Montana Aerospace AG (AERO) Earnings Call Transcript

Ladies and gentlemen, welcome to the Montana Aerospace H1 2026 Conference. I'm Moritz, your Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Patrick Maurer. Please go ahead, sir.

Welcome, everyone, to the Half Year 1 2026 Earnings Call of Montana Aerospace. Quarter 2 and therefore, the first half of the year 2026 represents another chapter in Montana Aerospace strong track record of revenue and results growth. As said, my name is Patrick Maurer, CFO of Montana Aerospace. And today, I'm joined by Vicky Welvaert, our CHRO; and as always, Marc Vesely, Investor Relations. In today's call, we will take you through the key developments of the first 6 months, our financial performance, the balance sheet and cash flow development as well as going a bit deeper into selected strategic growth areas, giving some further insight into capital allocation priorities and finally, have an outlook for the remainder of '26 and 2027. But before we go into the numbers, I want to bring us all back on the same page why we in Montana Aerospace achieved industry-leading performance in the Aerospace industry. Over the past years, we have sharpened our portfolio significantly. This started with the divestment of the E-Mobility segment in '24 and Energy in '25. And we now have a clear profile that allows for better comparability and through the proceeds of these divestments, also strengthened financial resilience. Our ambition from the beginning was to build an aerospace platform that is different from the traditional fragmented model that we typically see in the industry because we want to be a game changer in the aerospace supply chain. And that's not a slogan. It's based on concrete industrial capabilities that we see here on this page again. One and foremost, our vertical integration that starts with partial chips recycling, metal chips recycling, casting, extrusion and then going into the machining and assembly, so the full supply chain. And what it brings for our customers is reduced complexity, improved lead times, sometimes substantially improved lead times and of course, reduced transport and qualification cost and complexity. And that on the second side, allows us as Montana Aerospace to capture more value than other players in the industry. Second, our setup is based on a largely best-cost-country manufacturing footprint across all key regions in the aerostructure industry. And that's critically to be close to the customers, but also to ensure we are cost-wise competitive in the long run and also in the short run. And yes, this is an outcome of our heavy investments over the last decade. Third, we have a high material competence in Montana Aerospace in aluminum, steel, but also titanium with a portfolio that ranges from structural components for fuselages, wings and landing gears to very complex engine components. If we continue our processes and our long-term know-how and industrial experience, that gives us the required know-how and IP in order to really excel in this industry. And finally, and important to mention, through our integrated setup and being, let's say, where the customer is, ESG is deeply embedded in our business model and allows us to solve ambitious sustainability goals, but also brings added benefits for the customers that we have just discussed. And with that, Montana Aerospace not only participates in the aerospace industry and in the ramp-up, but we, with our model, address structural issues that our customers face today. And if we look on the next page, what it means is that we have a strong commercial aerospace order book above EUR 7 billion by now and are best-positioned to benefit from the growth and the very positive momentum that we currently see in the industry. And the EUR 7 billion come from just EUR 3.9 billion in 2021 and underline the progress we have made in expanding our position across all the different aerospace platforms and winning additional market share. And what is important to mention here is that our order book is also qualitatively very strong across all narrow-body, wide-body and business jet platforms as well as military transportation aircraft such as the A400M. The way it's calculated is rather conservative. So we basically take our contracted ships at value per plane, multiply that by the duration of the contracts we have with our customers. So typically somewhere between 5 to 7, sometimes even more years. And then multiply that with our Montana build rate assumptions, which are, for sure, more conservative than the OEM build rates and therefore, give us, let's say, an upside potential. So we are basing our plan on a prudent view of what we believe can be achieved and still benefit from the strong long-term industry demand and momentum that we see. If we now switch to the financial performance of half year 1, we can see that we have a nice sales growth of 12%. And this despite the fact that FX rate in half year 1 '25 was around 1.17 for the U.S. dollar-euro exchange rate. And now in this year was around 1.09. So that took a bit away of the dynamic. But nonetheless, the performance is very positive. And important to mention is that this growth was purely organic, so without any acquisition or other dilutions, driven by increased volumes and additional market share wins in the Aerostructure segment and other interesting industries or