Good afternoon, ladies and gentlemen, and welcome to Hensal's earnings call for the first nine months of 2026. We are aware it is a particularly busy day for the sector with the numbers of companies reporting, so we really appreciate you taking the time to be with us today. Joining me on the call is our Chief Financial Officer, Christian Ladorna. He will take you through today's presentation, highlighting our strategic progress and business performance over the first nine months of the year. We will then open the floor for your questions. Please note that this call is being recorded and that the recording will be made available on our website following the call. With that, I hand over to you, Christian.
Yeah, thank you, Nicole, and a very warm welcome to all our investors and analysts. In the first nine months, we made tangible progress across all four of our North Star axis. Let me briefly take you through the key developments. First, delivered scale. Our new electronics campus in OVACOGN is now operational, and production of TLM4D and specs has increased significantly. Our capacity investments are turning into output. That is what industrialization looks like when it works. Delivered scale also means managing transitions well. Let me briefly put last week's media report on CBL into context. The central spare parts logistics we operate for the Bundeswehr. This was not a hands-on software issue. The delays had several causes, and they came together as we moved the operation to a new contract and a new site. We have taken, together with our partners, comprehensive measures, including additional staff and extra shift. Priority requirements are being served, and the situation is improving every day, and the readiness of the German armed forces was never endangered. The new warehouse is now in operation since 1st of September, and progress is ramping up, and we expect to clear the remaining backlog by year-end. And there is also no financial impact on Hensholt from this topic. Returning to our North Star axis, the second is Pioneer Software Defined Defense. Value is shifting from the individual sensor to the integration and orchestration of sensors and effectors. That is the role we want Hanwell to play. First, prototypes are under negotiation with our customers, and with a new center near Stuttgart, plan to create around 300 jobs, we are strengthening our software engineering capabilities. Third, grow with focus. Focus means growing where our technology is a strong fit. Our IMOU with the Ukrainian Ministry of Defense provides for further large-scale radar deliveries. I will come back to what that means operationally in the next slide. In India, our avionics suite has been ordered for the country's first electric air taxi. It shows that our expertise in sensing and avionics can be applied in new markets. Fourth, lead our team into the future. Capacity means more than buildings and production lines. The ramp-up also needs people. We will hire around 1,600 employees this year, and the number of apprentices is up 56% compared to 2023. This is how we build the talent we need for the years ahead. I just mentioned our MOU with the Ukrainian Ministry of Defense. It reflects growing demands for air defense, but Ukraine also shows how requirements themselves are changing. We are in direct exchange with the country, and our CEO's meeting with President Zelensky in October is one example. Three aspects stand out. Mass shifts the bottleneck. When many threads arrive at once, the number of effectors is not the only limit. What matters is how fast we detect each thread and assign it to the right effector. The census picture and the time it buys become decisive. Spectrum rules out a single answer. A small drone and a ballistic missile are very different targets. They need different sensors and different effectors. So air defense has to work in layers, and every layer meets the sensors that fits it. Network is what it turns these layers into one system. Sensors share the data, and part of the network is mobile. That way, the picture adapts at the situation changes, and operators can choose the right effector for each threat. This is why only a connected aperture puts the right effector on the right target. Our sensors cover every layer, and the orchestration role is about bringing them together. The task is now to deliver this to the scale. Let me show you how we are expanding our industrial footprint to meet this scope. Delivering at scale means more than producing high volumes. The three sides on the slide each stand for different parts of the chain. The optronics campus is where development, production, and integration sit under one roof. It is operational, and it connects the engineering side directly with series production. The radar production side is where volume is created. Series production of TLM4D and spec cells on track. These are the medium and short-range layers I've just described. And the MMO Center addresses what happens after delivery. It is still in preparation. It will extend our capacity to maintain, repair, and overhaul of electronic systems already in the field. And a system only protects for as long as it remains operational. Three sides at three different stages with one purpose, to deliver at scale and to make sure that we make, we deliver, keeps working. As committed, we are building that capacity. Let me now walk you through financial performance in the first nine months, 2026. The key message is clear. Hensel sustained its strong momentum across all top-line KPIs. The substantial order growth, dynamically expanding core revenue, and another record order backlog. Starting with order intake, we booked almost $3.6 billion in the first nine months, an increase of 77% year over year. This corresponds