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.

Thanks a lot Dagmar and page 20 we gave a graph and I think it's very important to understand that graph, how sustainable the business is. If you see, and we gave you an information from 2015 up to 2028, because this is the point where we know the budget is, as you know, the 100 billion budget, the extra money that the government gave to Ministry of Defense. the Chancellor's budget and also the EPL 14 budget is summed up in this area. And you only see here the German defense spending for new equipment and maintenance. This is not the whole budget for defense, for sure what is much, much bigger. But the beauty at this graph is really that from 8 billion, that the German government spended for new equipment and maintenance is growing up now in 2024 to 34 billion. That will be stable in 2025 and it will slowly grow up then to 2028. It depends how much the GDP of Germany will grow. But what does that mean? The commitment of Germany about the 2% and all ministers committed, and for sure we will not have a decision now before the election, but after the election there is still a lot of time, that we need a very stable budget for new equipment and maintenance and we will get it. That we need it is a very clear thing because we are at the starting point to bring the German Bundeswehr back on track. And the other thing is there will be a support over the next 10 years also, even if tomorrow war stops and everyone wants that this crazy war really stops. But we have to fill the stocks in Ukraine, and the Ukrainians need help from the European Union and from the U.S. And that is also a very clear discussion with the different ministries that also Germany has to help and will help. So what does it mean? It means that there is a very, very stable business, and my expectation is of minimum 10 years, maybe 15 years, to bring Bundeswehr back on track and to help our partners. And the other beauty is that Rheinmetall booked over the last little bit more than two years in between 28 billion cross from German budget since the Russian invasion in Ukraine. And you see now on the next page that the rally is going forward. In July 2024 we booked from January on 20 billion euro and a lot is at the moment in the pipeline. And give me a chance to go into this new contract that we are in negotiations. There is a real infantry fighting vehicle, so it's a boxer with turret. There are Leopard 2 contracts at the moment where Rheinmetall has electronics and gun systems inside. There is the Panta, we spoke about that from the Italian side, done RCH 155. It seems to be that this howitzer is also a success story for our friends in Munich and for Rheinmetall. and also the Lynx Skyranger system for the anti-drone. On the weapon and ammunition system, as I told before, this big contract for propulsion systems, because if you hire millions of rounds, you need also, let me say, five times more modular charges of that. So 2 million rounds or 10 million modular charges. So huge... systems are coming. As you know, our investments are running up also in Bavaria and in other areas where we produce these propulsion systems. But also our fuse production is running up. The 155 projectiles and in the 155 projectiles we are still at the moment only on the middle of the road. So the really high peak will be in 2026 where we have the full capacity where again the sales over the next two, three years will grow extraordinary, especially on weapon and ammunition. And the artillery barrels. So now everybody knows that on the barrel side, with all the shootings, usually a barrel you can fire, there is a guarantee of 4,500, maximum 5,000 rounds. Ukraine is firing more, and our barrels are still intact, are still good. But sometimes because of all the firings, they need new barrels. So we got a big contract also for new barrels. And there will be more. So the barrel production is our expectation also. And we are world market leader in this area over the next 10 years is fully booked. And here also, we not only doubled, so we dribbled or sometimes four times. We have higher capacities now than we had three years ago. Electronic solutions, there is a decision of TAWAN. This is equipment for Bundeswehr with antennas, with the vehicles also on TAWAN. Also that is a business between 1.5 and 2 billion euro. DLBO is going forward and the soldier systems. All that things are at the moment in plan. And we think that we get a decision from the German government in that area. And power systems for sure is also booking something. So that in the second half, our expectation is that our total potential, as we discussed before, is this year growing up to 40 billion euro. And that would help us also to have a very, very safe backlog also for the future. But my expectation is really over the next years it continues, because there is much more need than only that, also over the next years, so that we are able to book also a lot of contracts and have a positive book-to-bill ratio. If you have a look now to page 22, and you see that in our guidance for 2024, That sales is in an area of 10 billion. And Dagmar told you before that we are on a very good way because we booked nearly all the business for this year. The operating margin, 14 to 15. I must say I am much more on the 15% because we are on a very good way. But still we have five months in front of us. So that is the reason that we are not at the moment changing our guidance, but I think we are on a top level in this area and also the operational free cash flow. Cash flow conversion rate will be around 40%, and this is also a very good figure if you see all this investment that we are doing at the moment. So customers are very fair to us at the moment. We are investing. We are investing billions. But customers are very fair to us with down payments, and that is the reason that the operational free cash flow will also go into the right direction. So far, the presentation for that. Yeah, maybe one thing we should tell you before we go into the Q&A, because maybe it's interesting also for you. We made a very clear decision about that, where the next Capital Markets Day should be. And the last thing is that on the 18th and 19th of November, we will go to Rome. And the Italian capital will welcome us. The reason is also very clear because of our Italian business on one side, and on the other side, it's also a very nice city. Thank you very much for your attention.

