Good afternoon, welcome to the conference call of OHB SE. At our customer's request, this conference will be recorded. We now hand you over to Mr. Marco Fuchs.
Yes, thank you very much. Good morning, everybody. Good morning from Bremen. We would like to welcome you to our Q2 six-month results for OHB SE. I hope you have been able to download the materials and have been able to access this call. As usual, we will walk you through the slides quickly and then we will open, of course, for questions and answers. I will start with the beginning slides and then I will hand over from our new business area, OHB Digital, to Lutz Bärtling, and Bärtling will introduce the numbers. Quickly, of course, Q2 has been quite a challenging quarter for many. You will see some ups and downs on OHB, but in general, top line is below last year for a number of reasons, some of them related to COVID. Overall, I guess, we can report quite a successful quarter.
We're quite proud of the results that we have achieved. Maybe I start on Slide two with a quick recap of the overall OHB value chain. As most of you recall, we have in February introduced a new business structure with regards to introducing a third business area, OHB Digital, and we will talk about that in more detail. We are trying to cover the whole value chain from development, integration, and testing of satellites. We have our activities in the launcher business and access to space in general and in-orbit operations and services. Of course, also exploitation of data is important, becoming more and more important. We will talk about that in a few minutes. On Slide three, just to remind, the OHB shareholder structure has been pretty much unchanged in many years. Slight change 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. It's pretty much exactly implementing what was introduced in our February capital market day half a year ago. We are now positioning the OHB 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 OHB Group. About 2,000 are working in OHB System, OHB Italia, OHB Sweden, Antwerp Space, NextSpace, OHB Czechspace, and OHB Hellas. Of course, OHB 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 OHB Digital. As you can see, a number of companies in OHB Digital.
It's about 500 people in total, so it looks like many companies, but it's about 500 people in terms of headcount. Solutions and services, summarizing what we do there. OHB Digital Connect, the new lead company here. Lutz will talk about more details. The other company names are probably familiar. OHB Digital Services, Digital Solutions, and a number of smaller entities that you can see listed here. It is, of course, an approach to go for new market segments. What used to be Aerospace and Industrial Products has been split between those two, Aerospace and Digital. Aerospace is now comprised of MT Aerospace AG. We have our share in the company, Rocket Factory Augsburg here, which is a micro-launcher company that we started a few years ago. We also listed here our minority part in ORT Eisenberg. We hold a 30% share in ORT Eisenberg for many years.
It is not consolidated in our numbers, but it's an equity share. Of course, the people there, the employees on their part, about 660, and the MT Aerospace group, 183,000 people of OHB. You see, we're still very much dominated by the space system activities, but covering a broader scope, and we have been shifting a bit our focuses for the future development. I would like Lutz now to give us a bit more details on the market segments where OHB Digital is already active and how we are approaching this to make this more successful and more coherent business area. Lutz, if you can come up from Slide number one.
Yes. Thank you, Markus. Good morning from my side as well. Yeah, a few words about where OHB Digital is present and where we intend to grow most as I believe this is the first time that in one of our financial reports we are going to that level of detail. Of course, I will not go line by line here. That's becoming too much. The important thing is, where are we strong today and where do we intend to grow? The strongest areas today in terms of entries and revenues are antennas and telescopes, telescope operations and ground stations. Those three, together with the airborne and ground solutions, those are the entities which we are merging currently into the new company, OHB Digital Connect.
Actually, this has happened already for those parts which are coming from OHB System and from OHB Satellite Operations, which is operations, ground stations, and airborne and ground solutions. It will be concluded in Q3 for antennas and telescopes, which is the former MIND activity of MT Mechatronics. 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. Growth. More importantly, we see strong growth potential in the upper right boxes, downstream applications for telecom, and in particular, downstream applications for Earth observation.
We will benefit a lot from the successes which we had in the Copernicus program. I will come to this a little later. 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. Therefore, we simply have an advantage in developing downstream applications for data from sensors which are today not existing, but which we are developing and which will be under contract with us. Rail is traditionally strong. That's an area which we bought when we bought Kayser-Threde, our today Oberpfaffenhofen, Bavaria-based business. Again, an area which has significant growth potential between 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.
