Rheinmetall Ag Unsp/Adr

Welcome to the Rheinmetall AG fiscal year 2024 report call followed by a Q&A session. We apologize for the technical issues. May I now hand over to the speakers?

Thank you very much. Good afternoon, ladies and gentlemen. Twenty minutes later as planned, but welcome to our fiscal year 2024 conference call. I appreciate your time and that you join us today. Looking back last year, and it was a really remarkable year for Rametal. Before we dive into the details, I'd like to take a moment to welcome my new colleague, Klaus Neumann. Klaus Neumann is our new CFO. Klaus brings very deep expertise and a strong track record, and I'm very, very happy to have him in the team. And I'm confident that he will be a tremendous asset to Rheinmetall as we continue our growth journey. With that, now let's start. But before we move into page three, please be advised of our legal disclaimer on page number two. Now let's go to page number three. And you have here the group highlights. On the sales side, it's around $9.8 billion. We have another 250 million Euro ready products, but we had a delay on the ships on the delivery, so it was impossible to take it into the turnover. So with that, it would be a 100% fit of the expected 10 billion, but we are around 10 billion. Operating result is nearly 1.5 billion with 1.478, a plus of 61%. so that our operating margin is 15.2%. It's very important also on the sales side that we are very flat on the civilian business, so that we have a growth rate of more than 50% on the defense business, zero growth, or it's exactly minus 2% on the civilian business. So on the operating margin, we are on the level of 19% in defense, which is the most important figure also for us. Applications, we at the moment have, I don't speak about full-time equivalents, but I speak about people. At the moment, we have around 32,000 people on board. We had more than 250,000 applications. and our expectation that over the next two years we will grow up to 40,000 people who work for Rheinmetall. Operational free cash flow is an extraordinary good because, as you know, we have strong investment programs. And even if we had this investment program, the operational free cash flow is more than one billion. And the Rheinmetall nomination, there is another delay that we have in, as you know, for digitization, nearly 10 billion. which came in in February, which we expected in December. But sorry, we have a six-week delay in this area, so that nomination is 26 billion and not the expected 38 billion that we discussed last time. So the Rheinmetall backlog is also on 54, so expectation was 60 billion. We could reach the 65 billion if we see the delay of six weeks on the digitization, if we add that. And the positive thing is also the dividend. We bring the dividend from 5.70 euros to 8.10 euros, which is on a level that we always discuss between 35% and 40% of net profit. We are on a level of 39% of net profit. Now let's go... To the next slide. On the next slide is, and I think it's not new for you, Europe has to grow, to emancipate itself, and the Americans gave a very clear sentence on the Munich Security Conference. Vice President Lanz said, you have to invest, the US will no longer protect you. So we felt immediately reactions and over the Munich Security Conference, I personally had 42 meetings with prime ministers and ministers and they gave us a very clear picture that Europe is willing to invest and we will invest much more. So we prepare ourselves for and we call it Sight and Vendor 2. And we discuss a little bit later about Zeitenwende II, what does it mean for Rheinmetall, what does it mean for our business. But on Zeitenwende II, a very important man will be, and I think it will be the new Chancellor of Germany, Friedrich Metz, and he said, we have to invest into defense whatever it takes. So the new rules of regulations that all defense spending is above 1% of the GDP would be not part of the debt break restrictions is a very clever move. And if next week we have a breakthrough with that, that the old parliament makes that decision, I think then we can have, over the next two, three months, a lot of negotiations with especially the Ministry of Defense. What does it mean for the industry in Germany, for the industry in Europe, and especially also for Rheinmetall? Because, as you know, last time we had a 42 billion list about that, and I still have my list ready, but we only can speak about that after having the decision of Zeit und Wende too. So the next page gives you now an overview about our simulation. So we made our simulations. We prepared ourselves immediately after Munich Security Conference. We made that simulation. I had several chats. I spoke with Mr. Merz. I spoke with Mr. Rütte. I spoke with a lot of ministers about that. And most of the people told me the minimum should be 3%. And the maximum I see at what we see at the moment is 3.5%. But even if you go on a level of 3%, so we simulated the GDP on the European countries. And if you have a look to the 3%, you see that from 690 billion, it will grow up to 831. If it would be 3.5%, some countries, but smaller countries will spend more than 3.5%, it will grow up nearly to 1 trillion euros, so 1,000 billion euros. It's an unbelievable figure. The second point in our simulation is that the fixed costs for personnel and other things will not grow as much as if you grow from 2% to 3%, so that the investment rates, yes, will grow. at the moment from a level of 31% to 40% in the first years, because then