HENSOLDT Spearheads Innovations That Make the World a Safer and More Sustainable Place

All activities at HENSOLDT serve the company’s overarching vision and therefore respond to fundamental challenges of our time: safeguarding peace and life – for society, our environment, and our planet.

As a high-tech company in the defence sector, HENSOLDT develops powerful sensor systems and digital solutions that detect danger and protect people and the environment.

With around 6,300 highly qualified employees, the company develops these intelligent and integrated technologies for all fields of deployment: in the air, at sea, on land, in space, and in cyberspace. Building on the company’s leading market position in Europe, the strategic ambition of HENSOLDT is trained on the global defence industry.

It is time to take a look back at 2021, an exciting and successful year in which optics pioneer Moritz Carl Hensoldt would have celebrated his 200th birthday. To this day, his name stands for outstanding entrepreneurship, innovative strength, and inventive spirit – attributes that are still at the centre of HENSOLDT’s values and mission. These values are critical drivers of the continued growth of HENSOLDT against the backdrop of a turbulent environment. Due to the exceptional commitment delivered by every employee of the company last year, HENSOLDT is comfortably ahead of its strategic goals and continues to achieve strong top-line growth and high profitability. For this commitment and the outstanding results, I would like to thank all employees on behalf of the Supervisory Board.

With its IPO in 2020, the company laid the foundation for its next phase of growth. A lot has already been achieved since then; the company has a record order book, and has secured landmark contract wins, including the Pegasus order for airborne reconnaissance technology. Of particular strategic importance is the recent investment by Leonardo which joins the Federal Republic of Germany and KKR as an anchor shareholder. This investment will provide good opportunities for strategic and collaborative cooperation. These investments are a testament to the company’s accomplishments and reflect the importance of coordination and cooperation within the industry as well as with governments in both a national and European context. Together with its anchor investors, HENSOLDT will be better able to respond to the evolving defence and security market and the challenges that face its business.

HENSOLDT is a technological leader as evidenced by its portfolio and R&D focus; analytics, autonomy, and AI play an increasingly important role in both products and production processes. HENSOLDT is committed to continuing its path as a driver of innovation in the industry, which is reflected in the significant increase in R&D expenditure in 2021, which has nearly doubled since 2017. Furthermore, the company will continue to build on its track record of successful acquisitions as an additional means of expanding its capabilities and solution set.

One of the dominating topics for the defence industry and the broader economy is ESG, an area that is becoming ever more prevalent for HENSOLDT. Being a sustainable business is extremely important to HENSOLDT and its partners; safety, security, and defence of people as well as fundamental rights of democracy are basic requirements and the very foundation of sustainability. While the defence industry must take responsibility for its own share of greenhouse gas emissions, it can also provide critical technologies and solutions to reduce climate change. HENSOLDT takes this responsibility extremely seriously and has established a new ESG strategy with specific commitments and targets for the coming years. The persistent work is paying off. HENSOLDT was recently accredited the lowest ESG risk factor in an industry ranking by Sustainalytics.

HENSOLDT still upholds and represents today what Moritz Carl Hensoldt was known for: entrepreneurship, innovation, and excellence. Our strategic alignment over the last year, the significant continued investments in technology and R&D, as well as in people, plants, and equipment globally, including in our core market Germany have led to the largest order book in the history of HENSOLDT and led to the creation of more than 700 new jobs globally. It is proof that the company is on the right track, and it positions us very strongly for the years to come.

Johannes Huth

The dramatic geopolitical developments of the last few weeks and months have put a very clear focus on a fundamental human need: security.

Russia’s assault on Ukraine is a seismic shift on a scale that we in Europe have not seen since the Cold War. It represents the climax of a long-running shake-up of international order and will leave deep marks in many ways, from politics to business and, above all, for people in the regions concerned. While it is currently impossible to gauge the long-term fallout from Russia’s waging of war, it is clear that they have brought the NATO member states back together again very closely. New life has undeniably been breathed into the alliance’s mission. Now it is more important than ever that Europe is strong, stands together, and is able to exercise full sovereignty over its security policy. This demands a greater deepening of political and industrial cooperation in Europe. What’s more, the war in Ukraine clearly shows how large an influence that cyberspace manipulation and disinformation have in determining war and peace these days. Today’s security, peace, and liberty are almost always threatened in digital spheres as well and require defence in them.

