Montana Aerospace (SIX Swiss: AERO) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the Montana Aerospace H1 twenty twenty six Conference. I'm Moritz, your Chorus Call operator. I would like to remind you that all participants will be in a listen only mode and the conference is being recorded. The presentation will be followed by a question and answer session. At this time, it's my pleasure to hand over to Patrick Maurer. Please go ahead, sir. Welcome everyone to the half year one twenty twenty six earnings call of Montana Aerospace.

0:52 Quarter two and therefore the first half of the 2026 represent another chapter in Montana Aerospace strong track record revenue and results growth. As said, my name is Patrick Mahover, CFO of Montana Aerospace. And today, I'm joined by Vicky Valrad, our CHRO, and as always, Mark Wesserby in investor relations. In today's call, we will take you through the key developments of the first six 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.

1:43 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 this 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.

2:35 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 of 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 critical to be close to the customers, but also to ensure we are we are cost wise competitive in the long run and also in the short run.

3:44 And, yeah, it's it's a 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 long term know how and industrial experience, it 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 as we have just discussed.

4:52 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 €7,000,000,000 by now, and the best positioned to benefit from the growth and the very positive momentum that we currently see in the industry. And the 7,000,000,000 come from just 3,900,000,000 in 2021 and underlie the progress we have made in expanding our position across all the different aerospace platforms and winning winning additional market share.

5:38 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 aircrafts, such as the a 400 m. The way it's calculated is rather conservative. So we basically take our contracted chipset value per plane, multiply that by the duration of the contracts we have with our customers. So typically, somewhere between five to seven, 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.

6:29 So we are basing our plan on a prudent view of we what we can 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 one, we can see that we have a nice sales growth of 12%. And this despite the fact that FX rate in half year one twenty five was around one seventeen for the US dollar euro exchange rate. And now in this year was around 1.09. So that took a bit the way of the dynamic, but nonetheless nonetheless, the performance is is very positive.

7:17 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 87,100,000 in twenty twenty six half year one, which also corresponds to a growth of 12.2%, and the EBITDA margin was at 16.8%. And here, I I would like to highlight that there were no adjustments made in the EBITDA 2026. So it's say, a pure EBITDA without anything to consider or without anything to adjust for.

8:08 And what I also like to highlight is that the Aerostructure segment again performed very strongly. So the growth there, again, without taking a fix into account was over 13% and EBITDA growth in the Aerostructure 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 the that the operating leverage that we have allows us, allows the results basically to flow through to EBIT where we see a 2022% increase and to the final result of the period, which is at around almost €30,000,000, heavily increased compared to the last year. Because in addition to the strong operative performance, we have also not seen a negative impact from the non cash FX impacts that we saw last year because the US dollar didn't fall or didn't weaken further compared to December 2025.

9:27 And as a consequence, the earnings per share have heavily increased to €0.47 from just €0.1 in half year one twenty twenty five. The key takeaways 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 Aerostructure segment, I like to highlight the path where we came from. So only three years ago, we were standing at around 10%, a bit above 10% EBITDA margin despite a pretty strong US dollar in that time frame to now, just three years later, where we are very well on track towards our 20% EBITDA margin in the Aerostructure segment.

10:27 So that means over a time frame of three years, we were able to almost double the margin profile in our Aerostructure segment. 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 under utilization 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.

11:16 Let us now switch and address our cash flow, working capital, and balance sheet progress. In half year one, Montana Aerospace generated a free cash flow of 67,000,000, including, as we know, the first proceeds from the energy divestment. And if we go through step by step to the different contributors, we see a cash flow from operating activities of 26,000,000, which is behind half year one for two main reasons. One is an inventory increase from the prebuying and the higher pricing of metal pass throughs, as you know, driven by the by the Middle East situation and crisis where we started early on to secure our supply chain to not see any impacts and any product production limitations for the rest of the full year.

12:13 So that's clearly an an impact on the inventory that we saw 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 fact the the risk by 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 41,000,000 roughly is positive because of the proceeds from the energy segment.

13:00 And, of course, we will come to a bit more details on 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, yeah, 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 a 0.8 to 0.4 leverage. But also compared to q one, we see a certain slightly better better numbers than in q one twenty twenty six.

13:53 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 operative free cash flow and on top then the proceeds from the energy segment that we already saw and that we still expect in the 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 was set the inventory buildup to have a resilient supply chain for the rest of the year and starting 2027 and the certain impact from factoring that we need to progressively improve through better terms and conditions with customers and suppliers.

14:43 K. Let me then turn to say a bit more on two 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, yeah, in our books with, as typical for the aerostructure industry, long term production visibility, long term contracts, and clearly, a plan ability and partnership that we are proud of.

15:29 But in addition to that, we are proud and and very positive that there's further growth potential with other two other or many others, but in in more concrete discussions with two other meeting 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 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.

