Rheinmetall Ag Unsp/Adr

Good afternoon, everybody, and thank you for joining us for the Q3 results call today. With me on the call is our CFO, Klaus Neumann. Klaus will walk you through the financials. Before we start, please be reminded of our legal disclaimer on page two. Now let's move on to page number three. On page number three, you see that on the sales side, and I focus very strong on the defense side, we have a growth rate of 17% on the defense, up to $2.3 billion. The total sales is $2.78 billion. The operating results on the defense side is 361, a plus of 7%. And it's 360 in total of plus 19. Operating margin is on the defense side 15.7%. And it's lower on the total sales operating margin is 12.9%. The people still want to come to Ramital. So we have more than 200,000 applications. Operational free cash flow is going down on the defense side, minus 286, total minus 168 million. And CapEx is growing because of all the new factories that we built up at the moment to 8.9%. And Rimetal nomination and the issue that we have a minus of 36% is, as you know, the election period that we had in Germany, so that we had delayed order intakes, but that's very normal because the government was not able to give these order intakes to us. But Rheinmetall backlog is still very healthy, with 63.8, that's nearly 64 billion, we have a plus of 23%. Let's have a look to slide number four, and here we have shown some innovations. We presented the innovations on the DSI in London, and we have shown, together with Lockheed Martin, the Jagam Tank Hunter on a new Fox mobile, but it can be implemented also on other Then we have a growing family of our Skyrangers, the Mission Master, which is Skyranger 762, and the next generation ship protection with the MAS Nova II. There are a lot of more innovations that we have shown on the DSA. It's a small overview about that, what we did in London. On the right side you see the Telford Gun Shop groundbreaking ceremony and we will invest in total about 100 million and we will create 100 highly skilled shops and it's important for us to produce the caliber range of 120 to 155 on the large caliber side but we are also able to produce medium caliber. The need for that guns over the next years is huge and we create up a capacity of more than 150 large-caliber guns per year in the United Kingdom. Let's have a look to page number five. And here you can see that the Parliament made good decisions. So at the end of the day, 2025, finally we will have a budget of 95 billion. There is a growth rate of 23%. And in 26, the draft, and we expect nearly 120 billion, where 83 billion is coming out of Einzelplan 14, EPL 14, then the Special Fund and the Ukraine Relief Fund. So the decision on the budget in 26 budget has to be passed in November. so that we are able to plan really fix then for the next years. Let's have a look to slide number six. On slide number six, you see two new activities that we have inside the Rheumatoid Group. One activity is that we reached an agreement with Lurssen family and to take over the naval vessels from Lurssen, so we had the signing. And we expect that the closing is latest end of January in 2026. The potential sales that we see in 2030 is up to five billion. Next year, the expectation is that we can grow up to around 2.5 billion, but then double the sales. And the order intake potential that we see over the next five years is between 20 and 30 billion euros because there are huge programs also from the German Navy, but also international navies. On the right side, you see our ISI Corporation. We formed a 40-60 joint venture between ISAI and Rheinmetall. So Rheinmetall has the majority. And we signed it on the 23rd of September in 25. The first market is Germany, but we look for more markets. And the immediate need we see is at the moment 40 satellites. And Rheinmetall, the expectation on nomination is about 2 billion euro. And if everything is working well, we can have an order intake also this year of that 2 billion, so the first big contract on satellites for Rheinmetall. Now let's have a look to page 7. And here you see how Rheinmetall Weapon and Ammunition is creating this European ecosystem. And the expansion of existing capacities in Spain, doubling or in some areas, tripling capacities in Spain, the same in South Africa and in Australia are in progress. In Germany, we started the trial production for the 155 projectiles, and we are also on a good way, and the first stage is ready on the powder production in Bavaria. And we will double and in some areas triple also the productions in Bavaria on the powder side. So we are on a very good way in that area. We had the groundbreaking in Lithuania for artillery ammunition. And we signed an MAU also for propellant to create a center of competence of propellants in Lithuania, signed also where the president of Lithuania was with us. A new ammunition plant in Latvia is signed. Bulgaria, joint venture for powder and 155 millimeter is established. And in Romania, a joint venture for powder production is also established. And on the Romanian side, we plan at the moment, and it can be also very fast in the first quarter next year, a package deal with the Romanian government, not only about ammunition, but also about tanks and other equipment for the Romanian army. Now let's have a look to page number eight. Here you see what happens now with the power systems. The process of selling our automotive business is going forward. And submission of final offers will be in quarter four. We expect over the next four weeks that we get binding offers. And if everything is running well, we can finalize the process in the first, latest in the second quarter of next year. Now I take over to my colleague, to Klaus, and he will give you an overview about the financials.

