We have an exciting program ahead that will give you a clear picture of where we stand, how we are positioning TKMS for the future, and what is our USP in a strongly growing market. Before we begin, and with kind regards from our legal department, please take a moment to note the disclaimer displayed behind me.
As good as you can, right?
As good as you can, of course. Moreover, let me make some housekeeping remarks at the beginning, please. First, for the people here in the room in particular, please note that in case of a fire emergency, please leave the location through this door. Second, today's presentation is already available on our TKMS Investor Relations website, and you can access it easily from the web page or even from the room here. Third, we will also be recording our Capital Markets Day, and the recording will be available after the CMD shortly afterwards. Now, let me also briefly walk you through today's agenda. The first half of the day is dedicated to our key investment highlights, the market outlook, and our business segments. The second half will turn to Governance, our Technology, our Strategy, including People Strategy, and finally the Fi nancials.
We will have two Q&A sessions today, one specific to the content of the first half and one at the end of the CMD with particular emphasis on the financials. You are welcome to ask directly here in the room, of course, by raising your hands, or if you are joining virtually, kindly submit your questions through the system. Last but not least, from my side, this day is not just about presenting our plans. It's about dialogue. We are here to listen as much as to speak. Please challenge us, share your views, and help shape the path ahead. As Oliver said yesterday, it's our very first CMD today, but not our last one. Having said that, let's get started. It's my great pleasure to hand over to you, Oliver, our CEO, who will walk you through onboarding. As we said, sail on today's agenda.
Oliver, the stage is yours.
Thank you very much, Jacques, and in advance, I don't know when this day will end, but you brought us so far that we're standing here. Thanks for your good work at Investor Relations so far at TKMS. Good morning, ladies and gentlemen here in the room. Good morning out there on the screens. Normally, TKMS, we usually live in a very, let's say, silent world where silence is golden. Our subs indeed are built to disappear. Our frigates are meant to deter quietly, and most of what we do and design to stay should stay below the radar. Today it's different. Today we are surfacing, and instead of stealth, we show you hopefully clarity and also hopefully a clear compass after this day is over for you as investors, for shareholders. You should know that our compass has three clear bearings. One is the returns.
It's quite important also to return from sea back home. As an investor, returns are also important. Performance matters not only at sea, should also be on the balance sheet. The second is value creation. I think our innovation and global partnership, and you will see that over the day, will be translated into prudent, margin-oriented growth. Of course, I mean, we live in uncertain times. Predictability is something we can offer because as we have those times we're living in, we believe you, we can give you a steady and reliable course forward. You see the hatches are still open. It needs some more explanations before we close the hatches and go into a deep dive into the world of TKMS. The first thing is that I have the pleasure to introduce you to today's crew, which will guide you through the day.
They're all grown up, and they can even introduce themselves better than I can. Just to give you a short overview, it's Paul, it's Angelica, it's Dirk from the board. It's also Christian, Johannes, Oliver, and Michael who give you an overview when we're talking later on about the segments. Now maybe for you also to understand what we're doing. I know you know it quite well, but sometimes a picture or a movie is more than that is possible to tell you all about. Let's start with some fantastic products from TKMS.
The world navigates through rough seas.
It becomes clear that hybrid conflicts threaten sea routes.
The need to defend national sovereignty is growing.
Chinese and U.S. military officials.
Maritime security must be ensured. TKMS enables its customers to navigate these troubled waters. We're a fully integrated naval solution supplier in Europe, providing the majority of NATO's conventional submarine fleet. We are your maritime powerhouse, covering all dimensions of the naval theater. With a powerful crew more than 8,700 strong and a global presence across the oceans, we are primed for international growth with state-of-the-art production and engineering sites. A true one-stop shop with a class of its own track record in naval tech leadership. Stealthy, thanks to leading air-independent propulsion technology. State-of-the-art naval sensors, software, and systems. Lethal, survivable, mobile, adaptable, steadfast. Ready for sea wherever needed. With a clear course set for what's to come, the future will be multi-domain and highly connected. TKMS is spearheading this development, creating an entire naval ecosystem. Bolstered by an exceptional order backlog, we're fully on track to sustained growth.
Powering maritime excellence for a safer tomorrow. We are TKMS, your maritime powerhouse.
Hopefully you're still impressed as I am, and I really watched it several times before. It's a great product and a great company. Paul and I will now guide you through the key investment highlights. I will start with that, and I mean, already Jacques introduced me, but maybe giving some personal remarks also from my side. I'm the CEO in this company since the last three and a half years. I have been what Volkmar is today, the Chairman of the Supervisory Board three years earlier. Meanwhile, six years in the business. Before that, I was a Board Member of TKAG, our mother company, today's mother company, still our mother company, the last 12 years in essence. I'm really happy to be a bit more operational, honestly. This is why I have chosen this role.
As we are living in exciting times and very challenging times, it's also a pleasure to run together with that wonderful crew, this wonderful company. I'm not a technician, so I'm not super convinced about everything what technical comes into my mind, and I'm not convincing to tell you about this. What I learned is that we had no place where the density of technology is so small as in a submarine. You can even more compare it to a rocket than to an airplane. If there's one meter of submarine, there's 1 km of cables and pipes and all that stuff. If you see how dense this technology is put on those 80 m in a submarine and what it is able to do with its capabilities, it's really a technical wonderful thing. This is what challenged me and caught me once when I started working here for TKMS.
Let's jump into the slides. Those who have attended the management meet the management meetings, they all have seen this first slide. I'm very keen to always present that upfront before we start with the figures and the entire story because this is part of our story, what we have done in the past. We started our journey to R2i. We call it R2i. It means Road to Independence, nothing to do with Star Wars or something like that. It's R2i. It's an abbreviation for us. Some years ago, meanwhile, almost four years ago. Why is this so? Because this company is really a jewel and it needs development and it needed those days some challenges ahead, some changes, of course, to get better.
I think what we have done so far is a lot of that homework, what needs to be done to be part of the Titan Vendor because the Titan Vendor appears one and a half years later. When we started, it was 2021, and you all know that February 2022, this all with the outbreak of the war in Ukraine started. I think we have fixed our basics, and I will give you some examples. You will see it like a red thread through the presentations everywhere, what we have changed over the last years and why we are now very convinced that we can execute very stable this big, huge order book.
From my point of view, and I think Paul shares it as well, the improvement of the margin you can see so far, and I mean, we have been part of the reporting units of TKAG, so you can see every quarter what we have done over the last years. Those improvements of the margins are our success so far. It has nothing to do with the new contracts because if they occur someday in the EBIT and everywhere you want to have them, then you will see this is working, yes, but what we have improved so far is done by our own hands. What have we done so far? Just looking at the contracts, for example, higher hurdle rates as in earlier contracts, price inDAXing clauses are implemented. We haven't had them in the past.
Clear contractual setups, who's responsible for what, customer, producer, continuous monetization of change requests, always a bit upset in the big upset in the past. I think what we also have set up is a very proper claim management, which was not there some years ago. You have seen that yesterday, those who have attended, unfortunately, those who are just online don't have the chance for that. You also saw that we modernized our shipyard in Kiel, that we acquired Wismar at a very early stage of the Titan Vendor, just remember May 2022, so some years ago. We integrated ATLAS, don't forget that, once there was a joint venture between Airbus and us, thyssenkrupp, and then afterwards we 100% now are owning it as TKMS.
You will hear that also, will come over the day at certain points, we set up a new target operating model where we put the projects in the center of everything in our company because the projects are the ones who are losing or earning money. It's not about all the other stuff, it's about the projects, the customers. This meant that those days that we had to put 4,000 people on another place inside our company. As you know, we have 8,500 people working for us, so half of the company got a new job, got new responsibilities, got a new, let's say, feeling to be and feel responsible for the success of the project. Very important step for us.
All these, honestly, ladies and gentlemen, are prerequisites for that, that we can stand in front of you today and present you this company, which will be sooner or later listed in this year at the German Stock Exchange. Of course, we filled the funnel with projects. If you see the order intake over the last 12 months, it was tremendously high, so it wasn't that speed as we had in the beginning. Of course, with the first order of Norway and Germany, it was for Norway to Germany, we were able to start, of course, this journey better. As you are all investors, I do know that you're interested in returns, as I said earlier. I think camouflage is the new green, or in our farb color scheme, it's gray, and black is maybe the new green.
I think we are really a brilliant investment case as well because with that order book, and we will show you then in some minutes, we will give you a very, very comfort and resilient and stable execution, and this execution will lead to really good figures and very stable figures. That's my short introduction. Sorry for that, but I think you should know that we are very proud of what we have done so far, and we're still not yet everywhere where we want to be. This is normal. Transformation never ends, but we have gone a long way, let's say it like this. As you are aware, we will have three reporting units, the Submarines, the Surface Vessels, and ATLAS ELEKTRONIK. You know the share of the revenues at the moment, last fiscal year, 50%, 30%, 20% means this is dominated at the moment by submarines.
If you look later at the order book, Christian will present you from submarines, it's crystal clear. This is one of our key priorities. There's also a lot going on on surface vessels, talking about F127, which was a big project from Oliver, coming up, big campaign. We'll also in some years shift this around, so maybe it's a bit more than surface and a bit less submarines. If you look at the growth rates, especially at ATLAS, you see there's a lot to come also from their side. Still three reporting units which are on a growth path on the one side, but also have a long history. Just look at one figure, the 10,000 years of operational years of operation. This is really a USP because you see we have more than 325 vessels supplied or even built by our own.
Nobody has that in that industry here in Europe. It is for us a big, big base for partnership. Just this word you also will hear very often because we're seeking for partnerships with our customers. It gives us really, on the other side, also a constant feedback on our products and services which are out there. Some of our customers are really power users. You can maybe think about that, that they are very interested to give us also hints and recommendations for improvement of our already existing and future platforms. From a financial side, Paul, best for last, right? At the end, topic number nine in the afternoon, you will see all the financial figures that you can feed your models with.
I'm pretty sure you can stand it before because we try today to educate you a bit, as far as I can say that, to bring you a bit closer to this industry, which is a special one and has its differentiations between submarines and surface, and of course with ATLAS. One thing already is mentioned, it's a really big order book at the moment, EUR 18.6 billion. You see the improvement over the last 12 months. It raises up to 50% within the last 12 months, coming from EUR 11.8 billion. That was the big order from Germany, especially, but there's also some other countries. Some of them we will not name, but most of you are smart enough to find out which country that could be. There are not so many customers, but it helped us a lot.
There is one thing I have to state here very clear, first and foremost, the execution of this order book is our top priority. There is no doubt and no negotiations about that because this is a prerequisite for all other ways we might go in the future. Having a record order book like this, and maybe at the beginning of a cycle, nobody knows when it really ends and why, and hopefully if some days, because we all want peace on earth. You see that later when I come to the markets, there is a lot that was missed out in the last years, especially after 1990, and the so-called peace dividend was collected, but not invested, of course, in maritime infrastructure.
Doing though with that already booked orders, I think you maybe have a glimpse of that when I say this is like an investment in infrastructure, but with a higher margin. Because investment in infrastructure is a quite safe one, you're keen on that, it has a margin around low one digit, and executing this EUR 18.6 billion in our order book will give you a very stable margin over the next years, I would also say at decades. It's not yet the end because if the day would have ended here, now I don't know, fire alarm, hopefully none will happen, then you should just take this slide away and go home with that and say, this is the story more or less, very condensed of TKMS. The market we are in, and these are our market figures.
I know there are a lot of market figures out there given by others, but I can only tell you our market figures and our observation about the market. This market will double within the next 10 years. Though the so-called attainable market for maritime products like TKMS has in their portfolio will double. The second thing is, and we spoke recently last evening about that, it's about we are the only ones who are having everything under one roof: software and electronics, sensor, shooter, the platform surface vessel, the platform submarines. You don't find that. I'd show you later in the market segment our peers, they're not as equipped as we are. It was a long fight over the road to independence story the last years because there were always rumors about dismantling TKMS and all that stuff.
I think we did the right thing, we kept it together, looking at my Chairman of the Supervisory Board as well, saying we did the right thing, we kept it together, and now we're in a position that we can go public even with that USP, having everything under one roof. You will hear a lot about technology, maybe really a lot about technology, and that is not by accident, this is by purpose. As I said, we want to educate you a bit. When it comes to technology, and you can ask all our customers, navies out there, this is edge what we have here. Looking at the air independent propulsion on one side, but looking on other things, the stealth capabilities our submarines, for example, have, the modularization on our surface vessels, the concept, I think we are a leader of the technology route in this branch.
The order backlog already mentioned, prime for growth, not the end, but we will be cautious and a little bit, I would call it prudent, if we look at further growth because we are a prudent margin-oriented growth track we're following. It is a growth stack anyhow. Growth is something which will shape this company over the years, but don't expect a doubling every two years of our revenues or our capacities. I will come to that also later. Giving the outlook midterm as a starter, the new ones, let's say, we are guiding above 7% margin at this stage. This is the takeaway, and we will not stop, I promise you. We will go on in our presentation.
Looking a bit at the Global Maritime Network, you're all aware of that, 71% of the earth is covered by water, and the insecurity risks everywhere are affecting shipping routes, harbors, subsea infrastructure. This is why all commanders of navies all over the world are saying all eyes and ears need to be in the water these days. This is exactly what's going on. Everything that is able to swim is out there on the Baltic Sea and in the other hotspots, especially close to us. We're close to the North Sea, but if you look on the other side, the Baltic Sea will definitely be a hotspot in the next years when it comes to certain problems with all the countries around this Baltic Sea. The seas need to be secured. We are, especially with our customer base, exactly at those hotspots.
The Baltic Sea here in Germany, but also parts of Norway, the Atlantic Ocean, the so-called North Flank covered by Norway, and maybe also by Canada, which is one of our big campaigns at the moment in the submarine program. Southeast Asia, as you know, we are the last ones in the competition. There's no other competition anymore, and we're starting negotiations with India very closely these days. I think we are there where we are needed to exactly do that. What is the intention behind it? To secure the seas. Looking at the budget, the trend is clear, all budgets are rising when it comes to our market, and we call it the so-called attainable market. Just a brief definition of the attainable market: it's the market where Germany allows to export and before produce things in Germany to bring it over there.
Of course it's NATO, of course other NATO allies, and of course there are some, let's say, more strict in the past, especially export regulations in Germany, but I can assure you this has loosened over the last months and years, starting of course with all the deliveries to Ukraine and some other countries, and this is not an issue anymore. There were cases when India, the BAFA, was more known as the Oktoberfest. This is over, yeah. Because everybody in India knows, oh well, the BAFA, the BAFA, this institution, this authority here linked to the Economic Ministry, they always were very late with that allowances, and all customers were also a bit afraid of that. These were the days indeed when Oktoberfest was not that famous as the BAFA, but now it hopefully has changed those days especially. Look at the different growth rates.
This is interesting for you to see, hopefully, the average growth rates when it comes to, and you will find the small symbols, the lowest, the 8% is the submarine branch, then it's surface, a bit lower, 6% market growth year- over- year, 12% when it comes to electronics underwater. Very interesting, completely covered by ATLAS, and the colleagues will present you later, but also 9% when it comes to electronics and surface vessels. Very interesting market. These are not our figures. We have copied and pasted them from a study McKinsey made. From our point of view, I think neutral, maybe you call us biased, we are not at this point.
I think if you sum it up, it comes from $31 billion to then $61 billion, 10 years, even meanwhile only 8 years from now, which is, yeah, not often seen, let's say it like this in this branch over the last decades. Again, some pictures of our products on the submarine side. Christian will show you later what's going on and how do they differentiate for, let's say, somebody who's not that advanced. They almost look all the same, but honestly, if you're becoming an expert, you will differentiate them each from each other, whether it's a 212CD or 214 or 209. Surface vessels, just to highlight that one in the middle, this is something special. This is an icebreaker. It's a Polarstern 2 . It's a ship of the Alfred Wegener Institute in Germany. We won that contract in December last year.
We're very proud of that because it's a really, really super project. It gives us, I think, a lot of attention in a market we are not on. Just to say it very clear, is this the start of civil ship production? No, but it was an opportunity for us, and we can build this in Wismar and there are all, let's say, prerequisites very good to do that. It's not our entry in the civil ship market, but it's in a scientific or science ship market, more or less a one-timer because the last one was also built by HDW, which was a former company of our TKMS today, and it's 45 years ago, so it's close to retire, the old ship, and this new one will be built in Wismar.
Nice contract, over EUR 1 billion, and has a lot of sensors, by the way, on the ship, which you also see on frigates and corvettes. Maybe with a completely different meaning compared to frigates and corvettes, but technology-wise, very interesting. Later on, the colleagues will show you ATLAS ELEKTRONIK, and again, the good thing is we have it all under one roof, and you see that down there in the last line. We can really supply software and electronic systems all over the platforms from ATLAS ELEKTRONIK, a very big advantage. If you look at our competitors, this is always differentiated, minimum two or four different companies. We have it all under one roof, so we only have, let's say, one agenda, one approach. This is the one-stop shop philosophy, and I see that very clear.
When I have to do a lot with customers and meet them very, very often, of course, if they are interested in a submarine, there's also a program on the site which maybe needs new frigates or needs a new Sonar or needs autonomous vehicles underwater, above the water. If you go in front of them and say, I'm not only there for your submarines, I could also do all the other things and even those services if you want to. It's very interesting as a company to be in that market and not just, let's say, serving a niche of this niche which we are already in. It has advantages for the customers.
It has also internal advantages, and we skip the number of internal interfaces between all those three dimensions because it's very important that maybe part of our homework we already have done, that we also look at G&A and don't have to have it double as we had in the past when ATLAS was an owned company and not part, 100% part today of TKMS. Looking at our customers, just one figure to maybe remind later on, 60% of our customers are longer with us than 40 years. This is quite a strong figure, shows the trust in our company. You see also when you look on the landscape, the really very broad installed base and the countries we have made business with in the last 60 years. I use this slide always to tell you a pattern which I have observed when meeting the customers.
What is the pattern at the moment? They all have higher budgets. That's crystal clear. Most of them all have higher budgets, almost everybody. These higher budgets need, because we're talking a bit about politicians, higher attention. Higher attention will lead to being more cautious to spend this more money I now have instead of the old times. Then, and this comes a nice part of the story for us, they go back where they have been before because they don't want to make any experiments or trials. They want to spend that higher budget on a place where they know that it's well invested and get their return on that what they have on higher budgets.
For us, a good pattern because I think you will see that the designs, whether it's 212CD or whether it's the EKO design on the platform side, is very well searched at the moment and a high demand on that. This brings us into a position, even though we are in a market which 60% over 40 years are very well-known customers, that this market is shifting a bit from a buyer's market to a seller's market. This gives us advantages and we see that in contracts. For example, the TNCs and those big contracts, and they're always very big contracts when we make them, are even more in favor for us now as they have been in the past. Just talking about the price inDAX clause, Paul will show you later.
We never had that, but now we have it in every of our new contracts, which gives us a good opportunity not to take the risk due to a fixed inflation rate, even have it inDAX-based somewhere else secured. I think also without being vain, navies love our stuff. It's reliable, it's top technology, and it has a deployability which is really unseen in this field. I tried to also educate you to some German words for those who are not German speakers. I would try the first one. This is a Wimmelbild. You ever know what a Wimmelbild is? A Wimmelbild is just a phrase, a German phrase that's saying it's a lot going on on that picture. It's a lot going on because here you see more or less, quite illustrative, of course, the key factors of the future naval ecosystem.
Our frigates, our submarines, but also autonomous vehicles and the future naval ecosystem, even though it's not yet there as it is on the water side, will be integrated, and you have seen it in the movie, in a multi-domain environment where land, where air side is also connected. For us, connection is key because if those systems on the ships, on the platforms, autonomous, crewed, uncrewed, in the air, on the land side don't understand each other, we have a huge problem because they cannot communicate, they cannot make the right decisions. As soldiers, you always want to have the first picture before the enemy has it, before the others have it. You can decide whether to shoot or to escape, just make it very simple.
To get a clear picture, nice other German word, Lagerbild, gives you the opportunity with that what we have on our ships so far and our submarines so far. In addition with that, what will come up with unmanned systems to give you the full picture. I often got the questions, will subs and frigates remain relevant? This is a question I'm pretty sure someone of you has it on his pocket list or wherever and say, will this be the future as well? I can tell you, first of all, two core reasons. First is those platforms, whether it's a submarine or a frigate or a corvette, they will serve as control hubs, coordinating autonomous systems, and they always have their own mission. By being the coordinator for all the others, they also are on their own mission.
I think the second one, those platforms will enable special operations that require deterrence and carry also the effectors. What is there on a frigate and in a submarine is also needed when it comes to defend yourself. There will be, in addition, an enlargement of this naval ecosystem by crewed, uncrewed, above and below water platforms. Later, Oliver will show you, there's a lot on a frigate meanwhile. When we're talking about drones, and I know drones is the last shit, I know, I know, drones, when we talk about that, you will see that they're already in the back of a frigate. There's the possibility to put some helicopters on, but also to have a drone bay, for example, to be part of that Wimmelbild ecosystem, what you see here. I think Johannes can tell you very good about that. Interconnection is something which is very important.
I would say connection is key between all that systems, and this is a perfect and seamless link to our product folio, which you see here. On the left side, the evolution of our crewed naval platforms, whether it's a heavy combat frigate like a MEKO, and again, another German word, MEKO is an abbreviation for Mehrzweck-Kombination. Getting a bit more tougher now, Mehrzweck-Kombination, which means a multipurpose combination. In English, I think it sounds nicer, but anyhow, the MEKOs is that concept of modularity you need, and you need to connect with all that stuff on the right side, which is the uncrewed systems, whether it's a semi-submarine or even autonomous underwater vehicle, but we will come to that as well.
Before I now hand over to Paul, really just a short view on that, what's beyond that order book at the moment, and we go that some layers deeper over the day, but just to give you a short glimpse of that, it's about a running campaign of the Canadian patrol submarine program, a big one. We are down selected the last two together with another competitor from Asia. It's us and them. It's a P-75(I). This is an Indian project, quite long and let's say already out there, and the demand is, I think, was been specified 10, 15 years ago, but we're now on the final course on that. We're starting negotiations with the last one, so no competition anymore. The F127, it's a big AMD.
AMD stands for A nti-Missile Defense frigate, which will be the biggest ship ever built after the Second World War here in Germany and having a lot of capabilities on board, which are needed because the Germans already promised this to the NATO. They have to deliver and they have to have them. There's a lot going on, but this will tell you later than Michael when it comes to mine counter measurement, especially in some areas of the world where a lot of them are already swimming around. I think for the first view, hopefully a good start, and now I have the pleasure to hand over to Paul, and I'll be back later in a different topic. Thank you so far.
Okay, I'm going to adjust this here. Yeah, also a very warm welcome from my side. I think everyone already in the room knows me, but for the viewers out there, I'm Paul Glaser, Chief Financial Officer of TKMS, and I've joined the company in 2021 as CFO, previously also serving as the Head of Strategy for TKMS. Oliver already told us a lot about our company, but I can assure you since I joined, we are really focused on combining both elements, growth and profitability. One very important part of our strategy is building up a very strong platform that is giving us the opportunity of taking advantage of the market opportunities that you have seen and also converting the increasing order backlog into profits and cash. What are the strengths of this platform that you see here on the slides?
