Rheinmetall Ag Unsp/Adr

So ladies and gentlemen, without introduction, I immediately start. Thanks for your kind introduction and a warm welcome to all participants of Q3 conference call. As in the previous quarter, Dagmar and I will walk you through the presentations. Please be advised of our legal disclaimer on page number two. And now let's get started with the group highlights. Give me a chance, first of all, to have two extra points because of the political situation that we have and also personal decision. Let's start with the political situation. You have nothing in your handout, but I'm very happy to give you the latest information about the decisions in Berlin about the German parliament. So the positive thing is that the German constitution, it is impossible to have a time without government. The government stays as long as we have a new government in Germany and the old government can take actions. The same is for the German Bundestag. All the people in the German Bundestag can make decisions until the end of their political period. It is very positive that we have a preliminary budget. With that, it is impossible that we have a shutdown. The governmental shutdown is impossible like it is in the US. Therefore, the German government is always able to make decisions The only thing, if we are not an acting government, is that we only can, every month, can spend one thirteenth of the previous year on the budget side. But anyway, it is very positive that we have no shutdown. We have a very positive role for the German Bundeswehr. And they have an extra role because we have our extra budget. And therefore, it is independent from the budget in 2025 because we have the Sonderbudget, which has 100 billion, and they will spend about that thing. And as I said before, 1 13th of the budget of the previous year in 2025, it will be 2024. they also can spend. So that we see maybe some smaller delays, but not really big ones. At the moment, and especially today, there will be a meeting between the leader of the opposition and the chairman chancellor, between Mr. Scholz and Mr. Merz, and they will take care about when the next elections are. Our expectation is that Mr. Metz will take care that latest on the 9th of March in 2025 will be the next election so that we have then a new Parliament very soon. If we have a negative vote of confidence, which will happen maybe, then the President has 21 days Then he needs a majority, and if he doesn't find a majority inside the Bundestag after 60 days, we will have these new elections. So what are the impacts for us? What are the impacts for Rheinmetall? We see absolutely no big impacts. Maybe there is an impact, and this is what we at the moment count in, that we have delays of maybe four, six, or eight weeks in some of the order intakes. But the positive thing is that today the Parliament gave green lights for another contract of trucks. And in this year, all planned contracts, which are bigger than 25 million, where the government has to make a decision, we got the feedback that it will go through. And later I will give you an overview about all the contracts where we are in the final negotiations. So that we see at the moment, as I said, not a very big negative impact. Second information, this is about personal, and maybe you read it yesterday. It's a personal decision from my colleague Dagmar, end of the year, to lay down the CFO position that she has at the moment. So it's a very clear part that she made a private decision about that thing. I fully understand that. I appreciate the last two years that we worked together. She made a great job. And thank you very much, Dagmar, for everything, what you did for our group. All the best also from the family side. All the best for you. I hope everything is going into the right direction. So now, ladies and gentlemen, let's go to the real conference call. And I start with page number three. On this slide, you see that sales is growing 40%, very positive quarter three. The operational results, a plus of 52% or €302 million. so that the operating margin is growing to 12.3%. For sure, we also have higher FTEs. So there is an FTE degree of 2,610 people or plus of 11%. And with all the investments that we are doing, we have a very positive operational free cash flow. Dagmar will give you an overview about that later in the financial part. plus of 221 million is huge after all these investments. So we spend it 7.4% capex of sales and we have after a record Q3 last year also now a very good quarter three for Rheinmetall order intakes and nominations of more than 6 billion euro. So the Rheinmetall backlog has a growth rate of 41%, and this is nearly now 52 billion. Later I will give you an overview about that this continues, and the order backlog will still grow to the end of this year. At the beginning and at the end, I have two figures which are very important also. If you see the accumulation of Q3, so the defense grows. We had a growth rate on defense of 55%, which is, I think, at the moment of the bigger companies, the biggest growing defense company on the sales side, and also a very good profitability. So only on defense side, the profitability is on the level of 15.3%. EBITROS which is really good. So the civilian business has no growth and that's a very simple thing that we are growing faster on the on the defense side and also the profitability on the civilian side is much much lower than on the defense. The expectation for the full year 2024 I will show you later. Let's go to the next slide. Slide number four shows that The total remittal nomination or order intake in Q3 is 6.1 billion. The big driver is vehicle systems. On the vehicle systems side, we booked another 