A rail track which does not need any signals anymore. In particular, cybersecurity for the digital rail track is an area where we are strong. Without going into further detail, that's why 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 OHB Digital, but as well on streamlining and, at the same point in time, extending our portfolio. Some areas which you see here might, at the end, not remain as part of this, but we might divest. In other areas, we might invest. Before deciding this, we need to have a comprehensive strategy which is under development, which clearly shows us in which areas of the portfolio we want to focus. Additional on Page six, a few words about space systems.
Very important step achieved for our EnMAP program, where the hyperspectral instrument, 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, in Ottobrunn, close to Munich. We have done all the functional testing, vibration testing, sound testing, and so on. Now it's, if you want, tested under space conditions in IABG, and we intend to launch it at end of 2021. Coming back to which we did serve with, which will deliver us a new data source on which we will build Earth observation consumer applications. MTG is the next generation of weather satellites for Europe, actually for the world, but driven by Europe.
Here we have in particular a satellite, the so-called sounder satellite. Beyond the 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. It's a satellite which is 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. We are very confident that we will have a real technological breakthrough here with a new technology. We have first export customers which have indicated interest in this technology. GSC, this is a data relay satellite which we launched in August 2009. We had all the in-orbit testing and so on.
The satellite is working flawlessly and has now been fully integrated in the so-called SpaceDataHighway, which is under Airbus control. It's an Airbus project. Airbus was the customer for the satellite. Fully delivered, fully operational. No deficiencies. Works very well. Interesting for us because for the first time, we are doing here inter-satellite link by data. Let's come to Page seven. Order intake Q3 2020. Important thing is less the order intake which we had at the end of Q2, but the selections which were done in Q2 and early Q3. Here in particular 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 a few tens of EUR million contracted to others. Now we have the second round, and our role has totally changed.
We have been selected and contracted by end of July by the European Space Agency as the prime contractor for the most noble and the largest mission in this program, the mission which has the highest probability for ongoing recurring business in the future. For more satellites to be ordered. We signed a contract for EUR 445 million. This includes two satellites. The option for satellite number 3 is already in the contract with another EUR 130 million. 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. Besides CO2M, which was the number 1 mission as I said, in two other missions, we offered the payload together with our partner, Thales Alenia Space. We have been selected for CHIME, which is a hyperspectral imaging mission for environmental protection. This will be built in our Oberpfaffenhofen factory in Bavaria, and for CIMR, which is a microwave radiometer, which will be done at OHB Italia. Copernicus for us was very successful. It totally changed our role. Actually, we can principally say from a nobody, we are now not only an important player, we could say we changed from number whatever, number nobody, to number two in the program. Very significant success. On Page eight, you see it again.
There's in the Earth observation domain, one more program, which is outside of the Copernicus program, which is the Arctic Weather Satellite, which was won by our Swedish colleague. From the Earth observation program of the ESA and the European Union, we are expecting order intake of more than EUR 900 million. More than 50% already contract signed. For the other three, negotiations ongoing. You know ESA is a French-driven company, and France is closed in August, as you all know. The negotiations will only continue for the other three in September. 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-19 circumstances. Page nine shows the order 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 EUR 1.5 billion, which is still 1.5x our revenues. As you can easily see on Page 10, there is lots to come to increase the order backlog. We expect EUR 900 million from the Copernicus and the Arctic Weather Satellite. Galileo is the one thing which changes my prediction, which I made at the Capital Market Day. It is not COVID, it is just Galileo. Actually, it is a very 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, interim satellite situation, Generation 1 and Generation 2, and then after that, Generation 2. This has been decided differently now with the new Commission and particular strong involvement by Commissioner Breton himself. The European Commission goes directly to the Generation 2 of Galileo. The contract award, which was foreseen for Q4, will no longer be in Q4. There will be an accelerated program for Galileo Generation 2 with the contract awards in the first half of 2021. It's, from my point of view, more a delay. It will be a dual sourcing of satellites which are significantly larger and more expensive than Galileo Generation 1. To give you an indication, a Galileo Generation 1 satellite is about 600 kg total mass.
Galileo Generation 2 satellite will be about 2.4 tons, so 4x as big as the Generation 1 satellite. We see the probability to win in one of the contractors of individual sourcing significantly above 50%. This is a cautious wording, I would say. The likelihood that we will be one of the two is very high. If it's only because at the end, politicians which are awarding such contracts, we are the incumbent in Galileo Generation 1. The satellites are working perfectly. We actually got any incentive support on the program we made it. It's very unlikely that somebody with such a heritage competing with two other companies which have zero heritage would not be selected.
