RENK Group AG (R3NK) Earnings Call Transcript

Good morning, ladies and gentlemen, and welcome to the RENK Group AG H1 2025 Conference Call. [Operator Instructions] Let me now turn the floor over to your host, Christian Weiss from RENK Group AG Investor Relations.

Thank you, operator. Good morning, everyone, and thank you for joining our H1 225 conference call. I'm Christian Weiss from the Investor Relations team. our CFO, Anja Manz-Siebje; and our CEO, Dr. Alexander Sagel, will talk you through today's call and will be available to answer your questions afterwards. With that, I will hand over to Alexander.

Yes, Christian, thank you very much. Ladies and gentlemen, also from my side, a very warm welcome and many thanks for joining today's call. Today's presentation consists of 3 parts. Firstly, we will provide a quick review of the highlights and financial performance of the first half of 2025. Secondly, we will guide you then through our key financials in more detail, including Q2 figures. Anja will take over this part later on. And thirdly, we would like to share with you a more forward-looking perspective regarding our 2025 guidance, upcoming key order intakes, our view on the German procurement process as well as the key priorities for the rest of the year 2025. But to sum it up and before going into details, we are fully on track. Now let's move into the presentation. Let me start with a short overview of the key highlights from the first half of 2025. First and foremost, we achieved a strong order intake of EUR 921 million representing a significant increase of plus 47% compared to half year 1 2024. You can see some of the main drivers and projects for the strong order intake on the right part of the slide. And I think many of these projects are very familiar to you. I will not go through all of these, but of course, on top of this, our 3 transmission contracts in U.S. for an international customer, we sold transmissions and engines as well. We had various new contracts on the Navy segment. It's an ongoing developing story regarding spare parts, especially here in Europe for the MBT for the main battle tank of the Leopard. And finally, and this was also a very important order, we got the contract for 52 transmissions for the AJAX IVs where 44 -- roundabout 42 to be correct, were for Latvia for the first procurement program, which is, from our point of view, a clear indicator about our growing presence in the Baltics, the so-called Eastern flank of the NATO. As a result, our book-to-bill ratio increased to 1.5 compared to 1.2 for H1 2024. Our total order backlog reached a new record level of EUR 5.9 billion for the end of June, coming from EUR 5.0 billion at the end of 2024, providing a strong visibility and confidence for the upcoming quarters and years. Like for the previous quarters, our defense business was clearly the growth driver with high double-digit growth rates for order intake and revenues and reflecting both the structural upturn in demand as well as our execution capabilities. In addition, we made good progress with the PMI process of Cincinnati Gearing Systems or how we call this company today, rank America Marine & Industry. And lastly, we also initiated new strategic activities regarding our future product portfolio, for example, talking about our new strategic partnership with ARX or the series development and qualification of our next-gen main battle tank transmission. More on these 2 specific relevant technology projects later in the presentation. Ladies and gentlemen, let me now move to the overall group performance for the first half of 2025. Besides the already mentioned record order intake level, the revenues came in at EUR 620 million in H1 2025, corresponding to a plus 22% growth versus the first half of 2024, which is well above our 15% CAGR midterm guidance. Moreover, the adjusted EBIT increased by plus 29% to EUR 89 million, once again outpacing the revenue growth. A strong defense business, scale effects and operational performance at our core production sites are here the main contributors. As a result, our adjusted EBIT margin improved to 14.4% or 0.9 percentage points year-over-year. Having a quick look on the right side of the chart, you can see that our overall business development shows a further increasing share of our defense business