related industries. EBITDA was EUR 87.1 million in 2026 half year 1, which also corresponds to a growth of 12.2% and the EBITDA margin was at 16.8%. And here, I would like to highlight that there were no adjustments made in the EBITDA 2026. So it's, let's say, a pure EBITDA without anything to consider or without anything to adjust for. And what I'd also like to highlight is that the Aerostructures segment again performed very strongly. So the growth there, again, without taking FX into account was over 13% and EBITDA growth in the Aerostructures segment was over 16%, bringing us to a strong 18.3% EBITDA margin. So overall, sales are growing organically, EBITDA is increasing and most importantly, margins are resilient and improving where it matters the most in our Aerostructure segment. When we switch then now to the next page, it's a pleasure to present to you that the operating leverage that we have allows us -- allows the results basically to flow through to EBIT, where we see a 22% increase and to the final result of the period, which is at around or almost EUR 30 million, heavily increased compared to the last year because in addition to the strong operating performance, we have also not seen a negative impact from the noncash FX impact that we saw last year because the U.S. dollar didn't fall or didn't weaken further compared to December 2025. And as a consequence, the earnings per share have heavily increased to EUR 0.47 from just EUR 0.1 in half year 1 2025. The key takeaway is that our business is converting operational progress into bottom line improvement. And we're not only growing sales, we are seeing the benefit through EBITDA, EBIT, net result and earnings per share. And that is an important proof point for the scalability of our platform. If we deep dive a bit more into the Aerostructures segment, I'd like to highlight the path where we came from. So only 3 years ago, we were standing at around 10%, a bit above 10% EBITDA margin despite a pretty strong U.S. dollar in that timeframe to now just 3 years later, where we are very well on track towards our 20% EBITDA margin in the Aerostructures segment. So that means over a timeframe of 3 years, we were able to almost double the margin profile in our Aerostructures segment. So we invested heavily in this last decade in capacity, process capabilities, our best country footprint and program readiness. And that naturally came with, let's say, fixed costs and industrialization expenses and a certain underutilization at the start. But now as the volume continue to grow and we more and more utilize our assets and our asset base, our platform sees better margin and strong operating leverage, and that we expect to certainly continue going forward. Let us now switch and address our cash flow, working capital and balance sheet progress. In half year 1, Montana Aerospace generated a free cash flow of EUR 67 million including, as we know, the first proceeds from the Energy divestment. And if we go through step-by-step the different contributors, we see a cash flow from operating activities of EUR 26 million, which is behind half year 1 for 2 main reasons. One is an inventory increase from the prebuying and the higher pricing of metal pass-throughs, as you know, driven by the Middle East situation and crisis where we started early on to secure our supply chain to not see any impacts and any production limitations for the rest of the full year. So that's clearly an impact on the inventory that we see in this first half year, in addition, of course, to the higher business activity. And the second equally important factor is that we do not factor anymore a customer who was last year still in certain financial difficulties. And therefore, we had to mitigate and reduce the risk by having nonrecourse factoring in place. But this we stopped entirely for that customer and has, of course, a certain impact in this first half year of 2026. Cash flow from investing activities of EUR 41 million roughly is positive because of the proceeds from the Energy segment. And of course, we will come to a bit more details on the further investing activities and capital allocation relating to it in the upcoming slides. From the finance perspective, we just paid back part of the term loan, as you know, and yes, have some movements there back and forth. But overall, in a continuous and very strong financial position, also having quite large credit lines open that are currently largely unused. If we switch to net debt, we see further progress and improvements compared to December 2025, so substantial ones, as you see from 0.8 to 0.4 leverage. But also compared to Q1, we see a certain slightly better numbers than in Q1 2026. And with that, we are fully on track to a cash positive position at year-end, as we have communicated before, driven by our positive operating free cash flow and on top then the proceeds from the Energy segment that we already saw and that we still expect in the second half year of 2026. Working capital, as addressed before, saw a certain increase to above what we consider best practice. However, with clear reason behind, as I said, the inventory buildup to have a resilient supply chain for the rest of the year and starting 2027 and a certain impact from factoring that we need to progressively improve through better terms and conditions with customers and suppliers. Okay. Let me then