, this is all about development program plus initial satellites and this part will be fifty-fifty as Marco said. Then when the recurring contracts are coming, there might be a better offer from the one or the other one and there might be a sharing of sixty-forty instead of fifty-fifty or so. That's far too early to say. And that's not for the three years outlook also. That's further out. Just a question on institutional markets in the next material, it's not predictable, honestly. Of course, we believe very much on the idea, on the underlying hypothesis that is that space becomes more useful, operational satellites are adding value to society and to many aspects, So the relevance and usefulness of satellite infrastructure will grow. And obviously, as you can see with Galileo, that once institutional customer has an ongoing operational infrastructure, it will also go on. So I believe there will be also a couple of years down the road positive sentiment for investing in space, for investing in satellite. And that also, of course, includes governments making their investment decisions within the context of ADAS. So yes, I remain optimistic on the outlook for the next upcoming periods of ADAS. But we don't know that, obviously. Nobody knows what's going on in 2022. But again, probably satellites providing value to society at large are more likely to be in activities that don't. That will be difficult for those activities. So we are, of course, trying to adjust our portfolio in a way to predict the trends of the future that we are part of that positive development for Space in general. Thank you very much. And then one last one could add. I mean, Ministry of Conference, as Markus said, pretty much unpredictable. A bit closer is the MFF for the use of the midterm financial planning for EU. So all what we have seen there is that we will come up with a substantial not decrease but increased budget for space. And from the talks which we had on national levels here in Germany, Switzerland, Italy, Sweden and so on, again, the main customers that you have on national level, which obviously are military customers and so on. I had a talk in the German Ministry of Defense two weeks ago, which was very, very reassuring because simply they said about space capability, there's no need to sign it to any member of parliament anymore. Everybody has understood that without having it, we are either blind or we can't communicate. So the response really, which I got and this was really highest level below the minister, I would say, the response was no risk. There are many other things which are more difficult to explain to parliamentarians and safety capabilities. Okay. Thanks. That's very clear. There are no further questions. Okay. Well, very good. We are actually also taking a lot of time today. It's already 10:20 past twenty twenty. I would like to thank you all for participating for following OHD during these busy and difficult days. And of course, from our side, we will be available for further questions as always and everybody out there following OHP, should you ever have the chance to make a touch on payment or in or in Alpsburg, just feel free to contact Martina or anybody to see if we can arrange that. So from my side, from the whole OHP team, thank you very much for your attention, for your questions and for following OHP. And I wish you a good remaining August and hope you have a little also rest in the next couple of days and weeks. So thank you very much for watching. Bye bye. We want to thank all the participants of this conference. Goodbye.