the personal costs will also grow, maybe also up to 50%. So in 25, 26, level of 50% and later is on 40% of equipment spending, which is going up. If you calculate all that things, then we calculated what is... the annual potential of Rheinmetall. And I make the story short. There is a potential between 300 and 400 billion, a potential, very clear. Last time we spoke also about a potential of 42 billion. Now it's nearly 10 times bigger, a potential up to 2030. Don't kill me if it is 2031 or whatever, but it's a huge number and it doesn't matter if it is 300, if it is 400. It's much bigger than the first figure because Zeitenwende 1 was a typical German thing and Zeitenwende 2 will be a European thing. So this is a big differentiator and therefore the potential is much higher. Now, we simulated another thing. Is it possible to grow as fast? And a lot of discussions say, yes, we have to buy from America and whatever. Then it will not happen because I can tell you, especially in the equipment that we have, the Americans don't have the capacity. So we will have a bigger capacity over the next years than the United States will have. So that is impossible. So we have to grow and we have to invest more. But later about that and also for sure in the Q&A, because for me, this page is the most important page also for the future, what happens over the next five years. Coming back to 2024, because this is the main issue that we have today. So the backlog, as I said, is growing. from 38 billion to 55 billion. In between, we are on about 65 billion, so from today on. And you see the top ten nominations, and I only have a look to the three big things. This is the frame contract 155, which is also very good because now it is not longer a frame contract because if everything the next week is going on green lights, it's good for us because then the frame contracts immediately could come into fixed contracts if the government wants. So this is also a very important thing because then they have a much more budget under control. Then the frame contract of UTF, and I expect there is much more in now for the trucks because Germany needs 25,000 or more trucks So in between, there is something about 6,000, 7,000 trucks, but you see there is much more in also for us. So our capacity is also growing very strong and we have a truck capacity now of more than 4,000 vehicles per year. And the heavy weapon carrier, especially on the German side, this is a contract government to government with Australia. We prepare everything at the moment to deliver heavy weapon carrier. also in time so in a nutshell backlog is fine backlog is exactly what we expected again sorry we have a delay of six weeks about about that that that that things but you know you never ever can plan so exact if if it is year-end decisions and but we are very happy to to can to give you that information that we are absolutely online so if you go to page 8 here you see the next phase in Ukrainian localization strategy and at the moment on the localization side we expect for this year air defense for 300 million vehicles and this is the links to implement the first the links vehicles it's 200 million and the big pile again is ammunition and on the ammunition we will get the first contract for production now in Ukraine, because as you know, we are on the way to build up the factory in Ukraine, and this is 1.5 billion, so a potential of 2 billion on the Ukrainian side, paid from the Ukrainian government. So we are strong at the moment. I think what we learned, we were the only industrial team who got also a meeting with President Zelensky on the Munich Security Conference. You see some pictures there. And the maintenance is really running very well at the moment. So Marder is running. Leopard 1 is running. Leopard 2 is on the way. Ammunition production, as we said, we started to build up the production lines in 2026 will be the next step where we have SOP and the Sky Ranger on Leopard 1 and additional Skynex systems will go to Ukraine. The Sky Ranger on Leopard 1 will be an outstanding system for them because it's on the front line and on the hotspots on the front line we can catch artillery rounds, we can catch all the UAVs, as you know, in a distance of four, across four kilometers, so a corridor of eight kilometers is relatively safe. And it's a very important discussion that we have with the Ukrainians, because there is at the moment, some people create a narrative at the moment in Germany that UAVs are the changing strategy about these things, So with that system, UAVs are very easy to catch. It's a point, and it doesn't matter if it is an intelligent drone or if it is a dumb drone, because it doesn't matter for the system. It kills all the drones. And this is a game changer, as I said, in that area. But the Russians don't have it at the moment, and that's good for the Ukrainians. So the group sales, the revenue over the next years will be always on the level of about 13% for Rheinmetall. If you go to page number 10, joint venture is established by end of 2025. We have an interim joint venture now, an interim company. that we can go into the negotiation with the contract. And the first prototypes will be now delivered in Q4 2025. The first links was end of last year in Italy. We made the first firing test on that. Government is very happy about that. We will build more than 1,000 links with 16 different variants. And the peak, on the peak side we will produce 150 of vehicles per year and you see that will grow in 2030, 2031 will be going up to