turn to say a bit more on 2 further strategic growth platforms where Montana Aerospace is present and very well-positioned in, Defense and Space. And starting with defense, we are proud, as we have announced to expand our strategic partnership with Lockheed Martin and have further program content included in our books with as typical for the Aerostructure industry, long-term production visibility, long-term contracts and clearly a planability and partnership that we are proud of. But in addition to that, we are proud and very positive that there's further growth potential with other -- with 2 other or many others, but in more concrete discussions with 2 other leading European defense players. And there, we expect to have more clarity on the outcome and what that means in terms of sales and potential margin benefits for the years to come in the second half of the year. If we then turn to the second growth pillar, space, which has become a very meaningful growth platform to Montana Aerospace and where we see revenues developing towards 10% Group revenue in 2026. Here, I'd like to highlight that our vertical integration, again, was the basis that customers are coming to us because of fast lead times, because of reliability, a competitive cost setup and fast engineering capabilities that allows them and us to dynamically provide innovations and provide products also for this sector of the Aerospace industry. And the result is that what was an opportunity just 3 years ago, it's now one of our key growth drivers, as said, going towards EUR 100 million in sales per annum and with very strong momentum and perspective in the years to come, as you all know from different IPOs in that field, and all the things that are happening there. What I'd also like to mention and highlight here is that we are not only focused on one single platform or one single product, but we are part of different generations, different platforms and more and more working towards also a broader customer field in that segment or in that industry. Yes. Let us now address the capital allocation and knowing that we move towards a net cash position in the course of the year. We have, of course, discussed together with the Board how to create value for our shareholders and have agreed basically on a certain framework of the capital allocation. So one step of that is seeing through our business wins, seeing the capacity requirements in the aerospace commercial industry, but also these 2 additional growth platforms and the impact and importance of being in different regions. We have decided in addition to the maintenance CapEx or standard CapEx of around EUR 50 million that we have discussed with you in the past, to add an additional EUR 30 million to EUR 40 million per annum in the next 2 years, at least for accretive margin projects and growth CapEx. So that is -- and that's not related to only a specific area or one site. It's related to all geographies and markets. And it's both, as said, market wins where we [indiscernible] just additional machinery or strategic projects where we continue our integration and further strengthen our independence from the rest of the supply chain. And obviously, that in the long term will increase to also bring our platform to the even next level to where we are now. Okay, I think we can then with that continue. Here, we see the consolidated supply chain in Aerostructure on the left side, which still gives room and attractive opportunity in the end to decomplexify the Aerostructure supply chain as many specialist suppliers are small, have very limited integration, sometimes financial troubles and can become a source or are a source of uncertainty in the ramp-up environment for the OEMs and Tier 1 customers. And there, our approach is something that the customers really appreciate and where we gain a lot of traction. And of course, in terms of M&A, we remain disciplined and selective to what adds really value to our supply chain. And in most cases, it has to be in alignment with the OEMs. And there are alternatives, often alternatives on the inside to have brownfield or additional investments to just win packages and market share instead of purchasing one of the current suppliers. But nonetheless, the conclusion is that the supply chain consolidation overall remains a meaningful value creation opportunity for us, clearly, both on the organic side, but also potentially on the inorganic side, should interesting opportunities come up. When we switch to our guidance, I believe the strong half year 1 2026 is the best example and the best concrete support for our 2026 and 2027 guidance. So we remain very confident in these figures and believe in clearly a sales number above the EUR 1 billion and adjusted EBITDA, which will be probably the same as the reported EBITDA as in half year 1 of above EUR 185 million and then Aerostructures or Aerostructures segment margin moving to the 19% range, depending a bit on the cost side and what we pass on there and what is just the flow-through basically. Cash conversion, excluding or before growth CapEx that I just mentioned and before M&A remains a target to move towards 50% this year and above 50% in the years to come. And with that, I believe we are well set up to achieve or overachieve our guidance and are open and happy for our discussions with you all now in the next minutes to come. Thank you.

