08/13/2009

Rheinmetall AG in H1/2009: Defence again reporting growth, slight improvement at Automotive

H1 operating EBIT positive

• Defence raises EBIT by 30 percent to €70 million
• Defence increases order intake by 23 percent
• Automotive's Q2 operating result much improved
• €68 million restructuring expenses already booked in H1
• Group EBIT at a negative €63 million
• Outstanding bond issue refinanced early 
• €104 million capital increase implemented successfully
• Outlook for 2009 confirmed

The Düsseldorf-based Rheinmetall Group again reports diverging trends at its two corporate sectors. Another solid performance by the Defence sector in H1/2009 failed to quite offset the sales and earnings declines at Automotive in the wake of the global auto industry crisis. Nonetheless higher earnings at Defence and a better Q2 operating result at Automotive did bring about a positive H1 operating EBIT for Rheinmetall.

The Rheinmetall Group's EBIT for the first half of 2009 dropped year-on-year by €165 million to a red €63 million, including, however, the €68 million of restructuring expenses incurred by Automotive.  Excluding this one-off burden, the Group achieved a positive operating EBIT of
€5 million for the period. Rheinmetall is confirming its outlook for 2009 on a positive EBIT even after allowing for the restructuring expenses.

"Our first-half figures are largely driven by the Defence sector's ongoing growth and profitability and this is not going to change over the months ahead," says Rheinmetall AG's CEO Klaus Eberhardt. "Although we haven't been able to escape the impact of a weak auto industry, our restructuring and cost-cutting efforts are having effect and operating business is getting better. In fact, there are the first signs of automobile business recovering somewhat."

Sales and earnings eroded by auto industry situation

H1 group sales at €1,506 million were down 20 percent from the year-earlier figure of
€1,885 million. The decline is solely due to the Automotive sector. Defence again raised its sales, by
7 percent, while Automotive as a consequence of the global industry crisis reported 38 percent lower sales. Including the heavy restructuring expenses, the Group's net loss for the period amounted to €71 million, well below the year-earlier net income of €54 million.

Outstanding €325 million bond issue refinanced early

In the first seven months (H1 plus July 2009) Rheinmetall further improved the Group’s solid equity and debt structure. To this end, the €325 million bond issue maturing in June 2010 was refinanced early in June 2009. Refinancing agreements for a 5-year term on facilities of a total €350 million were executed, including bilateral outline credit facilities of two banks for
€200 million and several German private placement bonds (“Schuldscheine”) issued to various investors for an aggregate €150 million.

After the close of the period (H1), in July 2009, Rheinmetall AG raised its capital stock by
10 percent by placing an aggregate 3,599,000 shares at €29.00 (= €104 million) with institutional investors. The capital increase’s purposes include to downscale debt and to finance growth within Defence.

Defence sector with unabated growth and 30-percent earnings boost

The Defence sector raised its H1 sales by €52 million to €789 million (up 7 percent from
€737 million) during a period which for invoice timing reasons is normally weaker. Much of this increase is attributable to Rheinmetall Denel Munition (€30 million) and Rheinmetall Nederland B.V. (€12 million), both not yet fully included in the H1/2008 sales.

H1 EBIT by Defence added up to €70 million (up by a strong €16 million or around 30 percent). The corporate sector's 6-month EBIT margin climbed to 8.9 percent (up from 7.4).

Defence's order situation made very good progress, H1 intake jumping to €1,018 million (up
23 percent from €829 million). After the period had closed, Rheinmetall AG in July then went on to book its biggest-ever single order, worth around €1.3 billion for the Puma infantry fighting vehicle. As a consequence, order backlog, which at midyear was €3,554 million (up from
€3,412 million), closed in on an amount of €5 billion.

Automotive reporting improved operating result for Q2/2009

With much fewer autos sold worldwide the Automotive sector suffered from a sharp reduction
in demand. Compared with H1/2008, sales plunged 38 percent to €717 million (down from
€1,148 million). All in all, the corporate sector thus performed somewhat better than the triad markets (Western Europe, NAFTA, Japan) which reported auto production down by 42 percent by midyear.

Of the H1/2009 decrease, €236 million (41 percent) was attributable to Q1 and an appreciably lower €195 million (34 percent) to Q2.

Automotive's EBIT for H1/2009 amounted to a red €129 million, a year-on-year decline of
€185 million from a black €56 million, but including €68 million for restructuring expenses. The H1 operating loss added up to €61 million. In Q1, the loss had been €40 million which was then halved to €21 million in Q2. This reduction was due to marginally rising sales and, especially, the accumulating impact of the cost-cutting measures already introduced.

Group operating profit of €100 million attainable in 2009

Rheinmetall is sticking to its forecast for all of 2009 according to which for Defence, it is expecting a continuation of growth and sales of €1.9 billion accompanied by an EBIT margin
of at least 10 percent.

Automotive market trend forecasts are still subject to grave uncertainties. Rheinmetall is, nonetheless, confident that, over the quarters ahead, year-on-year production losses versus 2008 will gradually recede. Based on current market figures, the Automotive sector foresees for all of 2009 a sales plunge of around €500 million from the 2008 level, which would produce an operating loss of €80 million, in addition to nonrecurring expenses for restructuring programs and write-downs of an aggregate maximum of €100 million of which less than one-half will be
a drain on cash this year.

All in all, the conditions still exist for the Rheinmetall Group to close fiscal 2009 with a respectable operating profit of about €100 million. Even when allowing for the restructuring expenses, the Group's EBIT for 2009 is expected to remain in the black.