Okay, ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. And if you wish to cancel your question, please press 9 followed by the star key again. Okay, so first question comes from Sebastian Grohe from BNP Paribas.

Hi, good afternoon, everybody. Hope you can hear me well. I just have a quick question around the truck contract with the German Army. You pointed in the slide deck to a first cash inflow of around 350 million, which was upon the delivery of the first 300 trucks. So question one is then, how should one think of the cash inflows for the remaining more than 1,000 trucks that are still to come until the end? And how should we then... think about the EBIT impact, given that you had successfully renegotiated the price with the German customer?

So our plan is to deliver the last tracks in November, so that the Ministry of Defence has time to pay the bills. So our expectation is that we get all the money this year. This is the expectation for our deliveries. We don't go in details about, as you know, for single equipment, but it helps us a lot at the moment, the renegotiation, that the EBIT is much positive, much more positive than we had before, before the renegotiations, because otherwise we would carry all the inflation away. I don't go into single projects about the EBIT impact, but it's a very positive one.

But it would be fair to assume that a good part of that should start really coming through then as of the third quarter, right?

Third quarter, yes, this is the majority. And then the rest will come up to November, which is for sure fourth quarter. But if we have, beginning of November, the last deliveries, then in December we are relatively safe that we get the payments. And the risk is small. The only risk that we have is that Karlsruhe, which is the depot, as you know, for the trucks, will stop and say, okay, it's too much for us to get now all that stuff. But at the moment there is no signal for that.

And the second question I have, and I know it's a tough one to ask and even tougher probably to answer, is around the political process in the US in the upcoming elections. With now Kamala Harris being the frontrunner there on the potential presidency job in the US, do you think there might be any changes as opposed to Biden and then the political outcome being either Kamala Harris or when it comes to the assessment of the Ukraine war? So would you think there's a different impact then on sort of the potential support going forward of the Ukrainian troops in the war against Russia?

Yeah. So first of all, I must say nobody knows exactly what's going on. And nobody knows who will be the winner, if it is President Trump or if it is Kamala Harris. Now nobody knows about that, and I have also no glass ball. The point is what the feedback is, and that is important, first of all, for our business in the United States of America. Both parties are really looking forward to work with strong American companies. And Rymetal USA is a strong American company now. In between, we are investing. a lot of money we have a very clear strategy with the government how to grow in the United States and the United States will be over the next years a very very strong key market for us because if you see what's coming up and I believe really that minimum one of these big programs and there are much more than only these two programs where Rheinmetall is inside that we are able to win it and it doesn't matter who is president in the United States. The second point is the help that the United States is doing for Ukraine doesn't impact us because they help out of their own depots. The United States usually is not ordering a lot from us. There are some orders or some money from the United States, But I believe, that's my personal opinion, I believe that the United States of America will take care that Europe will be stable. And the situation we have at the moment because of the deliveries, because there are more and more deliveries at the moment to Ukraine. And they have such a lot of equipment at the moment that they could be offensive, if you say, even across the Russian border. And you have seen maybe the videos or the pictures which are there. There are also a lot of tanks from our side there who take care that they are successful. So this is a point where I believe that business will continue. Second point from my side. The U.S. government very clearly made that Germany and Europe, yes, they should not longer trust that the US is doing everything for them. So that's a very clear signal that everyone gave to the German people in Parliament and also to the other European side. So without investments it will not work and the pressure from the US will be bigger than it was ever before that Europe is investing the minimum 2%. That's the reason that at the moment people like Minister Pistorius are speaking about 2.5%, maybe 3%, which I really cannot believe, but at the end of the day, if you ask for 2.5%, maybe then you get the two. And the third information from your side is, I had last week a meeting with Governor Sanders from Arkansas, where we have our production line there, She is very near to President Trump, or she was very near to him when he was president. And I asked her directly, I said, okay, what is the impact that they will have? I said, first of all, he tries for sure to stop the war on one side, but on the other side, if there is a bad reaction from the Russian side, maybe there will be much more help than before, and they will then infuse also money. And on the second point, I asked, what if a company which has the headquarters in Germany, is there a negative impact? And she said, as long as you create jobs in the U.S. and as long as you make America great again, President Trump will be with you. He will be very friendly to you in this area because you invest in the United States. So I see not a big risk for us in this area. But I'm not a politician, and at the end of the day, nobody knows.