[Operator Instructions] And the first question comes from George Mcwhirter from Berenberg.

Firstly, on the cash proceeds from the energy divestment. Can you just run through your assumptions on the timing of that? So how much do you expect to receive in the second half of this year and next year? And what level of net debt do you expect to reach at the end of the year? And the second question is on the decision to raise the growth CapEx guidance for the next 2 years. Can you just explain a little bit in more detail the areas that you are planning to invest in? And what -- and when we should actually begin to see the revenue being generated from this additional investment?

Thank you, George, for the questions. So yes, starting with your first point on cash proceeds. We expect for the second half year, at least another roughly EUR 50 million to come through. That is well in line with recent discussions with the Board and CFO of ASTA Energy. And with that proceeds and a bit depending on how much finally come through, we will be clearly cash positive at the end of the year. But it's -- at this point, it's difficult to mention or to say how exactly that position will look like, first of all, for the proceeds of the Energy segment, but also from a perspective of our strategic investments. Yes, the question is how much we can bring into the, let's say, into the spend already in the second half of the year. On the growth CapEx guidance to continue with that. So it's, I would say, a combination of programs that enhance our integration and margin profile, which are not always generating extra sales, but improve the margin profile and strategically our independence from the rest of the supply chain. And that's in different regions and sites. But yes, that's, I would say, the guidance that I would give for that at the moment and has been approved by the Board already. And then there are indeed some additional growth CapEx for market share wins that we have brought on board in the recent months, I would say. And there, the revenue will largely come in '27 on board or start to come on board and be industrialized in 2027. Some of the machines obviously have lead times of close to a year. So yes, that's a bit the time line of expectations of when additional sales from these investments will hit our P&L.

And the next question comes from Sullivan Josh from JonesTrading.

Can you hear me now? Just as far as the CEO search, at this point, are you leaning internal versus external candidates? And any color you can provide on time lines as well?

Yes, I will maybe leave that to our Group CHRO, who joins me today.

Yes. Well, I would like to reiterate what we said last time, that is that after the resignation of the CEO -- of our CEO of Montana Aerospace, the company's operating activities are continuing as planned, supported by a strong and highly experienced leadership structure. The responsibilities are currently distributed across the Group Management Board, the divisional management teams and a strong extended leadership team, [ comparting ] well-respected executives with many years of execution, experience in our industry. The Board of Directors continues to work diligently on the future composition of the management team and expect to provide a further update in the third quarter of this year.

And I guess just switching over to more of a fundamental demand pull question from the aerospace OEMs. Just how are you looking at it relative to the guidance assumptions you had earlier in the year at this point?

Yes. I mean from a guidance perspective, as said, I mean, we remain conservative, but are very confident that we at least achieve the guidance. I think half year 1 comparatively looks quite positive and strong on the track to get there, as you can see from pure numbers on a run rate basis. Typically, Q3 and Q4 are stronger. And I would say from the current perspective, I still expect it, but there are -- especially still with the macroeconomic environment and situation, there are some things that, let's say, are not clear enough yet for a clear guidance raise, but we stay very confident with the '26 figures. And '27, of course, we will review once we know more about how the defense possibilities develop and also the space platform. And of course, the additional wins that we saw or that we discussed with the extra CapEx. So we will find and come to consensus in the quarter 3, beginning quarter 4 as a Group and then at some point, can give there some update as well.