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.

Thank you, Klaus. So page number 20 shows us now the nearly 64 billion backlog without automotive. Then there is an NPL impact, so the Rheinmetall naval business, five to six backlog, and we expect nominations of minimum 12 billion. Then there is the Rheinmetall nomination from the German side, where the biggest piece for sure is Boxer. I will come on the next page on the details, but also ammunition, armored vehicles like the Puma, trucks, etc. So 55 billion. As I said, some of this business stepped from 25 to 26, but it doesn't matter. It's only a delay. For us, it doesn't matter. On the Romanian side, Italy and Ukraine, you see the international business where we have an opportunity of around $16 billion. So that in total, we expect for the exact timing, if it is coming in Q2 or if it is coming in Q3, for example, the big contract on the Boxer and also the ammunition contracts, We hope that we can do as much as possible in the second quarter, but if it is coming into the third quarter, it's, I think, also okay because there is no influence about the sales. On the sales side, the 14 to 14.5 billion, we have a coverage rate from 91%. that nearly everything is inside the books that we need, and especially service business, business for chemical stuff, et cetera, et cetera, is still not in, so that the coverage is nearly 100%. So it should be relatively safe to get this sales, which is then 100% defense sales. So then the backlog in the end of 26, there is a potential to get 135 billion. If you have now on the next slide, slide 21, a few on the biggest program at the moment that we are in negotiations. This is the BOXER program or the Arminius program, how the customer calls it. And there is for Rheinmetall a total potential of 38 billion, where the 12.5 billion in Q2 or Q3 is expected as a fixed order. and this fixed order is also expected with down payments. So this is the driver for operational free cash flow, and this is also the big driver for the ordering tax. But ammunition, trucks, it's always multi-billion contracts on top, but the real big beast is the project Arminius. And you see the different variants, and you have from variants from Chakal on the left side to the Air Defense Boxer, then Flaragbon Boxer, which has a lot of different variants, which is a long, long-term program, at least to 2035. But in our discussions, we are up to 2040. If you have a look to the next page, it's page number 22. There is a new business, and this new business could grow very strong also. This is the service business on defense to handle ammunition. As you know, it's not easy to do it because you need the rules and regulations to handle also weapon systems and to bring different systems from the western part of Europe to the eastern part of Europe. This is with infrastructure, with logistics, a big opportunity with an order potential over the next years. Maybe the first contract, the smaller one, 200 to 300 million, could come in April. But if it is a frame contract, it could grow up to 7 billion. Now from the service side, let's go to the DLBO side. Really, we try to step deeper inside because that's a very important program for Rheinmetall, but not only for us, also for Bundeswehr. So what are the interface points? And the first point is that the army has to give us the vehicles. So this is the first interface point. Why? Because we have all these vehicles at the moment in service. So they have to take it out of service. They have to give it to us. And then, first of all, there is a hardware retrofitting for radios, monitors, servers, etc., etc., So we are at the moment, on the Rymetal side, on a level of, I would say, 95% to be ready. So we are not on a 100% level, but 95% is fine. The second point is then to integrate the software. On the software side, Rymetal has a very important role because Rymetal has the so-called tactical core. And in the tactical core, we connect hardware and software components into our tactical core. And that is a huge team at the moment working on that. And the software optimization is the point that we have to fulfill. And after that, if the function testings are really going forward, then the vehicle can be again handed over to the Ministry of Defense. So we try to do it on this simple picture, but if one of the steps has a delay, the big problem is that we have a delay on the vehicle handover and the army is missing vehicles. So that's the reason that also the minister says it's such an important project and, as I told, for Rammertal it is absolutely priority number one. It's the most complex. digital program at the moment worldwide that we are doing. But I think we are not on a bad way. It's good at the moment. So if you have a look to the next page, page 24, what are the clear targets for 26? This is the integration of this Remetal Naval systems. That's very important to have the vertical integration, as I told before, on the RMS systems. The second point is the capacity ramp-up. We are in a good way, especially on the vehicle side. Ammunition is full in scale, and for sure the order execution. So these are the main points to fulfill the sales. And if you have a look now to the figures, There again, on the sales side, on 26, we will have a growth rate of 40% to 45% on sales, up to 14.5 billion. And on 25, you see the nearly 10 billion to 14 to 45 billion. And pro forma, if you see, we had 11.8 billion in 25 years. So if we would add the civilian business. Operating margins is growing from 18.5% to 19%, and the expectation is that the operational free cash flow will be also good in 26%, even when we were good in 25% or 66.2%. The last page shows you now the growth rate, where we are growing. We will have a growth rate of about 20% on the vehicle side from 5.9 to 6 billion. Weapon and ammunition, 40%. This is the driver from this year. This is the driver of success, 40% plus. This is because of the delays last year, because of the accident that we have in Spain, but because of the market. And as you have seen, we have the business 100% booked. so that only operation problems can stop us. Digital systems, again, a strong growth of 27%, and air defense, a growth rate of 25%. This is maybe, there is more in maybe, if now the conflicts with Iran are going forward and the Middle East is also coming up. What we do at the moment is really to grow, in that area and to invest also in these areas like hell because we believe over the next 10 years there is a huge need. And then naval systems with 1.3 to 1.5, it depends a little bit also about the decision of F-126. And when we can start it, and I hope that over the next two to three months we have a final decision on F-126, where Rametal can book this order. If you see the operating results, we are not everywhere in the target corridor. Vehicle system 12 to 13, munitions around 30%, so we are there where we want to be. The digital systems is still on a growth phase because of all the investments. By the way, there is also our air system, not air defense, but our air systems like F-35 and the drone business, where we have to invest. Air defense is with 19% in good shape. There is also more in, and the naval system between 11% and 13% is still not in the corridor where we want to be, because, as you know, this is our target to go to 15%. So that the right... We'll have... margins of about 19% EV draws. Thank you very much for your attention. And now we are ready for Q&A.

