Rheinmetall Ag Unsp/Adr

Hello ladies and gentlemen and welcome to the Rheinmetall AG conference call. At this time all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to the CEO Armin Papberger.

Thank you very much for the kind introduction and also a very warm welcome from my side to the Q2 I will walk you through the presentation together with my colleague Dagmar Steinert, who will take over the quarterly financial details. Before I start with the highlights, please let me remind you of the legal disclaimer on the following page. Now let's go to page number three. Primethal had a very good Q2 2024. Here are the highlights. We had a plus of 49% on sales to 2.234 billion euro. The operating results had a plus of 110% to 270 million. Operating margin is growing up to 12.1%. And also, and we are very happy about that, we can say welcome to 3,573 people if you compare that with the quarter last year. So we are still in good shape to get good and highly qualified and also very highly motivated people. Operational free cash flow sounds good with 169, a plus of 388. And on the CAPEX, we are still, we are at the moment behind. We are on a level of 5.4%. As you know, over the whole year, it will be a little bit more percentage-wise because of all the investments that we have at the moment. But with our investments, we are absolutely in time and in some areas ahead of time. Remittance nomination, very important for us, plus 180% with 11.443%. absolutely all-time high for quarter two. So the Ram et al backlog now is growing up and we have a backlog of more than 48 billion. This is a plus of 62%. Now let's go to the next page and as said before, the Ram et al nomination with 11.4 billion in total is an outstanding figure for a quarter. Let's go into the details. Vehicle systems, very good order intake of 123 heavy weapon carriers. As you know, this is a contract that we got from Rheinmetall Australia back here to Rheinmetall. On the land system side, it's 1.6 billion. and plus 300 million on the electronic solution side, what you see then later. Boxer NNBS, the first contract for that 110 million, and for the PUMA, the active system, this is for the training equipment, 90 million Euro. The weapon and ammunition side is the big ticket for sure, the 150 millimeter frame, agreement of 7.1 billion euro. I must say that the modular charges will be an extra contract that will come over the next month, so that this contract will grow again. 35 mm ahead ammunition for low-digit million figures for international customers. This is especially for fighting against drones. And modular charges, a first contract from Germany of 170 million. As I said, there is a strong contract of 100,000 of modules which will come over the next weeks. Let's go to electronic solutions. In electronic solutions, we are very happy to book this 360 million frame contract about hearing protection and communication systems. This is in combination with the helmet that we also give to Bundeswehr. Then, as I said, 300 million for heavy weapon carrier in combination with vehicle systems and a missile contract with MALS LR2 of 170 million Euro. Let's go to the civilian business. Also, the civilian business was very successful. We are also here on track. EGR and exhaust back pressure valves in low three-digit million euro range, plug-in and play heat pumps in double-digit million range and electronic coolant pumps. These are only three examples of the success that our civilian business has. Now, let's go to the next page. A very important decision for us was... to get the MOU with Leonardo. Our friends from Italy and Rheinmetall, we want to make a joint venture, a 50-50 joint venture, which will be an Italian joint venture where we will have the headquarter in Rome. And the first contract in that joint venture should be end of this year, latest the first quarter next year. We speak about, in total, between 20 and 25 billion, so the last figure is, but it is not fixed, it's a plan of 24 billion, where we'll be around 10 billion hardware, and the rest will be service, maintenance, and long-term agreement. The first vehicles will come from Germany, because the Italian army wants to have very fast vehicles. Then we implement the Italian technology, Therefore, we will get also money for development. At the moment, it's between 500 and 800 million euro. And after implementation of the Italian technology in this Italian fleet, we will get then the contract. As I said, the first serial contract for a small amount end of this year. and then the main contract together with Leonardo for the whole fleet later. What are the potentials? Inside that plan at the moment of around 24 billion is not ammunition and for sure also not export. On the ammunition side, we have the first forecast And for sure, if you have a fleet, you need ammunition and you have