We need to come with a good offer, with all what we have as know-how of Galileo Generation 1, we are very confident that our offer will be very good. SSA is space safety, decided by the Ministerial Council in negotiation. I would even say in final stage of negotiation. No questions will come. Ariane launcher, Electra, not in negotiation now. Both budgets decided by the Ministerial Conference. Budget secured. Lunar Gateway will be negotiated in September, budget secured. The portfolio from various other topics, more than 50% of these EUR 400 million is either already contracted or we are selected and we are in the finalization of the negotiation. Page 11 summarizes the whole thing. I start with the matrix watch box on the bottom.
It will likely not be EUR 2 billion, but it will be significantly above EUR 1.5 billion and somewhere in the middle between EUR 1.5 billion and EUR 1.2 billion might be the truth at the end. We will end up with a book to bill which is significantly above 1.5. Looking at the impact of COVID-19. 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 OHB, the overall space industry, to support in particular with liquidity, with partial milestone payments, advanced milestone payments, and so on. I would really say, in particular, the Europeans, as I said it before, they have done a outstanding job in securing all the contract awards very close to the originally planned dates.
Therefore, with 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 is 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. We see that some procurements are or might be advanced. For example, in the stimulus program or the EUR 10 billion stimulus program of the German government, the list of the final programs, which are between trucks and satellites and airplanes and whatever you can imagine, helicopters, will be decided in the 27th of September. Too early to say if we will benefit from this, but at least there will be no negative impact and we see the chance that some procurements might be advanced.
Commercial markets, clearly, new space companies have a hard time to find money on the markets. Venture capital markets came back now a bit. There was a total shutdown from my perspective in Q2. The telecom market remains to be in strong difficulties. Launch, I will come to on the next page. Look more for the midterm, and here, particularly 2022 is important for us because that's the next ministerial conference on the level of the European Space Agency. I can only say it's too early to say simply because what will be decided there will depend a lot on the economic recovery and our trusted ball is not clear enough to tell us what it will be. Yeah. The two are the same. My last remark on Page 12 are concerning our launcher business. This is, I would say, currently the headache we have.
Luckily enough, the launcher business in the meantime is a relatively small part of our business and Ariane 6 is less than 10% of our business. Clearly, we have a strong double effect here. One is that again, we see postponement of the Ariane 6 first launch. This is a heavy impact of COVID-19. French Guiana was very much impacted. All the activities for preparation of the launch site were coming to a standstill, and it's only ramped up very slowly now. The development of the launcher 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 Ariane 6, which is, let's say, challenging.
Clearly, we have needs for restructuring in Augsburg and we're doing so. We have very strong cost-cutting measures in place there, and we are very active and successfully active in other markets. Augsburg will no longer be dependent fully on Ariane 6. We have increasing market success in American, in Indian programs. We expect that we can partially recover from the Ariane 6 impact by participation to other launcher programs. We need to be open for headaches as well, and the launcher business is a headache at the moment. With this, I would like to hand over to Kurt Melching, who will present the figures in detail.
Yeah. Here is Kurt Melching. Good morning to everybody. I would like to give you a brief overview of the main financial figures from the first six months or so at OHB Group. On Page 13, you see, as already mentioned, the order backlog is now EUR 1.6 billion. This is in line with our expectations and will be improved in the next months significantly. The total revenues are 30% behind the last year figures, the first six months of 2019. This has really to do with the COVID-19 impact. In our supply chain is an average delay in the first six months, a delivery delay of 10 weeks. This is affected by COVID-19, and this is the reason why the revenues are behind expectations. The profitability is still good and good from my point of view.
You see it here with an EBITDA of EUR 37 million, it is 2% higher compared to last year. Even the total revenue is lower than last year at this point of time. EBIT figure is also low, last year, 8%, but you see the reason I show you 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 is negative compared to last year. The earning before tax is also lower compared to last year, but this has to do mainly with the burden financial result in the second quarter due to the establishment of our new credit facility of EUR 300 million and there are some financial costs incurred due to this event.
On the other hand, new credit facility of EUR 300 million give us a lot of security and visibilities in the growth and acquisition areas in the next five to seven years. This is the running time of the credit facility. EPS is also 8% behind the expectations, still on a good level. Number of employees, as already mentioned, is now close to 3,000. This comes now to the overall figures, on Page 14, compared to the last three years. You see now that we have still a development in EBITDA figure from EUR 25.8 in 2017 to EUR 36.6 this year. In the EBIT figures are no major improvements, we have still an acceptable margin of 5% overall. The relatively good margin in the space system you see later on, relatively poor margin in the segment, Aerospace and Industrial Products. You can see the development of total revenues.