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 and then rejoin the queue. Anyone who has a question may press star and one at this time. One moment for the first question, please. And the first question comes from Sebastian Grover from VMB Paribas. Please go ahead.

Good afternoon, everybody. Thanks for taking my questions. the first one would be around the order pipeline you pointed to the delays in the german or at the german customer in fiscal 25 and given that you are hinting towards 80 billion orders in the pipeline for 26 what is the approximate volume that you deem highly visible in this year in 26 and probably what goes beyond this 12.5 billion related to the aminus program and related to that What is the amount of firm orders that you would expect in 26, those that would then qualify for receiving also this 20, 30% down payment range that you had mentioned on the last call? And then I would have one more around the Weidmann Ammunition business, but maybe we take this one first, please.

Yeah. So by far the biggest one is Arminius. On the Arminius side, we speak, as I said, about between 12 and 13 billion. We expect that the down payment rate is between 20% and 30% of that. This is what we have at the moment in negotiation. The second big piece is a contract for the ammunition. On the ammunition side, we expect a fixed contract between 600,000 and 700,000 rounds full-shot artillery. And this is also a multi-billion contract. Usually on the ammunition, the down payment rate is also 20%, between 20% and 30%. The next big piece is the Puma contract. They asked for a new contract on the Puma side. This is in total, in Puma we see another potential of minimum three, but up to five billion. Not everything maybe in this year, but it can be three billion in this year. By the way, it continues also later. It is not the final stage that we have now. We book everything and then everything is done. This is a continuous process. Then we are now in negotiations with a new truck process. They need more protected trucks. This is also more than 2 billion, et cetera, et cetera. So these are the points where we are. Medium-caliber ammunition, smart ammunition, 1555, smart ammunition. So there are hundreds of contracts at the moment, but this is only the very big ones. Is that okay?

Okay, so it is. And just to clarify that, if I take then the 12, 13 billion ammunitions, maybe what you said around ammunition would point me towards Maybe you are the $4 billion, the Puma $3 billion. So we're easily approaching like $20 billion on the firm order side that you would deem very realistic this year. And then the rest might be more on the frame side and things like that.

No, there are more fixed contracts. They want to change more and more to more fixed contracts. I think also the smaller contracts for sure are fixed contracts. There are hundreds of smaller contracts, which are $5 million, $10 million, $50 million in this area. So I think it is very stable. So as you know, we are fully booked, and that's important. We are fully booked for $26 million. In 27, over the next month, we still have also in 27 a rate, I think, more than 50% in between 66 and 27. So with the growth rate that we have, and we expect on the growth rate that we are able to grow more than 30% year by year. As I said, this year between 40 and 45%. And for the next years, the backlog is also huge, also the fixed backlogs. And the other programs, nobody will stop it if you go on the program like the 8x8 vehicles or the infantry fighting vehicles. You see that all the vehicles, the trucks, the ammunitions, all that was expected came or more. And the reason is also very simple, because We still have nothing on the ammunition. We have nothing on stock. Everything is going still to our partners in Ukraine. And we have to start for our stockpiling.

