• Order Intake: Over EUR1.3 billion, an increase of 27%.
• Order Backlog: Almost EUR6.6 billion.
• Revenue: EUR849 million in H1, marking an increase of 17%.
• Adjusted EBITDA: EUR103 million, with a margin improvement to 12.2%.
• Adjusted EBIT: EUR52 million, with a margin of 6.1%.
• Adjusted Free Cash Flow: Minus EUR145 million.
• Net Leverage: Increased to 2.8 times due to ESG acquisition.
• Guidance for 2024: Revenue growth around EUR2.3 billion, adjusted EBITDA margin before pass-through between 18% to 19%.

• Warning! GuruFocus has detected 3 Warning Sign with HAGHY.

Release Date: July 26, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hensoldt AG (HAGHY) reported a strong order intake of over EUR1.3 billion, marking a 27% increase, driven by air defense systems and radar orders.
• The company's order backlog reached a record level of EUR6.6 billion, providing excellent business visibility for future growth.
• Hensoldt AG (HAGHY) achieved an adjusted EBITDA margin improvement to 12.2%, with core margin excluding pass revenues further improving to 13.2%.
• The integration of ESG is on track, contributing positively to the group's performance with a strong order book and revenue contributions.
• The company is strategically focusing on internationalization, aiming to expand its market presence beyond Germany and Europe, targeting selected global markets.

Negative Points

• The optronics segment faced challenges, particularly in South Africa, due to technology changes and market strategy realignment, impacting revenue and profitability.
• Net leverage increased to 2.8 times due to the partial funding of the ESG acquisition, though operationally the company remains on track.
• The company is heavily reliant on the German and European markets, with over 80% of its order book concentrated in these regions.
• There are concerns about the German defense budget and potential cuts, particularly regarding military support for Ukraine, which could impact future orders.
• The resignation of the COO raises questions about the continuity of operational excellence initiatives during a critical growth phase.

Q & A Highlights

Q: Can you provide more details on the German defense budget and your confidence in its growth over the medium term? Additionally, what is the progress on key orders expected in the second half of the year? A: Oliver Dorre, CEO, expressed confidence in the German defense budget reaching 2% of GDP by 2028, supported by recent parliamentary approvals for new programs. He highlighted ongoing discussions for additional orders, including Eurofighters and Leopard tanks, indicating a strong pipeline for the second half of the year.

Q: Could you elaborate on the issues faced by the optronics segment in South Africa and the measures being taken to address them? A: Christian Ladurner, CFO, explained that the optronics segment in South Africa is undergoing a technology change and market strategy realignment, impacting revenues. The focus is on aligning exports with strategic priorities, and growth is expected from the German optronics business in the second half of the year.

Q: How should we think about pre-delivery payments (PDPs) from Germany in the second half of the year, and what is the growth outlook for ESG? A: Christian Ladurner, CFO, stated that they expect more advanced payments similar to those received in the first half. ESG is projected to contribute EUR300 million for nine months in 2024, with a growth outlook of around 10% annually, aligning with the group's organic business growth.

Q: Can you clarify the rationale behind the new divisional structure and its expected benefits? A: Oliver Dorre, CEO, explained that the new divisional structure aims to enhance customer alignment, business continuity, and cost efficiency. The multi-domain solutions division will focus on integrating ESG's capabilities, with no additional costs expected from the restructuring.

Q: What is the impact of potential cuts in the German defense budget on your radar business and margin outlook? A: Christian Ladurner, CFO, indicated that they expect the EUR8 billion for Ukraine military support to remain stable, with no significant impact on air defense. The margin outlook remains positive, with expectations to be at the mid-to-upper range of guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.