I have explained the reasons for the decrease compared to last year. At the end of the year, our forecast shows that maybe we can get again around EUR 1 billion total revenues. We are affected with some uncertainties due to unclear COVID-19 impacts in the next five, six months. Based system on Page 15. We also see decrease in total revenue. On the other side, on the right side of the slide, you see the extremely strong development of EBITDA in the last three years, coming from 15.1 in 2017, we are now 35.5. It's more than doubled the figure. Also more than doubled is the figure, the EBIT figure in this last three years. This is really a good development. The EBIT margin is now in the area of 7%.
I must say, to be also very clear, this EBIT margin improvement has to do on the one hand on improvements and cost-saving efforts, measures we have implemented in the last six months here. We see this effect also in the next months and quarters, that our cost-saving programs and our products to improve the efficiency will result in better margins and better stability in this segment. On the other hand, it's also clear that amount of subcontractor comparable low in this last six months, as already explained, and this lead also to an increase of margin. As mentioned several times ago, the contracts, we are not allowed due to our institutional customers to accumulate any margin or profit.
The next page, Aerospace Industry Products, as already mentioned, you see the decrease in revenues may lead at the end of the year only to a comparable poor revenue of around EUR 30 billion. Also the EBITDA and EBIT figures are going down in the last year substantially. Now for the first time, we have a negative EBIT of EUR 2.5 million in this segment. I personally expect following our actual forecast that at the year's end, this figure may be in the same order of magnitude. I hopefully expect no major negative development in the six months. Hopefully, 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 market day EUR 1.1 billion total revenues and EUR 880 million EBITDA and EUR 44 million EBIT.
We give you now the same statement as we have done it in the three months report, that we neither confirm nor withdraw the guidance. I have already mentioned that what may be the result at year's end. Due to the uncertainties and due to the increasing number of COVID-19 infections 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 system safety. This is caused by MT Aerospace in Augsburg. 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 for MT 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%. On the other hand, no major change of a decrease of trade payables we see here. All other figures are more or less stable. It's an increase of the current financial liabilities, but this is absolutely in line with our expectations. Later on, I give 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 the operating cash flow. It's better compared to last year at the same point of time. It's also better than expected.
Usually, we have in the first six months as negative free cash flow, and usually also we had in the last four years a positive free cash flow and positive operating cash flow at year-end. This is the nature of our business. I'm also not very satisfied with the first six months development until year's end, there's still an opportunity to the possibility that we achieve at year's end a positive operating cash flow, a positive free cash flow. This is, as mentioned, affected with some uncertainties. CapEx figure, there's an increase compared to last year and compared also to the first quarter. You see we are still making investments, especially in software issues and IT infrastructure and issues like that.
On the next page, you see the development of net debt, and this is quite normal at this point of time and much better than expected. Compare the figures over the last years, you see the net debt. There's no increase in those figures. Even if we had substantial growth in the last years, the net debt actually, figures have not increased. It's stable or also can decrease. We have earned money, obviously, in the past years, and we will earn money this year. On this page, you see the development of investment spending, but the figures are more or less already mentioned, and this will be, again, an overview, also on overcapitalized figures going down. We have EUR 600 million at this point of time and EUR 3 million we have actually, hence we expect that this development will proceed in the next quarters. Page 20C.
You see again the cash flow development and the ROE development. More or less, there are no surprises. ROE is in the same area as in our last presentation. Free cash flow development, I have already explained what will happen, what has happened since last year. With that, just a presentation of our financial calendar with some virtual events. These are all the events, capital market events, to be virtual in the next months. Also, the German Equity Forum is planned as a virtual event in November 2020. There are some other events, we are proceeding in this, but only virtual.
Yes. Thank you, Kurt and Lutz. I guess just now quickly go through the Q&A session, because I think that you can basically see that Space Systems is doing well and Aerospace and Defense and Electronics is having its difficulties, and I guess that quickly summarizes the two numbers. I would like now to hand back to our moderator to help us start in the Q&A session.
