OHB SE
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OHB SE
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Good afternoon, and welcome to the conference call of OHB SE. At our customers' request, this conference will be recorded. May I now hand you over to Mr. Marco Fuchs.
Yes, thank you very much. Good morning, everybody. Good morning from Bremen. We would like to welcome you to our Q2 6-month results for OHB SE. I hope you have been able to download the materials and have been able to access this code. As usual, we will walk you through the slides quickly, and then we will open up, of course, for questions and answers. I will start with the beginning slides, and then I will hand over from our new business area OHB Digital to Lutz Bertling; and Kurt Melching will introduce the numbers. Yes. Quickly, of course, Q2 has been a quite challenging quarter for many. You will see some ups and downs also in OHB numbers, in general. The top line is below last year for a number of reasons, some of them related to COVID. But overall, I guess, we can report a quite successful quarter. So we are quite proud to result -- of the results that we have achieved. Maybe I start on Slide 2 with a quick recap of the overall OHB value chain. As you remember, as most of you recall, we have, in February, introduced a new business structure with regard to introducing a third business area, OHB Digital, and we will talk about that in more detail. So we are trying to cover the whole value chain from development, integration and testing of satellites. We have our activities in the launcher business and access to space in general and in-orbit operations and services and, of course, also exploitation of data is important, becoming more and more important. Lutz will talk about that in a few minutes. On Slide 3, just to remind the OHB shareholder structure has been pretty much unchanged in many years, slight changes from treasury stock to free float with regard to stock-based compensation. On Slide 4, just a quick overview of the newly established business areas. Again, it's pretty much exactly implementing what was introduced in our February Capital Market Day half a year ago. So we are now positioning the OHB group in 3 business divisions, of course, the main and well-known space systems, satellite and systems with about 2/3 of our employees. So from the 3,000 people in the OHB group, about 2,000 are working with OHB System and OHB Italia, OHB Sweden, Antwerp Space, LuxSpace, Czechspace and OHB Hellas. Of course, OHP System being, by far, the largest entity and a large system integrator and, of course, our most important single entity. But that has been like this since many years.What is new is that we have created OHB Digital. And you can see a number of companies at OHB digital. It's about 500 people in total. So it looks like many, many companies, but it's about 500 people in terms of headcount. Solutions and services, in summarizing what we do there, OHB Digital Connect is the new lead company here. Lutz will talk about more details. The other company names are probably familiar. OHB Digital Services, Digital Solutions and a number of smaller entities that you can see listed here, yes. That is, of course, the approach to go for new market segments. What used to be Aerospace and Industrial Products has been split between those 2, Aerospace and Digital. And Aerospace is now comprised of MT Aerospace AG, and we have our share in the Rocket Factory Augsburg AG, which is a micro launcher company that we started from 2 years ago. We also list here our minority part in Aerotech Peissenberg. We hold a 30% share in Aerotech Peissenberg since many years. So it is not consolidated, then in our numbers, but it's equity share. And of course, the people there, the employees in that part are about 660, and the RTP group are not included in the 3,000 people of OHB. So you see we are still very much dominated by the Space Systems activities, but we're covering broader scope, and we have shifted a little bit our focuses for the future development. I would like now to give us a bit more details on the market segments where OHB Digital is already active and how we are approaching this to make this a more successful and more coherent business area. So Lutz, if you take over from Slide 5 onwards.
Yes. Thank you, Marco. Good morning from my side as well. Yes, a few words about where OHB Digital is present and where we intend to grow most as I believe this is the first time that in one of our financial reporting, we are going to that level of detail. Of course, I will not go line-by-line as that's becoming too much. But the important thing is where are we strong today and where do we intend to grow. The strongest areas today in terms of entries and revenues are antennas and telescopes, operations and ground stations. And those 3, together with the airborne and ground solutions, those are the entities which we are merging currently into the new company, OHB Digital Connect. Actually, this has happened already for those parts which are coming from OHB System and from OHB Satellite Operations, which is operations, ground stations and airborne and ground solutions. And it will be concluded in Q3 for antennas and telescopes, such as the former mines activity of MT Mechatronics. Those 3 are the strongest -- or those 4 areas are the strongest segments today and are areas in which we intend to grow as well. Operations, we are looking for inorganic and organic growth at the moment. Airborne and Ground Solutions, we are participating to the future combat air system, which is the largest defense procurement program, which has happened in Europe Since the Second World War. So growth there. But more importantly, we see strong growth potential in the upper right boxes, downstream applications for telecom and in particular, downstream applications for Earth observation. While we will benefit a lot from the successes which we had in the Copernicus program, I will come to this a little later. So the good thing for us is as we will provide such satellites, we will know earlier than others, the future kind of data which will be available from space. And therefore, we simply have an advantage in developing downstream applications for data from sensors, which are today not existing, but which we are developing and which we accomplish ourselves.Rail is traditionally strong. That's an area which we bought when we bought Kayser-Threde, our, today, Oberpfaffenhofen, Bavaria-based business, and again, an area which has significant growth potential. We are doing the energy control systems, but we are expanding our offering in the rail segment in the areas of traffic management and, in particular, towards the so-called digital rail track. So rail track which doesn't need any signals anymore. In particular, cybersecurity for the digital rail track is an area where we are strong. So without going into further detail, there's quite a number of areas in which we are active here. The next months will, on the one hand, be focused on developing a comprehensive strategy for OHB Digital, but as well on streamlining and at the same