and a stable aftermarket business. As you can see, the revenue split by sector is now on a 12-month basis at a 74% level for the defense business and 26% for the civil business. The share between new build and aftermarket remains stable with a 62%, 38% ratio. To sum it up, a very solid first half year performance in terms of top line momentum and adjusted EBIT and related profitability. Moving on to Slide 3 and having a quick view on how I call it, pure defense play perspective. As already mentioned, our defense activities, which includes both land and sea domain, remain the cornerstone or backbone of RENK's growth story. H1 2025 order intake rose by plus 46% year-over-year to EUR 694 million, while revenues climbed by plus 32% to EUR 462 million, reflecting not only a strong demand environment, but also our ability to convert backlog into deliveries at increasing scale. Now very quickly before we go into more financial details by Anja, a few words about the individual segments. As said before, more financial details later by Anja. Starting with our VMS segment, which continues to be the main growth driver of the entire group. In the first half of 2025, we achieved a very solid order intake of EUR 681 million, reflecting a sustained customer demand across both new build and aftermarket. Operationally, the performance of our 2 main plants, VTA in Augsburg and RAM RENK America in Muskegon remains strong. In particular, RAM reached in June a new monthly output record of 91 transmissions. We convert this into daily production rate, it's above north of 4 transmissions per day, underlining our improved manufacturing performance and execution capabilities, especially compared to our challenges we were facing in half year 1 2024. As a consequence, on the revenue side, the segment delivered a strong year-over-year growth of plus 32% in H1 with revenues increasing from EUR 295 million to EUR 389 million in H1 2025. Let's now turn to our Marine & Industry segment, which also delivered a solid performance in the first half of 2025 despite GDP-related headwinds for our Industry segment and thanks to the good run of our Navy business. Driven by several larger orders of our Navy business, as mentioned before, the order intake came in at EUR 183 million for the first half year, reflecting an increase of plus 16% year-over-year. On the revenue side, the strong Q2 2025 helped to overcompensate our Q1 performance and shifting growth rates back into the positive territory. As a result, we realized a growth of approximately 9% year-over-year in H1 with revenues increasing from EUR 162 million to EUR 176 million in H1 2025. Last but definitely not least, our slide bearings segment. Like our industry transmissions, also the slide bearings were and are facing a challenging market environment. Nevertheless, slide bearings showed a robust market performance where the order intake reached EUR 66 million and where the revenues were even slightly above last year's level. The backbone of the slide bearing business remains the e-Bearings segment, thanks to the unique material and surface technology competence of slide bearings. Finally, and before I hand over to Anja, a few comments on the total order backlog. At the end of June 2025, our total order backlog reached EUR 5.9 billion, a new all-time high for RENK, and we are very proud about this, by the way. This corresponds to a 4.7x coverage of our last 12 months revenue and provides us with an excellent visibility for further growth going forward. Compared to year-end 2024, we could uplift the fixed order backlog by nearly EUR 300 million, driven by the strong order intake level mentioned before and overcompensating our increased output levels from our operations. Our highly visible soft order backlog ended up at EUR 2.8 billion compared to EUR 2.2 billion at end of 2024. Important to note that we have included on a conservative basis, first volumes and projects from German procurement programs until 2029. We are currently entering into first discussions with our primes and do expect first orders during half year 1, 2026. I will come to this point later in the third part of our today's presentation. Ladies and gentlemen, having said this, I would like now to hand over to Anja in order to have a much deeper look into our H1 and Q2 figures. Anja, over to you.