to a book-to-bill ratio of 1.9 times, compared with 1.3 times in the prior year period. Growth was broad-based across both segments, with major contributions from armored vehicle programs and Eurofighter, as well as orders for night fish prototypes and additional TN-40 radars. Turning to revenue, growth was 21% to almost 1.9 billion. This was driven particularly by continued strong execution in air defense, And a significant ramp-up in electronics, as well as our service business gaining traction. Importantly, call revenue excluding pass-through increased by 18%. This demonstrates the strength of the underlying business while pass-through revenue developed in line with our expectations. Finally, order backlog reached a new record of $10.4 billion, an increase of $3.3 billion year over year. With a substantial share in the backlog extending well into the next decade, this gives us excellent visibility for future growth. So, the top-line picture is very strong. High demand is converting into orders, core revenue is growing at a strong pace, and our record order backlog provides increasing long-term visibility. Let me now turn to earnings and cash flow. Profitability continued to grow significantly faster in revenue, demonstrating the operating leverage in our business. Adjusted EBITDA increased by 33% to $281 million, resulting in a margin of 15.1%, up 1.4 percentage points year over year. This development was driven by higher volumes in both segments, particularly accelerating air defense activity in sensors and strong operating leverage in optronics. Continued cost discipline provided additional support. Adjusted EBIT grew even faster, increasing by 45 percent to $177 million. As depreciation amortization increased at a lower rate, the adjusted EBIT margin expanded by 1.6 percentage points to 9.5 percent. Turning to cash flow, adjusted free cash flow improved to minus $104 million compared to minus $119 million in the prior year period. We generated positive adjusted free cash flow of $32 million in the third quarter, in line with the usual seasonal development of our business. Strong advance payments continue to support balancing our investments in working capital, capex, as well as technology for future growth. In summary, earnings are outpacing revenue, margins are expanding, and cash generation is developing in line with our expected seasonal profile. Moving on to the segments, starting with sensors. SENSUS delivered strong growth across all major KPIs, combining sustained order backlog with high revenue and improved profitability. Order intake increased by 54% to $2.6 billion, resulting in a book-to-bill ratio of 1.7 times. Segment order backlog consequently reached a new record of $7.4 billion, up $1.6 billion year-over-year. Key contributors include Eurofighter, Initial Orders for Nightfish program with the first prototypes, and additional TLM4 durators. Revenue increased by 16%, to $1.5 billion, driven particularly by growing momentum in air defense and multi-domain activities. Pass-through revenue began to materialize in Q3 following the elevated level recorded in the first half. More importantly, core revenue increased by 11%. Demonstrating healthy underlying growth in the second. This translates into higher earnings, with adjusted EBITDA increasing by 19% to $236 million. The adjusted EBITDA margin improved by around 40 basis points to 15.5%, supporting higher volumes and disciplined cost management. Overall, Sensus continues to combine strong demand and visibility with double-digit core growth and improving profitability. Turning to Optronix, Optronix continued its strong growth trajectory, converting its substantial backlog into rapid revenue growth and significant margin expansion. Order index surpassed the $1 billion mark, taking the book-to-bill ratio to 3.3 times. The segment's order backlog reached $3.2 billion, providing a strong foundation for the continued wrap-up. Major contributions came from Chakal and Puma, complemented by a good momentum in the service business. Revenue increased by 52% to $354 million, with double-digit growth across all business units. Ground-based systems, the Lux2 program, and service activities were particularly strong. This higher scale is translating very clearly into earnings. Adjusted EBITDA increased from $12 million to $45 million, and adjusted EBITDA margin more than doubled from 5.1% to 12.6%. This substantial improvement reflects the combination of high volumes. Increasing economies of scale as production continues to ramp up. So Optronics is delivering on both dimensions. Strong backlog conversion is driving rapid growth, while increasing scale is translating into considerable improvement in profitability. With nine months now behind us, let me now provide some more visibility on what we expect for order intake in the fourth quarter and how this translates into our full-year expectations. As you know, order intake in our industry tends to be weighted towards the end of the year, and we expect the fourth quarter to once again be the strongest quarter of 2026. We start with $3.6 billion of order intake after nine months. In the fourth quarter, we expect around $1.7 billion of additional orders across the business. The key contributors are expected to be electronic magnetic warfare, including Nightfish, air defense, including TLM4D, as well as ground-based systems and multi-domain solutions. In addition, we expect continued good order momentum from our service activities and the Eurofighter program. Taken together, this will bring us to around 5.3 billion of order intake for the full year, corresponding to a book-to-bill ratio of around 1.9 times, and therefore the upper end of our guidance range. Importantly, this does not include the second