Renk Group Ag · XETR:R3NK
Renk — Investor Day (September 2024)
74 slides from Renk's investor day presentation, Sep 10, 2024
Slide 1: Capital Markets Day 2024
MUNICH Capital Markets Day 2024 September 10, 2024
Slide 2: Disclaimer
Disclaimer This presentation has been prepared for information and background purposes only and should not be treated as investment advice or recommendation. It does not constitute or form part of, and should not be construed as, an offer of, a solicitation of an offer to buy, or an invitation to su
Slide 3: Agenda
Agenda 08:00 Arrival 11:15 Q&A Session Executive board 08:30 Strategy Susanne Wiegand 12:00 Lunch break CEO, RENK Group AG 09:15 Financials Christian Schulz 12:45 Guest speech LTG Ben Hodges CFO, RENK Group AG Former 3-star commanding General US Army Europe Anja Mänz-Siebje Designated CFO, RENK Grou
Slide 4: Content
Content Strategy Susanne Wiegand Page 6 Chief Executive Officer, RENK Group AG Financials Christian Schulz Page 25 Chief Financial Officer, RENK Group AG Anja Mänz-Siebje Designated Chief Financial Officer, RENK Group AG Operations Dr. Alexander Sagel Page 41 Chief Operating Officer, RENK Group AG P
Slide 5: Susanne Wiegand
Susanne Wiegand Chief Executive Officer RENK Group AG 5
Slide 6: Becoming the global #1 in mission-critical drive technologies
Defense super cycle Energy transition Empowering security Becoming the global #1 in all mission-critical drive technologies for defense and energy transition Enabling a sustainable future 6 RENK Group / Capital Markets Day 2024, Munich
Slide 7: With checking BK VG
Withchecking BK VG 7
Slide 8: RENK as #1 provider of mission-critical drive systems
In light of recent events, RENK recognizes its obligation as the #1 provider of mission-critical drive systems 1 1 Vehicle Transmissions Vehicle Suspensions Final drives *not exhaustive Test Systems Engines Clutches Country flag re- presents user nations Broad range of user 1 nations Currently in us
Slide 9: NATO
Mantak NATO Garden Reach Shipbuilders Engineers - Wikipedia 9 RENK Group / Capital Markets Day 2024, Munich
Slide 10: Building foundational layers to drive shareholder value
… while continuing to build up foundational layers to drive shareholder value High-growth Focused on high growth addressable defense Addressable market markets markets globally ~ 13% CAGR 2022-271 Global Innovation and technology-led global leadership Leader1 for mission- leadership positions in hig
Slide 11: Potential to nearly double revenue to €2bn
RENK has potential to nearly double its revenue to reach €2bn organically in medium-term with further growth through strategic M&A Revenue development (in €bn) Support increased operational load from training and combat activities Conduct service push tailored Grow established RENK core to regional
Slide 12: Geopolitical tensions driving higher defense spending
I-III Geopolitical tensions are driving the need for higher defense spending The past years witnessed a growing threat environment A Invasion of Ukraine after a period of cautious relations between NATO and A Russia C B B Attacks on Israel and the Houthi Red Sea crisis with first direct escalation b
Slide 13: Defense budgets grow with cumulated increase of >€500bn
I-III As a result, defense budgets grow significantly across geographies with a cumulated increase of >€500bn Europe1, in €bn US and Canada, in €bn Accessible RoW2, in €bn + €104bn + €239bn + €227bn growth from 2021-27 growth from 2021-27 growth from 2021-27 945 732 429 835 350 706 576 325 505 2021
Slide 14: Land defense regaining importance across key regions
I Land defense will continue to regain importance across all key regions … Land market size, 2021-27 in €bn Key takeaways Total land defense market1 Addressable market2 Ukraine invasion driving aging fleet replacement in Europe and backfilling of donated vehicles in +9% p.a. +14% p.a. North America
Slide 15: Naval applications experiencing strong growth in APAC
II … with Naval applications especially in the APAC region experiencing strong growth as well Naval market size, 2021-27 in €bn Key takeaways Total land defense market1 Addressable market2 Renewed importance of maritime domain driving both large surface and subsurface combatants +5% p.a. +9% p.a. RE
Slide 16: Market growth in NATO Europe is structural
I-III The market growth in NATO Europe is not temporary – it is structural and for the long-term Spending gap since cold war Gap to 2% Gap to Cold war equivalent (3.7%) Total defense budget for NATO Europe, $bn Gap to 2% Gap to cold war (3.7%) 8,600 7,000 >$700bn >$7,700bn ~800 – 900 1,600 Thereof e
Slide 17: Low spend has impacted German armed forces equipment availability