6,500 military trucks. This is not the end of the story because at the end of the day, there is a need of between 15,000 and 25,000. It really depends on the role of the Bundeswehr that they have. And there is more in, but another 6,500 military trucks are very positive. We also booked the Leopard 2 for Czech Republic. This is lot 1 plus lot 2 for 151 million. And Fox Kids, this is especially for our 6x6 vehicle Fox for Algeria. It's about 280 million. Second driver was weapon and ammunition. Ukrainian order, you know that we build up a 155-millimeter production plant. Here we got a three-digit million euro order intake and the framework with Spain for propellant charges of 250 million. Electronic solutions with 60 Skyrangers, 30 turrets for Denmark, and also intercoms from a frame contract for 356 million, and also several bookings for power systems. So in total, 6.1 billion. Let's have a look to the next slide. We really continue a very positive point with Leonardo. So we founded Leonardo Rimetal Military Vehicles in Italy. a new player in the European tank production. As you know, we implemented the Panta tank and also the Lynx tank as a base version, and we implement also some Leonardo technologies in these vehicles. We have a 50-50 joint venture and a 50-50 work share, so 60% will be produced in Italy, 50% for Leonardo, 10% for Rimetal Italy, and 40% the rest of the Rheinmetall factories. I think a real win-win situation. There is an opportunity of more than 20 billion in the first shot with Italy, but our expectation is with ammunition and export that there is a possibility of 50 billion over the next 10 years that we can make in this joint venture. So very positive direction. Have a look to slide number six, what happened on the market side. So we made a new strategic alliance from the US, Transatlantic Alliance with Honeywell. And Honeywell has some good technologies that we also need in Germany. The main technology is for sure collaborations on auxiliary powers, but also the potential to cooperate on the maintenance on helicopters. For example, is the engine for the Chinook Honeywell engine and we try to see potential that we cooperate in that area also for the German Chinook program. We have high energy applications and specifically in building automation and overarching thermal management, we see also opportunities to do that with Honeywell. So the opportunities that we have is first of all, We must not develop things. We can use it from Honeywell and we can be faster and we can use the Honeywell capacities also in different areas. And Honeywell can take over some technologies to Rheinmetall to produce it here in Europe, to be a European hub also for the Honeywell technologies. Let's have a look to page number seven. This is also an important alliance that we have with MBDA. So we tested, as you know, very successful, our laser weapons on the frigate Saxon. This was already completed in 2023. And now there is a decision from the German government that we want to continue and we want to implement also the laser technology on the German Navy on different ships, on frigates and corvettes. And therefore we have a new cooperation agreement. and we plan to launch a joint maritime drone defense product on the market. There is a laser weapon, but it can be also gun-based in combination with gun-based and laser-based weapons for the Navy. A huge potential also for Rheinmetall. Let's have a look to page number eight. And page number eight, you know that we made a signing on the log performance acquisition. It is very, very well on track and I can say a very positive tomorrow. We expect the green lights from the government so that everything is going into the right direction. So monopoly commission and all the other things seems to be okay. The feedback from the US government is very positive so that our expectation is that latest end of this year is closing expected. So what does it mean? It means that first of all we take over the order book of log performance, we take over 1,000 people and we are ready for operations in the United States for the big programs that we are because then we have the factories that we need to make the US customer happy. Let's have a look to page number 9. On page number 9 it's a very important agreement between Great Britain and Germany that we signed. You see the picture between where both ministers sign it and I personally had a discussion with the Prime Minister of the UK what is possible of Rheinmetall investments and also contracts for sure in the United Kingdom and there are four items that we can bring forward with a huge potential with annual sales. I see as number one the gun shop. We will start very soon with the gun shop and this gun shop will be from medium caliber up to 120 smoothbore guns to 155. There is an opportunity between 300 and 400 million per year. The second is powder production. At the moment UK has no powder production and there is an opportunity of more than 200 million per year. and then munitions and vehicles, which is a potential of 500 million every year. So the British market is really going forward, and my expectation is that it is possible to make in Great Britain between 1 and 1.5 billion euro per year. So now political decision number three, US gets a new president, and this is you see on page number 10. What is there an impact on the business for Rheinmetall? So what we believe is that President Trump will press the Europeans to be more independent, to invest more into defense programs. And with all the discussions I had with NATO, but also with Pentagon, The expectation is also from the U.S. that 2% is not enough, that we have to spend more. So at the end of the day, there will be big