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HENSOLDT

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sustainability

AT HENSOLDT

Johannes Huth,
Head of KKR EMEA
Chairman of the Supervisory Board, HENSOLDT

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Over the past two years, HENSOLDT has become a leading European defence and security electronics company. Since the carve-out from the Airbus Group, management and employees have successfully shaped a HENSOLDT brand identity, proved the company’s exceptional innovation potential and achieved major economic progress. On behalf of the Supervisory Board, I would like to give heartfelt thanks to all HENSOLDT employees for those achievements.

As a shareholder, we are proud of these results. When KKR invests in a company, two main criteria guide us. Firstly, the quality of the management team, and secondly, the idea that our investment will enable the company to realise its strategic potential in the long term.

HENSOLDT management was able to complete a highly complex carve-out process successfully while being focused on developing and growing the company. The team trusted HENSOLDT’s key strengths and long-established DNA. From this powerful base, it pushed into new business areas. High-tech expertise, ingenuity and an innovation mindset combined with an entrepreneurial sense of opportunity are the hallmarks of all HENSOLDTians. Management mobilized these strengths and converted them into successful business ventures. A strong focus was placed on entering new markets as well as developing product families and fully integrated solutions. A clearly defined globalization and partnership strategy was also put in place.

HENSOLDT’s long-term strategic potential is closely tied to political developments. Ambassador Ischinger, who is a member of our Supervisory Board, has pointed to major challenges which need to be addressed by European and global security and defence policy makers.

The fundamental goal of KKR’s investment strategy is to create long-term value for our portfolio companies, their employees and business partners. With its investment, KKR has contributed to launching a leading European defence and security electronics company with German roots and a global outlook. HENSOLDT plays a decisive role as an innovation leader in the European defence and security electronics landscape. By developing key sensor solution technologies, HENSOLDT is a pillar of national high-tech competence and is increasingly visible internationally through its clearly defined M&A strategy. Substantial investments into R&D and the targeted build-up of digital capabilities are significant innovation drivers for anticipating and meeting new or unknown threats.

HENSOLDT’s management is pursuing a vision to create the major independent provider of sensor solutions with a global footprint. KKR is proud to be a strong partner in this endeavour.

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Sustainable growth with
high-tech products

Interview with HENSOLDT-CEO Thomas Müller

Thomas Müller, the CEO of HENSOLDT since its foundation, talks about the company’s successful growth strategy and the plans for its further development.

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Mr Müller, in the three years of its existence, HENSOLDT has developed into an internationally recognised provider of sensor solutions. What are the reasons for this success?

Many factors have contributed to this. Let me pick out three. Firstly, we have a highly qualified and motivated team of employees who have shown great commitment in seizing the opportunity to create an independent solutions provider. Secondly, as part of Germany’s national technology strategy, we have always had the support of the German government and of our shareholder KKR. And thirdly, we have convinced customers worldwide with our excellent portfolio of high-performance, innovative products and successfully presented this to the outside world with a consistent brand strategy.

How has this changed the company?

In parallel to the developments mentioned above, we have reorganised HENSOLDT from scratch. We have established a corporate culture of entrepreneurial thinking, in which each employee has the company as a whole in mind in their actions. We have also established a global footprint, with industrial sites in South Africa, France and the UK, as well as branches in around 20 key defence markets. And on top of that, under the title ‘HENSOLDT GO!’, we have set a process of continuous improvement in motion which constantly checks our working methods for their competitiveness. This has fundamentally changed not only the company, but also the attitude and thinking of employees. But it is also clear that change is not a one-off task, but a permanent mission

With that in mind, what are your plans for the future?

We will not be resting on our laurels, of course, but will continue to pursue our clearly defined growth strategy. The focus here is on international competitiveness and expanding our cooperation with European partners. We have grown profitably in recent years, from some 3,900 employees at the end of 2017 to [around 5,500] as of today. Even though our main focus is on the defence sector, we are also developing what we call ‘neighbouring markets’ in the non-defence sector, such as security and purely commercial applications, for which we can offer particularly powerful solutions thanks to our technological expertise in the defence sector. For example, we are already quite successful in civil air traffic control, we are entering the security market with infrastructure and border protection, and we are building up a separate business unit for cyberprotection. We aim to continue along these lines.

Is it possible to achieve substantial growth in the defence and security business?

