Tkms AG & Co. Kgaa (TKMSF) Q3 2026 Earnings Call Transcript

I wish you a very warm welcome to our quarterly earnings presentation for our nine-month results of the financial year 25-26. With me in the room are Oliver Burkhardt, our CEO, and Paul Glaser, our CFO, and we appreciate you joining us today to our nine-month reporting event. Our CEO, Oliver Burkhardt, will start with an overview of the actual key highlights and the recent developments shaping our market. And then our CFO, Paul Glaser, will walk you through the detailed financial results and share our outlook for the year ahead. Finally, and before I hand over, please allow me some housekeeping remarks. All the documents from today's earnings release and for this conference call are available on our Investor Relations website. We will also be recording the call today, and the replay will be available shortly afterwards on our IR homepage. After the presentation, we will open the floor for questions for analysts and investors. When asking a question, please raise your virtual hand. My colleagues will open your line, and then please state even also your name and institution, so everyone in the room and on the webcast can follow. And now I would like to hand over to you, Oliver.

Yeah, thank you very much, Jacques. I mean, welcome everyone to that call. A smiling CFO is quite setting the scene for this call, and Paul is smiling on the picture you saw just recently, so let me just jump into that. I think we all know that defense budgets are further growing, so it's not anymore a question of demand, it's a question of how to translate this into stable financial figures. I think that's what you're interested in, and this is where we have our main working area for the next months and years. Let me add that. I think we believe that the Iran conflict had and will have a profound impact on our industry, and it is more high-lining the high demand for our products, especially for mine countermeasures, which is quite topical, let's say, in these days, and we get a lot of questions asked out of that region, which was not the case before. But I cannot translate it into figures now. This is too early for that. But there is something going on which also will have an impact on our businesses. While I will not read out all these bullets, let me state that TKMS is an industrial partner of naval forces, and I think we are very well positioned to equip its customers with state-of-the-art naval warfare equipment, And we are able to execute. You will see that later, the rising demand in budget and in time. And we have shown this in the last nine months because we delivered three of our ships and boats already before the year closes by end of September. So with this context, let's take a closer look at TKMS performance. I mean, you're aware of the figures, 20.1 or the backlog, 110 in the EBIT, a negative free cash flow, which will turn over the next month. Your poll will elaborate on that. But this is not unusual for a company like us, because if you look at the schemes of the down payments, so it doesn't matter whether there's a quarter ending or not. It matters if you deliver at the right time, which we have. And sometimes it fits to quarterly announcements, sometimes not. But I think overall it's important that the year will be positive, and again, Paul will tell you later. Sales 8.9, 1.8, 9 is a bit high, right? 1.89, and EBIT margin 5.8. So maybe to jump into some of those big events over the last three months. Of course, it was for us, we are very pleased that the German parliament cleared TKMS' largest surface vessel contract to date. Following the termination of the F-126 program in June, the German Navy selected TKMS's MECO A-200 as the solution for its anti-submarine warfare frigates, and these A-200 are built for. So the German Budget Committee approved the procurement of four of them on July 8th, which is after our reporting period, plus an option, and this will be in that reporting unit maybe then for the first quarter, that there's an option for an additional four vessels as well. So the formal contract is now signed, and the delivery of the first frigate is targeted as early as 2029 by the end of the year. So I'm very happy, and honestly, that was a lot of work and really a lot to do to convince people, because eight months ago, this was not a contract, this was not an idea at all. But after we have lost Australia, I think we made the utmost best of that and offered this as a solution to bridge, let's say, the big delay of the F-126. So it was not a debate of neither nor we have 126 or 800. That it's now a nor is new. I mean, this is a decision made by the ministry and by the administration, which I can follow because a lot of money was already spent and there was no clearance on how to finish those boats. And four years delay, that should not happen. This is not where we are in. So I think you can trust an order book as long as you execute your order book safely. And this is what we're doing. Again, three units we have delivered in the first nine months. And secondly, you see the picture below, Andreas Görgen and Gonzalo from Navanzia. We signed an update MOU to capture, let's say, advancing discussions towards collaboration on submarine projects towards the end of the year. We had a first MOU some months ago, and now we let it, let's say, one layer deeper. And this partnership will compile complementary industrial capabilities to enhance capacity, innovation, and long-term competitiveness for customers worldwide, while leaving existing projects and contracts unchanged. And this is important. I mean, you have maybe noticed that we are spinning an idea of a C-bus or a sub-bus or whatever you want to call it. But compared to that what Airbus did in the 70s, I think to join forces here is a brilliant idea to become faster and maybe to spend the money of taxpayers of Europe more efficiently. And we can be the consolidation knot for that because we have everything under one roof. This is why we are