Thank you, Alexander, and hello, everyone. I'm glad to have the opportunity to guide you through our H1 financials. I will start with our group's growth metrics, followed by a closer look at the performance across our segments. In the first half of 2025, RENK generated an outstanding order intake of EUR 921 million compared to EUR 627 million in the prior year period. This significant increase of 46.8% was due to our military product portfolio, especially driven by our VMS segment, as mentioned by Alexander. To put this into the perspective, we managed to acquire EUR 373 million in Q2, even after EUR 549 million in Q1 '25 and EUR 584 million in Q4 2024. Group revenue stands at EUR 620 million at the end of the first half year, also representing a substantial uplift of 21.5% or EUR 109 million compared to last year's period. VMS alone contributed EUR 94 million to this accomplishment. I would also like to point out our Q2 performance with an even higher 27.5% increase to a quarter-to-quarter basis. As already highlighted by Alexander, we added EUR 294 million to our fixed order backlog over the past 6 months, representing a 14% increase, continuously demonstrating our growth curve. Let me continue with a look at our profitability and net debt ratio. On a year-on-year basis, RENK increased its adjusted gross profit by EUR 33 million to EUR 171 million. This represents a material growth rate of 24% with a notable outpace our revenue increase. So despite higher volumes and the associated economies of scale, our operational efficiency gains laid the foundation for this development, especially due to VMS and our plants in Muskegon and Augsburg. Profitability was supported by M&I and Slide Bearings, both of which delivered robust contribution to the high-margin business activity. H1 confirmed our anticipated full year performance as demonstrated by our 29.4% increase in adjusted EBIT totaling at EUR 89 million compared to EUR 67 million in the same period last year. Despite the ongoing expansion of our business, we maintained disciplined cost management. With outstanding adjusted EBIT development a strong adjusted EBIT margin of 14.4% compared to 13.5% in the same 6-month period last year. As already stated in relation to our Q1 2025, we see a net debt increase of 1.8x of LTM adjusted EBITDA, also at the end of H1 compared to 1.7x at the end of fiscal year 2024. Our cash position at the reporting date continues to be the main contributor which is impacted by cut-off effects. We consider this development aligned with our current operational activity. Now let's have a more detailed look at our segments. As already indicated, VMS continues to provide excellent results. Order intake in H1 amounts to EUR 680 million after EUR 410 million in the comparison period. This reconciles to an outstanding 65.9% increase year-over-year. Q4 2024 and Q1 2025 were already outstanding, so not surprisingly, Q2 could not keep the same pace. Nevertheless, it still added higher volumes to our fixed order backlog related to our military product portfolio. Our segment's book-to-bill ratio has risen and amounts to 1.7x compared to 1.4x in the prior half year. VMS revenue numbers prove our assertion that VMS was the key driver of the group's revenue growth, both on a year-to-date and quarterly basis. Volume output in Muskegon and Augsburg developed out in line with expectations and was facilitated by strong and efficient operational execution. VMS also strongly delivered on profitability. Adjusted EBIT and adjusted EBIT margin show a steep uplift even outpacing revenue growth and enhanced by our strict cost management. Adjusted EBIT landed at EUR 66 million compared to EUR 45 million in H1 2024. Adjusted EBIT margin for the H1 period came in at 17% after 15.6% in the prior year. On a quarterly basis, Q2's margin was even higher at 17.5% also compared to Q2 '24 with a 16.4%. Let's move on to M&I. M&I order intake during the first half of the year amounted to EUR 182 million after EUR 156 million in the comparison period. From a group perspective, M&I's Marine Solutions represents a stable and reliable contributor to fixed order backlog. The segment's book-to-bill ratio at the end of H1 remains stable at around 1x, with a slightly improved growth momentum in the current year's period. M&I revenue in the first half year has grown notably by 8.7%, resulting in EUR 175 million after EUR 161 million in the prior period. The incline in industry-related applications was outpaced by Marine business, which continues to show a solid growth momentum. Q2 performance heavily added to this performance compared to the Q1 dip seen earlier this year. The shift towards Marine business also accounts for profitability increases reflected by higher adjusted EBIT and adjusted EBIT margin on a year-on-year basis and even beyond our H1 revenue growth costs. Our quarterly adjusted EBIT margin shows a notable dip. This was primarily driven by our single customer relationship, resulting in a onetime expansion