Absolutely! Especially in our sensor solutions business, three parallel developments will open up new, long-term growth opportunities. Firstly, Western countries, not least Germany, are increasing their budgets to fill equipment gaps in their armed forces. Secondly, electronics are increasingly important to defence system performance. And thirdly, some time ago we initiated the expansion of our product portfolio to include overall solutions, i.e. moving from individual products to networked sensor packages consisting, for example, of radars, cameras and mission systems. This gives us a good starting position for major future projects such as Future Combat Air System (FCAS) or Maritime Airborne Weapon System (MAWS).

In which markets do you see the best opportunities for your company?

This question has a geographical element and an application-specific dimension.

Geographically speaking, Germany is and remains our most important market, accounting for around 40 per cent of revenue in 2019. Today, HENSOLDT makes a significant contribution to the protection of German interests with a wide variety of innovative products. And the whole HENSOLDT team can be proud of this!

Furthermore, we are also optimistic regarding our participation in defence projects on a European scale. These include projects within the framework of Permanent Structured Cooperation (PESCO), and the future projects already mentioned, such as FCAS and MAWS, for which we have already formed consortia with other companies. And last, but not least, we are already present on the world market, for example in the Middle East, the Asia-Pacific region and Latin America.

Looking at our opportunities for growth in terms of customer applications, we need to mention the rising demand for networked solutions. Customers are increasingly asking for overall solutions. You can see this, for example, with FCAS, where for the first time the focus is not on individual platforms but on the mission system, which interconnects manned and unmanned aircraft with ground systems to form a system of systems. Given our ongoing evolution towards becoming a solutions provider, we believe we are ideally equipped to satisfy this demand.

Overall, new technologies, such as artificial intelligence and machine learning, as well as the miniaturisation and digitalisation of hardware offer our customers additional application options with which they can reliably ward off new threats.

How does this affect product development?

We have a strong team of specialists and engineers who take a creative and application-oriented approach to developing new solutions, in the best tradition of German engineering. The customer can rely on that.

That’s why we are not only driving the development of key technologies in cooperation with the German ministries of defence, research and the economy, but have also invested approximately 7.7 per cent of our revenue in research and development.

We have identified three future trends to which we are aligning our research and technological development activities: digitalisation and automation, big data processing and cybersecurity. A central topic in sensor solutions is the combination of different sensors, i.e. sensor and data fusion. In addition, we equip networked sensors with self-learning artificial intelligence to help customers master unknown situations.

Innovation is an integral part of our DNA, because only with new, more powerful products can we be a strong partner to our customers and thus continue to grow successfully in the future.

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HENSOLDT – Key performance indicators

EUR million 2019 2018
Revenue 1,114.2 1,110.1
Europe 742.8 762.5
of which Germany 483.3 497.4
Middle East 164.8 125.2
APAC 82.4 112.9
North America 40.9 35.8
Africa 86.3 71.9
LATAM 19.2 14.9
Others/Elimination -22.3 -13.1
Sensors 837.1 862.0
Radar/IFF/Datalink 361.7 381.9
Spectrum Dominance & Airborne Solutions 276.7 318.7
Customer Services 192.2 144.5
Others / Elim. 6.5 16.9
Optronics 277.4 249.4
Elimination / Transversal / Others -0.3 -1.3
 
2019 2018
Order Intake EUR million 1,040.0 1,159.8
thereof Sensors 657.5 878.9
thereof Optronics 383.3 280.9
Order backlog EUR million 2,202.3 2,260.9
thereof Sensors 1,567.8 1,692.4
thereof Optronics 634.5 568.4
Employees as of December 31 Number 5,461 4,456
Capital expenditure (incl. intangible assets) EUR million 80.5 60.1
Research and development costs EUR million 31.0 32.2
Cash flows from operating activities EUR million 83.2 65.7
Earnings before finance cost and income tax (EBIT) EUR million 62.1 21.8
Net profit/loss for the year EUR million 8.2 -59.9
Adjusted EBIT EUR million 160.8 147.6
thereof Sensors 122.4 112.4
thereof Optronics 39.5 35.4
Adjusted EBITDA EUR million 215.6 190.0
thereof Sensors 162.5 145.8
thereof Optronics 54.3 44.1

Acting responsibly

As a company with global operations in the defence and security sector, HENSOLDT is conscious of its particular responsibilities. That is why its sustainable corporate governance practices encompass all areas of business and include employees, the environment and society.

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At an international level, environmental, social and governance (ESG) criteria are frequently used to assess the sustainability of a company’s activities by examining ecological and social aspects as well as the type of corporate governance.

For HENSOLDT, these criteria are not simply useful metrics for external evaluation, but also provide valuable information on its internal organisation. After all, only sustainable and responsible business practices can ensure the product, solution and service excellence strived for by the company.