In Germany, the lightning-fast end of Europe’s post-war order in just a few days has led to a new era in security policy. The government’s ambition to beef up the country’s army quickly and comprehensively and future-proof it for a new defence reality will demand an enormous joint effort. HENSOLDT is ready for this. We are aware of our exceptional role as a leading technology company in the defence industry. We make it possible to detect threats in analog and virtual spheres thanks to our sensor solutions, electronic-warfare technologies, and expertise in data analytics and cybersecurity. HENSOLDT is committed to key pan-European projects such as FCAS, MGCS, and the Eurodrone which now have a stronger focus than ever. With our international development and manufacturing network and a workforce that has grown significantly in recent years, we are also able to ramp up the production of existing technologies and systems to meet short-term and medium-term demand.

Speaking on behalf of everyone here at HENSOLDT, I wish to express that the tragedy in Ukraine has demonstrated just how vital the mission of our company actually is. Our work creates the technological foundations for maintaining people’s peaceful coexistence. There is also a second aspect to what we do which remains fundamental for us in these extraordinary times: security is an indispensable precondition for environmental sustainability and, by extension, the preservation of our planet. This is another reason why our operations at HENSOLDT have such special relevance.

By publishing this Annual Report, we want to describe to you the path that our company will take into the future and, of course, look back on the fiscal year that recently ended. The year 2021 was a very successful one for HENSOLDT. We achieved all our targets and even exceeded some of them while continuing to develop strategically.

During the last fiscal year, HENSOLDT reached a further crucial milestone on its journey to being a solution provider and system integrator, with a contract from our German key client for the PEGASUS airborne reconnaissance system at a value of roughly €1.3 billion. PEGASUS is going to form the core of a sovereign reconnaissance network and the basis for the German military’s future capability development in the fields of self-protection and electronic warfare. In terms of our high-performance sensor technology, the Eurofighter will remain one of the most important platforms. In 2021, we successfully acquired more than €350 million worth of contracts for radars and self-protection systems for Germany’s Quadriga program. Other contracts of high strategic relevance include ones for long-range radars on F124 frigates and for Germany’s air defence system, with these radars having initial ballistic-missile defence capabilities. In our Optronics segment, we sold further reconnaissance sensors to the Netherlands and are equipping Germany’s and Norway’s jointly procured submarines with our groundbreaking, fully digital optronic mast systems.

With these developments and many other positive ones, we continued to pursue the path charted by our global growth strategy with determination during 2021, even in a market environment made extremely challenging by the COVID-19 pandemic. We further strengthened our brand that has become globally recognized. The company and its portfolio kept developing in all markets and we created a stable, future-proof shareholder structure with our anchor investors.

We are proud of the strategic equity interests held in HENSOLDT by the Federal Republic of Germany and LEONARDO. They emphasize our importance as a key technology partner and strategic player for Germany and as a core partner for the consolidation that is needed within the European defence industry. As a leading provider of electronic sensor solutions, we develop critical elements for next-generation security and defence applications. We are looking forward to furthering the expansion of our enduring and very trusting partnership with the Federal Republic of Germany, our most important client for the coming years. The same applies to LEONARDO, a partner with which we closely cooperate in a variety of pan-European programs.

The year 2021 became a shared success for all employees of HENSOLDT, wherever they were in the world. I would like to express to them my deepest thanks for their commitment during the persistently unfavorable conditions of the pandemic. Together, we again demonstrated last year the strength and extraordinary agility that HENSOLDT possesses. Our business model remains resilient and we have done an excellent job overcoming the fallout of the global supply-chain crisis. By applying the extensive measures coordinated by our dedicated COVID-19 task force, we were able to ensure the health of our staff, clients, and partners, while simultaneously maintaining full business operations. We are particularly proud of our in-house COVID-19 vaccination campaign, through which we administered over 2,500 vaccine doses in Germany alone. This further increased the protection of our workforce.