That's fair.

And then if I may quickly move on then on to the ammunition side and considering the latest developments in the Middle East and the related importance apparently of missiles and also air defense as such. What is the incremental opportunity that you see here, given that the rocket artillery is starting in quarter 127 and you will also need time to prepare for the full ramp on the Sky Ranger? So how quickly can you really respond to these incremental A requests and B, what could it do to the previously communicated targets in that particular business area?

A strong driver will be really the gun-based system and we are able And we are at the moment in negotiations, and this is very, very fast, for the gun-based systems to deliver in August the first systems also to the Middle East, because we are in production even if we have no contracts, we produce that systems. We told you that we are ramping up to 400 systems, and for that systems, we must be variable to go into the direction to give the customer directly systems and directly impact. And if we can deliver in August, and they are trained because most of the states have our systems, they can use it immediately. Nobody knows at the moment how long the conflict lasts. President Trump says tomorrow it's stopped, but maybe it's not stopped. And we will see, but these countries prepare themselves. Over weekend, I have a bunch of phone calls with very high-ranking guys on the minister level, to say how can we help so that would be helpful for us on the system side but on the other side on the ammunition side so we need much much more ammunition and the the driver number three is then on the missile side that we really can start i see that we have a smaller impact in 27 but in 28 we should be ready missiles are not as easy as our ammunition, because on the ammunitions we have to produce more from the same, but on the missiles we have to produce new technologies. So it's not as easy.

That's helpful. Thank you.

And the next question comes from Christoph Laskawi from Deutsche Bank. Please go ahead.

Good afternoon. Thank you for taking my questions. The first one on 27, you highlighted in the slides as well that you're ramping up a lot of capacity in 26. You're preparing strong growth for 27. You had guided in the past to 20 to potentially 25 billion of revenues. in 27 obviously that was including power systems now that is out naval comes in could you um as a first question just comment a bit on where you see the 27 now um and roughly the the order coverage if i understood it correctly you are above 60 around 66 in the comments you just had um yeah and also if the 20 billion plus again still stands for 27 And then as a second question, just coming back to the air defense and reaching the 400 units essentially per year, are you fully booked already now with the orders that you have on hand or can you fit in the Middle Eastern orders and with that get to a rate which is closer to 100% capacity utilization in the coming years? Thank you.

I think we can fit. We also can grow up. It's not a huge investment also to grow up in the air defense system. So if we need more than eight systems per week, and this is what we plan at the moment, we can do that. The investments are not so big. The only thing what you need, you need a supply chain under control, but a lot of them from the supply chain we do by ourselves. We produce the weapons, we produce the weapon feeding systems. This is an internal production so we can grow up in capacities. I have not a full picture at the moment how much is really will come because, as you know, in Middle East you need the contract and not the negotiations. It's not like Germany. And if you have the contract, then we can give you an overview about that. I have not the full picture at the moment, but the opportunities are huge. This is for clear. Second point, 427, we stay on the way and we want to have the growth rates like we discussed and in our planning plan. is a growth rate between 30% and 40% CAGR over the period up to 2030. And this is the reason that we are able to reach this $50 billion. If we are able also to make M&A processes over the last years, we were very lucky about that, and we made it happen, and we made good acquisitions. So we stay, Mr. Lascavi, to that figure.

Thank you. Just a quick follow-up, if I may, as you mentioned M&A. Is there any updates on the IVECO truck site? Is that progressing as planned?

There is a delay. Why? Because Leonardo is now able to make the closing. And if the closing is done, then we are able to step in. As you know, we had a handshake agreement that Rimetal takes over the trucks and the tactical vehicles should be taken over and if they took over from Leonardo's side. We are weekly in discussion with the Leonardo team in these areas. We are working on our due diligence side in this area, and we would be faster. It should be faster, but the first deal between Iveco and Leonardo had a delay, and then our deal has also a delay.

Understood. Thank you.

It's a pleasure.

Then the next question comes from Marie-Ange Rigiot from Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. I have two actually. The first one is on the backlog because this year it comes 6 billion short orders compared to your initial target of 70 billion. So my first question is like should we expect these 6 billion orders to shift into 26? And my second question is probably a bit broader, but I understand that it's not a question of demand, but more a question of delay. So is there any change in the German procurement process to prevent further detail and to provide your confidence about the 80 billion nominations for this year? So that's the first one. The second one is on Germany, because you mentioned in the call that there is a 500 billion package of order in Germany. So do you think you can keep the same capture rate around 40%, 45% as the previous package? And how much has been already allocated? Thank you so much. Yeah.