We are really focused on executing the $18.6 billion of order backlog today, and we are also ready with this platform for future growth. If you look into this platform, there are four key elements that are very important for you to understand. One, we have the world's most modern facilities, and Dirk is going to speak about that later. Some of you have already seen them yesterday. We also have a very strong network of global partners, partners that we can work with, that are trusted in long term and that have been able to deliver the quality that we need. Third, we have a very robust supply chain, and this has proven very resilient even through the various crises that we have seen in the last years that happened at the markets. Fourth, Oliver spoke about that, we created a new target operating model.
This is very key because this target operating model has changed how the company is operating. It's now a very project-centered business that we're looking at, and it's changed the processes and procedures. We already, with this new target operating model, have achieved very significant improvements. You can see this in our financial track record. You can see this that we have been much more disciplined in bidding, in pricing, and also in contracting terms. Second, that we also are now in the possession of a very new and state-of-the-art production setup and an industrial footprint, which is very, very unique. There are very two key cornerstones here. We will speak about later during the presentation today about the industrial setup, about the production platform.
I'm going to give you already today now a deep dive on the letter on how we have changed the processes and procedures of the target operating model. What is key when you want to change a company? It's really key in our industry that you start where everything begins, and this is the bidding stage. We really looked into our bidding stage and what were our processes, our procedures there. The key element that we adjusted when I joined the company here and Oliver, we said, look, there are two main factors that we need to keep in our hands. Cost inflation, meaning clear inDAXing clauses based on material baskets.
Second, that we have a contractual base that is going to allow us not only to be overpaid over the entire life cycle of the project, but this is also reducing the bargaining power that the customer naturally has in certain stages of the project. That was very, very key to us. Once we have fixed this and we have negotiated the contracts with regards to this, we also looked into our design processes. Our industry, being very thorough in the design stage, and we are also going to explain that to you, is very important. Why is that? It's because you are setting the baseline for future change requests. If you're not doing that properly, it's very, very difficult of monetizing change requests later on.
You also need to have a thorough design and you need to use proven technologies in order to reduce non-conformity costs once you move into the execution stage. Always setting the design first, fixing the design first, and then moving into the execution stage is very key in our industry here. With regards to the execution, you have seen in Kiel that we have a very good footprint. We also have changed the ways of how we are constructing the submarines in certain areas. We also have increased the utilization rates on our shipyard, which is then driving performance. This combined is really giving us a competitive edge here. However, if you look into the past and if you look into certain shipbuilding programs, one key element is also the last stage we call it commissioning stage.
When you hand over the vessels to the customer, this is also a stage that takes a couple of years sometimes, right? Because you're testing, you're running certain procedures, you're training the crew. There's also high value-added services that you can offer there. Nonetheless, you really need to make sure that this runs seamless so that you have proper verification standards, that you get the check marks of the customers that you want to hand over the vessel. As we are overpaid over the entire life cycle, there's not so much bargaining power about final installment payments. We always want to avoid large final installment payments because this normally in shipbuilding is always where you're running the risk of making unfavorable commitments to the customer at the very end and last stage of the programs. This target operating model really has improved a lot of things.
It has improved margins, it has also reduced our lead times, and it also has improved our utilization rates and also we can deliver on higher quality. This is going to be key of driving and also converting the current order backlog into future margin growth and cash. When I look into the financial track record of the last year, you really see me smiling here because we have done our homework and Oliver said this. If you look into our sales, we have grown the company in the last years roughly about 9%. This growth was all driven by orders before the market momentum picked up. That's very key to understand. The orders that we have booked in the recent 12 months are not yet really fully reflecting in our sales, right? They are coming online, they are coming upstream. It's very important to see here.
Second, you also see that if you compare it with historical figures, we already have managed to more than double our margin from 2% to 5.5%, which I think is a very significant proof that this new model is working. We have stabilized old projects, what we call legacy projects, and we are now phasing those projects out and are replacing them with the newer, higher margin orders. We're going to speak about that later, how this is going to look like. This is a very key element of growing profits for the company. Third, and I think this is also very good, we have this strong order backlog. This is really giving us headwinds, a very good profitable wins for us. That's a very good level for TKMS. We also already have done the investments into our key facilities.
We're going to speak about Wismar later, how this is going to work, but we all did this without financial leverage. When we speak about the balance sheet and also our capital structure later, this looks quite attractive. You have seen a significant margin upstep from us, and I think there is much more to come because we are very disciplined of executing the order book now. If I look into the drivers of the EBIT margin uplift, the above 7% for the midterm, as I said, there are three elements, and some of you already have seen this during the meet the management.
For those who did not attend, it's very key to understand there will be a phase out of low margin, zero margin orders over the next years, and we are replacing them with the new higher margin orders that are mainly coming from the submarines business, also surface vessels, but also from the ATLAS ELEKTRONIK side. Second, as we are now fully consolidating ATLAS ELEKTRONIK, this gives us a better vertical integration with the existing platforms, but we also see a higher revenue share on the high margin ATLAS business in our P&L going forward. If you now combine this with a stronger utilization from our operations and combine that with being more disciplined in the overhead segments, this really is driving our margin growth here to the status level of an uplift of 7% and beyond in the midterm.
If you would summarize this really like from a CFO perspective, why is this such a wonderful business model and why I love working for TKMS as a CFO? It really is a seller's market, so we can sell more at higher margins, but we can be selective. We do not need to chase each and every order. We can be very selective on what the orders we're taking. We have a very strong technology base, not only being a leader in the conventional submarines, but also with our central to shooter chain and the ATLAS ELEKTRONIK business. Thirdly, you have seen this platform. This platform is now ready to scale. It will be ready to convert the existing order book and also the future orders. There is also, and I think it's very important, it's a growing order book that this platform can convert into profits and cash.
This makes us, I think, very, very nicely set up for the capital markets. Oliver will tell you how our market globally will develop so that we can harvest additional opportunities.
Thank you, Paul. Kind of a sneak preview for all who are very interested in the financials. He started already, but he will come back at Chapter 9 again. Let's have a look at the markets, as Paul already announced it. Of course, an exciting and thrilling market, but it has some reasons why it is like this. Just look at that picture here at this slide. You see what has been not done over the last years, especially after 1990, the understanding and, as you maybe friendly call it, the peace dividend. I think those times are over. The peace modus, as I say, has left the room, and we're now back in a different situation.
If you look at that, what had happened over the last decades, you see how less remaining large surface competence are still there, 78% from 128% when it comes to European naval forces, and even though worse when it comes to submarines, - 45%. A lot to catch up. We all know this industry was more or less driven down to rock bottom. Just having Germany as an example, Germany runs six submarines, and we had a shipyard in Kiel at those days with 1,700 people doing service and maybe being prepared to build some new, also on the other side to do some export, which was very restricted in the 1990s and early 2000s. For us, I think it's clear we're not rock bottom anymore. We're ramping up, and especially with the purchase of the shipyard in Wismar, we have a big opportunity now.
You cannot speed up so much a process of building a submarine, but you can do double in the same time. This is exactly our pattern we're in. We have in the future two shipyards, Wismar and Kiel, and both will produce submarines for the higher demand because of that, let's say. Again, a view on the Defense budgets, a bit more split up to Germany, European NATO, and U.S. and Canada. You see the levels in U.S. and Canada are still high. The rise is not that high because coming from a different level. Especially if you look at Germany just 10 years ago compared to today, it's still not ended. Just yesterday was the announcement of the EUR 140 billion from the European Union also giving for funding for armament, also something which is interesting for us.
It's not a German view only because, as you know, we have customers in Norway, in other NATO countries, in NATO ally located countries, and there's a lot of opportunity for us. I don't think that the market is our problem. In contradiction, the conclusion is I think we're well positioned in those local markets where the growth is the highest, namely Europe, namely Germany. It is always important to understand what the customer wants. Of course, that sounds easy, sure. If you look at the doctrines, and they all have their own doctrines, all navies all over the world have their doctrines, they call it white paper, whatever paper. At the end, it's quite clear. There are three, let's say, mission profiles which need to be covered, which is territorial defense, undersea warfare, and maritime strike.
I would add it just with the words of the Ge rman Commander of the Navy. He said every unit has to be a carrier, which means in his words that every unit out there as a platform already needs to have autonomous vehicles on it, underwater, above the water. Every unit has to be a carrier is a challenge for us, for example, for submarines because we don't have drones on a submarine today like this. Maybe he wants to have latest by, I don't know, 2035, because they call this doctrine maritime 2035+ . You can see very clear what is their demand in these days. There are the F127 frigates as well as more than six new submarines. You already saw the order came in last year for additional four, which sums up to six. They're keeping their words, let's say.
It's quite clear that this is more or less the compass we try to steer and to navigate with our capabilities and our facilities. On the right side, you see the profiles are changing a bit, but everywhere you find a black tick, and hopefully also good to see for the people online, you can see that we are already in that business. Expect the unexpected when Michael Ozegowski and Johannes later will tell you about ATLAS because we already have autonomous vehicles. We already have a lot of systems running. Maybe not that popular as the new kids on the block when they occur and make a lot of advertisement. We are a bit quiet. This is a silent industry over decades. I think we learned from them on one side how to advertise that, but on the other side, no worries.
We have it already in our portfolio, and there are still some things to do, as I showed earlier, when it comes to multi-domain operations and the usage of AI to find the right decisions. This is a chart I always saw. We always show also in the meet the management, and don't call us sarcastic. I'm not at all a sarcastic person. I'm an optimist in any case. I think our business model is, let's say, a bit more peace-resilient than other business models in defense. What do I mean? Especially just the first column saying we are more in a strategic asset than a consumable thing. If we're talking about, for example, ammunition, which is highly needed, they scaled up from, I don't know, 70,000 to millions within three years.
This is not possible in an industry like ours because then we would have a parallel building of 400 submarines at once, which there's no demand, and the other side doesn't make any sense, and it's not possible at all. Peace resilience means that once the hot wars, maybe, and hopefully they will, and sooner the better, and Ukraine will stop, of course the demand for ammunition will go down, for example. We still have our order book, which is already EUR 18 billion and still rising. You saw the projects and campaigns, which makes us a bit more resilient against, let's say, very short time development, which is maybe for others a bigger problem. You know these partnerships we always highlight here, they are very important. This is very important for you to understand that partnership is not just a sales word and say, we're partners, we're not doing contracts.
What I say outside when I go there, I say I'm not chasing for contracts, I'm seeking for partnerships. Only a partnership is the way to solve all that stuff over a 40-year journey. You're in a relationship without getting the possibility to be divorced. You stick together from the beginning to the end. It needs three interfaces that it comes to an order. I just want to highlight that because for me it's important that you understand it. We are a B2G business, right? We cannot sell submarines and frigates to any private person. It needs, let's say, at the end, three interfaces which have to work. The first is government to government, very important for Germany, because if the government is not in favor of the German government, the German government will not allow the export of that stuff, right? This is quite easy.
The second interface is navy to navy, because normally a navy, like the German ones, runs submarines. Other navies do not have submarines yet, so they need education from navy- to- navy, sailor- to- sailor, let's say. The last thing is we need an industry-to-industry interface. That means, for example, in Canada or Norway as well, there are opportunities even beyond that contract. We're not talking only about submarines, we're only talking about industrial relationships or local policies. For example, Make in India, you're all aware of that, that the Indians tend to have more global local content than in the past, and they want to benefit from spending so much money for one product which will be designed here in Germany. It's very interesting to understand that these three surfaces always have to work together.
If they are all on green, then it's quite likely that we get an order. If one of them is disturbed, then maybe we do not get the order because of political, industrial, or navy to navy reasons. Just important to understand. This is why we always value and appreciate and even foster those partnership ideas, because if you are not a partner, then you're in a 40-year marriage without any happiness at the end for both sides, by the way. Again, a view on the attainable market. Nothing new to that first highlighting slide, just to give you a better view on this. I think this development affects us in a way which we have never seen before. Just to understand, there was never an attainable market by EUR 60 billion for us. Of course, we're becoming, again, if we get the order, a partner of them.
It also has to be understood that being a partner is also being part of their defense strategy. Getting within big order, for example, 6+ submarines in India, being then a partner of the defense strategy also for India, which is a different role than just selling something. I don't want to overemphasize this, but it's important to understand that you become, with such an order, a kind of the backbone of their defensibility. The growth rates, as you see, are really good. Still the same ones as in the slide earlier. No change here. 12% in electronics. It's very, very interesting. Yesterday evening, we spoke a lot about the market as well when we sat together one-on-one or in smaller groups. Of course, the market, let's say, starts to move. I think the Naval Defense IIndustry is undergoing, let's say, accelerated collaboration and consolidation.
We are part of that. Just remember thyssenkrupp Marine Systems bought a bankrupt Eastern Germany shipyard in 2022 as an asset Diehl without any people because we always stated, we will hire people once we get the contracts. If we don't have the contracts, we cannot hire people because we cannot employ them. I'm really happy and thankful to thyssenkrupp that they made it those days because it was not that easy, honestly, and Volkmar knows that, to convince the Supervisory Board of thyssenkrupp to buy a bankrupt Eastern German shipyard. I mean, that would also not be on your list number one in your investment committees, I'm pretty sure. It was a good idea those days because then we, let's say, set the cornerstone for a development and a capacity rise which we wouldn't have if we wouldn't have taken this opportunity. Thank you for that as well.
The trusts and others also made their moves. I'm not here to talk to you to tell you anything about Rheinmetall, but of course we are all aware that they acquired just NVL, and I'm pretty sure you want to hear something, but I don't tell you, I promise now. Also look at the others, and I mean, Fincantieri as well is doing a lot of, let's say, smaller acquisitions, but also a lot of statements regarding this market. You know what? For me, the entry of Rheinmetall shows really the attractiveness of this branch. We're at the right time doing the right thing, doing a spin-off, going out there, being listed soon is exactly what they also see. We should not forget, again, in this chart, we took over as well the ATLAS by 2018 and 100% in the last month for TKMS.
The takeaways for you when it comes to a market outlook, for sure, you are aware of that, growing budgets, there are really changing naval requirements, which I think we can cope quite well. We are in a very attractive and resilient market and even a bit more resilient than others in this market. We expect a doubling of the so-called attainable market, and the key for that is indeed collaboration with partners, but it's not yet over. I think also with that way now to being listed is also a chance again for further consolidation in that market and makes us a bit more clearer how worth we are, what is the market value of our company, and gives us, I think, some leg room which is needed to make decisions.
Now I have the privilege to be the one who's just introducing our segments, and we will go step by step through it. We'll start with Christian and later on Oliver and then Michael, who will show you our three new reporting units. Just to give you the overview where we are regarding revenues, cross-margin, headcount. Again, for me, a big pleasure to do that. Before the colleagues start, just a brief overview in our competition scenario. Where are our competitors? Of course, we just named them PIER 1 to PIER 6. Who's aware of this branch maybe finds out who's who, but it's not on me again to tell you that. That's your intelligence needed for that. Just look at the columns and fill what is TKMS doing and what are others doing. It's not only Europe, it's also worldwide.
All the peers do have some black boxes where they are not in. This is maybe for you one of the evidences that this message we have, we have in USP, we have everything under one roof, is exactly something we can count on and we can be proud of. We will work further on that to foster our position when it comes to competition and to our peers. With that, I have the privilege to hand over to, this should be Christian, right? Christian, welcome aboard the Head of Submarines.
What a great introduction. Impressive picture of submarines in action. Actually, I should have shown you a dark, maybe deep green picture where nothing can be seen. Why? As you all know, our submarines mostly operate underwater. We, as the leading supplier of conventional submarines in our attainable market, can rightly claim our submarines are unseen but on scene. I'm Christian Rogge, and I've been heading the Submarine segment since the beginning of 2020. Almost 20 years ago, I joined TKMS after an officer career in the German Armed Forces. I started as a Systems Engineer and later became the Program Manager of our last Frigate rogram for the German Navy. I have a long track record of leading businesses in the naval industry. Coming back to our picture, I mean the dark one with our submarines unseen but on scene.
I'm pleased to introduce you to the segment and its business scenery. Before we dive deeper into what our submarine segment has to offer, it is important to understand that while our submarines are called conventional, they are anything but conventional. The ones who follow the naval industry for a longer time may remember 2001 when the German submarine U24 joined.
A U.S. naval exercise in the Caribbean Sea and slipped past the USS Enterprise's escorts. It fires flights and took this impressive photo, which effectively sunk the aircraft carrier. Even then, the advanced stealth capabilities of our submarines were well known in the community of submarine users. The event also underlines that our submarines excel in both coastal operations as well as in blue water operations. Especially in direct comparison versus nuclear submarines, conventional submarines bring three key advantages. First, as already mentioned, they generally operate with greater stealth. This is driven by reduced noise signatures of batteries and the fuel cell-based air independent propulsion system, which is significantly quieter than the cooling systems of nuclear reactors. Second, conventional submarines have a significantly lower lifetime cost, being substantially cheaper to procure, operate, and maintain throughout their operational life.
Third, our submarines ensure operational sovereignty by allowing customers to operate submarines independently without implementing a complex and therefore expensive support infrastructure for refueling or maintenance services. Having this in mind, we should get an idea of where our segment stands today and what is our ambition for the upcoming years. With 175 years of submarine design expertise, TKMS has established itself as the number one supplier for conventional submarines in our attainable market, and we are strongly positioned to sustain the leadership well into the future. In 2021, two NATO states, Norway and Germany, have decided to procure one and the same standardized submarine design of TKMS. Therefore, TKMS is well positioned to become the prime provider of common standardized NATO submarine designs. The Submarine segment is our largest segment by revenue.
With nearly 3,000 FTEs, we generate EUR 1.2 billion in revenue and delivered a gross margin of EUR 111 million over the last 12 months. Our construction location in Kiel, which was modernized in 2021, features the only active pressure production line in Germany and is one of only few in Europe. At the same time, as already mentioned, at our new shipyard in Wismar, we are advancing to double our capacity with the installation of another pressure production line. One of the main reasons why we have such a strong position is our broad product portfolio. This portfolio ranges across different propulsion systems and several naval mission profiles. First, the Class 209 is our most cost-effective and most proven export class, powered by a diesel-electric propulsion system designed for intelligence, surveillance, and reconnaissance operations, which has been sold amongst other customers in Egypt, Portugal, and India.
Second, the Class 214 is our advanced export class, equipped with our Air Independent Propulsion System and adding more technological sophistication and proprietary innovations. This product has been sourced by customers such as Greece and Turkey and is designed to cover the full range of maritime operations. Third, our technologically most advanced types of submarines comprise our Class 212 and our bespoke customer-designed Class Dolphin and Dakar. Both classes feature state-of-the-art innovations and are preferred solutions for top-tier navies such as Germany, Italy, and Norway. These three submarine groups are complemented by next-generation developments of large uncrewed underwater vehicles, expanding our offering within the future maritime domain. In essence, as the leading supplier for conventional submarines, we have one of the broadest portfolios of submarines, which we developed precisely based on navies' needs. This brings us into the position to participate in nearly every tender for conventional submarines worldwide.
It's not just the breadth of the portfolio, but also the technology leadership that our customers value. Let me give you some details on how technology leadership creates differentiation. When designing submarines, you have to understand the interplay of the submarine capabilities, endurance, stealth, and weapon payload or lethality. I call it a Triangle of Combat Value. For example, an increase in endurance and extended weapon payload may come with a trade-off to stealth capabilities caused by enhanced volume of the submarine. Our submarine designs are characterized by balancing this triangle through extraordinary technical features with the aim of achieving the best combat value. The most famous example is our internally developed cutting-edge air independent propulsion system. This is a fuel cell technology to generate power underwater without relying on atmospheric oxygen, so it allows submarines to operate quietly and undetected for extended periods without surfacing.
The integration of state-of-the-art sensors and advanced propeller designs to ensure best-in-class acoustic performance and situational awareness under the most demanding conditions is another good example. I don't want to continue just to use the time to address the most important design feature, which is the demonstrated reliability in our submarines. The crew of a submarine, submariners all over the world, fight in the underwater domain in which human beings cannot exist. This is probably why submariners worldwide rely on the best, most superior, and especially the most reliable technology of submarine warfare. Of course, our submarines are an impressive piece of technology, but at the end, submariners all over the world trust in our boats and their demonstrated quality and system reliability because they have to trust in our boats, and our submarines reward this trust on mission.
Therefore, we are continuously looking to further improve our submarines with innovation. Some of our recent innovations have made us a strong partner for top-tier navies. First, as already mentioned, with our fully in-house developed submarine fuel cell, we deliver strong endurance and reliability even in the harshest conditions, backed by a one-stop service model throughout the lifecycle. Secondly, the integration of SAFE, lithium-ion battery technology, marks a major step forward, improving our AIP systems through the Advanced S torage of energy power, which significantly extends mission endurance and operational availability. Thirdly, we are developing the world's first Interactive Defence and Attack System, IDAS, for submarines that enables missile launches from a submerged position with real-time targeting against aerial threats like anti-submarine warfare helicopters. My colleague Johannes Geitze will deepen the innovation pipeline, also addressing the field of uncrewed underwater vehicles.
While our innovation leadership is an invaluable asset, its ultimate value is only unlocked through operational excellence in platform delivery. We operate a fully integrated operating model across the entire submarine value chain. This allows us to capture high added value from every submarine we build. In fact, we have deep internal capabilities in all phases of the submarine product lifecycle. It covers the concept, basic, and detailed design phase, the construction phase, the setting to work, verification, and commission phase, and after delivery, of course, the in-service support phase. A core differentiator in this regard are our most modern production facilities in Kiel and Wismar, and our own civil submarine crews, which generate valuable user feedback in the early design stage.
The depth of the in-house value chain ensures a close interlinkage between classic elements of shipbuilding, which safeguards adherence to the highest quality standards while maximizing internal value add. This also includes using ATLAS ELEKTRONIK communications, Sonar systems, and effectors, which allows us to keep even more value added for the whole group. In selective cases where customers require the localization of construction to address demands of national sovereignty, security, or economic progress, we are able to operate flexibly using our extensive network of global partners. This allows us to fulfill the demand for TKMS submarines with a CapEx-free scaling of capacity. In summary, our operating model is built on a high degree of vertical integration, both in construction and once the submarines are operational. As part of our value chain, TKMS provides in-service support fully in-house for its submarines.
Our globally installed base of 97 submarines across 20 navies forms a cornerstone for capturing substantial after-sales value. Looking more closely, the operational life of our submarines can range to 40 years, which are accompanied by three broader areas of after-sales activities. First, our maintenance, repair, and overhaul services are delivered on an as-needed basis, most often based on long-term framework contracts like the one covering the German fleet 212 Alpha submarines. Secondly, every two to five years, so-called intermediate or major overhaul procedures, which include comprehensive docking periods, are necessary to keep submarines operational. Recently, a confidential customer has contracted us to conduct the first intermediate overhauls for the already delivered first two submarines using the local maintenance infrastructure. Thirdly, we also provide midlife refit and lifetime extension services 1x-2x over a submarine's operational life.
Again, the German Navy trusts us to conduct the comprehensive necessary midlife refits for the operational 212 Alpha submarines, a contract we were able to close in June this year. Given the technological nature of our submarines, we are well positioned to be selected as a provider for in-service support. These can represent a significant portion of total sales and contribute to an attractive margin profile. Because there is a need to increase operational availability to Diehl with all these global trouble spots Oliver mentioned, we see after-sales services growing, especially amongst some of our larger Navy customers. Let's now move back from after-sales to our key and focal point, executing our record order backlog. Over the recent years, we have grown our order backlog substantially to 27 submarines to be delivered, securing multi-year visibility on our attractive and profitable growth.