to fill the stocks. For tank ammunition, usually the calculation, this is of the NATO standards, is to buy about 120,000 rounds and 2 million rounds for the infantry fighting vehicle. If you calculate all that things, it's about 2.5 billion euro. And on export, we see at the moment there are some customers who are interested, especially in this combination between also Italy and Germany, that we will sell minimum 200 systems, which is a potential of 4 billion only out of this joint venture, and 500 systems for the infantry fighting vehicle, the Lynx, which have a potential of 7.5 billion. In the export, for sure, there is also potential for ammunition. So the story is going on, and this is a huge package also for the next years for the Rheinmetall Group. Let's have a look to the next page. On page number six, we see now the relationship that we have between Lockheed Martin and Rheinmetall. We extended our collaboration agreement. So as you know, we had our collaboration agreement on the F-35 and also on the Chimas. Now we have the cooperation also on laser weapons simulations and training on Chorat, on aeronautics. And very soon we will also have a good relationship on the missile technology on Lockheed. So what is the potential that we see? And this is the potential over the next years. As you know, Dandil is the F-35. This 5 billion are not booked because, as you know, we book it year by year. But this is a very fixed figure because the 400 fuselages that we produce are in this area of 5 billion. And the beauty at the moment is that five other nations are looking for F-35. Therefore, we see much more potential for the fuselages in F-35 because Rametal will produce fuselages outside the United States, and we are the only producer for that outside the States. Second point on GMAS. On the GMAS side is the biggest business for sure, not the launcher, but it's the rockets. We are at the moment to build up a rocket production in Europe, in Unterluss, in the north of Germany, and therefore it's very important that we invest into this rocket motor production. We are on the way, and we are in Werk Niedersachsen, or factory Niedersachsen, to implement also then the rocket Fujima. So $7 billion we see over the next 10 years On the laser weapons, there is a huge need also in U.S. and very U.S.-friendly nations, minimum half a billion, simulation and training 0.5 to 1 billion, and on SHORAT, and we offered our SHORAT solution, so the Skyranger solution also now for anti-drone fighting to the United States and U.S.-friendly nations, There is a potential together with Lockheed of four billion and the aeronautic systems potential of one billion euro. So let's have a look to the next page, page number seven. On page number seven, we see that the boxer fleet is coming up. We see a real growing demand for wheeled vehicles. And as you know, there is United Kingdom There is Germany, there is Netherlands, there are a lot of other nations who are looking for different variants. So the beauty is that the BOXER is very well positioned to participate in this growth. ARTEC will take the contract and, as you know, our friends from Munich and we are the shareholders of ARTEC. And so we see a huge potential for heavy weapon carriers, for RCH-155, and for the Boxer MIF, and also the Wilt infantry fighting vehicles. You see the countries on heavy weapon carrier, Germany, Netherlands, UK, and rest of the world, but Asia is looking also, Middle East is looking for that, RCH is Germany, Netherlands, UK, Ukraine, and also the USA is now interested in that area. So the total order potential is up to 15 billion euro over the next years, and we are in a lot of negotiations at the moment, so that my expectation is that we can book over the next two or three years a lot of that contract. Page number 8 shows, will show you what we have, we gave a lot of news in the EuroCentury 2024 in Paris. And you see here several products and also several innovations. The feedback that we got from our customers was very, very good. So a new mine clearing tank, Kyla New and other support vehicles, And our expectation is also over the next 10 years that we can sell 500 units. Germany, Italy, Poland is looking, and only these three countries need huge numbers. And only the Italian side is on support vehicles around 200 units. And as I said, only that three countries are around 500 units, so 7 billion potential. Skyranger on Leopard, it's a different story than the Boxer story because we use old Leopard 1 chassis. And on this platform, we will give a brand new turret, air defense turret, So the potential we see, a huge need in Ukraine, but also in countries like Romania, they are looking for that solution, €3 billion. Skyranger on Boxer. This is especially also coming from the SE program, but also on other programs. And it cannot be only the