Thank you, Armin. Yeah, we had a strong quarter in which our sales grew by 13%. Defense sales grew even stronger with which now make up 2.3 billion euros, or 83% of the total sales of 2.8 billion. Our operating result grew even stronger than sales to 360 million euros, with a margin of 12.9% for group and 15.7% for defense. M&A activities, as you can see on the slide, contributed. Contributed to the sales, but there was only limited impact to profitability because we still have some integration costs for some of the acquisitions we did this year. Please move on to page number 11. Let's have a look at the development of the different segments of our business. In vehicle systems, sales increased by 8%, quarter to quarter, to 1.3 billion euros. driven by more tactical vehicles, including services. As you know, there's some truck sales were slightly lower than in previous quarter because of the delayed deliveries to the German customers. There is a small negative mixed effect and different regional splits compared to the previous year, so we have a margin of 12.5 percent in this quarter compared to 13.1 in the previous year. Let's move on to weapon and ammunition. Again, we saw the highest growth rate in this segment. Sales grew by 38 percent to 691 million euros. Important sales relate to tank ammunition and medium caliber. As you know, artillery ammunition was held back to some extent by the delay of the new government permission for our production site in Murcia. The operating margin decreased by 3.3 percentage points to 23.2 percent in the third quarter. In electronic solutions, sales growth was very strong with 32 percent reaching 516 million euros. Main driver was the increasing contributions from multiple digitization programs as well as increased air defense sales. Operating margin went up to 11.0 percent after 10.9 percent in the previous year. Lastly, our power systems division showed slightly decreasing sales compared to the previous quarter. As you know, the auto market is a very difficult environment at the moment, and the division is fighting hard to basically keep its ground in that difficult market. Despite the sales decrease, operating results stayed stable compared to the previous year at €18 million, slightly increasing the margin from 3.6% to 3.9%. Let's turn to page number 12. As mentioned, I mean, our nomination was lower in Q3 2025 compared to previous year due to the delay in order placement, especially by the German customer. Also keep in mind that last year we booked a large framework frame contract for trucks of 2.9 million, just to give a bit of perspective of the development from year to year. Overall, everything is going as expected. And you might see in our press releases, we are gaining additional order momentum on several big tickets now in the current quarter Q4. More on this in the outlook section. Our backlog rose by 23% to 63.8 billion euros year over year. Let's move to page number 13 to look at our cash flow and our working capital development. As order intake in our amateur nomination was lower than in previous year, we also did not see the large prepayments that we enjoyed in 2024 so far. As a result, and also as a result of the buildup of inventory for upcoming sales in the fourth quarter and in 2026, our cash flow was negative at minus 813 million euros for the ninth month in 2025. The higher inventories, again, relate mostly to vehicle systems and are also impacted by the later truck deliveries compared to 2024. Let's move to page number 14. While we have a negative operating fee cash flow this year so far, we have strong support on the financing side. I just want to give you an update on the situation with our convertible. We had no conversions of the Series B convertible bond, and our total number of shares is now standing at 46 billion shares. Our equity ratio improved and is now at 32.9%. These conversions support our net liquidity position and strengthens our balance sheets. Due to the lower level of customer prepayments, National position, nevertheless, is now at minus 1.9 billion euros. And just to give you another example of our balance sheet situation, net debt to EBITDA ratio of 0.97 is still very strong and puts us in a very comfortable position to finance the upcoming M&A transactions. With this, I would like to hand over back to Armin.