striving this partnership as well. Another highlight, and of course, that's a once-in-a-lifetime story because we never had the opportunity of up to 12 submarines selling at once, but we were selected as the preferred bidder for the Canadian program. We left Hanwha Ocean behind us, which was a tough competitor, and I think we acknowledged that they'd done also a very good job. But at the end, I think we won because of some reasons, maybe more favorable for us than for their concept. But now the work starts. As I said earlier, we... We'll try to achieve the contract signing for the boats by the end of the year, 26, but there are some contracts, let's say, in the flow of that and behind that, which have maybe time to do them in 27, so there's no rush. But on the other side, we are quite keen of the situation that we will be not a bottleneck, and we have to negotiate in three different countries with Canada, of course, but anything we change due to the boats will have an impact also on Norway and Germany. But I think at the moment we are really good on track. A big team of Canada just visited us last week, and we started the negotiations, And we will follow up within the next week already in Ottawa as well. As you are following our company and looking forward to what we are planning and doing, again, execution, execution, execution, is that what we are striving for, but we don't forget our future. So just a small slide for you gives you a glimpse of that, what is going on when it comes to R&D, to new products, to what we try to achieve in the future. On the left side, you see what we are doing, and I think it's a big advantage that we have platforms above and below the sea level, and we have all the technology when it comes to software, to combat management systems, to sensors, to effectors. And if you translate that in the new time to create the so-called future naval ecosystem, I think we are a brilliant starting point as a company and doing a lot there, given not the time now to go in detail there, But if you have questions, they are more than happy to answer because to become, let's say, the tactical systems of systems coming from a platform idea means that hardware will be less important and software will have more importance in the future. And this is what we are preparing ourselves for. A view to the order backlog, 20.1. Honestly, as we have signed the contract, it's even more, it's above, it's about more than 25 at the moment when it comes to this date today, but we're reporting the first nine months, so in June it was 20.1. Relevant orders, as you are aware, were Norway at the end of January, but also included then the four vessels for Germany. Heavyweight torpedoes was a big contract in the beginning of the year, and some, let's say, updates on Satcom as well. And ongoing campaigns, we still have four, and I still count Canada as a campaign. I mean, we're preferred bidder. I think we have done more than half of the way, definitely. But it's over when it's over. This is what it's called. And I think we have to be clear that there's not yet a full contract, but we're striving for that. We will not be the bottleneck. We're optimistic that we achieve that. But I can only book it into the order backlog when it's booked and when it's signed. So this is not yet the case. But we're in a brilliant position and again, very happy and confident. And it was very trustful from Canada. And now we have to show that we have, let's say, deserved the trust. Don't mix it up. There are four A200 already in the order book in July, in August now, but there are four more coming by the end of the year. I expected earlier, maybe September or October, when the German Bundestag will give its blessing. India is still there. I mean, you're following us. You know that India is always a topic, and the timeline there is, I think, getting a bit cautious, but not because I'm not aware that we will win it. I think we will win it, but there were some hiccups also in the Indian budget due to the fact that the Iranian conflict had maybe more hiccups in their financial budgets than it maybe had in the German defense budget. But this is proved already. Our project will come. There's the money for it. The finance minister already stated that, and we are really close to the finish line to end the negotiations with the Indian government and the shipyard, which will be the general contractor, MDL, in Mumbai. And again, where we are together with NWL, former NWL, now Rheinmetall, together in a special purpose company to build the F-127, which is a complete different ship to all that what is out there at the moment, because the Germans never had such a one, and we are also working on that campaign to finish that as soon as the parliament gives its blessing. What I think is notable for you as well is that we have delivered. I mean, that is what we're saying. We are convinced that we delivered on time. We did, and we delivered three different submarines over the last nine months, and this is fading out our so-called legacy contracts and bringing more and more importance to the new contracts. As I told you earlier, I think we are not anymore in a buyer's market, we are in a seller's market, so terms and conditions are more favorable than they were in the past, and this also helps our balance sheet and helps in the profitability, because the new contracts are more profitable than the older one were, and going forward, you will see a fade-out of those legacy orders latest by the end of this decade, but as you see here, we're quite optimistic that we have the right drumbeat at the moment, and again, And three and nine months means there is something going on on the shipyard, which increases the speed. And we have understood that everybody has budget, but not any more time. So we have to concentrate on time because that is the critical factor. That's more or less my CEO overview. Now I'm more than happy to give that to a smiling CFO. And Paul is putting you into the latest news on our figures.

