Rheinmetall Ag Unsp/Adr

Good morning, everyone, and welcome to Rheinmetall's Q124 conference call. Before I start on page three, I would kindly remind you of two things. First, as we are hosting our virtual AGM later this morning, we have a hard stop at 9.15. I will try to be brief so that I have time to answer your questions in the Q&A. Second, please be reminded of our legal disclaimer on the second page. Let us now move to page three, please. The first quarter marks an excellent start to the year and was characterized by double-digit top-line growth and a solid margin improvement. However, higher working capital and capex activities affected our operating free cash flow. As in previous years, I would like to remind you that we are expecting a heavy back-end loaded business. We didn't book business with the military trucks, which we are expecting to be called off in Q2 and in Q3 this year. Rheinmetall's backlog surpassed the 40 billion euro mark for the first time. The main driver for Rheinmetall nominations of nearly 4 billion euro were orders for Sky Ranger air defense systems. Another significant contribution came from the service contract for the Happy Weapon Carrier, which, unlike the heavy weapon carrier itself, was already booked in the first quarter. The strong start to the year and the progress that we are currently seeing in our second quarter gives us high confidence to achieve our 24 guidance. Lastly, we successfully closed the small war piston disposal on April 15, and we were able to sell all remaining Schrieram shares in the first quarter. With this, we fully accomplished the exit of the piston business and overall it marks an important milestone for the realignment of the Rheinmetall Group. Please turn to page number 4. We are conducting several capacity expansions across Europe. All of them are well on track. The new plant Niedersachsen and the F35 plant in Weetze are both expected to start production in 2025. Next to that, we are in advance discussion with the Romanian government to establish a new powder factory in Romania with a potential annual capacity of up to 1,500 tons. Furthermore, on April 16, we signed a MOU with the Lusayanian government to establish a new plant for 155 mm artillery ammunition with a potential annual capacity of up to 100,000 rounds. Lastly, although not mentioned on the slide here, another interesting acquisition we completed in March was RIG in the Netherlands, of which we acquired 100%. RIG gives us access to promising hybrid technologies which can be used in light tactical vehicles. Please move on to page five. In the first quarter, we witnessed a sales increase of 16% year over year and a solid margin expansion. Sales rose to nearly 1.6 billion euros and the margin improved by 2.4 percentage points to 8.5%. Operating result improved significantly by 60% year-over-year thanks to a great contribution from ExPi. The EBIT pre-PPA stood at 138 million euros. Please turn to page 6. Our operating free cash flow came in at minus 187 million euros. This had two main effects. First, we continue to increase our working capital to nearly 2 billion euros. A major share of this are the military trucks, which we are expecting to be called off in the second and the third quarter this year. Second, we kicked off multiple new CAPEX projects, like, for example, the auxiliary plant Niedersachsen. As I said earlier, a continued driver for the working capital build-up as a pronounced seasonality of the defense business, which is heavy back-end loaded. Moving on to page seven. Our balance sheet remains strong and unleveraged. Our net debt to EBITDA ratios stood at one, well below our target of three. As a result, Moody's confirmed our credit rating on April 23rd at BAA2 with a stable outlook. With a cash position of €515 million and undrawn credit lines of more than €1 billion, we have amplifier power to stay opportunistic. Moving on to the next page. Rheinmetall Backlog jumped by more than 42% year over year and cost the 40 billion euro mark for the first time. A number of air defense orders were the main driver for a strong jump in Rheinmetall nominations to more than 3.9 billion euros in the first quarter. As mentioned before, a significant building block came from the service contract for the heavy weapon carrier with the contribution of more than 600 million euros net in Q1. The vehicles, however, will be booked in the second quarter. Please turn to page 9 for an update on our segments. Vehicle systems grew sales by almost 7% to nearly 500 million euro with an operating margin of 7.7% in Q1. Different seasonality of the ring swap agreement affected the operating margin in the first quarter. Weapon and ammunition saw a significant revenue increase of around 70% to €362 million year over year as a result from higher ammunition call-offs. Key projects included several artillery orders from both Germany and Ukraine. Rheinmetall XPAL generated sales of more than €100 million in the first quarter and thus made a decisive contribution to sales growth. The operating result more than doubled to €53 million and margins expanded significantly to 14.7%. However, an organic increase of more than 400 full-time equivalents and adverse FX effects when compared to the previous year, burdened the leverage effect in the first quarter in anticipation of further growth. Typically, Redmond Ammunition has a very strong seasonality as more than 40% of annual sales are expected to come in in the fourth quarter. Electronic Solutions reported sales growth of around 26%, to €287 million year-over-year and a great improvement of the operating result to €17 million, increasing the operating margin to 6%. Germany was a key sales driver with Sky Ranger air defense systems, further delivery shares for the Puma, as well as delivery of combat helmets. Our civil business, which is now operating under the new name Power Systems, had a flat quarter in terms of revenue growth, but was able to improve the operating result by nearly 30%. Sales growth in the US and Asia offset the weak development in Europe. Higher sales prices and a better product mix, together with the at-equity result of our Chinese joint venture, led to a margin increase to 5.8%. Please move to page 10, where I would like to give you a bit more color on the consolidation line. Whereas our sales consolidation increased to minus 101 million euros year over year, we saw a significant improvement in the operating result consolidation to minus 6 million euros, which represents an increase of around 20 percentage points. There are three driving forces behind this. First, an improved operational performance of 4IG. Second, a change of the allocation logic for holding-related costs back to the segment level. And third, the disposal of all remaining 3M shares. For full year 2024, we expect a sales consolidation effect of around 6% of sales and for the operating result, a consolidation effect of around 5% of operating result. Of course, all these figures are minus. Let us move to page 11. As we discussed in the last earnings call, we have guided for our capex spend of around 7% of sales. There are multiple large CapEx projects across all segments, which we have listed here. If there are any new major projects coming up in the next month, we will finance them in a cash-neutral manner. This could happen via down payments, grants, subsidies, etc. Please turn to page 12 for a brief outlook on the current quarter. As half of the second quarter already lies behind us, I would like to give you a bit color on the current development. Our Q2 sales are expected to increase in line with our guided annual growth rate. Next to that, Rheinmetall nominations will double year over year, mostly as a result of German orders. Lastly, while Q1 capex spend stood at 6% of sales, we are seeing an acceleration. the groundbreaking ceremony for our new Arcelor replant Niedersachsen only took place in mid-February. To sum it up, Rheinmetall reports a strong start to the first quarter of 2024 with ongoing sales growth and significant higher income. And with this, I would like to conclude my presentation and I'm now happy to take your questions. But again, please be reminded that we have a hard stop today at 9.15 due to the ADM.

So ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. In case you wish to cancel your question, please press 9 followed by the star key a second time. And the first question comes from Sven via UBS. Please go ahead.

Good morning, and thanks for taking my questions. The first one is following up on your order intake guidance. I just wanted to get the wording right here. Are we talking about firm order intake or nominations in total? And the other question I had, because you're expecting 30 billion orders from Germany this year, I was just wondering to where that takes you by the end of Q2, what percentage of the 30 billion you expect to have in