I-II: Low spend has impacted equipment availability of the German armed forces long-term Equipment 1989/90 Equipment today3 Army1, (1 icon ≙ 100 tracked vehicles) 85% ~5,000 Tracked ~700 vehicles Heer Navy2, (1 icon ≙ 5 vessels) ~150 65% ~50 Marine vessels 1. Relevant types of IFV, MBT, and Howitzer
Slide 18: Strong foundation in core European and North American markets
I-II We have a strong foundation in core European and North American markets, which we leverage to drive growth in target markets globally European Powerhouses US & Canada Growth Target Markets Leopard 2 PzH2000 Boxer Fennek M88 M270 MLRS PIM K9 KTO Rosomak K2 Borsuk Namer Puma Leclerc Marder Ajax A
Slide 19: Well positioned in current MBT platform generation
I RENK is well positioned in the current MBT platform generation and set for the next while working on closing gaps Not exhaustive RENK is serving most large MBT platforms Repowering opportunities in legacy platforms Core M1 Abrams supplier Active units ▪ Localized production in US footprint to most
Slide 20: Increased equipment usage driving maintenance requirements
III Recent increase of equipment usage is driving up maintenance requirements compared to previous 20 years Significantly increased use in operations and exercises … … increasing service need Increased pace of exercises by NATO and individual countries More time in active operations with high wear a
Slide 21: Unrivalled installed base for aftermarket business
III We have an unrivalled and further growing installed base as a strong basis for our aftermarket business Installed base in 2022 vs. future Selected future programs and new platforms Land Leopard 2 Panther Puma ASCOD/Ajax AMPV Stryker >180k >200k K2/K3 MGCS Lynx XM30 Boxer LuWa Selected future pro
Slide 22: M&A options centered on defense
IV We are looking into M&A options centered on defense with an approach tailored to respective regional peculiarities North America Europe APAC Status- Largest & mature Already consolidated Established national quo market with small to on land side champions and large players emerging markets M&A Ac
Slide 23: From small noncore VW subsidiary to global defense company
We have developed from a small noncore subsidiary of VW Group to a strong, global defense company From To Small part of Volkswagen Group under MAN Strong, independent, public company and part ownership with no growth ambition of S-DAX with ambition to grow Relatively unknown member of German Recogni
Slide 24: Untouched potential to improve performance
Nevertheless, there is significant untouched potential for the next years to further improve our performance and realize our growth ambitions ▪ Enhance value creation focus in our financial steering mode Finance ▪ Implement structural measures for NWC optimization ▪ Bring RENK America to the next le
Slide 25: Christian Schulz, Anja Mänz-Siebje
Christian Schulz Anja Mänz-Siebje Chief Financial Officer Designated RENK Group AG Chief Financial Officer RENK Group AG 25
Slide 26: Stock has outperformed the market and key peers
RENK’s stock has outperformed the market and our key peers since the listing Stock performance, % change since RENK listing Key facts +65% Strong and diverse shareholder base with KNDS as strategic investor +57% Entered SDAX shortly after listing Peer R Delivered on promised 2023 financial guidance
Slide 27: Diversified investor base with increasing free float
We have a strong and diversified investor base with increasing free float and balanced geographical coverage Shareholder structure at listing Shareholder structure today Mgmt HoldCo Mgmt HoldCo 4% 4% ~25% 7% 7% Retail Free float Free float 27% 37% ~25% +10 pp free float ~10% ~15% ~10% ~15% 62% 52% 2
Slide 28: Record breaking Q2-24 results
Record breaking Q2-24 results with substantial year-on-year growth … Order intake, in €m Revenue, in €m Book-to-bill ratio1, (x) 0.9x 1.5x +124% +26% 419 273 216 187 Total order backlog2, in €bn Adj. EBIT3, in €m +10% +17% 4.7 41 4.2 35 35 Q2-23 Q2-24 Q2-23 4 Q2-24 1. Book-to-bill ratio defined as o
Slide 29: 2024 guidance narrowed towards upper end
… provided support to narrow 2024 guidance towards upper end 2023 Initial guidance Narrowed guidance Revenue €926m €1,000 – 1,100m ~€1,100m Adj. 16.2% ~€160 – 190m ~€175 – 190m EBIT1 (€150m) FY-23 guidance achieved 1. Adj. EBIT is defined as operating profit before the PPA depreciation and amortizat
Slide 30: Cash generation strengthened balance sheet
Our cash generation strengthened our balance sheet and allowed us to maintain our leverage despite significant onetime payouts Net debt1 development, in €m Net leverage2 Extraordinary payment Ratings 3.8x 2.2x 2.4x 2.4x ▪ ~€50m shareholder BB positive outlook loan repayment ~€20m premature upgraded