Thank you. Thank you very much, Oliver. Also, a very warm welcome from my side to our financial update and outlook, and I directly would like to jump right in with regards to our group results. I mean, you can see it here on the page, and I'm not going to read out all figures to you, but I think our intake for the first nine months stands very strong now with over 3.6 billion euros. And keep in mind that we, in these nine months, not yet have seen the MECO A200 that Oliver just referred to. So for Q4, definitely going to see a higher value there, expecting over $5 billion for the MECO A200. With regards to sales, we are up 19%, so momentum really picked up. And this is due to the conversion from our order book into sales, which is very, very important for us in order to get the execution right, In order to get delivery speed right, and in order then to also get profitability right, where I also will walk you through the segment. So when looking into our adjusted EBIT, it's up 13% year over year, so it rose to 110 million euros. And we are all, as a management team and leadership team, very proud of that, because this comes despite the spin-off related G&A cost increases, And also, despite the higher selling expenses that were driven by the various campaigns this year. So it's a very, very excellent development and very solid and fundamental development here that we can see in our profitability profile. And also in terms of the adjusted EBIT margin, it was a very solid level of 5.8% for the first nine months. So this is even if compared to the first half better, where we achieved 5.1%. And, of course, you may see here that year over year the margin is slightly down by 0.3 percentage points, but please do not get distracted of that. We had to do some accounting work last year in order to prepare our combined financial statements for the spin-off. So, especially this was true for the Q3 last year, where we had several one-off accounting gains that we prepared for the spin-off, including some necessary changes in accounting methods and reversal of provisions. So, overall, the operational tendency and trend is clearly given to more sound and very strong underlying profitability, where we are very much on track, especially the development of our adjusted EBIT margin. So, when we now look into our segments, it's very good to see, and you know the order intake, I'm not going to spend some time there, but it's very good to see the strong growth of our submarine segment, 17%, slightly above 1 billion euros in sales, so that's very good. It comes from our new programs that are contributing, but also comes from service business. So we see a strong trend here. You can also see that in the comparison from Q3 last year to Q3 this year. And also, and I think this is most important for us here, that profitability follows. Sales itself is nice, but profitability is what counts most. We have very, very strong quadrupling from 11 million to now to 46 million, even the relative margin now over 6.4% for Q3. This is clearly due to the efforts the team puts in here that we not only are successfully executing the order book, but that we have a very strong and sound cost control, especially in the legacy programs that Oliver just mentioned, So that we are getting these old orders out of our order book with a very stable and solid progression with regards to our execution track record. So overall, I think it's a very strong statement here from the submarine segments. It's always, as I told you, we will need some time, but then quarter over quarter, year over year, we are going to convert. That over 20 billion order book into a very attractive and profitable margin profile. Having that said, I'd like to take a closer look to our surface vessels segment. Here on the order intake, I mean, of course, as we have closed the nine months end of June and middle of July have signed the contract for the frigates, You are not seeing the order intake here yet, but you're going to see that in the Q4. And if you then make the comparison year over year, you see a very strong progression with regards to order intake in the surface vessel segment. So we're very happy to have that potential and have that opportunity to build the MECO A200 product now also for the German Navy. And even without that program, I think you can see a robust development, although a little bit flat when it comes to terms of sales. It's nine months to nine months slightly up, but Q3 to Q3 slightly downward trend. This is going to stabilize, and I think it's going to pick up now quarter over quarter over the years with the A200 program that we have booked, and profitability looks very, very good from our perspective, now with 30 million and 7.4% for the first nine months, and especially Q3 now with 9.5% relative EBIT margin, Very attractive, despite that we had some one-off gains in Q1 due to the currency, as you remember, so overall I think a very solid performance here from our surface vessel team and the execution that you have also seen with regards to the... The delivery of the first unit from our Brazilian program, the Taman da Rei, really shows that we are fully capable of performing in the A200 class as well with our modular concept, which gives us a very cutting edge and fast delivery times here. So much to come from the surface vessel segments now in the near future. What we have seen in surface vessels in the last months is already happening since a couple of quarters now at Atlas Electronic. We have spoken about that in our half-year results call. So the overall order intake this year, very, very strong, very robust, close to 2 billion euros that we are seeing here, mainly from the heavyweight torpedo contract that was placed in the first half of the running fiscal year. But the conversion, that's very important from my perspective, is really picking up. We have a strong conversion here of over 600 million in sales, clearly outpacing what we have seen previous year. It's very nice to see profitability follows an absolute term, close to 60 million now, and narrowing down to a double-digit profitability profile, 9.6, which is even better than last year. And again, it's not a quarter-to-quarter business. I know that a lot of you still need that comparison. We had some stronger service gains in last Q3 24-25 that we have not seen now in this quarter. But overall, the tendency for this year is very, very promising for Atlas. So we are going to expect a solid year-over-year improvement in the adjusted EBIT for our Atlas electronic segment for the full year. So from all three segments, I think very positive news, very strong news, fundamentally driven news that are really highlighting the capabilities from TKMS. So breaking that down and the dynamics from our segments into the EBIT bridge, I think it's really nicely showing again how stable and robust our businesses are performing. You see the strong improvement from the submarines unit, a very strong improvement from Atlas Electronics already on a very high level, and then there's going much more to come from the surface vessels units as we are chunking and progressing down the A200 order. You also see there are a package of others in group consolidation, so let me give you some light with regards to that. You have seen this development also in the previous quarters, and it's basically only a temporary phenomenon for the first financial year post the spin-off, so the increasing cost that we had due to being a listed company, then just being a segment of TKAG. And, of course, there were also a negative effect from a one-off pension funding exercise in the mid-single-digit million-euro region in Q2 that we already, I think, have stated to you in the first half-year conference call, and secondly, the mentioned G&A cost as main drivers here. But overall, the operational performance from the segments has even overcompensated those structural handwits that we have as a one-off, and they are leading to that 30% increase of adjusted EBIT to 110 million euros. So overall, a very strong and robust performance from a P&L perspective. So when moving now from P&L to a balance sheet perspective, we continue to run our operations and our business model on a very, very efficient way with a negative networking capital approach, which I think is unique in the industry and also gives us the strength and muscles to look into a very solid net financial position and also funding the capital expenditures that are needed, especially in order to ramp up our Wisma sites, which is running very well and is programming. As we are planning it, and also hiring of people is progressing. As we are planning it. So, therefore, the overall position of TKMS shows a pure strength of our balance sheet here. And, of course, you may have seen that, and as we now are going to speak about, free cash flow, that this was a negative free cash flow on the next side for the first nine months. Those who are following us now for a longer period of time, this is nothing to be concerned about or anything. It's just a classical milestone payment driven approach that we are seeing in the EPC industry. So relying on certain cash milestones and payment milestones, they are somehow bundled in our Q4 now, including a down payment and prepayment with regards to the A200 order. So, overall, we are expecting a positive free cash flow for the end of the fiscal year, and this is just the normal fluctuations that you see, as also Oliver mentioned, quarter by quarter. Overall, it's a very, very cash-generative business, a business that you can run on a negative network in capital, which gives you a very, very good and strong view with regards to a return on capital employed, which I think is a very, very strong sign of our productiveness and profitability. So, as you saw me smiling on the first page, you cannot see me now smiling, but I am smiling with regards to our fiscal year guidance, you have most likely already done. Your homework and have read it. So we are increasing and updating our full year guidance for the second time this year. We are now expecting the sales to grow by 10 to 12 percent. This is up from the previous range from 2 to 5 percent. And the reason for the upgrade is the overall performance so far this year and the strong execution of our order book. And based on that, we rather expect the upper end of this new range. And for the adjusted EBIT, we now target a precise margin of up to 6.5 percent compared to our previous guidance of more than 6 percent. And this also reflects ongoing good progress in the margin mix, especially being driven from the submarines units as well as Atlas and also surface vessels units. And with regards to our midterm guidance, this is fully confirmed, as you can see on the slide here. And with this being said, I will hand back over to Oliver, who is going to summarize the key messages from our call.

