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Rheinmetall Reports Earnings Drop, Expects Rebound

Mar. 19, 2014 - 03:45AM   |  
By ALBRECHT MÜLLER   |   Comments
Rheinmetall CEO Armin Papperger
Rheinmetall CEO Armin Papperger (Griesch)
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BONN — Rheinmetall Group has reported that operating results (earnings before interest and taxes) dropped to €213 million (US $296.5 million) in 2013, down €55 million from the previous year. While the Automotive sector grew, the Defence sector dropped to €60 million compared with €85 million in 2012.

“Fiscal 2013 was dominated by our strategy program ‘Rheinmetall 2015’. We made key decisions and initiated important restructuring measures to lay the foundation for profitable growth in the future,” said Rheinmetall CEO Armin Papperger. “Initial progress will already be evident in the figures for 2014. But the strategy program will not reveal its full effect until 2015.”

In 2013, a number of restructuring measures were initiated that cost the Defence sector €51 million and the Automotive sector €35 million. These measures are supposed to improve company structure and increase cost efficiency.

According to the company, the restructuring measures, budget cuts in important customer nations, delays and cost overruns in projects, and unscheduled acquisition costs hurt Defence sector earnings.

“Full-year 2014 guidance of €240m clean EBIT is below our own and market expectations, driven by a slower than expected recovery in Defence, especially in the ammunition business. However, with regards to 2015, we sense that management has higher confidence in the 8 percent EBIT-margin target in Automotive,” said Stephan Boehm, an analyst at Commerzbank.

“The reduced 7 percent to 9 percent margin target in Defence is more realistic than the previous 10 percent and may provide some upside potential to our 7 percent assumption. While we lower our 2014 EBIT estimates by 6 percent, we still see Rheinmetall on track for a decent earnings recovery by 2015, however admittedly more back-end loaded.

“We sense that management confidence in 2015 targets has improved, given the record order backlog in defense and the recovery in European car production. We see more upside than downside risk to our estimates and consensus for 2015.”

The company’s “Rheinmetall 2015” program focuses on internationalization, product innovation and cost efficiency. As one result, the share of international sales is expected to increase in both sectors. Defence wants to generate about 50 percent of its sales outside Europe and Automotive about 33 percent, and Rheinmetall Group expects average annual sales growth of 3 to 5 percent from 2015. With a stable economic environment, the company anticipates that from 2015 it will generate earnings margins of between 7 and 9 percent for the Defence sector and 8 percent for Automotive.

In 2013, Rheinmetall Group had consolidated sales of €4.61 billion, 2 percent lower than in 2012. According to Rheinmetall, that was primarily the result of changes in currency value, and when adjusted, sales equaled the previous year.

In the same time period, the group obtained orders worth €5.81 billion, up 9.3 percent from the previous year. The order backlog increased by 19.8 percent, reaching a new high of €6.5 billion.

Declining defense spending worldwide affected the Defence sector, where sales fell 8 percent from the previous year to €2.2 billion. After adjusting for currency fluctuations, this represented a drop of 6 percent.

At the same time, the order intake rose by €406 million to €3.33 billion, up 14 percent. At the end of the year, the Defence division had orders worth €6.1 billion, reaching a new high. The largest order consists of about 2,500 logistics vehicles for the Australian military worth €1.1 billion.

Following the 2013 transition phase, Rheinmetall Group expects growing sales and earnings improvements in 2014. Group operating results should be between €230 million and €240 million, with the Defence sector contributing between €85 million and €95 million. ■


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