Pegasus batch. Based on the current status, we now expect the order for the three additional Pegasus aircraft to be more likely materialized in the first quarter of 2027 rather than before year end. We expect the Pegasus to represent an overall order intake of at least 1.1 billion. To purely illustrate the magnitude, including Pegasus, order intake would reach at least 6.4 billion, equivalent to a book-to-bill ratio of approximately 2.3 times. So the key message is that even without Pegasus, we expect to finish 2026 at the upper end of our book-to-bill guidance, reflecting the broad-based strength of demand across our portfolio. Taking together, our strong order momentum and substantial backlog provide us with excellent visibility and a very solid foundation for sustained growth in the years ahead. Let me now bring this together in our full-year guidance. Based on our strong performance in the first nine months and the visibility we have for the first quarter, we confirm every element of the 2026 guidance while refining several KPIs toward the upper end of our previous expectations. As just discussed, we expect our book-to-bill ratio to be towards the upper end of the 1.5 to 2 times range. For revenue, we now expect approximately $2.8 billion, compared with approximately $2.75 billion previously. For the adjusted EBITDA margin, we now expect approximately 19% at the top of our previous range. Our expectations for the remaining KPI are unchanged, an adjusted free cash flow conversion rate of around 50% of adjusted EBITDA, net leverage of approximately 1.5 times, and a dividend payout ratio of 30% to 40% of adjusted income. As far as our mid-term targets are concerned, we will provide an updated outlook at our capital market day next week. Let me now give you a brief update on the key orders this year and beyond our census segment. We continue to convert major opportunities into firm orders while maintaining a substantial pipeline for 2027 and beyond. Starting with Eurofighter, we see a total opportunity of approximately 700 million, of which around 600 million are already booked. This comprises the Spanish HELCOM program, the Turkish Eurofighter program, and the rebaselining of existing contracts. And I can tell you that yesterday in the Budget Committee, the further 100 million was approved. So now we are in the flow down of the contract to our books. For TLM4D, order intake expectations this year amount to approximately 400 million, covering further radars with the European Skyshift Initiative, support for the Ukraine and additional export customers. Around 100 million has already been booked. For Nightfish, we already secured around 150 million in initial prototype orders, and we expect approximately 400 million for the serious contract of the land electronic warfare systems. Turning to Pegasus, as mentioned earlier, we expect an order intake of at least $1.1 billion for the second German batch, which order intake currently expected in early 2027. Finally, NUVIS represents another significant long-term opportunity, building on the technology and experience developed through Pegasus. We continue to see ourselves well positioned to play a meaningful role in Germany's future airborne electronic magnet attack capability. Turning to Optronix, we have successfully converted a significant share of our key opportunities already into firm orders. The larger contributions continue to come from Puma and Chacal with around $800 million in total already booked, with programs providers with strong visibility for the coming years. At the same time, we expect more to come for Leport 2 from further international customer nations, while initial orders of around 65 million have already been secured. And the opportunity set goes beyond land platforms. U212 CD is a good example of the breadth of our portfolio and our ability to participate in major international programs. With TKMS selected as preferred bid in Canada, our electronics mass systems is part of the proposed solution, representing a meaningful opportunity for us. Before we now conclude, let me summarize the key takeaways. We are delivering profitable growth. Order intake has increased significantly. Our backlog stands at a record level above $10 billion. And strong revenue growth is translating into earnings growth and higher margins. We have excellent visibility and remain on track to deliver our full-year commitments. Book-to-bill ratio is expected at the upper end of our guidance range, even with Pegasus to materialize in early 2027. We've also refined upwards our revenue and adjusted EBITDA margin expectations. We are investing to sustain this momentum over the long term. Our industrial footprint expansion is progressing as planned, increasing our capacity in radar, optronics, and services from 2027. At the same time, the multi-year defense investment cycle continues to create substantial opportunities across our portfolio and core markets. Taken together with a very strong visibility, we are executing on our growth plans, and we are building the capacity required to capture the opportunity ahead of us. And with that, I'm happy to take your questions.
Operator
The first question from the phone comes from Sam Burgess with Goldman Sachs. Please go ahead.
Great. Good afternoon, and thank you for taking my questions. First question, the Pegasus contract, was that always excluded from your FY26 guidance, or is this a more recent adjustment? And if it's more recent, should I assume you could have beaten your 50% cash conversion guidance if it was still included? And in my second question, the upgraded guidance seems to imply pretty modest Q4 revenue growth. Does this reflect anything in particular, or does the outlook just retain some room for upside? Thanks.