of the product offering due to third-time components, which carry lower trading margin. Last, but not least, let's have a look at our third segment Slide Bearings. Consistent with past performance, our smallest segment, continued to deliver the highest profitability. Despite minor fluctuation, also growth indicators are holding steady. Demand for e- and marine-bearings continues to be on a high level. On a relative basis, however, we see a moderate decrease in order intake of minus 5.5%, which stands at EUR 66 million at the end of H1 '25 compared to EUR 70 million in the prior year. The segment's book-to-bill ratio remains stable at around 1.4x, so still above 1. Revenue in the first 6 months developed in a stable manner and came in at EUR 62 million after EUR 61 million in the prior year. As already mentioned, during Q1, Slide Bearings revenue trajectory is intact with a gradual but steady improvement for the 6-month period. As indicated at the beginning, profitability remains high and above this level both on a year-to-date and quarterly basis. However, in H1 '25, we have seen a moderate dip in adjusted EBIT to EUR 10.4 million after EUR 11 million in the comparison period, in line with a decline in adjusted EBIT margin. We view this as a short-term slowdown due to a slightly weaker product mix than the first half of the year due to economy environment. After this close look at our segments, I want to continue with our adjustments. Operating profit came in at EUR 59 million, after EUR 35 million, thanks to our volume revenue growth I've already mentioned earlier. When adjusted for PPA effect, we land at EUR 81 million compared to EUR 56 million in half year 2024. Adjustments mainly relate to global process and system improvements, M&A-related activities and other minor components, mostly due to consultancy fees. The overall level of adjusted non-PPA items is significantly lower compared to prior year. Let me continue with a detailed look at our net working capital development. Our net working capital at the end of the second quarter stood at EUR 340 million compared to EUR 284 million at the end of December '24. After adjusting for cutoff date related effects in trade receivables, payables and prepayments, the remaining increase in net working capital is primarily attributable to higher inventory levels. The latter primarily relates to the VMS segment, reflecting work in progress as well as plant production requirements. As a result, net working capital as a percentage of LTM sales stands at 25.1% compared to 24.9% at the end of December '24. Given our current growth opportunities, we currently also need to focus on customer expectations and delivery requirements. The increase in net working capital has a direct impact on free cash flow, which we will now examine in more detail. When taking a look at this bridge, only a few major effects are left over that are noteworthy. As you are already familiar with the convincing development of our adjusted EBITDA and the drivers behind the increase in net working capital, it is important to highlight that the latter significantly impacted cash flow due to capital being temporarily tied up. Capital expenditures into property, plant and equipment amounted to EUR 11 million, representing 1.7% of revenue, remaining below our benchmark level of approximately 3%. I would like to highlight our measures to reduce our effective tax burden. Thanks to our control and profit transfer agreement between RENK Group AG and RENK GmbH, we could effectively make use of tax loss carryforward of RENK Group AG amounting to EUR 11.9 million for corporate income tax and EUR 11.6 million for trade tax purposes. In addition to that, we now can capitalize until 2027 our U.S. interest carryforwards in total EUR 39 million due to a debt-to-equity conversion related to our U.S. entity. We expect that our effective tax burden will benefit going forward from the aforementioned measures. Interest payments. In H1 2025 reflects a normalized level in line with our current financing structure. Taking all components into account, free cash flow was positive at EUR 11.5 million after a negative cash flow of minus EUR 7.5 million in the first half of 2024. Beyond free cash flow, I would like to highlight significantly cash outflow items in Q2 2025. Our investing cash flow was impacted by 2 major items. First, the purchase price payment for the acquisition of assets and liabilities of Cincinnati Gearing Systems amounting to EUR 23.9 million. Second, we acquired certain assets from a former supplier, Midwest Gear and Tool Inc., for a total considering of EUR 6.2 million. With regards to our financing cash flow, I would like to point out our dividend payment of EUR 42.7 million in June this year. This item came in earlier compared to prior year due to our annual general meeting at June 4, that is 3 weeks earlier than last year. At this point, let me thank you for your attention. It was a pleasure for me. And now I will hand back to Alexander.