Thank you very much. We will now begin the question- and- answer session. If you would like to ask a question please press star one on your touch-tone telephone. The operator will announce your name when it is your turn to ask questions. Incase you wish to cancel your question please press star two. For your questions or annotations please press star one. Just a moment please. There are two questions. Just a moment. Mr. Adrian Peh from Commerzbank AG, it's your turn.
Yes. Hi, everybody. Good morning. Couple of questions from my side. First of all, on the A&IP division. As you, Mr. Marco, rightfully said, there could 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 that are out there, is that the revenue level we should familiarize with in the next two quarters? Or is there a chance that we see an increase there to some tenth? In addition linked to that, did you ship any ship set in the second quarter, or was that number actually zero? More starting with a bit technical question, as you were referring to the segment OHB Digital.
I was just wondering whether that will lead actually to a new reporting line in the future as of Q3, or how should we think of it? Will it be actually helpful to give us some indication on what the current revenue line and actually profitability of that segment? Then, Mr. Marco, you also mentioned, maybe I did not get it right, but in satellites communication by laser, a project that you are doing. I was wondering if there is any experience with a listed company called Mynaric. Anything that you say on that could be helpful. Then lastly, before I might have some follow-up on the Batch 3.
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 your saying profitability is more than 50%? Do you fear losing, let's say, a bit of grip of the program or revenue volumes in this one also going forward?
Thank you, Mr. Peh. Maybe I start with the Ariane deliveries. There have been deliveries. The remaining deliveries out of the Ariane 5 have been done in the first half of this year, and there have also been deliveries on Ariane 6 so far. Of course, it's ramping up slower, so it's not easy to count it in ship sets because in Ariane 6 it's a new start. The need days are not always very much at the same time, like in an ongoing full production. It's a qualification phase and it's the first launch. This year it's not so easy to really count ship sets as I see the remaining of Ariane 5 deliveries and the starting point of Ariane 6, and that basically describes the issue. On the revenue side, I leave it to Kurt.
From my side, on Galileo, of course, it has been always intended by the European Commission and isn't to have dual sourcing. This has been also in the plan for the fourth generation. It was then decided after the competitive processes to only award the order to OHB. We know since a very long time that the transition satellites, which Lutz mentioned, have also been intended to be dual sourcing. The second generation is the same case because dual sourcing obviously makes sense at the beginning of a 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. Now it has been clear for us and everybody that the customers will attempt to go for multiple sourcing for the satellite.
That defines basically also the number that Lutz mentioned, because there will be three bidders, and it's likely that there will be two awards. That defines the statistical likelihood at two-thirds, because it's three bids, and to get something, that's what comes out. The second generation satellite, and then I hand it over. The second generation satellite that are now being procured is not very different from what used to be the so-called transitional satellites. This has evolved a little bit, but it's very similar. What used to be transitional satellite is now pretty much what is now called second generation satellites. That has been my answer. Maybe, Kurt, you want to say something to the Ariane or to the MT top line?
Yeah. In principle, your assumption is right. What happened in the first six months was really a substantial increase of inventories, about EUR 17 billion on MT side, and relatively poor total revenues of around EUR 40 million on MT side. 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 then has to do with the deliveries of ships for Ariane. Obviously, this is why I mentioned that we expect no further substantial decrease of the profitability figures in the next six months for MT Aerospace.
I can add a few words to the Galileo question, particularly on the why dual sourcing and can we lose grip? There is one significant difference between Galileo Generation 1 and Galileo Generation 2, and this simply is that there is a system in place already. If Galileo Generation 1 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 is operational capability in space, which means there is lots of systems which are relying on Galileo data. What has to be avoided in all circumstances is an operational gap. This was the original idea to buy additional Batch 1 satellites just to avoid the operational gap.
The Commission has decided to do differently as a new Commission and to go for an accelerated program for Generation 2. This means for risk reduction reasons, if I would be the Commission, I would have decided for dual sourcing as well, just to avoid that if one of the two suppliers or if a single supplier runs into significant delay, technical progress, whatever it is, that there would be an operational shutdown of Galileo when the first generation of satellites comes to end of lifetime. I am coming to the loss of grip on our revenues for OHB, 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 the same point in time. More satellites means more accuracy.
The number of satellites will be the same. The size of the satellites will be 4x larger. If you have the same number, 4x larger satellites, but divided by two suppliers, then actually it still means that there's an increase of revenues. 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. I don't see a risk there. I see very, very little risk that OHB would not be one of the selected captains.
