Rheinmetall Ag Unsp/Adr

Ladies and gentlemen, welcome to the Rheinmetall AGQ1-2026 conference call. I'm Iruna, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Armin Papager, CEO. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our Q1 26 earnings call. Klaus and I are guiding you through our presentation today. But before I begin, please remind on our disclaimer on page number two. Now let's go to page number three. Here you see the overview of the Q126. On the sales side, we have a growth rate of about 8%. This growth is a little bit lower than expected because we have for about 200 million Euro trucks ready. And you know that we always have the contract with our customers, especially in Germany, that the delivery dates are fixed from them. And we expect now that we are delivering this 200 million euro in Q2. Another delivery in Q2 is going out because we started with the powder production in quarter one, but we were not able to deliver to the customer because of the lot acceptance test, et cetera, et cetera. This is another 100 million euro which is going to Q2. That is the reason. that quarter two will be in growth rate much better than quarter one, and we expect, in comparison to last year in quarter two, a growth rate of more than 50 percent. The operating result, which is a plus 17 percent, is very positive. Even if the growth rate is on 8 percent level, 70 percent plus shows us a good leverage on the operating results, and we have an operating result of 224 million euros, so that the operating margin is growing to 11.6 percent. Another very good information is that applications are still in good shape, and in the first quarter we had more than 80,000 applications so that, like last year, we can expect that we have more than 300,000 people who want to join the Rheinmetall Club. On the operational free cash flow, it's very clear that we prepare us for a huge growth in this year, and we have to invest. And we invest a lot of money in materials so that the operational free cash flow is minus 285 million. This is not a critical point for us because over the whole year, we believe that we still have a very positive cash conversion rate. On CapEx, we are on a good level. It's 10%. As you know, this year and also next year, the CapEx will be still high. And over the next year, then, we will go down to a CapEx of between 5% and 6%, maybe 7%. Rheinmetall nominations in Q1 is nearly 5 billion, so exactly 4866, and the backlog is growing especially also because of the naval systems from plus 32% to nearly 73 billion euro. If you go now to page 4, you see that Rheinmetall is really a key partner and a key industrial partner of German Bundeswehr. So as you know, the German Bundeswehr has three different phases to build up and to be the strongest force and to create the strongest army in Europe. On the short-term side, we are really at the moment in maximizing defense capabilities. That is the reason that our investments programs in Germany, but also in whole Europe and in the United States are really focused on that. And we have an increase to 140% of the equipment level that we had before. On the medium term, it's very clear that we have a major buildup of sustainable armed forces. And as you know, at the moment, Germany has forces of 180,000 people, and they have to grow up to 240,000 up to, let me say, minimum 2029. And as you also know, there are plus 200,000 reserves, but all that soldiers need equipment. And that is the growth program, which is coming up from today to 29, 2030. And then we have a long-term target picture. And on these long-term target pictures, it's a very, very clear point on the way to be the strongest force in Europe. to have technologically superior armed forces. And all that is in combination with the budget that you have seen in 2030. The budget for defense will grow up to 190 billion euro. And as you see also here on page number four, the draft budget for 2027 will have a 21% increase of defense spending up to 145 billion. Huge amount of money. and Rheinmetall is preparing them to help wherever we can help to bring the equipment to the Army. Next slide, slide number five, you see the highlights that we have on our new domain, our new division, Rheinmetall Naval Systems. So the acquisition of the NVL, the former Lurssen Company, was closed in February. So we have a very good start in the integration process. We started with a steel cutting process. We started with first chip launching ceremonies. And the baptism of the Corvette Lübeck was a really good start in the first month where we had the Domain C. So we gave also a non-binding offer to acquire the German Naval Yards. And with that non-binding offer we started now a due diligence and we expect over the next weeks that we have a result about that so that we can give a binding offer also to enlarge our capacities in shipyards. The financial results in Q1 and also the sales side are in line. So in the first month, about 80 million sales and 10% EBIT. This is exactly what we expected at the beginning. As you know, the range is between 10 and growing over the next years, growing up to 15% profitability. And in 2026, we expect huge orders. And there is an order of the F-125 upgrade. And we gave also an offer for the new frigate contract of F-126. And we also see internationalization and successful internationalization potential, for example, also in Romania. So all in all, very good start, very good post-merger integration. We had the first welcome day also in Bremen with the team, and I'm very happy with the team. I'm very happy with the motivation of the team and the spirit they have. Now let's go to page number six. On page number six, you see what Rheinmetall is doing to create autonomous vehicles, autonomous air vehicles, land vehicles, and also vehicles on the sea. And you see the triangle that we have, the Rheinmetall autonomy strategy. On the unmanned ground vehicle side, you know that we have since years a lot of vehicles where we made tests, where we are very successful in that area. And the biggest program at the moment is the U.S. tender. This is the FMAT program from the United States of America. And we took over the majority of DOC Inc. And in combination with our U.S. business, our Canadian business, and the European business, we think we have a huge potential over the next years also to build up this land park. This is not only a one-product strategy that we have. This is a multi-product strategy, and if you see Hamelin and other things that we offer at the moment, also the German