point in time, extending our portfolio. So some areas which you see here might, at the end, not remain as part of this, but we might divest, and other areas, we might invest. But before deciding this, we need to have a comprehensive strategy which is under development. This clearly shows us which areas of the portfolio we want to focus. About Digital on Page 6. A few words about Space Systems. Very important step achieved for our EnMAP program where the so-called hyperspectral instrument, again, a kind of an instrument for Earth observation which is not flying today and which will deliver in future data, which are not available from space in that particular form today. This instrument is now undergoing the environmental test campaign at our partner, IABG and Oberpfaffenhofen, close to Munich. We have done all the functional testing, vibration testing, sound testing and so on. And now if you want to test it under space conditions and in IABG, and we intend to launch a set by end of 2021. This, again, coming back to which we picture, this will deliver us a new data source on which we will build earth observation downstream applications. MTG is the next-generation of weather satellites for Europe, actually for the world, but driven by Europe. And here, we have a particular satellite, the so-called sounder satellite. So beyond the optical data, which you see every day is in the news. This sounder instrument will be able to detect the composition of clouds, the density, the temperature, the humidity in different areas of the cloud and will bring weather forecasts to a new level. It's satellites which is not existing as such. The Americans tried, they failed. We are very advanced here. We are in the critical design review with the customer. And up to now, it looks very good. So we are very, very confident that we will have a real technological breakthrough here with the new technology. And we have first export customers, which have indicated interest in this technology. EDRS-C, this is a data-relay satellite, which we launched in August 2009. Then we had all the in-orbit testing and so on. The satellite is working flawlessly and has now been fully integrated in the so-called SpaceDataHighway, which is under Airbus, controls an Airbus project. Airbus was the customer for the satellite. So fully delivered, fully operational. No deficiencies. Works very well. Interesting for us because for the first time, we are doing here inter-satellite link by a laser. Let's come to Page 7. Order intake Q3 2020. The important thing is less the order intake which we had at the end of Q2, but the selections which were done in Q2 and early Q3, and here, in particular, in the Copernicus program, which is besides Galileo, the second flagship program of the European Union. And the first run of Copernicus, we were a tiny little supplier with a volume of a few tens of millions as a subcontractor to others. Now we have the second round. And our role has totally changed, totally changed. We have been selected and contracted by end of July by the European Space Agency as the prime contractor for the most novel and the largest mission in this program, and the mission which has the highest probability for ongoing recurring business in the future. So for more satellites to be ordered. We signed a contract for EUR 445 million. This includes 2 satellites. But the option for Satellite #3 is already in the contract with another EUR 130 million. And actually, the first long lead time items for this option will need to be secured already by the end of this year, which means we expect that ESA will released to us an authorization to proceed for procurement of long lead time items for this option already by the end of this year, meaning that this option is not filed. In the frame of Copernicus, actually, we made 5 offers in total, 3 of them were successful, which is a good rate, because besides CO2M, which was the #1 mission as I have, in 2 other missions, we offered the payload, together with our partner, Thales Alenia Space. And we have been selected for CHIME, which is a hyperspectral imaging mission for environmental protection. This will be built in our Oberpfaffenhofen factory in Bavaria. And for CIMR, which is microwave radiometer, which will be done at OHB. So Copernicus, for us, was very successful. We have totally changed our role. Actually, we can principally say from a nobody, we are now not only an important player, we could say we've changed some number -- number whatever, number nobody, to #2 in the program, very significant success. On Page 8, you see it again. The Italia observation remain 1 more program, which is outside of the Copernicus program, which is the Arctic Weather Satellite, which was on our Swedish colleagues. So from the Earth observation program of the ESA and the European Union, we expect an order intake of more than EUR 900 million, more than 50% already contracts signed. And for the other 3, the negotiations ongoing, but ESA is a French-driven company. And France was closed in August, as you all know. So the negotiations will only continue for the other 3 in September. But this is according to the planned schedule, actually, we are impressed by the way how the European Space Agency was able to stick to its schedule under COVID-19 circumstances. Page 9 shows the order backlog in [ millions ]. And you can see here the expected [ regular ] scheme every 3 years, we have a downturn in order backlog. By the end of this year, this will have changed. So now we have EUR 1.5 billion, which is still 1.5x our revenues. But as you can easily see on Page 10, sorry, there's lots to come to increase the order backlog. So we expect the EUR 900 million from the Copernicus and the Arctic Weather satellite. Galileo is the one thing which changes my prediction, which I gave at the Capital Market Day. So it's not COVID, it's just Galileo. That's just a bit COVID-driven decision by the European Union. Here, we expected an additional order for so-called batch 3 satellites of the first generation of Galileo. The European Union has decided to change the sequence of this program. Originally, it was foreseen that after the first generation, there would be a transition program, this kind of interim satellite between generation 1 and generation 2. And then after that, generation 2. This has been decided differently now with the new commission and in particular strong involvement by Commissioner Breton himself. So the European Commission goes directly to the second generation of Galileo. Therefore, the contract award, which was foreseen for Q4, will no longer be in Q4. There will be an accelerated program for Galileo's second generation with the contract awards in the first half of 2021. So it's, from my point of view, more a delay. It will be a dual sourcing of satellites, which are significantly larger and more expensive than Galileo generation 1. To give you an indication, the Galileo Generation 1 satellite is about 600 kg total mass, and Galileo Generation 2 satellite will be about 2.4 tonnes. So 4x as big as the generation 1 satellite. We see the probability to win -- to be one of the contractors