Thank you, Klaus. So I want to give you on page 16 an outlook about the nominations and the expectations that we have in Q4 after having the German government machine running again. So we are in negotiations and we had the first success on the Chackal. Let's start on the vehicle system side. After nine months, so we had, as Klaus said, also nearly 64 billion backlog. Our expectation is on Jekyll, 3.4 is booked. The other point is Puma, and these are always net values that we have only for Rheinmetall, not in cooperation with others. The Puma, the expectation is that on the Puma side we have a potential of 1.4 billion. On the Lynx side, there is another potential that we have from the Italian side, but also maybe from Romania where everything is going good. Only the Italian side will be a level of about 400 million. On the Leopard side, we see half a billion, 500 million also. And the support vehicles on the Leopard is another 300 million. And there are negotiations on the trucks, but it can be that the trucks are also going into 26, into the first quarter, into the negotiations. On the truck side, we are in negotiations at the moment to enlarge the frame contracts, which are then fixed contracts of more than €4 billion. A very positive point is also, and maybe not in Q4, because it's a huge contract. This is a Boxer contract. The government calls it Arminius. This Arminius contract is a total contract number. There will be nominations of 40 billion euro. And from this 40 billion euro, we expect more than 22 billion euros also for Rheinmetall. But this will happen very safe in 26 and not longer in 25. But if it happens in Q1 or Q2, I will be very happy. Next point, let's go to weapon and ammunition. On the weapon and ammunition side, there are the final negotiations on the 155 fixed contracts. And there are different numbers at the moment in discussions. First of all, we discussed about 1.7 million rounds, then 1 million rounds, Maybe it's in this year a little bit reduced because they want to bring something to this year and to next year to create fixed contracts. But the expectation in total on the ammunition side is an expectation of around 6 billion. So if you counted up everything, it's 5.5 to 6 billion for the vehicles minimum, 6 billion on the ammunition. Then we go to electronic solutions. On the electronic solutions side, we see the satellite program, and the contract that we expect, this can be around $2 billion. The Sky Ranger is implemented in the program Arminius. And then we have LUX2 weapons and weapon stations. about 300 million laser light modules, 300 million loitering ammunition. This is what you have seen in the newspapers over the last two weeks, the first bigger contracts for drones, and also some other smaller contracts so that we see potential of 3 billion that we can reach The rest will be first quarter and second quarter and this is the big bunch then which is coming in the first and the second quarter next year. If you count up everything, so we are still in the range of around 80 billion euro, how we expected at the beginning of the year. Don't hit me if it is, let me say, $78 or $82, or if the big contract is coming early on, ammunition is a little bit more, but let me say around $80 billion is a fair value. Now let's go to page 17. On page 17 on the outlook, a positive signal is also that 95% or more than 95% of the backlog coverage we have, let me say, in our books. So we are confident about the full year guidance. On the sales side, we think that on the defense, we can grow between 35 and 40%. There is no growth rate on the civilian business, maybe a little bit shrinking business in that area. And the operating margin will be around 15.5%. And it depends a little bit for sure about the down payments because, as you say, at the moment the operational free cash flow on Q3 is very negative. But with the new German contracts, usually we expect between 20% and 30% down payment so that then the cash conversion rate would be positive. If the down payments are delayed, we will get the cash in the first quarter. So far, and now we can start the Q&A. Thank you very much.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to two questions. Anyone with a question may press start, one at this time. One moment for the first question, please. And the first question comes from Sebastian Grover from B&B Paribas Exxon. Please go ahead.

Hi, everybody. Thanks for taking my questions. The first one would be on the nominations and the chart that you presented on page or slide 16. So the question here for me is, as you also made reference to the frame contracts in the wake of the trucks business in particular, I think on earlier occasions you said that you were expecting probably an upgrading from the 20 billion of frame contracts by the 50% option, i.e. 30 billion. You have been putting the trucks potentially at four. So how should we think of the latest developments in this frame contract conversion? And then also with regard to the down payments that you mentioned at 20 to 30%, you also said on prior occasions that you are in discussions with the customer to eventually also think about special timing to put this way. So what's the latest in this regard? And you can even finally ask one very quick high level question around the guidance. It seems apparently that on the safe side, things are in flux and it's not these coming down probably to Spain, the restart, and then also to the truck deliveries to the German customer. So my question simply is, are you confident to reach the operating profit target of around 2 billion, almost irrespective of what's happening to the top line? Thank you.

Yeah. So let's start with the nominations. On the nomination side, as I said, we are in discussion to get fixed contracts also on the trucks for up to 29. This is what we are in discussion. And we hope we can reach that. And you are absolutely right. If everything is going well, there is a potential, which is 50% to the nominations that we had. At the moment, I want to reach the first step to change nomination into fixed contracts and also to get the down payments. This is on the truck side and this is also on the ammunition side. So this is, if we, let me say, have smaller... This was a discussion that we had. Is it good if we get the huge contracts to have it on, let me say, in one shot? or is it better to get it in two or three shots, also the down payment? At the moment we take whatever we can get and we are in negotiations that for everything at the moment which is going from frame contract to fixed contract or a new contract to get between 20 and 30 percent. Second point is on the guidance. Yes, there is an impact, still an impact on the Spanish side because We still have not the permission. We are in the last stage to get it, but the government is... It's a governmental decision when they give us the stamp, but we expect we get it. We stay on the sales side because, as you know, the impact is an area of 150 million euros. But I think we are able to compensate in different areas because there are such, the business is in between so big that it is possible to compensate it. But at least we are able to compensate on the operating margin. This is exactly what we expect, and we expect to go up to this 2 billion target. So that should be possible if not extraordinary things happen, but at the moment we are in line. Is that fair enough, Mr. Grover?

It is. Thank you so much and see you then soon in Unterlis. Thank you.

Yeah, happy to see you.

The next question comes from Chloe Lemary from Jefferies. Please go ahead.

Yes. Hello, everyone. Thank you for taking my question. So I had one on Marcia, but I guess that wasn't already answered. The other one is actually on free cash flow. So assuming you get those 20 to 30%, And obviously with the reversal of the inventory buildup you've done over the past nine months, how high could free cash flow conversion get if you do reach all the contracts that you expect by your end? Thank you.