Slide 31: Positioned to capture the defense super cycle
Through past investments in a downturn market, we are now in a prime position to capture the current defense super cycle … under VW ownership as stand-alone entity Defense Investment Increased global super cycle acquires security threat Continued Capex1 & in the US R&D investments ▪ Continued high s
Slide 32: Portfolio, capabilities and people ready for growth
... as our portfolio, capabilities, assets, and people are ready for growth with about €380m of M&A and more than €400m of Capex investments under VW ownership as stand-alone entity 1 M&A activities selected acquisitions CPS 1 ~€380m M&A investment 8.0 8.5 7.0 7.0 >€400m Capex2 % of 5.7 6.3 5.9 6.0
Slide 33: Enhancing value creation through financial steering model
We will enhance our focus on value creation through refinement of our financial steering model £ Shift to absolute ROCE as new New Cash adj. EBIT performance Conversion Rate indicator definition Focus on value-accretive growth across all segments 33 RENK Group / Capital Markets Day 2024, Munich
Slide 34: Further EBIT and margin expansion
We will drive further EBIT and margin expansion through continuous growth, operating leverage, and operational improvements Adj. EBIT path1, in €m ▪ Capture scale benefits from doubling of spend base ▪ Continue implementation of RAM ▪ Combine emphasis on supply chain next-level program security with
Slide 35: Increasing order backlog as basis for growth
Our constantly increasing order backlog will serve as the basis for our growth in new sales and expanding aftermarket Order backlog, in €bn Selected key orders 4.7 Not exhaustive Fixed Frame Soft THOR III and IV ~€600m Bradley, PIM, AMPV 2.2 Transmission ~€300m +19% p.a. K2 MBT 1.9 0.6 1.8 1.4 Engin
Slide 36: ROCE-based value creation focus
We have integrated a ROCE-based value creation focus into our financial steering model to optimize the use of available capital ROCE1, in % ⌀ A&D peers2 13.0% 13.9% 14.5% 15.5% >20% ~16% ~16% ~15% ~11% 2021 2022 2023 LTM Jun-24 Medium-term Adj. EBIT3 €91m €144m €150m €156m Capital Employed4 €827m €9
Slide 37: Updated cash conversion definition
We will also update our cash conversion definition to more accurately reflect our ability to generate cash in relation to our capital structure Cash conversion definition Cash conversion, in % Current Adj. EBITDA1 – Capex2 85 85 83 definition Adj. EBITDA1 ▪ Continued buildup of inventory ▪ Negative
Slide 38: Improving cash conversion through capital efficiency
To improve cash conversion, we will enhance capital efficiency through reduced inventory and target-oriented cash management NWC1 development, as % of revenue Key levers ~27% ~27% NWC stable despite significant top- ~26% line growth ~25% ~25% ~23% ~20% Initiation of structured program for legal enti
Slide 39: Capital allocation framework along 4 areas
Based on our allocation framework, we will make the best use of our available capital along 4 future areas £ Investment Dividend Strategic in core payout focus De-leveraging Technology & ~40 – 50%1 Defense <1.5x over time2 Operations & US ROCE-optimized Shareholder Value-accretive Balance sheet inve
Slide 40: Medium-term highlight figures
Medium-term highlight figures to keep in mind and to track our performance against ~€300m ~20% <1.5x NWC2 as share Adj. EBIT1 Net leverage of revenue ~15% >20% ~3% Organic revenue Capex3 as share ROCE CAGR of revenue 1. Adj. EBIT is defined as operating profit before the PPA depreciation and amortiz
Slide 41: Dr. Alexander Sagel
Dr. Alexander Sagel Chief Operating Officer RENK Group AG 41
Slide 42: Three main megatrends driving RENK
Just to recap: 3 main megatrends driving future business development of RENK Empowering Security Digitalization Enabling a sustainable future 42 RENK Group / Capital Markets Day 2024, Munich
Slide 43: RENK 2.0 setting the pace for the next years
RENK 2.0 setting the pace for the next years by doing our homework to capture the market potential €>2,000m ~20% #1 Revenue Adj. EBIT In Market and ambition margin ambition Technology I Leverage market Convert top-line growth III Focus R&D on 4 key potential of defense super technology fields Drive
Slide 44: Positioned to capture large strategic programs
I RENK is positioned to capture multiple large, strategic programs in the near to long-term Overview of key pipeline programs (new build) w/o fixed OB, only defense (as of August 26, 2024) ~ €12bn pipeline VMS (land) M&I (navy) Soft/frame order backlog # of projects Level of maturity 4 1 XM30 and M1
Slide 45: Structured program to increase RAM performance and efficiency