of -- in the dual sourcing, significantly above 50%. And this is a cautious wording, I would say. So the likelihood that we will be 1 of the 2 is very, very high. And if it's only because at the end, it's politicians which are awarding such a contract. We are the incumbent in Galileo Generation 1, the satellites are working perfectly. We actually got any incentive, which was in the program, we made it. And it's very unlikely that somebody with such a heritage competing these 2 other companies which have 0 heritage would not be selected. Of course, we need to come with a good offer. But with all what we have as know-how of Galileo Generation 1, we are very confident that our offer will be very good. Hera is space safety decided by the Ministerial Council in negotiation, I would even say, in final stages of negotiation, no questions will come. Ariane launched Electra, not in negotiation now, but both budgets decided by the Ministry of [ Congress ], the budgets secured. Lunar Gateway will be negotiated in September. Budget secured. And the portfolio from various other topics, more than 50% of these EUR 400 million is either already contracted or we are selected, and we are in the finalization of the negotiations. So Page 11, summarizes the whole thing, and I start with the matches on the bottom. It will likely not be EUR 2 billion, but it will be significantly above EUR 1.5 billion and somewhere in the middle between EUR 1.5 billion and EUR 2 billion might be the truth at the end. So we will end up with a book-to-bill, which is significantly above EUR 1.5 billion. Looking at the impact of COVID-19. The first thing I would like to stress is we have really customers you like to have in such a situation. All of our institutional customers have implemented strong initiatives to support the industry, not only OHB, the overall space industry as a spot, in particular, with liquidity, with partial milestone payments, advanced milestone payments and so on. And I would really say, in particular, the Europeans, as I said it before, they have done an outstanding job in securing all the contract awards very close to the originally planned dates. Therefore, with European Space Agency, no impact beyond the shift of contracts by some weeks or months, but nothing has been canceled. EU, the 1 thing I mentioned already, Galileo, the program setup has changed, but there's no reduction of budget. On the national side, with national customers we are working with, not only in Germany, we see no negative impact on programs which are in the planning, and we see that some procurements are -- or might be advanced. So for example, in the stimulus program or the EUR 10 billion stimulus program of the German government, the list of the final programs which are between trucks and satellites and airplanes and whatever you can imagine, helicopters, will be decided on the 23rd of September. So too early to say if we will benefit on this, but at least, we see no negative impact, and we see the chance that some procurements might be advanced. The commercial markets, clearly, new space companies have a hard time to find money in the markets. Venture capital market can -- is back now a bit, but there was a total shutdown from my perspective in Q2. And the telecom market remains to be in strong difficulties. Launcher, I will come to the next page. We look more for the midterm. And here, in particular 2022, it's important for us because that's the next ministerial conference on the level of the European Space Agency. I can only say too early to say simply because what will be decided there will be -- will have -- will depend a lot on the economic recovery and our crystal ball is not clear enough to tell us what it will be. Yes. So a bit too early to say. My last remark on Page 12 are concerning our launcher business. This is, I would say, currently, the headache we have. Luckily enough, the launcher business, in the meantime, is a relatively small part of our business. And Ariane, Ariane 6 is less than 10% of our business. But clearly, we have a strong double effect here. One is that, again, we see a postponement of the Ariane 6 first launch. This is a heavy impact of COVID-19. French Guyana was very much impacted, so all the activities for preparation of the launch site were coming to a standstill. And this only ramped up very, very slowly now. The development of the launch itself has been impacted by the closure of activities in France, Italy and Spain. Therefore, clearly, the first launch -- launch was slipped, the ramp-up of launches will slip, and the production rates will be lower than what was originally expected. This comes together with a market position of Ariane 6, which is, let's say, challenging. So clearly, we have needs for restructuring in [ outlook ], and in doing so, we have very strong cost-cutting measures in place there. And we are very active and successfully active in other markets. So Augsburg will no longer be dependent fully on Ariane 6. We have an increasing market success in American and Indian programs. So we expect that we can partially recover from the Ariane 6 impact by participation to other launcher programs. But I mean we need to be open about by headaches as well, and the launcher business is a headache at the moment. With this, I would like to hand over to Kurt Melching, who will present the figures in detail.
Yes. I'm Kurt Melching. Good morning to everybody. I would like to give you a brief overview of the main financial figures from the first 6 months of OHB Group. On Page 13, you see, as already mentioned, the order backlog is now EUR 1.6 billion, but this is in line with our expectations and so will be improved in the next months significantly. The total revenues are 7% behind the last year figures, first 6 months of 2019. This has really to do with the effort to clear COVID-19 impact in our supply chain. It's an average delay in the first 6 months, delivery delay of [ 7 ] weeks affected by COVID-19. And this is the reason why the revenues are behind the expectations. The profitability is still good and would be acceptable growth from my point of view. We see the year with an EBITDA of EUR 37 million, 2% higher compared to last year. Even the total revenue was lower than last year at this point of time. EBIT figure is also below last year, 8%. But you see that we actually later, this has to do with the influence of the different segments. We have spastic methods, good impact and good results. And the Aerospace and industry products segment is negative compared to last year. The earnings before tax is also lower compared to last year, but this has to do mainly with [ adverse ] financial results in the second quarter due to the establishment of our new credit facility of EUR 300 million, and there are some financial costs incurred in Q2 due to this event. But on the other hand, this new credit facility of EUR 300 million gives us a lot of security and possibilities in operation and acquisition areas for the next 5 to 7 years which is the running time of [ third ] facility. EPS is also 8%, that's 8% behind the expectations, but still on the [ booked ] level. Number of employees, as I've already mentioned, is now close to 3,000. This comes now to the overall figures, compared to the -- on Page 14, compared to the last 3 years, where you see we have still a good development in EBITDA figure from 25.8 of '17 to 36.6 this year. And the EBIT figures are no major improvements, but we have still an acceptable margin of 5% overall, and relatively good margin status that we see it later on and do relatively poor margin in the segment, Aerospace and industrial products. Concerning the development of total revenues, as explained the reasons for the decrease compared to last year. But at the end of the year, our forecast shows that maybe that we are again around EUR 1 billion total revenues, but they are affected by some uncertainties due to unclear COVID-19 impact in the next 5 months. Space Systems, on Page 15. We see also the decrease in total revenues. But on the other side, on the right side of the slide, you see extremely good development of EBITDA in the last 3 years. Coming from 15.1% in 2017, we are now 35.5%. It's more than double the figure. And also more than double is the figure, the EBIT figure, in this last 3 years. And this is really a good development. The EBIT margin is now in the area of 7%. But I must say, to be also very clear, this EBIT margin improvement has to do, on the one hand, on improvements and cost-saving measures we have implemented in the last 6 months here, and this -- we'll see this effect also in the next months and quarters, this result our cost-saving programs and our programs to improve the efficiency will result in better margins and better profitability in the segment. But on the other hand, it's also clear that amount of subcontracts are comparably low in the first 6 months, as already explained, and this lead also to an increase of margin [ drop off ], as mentioned several times ago, on have contracts, we are not allowed due to our institutional customers to collate any margin or profit. So next page, Aerospace and industrial products, as already mentioned, you see the decrease in revenues. This may lead at the end of the year only to a comparable poor revenue of EUR 130 million. And also the EBITDA or EBIT figures are going down in the last year substantially. Now for the first time, we had a negative EBIT of EUR 2.5 million in this segment. I personally expect, following our actual forecast, that at the year's end, this figure may be in the same -- same order of magnitude. But I hopefully expect no major negative development in the 6 months. Just hopefully, it will be stable in the next 6 months in order to stay at least on fiscal levels. Financial guidance on Page 17. Yes, we have announced at the Capital Market Day, EUR 1.1 billion total revenues and EUR 80 million EBITDA and EUR 44 million EBIT. We have all -- we give you now the same statement assets. We have done it under first 3 months report that we neither confirm or withdraw the guidance. I have already mentioned that what may be the result at year's end, but due to the uncertainties and due to the increase in number of COVID-19, in fact, in the last weeks and the unclear development in the next months, we see no possibility to give you a clear statement concerning our expectations at -- for the year-end. So now it comes to the balance sheet. There are no major changes in the balance sheet. There's -- perhaps remarkable, an increase in inventories. This may have to do with different increases -- caused by MT Aerospace in Augsburg. But this shows clearly if these inventories can be delivered in the next 6 months, then this may result in an improvement of the figures for MT Aerospace. There are no other major deviations in the balance sheet on this asset side. And on the equity side on the next page, there is an increase of equity, around 6%. And also, on the other hand, no major changes and decrease of trade payables we see here. And all other figures are more or less stable. There's an increase of the current financial liabilities, but this is absolutely in line with our expectations. Later on, I'll give you another slide and give you an overview of our cash flow development in the first 6 months. On the next page, you can see this. The free cash flow and operating cash flow is better compared to last year's same point of time, and it's also better than expected. Actually, we have in the first 6 months this negative free cash flow. And usually, also we have in the last 4 years, a positive free cash flow, a positive operative cash at year's end. This is the nature of our business. And I -- also not very effective with all the uncertainties and development at this year's end, but there's still an opportunity to the possibility that we achieve at years the positive rate cash flow, positive free cash flow. But this is, as mentioned, affected with some uncertainties. CapEx figure is -- there's an increase compared to last year and compared also to the first quarter. So you see we are still making investments, especially in software issues and IT infrastructure and issues like that. So onto the next page, you see the development of net debt, and this is quite normal at this point of time. And as I mentioned, better than expected. And if you compare the figures over the last years, then you see the net debt that there's no increase in the [ growth ratio ]. Even if we had substantial growth in the last year, the net debt absolute figures is no increase. It's stable or also some decreases. So we have earned money, obviously, in the last years, and we do earn money this year. On the next page, you see the development of investment spending, but the figures are more or less already mentioned. And so -- but again, an overview also on the capitalized -- the over capitalized figure is going down. Last week, we had EUR 6.5 million at this point of time, but EUR 3 million we have actually. And this -- we expect that this development will proceed in the next quarter. So on Page 23, you can see again -- not again, but you see the cash flow development, the free cash flow development and the ROCE development. More or less, there are no surprises. ROCE is in the same area now at 12%, and it's still considered good. And free cash flow development, I have already explained what will happen, what has happened in the last year. I will exit my presentation with financial calendar with some virtual events. These are these events. Capital market events will be virtual in the next few months. Also, the German Equity Forum is planned as a virtual event in November 2020. And there are some other events. So we are proceeding in this, but only virtual.
Okay. Yes. Thank you, Kurt. Thank you, Kurt and Lutz. I guess, we just now quickly go through the Q&A session. Because I think that you can basically see that Space Systems is doing well, and Aerospace and industrial products is having its difficulties, and I guess that quickly summarizes the Q2 numbers. What I would like now to do is to hand back to our moderator to help us starting the Q&A session.
[Operator Instructions] There are 2 questioners, just a moment. Mr. Adrian Pehl from Commerzbank AG.