pressure. This pressure helps us to get budget, and this budget helps for sure to have permanent opportunities also to deliver in Europe. This is for the whole European forces. Log performance, as I said, is done, so we see no negative results. impact about that. And we see also no negative impact on the U.S. programs because the point is very clear that Rheinmetall builds up all the people, the jobs, we create the jobs in the United States. We will produce every screw in the United States. And this is also a feedback from Pentagon, from some governors and also senators that say, okay, President Trump wants to make, that's very clear, America great again and we have to create jobs. If we create jobs in the US, he will be happy and will protect these companies who create jobs. So let's have a look to page 11 and this is also very clear, the expectations of the NATO and exactly what the president of BND, for example, said, but also NATO General Secretary Mark Rutte. And all the comments you can read here on page number 11 sounds very positive for the business, because over the last 30 years, the Europeans invested not enough. There is, as you know, at the moment a gap in Europe of up to 1.6 trillion euro for investments, and there is a gap of minimum 300 billion in Germany for that. So there is much more in. At the end of the day we have to find the budgets in Europe. But I believe that the debt break that we have in Germany very soon will fall and therefore we will get a new budget to invest more in also security of Europe. So I hand over now to Dagmar. She will make the financials and later you get an overview about the opportunities that we have over the next month. Please, Dagmar.

Many thanks, Armin. A warm welcome also from my side. Please turn to page 13 and let me allow you to give you a few more financial details on the past quarter. Sales grew around 40% to 2.5 billion euros driven especially by a sales jump in vehicle systems. There we saw a significant number of truck deliveries. The currency effects were only minor. Next to that, the M&A effect from Rheinmetall XPAL munitions is only visible for July as we fully consolidated XPAL from August 23 onwards. The operating result improved by more than 100 million Euro to 302 million Euro, which represents an increase of more than 50%. As a result, our operating margin increased once again quarter over quarter to 12.3%. This improvement in profitability of one percentage point also becomes visible in the increase of our earnings per share by 30%. and I believe that is a great development. Please turn to the next page. The operating free cash flow of €118 million in the third quarter. This represents an improvement of €221 million quarter over quarter and is a very good continuation of the trend we started to see in the second quarter earlier this year. It's all about higher customer payments and, of course, a significant number of truck deliveries. Nevertheless, inventories increased further as we are preparing for a very intense fourth quarter, especially in the area of weapon and ammunition and vehicle systems. Our cap expense started to accelerate in the third quarter and we still expect to end up the year around 7% of sales. Moving on to page 15. Our balance sheet is really in a great shape. The cash position is close to half a billion Euro. Furthermore, we have undrawn credit lines of 1.3 billion Euro and an increased commercial paper program of now 750 million Euro available. This means we have plenty of untapped financing sources available for the acquisition of locked performance. Compared to the previous year, following the acquisition of Rheinmetall expiry munitions, we have already improved our net financial position, driving our net debt to EBITDA ratio below 1. Moving on, the next page. The main driver for Rheinmetall nominations of more than 6 billion Euro in the third quarter was, as Armin already said, the large truck framework for Germany. This is a very strong result but compares to an even stronger previous year's third quarter as this included large projects such as the Caracal and the large framework for tank ammunition. The backlog crosses 50 billion Euro barrier and now stands at almost 52 billion Euro. That in fact is a really big number and great achievement. More than 50% of the backlog are firm orders. Please turn to the next page for a closer look at our segment results. Vehicle systems grew revenues by 88% to more than 1.2 billion euro with an operating margin of 13.1% in the third quarter. The operating result nearly doubled from 82 to 162 million euro. The main driver behind that were the trucks that we delivered. Despite the pull-forward effects that we reported in the second quarter, we saw a very robust performance across all metrics in weapon and ammunition. However, I would like to point out that the 26.5% margin included a special effect due to a release of a provision of XPAL. It was from the initial consolidation and we were able to solve this with a positive outcome. In electronic solution, we had a good development as well. especially the margin improvement of 3.1 percentage points stands out. One significant driver here was the accelerating air defense business. Power systems saw a decline in the business, as we have seen in the entire industry over the last couple of weeks. Even though sales and operating results declined, we were able to maintain a small positive margin. especially in the former OEM business, centers and actuators, the situation is really challenging. As of today, we expect that this trend is going to continue and might even deteriorate further towards the year end. And with this, I would like to hand over back to Armin for the outlook.

