Earnings call transcript: Rheinmetall AG Q3 2023 sees defense growth

Rheinmetall AG reported a robust performance in Q3 2023, with significant growth in its defense business, which offset a flat civilian sector. The company’s total sales neared €9.8 billion, approaching its €10 billion target, and operating results were strong, with an operating margin of 15.2%. With a market capitalization of $58.7 billion and impressive year-to-date returns of 87.7%, the company’s stock performance reflects strong investor confidence. According to InvestingPro analysis, the company appears overvalued at current levels, though the company remains optimistic about future growth, particularly in defense.

Key Takeaways

• Defense business grew by 50%, driving overall performance.
• Civilian business remained flat, with a slight decline of 2%.
• Rheinmetall is focusing on expanding production capacities and digitization.
• The company is investing in future growth, with a workforce expansion planned.

Company Performance

Rheinmetall AG achieved substantial growth in its defense sector, marking a 50% increase compared to the previous year. This surge helped counterbalance the stagnation in its civilian business, which saw a slight decrease of 2%. The company’s strategic focus on defense technologies and expansion in production capacity has positioned it well in the European market.

Financial Highlights

• Total sales: €9.8 billion, nearing the €10 billion target.
• Operating result: Nearly €1.5 billion.
• Operating margin: 15.2%.
• Operational free cash flow: Over €1 billion.
• Dividend: 39% of net profit.

Outlook & Guidance

Rheinmetall projects a 35-40% growth in its defense business by 2025, while maintaining a 19% defense margin. The company aims to achieve €30 billion in revenue by 2030, driven by continuous investment in capacity and technology. This ambitious target is supported by the company’s strong financial health, earning a "GREAT" rating from InvestingPro with an overall score of 3.05. The guidance reflects a strategic focus on expanding its global footprint, particularly in the US and European markets, with analysts maintaining a consensus Buy rating.

Executive Commentary

• "We are now prepared to double our capacity," stated CEO Armin Papperger, highlighting the company’s readiness for growth.
• "Digitization is a big driver for us," Papperger added, emphasizing the importance of technology in Rheinmetall’s strategy.
• "We can grow an operational growth of 30% to 40% per year," Papperger projected, indicating strong future prospects.

Risks and Challenges

• Supply chain disruptions could impact production schedules and costs.
• Stagnation in the civilian sector may continue to weigh on overall performance.
• Geopolitical tensions could affect international operations and market access.
• Economic downturns might influence defense spending and budget allocations.
• Competition in the defense sector remains intense, requiring constant innovation.

Q&A

During the earnings call, analysts inquired about potential German defense budget increases and market opportunities within the European defense ecosystem. Rheinmetall executives detailed their capacity expansion strategies and addressed potential mergers and acquisitions as part of their growth plan.

Full transcript - Round Hill Music Royalty Fund LP (RHM) Q4 2024:

Moderator, Rheinmetall AG: Welcome to the Rheinmetall AG Fiscal Year twenty twenty four Report Call followed by a Q and A session. We apologize for the technical issues. May I now hand over to the speakers?

Armin Papperger, CEO, Rheinmetall AG: Thank you very much. Good afternoon, ladies and gentlemen. Twenty minutes later as planned, but welcome to our full year twenty twenty four conference call. I appreciate your time and that you join us today. Looking back last year, and it was a really remarkable year for Rheinmetall.

Before we dive in into the details, I’d like to take a moment to welcome my new colleague, Klaus Neumann. Klaus Neumann is our new CFO. Klaus brings very deep expertise and a strong track record, and I’m very, very happy to have him in the team. And I’m confident then that he will be a tremendous asset to Rheinmetall as we continue our growth journey. With that, now let’s start.

But before we move into page three, please be advised of our legal disclaimer on page number two. Now let’s go to page number three, and you have here the group highlights. On the sales side, it’s around €9,800,000,000 We have another €250,000,000 ready products and but we had a delay on the ships on the delivery, so it was impossible to take it into the turnover. So with that, we would be 100% fit of the expected EUR 10,000,000,000, but we are around EUR $10,000,000,000 Operating result is nearly $1,500,000,000 with 1.478% plus of 61%, so that our operating margin is 15.2%. It’s very important also on the sales side that we are very flat on the civilian business.

So that we have a growth rate of more than 50% on the defense business, zero growth or it’s exactly minus 2% on the civilian business. So on the operating margin, we are on the level of 19% in defense, which is the most important figure also for us. Applications, we at the moment has I don’t speak about full time equivalents, but I speak about people. At the moment, we have around 32,000 people on board. We had more than 250,000 applications.

And our expectation that over the next two years, we will grow up to 40,000 people who work for Raimata. Operational free cash flow is extraordinary good because as you know, we have strong investment programs. And even if we had this investment program, the operational free cash flow is more than $1,000,000,000 And the Ramirothal nomination, there is another delay that we have in, as you know, for digitization, nearly 10,000,000,000 which came in, in February, which we expected in December. But sorry, we have a six weeks delay in this area. So that nomination is the 26,000,000,000 and not the expected SEK 38,000,000,000 that we discussed last time.

So the Rheinmetall backlog is also on SEK 54,000,000,000, so expectation was SEK 60,000,000,000. We could reach the 65,000,000,000 if we see the delay of six weeks on the digitization if we add that. And the positive thing is also the dividend. We bring dividend from to which is on a level that we always discussed between 3540% of net profit. We are at a level of 39% of net profit.

Now let’s go to the next slide. On the next slide is and I think it’s not new for you. Europe has to grow to emancipate itself. And the Americans gave a very clear sentence on the Munich Security Conference. Vice President said, you have to invest, U.

S. Will not longer protect you. So we felt immediately reactions. And over the Munich Security Conference, I personally had 42 meetings with prime ministers and ministers, and they gave us a very clear picture that Europe is willing to invest and we will invest much more. So we prepare ourselves for and we call it CYTENVENTE II.

And we discuss a little bit later about CYTENVENTE II, what does it mean for Rheinmetall, what does it mean for our business? But on CY-twenty two, a very important man will be and I think it will be the new Chancellor of Germany, Friedrich Mads. And he said, we have to invest into defense for whatever it takes. So the new rules of regulations that all defense spending is above 1% of the GP would be not part of the debt break restrictions is a very clever move. And if next week we have a breakthrough with that, that the parliament, the old parliament makes that decision, I think then we can have over the next two, three months a lot of stake in negotiations with especially the Ministry of Defense.

What does it mean for the industry in Germany, for the industry in Europe and especially also for Rheinmetall? Because as you know, last time we had a 42,000,000,000 list about that and I still have my list ready, but we only can speak about that after having the decision of site and vendor two. So the next page gives you now an overview about our simulation. So we made our simulations. We prepared ourselves.

Immediately after Munich Security Conference, we made that simulation. I had several chats. I spoke with Mr. Merz. I spoke with Mr.

Rutte. I spoke with a lot of ministers about that. And most of the people told me the minimum width should be 3% and the maximum I see at what we see at the moment is 3.5%. But even if you go on a level of 3%, so we simulated the GDP on the European countries. And if you have a look to the 3%, you will you see that from SEK $790,000,000,000, it will grow up to SEK $831,000,000,000.

If it would be 3.5%, some countries, but smaller countries will spend more than 3.5%, it will grow up nearly to trillion, so it’s billion. It’s an unbelievable figure. The second point in our simulation is that the fixed costs for personal and other things will not grow as much as if you grow from 2% to 3% so that the investment rates, yes, will grow at the moment from a level of 31% to 40% in the first years because then the personnel will cost will also grow maybe also up to 50%. So in 2025, ’20 ’20 ’6, level of 50% and later is on 40% of equipment spendings, which is going up. If you calculate all that things, then we calculated what is the annual potential of Rheinmetall.