16:19 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 three years ago is now one of our key growth drivers, as said, going towards a 100,000,000 in sales per annum and with very strong momentum and perspective in the years to come. As you all know from from different IPOs in that field and, yeah, and and all the things that are happening there.

17:12 What I 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 in that industry. Yeah. 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 a capital allocation. So one step of that is seeing through our business wins.

18:02 Three, seeing the the capacity requirements in aerospace commercial industry, but also these two additional growth platforms and the the the impact and importance of being in different regions. We have decided in addition to the maintenance CapEx or standard CapEx of around 50,000,000 that we have discussed with you in the past to add an additional 30 to 40,000,000 per annum in the next two years at least for accretive margin projects and growth CapEx. So that is and that and that's not related to to only a specific area or one side. It's related to all geographies and markets, And it's both, as said, market wins where we partially just additional machinery or strategic projects where we continue our integration and and further strengthen our independence from the rest of the supply chain.

19:07 And, obviously, that in the long term will increase to also bring our platform to the even next level to where we are now. K. I think we can then with that, continue. Here, we see the 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 one customers.

19:53 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 and 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 to have brownfield or additional investments to just win packages and market share instead of purchasing one of this 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.

20:46 When we switch to our guidance, I believe the strong half year 01/2026 is the best the best example and the best concrete support for 2026 and 2027 guidance. So we remain very confident in these figures and believe in clearly sales number above the €1,000,000,000 and adjusted EBITDA, which would be probably the same as the reported EBITDA as in half year one of above 185,000,000. And then the aerostructures or errors yeah. Aerostructures segment margin moving to the 19% range depending a bit on on on the cost side and what we pass on there, but it's just a flow through, basically.

21:39 Cash conversion excluding or before gross CapEx that I just mentioned and before m and 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. If you are connected via phone, please press star followed by one on your telephone keypad.

22:38 You will hear tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press the lower your hand button from the webinar or press star and two on your telephone. And the first question comes from George MacWhither from Berenberg. Please go ahead. Good afternoon. Thank you very much for the questions. Firstly, on the cash proceeds from the energy divestments. 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?

23:29 And the second question is on the decision to raise the growth CapEx guidance for the next two 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 Thank you. 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 CHF 50,000,000 to come through. That is well in line with recent discussions with, yep, with the board and CFO of of Asta Energy.

24:20 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, the, yeah, proceeds of the energy segment, but also from a perspective of our strategic investments. Yeah. The question is how much we can bring into the, let's say, into into the spend already in the second half of the year. On, yeah, on the gross CapEx guidance to continue with that. So it's it's, I would say, a combination of programs that enhance our integration and margin profile, which are not always generating extra sales, but, yeah, improve the margin profile and strategically our independence from the rest of the supply chain.

25:12 And that's in different regions and sites. But, yeah, that that's that's, I would say, the guidance that 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 the revenue will largely come in '27 onboard or start to come onboard and being industrialized in 2027. Some of the machines obviously have lead times of close to a year. So, yeah, that's that's a bit the timeline of expectations of when additional sales from these investments will hit our P and L. Thank you very much.

25:59 Thank you, George. Then the next question comes from Sullivan Josh from Jones Trading. Please go ahead. Mr. Sullivan, you need to unmute your line. Now you can now we can hear you. Hey, good morning. Can you hear me now? Yes. We can hear you. Just as far as the the CEO search, you know, at this point, you know, you're leaning internal versus external candidate candidates and any color you can provide on timelines as well. Yeah. I will maybe leave that to our group's CHRO who who joins me today. Yes. Well, I would like to reiterate what we said last time.

26:45 That is that after the resignation of the CEO 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 comprising 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 expects to provide a further update to the third quarter of this year.

27:32 Okay. 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? Yeah. I mean, for from a guidance perspective, as said, I mean, we remain conservative, but are very confident that we at least achieved the guidance. I think half year one comparatively looks quite positive and strong on on the track to get there as you can see from, yeah, pure numbers on a run rate basis. Typically, q three and q four are strong, and I would say from the current perspective, I still expect it. But they are, especially still with the macroeconomic environment and situation, there are some things that that, let's say, are not clear enough yet for for clear guidance raise, but we stay very confident with the 26 figures. And '20 seven, of course, we will review once we know more about how the defense possibilities develop and also the space platform.

28:41 And, of course, the additional wins that we saw or that we discussed with the extra CapEx. So so we will find and come to consensus in the quarter three, beginning quarter four as a group, and then at some point can give there some update as well. And then and then so I guess just a clarification question on the increased growth CapEx plans. Are those is the upside related to that contemplated in the guidance at this point? No. They are not largely not encompassed. So, of course, we have certain new business wins inside our guidance, which are typically quite conservative. So so those market share wins that we had or have go above that. But I said from a from a sales and EBITDA perspective or result perspective, they will largely come on board only in '27.