Yeah. Yes, as you mentioned, we do have a negative cash flow up to the end of September. It highly depends on what kind of contracts will be placed in 2025 and also what kind of prepayment arrangements we will be able to negotiate. As Armin mentioned, in some cases, the actual cash in might fall into Q1 2026. There's a huge volatility at the moment and it's quite difficult to exactly predict, but if everything is ordered already in 2025 and we do get all the payments already in 2025, it would be substantially above the 40% that we mentioned.

It's easy to calculate, Klaus, if I can help. It's $15 billion that we will have in order intake, and therefore $3 billion is, let me say, the potential of down payment.

Very clear. Thank you.

The next question comes from Sam Burgess from Goldman Sachs. Please go ahead.

Thanks very much for taking the question. Two, if I may. Firstly, there's obviously been a big pickup in interest across Europe on air defense over the last quarter. Could you just talk us through the opportunities you see here? At the moment, your portfolio is quite focused on short-range air defense. Do you see any opportunities to expand the portfolio maybe into something more medium-range? And then the second question would just be about, I guess, interoperability between the operational domains. You've got pretty good coverage across five operational domains now. Do you see an opportunity here for Rheinmetall to be a prime integrator of battlefield software? Thank you.

Yeah. So on the short-range air defense, we are focused at the moment on the gun side, but as you know, We also offer the missile solutions and we implement the missile solutions into our gun solutions. So the Skyran for example will have also a gun solution, but also our Skynex system has gun and missile solutions. So yes, we focus on both. On the drone side, and this is the big numbers that you have, As you know, Germany is looking for 600-650 systems. It's not 100% fixed. But we have now also Denmark, we have Austria, we have a lot of other European partners who buy that system. And our expectation is that we are able to sell much more than 1,000 Skyrangers. Skynet system is very successful. I can give you that information that on the Skynet site in Ukraine, we are also able not to fight against drones, we fight it against missiles. And we had the first successes also to shoot down missiles in the Ukraine. So everybody is very happy about that thing. So in a nutshell, yes, we focus on the big pieces, which are the total systems. Second, yes, we focus also on the missile implementation. And we want later, but this will happen in maybe two, three, four years, produce also some missiles then by ourselves if our rocket motor and missile center is ready in Unterlust. Battlefield, the battlefield management system is, I think, the best thing is what we are doing at the moment in Germany, and we want to implement that also on other European partners. On Germany, we create the infrastructure, we create the battlefield management. In total, we have the huge digitization contracts of more than 15 billion to do this digitization from the German side. There are needs in other countries. The Netherlands is looking for such a system. Hungary is looking for such a system. So there are opportunities for us. But we are not at the moment in the situation that we said we will sign over the next six months contracts in this area. But yes, we are prepared, and yes, we want to do it.

Great. Thank you very much.

Thank you.

The next question comes from Sven Weyer from UBS. Please go ahead.

Yeah, good afternoon. Thanks for taking my questions. The first one is just coming back to the list of projects We had a debate in Germany recently about, you know, maybe last minute changes on the successor where I guess quite a few local, you know, state presidents have lobbied in favor of you guys in terms of getting into the project despite the fact that it had been kind of awarded to Patria already. So that would obviously be a big change and a big project. I mean, what is your latest take on this one? Thank you.

Yeah, the Fuchs point is that it's an initiative of the premiers and it's not an initiative of Rheinmetall and it's at the end of the day a political decision. The minister was very clear to say, okay, we want to have the first lot to do that together with our friends from Finland. And we will see if there is a split or is there no split. I'm open for everything. We are ready. Yeah, we are ready to perform, and we are ready to perform also on FOX2. But it's a political decision. There are no further news. We are not at the moment in negotiations with the government. The premier's initiative is a political initiative, and we are here, and we are ready to perform. though it's not too late for this one look at the end of the day I always said it's it's never too late yes you always have to try to try your chance and at the end of the day you never ever should give up yeah that sounds fair thank you the second question I had was just

I mean, there's a bit of discussion lately with the upcoming CSG IPO and, you know, competition from Eastern European companies. I mean, as a matter of fact, you are striking all the deals in Eastern Europe on these ammunition and powder plants. I mean, for the sake of the audience, I mean, what do you think still differentiates you from those kind of competitors, which also seem to be quite a bit aggressive, but you take the contracts. That would be interesting. Thank you.