That's much more than I would have hoped for. Thank you so much.

Thank you.

Next up is Sven Weiher from UBS.

Yeah, good afternoon, and thanks for taking my questions. The first one from Mr. Pappberger, please. First time to have you on the call since the Q4 results. Obviously, a lot of things happened in the meantime. And obviously, the CMD last year is even longer ago with your 2026 targets. Yeah, right. So I was just curious about your updated thinking around those targets that you've given back at the time. A lot of positive developments happened on your order intake and are foreseen to happen in the second half. So I guess you're probably more optimistic on those than you were back at the time. That's the first one. Thank you.

I'm more optimistic. I'm absolutely optimistic about that thing because I know, first of all, all the bookings that we have are really good contracts. And as I always said, from the cash flow and also from the profitability, it's very fair what the customers are doing with us, number one. The second point is that I'm very optimistic also about, and this was a discussion, Mr. Weyer, that we had also before, is it possible to have a growth rate of 40%, et cetera, et cetera. I'm very optimistic about that because we booked nearly all for this year. We are fully booked. But the beauty is also for next year and for 26 we are nearly fully booked with the capacities we have at the moment but we build up our capacities and that is the reason that we continue the growth. And not always 40% but I said I can say that it will be over the next years more than 20% minimum per year. So therefore I'm really optimistic. It's very good for us for the planning, for the If you go to the factories and you can tell the factories, look, in 24 we need that capacity, five this, and 26 the other capacities, we have time. Number three, which is positive, is the people are still coming. So you have seen that we hired thousands of people, very good people, young people, talented people, highly motivated people. I'm very happy about that. and they are working at the moment really by day and by night to make everything happen because they have a very clear task. And the task is, and this everyone in Aramital understands, the task is to protect democracy and to protect freedom. And that's the reason that the people work harder than ever before in that company. So I agree, Mr. Weyer, I'm very optimistic.

And I think you said in the press release today that you should be adding 2 billion per year. I guess that's going to be probably quite a bit more than that, at least for the nearer term. Yes, that's probably fair, right?

Yeah. Yeah, we will see. Yeah. Yeah. But I'm positive about that. But as you know, and this is exactly what you don't like, I want to deliver. Yeah. And therefore... I think it's good to say, okay, the 40% is possible and 20 plus is possible over the next. If it is, I'm happy if it is more. Yeah, for sure.

That's clear. Thank you for that. Then just following up on Ukraine and you talked about some of the individual potentials there. I was just wondering if you could update us what kind of revenue, say direct and indirect related to Ukraine we should be seeing in the current year out of the 10 billion?

So in between, we booked an order. We booked orders for the Ukrainian side around nearly 5 billion. This is what we will have. And it's one point, it's about one point to 1.3 billion this year for the Ukraine. The rest is not Ukraine.

Okay, thanks. And the last question is just regarding your revenue seasonality. Now I think Q2 was also a bit kind of trying to make it a bit less steep in the second half. Normally Q3 was a much better sales quarter than Q2. But you also have the truck sales in Q3 coming through. So should that kind of delta that we used to have also be the case this year? Or is it flattening a bit because of the Q2 development?