A couple of questions from my side. First of all, on the A and IP division actually, as you, Mr. Melching rightfully said, there's probably an increase in inventories. Obviously, the revenue line was relatively weak. I was just wondering given that probably there's a very limited number of chipsets out there, is that the revenue level we should familiarize with in the next 2 quarters? Or is there a chance that we see an increase there to some extent? And a question linked to that, actually, did you ship any chipset in the second quarter? Or was that number actually 0? And then a more -- starting with a bit technical question. As you were referring to the segment OHB Digital, I was just wondering whether that will lead actually to a new reporting line in the future as of Q3? Or how should we think of it? And it would be actually helpful to give us some indication on what's the current revenue line and actually profitability on that segment? And Mr. Bertling, you also mentioned, maybe I did not get it right, but in satellite communication by laser, a project that you're doing. I was wondering if there is any interference with a listed company called Mynaric? Anything that you say on that is -- could be helpful? And then lastly, before I might have some follow-up on the batch 3, you were mentioning quite some changes on the program. And I was wondering what is the basis of the decision to have this as dual sourcing? And relative, let's say, to the business you made before in Galileo, despite you're saying probability is more than 50%, do you fear losing, let's say, a bit grip of the program or revenue volumes in this one also going forward?
Yes. Thank you. Thank you. Maybe I'll start. First, I'll start with the Ariane, the delivery. So yes, there have been deliveries. The remaining deliveries out of the Ariane 5 has been done in the first half of this year. And there have also been deliveries on Ariane 6 so far. But of course, it's ramping up slower. So -- and it's not easily to count it in chipset because in Ariane 6, it's a new start. The need date are not always very much at the same time, like in an ongoing full production. It's a qualification phase and the first launch. In this year, it's not so easy to really count chipset. As I said, the remaining of Ariane 5 deliveries and the starting point of Ariane 6, and that basically describes the issue. On the revenue side, I'll leave it to Kurt. Maybe quickly from my side on Galileo. Of course, I mean, it has been always intended by the European Commissioner to have dual source. And this has been also been the plan from the first generation. Eventually, it was then decided after the competitive processes to only award the orders to OHB. But we know, since a very long time, that the transition satellites, which was mentioned, have also been intended to be dual sourcing. And obviously, the second-generation is the same case, because dual sourcing obviously makes sense at the beginning of the program. The first generation, there was an attempt to go for multiple sourcing in the later batches, but that doesn't really make a lot of sense anymore. But now it has been clear for us and everybody that the customers will attempt to go for multiple sourcing for their satellites. And that defines basically also the numbers that Lutz mentioned because there will be 3 bidders. And it's probably -- it's likely that there will be 2 awards. So that defines the statistical likelihood at 2/3 because it's 3 bids and 2 get something. That's what it comes out. And the second-generation satellite and then I hand it over. So the second-generation satellite that are now being procured are not very different from what used to be the so-called transitional satellites. I mean this has evolved a little bit, but it's very similar. What used to be transitional satellite is now pretty much what is now called second-generation satellites. That has been my quick answer. But maybe, Kurt, you want to say something to the Ariane -- about the MT, to the MT top line?
There are, in principle, superior assumption is right. What happened in the first 6 months was really a substantial increase of inventories, about EUR 17 million on MT side and relatively poor total revenues of around EUR 40 million on MT side. This will be changed in the 6 months to an improvement of the revenue figure and the decrease of inventories for the next 6 months. This is -- this has then has to do with the delivery of chipsets for Ariane. And obviously, this is why I mentioned that we expect no further substantial decrease of the profitability figures in the next 6 months for MT Aerospace.
And I can perhaps add a few words to the Galileo question and particularly on the why dual sourcing and the loss of grip. There's 1 significant difference between Galileo Generation 1 and Galileo Generation 2. And this simply is that there is a system in place already. So if Galileo Generation 1 would have come, let's say, 2 years later or so, then the capability would have been installed 2 years later. And 2 years later, people would have started to depend on the Galileo capabilities. Now there's an operational capability in space, which means that lots of systems are relying on Galileo data. What has to be avoided in -- under all circumstances is an operational gap. And this was the original idea to buy additional batch 1 supplies just to avoid the operational gap. Now the commission has decided to do differently, the new commission, and to go for an accelerated program for generation 2. But this means that for risk reduction reasons, if I worked for the commission, I would have decided for dual sourcing as well just to avoid that if 1 of the 2 suppliers or if a single supplier runs into significant delays, technical problems, whatever it is, that there won't be an operational shutdown of Galileo when the first generation of satellites comes to end of lifetime. On the other hand, and then I'm coming to the loss of grip on our revenues for OHB. The number of satellites will be the same. You simply need to have a number of off-the-position equip because you can only start using the system when you see 3 satellites at the same point in time, and more satellites needs more accuracy. So the number of satellites will be the same. The size of the satellite will be 4x larger. So if you have the same number, 4x larger satellites, but divided by 2, 2 suppliers and actually, it still means that there's an increase of revenues. So I would not say we lose any group of revenue due to the fact that the new capability which is intended to be installed is such superior to the first generation. There will be a huge development program, and there will be significantly more expensive satellites. So I don't see a risk there. And I see very, very little risk that OHB would not be one of the selected companies.
And then -- I'm sorry. I just wanted to quickly say the answer to the conversion of the reporting. Of course, we are still currently reporting based on the 2 existing business units, Space Systems and Aerospace and Industrial Products, that's the set of numbers. And of course, during the year, starting from Capital Market Day, and now we're introducing the future structure with 3 business units. We're moving over to reporting 3 business units. We have not yet completed that. We have not even completed the legal changes that Lutz was mentioning. So yes, of course, this is a project in motion, but it, of course, will be also following the reporting structure, we also follow the operational unit structure. So this is something that will come in the next quarters. But I don't know if you want to add to that. We have not fully decided if that will be done by year's end or maybe at Q3. But more likely, I would guess, it's something that will come after the first full year. Lutz, I don't know exactly if you have on that.
Yes. In principle, absolutely, Marco, what you are saying. We have not finally decided this, but at least beginning this next year, we start reporting in these 3 different business units.