And I make the story short. There is a potential between $300,000,000,000 and $400,000,000,000 a potential, very clear. Last time, we spoke also about a potential of $42,000,000,000 Now it’s nearly 10 times bigger, a potential up to 2,030. Don’t kill me if it is 2,031 or whatever, but it’s a huge number and it doesn’t matter if it is 300, if it is 400, it’s much bigger than the first let’s bigger because Zeitung Wender one was a typical German thing and Zeitung Wender two will be a European thing. So this is a big differentiator and therefore the potential is much higher.

Now we simulated another thing. Is it possible to grow as fast? And a lot of discussions say, yes, we have to buy from America and whatever then. It will not happen because I can tell you especially in the equipment that we have, the Americans don’t have the capacity. So we will have a bigger capacity over the next years than The United States will have.

So that is impossible. So we have to grow and we have to invest more. But later about that and also for sure in the Q and A because for me, this page is the most important page also for the future, what happens over the next five years. Coming back to 2024 because this is the main issue that we have today. So the backlog, as I said, is growing from $38,000,000,000 to $55,000,000,000 In between, we are on about $65,000,000,000 so from today on.

And you see the top 10 nominations, and I only have a look to the three big things. This is the frame contract 01/1955, which is also very good because now it is not longer a frame contract because if everything the next week is going on green lights, it’s good for us because then the frame contracts immediately could come into fixed contracts if the government wants. So this is also a very important thing because then they have a much more budget under control. Then the frame contract of UTS, and I expect there is much more in now for the trucks because Germany needs 25,000 or more trucks. So in between, there is something about 6,000, seven thousand trucks, but you see there is much more in also for us.

So our capacity is also growing very strong and we have a truck capacity now of more than 4,000 vehicles per year. And the heavy weapon carrier, especially on the German side, this is a contract government to government with Australia. We prepare everything at the moment to deliver heavy weapon carrier also in time. So in a nutshell, backlog is fine. Backlog is exactly what we expected.

Again, sorry, we have a delay of six weeks about that things, but you never ever can plan so exact if it is year end decisions. And but we are very happy to give you that information that we are absolutely online. So if you go to page eight, here you see the next phase in Ukrainian localization strategy. And at the moment, on the localization side, we expect for this year air defense for 300,000,000 vehicles and this is the links to implement the first VLINK vehicles. It’s $200,000,000 and the big pile again is ammunition.

And on the ammunition, we will get the first contract for production now in Ukraine because as you know, we are on the way to build up the factory in Ukraine and this is $1,500,000,000 So a potential of $2,000,000,000 on the Ukrainian side paid from the Ukrainian government. So we are strong at the moment. I think what we learned, we are we were the only industrial team who got also a meeting with President Zelensky on the Munich Security Conference. You see some pictures there. And the maintenance is really running very well at the moment.

So Motor is running, Leopard one is running, Leopard two is on the way. Ammunition production, as we said, we started to build up the production lines in 2026. That will be the next step where we have SOP and the SkyRanger on Leopard one and additional Skynnex systems will go to Ukraine. The SkyRanger on Leopard one will be an outstanding system for them because it’s on the front line. And on the hotspots on the front line, we can catch auxiliary rounds, we can catch all the UAVs, as you know, in a distance of four cross four kilometers.

So a corridor of eight kilometers is relatively safe. And it’s a very important discussion that we have with the Ukrainians, because there is at the moment there are some people create a narrative at the moment in Germany that UAVs are the changing strategy about these things. So with that system, UAVs are very easy to catch. It’s a point and it doesn’t matter if it is an intelligent drone or if it is a dump drone because it doesn’t matter for the system. It kills all the drones.

And this is a game changer, as I said, in that area. But the Russians don’t have it at the moment, and that’s good for the Ukrainians. So the group sales, the revenue over the next years will be always on the level of about 13% for Ramatap. If you go to Page number 10, joint venture is established by end of Q1 twenty twenty five. We have an interim joint venture now, an interim company that we can go into the negotiation with the contract.

And the first prototypes will be now delivered in Q4 twenty twenty five. The first links was end of last year in Italy. We made the first firing test on that. Government is very happy about that. We will build more than 1,000 links with 16 different variants.

And the peak on the peak side, we will produce 150 of vehicles per year. And you see that we’ll grow in 02/1930. ’2 thousand and ’30 ’1 will be going up to a level of 150, one hundred and 60 vehicles. And it’s slowly going down, so that we are then on the level of 100 vehicles. So very good contract up to 02/1940, which helps us a lot starting in 02/2008, really serial production and then going up to 02/1940.

So it’s a twelve years program with revenue for both companies for Leonardo and Rheinmetall of $23,000,000,000 So it’s about $12,000,000,000 for Rheinmetall. Next page will show us the strong growth path ahead of The United States Of America. As you know, we the acquisition of Log Performance helps us a lot at the moment to book new businesses. In The U. S, The U.

S. Guys, The U. S. Boys are at the moment grabbing new contracts going into the planning side to fill the factories. We have huge factories.

We have more capacities that they have. But I must say it’s outstanding what they are nearly part of every vehicle program in The United States. So and we have such a lot of tanks standing there in our factories for maintenance, for other things where we have where we implement a bunch of new things, where we sometimes have some $100,000 but sometimes also some million on refurbishment work on these tanks if it is AMPVs or if it is infantry fighting vehicles. It’s really outstanding and our expectation is was not as high as we at the moment The U. S.

Boys are doing. We are in very good shape there. So and we want to grow up. And this is without the big programs in 2027 in The United States to more than $2,000,000,000 But if we are able to win XM30, it will be much higher. And at the end of the day, we can grow up to about 5,000,000,000 over the years.

So in 02/1930, it’s a high expectation from us to grow strong. So the next pictures show you now our expectations up to a vision 02/1930. And this picture is a clear picture before site and vendor two. This is our calculation site and vendor one. And the first is on the Vehicle Systems side.

On Vehicle Systems side, we grow from SEK 3,800,000,000.0, have a growth of 35% to 40% in 2025. The expectation for 2027 is $8,000,000,000 to $9,000,000,000 and in 02/1930, it is more than $10,000,000,000 and if we win one of The U. S. Programs, it’s much more of 10,000,000,000 But if CytanV2 comes and if everything what I heard in between that there are really ideas that you say, okay, now we order 1,000 vehicles of that type or whatever, then it’s totally different figure. I cannot say more about that because we have no details from the government.

But if that works, yes, we need much more capacity and we have to invest much more and then the numbers are much bigger. Page 13 is weapon and ammunition. So we will grow up again from $2,800,000,000 to with a plus of 3530% to 35%. This is, as you know, strong and quick joining business. So if we get contracts here, we will we do everything to fill this contract to fulfill this contract as soon as possible.

But only if you see that, there’s only some expectations. If we have $2,024,000,000,000, we nearly made billion with artillery. So this is the biggest driver or we made 2,000,000,000 with artillery. So we grow up strong in that area and the capacities in our artillery are now growing because we start next month the production in Ontellus for Wachnidazaxsen. And we now made a new calculation in Ontellus, and we made an investment in bottlenecks.

And in between now in Uyntolus, we are ready to produce 500,000 shells. First of all, the first calculation was 250,000. Now on the shelf side, it’s going up to 500,000 because we made some extra investments on the bottleneck side. And now we have to make also a special ink for hardening the ammunition. This is a tempering effect.

If we invest in these areas, my expectation is that from $250,000 we can grow up to $350,000 and maybe more rounds also in Nuntales. So there is enough space if the contracts are coming to grow faster. But in the Vision 02/1930, it’s also EUR 10,000,000,000. And a very strong driver is over the next year is the digitization and also Air Defense. As you know, we have a new structure in that area.