II We implemented a structured program to increase operational performance and efficiency level of RAM in 3 main areas Supply chain Operating model Material cost Not exhaustive Deployed comprehensive Clear operational Created and syndicated parts availability responsibility and P&L cost models to se
Slide 46: Technology centered on improving mobility
III Our technology is centered around improving the mobility of military forces, which will have an even higher importance in the future Reliable and proven drivetrain technology critical for combat power Lethality Increasing availability of information makes battlefield of the future transparent (“
Slide 47: Highly complex, ruggedized transmissions
III Our transmissions are highly complex, high-tech systems and ruggedized for the most demanding battlefield use Precision and quality is key … … which is where RENK excels vs. ~70% >95% Use of space – Achieved through decades Use of space – Luxury watches of engineering excellence 47 RENK Group /
Slide 48: Cutting-edge, hard-to-replicate technologies
III Our cutting-edge, hard-to-replicate, and complex technologies are unmatched in the market Our brand stands for reliability and performance Vehicle Mobility Solutions Marine & Industry Driving Steering Power rating Precision PTO efficiency Braking ~1,500hp, <2-3µm3 >92%4 ~70 tons1 ~2.5to2 Maximum
Slide 49: Three future technology areas
III We will expand our technology core and focus on three future areas: electrification/hybridization, digitalization as well as system engineering Enabling technology (core1) New technologies expanding the core A B C Core Electrification/ Digitalization2 System technology hybridization engineering
Slide 50: Transmissions for lighter vehicles and UGVs
III-A Expansion of our transmission portfolio for vehicles in lighter weight classes, especially tracked vehicles <20t and UGVs Key facts Market Full market potential after 2030 due to attractiveness >€350m ongoing technological development and UGV adoption Market potential UGVs (esp. Wingmen for Pl
Slide 51: Technological partnerships with QinetiQ
III-A We are complementing our internal R&D efforts, as well as our customer-funded R&D projects, with technological partnerships & MoU signed: QinetiQ is our Advanced Mobility Technology Partner A Advanced steering and navigation systems B Scalable and electrified drivetrain solutions 51 RENK Group
Slide 52: New hybrid transmission for MBTs
III-B We have developed a new transmission with hybrid capabilities for MBTs and other heavy tracked vehicle platforms of the future Key facts Market attractiveness > €1.0bn Market potential Repowering New platforms ▪ Leopard 2 ▪ Merkava IV ▪ Panther (KF51) ▪ Ariete ▪ Challenger 3 ▪ K3 ▪ Leclerc ▪ K
Slide 53: Advanced electric propulsion for naval vessels
III-B We are developing an advanced electric propulsion technology securing order potential for future surface and underwater combatants Key facts Market attractiveness > €350m Market potential Vessel types supported ▪ Submarines ▪ Mine warfare systems ▪ Frigates RENK’s market- Designed for ultralow
Slide 54: Digitalization as enabler for business portfolio
III-C Digitalization is an important enabler to secure our current and future business portfolio Support of New Software- 1 Core Business (“Hardware”) 2 based business models Condition Monitoring/ Digital Sales Predictive Channels Maintenance Software-Defined Training, Education, Defense Mobility an
Slide 55: In-arm dampers with advanced sensors
III-C Our in-arm dampers use advanced sensors and networks to optimize usable lifetime and performance Key facts Market attractiveness > €500m Market potential Tracked vehicle types supported ▪ MBTs ▪ APCs ▪ IFVs ▪ SPHs RENK’s market- Advanced sensor concept detects early signs of leading value fati
Slide 56: Digitalization use cases in the connected battlefield
III-C: Looking to the future – Our digitalization products will have many use cases in the connected battlefield LAND PLATFORM use case: ▪ Preventive maintenance ▪ Condition monitoring NAVY use case: ▪ Enhanced mobility and manoeuvrability ▪ Preventive maintenance ▪ Condition monitoring UGV use case
Slide 57: Technology-driven company supporting customer demands
RENK – a technology-driven company for supporting our customer demands and driving future business development Technology We continuously We drive leader in the develop new impact with our super cycle capabilities partners and M&A Unmatched product Staying at the forefront of Developing cutting edge
Slide 58: Dr. Emmerich Schiller
Dr. Emmerich Schiller MD Production and Supply Chain RENK GmbH 58
Slide 59: Global production footprint