Yes. Thank you, Anja. Ladies and gentlemen. Now a few words to our outlook. Starting with the guidance. Regarding our 2025 guidance, we do confirm both revenues of more than EUR 1.3 billion and an adjusted EBIT between EUR 210 million to EUR 235 million for 2025. Regarding our midterm targets, we are following in detailed discussions the future defense budget allocations and national procurement programs, especially for Germany, and will present our new 2030 midterm targets during our Capital Markets Day in November this year. Moving now to slide, I think #19, if I'm correct, where I want to provide a brief overview of some key order intake programs for the upcoming 12 months. I will not go through all of this, but I want to explain maybe some of them. I mean, very important for us, and we see this during the fourth quarter, the finalization of the THOR IV framework agreement, which certainly have over the entire lifetime, the largest order volume potential up to between $800 million up to almost $1 billion over approximately 3 years plus 1 or 2 optional years, but we need to be careful, the order intake contracts will come on a year-by-year basis. We talked about also in the fourth quarter about Patria service, the first order intake from Patria APC. We talk about an additional MBT batch for K2 Poland. We talk about IFV programs where we need to be honest, if you talk about Latvia. We already received, in the first week of July, the second batch, additional 42 IFVs from type AJAX. Of course, we are targeting various additional Navy programs. Also interesting, of course, is spare part development for VTA is obviously what we can see since February this year, an ongoing story. But we're also looking forward for a main battle tank test rig for the Netherlands Army and so on. Moving into the first half of 2026, we do expect first orders from Italy for the IFV and MBT programs and further orders based on K2-based support vehicles for Poland. And finally, in Germany, where we do also expect and to see the first major orders from main programs like the Level 2, Puma, Boxer and Panzerhaubitze 2000 during the first half year 2026. On the next slide, and I think this is a good occasion, I would like to explain the German procurement process as we understand it, from today's point of view, in a little bit more detail. It's a complex chart. I know this, but nevertheless, please give me a try. Starting from the top of the chart. Germany's defense procurement process for the mentioned tracked and wheeled platforms, but also for the overall procurement process for all other types of systems and domains across all capabilities will take place in 2 phases: first, during Phase 1, which is going up to 2029, 2030, Germany is focused on closing critical capability gaps or in different words, getting ready to fight. During Phase 2, which is running up to 2035 and beyond, the execution of the NATO requirements is the key driver, increasing in volume. We expect first customer contracts between the German government and primes to be signed by the end of this year so that the first contracting between price and RENK on the other side should then take place during the first half of 2026, leading to first order intake for RENK. Revenue conversion will, of course, depend on the specific contract terms. For example, contract start time, overall time period, et cetera, et cetera, and will most likely not start before 2027. From our today's estimate, we do see order intake and subsequent revenue potential between EUR 800 million up to EUR 1.8 billion for new platforms, plus EUR 400 million up to EUR 900 million for aftermarket maintenance and the circular reserves. Please keep in mind that these ranges must be further validated during the upcoming months and contracting period. Ladies and gentlemen, let's move forward to the next slide. The overview of key priorities for 2025 has not really changed compared to the first quarter. Strong focus on operational performance, conscious capital allocation, preparing the future and preparing for the upcoming programs from Germany and Europe. Nevertheless, please allow me to comment on 2 specific points. First, it's important to mention that we are, right now, during Q3, going live with our new production line concept here in Augsburg. The new line concept will provide us with greater flexibility, better capacity allocation and increased production efficiency. Second comment. The second half of 2025 will also play a major role in executing our technology and product strategy. With the new strategic cooperation with ARX Robotics and the start of the service qualification of our so-called next-gen main battle tank transmission, we are on the way to realize major milestones for our future business development and future market position. Regarding ARX Robotics, we signed in July an MOU for a strategic cooperation with focus on 3 main pillars: first, joint market exploration of ARX, today's UGV portfolio. For example, if you take the U.S. market by using RENK's production footprint and RENK's a market access, as just 1 example. Second, further digitalization of our RENK's today's product portfolio; and third, the development of new own concepts for multipurpose UGV platforms between 5 to 20 tonne. The joint teams between RENK and ARX have started working on these pillars, and we do expect first results during H2 2025. For your information, ARX will also take part at our Capital Markets Day in November 2025. On the heavy platform side, we are moving forward with our next-generation main battle tank transmission which features a fully digital drivetrain with drive-by-wire technology, which is based on a modular configuration concept and which defines with more than 1,400 kilowatt, the new RENK benchmark in performance. We will showcase this new MBT transmission next week on a dedicated media roundtable on August 20. Before, ladies and gentlemen, we move on to the Q&A session, let me briefly recap the key points of today's call. In the first half of 2025, we delivered a strong performance, improved on a record order backlog level of around EUR 6 billion, and we confirmed our guidance, a massive thanks to all RENK employees for this performance. Furthermore, we are in a great position to handle the expected increase in German and European defense budget over the coming years. Our well-invested asset base, our improving operational performance and a clear production strategy provides us capacity and flexibility to respond quickly to these opportunities. Finally, we have initiated major products and technology programs to secure our leading market position for the future. Finally, a small, but important comment on our financial calendar, as shown here, on the last slide. Please make a big, big and fat note for November 20, 2025, for our second Capital Markets Day, which will take place here in Augsburg on this date. Further information, more details will follow in due course over the summer months. However, we will provide updated information on topics such as sector strategy, update on the 2030 midterm targets and the relevant and required capacity ramp-up in production, strategy, technology, I think I teased a little bit the topic just before, M&A and more. Also, we are already looking forward to further engaging with you in many road shows and conferences in the second half of this year, as you can see on this slide. Thank you very much for your attention, and we are now looking forward to your questions.

