Rheinmetall Ag Unsp/Adr

Ladies and gentlemen, welcome to the Rheinmetall AG full year 2025 conference call. I'm Moritz, your chorus call operator. I would like to remind you that all participants will be in a listen-only mode and the conference is being recorded. The presentation will be followed by a question and answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Armin Papeka, CEO. Please go ahead, sir.

Thank you very much. Good afternoon. I start with page number three, and I welcome you to the full year call of the Rheinmetall Group. The year 2025 was a good year for Rheinmetall, We had smaller impacts from the ammunition side because of the accident that we had in Murcia. But I think with nearly 10 billion cells, it's a good year. The operating result is growing 33% to 1.841 billion, and the operating margin is growing up to 18.5%. Important is to understand that we no longer have our civilian business In include that figures so about 2 billion on sales Also reduction on headcounts on the headcount side. We are now without naval and without the in business on 29,000 people very positive we see the operational free cash flow and Even if we had this strong growth of nearly 30% on the defense side, we had an operational free cash flow of 1.218 billion, which is a plus of 15% in comparison to last year. CapEx is on a level of 7.8%. That's important because we continue to grow. As you know, we invest into all these factories to build up the capacities. On the nomination side, We have a delay this year in 26. There is something swapped into 26, but still the Rametal nomination growth was 9% to 26.44 billion. So the Rametal backlog is, and we also reduced the backlog from the civilian side. It's about 8 billion that we reduced on a level of nearly 64 billion euro, a plus of 36%. And all that is now . Let's go to the next slide. On the next slide, we see only some words about the macro highlights, and this is very clear that we have a disruption of the geopolitical order with the new conflict from the Iranian side, also the whole Middle East, oil price and all the things are under shock. And on the next page you see what is the impact for Rheinmetall. So, slide number five shows that the attacks from the Iranians is going to a lot of countries in Middle East and all or nearly all that countries have Rheinmetall air defense systems. So they are very successful and they fight very successful against drones. So the Erlikon twin gun, the Millennium gun and the Erlikon revolver gun is in all Z countries and we expect strong orders over the next months because over the last five, six days these countries asked us if we are able to deliver fast more of our systems. The reason is that in the first 72 hours, the U.S. and the allies of the U.S., they expanded 2,000 munitions, and the cost of that was $4 billion, about $4 billion. These are official numbers, and if you see how strong are the stocks of these air defense munitions is that over a period of next two, three, or four weeks, if the conflict continues like it would be over the first two or three days, the stocks should be empty. So we need, and that's the reason that we developed our Skyguard, Skynex, and our air defense systems, that we are able, if we use five rounds to fight with $5,000 against a Shahid drone, which has a price between $20,000, $30,000, up to $50,000 maximum. The missile cost is between $500,000 and $3 million. So there are two drivers on business for us. One is our air defense systems, where we believe that we have huge opportunities. On the other side is to fill up the gaps of missiles, and with our new missile production line, I think, We have huge opportunities also for new contracts. If you have a look now to page number six, here you see the macro view. On the geopolitics, you see the increase of tensions, very clear. I must not say about that. And we have to drive the European sovereignty. These are the two drivers on the geopolitical side. On the financing side is the German budget. These are the 100 billion. There are also the 500 billion which are coming up. save money of 150 billion, save two in discussion. And as you know, NATO target, not all the NATO countries will fulfill it, of 3.5% on core defense and 1.5% on infrastructure. Rheinmetall will have in both areas, on the core defense and on the infrastructure, some projects. So that is the reason that we expect that there is a potential This year of 80 billion on orders. We are not in time on the order side. There is a delay from the customer side. It's not from our side. It's mostly because the capacity on the customer side are limited. But at the moment, there are only smaller delays. There is nothing canceled and there is nothing at the moment in danger. And that's positive. What is on the Rheinmetall side in preparation? On one side, for sure, we have to build up the capacities. We do that, and we are in line with that, what we always told on the capacity side. The same is on the personnel people, recruitments. More than 300,000 CVs came in. And on the supply chain, and we have a stable supply chain, but we have to grow up the supply chain with the second and the third source. to be more stable also in the future. But at the moment, no big problems, absolutely no big problems on the supply chain side. That's the reason that the CAGR is around 35% over the years and also over the next years. What are the next highlights? We have now all domains under one roof, and this