This backlog spans over six different navies and is a mix of well-advanced programs like Turkey or the Dolphin order, which we expect to finalize within the next two to three years, and entirely new orders like the German Norwegian 212CD program or our recent signing of additional vessels for a special customer in Southeast Asia. The profitable execution of the already secured orders at hand is a key priority, and we are partially addressing this through the ramp-up of our Wismar plant. More on this later in this presentation. Within our order backlog, the obvious lighthouse program is the 212CD program, where we designed an initial batch for Germany and Norway and already secured the first extension for Germany in December 2024. The current program covers a total of 10 confirmed vessels and demonstrates our ability to serve high-end naval customers.
Why is this specific 212CD program so important for us? I will show you. First, the 212CD program is by far the largest position in our order backlog. Furthermore, this program has a tremendous strategic character. To provide you some context, this program is unique because they required harmonization across all involved parties. Within this setting, TKMS serves as a key facilitator on the government level to align shared specification for Naval Defense Armament, on Navy level to coordinate sourcing, servicing, and operations, and on industry level to ensure streamlined project execution and ensure offset requirements are met together with our partner Kongsberg through our joint venture KTA. Execution of this important program is on track. We have successfully passed the critical design review, so the submarine design is fixed. Construction is running.
We only rely on major technologies and just recently upgraded our Kiel shipyard and are building out our Wismar shipyard. Crucially, we are aligned with our Norwegian partner Kongsberg and have onboarded all relevant subsuppliers. Our colleagues from ATLAS ELEKTRONIK have successfully initiated the development of a new state-of-the-art torpedo. Looking forward, behind the immediate scope, the program brings long-term value to TKMS. It lays the groundwork for potential future multinational naval collaborations and reinforces TKMS' position as a strategic enabler of European naval industry consolidation. I mean, we have already demonstrated that we can enter, implement, and execute such complex binational naval procurement programs. Furthermore, proactive government support for broader cross-country collaboration in naval procurement is well established. By promoting the extension of the 212CD user family, we see Norway and Germany as actively supporting our submarine campaign in Canada.
We are now, as Oliver mentioned, one of two preferred bidders in the Canadian submarine procurement program. I will summarize that important stuff. Two strong NATO nations with the same defense interests, two aligned navies, two procurement agencies acting as one, resulting in one contract and in one common design. This makes the 212CD program between Germany and Norway the first of its kind in Europe and stands as a blueprint for future standardized NATO submarine design. Let me emphasize again, with this record order backlog in the books, our strategic priority is to ensure its profitable execution. With our setup, we have a robust operational foundation that enables efficient delivery. To drive our excellence in execution, we focus on four key initiatives. First, we rely on state-of-the-art facilities and tools. Everything has been said about our outstanding infrastructure.
Second, our efficient processes and focus on high quality are supported by A dvanced Robotics and Automation, which drive productivity and precision. Alongside this, our tailored small series production capability allows us to deliver even highly complex submarine projects with superior quality. Third, we expand our capacity through a strong partner network. A prime example is our cooperation on the 212 New Future submarine program for the Italian Navy, together with Fincantieri. We provide access to our state-of-the-art design and technology through a licensing model while they manage final engineering and construction. Finally, our strength lies in a resilient and scalable supply chain. We place a strong emphasis on nearshoring, which reduces risk and ensures reliability, while our decade-long relationships with trusted suppliers provide resilience across our value chain. My colleague Dirk Steinbrink will touch on these aspects in more detail later in this presentation.
Now I want to give you a bit more detail on how we aim to improve profitability in our submarine business. To start with, this approach aligns with our broader regime for strict margin discipline, which Paul has mentioned for a few minutes above. Overall, we expect our project-level margins to grow steadily through improved order intake quality, disciplined delivery during the execution phase, and the phase-out of legacy programs. Improvement of order intake quality, what does it mean? At the bidding and intake stage, we have raised hurdle rates and agreed on a clear contractual setup. Also here, I will give you an example. Our new contracts follow a clear contractual systematic to specify the scope of supply, the product, the submarine. Guideline is specification of functional requirements and also their verification instead of just specifying non-functional features of submarine systems without agreeing on a concrete verification method.
During project execution, we seek to protect our margins through consistent monetization of change requests. Since 2020, we have implemented a new leadership principle, the so-called Pilot Co-Pilot Steering Concept. For each project, we have a Technical Project Manager and a Commercial Project Manager. They work closely together to balance decision-making between technical decisions and the economic success of the project. In other words, the pilot co-pilot concept balances technical demands with tighter control over the economics of the projects and reduces, at the end, margin leakage. For the same reason, I'm glad to have a segment co-pilot and an experienced leader with a commercial background at Marshide. In parallel to our new projects, we are phasing out older margin dilutive legacy programs, which will reduce their share in our production mix. As a result, as the share of projects with higher margin increases, profitability is expected to increase too.
Taken together, these measures give us a clear path to sustainably higher margins in the submarine segment and underline our and my commitment to delivering lasting value to our stakeholders. The second element of value creation is further growing our business. Let me now highlight our sales pipeline. As mentioned earlier, we are well positioned through our robust pipeline of major sales campaigns. As our attainable market is expected to grow at +8%, we see plenty of opportunities to capitalize on this growth. In particular, we see significant sales potential for our submarines across both NATO and non-NATO customers. Firstly, TKMS is well positioned to secure an additional order from the Norwegian Navy for two more 212CD submarines in addition to the four vessels already included in our order backlog.
Secondly, another promising sales opportunity lies in the Canadian Patrol Submarine Program, which comprises seven to 12 units which are partially built upon the structure of the 212CD program and could make, of course, a significant contribution to TKMS' future top line. Thirdly, we are strategically positioned in India, backed by a strong and strategic government-to-government approach and through our partnership with Mazagon Dock Shipyards in India. India has recently decided to enter into negotiations aiming to procure 6+3 optional next-generation 214 submarines. Plenty of opportunities for growth, and with our disciplined approach to pricing and execution, any further contract win will also support further margin improvement. Let me now conclude my short presentation. In geopolitically difficult times, with increasing crises all over the world and a war in Eastern Europe, States, especially European NATO states, are refocusing on and strengthening their national security.
We see that our long-term customers and partner navies want a competent and reliable powerhouse that can extend and modernize their underwater warfare capabilities as an important contribution to their national security. With a strong product offering, including a standardized NATO submarine design, state-of-the-art production infrastructure, and highly specialized resources, TKMS has been able to secure a record order backlog. We see plenty of opportunities to further increase the backlog from our high-quality pipeline of sales campaigns. Last but not least, we are laser-focused on turning this backlog into profits and expand our profit margins. I am personally convinced that TKMS' submarine segment is well positioned to continue its market leadership and pursue long-term profitable growth. Ladies and gentlemen, we are the number one supplier of conventional submarines in our attainable market. We are the competent and reliable powerhouse the market is looking for.
Our submarines are unseen, but TKMS is unseen in all aspects. With the investment highlights in the background and with this beautiful picture of my favorite frigate, I want to thank you for your attention and want to hand over to my colleague Oliver Juckenhoefel.
Thank you, Christian. I think I just won a new customer, so maybe we can enter into discussions later on. Excellent. Ladies and gentlemen, welcome to the Surface. My name is Oliver Juckenhoefel. I'm responsible for the Surface Vessels business. I'm with TKMS since four years, 2021, following a 25-year career with Airbus Defense and Space. Sometimes it takes the preparation of a Capital Market Day to reflect on what's the journey that you personally, but also as a Corporate Organization, have come. In the early days when Airbus took over a share in ATLAS, together with thyssenkrupp, I had the pleasure to act and serve as the Chief Operating Officer of ATLAS ELEKTRONIK. Those days, we already had a few ideas about what a system house could be.
Now, 10 years later, reflecting on what we are presenting to you today and seeing the energy and the power and the potential that we are unleashing into a maritime powerhouse, that really touches me deeply. It is a real pleasure to see that and be able to report to you right now. You've heard about the Maritime Network, the shipping routes, the international shipping routes, which are the backbone of our global economy. These are secured and protected by frigates. We build frigates. Our design of frigates is following a building block approach, which means that we can rapidly integrate newest technology, and we can configure and tailor this design to the special needs of our customers. We build these frigates fast, and we deliver on time. These are the pillars of a reliable operational execution, and they're also the pillars of profitable growth.
Profitable growth in a market segment that we are focusing on, which is the segment of mid-scale vessels. Why do we focus on that sweet spot of the surface vessels market? Because it's a large market with limited competition only. Also, because of the technology entry barrier, it's not so easy to do the job of complex vessels. Typically, this market features large-scale, large-volume contracts with customers that buy more than just one frigate. This allows us to establish an ecosystem where we can play the strength of a large system integrator. This role of being a large system integrator is an important one, and I will guide you through that as part of our presentation, a part of this presentation for the business offering that we are having. As a market leader, we are shaping already today the future of the most attractive subsegment in the surface vessel market.
As an industry leader, we see plenty of opportunities for future growth in this area. Being a big player today focuses us on becoming an innovation and technology leader in the future, developing in a leader in net-centric operations. Here, the collaboration with ATLAS ELEKTRONIK will become very important because they come with the know-how of working mass data, fusion of system intelligence into our frigates that allow us to make this very important step. Edge through innovation is one topic, but quality of our products is another one. Our frigates are designed for longevity. The majority of our vessels are still in service, starting deliveries since the end of the 1980s, beginning of the 1990s, for the first of their type of the MEKO principle that we already learned earlier on today. Our trusted partnerships enable us to scale our business rapidly to the demand of the market.
Here you see the number of employees that we are featuring. Out of the 1,600 employees, 1,000 are working in Brazil. In Brazil, in a shipyard that we acquired for a single project to be locally on time because it gave us a competitive advantage. It is not a strategic acquisition that we need to fuel our business case. You see that being a large system integrator and focusing on that role literally gives you a strategic workforce that you can scale your business with as the opportunities arise. We call that the boundaries for a prudent growth trajectory, not jumping on every opportunity, but jumping on those which fit to ourselves and which offer the fundaments for a long-term partnership with our customers. Our current position as a leading player is powered by a broad and versatile product portfolio.
Because we use this modular design, we can seamlessly adapt our vessels to the specific needs. While the most important thing is this resonates well with the customers, they enter into a dialogue with us on how to fulfill their needs within the budgets available in the best way. I've given you here a representation of the vessels. The most important thing is that if you follow the frigate design where we start with an entry-level 2,000 tons light frigate and go up to almost destroyer size in complexity, it's always following the same building block principle. The platform is a standard platform that you can configure as you need. We are looking forward to enlarging this family of MEKO, the ecosystem that we're employing there, by carefully onboarding new technologies and new methodologies in the MEKO family.
I've given you the example here of an autonomous vehicle that I will talk on later a little bit more in detail. Features outside the hull of a frigate belong to the frigate. This is where the net-centric approach is coming in. The MEKO S-X, as an example, is featuring exactly that. The new Polarstern that you heard about already, that we are going to build in Wismar, where we onboarded the contract late last year, fits in this philosophy. It is not the start of entering back into commercial business. We stay focused, but ice-breaking capabilities being designed for the Arctic and subarctic operation will give us competencies that we don't have right now in-house, but which we certainly need in the future as the climate prognosis leads to different shipways in the Arctic. We are scaling up in preparation for a future to come.
This also means sustainable propulsion, methanol engines, not today, but in the future. With a technology leap on that part, you may envisage that as well for naval vessels. It's an opportunity to grow in a future and enlarge the concept of the family. The MEKO family forms the core of our offering. They're all following the same standard-setting design principles, and I would like to guide you through the major design principles here. Being unrecognized for a surface vessel is difficult, but stealthy means that you have the firepower of a destroyer, but your rate of footprint is that of a fishing boat. Longevity means that you can operate our vessels for 40 years, and if you change them, you change them because of the next leap in technology. You're not changing them because of the quality.
Lethality, I mentioned already, we are developing the capabilities to put maximum system integration on a vessel such that you have outperforming proportions between what you can do with a vessel and what is the size of the vessel that you need for that. It's a very compact approach. Mobility means that our ships need a sail in blue waters. We're not protecting our coastal waters. We're in blue waters with NATO missions. We're fighting where we have to fight, we have to have the survivability. Allow me a little bit of military wording. We have to bear a hit and still bring home the crew safely. We continue to fight, and we return home safely. These are the features which are the design essence of being a MEKO, but the most important, as I mentioned already several times, is the modularity.
I want to give you a picture of the modularity, which I learned the German word today as well, which looks again like a Wimmelbild . The most important thing here is the platform. The ship itself is pretty much standard, following the building block principle. The sensors, effectors, even vehicles, autonomous vehicles, drones that you see in the breadth of this, is the mission system that defines the requirement and answers the requirement of the customer for his mission. He will select very carefully the kind of weapons and sensors that he would like to onboard, and he's very often going that far that he also asks us to include the national competencies that he's having. You see that we are here not only talking about the German customer with a known ecosystem and industrial landscape, but we are talking about export customers.
To combine all these nasty elements that you're seeing there, that is the skill set of ATLAS ELEKTRONIK. It's the data fusion. ATLAS in the past of their history, has checked out almost every interface that you can imagine a customer would like to have on a frigate. Such that a customer, if he selects today a certain weapon or a certain sensor, doesn't even know that this interface has been qualified in the past by a neighbor. That means that modularity is not only offering a value for the customer, but it is also offering a value for us because it reduces our need to invest in R&D. It reduces significantly the lead times to get into a proposal to a customer and into the completion of the order.
It allows us to operate at a point where, of course, we need some investments, but we very often offboard the need to invest in either the customer and the customer contract or in our partners that are technology drivers on systems. How does it work? You see different helicopters here, for instance, that we can integrate into our frigates. The customer selects the type of the helicopter. We integrate it. It doesn't make a difference for us. We can fully offer the range of naval qualified helicopters. It's the same for autonomous vehicles. We have in the MEKO design the capability to offboard autonomous vehicles while we are surfing and sailing blue waters. It is the same for guns and for sensors and for everything else.
This resonates very well with our customer base, and you see that we are rolling out this modularity concept or the same type of concept for completely different navies, ranging from the Brazilian Navy, South America, Northern Africa, as well as in our home market in Germany. Being present in this market and having had a lot of industry firsts in terms of innovation, I want to guide you through two areas which are very important, which sort of form the next step for the MEKO family. One thing is digitalization. The digital twin of a ship becomes more and more important, not just because we are predicting the behavior of the vessels. It allows us also to provide new services to customers.
Based on the digital twin, we can do predictive maintenance, prescriptive maintenance, which literally leads to the fact that by doing that and by supporting our customer through the operation of the vessels throughout their lifetime, we can ensure that the maintenance times of the ships are going down and the availability goes up. A customer that is procuring four frigates today typically has 50% available in the field. Our target is to drive this up to 75% based on new and modern technology. This does not mean that we will enter into the market of MRO. Our customers strive very much for sovereignty, and they need to be able to replace spare parts. We are offering system upgrades. We are offering support in any technical question, and we are looking also for the midlife or the end-of-life upgrade of the ships.
Being the owner of the toolkit, obviously, we are the best suited to provide him new sensors, which gives us a foot in the door for a long-lasting partnership. The MEKO S-X combines also the capabilities of this powerhouse. The hull is a bit like what we find in the submarines. In particular, we use systems from the submarine world that we do not need to requalify if it comes to towed array sensors, for instance, that such a vehicle could tow. It is not diving, but we are using the competencies. What you see above the surface is more like a buoy from the ATLAS environment. Why do we combine the two?
We thought if you go into autonomy, if you go into system master and slave or frigate and companion, we don't want to be where everybody else is, which is the small vessels and the RIBs that with the sunny weather in the Hamburg Harbor or the Baltic can do some operation, but after six hours, the batteries need to be refueled. We are looking into the area where our customers need to be active, and that is the rough seas of the Northern Atlantic. We want to have a vehicle that autonomously can stand in this environment for months and do a job in full collaboration with a frigate, which is somewhere, but not necessarily close by. The interconnection between these vessels operating at any sea state to protect, for instance, against submarines approaching via the northern flank, that is the missing target for this vessel.
We have tested the concept in the water tanks in fluid dynamics already, so the proof of concept is given, and we are striving to have a first prototype of that in the water by the end of 2027. This is real, and we're investing in that, and we are looking for launching customers, and I can tell you that we have a lot of interest in this principle. Launching customers are, of course, the navies that we have been working with in the past, and I'll give you an overview of what we've been serving and doing. You see here that it's really across the EMEA, the APAC, the Americas, a very wide range of customers, some of them going back into the 1980s and 1990s. Some of them are still operating these vessels in a very important environment.
Like if you take the mission in the Red Sea of the European Union, the Greek Navy is still operating MEKO ships there, protecting the shipping routes, as I speculated at the beginning, on a daily basis. These MEKO frigates are the backbone of the navies everywhere in the world. 95% of all the MEKOs that we have delivered are still in service over decades, after decades, and a lot of them are kept in life by the navies themselves. Kept in life by the navies itself. I mentioned already that we are not going after the MRO business that the customers are doing themselves to keep their sovereignty, and honestly, we cannot do that job if the customer is sitting on the other side of the world.
That is not what we are aiming at, but we're aiming at looking at prime customers that can afford long-term relationships and that are interested in onboarding new technology on a regular basis to face a changing threat scenario on a more and more rapid basis. I give you the example here of the German Navy that is right now upskilling the frigate F125. That is the frigate that sailed the Indo-Pacific and was offshore for more than two years, first serving in the Indian-Pacific, but then also serving in the Mediterranean in the UNIFIL mission. They have recognized that with the changing threat scenario, although these vessels are pretty modern and new, they need to upskill it. Why? They were originally designed for peacekeeping missions, as they call it, a stabilization frigate.
It features, for instance, an outperforming mobility of a very large vessel, 150 m long, to be capable to go in a harbor in Africa without the support of a tug boat in order to get German citizens back on the boat and evacuate them. This is, of course, a scenario which is no longer really in the storm of the eye right now. The German Navy is thinking about putting a significant firepower, weapon systems, new sensors on this ship, and they've started already by modern communication, satellite communication, anti-drone systems, and even they have experimented on a terrestrial IRIS-T system that you find right now installed on the Baden-Württemberg, with which we have recently visited Copenhagen. This is a real thing, and you see also the size of these contracts that we are expecting there. It goes up to $1 billion.
We have a modular and versatile product portfolio, and we're sort of fitting that also with a very modular and scalable approach to the business. Unlike for the submarines, we are rather looking on keeping the design, being the large system integrator, and going to partnerships wherever it is possible. That also led to the fact that we had decided already years ago that we do no longer need a shipyard in Germany. Why threaten yourself with the need to load the capacity within peace times? You've seen that also in Oliver's presentation, let's say unreliable contracting from the German customer. We have learned, and we have skilled up our own competencies to mobilize shipyards worldwide, and we can do that in a special situation for any special customer.
I can operate in a licensing model if I find a competent shipyard in the country of the customer, but I can also go as far as we did in Brazil, procure our own shipyard only for the project, financed by the project, in order to mobilize us in record time. The partners that we are teaming with are well-known corporate global players. We're not just talking about local national champions. In Brazil, it is Embraer. We talk to Thales, SAP, Lockheed Martin. These are our partners, and we play with them on eyes level, which demonstrates that you don't need to be large to be recognized as a world leader in this field. The next challenge for us here will be to mobilize our own shipyard in Wismar.
Mobilizing a shipyard together with the colleagues from the submarines comes with a challenge by itself, but I can tell you that we are well ahead in preparing the shipyard for the build of the Polarstern that will start. First cut of steel already beginning of 2027, so we have a decent time to prepare for that. Hiring curves are running up, and we are very confident that if we are awarded with a contract for the frigate 127, we will build a part of the ships that the German Navy is looking for over there. Let me do a deep dive on Brazil because I believe that it recognizes the business model, this partnership model that we are going in. Like five years ago, we bought this shipyard, as I said already, to differentiate ourselves from the competition.
Rather than offering in a G2G approach an already used frigate, we recognize that the Brazilian customer is not looking for frigates. Of course, he wants frigates. He needs frigates. It's a Navy with 200 years of heritage, and back to 2029, they'll be down to four real fighting ships. That is not appropriate what they need, but they were looking into building up a defense ecosystem. It was important to them to have a partnership and to be involved in the design, and they were ready to pay for that. What we did is we bought a shipyard, and we found a partner with Embraer, being the national champion from the aerospace domain, and we onboarded them into the naval domain. That was making the difference to the Brazilian customer.
Today, I can proudly say that five years after making an asset Diehl with five employees, and I tend to say including the CEO, so not very productive in the terms of operational execution, five years later, we have mobilized it up to 1,000 people working there. We will deliver the first ship on time, end of this year. I have a proof point for that because in August, we were already conducting the first sea trials very successfully on the platform site, and the weapon test will follow such that I'm confident we can hand over the ship to the customer, the first ship in time. At the same time, we have already the second vessel in the water.
We baptized this beginning of August, and the third vessel is already being built, and it will be put in the water one year after the other in summer next year. The steel cutting for the fourth vessel will start very, very soon. Operating in such an environment with a brand new design, new technology, and the challenge of mobilizing the project, mobilizing but still staying on time, that's our DNA, and this is what we want to do. If you take a look at the development of the market and the targets that we are taking, I recall what I said earlier. We want to go for prudent growth. Right now, we do not have the ambition to outperform the market on growth.
We do have the ambition to make our next step prudently, and the next step prudently for us means that we go after the German customer for its largest Navy program that he has ever procured, which is the F127. On top of that, we feel comfortable with our teams that we can onboard additional export businesses. I've given you two examples where we are currently going after because we believe that we are well positioned. This is one in Portugal. The Portuguese Navy is already sailing our vessels, and they are looking for a replacement beginning of the next decade. We're not in a rush. We are starting discussions with them from a good position where also the Brazilian shipyard in a Portuguese-speaking country can play a significant role.
Second, we are expanding from this Brazilian shipyard, our, let's say, zone of interest to South America, where Chile is a very promising partner in the future as well. Chile has already experience with this house as well when it comes to surface vessels. The most important campaign that we are currently after, the most important next step for ourselves, is the frigate program. I want to introduce you to what it means for us. The Inspector of the German Armed Forces, not the Navy, but let's say the top, top soldier in Germany, has already taken the decision that it's duty that he would like to implement the F127- based on a MEKO A400 AMD design. That's a fact. We have built a company together with Naval Vessels Lürssen , two-thirds on our side in terms of shareholding.
The design of the MEKO A400 obviously is coming from TKMS, and we have partnered with NVL because it gives us the opportunity to have a second shipyard being capable of building ships whilst we are building in Wismar. This means that we don't need to invest into a production line in Wismar, in a second production line in Wismar for surface vessels, in order to meet the schedule of the customer. Again, the example where we listen to the customer, we see his needs, we find partnerships in order to be capable of delivering as much as possible to his needs. This company was built and organized last year. It has already received a small study contract, and we have received the RFP for direct negotiations.