Thank you. Thank you, Paul. I have the privilege to just give you the last slide and the last words, and then it's up to you, ladies and gentlemen. But I think looking back at the development of this year so far, after nine months, and also looking ahead to what's come, I think we have a lot of positive messages to tell. We are really proud of the deliveries, and again, take it for granted and take it as an evidence, therefore, that we mean it's serious. We keep our promises, we deliver. Second is, we're really happy that we're back in the game on surface vessels in a way we haven't expected eight months ago, because eight months ago it was just an idea, and it was a lost campaign in Australia, and we switched it to something which the German parliament has blessed in July. So, very speedy, let's say, on one side, but also when it comes to execution, we know what we're doing here, and we still have 40 months left to deliver on December 2029, the first of the maybe 8, 8200. The order backlog, I mean, the question, I think, is no longer whether there's a demand. There isn't demand out there for our products. The question is how fast and how profitably, let's say, we can convert this exceptional backlog, and already it's 25, into revenue and into cash. And this is what Paul told you, that this is exactly where we're working on, where we are heading for. So, still something out there when it comes to campaigns. CPSP, which means the Canadian Patrol Submarine Program, is one of the things I think we can make a ticket when the contract is there. But, again, very good chances to achieve all goals. Another four batches, four of the, another batch, and four of A200s, and still India, and, of course, the F-127. So this is the reason why we upgraded our financial guidance, and you know that. We have always told you from the beginning where we are in conversations in our Capital Markets Day, for example, we want to have a prudent growth. We know what we're doing, but we are not, let's say, having the target to double us every four years. This is not what we're aiming for. This company is debt-free, which is nice as well, And given the fact that the story going public in October last year was the right way. And looking forward, I mean, it has also something to do with where you're coming from. I think we told you we have made our homework. In the past years, and this is the reason why now our EBIT margin has tripled, if I look, just three years back. And this is really nice to achieve and gives a good mood, and I can tell you really everywhere in our shipyard and all at our facilities that people are knowing what they're doing and that they like what they do. Let me state a last one. A large order backlog does not create shareholder value, but execution does, and this is what we're doing. So, therefore, thank you very much for listening so far. Now it's back to Jacques, and we're looking forward to your questions.

Thank you, Oliver. Thank you, Paul. And with that, we are ready for your questions. When asking a question, please raise your virtual hand. My colleagues will open the line, and as I said, please consider it's necessary that you have to unmute yourself in addition, and please state your name and institution so everyone can follow. And the first question comes from Olfer. Please. Alpha, I think you have to unmute yourself.

