In view of the global polycrisis that leads to a higher demand for complex defence and security solutions, the company anticipates an increase in defence budgets in most markets. Furthermore, the company expects continued strong growth in demand for defence and security solutions in Europe and internationally, with 76% of order potential lying outside Germany.
Thomas Müller, CEO of the HENSOLDT Group, says: “With increasing geopolitical tensions around the world, we are facing a time of great uncertainty and an enormous need for defence and security technologies. Over the last decade, HENSOLDT has evolved into a strategically well-positioned provider of electronic defence and security solutions, with strong roots in Germany but an increasingly global reach. With a strong order backlog, excellent revenue visibility and a dedicated team, HENSOLDT is in excellent shape for future growth and ready for the next generation of leadership with the beginning of next year. The conversion of our strong order backlog into profitable business will then be overseen by my successor Oliver Dörre, who joins HENSOLDT in January before taking over in April 2024. As ONE HENSOLDT, one team, we have completed a significant generational change in management, starting with Celia Pelaz in 2019 and continuing with Christian Ladurner and Lars Immisch in 2022. The handover of my responsibilities to my successor Oliver Dörre marks the keystone in this transition and the beginning of a new chapter in the HENSOLDT growth story. With the new leadership team, HENSOLDT will grow even more in the future.”
Christian Ladurner, CFO of the HENSOLDT Group, says: “Our solid order backlog and strong focus on project execution converting it into profitable business provide exceptional visibility for our short and medium-term outlook. In addition, our strategic positioning in the fast-changing defence environment and our ability to grow profitably, supported by a strong cash generation, underpin both rewarding dividends and our ability to pursue M&A for long-term sustainable growth. We are therefore confident of achieving our 2023 full-year guidance and medium-term targets, demonstrating our robust growth and financial strength.”
The book-to-bill ratio for 2023 has been confirmed at 1.1-1.2x. In the medium term, HENSOLDT expects order intake to grow significantly faster than revenue. With regard to the adjusted free cash flow before interest and taxes, the average cash conversion to adjusted EBITDA has been confirmed to be at around 70% for 2023 and is expected to be around 70-80% in the medium term. [To be added: net leverage]. In addition, HENSOLDT continues to aim for a dividend payout ratio of 30-40% of adjusted net income both for the 2023 financial year and in the medium term.
Strong order backlog and high revenue visibility
In the first nine months of the 2023 financial year, HENSOLDT’s order backlog reached EUR 5.5 billion, three times the projected revenue for 2023, ensuring exceptional revenue visibility. Around 85% of HENSOLDT’s 2024 revenue guidance is already secured by the existing order backlog, which includes confirmed orders as well as short cycle and aftermarket business. For 2025, around 65% of revenue is pre-secured even without accounting for new orders, assuming a 10% revenue increase. In 2026, HENSOLDT has already covered approximately 50% of revenue, based on projected growth. This is also due to the fact that flagship programs such as Eurofighter MK1 and PEGASUS are progressing as expected.
Project execution efficiency ensures high profitability
By ramping up operations and continuing to innovate defence and security solutions that meet rapidly changing customer needs, HENSOLDT has been able to maintain an adjusted EBITDA margin before pass-through revenues of 19%, while generating high levels of cash. In addition, as part of the HENSOLDT GO! program, the company has identified levers to maintain its margins at benchmark levels. For example, HENSOLDT has industrialised the production processes for the TRML 4D radars and thus achieved economies of scale, which should also be noticeable in the Optronics segment in the near future.
Investments for organic and inorganic growth
Since 2019, HENSOLDT has increased its order backlog by two and a half times, creating a very solid foundation for sustainable and consistent profitable growth over several decades. Growing defence budgets in most markets and the increasing demand for defence and security electronics continue to drive the company’s pipeline. For these reasons, the company plans to grow both organically and inorganically. M&A has always been an important part of HENSOLDT’s growth strategy. Investment opportunities arise, for example, in the areas of artificial intelligence and analytics as well as in the services and integration business.
Continued high demand for complex defence and security solutions worldwide
Global defence spending is expected to increase by around 4-5% per year in the medium term. This is one of many reasons why HENSOLDT, while remaining firmly rooted in Germany, is increasingly seeking international growth to meet customer needs around the world. In recent geopolitical conflicts, from conventional warfare to modern multidisciplinary operations, the importance of sensors and electronics has never been greater. Not only is HENSOLDT operating in a market already worth EUR 25 billion, but with global growth expectations of around 9% per annum. This points to a robust growth path that is specifically aligned with HENSOLDT’s capabilities. In the next couple of years, the structure of the identified pipeline for new orders will change and become more weighted to European and international opportunities, including US platforms, showing HENSOLDT´s ability to capture more and more business outside of the traditional home markets.