Only this company has received it where the German Navy is asking for eight vessels with a prognostic contract blessing by the German Parliament in summertime next year. This is real, and therefore it requires our utmost intention. Let's take a moment to remind ourselves why TKMS is a market leader today and why we want to become an even more important player over the coming years. Rather than reading you through this final slide, I really would like to put it to the essence that is important for me to you. We have established a model where partnership is as much important as building ships, and this is recognized by the customer.
The ability to go in partnership means also that you need to be able to give and to share, and you need to trust your partners, be it a shipyard, be it the customer, be it a shareholder or investor. By trusting, you're earning to receive the trust back. The mixture of being flexible without investing too much CapEx or R&D into the growth of your business by trusting into partnerships and by proving the trust by simply doing one thing, deliver and deliver to your promise. This is what we have performed over the last five years in several programs. There are proof points to that. We've done that. It's resonating with the navies, and that is the success path for the segment in the future. You see that my view on the future of the surface vessels is very bright.
We see a strong demand for ships, but honestly, we see an even stronger demand for electrical systems, for logical systems, and this is represented by ATLAS ELEKTRONIK. I now would like to welcome Michael Ozegowski on stage here, who's representing ATLAS ELEKTRONIK. Thank you very much for your attention.
Ladies and gentlemen, after the presentations of submarines and surface vessels, now welcome to the ATLAS world. Thanks to Oliver and Christian for mentioning the importance of ATLAS products and ATLAS competencies for your segments. I'm Michael Ozegowski. I'm with ATLAS for 27 years, and I'm proud to be part of the TKMS ATLAS ELEKTRONIK team, which brought us to the position where we are today. It's a great honor for me to act as a Managing Director for more than seven years for ATLAS ELEKTRONIK.
We are a global player in end-to-end naval warfare capabilities, and we started our business in Bremen more than 120 years ago, already with Sonar applications and with products for submarines. Over the last decades, we evolved to a global supplier of mission-critical systems to over 40 navies and specialize in equipping submarines and surface vessels with integrated sensor command and control and weapon control systems, as well as naval weapons. I will show you that on the one hand, our portfolio is a perfect complement to our TKMS S urface Vessel and Submarine segment, enabling the vertical integration in one maritime powerhouse. On the other hand, our portfolio is widely OEM-agnostic, and as such, we are doing excellent business also with other shipyards or direct with public authorities.
In the last two presentations, my colleagues presented you an overview about TKMS submarines and surface vessels, and we are providing mission-critical systems that offer safe operations and are designed to provide naval superiority both for TKMS submarines and surface vessels and for third-party vessels. These mission-critical systems include the sensors and the intelligence, combat management systems, and effectors like torpedoes or uncrewed vehicles. Let me allow on this slide to go a little bit more into details and then explain a little bit what ATLAS is doing for submarines. The Sonar sensors are the most important sensors for a submarine. It's the only possibility for a submarine to orientate, to navigate, and to detect targets if the submarine is submerged. There's no GPS, there's no camera on board.
We are the key Sonar supplier, and decades of experience and hundreds of skilled software and hardware experts make really the difference. A submarine typically uses several Sonar sensors, several Sonar antennas for different frequency ranges. These sensors have to be very performant and extremely reliable, I have to say, in a very harsh environment for many, many years. You don't want to dock a submarine just because of a Sonar antenna failure. One antenna can deliver several thousands of acoustic channels, and these channels have to be computed in real time in our Digital Sonar Systems. Typically, we need several big electronic cabinets with high-performance computers and highly sophisticated software with million lines of code to separate the useful signals from the background noise in the water in order to detect, track, and classify targets.
These results are combined with information from other submarine sensors like periscope, radar, ESM, or datalink if available, and all this information is used then by the combat management system to create a comprehensive tactical situation display to the operators. This can be used, for example, to calculate a weapon engagement plan for a torpedo or a missile against an enemy threat. Torpedoes again are produced by ATLAS ELEKTRONIK. Missiles not, but we are able to integrate them into our system. This functional chain from Sonar sensors via the combat management system to the torpedo is developed, produced, and delivered by ATLAS ELEKTRONIK into our TKMS submarines, and that's what we call the sensor-to-shooter chain. This is unique in the submarine business and a clear competitive advantage for TKMS submarines.
The situation for surface vessels is a little bit different, and you see it on the right side of the slide. The main sensor, the radar, is not delivered by us, but as a provider of combat management systems and in the role as combat system integrator, we integrate the radar and all kinds of different sensors and weapons on board of a modern ship like a frigate or a corvette. You have seen in the presentation of Oliver Juckenhoefel how complex these systems are. For the detection of submarines, the so-called anti-submarine warfare, we supply again different kinds of ATLAS Sonars, and this can be even complemented with ATLAS torpedoes or anti-torpedoes, and I'll come to that later.
If you look across our broad portfolio, we believe we are in a strong position in system software and electronic solutions across the naval ecosystem, and this makes us a key player in our markets. As a pioneer naval warfare ecosystem, ATLAS ELEKTRONIK supports global navies with state-of-the-art integrated system software and electronic solutions. This has allowed us to build a large and highly profitable business with a truly global customer base and an operational footprint close to our customers. I will come back also to that later. Today, we are the only global provider of sensor-to-shooter solutions for conventional submarines. We believe this is a strong competitive advantage because all components and subsystems are strongly harmonized with each other, and all interfaces are in our hands.
Our ambition is to take our technology leadership today and continue to develop our capabilities to lead next-generation systems for the future of naval warfare. The last fiscal year, we achieved more than EUR 660 million revenue with a gross margin of about EUR 160 million. About 2,000 people are working for ATLAS ELEKTRONIK in Germany and more than 600 in the U.K. There are reasons why we are a key player today and in the future. We have a global presence serving more than 40 navies. Our products and solutions are scalable across naval platforms as well as across OEMs. We have cutting-edge innovations in our portfolio along next-generation systems, software, and electronics, and our segment has been growing over the last year and is highly profitable.
Overall, we are very optimistic about the future potential of our business, and as naval warfare will become more and more driven by electronics and software and AI, our product portfolio is becoming more and more relevant to our customers. We can already see that in the overall growing demand for products and solutions from the ATLAS ELEKTRONIK portfolio. There are two main trends that support this growth. It is the demand for naval assets that's growing, and systems, software, and electronics are becoming more and more important across all classes of naval assets. What are the reasons for the growing demand? It is obvious. We see more international crises and the need for high-sophisticated defense equipment. There is a trend in naval warfare from standalone platform to network-centric systems, including uncrewed vehicles, and the threats even expand from traditional battlefields to critical infrastructure.
We just saw many incidents in the last year, even just in the Baltic Sea. There is already a growing role of systems, software, and electronics in naval vessels. That means the share of our products in the value of a ship or a submarine is already rising, and this will be even more relevant for uncrewed vehicles. Last but not least, the allliance on s ystem software and electronic solutions will grow further with increased battlefield connectivity. I'm very convinced that ATLAS ELEKTRONIK is well positioned to benefit from all these strong market tailwinds. With our solution portfolio, we can address most of our customer needs, and our integrated sensor-to-shooter capabilities give us a strong competitive advantage in the market. As I said, one of the main reasons what sets us apart is our ability to deliver seamless end-to-end solutions, combining detection, evaluation, and engagement into one integrated flow. We call that the sensor-to-shooter chain. You can divide our portfolio into three main pillars. It's Maritime Awareness, which is all about observation and detection. It's Network Operation, which means analyzing and evaluating the threat. It's Dynamic Forces, which engage and neutralize the threat. Along this chain, ATLAS ELEKTRONIK provides fully integrated system solutions.
One example of these solutions I explained already, we are the only provider of sensor-to-shooter solutions for conventional submarines. Another example is the ATLAS Integrated Mine Countermeasure System, IMCMS. It uses advanced detection sensors that are mounted on dedicated mine hunting vessels or even on autonomous vehicles. Sophisticated data evaluation systems and uncrewed engagement tools for efficient sea mines' neutralization, like the SeaFox mine disposal, are included. Right now, we are delivering a mine hunting solution to a first-class navy, which can operate uncrewed and fully autonomously. Our seamless integration from sensor-to-shooter is always a key consideration when a navy chooses us as their partner. Let me give you a bit more detail on some of the cutting-edge solutions we can offer across the sensor-to-shooter chain. We have a very modular approach so that we can offer each customer the most suitable solutions for their navies. For some customers, this may be the fully integrated systems I just showed you. Others may pick up elements out of our portfolio, like a single Sonar system, torpedoes, or uncrewed vehicles. This approach further supports our ability to serve many navies around the world. Categorizing again our portfolio into these three main pillars, we are covering maritime awareness through sensors, data processing, and detection intelligence, including AI, mainly in the field of Sonars. Examples are the activated towed array Sonar, which is stored behind a frigate, the Sonar system CSU-100 for submarines, or Sonar AI as enhancement to our Sonar systems. We are offering solutions ready for network operations in the form of command and control and communication systems.
This includes a full system integration capability on board a submarine or surface vessel, but also covers multi-domain operation over different assets. Examples are the combat system ISUS-100 for TKMS submarines, the CMMS for mine warfare, or Orca, a joint combat system together with Kongsberg for the 212CD submarine program. Our dynamic forces comprise effectors and vehicles. Examples are the SeaHAKE mod 4 heavyweight torpedo. We have now started the development of the most modern heavyweight torpedo, SeaHAKE mod 5, with software-defined defense capabilities. Another example is the mine disposal SeaFox, where we delivered thousands of rounds to many customers, including navies like the U.S., U.K, and Germany. Uncrewed vehicles above and below the surface, and the anti-torpedo torpedo SeaSpider, which I will explain later. We provide, of course, services across our whole product spectrum and the whole lifetime.
This includes training, logistics, spares, and maintenance up to performance-based logistic contracts. Our solutions are trusted by top-tier navies, including Germany, Norway, the U.S., Australia, and the U.K.. Thanks to the breadth of our portfolio and our ability to efficiently tailor solutions for our customers, we have built a well-diversified customer base across the globe. As electronics become more and more important and customers see the reliability of our integrated solutions, we have successfully expanded our customer base to now serve more than 40 navies worldwide. This customer base gives us two key things. It gives us an ongoing cooperation with some of the world's most important navies. This, of course, is expected to lead to future repeat business from our installed base.
Secondly, we are benefiting from the experience of our customers when operating our products, which in turn helps us to improve our products or to even expand our portfolio. Our business is based on performance and trust. Over decades, we have an established customer base. In order to facilitate the business and have a close relationship to our customers, we use a network of subsidiaries across 12 countries, including Germany, the U.K., the U.S., and Australia. Overall, our global customer base has been a robust source of business over the years. As system software and electronics will become more and more important, we will continue to leverage this customer base for future business as well. We can serve so many customers because we offer solutions that integrate across multiple naval platforms and their OEM independence.
This approach gives us high scalability and allows us to capture the growth potential in the market beyond just the TKMS platforms. What does it mean, platform independence? We are using a highly flexible and modular approach based on common building blocks and breakdown structures, and we apply reuse in our projects as much as possible. Our solutions can be applied to surface vessels as well as submarines or autonomous vehicles with only minor modifications. OEM independence, we are not only a supplier inside TKMS. In fact, more than two 2/3 of our revenue is coming from projects with other shipyards or national authorities.
Integration capabilities, we have a longstanding expertise in system integration, be it the full sensor-to-shooter chain, like in submarines or mine countermeasures, integration of various sensors or weapons from many suppliers around the world to our combat management system, or connecting various assets in a multi-domain environment. As battlefield demands evolve, our integration capabilities will even be more vital, especially with the launch of targeted new systems and solutions. Our innovation strategy is very much focused on delivering the next generation of solutions for the naval battlefield. We have a very comprehensive product development pipeline across software and electronics. It covers nearly all fields of maritime warfare. I'll give you a couple of examples, and my colleague Johannes Geitze will give you some more later in his presentation. Clearly, we see ourselves in a leading position in advanced Sonar systems with corresponding software, including AI.
Our current naval weapons, especially the heavyweight torpedo SeaHAKE and the mine disposal drone SeaFox, are state of the art in the world. For both, we are right now developing the next generation. Besides the typical integrated logistical support, we aim to offer our customers a full logistics support package, including performance-based logistics or prescriptive maintenance using AI methods. With this pipeline, we will be well positioned to benefit from the growing demand for next-generation solutions, which we believe will allow us to maintain our positions as a key supplier and capitalize on future market growth. Here are some of our recent innovations. They span across all elements of our portfolio, and some of them have the ability to seriously disrupt the naval battlefield. We see attractive future revenue potential from them over the coming years. SeaCAT is an example of an uncrewed system.
It's already fully military qualified, and it's already in use in several navies, and is right now combat-proven by the Ukrainian Navy to clearing minefields in the Black Sea. We use AUKUS. AUKUS is the abbreviation for ATLAS Corps System as a modular software and hardware backbone for the latest generation of Sonar and Combat Systems. Why it is so important for us is our internal basis for modularity, scalability, and software-defined defense. We already delivered the first applications of Sonar AI to the German Navy, really enhancing their underwater detection capabilities. SeaSpider is expected to be the first anti-torpedo torpedo. What is an anti-torpedo torpedo? Think about a ballistic missile, which will be shot down by a Patriot or IRIS-T rocket in the U.K.rainian war. You see it every day in the news. There's nothing similar available so far in the underwater world.
We expect SeaSpider to solve the actual problem of naval vessels and submarines that they can't escape if they are attacked by a modern heavyweight torpedo. We will start the full NATO qualification of the SeaSpider in 2026 already. Overall, our existing portfolio and our innovations provide us with significant future revenue potential with an attractive margin profile. As we seek to capitalize on the market opportunity, we can expect both revenue growth and further margin expansion. As one of the key suppliers of naval electronics, we are expecting to grow at least in line with market growth. We believe this growth is supported by a strong pipeline of important sales campaigns. In general, we feel tailwinds from the robust growth in the attainable market.
Besides the TKMS submarines and surface vessels campaign, including already ATLAS ELEKTRONIK systems as core components, we are running big campaigns, including Germany Navy Mine Countermeasure. That's a complete lifetime extension of up to 12 mine hunter vessels or the NATO SeaSpider programs, where we see already a lot of interest in the market. In a view beyond 2030, we seek to capitalize on the AUKUS trilateral security initiative. Overall, we believe we are well positioned to deliver strong growth with additional significant upside potential beyond 2030 from the AUKUS program and other programs. The AUKUS program is an opportunity we are actively preparing to capture. What is AUKUS? AUKUS represents an alliance, it's a flagship partnership with potential to unlock substantial long-term revenue that is fully independent of TKMS platform business. It's a trilateral partnership between Australia, U.K., and U.S. to enhance Indo-Pacific naval security.
Most of them should know that. In total, there are about 20 nuclear submarines planned until 2056, with an estimated share for ATLAS ELEKTRONIK of EUR 70 million to EUR 100 million value per vessel. We will participate in tenders through our subsidiaries in the U.K. and Australia because the AUKUS submarine system design will be based on the U.K. design. That's our entry door into this program. This showcases again our ability to grow independently of TKMS platform business. Our order book is already well filled, and we see many strong opportunities for us in the future. We have a proven operating model that allows us to deliver these projects in a timely and profitable manner. Our integrated operating model defines the strengths of our business, and it's also a core driver for attractive and growing margins.
For most of our products, we have full control and full access of the value chain, from design to integration, and this safeguards high value add. As we own the IP rights of our portfolio and our products, we are able to offer offset, transfer of technology, and other things to foreign customers. Nowadays, that's a must-have in the defense business. We are offering from individual products to complete systems, combining in-house and third-party technologies. We are using a highly flexible and modular approach based on common building blocks and breakdown structures. It's a little bit like a Lego System. Of course, we are doing lifecycle support for our products, unlocking recurring revenues with substantial margins. With this business model, we will be in a strong position to tender for next-generation products and convert future orders into high margins. Let me summarize the ATLAS ELEKTRONIK highlights.
We are a key European player in mission-critical naval systems. It's our ambition to become the solution architect of the future naval ecosystem, always focusing on the main trends: autonomy, use of AI, and multi-domain operations. We are well positioned to benefit from the overall strong market growth. As we are platform and OEM independent, we can increase sales to TKMS and meet the growing demand from many other navy customers around the world. ATLAS ELEKTRONIK brings TKMS to the next level. Thanks to high synergies between submarines, surface vessels, and ATLAS, we really are what Oliver Burkhard mentioned at the beginning. We are your maritime powerhouse. This ends the presentation for the first half of the day. It's now time for Q&A. I hand over again to Jacques.
Thank you, Michael. Thank you for all speakers of the first half. Now we come to the first Q&A session. We want to use the first Q&A session to cover the first half of our CMD for all these topics we heard about, the very exciting insights. If you have a question, please raise your hand here for those of you in the room. Please state your institution. Please be sure that you have a maximum of two questions at the beginning. If you are joining virtually, kindly submit your questions through the system. Our colleagues will provide me with your questions so that I can read them here out for you. As said, we will focus on the first half of our topics of the agenda. With that, I would like to invite all the speakers of the first half to come back to the stage. Please. [audio distortion]
All right. The first question comes from Charles. There's a microphone. Yeah.
Hi. Thank you, Charles Armitage, Citi. First of all, a request and then two questions, if I may. First of all, a request. Please, can we have EBIT by division? First question is on margins going from 5.5%- 7% or more than 7%. You're doubling your sales. Your G&A is under control. You're trading through poor historical contracts. Your mix is improving. 5.5%- 7% doesn't seem an awful lot. What's the counterforces? I'll come back with a second.
You want two ones?
OK. The second question is the F126. Lessons learned, why you won't do the same, the first point. The second, sort of related one, is what are the opportunities to get Germany out of the mess that it's got itself into that TKMS can help out with?
OK. Thank you, Charles. Maybe I start with the F126. Honestly, we see a lot of problems in that program. It's not ours. We heard rumors because we're not in the program. We don't know really the exact mistakes. I think we have taken notice of the rumors and maybe Germany withdrawing from that project, F126. There are several hypothetical scenarios where the TKMS-based MEKO design could replace that. Honestly, they need indeed also anti-submarine warfare capabilities very fast. 126 obviously is very delayed, not yet clear whether it's coming or not. However, we do not speculate forward on that. We take it as it is once the politicians have made a decision on that. I think this is overdue now. Let me just answer the second one, the margins. That's a super job as a CEO because you can just lift over to your CFO, right?
That's why I'm standing here, right? You know, with regards to questions EBIT by segment, you're going to see this during my part of the presentation. We are going to report EBIT by segment from Q1 next fiscal year on as we are changing our segment reporting approach. With regards to your question from 5.5% now to the midterm target 7%, there are two factors that you need to see. First, we still have legacy orders in our books that we still need to convert into sales. We have low margin or zero margin sales still in our top line growth in. The second is that a lot of investors look like into a linear revenue-based model. Normally, it's an S-curve. The first years, there's actually not so much cost occurred. Normally, it will start picking up margins and progress then in the later stage. It's a back-end loaded.
This is why we're going with that median term target.
All right.
Alessandro Pozzi Mediobanca. Thank you for the very interesting presentation. The first question is on the F127. We've seen in the press recently the full list of German procurement projects. What really stood out was that particular program, $26 billion, which seems a lot for eight frigates. Probably there's other elements there like logistics, training. Can you talk about what you think you can capture of that potential $26 billion in light of your work share with NVL as well and potentially other value-added revenues like training and so forth? Also, going back to margins, I think part of the story of the margin evolution is the phase out of legacy project with zero margins, EBIT. I guess probably they weren't born as such. I was wondering what was the history behind those projects just to think about for us to have a better understanding on what could be the execution risks. Thank you.
Maybe I start with your last one. I think this is why we focused so much on doing our homework and changing things because we don't want to make the same mistakes again. Paul said it, I think, in his presentation. It all starts with a contract. Before a contract, there are negotiations and assumptions and hypotheses. You go into that project. I think we changed a lot, also the target operating model, how to execute those orders. I think we're more secure against those failures, as you said it, as in the past, definitely. Doing our homework was, again, a prerequisite to stand in front of you, to have new contracts which have better conditions as the old ones. We have to be clear. They will phase out by the end of this century. The old ones are all gone. Maybe we're talking about different margin guidances.
We're the new kids on the block. We're starting. We're starting with above 7%. Maybe others had said numbers into the market which are higher. I cannot confirm them. I didn't do that. I just do ours. If I look at our market, I would say this is ambitious. This is maybe not the end, but it's for a starting point, I think, a good orientation for you.
What was the main issue of a legacy project? Was it cost inflation? Was it change of design?
You know, that's always a mix. I mean, we're talking about projects. I think Turkey was signed in 2009. Look back at 2009. What kind of world was that? Being now in a seller's market and not in a buyer's market and having our terms and conditions. We just gave you some examples. For example, the pricing clause, yeah, but also the execution in our internal things. You cannot always blame it to others and say, that's their fault. I think we also have made mistakes, but we have learned out of them. This learning was doing the homework, even though it was not yet started at Zeitenwende. F127, I cannot confirm these figures. I know they're out there, 20 whatever billion. Obviously, they will be the most expensive ships ever built in Germany for the German Navy. That's quite clear, right, Oliver? It's a huge project.
What they want to achieve with that ship is something we don't have in our capability list today. To have an AMD frigate means an Anti-Missile Defense frigate, which is a kind of building an iron dome over the North and Baltic Sea, which you have never seen today. A lot of capabilities on that ship. A lot of energy is needed to do that at once. This is the most challenging, let's say, thing on that ship that you need a lot of energy at once to do exactly these AMD strikes. Maybe, Oliver, you can elaborate a bit on F127 because it's ours, definitely. You told us the biggest project we have here in surface vessels.
Thank you, Oliver. Just to complement, I will not give you numbers, but I'll give you a reminder on the structure that the German Navy is selecting or the German government is selecting. This is ballistic missile defense. You need to have a system, including radar, including missiles, that is exo-atmospherically defeating and intercepting the intruding missile. This is currently, in the Western world at least, only featured by the U.S. Navy on the Arleigh Burke destroyers, for instance. We are ramping up the same skill set and the capabilities that the U.S. is having right now. I believe that the German Navy intends to take over some of the responsibilities that the U.S. is still having in the protection of Europe when they have their destroyers in the Mediterranean close to Rota in Spain. They are going to take over that role and responsibility.
In terms of structure, you will see that the German government will have to agree with the U.S. Navy on a foreign military service Diehl. You can imagine that a technology that is not even available anywhere in Europe is a significant contribution of the overall cost. I will not speculate on the percentage, but that's part of the Diehl. You said that it's a very large number for eight frigates compared with the Australian numbers for the Hunter class, which is featuring in Aegis as well. Maybe that makes a little bit more sense in terms of comparing it. It is a very large value. What the Navy is planning to do there with us is really a huge task. We are right now assuming that we will deliver ships ready to sail.
The combat system being customer-furnished will need to be brought into the status of ready to operate. Our assumptions right now are on rather risk-free, ready to sail, concentrating on this large vessel, integrating mechanically and electrically that system. The accountabilities of performing and proving the performance will stay with the U.S. Navy and with the German government.
Will you need a U.S. partner for this program?
The U.S. Navy has for the Aegis system their selected partners. This goes in the typical direction of Lockheed Martin, Raytheon. This is where you have to look at.
All right. Thank you.
Maybe Oliver, also to add on that, the work share between us and NVL, because I think this is something you also.
