CSG's Defense Engine Diversifies into Land Systems and America
Record backlog and a U.S. push mark a strategic pivot for the European defense champion.
CSG.AS · Earnings Call · 2026-08-07
The Numbers Tell a Story of Volume and Margin
CSG N.V. reported a first half of 2026 that surpassed expectations on nearly every line. Revenue grew 17% year-over-year to EUR 3.3 billion, while operating EBIT rose 13% to EUR 784 million, holding a margin of 24.1% — at the top of its European defense peer group. The most striking figure, however, is the order book: “Our total backlog and pipeline reached a record EUR 46 billion.” — Michal Strnad, CEO and Chairman of the Board · 2026-08-07 That is a 15% increase from December 2025, and it gives the company extraordinary forward visibility. The revenue mix is also shifting meaningfully. Land Systems revenue doubled year-over-year to EUR 445 million, and now represents 46% of the group's order backlog, according to CEO Michal Strnad. The company is deliberately reducing its dependence on Ukraine — that share fell from 27% at year-end to 17% — and moving toward a more diversified, higher-quality earnings base. “Europe, excluding Ukraine, is now more than half of our business,” — Michal Strnad, CEO and Chairman of the Board · 2026-08-07 he added, with the United States becoming the second-largest market.Vertical Integration as a Margin Machine
The strategic imperative at CSG is vertical integration, particularly in vertical integration within medium and large caliber ammunition. The company has been investing heavily in propellant plants, TNT production, and now a newly announced nitroglycerin site in Gnaschwitz, Germany. CFO Zdenek Jurak explained why this matters: “Energetics as well as the propellant bimodular charges and others which are setting the range of the medium and large caliber ammunition accounts for around 50% of production costs when talking about 155-millimeter long-range type.” — Zdenek Jurak, CFO · 2026-08-07 By bringing these inputs in-house, CSG expects to cut propellant costs by roughly half once fully operational. On the Q&A, Michal Strnad was even more direct about the progress: “Overall, we are more or less done. We have invested into all the necessary strategical components.” — Michal Strnad, CEO and Chairman of the Board · 2026-08-07 The market is demanding more long-range ammunition, and CSG is positioned to capture that higher-margin mix. The company is targeting 60% of its own 155mm production to be long-range by year-end, up from just over 50% earlier, and expects that share to rise further.Ammo+ and the Copper Puzzle
The other division, Ammo+, saw its EBIT margin recover to 8% in the second quarter after a weak Q1. This is a critical inflection point. Jurak said the margin is now “sustainable, and it should even improve slightly throughout the year.” — Zdenek Jurak, CFO · 2026-08-07 The recovery is driven by price increases in the U.S. civilian market, which have offset rising copper costs. As the largest domestic producer, CSG has pricing power. The company also strengthened its law enforcement position with a $100 million FBI contract and an agreement with the U.S. Army on patent-protected Peak Alloy case technology. With U.S. market volumes rebuilding, the division is back on track.Working Capital: The Final Piece of the Puzzle
The one caution flag in the report is the working capital build. Net working capital at the end of June stood at EUR 2.9 billion, or 40% of LTM revenue. This is deliberate, driven by prestocking of long lead-time components and higher customer advances that will convert to revenue in H2. Jurak was adamant that this is not a structural change: “We are prestocking key long lead time components to secure our supply position ahead of accelerating our deliveries in second half of this year.” — Zdenek Jurak, CFO · 2026-08-07 He reiterated guidance for net working capital to be below 20% of revenue by year-end, implying a release of nearly EUR 1.5 billion in cash. That would be the primary driver of free cash flow in the second half. The company also refinanced its senior facilities, cutting the cost of debt by 125–150 bps and extending maturities to six years, giving it flexibility to fund growth without leveraging up.New Geographies, New Platforms
The most exciting developments are on the strategic front. CSG is aggressively expanding its presence in the United States, with a groundbreaking ceremony for an artillery complex in Iowa, a new Washington D.C. office, and a Wisconsin plant for propulsion systems.Michal Strnad also highlighted the new air defense system Trident, which integrates radar, command and control, and launchers into a unified offering. The company has already won nearly $2.5 billion in air defense contracts in Southeast Asia. In addition, a joint venture with Turkish FNSS will bring the new Karpat tank to production in Slovakia starting in Q1 2027. The company is also investing in long-range drones and missiles through its Advanced Systems division, which is developing propulsion systems that are in high demand. Jurak suggested the contribution from this segment could reach several hundred million euros in the midterm. With a record backlog and a clear strategy, CSG is positioning itself as a full-spectrum defense supplier. The market is recognizing the shift: the stock has consolidated after a strong run, and the fundamentals remain solid. For investors, the key question is whether the working capital burn will translate into the promised cash release in H2. If it does, CSG could be one of the most compelling stories in European defense.No European Defense Group has been trusted with a program of this kind on American soil.