Rheinmetall experiences growth like it has never seen before
Rising military spending in Europe is boosting Rheinmetall's orders for armoured vehicles, ammunition and air defence systems. As a result, the armaments group achieved a leap in profits in the third quarter. „We are experiencing growth like we have never seen before in the group,“ said CEO Armin Papperger on 7 November. The manager, who has been in the top position for twelve years, and whose contract was extended by five years just the day before, views Rheinmetall as being on the way to becoming a „global defence champion“.
He also expects an end to the debt brake in Germany after the end of the traffic light coalition government, so that defence spending can increase, Papperger explained in a call with analysts. This would accelerate growth for Rheinmetall. As the manufacturer of the Leopard battle tank's cannon announced, sales rose by 40% to 2.45 billion euros in the three months to the end of September, and the operating result climbed by 52% to 302 million euros.
The Düsseldorf-based company, which has just expanded its Management Board from three to four members in order to cope with the expected doubling of sales to 20 billion euros in a few years, confirmed its forecast for the year. For the current year, the group management is targeting sales of around 10 billion euros, including from newly acquired companies, and an operating profit margin of 15%. The latter is the upper end of the previously stated range of 14% to 15% (2023: 12.8%). In the medium term, Papperger wants to drive the margin to over 15% by 2026. Sales should climb to between 13 and 14 billion euros by then.
Ukraine as a driver
Like other European defence companies, Rheinmetall recorded a strong increase in orders following Russia's invasion of Ukraine, and the USA's questioning of its commitment to NATO. The order backlog rose by 41% to 51.9 billion euros in the third quarter. Rheinmetall is involved in two joint ventures in Ukraine – a centre for the manufacture and repair of tanks, and an ammunition factory which, according to Nato Secretary General Mark Rutte, is nearing completion.
The share prices of Rheinmetall and other European defence companies rose on the day after Donald Trump's victory in the US presidential election. Trump has repeatedly threatened to withdraw from the US military alliance with Europe if Europe does not spend more money on its own defence. Rheinmetall's share price has since climbed to around 566 euros. Market capitalisation has thus doubled within a year to 24.7 billion euros.
Sales climbed by 36% to around 6.3 billion euros in the first nine months of the year. During this period, the operating result increased even more strongly, by 72% to 705 million euros. Incoming orders rose to more than 21 billion euros. Sales only fell slightly in the civilian business with the automotive industry.
Regardless of the war in Ukraine, Papperger anticipates demand. „Even if the war were to end tomorrow – and everyone wants an end to this crazy war in Ukraine – we would still have to fill up our stocks in Ukraine,“ said the CEO, commenting on the half-year results. The demand from other countries will also remain high. For example, Rheinmetall wants to build the Panther armoured vehicle with Italy's Leonardo armaments group, to compete with the Leopard.
Orders worth over 20 billion euros are in the pipeline in Italy alone. Business is also growing in the UK through a gun barrel joint venture. In the USA, Rheinmetall has hopes for the successor to the US Bradley infantry fighting vehicle.