I think that, and it must be, because the governments, if you see Bulgaria, Romania, Lithuania, Latvia, the governments show that, I think we are able to show these governments that we are very trustful partners. This is number one. The second point is that they see, and this was a good example of what we have shown in Werk Niedersachsen, that we are performing, that we are able to make it happen in 12 months and maybe not in three or four years. So this is the second point where we say, okay, we have to hurry up. There is a budget. And the other thing is that the financing, and this is a positive signal also for us from the governmental side, will be mostly done via safe money from the European Union. So I think the combination between a huge player, a trustful partner, and a company who has shown the performance in different areas are positive. Another positive thing is that we have the newest technologies that we want to produce there. So we produce, we have all these technologies on powder. There are not a lot of companies around the world who have these technologies of powder. The newest technologies for dribble-based powder or even harder, the surface-coated powder technology, nobody has that. But we want to do this also in that country because we see that all these factories will be guided from Rheinmetall. IPRs are also under Rheinmetall guidelines. control. So there is a combination of newest projectiles and newest powder technologies that we implement in that countries and the countries are happy with that. And on the other side, I think that we are able to create all that things because we have our own planning. We have our own real estate company who is going forward in this area. We can do it very fast and we can do it for a fair price. I think that's a combination the four or five aspects that I told you that we win the contract. I'm not unhappy about that.

And is it also the input that you have from South Africa, from the engineering capabilities that you have down there?

Yeah, it's a small part also, but it's part of the ecosystem that we build up, that in South Africa with our companies that we have there, because we have two companies, one company in South Africa... is doing the shell production and implement all that things, the same what they also did in Unterluz. And the second one is doing that we bought these chemical components. And so we are not dependent from other companies, and there are not a lot of companies also in the world who are able to do this chemical stuff, so how to build RDX plants, how to build powder plants, how to build these chemical converters, etc., etc., And this makes us reliable. This makes us fast. And I think this is the decision-making process of the governments. But at the end of the day, the governments, I'm happy if they share, if they say, okay, Rheinmetall is a reliable partner, let's do it with them. But at the end of the day, as I said, they are in the driver's seat.

Makes sense. Thank you, Mr. Papberger, and see you in two weeks.

Thank you. It's a pleasure.

The next question comes from Christoph Lascavi from Deutsche Bank. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one on M&A, you just said the idea is to double revenues of NVL in 26, if I understood that correctly. It's obviously quite a big step up. Is that already in the books, or do you need to see some business wins in Q4 for that one to happen as well? And then on Iveco, it seems that Leonardo is still pointing to some uncertainty if it makes sense to carve out the defense trucks business and sell it to you. Where do you see the likelihood of that deal coming through next year and if it makes sense? And then the second question would be on the order intake. With the last call in Q2, you said the potential that you highlighted to some degree is conservative. If we think basically today, how does the potential look versus the communication around Q2? Was there still more business opportunities that emerged, so even better, or is it essentially unchanged? Thank you.

The last thing I didn't get, do you think for next year, up to Q2 next year?

Yeah, correct.

Okay, order intake and on business. Yeah, let's start with that. On Q2 or up to Q2 in the next year, I would say every week there are new businesses coming up. What we told you is still valid, what we want to do also in the next year. And I think the next year will be a very strong year also for order intake. It's not bad what we do this year. And if we can grow up to nearly, let me say, $80 billion, I think it's not a bad value. But if my expectation is that up to Q2, and this is always what I thought, there is really a potential to grow up to 120 billion backlog. So it's a very strong Q1 and Q2 next year. Trucks on the Italian side is... Look, for me, it's a point that... We have a handshake agreement that we will, first of all, that Leonardo takes over and then we have the opportunity to go in. I have no glass ball. I cannot tell you what happens. First of all, there is a process at the moment what's going on. I read the comment also how to go forward. Anyway, it's a potential, but we have it not in our business plan, and I still think that the handshake agreements are agreements between gentlemen that work. Next point is NFL. On the NFL side, yes, it is in the order books, and the order book is a good one. and we can grow with the order book and there are smaller contracts for sure coming in we are able in 2026 to to grow up to more than 2.5 billion thank you very much then the next question comes from marie angel regio from morgan stanley please go ahead

Hi, thank you for taking my question. I just would like to come back on Germany because obviously we have seen the 25 different budgets passed and now we will have a new budget for 26. So I just would like to know if there is any update on the addressable market for you. So what do you see in terms of budget allocation? How much is likely to go to equipment? and if German man companies are clearly the priority for the government and if you still see a potential for 50% market share. So that's my first question. The second question is on capacity expansion because you have announced several capacity information in weapon animation since september with lagia bulgaya rumania so i just would like to confirm and to know if if it's incremental to your previous target that you to gave and if it's incremental if you can just update us on the the capacity outlook now thank you so much yeah