Sorry. I 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, Aerospace, and Industrial Products. We set up numbers. Of course, during the year, starting from Capital Market Day, and now we're introducing the future structure with three business units. We're moving over to report in three business units. We have not yet completed that. We have not even completed the legal changes, as Lutz was mentioning. Yes, of course, this is a project in motion, but of course, we'll be also following the reporting structure. We'll also follow the operational unit structure. This is something that will come in the next quarters.
I don't know if you want to add to it, 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 exactly if you have more to add on that.
Yes, in principle, absolutely right what you are saying. We have not finally decided, but at least during this next year, we start reporting in these three different business units.
There was the question about laser communication and Mynaric. Of course, we know the Mynaric guys, and we know what they are doing and so on. Our current business volume with Mynaric is zero, and our volume with ongoing tenders with Mynaric is zero as well.
Yes, just to explain, because the EDRS satellite that Lutz was mentioning is also laser-based, but that's from Tesat, from Airbus Group. This is an Airbus Group laser product that is working for many years and that is working reliably in the ongoing EDRS-C, but also in the EDRS-A satellite that has been launched some time ago. That highway is not based, has nothing to do with Mynaric.
Understood. That's been helpful. Just actually two, three follow-ups on what you just mentioned. Coming back to the segmentation, a bit phrased provocatively, we discussed that also at the Capital Market Day. It seems like with Aerotech Peissenberg and MT Aerospace, you seem to group entities where you might not necessarily see a bright future going forward. I was wondering, is that a question of focus of turning around the business or potentially thinking about a disposal if possible? A question probably for Mr. Melching, just again, sort of to bother on this one related to MT. Given nevertheless, even if you are projecting some improvements on the revenue line in H2 from the reversal of the inventories being built up, but do we actually run into the risk of asset impairments in this division?
Lastly, I think it was also part of Mr. Melching's presentation when you were talking about HP Tutor. You were mentioning to look out for M&A. Could you be a little bit more specific about, 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, or do you have already an idea which target to look at? Is that just more intention and the plan will follow then thereafter?
Maybe I'll start with the reasoning. Yes, of course. I mean, first to say, in the aerospace and defense product, Aerotech Peissenberg is not included and will not be included because it's a minority position that is only equity. I think the creation of the digital area has to do more with strategic and operational ambition than with numbers. I think it's more transparent what will be seen in the future. The aerospace activity currently also includes some of the activities that go into digital. It's a little bit mixture now. I think it's partially cleaning up, and it's partially making clear our ambition and where we want to grow, which is the digital area. Of course, that is now currently in a situation where MT Aerospace is a difficult situation, but I think that 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 MT Aerospace activity. We have our plans how to work that out. Lutz explained that. We will move on. We know it's a couple of difficult years in front of us, yes. That's a fact. It would also be if we would not have touched the business at all. Again, the main issue is that the Ariane 5 business at that time was a very successful product in a market that was more positive, and we are now moving into more difficult years around that business. That's basically what it is. Again, it has nothing to do with giving up on that activity. I think there were maybe questions that you want for the other part.
The asset impairment question, there is really absolutely nothing. There's no asset impairment due to development of MT Aerospace. It also has to do with the fact there is zero goodwill.
Overall for MT Aerospace, because we have bought them in 2005 for just EUR 1, and there is no goodwill. Everything else would have to be critical concerning any impairment acceleration and the year end for MT Aerospace.
There was the M&A question. As I said, we are currently in the phase where we are consolidating the special portfolio. We consolidate what we have, which was very much distributed over many different entities in the group. We are consolidating it, we are restructuring it, in particular by market segments, less individual 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 have finalized it. For sure, we will define certain areas in which we intend to strengthen our portfolio, not only organically as well, but also inorganically. This, 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, you are pretty certain that they will fit.
As you can imagine, when we are under such discussions, we are under NDA, of course. 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. Richard Schramm, HSBC, please.
Yes. Good morning, gentlemen. It was already a very extensive discussion here. Maybe just allow me to work on, again, Ariane 6 or this whole launcher project. As you mentioned, it's only 6% of total sales at the moment. 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 with Ariane 6 quite obviously is losing ground here and will never be a commercial success. I dare to say this, will always depend on heavy subsidies from European politicians. We know the story with keeping Europe an independent access to space and so on.
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. 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 a fundamental new technology, and wouldn't it make sense to partner here with some specialists from the segment? Thank you.
Actually, on the rail segment.
