Welcome to the RENK Group AG Q1 2026 pre-close call. Please note that this call will be recorded. During today's call, webcast participants will be in listen-only mode while we conduct the question- and- answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen, or if you've dialed in, please press star nine. Further instructions will follow at the time of the Q&A. I'd now like to turn the call over to Christian Weiss, Investor Relations. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining our pre-close call today. My name is Christian from the Investor Relations team. Our CEO, Dr. Alexander Sagel, will guide you through today's pre-close call and will be available for questions afterwards. As a quick reminder, this call serves to remind you of all relevant public information previously provided by RENK in various conferences and roadshows held throughout Q1 2026, or otherwise available in the public domain. With that, let me hand over to Alexander.
Yeah. Thank you, Christian. Good morning, ladies and gentlemen, and thank you very much for joining today's call. Right in the beginning, I have to apologize, as you can hear it on my voice, I have a cold. For these reasons, please be patient with me. I will keep it crisp today in providing you the key messages for Q1 2026 before our official results publication on May 6th, 2026. The headline is simple. Our story is fully on track. Production and deliveries are performing according to our customer contracts. Our land domain, VMS, is running and a clear driver of our overall business performance, and we are consequently executing our 2026 capacity expansion plan as presented during the full year 2025 call.
We are on the way to a solid 2026, and we were clearly targeting the upper half of our full year 2026 adjusted EBIT guidance and more than EUR 1.5 billion in revenue. As a reminder, more than 90% of our planned revenue for 2026 is covered by our fixed order backlog and showing a stronger H2 loading. Having said this, let me walk you through the key metrics and starting with the order intake. I'm very pleased to report that Q1 2026 marked the highest order intake we have ever recorded for a first quarter, and it came in well above the Q1 2026 range we indicated at our full year 2025 call in March. That clearly underlines a strong and continued order intake momentum, which we see across our core land defense markets. The drivers for order intake in Q1 are clear.
First, a larger international main battle tank program worth EUR 157 million. You might recall that this program was originally expected to be signed in Q4 last year and was part of the approximately EUR 200 million orders shifting into 2026. This order has now been contracted towards the end of Q1 2026 and is quite relevant for RENK by providing access to a growing market in the NATO environment. First series deliveries will start in 2027. Second, we also saw a strong order momentum from the German Puma program, where we will supply transmissions and related suspension systems, demonstrating RENK's role as a holistic mobility solution provider. Related orders for our third product offering for the Puma platform, our final drives, will be booked in Q2 2026. Finally, spare parts demand in general across Germany, Europe and the U.S. continues.
A consistent and very encouraging trend across our continuously growing installed base. It should be mentioned that we were also nominated for some smaller but strategically important R&D programs. For example, RENK is the development partner for the drivetrain of a so-called autonomous surface vessel, or in short ASV, for an international customer. RENK was also contracted by KNDS to develop a new transmission for the future Leopard main battle tanks. Ladies and gentlemen, moving forward and having a quick view on the group revenue development. As said before, more than 90% of our 2026 revenues are already secured by our fixed order backlog, and revenue conversion will be simply executed according to customer contracts and delivery schedules. As a consequence, looking on Q1 2026, the revenue overall developed as expected.
Important to note when comparing Q1 2026 revenue with previous year first quarter, Q1 2025 revenue did include Israel-related revenues in the range between EUR 20 million-EUR 25 million. For Q1 2026, and as already communicated during our full year 2025 call, we did not have such Israel volumes in our production planning and consequently no Israel-related revenue contribution. If we would, just for reference, include these Israel volumes in our group revenue figure for Q1 2026. We would be slightly above or on the current market expectations for the group. Doing the same exercise, specifically on the VMS segment, the revenues for Q1 2026 would be well above the market expectations. Please allow me one final word to Israel. Since November 2025, the German export embargo has been lifted, and we are now ramping up the production and shipments for Israel during Q2.
We continue to expect EUR 80 million-EUR 100 million revenue contribution for the full year 2026. Regarding our M&I segment, two factors were slowing down our planned Q1 2026 revenues. First, postponed revenues driven by customer-related and very specific issues regarding outbound logistics. What does it mean? RENK produced, for example, the transmissions according to the delivery schedule, prepared them for shipping, but then, for example, the ships organized by the customer did not arrive at the agreed shipping date, or, in a different case, the captain simply forgot to load all scheduled transmissions. For example, instead of loading two transmissions, he only loaded one transmission. As a result, planned navy revenues in the range of approximately EUR 10 million did not materialize in Q1. This is, ladies and gentlemen, a pure timing effect. The revenues are not lost. They simply fall into the next quarters.
