Q1 20: weak automotive, offset by improving Defence operations
The results were heavily impacted by Automotive, though the segment performed slightly better than the overall market, with a positive surprise on cash consumption. Overall, the results were in line with consensus, thanks to the Defence activities which more than compensated for Automotive’s weaknesses. Automotive’s guidance is withdrawn, no big surprise there, though we will adjust downwards our estimates for this segment.
08 May 20
FY19: further downside to be expected in Automotive
Rheinmetall released its full figures for FY19, which were in line with preliminary figures. In addition, the company released its 2020 guidance, which fell behind the consensus on the back of the declining automotive market. For 2020, Defence will remain the main contributor to Rheinmetall’s performance.
18 Mar 20
CMD 19: strong dichotomy between the two businesses
Rheinmetall held its CMD yesterday (20 November) at its Unterluss Defence facility. The key takeaways of this CMD are a remaining lacklustre environment in Automotive, impacting the margin, over the next two years, while the Defence business will remain strong. We therefore anticipate a downward adjustment, dragged by Auto.
21 Nov 19
Q3: mixed developments, but we see the glass half full
Rheinmetall published this morning strong Q3 results, somewhat above expectations, especially on the profitability side as the business was driven by the Defence activity. The company has also adjusted its guidance on the back of: 1) a more challenging environment, while 2) the Defence segment continued to improve. Going forward, we expect Defence to continue its journey, whereas Automotive is likely to remain a drag while visibility is not yet restored.
07 Nov 19
Better than feared overall
Rheinmetall has published a Q2 report that underpins the resilience of its Automotive business and revealed to be better than expected in terms of profitability. At the same time, the Defence business recorded a strong profitability performance, well above market expectations. Therefore, the lower FY guidance for the Automotive segment is almost entirely offset by Defence.
01 Aug 19
Buoyant defence environment
Good Q1 19 publication, driven by Defence while (as expected) Automotive has been impacted by the evolution of the global market. The global auto market was down in Q1 19, resulting in lower sales yoy but remained in line with expectations. However, profitability remained at a high level – above consensus – thanks to the implementations of cost measures. For its part, Defence performed very well, with further improvements expected going forward.
09 May 19
Defence will take the lead!
Key FY18 financial figures Group revenues reached €6,148m, up 4.3%. Automotive revenues were up 4.2% and Defence revenues were up 7.90% Group operating result was €492m, up 23% yoy Earnings after taxes rose to €354m, up +40% yoy EPS rose by 36% yoy to €7.10 Dividend to be raised by 24% from €1.70 to €2.10 Outlook 2019 Group revenues (at constant FX) expected to increase between 4% and 6% while group operating margin should remain at c.8% Automotive revenues expected to be flat (0% to +1%) with a c. 8% operating margin Defence revenues anticipated to rise by between 9% and 11% with the operating margin improving to 8.0-8.5%.
13 Mar 19
Sound FY18… fuelled by Defence, but not only
Rheinmetall reported very solid FY18 preliminary results, with clear profitability upbeat in both segments. Group Sales are up 6.1% at constant currency (up 4.3% as reported) to €6.15bn, in line with the consensus while the profitability has seen a clear upbeat. Group operating profit is up 23% yoy to €492m, above expectations and guidance. Total group operating earning margin rose to 8% vs. 6.8% last year and 7% targeted for 2018. This sound performance is mainly driven by the defence segment where sales were up 8% at constant FX (+6.1% as reported) to €3.2bn and operating profit up 46% to €254m, beating the consensus. Defence operating margin improved from 5.7% to 7.9% this year. Automotive also performed well, in line with expectations despite a declining market for global automotive (-1% in 2018). Sales were up 4.2% at constant FX (+2.4% as reported) to €2.9bn and operating profit was up 5.2% to €262m. Operating margin also improved in this segment from 8.7% to 8.9%. On the commercial side, the backlog grew by 31%, thanks to large orders received in defence activity (namely two jumbo orders for the Australian armed forces). The company said the market remains healthy in defence with strong demand for armed forces; the defence backlog grew by 46% to €8.6bn. However, Automotive backlog declined by 8% to €478m. In our view, the automotive market may be the most at risk among the Rheinmetall businesses, but the company demonstrated its ability to outperform the market in the past. Its Clean Emission Technology along with its strategic alignment on less volatile markets than Light Vehicles may mitigate the slowdown in this sector. This preliminary publication comforts us in our positive view on the company. Rheinmetall will release its full figures on the 13th of March and will provide more information on its perspectives on this occasion. In the meantime, we confirm our current recommendation.
01 Mar 19
Well placed to capture defence spending
Rheinmetall held its capital markets day on 28 and 29 November in Berlin. Management provided a positive message on the defence sector (European projects, German defence spending) and defended its projects against the growing uncertainties in the automotive industry (China, WLTP, diesel, e-mobility).
03 Dec 18
Cut in sales growth expectations but sound commercial basis
Over the first 9 months, revenues were flat yoy at €4,146m, which is in line with consensus but lower than our expectations. The operating margin is up +9% yoy to €252m, still in line with consensus but slightly below our expectations. Operating earnings margin for the group grew from 5.5% to 6.1%. Automotive revenues were up by 2% yoy to €2,199m with an operating margin of 8.8%, flat yoy. Defence revenues were down by 3% yoy to €1,966m, but the operating margin increased to 3.8%, +0.8pts yoy. Earnings per share rose from €2.40 to €3.59.
08 Nov 18
Adjusted guidance, still bright outlook
Rheinmetall reported solid Q2 results, with sales, operating results and EPS all above consensus expectations mainly thanks to a very solid operating margin in the Defence activity. As expected, the Automotive activity saw its operating margin flat yoy, having reach a ceiling. For the FY, the group has adjusted its guidance with Defence and group sales growth in the lower part of the range and the Defence operating margin in the highest part of the range.