Let me start with the launcher.
Okay.
Maybe, Lutz, Maybe I start on the first question. First of all, I think rockets and launchers all over the world are very close to government. When you say that there will be subsidies in the future on the Ariane operations, probably, yes, but that's also the case, in a different way also on the American launchers. There's a very big part of government involvement and government money. That is just part of the game. That is part of the game in good years and now, of course, in difficult traditional years, that's also the case. Europe is not worse than other players in that governments invest in access to space, and that's, I guess, also going to be the future here in Europe and elsewhere. What we see, of course, it's a shifting market.
First of all, the commercial market is smaller because of lower numbers in open telco launch opportunities. Of course, we used to be much more telecom satellites in the open accessible market, reachable for launch service providers 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. I think we should remain in launcher, we should remain in Ariane, we should work on 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. The market will change. Micro-launcher project. We are involved in micro-launchers. Others are involved in micro-launchers.
It's hard to predict who will be successful. It's hard to predict if our rocket company, Ariane, 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 involving 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, twofold we are doing. You see that we are creating with OHB Digital an area that is focused very much on the other side of the value chain, the downstream service and preparations. That is a strong attempt of doing exactly that. The second thing, what you can also see in our numbers, is that the space system part is growing and growing.
Of course, we are focusing our growth effort in the last years strongly in the space system area. We have invested heavily in range of satellite products, from five kilo up to five tons. That has been the major investment we did. I think now starts to pay off what we have invested there. Going strongly in space systems, moving on to OHB Digital and downstream, of course, leaves the launcher business looking a bit weak now, but I guess it's paying off that we anticipated what is going on now some years ago. We have been making our strategic decisions already having that in mind. I guess it doesn't mean that we should now leave the launcher business, but we should just see that we can become part of a more competitive European launcher industry in the future and regaining market share.
Don't you want to take the question?
A few 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. I would expect for our rail business in the next five years, that it will minimum duplicate, if not more. Regarding are we too small, if it would be 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. Together, OHB, plus its partners, we are easily strong enough to compete with whoever is on the market there.
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 scheme.
In these 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. In this digital area, you can never lay back and say, Now I have a product for the next five years. You are lost. Yes, we have reached maturity. Yes, we have ready to market products. We have products which are already in prototype installations. In this area, it's a continuous development process where you come up with new generations in a relatively short sequence. As I said, this is not done by us alone, but we have two very strong international groups as partners here.
Okay. 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, I was thinking about EUR 10 million, EUR 15 million or so.
No, it's even less. It's EUR seven, eight million last year. When I say doubling it, then again, that's a cautious statement. I would say in 2025-
Can be EUR 20 million for sure.
Can be EUR 20 million-EUR 25 million.
Yeah.
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.
Yeah. Okay. Thanks a lot.
The last question for now comes from Mr. Jasko Terzic, Bankhaus Lampe. Please.
Yes. Hi. Most questions already answered. 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 buildups will be reversed in the aerospace and investors segment. Can you, first of all, explain me again, what is the reason why you're so unsure about the guidance? Secondly, how likely is it that those inventory buildups will also persist in the second half of the year?
Of course. We were discussing this question internally as well. Eventually, we decided to stick where we have been after Q1. 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 not confirming it, and we are not saying we are able to do a better guidance now. I guess it's the level of uncertainty that we see. That has to do that we are not confident that we have really fully understood the consequences of it. There is 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, despite also we deleted some numbers this year. Also the order intake is 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 2021? Again, the bottom line is not confirming or not giving a new guidance, is not in itself just a story of negative, but it's an uncertainty story. I don't know, maybe you have a few more.
It's completely right what you're saying. It's an uncertainty story. For example, as I mentioned, we had already 10 weeks average delay in our supply chain. Maybe it's a bit more. You see now that for example, in Spain, the number of COVID-19 affected people are increasing a lot, and this may also affect again, our supply chain. It's possible to do this. We have effects from COVID-19 also potentially in MT Aerospace, obviously, due to now we have some lack of work there. This may be, as I mentioned, or actually forecast shows for MT Aerospace it may be a improvement in the next six months, this is not sure. There are a lot of uncertainties, especially also in MT 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, total revenues of EUR 1.1 billion. This, from my point of view, I've mentioned it, may be around EUR 1 billion, but it's a lot of uncertainties. This has to do with our supply chain. This has to do with other effects also from COVID-19. That's why it's not fair and not reasonable to say now clear figures what we expect for the year. We say that we have seen no major impact of activity. No major impact, for sure. I cannot give you a clear figure, for sure not.