Thank you, Dagmar. So let's have a look to page number 19. and as last time we discussed a lot about yeah what happens with the frame contracts and what happens with especially the call-offs from the frame contracts and what you see is that out of frame contracts from 2021 to 2024 we have three times higher call-offs out of the frame contracts what does it mean frame contracts are vary for few, few customers. This is number one. It's Germany, Netherlands, United Kingdom, Spain, Norway, and Sweden. And it's also for few products. And this is especially for trucks and for the ammo contracts, for propulsion, and also for intercoms. So what is the reason of this frame contract? The reason of the frame contract is that sometimes the governments are giving us down payments in this area or milestone payments. These are very, very big contracts. And if we have percentage-wise these down payments, the governments want to separate it, also that the down payments are not, first of all, too big on one side. And on the other side, these are contracts sometimes over five, over seven, or over ten years. So that it is possible, yes, to handle that in slices, to have also a risk reduction for the customer and for us in both sides. But this picture shows that the call-offs are getting bigger and bigger, and over the last 10 years, it's always that they fulfilled 100% or more than 100% of the frame contract, sometimes like in ammunition of artillery and also on the truck side we got extra contracts because the frame contracts we delivered earlier than the expectation of the frame contracts. So it's a very positive signal. Now let's go to the next page, page 20, which I think is a very important page to give you an overview about the rest of the year. how safe our business is and how safe our expectations about the order intake are. So you see that here fiscal year 2022, 9.5 growing to 19.9, nearly 20 billion last year. And after nine months, we still have 21 billion. And now give me some time to give you an introduction about that, what is still open and where we are in final negotiations, real final negotiations on the contract. I start with vehicle systems. On the vehicle systems, there are turret reconnaissance vehicles. In Germany, we call it Ratsschützenpanzer. And this is a contract that we have together with our colleagues in Munich. which is more than 3 billion, so for every company more than 1.5 billion euro. Because of the situation that we have, I believe that this will be booked in the first quarter. It will be not in the December meeting. This is our expectation. But to be fair enough for us, it doesn't matter because we couldn't expect that in the beginning of this year or end of last year. So we are not so bad if we have a hit rate which is, let me say, plus, minus two months. Second point is Gephardt upgrade program, which is on a level of 600 million. Then we have the OCH 155. This is in total also 1 billion together with our friends in Munich. And it will be 500 million for us. So then we have Fluva. This is a 400 million package for turret and vehicle. This is an R&D contract. Then we expect 500 million Skyranger contracts. And we also expect that we get a contract together with GD. GD will have the main contract of Speefahrzeug in Germany, Speefahrzeug. And for us, it could be for more than 500 million. So this is on the vehicle side. Let's go to weapon and ammunition. There are a 35-millimeter ammunition contract of 200 million together with Ukraine. There are 100,000 rounds of Lithuania. This is an area of about 500 and 600 million Euro in Lithuania for artillery. And then our 20,000 rounds out of Spain, which will also go to Ukraine. We expect that we can sign it, let me say in December, if it is January don't don't hit me but it's it's very near another very near contract my expectation is also 25 it will not longer work now but everything is in line that's the positive thing it's for modular charges Germany needs a lot of modular charges because they ordered the projectiles you know last time we discussed about the order intake of the projectiles And they need millions of charges for that because at the end of the day, there is a 2.2 million contract with us, but also with other companies. And we are at the moment the only producer for the modular charges. This is a $3 billion opportunity that we at the moment negotiate. It's not an opportunity. It's a must because otherwise they cannot fire. But as I said, my expectation is that it will not work. End of this year, it will be next year, this 3 billion. Another very positive thing is that we go now to electronic solutions. Tavan, they want to sign this year. This should be in the next meeting in Berlin. It's a 