Hi. Can you hear me? Yes. So, this is Olfa Tamala from Adobe HF. Congratulations, Oliva, for the strong performance and guidance upgrade. I may have three questions. First, in terms of guidance upgrade, could you command further business development and main driver behind this upgrade? Which division is at least, I mean, better performing than original expectation? Second question is on order and take development of a Q4. You mentioned already the MECO 200. Should we expect other contracts to come? And maybe if you can help us a little bit on prepayment and flows and free cash flow developments to, let's say, be more specific than the positive guidance. And finally, I know it's a bit early, but if you can share any thoughts or insights into 27 fiscal year, should we expect the same trends in this current fiscal year with faster margin improvement? Thank you very much.

Thank you. I think there's some for Paul, right?

Yeah, thank you also for your questions. So with regards to the communicated guidance increase, so main drivers you have asked for really coming from the submarines units, so we see a strong momentum here with regards to sales growth that led us to the fact of also increasing our guidance for the running fiscal year and also Atlas and the strong Atlas demand that we have seen. COVID-19 is leading to that fact. We always expected for surface vessels a more flat development this year, which did hold true. However, as I said, this is going to change now with regards to the MAKO A200. And let us add something here. Oliver said it. It's something that we really hard worked for that was not a part of the original planning. As you know, there was the F-126 program that now got canceled. So this is why we have a much more positive outlook now for the surface vessels unit going ahead. With regards to your questions in order intake Q4, main driver that we are expecting will be the four frigates for Germany and, of course, smaller order intakes in the service units and so forth. But the majority of portion will come from the surface vessels unit. And last but not least, the prepayments development. So overall, as I said earlier, all our contracts are overpaid. So if you look to a contract from a single perspective, they are always in the money, as I call it. So they are cash positive. That's a clear requirement that we have prior to signing that contract. This, of course, with the capital expenditures that we have and other cash outflows always can fluctuate a little from quarter to quarter. But overall, we do expect that rolling three years average free cash flow guidance to be in that 400 million range. For us, it's not needed to receive high prepayments. It's only what we need in order to stay cash positive. And it's always a question of how we can also offset with lower prepayments the risk of getting fewer escalation gains that we can therefore then balance our escalation formulas that we have in our contract. So, overall, you're going to see that from a quarter-to-quarter perspective, and I know that it's difficult for you in the modeling, but overall, from a modeling point of view, if you can start calculating with positive free cash flows for the single contracts, you are doing with the right approach. So, you have to look at this over the cycle and over a quarter-to-quarter basis. With regards to 27, I think it's a little bit too early to call. We are good with our midterm guidance that we have communicated so far, and we'll let you know once there is an update.

The good thing on 2027 is it starts already in October in our house, so it might be the first one saying something for Perspectives on 2027, right?

Great. The next question comes from Svibam. Please go ahead.

Can you hear me now? Yes. Yes. Perfect. I have quite a few questions. Probably I will restrict myself to three for this round and the opportunity. Maybe I'll come back. My first question is probably a two-part question and it's regarding the submarines. Compared to what you provided to us during the capital markets day last year. Are you seeing a shift from the legacy to the new construction contract happening a bit quicker than your own original plans? And in a related note, the 700 bps better margin which you communicated to the market from a cross margin level between the legacy and the new orders. Are you seeing any improvement in that one? Because I see the execution is going pretty well when it comes to construction of the submarines. So those are the two part questions on submarine. The second one, and this is a bit of a long-term question, so to speak, is on the autonomous market. I know you touched upon it briefly in your presentation, but just wondering how do you think about this market? And you have some offerings already in place and from a product level. How do you think about the future? Do you need to look at M&A as a potential option to enhance any more capability to address this future market? And the third question is a very simple one and a clarificatory one, if I may. The provisioned release which came out in the surface vessels division, I know it is a small number, I think around four or five million this quarter, but just trying to understand what was the reason behind that. Do you see, is it a conventional warranty release or is it something else which is a bit more encouraging for the surface vessels division? Thank you.