[Operator Instructions] We already have a question. We start with Sebastian Growe from BNP Paribas Exane.

The first one is on the Defense business and the German potential. So you have raised the German potential by about EUR 300 million, EUR 400 million from the earlier provided range for the related upside potential in Germany. And as you pointed earlier to the importance of the number of heavy brigades with the occasion of the quarter 1 call. My question is, how has the number of brigades changed in that very, very assumption here and especially in the wake of Germany having published its 3.5% defense spending target in '29? And more specifically, especially also as there are 5-digit numbers making the rounds in the media for tactical vehicles going forward. Can you help us with the rough product mix that you expect here? I think you also depicted some of the products where you would see your transmissions going in. So you could start there.

Sebastian, thanks for this question. Starting with the product mix, I think what we considered here are the for RENK relevant key platforms, if you talk about Level 2-based main battle tanks, if you talk about Level 2-based fleet support vehicles, if you talk about Puma, the Panzerhaubitze 2000 and the Boxer. I think on the volume side, and this is always depending and for this reason, I depicted here these 2 phases. It depends if you consider just a demand what you need in order to comply to Phase 1, closing a gap or if you look on the total span of 10 years, including Phase 1 and Phase 2. And to be honest, I think this is the trigger in order to understand the numbers which are currently in the market and also to understand from our discussions with the customers, the planning, the procurement, et cetera, et cetera, to interpret. I mean, I think on the upper end of our potential, as we see it here, I mean, for the new vehicles and aftermarket MRO and circular reserve, on the other end, we have -- just to give you a little bit of flavor, we have included Boxer in the range of 3,500. We have in similar understanding on platforms like the Level 2 based where we are depending and here, we need further clarification during the next months on volumes between a higher 3-digit number up to a 4-digit number, if you talk about 1,000, for example. So this is the reason why we are also still having this range, if we look on the orange bubble for new vehicles. And it depends if we consider only 1 phase, if you consider 2 phases, et cetera. For the overall estimate, if you talk about order intake potential to make the conversion on revenues, it really needs more intelligence in order to understand how the contracts will be designed. For example, will we get or will the primes get contracts for the entire Phase 1 or Phase 2? Or will the contracting start only with Phase 1 and then after, I don't know, 2 or 3 years, start the contracting for Phase 2. This, of course, implies how the revenue conversion will take place. And for this reason, we are also working with a range. What is clear, we have a better visibility. And this is, I think, what you also can see if you compare to our Q2 numbers, where we had a range indicated between 1.2 -- EUR 1 billion and EUR 2 billion, starting with the lowest potential of EUR 400 million up to even higher. So we have a higher visibility but we still need to understand how the contracting will take place and how especially the contracting will consider Phase 1 and 2 or only Phase 1. Regarding the very famous, and I used it, number of heavy brigades, I think this has changed a little bit depending on the Phase 1 and Phase 2. From our understanding, during Phase 1, there will be no additional heavy brigade. What will be used is or what would be most likely will be done by the customer, again, according to our understanding, existing brigades will be filled up with a certain number of main battle tanks, Pumas, et cetera, et cetera. So the overall number of heavy brigades from our understanding will not change during the Phase 1, but the gaps will be closed and the heavy brigades will be expanded. This is different to what will take place during Phase 2, where indeed additional brigades will be built up and there are numbers 3, 5, 6, whatever, all this still needs to be validated in more detail. But I think it's important to understand that the old parameter, a multiplay and the number of heavy brigades is not materializing and not working, again, according to our understanding for Phase 1. This was a long answer, Sebastian. I don't know if I fully comply to your question.

Also, a long question, so I think I appreciate that color. And the other question I have, it's also referring then to the same slide and that is more in conjunction then with what you also put out as the aftermarket and the potential then around the circular reserve. So the question here is apparently you're pointing to a number EUR 400 million to EUR 900 million. If I'm not mistaken, then I think 40% is a pretty good proxy for the circular reserve as opposed to what you would find then with the original vehicle shipments. So I've applied that to the EUR 800 million to EUR 1,800 million range for new vehicles on that slide, then it seems there is no aftermarket potential baked in. And so question one, could you comment on my math? And what do you see really with regard to the additional aftermarket potential?