Let's start with the ammunition side. On the ammunition side, we always said, and we calculated, and you know when we discussed, Marianne, that we calculated that in 2027 we want to grow up to 1.1 million rounds. And we speak always about these artillery technologies. Yeah, there is also medium caliber technologies, but 1.1, and in 2030 we will have a total capacity, if everything is running 100%, to 1.5 million rounds. But at the moment, we do not plan more because we think that then we have an overcapacity and we want to fill these factories up, let me say, also up to 2035. So I don't want to have overcapacities in these areas. So no, it is not add-on. It is exactly what we expected. This is exactly what we planned. And Lithuania is in the plan. Bulgaria, these are not so huge factories that we have. And we speak then, if you have 1.1 or 1.5 million, we speak about 100,000 rounds about that. So it's less than 10% of that that is going on. Is it possible to do a little bit more? I think yes, but it's not in my expectation. So I stay with the figures that we had before. Is that okay?

Yeah, perfect. And just from Germany, please.

Yeah, on the German side, at the moment, all the expectations that we have are running. We have huge negotiations. My teams are every day at the moment with the government to make these huge numbers also of negotiations. There is for sure one thing that will be the news on the Capital Markets Day to give you a detailed overview about the naval business, what we are doing, because the naval business for sure was not part of the discussion that we had over the last month. And there is a huge opportunity, and we want to give you in detail then the opportunities that we have on the naval business side. So I still think that we have the opportunity to grab a big piece of that, what the government's contract is giving out.

Okay, thank you so much.

Thank you. And the next question comes from Marco Vitale from Mediobanca. Please go ahead.

Good afternoon. Thank you for taking my question. The first one is on the space JV that you have announced. You said that you're targeting the German market, but also looking at other international opportunities. I was wondering if you would provide us How do you expect to position the JV compared to the other, say, big European JV that's been announced by Thales, Airbus, and another? What could be the, say, competitive landscape going forward for these pieces? The second question is about Ukraine. We read from... local press articles that you are planning to strengthen the operation for the vehicle system. If you could provide us some additional details on this. Thank you.

Yeah. So on the space side, we are newcomers in this area. We know that very well. But I think we started on a smart way because we are not starting to develop huge satellite programs. We are starting to make more from the same what is still in the market. And this is what we do with our joint venture with ISAI. The German government asked us that they want to have also a German production line. And we build that up at the moment. And if we are able over the next four weeks to sign the first contract on the satellite side, then we see a huge opportunity also only for the german market because germany wants to invest 35 billion into into satellites this is not a small number and we are starting with the star satellites but we will go also into the electro optic and also into the communication satellites with other partners i still cannot give more in details about that because this is not signed at the moment but even if we can pick up a big part of the German contract, it's an attractive business for us. But if you have the satellite then in the orbit, you can use that satellite also for other partners.

Okay, thank you, Kriya.

And Ukraine, on the Ukrainian side, yes, we are... we we build up more capacities also on the on the vehicle side uh absolutely right and uh what we want is we are now because the the the ukrainian government gave green lights also now for the infantry fighting vehicle for the links we stay with martyr we stay with the leopard maintenance etc etc but now the green light for the links is there and the it's a it's a the first It's small numbers. It's only five links where they want to start. But I think the government is now very convinced about that this is a very useful vehicle in this conflict with Russia. And then we want to build up also capacities to build the links in Ukraine. Is that okay, Marco?

Yes, very clear. Thank you.

The next question comes from Adrian Rabier from Bernstein. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. First, I'd like to ask a follow-up on your margins, please. You had a positive mix on a division-by-division level. Your margins have been contracting slightly in Q3, so are you still comfortable with your targets there? Do we expect a bottom-up inflection in Q4? And then a question on CapEx, please. It's great to see all these new projects. I mean, you were talking about doing more partnerships in the U.S. this morning. Are you still expecting CapEx to normalize in the coming years, or are we expecting more investments?

Yeah. On the merchant side, you know that the big lever will come in Q4. And on the merchants, we stay where we were, and we have our target merchants, and the people have to reach these target merchants, as you know. We have the ability because of the vertical integration between 25% and 30% on the ammunition side. We want to reach on the vehicle side between 12% and 15% where we are. And electronic solutions will have a strong growth rate over the next years with digitization. We will also have a very sharp look on the air defense side where we see also opportunities because we also have very strong vertical integration in this area where we can make between 15% and 20% so that our target that we are over the next years can reach the 20% EBIT profitability in the defense side is still valid. So therefore, from my side, absolutely tick in a box. Now, I lost your second point, Adrian.

On CapEx, please.

Yeah, CapEx, CapEx. So on the CapEx side, we will have, as you know, this year and also next year, we go on the CAPEX side up to an area of 10%. This is what we need because of all the investments on ammunition and also the automation that we do on the vehicle side. But this CAPEX will be over the next two or three years going down. Is it going down back to 5%? It depends a little bit about the contract that we say, maybe it is between five and 6%, but we, I think we can overcompensate that things if the down payments are really coming in. And this is what we, what we want to do with our customers.