a level of 150, 160 vehicles. Then it's slowly going down so that we are then on the level of 100 vehicles. So very good contract up to 2040. which helps us a lot, starting in 28, really serial production, and then going up to 2040. So it's a 12-year program with revenue for both companies, for Leonardo and Rheinmetall, of 23 billion. So it's about 12 billion for Rheinmetall. Next page will show us the strong growth path ahead of the United States of America. As you know, the acquisition of Lock Performance helps us a lot at the moment to book new businesses in the US. The US guys, the US boys are at the moment grabbing new contracts, going into the planning side to fill The factories, we have huge factories, we have more capacities that they have, but I must say it's outstanding what they are nearly part of every vehicle program in the United States. And we have such a lot of tanks standing there in our factories for maintenance, for other things where we implement a bunch of new things where we sometimes have some hundred thousand bucks, but sometimes also some million. on refurbishment work on these tanks, if it is AMPVs or if it is infantry fighting vehicles. It's really outstanding and our expectation was not as high as we at the moment, the U.S. boys are doing. We are in very good shape there. And we want to grow up. And this is without the big programs in 2027 in the United States to more than 2 billion. But if we are able to win XM30, it will be much higher. And at the end of the day, we can grow up to about $5 billion over the years. So in 2030, it's a high expectation from us to grow strong. So the next pictures show you now our expectations up to a vision 2030. This picture is a clear picture before site and vendor two. This is our calculation site and vendor one. And the first is on the vehicle system side. On vehicle system side, we grow from 3.8 billion, have a growth of 35 to 40% in 25. The expectation for 2027 is 8 to 9 billion. And in 2030, it is more than $10 billion. And if we win one of the US programs, it's much more of $10 billion. But if Titan Vendor 2 comes, and if everything what I heard in between, that there are really ideas that say, OK, now we order 1,000 vehicles of that type or whatever, then it's totally different figures. I cannot say more about that because we have no details from the government. But if that works, yes, we need much more capacity, and we have to invest much more, and then the numbers are much bigger. Page 13 is weapon and ammunition. So we will grow up again from $2.8 billion with a plus of 30% to 35%. This is, as you know, strong. And quick-turning business, so if we get contracts here, we will do everything to fulfill these contracts as soon as possible. But only if you see that, only some expectations. If we have 2024, 2.8 billion, we nearly made 2 billion with auxiliary. So this is the biggest driver, or we made 2 billion with auxiliary. So we grow up strong in that area and the capacities in our artillery are now growing because we start next month the production in Unterlös for Werk Niedersachsen. And we now made a new calculation in Unterlös and we made an investment in bottlenecks. And in between now in Unterlös we are ready to produce 500,000 shells. First of all, the first calculation was 250,000. Now on the shell side, it's going up to 500,000 because we made some extra investments on the bottleneck side. And now we have to make also a special link for hardening the ammunition. This is a tampering effect. If we invest in these areas, My expectation is that from 250,000, we can grow up to 350,000 and maybe more rounds also in Unterlis. So there is enough space if the contracts are coming to grow faster. But in Division 2030, it's also 10 billion. And a very strong driver is over the next year, the digitization and also air defense. As you know, we have a new structure in that area. And the Vision 2030 here is always, as I said, it's the picture of Site Inventor 1 and not Site Inventor 2. It's more than 6 billion. So that in total, this expectation is around then the some civilian business of 2 or 2.5 billion, so around 30 billion in 2030. So the growth rate that we have is only in defense, and that means that at the moment we dilute ourselves with the civilian business because the profitability is 4% to 5% in this area. And with growing on the defense side, we grow also the group profitability strong. So if we stay on a level of 19%, 20% EBITROS, You know, everything is limited. Yes, you cannot grow more and more and more in this area because we want to give also fair prices to our customers. But it is possible, let me say, to be on a level of 19 or 20% because of the vertical integration. The 30 billion is under Titan Vendor 1, a good, let me say, vision. Next page shows us power system and very depressed market environment. It's at the moment very hard for our people to work in that area. No growth, a lot of pressure on the prices and as you see from 23 to 24, we had a decline of 2% and we are now around 2 billion. We make no loss. And as I said, the loss is always between 4% and 5%. So in this area, that's not comparable to the defense business. But I must say, very hardworking people in this area. And what we do is we try to make a transformation now also for some factories from the automotive side to the defense side to use our people, our well-educated people, to take care about them. and to transfer these people from automotive to defense. Now I will take over to Klaus, and Klaus takes care about the financials.