I think the aftermarket and MRO potential is more or less what we do assume on this 40% share. But I think one observation is correct if you talk about the circular reserves. There are different discussions in Germany and on the circular reserve, in fact, to be honest, there are 2 aspects. We could talk or the German customer is talking to help circular reserve on a vehicle basis, just in case you have a conflict, you have a fight and a certain number of platforms are destroyed, so you have a kind of circular reserve of vehicles to put them immediately in action. And of course, we are talking about a circular reserve for transmissions. In the assumption in this current level between EUR 400 million to EUR 900 million, I would consider that our assumptions so far regarding the circular reserves are more on the conservative side. But again, for this, we need to understand better in detail the upcoming months, how the customer really wants to -- or the end user really wants to apply a strategy for the circular reserve. So for this reason, yes, I think on the aftermarket and MRO, we are on this 40%. But the circular reserve is most likely on the conservative side.

Okay. Got you. And if I may really last question quickly on Europe. I think on the last quarterly call you put the total European potential at between EUR 1.5 billion up to EUR 2 billion. So apparently, with the update and upgrade you applied there for Germany, it's rather moving towards EUR 2 billion, EUR 2.5 billion on the simple math. So my question then is, how has your assessment really of the opportunity in Europe changed in the meantime? You mentioned Poland, for instance. So what might be really a refreshed target for total Europe, if you already have that available?

No, we do not already have this available because we need to take care, to be also honest, to make a clear separation and baseline between what we already see as projects which we already have in our acquisition road map even before February of 2025. And what is really coming on top of this new. If you take, for example, the Italian program, which is dominant or if you talk -- or prominent, if you talk about the Polish and Bundeswehr programs, but let's stay for a second on the Italian ones, there's a huge project -- I mean, as you know, about 1,000, 1,050 IFVs, the AICS. This is in our terminology, it's not a new project, which is triggered since February 2025 because on this project, we are working almost 1 year. So it's already in our normal project pipeline. So for this reason, for Germany, it's very simple to make a clear cut what we have in our order backlog in our soft order backlog and what everything is coming on top. On the European programs, we need, again, as I'm always saying, more color from the customer -- from the end user side about their procurement and capability strategy and then we need really to separate in order to prevent double counting.

Yes. That makes sense. So looking forward then to the CMD and we'll probably follow up with more questions later.

All right.

Then next question comes from David Perry from JPMorgan.

So I've got 3 questions, please. The first one, and I hope -- I really hope this isn't a silly question. Just on the Slide 21, just so I understand it a little better what is being shown in the orange bubbles. Is this a cumulative sales number, is it an annual sales number, is it an increment to a base plan? So can you just clarify exactly what the bubbles represent, please?

We are really talking about additional volumes and cumulated volumes. So in our consideration, we do assume we take Phase 1, and we do take Phase 2. So for this reason, the numbers you see here is the range for the total cumulated figures, and we try to make it really clear because it's important to separate between new vehicles and aftermarket MRO and circular reserve. Why? The revenues coming from new vehicles, they have a certain time frame. If the first orders are coming in half year 1, 2026, we most likely start delivering in 2027. And after a certain time until 2035 or even before the total new number of vehicles wherever this new number of vehicles will be in the very end, will be delivered. So this is something kind of revenues, which if we know the exact numbers, if we have them under contract, we can really chop on a year-on-year basis and to plan the revenue conversion. The aftermarket MRO, especially the aftermarket MRO potential is for sure not stopping at 2035, but it's running on a much longer time line. And this is, I think, it's important to understand to make this difference also by doing analysis and scenarios, how total order intake potential for new vehicles and aftermarkets, MRO, et cetera, et cetera, are converted on a year-by-year basis, especially when we talk about, for example, 2030 time frame. This is exactly the intelligence, what we still need to do to get a higher -- really a higher final visibility of the real number. There are many numbers. We are doing our research, if you want to call it, you have many numbers in the media. And then to draw it as exact possible on an annual slide in order to understand where we will be in 2030. Long answer. I hope it worked.

Yes. No, okay. That's helpful. So it's added on to a base plan that you already have.

Yes. Absolutely.

Cool. So I'll ask second and third questions together, if that's okay. So the second one was you've said you'll give new guidance in on 2030 November. Just to be clear, is there any risk it's lower than the old guidance, the EUR 2.8 billion? Are we assuming it's upside that you're thinking about? That's the second one. And the third one, which I know is going to be a bit sensitive, maybe difficult for you to answer, but can you give us any more information on the story in the press last week about the German export ban to Israel and what it might mean for your work there?