No, I don't believe that. So the point is that Q2 is good. What we want to do, Mr. Weyer, is that for sure we make higher sales in Q1 and Q2 because we have now a lot in our backlog. But we still, like the years before, in the first half of the year, we have about 38% of the sales, and the rest will be in the second half. And a real trigger point, for sure, and you know that, so we have much better sales, yes, for sure, but if you grow 40%, yes, you need that also, that you have much better sales in this area. So the beauty is also in the second half, and a lot of these products are also then ready or on the way to be ready. So we're very near there for the ammunition side. So also on the ammo side, even if there are some millions now in Q2, we only made about 40% of the sales, but more than 60% will be in the second half, which the profitability is also very high, but also in all the other areas. So the second half year will be an excellent half year. And I'm very relaxed about that because we have for this year all materials in. We have no bottlenecks on personnel. We have a lot of working capital, which helps us that there are finished and semi-finished goods ready. So that I see, if I look at the delivery plan at the moment, that it looks really good for the second half. So that's the reason that our target of around 10 billion is, let me say, a very fair target. And as I said, from the profitability, I think we are on the upper area of around 15%. even if we have, let me say, a civilian business which is not able. So I believe that, and maybe you have a very good overview about that, but I believe that we are one of the top, maybe the top company in profitability on eBitros this year in the world.

Sounds good, Mr. Papage. Thank you very much. Thank you.

So next question comes from David Perry from J.P. Morgan's.

Yes, good afternoon, Armin and Dagmar. And Armin, I hope you and your family are staying safe. I just want to ask a question, a couple of questions on ammunition. When I talk about Rheinmetall with investors, usually in a positive way, one of the bits of pushback I sometimes get is about the sustainability of ammunition. Clearly, it's doing extremely well at the moment. So I just wonder if you can talk a little bit about both volume and price. If the war in Ukraine was to end, what kind of backlog and visibility do you have for ammunition? That's the volume piece. And then on the price side of it, when you're signing these long-term framework agreements, are you locking in a committed price? And are you confident that you can sustain the current price? pricing that you're getting on ammunition? Thank you very much.

Yeah, David, first of all, David, thank you for your questions. I'm good, I'm fine. And as you and all the other guys here on the phone, we fight for freedom and democracy and nobody can stop me in that way. So the second point is the volume. The volume for 24, 25 and 26 is... is fixed, nobody can change it, so we are fully booked. There is a situation at the moment that in some areas we have, for example, for the auxiliary, some extra capacities because the ramp-up curves are really, really working well. The people are really working very, very well in this area. And then we have, for example, another 10,000 rounds of auxiliary So we go to the customers and I offer one day this 10 rounds are sold. So this is at the moment really, really good. So what I can say is that the growth rate will be up to 26 is fixed, up to 28, 29. It's relatively safe. And the reason for that is because of the of the frame contracts, the restocking, which at the moment is on the level of zero, because all the ammunition is going to Ukraine. And we know the figures, we know the numbers that they need for their stocks. And so therefore, as I said, up to 26 it's done, 27, 28 is relatively safe. The price is fixed. There are no other negotiations. If it is with Spain, if it is Netherlands, if it is with Germany, the price is fixed and our price is very, very fair. Maybe you heard about this deal also. It's not a secret from the Czech government to give auxiliary ammunition and you maybe also heard that they try to double the prices of the ammunition. If they double the prices of ammunition, then this old ammunition would have a higher price, nearly double the price than our new ammunition. So we have a very, very fair price. All customers are telling us this also. And in some areas, as I told you, we are 20, 30 percent cheaper than the others. It's profitable, it's good, and we want to be fair to our customers because you meet the customer always twice. So, therefore, volume is, for me, a very, very safe thing. And it's not only auxiliary ammunition, which is the biggest driver. Also, this frame contract for tank ammunition. There are a lot of nations are looking now for tanks. If you look, if Italy is growing up the fleet now, they need all new ammunitions here. If you look for the export markets where we are on medium caliber and it's also the same like in the – so the ammunition business for me is, yeah, nearly up to the end of this decade for me a very, very safe business. And the effect on the – the leverage effect on – over the next years, Because we are in 26 and then later in 27 also with tank and medium caliber ammunition in full range production. There is still a leverage effect so that the profitability over the next years will still grow. So we are not at the end. We are at the beginning of the super cycle. We are not at the end of the super cycle. Is that fair, David?

Well, it's a very robust answer. So thank you.