Yeah, I think I mentioned that in my presentation, but only very briefly. We've done this because we don't want to expand our capacities of shipbuilding in Wismar. Wismar is a big site, but we want to operate it in a hybrid mode. We're going to build, if we are selected and if the details don't change by the customer, we are planning to build five vessels in Wismar. We don't have the capacity to go up to the eight that they are interested in ordering, such that we need building capacity. NVL is a great partner with whom we have built in the past. This also, logically driven by content, relates to the sharing of two-thirds, one-third roughly.
Design, overall procurement responsibilities on the one side for TKMS and the build of five vessels, up to five vessels, and then the, let's say, remaining three vessels on the NVL side.
I think the next question comes from Christophe.
Yes. Christoph Menard from Deutsche Bank. Just two questions. One is on the margin still. In the submarine business, you mentioned that you're discussing the contractual terms. You just mentioned the S-curve. Can you remind us about the timeline of your progress payments on this and any way you can improve the S-curve over time? Because 10- 12 years is a long time. You could, I mean, generate margin earlier, possibly, if the program is de-risked. The other question is, I was looking at the gross margin of both naval, the surface and ATLAS, which are pretty good, actually. Why in terms of mix not try to increase the sales of surface in terms of, I mean, I guess you can amortize fixed cost in order to improve the general margin or the group margin?
Of course.
Margin.
Margin, yeah.
Clear question to me. With regards to a timeline of payments and also cost occurred, basically, our accounts are running IFRS 15, cost-to-cost accounting. This means the payment schedule itself is not necessarily linked to the revenue that we keep showing into our books. What is now particularly strong for our case is actually that when you look into Wismar, we are building the same submarines that we are building in Kiel, right? All the design stage, when you remember my slide, you have bidding, design, and then execution. That design stage has already been passed where you normally only have labor or engineering hours booked into your account. This is a lower level of cost that you can book, and then also your sales is lower. In Wismar, once we have finished our construction and our CapEx, there will be a steeper level of sales.
You cannot squeeze in too much of activity into a submarine. You cannot half in the production times. That's impossible from a technological perspective. You can double the output, and this is actually what we're doing in Wismar. Wismar will start at a steeper angle on that S-curve than we have seen it previously in the last years for Kiel. With regards to your second question, increase of sales in the surface vessels domain, yes, it can be a very attractive market, especially in the segment that we are in, the mid-sized frigate segment, especially with our modular approach. I think one really main key item will be here, the F127 that will also generate higher sales. You're going to see this again also in my presentation. We are seeing lowering sales as we have a very mature order book at the moment in the surface vessels unit.
We need to book new orders in order to refreshen that order book. What we really can see over the last years, and this really has been a growth engine, is ATLAS ELEKTRONIK and software solutions. We're seeing increasing not only margin profile, but also increasing sales profile. This is the second or third pillar of our strategy, driving margin as a group then going forward.
OK. I think the next question comes from Bastian.
Bastian Synagowitz with Deutsche Bank. Just on the revenue side and the guidance you've given, and I guess the 10% CAGR gives us a very good steer for the long term. You're doubling your shipyard capacity pretty much with boarding on Wismar. Just looking at the current order book, is there going to be a time when you will see a step change in your sales just from ramping up Wismar, or do you basically need the F127 to answer that question?
That's an interesting one. Honestly, I don't find it in any catalog. I think we have to be aware that Wismar is ramping up and will be fully fledged and fully working by 2027 early. Just imagine your craftsmen and all your tools you have to lay down before you start your work, and then you can work fast. F127 is in our core plannings. It's one of our big projects we want to have. We are close at. This could be an opportunity also for Wismar. If I understood you right, Bastian, if you're saying what if it's not coming, how do you fill that capacity? I think we still have enough in the pipeline to fill that. Whether it's submarine or surface doesn't matter because Wismar is ramped up for both. This is differentiated towards Kiel because in Kiel, we only can build submarines.
I think we're safe on any side. You know, I'm an optimist, as I said earlier. I don't think that Germans can miss the opportunity of F127. It is needed to show our defendability towards a certain group in the world. I don't think they miss it. If so, the demand for that, what we are producing on submarine side and on surface side, is so high that we are always able to fill them. As we told you today in the first half of the morning, we try to be, let's say, a more selective one. I don't say picky because that's not a nice word there.
We're getting a bit more picky when it comes to which contracts are really in favor for us as well for the development of the company, to keep all the words and to keep all the promises we're giving once a contract is signed. It will not affect, even though this project would not come, our forward plan and will be part of that prudent growth we're aiming for because that will stabilize and even accelerate our margin.
Thank you. Maybe one follow-up on ATLAS. You talked about some of the new, I guess, solutions and technologies you're going to bring to the market. Is there a revenue volume which you would take to those products which you would be happy to disclose at this point?
No, I don't think we're going for targets on revenues for our colleagues in the new reporting segment. I'm pretty sure that Michael can give you a glimpse of that, what is expected there. I wouldn't underlay it with figures now, honestly, sir. This is maybe a bit too early for us now. Let's walk a bit down the road and maybe clearer there.
Yeah, yeah. Thanks, Oliver. Of course, we have certain expectations. We'll not disclose that. As we are, for example, for the SeaSpider, talking with several customers. We see NATO PESCO qualifications. This is a paid study by NATO, for the time being, three countries. A lot of other countries are observers. They are very close to that qualification. The reason for it is they want to have it at the end. That means they are already designing their frigates for the SeaSpider partly. Yes, we got the first RFPs already. That means we expect definitely a margin upgrade. We see it, for example, also for torpedoes. We are now extending our capacity for producing torpedoes because we also see in the market bigger torpedo contracts like in the past. There is already ongoing work in extending our capabilities for new things. .
I think the next question comes from Josh, I guess, and then from Citi.
No, it's not working.
One second, please.
OK, it's the other one.
Yes. Joshua from [Mawer Investment Management] here. Two questions, and it's mainly on ATLAS. I think I was very impressed by the large proportion of external sales. Could you walk us through what is the market position for ATLAS in, say, NATO or NATO ex-U.S.? Would you be number one or two for most of the systems? That's the first question. The second question is relating to the revenue opportunity for ATLAS. Sorry. The second question is, what proportion of customers are buying more than one product? Because you mentioned there's a lot of integrated offerings. Are most customers buying packaged solutions versus individual products?
OK. Maybe I start with the second question. Of course, when we are offering integrated solutions for, obviously, TKMS submarines, I told you it's obviously internal sales for mine countermeasures. As TKMS is not producing mine countermeasures, we are working closely, for example, together with NVL, with Lürssen, or with ASAS. We are then offering full solutions, full solutional chain for that. For ASAS, it depends. We are offering torpedoes independently. We are offering Sonar systems. Are we the number one? We are always in competition. That means you have obviously to be on the top because you have always competition and always the same competition with the same big players. That means we have to be amongst the number ones. I wouldn't say we are always number one. Otherwise, we would have obviously another revenue because the market is quite big.
In our markets with our long-standing customers, we deliver reliable products. We have a lot of trust from them. We are very well positioned. I hope this answers your questions.
OK. The next question is from Citi.
First question on just some kind of around financial decision-making. Oliver, you mentioned that one of the things that you have done is increase the hurdle rates that you have for new projects. Can you give us a sense as to how numerically how that has changed? Or if not, an example of a project that you have not taken on in the last two years, which you would have taken on before because of the higher hurdle rate requirements? Related to that, if you were to come up with another bankrupt shipyard in, I don't know, Poland or something like that, given your capacity constraints, would you be kind of looking to take that on, given the great rosy outlook for your addressable market? That's the first question. Secondly.
Maybe they're two in one, but anyhow, OK. Go for it.
System selling of questions. There was also a comment that you are not focusing that much on MRO businesses. This was more on the surface vessels because distance of customers and sovereignty of whatever. In things like, for example, ATLAS, I guess there's an opportunity to sell more software as a service kind of options to clients. Is there a push? Is MRO, is that like a strategic objective to grow it? Or is it not like a strategic objective to grow MRO businesses? Thank you.
OK. We're open to answer your three questions, right? I don't tell you about projects we didn't take. I only tell you projects we have won. I will not give you any information about which one did we not choose because of the hurdle rates. Honestly, there are some, and because of reasons, because exactly of that reasons that they may be unfavorable for us. Look, for example, at the countries we already have in our portfolio. This is a lot of AAA countries: Norway, Germany, Singapore, Canada, Italy. From our point of view, also something which has to take into consideration when it comes to will we have that order, yes or no. If the raising of the hurdle rates would be so easy, I would raise it every year. We would be fully on track, right?
I only can do that when it is secured, let's say, in our operational work. I think this is what we have made over the years, constant progress to be clearer and more stabilized and keen in that what we're doing to even go to new dimensions in the hurdle rates. I won't give you a figure, honestly, not. It is a one which has the right, let's say, balance for that risk you're taking on. On the other side, the opportunity you can get with that. We're not constantly raising them. We're looking at are we able to do it on that way? Otherwise, then we have a one-trick pony at the beginning of the contract. Over the years, you will see that it will not work very well, this pony, and will not make any tricks anymore.
From our point of view, I think the right balance between that what we're able to do and that what we have risen, let's say, over the years. Will you go for surface, Oliver?
Yes. We differentiate, if you take a look at MRO, we differentiate between the part which requires a significant infrastructure like a shipyard, a repair shipyard, and services that we are going to roll out. If I differentiate in that, I would bluntly say rather than investing into bricks and into cranes that need to be fed by CapEx to maintain them, we would prefer to invest in technology and go exactly in the direction that you were talking about, that we rather think about via this digitalization strategy, that based on data, we can provide upskilled services, etc. Other companies are doing that already for, let's say, products which are maybe by heritage more digital already than combat ships. Take a look at aircraft, for instance. We are going to grow that.
In this context of MRO, we are rather focusing on training, education, long-term relationship with the navies, and then rendering digital services. What I also tried to bring over in my presentation is that we go for focused system upgrades and midlife upgrades where literally you're exchanging the complete combat system after 15 years because literally the technology leap was so high that you need to replace them. This is more work-like for a new-built shipyard. This is a message that we don't want to go into invest into bricks, but more into technology. Yes, it is part of our growth strategy.
Answers everything? Or should I add something to the shipyards? The bankrupt one in Poland you offered us, no?
All right.
Of course, I can. Just as I mentioned earlier in the market chapter. First of all, first, let's say priority is utilize our own facilities. The more, the better, because then my common costs are going down. Second thing is have it on a contractual base. If the customer wants it, then we're able to. We're happy to do that. Third priority is really to invest in further bricks and stones. Just to have a shipyard is maybe nice, but once there comes a day where you have to fill it. There's nothing by accident, nothing at the market which is interesting, though you have a fully utilized shipyard, workforce sitting there waiting for jobs. You're going back to the old pattern, just taking every contract into consideration and saying it's better than having none. This is not what we're aiming for.
This is what I mean with prudent, margin-oriented growth. I'd rather invest in partnerships, as Oliver said, than in bricks and stones, filling shipyards again with contracts which are not worth taking them, honestly.
All right. The next question comes from the virtual audience from Daniel Gleim from Gabelli. I think you already touched that partially in your presentation, Oliver. With regard to the change in ownership in NVL, what is changing from a TKMS perspective?
First of all, not much. NVL is a partner of us. NVL is in our special purpose company, one third. We are two thirds. There's a big cake ahead, which is more or less sliced given that structure. It shows the attractiveness of that market that Rheinmetall is seeking, wants to go into it. I fully understand the strategy. I mean, it's not so difficult to understand. He wants to be in all domains. Naval was not the case yet. Let's say welcome to the competitive world of maritime industry. We are a system house having everything under one roof. We are the maritime powerhouse. I'm not scared at all. Not at all.
OK, good. Maybe another question.
Or maybe a break also.
Yeah, we are really good in time. We could have for one more, but if we are fine at this point of stage, then I would clearly say let's finish the first half of our CMD. We will go into a lunch break until 1:00 P.M., and then we will see us again here in the virtual room. Thank you.
Alignment. This compensation model ensures that leadership success is directly tied to company performance with a significant share-based component that promotes long-term shareholder value. Compliance is a very important topic for a business that is related to governments. At the core, we are emphasizing strong compliance culture built on our code of conduct, clear thought from the top, and a firm compliance commitment. Compliance is embedded in all business processes to ensure it's part of daily operations and not an afterthought. Now, let me take a moment to reaffirm thyssenkrupp AG's full support for TKMS road to independence. We are genuinely excited about the opportunities that lie ahead. This spin-off is more than a structural change. It's a stepping stone to strategic freedom, empowering TKMS to shape its own future with agility, focus, and confidence. Thank you very much.
With that, I hand over to Dirk to talk about execution and technology.
Ladies and gentlemen, welcome from my standpoint here. It's a great pleasure to speak to you all, especially to the ones who are online. I will address already a few words on you in a couple of seconds. First, let me start with a private note. I'm Dirk Steinbrink, and I'm the CTO of the Group. In the frame of preparation of the CMD, we were asked to update our CV, which I did. I discovered that I'm since 27 years in project business in large-scale and mid-scale projects. That's really a long period, and that may allow me also to stand here to speak a little bit about project execution. At least that's my personal guess. I hope you agree on this one. You agree? You agree. OK. Let me—
Yes. Thank you. The second point is I want to say sorry to all of you who are sitting at home and watching and not living here or talking with us here in the room to discover the spirit of the room. You also missed all this beautiful shipyard tour we did yesterday. Do not underestimate this one. Let me stress this point a few seconds. I'm a big fan of lessons learned, right? What we did yesterday with the team who was guiding you, I had a phone call with them on the way back from Kiel to Hamburg. We talked about this exercise, which we did yesterday, just to see what went well and how we may can do it better in the next one. The guys were really excited. Why?
Because you made the effort to jump into the bus, come to Kiel, spend the time, put your safety shoes on, put the helmet on, and walking through the production and discussing. Do not underestimate this. You are a group of people which we normally don't see, right? The folks are used to guide soldiers, Navy guys, Ministry of Defense delegates through this shipyard, but never you. That's unique. We are preparing the organization in the management team that something changed. Something will change. Volkmar has just described what was changed. We are here because something changed. We are discussing with our workers that something will change. You were, let me say, a kind of proof that something changed because we are guiding bankers, investors, analysts, and all you through this organization. You were able to discuss. You put your question on. This was a nice lesson learned for me.
Thanks for all of you, and especially the one online. Next time you have a unique chance to come, maybe to Wismar, it's even more exciting. Can I say this?
Depends.
Depends. Let us next time meet in Wismar. Now, enough of my starting point. Normally, here we are. I have clustered my presentation into more or less four chapters, and two chapters which are now great. Johannes will take over after me to speak about the technology and about all the innovation we have. In principle, I want to explain what are we doing in project execution. Because you're all aware, we have EUR 18.6 billion order backlog, which is a huge number. We can execute this because we have state-of-the-art facilities. Due to our 10,000 years of experiences, we have also some quality and processes in place which are able to make this happen. We have a partner network. I will speak about this in a few seconds as well.
Let us not forget, and I know that the Senior Vice President of Supplies is in the room, he's sitting there. Thanks for that. We have a good supply chain because without any supply chain, it's all fantasy and science fiction, right? We need a proper supply chain. We have a good and solid and robust supply chain. Later on, there will come some numbers. Where we are, you have seen or you have heard most of the locations already. You are now used to this little sign which is in front or behind the name, which is the main operation. It means submarine, surface, or electronic. You are not astonished. We are German-centered. Most of our locations are close to the sea, which is also not a big surprise, except Munich, which is hard to say that this is close to the sea.
Johannes will tell you in a few seconds why we are in Munich and why we have this hub there. The rest of the locations are in strong proximity to our clients, which you can see here, all close to the sea, of course. Here we are, Kiel. You have seen Kiel yesterday. You know this is a new shipbuilding hall. We are around 3,000 employees on the site. Frankly speaking, I dislike this picture. I will tell you why. Because on this picture, you see our two support vessels, the Hercules and the Aquanaut. If the two support vessels are in Kiel, we are not generating any revenue, right? If they're moored on the quay, they are not in operation. That is why I dislike this picture.
I would like to see them sailed out to support our commission of the submarines or to support ATLAS with trials on their sensors and all the devices they are having. We are using them quite often. Wismar, this is a yellow bar around. Because Wismar, we will make a deep dive in a few seconds. Hamburg, Emden, engineers. We are 800 engineers in Hamburg and Emden. Why in Hamburg? Why in Emden? I think there are two ways to attract talents. Whether you're in the nice city, I think this location is showing that we are in a nice city, or you have an office close to where the folks are, which is Emden, by the way. So ITG, Oliver has explained already a lot about that.
On the bottom line, you see on the right and on the left side, Bremen and Dorset, which are more than 2,000 software engineers and electronic people working for ATLAS ELEKTRONIK. Let us not forget Flintbek, the next one, which is a communication hub. Flintbek is close to Kiel. Communication underwater sounds easy, but it's not at all easy. Flintbek has a long history on communication underwater overall on naval communication. That's an important hub. For sure, Munich. Let us talk about Wismar. Wismar will turn into a hybrid shipyard. Hybrid means we can do surface and we can do subsea. That's the principle of hybrid. To do so, we have to install in Wismar a second pressure hull production line, which is ongoing, by the way. Just as we speak, we are installing the equipment. This is a well-invested facility.
Let us not forget, most of the investment is covered by direct customer contribution. We are investing around EUR 200 million. Paul is paying attention on this, that it will not be more, I can tell you. We are on this path now. Sooner or later, we may meet in Wismar. I can show you because it's tailored. It's tailored for us and it's specialized. It's not state of the art. You have seen in Kiel the first production line for the pressure hull, and this one will be the second one. It's really also kind of safeguard in terms of production. The customer projects which are already in the books, you see here. The last one on the bottom right, the F127, we talked about that. I can present a lot of pictures, but maybe it's easier if we fly with a drone now through Wismar.
That's the movie with the start when I push the button. Don't believe that the submarine production goes as fast as it is in this 30 seconds video. Don't believe in that. Now it's clear what we are doing, no? I think so. Should I speak about the crocodile? No. You know this little yellow device? You have seen it in Kiel as well. The little yellow device which looks like a U, which is 90 degrees turned. We call it the crocodile. It's to move the platform into the segments. It's a funny device. Next time, I will see and show, explain more about it. Let us talk about capacity. In terms of capacity, today we have our order backlog fully covered with the existing capacity. It means in engineering, production, and setting to work, we all have the right tools in hand.
You see here, we even double our capacity in terms of working hours, talking about Wismar sooner or later. It doesn't limit us for further growth. We can still continue growing because, as already described in Christian and in Oliver's presentation and also with Michael, there is this phasing. I will come later on on this phasing on the production. It means we have engineering, we have production, we have setting to work. It all goes in phases. It's not limiting ourselves just because we have today the right capacity in hand. That's the double we process. I've explained it a couple of times already during my business life. In principle, it's the one and only process which is shaped for medium-sized projects, or let me say little series, small series production. It is phased in four phases. The first one is the Initial Design.
Here, we are more or less laying the cornerstone for the further negotiation. In the second phase, we start with the Detail designing before we go into the construction. That's an important point. If we are not doing this correctly, and we did it correctly for all the ongoing projects, on the running projects one, then we have a handicap when we start the commissioning and the production and afterwards the after sales and decommissioning. Paul will explain a little bit later in terms of numbers, what does it mean. You have all seen this already in the presentation prior to mine, where we adjust this line. Here is a little bit more details in. In principle, there are four phases in this flow. Let us speak a little bit about real production now because we have a lot of paperwork.
Sooner or later, it has to come to real production. You can see in the middle of the picture a small sketch of someone who was welding, who was welding manually on a steel construction. This we have replaced by a robotic. You see below a sketch and on the right side a real picture of this yellow device. That's something which is now in place to ensure that we have always the right quality and the right speed. You can see on the right side the key facts. We have 60%- 70% reduction of lead time, which is significant. For sure, that is related with an investment. You can see it's less than three years return on invest. This is a quite OK investment from my point of view because as a byproduct, we are also improving the quality.
We lower the rework time by doing this with an automatic device. You will not be surprised. We are full-fledged equipped with all the standards and certificates. Why are we having that? First of all, it's a door opener for the new sales because it's a kind of prerequisite. It's also mandatory that we have all certificates in hand, the NATO standards, the ISO standards, all those standards we have in hand. That's a kind of must. There is also something which let us not underestimate this one. The chances for us to benchmark ourselves to someone else are quite rare. There are not so many submarine producers, for example, in Germany. It means with a chance of having external and internal audits, we have a chance to check whether our procedures are according to what we have penciled, right?
That is absolutely critical. It is also critical to be sure that we are working according to our own procedures. That's why I like this one with all the standards we have. There is a fourth one because without having a proof set of processes, we are not able to do this. If we want to go in a partnership model, we are selling something. We are showing something towards the partner. It is good if someone else has proved it and it's stamped, right? That is a very critical point from my point of view because we have three different models of partnerships. We have, for example, Fincantieri. We heard about this in the submarine section about the 212A. A stands for Alpha. It's a predecessor of the 212CD. We have, for example, for surface vessels, we act as general contractor.
Oliver described it here, for example, for the Egyptian one where we partnered with Renault. The next one for India is also an important one because here we are enabling a shipyard to produce according to our design, according to our standard. We are more or less guiding them to reach this level to produce a submarine according to our design, including production and suppliers because you need local suppliers. Talking about local suppliers, that's a bridge to our supply chain because our supply chain is, according to TKMS rules and goals, well organized. You see the big words we are having here: reliability, stability, local optimized, scalability, all those words.
I want to stress two of them. Stability, we need to have a stable source of suppliers. Otherwise, it will just not work. The second one is scalability. Taking into consideration that we are now doubling our capacity from Kiel to Wismar, we need to find suppliers who are ready to follow this path. Otherwise, it will not work. What plays an important role is that 95% of our suppliers are nearshored. It means they are in Germany or in the European Union. 85% of them, we know them since longer than 10 years, which is quite a long period. They know us, we know them. The last point, and I think that's even more important, is that 70% of the suppliers have given a bid when we started to talk with the customers. I am back to the WV process. You remember, Initial Phase, Final Phase.
We want to have those suppliers on Board during this negotiation to ensure that they stand with us because the negotiation sometimes takes long. Oliver talked, for example, about India. We have others. It takes some time. We have them on B oard. They know us, we know them. We have a quote, 70% of the A products, we have them in hands. You see it here just in the pie chart where they are. 63 are in Germany, which is really a large number out of 3,500 suppliers. We are not that flexible sometimes. We are, but not that flexible due to the fact that we have those suppliers since long, and they know us, and we know them, and they know the products, and they stay with us also during the tender phase, which is quite important.
You see here also the split between the top 10, 11, 20, and so on. I think this slide speaks for itself. Let me try to summarize. I think we're on the good path. I think we have the right tools in hand. I think we have stable processes, which are proven and audited internally and externally. We have a good supplier base. With that, I want to hand over to Johannes. Thanks for your attention.