I can say that the German institutions are working very, very hard and there are delays, but it's only because of this huge growth inside. You know, the organization, also the BNBV organization, is not able to grow as fast as they handle contracts. So I have a full understanding, even if OCA is doing something, but the main task is clear on the BV and the Bayut in Germany. They are good. Yes, there slipped something from 25 to 26. For example, what we expected is to book this 600,000 to 700,000 auxiliary rounds in 25. Only that is a multi-billion contract in this area. And that is what we miss, but it's not gone. The only thing was that it came back to the state secretary. The state secretary says, is it up to 29 or do we have to book it more to 2030 or 31, et cetera, et cetera. We will have over the next weeks a decision, but there is a delay. But I'm not afraid that we have a basic problem. This is not a basic problem. It's really a problem because the size of the contract and the number of the contracts are so high that the Parliament, the BIN, the Ministry of Defense, all of them are really busy. They are really busy. We as companies, we are also busy because at the end of the day, we have to write the offers. We have to go into the negotiation, but it works relatively well. Not everything is in time. But as I always said, Marion, if I get it three or four months earlier or later, for me it doesn't matter because as long as I'm booked for this year and nearly then also for the next year, and this will be very soon, we are not in a hurry. So we have enough time to do it. The $500 billion package... I can exactly say how much we booked for the 100 billion package, but I cannot say exactly about the 500 billion package and what is the reason. The reason is, first of all, there are a lot of new packages, like the naval package, where we have not such a lot of experience than on ammunition. On ammunition on vehicles, it was relatively simple for us to say, okay, this is the packages that I get. My expectation is that the Rheinmetall still has a very, very high value in this area. If it is 42% or whatever, please, I cannot give you the figure. The only thing what I can tell you is that we are in negotiation with the German government, which are very, very high number for this year and also for the next year. years of that 500 billion package. And this 500 billion package should then go up to 2030, as you know. This is not only for one year.

I think you're very clear.

Then the next questions come from Adrian Rabier from Bernstein. Please go ahead.

Hi, good afternoon. Thank you for taking my questions. First question is on cash and the cash guidance, please. Could you elaborate on what the assumptions are in the guidance? It sounds, from what you said before in that call, that it could be a lot higher than 40%. And then hopefully a quick question on weapon elimination, please. Can you comment on where you think the inventory is all at the moment? Are they improving?

I pick up the question on cash flow guidance for 2026. The 40% that we have guided, although higher than 40%, is in line with our basically midterm strategic ambition or guidance for our current growth phase. And we see potential to generate significantly more cash, but it's highly volatile and it really depends on the level of prepayments that we can negotiate and the timings. of the orders when they actually will come in. If you look at 2025, as I explained, we needed an increase in customer payments through prepayments of more than one billion to reach the level that we achieved in 2025. In 2025, 2026, the level that in prepayments, the total amount will need to be bigger just to reach the 40%. because we will invest significantly in the expansion of our facilities, in the automation of our vehicle plants. That will require lots of cash, and we also will continue to build up stock to basically support the production of our existing orders. So while there is potential above, the 40% considers some level of prepayments

that we receive, but we think that we will be... Adrian, it's, I think, a very, if I can say from my side, a very, very simple thing. Only if Arminius and Emma contract with 12.5 and 3 to 4 billion runs, we could have a down payment if all the negotiations are running well up to 5 billion. And then we must not longer speak about cash conversion rates. Yeah? At the moment, it seems to be that we are in a good way, but it's not a done deal. And so then everything is fine. And I asked a question on one of the investor conferences, what happens if we book five, six, seven billion cash and have a cash conversion rate of whatever, 300 or 400 percent? What happens the next year? That makes sense.

Thank you very much.

Then the next question comes from Chloe Le Marie from Jefferies. Please go ahead.

Yes, good afternoon. Thank you for taking my question. The first one actually would be quite high level on space. I think, Armin, you mentioned on the press call that you aim to build a big satellite consortium in Germany. Could you maybe flag which areas you're targeting, and in particular, what compared to the other planned consortium between Airbus, Donardo and Thales? So how aligned would you be on the German defense needs, the European institution pushing to space? So yeah, if you could shed some light on what exactly you're aiming to do there. The second question would actually, taking another stab at the free cash flow guide, but just within the 40% conversion that you're targeting, could you maybe share how many advances consumption you factored in these?