Thank you.

So the next question comes from Benjamin Helan from. Bank of America. Please go ahead.

Yeah, afternoon, guys. Thank you for taking my questions. First was, Armin, you have a statement in here about, in your presentation about strength of the balance sheet and that supporting your M&A, I think you say ambitions or something. Could you talk a little bit about where you want to deploy capital over the next a couple of years post the naval deal. And then could we get a bit of an update in terms of where we are on both Andoril and the Lockheed ventures? That would be great. Thank you.

Okay, let's start with Lockheed, Andoril, but also a lot of others that we have. So we are working very hard at the moment with our American friends to create a European business also or a transatlantic business between the United States of America and Europe. And I think the best way for that is really to have this joint venture and we are looking at the moment also with other companies to do this. And it's not a So it's very open that we speak with Honeywell, we speak with Raytheon, we speak with others in that area because the product portfolio is very different also with the U.S. companies. But now especially also with the naval stuff where we are investing, there is a huge opportunity also for naval missiles and others, and Lockheed is usually not the producer of that, but Raytheon is. In a nutshell, it's going very, very well, and we are very, very happy. Strengthening our naval business, and if I understood right, Ben, also, are there investments or other things that we have to do in this area? I think that the shipyards that we take over, that these shipyards are at the moment really, really in good shape. that we are able to use it immediately and that we are able also to grow strong in that point. But did I miss something?

I think the other bit was basically how we are looking at capital allocation over the next couple of years. And as you always said, we are continuing to look into M&A targets. And it's always a preference to basically to first finance our organic growth, then look at good business opportunities for acquisitions, as we've proven in the last years. And only at the very last thing it would be to basically use cash for share buybacks or something else. At the moment, we don't see that happening.

Yeah, I think there are opportunities to buy companies, and that's good for the growth.

I guess, Armin, sorry, just to follow up, I guess my question was, you just said the opportunity is to buy companies. Which other areas within defense are you looking at buying companies now?

Yeah. The first thing is we want to stabilize very clear now the naval business. Is there something that you can use around electronics and other things? What we did on the land system side, we are looking for that. We have no fixed target at the moment. The second point is digitization. On the digitization side, we have to grow. We are looking for startups. we are looking for in investments, also in digital companies, even if we start with the minority and later to take over, there are a lot of companies where we see at the moment where we can fill smaller gaps that we still have inside the Rheinmetall Group, and we are looking for it. But as you know, Ben, we are very careful in these areas, and first of all, we We check it a lot. And I think all the acquisitions we made over the last five years were not so bad.

Very clear. Thank you both. Appreciate it. Thank you.

The next question comes from David Perry from JP Morgan. Please go ahead.

Yes. Hi, Armin. Hi, Klaus. Certainly, I can't make the CMD. So my questions are a bit in that context. First one. Back in about six months ago, Armin, you started talking about 40 to 50 billion of sales potential in 2030. Has anything materially changed in the last five, six months that would change your view up or down there? And then the second question is, if it is still 40 to 50 billion, can you just help us think about the cadence, the journey from 25 to 2030 in terms of percentage growth? Is it even? Is it front-loaded? Is it back-loaded?

Thank you. David, this is exactly the story I want to tell you on the Capital Markets Day, so it's really bad that you are not able to come there, because I need a long time about that, because this is division per division, and we want to tell you exactly on the Capital Markets Day how we make it happen. But in the calculation, at the end of the day, it's simple. where you want to go. So in these days, on the ammunition side, we have the ability to grow up to more than 10 billion, maybe up to 15 billion. On the vehicle side, at the end of the day, it's the same, so it will be more than 10, but also up to 15. So we are on a level of 30 billion. So electronic solution, There will be a possibility also to grow up, if I make it conservative, between 5 and 10 billion, but maybe more on the 10 billion side. On the air defense side, we go to a level of 3 to 5 billion. And on the naval side, we want to be more than 5 billion. So if you count up and if you see 30, 40, it's 50 billion maximum. And this is 40 to 50. So now the point is, you can ask me now if you have now more M&A in this area. Is there more in? Yes. This is, in a nutshell, the story that we will tell in the capital markets thing. But I'm very unhappy that you will not come. You will see live firings, you will see drones flying, you will see everything about that, everything live. Nobody will show you that.

Well, no, I'm very upset. My colleague Lucy will be there. I just have a clash. Can I just ask, though, about, because now we've all seen some of the releases from the German government. I know they're not all formally into law yet. But I was just wondering if you had a little better feel for the phasing. Some of the vehicle programs look like they'll take time to ramp up. So will we see more of the growth in 28 to 29, or could we see more in 26, 27?