HENSOLDT very successfully combines outstanding innovation with a robust, crisis-proof business model, as corroborated by the figures for the 2021 fiscal year. Having received orders of a value of €3.2 billion, we now have a record €5.1 billion worth of orders on our books and a book-to-bill ratio of 2.2x. HENSOLDT was able to boost its revenue by 22 percent in 2021, bringing it to almost €1.5 billion, with EBITDA rising by 19 percent to €261 million. Something that is particularly pleasing in this context is the 28 percent rise in the adjusted free cash flow before taxes and interest to €252 million, through which we were able to reduce our debt-to-equity ratio to 1.6x.

Our excellent operational performance is the basis for HENSOLDT’s ongoing profitable growth and is the launching pad for the corporate strategy that we continued developing in 2021. We wish to begin the next chapter of HENSOLDT’s history, actively influence transformation, and push our business successfully over the coming years.

The global security situation is becoming more and more complex with almost every day that passes, with new threats, increasingly asymmetric conflicts, and numerous simmering conflicts. Alongside them are the growing challenges resulting from civil unrest and migration flows. Global cybersecurity threats are a danger for critical infrastructure, can bring entire supply chains to a standstill, and destabilize our societal coexistence in many different ways.

These are precisely the threats that are pushing military and security forces worldwide to develop new operational concepts. Their efforts are focused on platforms that are better connected and more intelligent, on greater autonomy, and on stronger collaboration — between nations and traditional players in the defense and security sector as well as within heavy industry. At HENSOLDT, we want to offer the right responses to our clients’ challenges, both now and in the future.

This is why we will:

• Continue developing our portfolio of products and solutions to provide the optimal fit for the changing operational challenges and concepts of our clients
• Drive targeted innovation that anticipates future threats
• Expand our international presence and accelerate our cooperative partnerships to support the development of standardized technological platforms
• Expand our business in markets that are adjacent to the defence sector

This is a journey that we started long ago. Our ultramodern technology portfolio has been a cornerstone of our success and a key growth vector for HENSOLDT since the very beginning. We master next-generation technologies and turn them into long-term business.

Last year, for example, we put the new Quadome naval surveillance radar, developed by our colleagues in South Africa, on the market. This cyberattack-resistant, software-defined radar for air and surface surveillance is a trailblazing expansion of our product portfolio in the sensor segment. It offers outstanding performance characteristics at a very attractive price and we are very sure that it will appeal to many clients in the offshore patrol ship class.

We are also gaining new clients with our groundbreaking Twinvis® passive radar. This will pave the way for an entire array of applications of this revolutionary technology, from air defense in conventional and asymmetric conflicts to support for air traffic management.

When it comes to the increasing relocation or expansion of conflicts into cyberspace, we are seeking to make HENSOLDT one of the leading data analytics companies in Germany’s security and defence sector. While our current portfolio specializes in the classic electromagnetic spectrum with radar, electronic warfare, and optoelectronic sensor solutions, it will be crucial that we expand this spectrum into cyberspace further and further and continuously enhance our capabilities of transforming enormous volumes of data from digital contexts into usable information.

Consequently, data analytics and cybersecurity are crucial fields of growth for HENSOLDT.

We gained key capabilities for our tech stack through our acquisition of SAIL LABS in 2021, taking another step toward complementing our sensor portfolio with open-source intelligence. By combining our sensors from the electromagnetic spectrum with additional, digital sources of data, we can create reconnaissance systems with an unprecedented level of quality.

Sustainability is a core element of the HENSOLDT corporate culture. As a company guided by the motto of “Detect and Protect,” we practice a very special degree of responsibility and strong commitment to sustainability. HENSOLDT stands for protection and security, two crucial requirements for our society’s transformation into something more sustainable. On the other hand, we are seeing initiatives under the EU Taxonomy for Sustainable Activities that label businesses in the security and defence industry as neutral or even negative in relation to sustainability. In my opinion, this is an improper approach and may prove harmful to the development of a more sustainable society.