And then there was the question about laser communication and Mynaric. Of course, we know the Mynaric guys, and we know what they are doing and so on. Our current business volume with Mynaric is 0. And our volume with ongoing tenders with Mynaric is 0 as well.
Yes, just to be explained because the EDRS-C satellite that Lutz was mentioning is also a labor based, but that's from kVat from an Airbus group. So this is an Airbus group laser product that is working for many years, and that is working reliably in the ongoing EDRS-C, but also in the EDRS-A satellite that has been launched some time ago. So that is not based -- the pace state highway is not based, has nothing to do with Mynaric.
Understood. That's been helpful. Just actually, 2, 3 follow-ups on what you just mentioned, coming back to the segmentation. I mean a bit phrased provocatively. I mean, we discussed that also at the Capital Markets Day. It seems like with Peissenberg and MT Aerospace, you see 2 group entities where you might not necessarily see a bright future going forward. So I was wondering if that's an expression of focus of turning around the business or potentially thinking about a disposal is possible? And a question probably for Mr. Melching, which is again, sorry to bother on this one, related to MT. I mean given -- nevertheless, even if you are projecting some improvements on the revenue line in H2 from the reversal of the inventories being built up, but do we actually run into the risk of asset impairments in this division? And lastly, I think it was also part of Mr. Bertling's presentation when you were talking about OHB Digital, you are mentioning to look out for M&A. Could you be a little bit more specific? We're obviously not giving any names or so, but do you go for rather bolt-on technology acquisitions? Is there already kind of a short list in plays so that you have already an idea which target to look at? Or is that just more intention and the plan will follow then thereafter?
Maybe I'll start with the reasoning. Yes, of course. I mean, first to say, in the Aerospace and industrial products, Aerotech Peissenberg is not included. It is not included. It will not be included because it's a minority position. That is only at equity. So I think the creation of the Digital area has to do more with strategic and operational ambition than with numbers. So it's not -- I think it's more transparent, what will be seen in the future in the aerospace activity, currently also includes some of the activities that go into digital. So it's a little bit mixture now. So I think it's partially cleaning up, and it's partially making clear our ambition and where we want to grow, which is the digital area. Of course, that is now currently in a situation where MT Aerospace is in a difficult situation. But I think this just underlines the reasoning why we do this. It has nothing to do that we want to stop or dispose of or sell or change anything in our MT Aerospace activity. We have our plans how to work that outlook, explain that, and we will move on. And we know it's a couple of difficult years in front of us. Yes. But it would also be if we would not have touched the business structure. So again, the main issue is that the Ariane 5 business, at that time, was a very successful product in a market that was more positive. And we are now moving into more difficult years around that business. That's basically what it is. But again, it has nothing to do with giving up on that activity. I think we maybe quite on what the other part of the part.
The asset impairment question, there is really -- absolutely no risk of any asset impairment due to the development of MT Aerospace as well as it has to do with the fact there is no 0 goodwill in our overall balance sheet for MT Aerospace because we have bought them in 2005 for just EUR 1, and there is no goodwill, and nothing else. We have to be critical concerning any impairment evaluation in the year-end for MT Aerospace.
And then there was the M&A question. As I said, we are currently in the phase where we are consolidating this digital portfolio. So we consolidate what we have, which was very much distributed about over many different entities in the group. We're consolidating it. We are restructuring it. We, in particular, by market segments, that's by legal entities, as it was in the past, but now mobile market segments. We are defining our strategy as the outcome of the strategy definition, which will last the full Q3 before we have finalized it. For sure, we will define certain areas in which we intend to strengthen our portfolio, not only organically but as well inorganically. But this is, as you hear from the process, that's too early now. We are in the one or the other discussions because sometimes opportunities are coming up, where you are pretty certain that they will fit. But as you can imagine, when we are under such discussions, we are under NDA, of course. And even if you would not be under NDA, we would not publicly discuss about not even about the areas. None of these things is very much advanced. We are nowhere in a detailed due diligence yet, which means it's far too early to discuss this more in detail.
The next question comes from Mr. Richard Schramm, HSBC.
So also already very extensive discussion here. Maybe just allow me a word on, again, Ariane 6 or this whole launcher project. As you mentioned, it's only 6% of total sales at the moment. And it has a good chance to decline even more in future as the other businesses have obviously much better growth prospects here. Shouldn't you really think it's worth to stay in the launcher business, which obviously has fundamentally changed over the recent years with new competitors coming up? And that Ariane 6, quite obviously, is losing ground here and will never be a commercial success, I dare to say this, but will always depend on the heavy subsidies from European politicians. And we know the story with keeping Europe an independent access to space and so on. But the question is, is it worth really for you to stick there? And even this mini launcher business, a lot of competition going on there, a lot of hard money in there. Is it worth for OHB to be there? Or are there not better opportunities around? Maybe it's worth to think about this. I don't expect an answer on this one. My question would be on small thing you mentioned here with the digital markets, where you again mentioned this rail segment, which always has been obviously very successful, but also a niche development. And you mentioned that there, digital rail tracks is 1 project, meaning that the signal technology could become obsolete if changed the whole process here. I'm not an expert. But to me, this sounds as would be really a big thing, but maybe too big for OHB alone to develop such fundamental new technology? And wouldn't it make sense to partner here with some specialists from the segment?
I actually on the rail...