Bundeswehr, I think it's a great strategy to go the next steps also with European partners and with NATO partners. On the unmanned air side, there is loitering and ammunition and drone technologies. And this category two and category three drones are in our portfolio, not category one drones. But CCA, this is a real strategic partnership. As you know, we have partnerships with Boeing, but also with Lockheed. And the MOU with Lockheed for European CCA is part of our PLCD program. So with both American partners, we try to open the market and to help Bundeswehr And because PLCD is not ready, maybe, and we really hope that we can implement the Boeing Ghostbat technology into Germany from Australia. On the unmanned surface vehicles, we made this joint venture with Kraken, where they have the majority, and Last week I have seen the production lines. We produce in Hamburg these unmanned vehicles, and at the moment we have a portfolio of a little bit more than eight-meter ships, but over the next year we will build up two other ship classes, so that we think this is a real, real good start into the unmanned surface vessels. And over the next years, we see that there is a potential of about 1 billion, 1 to 1.2 billion also on the air vehicles, and also about 1 billion on the land side. So in total, it could be around a potential of 3 billion per year that we do with autonomy, which would be a very positive signal. On page number seven, you see that we are expanding the role of drone producer. And if you see the drones portfolio of the German Bundeswehr, and if you see how much Rheinmetall is doing, we sometimes really astonish that people said, okay, what is the reason that you're not going into the drone business? Because we are since 25 years in the drone business. So Rheinmetall is the producer of Aladin, Luna, and Katz et al. These drones are qualified and implemented in German Bundeswehr. And we implemented also the Heron class. As you know, we sold that business later, but up to 2011, Rheinmetall implemented the Israeli Heron technology into the German Bundeswehr. So 20 years and more before we started with this drone technology and the future systems that yet we see, the MQ-28, so the Ghostbat and the FV14, This is what Rheinmetall is doing, and on the right side, you see the different categories, from Alladin to the GhostBed, where we see a sales potential of 1 to 1.5 billion, as I said before, per year. If you have a look to page number eight, you see the partnerships, so we believe in partnerships, because with partnerships, we are faster than if we go into development programs. And we are grateful also that these partners from the U.S., like Boeing or also Lockheed, are helping us with strategic partnerships to grow into these areas. And as you said, as we said, the GhostBat should be implemented in 2020. And it is impossible to develop in that short time unmanned vehicle like the Ghostbat. So I think this partnership can help us to grow faster. Another partnership that we signed is the partnership with Indra in Spain. And this is very similar than that what we did with Italy, with Leonardo. And there is a huge need on military vehicles and military trucks for the Spanish Army, and we built up this joint venture at the moment with INDRA. Page number nine, you see another partnership, and one point that was missing was the long strike side. We are very good in artillery and tank ammunition. We are good now on the drone site, but the deep strike and long precision strike, this is what we missed. So we found a partner in our analysis, and this is Destinus, a Netherlands-Swiss company. It's an European defense technology, and this is the differentiator to the U.S. defense technology. So we made an agreement that we create a joint venture with the majority of Rheinmetall of Rheinmetall Destinus strike systems. And this includes cruise missiles, but also ballistic rocket artillery. And the work here should be that Rheinmetall is doing a lot on the rocket motor side. We do the warhead on the warhead side, and we make the infrastructure to build up the infrastructure till end of year to build up the whole cruise missiles starting end of this year or beginning of next year in Unterlust in the north of Germany. So if you have a look now to page number 10, in page number 10 you see that there is an intensive discussion at the moment with a lot of Middle East customers. And we got a lot of calls from after the U.S.-Iran conflict and we counted the systems that we have now in the Gulf region. It's about 150 systems in the whole Gulf region, gun-based air defense systems, and we think that new systems will be implemented also in very short time. Italy is a very strong driver in this area. The Italian government is helping a lot in this area to help the Middle East countries. The negotiations with already at the moment, we try to implement more than 10 systems in 2026, but we believe that this continues, and especially the ammunition, the high consumption on ammunition is the thing that really helps us on gun-based side, but also on missile-based side. On the missile side, you see there is a heavy use of different missile types, And that is the reason that we made that investment on the rocket motors. And end of this year, the rocket motor production in Unterlös will be ready. The rocket missile integration factory will be ready. So that in 27, we will go into a qualification. And hopefully in 28, we can be really in full-scale production. Page number 11 shows that Rheinmetall is fully in line with the Ukrainian priority areas. And the areas that we discussed, and the discussion was now one and a half weeks ago with the Ministry of Defense in Ukraine and the German MOD, that artillery ammunition, air defense systems, deep strike and drone technology, and in combination with combat vehicles, this is exactly what we offer. and the European Union decided to release financial support package and as you know there is a 90 billion package where 60 billion should be earmarked for the procurement of defense goods. We are in negotiations at the moment with different nations and also with Ukraine how much we can help in that area. And page number 12 is a highlight about the disposal of the power systems. We are nearly finished, and as said and as expected, we want to make the signing in Q2 26. So in some weeks we are, let me say, 95 or more, 99% ready and are very near on the signing process. So far, I know a few about the technology, and now I take over to Klaus, and he will take care about the financials.