Hi, Sam. Thanks for your questions. So Pegasus was recently now shifted to 2027. I can also elaborate on that. It's purely administration in the procurement agency of the German armed forces. We are currently in the final negotiations. So I think until end of November, we are through. And then it has to go to Parliament. But currently, I see no. I see no obstacle why this should not happen. Now to the cash conversion, the 50% is still valid. Pegasus itself has no standard advance payment in it. We have early milestones in it, but not a classical advance payment. So I do not see any. Any substantial impact from this shift? In general, we have seen during the year that approximately 18% of order intake is, in our books, as advanced payments. In Q4, I would model with 15% so that this turns out in a rather good 50% cash conversion. And the second question, the modest revenue guidance, yeah, you know, You see our guidance meeting the expectations currently. Of course, there is some room for improvement, we will see, but you see that our Q4 is the heaviest one, so let's now see how it turns out, but there might be the one or the other upside potential, but we have to make some milestones on that.
Great. Thank you very much. Really helpful.
Operator
The next question from the phone comes from David Holmes with Bank of America. Please go ahead.
Hi, good afternoon, guys. Thanks for your time. So, a couple of questions. The first one is on the margins in Q3. I think you delivered nearly 300 basis points of margin expansion in Q3, which is exceptionally strong in the context of H1. Can you just walk us through what drove that margin expansion, please?
Hi, David. Yeah, sure, I can do that. So, first of all, of course, we see, especially in our product businesses, that with the improved volume, we see economies of scale ramping up because the number of units we deliver clearly increases, and I would say this is the strongest impact on our figures. I would say margin mix is rather limited this year. We see a comparable one to last year, so I would not go for margin mix. It's really volume. And of course, currently, you see or we see that costs grow not as high as our gross margins, and this then has an impact. On margin, on bottom line. So in a nutshell, it's volume-driven, it's economies of scale-driven in the products, and with disciplined cost management, we see currently that we improve quarter by quarter, also bottom line.
Got it. And then the second question I had, I think I wanted to ask around the Spexa ramp-up. I think you've previously said you expect to ramp up to over 1,000 annual deliveries. And I guess I just wanted to check if there would be any change to that, given any scope changes to the Arminius order, or do you still see that 1,000 annual delivery fully in play?
We see that 1,000. The time frame is more or less 2,029 until we reach that, and now we gradually ramp up. Currently, we are in the industrialization phase of this radar. It's a very important one. We should keep in mind that it's not only used for SkyRanger. It's also used for border security. It can also use, as you've seen in the picture, equipping trucks with the specs to create a network for anti-drones. So it's a variable radar for many, many topics to be used. We see a big demand, and this is why we plan currently to this 1,000 reach by 2029, and of course, the second production line, which will go live next year, Q2, 2027, will support that.
Okay. Thank you very much.
Operator
The next question comes from Marco Vitale with Mediobanca. Please go ahead.
Good afternoon. Thank you for taking my question. The first one is a follow-up on the 2026 new guidance, starting from the, say, 50 million around of past-through revenues that you guided for the second half of this year, and deducting what you reported in Q3. Does this include around 20 million for the Q4? Could you confirm this, and would this imply deceleration compared to last year, a Q4 pass-through revenues of around 50 million? And then the second one, you mentioned within the pipeline of optronics, the potential opportunity for the submarine segment. Do you still expect also potential upside from the three gates programs in Germany? And I'm referring to the F-128 second batch or the F-127 for the next year. Thank you.
Yeah, thanks for your question. So I can confirm that we will have approximately 170 million of parcel revenues in our book span of years. So there is a clear yes on the question. Secondly, TKMS. So it will not be a contract by end of this year. But if you follow the media, I think it's very promising that this deal will be done with Canada. And we are a vital part of it. And last but not least, for the MECO or the F128, on the MECO, Ensold is not present with the radars. It's a Saab solution. But we see the TRS-4D still as a very competitive radar. It's a competitive radar family. On top of that, we can currently easy change between TRS-4D and TLM-4D because the base configuration is more or less the same until it goes for an air defense radar being on land on a ship. So currently in the MECO, no contribution from Hensoldt, but we have various opportunities for the TRS-4D radar.
Operator
The next question from the phone comes from Sebastian Grove with P&P Paribas. Please go ahead.
Hi, Nicole. Hi, Christian. Thanks for taking my questions. The first one would be on Optronics. You had pointed on an earlier call to a return to a 20% margin. This looks firmly on track, to say the least, after 26, I guess. So based on this very strong momentum that you see both in execution but also in the order activity, I was wondering if you could help us with how we should think of the margin trajectory going forward, and if really the 20% is the last word here. And then on a more general note on large contracts, I think you also gave some helpful comments around how to think about the SPECSA. Dependents eventually on the sky range or not. I take from your earlier comments that it's an allocation question, so you can easily sort of flex that if and when one program would be delayed, then you sell it elsewhere. But more generally, is there a risk for other large programs? I would see that it's not We need to shift, so if you could comment on this on a more structural note. Thank you.