You want to start with the launchers. I mean, you want to -- let me start on the first question. First of all, I think rockets and launchers all over the world are very close to government. So when you say there will be potential subsidies in the future on the Ariane operations, probably, yes. But that's also the case in a different way also on the American launchers. So there's a very big part of government involvement and government money. So that is just part of the game. That is part of the game in good years. And now, of course, in more difficult transitional years, that's also the case. But Europe is not, let's say, worse than other players in that, that governments invest in access to space, and that's, I guess, also going to be the future here in Europe and then elsewhere. What we see -- of course, there is a shift of market. First of all, the commercial market is smaller because of lower numbers in open telco launch opportunities. So of course, there used to be much more telecom satellites in the open accessible market reachable for launch service providers than there are currently. Institutional business has become more important. But having said all this, launcher remain integral in the space industry. I don't think that we should be a space company that is not active in all those segments, not active in the whole value chain. So in that respect, I think we should remain in launcher. We should remain in Ariane. We should work out these prices. We should be, as Europe, be in the business of launching, we should be in the business of trying to compete and regain competitiveness. Of course, the market will change, micro launcher project. We are involved in micro launches, other times [ open track ] launches. It's hard to predict who will be successful. It's hard to predict if our [ particular aspect ] will be successful. We're not pretending to have a crystal ball to know all this, but we are strongly believing that we should be part of the evolving overall value chain with regard to space industry. When you said should we look to more promising activities? Should we look to more, let's say, attractive things? Yes. And twofold we are doing. I mean, you see that we are creating, with OHB Digital, an area that is focused very much on the other side of the value chain, the downstream, the services, the operations. So that is a strong attempt of doing exactly that. And the second thing, what you can also see in our numbers is that the space system part is growing and growing. So of course, we are focusing our growth efforts in the last years, strongly in the space system area. We have invested heavily in a range of satellite products from 5 kilo up to 5 tonnes. That has been the major investment we did. And I think it now starts to pay off what we have invested there. So growing strongly in Space Systems, moving on to OHB Digital and downstream, of course, leaves the launcher business looking a bit weak now, but I guess it's paying off that we anticipated what is going on now some years ago, and we have been making our strategic decisions already having that in mind. So I guess, that doesn't mean that we should now leave the launcher business, but we should just see that we can become part of a more competitive European launcher industry in the future and regaining market share. Lutz, you want to take the rail part?
Just a few words on the rail part. This is more about harvesting in the next years from the seeds which we have put in the soil in the last years, I would say. So I would expect for our rail business in the next 5 years that will minimum duplicate, if not more. And regarding are we too small. If you would be totally alone, we might have been too small. But actually, we are here cooperating with 2 of the biggest and most successful technology groups in this area in Europe, with one of them exclusively. And together, OHB plus its partners, we are easily strong enough to compete with whoever is on the market there.
So if I understood you correctly, you have already product development finished and you are just now starting to roll that out with your partners in the product?
And these digital areas, product development never finishes. We have reached level of product maturity, which allows us to roll out a generation of devices in the market. But in this digital area, you can never lay back and say, now I have a product for the next 5 years. Then you are lost. So yes, we have reached maturity. Yes, we have ready-to-market products. We have products which are already in prototype installations. But this area is a continuous development process where you cannot just -- new generations in a relatively short sequence. But as I said, this is not done by us alone, but we have 2 very strong international groups as partners here.
Okay. And when you say you expect doubling of sales over the next 5 years, could you please remind us where we come from last year? I think it's really a pretty low figure about EUR 10 million, EUR 15 million or so?
Oh, it's less. It's EUR 7 million, EUR 8 million last year. But when I say doubling it, then, again, that's a cautious statement. So I would say, in '25...
It can be EUR 20 million, for sure.
It can be EUR 20 million, EUR 25 million, yes. And it's a business which has very good margins. At the end, size of the business is one thing. The margins you generate out of it is the other thing.
The last question for now comes from Mr. Jasko Terzic, Bankhause Lampe.
Yes. Most questions already answered, but one left. And maybe the one that puzzles me the most. First of all, you say that you cannot really give a precise guidance for the second half of the year. However, you are pretty confident that those inventory buildup will be reversed in the Aerospace and industrial segment. So can you, first of all, explaining again what is the reason why you're so unsure about the guidance? And secondly, how likely is it that those inventory buildups will also persist in the second half of the year?
Yes, of course. I mean, we were discussing that question internally as well. Eventually, we decided to stick where we are after where we have been after Q1. And of course, compared to other industries, probably we have a much more, let's say, solid view of what is going on. And this is also when you listen to what we say when we say that, we are not saying we are not making our guidance, but we are just not confirming it, and we are not saying that we are able to do a better guidance now. So I guess it's a level of uncertainty that we see. And that has to do that we are not completely -- not completely, not confident that we have really fully understood the consequences of COVID. So there is downside on that side, certainly. On the other hand, we also see a couple of positive things like the improved margins and the ongoing order intake that might also result in some numbers this year. But also the order intake is pretty critical in a sense, is it going to happen in a revenue meaningful way in 2020? Or is that already clear that it moves to '21?So again, the bottom line is not confirming or not giving a new guidance is not in itself just a story of negative, but it's an uncertainty story. But I don't know, maybe you have a clear.
Just completely right what you're saying, it's an uncertainty. So we -- for example, as I mentioned, we had already 10 weeks average delay in our supply chain, maybe it's getting more. But you see now that, for example, in Spain, the number of COVID-19 infected people are increasing a lot, and this may also effect, again, our supply chain. It's possible to do this. And we have effects from COVID-19 also substantially in MT Aerospace, obviously, due to -- now we have some lack of networks there. And this may be, as I mentioned, or actually forecast shows for MT Aerospace, it may be an improvement in the next 6 months, but this is, in any case, not sure. There are a lot of uncertainties, especially also in MT Aerospace. That's why we cannot confirm it. We are pretty sure, for example, that we have absolute difficulties to achieve the top line guidance in total revenues of EUR 1.1 billion to this. From my point of view, I've mentioned this, maybe around EUR 1 billion, but a lot of uncertainties. This has to do with our supply chain. This has to do with other effects also from COVID-19. And that's why we cannot really -- not fair and not reasonable to say now clear figures, what we expect for the year. And we say that we have seen no major impact in profitability, no major impact for sure. But I cannot give you a clear figure for sure not.