Second, regarding M&I, supplier-related issues regarding housings for naval gearboxes. Our supplier had identified cracks in the welding of two naval gearboxes. Reworking was initiated, and the schedule issue is now fixed, but finally resulted in a mid-single-digit EUR revenue impact for Q1. The housings will be now delivered in Q2 to RENK, while revenue conversion will take place during Q2 and Q3. They need to be rescheduled into production. Considering these two effects, our M&I revenue development would have been well above last year, but still slightly below market expectations. When you model Q1 2026 revenue, I would encourage you to take these effects I just mentioned before into account. Also, do not forget the usual RENK Group seasonality, where Q1 is always the weakest of all the quarters. On adjusted EBIT and margin, let me give you a group level read today.
Of course, full segment details will follow at the Q1 result call on May 6th. At group level, the adjusted EBIT margin development is expected to be positive in Q1, and it's fair to say that our modular production line in Augsburg is clearly proving its performance. The operational efficiency gains we expected from that specific investments are simply materializing, which is positively reflected in our Q1 adjusted EBIT growth, which is clearly outperforming the related revenue growth and in our adjusted EBIT margin, all compared to previous year and despite a somewhat restrained top line as mentioned before. Overall, the group's adjusted EBIT in absolute terms is well above last year's Q1 level and slightly below current market expectations. On the VMS side, specifically, the margin performance, the adjusted EBIT, and the related adjusted EBIT growth looks really strong.
The modular production line, as well as the continued impact from several operational excellence measures from other production sites are a key element of this. On the M&I side, the adjusted EBIT was impacted by the mentioned two effects. First, by the specific outbound logistics related missing revenues, and second, the supplier-related schedule topic. Adding these two effects, we would be more or less on previous year's level. Last but not least, a few quick comments on our bearing business. Revenues are expected to come in flattish versus previous year's first quarter, while quarterly driven by lower aftermarket business and the impact of U.S. tariffs, adjusted EBIT and margins are below last year's Q1 levels. Ladies and gentlemen, at least I'm coming to the end. In a nutshell, 2026 showed a solid start. Order intake at the highest ever Q1 level.
A strong performance by VMS regarding all key figures. The clear and absolute growth engine of the group. Strong operational performance and execution by RENK across all segments. Finally, confirming our guidance and the targeted adjusted EBIT range for 2026. Having said this, I'm looking forward now to your questions in case you have some, and thank you very much.
Ladies and gentlemen, we will now begin the Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. If you've dialed in by phone, please select star nine on your keypad to raise your hand and star six to unmute. Once your name's been announced, please unmute and ask your question. If you want to withdraw your question, please lower your hand using the raise hand function or select star nine. Thank you. A moment for the first question, please. Okay, we have a question from a number ending in 092. Please introduce your name and your company and ask your question. You can unmute your line by pressing star six.
Hello? Alexander, can you hear me? It's David Perry.
David.
Hello.
I can hear you.
How are you?
Fine. How are you doing?
I am good, thank you. We had a bit of an IT issue our side, so I didn't hear a lot of what you said, but I'm not going to ask you to repeat it. I'll speak to Christian and Max. I just wanted to ask you a really high-level question because when we talk to investors in the last month or two, there's just been a big change in attitude in terms of people being a bit more skeptical about armored vehicles and huge coverage about the role of drones, and obviously with the Ukraine war. I just wanted to get a high-level update from you. I think the only thing that would reassure people that there's still demand is that the orders start to come through, both from Germany and internationally.
If you could just repeat one thing, whatever comment you made on any orders you've booked, and then just potential timing of some of the big German orders that we're all waiting for. That would be really helpful, please.
Yeah, David, of course, I try to do my very best. I mean, the first comment, I see if you look on our Q1 order intake, which was really strong, the all-time high, if you look on the Q1 order intake and well above the range we indicated for Q1 in our full year 2025 call, just indicates that the order intake momentum is just ongoing and just providing opportunities. If we look before I come to a general comment on conventional platforms versus or against unconventional modern autonomous platforms. If you just look for Q2, if you look for Q3, and if you look through the order intake we expect for the entire year, the first statement I would like to give is that what we communicated in our full year 2025 meeting, the visibility of approximately EUR 2 billion order intake, we can just confirm.