Thank you, Armin. Q1, we showed a solid growth of 8% on sales, but this does not give the full picture of the increase of our busy execution on operations. We look at the buildup of inventory about half A billion of material went into finished and pre-finished goods that are ready to be shipped in Q2. That would help us to basically show a very strong Q2 and have basically a first half of the year that is fully in line with our full year expectations. Operational result went up by 17%. So even in this increase in build-up of structures, we are showing leverage across all the different segments of our business. Overall, there was only a relatively small impact from currency on sales and on profitability. Let's move on to page number 15 to have a closer look at the different segments. Vehicle systems grew by 3% to nearly 1 billion euros, mainly driven by more wheeled technical vehicles and the links in Hungary. Operational margin improved to 9.6% to a more favorable product mix. Sales growth was, as mentioned, a little bit damp through the pre-production of trucks for the German customer where we expect the drawdowns in the coming weeks and additional sites in Q2. Weapon ammunitions were flat at 600 million euros. The main reason for the war was the Moskva incident in Q1 last year. In Q1, as you know, This year, the Murcia plant is fully operational again, but the products that are being produced will only drive the sales in Q2. And then there was further basically slipovers or delays in acceptance, so that reduced the sales growth. Overall, operating margin increased nevertheless by 0.1 percentage points to 19.4%. Digital systems grew by 16%, mainly driven by the Tawam project and the consolidation of now BlackNet that was acquired in Q1 of last year. Also here, the division showed an improvement in profitability. The operating margin now stands at 5.2%, again showing as the other divisions demonstrated. good leverage. The biggest growth of all the different segments was in air defense with more than 30%. As a result, also the increase in profitability was the strongest from 12.5% to 15.6%. That's a very strong performance and shows the additional demand for air defense products. Naval systems are now included for the first time with one month of sales. The business contributed already 77 million of sales at a solid profitability of 10%. Overall, as mentioned, the growth grew to 1.938 million euros. And in the sales you can also see the ongoing trend that consolidation increases as basically interaction between the different segments of our business intensifies. Let's move on to page number 16. With almost 5 billion of Rheinmetall nomination, it was a solid performance on the sales side. You have to remember that in Q1 2025, the high order intake and nomination of almost 11 billion was strongly driven by two digital projects in Germany, Tavane and the IDZ. The mix in 2026 was more varied. There was a strong growth across all the different segments of the business, and also fixed orders were higher than in 2005. Overall, also including almost $6 billion of additional order book from the naval business and the IMETA backlog increased to 73 million euros. Let's move to page number 17. Operating free cash flows, as mentioned, was negative at 285 million euros, driven by strong investment, especially in inventory and basically as preparation of future sales. As mentioned, out of the 1 billion increase in inventory, almost half was going into finished and unfinished products ready to be shipped then in Q2. The main driver for the increase in inventory were, as mentioned, weapon and ammunition and also air defense. And that also includes, obviously, the increase in vehicle systems for the pre-produced trucks to be delivered in Q2. CapEx was, as we are early in the year, relatively modest, but higher than in 2025. Let's move to page number 19 to have a look at basically some of the supply chain issues that we are facing. Oops, that's page 18, sorry. On page 18, we see some of our financing numbers. Our net debt to EBITDA is very strong at 0.3.9 multiple, driven by a very low debt, and that needs to be considered in the context of having acquired the naval business at the end of February. That is also the reason for... slight decrease in our equity ratio but still with 30.7% of equity ratio we are in our strategic bandwidth that we are aiming for so even after the acquisition we have a very strong balance sheet and are prepared to support the ongoing growth and further acquisition if there are opportunities. Concerning the convertible bond, almost all the bonds have been converted. At the end of April 2026, only 8% of the Series B, the second tranche, were still not converted. We also received some positive feedback from our rating agency Moody's. They provided an update and confirmed the BAA1 rating with a positive outlook. Let's move to page 19 and look at the supply chain. Our energy costs only account for about 1% of sales. We have a coverage of 70% for electricity and 84% of gas procurement is covered by long-term crontech, so we are not that exposed to volatility in the purchase price. On raw materials, as mentioned before, we are stockpiling, actively stockpiling strategic raw materials and also intensify our supply diversification to make the whole supply chain more robust and more resilient against possible disruptions and price fluctuations. As with many of the raw material prices, we have contracts in place on the sales side that allow for the pass-through of increased purchasing costs, in some cases specifically to certain materials, in most cases for general inflation and production cost increases. Let's move on to the outlook, and for that I hand over back to Amen. Thank you, Klaus.