Thank you, Armin. Thank you also for the kind introduction. I will start with a look at the overview of our group KPIs. As Armin already mentioned, we had a very strong growth in sales and also on the operating profit we closed the year with very strong set of results and more importantly we delivered on what we promised during the year. Sales growth was about 50% compared to previous year and as you can see on the slide although there are some impact from M&A due to our acquisition of XPAL in 2023 and LOC in 2024, the overwhelming driver for our growth in profit and in sales is our operational performance. Also, we can see that our civil business, as mentioned, is relatively weak. We have more or less stable sales with a slightly declining margin. Operating results rose by 560 million to almost 1.5 billion euros. Overall, this is an increase by 61% that led up to an operating margin of 15.2% compared to 12.9% in the previous year. The main driver was clearly the performance in our weapon and ammunition division. Overall, the defense margin for our divisions was about, as mentioned, 90%. One element that basically drove the result for the group outside the civil and the defense business was a one-time effect in others in consolidation of around 50 million profit in Q4. Moving on to the next page. As mentioned, we added The strong growth in profitability is also the driver for the increase in our EPS. This is the EPS from ongoing activities pre-PPA. We use this as basically also the main benchmark to derive our dividend proposal. We propose 8.1 euros per share to our annual general meeting in May 2025. This proposal is consistent with the approach for 2024 as it rents about 39% of our benchmark EPS. Let's turn to page number 19. We did see a strong improvement in our arraignment termination numbers, as you can see. It's very strongly driven by hard orders of about $16.5 billion, of which basically are almost $4 billion basically converted from frame contracts that we already booked earlier. Taking it away, the almost $10 billion from sales, we get to the $55 billion primordial nomination as mentioned earlier. In the increase, we also have $1.2 billion of order backlog, remittance nomination coming from the acquisition of locked performance that came in at the end of November 2024. Let's flip to page 20 for a detailed look at our operating free cash flow. That was a very strong performance in 2024. previous years the main quarter that is relevant for our operating cash flow was the fourth quarter we managed to achieve almost 1 billion in q4 so in total for the year 2024 we exceeded the 1 billion bench threshold for the first time in our company history there's a very strong number considering our investment in in future business through capex and basically increase in inventory to support our future growth. On the side to the right, you can see basically development of our working capital. As mentioned, we invested strongly in inventory for future growth. That makes about $750,000. million that was compensated by very good um payments from uh from our customers towards the end of the year on basically on invoices for deliveries in achieved milestones but also because of good payment conditions that resulted in prepayments that substantially improved our working capital and basically is the main contributor to the strong cash flow in 2024. Let's turn to page 21 to look at basically on our debt position. We are very solidly financed. We have on the financial position a net financial liability of around 1.2 billion euros. but it's important to consider that a large part of it is the convertible that we issued early in 2023. As a result of our strong share price performance, holders of the convertible are starting to convert the debt into equity. And we expect that a large portion of these convertibles will be converted throughout 2025. So in a positive scenario for 2025, we might have no debt at all by the end of 2025, considering our expected strong cash performance also in this year. Net debt to EBITDA at the moment is 0.71%, but that already still includes the convertible that will be kind of converted into equity during the year of 2025, further improving our ratio on that side. Let's change to page 2022. This is a summary of basically all our divisions with a strong performance in the defense segments. You can see the very strong growth in all of the divisions from the ecosystem, weapon ammunition, and electronic solutions. The stable situation in power systems leading to an overall growth of 36% in sales for Gaimetal. And also it's quite clear that the Main driver for profitability is defense with an average of 19%, supporting our profit margin of 15.2 for the group. This closes my presentation, and I hand over to Armin for the outlook.