So the first, from the space side, the first question is, as you know, we booked the SAR business. We do this, as you know, with ISI. And the reason that we stepped in was very clear that the German government told us, we want to have a German production and we want to have a German service line because we need a national, this is for national security. These are national security data and that is the reason that a German company at the end of the day has to take care about that. And as Rametal is the digitization head also of the German army, The minister said, okay, it's a good idea if we do it that way. So that was tick in a box, and this is done, and we will fulfill it. And Q3, the first satellite will be in space. Second point is now on the communication side. On communication side, we said, okay, how can we do a thing to make the German customer happy? Because this is also on the defense side. The space side is on the commercial side, one side, but on the defense side, it's always national security. And therefore, again, they need a consortium from the German side and German production lines. So if we build up now in noise the satellite production, and ORB has in Bremen a production line, and they have to build up other production lines because there is not enough capacity, we discussed with the government what can we do And there is a partner number three. We have our joint venture then between ORB and DryMetal. But there would be a working community also, which is possible, and that is in negotiations at the moment with Airbus. Then there would be only one bidder. This is the consortium. No other bidder about that is going up. And then the contract would be very safe for the consortium. Is that clear, Chloe?

Yes, it is.

So, Klaus.

Yeah, the question of basically the use of the prepayments. I would put it the other way around. We need an increase of the prepayments that we currently have of 5.6 million by about 2 billion to get to the 40% at the starting point. As Armin mentioned, if we get the 5 billion for the big conflicts alone, we would have a significantly higher cash conversion rate.

we use it for stocking yeah we need it because what we have we the the restocking that we have in our in our stocks to have the basic materials is a very important thing this is number one and the second point for sure continuously to grow what we discussed also before on the vehicle side for automation because welding robots and other things that we buy in at the moment it's also an investment but then We are really well prepared because then the investment rate will go drastically down over the next years.

Perfect. Thank you.

Pleasure.

And the next questions come from David Perry from J.P. Morgan. Please go ahead.

Hi, Armin and Klaus. Hope you're both well. So two questions on vehicles, please. One, can you just talk a little bit about Q4, where the EBIT came in quite light against the guidance from the CMD. So just what happened there, whether it was sales or it was execution or something. And then the second one on vehicles, Armin, you talk about having capacity, I think you mean in the midterm, to do 1,000 vehicles, infantry fighting vehicles and APCs. I just wonder, do you have that number for 2025, the actual, and do you at this point have a good visibility on the annual ramp up? And if you do, can you share that with us, please?

Yeah. So we are by far not on the thousand. We are nearly ready on the logistical side. Here is everything done. Over two or three years ago, we started, as you know, with the investments on the logistics vehicles. Here we are ready. And here we are really ready to boost up to this 4,500 or even more vehicles if we press everything out. On the infantry fighting vehicles and on the boxer side, we need three to four times higher capacities if you compare it what we did. to grow up in this area, so we produce a number. I told you that the customers don't like to speak about all these numbers because these are official data also for, let me say, for aggressors, which are not good if they said how many infantry sighting vehicles we deliver, etc., etc., But I can tell you at the end of the day, we have three to four times higher. We have to grow up three, four times to fulfill this 1,000.

Okay, and on Q4, just what happened there, please?

Yeah, the Q4 thing is a very simple thing. So what you have is, first of all, you produce vehicles. If you produce the vehicles, everything is fine. then for example for for heavy weapon carriers and other things we have i think 12 or about 12 heavy weapon carriers ready and still no capacities from the ministry of defense to make the final checks in this area this is as you know if you think quarterly quarter to quarter it's you always can have have problems but sometimes you Do you remember when we had this truck problem? It was not a problem from our side. We produced it, but we were not able because the customer was not able to take over this truck. So this happens sometimes, and this happened also. This was number one. The second point was that on one of the vehicles, they had some software problems. So we have to sort that out. It is sorted out now in this area. So there are sometimes delays if you are not in 100% serial production. Now, become more and more, and this is the positive signal, become more and more into serial production. If we produce thousands of boxers, we are able to produce it like ammunition. So the ammunition is much easier. because we produce thousands from the same thing. And the beauty is that the vehicles that we produce over the next years, there is only the Panther, which is new, and the rest is more from the same. So we believe that we have a better track record over the next years on vehicles than we had over the last two years.

Okay. Thank you very much.

The next question comes from Benjamin Healan from Bank of America. Please go ahead.

Yeah, afternoon, guys. Thank you for the question. I hope you're both well. I wanted to touch a little bit on air defense and following, obviously, what?