And the Vision 02/1930 here is always, as I said, it’s the picture of Site and Vendor I and not Site and Vendor II is more than $6,000,000,000 So that in total, this expectation is around and the sub civilian business of $2,000,000,000 or $2,500,000,000 so around $30,000,000,000 in 02/1930. So the growth rate that we have is only in defense, and that means that at the moment, we dilute ourselves with the civilian business because the profitability is 4% to 5% in this area. And with growing on the defense side, we grow also the group profitability strong. So if we stay on a level of 19%, twenty % EBITROS, growth, everything is limited. Yes, you cannot grow more and more and more in these areas because we want to give also fair prices to our customers.

But it is possible, let me say, to be on a level of 19% or 20% because of the vertical integration. The $30,000,000,000 is under tightening one a good, let me say, vision. Next page shows us Power System and very depressed market environment. It’s at the moment very hard for our people to work in that areas. No growth, a lot of pressure on the prices.

And as you see from ’23 to ’24, we had a decline of 2% and we are now around 2,000,000,000. We make no loss. And as I said, the loss is always between 45%. So in this area, that’s not comparable to the defense business. But I must say very hardworking people in this area.

They and what we do is we try to make a transformation now also to for some factories from the automotive side to the defense side to use our people, our well educated people to take care about them and to transfer these people from defense from automotive to defense. Now I will take over to Claus and Claus takes care about the financials.

Klaus Neumann, CFO, Rheinmetall AG: Yes. Thank you, Armin. Thank you also for the kind introduction. I will have start with a look at the overview of our group KPIs. As Armin already mentioned, we had very strong growth in sales and also on the operating profit.

We closed the year with very strong set of results and more importantly, we delivered on what we promised during the year. Sales growth was about 50% compared to previous year. And as you can see on this slide, although there is some impact from M and A due to our acquisition of XPEL in 2023 and lock in 2024, the overwhelming driver for our growth in profit and in sales is our operational performance. And also you can see that basically our Civil business, as mentioned, is relatively weak. We have filed more or less stable sales with a slightly declining margin.

Operating results rose by EUR $560,000,000 to almost EUR 1,500,000,000.0. Overall, this is an increase by 61% that led us to an operating margin of 15.2% compared to 12.9% in the previous year. The main driver was clearly the performance in our weapon and ammunition division. Overall, the defense margin for all divisions was about, as mentioned, 90%. One element that basically drove the results for the group outside the civil and the defense business was a one time effect in other than consolidation of around EUR 50,000,000 profit in Q4.

Moving on to the next page. As mentioned, we have the strong growth in profitability is also the driver for the increase in our EPS. This is EPS from ongoing activities pre PPA that uses as basically also the main benchmark to derive our dividend proposal. We propose per share to our Annual General Meeting in May 2025. This proposal is consistent with the approach for 2024 as it rents about 39% of our benchmark EPS.

Let’s turn to page number 19. We did see a strong improvement in our Ramey Termination numbers, as you can see. It’s very strongly driven by hard orders of about 16,500,000,000.0 of which basically are almost 4,000,000,000 basic converted from frame contracts that we have already booked earlier. Taking it away the almost EUR 10,000,000,000 from sales, we get to the EUR 55,000,000,000 parameter nomination as mentioned earlier. In the increase, we also have EUR 1,200,000,000.0 of order backlog, Raimentai nomination coming from the acquisition of Log Performance that came in at the November 2024.

Let’s look to Page 20 for a detailed look at our operating free cash flow. It was a very strong performance in 2024. In previous years, the main quarter that is relevant for our operating cash flow was the fourth quarter. We managed to achieve almost EUR 1,000,000,000 in Q4. So in total for the year 2024, we exceeded the EUR 1,000,000,000 threshold for the first time in our company history.

It’s a very strong number considering our investment in future business through CapEx and basically increase in inventory to support our future

: growth.

Klaus Neumann, CFO, Rheinmetall AG: On the side to the right, you can see basically developed on our working capital. As mentioned, we invested strongly in inventory for future growth that makes about $750,000,000 that was compensated by very good payments from our customers towards the end of the year on basically on invoices for deliveries in Achieve milestones, but also because of good payment conditions that resulted in prepayments that essentially improved our working capital and basically is a main contributor to the strong cash flow in 2024. Let’s turn to Page 21. To look at basically on our debt position, we are very solidly financed. We have on the financial position a net financial liability of around EUR 1,200,000,000.0, but it’s important to consider that a large part of it is the convertible that we issued early in 2023.

As a result of our strong share price performance, holders of the convertible are starting to convert the debt into equity. And we expect that a large portion of these convertibles will be converted throughout 2025. So in a positive scenario for 2025, we might have no debt at all by the end of 2025, considering our expected strong cash performance also in this year. Net debt to EBITDA at the moment is 0.71%, but that already includes the still includes the convertible that will be kind of converted into equity. During the year of 2025, further improving our ratio on the asset side.

Let’s change to page twenty twenty two. This is a summary of basically all our divisions with a strong performance in the defense segments. You can see the very strong growth in all of the divisions from the Ecosystems, Weapons and Embedded and Electronic Solutions. The stable situation in Power Systems leading to an overall growth of 36% in sales for Grimetal. And also it’s quite clear that the main driver for our profitability is defense with an average of 19%, supporting our profit margin of 15.2% for the group.

This closes my presentation and I hand over to Armen for the outlook.

Armin Papperger, CEO, Rheinmetall AG: Thanks a lot. Thank you very much, Claus. Well done. On the outlook side, let’s go to page number 24. And you see that quarter first in 2024, we had 3,900,000,000.0.

The first quarter for the outlook, we expect around 12,000,000,000. Most of them is still booked because it’s the Tawada and the social system, so the two digitization. By the way, that’s a breakthrough strategy now for Ramitar. Digitization is so important for us. And over the last twelve months, we could book now $15,000,000,000 for digitization.

And this will be not the end. This is only the starting point because we now have our apps inside. We now have our algorithms inside the systems, and we want to go that strategy that we go with the German government, also with other governments in Europe, and there is a good chance to go forward. So digitization is a big driver. So what are the next programs on the vehicle side?

We expect and again, I say it again, even I don’t want to be boring for you, but it’s a slightly under one. If we get next week a decision, green light for everything, we press the button and then we think that over the next three, four months, we have a chance to really to book huge numbers if everything is going right. But we are now on that level because there is no decision. Boxer with turrets in Germany, Panther and Lynx with Italy and Boxer in Middle East is around SEK10 billion on the vehicle side. Medium Coliva $155,000,000,000 and 40 millimeters around $3,000,000,000 Air Defense is $3,000,000,000 Then links for Romania, Ukraine, etcetera, etcetera.

This is a potential that you see on the right side. So we expect SEK 40,000,000,000 is another, let me say, good year in order intake. And the book to bill ratio is extraordinary good. Was last year very good and is also this year extraordinary. So let’s go to the next page, in Page 25.

We see now where we are and the current annual production capacities on the tactical vehicle side is around 1,000 vehicles. We can grow very strong in most of the vehicle production lines we produce in one shift. And so we have much more capacity and with and the capacity is growing if we are ready with the preparation in The United States. So in The U. S, our expectation is that we are able to produce 203 vehicles on top, so that our tactical vehicle capacity would be growing up to 1,300 with USA, so that’s very positive.

The logistical vehicle capacity is ready. We prepared everything. We invested everything and there we are on a level of 4,000 vehicles. So what does it mean with 4,000 vehicles? We are on a level of 2,000,000,000 between, let me say, conservative 1,500,000,000.0 and 2,000,000,000 sales only on the logistical vehicle side.

155, so we are ready now on a level of 750,000 rounds as we always said, and we grow up to 1,100,000 rounds. And there is one point which is very important also for investors. The Ukraine gave us a very clear picture now. They need usually during war minimum three better more than 3,000,000 rounds of artillery. If there is peace, if we have ceasefire, they need over ten years one point five million rounds artillery.