Okay. And then my final question is on the Copernicus project where I discovered that OHB Sweden is also pitching for project. And just to get it right, and this would increase your formal guidance you have provided in February. So this project is new, right?
Not really. I mean, it's [indiscernible]..
[indiscernible]
Yes. No, it has also been decided in November. So it's basically a part of the overall decision, but it's not formally part of Copernicus. It's -- in terms of what the program does is very similar to Copernicus because it's Arctic Weather, but it's part of another line of either observation budget. But look, I don't want to...
So absolutely correct. And actually, this was included already when we had the Capital Market Day. So -- and overall, the Arctic Weather Satellite project is around EUR 50 million. So it's not a dimensional change.
Mr. or Mrs. Muader from Kepler Cheuvreux, please.
3 quick questions. First one is consolidation in the sector, it's something that you've been talking about over the last years on and off. Have you seen any changes in the talks around consolidation in this segment? Or are we more looking at a frozen environment? The second one is, given the environment where we are at the moment, COVID-19, given the past crisis we had, how are you gauging the response of the institutional market in 2 to 3 years from now in terms of demand for satellites? I mean, I'm thinking about probably the next ministerial conference. Do you think budgets could be down or budgets could be still stable or growing? And the last question is more detail. But it's -- again, that dual sourcing on the Galileo, I understand it is the outsourcing, but will it be equal dual sourcing because you may not come up with the same prices? So could it be more weighted to one or the other player? How -- what are the rules basically on this one?
Maybe I'll start on the investor structure. In the space industry in Europe, I don't see any particular consolidation efforts going on now. Of course, the overall aerospace industry, of course, aircraft manufacturing has difficulties. As luckily it's not that much impacted. So currently, probably the focus is not on restructuring in the space industry. So we are working on the assumption that the industrial landscape pretty much remains what it is now in Europe and in the world. That's basically our working assumption. Just quick on the Galileo question. No, it's open. I mean there are currently the second generation will first have 2 parallel developments. And then later on, obviously, it remains to be seen if we will sell more satellites. It could be the 1 supplier or the other one. But it's not for granted that there is an equal sharing of the market forever. But the idea is that the customer would have 2 sources in order to keep the whole thing competitive over the next coming years. And then obviously, there might be 1 source that's supplying more than the other, or maybe they even also supply equally into the next generation.
But to be clear, the next 5 years will be dominated by the development program and this means you cannot do half a development. So dual sourcing for development means that there will be 2 full development programs. This -- at minimum, the first batch of satellites assigned to both of them, otherwise, you don't end up with a dual source. Therefore, for the time from now to, let's say, '25, this is all about a development program plus initial satellites, and this part will be 50-50, as Marco said. Then when the recurring satellites are coming, there might be a better offer from the one or the other one, and there might be sharing of 60-40 instead of 50-50 or so. But that's far too early to say. And that's not for the 3 years outlook also. That's far further out.
Just the question on institutional markets on the next few years. It's unpredictable, honestly. Of course, we believe very much on the idea, on the underlying hypothesis that is that space becomes more useful. Operational satellites are adding value to society and in many aspects. So the relevance and usefulness of satellite infrastructure will grow. And obviously, as you can see with Galileo, another -- once an institutional customer has an ongoing operational infrastructure, it will also be on. So I believe there will be also a couple of years down the road a positive sentiment for investing in space, for investing in satellites. And that also, of course, includes governments making their investment decisions within the context of AIDA. So here, I remain optimistic on the outlook for the next upcoming periods of investments. But we don't know that obviously. Nobody knows what's going on in '22. But again, probably satellites are providing value to society at large are more likely to be funded and invested in. And activities that don't, that will be difficult for those activities. So we are, of course, trying to adjust our portfolio in a way and predict the trends of the future that we are part of that positive development for sales in general.
And then if I could add. I mean, ministries, as Marco said, pretty much unpredictable. A bit closer is the MFF for the use of the midterm financial planning for you. So all what we have seen there is that we will come up with a substantial, not decreased, but increased budget for space. And from the talks which we had on national levels here in Germany, whether as well in Italy, Sweden and so on, again, the main customers which you have on national level, which obviously are military customers and so on -- I had a talk in the German Minister of Defense 2 weeks ago, which was very, very reinsuring because simply they said about space capability, there is no need to explain it to any member of Parliament anymore. Everybody has understood that without having it, we are either blind or we can't communicate. So the response really, which I got, and this was really highest level below the minister, I would say, the response was no risk. There are many other things which are more difficult to explain to parliamentarians than space capabilities.
There are no further questions.
Okay. Well, very good. Well, we are actually also taking a lot of time today. It's already 10:20, past 10:20. So I would like to thank you all for participating, for following OHB during these busy and difficult days. And of course, from our side, we will be available for further questions, as always. And everybody out there following OHB, should you ever have the chance to visit us in Bremen or Oberpfaffenhofen or in Augsburg, please feel free to contact Martina or anybody to see if we can arrange that. So from my side, from the whole OHB team, thank you very much for your attention, for your questions and for following OHB, and I wish you good remaining August and I hope that everybody gets a little also rest in the next couple of days and weeks. So thank you very much from OHB. Bye-bye.
We want to thank all the participants of this conference. Goodbye.