Dusseldorf A few days before it was included in the leading German index Dax, the armaments group and automotive supplier Rheinmetall presented record annual figures for 2022 and the forecast for the current year. With 6.4 billion euros, Rheinmetall achieved the highest sales in the company’s history in 2022. The operating result (EBIT without special effects) increased by 27 percent to the historical value of 754 million euros.
For 2023, Rheinmetall expects “continued sales and earnings growth,” the Düsseldorf-based group announced on Thursday. Specifically, Rheinmetall expects consolidated sales of EUR 7.4 to 7.6 billion and an operating profit margin of around twelve percent, after 11.8 percent in 2022.
However, the forecast was perceived on the market as a slight disappointment – the figures are more in the lower range of expectations. With 13 percent sales growth, Rheinmetall missed its own forecast for 2022. In 2023, sales should really grow by 15 percent.
The share initially fell by around two percent on Thursday to a good 239 euros. “The forecast must be viewed against the background of a drop in sales of around EUR 300 million and is therefore disappointing from our point of view,” said analyst Christian Cohrs from Warburg Research.
The operating free cash flow was also surprisingly negative at minus EUR 152 million. The company explained this by postponing incoming payments and strategic material purchases “to avoid bottlenecks”.
A year ago, Papperger presented a list of armaments that his company could supply as part of the special fund.
(Photo: dpa)
This should include a Chinese raw material for the production of ammunition. In view of the geopolitical tensions, the company made provisions for three years.
Rheinmetall boss Armin Papperger assured on Thursday: “The year 2023 is the year of realization and implementation.” Groundbreaking decisions were made last year. Now there would be a “giant swing”.
Papperger’s €42 billion list: Armament chief optimistic his bid will catch on
Papperger assumes that a large part of the 100 billion special funds for the Bundeswehr will be planned for the current year and some of them will also be backed by specific orders. “We are currently in the process of negotiating many contracts with the ministry,” said the CEO. Analyst Cohrs assumes that a total of “18 or 19 billion euros will end up at Rheinmetall”.
A year ago, Papperger presented a list of armaments that his company could supply as part of the special fund. The list had a total volume of 42 billion euros. When asked about the difference, the CEO said on Thursday that he was quite optimistic about getting orders of this magnitude over the next eight years.
With the usual self-confidence, he calculated Rheinmetall’s chances of receiving extensive orders from the special fund before: He assumes that “a very good part of the 16 billion euros for the vehicle systems” will go to Rheinmetall, he expects around ten billion euros.
The federal government estimates a total of 20 billion euros for digitization, especially in the field of land forces. Rheinmetall also has a lot to gain here, “take half of it,” said Papperger. In addition to the special fund, Rheinmetall also expects further sales from the regular defense budget.
Papperger is estimating a single-digit billion contribution for the US F35 fighter aircraft, for which Rheinmetall will take over the production of a center fuselage part, for military trucks he sees sales potential of five to eight billion over the next ten years and the same for ammunition again .
Location wanted for new high-tech plant
For the production of the F35 fuselage center parts, Rheinmetall is currently still looking for a location for the new high-tech plant, in which 100 million euros are to be invested. According to Papperger, the options are Düsseldorf, Lower Saxony, Schleswig-Holstein, Bremen and Saxony. “We will have completed the evaluation process in two months at the latest,” said Papperger.
A year ago, Papperger presented a list of armaments that his company could supply as part of the special fund.
(Photo: IMAGO/sepp spiegl)
The group also wants to complete a new plant in Hungary soon, and a new powder plant could also be built in Saxony. According to Armin Papperger, however, a subsidy from the federal government is required because otherwise the production would not make economic sense.
Whether a new tank factory will also be built in Ukraine depends on Ukrainian President Volodymyr Zelensky and Federal Chancellor Olaf Scholz. Here, too, Papperger expects a decision in the next two months.
>> Read also: Rheinmetall boss Papperger offers Ukraine to build a tank factory
In this context, it also became clear on Thursday that many expectations have already been priced into the currently high share price. Even if the order expectations are fulfilled, the company still has to deliver the orders.
“You have to keep in mind that the company has not seen such a strong increase in orders for a long time,” says analyst Christian Cohrs. Rheinmetall first has to prove “whether it’s really able to cope with the significantly increased business volume.”
On the other hand, the question arises as to how long the war in Ukraine will last and whether the political goal of increasing defense spending in the long term will remain. Rheinmetall and other armaments companies therefore insist on framework agreements that would give them security.
Praise for ministers with “handshake quality”
Papperger repeatedly praised the new Defense Minister Boris Pistorius at the press conference, who had “handshake quality”. “There’s a big push at the ministry,” he said. The quarrel with Pistorius’ predecessor Christine Lambrecht was heard again: Many things that the minister had initiated would actually be implemented.
“In our view, the stock will continue to be supported by geopolitical factors in the near term,” said UBS analyst Sven Weier. “However, we do not currently assume that it will still be an outperformer on a twelve-month horizon.”
For the moment, the Russian war of aggression against Ukraine has even brought Rheinmetall a place in the Dax. The market value of the freely traded shares is decisive for inclusion in the index of the 40 largest listed German companies. After the share had risen by more than 200 percent since the beginning of 2022, Rheinmetall will replace the dialysis group Fresenius Medical Care from next week.
A few days after the announcement, the share reached its record high of EUR 262.20. Next Monday, CEO Armin Papperger will be allowed to ring the bell in the Frankfurt stock exchange building.
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