I can just confirm we have still the same visibility. If you talk about some of these programs we expect in the next three quarters, I mean, of course, the German programs will continue. As I just said, if we have a quick view on Q2, as I said before, the Puma final drives we do expect. We'd also do expect a further call off of our Leopard main battle tank frame contract. We also see additional orders for the so-called Leopard family vehicles. I think for Q2, it's also relevant if you talk about the land domain, we see the first, and this is important, serious order and serious contracts for Patria's tracked vehicle.
If we still stay in the Q2 and just look on the Navy side, the two larger Navy programs, which were scheduled for Q4 but shifted into 2026 for two customers, they will come now in Q2. I think that's a positive message. If you look on the rest of the year on Q3, Q4, as I always said, we do expect the Boxer coming at a final number somewhere towards the end of almost 2,000. So between 1,600-1,800 in this range. We are in the final contract negotiations for the THOR IV contract in U.S. We do expect in the second half additional order for the K2, a main battle tank family in Poland. We expect a decision on the IFV program in Rome.
If you go a little bit on the Navy side, German programs, again, the MEKO A-200 during the summertime, the F127 late in 2026, as already indicated. We might even see the second order of the so-called FFG(X) vessel frigate from the U.S. Navy. Overall, from the order intake momentum, we just see it strong. Again, I underline that we confirmed the visibility on the EUR 2 billion order intake for the full year. As you know, David, my position and my personal view on this discussion about conventional platform versus drones has absolutely not changed. If you look in the future, not only until 2030, if you look beyond 2030, it's not a discussion if we, our customers, have conventional or drones. I mean conventional platform or drones, it's conventional platforms and drones.
Conventional platforms beyond 2030 will be maybe not all 100% unmanned, but that's exactly the reason why we are striking into the unmanned ground vehicle segment. I invite all of you to see our booth on the Eurosatory in June, where you will see the first Patria RENK or RENK Patria 15-ton autonomous UGV based on a tracked vehicle. You will also see for the first time our new Leopard main battle tank transmission HSWL 354, and you will also see a new proposal of a quite performant new transmission for wheeled platforms. I hope this gives you a little bit of indication. It's not about conventional platforms or drones. It's a combination of both.
Yeah. I'm convinced. I hope investors will be. Thanks for the answer. Very detailed.
Thank you, David.
Thank you. As a reminder, if you would like to ask a question, please use the raise hand feature or star nine on your telephone. When your name's announced, please unmute and ask your question. Our next question will come from George McWhirter with Berenberg. Please unmute and ask your question.
Good morning. Thanks for taking my questions. I have two, please. Firstly, on free cash flow. I'm not sure if you said anything on this in the quarter, but any comments you can make on that would be helpful. Thank you.
No. Good morning. I was waiting for this question, but I also need to be fair. I really cannot give you a profound comment on this right now. I think, first of all, we all should keep the typical defense sector-specific seasonality in regards to free cash flow under consideration. The second point I can make, if you look back on Q1 2025, I think RENK was with -EUR 25 million free cash flow negative. I think if I look on our improved earnings situation compared to the last quarter in 2025, as mentioned before, and also if I consider known improvements on the net working capital side, I would expect, but please, this is not really now a profound answer. It's my stomach feeling, if you want. My gut feeling.
I would expect to achieve at least a slightly positive cash flow if you compare this to our 2025 Q1 -25 level. Please keep in mind, despite the fact that we booked a lot of business during Q1, the advanced payments of larger programs, for example, the Puma transmission, they came in towards the end of Q1. This means that most likely all these programs who came in at the end of the quarter, the advanced payments behind will not flow into the first quarter. They will come in the second quarter. I hope this was a good enough answer, George.
Yes, that was really good. Thank you. The second one I have was on the THOR IV contract that I think you mentioned earlier. I think previously you said it could be worth up to about $1 billion framework contract.
Mm-hmm.
What sort of firm order do you expect to book for that one initially?
Yeah. I'm also happy to answer this question. As I just said before in the call, we are just in the final negotiations, and I do expect to get it done during Q2 2026. We talk about a three-year plus two optional years, and depending if it's three years or five years at the very end, it's up to $1 billion. This is the framework contract. Then as you know, we always get one or two or whatever, sometimes three contracts per year, which are then order intake for us. If you look back in the past, the contract size or the contract volume of one of these single contracts out of a frame in the past, the THOR III contract, were in the range between $80 million-$150 million per year. It depends. Last year we had several orders from the THOR III contract.
I think the key is really to look on the entire potential of the framework contract.
That's really helpful. Thank you.