And the Ukrainian government asked us if we are able or willing to build up a factory in the Ukraine to produce 1,500,000 rounds. This would be 15,000,000 rounds over 10 and that would be nearly a 50,000,000,000 compound. So this is not in our figures at the moment. But this is what the Ukrainians need because they have to prepare themselves and this is what the government told us. They have to prepare themselves even if there is ceasefire for the next war because they believe that the next war will come up.

The new plant in Oontolus is nearly completed. So we needed thirteen to fourteen months. So we are a little bit lazy because we said we want to do it in twelve months, but we need fourteen months. So we had smaller delays, but it’s really smaller delays. And the Lithuanian plant groundbreaking in February is done.

And we will also produce now over the next fifteen months in Lithuania. In fifteen months, sixteen months, we will produce in Lithuania also artillery. This brings us another we calculated 75,000, but it will be 100,000 or more than 100,000 because what we learned now in Unterloos is that in some areas, we can double the production. If we invest a little bit more, really some million, we can double the production. And this bottleneck analysis we do at the moment for all factories around the world because never we never expected that the second one, the two program will come as first, and we have to do it now to prepare ourselves to grow faster.

On Rocket Engines, we have the groundbreaking now. In Q2, will be the groundbreaking for that. The planning is ready and the permissions are on the way. Also for that, we try to do it as fast as we did on the auxiliary side, but the sales contribution will start in 2027, but you really will feel it in 2028 because it’s a little bit longer to with that technology to produce a rocket motors in Honduras. We also do investments for the PULS rockets, the long range auxiliary rockets from Israel in Spain.

And here we are faster and here we will be ready end of the year to produce the first rocket engines in Spain. But it’s on a smaller level than in Germany. So in Germany, we are able now to grow up to 5,000 of this rocket motors, which will bring us if we have if we drive the factory in full capacity, we can make 2,500,000,000.0, maybe $3,000,000,000 per year on that. F-thirty five is then the lost information on that page. We really build it up in record time, one point five years the fuselage.

If The U. S. Build it up in California, they needed four point five years. So it’s Nordstrom and Lockheed said it’s unbelievable what happened here. This new German Geschwindichkeit, it’s Rheinmetall Geschwindichkeit is absolutely great.

So we love it. And all the audits at the moment, we passed all the audits and we got nearly full points in all the audits. So very happy and very grateful about the team. The team is doing a great job there. The first deliveries, we start production in July, and the first deliveries must be then in 2017 or end of twenty twenty six.

So if you go to the next page is that you see that we create a European defense ecosystem. So we want to implement nearly all countries who want to cooperate with us. And these countries who cooperate with us, we create thousands of jobs. And this is now from Ukraine to Great Britain and from Spain and Italy in the South, going up to the Baltics and Estonia and Latvia is also looking at the moment. And there is a new opportunity to build up new factories also.

We gave an offer to Denmark. We gave an offer to the other two Baltic countries. And they are very interested to create also jobs in their countries. So a true Pan American Pan European player, but also a transatlantic player with the investments that we have there. And we are, I think, we can say a strong driver for European consolidation because we do the consolidation via our products.

We don’t do the consolidation only to buy the companies, but also through our products to grow so strong that at the end of the day, the market will make a decision about the consolidation. If you have a look to the next page, Page 27, we can say that we had a very strong start in the new year. The strong start on Tavann and Soldier Systems, as we said before, brought us an order intake of nearly $12,000,000,000 in Q1. And the sales growth is in line with the guided annual growth rate where we said on defense side to grow 35% to 40%. Profitability is still good for sure because these are the same contracts than before.

Operations is doing very well. The organizational changes that we made to have now a COO and Rainey is doing a great job there as COO to find opportunities also to make acceleration in the programs on one side and to find also profitability on the other side because acceleration means that we also should have synergy effects and this is really, really good. On the other side, Ursula, Bernhard is doing a great job on the HR side. We never ever had such a lot of feedbacks from the HR side. Young people want to join us, highly motivated areas.

And I’m very happy with my colleagues to work for Rheinmetall and very grateful also for that. The cash flow, as you know, last year we had a brilliant cash flow, more than 70% cash conversion rate. And the high cash for Rheumatal nomination, it will stay. And we expect only for TOWAN a down payment of nearly $500,000,000 in the first quarter. So it will start very well, so that we are still in good shape.

And as Claus said, it seems to be that end of the year, we are debt free. So and so we have more firepower. And with more firepower, we can have a look on one side to more investments to enlarge our factories. And with more firepower, we also have the opportunity on the M and A market to say, okay, we can buy more companies. And we prepared always between $1,000,000,000 and $2,000,000,000 per year with from this firepower for M and A, and we are looking for the right partners for us, which where we can grow our business.

So let’s have a look to the next page, Page 28. So as I said, 35% to 40% defense growth, flat civilian business. And we prepared that because that’s more important for we think more important for you, because our civilian business for sure is not the driver for business over the next years, absolutely not. Now the first question is always, what is the reason that you guys are not selling the civilian business? It’s at the moment really hard to find a good partner for that.

We have to also look to our people. And we have thousands of people who are working hard, very, very hard on this civilian business. And believe me, we take care about them. And the point for us is we only want to sell some of our business if we find the right partner. Operating margin on the Defense business, and this is also important at the end of the day, will be also around, and this is what we expect 19%.

And there is maybe something in over the next years. And but we discussed it also last time. Is it 2019? Is it 2020? I think it’s not the most important thing, but it is possible because there is also leverage effects.

And on the operational free cash flow, we want to stay on this level to have more minimum 40%. As I said, 70%, seventy one % cash conversion rate last year is an outstanding figure. So thank you very much for your time. And now we can go to the Q and A. The floor is yours.

Moderator, Rheinmetall AG: And the first question now comes from Sven Weier, UBS.

Armin Papperger, CEO, Rheinmetall AG: Mr. Weier.

Sven Weier, Analyst, UBS: Good afternoon. Thanks for taking my questions. The first two relate mostly to Slide number six, which I found quite useful in terms of the nomination potential that you see. The first question I have, Mr. Papaga, is in the footnote you say you assume a capture rate of 20% to 25% of these investments.

I was just curious, I mean, we all know that the NATO capability review is currently on and when you look at some of the features you obviously look like you could be a winner in this. So I assume that the 20% to 25% capture some of this already or how have you gone about assuming this market share? That’s the first one. Thank you.

Armin Papperger, CEO, Rheinmetall AG: Yes. Yes, Mr. Weier, the point of us is, as we said, it’s a simulation. And what is the in Germany, we can catch more. But in Europe, there are some countries, let me say, like France, where we are not very strong.

So that is the reason that we said in total with all the information that we have, let me say from Norway to Spain and from UK to Ukraine, This is the best guess that we have at the moment to calculate it in that way. But if you ask me, is all the $300,000,000,000 better or the $400,000,000,000 better, I must say the reason that we have that range, we don’t know it better. But what we need is, we need our first indication to go into our planning for investments. But if that happens, we have to double our ammunition capacity. If that happens, we have to double our vehicle capacity.

And to be very clear, it does not longer work with the factories that we have. We have to do it like work Nieder Sachsen and work Aschau and Weze and all the other things. We have to build something and we have to do it as fast as we did before. And that is the reason that we share that information with you, yes? It’s very clear that this is not our planning, but this is our simulation for the future, but we have to prepare ourselves.

If we don’t prepare ourselves, if I don’t prepare, okay, what does it mean if we bring Ontellus from 250,000 to 500,000 rounds, if we bring Ashau from 4,000 tons to 8,000 tons or whatever. I’m not prepared. I want to press the button if the customer says go run, then we have to run. Is that fair?