So next up is George McWhiter from Birnberg.

Yes, good afternoon. Thank you for the questions. Two more on the ammunition side, please. So firstly, could you share your expected sizes of those ammunition contracts you expect in H2 for propulsion fuses, projectiles, and barrels, please? And the second one, relates to the Bundeswehr ammunition contracts, in particular framework contracts. Are you expecting an extension or enlargement of 105 millimeter or medium caliber framework contracts in the potential coming months?

Thanks. Yes, on the ammunition side, as I said before, we made in the first half less than 40% of the sales. And we will make in the second half about 60% of our sales on ammunition. So this is an effect, first of all, not only on sales, but also on fixed cost side. So the profitability in the second half will be much better than in the first half, yes, because the leverage effect is there. And we speak about big figures. And as Dagmar has given you an overview about the ammunition sales in Q2, so the weapon and ammunition business on Q2 was 692. In the first half, and this I have it not in my mind, I need now my team here what was in the first half, the sales. It was nearly 1.1 billion. So you can calculate by yourself that the end of the year, we will go to a level of nearly 2.4, 2.5 billion in that area. Profitability is going up. So for me, very clear tick in a box. Second point, weapons. The weapons are also very profitable because here we also have a leverage effect in this area, because we produced over the years up to 70 weapon systems, if it is an artillery or if it is a tank. The price of a weapon system is around 1.5, 1.6 million euros. Now we grow up to 270 weapon systems, and my expectation is that a lot of weapon systems will produce for the new tanks, and also frame contracts with Germany, other countries who have a lot of that systems. But the lessons learned, which is coming now out, is that all the countries who have our barrels they are looking to have also some extra barrels in the depot because they don't want to go into a situation that war is coming up. They fire. They fire 6,000, 7,000 rounds, and they are missing barrels. So, yes, I expect that a lot of other contracts are coming. But here it's also fine with the contracts we have at the moment. We are... great and I must say that we are looking also for some extra capacities and there is an opportunity at the moment to build up capacities also in UK and in Italy for barrel and gun production, especially for the large caliber. Is that okay for you, George? Yes, that's really clear. Thank you very much. Thank you.

So next up is Sash Tusa from Agency Partners.

Yes, good afternoon. I've got a question specifically about GMARS. You're a billion, possibly up to seven billion of sales. And just how you see that splitting between the missiles themselves and the launchers. And then specifically on the missiles, what capacity... Do you need to be able to produce or license produce those missiles in Europe? And how much do you think that would cost?

Yeah. So the biggest piece, SASH, is for sure the missiles. So we build up at the moment a capacity in a starting point of 3,000, and then we want to go up to 5,000 missiles per year. And you know the prices. Do you know the prices of these missiles?

It's over 100,000.

How much? Well, the U.S. is paying over 100,000 around. Yeah, it's between 200,000 and 500,000. It depends which country it is. These are the prices where we are. So what we are in discussions at the moment, and it's not only, and we want to produce not only one type of missiles. and especially of rocket motors. We want to be a center of competence for rocket motors. That is the reason that we are investing strong in that area. So 3,000 to 5,000 rocket motors will be produced, and it can be on the GMAS side, but it can be also on the pulse side, whatever, so we have a flexible production line. So it depends. which government makes which decision. So we are in discussion also to say, okay, because there are not enough capacities in the United States, there are very long time to wait for missiles, that we are a production center also for Lockheed, for the motors and for the final assembly from the European side, but also open, and as you know, we do that in Spain, to have a contract with the Israelis on the Pulse missile. So this 3,000 minimum, but between 3,000 and 5,000 missile capacity, this is the main trigger point for these sales. And now we make a combination. Sometimes we are not producing the whole missile. Sometimes we are only producing two. the rocket motor, but we believe that this between 3,000 or 5,000 missiles or rocket motors is the minimum that we can make. And if you count that up, the big punch is ammunition for sure.

And just to be clear, it sounds as if you want two or you may have two separate manufacturing areas for pools in Spain and for GMLRS in Germany. What are the setup costs that you require for that or how much of that is additional to capacity and capability you already have?

