05/07/2010

Rheinmetall: Defence still on course for success, Automotive undergoes strong turnaround

• Consolidated sales up 13% to €800 million
• Consolidated EBIT at €39 million – €61 million above previous year
• Defence: Stable development at high level
• Automotive: Significant increase in sales and earnings

With significantly increased sales in the first quarter and a considerable improvement in consolidated EBIT, the Düsseldorf-based Rheinmetall AG has made a successful start to the 2010 financial year. Driven by ongoing positive development in the Defence division and very positive results again in the Automotive division, the Rheinmetall Group is well on track for success in 2010.

The Group reinforced its forecast of much improved EBIT of between €220 and €250 million in 2010, following €15 million the previous year. Assuming that the recovery which has begun in the automotive economy continues, Rheinmetall is expecting to achieve a result at the upper end of the forecast range.

Klaus Eberhardt, CEO of Rheinmetall AG: "The development in the first quarter shows that we are already well on track this year to return Rheinmetall to earlier profitability after the crisis. The Defence division is consistently stable and still achieves strong earnings. As for Automotive, we have achieved a significant turnaround. The far-reaching measures which we have taken there in the past year are now showing their full effect."

Rheinmetall Group: Net profit increased markedly – net financial liabilities reduced by €225 million

After the crisis-driven negative effects which Rheinmetall's automotive business brought for the consolidated result in 2009, there are now distinctly positive impulses for the Group coming from the Automotive division again. The growth in both sales and earnings can primarily be attributed to the company's automotive division.

In the first quarter of the financial year, Rheinmetall achieved sales of €800 million at Group level, thereby exceeding the previous year's value by €90 million, or 13%. 

This increase is driven by the Automotive division, which posted sales proceeds of €454 million in the first three months, thus exceeding the previous year's figure by 34%. On the other hand, sales in the Defence division fell slightly by €24 million or 6% in the first quarter.

Profitability in the Group benefited partly from the much improved situation in the automotive sector and partly from the continued high profitability of Defence. For the first quarter of 2010, Rheinmetall posted consolidated EBIT of €39 million – an increase of €61 million. Consolidated net profit improved to €19 million, which is €48 million above the previous year. Earnings per share in the first quarter were €0.51, as compared to minus €0.85 in the same quarter last year.

Net financial liabilities were reduced by €225 million against the previous year and were €233 million on 31 March 2010. The solid financial situation and the very promising prospects for business development in the Automotive division, as well as the expectation of continuing good performance in the Defence division, are also reflected in the change in the Moody's investment grade rating guidance (Baa3) from "negative" to "stable".

Rheinmetall Defence: Important order successes – portfolio expanded by means of strategic acquisitions

The Defence division achieved sales proceeds of €346 million in the first quarter of 2010. The corresponding previous year's level, which included partial invoicing of several high-volume projects, was €370 million.

In the first quarter of 2010, Defence achieved year-on-year earnings growth of €2 million, with EBIT at €25 million. This result includes income from an affiliated company as a result of a rate-hedging transaction of €5 million. The EBIT margin increased to 7.2% in the first three months after 6.2% in the same period of the previous year.

The order intake in the Defence division is still on a high level. In the first three months, new orders of €467 million were taken, after €479 million the previous year. The order backlog as of 31 March 2010 thus rose to €4,743 million (previous year: €3,441 million). As well as two significant foreign orders each of more than €100 million in the first quarter of 2010, the sharply increased order backlog can be attributed to the major order for producing new Puma infantry fighting vehicles for the Bundeswehr, which was placed in July 2009.

For Rheinmetall Defence, the start to the financial year was marked by further internationalization, with the acquisition of the military technology activities of the Italian company SEI SpA in March 2010.

By means of targeted expansion of its portfolio, including in protection technologies, Rheinmetall is taking account of the growing necessity for improved safety equipment for armed forces. In April 2010, Rheinmetall acquired a majority stake in Verseidag Ballistic Protection GmbH, Krefeld/Germany, thereby positioning itself as a full-service provider for protecting military and civil vehicles.

Furthermore, on 6 May 2010, Rheinmetall declared its intention to submit an offer to shareholders of Norway’s Simrad Optronics ASA to acquire 100% of the company’s shares.

The formation of a joint venture between Rheinmetall AG and MAN Nutzfahrzeuge AG announced in January 2010 took effect on 1 May 2010 following approval from the antitrust authorities responsible. The two companies are bundling their activities in the field of wheeled military vehicles in the newly established Rheinmetall MAN Military Vehicles GmbH (RMMV), Munich, in which Rheinmetall holds a 51% interest.

Automotive: Business volume and earnings considerably increased

The increased business volume and the return to distinctly positive results in Rheinmetall's Automotive division underline the successful repositioning of the company after the crisis-year 2009.

The Automotive division achieved sales proceeds of €454 million in the period of 2010 under review and thereby exceeded the previous year's level by €114 million or 34%. As well as the global economic recovery, the division benefited especially from product rollouts and the trend toward exhaust gas reduction.

The results from crisis management measures and the higher sales volume significantly improved the profitability of the Automotive division. In the first quarter of 2010, Automotive generated EBIT of €17 million, after a loss of minus €44 million in the same quarter of the previous year.

The positive business development is driven largely by the realignment of the company, the innovative product portfolio and the resurgence of the global automotive economy. In the growth markets of Asia in particular, the Automotive division again posted considerable increases. In the joint venture companies in China – not consolidated in the sales figures for the division – revenues increased year-on-year by 79% to €61 million.

Outlook

For the Defence division, Rheinmetall is expecting continued growth in 2010 as well as organic sales growth of more than 5%, combined with further improvement in EBIT.
An ongoing positive trend is expected in the Automotive division, based on expert forecasts from CSM Worldwide. This development will also be supported by orders for products which are of significance with regard to current emissions standards and those to be expected in the medium term. As a result, sales growth of above 10% is anticipated for the Automotive division in 2010. EBIT will be positive as a result of the lowered break-even point.

On the basis of the forecasts of the Defence and Automotive divisions, Rheinmetall sees good prospects in 2010 for a return to organic growth and expects an increase in sales this year to approximately €3.7 billion. Moreover, Rheinmetall forecasts a considerable improvement in consolidated EBIT to between €220 million and €250 million. Assuming that there is a stable recovery in the automotive sector in line with the latest forecasts from CSM Worldwide, Rheinmetall is currently expecting EBIT at the upper end of this range.