Thanks, Sebastian, for your question. So, we expect this year that the Optronix margin will be around 16%. We have done a very good step forward this year in this regard. So, I think between 2027 and 2028, we could reach this 20%. I think, especially next year, will depend on how fast we can move into the new service center. If we manage that by summer, I see a good opportunity for that. But in the next two years, I expect that we will come to that. Your question, the specs up. So I know that there are some topics around the SkyRanger, that there could be a delay or something like that. It has almost no impact on our specs up because currently I have really to say that the demand is so high for this radar. That our main focus is to make it as fast as possible, industrialized, that we can deliver it. So this 1,000 per year is, for me, a very realistic figure, taking everything into account. And this is why I say, again, the main focus is now to keep this radar running and to produce as many as possible, because we can sell this radar like hell if we deliver. And the third one, structural of big programs. Yeah, we see it in some big programs delays. But when you refer to the Arminius topic, I can clearly say there is no impact on Hensoldt. We have... The Chakal, which is this boxer platform, but the Puma turret, and you see that the Chakal is contracted because the main emphasis of the German MOD was clearly to get the mechanic vehicles, the heavy vehicles, and the fighter tanks into contract, and this is why we benefited from that. The second platform is the RCT30. It's a light howitzer. Also, these contracts we see coming in. So, we do not see any impact from this delay of Arminius on our topics. And as a general remark, currently we are not affected by any of these delays. I've commented on Pegasus, which is more an administrative one, but negotiation full in place. So our view currently is that it's progressing in line with our expectations and our plans we did. So this is, for me, very stable currently.
Okay, that's helpful. If I may just quickly follow up on the Optronics framework and if you could provide more color around 26 and what you had planned for prior, because these are my numbers. I had kind of zero growth and quarter four, which given where we stand after nine months, that makes no sense. So if you could just help us with some sort of indication by the segments for this year.
Yeah, sure. Now we have got a 2.8 billion. I think that in sensors, we will be around 2.3 billion. In optronics, we will be 500, maybe a little bit more. We have also some eliminations between the segments, so we need approximately 30 to 40 million more in revenues, which are between the segments before eliminations take place. But these are roughly the figures I can tell you now. As I've said before, maybe there is a chance to overshoot this 2.8 billion by the one or the other notch, but there are some more milestones to go now in Q4. And in margins, I've elaborated on 16% approximately for optronics in sensors, we see the dynamics we have now in Q3, similar in Q4, that means between 0.2 and 0.4% upside, sensors comparing year by year should be the figures to go.
Okay, sounds like I think the particular Optronics has room for being just a little bit more than a little bit more. See you next week, then and then. Thank you. See you.
Operator
For any further questions, please press star and one on your telephone. The next question from the phone comes from Ross Law with Morgan Stanley. Please go ahead, sir.
Hi, good afternoon. Thanks for my questions. So a couple of follow-ups. Firstly, on the guidance, just looking at the implied Q4 for free cash flow looks quite significantly down year over year. So if you just walk us through the drivers of why that would be the case, please. And secondly, on the Freya project, I think recently President Zelenskyy has announced that Ukraine has effectively done its part for the program and is now awaiting contributions from allied partners. Can you just update us on where you are here? Thanks.
Yeah, first of all, cash flow. You see that we are better than last year. In Q4, there is always a very high dynamics, I think, with the profile we have now set up with this 50%. And from my point of view, it's a good figure. We should have to keep in mind that 2026 is the highest one in CapEx. So we will invest 5.5% of our revenues into CapEx for PPE, and there will be outflows in Q4. But in total, I have a very good feeling with this 50% cash conversion year over year, even if it's from a conversion. View a little bit lower than last year, but this is implied by the investments we take currently in PPE. And secondly, Freya, yes, I can confirm what you say. There is a very intense exchange currently between the MODs and the companies, but please understand due to confidentiality, I can give you more details, but the things you have said, I can confirm.
Okay. Thanks very much. You're welcome.
Operator
Gentlemen, there are no more questions so far.
Thank you, everyone, for your questions. What we have shared today provides just a glimpse of the broader story we will be discussing at our upcoming Capital Markets Day next Tuesday. We will then take a much deeper dive into our growth strategy, the progress of our capacity extension, and, of course, our key financial performance driver. So if you have not registered yet, simply reach out to us by email at investorrelations at hensort.net. We would be delighted to welcome you in person in London or to have you join us online. With that, thank you once again for your time and interest, and we look forward to seeing you next Tuesday. Have a great day.