Yeah. So the investment that we have to do in Spain is a relatively small investment because we have a rocket motor production and we have factories where we can assemble. And we are experienced also in Rametal Expo on different other rockets and missiles that we do also for the Spanish government. So the investment that we have to do there is a relatively small investment, which is less than 50 million euros. In Unterluz, the investment will be higher, because we, after Berg-Niedersachsen, where we produced the 200,000 rounds of artillery, we have a new equipment where we produce these missiles, and with all the mixers and all the other things that we have, At the moment, the first and with the civils, et cetera, et cetera, we are in an area of around 100 million.

Great. Thank you very much.

Thank you.

So, next question is from Marie Ange-Riccio from Morgan Stanley.

Yeah, hi. Thank you for taking my question. I just would like to come back on your collaboration with Lockheed Martin. So we understood that you are doing an expansion about the technology you are offering to Lockheed Martin. What I understand is that the contribution to your sales from the F-35 will come late 20s, given you are currently building the facilities. What about the other technology that you are mentioning on your slide? Could we see any sales contribution anytime soon from that? So that's the first question, and I will do one by one.

So, yeah, if you have a look to the portfolio that we had on our Lockit page, I can give you details now on the points. The F-35 contracts, the first contracts will come now, and as you are absolutely right, it's year-by-year bookings which are coming. We have a very small ramp-up curve, and then only the fuselages will be on the level between 500 and 600 million per year if the ramp-up curve is done. The GMAS side, and I call it not, if you only speak about Lockheed Corporation, we stay on the GMAS side. We need about 16, 17 months to build up the rocket motor production, and let me say after 20, 24 months, after two years, we will see the first sales in that area. The laser weapon, I see the potential maybe in three years to start in that area because there are huge qualification programs if we do something in that area. Simulation and training, two years. SHORAT is a decision, especially from the United States of America, what we are implementing and what they want to implement. Qualification is a long time for that starting point, three to four years. Aeronautic systems is earlier. So here we can do immediately something because we have capacities and we can do aeronautic service and other things also for Lockheed and Orsikorsky immediately because of the capacities that we have. Is that okay?

Yeah, very clear. Just a quick follow-up on that. In terms of ramping up, I could imagine that it would be very small, like for anything that you are talking about two or three years time to see like any sales, it would be very small at the beginning and like in 10 years time, much higher. Is it like this that we have to see?

Yeah, it's not so small because we will have a ramp-up curve and I give you an example for that, what the ramp-up curve is. So we will be ready April next year with our factory in Unterlust for auxiliary. So if we are ready and if we have a total capacity of 200,000, so in the second half of next year, we still want to produce 50,000 to 60,000 rounds. And then the next year, nearly full capacity, maybe 150,000 and then 200,000 rounds. So you need usually in a ramp-up curve one and a half or two years, but it's not so small if you make two-thirds of the plant capacity. I push the people, yes, we have no time to wait. We have to make it happen now.

Yeah, okay, okay, very clear. And last question on my side, more about capital allocation. So we have seen your current leverage at one time is very, it's below your threshold at three times. So you clearly still have some room for capital allocation. So I have two questions there. First, where do you see opportunities for M&A? And second, what are your main priorities in terms of capital allocation right now?

So M&A, we see opportunities. So we are on the way to buy a company which makes about 100 million sales in South Africa. And the reason that we buy this company, so we gave a press release two days, I think, so three days ago for that. And the point is that we buy that in because this is the last missing point that we have to build chemical plants for powder and other things to do, let me say, the mixers, the chemical stuff they are able to do. And this is a vertical integration. Otherwise, we have to go to other companies. But we will book over the next years. between 300 and 400 million euro vertically integrated into that company, only from Rheinmetall, no other things. And we are looking for acquisitions in the United States of America because of these big programs, but it's not at the moment time to speak about the details on that thing, but we are on a good way. And there are some smaller things where we are looking for. So M&A is one thing which is important for us. And we want to invest into the right things, the same that we did on ExPAL. And we were, I think, over the last years really successful in doing that area and also to implement it into the Rheinmetall group. So on the other side, for sure, we have a lot of cash over the next years. And from the cash side, there are different opportunities. But I think this is something, Dagmar, you should say where we want to go.