Thank you for the handover. A very warm welcome also from my side. We as TKMS provide system solutions for the maritime domain. We have cutting-edge technologies in our S ubmarines. We have cutting-edge technologies in our Surface Vessels. We also have cutting-edge technologies to build these S ubmarines and Surface Vessels. There is one piece of the puzzle which really makes a difference. With our broad expertise in system design, system integration, especially combat system integration, communication, electronics, software, and even AI, we as TKMS have everything to shape the future naval warfare. I'm Johannes Geitze. I'm the Executive Vice President of Operations of TKMS ATLAS ELEKTRONIK. I'm proud to support TKMS with my 15 years of experience in maritime technology and technology strategy. Some of the topics which I will present have been already mentioned by my colleagues of the segments.
I will show you how these different and specific activities contribute to an overarching technology strategy. First, I will give you an overview about our technology portfolio. Second, I will introduce our innovation approach, which enables a reduced time to market. Before I go into the detail, let me highlight one important thing. For us, it's not only about developing a new technology or applying a new technology to our products. We are focusing on technologies with a disruptive impact on the battlefield and, in the best case, also on the markets. Today, we are already delivering cutting-edge technologies. We are continuously adding new technologies to enhance our customers' naval capabilities. If we have a look on our today's portfolio, our stealth technology of our submarines is a class of its own. With our well-designed propulsion system and our advanced air-independent energy solution, our submarines are very hard to detect.
Our modular design approach of our MEKO frigates, combined with their survivability, means we can offer one of the most popular and robust frigates in the world. Our Sonar Systems are so good that oceans and seas nearly become transparent. Therefore, we can find the enemy even underwater. With our technology pipeline, we are getting ready for the future naval warfare. In our technology strategy, we are focusing on four main pillars. First of all, we will strengthen the offense and defense capabilities of crew platforms. Second, we will go all in in uncrewed autonomous systems. In the maritime domain, uncrewed is the same as drones. Third, we will enhance the network capabilities and therefore the teaming capabilities of crewed and uncrewed vessels. We will optimize and orchestrate all these assets in this naval battlefield.
Last but not least, we will improve the availability of uncrewed and crewed assets via predictive and prescriptive maintenance so that our customer can stay on mission longer with his assets. With these activities, we will continue being a trustful partner of our customers. Because we as TKMS offer the whole spectrum of technologies, of naval technologies, we are in a pole position to help our customers shape the future naval warfare. When we look at the different navy doctrines, like Oliver mentioned, we can clearly see that the future will be multi-domain. What does this mean for the navy or for the maritime part? We will see an increase in collaboration between surface vessels and submerged vessels. We will see an increase in teaming of crewed and uncrewed systems. We will see an increase in collaboration between navy assets and assets of other domains, like land and air.
To make all these assets work together, navies will need much greater communication and cooperation capabilities. For example, they will need secure data transfer in and between different domains to deliver tactical decisions in real time, also in the case that a submarine or autonomous underwater vehicle is submerged. They need communication links to remote control uncrewed vessels or even orchestrate a fleet of uncrewed vessels in a crewed uncrewed teaming setup. As we as TKMS offer the whole portfolio of crewed and uncrewed vessels, have the communication, electronic, and software skills, we are best positioned to offer the most integrated battlefield solution. On top of that, we will further enhance our solution with AI so that our customers can optimize and accelerate their decision-making process at all times. Let's have a look at our technologies for crewed platforms.
We use technologies to enhance the offense and defense capabilities of our crewed systems. First of all, we are applying our new and cutting-edge stealth technology to make our 212CD submarines even more stealthy and therefore one of the least detectables in the sea. Our existing stealth technology will be further improved. The next-generation stealth technology significantly reduces the probability of detection and therefore increases the combat power of our submarines. I'm pretty sure that this technology will have a disruptive impact, like the first series of stealth aircraft, the B-2 bombers in the 1990s. Secondly, based on our modular MEKO frigates, we will enhance the crewed uncrewed teaming capabilities of our surface ships. We expand our existing solution, which is already in use for mine-hunting ships, to frigates. Tomorrow, drones, UAVs, USVs, and so on will be orchestrated by our solution to maximize the impact of these systems.
The first step has already been made in the area of anti-submarine warfare. Third, we will focus on disruptive weaponry. We have some real game changers in our portfolio. I will come back to this later. Last but not least, we're enhancing our Sonar with AI capabilities to increase the activities of Sonar. This is an important advance because reading Sonar is a very specialized activity. Sonar is the only way how to see, orient, and navigate underwater. When we add our AI solution, submerged vessels will be able to interpret Sonar faster and are able to make faster decisions. It also means that AI-enabled submerged vessels more or less self-drive. This is especially relevant for uncrewed vehicles as it allows them to become a more and more important partner in the naval ecosystem. That's why we focus on a broad portfolio of cutting-edge uncrewed systems or cutting-edge maritime drones.
We already have state-of-the-art uncrewed solutions in our portfolio for underwater and surface applications. Here we see the SeaCat and the ASIMS, both existing products, military-qualified, war-proven. For example, the SeaCat is currently in use in the Ukraine war for mine-hunting applications. We are further expanding our uncrewed portfolio to really make a difference. We are coming from two sides. With our experience and knowledge in developing complex high-tech crew platforms and our existing solutions and experience in uncrewed systems, we will enter the next level of uncrewed vehicles. The MEKO S-X, a 50-m long, half-diving surface vessel, will be difficult to detect but equipped with long endurance, with the ability to be part of a naval formation and able to fulfill special maritime tasks like anti-submarine warfare. The STARGUES, a real underwater warhorse.
High endurance, high sophisticated capabilities with the potential of a real autonomous weapon system carrying torpedoes and being equipped for mine-laying tasks. Due to the environment and due to the maritime tasks, which often require very long endurance, most of the world's navies plan a near and midterm future that the maritime domain will be driven by crewed and uncrewed systems. Having both in our portfolio and in our DNA, we will drive this development. We will be the leading partner for our customers. To enable teaming, we can rely on our broad expertise in communication capabilities. We are experts in radio-based surface communication, and we are experts in acoustic-based underwater communication. This combination gives us everything which is needed to team crewed and uncrewed vessels. Our integrated communication solution is the best radio connection for secure and reliable communication.
Every German naval platform and also platforms from other 27 navies trust on our radio-based communication solutions. We master on the highest level the technology chain, starting from the antenna over electronics to software. If we go into the area of underwater communication, we can state that underwater communication is based on acoustics. Sonar is based on acoustics. With our experience, expertise, and our unmatched existing Sonar systems, we are the best partner for underwater communication. Therefore, underwater communication is a kind of home playing field. To connect the surface world with the submerged world, we will launch in 2026 our new product, the Gateway Boil. The Gateway Boil will ensure that you have a seamless communication path from the surface world to the submerged world. As a result, we can connect all elements in the naval ecosystem, including submerged assets.
By integrating AI, we are providing additional tools to increase both the defense and offense capabilities of these assets. We have decades of experience in signal processing and also handling big data, like Sonar data. Therefore, we can develop effective AI solutions that really disrupt the naval battlefield. Don't get me wrong. We will not develop the next big large language model. Our roundabout 100 AI and autonomy software developers will use, adapt, train, and optimize existing models for all our applications. At the moment, we see three main applications for AI and work already on this. First, we will use AI to enhance tactical decision-making. AI tactics will support crewed platforms with tactical decision. It can orchestrate the full fleet of uncrewed systems. We are a consortium leader of one of the most important tactical AI projects of the German Ministry of Defense called Ghostplay at Sea.
Ghostplay at Sea creates a digital twin of the battlefield, simulates different tactics, thousands and millions of tactics to train an AI. In the next step, the learnings of the AI will be implemented in real-world assets. As a consequence, these assets will be consequence and context aware. In 2027, we will demonstrate these capabilities in a real-world exercise to show how tactical AI will disruptively impact the naval battlefield. Secondly, we are using AI for our surveillance systems. As Michael said, in an underwater surveillance system, we already have an unmatched Sonar AI solution in our portfolio. What does this really mean? Sonar for a submarine is like the windshield for a car. You have so many detections underwater, it's like driving in a strong rain, and you have difficulties to focus on what is really important.
You have so many detections, but it's important to know what is really important for your mission. Today, the windshield wipers are mainly driven manually. Sonar experts analyze this data, and they analyze it by their own to come to a decision on how to act in this mission. With our Sonar AI solution, we have a kind of fully automated windshield wipers with a rain detector. The whole analysis and decision-making process is, in the first step, supported by our Sonar AI solution. In the next step, fully automated. This enables fully automated clear view, and this is a fundament for safe driving of submerged vehicles. Our Sonar AI solution is the enabler for real autonomy underwater. Third, we will use AI to improve the availability of battlefield assets. AI will be used to develop predictive and prescriptive maintenance regimes for naval assets.
With our AI hub in Munich, we have this expertise in-house, and we will be able to increase the availability of the assets of our customers. These AI developments show our cutting edge in increasing the activities of the naval ecosystem. We are further enhancing the ecosystem with our highly advanced weapons. With our experience in naval warfare, we have a track record in developing torpedoes. Now we are expanding our portfolio, our weapon portfolio, with two additional weapons. We are also developing the next generation of our heavyweight torpedo. Let's start with our IDAS system. The IDAS system, as Christian mentioned, is a submarine defense system. One of the biggest threats to submarines is a helicopter. They are looking for submarines via dipping Sonar, and they are able to release torpedoes to attack a submarine. Currently, a submarine is not able to defend themselves against helicopters.
With our advanced IDAS system, we are able to detect the helicopter, and we are able to take the helicopter out of the sky so that the helicopter is no longer a threat for a submarine. I'm pretty sure that this will disrupt submarine warfare. The SeaHAKE Next Gen will be, from our point of view, the ultimate heavyweight torpedo. One heavyweight torpedo is able to destroy a big ship, like a frigate. They dive under the ship, they explode, the ship is lifted up, and after falling down, it breaks into two parts. The whole ship is destroyed with one torpedo. That's the reason why the cost efficiency of a torpedo is so high. You are able to destroy a frigate, roundabout of $1 billion, with a torpedo which costs a couple of millions.
Due to our experience and capabilities in sensing and intelligent algorithms, the SeaHAKE torpedo nearly cannot be stopped or fooled by decoys or similar solutions. The torpedo is too smart and will destroy the frigate every time. The 212CD submarines will be equipped with our next-generation torpedo, and the next-generation torpedo will even be more efficient because, due to a new software architecture, this torpedo will be software-defined defense-ready and can be updated shortly for launching with new tactics, for example. Last but not least, my personal favorite from a technology point of view, the Sea Spider. The Sea Spider is a brand new weapon to defend platforms, especially surface vessels, against attacking torpedoes. As I mentioned, once a heavyweight torpedo locks you as a target, there's nearly no chance to escape. The only way to survive is to destroy the attacking torpedo.
At the moment, we don't see any comparable solution on the market. We are the only company in the world with an anti-torpedo torpedo solution that is nearly ready for market introduction. We have a running prototype, and we are starting, as Michael said, full naval qualification next year. This anti-torpedo torpedo will destroy the attacking torpedo. Once we put the anti-torpedo torpedo in action, I'm pretty sure this will really disrupt the naval battlefield and also the market because enemy torpedoes will more or less be useless if a frigate is equipped with our system. Imagine our MEKO frigates equipped with the anti-torpedo torpedo solution. From my point of view, it could lead to a nearly undestroyable frigate. We will shift our focus for developing torpedoes so that the next generation of heavyweight torpedoes will be able to beat the anti-torpedo torpedo.
As you see, we have a lot of exciting new technologies in our developments. These are the results of our holistic approach to innovation, which we call OceanX. OceanX is our think tank and our go-to-market accelerator that helps us to shape our technology pipeline and fasten our market entry. We are always looking for the next technology, developing the next product, in the best case, the next game changer, and bring these ideas very fast to the market. For doing that, we have a very structured and efficient approach, which is OceanX. OceanX aligns upcoming technology ideas with our technology and company strategy and with the portfolio of all three segments. The result of OceanX is a holistic approach of naval warfare with a streamlined go-to-market strategy. With OceanX and the expertise in the segments, we translate upcoming technology into commercial success.
For the realization of these ideas, our innovation approach is based on a tried and tested toolkit. The toolkit involves working closely with a lighthouse customer, like the German Navy, reusing technology and existing solutions, involving research and funding partners, and increasingly adding our AI solutions. With our innovation approach, we strengthen our relationship with the customer. We reduce developing costs and we reduce the time to market. We ensure that our developments will have a commercial success due to a strong involvement of the customer. Whenever it is possible, the customer is part of a sprint-based and demonstrator-focused development. The feedback of the end user leads to the best product. The regular demonstration of our capabilities convinces the customer that we are the right partner for developing the next generation of a product together with them.
Additionally, in our developments, as was also often mentioned by the leader of the segments, we are focusing on a building block approach. A building block approach means that we reuse existing solutions, or we reuse solutions across different platforms, across different products, across different projects. For example, the whole MEKO approach is a building block approach. As Oliver mentioned, the air-independent propulsion system, which was presented by Christian, is used in different classes of submarines. Also, the ARCOS software package, the ATLAS Corps system, is a building block because this software solution is used for surface vessels and for submarines. Overall, we have been very successful in introducing new products using our modular development approach to innovation. This innovation approach, strong involvement of the customer, and reuse of existing solutions is also critical to create effective software solutions, especially software solutions based on AI.
With our expertise in software development and our access to data, we are best positioned to roll out AI-based products to the naval battlefield. We own a lot of data, and we have exclusive access to important data. With this precondition, we are best positioned to train AI models. AI models are very hungry for data. We have a lot of data, and we know how to feed an AI. Good circumstances to deliver high sophisticated AI products. Our AI activities are mainly focused on two locations. In Bremen, we focus on product-related AI developments, like the Sonar AI solution I mentioned or solutions for the automatic target recognition. In Munich, we launched a new location for all AI activities on system level, like tactical AI or AI for prescriptive and preventive maintenance solutions. This hub is still in the ramp-up but already contributes to the topics I mentioned.
Why did we choose Munich? We've chosen Munich to be part and profit of the most dynamic AI hotspot in Germany. I think, from my point of view, from a technology point of view, Munich is the place to be regarding AI. While we cultivate deep in-house expertise, we also strengthen our capabilities through trusted external partnerships. As TKMS is seen as a technology leader in naval warfare, research institutes and industrial partners want to work with us. That's very good. Generally, these corporations reduce development costs, speed up time to market, and in some instances, they also create market access. For example, on the right-hand side, we are partnering with universities and players like HENSOLDT and 21 S trategies in the project GhostPlay@ SEA to develop the mentioned AI tactics. We're also working with industry leaders in adjacent technologies, like Diehl.
Diehl is an expert in rocket technology to develop the IDAS system. Thirdly, we are working with leading international partners that provide access to new markets. For example, through our cooperation with Brazil's national champion Embraer, we created a new market for TKMS frigates. Clearly, these partnerships help us maintain our strong technology leadership and help us be the first mover in delivering disruptive technologies again and again and again. Let me summarize. First key message: everything is in place to execute our order book properly. Therefore, our order book will be converted into revenue and profit. In our state-of-the-art facilities, we will execute in high quality with our robust supply chain, our order book. We are able to further extend our production capacity together with external partners. Second key message: everything is in place to fill our future order book. Our technology pipeline enables the future naval warfare with high potential for disruptive impact on the battlefield and on the markets, which we will enter with our innovation approach very fast. Thank you very much. Now I hand over to Oliver, who will present our strategy.
Yeah, thanks a lot. Out there on the screens and here in the room, six down, three to go. Three more topics here for us to debate later on in the next Q&A. By the way, here you can see a model of the anti-torpedo torpedo he recently spoke about, this one. I always ask Johannes, when will be the person there who invents the anti-anti-torpedo torpedo torpedo? Because then that could be the next step in evolution, let's say. Anyhow, please allow me some jokes. It's a bit later in the day and w e're still here and working this out together, right?
I kept this strategy chapter quite crisp because, honestly, it's the first CMD we're having here. Everything is about strategy. What you have heard in the first six chapters will always just, I just can't repeat that in my chapter about strategy. I'm pretty sure that when we have an ordinary capital market day, of course, you'll get a bigger chapter based on strategy. I can't tell you anything new now anymore because everything is already set. This is a slide I will tell you in a second. I would just maybe want to repeat some of those big words spoken here. One of those is regarding the strategy. What is the key benefit for TKMS, by the way, doing that spin-off? Volkmar already said it. It offers us, let's say, a world we're not in yet as a part of a big conglomerate.
It gives us that, let's say, this strategic independence, which is needed in these times, which leads to, let's say, increased ownership on one side, but also fastens our decision-making. This is a brilliant opportunity, especially in a market which is so dynamic as this one, as we described already. The second thing is, from our point of view, we get a clear market valuation, a daily market valuation, quite liquid every day from you as investors, from the people who are buying the shares or not buying it. I think we have a clear, more targeted investor base when it comes to defense, especially in our part, than being part of a conglomerate. Very valuable. Thank you, Volkmar, that you shared it with us because I think that's exactly what it's all about, why we're doing that. Coming to that, let's say, one chart. I'm sorry.
It's obvious there are more, but the most important chart when it comes to strategy. Not very surprisingly for you, meanwhile, first and foremost in everything is execution excellence. Execution, execution, execution. This is what it's all about. All the other things are nice later on. If we mess up this, then we're lost. We don't want to get lost. We want secured seas, but not an insecure company. That's the reason why we put a lot of our focus on execution. The second thing, I already described it. Later on, Paul will also show you what we mean with a prudent margin-oriented growth. It is really, I just tell you the don'ts on that, not the do's, the don'ts.
No investments automatically in bricks and stones or new shipyards, not generating, let's say, the overcapacity of tomorrow, and not falling into that pattern when it comes that we're losing profitability because we have gained profitability over the years due to our done homework. This is exactly all what we mean when we talk about prudent margin-oriented growth. We want to grow. We want to do that in a smart way. We're not growing like hell and outgrow and even overwhelm ourselves by being too big and then fail. That's the number A priority after the top, top priority of execution. The second thing is, and I think you might have a glimpse, meanwhile, what we mean with multi-asset asset offering, which really helps us to be a fully fledged system house in the market and not being just in a niche.
You have seen that our operational sites are modernized, whether it's Kiel, now Wismar, but also in Bremen. It looks nice and good. Everything is there, what they need for it. Itajaí, as an addition in South America, is also very likely to have. I told you that early in the morning, it's all about partnerships and how do we drive them in the future. This all is needed and part of our strategy to be, let's say, in the best case, the best in class in all that big columns. It will help us that those programs you already know, this robust pipeline is quite a strong one. You already know it from Canada to mine countermeasures I just showed you earlier. I think these are the ones we want to have.
These are, let's say, in my words, the must-wins we want to see in our portfolio in the future when it comes to our order book. Therefore, I think it's crystal clear that we do our utmost best to win them. You know already the Wimbledon. I told you this morning. I like the comparison. Maybe I don't know if you get it, really. I liked it. You used it already. Again, Johannes, and you invented it. I just steal it from you. Now you told me first today. What about the Sonar and AI? Just make it very, very simple, this comparison. Sonar is the windshield of our submarine. AI is the wiper. It helps you to recognize better the things which are down there in the water. As you said, you can do it manually, personally, but you can do it automatically.
This is what we're working on, that those people who are serving on those ships are in a position that they already know the best, the utmost best, what is possible. The four pillars of our technology strategy was part of our strategy because we are a technology company. We are a process industry. Of course, technology is key for us. Those four already Johannes mentioned when it comes from how to enlarge, let's say, the crewed platforms up to how do we do predictive and prescriptive maintenance and how do we, let's say, Diehl with those autonomous drones in the water systems with the knowledge based on AI. The first thing after execution is how do we cope the growth. From my point of view, very clear. I already stated that. I think I answered it in one of the questions.
We are maximizing the output of the existing facilities. This is number one. Second is we will have partners, as you have seen, with Fincantieri or maybe India or somewhere else, where we outsource selected production steps, where we are, let's say, selling our design to the customer, but giving it and allowing it for some external to assemble our stuff. Really, the third one, and it's not on our agenda list. We are not seeking for a next shipyard somewhere else, whether it's Poland or somewhere else, whether it's bankrupt or still alive. We are not going for new capacities because this is not what we're aiming for. Again, to avoid mistakes who may mislead our path of prudent margin-oriented growth. Just a different angle, but the same principle.
If you look at that, what we're doing today, how do we work in partnerships, whether it's local, whether it's a global concept, or whether it's a product-driven partnership. These are the partnerships we're seeking for. If we're doing well, I'm pretty sure that we are able even to talk about consolidation or other things because the brand is still in big movement. Of course, we have a chapter here for ESG. Not because we have to, because we are convinced of that. Especially when it comes to that, we copied a lot also from our mother company, thyssenkrupp AG, which helped us in that case. Of course, we want to be net zero by 2045, latest. We are looking and having a big view, especially when it comes to the social and the governance topics. Environment is, I mean, we are in defense business. It's also important.
It's not the most important thing because it's more about sustainability, how to defend, let's say, the cause and values we are all sharing together in our society. Also, though, we also have won some awards in the past where we have shown, let's say, the evidences and being compliant on that. For us, it's a very important topic. This is one of the reasons why we have split our strategy part in two parts. It's about, let's say, the general strategy. It's about the people strategy because I can assure you, transformations like this, what we have done over the last years, you cannot do against the workforce. You have to include and take the workforce with you because otherwise, they don't understand. We often have four times a year an assembly of all employees in the Kieler Ostseehalle. It's a big hall.
I think it has a name of, I don't know, Merino, Arena, whatever. This one is always very important because it allows us to tell our strategy also to our people, to the ones in the blue collar, to the ones who are standing up in the morning at 5:00 A.M. and try to do their best over the day. Some of you have maybe recognized that there were not so many yesterday on the shipyard. I can assure you, they are there. First of all, they are working really like hell. Some parts, especially the pressure hull production, is very automated. You won't find many people anyhow there, whether it's in the morning or in the afternoon. I always heard the same experience when it comes to visiting a steel factory. Everybody says, where are the people? 10,000 people are working here. Say no.
They are sitting in some rooms where they steer all the machines and all that stuff. We're working on heavily to become that what we have put on our agenda. Therefore, again, this is my seamless link now to Angelica. We will hear now the people strategy because this is very important that we have the right people for that and that we are a good neighbor on one side, that we take them with us when it comes to strategy and execution. Therefore, I clear this stage here now for you, dear Angelica. We'll click to the next slide, of course, that you see. It's her. I thank you again for your attention. We'll be back later for Q&A. Thank you.
We are coming to the people who make all this happen. Also, good afternoon from my side, and welcome to the Capital Market Day. My name is Angelica Kammeck. I'm the Chief Human Resource Officer for TKMS. I'm here for three months now. I'm coming from German DAX and MDAX companies. I worked in mid-tier companies. I worked in the industry as automotive, steel trading, energy business, and also the service industry. Afterwards, I built up my own consultant business. Now I'm here, and I'm happy to be here. I'm happy to be here with this team. It's also great to be in a growing company, to be honest. HR is here to support growth. Let me share some first impressions with you about TKMS. It's a company that's really energized by the future independency. It's a company that is focused on capturing the opportunities the market brings today.