Thank you, George.
Our next question will come from Marie-Thérèse Grübner with Cantor Fitzgerald Europe. Please unmute your line and go ahead.
Good morning. Can you hear me?
Brilliant, Marie. Brilliant.
Great. Thanks a lot for taking my question. I just wanted to maybe, sorry, piggyback on David's question earlier. This is more conceptual, I know, but as you say, most of the sort of vehicles will be rather unmanned after 2030. Just pragmatically, everything that's being ordered now that is not unmanned and that has a life cycle of whatever, 15, 20 years maybe. Is this going to be refitted, retrofitted to be unmanned? How does it work? What do people do with all the stuff that they're ordering now that is manned?
I think first of all, Hi, Marie. It's good talking to you. I think first of all, the conventional platforms, if you look in the order book for the next three, four, five years, they are just needed. If you look on the current scenarios in Ukraine, as I'm always saying, and the reason that we have this situation where the enemies are entrenched in several lines and you have hundreds of kilometers of minefields and oversaturated with drones is simply driven by the fact that in the year during the summer offensive in 2022 or 2023, driven by the Ukrainian army, the Ukrainian army had not enough still conventional platforms because the Western nations did not supply enough. If we look really on all the orders coming in up to 2030, it's all conventional.
Also when we look beyond 2030, there will be significant business across all our key markets and key regions, still conventional platforms. There will be first an increase 100% of unconventional platforms. I mean, unconventional unmanned platforms like UGVs. I'm not talking about drones. We all have a significant demand for drones. There is no discussion about this, UAVs, et cetera. As you know, and you just touched this point, our customers always have the possibility by a retrofit or by a new transmission to transform conventional platforms into intelligent platforms by providing the digitalization of our transmissions, by providing drive-by-wire, steer-by-wire, brake-by-wire systems as a retrofit on existing transmissions or for our new transmissions, and by a repowering or retrofit to increase the capabilities of conventional platforms. If you take a Puma, for example, to make remote controlled steering or even semi or fully autonomous.
Again, if you look on current war theaters in a very rational point of view, look on the war in Iran. You can have thousands of drones, hundreds of missiles, but there will not be any decision to win this war. You can only reach a kind of real victory by moving in with ground troops. It's the same what you see, and I always make the comparison. If you look on the Gaza conflict or if you look on the Lebanon conflict, just by drones, you cannot win a war. You need to send troops in. These troops today have conventional platforms and will have, in the future, conventional and unmanned platforms, unmanned conventional platforms. As I said, and I think I answered this question on David's question. It's not about conventional platform against or versus drones. It's a combination what you need.
In Germany, we have the term. In the future, you will have across domains unmanned, manned platforms, and they will be connected on a digital battle space. If you take, for example, Israel today. Again, we need drones. We need all kinds of drones, which are desperately needed. We also will need, in the future, today's conventional platforms more intelligent, and we have the product for this.
Okay, thanks a lot. Maybe one comment. We're seeing that Marine, as a Navy Marine, is becoming more and more important and obviously, across the globe, not just in the U.S. I think in the future, it would be very interesting and probably very helpful for all of us sell-side analysts if we get some more granularity. Because now, the focus is on VMS, largely, right? Also, the biggest part of your operating profits. All I'm saying is that I believe that the Navy part would be more and more i mportant in the future, and it would be very helpful for us to get a deep dive at some point, more granularity on what you're doing there.
No, Marie, I think this is a very good point, and we are happy to prepare for an appropriate occasion. As you perfectly said, just look on the U.S. budget.
Mm-hmm.
Navy is getting more and more important, and I think the only difference to the land side is that the time volume impact is different.
Mm.
If you have larger volumes with shorter lead times on the land business, you see a stronger impact on the revenues, on the financials, while you have longer lead times on the navy business. For example, typically, when we do have an order intake of a naval business, it takes two to three years until we see it on the revenue side. It's a very attractive business, and it's a very strategic business, and it's a growing business. Again, I just make the reference to the U.S. budget, the $1.5 trillion, and the impact on the navy business here. It's a long-term business, a long-term OE business, and an even longer-term aftermarket business. Fair point. I'm very happy, or we are very happy to take this and to prepare for the next round.
Thank you. Thanks very much. That's all I had.
[Non-English content] Marie.
[Non-English content]
Our next question will come from Sebastian Growe with BNPP. Please unmute your line and go ahead.