is what you see on page number seven. The reason that we acquired naval systems are on one side, naval will be a big business only in Germany over the next 10 years. The expectation is that the German Navy has to spend nearly about 80 billion Euro for naval systems. The second point is that we want to implement the naval systems into our digitization family. and therefore you need platforms. And number three is that we on the naval system side are able, like on ammunition and vehicles, to do a vertical integration, create also internally in Rheinmetall more value, and to be able, like on ammunition, also to enlarge the profitability on the naval business. So we took over nine sites, about 2,100 employees in that area, and I'm very happy to have these people on board because very well-educated people. And the backlog between 5 and 6 billion and decisions that we expect this year for F126 and F127 which are a potential of, I think, more than 12 billion orders in 2026. Let's have a look to page number eight. Here you see what we did last year and what we want to build up the capacities. And as you know, most of the capacity built up already in 2027, so 2026 is a very important year. But we are in time. Capacity ramp up from the artillery lines. The capacity enlargement in Spain is ready. The capacity enlargement in UNTOLUS is on a good way. So we expect that we are able to produce about 140,000 rounds in UNTOLUS this year because of the ramp up curve. Next year we grow to 250 and then to the maximum capacity of 350,000 rounds. Murcia is back on track. So we are now in full production also on powder and green and white bags. And the rocket artillery starts in Q1 27 with qualification so that over the year 27 our product should be qualified so that the sales will come in 28, the first bigger sales. On the vehicle side, we have to optimize the production cycles. We were very successful in this area. We reduced the production cycles a lot. The level of optimization is a very important thing to come forward in this area significantly. We recruit a good workforce and which are good. We have no problems about that. And we are ready on the truck side. The capacity is still there on 4,500 infantry trucks and infantry fighting vehicles and APCs. We are on a level of 1,000. Air defense, the 3 billion backlog on the air defense we have to bring into sales. We prepared an additional factory for that with 100 new air defense systems here in Germany in noise, 150 in Switzerland and 150 in Italy. Then we grow up to 400 systems. On the digital systems, it's people, people, people because of the algorithms. More than 400 software engineers now on board. And the integration of BlackNet, which is very important also for DLBO, worked. And the initial Taiwan demo was successful and was completed. Is it easy to handle all these projects? No, it is not. But on the other side, we are in a very good way also together with the customers to bring it into the right direction. The next page, page number nine, you see that we build up partnerships also for a huge contract on the space side. As you know, Minister Pistorius gave very clear order. We need a total budget at least of 35 billion for the satellites. The first SAR contract of 1.7 billion plus nearly 1 billion option is signed. And we created a joint venture and we are on the way, it's still not signed, but on the way to create this joint venture with ORB, a partnership with our German partner. And on the communication side, there is a potential of at least 8 to 10 billion. So up to 200 satellites, communication satellites, are expected that we have to bring into space up to 2029. If you have a look now to the next page, you see that the Rymetal drones, and by the way, we produce drones since 25 years. This is always an interesting story if you see that Rymetal is a newcomer in drone production. I think we are one of the first producers of drones. We fired in front of the German customers these drones. As you know, the Germans want to have a pure German solution. We fired more than one year ago our German-Israeli solution, but now we have a full qualified German solution. The tests, the firing tests were fine, and also the digital tests were fine. We had 100% accuracy hit rate in this area. And we see a total order potential, as you know, because the German Bundestag limited it to €1 billion, but this is for us, I see, only the starting point. We built up a capacity on the drone side here in Neuss, but also in Italy, a capacity up to 40,000 drones per year. How is it scalable? Very easy. The point is you need the warhead. The most critical thing is the warhead and the booster to push out the points because this is like a small missile. But we have that under control because we produce it by ourselves. Electronics and the structural part is not a bottleneck. And we have the gimbals, which are also there, which is also a unique USP from our side. With the gimbals, you can, over a period of 70 minutes, create a reconnaissance drone, even if you fight or if you don't want to fight, a USP which has Rheinmetall. Another USP is the warhead. We have a 6-kilogram payload warhead on that. And this has a very, very good penetration rate, I can say, not comparable to other drone producers. So we see it very positive, and it could be medium and long-term a good business also for Rheinmetall, and we are prepared. Now I take over to my colleague, Klaus Neumann. Klaus will show you now the financials.