It's a company with more than 185 years of experiences and with a great workforce with deep, excellent, and highly educated expert knowledge. I'm convinced of the company's potential and of the people's potential. I'm looking forward to push the topics forward. The people strategy, it's based on a holistic approach with four key lines of attack. What's the objective of such a people strategy? The objective is really to foster the execution of our order book through our people, not more, not less. These four key lines of attack support that: the strong employee base, the product-focused workforce, continuous talent development, and the expandation of the workforce to meet our operational demands. Let me start with some key facts about our workforce. Our workforce reflects our identity. It's highly loyal and committed, with specialized capabilities across the segments worldwide, underpinned by a strong German base.
You see on the left-hand side the strong employee commitment seen in the 11 years average length of employment, which is in this industry really important. You see then equally spread across the segments, dominated by submarines and ATLAS. Beside Germany, we are represented worldwide with our shipyard in Brazil and electronic facilities in the U.K., supported by various smaller locations. Behind our workforce lies a clear direction, a product-focused workshop to excel at the delivery of our products and services. We have a highly product-centric workforce, which is capital to deliver on our backlog. You see here in this pie chart, most people are really balanced. 88%, if you calculate it, it's more than 85%, 88% are working in the operational product-focused functions. We are not a company with a bit of big overhead employment. All focused on the products and product-related tasks.
We have a balance between software engineers and engineers, as well as craftsmen, both for the conventional manufacturing platform business, as well as for the maritime tech innovative future, as you heard today. From Christian's submarines, where we see the engineering and construction of our state-of-the-art 212CD, over all of our surface vessels where German engineers and Brazilian craftsmen are working together on the Tamandaré program. Last but not least, for Michael, as we've seen in the example, for instance, the Sonar AI solution, where we already have 650 software developers. Out of them, we have 100 AI software developers. For both areas, we are stable. Starting from this strong foundation, we also invest into our people. Our workforce is distributed. Most of them, more than 43%, have a higher degree, a higher university degree. 51% have a stable apprenticeship. We invest across our function with 125 hours of training.
We develop young people. Last year's status of June, we had 400 apprenticeships. Recently, we recruited 148 additionally. Young people, plus our development, plus our young professional program, besides the stable workforce who works here longer than 11 years. We recruit from several universities and offer this graduate program. This shows our strong commitment to the workforce. The next slide, I'll show you how we are ramping up the workforce. Our ramp-up is supported by the Workforce Growth Plan and by the second part, the attractiveness as an employer. Our midterm, not this year, but midterm employee growth, we talk about + 25%. We have several initiatives who support our growth. We have a good recruiting pipeline, which increased in the last year by + 44%. We handled last year between 36,000 and 40,000 applicants. We already recruited 196 for Wismar. The pipeline is filled.
The attractiveness as an employer, we have people who like to work here, which is even important. 85% enjoy working at TKMS. Our eNPS, eNPS means nothing more than would you recommend this company to a friend to work here. This increased by + 16 points. We are a little bit proud that we are now the second most popular defense employer this year for the first time. When we go ahead, we are in times of the shortage of skilled workers. What are the levers to drive it forward, to get the right people from the market? That's at the first hand the employer attractiveness. Second, invest into development. Third, have a modern and good recruiting. Here, with our independency, we had a good employer brand by thyssenkrupp AG. Now we step out and made a tailor-made approach to attract the right talents for us.
That's what I would like to show you. The people who are known models are all our employees, by the way. If you are now interested in joining us, you are happy to apply. Contact me. We have today more than 206 jobs open for you or for your children or for your family members. You're welcome to apply. With these words, I would like to hand over to Paul for the financial outlook. Thank you very much.
Yeah, sure. OK, I'm just realizing, actually, that I'm the only one without a video today. So yeah. I think financials and numbers and also Volkmar also had no video. I think that's a good combination between TK AG and the CFO here. Thank you, Angelica, very much for this great insight on how we are going to grow and also shape our future workforce. I think before we now move to the financials and how everything you heard today is going to translate into financials, let's recap a little bit what you have seen, right? You have seen a very strong market growth and market growth outlook. You have also seen how all three segments are very well positioned to capture on those market opportunities that are out there.
We also showed you that we have worked on our execution setup and are also very well positioned in realizing our strategy. Everything that we're doing is really pushing forward, not only to sustainable growth, but also to profitability improvements. I'm going to translate you how all of this has done and worked out in the past with regards to our financial track record. Then we're also going to have a more in-depth view with regards to our medium-term outlook. Let's jump right in here. From a financial perspective, there are clear four investment highlights that you have with TKMS. I think first, and we spoke about this, is the high multi-year revenue visibility coming from our record order book. Also, we are very focused on growing our business and then increasing our margins, which is very important to us. We have performed this over the last years.
You can see that significant step up in profitability in our books. I think with the segments, with our technology, we are very well positioned to unlock further margin potential and upside. Fourth, and we haven't spoken about that, but this makes us really unique, is a highly cash-generative business model. I'm going to deep dive on that because it really fuels our growth, the growth that we are capable of. I think these are really the main reasons why we are very set and have a very strong financial profile. Let's have a look on how this developed over the last years. I mean, I'm not going to read out all those numbers for you. Basically, the key message, if you look into the numbers, we are up in all main KPIs.
Record order book, and we have delivered record sales of over EUR 2 billion for the first time in the history of TKMS. We have continuously grown our profits over the last years, and we have even expanded our EBIT margins. That is a very, very strong result that you see here. Why is that? We have started our journey, and we have done our homework much more in the past over the past years. Why did we do that? We wanted to get ready for independence. We wanted, as a management team, jointly with TK AG, to get ready for the spin-off that was crucial for us. What did we do? In essence, it is being more disciplined. It is being much more disciplined on what orders we take, and it's being much more disciplined on how we execute them so that we are not making any sacrifices there.
It's also being much more disciplined in managing our overheads. All of this is structurally improving our margins. I think this is the mindset, the change that we are incorporating as a management team, and the change that we are also transferring to our staff. I really believe that we have a strong foundation here with this track record, and I really believe that we can deliver on the order backlog that we have in our books with a very strong confidence. Looking at the order backlog, this is an exceptionally strong position to be in. $18.6 billion means nearly a decade of revenue visibility compared to current sales levels. Where is this order backlog coming from? We have a very, very important customer in Germany. You have seen that. Four additional submarines of the 212CD class that we have put to our books.
We also signed a contract for two submarines for a Southeast Asian customer. I'm not allowed to disclose the name, but I think you are going to find that out. We also signed a very large service contract also for the 212 Alpha fleet of the German Navy, and also the new research vessel, the Polarstern, I think really combines that picture. It is a very, very strong foundation for a very, very solid growth ahead of us. As we are now ramping up Wismar, this will equip us with a second line for production of submarines. This is going to double that capacity, and this will also allow us to work through that backlog faster, which I think was one of the questions you already had here in the first Q&A.
Speaking about sales, you see that in the last years, we have been growing our sales already by 9% CAGR, which is quite impressive. Why? Because all those orders I just mentioned have not been playing a very, very important role in those sales. These are now coming online, and they are coming upline. This is very important that this order book is there, but it has not yet been translated into our P&L. It is before the uplift in the defense budgets and the defense industry, before the uplift that you have seen throughout the markets. What were those drivers behind this growth? First and foremost, of course, it's our submarines unit, but it's also ATLAS ELEKTRONIK. I'm going to give you some more details on that later when I walk you through the dynamics, financially speaking, from our segments.
Also, coming back to Wismar again, this is very important to understand because this is going to accelerate the conversion of the order book into revenue. What does this mean? As I said during the Q&A, you cannot squeeze in too much time into submarine production, right? You are simply limited, but we can double the capacity, and we can double the output. It's very important for you to understand that 212CD stands for common design, so it's exactly the same type of submarines we are constructing in Kiel as we are constructing in the future in Wismar. That ramp-up of Wismar that we have started is going to conclude within the next three years, and once it's being completed, it's going to be fundamentally changing the way we can accelerate that conversion from order backlog to sales.
I think that this very strong top-line growth had also allowed us to significantly improve our margins in the past and is also going to improve it further. If you look into our financial track record, what is really astonishing, if you're looking back into the years of 2021, 2022, and compare it with the last 12 months, Q3, we have nearly tripled our absolute profits, right? We have more than doubled our margins in recent years, and this is really because we have worked on that transformation path. Simply put, it's because all our segments are performing better, are executing their orders better. As I said, and you're going to see this later as well, there's a different mix effect.
We have this gradual shift from old orders with near zero margins now replacing them with new orders, and this is going to allow us for a much more attractive profitability profile in the future. How this is going to develop, you're going to see that later when we deep dive, especially in the submarine segment. The third is a very positive mix effect. You have seen the structurally higher margin of ATLAS business. You have seen that they are independent. Over two-thrids, they are also doing a third party. We are really harvesting that. We want to improve that and also increase the revenue share of the ATLAS business in the future. Fourth, of course, higher utilization, more discipline, and cost management is giving us more operational leverage across all business that we see. I think that's a very good foundation that we have here.
Again, it allows us to be very selective on the orders we take, right? We will not scrutinize on that. I think this is going to support structurally our improved profitability profile that you see here in the track record. In a large part, that improvement is actually the result of stronger order execution, better contracts and contract terms, and improved cost management that we see. When looking behind the structural uplift in our margins over the last years, there is better execution. Especially in the past, there was a major portion coming from the first surface vessels unit as they were in those cycles where they have up and running full shipyards, full utilization with regards to their unit. It's a better mix within submarines.
This is all being linked to that gross margin improvement that you see here, but also with regards to more sales from the ATLAS business. There's a second point we haven't spoken about. This is something where the markets change, where the fundamentals in a way change in that way, that before the rise in defense and before everything changed, we paid our own R&D out of our own pockets. We have changed this model. We are actually making the customer contribute and fund our R&D. This really helps us that we still have those developments Johannes was talking about. We make someone else pay for that. For example, if you look into the 212CD submarine program and the development cost for the design, significant portions of that are being customer funded.
Also, the PESCO program we were talking about for the Sea Spider, for example, is another example that we clearly see here. This is what we're going to continue. This is, I think, something that has fundamentally changed compared to previous years on how we can run quite efficiently our R&D without scrutinizing on technological leadership. Third, and I also said this, we are very, very disciplined in SG&A and cost management. I think this is very important, especially when you're working in a very demanding and booming market. You really need to see that there's a bottom line, and you need to consistently work on the bottom line. This was also the reason why I didn't have a video, right? Now, without going into detail, I know that everyone is looking for more detailed numbers.
You will have those numbers here, and you have them in the deck for the models. You can see that structural change in the gross margins here. As I said, in absolute terms, driven by submarines and ATLAS ELEKTRONIK. In relative terms, we really had a strong performance over the last years within the surface vessels division, but also due to higher sales and higher revenue share from the ATLAS unit with regards to total sales. As I said, I think those numbers show that we have a very, very positive trajectory of profitability in the last years. Speaking about our accounting approach and speaking about our quality of earnings, I think that our accounts are actually very, very clean here. You see that our EBIT is very closely aligned with the income from operations.
Yes, to our spin-off process, you can see here in the last 12 months ending Q3 that we had mainly transaction-related expenses in connection with the spin-off, which I think is fully explainable here. I think that this very lean approach gives us a very solid basis for the future. We spoke about it already in the Q&A session, in the first one. We are going to improve our transparency with regards to reporting and accountability to our future target operating model. I'm going to explain to you what's going to happen in the next months once we go online to the capital markets. As we now are separating from TK AG, there's, I think, something very important to understand. We developed this new target operating model.
This gives not only us a better transparency on performance and accountability, but it will also allow you to have more transparency with regards to our performance or more transparency to the market, which is very important to us as a management team. Historically, TKMS was always handled in two separate legal entities before the spin. It was the shipbuilding division, and it was the ATLAS ELEKTRONIK division. Now, with TKMS becoming independent, we are changing that type of reporting outside from the TKAG group and will move to a segment-level steering for surface vessels, submarines, and ATLAS ELEKTRONIK. I do believe that this will give us much more momentum, not only within the organization, but also within the discussions to you. As those three businesses have not been defined as reportable segments according to IFRS 8, they will then start to manage their full P&L down to EBIT adjusted.
This new setup is going to commence in the first quarter of the new fiscal year 2025, 2026, once we are in the capital markets. Nonetheless, I know that a lot of you want to understand and know better what is driving financial dynamics within the segments. I do understand that. No worries. We've got you covered. I'm going to walk you through segment by segment now, looking into the historical numbers. I'm going to start with submarines, where the momentum is very, very strong. Again, that everyone knows how to understand and read our financials here. I said it before. We are using the IFRS 15 approach, meaning percentage of completion cost-to-cost accounting. This is applied across all our segments, right? If you now look into the submarine segments, which is very, very strong, it's not only revenue growth, but also profit growth.
We have reached an all-time high of $1.2 billion already in the last 12 months ending Q3. This is really reflecting the strong execution. It's also reflecting the strong execution of the troublesome of the legacy orders, right? We are now working on that to get them out of our books. As you know, we still have 27 submarines, and Christian, I believe, has shown that to you, still in production with regards to our order backlog. This also gives us a very high revenue visibility. With regards to the growth in revenues, we also see growth in profitability. Why is that? New ways of being project-centric, focused, having a co-pilot and pilot concept here that we've introduced, but also replacing the legacy orders with the new orders.
As they come online, the profitability profile of the submarine segment will increase because previously this has pushed down margins of the submarines unit. I think we will structurally improve and have structurally improved the submarine business already. How this is going to work in the next years, I'm going to give you some details on that. You've seen that slide in various forms today. I'm going to repeat this because I think it's quite important for you to understand what did we change. We are becoming very, very disciplined when it comes to bidding, right? If you do not lock in higher margins at the beginning, it's very difficult to get them at the end of the project. Being more disciplined in bidding really means that we are tackling, contractually speaking, pass-through cost inflation formulas based on material baskets, right? This is what we're using.
We also are overfunded over the entire life cycle of the project. This is also very important when we speak later about our networking capital. If I look into this order book today, the vast majority of our contracts that we have on our books, so out of those 27 submarines, is reflecting this new contracting approach, right? However, due to our accounting regime, you do not fully see them yet in our financial track record and in the P&L. When you then move to technology, it's very important, and you have seen this, that yes, you see that there is more technology coming upline. You saw maybe 2028, 2029, 2030, right? Why are we not simply selling new technology right now and charge a premium? Why? It's high risk. If you're in there, you have this performance obligation. You somehow need to fulfill it.
This is why we're selling proven technology and better work based on proven technology with change requests. If you have a very, very well set up technological base, so meaning a baseline that you can use for monetizing your change request, you can, in later stages during the long duration of those programs, gradually replace older technology with new technology. You make the customer pay for it. You're on a higher technical readiness level, as we call it. In the past, this was not done properly. A lot of you asked, so why was m ajor difference of those contracts. This is one key element. Using proven technology, something that is field-tested, and then having a clear base that you can then, during the duration of the program, change requests with the customer, and the customer pays you for that. You need to be very precise before you start production that you have all that settled. Execution, and I think Dirk showed this very well. Some of you have seen this in Kiel in our shipyard. The new production footprint, the new procedures, the new technologies that we're using are really, really set up for that submarine production here. It's tailor-made for those new products that we have, for the new classes that we are producing, and we are also increasing the utilization. In the past, there was not such a high utilization on our shipyards.
Having learned those lessons, this is why Oliver and me, we are also, you know, not going out there and saying fourth shipyard, fifth shipyard, sixth shipyard. Focus on what we have, work it with our partners, but increasing the margin profile. That's very, very crucial here in the execution stage. Once we move to commissioning, as I said, as our payment plans are overpaid and we nearly have captured 95% of all payments, there is not so much to negotiate with the customer in normally that very critical stage. I always love in this area to make this one example, right? In the past, it was simply put like this that when you have a ship, there's some kind of a canteen or like a small corner for making coffee, and we sold coffee cups, right?
Beautiful coffee cups with the logo of the Navy, perfect blue, the best thing that you can get. Unfortunately, once we delivered the vessel, someone forgot that there needs to be the logo of the Navy on this coffee cup. The Navy said, "Right, this is not right. I want to have it." We needed to replace it. We need to negotiate because we were solution-based. We did not have a clear verification criteria. Nowadays, we say your requirement is 200 mL of hot liquid, so a paper cup is sufficient, right? You can verify that it works. You want your beautiful cup with your Navy logo? Suddenly, change request, $1,000 for one cup, right? This is how it works. Basically speaking, it's an easy example.
Of course, it's much more complicated, but this is how it normally works, and this is why it's so important to be very disciplined in this process. This is what we mainly have rolled out here for those new contracts in the submarine business. If we look ahead now, and I told you, look, there's our old orders that are going to be washed out from our P&L, gradually being replaced with new orders. How is this going to look like? This effect is going to happen, right? It's already taking part, and as they have weighted down gradually, we are now phasing this out. You see this quite nicely here on the picture. Already on September 26, 15 of those submarines and new orders that we have here with the new profile. Legacy orders are going to decline. Gross margins will benefit out of that.
With these new improved contract terms that I just showed you, we are really having the opportunity of growing the margin profile in the submarines unit long- term. This is nothing where you say after one year or two years, I have that, right? It's a very long-term business. It's a long-term and stable business. This is why Oliver also said, look, we are like infrastructure. Basically, in this way, you can make a link here. With phasing out of these legacy projects and now scaling up more profitable orders, this is going to give us an organic uplift, right? There are no performance measures in or performance problem. This is organically speaking simple mathematics that's going to happen in our P&L over the medium term. From submarines, I'd like to change to surface vessels because there you see also an improved profitability profile.
Oliver Juckenhoefel, I think, explained to you the dynamics in the surface vessel segment. A lot of people say, yes, it's much more competitive, but bear in mind that we are focused on certain types of surface vessels. We are very well positioned for those mid-sized naval surface vessels. The winning orders that we had in the past, and you see those on the numbers, although sales are declining, we see improved profitability ratios here. This is because we are very disciplined in executing these orders. Those range from 15%- 17% mainly have key drivers, right? Who are those key three drivers? It's a modular design, the MEKO, right, that we spoke about. This gives you more scalability and better cost control because you can use field-tested technologies. This is what we are leveraging. Third, we are also very selective on the orders we take.
Yes, there are plenty of opportunities out there in the surface vessels domain, but we are only focusing on what is matching our product portfolio, what is matching our capability, and we are not going to make any sacrifices. We are always thinking about, does it make commercial sense for us, and is it strategically valid to us? With this setup of the MEKO design, you can reduce delivery times. That's very, very important, especially where the customers have higher demands. You have a robust execution setup. You have reduced delivery times. This puts us in a very, very strong position. Not only for the F127 anti-missile defense frigate program, where I believe we have really a good pole position here with our setup, with our special purpose company together with NVL, but also for other demands and potential opportunities that are out there in the export market.
Overall, it's a very solid business. It's a very well-working business. It has also a very attractive margin profile. I think we are going to fuel this with new orders in the future. Before we now come to ATLAS ELEKTRONIK, let me make one remark here. ATLAS ELEKTRONIK is very special, and it's a very, very strong entity in our group, and it has become a real growth engine within TKMS. ATLAS ELEKTRONIK, basically, you can nail it down in this way. It's a high-margin electronics and software business, right? Why does it match so well with our platforms? First, we have ATLAS as one of our top suppliers in Submarines and Surface Vessels. Second, ATLAS ELEKTRONIK also allows us to have better integration capabilities of third-party systems. This is why it makes it, technologically speaking, so important to us.
As you can see here, there's a very nice growth trajectory. They are now standing at roughly EUR 660 million in sales. This is because we have a very strong third-party demand that we've spoken about, but also that we have a growing demand for our TKMS platform. We're actually combining both. This margin profile of 22%- 24% in gross margin that you see here really reflects that we have a high level of quality orders at the ATLAS business. Why is that? Why are we so unique as ATLAS? It's first that we have a very proven Sonar technology, right? There's nothing that you as a customer need to worry about, that we need significant development costs and so forth. It's really proven technology. The customer knows what they get when they're going with ATLAS Sonar technology.
Second, as we are integrating the entire chain from the sensorics until to the torpedo, the so-called sensor-to-shooter chain, customers are also willing to pay a premium. Why? Because they are having less risks of delay and also less executional risks out of that. Third, we are harvesting more of the margin portfolio because we have a higher vertical integration. We're keeping much more value in-house for TKMS as a group. This is why ATLAS is a very important cornerstone here of our profitability profile. Now, if I look ahead into ATLAS, what's coming up? What's very important for ATLAS to capture here? It's mine countermeasures. I think we are very well prepared with our mine countermeasure systems and also suite that we're having. It's also a question with regards to new solutions, anti-torpedo that Johannes showed you, but also new features and technologies like Sonar AI, right?
Because crew sizes are being reduced, you see more automation. This is why the customers are demanding such solutions. I think we are on a very, very well improved path here with regard to that technology. Overall, it really is a strong segment. It has a competitive edge in its technologies. If you look into all three segments and now how they have developed, this is the reason why we had such a strong financial performance over the years. I think we are really, really good and well set up for the future that is there to come. We now are going to leave the P&L side of things, and we're going to focus on working capital, CapEx, and cash flows, more on the balance sheet side of things. This is the chart I love, right? As a CFO, and why is that? Let me explain it to you.
From a working capital perspective, you might think this is highly CapEx business, right? It's very tricky with the payment milestones. They receive something at the very beginning, and in between, they need to somehow find a bridge financing. At the end, there will be a liquidity crunch because they do not get their vessels ready. As you have seen, maybe in certain shipyards in the cruise business, also in recent years here in Germany, we are absolutely different. We are running this model with a negative working capital approach. What does this mean? This means we are receiving, of course, down payments, but then step by step, as we progress in the program, smaller installments, as we call it, progress payments.
This is very important to us that at the beginning, we are negotiating this payment curve with the customer that is allowing us that we do not need banking facilities to fund our inventories. At the end of the program, we already have received all the cash-ins that we require for the program before we deliver the vessel, right? 95%. This is a clear message to all our segments. Whenever they come with an idea for a project, whenever they want to get a signature from me as CFO, first questions I ask them, are you overfunded over the entire project lifecycle? If they are not, renegotiate with the customer. It's absolutely key. Why? Because it's de-risking the execution of the project. It's giving us the flexibility that we need to also invest not only in our technology, but also in our capabilities and capacities if needed.
From a working capital perspective, I think it's a very, very lean setup and allows us to run the ecosystem of TKMS in a very lean and efficient way. This model has also partially supported on how we are going to cover for our investments. Let's speak about CapEx here. We have done roughly more than $300 million of CapEx in the last year. That's good news to you. We are fully invested here with regards to our existing sites, but there will be future investments needed for Wismar, right? You saw the numbers, roughly $200 million that we are going to spend in the next fiscal year for Wismar. As you see, this CapEx, what is now combining it with our payment curve, it is already pre-funded by the customer. We already have this money in our liquidity. It's part of the payment curve.
We do not need to worry on where we do find the money for this CapEx. Actually speaking in this way, it's cash neutral to us. This really shows the strengths of this model I just laid out to you. It not only is reducing with regards to CapEx our financial burden, right, that we would have if we would not have such a commitment, but it also shows how strongly tied and how good our customer relationship is with regards to setting up this new industrial footprint. It will also give us this pre-funding and this CapEx will give us a state-of-the-art facility in Wismar. On top of that, regardless of CapEx, we still are flexible with regards to our network of partners, especially in the surface vessels divisions, where we do not need to set up own capacity, where we perfectly can work with a third-party shipyard.
