• Order Intake: EUR 1.86 billion, a 21% organic increase.
• Revenue: Nearly EUR 1.4 billion, marking a 21% increase.
• Adjusted EBITDA: EUR 187 million, a 24% increase with a margin of 13.6%.
• Adjusted Free Cash Flow: Minus EUR 157 million.
• Order Backlog: Increased by more than EUR 1 billion to EUR 6.5 billion.
• Net Leverage: Increased to 2.9 times, excluding new debt for acquisition at 1.7 times.
• Guidance for 2024: Revenue expected to grow to around EUR 2.3 billion; book-to-bill ratio guidance raised to 1.2 times.

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

Release Date: November 06, 2024

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

Positive Points

• Hensoldt AG (HAGHY) reported strong financial performance for the first nine months of 2024, with a 21% increase in revenue reaching nearly EUR1.4 billion.
• The company achieved a significant milestone with the successful completion of the first flight of the modified aircraft under the Pegasus program.
• Hensoldt AG (HAGHY) signed a landmark cooperation agreement with German air traffic control, enhancing air traffic safety with innovative technology.
• The order intake dynamics remain positive, with orders summing up to more than EUR1.8 billion in the third quarter, reflecting strong demand.
• The integration of ESG is on track, contributing positively to the group's performance and supporting the company's growth strategy.

Negative Points

• The adjusted free cash flow was negative at minus EUR157 million, although it was in line with seasonal expectations.
• Finance costs increased due to additional loans for the ESG acquisition, impacting the company's financial expenses.
• The electronics segment faced challenges with a negative adjusted EBITA of minus EUR7 million, impacted by lower volumes in the South African entity.
• The tax charge fluctuated significantly, with a high tax charge reported in Q3, affecting adjusted earnings.
• Direct exposure to Ukraine accounts for around 7% of sales, which could be at risk due to potential changes in US funding and geopolitical uncertainties.

Q & A Highlights

Q: Sensor margins have been down year over year despite lower part of revenues. What caused the weaker margins in Q3? Also, is the high growth in German Optronics sustainable mid-term? A: The margin in sensors was affected by some lower-margin projects in the naval region and electronic warfare, but we expect to be within our guided percentage by year-end. As for Optronics, we anticipate continued growth in the German business, with revenue and margin improvements expected to be visible by the end of the year.

Q: Regarding the Eurovi rebaselining order, could it slip into Q1 2025, and would that affect your book-to-bill target? A: Even if the Eurovi rebaselining order slips into Q1 2025, we are confident in achieving our 1.2 book-to-bill target, indicating a solid guidance.

Q: Can you provide more details on the better-than-expected order intake at ESG? Also, when should we see an impact on sales from the UA class submarine design completion? A: ESG's order intake was strong, driven by a major logistics contract and its role as a main integrator for foreign platforms in Germany. The UA class submarine program is progressing well, but the main revenue drivers in Q4 will be ground-based systems and armored vehicles.

Q: Why did finance costs jump in Q3, and why does the tax charge fluctuate so much? A: Finance costs increased due to higher interest expenses from additional loans for the ESG acquisition and a mark-to-market accounting effect from an interest swap. The tax charge fluctuations are temporary and will stabilize once the fiscal unit for German entities is closed by year-end.

Q: What percentage of your sales are direct to Ukraine, and are there any changes to your expectations for special items this year? A: Approximately 7% of our sales are direct to Ukraine. There are no changes to our expectations for special items; the guidance remains as previously stated.

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