Boxer. It can be also other chassis. So here is the potential of more than €10 billion over the next years. And we see 500 units, Hungary, Italy. Only Italy is more than 200 units. Hungary, Ukraine and other nations are coming up, especially also after the initiative that we have with Leonardo. And more than 500 units, we see also 10 billion euro potential. Chimas, I told you before, I don't want to double that. And on the digitization, especially on Germany, Hungary, Australia, there is a potential of 10 billion. Give me a minute for digitization. The point for me is that all the people really underestimate what Rymetal is doing on the digitization side. The digitization is very clear for us that all the things what a lot of people are telling about artificial intelligence is implemented in that area. So Rymetal can make a live firing where we have five, 10, 15 effectors where the artificial intelligence with our artificial intelligence algorithm is telling us who has the best hit rate and to have the highest survivability in these areas. A lot of people have now theoretical things. We do it in practice. We show it in practice. So therefore, I think one of the main points also for the investors in the next months should be to give a better overview about the digitization story. Our expectation is that we are very, very strong growing and electronic solutions, especially with air defense and digitization over the next years has a potential to grow up to 4 billion euros per year. Let's go to the next page, page number nine. Here it's very important that the localization of Rheinmetall in the Ukraine is going forward. So we opened our first maintenance shop and in vehicle maintenance and spare parts at the moment we see a revenue and this is the starting point of 100 million Euro. There is much more in. At the end of the day we will have a strong capacity And this capacity in Ukraine will be nearly the same size that we have in our factory in Unterluz in the north of Germany when we are ready after all the investments we have done in Ukraine. But the first step is done. First factory is running. The second point is now the ammunition plant. And the Ukrainian government gave us an order to build up a 155 mm production. Rheinmetall later will have 51% of the shares of that production line. We take over the responsibility to produce it in a very safe area and this will be ready in less than 24 months. The order value in the low three-digit million euro range plus, and that is the factory alone, and plus the frame contract, we will sign also end of this year about 155 ammunition production so that the potential that we will have latest first quarter is our expectation last year is 2 billion euro from the Ukrainian side. On the vehicle side, there are also news. So the Ukrainian government in Rametal has an agreement that the first links, the first infantry fighting vehicle will be handed over end of the year. Ukrainian people are educated in our German factories at the moment that we can produce the links also in that factories. And the ramp up of the local production is now under discussion so that next year we are able to produce links in Ukraine. Now let's go to page number 10. On that slide, I think it's very important to understand what we did on our truck side, because that was a discussion also last time with a lot of investors and analysts in this area. We had a strong discussion with our customer about the pricings and especially the inflation rate over the last three, four years. And the Vexillada contract was then renegotiated because of the inflation rate. And that was the reason that we delayed deliveries now into 2024. The trucks are running to German Bundeswehr now. And in Q2, we had a peak working capital of trucks of more than 1,100 units. And already in Q2, the first 300 trucks are delivered to Bundeswehr. We created the first cash-in of €350 million. But the big pack, is coming in Q3 and the beginning of Q4. I think that in November we will be latest ready to deliver this 1,100 trucks and more. So we are in very, very good shape and the total call-off of more than 1,500 trucks are very safe this year and will be completed as said in November 2024. So you will see, and that is the reason, the biggest impact in Q3, which is very positive for us, and we also get a very fair price now. On the next slide, slide number 11, you see that we stopped the white phosphorus illumination for the ammunition stuff. When we took over the Spanish company XPAL, so Rymetal XPAL stopped now in July the production of white phosphorus and we did that because we made a handshake agreement also on our ESG side that we want to fulfill all the ESG issues in that area, which is I think also Very positive. So, so far from the market side and now I hand over to Dagmar. She will take care about the financials.