Yeah, thank you. We're on my start, and maybe Paul jump into it. It comes to submarines. I think your observation is a very friendly one, but not unexpected for us. We want to become quicker, and we did. And why is this so? Because of ramping up Wisman, you will see maybe that there's an acceleration as well, because we do not only have one shipyard, we have two in the future. And it shifts indeed from the legacy contracts, and I mean, you know that, you are aware of this branch, and you know contracts in the past were a bit different to negotiate than today. And today, I think we are more, let's say, in favor to bring our terms and conditions on paper and a signature under it as it was in the past. So you can expect that fading out the legacy and bringing into the new contracts, and I think this has started, but not fully, has started with the first contract of Germany-Norway. Just remember, it was two and four, and then the Germans added another four, and the Norwegians another two. Those second, let's say, term of contract is different, a bit different definitely, to that what we had before. So it really started in 2021 when we made this six submarines 212 CD. And Canada is now jumping into that. I think they will take a lot of that, what is already negotiated with Germany and Norway, and just do copy and paste more or less. So we know that those terms and conditions also will be quite favorable. Legacy, there are still some to go when it comes to Turkey, but I think we also have shown that despite all complications we had over the last years and for almost a decade, I think we also have speeded up there. But it's not in our hands only because it's a Turkish shipyard, which constructs them. But you will see and you have to expect that there will be further improvement when it comes to how long does it take to build a submarine and doing a testing phase and commission it to a new customer. You touched the point of the autonomous market. What is our future view on that? We are not interested in building hardware, honestly, because that is not what we're aiming for. And Paul and I, we discussed that. If you're going to a trade fair or somewhere, Euronaval or wherever, in the past there were five, four who offered this. Now it's 30, 40 who offer some carriers where you can put any stuff on it. I think this is not what we're aiming for, and this is not following the sentence I brought you earlier, saying we're shifting more from hardware to software, because I want to get our, let's say, intelligence on those carriers. Who's carrying it? It doesn't matter. So an example for that is the Blue Whale one, the Blue Whale project, which is together with us, IAI and ELTA, and we are bringing the sonar on this carrier, they are delivering the carrier. This is what we see in the future because this market is far behind when it comes to air or to the land because the physics are a bit more complicated in the water. And one of our big advantages is we know a lot about physics underwater, and we do know how torpedoes work. We do know how sonars work, and we don't have to learn how to, let's say, manufacture carriers 10 to 8 meters, Just circling around and following a given procedure. If there are any M&A opportunities, we will have a deeper look on that. At the moment, I don't see so much, or let me say it in my words, I don't see anything worse paying so much money for it. Therefore, I say, well, let's concentrate on that, what we can, and let's bring more intelligence in the water, because I think there are not only, you can see it at Atlas, better margins, there is also, let's say, opportunity for growth, but it will not replace, I always try to repeat that constantly, replace the big platforms, whether it's a big ship or a big submarine, because they have a complete different mission profile, which is also needed, and those threats of those days we are living in. So it will also be complementary. It will be adding those systems, but it will not replace them. Therefore, I think we're concentrating on the platforms and concentrating on how to get intelligence into the water, whoever carries it. Let's make it simple. The third one I already forgot, but my CFO has...

Yes, with regards to your question for the surface vessels unit and the provision release. So, those warranty provisions work the follows. Normally, you always have a warranty budget in your calculation of a contract, and once that warranty expires and there were no or nearly no warranty claims, which normally is assigned for a very solid and proven produced and high-quality product, you can then release those warranties. So that's a classical approach that we have. After a couple of months, then we can release those warranties. So it's an operational, if you want to call it, sign of how effective and how good our products are actually working.

Good. The next question comes from Charles.

Yes, good morning. Thank you. I'm struggling a bit with your sales guidance for the year. It seems to me that everything's going quite well. So, you know, your comments being submarines. Ramping up on new programs. Surface Ships, you've got an accounting catch-up in Q4, and Atlas is going very nicely. But when I take even the 12%, that implies Q4 is down 7%. So is it milestones? What's going on to get? I'm struggling to get my numbers low enough, so help me out here.

What we normally see, Charles, it always depends in a cost-to-cost account and what kind of cost milestones we are reaching in which quarter. So this is why you cannot similarly take a linear approach or mathematical approach. It always depends on what kind of cost progress also us and our suppliers are doing And what of those costs we can account as progress costs or prepayment costs. And this is the differentiator that you have to take into account. And also with regards to the MECO A200, although it's ramping up much quicker than, for example, a Polar Star where we had much more engineering to do, it will take some time until the conversion comes. So we will see that large order intake booking, but not so much of sales progress coming from that order In the last remaining three months of that fiscal year.

Okay. Good. Sorry, Schatz, do you have another question? Good. Okay, then the next question comes from Adrian. Please go ahead.

Good morning. Thank you. I've got one quick follow-up and one number-time question, if that's okay, please. Firstly, could you update us on your expectation for the timing of the F-127 order? You've mentioned Parliament approvals. I'm just wondering, do you expect it to come in early 2027? Is that fair? And then question on margins, please. I mean, you've obviously made very strong progress toward your medium term targets. So I'm wondering, on the longer term, say 2030 environment, when all the legacy others have phased out, what's the target? Do you think you'd be at 10% or above for submarines and surface vessels or even higher than this?