Hello?

Have you had calls from... Ben, we lost you in between. Can you hear me?

Yeah, now we lost you in between. It stopped when you said you have a question about air defense, and then we didn't hear.

Sorry. Okay, yeah. So the question is, you talked a little bit about the Middle Eastern customers that you've kind of discussed in the call. Have you had calls from your typical customers, Germany, the UK, et cetera, about their air defenses and what you can do for them? Because it just feels like what's happened in the Gulf is fairly unprecedented from an air defense perspective. So that will be the first question. And then the second question is, on the joint ventures with Lockheed and Ryan McClough and Anderil and the approvals. I think you were waiting for some approvals there. Could you give us an update on the timeline around that and where you are?

Thank you. Yes, Ben. We had contacts to a lot of governments also here in Europe. I cannot name the contract because, as you know, if this war sites, they want to do a lot government to government. This is, I think, I can say. There are some countries who want to help government to government. They contacted us and said, okay, what can you do? How much you can deliver? Can you change something, yes, from European countries that you have to deliver? Because, as you know, we are in full production also now. to help them and we are on the way at the moment to work it out. We are not ready with the concept because this was over weekend where all the calls came in. But Germany takes care about that and Germany wants also to help in that area and I think that countries really appreciate But there are not only Germany, there are a lot of other European countries who are looking for that to help, and to help very fast. The Lockheed and the U.S. agreements that we have is, I must say, I think it's too slow. We are usually much faster about that, and we want and we have to accelerate.

Can I ask a quick follow-up? I mean, when you're getting inquiries from governments, et cetera, given the kind of the magnitude of what's happened in the last couple of weeks, if you think about the next 18, 24 months, do you see potential for governments to shift their priorities in spending towards air defense and away from other areas? Or do you think this will just be incremental demand that will come on top of everything else? How should we think about that?

I don't see that they shifted. So from my side is the priority number one is still ammunition. And on the ammunition, it's all different kinds of ammunition. So but still, artillery ammunition is a very, very big driver in this area, but also medium caliber ammunition has a renaissance. Only Germany is looking for billions at the moment on the on the medium-caliber, where we expect also a huge contract. And then the whole missile business, where the whole Western world at the moment sees that they run out on ammunition. Because, as I said before, to spend $4 billion on missiles, that's a huge number. But if you see the capacities that the Western world has, even the U.S., it's a very small capacity. In some areas, U.S. companies have a capacity of 70 missiles per year. This is usually shut down in half a day.

Yeah.

Okay, great.

Thank you, Armin.

Appreciate it. Yeah, it's a pleasure.

The next question comes from Michael Raab from Kepler Schubert. Please go ahead.

Yeah, thanks. Hi, everyone. Michael Raab, Kepler Schubert. Mr. Popper, I'd like to get back to the issue of DLBO. Obviously, my understanding is this is sort of a lengthy process to retrofit those vehicles and equip them with the corresponding technology. So probably, I don't know, a couple of months, quarters per vehicle, including testing, whatever it may be. My question is, this is happening in a phase in which you're ramping up capacities for production. Does this need to retrofit those vehicles to be in accordance with DLBO requirements by the German MOD? Does that sort of compromise your ability to increase the output of new boxers, for instance?

No, absolutely not, because the new boxers get the DLBO module immediately from the beginnings. So if we produce the new boxers, that is much better than the old ones because then you have the DLBO technology immediately inside that. But if you have all the old stuff, so all the new productions, because now we have a clear settlement in infantry fighting vehicles, in boxers, in 4x4 vehicles, what the equipment, how it has to look like. For the new ones, it's easy. Because then you implement it directly. For the old ones, it's a problem. But the point is, because we have all the trucks and blah, blah, blah, there are thousands and thousands of vehicles. That is the reason that these contracts are so huge. This is a multi-billion contract. If DLBO is really, if you are ready and everything is ready about that thing, I think at the end of the day, it will grow up to 10 billion.

Would you be willing to outsource some of the activity for retrofitting to other players in the industry to speed up the process?

We cannot. And the reason for that is that at the end of the day, we are responsible for that. What we do is at the moment to implement technologies from others, and this is outsourced for sure, as you know. Rode is doing the radios. And there are a lot of other suppliers who take care about that. The point is to make the software at the end of the day really, really working. This is our hot chamber. I don't want that other guys are looking into our algorithm. Got it.

Thank you.

Pleasure.

Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star and one. The next question comes from Joe Ockhart from Rothschild and Co. Redburn. Please go ahead.