One example illustrates the comprehensive external and internal significance of this approach: in 2019, HENSOLDT Sensors was judged ‘exemplary’ in the annual audit conducted by the Bundeswehr Aviation Authority (LufABw) in Germany. The audit covered business processes, including the supply chain, production and product roll-out, as well as service, quality management and configuration management. Within the framework of the management systems that have a major impact on all processes, the auditors were particularly pleased with the configuration management process, which acts as a complex link and bridge across all stages in a product’s life cycle.

In order to represent its own responsible and sustainable activities in the most comprehensive manner possible, HENSOLDT has defined four core areas: the company, employees, the environment and society.

Corporate values

HENSOLDT’s long-term business success is based on the principles of Collaboration, Excellence, Ownership and Innovation. The incontrovertible values that pertain to these apply to all employees.

The company’s Code of Conduct provides the basic rules for good, respectful cooperation within the company and with customers, suppliers and other partners. It is also the basis for HENSOLDT’s approach to preventing corruption and other unlawful acts. Since the refinement of the anti-corruption process and introduction of the company’s Counterparty Due Diligence Directive in 2018, employees responsible for a transaction are more closely involved in the process of risk assessment when selecting business partners. This is especially intended to minimise the risk of corruption when entering into transactions with or via partners in countries involving high risks. Intensive training on applying the Counterparty Due Diligence Directive was conducted in 2019 and continues to be offered on an ongoing basis. After all, HENSOLDT considers compliance a key element for sustainable business activity.

However, HENSOLDT also demonstrates responsibility through its quality strategy and policy, which are applied in the company by means of effective business and quality management, efficient configuration and data management, and more, and which guarantee the company’s excellence at the same time.

HENSOLDT also takes responsibility when it comes to managing risks and for its employees, the environment and society.

Moreover, a 25 per cent increase in the research & development spending to 86.1 million euros in 2019 impressively proves the importance of innovation to the company’s success which, stably supported by its corporate values, is further evidence of HENSOLDT’s responsible actions.

Focus on employees

In addition to competitive working conditions and appropriate remuneration, HENSOLDT especially offers and promotes diversity and equal opportunities within the company. For example, HENSOLDT is a full member of the ‘Chefsache’ initiative – a network of managers from industry and science, the public sector and the media personally committed to gender balance. German Chancellor Angela Merkel has been the initiative’s official patron since 2015. In addition, HENSOLDT’s internal women’s network – ELLEvate – helps women to further their careers with the goal of establishing gender-balanced management teams. As a member of the industry-wide Women in Defence initiative, HENSOLDT also sponsors female engineering students with a view to subsequently offering them employment.

Flexible working time models, childcare and supervised holiday care enable the best possible work-life balance. Opportunities to care for close relatives along with the company’s own representatives for employees with serious disabilities impressively illustrate the importance of responsibility towards society and the company’s employees, which is rounded off by a comprehensive occupational health and safety programme. Special initiatives for developing personal and managerial strengths support employees in their careers – starting with the Students Pioneer Club for emerging talent.

HENSOLDT is fully aware of its role as a responsible employer, even outside of its domestic region, as demonstrated by the company’s strong presence in South Africa. Local engineers are supported in their training and further education in order to offer them long-term prospects in their own country, and many of them are expected to be hired in South Africa, especially over the next five years. Moreover, the successful implementation of the Black Economic Empowerment programme also guarantees that once-disadvantaged citizens benefit from equal economic opportunities and appropriate consideration for management roles. This demonstrates that at HENSOLDT the focus is always on people.

Protecting the environment and climate

Conscious use of resources and hazardous substances in order to protect the environment and climate is a matter of course at HENSOLDT and a priority in all departments. In particular, HENSOLDT focuses on energy reduction and measures to avoid and reduce emissions.

The measures taken include reducing waste volumes and the use of paper and dangerous materials as well as comprehensive hazardous substance management, including risk assessments. Compliance with all legal and company regulations is strictly monitored, and the REACH requirements (on the registration, evaluation, authorisation and restriction of chemicals) have been successfully implemented.

In keeping with the company’s environmental awareness, energy saving is an important factor when purchasing machines and equipment and is optimised through efficiency-boosting measures. For example, smart lighting concepts and LED lights are used in the buildings. And this pays off: for the environment, the climate and the company.