Our company’s response to ESG-related issues, that is sustainability in terms of the environment, society, and governance, is of critical importance to us as it ensures that we make a genuine difference to the world in which we operate. ESG has become an important distinguishing feature for our appeal as an employer, particularly for our new generation of talent. It is our direct responsibility to use resources in an environmentally friendly manner and to support the sustainable development of our societies in peace and freedom. A determined focus on sustainability delivers dividends in a commercial sense, too.

It is for these reasons that we launched our Group-wide ESG Strategy 2026 last year, an ambitious plan with which we wish to become the ESG benchmark for the defence industry within five years. We are on the right path and our first ESG rating from Sustainalytics is impressive evidence of this. We have become the number one for sustainability in the aviation and defence industry in the blink of an eye and are the only company in this industry to be listed as “low risk”.

HENSOLDT presently employs roughly 6,300 staff globally. We recruited more than 700 new colleagues in just the last year alone. Our motivated and high-performing workforce is the key to delivering the many major projects acquired in recent years on time, on budget, and at the high quality that is expected of us. It is our firm belief that our workforce needs to be diverse in order to maintain HENSOLDT’s successful track record. For me, it is clear that diverse teams are more creative and successful. For this reason, we wish to significantly increase the proportion of women in the global leadership team to 25 percent and the proportion on the Executive Committee to 35 percent. Our Management Board team has already gained a more diverse footing with the appointment of Celia Pelaz as Chief Strategy Officer. We have established numerous initiatives in order to achieve our goals. These initiatives include endeavors such as ELEVATE, our internal diversity and inclusion program with over 250 participants. HENSOLDT is also a member of the UN Global Compact and takes part in the UN’s Target Gender Equality program. Furthermore, we are an active member of Initiative CHEFSACHE, a network of 20 corporations in Germany. HENSOLDT promotes openness to diversity and integration.

Our workforce is highly motivated and works passionately on HENSOLDT’s future. It was therefore very important to us that we offer our employees an opportunity to acquire stock in our company. We began our ECHO employee stock option plan for this purpose last year, with resounding success. There are now 3,755 HENSOLDTIANS – more than 65 percent of our workforce globally – who hold shares in HENSOLDT AG and, in doing so, are demonstrating their trust in and commitment to the company.

In addition to ensuring security, HENSOLDT solutions are used to protect endangered species, often on the personal initiative of our HENSOLDTIANS. There is an exceptional example of our employees’ personal dedication and of the HENSOLDT culture that can be mentioned in this regard: We launched a joint pilot project with the Polar Bears International NGO in Manitoba, Canada in October 2021. The conflict between humans and polar bears is becoming more and more critical in this province as a result of climate change. The lives of humans as well as polar bears are in danger, as multiple fatal incidents have shown in recent years. Using our high-tech products as a basis, we developed an early-warning system consisting of a radar and thermal-imaging cameras to track down polar bears and keep them away from human communities in a peaceful way. We are currently training the artificial intelligence of our system in Canada before we bring it to Norway for a pilot project. As you can see, this is but one example of HENSOLDT products helping to protect nature.

We are naturally aware of our company’s own responsibility in the battle against climate change and we accept this responsibility. Last year, we analyzed our Scope 1 and 2 emissions and are currently calculating our carbon-emission targets based on the 1.5-degree guidance issued by the Science Based Targets initiative. We are also going to take a second step of expanding this to incorporate our Scope 3 emissions. We have committed to being carbon-neutral by 2035 or even earlier, which at HENSOLDT means reducing emissions first and offsetting them last.

As part of our journey toward this goal, we have set up a pilot project that demonstrates the direct connection between ESG and our core business. It involves in-house hydrogen technology that enables us to operate the HENSOLDT site in Kiel independently of the local power grid. This showcase project uses the latest technology for sustainable purposes, and for us it is just the start. ESG is increasingly becoming a driver and pillar of entrepreneurial value creation at HENSOLDT.