Sven Weier, Analyst, UBS: That’s quite fair. And I was just wondering, I mean, would you generally agree with me that what we have seen in the NATO capability targets that have leaked in our last year seems all quite in your favor, right? So it’s probably fair to assume that your market share could be quite good on these targets.

Armin Papperger, CEO, Rheinmetall AG: Or is

Sven Weier, Analyst, UBS: that still going to be the determinant factor, the capability targets now? Or do you think there’s something else? Or what should we expect there?

Armin Papperger, CEO, Rheinmetall AG: No, it’s look, if more is coming out about that, it’s always fine. But the range is very big. From between SEK 300,000,000,000 and SEK 400,000,000,000 is a big beast. And as I said, we catched from the first SEK one hundred billion, dollars we catched $45,000,000,000 if you count up everything. So and if you see what happens now, now the opportunity is 10 times bigger than before.

That’s a big piece. Please don’t hit me if it is 300 or 400

Sven Weier, Analyst, UBS: No, I won’t. The second question is just in terms of this slide, how that translate into thinking about revenues because I remember after the Munich Security Conference, you said we can do SEK 30,000,000,000 to SEK 40,000,000,000 by 02/1930. Now we had the German elections. We have the Saipem Vande two point zero. I mean, I would guess if you have like a minimum nomination of SEK 50,000,000,000 per year in each year until 02/1930, that also your revenues will kind of hit that level at some point, I guess.

Armin Papperger, CEO, Rheinmetall AG: Yes. You are 100% right, but the point is too early. Please give me three or give us as team three, four months after having the chance to speak with the ministers about that to have clear. You know that in June, July, there will be a new NATO Convent. And I spoke with Mark Ritchie about that.

And Mark said to me, I mean, I give you in July latest all the information what we need, the need of NATO. And with the new budgets of the European countries, I think we have a very, very good Capital Markets Day end of this year to give you a very clear overview about that. It’s too early. It’s only too early to say for us. And I as you know, the hit rate that we in Rheinmetall we have is not so bad.

So if I discussed, I remember, three years ago, a lot of people told me, if you say, hey, Papager is crazy because he gave us SEK 42,000,000,000, never ever happens, it happened. So our hit rate was not so bad, but give me a little bit time because I want to be as precise as we were before.

Sven Weier, Analyst, UBS: I’ll try to be patient. Maybe the last question, if I may, because you touched upon the consolidation aspect, right? And now we also saw Chancellor Scholes pushing for big defense mergers. I mean, I guess the elephant in the room for you guys have always been KMW, KNDS. I think last time you tried was before the Ukraine war.

Now we can publicly read that KNDS tries to go to the market. I mean, do you think that brings in a new momentum to the debate or so far no change?

Armin Papperger, CEO, Rheinmetall AG: Maybe. But at the moment, there are no discussions. I think it’s a very easy thing if KNDES goes to public and if then there is an opportunity and if we see an opportunity to do something, then we will do that. At the moment, we have all technologies under control that we need. And at the moment, we can grow as much as possible to invest a lot.

And the expectation is surely also that there are some a lot of billions we have to pay for that thing. At the moment, we invest that and enlarge our capacities. We don’t must invest it in other things. And it’s the same on the submarine side, but we said, okay, we stay on our way. If there are opportunities that we can buy and if it really works and if the payback is good enough.

Look, as I always said, if there is a payback of ten years, we don’t need it for that. But if there is a payback of like XPEL, and we at the moment have a payback of a little bit more than three years, that’s a great investment for my investors and that’s a great investment for Rheinmetall.

Sven Weier, Analyst, UBS: Sounds good. Thank you very much, Mr. Papager.

Armin Papperger, CEO, Rheinmetall AG: Thank you,

Moderator, Rheinmetall AG: The next question then comes from Christoph Laszkavi, Deutsche Bank. Please go ahead.

Christoph Laszkavi, Analyst, Deutsche Bank: Good afternoon. Thank you for taking my questions. Hi. A bit of a follow-up to what Sven just asked, slightly differently phrased though. You talked about doubling capacity for what is potentially needed when we look at the scenario analysis that you have provided.

How quick could you do that? You already gave helpful comments on smaller investments that you did that could raise capacity in some areas quite meaningful already. Is that, say, a 20%, twenty five % capacity increase that you can get through that? And the rest would be essentially need to be done through greenfield investments on the capacity side? And then where would you see the bottlenecks on Amor?

You are vertically integrated quite a bit on vehicles that looks slightly different. If there are bottlenecks in the supply chain or also in certain components like, for example, barrel production, etcetera, if you could comment on that, that would be great. Thank you.

Armin Papperger, CEO, Rheinmetall AG: Yes. The point is there are no real bottlenecks to say, okay. What we said is as we made this bottleneck management, the bottleneck at the moment on the ammunition side is securing equipment, but this is only ovens, yes. We buy some more ovens and then we are able to do the curing is the curing time is at the moment the bottleneck on these things. Shells is absolutely nothing.

No bottleneck. We can produce millions of shells in such high capacities. We have three presses in Spain. We build up two presses in Honduras. We have two presses also for shells in South Africa.

So we have such huge capacities, bigger than any other one. So this is unbelievable what we can do. So really, I think we can produce 2,500,000 shells if we want. So we are there we are still there to double everything because our target was 1,100,000. Curing is the second point.

Then there is one bottleneck on filling capacities. Pressing of explosives is another bottleneck, but this is easy investment. So buy another two presses and you have doubling the capacities. It’s only investment. It’s only money.

It’s no technology. So this is the point. And a room we created a lot of room for that, so we have space and we have production lines. Another bottleneck is to store for storages. But what we do is at the moment is we build up new storages, for example, in Bavaria.

This is in our plan that there are new storages for high explosives and for ammunitions and for charges that we build that up and we buy whatever we can buy worldwide. And we use also the storages of some governments. For example, we have storages in Romania. The Romanian government is giving us storages, and this is only logistics. It’s only transportation that we have to do.

So we take care about that. So the other the biggest bottleneck ever on the ammunition is like always is powder. But in powder, we are investing a lot at the moment. So there is a huge program at the moment running to and we doubled the capacities in South Africa and we still double again the capacity, especially for modular charges and for artillery charges in Bavaria, where we have a very, very big investment program. The total investment program in Bavaria is on a level of EUR 400,000,000.

And this is important, and we prepared ourselves. And to be fair enough, Mr. Lascavi, so if the customer needs 2,000,000 rounds, we make another 200,000,000 investment and we double it again. So this is the point we still have space. We buy some space also.

This is a point which is not a bottleneck because we get from the states like Bavaria or whatever a lot of help at the moment to create a larger plot so that we have space for all that things. So steel is absolutely no problem. So we have enough steel under contract. So if I do everything at the moment, and this is what also our new purchasing director is doing, and we prepare ourselves and we will take money in our hands to fill the stocks again. And we prepare ourselves for the next year.

We do the same what we did before that we are able to stay on a growth level of 30% over the years or more. Is that okay for you?

Christoph Laszkavi, Analyst, Deutsche Bank: Thank you. Just a follow-up on that. So it sounds like you would be able to double capacity in call it three to four years from here by 02/1930?

Armin Papperger, CEO, Rheinmetall AG: That’s right.

Christoph Laszkavi, Analyst, Deutsche Bank: Thank you very much.

Armin Papperger, CEO, Rheinmetall AG: We are now prepared to do it. We are now prepared to do it. But if you said, if we really press the button again, we now double it. So we have a four times higher capacity. Everything what is in plan is that we double the capacity.

But if we start press the button again after the next two months, then we have four times higher capacity.

Marie Ange Riggio, Analyst, Morgan Stanley: Okay.

Moderator, Rheinmetall AG: Then the next question comes from George Macquarie, Berenberg. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG: Hi, George.

: Good afternoon. Thanks for the questions. At a high level, what level of defense spending as a share of GDP does your 2,030 vision assume in Europe? And the second question is just on the German defense budget, specifically, what share of the procurement budget do you expect to capture in the coming years? Thank you.