1.6 billion fix. But it will be a frame contract and this frame contract will be net on a level of nearly 8 billion, so exactly 7.6 billion euro. So a big, a very, very big digitization contract. And then DLBO, this will be a 1 billion contract that we expect and the soldier system where we will book fixed 350 million and a frame contract of 3.1 billion. So if I count everything together, we have a level between 19 and 20 billion euro where we are in the final negotiations on contracts. So what does it mean? Our expectations were not too high. Maybe, yes, and again, you can blame us. We have a delay of some months for some of these programs. But it seems to be that it is very, very safe between 30 and 35 billion, but the 40 or 40-plus billion, at the moment, we are absolutely in the range, absolutely in the range, and nothing happened. And the positive thing is also from the market side. We lost nothing. So everything is still in the budget. Everything is still in discussions. We need it, and especially most of them are from the German government. And there are on top some contracts also from the international market, which is another positive signal. So let's go now to page 21. And on page 21 you see that after nine months we have 6.3 billion sales. We have 3.2 in the existing backlog. And there are some things that we book in, for example, more than 100 million in service, which is coming automatically in Q4, chemicals, civilian chemicals, and also 150 million trades. So between 300 and 400 million is very fixed so that we have, let me say, nearly no gap to make this around, as I said, till the 10 billion. What is the risk? As you said, life always has risks, and at the end, last year, we had two loss of ammunition where we had late deliveries, so it was some days deliveries late, but sometimes you also have a risk in lot acceptance test, but at the end of the day, we think that the risk is not very high to have sales around 10 billion. which is a very positive signal. And now also from profitability, I think this is also a very important thing. I give you only one example. The biggest driver, as you know, is weapon and ammunition. The first three quarters, we made $1.55 billion in weapon and ammunition. Only in quarter four, we will make $1.34 billion. in weapon and ammunition. And you know that this is the real trigger point also on profitability. So if you see that, it's a very important thing that we have a plus of nearly half a billion on the weapon and ammunition side, but also the inventories are growing on 500 million. So what I can say is nearly everything of the ammunition is ready. So that the risk is a logistical risk and a firing qualification risk on the firing side. This is, let me say, the only risk I see at the moment. So and if you calculate and if you see what we have over the whole year, the defense growth rate will be more than 50% in comparison of last year. And our expectation is that we are able on the defense side to make an EBITROS of nearly 18%, which is also, I think, an excellent figure. So then we go to our last page. This is the full year guidance. And on the sales side, it's very clear that we said we have around these 10 billion sales. The operational margin will be around 15%. As I said, nearly 80% around the defense. The rest is civilian business and on the civilian business and we overcompensate that to from the planning because the civilian business is really breaking down and also the profitability we lost from our expectations 30 to 40 million euro we compensate overcompensate that on the defense side and And this is also one point that we for sure said that defense is our core business and the civilian business in some areas are absolutely then not core and we have to take care about that. And the operational free cash flow will be more than 40%. It depends a little bit really the cash that we get if we get it end of December or if we get it beginning of January. Dagmar showed you in the presentation what we are investing. And if everything is running well, my expectation is that we have between 700 million and more than 1 billion operational free cash flow for this year. And I think that's a very fair value with all that investments that we do inside Rheinmetall. So we prepare our company for the future. We will grow strong this year. We will grow strong next year. and the years after, we prepare our factories for that because the investments will be done this year and also next year. But we still have a good operational free cash flow, which is very good for our investors and also very good for the people who are working here in Rheinmetall. Thank you very much for your attention. So now we are fine with Q&A. Please start.