No, you are right that it is more backloaded at 28, 29. And the reason is we need next year for automation. The same what we need for the ammunition side. We need one year, maybe 14 months, 15 months to make all these automation streets. Welding streets, we will give you also an overview in Capital Markets Day what we do in automation in detail. And so then if we are ready, then we start with the productions in 27 and 28, 29, we will run the business. So 29, I think, full throttle the vehicle business. Twenty-seven, as we said, we start with the ammunition side, so this is good. Vehicle is one and a half, two years later. Electronic solutions is the same like vehicle systems. Air defense will also, let me say, is in a ramp-up curve in 28, 29, and 30, or three years now, where we book our business, where we are very well equipped and that. makes me yeah yeah makes me happy to reach this 40 to 50 billion all right thank you it's really helpful thank you the next question comes from george mcwhirter from bernberg please go ahead hi good afternoon thank you for taking my questions i've got two please firstly on the nvl business

Can you just update us on the potential to gain more work on the F126 frigate program? And the second one is on supply chain. Please, can you just talk a little bit about raw materials and raw earth minerals and any potential bottlenecks you're seeing there? Thank you. Yeah.

NBL, F-126, you know there are some bigger contracts, but F-126 is a real big one. I think that the government will make a decision how to go forward, and I personally think it's not a decision done at the moment, and to be fair enough, I cannot go operationally at the moment because we have no closing. I can only say if the closing is positive, we for sure will help the German government that the F-126 will be a successful program. I cannot say more about that legally. Is that fair?

That's fair.

Yeah. Second point, supply chain. On the supply chain side, we make weekly a stress test on this area. We have a bigger problem on the supply chain on automotive than on defense. And the reason is because on the defense side, we stocked everything up. So this was a point that is a rare earth. Everything what we spoke about, linters, blah, blah, blah, it's for years, let me say, in the stock. We have billions in our stock. at the moment. The second point is that because of the smaller numbers, if you go into the auto business, you have to produce millions and millions. If you go into the defense business, and if you don't need it on the ammunition side, this is the only thing, ammunition are millions that we are producing, but for vehicles and for other electronic components, we usually have no problem. What we can do is if there is something that we don't have in our stock, you can go to these technology traders, and these technology traders take care about that. If our purchasing department is not able to bring it, you pay maybe a little bit more money, but with these small numbers, it really doesn't matter. At the moment, we see no obstacles that, for example, China can stop us. On the microprocessors, we have different sources. We have 10 different sources. And I think that we have a very professional sourcing system on our purchasing. Our purchasing director is doing a great job in this area so that we are on the safe side.

Thank you very much. Thank you.

And the next question comes from Afonso Osorio from Barclays. Please go ahead.

Hello. Thank you for taking my questions. Just coming back to the long-term margin ambition you just mentioned. So you quoted the 20% again on the defense side. I just wanted to double check this. So does that mean that you expect to keep the margin on the ammunition side above 25% in the long term? Or do you expect that to see that normalizing down the line? And then maybe on the business mix as well, you can see you will split electronics solutions division into two new ones from next year. Can you perhaps tell us the growth profile and margin differential between the air defense division and the digital division going forward, please, as well? Thank you.

Yeah. So on the ammunition side, I believe that we can stay on this 25% to 30% of our vertical integration. We discussed that several times. And the point is that I have different companies. One company is producing, let me say, the raw material. The other company is producing the powder. And this is the same what our competitors are doing, but they do not have everything in their own hands. And we have everything in our own hands. And so therefore, this is the reason that the margin are high. The munition by themselves has a margin like you have, let me say, of the rules and regulations of the government. Profit on profit is an opportunity, is the opportunity that we can make it. Will it stay in this area? Yes, we will stay on that area because now with automation we still reduce the personal costs on that so that we are able to stay in that area even if over the next years, and that is what we are doing at the moment for the huge contract for Germany, we will give a discount. And also with that discount, we are able to stay on a very profitable way. Air defense. On the air defense side, if you see air defense and digitization, air defense will be faster, has faster or higher profitability than the digitization because the investment on the digitization at the beginning is high. But later then, the digitization will be on the same level or higher than air defense. But on air defense, I expect also up to 20% debit. And on the digitization, not tomorrow, but for the day after tomorrow, I expect the same. Is that okay, Alfonso?

That's very good. Thank you very much.

Thank you.

So it seems there are no further questions at this time. So I would like to turn the conference back over to Armin Papega for any closing remarks.

Yeah, thank you. Thank you, ladies and gentlemen. Like always, it's a pleasure to discuss with you about the things. I'm very happy to see nearly everybody from your side on our Capital Markets Day in Unterlös. Very happy to show you live and but also in presentations what we are able to do. Take care. Stay healthy. All the best. Bye bye.