Armin Papperger, CEO, Rheinmetall AG: My expectation is 2.5%. I’m not so optimistic like Mark Rutte. I think that the Europeans in the meal value will spend 2.5% in the mean value. And let me say, if you because I have not a glass pole, yes, but let me say maybe between 2.53%. That is my expectation for that.

And the second point is that we stay in Germany on a very high level. And as I always said, we catch big parts from the German side from this 100,000,000,000 Sonder Vermogen number one. And on the German side, in total, I think it should be possible for Rheinmetall if all the frame contracts and all the things converted into fixed contracts that is still on a level of more than 30% in Germany. Is that fair?

Christoph Laszkavi, Analyst, Deutsche Bank: That’s great. Thank you.

Moderator, Rheinmetall AG: Okay. So the next question comes from Marie Ange Riggio, Morgan Stanley. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG: Hi, Marie Ange.

Marie Ange Riggio, Analyst, Morgan Stanley: Yes. Hi. Thanks for taking my question. I have some follow-up question as well on the Slide six and especially on the fact that you will capture 20%, twenty five % of the market share in Europe. Is it fair to assume that basically the 20, 20 five percent of the market share is likely to happen by 02/1930, meaning that you are increasing your market share from now to 02/1930?

And if yes, do you have any idea of what is your current market share in Europe? Just to have a rough idea on that. So I have another question around what can feed basically in Rental P and L because indeed your calculation of equipment spending, so it represents 40% of the total budget. How much do you see will be spent in Europe? I know that you have said that basically a lot will be spent in Europe, but do you have any number around this $300,000,000, 4 hundred million dollars if you believe 100% will be spent in Europe or more 50%?

And just if the volume goes like such in a high level, how do you see your margin evolving by 2020? Thank you

David Perry, Analyst, JPMorgan: very much.

Armin Papperger, CEO, Rheinmetall AG: Yes. So let me start with on the margin side. I think that the prices that we have, it doesn’t matter if it is digitization, vehicles or whatever. The prices are very clear. The prices, as you know, the profitability on the munition is only high, and we discussed it in Mayank several times because of our vertical integration.

And so that will stay on this level. So I believe that we can stay on that level because our competitors, yes, most of them or nearly all of them are not so vertically integrated. So margin will stay. Is it possible to find a little bit more leverage on this? Maybe yes, because if we buy in more if we double, let me say, the purchasing, we have more purchasing power.

And then we want to look for that and maybe we can find another 100 basis points or whatever. But I’m very happy if we stay on the level on the defense side of around 20%. So if that works, it would be great. On the other questions, I’m to be very clear about that, and this is what I said before, give us please another one, two months to go more into more details because at the moment, I’m on a simulation level. And this simulation level is not fair to share, let me say, to you to say these are the exact numbers.

It is fair if I spoke with the Minister of Defense, with the Prime Ministers of the countries to say, okay, what is it what you really want to do? I need two, three months together with my team, and then I think we have a much better picture what is behind all that figures. The simulation, usually, our simulations are not so bad. The hit rate that we had last time was perfect. But I need a little bit more confidence in all that figures and then I share that immediately with you, Mariano.

Is that fair enough?

Marie Ange Riggio, Analyst, Morgan Stanley: Yes. I just have probably just some follow-up on that. So if I rephrase my question, does the 20%, twenty five % market share that you have assumed is because it’s your current market share? Or is because it’s something that you believe you can achieve even the fact that the land domain projects will be in very high demand?

Armin Papperger, CEO, Rheinmetall AG: No, it’s our profit share. I think we have even one higher profit higher share of the market. And the biggest driver for that is for sure Germany. But if you see what happened over the last years is that we catched nearly 50% of the budget on the German side. And Germany will be the big driver because these are the big numbers.

And so therefore, I said, if we have 25%, maybe it’s 30% of that. But if you calculate with 25%, I think it’s a good and it’s maybe I don’t want to say conservative, but I think it’s a good figure. If it is more, it is fine. But Mariusz, at the moment, yes, the task that we have now for the next years is much, much bigger than the task that we had three years ago because the figures are much bigger, the factories will be bigger, and we have to prepare ourselves for that, whatever we can do. So the driver is so if you are a golf player, we are going now from Iron seven to the driver.

Marie Ange Riggio, Analyst, Morgan Stanley: Okay. Thank you.

Armin Papperger, CEO, Rheinmetall AG: Pleasure.

Moderator, Rheinmetall AG: Okay. The next question comes from Sesh Tusa, Agency Partners. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG: Hi, Sesh.

Sesh Tusa, Analyst, Agency Partners: Thank you very much indeed. Good afternoon. I’ve got a couple of questions. The first one on rocket motors. I’m interested that it takes quite so long to build up your capacity in rocket motors compared to artillery, ammunition and powders and so forth.

And I wonder if you could just explain why it takes so long and what if anything you could do to reduce that. But then in terms of your contract relationships, you’re building you’re making motors in Spain for that country’s purchase of pools. That seems to be the system that’s being procured by Germany now. Do you have a contract for the German requirement? And do you work with Elbit or do you work with the German prime contractor to supply those matures?

Armin Papperger, CEO, Rheinmetall AG: First of all, we have no contract at the moment with Germany because the Germans really they the Germans wanted to buy five test systems about that. But there is no big numbers of rockets. But the point is there is no capacity at the moment of Rocket Motors around the world. So we are very, very safe that the German government will place contracts to us. And they place contracts to us, but not on the pools at the moment because that’s too early, but on other rockets.

What we want to do is, we want to produce rocket motors from all different calibers. We are not only going to Heimauer PULS, we go at the end of the day, we look from 50 kilometer to 500 kilometer and also we have an equipment and this is based on the mix side and on the length that you on the rocket cranes, where we look if it is also possible up to more than 2,000 kilometers to produce these rocket motors. So the first thing you asked about the timing. From the timing side, at the moment, there are some bottlenecks inside. One bottleneck is we have a longer time for the mixer to get the mixers than for the pressing equipment that we have at the moment.

We tried to retry hard to push down the time. But at the moment, the time frame is that we need not 14, but we need two years for that. If it is, I really push the my team to do it faster, but I have no better informations at the moment for that. That is the reason that we told you that we need maybe two years about that. The second point is third point is the auxiliary rounds, all the rounds that we have, if it is German type, American type, all the types that we have, we are qualified for that.

But we must qualify ourselves, and there is also to build up a test center for Rocket Motors, we have qualified ourselves on all the motor types. And but again, there is a huge need worldwide at the moment for Rocket Motors. The Americans looking for capacities, the Europeans looking for capacities. Some of our competitors are also investing, but they are also then fully equipped, for example, MBDA with the Patriot stuff that is going on. And I really believe that we can build this factory.

It’s an entrepreneurial decision from us to go that way after an analysis of what we need and what are the megatrends for the next twenty years. And yes, I think the last decisions we made to develop a LINX, to develop a Panther and whatever, all of them were good. And I hope that we are again on the right track.

Sesh Tusa, Analyst, Agency Partners: Great. Thank you very much. And then I’ve just got two slightly more detailed financials questions. The tax rate seemed very high in the fourth quarter, and I wondered what drove that and whether we should take that as the planning level going forward? And then your guidance of CapEx this year being about 9% of revenues would imply that in absolute terms it nearly doubles.

Is that the right way to think about it? Or will there be some offsetting grants that you would expect to receive?

Armin Papperger, CEO, Rheinmetall AG: Yes. So the first of all, is it there are no offsets that has stuff inside? We calculated the 9% because the powder productions and all the other things are coming up now. We had also a delay from last year to this year from investment. As I said, we have much we invested in much more programs, but the investment rate stays exactly on that what we planned.