Okay, thank you. My final question is on the Copernicus project, where I discovered that OHB Sweden is also pitching for a project. Just to get it right, this would increase your former guidance you have provided in February. This project is new, right?
Not really.
Yeah.
It's not new. No, it has also been decided in November. It's basically a part of the overall decisions, but it's not formally part of Copernicus. In terms of what the program does, it's very similar to Copernicus because it's Arctic Weather, but it's part of another line of ESA's Earth observation budget.
No, absolutely correct. Actually, this was included already when we had the Capital Market Day. Overall, this Arctic Weather Satellite project is around EUR 50 million, 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 question. First one is, consolidation 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 consolidation in the segment, or are we more looking at a frozen environment? The second one is, given the environment where we are at the moment with COVID-19, given past crises we had, how are you gauging the response of the institutional market in two to three years from now in terms of demand for satellites? I'm thinking about probably the next ministerial conference. Do you think budgets could be down or budgets could be still stable or growing? The last question is more detail. 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. Could it be more weighted to one or the other player? What are the rules basically on this one? Thank you.
Maybe I start on the investor structure. In the space industry in Europe, I don't see any particular consolidation efforts going on now. Of course, the overall aerospace industry, aircraft manufacturing has difficulties, which luckily is not that much impacted currently. Probably the focus is not on restructuring in the space industry. 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. To click on the Galileo question, currently, the second generation will first have two parallel developments. Then later on, obviously, it remains to be seen who will sell more satellites. Could be one supplier or the other one. It's not for granted that there is an equal sharing of the market forever.
The idea is that the customer would have two sources in order to keep the whole thing competitive over the next coming years. Obviously, there might be one source that's supplying more than the other, or maybe they even also supply equally into the next generation.
Actually, we feel the next five years will be dominated by the development program. This means you cannot do half a development. Dual sourcing for development means that there will be two full development programs. With at minimum, a first batch of satellites assigned 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 50/50. As Marco said, then when the recurring supplies are coming, there might be a better offer from the one or the other one, and there might be a sharing of 60/40 instead of 50/50 or so. That's far too early to say, and that's not for these three years outlook or so that offers out.
There's a question on institutional market in the next ministerial.
It's unpredictable, 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. The relevance and usefulness of satellite infrastructure will grow. Obviously, as you can see with Galileo now, that once the institutional customer has an ongoing operational infrastructure, it will also go on. I believe there will be also, a couple of years down the road, positive sentiment for investing in space, for investing in satellites. That also, of course, includes governments making their investment decisions within the context of ESA. Yes, I remain optimistic on the outlook for the next upcoming periods of ESA. We don't know that obviously. Nobody knows what's going on in 2022.
Again, probably satellites providing value to society at large are more likely to be funded and invested in. Activities that don't, that will be difficult for those activities. We are, of course, trying to adjust our portfolio in a way that predicts the trend of the future, that we are part of that positive development for space in general.
Thank you very much.
One could add, ministerial conference, as Marco said, pretty much unpredictable. A bit closer is the MFF for the use of the medium financial planning for EU. All what we have seen there is that we will come up with a substantial, not decreased, but increased budget for space. From the talks which we had on national levels here in Germany, Robert was in Italy, Sweden, and so on. Again, the main customers that you have are national level, which obviously are military customers and so on. I had a talk in the Federal Ministry of Defence two weeks ago, which was very reassuring because simply they said, about space capability, there's no need to explain it to any member of parliament anymore. Everybody has understood that without having it, we are either blind or we can't communicate.
The response really which I got, and this was really highest level below the minister, I would say, the response was, no risk. There is many other things which are more difficult to explain to parliamentarians than space 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 A.M., past 10:20 A.M. I would like to thank you all for participating, for following OHB during these busy and difficult days. Of course, from our side, we will be available for further questions as always. Everybody out there following OHB, should you ever have the chance to visit Bremen or in Ottobrunn or in Augsburg, just do please contact Martina or anybody to see if we can arrange that. From my side, from the whole OHB team, thank you very much for your attention, for your questions, and for following OHB, and I wish you a good remaining August and hope that you have a little also rest in the next couple of days and weeks. Thank you very much from OHB. Bye.
We want to thank all the participants of this conference. Goodbye.