Thank you, Armin. A warm welcome from my side as well. So, let us now look on page number 13 and take a closer look at the outstanding Q2 financials. The anticipated sales acceleration was higher than expected. Part of this was due to an earlier shipment of several products, for example, sea mines for Australia and, of course, ammunition supply for an international customer. Sales increased by almost 50% to €2.2 billion, with a positive contribution from all segments. Rheinmetall XPAL munitions achieved €130 million in Q2 alone. To put this into perspective, Expal had full year sales of around 370 million in 2023. So to sum it up, organic growth amounts to almost 41%. This higher sales translated of course into noticeable leverage effects and the operating result more than doubled to 270 million Euro. As a result, our operating margin increased to 12.1%. The doubling of the operating result for the continued operations was a main driver for the improvement of earnings per share to 3.61 euro. So let us turn to the next page to have a closer look to the operating free cash flow. Operating free cash flow improved significantly in the first half year from minus €325 million to minus €19 million. In Q2, our operating free cash flow stood at €169 million. And that's a great improvement and mostly a result of increased customer payments, prepayments and truck deliveries, which started at the end of the second quarter. and this trend will continue in the second half year. Nevertheless, inventories increased further to more than €4 billion, which were largely covered by customer prepayments, which are totalling to €3.4 billion. We are preparing the business for a strong second half year, for which we anticipate the usual seasonality with a strong operating free cash flow in Q4. Moving on to page 15. Our balance sheet remains rock solid. Our net debt to EBITDA ratio remains at one and that is well below our threshold of three. The net financial position changed to minus 1.4 billion Euro year over year which represents an increase of 536 million. And just remember in July last year, we paid out 1.2 billion for the acquisition of EXPA. Our credit rating remained at BAA2 with a stable outlook. With a cash position of nearly 550 million Euro and undrawn credit lines of 1.2 billion Euro, We are keeping our powder dry to remain opportunistic. On page 16, you can see Rheinmetall backlog continues to increase and is now nearing the 50 billion Euro mark. We recognized most of the contract in weapon and ammunition as well as in vehicle systems. The biggest order was a German frame contract for 155 mm ammunition, which we signed in June. With this, we were able to maintain a high pace, which we had by the end of last year. And Armin will later show you that momentum continues in the second half. Please turn now to page 17 for a detailed look at our segments. Overall, our defense business recorded a significant increase in sales and operating result. And this is a driver of profitable growth. Vehicle systems grew revenues by 47% to more than 800 million euro with an operating margin of 10.1% in Q2. The margin came down slightly year over year due to the product mix. but we were able to deliver the first 300 trucks to the German customer by the end of June. Weapon and ammunition showed a significant revenue increase of more than 100% to 692 million Euro year over year and an even higher change in the operating result to more than 150 million Euro. As a result, the operating margin jumped to 22%. Of course, this includes again a significant contribution of XPAL, overcompensating a higher cost base. Electronic Solutions reported sales growth of around 30% to €360 million year-over-year and an impressive improvement of the operating results to €36 million. driving the operating margin to 10%. The main driver for the margin expansion is a ramp up of the air defense business. Power systems operating result doubled, even though sales only rose by 6% in the second quarter. And this is mainly due to two effects. Firstly, we have seen a strong upturn in business since the cyber incident affected the previous year. And secondly, our trading business has developed well. Let's move on to page 18. The first half year marked a solid sales growth of around 33% compared to the first half of 2023. And that's great. However, we will have to accelerate even more in the second half in order to achieve our ambitious full-year guidance. Looking at the large order pipeline in the defense business, we are fully confident to achieve this. Let me explain that. At last year's Q2 reporting, we had 86% defense sales already covered. This year, the figure has increased to 91%. For the second half, we will send more than 1,000 load handling systems to the German customer and of course traditionally weapon and ammunition is prepared for a strong Q4. Sales seasonality is in line with previous year while operating result is ahead. And with this I would like to hand over back to Armin for the outlook.