Very good questions. We do not see -- I mean, again, we are doing our math and we have to do our homework. So I give you my gut feeling if you talk about the midterm targets. I think what we will see is a much clearer picture about what we will do and can do and realize on an organic level and that any kind of M&A will come on top of this organic level. And if I just refer back on our Q2 presentation, we had indicated a range or ambitions between EUR 2.5 billion up to EUR 3 billion, and we had a massive chunk of M&A as a red bar included. I think today, from my gut feeling, we are in this range even at the higher range, just from an organic perspective. And then we need to see what could be on top of this. So I do not see that we are going a step backward, to answer this clearly. If you talk about Israel, this is indeed a political question. First of all, I will answer very formal. I mean, RENK is a German -- is an international company, but based in Germany, and we have a headquarter in Germany. So we will fully comply with the German law and regulation, full stop. If there's an export stop, we cannot export, even if we would like it, but we cannot, full stop. As a kind of side note, it's also fair to say that the official embargo is so far not approved or released by the German security council. It's a decision from the Chancellor Merz. But again, so far, it's a kind of export stop. You can also imagine that RENK is in contact with the key authorities from both sides, from the German -- or with the German government and political parties, of course, but also with the Israelian parties and government and ambassadors because for them, to be also honest, it really is a pain. They need propulsion, they need drive systems. So we try to understand what the next process is and to see what is the next roadmap. For RENK, we have, I think this is also no secret, we -- I communicated this to German stakeholders, we started to develop a plan B because you need to understand, we have long-term delivery contracts. We have hundreds of transmissions under contract. We have a responsibility to make this clear towards Israel. So if we cannot produce them in Germany, we will relocate these volumes to a different plant, for example, to U.S. This might take maybe 8 to 10 months. But if there's no move forward, we will do it because we have this business. So -- and I think this is pretty much what I can say at this point, please expect my -- or respect my apologies that I cannot disclose more on the contract.

Next is Christophe Menard from Deutsche Bank.

Yes. On the last question from David, can you actually state or give us what percentage of group sales are made with Israel? I can't really figure it out from your geographical breakdown of sales. The other question I had where, one is on the -- you mentioned when you talked about your soft order backlog that you already included some of the German orders. A rough calculation comparing Q1 to Q2 presentation suggests EUR 300 million. Is it what you included in terms of German orders? And the last question is on the Slide 19 on the order intake in H2. You added a few new features to that slide. Does it suggest that your order outlook for H2 is actually improved versus your Q1 expectation? Yes, those were my questions.

So I will do my very best also to answer these questions. Starting with Israel, I think it's fair to say that somewhere between 2% or 3% is our share in our current product and business portfolio, yes? So I would say, between 2% and 3%, yes? The second question, I mean, regarding the value or the share, what we included as first, as I said, conservative approach, what we included in our soft order backlog, I stated conservative. This is really at the low end and is not related to the numbers I have on this slide, Slide 21, I guess, because we started first discussions and even that we have even today a higher visibility compared to our Q1 presentation. We are -- I mean, as you can imagine, still conservative in what we consider as a soft order backlog. It's clear that if you look on these programs, RENK is positioned. But from today's point of view, because there are still months to go, I mean, there needs to be the first clear contracts to our clients. And then we -- for this reason, we were very conservative in what we included in our soft order backlog. And I think I understood the third question, Christophe, about our H2 order intake programs. I mean we have to be fair. We all know that order intake can vary in the magnitude from quarter-to-quarter because if you take the example, during the end of Q4, just before Christmas, we got a little bit by surprise, 3 main programs in Germany for K2 Poland, et cetera, et cetera, which from our planning and assumptions we had allocated in 2025. So roundabout EUR 300 million just moved into the Q4 2024. And if we take the last 3 quarters, adding Q4 2024, Q1 2025 and Q2 2025, we had, and to be fair, exceptional run of almost EUR 1.5 billion of order intake. We see that we will have relevant order intake programs, especially in the fourth quarter. This does not mean that we have no order intake in the third quarter, of course. But we had, during the last 2, 3 quarters, an exceptional order intake. Overall, it's also clear with the discussion what we had before, if you just talk about the German programs, the order intake level will, of course, over the time, grow. But this is -- when we look currently on our map, we see an agglomeration of what we consider some of the relevant order intake programs during Q4 2025. So my question, Christophe, did I answer your questions or did I totally fail?