Yeah. Hi, everybody. Hi, Dr. Sagel. Hope you can hear me well. I have a couple of quick questions. I would start on the guidance and kind of link it then also to the comments that you made around the one-time impacts in quarter one that are all related to M&A, apart from the Israel embargo situation at VMS. The simple question is for this one, can you fully confirm that there's kind of no sort of more permanent impact from this? It's really all a timing situation. I would assume so, because you also pointed to the upper half of the guidance. Maybe you can start there.
As a person, I'm very happy to do so. I think right in the beginning of this call today, I confirmed the guidance, I confirmed the EUR 1.5 billion of sales, and I confirmed my statement I gave on the full year 2025 call regarding our targeted upper half of the EBIT range. I would not do this, to be honest, if from today's point of view, I would not feel solid and to say this. We have shifts driven by the customer, by the way, or by suppliers who could not ship housings as expected, but this is not related to our production, performance or whatever. These revenues, as I just mentioned before from the M&I side, they are just shifting into one of these quarters, Q2, Q3.
If you talk about Israel, I think I said it quite clearly and there are, in some discussions, what I hear on the capital market is a kind of wrong perception from my point of view. There is no Israel export embargo. The export embargo was lifted in November 2025. All what I can say, and I say it very clear and with a solid voice, is we are ramping up our production according to delivery schedules. For this reason, I confirmed the guidance, I confirmed the targeted EBIT range, and this includes scenarios, as I said it on the full year call, that we might have some impacts on tariffs.
What is also clear, if the world collapses, to be honest, we have an energy crisis because the Strait of Hormuz is closed for the next 10 months or whatever, there could be an impact coming from energy prices. Then I think the entire industry has a totally different problem. Again, I would not confirm and put this right in the beginning of my statement if I would feel unstable or not sure.
Appreciate it. Fully understood. Thank you for clarifying this. Quickly on a data point or a statement that we got yesterday from a French, and then also a defense-exposed company, that they pointed to urgent requests from the Middle East region. My question to this is simply, is there any sort of upside risk that you might see even a better outcome than the EUR 8,100 million in Israel? Is this kind of too much of a far-fetched thought?
Well, this is an interesting question, and I think it's fair to say that the demand from Israel will not stop. The request from Israel and their strategic approach to build more tanks, more IFVs, to go to unmanned ground vehicles, did not only materialize in the past, it will materialize in the present and in the future. I do not see an upside to the current range, as I'm always indicating EUR 80 million-EUR 100 million. All what I'm saying is our business with Israel is a long-term business and is a very attractive business.
Fair. If I may just quickly circle back to the order intake comments that you made. I think you weren't too specific around the order intake for the first quarter. You said you were better than what you had guided to with the fiscal 2025 results call, which was the EUR 400 million-EUR 500 million. Is it probably fair assumption to say the book to bill could be around 2x, if we can dance around it this way?
Yeah. In this range. Maybe not exactly 2x , but I think I gave two clear indications. First, it's well above our range. We indicated between EUR 400-EUR 500 on our full-year call. Second, I also said in the beginning, it's our best ever all-time high Q1 order intake. I think this describes it quite well.
No, fair. The very last one for me, just on the pipeline. More on the kind of medium-term outlook. I guess there's been also fears, not only technology-wise, but also that 2024, 2025, and now also 2026 might turn out to be kind of superb order years, and after that it's getting meaningfully lower. I guess we have heard also other German defense names rather reassuring that the book to bills are very likely to remain at a very comfortable, closer to two times level for a longer period. The question that I'm just having is, would you be also comfortable in making such statement that in order to grow the revenues to the intended $3 billion mark over time, that with that you will then also see a prolonged period where you probably are running on very comfortable order intake rates?
Well, we have assumed for our midterm target of EUR 2.8 billion-EUR 3.2 billion of revenues, a clear project pipeline for order intakes. I do not see any change of this perspective from today's point of view. Please keep in mind that compared to other German companies, we are not only depending on Germany. I think what you see is that RENK is super diversified in regards to customers and in regards to regions or markets. As I did and could confirm the visibility for 2026, I confirm all the order intakes we need to get in order to reach our midterm target.
Sounds good. Thank you so much. I go back into the queue.
Thank you, Sebastian.
Well, this concludes the Q&A session. I'll now hand back to Christian Weiss for closing remarks.
Ladies and gentlemen, thank you for joining today's call. With this, we are now entering our quiet period, by the way. We will speak again at our Q1 conference call at May 6th. Have a good day. Bye-bye.
Bye.
This concludes today's call. Thank you everyone for joining. You may now disconnect.