This hmm does not mean agree, it just understood, right? Let me start with the expectation, given the blessing and the way forward on F-127. We have all, let's say, noticed what had happened, and it was quite disruptive, wasn't it, when F-126 was just stopped by the minister, and there is still, let's say, a lot of rumor in the branch, and there were a lot of marine, projects at one time, which, let's say, showed that there's a big need, but also a big need for money. And that was also, let's say, swapping into the debate about F-127. Just to make that clear, the F-127 is a ship the German Navy never had, but it has promised it to the NATO to have it sooner or later, and cannot be replaced by an A-200, or wouldn't also not be possible to replace it by an F-126. Because it's a BMD frigate, means ballistic missile defense frigate. It has a displacement, sorry, I don't want to talk you to depreciation, I want to have a displacement. It has a displacement for more than 10,000 tons. And this means we don't have such a ship. At the moment, I think we have to educate a bit the parliament, as we did with the A200, It was not unsuccessful, so I'm confident that we maybe can reach that, that we will have a decision by the first half of 2027, so maybe not early in the year because there's still a lot to do, because a lot went, let's say, in different directions. All what I know, and I heard nothing else from our peers, is that we have a special purpose company together with NBL, ACA NBL, now Rheinmetall, where we try to build this ship together. It's our IP, so we have the design, we know what the ship can do, and others will help us to build it. There was, and I'll just maybe try to take that point, there was an offer in the last week about a GMF 140 from Rheinmetall, just a design study, which is nice. We also have design studies. We do not publish them every day. Why should we? Because we have a common and proven design. And at the moment, especially the administration is very cautious of what do you promise and how can you deliver. This was the reason why we have won the A200, and if we win together with Rheinmetall the F-127, then we had to make clear how the ships look like, what capabilities should be on it, how much is it, and how will it be finished, and then when will it be finished. I think this is something we have to clarify, but I'm an optimistic guy. I see that in the first half of 2027 this could be possible because there is no other design out there. This is why I mentioned this GMF-140, because it only has 6,000 tons displacement. It has only ASW, that means anti-submarine warfare capabilities, which are on the A200. So there is nothing where they can help, let's say, to replace the F-127, because it's a common design, it's our design and a common approach to build that. So I'm still optimistic on that, even though that there was a kind of disruptiveness. But again, if you are lacking four years behind, don't have a plan how to get out of that. I would not recommend to bring TKMS in such a situation. It doesn't look like this, so therefore our order book is stable and cannot be cancelled overnight because a project is running that bad as this was. And I also invited all of them who are, let's say, victims of F126, As long as they deliver in time and they make no complications and no further, let's say, difficulties, they are invited to help us to build the second batch if we get it in September. But it's not a must. We invite them as long as they meet the expectations regarding time and difficulty. Maybe second thing?

Yes, with regards, I mean, I know that everyone is somehow trying to get something out of us with regards to a long-term guidance or margin profile, just to say the following here. I mean, you can see where our business is going at the moment. I think it's overall progressing very, very positively throughout the sectors. You know what we always have said with regards to our Atlas electronic unit, how we are going to see it with regards to competition if you compare it to Saab or Thales in the electronics and sensors, where we want to see it. You also have heard of where we can see during our talks the submarine unit, and of course now the, I think, surface vessels division is changing its profile. It's looking much more positive than it has seen before the A200, but I think it's too early to call now to go for that direction. But once we have made our sound evaluation of the overall situation and dynamics, so certain topics are going to place a crucial role like Canada, contract award date, about what volume are we going to speak and so forth, there will be then a given time where we are going to update our guidance and also our time frame.

Good. Perfect. Thank you so much. All right. The next question comes from Sven. Please go ahead.

Yes, hello, Sven Sauer from Kepler-Chevreux. Thank you for taking my questions to our left. The first one is from a quote from Reuters, from you, Oliver, from this morning. I was wondering if you could provide some color on this, if it is correct. I'm not sure if they translated it correctly, but apparently you said you expect that you will get the Indian contract, but the competition will try to destroy this, which would be the translation from the German.

Somebody messed something up, I'll tell you in a minute.

And the second question would be on Belgium. There was some news that Belgium is also not happy with replacing their M-class frigates, and there was also some news that maybe TKMS could offer their anti-submarine warfare frigate for their program. I was wondering if you could also provide your thoughts on this as well.

I will do. Sven, let me state it clear. This morning I said we... As we were talking about the Canadian campaign, and we really acknowledge that Hanwha has done a really good campaign, and I'm pretty sure they also can build boats, but maybe, Call Me Byst, we built the better ones, and we have won this competition, and now we are the preferred bidder. But I said nobody should be too calm and relaxed that this competition is already over, because the Koreans are still there, and their only target at the moment is to destroy our campaign, to come back into the game. This has nothing to do with India. In India, there's a situation where we are not the preferred bidder. We are the last one because all others were sorted out. And the Canadians did it quite smart. They said, well, TKMS is the preferred bidder. I'm pretty sure that we get along with them. But if not, in case, if not, which is a very low percentage, then we could go back to the Koreans and ask them again to bring them into the submarine contract. So I do not expect any interference, let's say, with India, but I'm still aware and cautious and, let's say, prudent, whatever you want to name it, that we are not yet done with Canada. We have achieved, let's say, more than 50 percent, definitely, because we are the preferred bidder. But now we have to make a contract for the submarines, which we expect by the end of the year. If that contract is there, then we will talk about the so-called in-service support, which will last for the next 40 years. We will talk about where do they put their harbors and how do we help them to build them up for submarines. We will talk about the ITB or offset, as you want to name it, where we, let's say, make of every MOU, and we did 40 of them during that campaign, bring it into life and bring them into our supply chain and helping us. Also from a Canadian perspective, very worthy, but also from our perspective, to speed up maybe the production time. So it's a bit messed, let's say. I don't know what Reuters quoted. We're working here, as you know, with you at the moment, so later on I have the time to look at it. But it was not that I expect any destroying, let's say, activities, despite the fact that the franchise are still there and talking about how will they all chunk it. But again, India is a different thing, because India is the construction site, and the general contractor is an Indian shipyard. We are only delivering the material packages, so it doesn't block our capacities here. And therefore, I don't expect any, let's say, interruption there. And Canada is, you know, it's also a kind of alarming, not alarming, saying a wake-up call, but they're not sleeping. But just saying to our politicians, you have really contributed very, very good in that campaign, Norway government and the German government, and still keep on, let's say, the good work until the signature is made, because then only the contract is really ready to come into our order book. Today, it's an opportunity which is very high likely that we get it, but it's not yet in the order book, and the work that we have to do now is really a tough ride until the end of the year, but I'm sure we will make it. We will not be the bottleneck, let's say. Belgium, yes, indeed, there were a few questions, let's say, brought to us. If we can maybe jump into their program, it's, as you said, an ASW freegate, so ideally exactly the A200. But I circled it back and say, well, if they do know what they want to have, then maybe we can talk. They want to step into the delivery of the A200 of the Germans. This is something I cannot negotiate with them. This has to be negotiated between the German government and the Belgian government. So I think we are on that level. Yes, but I can confirm they were interested in how is the A200 doing and what are the capabilities on board, and is that maybe sufficient also for them. We're talking about two only. I mean, Belgium is a bit smaller and a lower coastline is not that long, but I can confirm that there were official outreach to us, yes.