We can also scale without the need of additional funding. I really think that it's a very, very strong setup here. You're combining negative working capital, pre-funded CapEx. This is really generating a strong cash flow profile. Speaking about cash flow, we have a very strong cash flow profile due to the fact that I just mentioned. This is because we have those upfront payments, we have progress payments, we have secured liquidity across the entire production lifecycle, and this, of course, is driving up our operational cash flow, right? If you look into the last 12 months ending Q3, we have generated those very astonishing EUR 1.1 billion. This is really underlying the strengths of the model I just pointed out to you. Also, please note that in this figure, there's a higher EUR 3 million digit down payment included. This is something where we normally see down payments in.
We have this and also advanced payments. Due to the financing of Wismar, this was an effect that we most likely will not see each and every quarter. I also know that this might make it difficult for you in your models because you have this lumpiness sometimes of certain payments, right? You are going to see that also later in our financial framework, how we are going to Diehl with it. Nevertheless, this free cash flow really gives us the ability to deploy our capital very efficiently and also long-term to follow our strategy, right? To build out that foundation of our platform and to build out that foundation as a maritime powerhouse. I think that's very important. It also translates into a debt-free capital structure that you're going to see. Speaking about liquidity, right, and liquidity profile, you saw our overpayments.
You saw that we are very well with regards to cash flow. This is resulting into a liquidity position of over EUR 1.1 billion by the end of July 2025. We do not have a lot of lease obligations, so really no financial debt except lease obligations. We are fully equity financed. That's a very strong signal. It's a very strong balance sheet that we bring here to the table. Our pensions are roughly over EUR 360 million also as of July 2025. This capital structure is going to allow us to meet all our operational needs, including the funding of Wismar. Before I now come to the summary of those financial highlights with regards to the track record, I really think that this also gives us the opportunity to see strategic growth opportunities if they may arise. It also shows that we have worked on both sides, right?
P&L and balance sheet. This strong liquidity position that we're bringing to the table here is really stating the progress we made. Now looking over the last years, there were record achievements and improvements throughout, right? I mean, we've talked a lot about the order backlog, EUR 18.6 billion. I think everyone in this room now knows this by heart. This is really giving us the strong revenue readability, right? We have grown our sales in the last years over 9% per year. This is due to consistently executing the orders, being very disciplined in this new model that we have integrated into our company. Our margin profile has improved. You see margin enhancement throughout the businesses and the growth of ATLAS business and being very disciplined in overhead cost management. On the other hand, we also have accumulated and generated cash flows of roughly EUR 1.4 billion.
This really states how cash attractive this business is. I think it's with no surprise that we are really, as a management team, looking forward to the future for the future opportunities that there are and that we will further focus on our execution and also bringing margins and top-line growth up. Now let's look a little bit more on how it's going to develop and what are our ambitions going forward. I mean, you have seen this bridge here, right? I'm not going to explain it all in all again and again, but again, to take it, three key drivers: phasing out low margin or legacy orders, replacing them with new ones. This is what is going to happen in our P&L, majorly on the gross margin side, ATLAS share, more vertical integration, but also raising ATLAS, right? Growing ATLAS as a business.
Third, having higher utilization rates in our shipyards, right? We're getting more people in, we're getting better in executing. We're capturing the operating leverage here. This is going to drive us medium term of more than 7% in EBIT margin. This is only one of our elements in our financial guidance framework. Let's see the full picture here. Now, speaking about the current fiscal year 2024, 2025, we expect that our sales will be moderately higher, around EUR 2 billion for the running fiscal year. Our EBIT is going to range between EUR 100 million- EUR 150 million. This is really reflecting our top-line growth and our operational performance over the years as you compare it to previous years. Now looking for our midterm ambitions, on sales, we want to grow the company roughly about 10%, starting from fiscal year 2023, 2024 onwards. We have a back-ended accelerated growth.
This is due to the S-curve I explained to you because more costs are going to be incurred at the later stages of the project. 7% of EBIT margin, above 7% of EBIT margin as I outlined due to our three drivers that you have seen. Amortization and depreciation ranging around 3.5%- 4% of sales. Next year's investments, roughly EUR 200 million, majority therefore including the expansion of the Wismar site. Again, significant portion pre-funded by the customer already. I do not have to take this out of my own pockets. On cash flow, there will be a targeted rolling three-year cumulated cash flow target of over EUR 400 million in the next three years, starting with fiscal year 2025, 2026, really stating here our strong cash generation as a company.
With regards to the medium- term, we are going to see a gradual decline of our investments of approximately 4% of sales, which is then on the outer end of our depreciation levels. With regards to dividend policy, yes, we are going to pay dividends and we do intend to pay dividends based on consolidated net income of 30%- 50% attributable to our TKMS shareholders. We are going to start paying dividends for the fiscal year 2025, 2026, payable, of course, in 2027 and subject to earnings and free cash flow. I really do believe that these targets are reflecting our strong commitment to generate shareholder value for U.S. investors. Let me wrap up this financial section. I mean, you have seen a track record in the last years, and it's, I think, a very, very strong financial track record.
We have more than doubled our EBIT margin, right, in the last years. We have a very strong order backlog, and this gives us really nearly a decade of revenue visibility, and it's just waiting to be executed to turn it into margin and cash for U.S. investors. Our journey does not stop there, right? We have a clear vision to continue our growth trajectory, and we also have a clear vision to improve profitability levels of over 7%. When we started our Capital Markets Day, Oliver showed you this slide, right? We said, okay, whatever happens, if you go down the elevator, those are the five key messages that you need to take away. We are very well positioned. You see it in our liquidity position. You see it also with regards to our working capital approach.
We have everything it takes in order to convert this record order backlog into profits and cash. We do this with a very, very strong tailwind from the markets, right? I think it's a very unique opportunity with TKMS, not only being the maritime powerhouse, but also being a technology leader across our segments. Thank you very much.
Good. You can hear me? Great. Thank you, Paul. Of course, also thank you to the whole management team, as well as our Chairman of our Supervisory Board, Volkmar Dinstuhl, for the details and for the insights in TKMS. Now we come to the second Q&A session here. We want to start the second Q&A session focused on the content covered in the second half, of course, of our capital markets day. Afterwards, we are, of course, also happy to take further questions relating to the broader presentation.
If you have a question again, please raise your hand here in the room. My colleagues will bring you a microphone. Please state your name, your institution again, and limit yourself to a maximum of two questions at the beginning, please. If you're joining virtually, also, as a reminder, kindly submit your questions through the system. Our colleagues will provide the questions to me, and I will read them here out. To get us started, I would like to invite all the speakers from the second half to the stage again. Then we can start with the second Q&A. Please come up. Oh, okay. Seven minutes.
Thank you.
All right. We could start. The first question is from Citi.
One question on the financials and one question on projects. On the financials, can you give us a sense of pension liabilities within TKMS? Is it a fair way to think TKMS, roughly 8% of TKAG employees? Pension liabilities of TKAG times 8% equals TKMS. Is that a fair assumption? Is there any other non-financial liabilities that we need to think of when looking at the enterprise value of TKMS? Right now, okay, fine. On the project side, you said almost 95% of your suppliers are within the EU, Germany, two-thirds, with more localization kind of requirements by customers across the world. Would there be a more sort of bias towards more international suppliers? Secondly, related to that, how do you manage FX risk in that particular kind of scenario with more local suppliers? Thanks.
Okay. I think this is more Paul's turn now after the second turn. Regarding the financials, maybe you start with the pension liabilities, and then we go to the supply chain.
No. The pension liabilities, you've seen the $363 million as of July 2025, are the ones that are accountable or being based for the transaction perimeter, right? All the companies and employees involved there is based for the $363 million. This is totally carved out from TKAG and then brought into the transaction perimeter there. With regards to non-financial liabilities, of course, we are not going to speak about certain legal proceedings or anything in public, but I do not see any major portions there at the moment. With regards to our suppliers, there is an FX hedging concept that we jointly will together perform with TKAG. FX hedging will still be done from TKAG with a service level. Nonetheless, we have two bases of our inDAXation clauses, right? One is the ones that we receive from the customer.
Then it's always the question, can you pass down this inDAXation clause? This sometimes includes FX components, of course, to your supplier or not, and how you are mitigating that. Normally, it's actually working quite well. I haven't seen in the last years any risks out of FX topics coming from suppliers.
Okay. I think the next question comes from Bastian and then from Alain.
My first question is just on the free cash flow guidance. When we look at the numbers, that does seem to imply more or less like a one times cash conversion, maybe adjusted for the extra CapEx, the EUR 100 million extra, which is spending on the Wismar expansion. What is the concept behind this? I guess you also have a growing order pipeline, and your cash flow profile is very much driven by the order intake. How much do you actually account for the larger scale order intakes? Are they included or are they excluded in here? That is my first question. The second one is maybe more on the technology side. What's the R&D ratio which you're planning for? Maybe also what is the R&D ratio which you would like to see iDiehlly if you would be able to choose?
The free cash flow guidance that you've seen, the $400 million medium-term rolling three-year average, is including order backlog contributions and order intake contributions based on our budget planning. You have both effects. Normally, it's a quite lumpy business. Even in our order backlog execution, you can exceed like three-digit million payments, right? For us, at the end of the day, we do not make much of a difference there. Of course, order intake plays a role in that number, but it also can change it in its profile from a certain fiscal year if you are just shifting from one to another quarter. R&D. With regards to R&D, we will not fully disclose a target rate for R&D to the markets. Why is that? We do see certain classical R&D activities where we have certain projects, own-funded R&D, PESCO programs, and so forth.
We also have a lot of R&D within the programs that we are not classically classifying as R&D. For us, it's not very meaningful to go out and say we at least want to have 5%, 6%, 7%, 8% of a target ratio there. For us, it's much more important that we have a very robust and good setup with regards to our customers, that they are participating in the R&D development, even if it's then shown as part of our gross margin and cost of sales and not as part of the R&D expenses.
If I may add on this in a bit general way, I think you have to understand that the Maritime Industry and the Maritime Sector is a bit lagging behind the air and the land side when it comes to autonomous vehicle. It has to do with physics because communications underwater is difficult, sure, but they're lagging behind. You cannot compare the stage of where the air or the land army is at the moment to the maritime sector. I think there is a bit of push in R&D necessary to get a better picture and maybe to catch up those things we have not done in the past altogether. I don't want to blame anyone, but it's obvious that they're lagging behind and they have to catch up. That also means for the companies that they do have to maybe spend more than they did in the past.
As Paul said, we're not concentrated on a figure. We're concentrated on which capabilities are necessary, does the customer want, and in best case, finances itself as other countries also do that.
Thank you. This is Alain Gabriel at Morgan Stanley. Two questions from my side. Firstly, on the EBIT target of 7% that you have laid out, can you help us, I would say, relate that to an equivalent adjusted EBITDA number on a go-forward basis? That's one, and then the second one is on R&D. Do you expense the entire spending on R&D or is there a portion that goes in CapEx, capitalized?
Be free.
Okay. There are only minor portions that we are using with regards to CapEx. We normally are very conservative with regards to that as we do not want to have any depreciation risks here with regards to our balance sheet. With regards to EBITDA numbers, I think we're going to come back with regards to that later as we're normally, our business is run on EBIT levels. EBITDA, of course, mainly driven now by the depreciation rates that you have seen. The ones that I told you, you can easily add this up and you would go into that direction.
I'm not sure if Charles or... Okay, then please go ahead.
First question on margin. In the presentation, you have a 7% increase in new orders versus legacy orders on a gross margin. How do you reconcile that versus the improvement in EBIT margin currently? Secondly, throughout the presentation, you mentioned a doubling in the capacity for the new yard at Wismar. What does that mean in the top line and when is it fully up and running?
Yeah, it's my part now, of course. This structurally increase of 7%, right, when we locked in the new orders, how to reconcile it, it's not that easy to answer here without going into depth of all of our planning process, of course, right, and how we are running those orders. Basically speaking, those new orders that we now have on the book, if you see them as a ratio of where our sales are, they are now ramping up, right? You're going to see that gradually. As I said, in the very first years when you book an order, you only have engineering hours. There's not a lot of cost to come, right? If you have a $1 billion contract, you only are booking engineering hours. There's not much of movement in the sales.
These new contracts that we have booked are going to play a vital role, especially when we are starting our production in Wismar, right? This is, of course, linked, and this is where you see then also major effects coming from. Second question was about Wismar.
How it comes to the top line.
Yeah, how it comes to the top line. I know that a lot of people like to do the math doing the following. You have roughly EUR 1.2 billion in submarine sales. You're doubling the capacity, so your sales capacity should be EUR 2 billion, right? This would then also mean that our capacity level in Kiel is already exceeding the limit. You cannot do it that simple. Of course, the majority of top line development is coming from the submarine business because the major infrastructure that we are putting into Wismar is also only for submarines, right? Wismar is actually fairly capable of delivering surface vessel ships. Of course, if F127 is going to be awarded, there will be some investments needed, but only minor portions, not compared to what we see with regards to our submarine division. This doubling of capacity really means the output of submarines, right?
I think in the moment, it's one and a half submarines per year.
One and a half per year per shipyard.
Per shipyard, currently we have one shipyard and then we have two, from one and a half to three submarines as an output.
To add to that, we have shown that we have a CAGR in sales of around 10%. I think it fits together.
Just a second.
I think it isn't working.
A strategic midterm. Does that mean three years like your free cash flow guidance?
Can I confirm that? What is that? It's midterm?
Okay. Second question.
Yeah,
One current, right?
Yeah, just two. How much of your business is cost plus fixed price target cost incentive fee?
Less of it.
Do you want a space, please?
Okay. Where to start? There is a majority of portions we are working with what we call industry price, right? This means you have a price set and an escalation formula. The classical approach that you can see in the United States really is cost plus, meaning you have a certain price and then you have a certain cost addition and you can add that margin as you see it with bigger nuclear programs or also Constellation class from Frank and Terry, those types of contracts. We normally do not see that with the German Navy and the NATO partners in Europe. The vast majority of the portion is that same model where you have an industry price with inDAXation-based clauses.
No cost plus.
Before we take the next question in the room, I would like to take one of the, or let's say more of the virtual room because we have several questions regarding the same topic, and maybe that's a good question for you, Paul. If we're looking at the cash flows, can you please elaborate on the expected development of net advanced payments as a percentage of sales going forward?
Yeah, I know that everyone needs this for the DCF terminal value, right? To somehow put that into the model, I would say it's tricky. Why is that? Because it normally fluctuates quite considerably, right? Due to the timing and volume of order intake and progress payments, right? The pre-payments really drive the numbers. It's very hard to meaningfully communicate a fixed percentage of sales, right? If I would go for the net working capital profile and look into the last three historical years, taking out, like, you know, special effects like pre-funding of Wismar and so forth, I would assume it would range between 20%- 30% of sales, right? Net working capital, I hope that helps the participant.
All right, thanks. I think the next question comes from Christophe. I think you were the next one. I hope it was not the same one.
Yeah, it was related. Can you, another way of asking, can you tell us, I mean, you have pre-payments, you have progress payments. What typically do you, what is the share of a pre-payment on the price of a platform when you get the contract? Also, the guidance you gave, second question, on the rolling free cash flow. Should we understand this as the underlying free cash or is it also embedded some pre-payments?
To the second question, yes, it includes pre-payments. It's all payments from order backlog projects plus order intake projects with a certain assumption of what pre- and progress payments will be. I know that a lot of them are now, okay, what's the first payment you receive? To me, actually, each payment can be a progress payment as well because I normally hand in certain documents, right, certain design documents to get it, or having a classical pre-payment without previous work. Depending on the contract, it can vary because we always look into what's the order value, what's the money we need for our suppliers to mitigate the inDAXation risk, the risk of inflation on our top line and also on the line with regards to suppliers. A rough assumption would be between 5%- 10% is the range that we have normally seen. I'm also happy to take 2.5%.
It's sufficient for us, right? It always depends project by project. As our projects are so large, it's always coming down to a very individual negotiation.
I think the next one is from here.
Can I just check one more thing on the free cash? For instance, have you included the down payment for the potential down payment for the F127 in your EUR 400 million, I would say three years free cash?
We are not disclosing any planning assumptions on individual contracts, as you may think, because this would also limit our negotiation tactics that we have with the customer.
Quite transparent at the moment.
Fair enough. Quick one on the effective tax rate going forward. What will be the tax rate?
Yeah, as we will be taxable here in Germany, we are assuming between 25%- 30% based on local GAAP results.
Okay, maybe the next one regarding the capital allocation because you've mentioned several times the word consolidation. I was wondering what might be your focus in this field, geography, technology.
I will not share any plans or visions from here, but I can tell you that this branch is in a very early morning of a consolidation day. This will last long, but we're in the very beginning of that day. I think you can see it, the movement starts now. Maybe Rheinmetall NVL is a beginning. From my point of view, I'm not aiming for somebody to come into our portfolio. I'm looking for, as I said, partnerships which make sense, which may help us to cope with this demand, which is so high. Therefore, I wouldn't exclude anything, but I wouldn't include not much at the moment, honestly. This is quite a political answer, I know that, but we will not share plans on that because we're focused and concentrated on the 20th in this year and then see forward that we come listed soon.
Hi, [Olaf Adamala] from ODDO BHF . Just wondering, you gave a guidance around sales, 10% growth midterm. Could you elaborate more on the vision profile? How should we think about that? When looking to the addressable markets, where do you see the potential for market share gains? Thank you.
We will not give any specific segment-specific guidance, not in EBIT, but also not in sales. Reflecting on the presentation I just made, you see the vast majority of order backlog coming from the Submarines segments. Looking into that, of course, there's a large portion of those sales growth coming from the Submarines unit.
The question was?
That was how we regain the market shares.
Yeah, of course. I mean, market share we definitely will gain in the submarine segment, yeah, and especially also in ATLAS ELEKTRONIK. Their very important field is naval weapons. Market share for the surface vessels unit, globally speaking, is difficult, but domestically speaking, F127 is the key program, right? That would then differentiate between the geographic that you look at.
All right. I think the next question comes also from here.
Hi. Yes, thank you for taking my question. Martin Andrews for BGR Capital Management. I just wondered, you seem to be coming out of TKMS with a net cash position. This seems to give you somewhat of an optionality on the balance sheet. What do you intend to use that financial position for? What would be a target leverage in your mind?
First and foremost, I think one very important point is that we are going to execute the CapEx and execute the investments in Wismar, which is very needed. Of course, the contract liability, so certain payments to suppliers that we are going to see, is very important. Speaking about financial leverage, we will not rule this out, but for the time being, a full equity finance balance sheet with the RCF that Volkmar Dinstuhl presented to you, I think we're well equipped. Also gaining some momentum and also some track record, also not only on the investors, but also on the debt side. I would not rule that out for the moment, but it's nothing that we will see in the short- term.
Maybe I can also take a question from the virtual audience again because I think it was a follow-up question for the net working capital target. As a follow-up, because it was a bit unclear, was the 20%- 30% net working capital target positive or negative?
You want to answer that? Negative.
Just to be sure.
I'll make sure.
Absolutely.
It's important if it's negative or positive.
Good. Let me have a look in the room first. Are there more questions at this point of stage? Okay, I will take another one from the virtual audience. I think you already touched that also in your presentation, Oliver, but we combine it. Maybe it makes sense to take a moment for that again. What are the key benefits, the real key benefits for TKMS regarding the spin-off?
As Volkmar said and as I said, I think there are three main reasons. First is, again, the strategic independence. Second is the market-based valuation, the clear picture of how worthy is the TKMS, or to say the 49% of it. The third thing is we are then, I think, a more target-oriented base for investors, which will help them there. In my words, we're getting a bit more of leg room on one side and on the other side, we're still a part of a big conglomerate which gives us stability. There are definitely benefits and we can, yeah, we can benefit on because of benefits from the beginning of our listing. Thanks for the question.
There is another question, also from the virtual audience and close to that, from Boris from Kepler Cheuvreux. If TK AG stops issuing guarantees, will you be in a position to compete with competitors?
Yeah, I can make it crisp. Yes, we can. Why should we be concerned about this at the moment? As we told earlier this day, this market is changing. It's a seller's market. We have more opportunities than we have in the past. We will ramp up and own financing. Of course, we cannot wait for the day that always TK stands behind us and says, "We're doing that for you." In the new contracts, we already skipped that. I think we have shown the case that we are able to and we will have to finance, if necessary, securities like we did them in the past from our mother company. Therefore, I think we're not afraid of that.
Great. Good. Sriram, I think the next question comes from you.
Thank you. Sriram from Deutsche Bank. Two simple questions, if I may. One on ATLAS ELEKTRONIK. Can you kindly give some indication of how the revenues are split between the products? Is it more towards Sonar, Software, Autopilots? Some indication would be really helpful. Another one would be between the three businesses, how would you or which one would you say is the m ost capital intensive?
Yeah. We're not going to disclose a sales split within the segments based on their product portfolio. As Michael mentioned, an important role is going to play submarines unit, also naval weapons, if that helps, right? Second, capital intensive, of course, with the investments to Wismar, submarine production at the moment is the most capital intensive business we have.
Because of that pressure, high production line, you know, this is a big bunch. We have to invest there, and this is the reason why they are the most capital intensive at the moment. This can change. I mean, due to the production of the torpedoes, there's also something to invest maybe more if the demand is rising as it does at the moment. It depends a bit on where is, let's say, the main focus in this year. Sometimes we don't know at the beginning, but we know during the year and can steer the company therefore.
Okay. We come to the end, but every speaker was very disciplined in his presentation today. We're not running so much out of time. Therefore.
I think we're allowed in these times even to deliver boats earlier. We can end the capital markets day earlier if there are no questions.
Okay. Yeah, on the virtual audience, no more questions.
I have some.
Okay, it's okay.
Yes.
Should I close?
Yes.
Okay. That was my, okay, I missed that one. Sorry, Shaq. I have the privilege, not, but to say first of all, thank you to everybody who has helped at this work today. I heard we had a good organization team, so maybe clap your hands for the organization team and get that very well. We can open our hedges now again. We're not in a danger to sink. I hope it helped you a bit to understand today our business model. I know it was a lot of technology, but it is a technology company, so we cannot shy away from that and have to present that. It was really a pleasure for us, I say it on behalf of all of us, presenting in front of you and giving you the opportunity also for questions.
Hopefully, I know that not all answers are sufficient at those days, but please be aware, we're quite close to a very, very remarkable event, and therefore I think we have to do what we have to do. I want to introduce something, I would say one more thing, a tradition in Germany. When the Marine comes home, they always have a tradition there, and it's called the Einlaufbier for the last German word for today. The Einlaufbier means that if you're coming home, then you're allowed, but it's very important that everybody has one at least, and then say cheers, and then everybody drinks at once. The first one who's drinking has to pay the bill. Also something, and maybe it fits to our business sometimes as well. We were really delighted to have you here. We would offer you an Einlaufbier.
You don't have to, but if you like to, you can do as a tradition. I will not promise that we will have every time beer on our capital market days, but it was the first one. It was a bunch of work for everybody who supported us, and for us as well, we were happy that it's more or less over. We like our guests, but sometimes it's also nice when they're leaving and you're back alone. This is why I'm saying thank you to all of you for your patience and for your attendance, and it showed really the interest you have, and we will not disappoint you, I can promise. Enjoy the Einlaufbier, safe travels home. Thanks for coming over here to Hamburg and Kiel. Thank you so much.