29:32 Great. Thank you for time. Part of the current guidance. Thank you for the time. Thanks, Josh. Then the next question comes from Aymeric Poulain from Kepler Cheuvreux. Please go ahead. Yes. Thank you very much for taking my question. I've got two, please. The first one is, again, on the conservative, I think that you were guidance reiteration, especially for 27%, 10% growth when most of your customers are targeting much higher ramp up rate. You also highlighted the positive contribution of space, which is much bigger than what you anticipated originally. You have higher pricing of aluminum, you have better dollar.

30:18 So why aren't you in a position to raise this guidance? Is it because of your own capacity restriction, which would explain the CapEx increase? Or is it because you are taking a very conservative assumption on the production rate of the two main customers of yours? That would be the first question. And second question is on factoring. You said you reduced the factoring in this first half. What is the current level of balance sheet factoring debt at the moment? And when you look at the free cash flow guidance for the year, do you anticipate a factoring to grow and contribute to that free cash flow? Or should we assume it's flat from year on? Thank you. Yes. Let's thank you, Henrik, for the questions.

31:06 Let's start with the guidance one. Yeah. So first of all, indeed, we are more conservative versus our customers on their growth expectations simply looking backwards at the last years. Yeah. Where where we where we have, I think, a good reasoning to to be on the conservative end there. Space and defense for sure provide key opportunities, but they're not not all of them are assigned yet. So that's for us still open to be seen how much that translates already next year into the sales and and result perspective. And from that reason, let's say, we stay conservative for the moment and do not reiterate the guidance do not change it. Sorry. But rather reiterate it and, yeah, give a positive outlook on it and and believe that it is probably on the lower end for the moment, but not yet there to raise it.

32:04 On the factoring question, yeah, clearly lower factoring at the moment compared to last year or also end of the yeah. Last year, or end of the last year 2025. There is still some factoring in our books for the simple reason of flexibility and, yeah, very strong very strong financial ability of some of the customers as as you may know. So they provide also cheap and flexible financing, would say. But, yeah, lower than in the past, and I believe it will also despite the the higher the higher activity and higher sales, it will stay on a lower level compared to the past. K. Thank you.

32:52 As maybe to amend as as because we do not have to factor yeah. One of the customers for financial reasons or financial instability, which was quite expensive. So so that is clearly gone and also helps the financial result as you see, but also it's not necessary from a from a risk mitigation perspective. Thanks. So as a reminder, anyone who wishes to ask a question may click the q and a button on the left side of the screen and then either click for the voice or text option. We do have one question by text coming from Janik Zulig from AWP.

33:42 You mentioned a potential share buyback program. What would you need what would need to happen for the board to actually launch one? And what size could such a program as? Yes. Thank you for the question, Janik. Indeed, I maybe didn't highlight this enough in the capital allocation slide. So apart from the strategic strategic growth investments and the creative margin investments, together with the board, we have agreed to the share buyback or delivering share cash and and value to our shareholders remains critical component of Montana Aerospace or is a critical component that we want to see in the future. So that could take the form of a share buyback or dividend or even both.

34:29 And what needs to happen, I mean, basically, for the moment and for the past, we are somehow limited by the loan requirements, but I think the strong financial performance will give us much more room also on bringing such return to shareholders. And therefore, yeah, I I believe we are not far away from from getting to this stage of Montana Aerospace. There are currently no more questions at this time. So I would like to turn the conference back over to Patrick Maher for any closing remarks. Yeah. Let me close of course, feel free to still add questions along the way. But otherwise, let me close with the main takeaways from today's presentation.

35:18 So first and foremost, Montana Aerospace continued the strong operational track record and delivered a very positive and strong first half of twenty twenty six. Second, Aerostructure as a segment continues to be the central value driver of the group. The segment has increased the sales to €485,000,000 and EBITDA of almost 89,000,000 and an EBITDA margin that expanded to 18.3%. Third, we significantly strengthened the financial profile of the group with positive net cash position still expected at the end of twenty twenty six and as communicated, and the declining financial leverage, which gives us the opportunity for the capital allocation measures we have discussed.

36:07 Fourth, the aerospace strategy is more and more clear and, yeah, more and more clear and understandable. A commercial aerospace remains our core, while the ancient defense and space sectors provide very very attractive additional growth opportunities to Montana Aerospace. And it's not, let's say, a fantasy. We are positioned in these segments or in these areas and we'll further grow there. And fifth, for that reason, our outlook remains very strong and robust. We reiterate our 2026 and 2027 guidance and see clear path to stronger utilization, stronger margins, and improved cash generation.

36:53 In summary, Montana Aerospace combines long term visibility, a differentiated industrial and integrated platform that others don't have, a further improving margin profile and cash generation profile and meaningful value creation opportunities for all of you as our shareholders. Thank you very much. And if there are no further questions, I suggest we close the call. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.