Yeah, looking at our cash potential for the next years, besides M&A, of course, we will increase our capex in absolute numbers, but that's covered by our cash flow potential. And, of course, we... We think about our shareholders. We will increase our dividend as our operating result will increase. And one of the more or less last exit, of course, is always a share-by-back program where we got the approval from the General Assembly.

So we are open for everything about that, and it depends how much money we have on the cash. We don't want to be a bank. And at the moment, with this pretty nice course that we have, I would to buy back shares, a lot of them. So this is very, very clear because I think there is still more in.

Okay. Okay, perfect. Thank you so much.

Pleasure.

So next question comes from Dario Dickmann from HSBC.

Yes, thanks for taking my question. I've got a question about the ammunition capacities and potential additional increases. So it looks like every capacity increase is linked to a single country projects, see Lithuania or also Germany with a big frame contract. Are there any countries where you see additional potential, especially like, for example, the UK, which is going to buy RCH 155 or do you see any other country looking to expand capacities in their own country?

Yeah. Do you mean that if they produce then or if other producers are building up capacities in the country or what do you mean? Or do you mean... So that...

Yes, that's a gift frame contract. It asks you to build up capacity in their own country.

So, yeah, there are a lot of discussions that we have at the moment. As you know, our capacity is, and after the last deal now with Ukraine, we are growing up to more than 1.1 million rounds artillery. On the tank ammunition, we are in discussions at the moment with also United Kingdom, because United Kingdom needs also for the Challenger fleet a full pack of ammunition, because they change from the rifled guns to the smoothbore gun, as you know. So we have a frame contract with Netherlands. We will have, very sure, a frame contract with Italy. We are on the way to sign a frame contract with Romania. So if you see there are a lot of countries which are looking for, you will see now we signed, I can say it because I think tomorrow, whatever it will be in the press release, also a new contract for tanks in Czech Republic. All of them need ammunition. And if I said before, if Italy, for example, is buying these vehicles without ammunition. These vehicles make no sense. So, therefore, the minimum, let me say, storage they need is always about two, three billion for the first lots which are coming up. And, yes, we are on the way to sign much more. But there are others. Estonia is looking. So Estonia is looking now to go together with Lithuania if we can do something together in this area. So I am tomorrow in Poland. Yes, I must not say more about that. So there are huge opportunities for sure, and a lot of countries are coming at the moment to us. And I think there is also one reason, because we deliver. We are able to be very fast to build up these capacities. We deliver and maybe the Ukrainian message was the last one. And I believe that the Ukrainian factory will be not the last that we build up. There is more opportunities.

That's good for you, Daniel.

Yes, that's good.

And are you already delivering to K9 users?

They are looking for that also, I must think about. Yes, I think it is in some areas, but usually the K-9 people like to do it by themselves. The South Koreans want to deliver by themselves. At the moment, I think that they're also running out of capacities, so some of the countries are looking for that, but I must say it's not huge. Maybe it can be huge. Very soon.

Okay, great. And maybe this last question on the deal and NAMO contract. My understanding is that they signed a similar frame contract to yours, but way more expensive. But are there any differences in product types, or is it basically the same type of ammunitions?

It's a very similar ammunition about that. So about pricing of our competitors, I don't speak. You have to speak with the German government about that. And on the other thing is that I think they have to build up the capacities. And in the plan, if I understood it right, they have to deliver the first 200,000 rounds up to the year 2030. Okay. So we deliver 1.1 million per year.

That's it from my side. Thank you very much. Okay. Thank you.

So I would like to check if there are any further questions. If so, please press 9 followed by the star key on your telephone keypad now. Okay, next one comes from Virginia Montorzi from Bank of America.

Good afternoon. Just one quick question on my side. On the slide that you have, I think it's slide 14 on the operational free cash flow, is the building block called other basically just PDP, just a clarification? And if not, is there anything else we should be considering? Thank you.

Well, others in the working capital are That's mainly down payments, prepayments from customers.

Okay.

Thank you very much. You're welcome.

Okay. Okay. Thank you.

No more questions?

No.

Okay. Okay. Thank you very much for your time. Always a pleasure to speak with you, to discuss with you, and I really hope that we could give you a good overview about the opportunities and about Rymetal. Thank you for supporting us. All the best. Stay safe and healthy. Bye-bye.