We have a global production footprint and are present in all major regions and countries Production footprint Sales, services, and/or R&D Muskegon Sterling Heights Brampton Bath Saint-Ouen-l'Aumône Starnberg Augsburg Bengaluru Rheine VMS M&I SB €5m fund to secure business continuity Winterthur Hanov
Slide 60: Global supply chain continuously improving
We have a global supply chain which we are continuously improving to secure critical material and safeguard our production Measures Redundancies for all critical suppliers to avoid dependencies < 1m Yearly direct sourcing value from China Flexibility to shift production either in-house or to externa
Slide 61: Manufacturing excellence and vertical integration
Manufacturing excellence is in RENK‘s DNA with deep coverage and significant value addition along our independent value chain Covered by Rough Heat Finishing Final Sourcing (grinding and Testing machining treatment gearing) assembly Illustrative ~65% ~60% High level of vertical Share of headcount in
Slide 62: Solved Augsburg challenges, ready for growth
We have done our homework: After solving last year’s challenges in Augsburg, we are ready for future growth From … To … Shortages of critical components Increased supply security for key materials by ~+50% and materials disrupting production broadening supplier base and targeted inventory of product
Slide 63: Bringing operations to the next level
We are bringing RENK operations to the next level by focusing on 2 dimensions Upscale to Upscale to series supply series production 63 RENK Group / Capital Markets Day 2024, Munich
Slide 64: Plan to further increase production volumes
We have a clear plan to further increase production volumes From boutique to small series production Fields of action Production philosophy and steering with flexible assembly cells and frozen sequences (pearl chain) Mass production Focus on basics with streamlined planning, clear responsibilities,
Slide 65: Improved alignment of sales and production planning
We have improved alignment between sales- and production planning S&OP – Integrated Production Planning Process Sales demand Procurement/logistics Production Long-term (forecast) Medium-term (planning) Short-term (steering) ▪ Forecast of transmissions ▪ Conversion forecast into ▪ Production of custo
Slide 66: Efficiency measures and effect on hours per transmission
Selected examples of identified efficiency measures and the effect on the “hours per transmission” Material kitting in line with assembly sequence Standardized assembly cell for sub components Before After ~15% Before After ~20% Time reduction per transmission 66 RENK Group / Capital Markets Day 202
Slide 67: Output increased by about 50%
We have increased our output by about 50% with no capex and additional headcount # of new transmissions built at VMS Augsburg p.a. ~+50% Small series and flexible assembly cells Integrated production planning process Time optimization measures Control and steering through performance indicators … 20
Slide 68: Five performance indicators at Augsburg
Five performance indicators underlining our improvements at our new vehicle transmission production Performance indicators, Ø 2023 vs. target 2024 (new transmissions Augsburg) +50% -30% +80% +55% +75 pp # of transmission Hours per # of transmissions First pass On time delivery output p.a. transmissi
Slide 69: Next step: small series assembly/logistic concept
Next step: Implementing a small series assembly/logistic concept to further improve efficiency and capacity 69 RENK Group / Capital Markets Day 2024, Munich
Slide 70: Next step: small series assembly/logistic concept
Next step: Implementing a small series assembly/logistic concept to further improve efficiency and capacity 70 RENK Group / Capital Markets Day 2024, Munich
Slide 71: Next step: small series assembly/logistic concept
Next step: Implementing a small series assembly/logistic concept to further improve efficiency and capacity 71 RENK Group / Capital Markets Day 2024, Munich
Slide 72: Rolling out operational excellence to all RENK sites
Leveraging our learnings from VMS in Augsburg, we are in the process of rolling out operational excellence to all RENK sites RENK Production System to set standardization and realize synergies between sites Operational excellence Cross-segment initiatives … Internationalization Standardization Imple
Slide 73: Closing Remarks
Closing Remarks 73 RENK Group / Capital Markets Day 2024, Munich
Slide 74: Summary: Ambition
SUMMARY As easy as 1, 2, and 3 Ambition €2bn €400m Revenue Adj. EBIT1 3 55 ~€300m ~3% Adj. EBIT1 Capex3 as share of revenue 2 55 ~20% >20% NWC2 as share of revenue ROCE 1 #1 15% In Transmissions4 Organic revenue CAGR 1. Adj. EBIT is defined as operating profit before the PPA depreciation and amortiz