Thank you for taking my questions. The first one is on the XM30 program. Please could you provide an update from your side, given that Milestone B approval has not yet been signed off by the U.S. Army? Are you still confident that this is a realistic opportunity for you. And the second question is on the dividend. Why did you increase the payout ratio this year above the range that you previously communicated of 35 to 40%, given that the business still requires a lot of investments to scale up as manufacturing capabilities to translate your order backlog into revenue? Thank you very much.

Are you unhappy if we raise the dividend?

No, not necessarily, but I think it's an interesting decision.

Yeah, yeah, we will start with the XM30 program. On the XM30 side, we are, let me say, on a very, very good way with the U.S. Army. The feedback, as I always said, is a very positive one. On the XM30 side, they want to see, and this is now a program which is guided also from White House. This is also very interesting, a very interesting program. White Houses and President Trump by themselves takes care about the huge programs at the moment because he said we are late in different areas and especially on the Army side, but also on the Navy side. And there could be also an interesting opportunity for us in the US on the Navy side because they want to build up more capacities and they want to get also the technology that we have on the land side. And they have seen that we are able on the links to have a full digital system. And the XM30 is nothing else like an American Lynx with American IPRs. So I'm positive. I believe that end of this year, beginning next year, we get an indication about the program, and I hope that next year they really give an order. It's not in our business case. The whole program is not in our business case. But we have more in the US. In the US, it's not only XM30. It's the artillery program. It's the program of the new Howitzer, where we offer... This is the same Howitzer that Germany gets at the moment, the self-propelled Howitzer with the light gun 47, KAL. Then we have this... autonomous vehicle programs running in the United States and the newest thing now is and this is also because we have now log performance that the huge programs of the Navy are coming up and they look for competences and they look for companies who are able to build up capacities in the United States to build some of the frigates that they have. And that could be an interesting program. It's in a very early stage, but at the end of the day, I think end of the year, we get a decision from the Americans if there is something where Ramital can participate.

Yeah, and some comments on the dividend. We had a very intense discussion in the board and also with the supervisory board about the level of dividends for 2025. You mentioned the payout ratio. Yes, we are above the one in payroll that we communicated and was a guide for the past. But we have moved to the higher end in recent years already. We look now also on the equity position. And if you look at the balance sheet, we have now an equity of 5.6 billion euros up from 4.5 in 2034. And on the balance of all the different factors, we think it is the right decision to increase the payout ratio for the dividend in 2025. We will look at all the different elements, our financial strength, our performance, and also our equity position to decide where we are going forward. Okay, great.

Thank you very much.

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

Hello, everyone. Thank you for taking my question as well. Just one final one from me, if I can. On your CapEx spend, I think I'm looking on your CMD presentation. You planned to invest last year 25, roughly 11% of sales in CapEx. I think you just did 8%. So looking forward to 26 and 27, are the plans still the same, roughly 16% revs? in 26 and about 12, 13% arrives in 27. Is that still the plan? Thank you.

The capex will be roughly the same. It might be somewhat lower than originally planned because we have constant movement in the way we invest and we also want to invest only what is really required. but the level will be very similar to what the community at Capital Markets thinks. But you always need to consider that some of the investments, especially zones that we do together with partners, will be co-funded through capital contributions by our other partner in the joint venture.

And we gave a clear target, Alfonso, to find the synergies also on the investment side. And what is also interesting is at the end of the day, what is possible at the moment to reduce also the costs in this area. So this is a combination of that, that the CAPEX is not as high as it was planned at the beginning. If you are deep inside the program, at the end of the day, we found that it is always possible to reduce costs. Very clear. Thank you very much.

And the next question comes from Christian Kors from Warburg Research. Please go ahead.

Yes, hello. Good afternoon. Thanks for taking my questions. I have two, actually. First of all, is it correct that your electronic solutions operating profit actually included a 48 million exceptional item related to divestments? And if so, is this also the reason for the margin backdrop for digital systems in the segment guidance you have outlined at the end of the presentation. And secondly, coming to power systems, if I'm not mistaken, you originally envisaged a deal to be done before Easter. Now you're right about Q2 or Q3. Does this change in statement imply more caution? Would I say it can actually materialize I mean, given the structural weakness in automotive, the challenging macro environment, et cetera. Thank you.