Okay, thank you. Great, thanks. Okay, we already run a bit out of time, however, there's a follow-up question by Sriram. Sriram, please go ahead again.

Thank you so much for the second opportunity. So just a couple of quick follow-up questions, if I may. So one, with regards to the Amiga 200, the first batch of orders, compared to the original estimate of around $4 billion, which was what speculated in the media, the initial amount is supposed to be $6.3 billion. So I'm interested to understand what is driving this significant increase in cost. How much is it inflation protection? How much is it on a capability improvement? That's question one. And second one, can you update us on the progress happening at Wismar? When exactly are you planning for the first production to start at Wismar, and what challenges are you currently facing in that particular ramp-up, especially when it comes to the labor part? Because I'm just thinking for the medium term, are you seeing any upside risk to your labor cost at Wismar? Thank you.

Okay. Thank you, Sviram. Yes, the MECO 200 has a higher price as it was very early indicated. Why is this so? Because of the capabilities they want to have on the boat. So if you want to have something special, just look at the basic version of a VW Golf and look at the better, let's say, version of it, then you have to pay prices. And that is exactly what rose this, but I think it's still more than 500 million away from the old F126 approach, but it has almost 80% of the capabilities of F126 had. So I think it's still, let's say, worthy to spend this money in this direction rather than in another direction. So the capabilities and the capabilities are always driven by the customer. What the customer wants to have, we show him how we can engineer it on the boat or on the ship, and then they have to decide whether they want to pay for it or want to afford it or not. Wismar is going well, really, as Paul already also stated. I think we have finished the production of the pressure hull production line, which means that one of the key, let's say, aggregates, which is necessary to build submarines, is already installed 100 million euros later. But anyhow, we made it in time, in budget. It's in the testing phase at the moment, and we will start the production in September for the first submarines from a customer, which I do not have to name here or should not name, but they're still very friendly and already in our order book. And we will start the production of the Polarstern, which is also starting in September. So we are not anymore in a ramp-up. We are, let's say, trying to achieve a new normal then. And this has all the, let's say, challenges, which such a... new shipyard brings with it, but I think we can handle it quite well. When it comes to the labor market, CHO is sitting in front of me, not too far away. We're very happy that a lot of people apply for jobs there, and for every vacant position at the moment, we have 30 people who applied for it, so a 1 to 30 ratio is quite comfortable, but it has to do also with a good employer branding and with some, let's say, I work beforehand where we could convince people to work at that shipyard because working in a shipyard in the past was always, well, the muggling through from contract to contract. So you were three years safe, and then the last year you were looking for how is it going on. We can offer a really long-term employment with us, as both sides are happy with it, and this gives a lot of, let's say, planning security for people, even though to come to Wismar. We have a lot of applications coming from the automotive industry at the moment, mid-management, who seeks, let's say, for new opportunities. I think it's not that bad to work in that branch as it maybe was in the past. A lot of people have understood that the security narrative has changed, and that it's quite a powerful thing to do and to work on the security of your home country. So, therefore, I think we're not going into any shortages, as maybe others have in smaller branches or small and medium-sized branches. Ours is doing very well at the moment, and we're quite confident that it will keep on that.

Good. Sriram, does it answer?

Absolutely. Thanks so much.

Good. All right. Yeah, and with that, we come to an end for today. Thank you all for your interest and for participating in our today's conference call. Of course, if there are questions left, the entire Investor Relations team is available, and we look forward to stay in touch with you. And with that, I would like to conclude the call for today. Thank you, and bye-bye.