Commitment to society

As a member of various organisations, forums and seminars, HENSOLDT commits itself to an extraordinary degree and takes responsibility for society. For example, the company is a member of the Federal Association of the German Security and Defence Industry (BDSV), the German Aerospace Industries Association (BDLI) and the Munich Security Conference (MSC), to name just a few. In addition to this, HENSOLDT supports numerous initiatives in the area of politics, sports, education, science and industry through donations and sponsorships. Another focal area is its close cooperation with schools and universities. In South Africa, for example, the company is specifically helping to modernise schools and maintain nature reserves.

Overall, consideration of ESG factors has today become a matter of course at HENSOLDT across all of the company’s departments and sites, and is demonstrated in the actions of management to the workforce, of workforce to management, and of both together to society.

A thank you from 1,800 rhinos

HENSOLDT does not focus solely on the protection of people, buildings and other facilities. In South Africa, the company has also made a name for itself as a protector of endangered species. Both people and animals are benefiting as a result.

South Africa welcomes around ten million tourists each year, many of whom come to marvel at the country’s unique and varied wildlife. However, there is also a dark side to this biodiversity. Hardly any other country experiences the same level of poaching. Although the war on poaching may often seem futile, it can be won with technology from HENSOLDT.

A thank you from 1,800 rhinos

The Buffalo Dream Ranch, the world’s largest rhino farm, located in the remote north-west of South Africa, offers a prime example of this. Covering 8,000 hectares, it is around 15 times as big as Manhattan. Some 1,800 rhinos live there peacefully, protected by state-of-the-art HENSOLDT technology. The specially developed system combines daylight and night vision cameras, radar technology and sensors to monitor the rhinos, farm and surrounding area. Radar images, number plate recognition and mobile communication frequency analyses are used to provide early warning of potential poachers approaching the area.

An easy-to-operate total system that does not disturb the rhinos’ daily routine has thus been put in place. Data from this is collated in a command and control centre. The results speak for themselves: instead of sometimes weekly incidents like before, not a single rhino has been poached since the HENSOLDT security system was introduced some two years ago.

Protecting the abalone sea snail

In addition to the endangered rhino, the abalone sea snail, relatively unknown in the western world, is a popular target for poachers. A criminal scene with almost mafia-like structures has developed in South Africa in recent years around this sea snail, which is considered a popular culinary speciality in the Far East in particular. Divers can often earn as much as the monthly pay of a police officer in one night alone through illegal harvesting.

HENSOLDT technology initially developed for border security is being used to protect the Hangklip Conservancy near Cape Town, at one of the country’s most diverse coasts. This enables potential poachers to be identified and arrested early on, while still monitoring legal harvesting activities. After the first comprehensive police operation, illegal harvesting is now a thing of the past. This is also to the benefit of the local ecosystem, as abalones minimise the natural level of seaweed, which can cause tremendous damage if allowed to grow unchecked.

Moreover, HENSOLDT has developed the idea of establishing legal abalone farms together with other investors. These should offer people in the region an alternative as many of them often illegally harvest the sea snail out of pure necessity.

A new market

The know-how acquired through these two projects can also be used in other wildlife and national parks to protect endangered species such as lions, elephants and giraffes. Facial recognition aided by artificial intelligence could be used to identify poachers before they cause any damage.

HENSOLDT is also planning for the commercial use of its systems for such purposes. It has already received a request from Mexico aimed at protecting livestock from cattle thieves. In Chile, there are plans to monitor a shrimp farm using thermal imaging cameras. In this context, sensors on drones open up many new opportunities.

There are literally no limits to the potential market as animal parks and farms can be found all over the world. Even if many of them do not yet have the necessary financial resources, public pressure is constantly growing, especially in relation to endangered species. And all must be protected.

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HENSOLDT provides solutions

2 segments, 4 divisions – one goal
A new approach to service
Sales – from a product supplier to a solution provider
Eurofighter – opportunity of the century
FCAS – achieving air superiority in the cloud
MGCS – armoured intelligence
MAWS – when frigates learn to fly
Go, HENSOLDT GO!

HENSOLDT innovations

Air taxis – autonomous and safe
Digital radar – detection and identification
Printed electronics – the revolution in the laboratory
HENSOLDT Ventures – innovative and successful
Energy – anytime and anywhere
Kalætron – detection and warning
Chip production – small and smaller

HENSOLDT locations

Ulm site – from custom manufacturing shop to series production facility
Stronger together
A new chapter begins
1 plus 1 equals more than 2
MENA – challenge south of the Mediterranean
"Yes we can"
Tapping into new markets
Asia-Pacific – grow the revenue considerably