So usually, we should have 100,000,000 more. But such at the end of the day, it doesn’t matter because we have to invest, otherwise we cannot grow. The second point is the governments pay for that. This is also very positive about that thing. And if we have 51% minimum shares, we have to show it after IFRS, yes, on the investment page.

But you see that our cash is much better than what you see out of the investment rate. And the reason for that is that the governments are paying cash inside. But we cannot reduce our investments because if you have 50%, you have 100% of your investments inside. So we are on the safe side.

Sesh Tusa, Analyst, Agency Partners: Great. And thank you. And just on tax, I just

Armin Papperger, CEO, Rheinmetall AG: want to check whether the tax rate is the tax rate is my colleague. He is finance. He is my finance minister. So

Klaus Neumann, CFO, Rheinmetall AG: the tax rate in the quarter was indeed a little bit higher than the average rate, but you should use the annual rate for 2024, but it’s a guide for the years to come. We are slightly higher than 2023, because in 2023, we had some non taxable income, mainly due to the tail of investments that did not happen 2024. So the average rate for the year is a good guide for the years to come.

Armin Papperger, CEO, Rheinmetall AG: Okay. Thank you so much.

Moderator, Rheinmetall AG: The next question comes from David Perry, JPMorgan. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG: Hi, David.

David Perry, Analyst, JPMorgan: Sorry, can you hear me okay?

Armin Papperger, CEO, Rheinmetall AG: Hi, David. I hear you.

David Perry, Analyst, JPMorgan: Yes. Hi. Welcome, Klaus. Hello, Armin. So I’ve got three questions as well.

The first one, just for a British person, struggles a bit with German politics. Could you just tell us if the Greens don’t approve the vote, I think it’s March from the debt break, what the plan B is, what other solutions that could be to try and have higher defense spending? The second one is do you want to take them one at a time?

Armin Papperger, CEO, Rheinmetall AG: Yes, yes. So give me the chance about that because that’s very, very important. The Green Party is not against the defense budget. The Green Party said we don’t want to link the defense budget to the $500,000,000,000 package of normal investments if the $500,000,000,000 package is not 100 percent defined. And the reason is that the Green Party said they love the defense budget.

They said, okay, we want to do is they are pressing me to invest more in these areas. So they’re not against the bad debt. So I’m on the political arena, there are two points. First of all, Friedrich Mats wants to bring two packages through. If you don’t can bring it through to define, let me say, the investment package and the green set, don’t use the investment package to pay the pension system.

Don’t use it to not to do it, let me say, into that area. And then maybe they can separate it to say, okay, we make a breakthrough strategy to separate the $500,000,000,000 with the decision of defense. And what I believe is I personally believe I have also no glass ball, but I personally believe that 90% plus next week, we have a positive decision about that. And I don’t think for some days, I don’t think what if, if, when. So because then we have another political decision.

But what the government or the new government wants to do is it’s an outstanding thing because it would be nearly unlimited money for defense. So that is an outstanding thing. I never have seen that before. And so and the reason for that is because the decision of Social Democrats and Christian Democrats was a very clear one to say, okay, we don’t want to be in a situation that an aggressor is attacking Europe and Germany and we don’t have enough money. And the right wingers and the left wingers can stop us.

That is the reason that they make that decision. And that is the reason that I believe that it will go through.

David Perry, Analyst, JPMorgan: Okay, great. And my next question is Slide 12 on the vehicles. It goes up from a small business to a massive business, but there’s not a lot of commentary there. So just like in 2027 and maybe in 02/1930, like could you just give us high level like how much is Puma? How much is Linx?

How much is Trux? How much is Support? Just maybe break down, you can choose your year ’27 or ’30.

Armin Papperger, CEO, Rheinmetall AG: Okay. So on Page 12, yes, it is right. So Puma is not a lot. Links will be one of the drivers, which is coming up. So if you go if I go to the 2027 picture, So it’s around 2,000,000,000 trucks.

Okay?

David Perry, Analyst, JPMorgan: Yes, great.

Armin Papperger, CEO, Rheinmetall AG: Then around 2,000,000,000 will be service. Okay? Yes. The rest will be boxer, huge amount of boxers which are coming. Then the links, which will be also a big driver.

Then the ramp up curve of the Caracol will come. This is we also have this frame contract from the Caracol side, it’s $2,000,000,000 which are here. So I can give you for $20.27, let me say, 85% transparency about that what is really there. I haven’t prepared it, but so only if you see what’s going on, on LINKS one billion on the boxer side is 1,000,000,000. Then we are on a level of 6,000,000,000.

Then we have spare parts and other things also inside, etcetera, etcetera. So this is what is inside and then a lot of smaller contracts for sure. We have hundreds of smaller contracts, $50,000,000 here and whatever there, which is coming up. So that is how the figure is coming.

David Perry, Analyst, JPMorgan: Okay. That’s helpful. And then my last one, if I may. Can you talk a little bit about M and A? You say you’re going to have this unbelievably strong balance sheet.

You’re probably in an industry that needs consolidating. There’s been press speculation about would you look at ThyssenKrupp’s marine business? I don’t know. Would you look at getting bigger in electronics? Can you just talk about the things that interest you and how you think about the pros and cons of different areas?

Armin Papperger, CEO, Rheinmetall AG: We are not longer looking to ThyssenKrupp. ThyssenKrupp stopped the process. As you know, last October, the government contacted me, the German government to say, okay, have a look to that. We had it, but we do nothing in this area. So Thyssen Group is now looking for the spin off and they want to go forward.

But this only would be an opportunity for us if we could find synergies and not only the pure business because the business by themselves has not the same profitability, has not the same growth rate that we have in that point. That was the reason that was never ever priority number one of us, but we looked on that. But we not longer look it, not longer look on that. Digitization is one of the things where we are really looking for. If there is an opportunity also, I said, if there would be an opportunity that I can buy a company who is producing nitrocellulose, I would buy it.

David, that I’m not going into the details about that point, but it could be that if there are companies on the ammunition side that we buy because they want to buy everything in this area because this is a horribly will be horribly growing over the next years. So if I must not invest, but if there is, for example, a company for nitrous nitrocellulose who is producing another 5,000 tonnes of nitrocellulose, maybe I would buy it, yes? So this is an opportunity. There are opportunities on electronics like we did on Black Net, yes? So if there are some smaller companies who make artificial intelligence, we would go forward in these areas.

We are not going forward to say, okay, wow, I want to buy now a company where I have to pay $10,000,000,000 and then my balance sheet is not longer good. It is bad. And so this is not what we do. If we grow, and I think that’s very, very clear, if we are able to grow an operational growth of 30% to 40% per year, we are not under pressure at the moment to go forward. And consolidation can work to buy something And consolidation can work to have, let me say, better products and to convince the customer that he orders more from us and we work organically.

This is also consolidation because then the market share of the others is going down. So these are the two opportunities. And at the moment, we are working on level two.

David Perry, Analyst, JPMorgan: Brilliant. Very clear. Thank you.

Armin Papperger, CEO, Rheinmetall AG: It’s a pleasure.

Moderator, Rheinmetall AG: The next question then comes from Dario Dickmann, HSBC. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG: Hi, Dario.

Dario Dickmann, Analyst, HSBC: Hi. Thanks for taking my questions. So I have three. Basically, the first one is on the speed of the German procurement office since we are still working off projects from the first special fund. So do you think we can already expect Germany spending significantly more than the currently budgeted $30,000,000,000 on equipment in 2025?

And could you share some thoughts on these decision timelines from the procurement office? Second one would be on the minimum capability requirements leaked at the beginning of the year, which already hinted at a significant increase in fighting regards and air defense. And we also had a German newspaper with access to the document reporting it implied German defense spending of more than 3%. And would you agree that a potential partial U. S.

