Release Date: March 12, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rheinmetall AG (RNMBF, Financial) reported a strong sales growth of around 50% compared to the previous year, driven primarily by its defense segment.
- The company achieved an operating result of nearly EUR 1.5 billion, marking a 61% increase, with an operating margin of 15.2%.
- Rheinmetall AG (RNMBF) has a significant backlog of EUR 54 billion, with expectations to reach EUR 65 billion, indicating strong future revenue potential.
- The company has successfully increased its dividend from EUR 5.70 to EUR 8.10, representing 39% of net profit, which is in line with its target payout ratio.
- Rheinmetall AG (RNMBF) is strategically positioned to benefit from increased European defense spending, with potential growth opportunities in the Zeitenwende 2.0 initiative.
Negative Points
- The civilian business segment of Rheinmetall AG (RNMBF) experienced a decline of 2%, highlighting challenges outside the defense sector.
- There were delays in product deliveries, impacting the ability to fully realize expected turnover, such as the EUR 10 billion digitization nomination delayed by six weeks.
- The company faces challenges in the power systems division, with no growth and significant pricing pressure, resulting in a decline in sales.
- Rheinmetall AG (RNMBF) is heavily reliant on defense contracts, which could pose risks if geopolitical or budgetary priorities shift.
- The company anticipates significant capital expenditures, potentially impacting cash flow, although government support may offset some of these costs.
Q & A Highlights
Q: Mr. Papperger, regarding the nomination potential, you mentioned a capture rate of 20% to 25%. How did you determine this market share assumption?
A: Armin Papperger, CEO: The 20% to 25% capture rate is based on a simulation considering our strengths in Germany and other European countries. While we can capture more in Germany, countries like France present challenges. This range helps us plan investments, such as doubling ammunition and vehicle capacities, to be ready when demand increases.
Q: With the NATO capability targets and Zeitenwende 2.0, how do you see your revenue projections evolving by 2030?
A: Armin Papperger, CEO: While it's too early to provide precise figures, we anticipate significant growth. After further discussions with European governments, we expect to offer a clearer picture by the end of the year. Our previous projections of EUR30 billion to EUR40 billion by 2030 could increase significantly.
Q: Could you elaborate on the potential for consolidation in the defense industry, particularly regarding KNDS?
A: Armin Papperger, CEO: Currently, there are no discussions with KNDS. If they go public and an opportunity arises, we might consider it. However, our focus is on organic growth and strategic investments, like Expal, which offer quick paybacks and align with our growth strategy.
Q: How quickly can Rheinmetall double its production capacity, and what are the main bottlenecks?
A: Armin Papperger, CEO: We can double capacity within 3 to 4 years, primarily through greenfield investments. Current bottlenecks include curing equipment and pressing of explosives, but these can be addressed with additional investments. We have ample space and support from governments to expand.
Q: What is your outlook on the German defense budget and procurement process?
A: Armin Papperger, CEO: We expect Germany to maintain a high level of defense spending, potentially capturing over 30% of the procurement budget. The procurement office has been efficient, with significant contracts processed in recent years, and we anticipate more projects as Zeitenwende 2.0 progresses.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.