Indonesia will buy Leopard tanks, infantry fighting vehicles and armored recovery vehicles from Rheinmetall. (US Army)
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BONN — Rheinmetall Group will supply the Indonesian military with 102 modernized Leopard 2 main battle tanks, 42 upgraded Marder 1A3 infantry fighting vehicles and 11 armored recovery and engineering vehicles, the company reported.
The Düsseldorf-based company announced the deal is worth roughly €216 million (US $289.6 million), and includes training equipment, logistical support and ammunition.
According to Rheinmetall, the delivery to the Indonesian Army will take place between 2014 and 2016, making the Southeast Asian country the 18th nation operating the Leopard 2. The contract with the Indonesian Ministry of Defense had been signed in December 2012, but legal formalities, such as the approval by the German Federal Security Council, needed to be passed.
Rheinmetall is seeking to boost its international business and views Asia as a fertile territory for future defense deals.
A few days earlier, on Nov. 8, Rheinmetall presented its third-quarter results, which showed drops in sales and operating results before interest and taxes in the defense sector. The company confirmed its fiscal targets for 2013, expecting operating result of between €180 million and €200 million, with annual sales between €4.7 billion and €4.8 billion.
In the third quarter, the operating result before interest and taxes was €60 million compared with €122 million in the same period of the previous year. An operating loss in the defense sector was compensated by the automotive sector, which improved from €108 million to €116 million. The operating result before interest and taxes of the defense sector dropped from €31 million to minus €52 million. This decline affects all three divisions: combat systems; electronic solutions; wheeled vehicles.
Compared with 2012 sales, the first nine months dropped by 6 percent down to about €3 billion. While sales in the defense sector were considerably lower than in the previous year, automotive sales increased by €24 million to €1.83 billion. At the same time, sales in defense fell to €1.26 billion, a drop of 14 percent from 2012.
According to the company, this decline in sales is especially related to the wheeled vehicles and combat systems divisions.
However, defense orders in the first three quarters increased by 68 percent to €2.64 billion; 77 percent came from customers outside Europe. One order from Qatar was worth €475 million and one from Australia was for €1.1 billion. The order backlog, therefore, climbed 39 percent higher than last year’s, to an all-time high of €6.28 billion euros.
The defense sector is focusing on the opening of new markets, with particularly attractive opportunities seen in Asia and the Middle East. To help broaden its base, Rheinmetall has founded a joint venture with industrial services company Ferrostaal. Rheinmetall International Engineering will plan and implement turnkey industrial facilities as general contractor or subcontractor.
It is also intended to open doors to markets to which Rheinmetall has previously had limited or no access. In addition, the new company will meet the rapidly growing demand for local infrastructure for defense technology.
The financial performance also reflects the company’s ongoing realignment called “Rheinmetall 2015.” For the first nine months, restructuring expenses amounted to €60 million with an expected €75 million to €85 million for the whole year.
“We are implementing our ‘Rheinmetall 2015’ strategy program systematically and as planned,” stated Armin Papperger, CEO of Rheinmetall AG.
“This will hurt in the short term, but step by step we are getting closer to where we want to be at the middle of the decade: an international partner for security and mobility with greatly improved profitability.”
From 2015, the company expects these measures to result in annual savings of €60 million to €75 million.