Yeah, let's start with a question about electronic solution. Yes, there is this gain on the disposal of technology-based investment in a company that we had for several years. As explained in our presentation, our annual report, we disvested this technology-based company because this technology is not part of our strategic portfolio. From our point of view, it's a divestment of any other asset that we have held in use over many years. It just comes in the form of a divestment. But that is not the main reason for the movement of the the profitability of digital systems in 2026. As Armin explained, there are lots of new programs that are ramping up in 2026 that require investments that need to run up calls and will only be covered by revenues that will materialize at a later point. So there is cost pressure in 2026 through the ramp up. There is this disposal gain in 2025 It's one element if you look at it both here next to each other, but it's not the driving reason.

Big drivers are F-35 and the satellite business where we invest in this area. But long term, we are sure that the digitization, yes, will come into an area like we have on the air defense side.

And then PS. And P.S., the original aim was to basically come to a final agreement before Easter that now seems to be delayed by a few weeks. We hope to conclude an agreement in Q2, but these processes are difficult to predict, and the Q3 is the very latest date to finalize this process.

By the way, the buy process of NVL had also a delay of two to three months. That's very normal in these areas. But you need a target, first of all. This is our target. We want to reach this target. At the moment, we still hope that we can sign it in April. and have then the signing. And then it depends a little bit, as you know, from Monopoly Commission, how long we need to have the closing. But the process is running, and nobody will stop it.

Okay, understood. Thank you.

Pleasure.

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

Yeah, good afternoon and thanks for taking my questions and apologies if that has already been asked because I could only join a bit later. The first question is just on your existing joint ventures with Lockheed and given the current discussion we have around air defense. I mean, could you imagine that also the cooperation will be expanded to other missiles and also including Patriot? That's the first one.

Yeah, we are in discussion with Lockheed. I'm not happy with the speed that we have in that area because I spoke with Jim, the CEO of Lockheed, about that, that we have to hurry up to reduce bureaucracy in different areas because the world needs, at the moment, the capacities. On the Rocket Motors side, there is a huge need from Lockheed and there is a huge need from us. But what we do at the moment is not only to speak with Lockheed, but also with other companies, also European companies, to build up, because the capacities are there. End of the year, we are ready. Beginning of next year, we go into qualification. And then we want to fill the factory, and the demand is so huge that we prepare ourselves at the moment to fill it, whatever missile it is. So we are very flexible in that.

Sounds good. The other question I had was just on NVL because the other day I saw an article that you're expecting or that you could produce up to 1,000 unmanned vessels. Could you elaborate a little bit on that? Thank you.

Yeah. This is a program where we have, this is, I think, the first decision and the first success. We will make a joint venture where Ramital Naval has the majority with Kraken. As you know, Kraken has a contract with the U.S. Navy and with the U.S. Marine Corps. And in that joint venture, we have the ability to start with about 8 to 9-meter boats. Then to 12-meter, we go to 24, but also to bigger boats which are unmanned. So these 1,000 boats is for the smaller ones, for sure, not for the big ones. But there is a huge opportunity to grow strong in that area. The German government is very, very interested. And these boats have an opportunity to speed up to 17 knots and to be a really fast boat and in areas where it is very difficult to run around. We think there is a really big market. From the small boats, only for your idea, without weapon systems, the price will be about between 300 and 400,000 pounds. So it's a smaller class. For the bigger ones, we are in the multi-millions. So that this could be only, yeah, for... If everything is running well, much more than 1 billion. There is an opportunity of much more than 1 billion sales. The technology is in-house. We combine now also the Rymetal technology, the automation. As you know, on the land system side, we won a lot on automation programs. It should be easier to navigate on sea because there is much more space than on Earth in that area, and this is what we do at the moment. The working groups are together. But if you know, we are now nearly two weeks owner of the company, so give us a little bit of time.

The final question I had is just on the consolidation line. I mean, it came in much lower for 26 at 8% against the original guidance of 12. I mean, would you think that also for next year, where I think you guide 11, that there is a likelihood that also 11% is maybe more on the high side? Thank you.

Yeah, there are significant changes in the structure, as I explained, with the different makeup. I think I would more look at what we died for 2026 than what we mentioned at the capital marketplace.

Yeah, and it's a product mix. And if we may, we enlarge the product mix where we have less consolidation. If you see on the satellite, there is not a lot of consolidation. On the ship side, it's not a lot of consolidation. So we go into the right direction.

Makes sense. Thank you both.

Thank you.

Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Armin Papega for any closing remarks.

Thank you very much for your time. Very interesting discussion. And I hope we could give you an overview. We are responsible for the performance. You're responsible for the share price. Thank you.