Retreatment from Europe will increase this gap even more. So I assume that this paper was basically published before The U. S. Topic came up. And the last one is on a recent Polish article reporting that the Polish state company PGZ is looking for an ammunition licensing partner, but they just list KNDS, Turkish, MKS and CzechCSG as potential candidates.

So are you still involved in Polish ammunition discussions? And could you confirm they are just looking for a licensing partner instead of a JV partner? And maybe last but last question, Do you think that European funding increases your probabilities on the Polish heavy infantry fighting vehicle tender?

Armin Papperger, CEO, Rheinmetall AG: Yes. We start from the European fundings. I’m always very relaxed about the European fundings because it was funny what we discussed on the ammunition side. You remember when we spoke about the 1,000,000 rounds for Ukraine from European fundings, at the end of the day, there was zero. And so I’m not taking care about that thing.

There is maybe an opportunity in the future, but at the moment, I think I’m very relaxed about that. So I’m the national fundings for me are more important. On the Polish side, we spoke with PGZ and we could not be there inside because I don’t want to give a license. I don’t give licenses for that. I only create joint ventures for that if there are some people who give licenses.

But they were not very successful for that. They wanted to have licenses for tanks. They wanted to have licenses for Honda. At the end of the day, nothing happened. So but license, no.

Joint venture, yes. We gave an offer for with joint ventures in Polish, like Italy, like what we made in Italy on the fiftyfifty base. What I know is today, the German government and the Polish government are sitting together to discuss these things. But at the moment, our business case is without Poland. There is no Polish order intake inside.

And at the moment, I think they are not so successful like they want it to be. Minimum capability requirements, I 100% agree about that, that it could be that there is there must be there must be do more from the European side because if the Americans said, okay, take care about your own shit, we don’t longer take care about yours, then it’s so that the NATO requirements and also requirements for Europeans are growing up. But even what we have now inside and if the growth rate must be not 2.5% to 3%, but 3.5%, The figures are higher for sure, but we don’t know it. And as again, it’s all speculations. And I as a businessman, I have to take care about the reality.

So I have to wait what’s coming out now next week, then I have to wait what we see over the next two months with especially the German government. And the biggest driver will be Germany for sure, because there is some money at the moment. And so therefore, it’s very clear that we can give you better information in two or three months about that. So the first was on the procurement side, yes? What was it?

Dario Dickmann, Analyst, HSBC: Yes, exactly. So how fast do you think that the German procurement office could come up with some additional projects? I mean, they’re still working on the last of the old fund.

Armin Papperger, CEO, Rheinmetall AG: Now I must really say that they are blaming always a lot bind w w. I cannot blame them. And the blaming is that especially from the smaller companies because they have the big whale fishes at the moment are always in the front. But look what we did. Tavahan has from the from tZERO a delay of six weeks.

If you negotiate a SEK7 billion, SEK8 billion program and you have a delay of six weeks, come on, this is great. And the procurement agency made such a lot of contracts over the last two years that they made the last thirty years now. So they are fast. For sure, we can do something better. For sure, there are some guys who are still think they are ten years what they do their work like ten years ago.

But most of the people and especially the President of procurement agency, she’s doing a great job and I cannot blame them. It’s worth wiser. So they are doing a really great job.

Dario Dickmann, Analyst, HSBC: Okay. So we could have significantly more than the $40,000,000,000 currently assumed under site and vendor, one point zero, let’s call it like that.

Armin Papperger, CEO, Rheinmetall AG: Absolutely right.

Dario Dickmann, Analyst, HSBC: Of order intake.

Armin Papperger, CEO, Rheinmetall AG: Absolutely right.

Dario Dickmann, Analyst, HSBC: Okay. Thank you.

Armin Papperger, CEO, Rheinmetall AG: Pleasure.

Moderator, Rheinmetall AG: Okay. So there is one more And the last question for the moment comes from Carlos Ilanso Perez, Bank of America. Please go ahead.

Armin Papperger, CEO, Rheinmetall AG0: Hi, guys. Thanks for taking my question. Just a follow-up on CapEx. How should we think about your CapEx guidance through 2027 in the context of you presumably growing more than what you anticipated in November 2024. I guess it’s fair to assume that CapEx could be perhaps a little bit more elevated than your current midterm guidance.

Thank you.

Klaus Neumann, CFO, Rheinmetall AG: Yes. The guidance that we gave on CapEx during the Capital Markets Day last year was based on a basic scenario before that when the two point zero. So it’s very difficult to predict how it’s going to turn out in 2027, given the political uncertainty there’s a moment. As Amin said, we need a little bit more time to really understand and plan out with the government what it will mean for our business going forward. So at the moment, as the guidance stands, as we mentioned, yes, prior to these changes that we expect to happen in the next coming weeks.

Armin Papperger, CEO, Rheinmetall AG: But Carlos, it’s I think very important thing that if the government and especially the German government stays on the level that we get 20% or 30% down payment. What we got, let me say also on the Taiwan side, it doesn’t matter because we need we have to invest. But at the end of the day, we have no burden on our balance sheet because we are very cash positive out of that thing. Is that fair enough?

Armin Papperger, CEO, Rheinmetall AG0: Yes, super clear. Thank you.

Klaus Neumann, CFO, Rheinmetall AG: Okay.

Moderator, Rheinmetall AG: Okay. Now there seems to be just one follow-up question from Marias Vidyo. Please just go ahead. Your line is open.

Marie Ange Riggio, Analyst, Morgan Stanley: Yes. So sorry. Just lastly, that we don’t touch on the call, which is on Power System because we continue to be the division to be a bit weak. And you mentioned at the last resort that you are looking for transforming the division. You have mentioned that too, you have taken over to facilities.

Do you have any other plan for ’25 for that division? And any ambition by 02/1930 because you didn’t mention any on the fiber? Thank you very much.

Armin Papperger, CEO, Rheinmetall AG: First of all, we want to do it with the two factories. And the two factories are now in Neuss and in Berlin. And if that is successful, we can have a look to other factories. And there are some ideas to do it. And but this I we cannot tell that officially, because if I go officially about that, the unions immediately start discussions, but we are still in planning phase.

So we cannot speak officially about that. But if it is successful, Manjos, and if we can take 1,000 or more than 1,000 people from the automotive industry and highly qualified people, we have very good people there, to the defense. And if we can reduce the education time for with that people because they are well educated to create high quality defense goods. I’m very happy about that. So this very new ideas and maybe that’s also very important for all investors is, for example, in noise, we are looking now to produce components for loitering ammunition and also for satellites because we are with ICA in the satellite business.

And if we build up that, we would create here nearby Dusseldorf an absolutely high-tech factory where we have protection systems, where we have electronic systems, where we have for the loitering ammunition components and for satellite technology. And with EyeSight, because as you know, the Americans stop now their conversation with satellites, and they don’t help longer the Ukrainians. And maybe we can step in, and we are in negotiations with the government at the moment that we are the satellite house. At the end of the day, the idea is to have minimum six Levo satellites and then we can build over the next years always between, let me say, six and ten satellites on the Levo level here in Germany in the license production. That’s a new business model.

That’s brand new. It’s not a big driver for that. But at the end of the day, maybe we make another $200,000,000 So it’s a good business. Okay?

Marie Ange Riggio, Analyst, Morgan Stanley: Great. Thank you so much, Amine.

Armin Papperger, CEO, Rheinmetall AG0: Thank you.

Moderator, Rheinmetall AG: Okay. Thank you very much. Sorry, that’s it for the Q and A. I’d like to hand it back to you, Mr. Papierga.

Armin Papperger, CEO, Rheinmetall AG: Yes. Thank you very much for your time. Thank you very much for the very interesting Q and A. And at the moment, we really try to shape our team to fulfill everything and very happy to see all of you again live in the investor conferences. Thanks a lot.

Thanks for your time. Bye bye.

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