Thank you, Armin. Let's turn to page number 12. Just to give you some more detail and background on the development and our sales and operating margin, it's quite important that a large part of our growth in 2025 of 29% was basically organic, was coming from the development or existing business, about half a billion. was contributed from acquisition, mainly from the acquisition of log performance that we acquired late in 2024. Our operating results increased by 33% to 1.8 billion euros, resulting in an operating margin of 18.5%. Again, the growth of the result and the performance came from primarily existing businesses. We had some smaller downward impact on the FX on sales and smaller on results, mainly from the US dollar exchange rate as the dollar deteriorated over the year of 2025. Let's turn to page number 13 to look deeper into the performance of the different segments in our business. The strongest growth percentage-wise was from electronic solutions at 45 percent. The business grew from 1.7 to 2.5 billion euros, at the same time increasing the profitability to 14.6 percent. That is an increased improvement of two percentage points from the 2024 level of 12.6. Vehicle systems grew by almost more than 1 billion euros. This growth was basically pushed by the contribution from block performance. And also that business improved its profitability from 11.2 to 11.7%. The main drivers that contributed to the sales in 2025 were the technical vehicle programs in our different locations, and also we had a strong contribution from the logistical vehicles. The increase in the growth of weapon and ammunition at 27 percent in 2025 was very strong considering that the growth was limited by the issue that we had at our site in Murcia as discussed throughout the year that basically reduced the the sales number by more than 200 million in 2025. If you look at that, then the growth would have been even stronger than the 27% that we are reporting for 2025. At the same time, profitability increased to 29.3% and the division for the first time but they generated an operating result of more than 1 billion euros. Overall, our group increased the sales, as mentioned, by 29%. One comment to the consolidation line, we had a positive contribution in 2024, So there is no otherwise strong change in the numbers compared to 2020. Let's move to page number 14. As a result of our increase in profitability and our performance, also earnings per share, increased significantly to 25.28 euros per share, with also some impact from the strong performance of some of our minority, the business with minorities, primarily in South Africa and the vehicle business in Vienna, our joint venture with MAN. As a result of our strong performance in 2025, together with the supervisory board, we are proposing a dividend of 11.5 euros to the annual general meeting in May. Let's move on to page number 15. As mentioned, all the numbers that we are discussing do not include any contribution from our automotive business. As you know, we decided in mid-December to finally go to the next and final step of the disposal process. From that moment onwards, we are reporting that business as a discontinued operation. I think it's quite helpful just to show what the numbers would have looked like if we had continued including the business in our numbers at our Rheinmetall backlog number we would have reached about 70 billion euros at the end of 2025 on sales would have reached or have reached including those numbers 12 billion euros. The operating result including the competition from the power systems business went up to 1.9 billion euros equaling a profitability of 16 percent compared to the 12 billion sales number let's move to page number 16 let's give some context on the our development on our nomination and also our backlog As in the previous year, our book-to-bill ratio was in excess of 200%. The nomination of 26 million, excluding any numbers from the power systems business, included 20 billion of fixed orders. That was a key important basis for our growth in the coming years. that contributed to an order backlog of 64 billion by the end of 2025. Out of the 64 billion euros of backlog, 41 billion euros are fixed orders. Let's move to page number 17. Just to go a little bit deeper in our cash flow numbers, as in many other years, we have very different quarters in terms of the cash generation. 2025 was no different. In Q4, we saw the biggest positive cash flow of the year, exceeding 2 billion euros in these three months alone contributing significantly to the 1.2 billion generated through the continuing business in the year 2025. One key driver for the positive cash flow in Q4 were good negotiation or successful negotiations with our customers that agreed to substantial advance and early payments from new orders When you look at the right side, the development of the working capital, you can see that basically the 1 billion build up of inventory that we need to produce the orders in the 2026 in the following years was mainly funded through prepayments from the customer. So the customer contributed 1.2 billion to our cash working capital improvement. At the end of 2025, operating working capital for the business was just under 500 million euros. Let's turn to page 18, just to give you an update on our financial position. The financial position was positively impacted by the cash flow as explained before. But we also had a good contribution from our convertible that was converted throughout 2025. And there were further conversions in 2026. So by the end of February 2026, 83% of the Series B convertibles were converted. Series A had already been fully converted in 2020. That also improved our equity ratio that now stands at 33.5% at the end of 2025. The strong balance sheet and our good liquidity position that for the first time basically was positive at the end of the year. It's a good basis for the acquisitions that we did at the end of February when we acquired the naval business. But even after that acquisition, our balance sheet is strong to continue basically a growth path where we are able to also acquire businesses when it fits into our strategy and portfolio. With these comments, I hand over back to Armin for the outlook of our business.