On behalf of all the leadership team, I would like to assure all shareholders that we are very aware of our responsibility toward you every day. During the first full year since HENSOLDT’s IPO, we achieved all our targets, brought our projects to fruition, and thus reciprocated your trust. I wish to explicitly thank all shareholders who took a leap of faith and have been with us since our IPO. We will continue doing everything possible to justify your faith in us.

With the warmest regards,

Thomas Müller

At HENSOLDT, all the signs are pointing to growth. This is down to every employee at HENSOLDT. That’s because HENSOLDT innovations are born of the pioneering spirit of the company’s employees and their passion for continuously pushing back the boundaries of what is technically possible. HENSOLDT solutions are born of a willingness to find the best response to diverse and evolving customer needs and requirements in the context of complex projects. HENSOLDT markets are born of the ambition to continuously explore new ground and champion international cooperation. The commitments to nature and wildlife protection, which are rooted in the workforce, offer further proof that the company’s employees embrace the HENSOLDT mission and make the world a safer and more secure place through passion and high tech.

Around 6,300 people from 54 countries work for HENSOLDT across 43 sites. In the 2021 fiscal year alone, more than 700 new members joined the HENSOLDT team. Diversity and equal opportunities – regardless of gender, nationality, sexual orientation, and culture – form part of the corporate strategy mission at HENSOLDT. The HENSOLDT workforce should be just as diverse and rich in different perspectives as the company’s customers around the world. It is also exceptionally important to the company to support all employees in maximizing their full potential. With this in mind, HENSOLDT is committed not only to training and professional development programs, but also aspects of physical and mental health. The company also has a strong focus on increasing the percentage of women in leadership positions.

High tech, relevance to society, and a modern corporate culture make HENSOLDT a highly attractive employer within the defence and security industry. This is not least demonstrated by the company’s employer ratings on independent sites such as www.kununu.de: With a rating of 4.2 and a recommendation rate of 93 percent as an employer (as of December 2021), HENSOLDT is well above the industry average.

• “A flat hierarchy in which everyone’s opinion is valued! A pleasant working atmosphere!”
• “I sometimes get the feeling that employees see the company as their family. We are certainly proud of our work.”
• “I am delighted to have joined at this time and to be able to make a difference.”
• “Unfortunately, the industry is very male-dominated, but the company is aware of this and promotes women and people with different backgrounds.”
• “Excellent collaboration despite coronavirus, thanks to home working and online communication. This strengthens ties.”
• “There are no one-size-fits-all roles. Here, you can really ‘go to town’ in your specialist field.”
• “A brilliant mix that includes everything from new colleagues to old hands who still hold the odd course at the company, despite being retired.”

Echo – employee stock purchase plan

In the fourth quarter of 2021, HENSOLDT launched its first-ever employee stock purchase plan under the name of “Echo,” allowing employees to share even more closely in the future growth of the company. Employees in Germany, France, the United Kingdom, and South Africa were given the opportunity to purchase shares in HENSOLDT at a discounted price, thereby investing in shared future success.

“Echo” was met with an impressive response: Across all four countries, more than 65 percent of employees signed up – clear proof of the workforce’s strong identification with the company and their trust in its strategic direction.

The HENSOLDT Award — the Employee Prize for Team Players

HENSOLDT honors the high degree of identification and the dedication of its employees with the annual HENSOLDT Award. Presented for the first time in 2019, it recognizes exceptional contributions to the success of the company. Nominations and the choice of winner for the HENSOLDT Award follow an integrative process that involves all employees worldwide. Candidates can be nominated by their colleagues. A judging panel — which in 2021 comprised HENSOLDT Head of Communication Joachim Schranzhofer, the Head of Optoelectronics Development Michael Spieweck, Chairman of the Works Council at the Immenstaad site Thomas Höpfner, the Head of the International Setup department Celia Malahlela, and the Senior HR Business Partner Michael Huber, who sadly died in a tragic accident last year — selects the finalists from among the nominations submitted. The winners are then determined in a vote of all HENSOLDT employees.

The winners of the 2021 HENSOLDT Award all demonstrate particularly impressive entrepreneurship, team spirit, and passion. They were voted the best of the best from more than 200 nominations.