02 Aug 18
Strong FY17 and desperately waiting for a stable German government
Rheinmetall reported very solid preliminary results, with sales slightly below our estimates which grew by 5% but the operating margin of its two divisions well above estimates. The Automotive division reported an 8.7% margin vs 8.5% expected and the Defence division reported a 5.7% margin vs 5.4% expected and while it was only 5% in FY16. Consequently, operating results grew by 13% to €400m. Lastly, operating FCF jumped by €276m. The performance in the Automotive Chinese JV was also strong with reported growth of 9%. Defence’s sales growth was a bit disappointing due to a weaker Q4 than expected because of the delayed formation of a government in Germany. The potential for strong order intake and sales growth is still very high in Germany and the situation should improve as soon as a new stable government is formed. This is why we remain positive on the stock, which also benefits from the strong performance in the automotive segment.
01 Mar 18
The defence bet
Rheinmetall’s CMD has offered quite a complete strategic review. We retain our positive view on the group which stands to see a strong increase in the German defence budget in the coming decade. The Defence division’s operating margin should be supported in the coming years by the termination of low-margin contracts while the automotive division sees strong top-line growth but seems to be close to a ceiling in terms of the operating margin.
01 Dec 17
Strong defence activity perspectives and confirmed guidance
Rheinmetall reported quite strong figures, slightly higher than consensus, enabling the group to confirm its FY guidance of sales growth of around 6% and an operating margin above 6.5%. As expected, defence orders from the Bundeswehr are rising again since the German elections and we believe that the growth is unlikely to stop. The automotive division reported solid operating growth, supported by the demand for fuel optimisation and reducing emissions.
07 Nov 17
Answering market needs
Our talks with the company confirm our confidence in the group which is benefiting from good trends in the two markets in which it operates. Political elections in Germany should boost defence spending again after a quiet pre-election period, except if the far-left party takes part of the coalition, which is unlikely. Defence spending in Germany should rise faster than GDP but it is unlikely to reach the 2% threshold required by NATO as this would require too high investments with the GDP rising at the current pace. In Germany, Rheinmetall expects to see its share of German defence spending rising, while other European countries are also increasing their defence spending at a strong pace such as Czech Republic, Lithuania, and Romania. This should bring Rheinmetall’s book-to-bill ratio to over 1 in 2017. Concerning the automotive activity, which satisfyingly gave an upgraded forecast for sales growth and the operating margin for FY 17, the group looks well positioned to answer to auto-makers; needs to reduce the CO2 emissions of combustion engines. At the same time, it is well positioned in the hybrid car markets, which require a lot of Rheinmetall’s products with its two engines. Moreover, these parts are offered at a higher margin thanks to their higher price and to the young the market. With both markets displaying bright sales and margin outlooks, the group is confident in reaching its FY guidance and sees the short-term outlook as supportive to both its activities.
07 Sep 17
Stronger market and increased guidance
Rheinmetall published strong H1 results, supported by stronger than anticipated market growth. This resulted in sales growth in boththe Automotive and Defence divisions while the operating margin improved thanks to an increased share of high margin products in all divisions. Moreover, the outlook in the Defence market looks brighter and brighter with Germany reiterating its commitment to meet the 2% of GDP defence spending and consequently increasing its defence budget by 7.9% in 2017 and a further 4% in 2018.
11 Aug 17
Strong Q1 reinforcing confidence in the FY outlook
As reported for the FY 16, Rheinmetall published strong Q1 results, beating consensus, with sales up 14% to €1.35bn vs €1.26bn expected, and supported by both the Automotive and Defence divisions. As in Q1 16, the Defence activity contributed negatively to the operating result while the automotive sector grew quite strongly yoy. The group has confirmed its guidance for the FY, i.e. sales up 4-5% organically and the operating margin above 8%.
10 May 17
Even brighter time to come!
Rheinmetall reported quite strong figures in its full-year 2016 report with a much stronger cash-flow generation. The group’s order backlog offers a good perspective in defence while most NATO countries’ defence budgets are being increased, specifically in Germany, the group’s biggest client. Profitability could have been even higher without some demand weakness in Brazil or operating issues in Norway.
24 Mar 17
Defence division performance source of the raised guidance
Rheinmetall published a strong Q3 performance driven by the fast-improving Defence division. Indeed, sales reached €1,305m in Q3 (+9.8% yoy), continuing the good 2016 revenue performance (+9% ytd), while the operating result rose by 30% yoy driven by the Defence operating result growth (+88% yoy). As a consequence, the operating result margin reached 6.1% (+1% point yoy) and stands at 4.7% ytd. Finally, EPS rose to €0.97 (+13% yoy and +17% ytd). The sales distribution by geography shows strong growth in Other regions and Asia, meanwhile sales decreased in Germany in 2016 ytd. The joint ventures in China brought satisfaction, generating an EBIT of €30m (+20% ytd).
03 Nov 16
Q1 softness but guidance confirmed
Headline figures: • Order backlog reached a new high of €7.3bn with a very strong order intake in Defence in Q1 c.€950m. • Consolidated sales were up 2% to €1,180m in the first quarter when adjusted for currency effects. Automotive sales were down 1% reported (-2% organic growth) or down €10m to €654m. The fall in revenues is primarily explained by the economic weakness in the market for large-bore pistons, the continuing decline in automotive production in Brazil which declined by 28% compared to Q1 15, as well as the planned phase-out of a substantial contract with PSA concerning the Mechatronics division. The weakness in large-bore pistons, which came as a surprise to management and had not been budgeted, was related to non-light vehicle end markets including Transport customers, fracking-related markets, as well as marine-related customers. The decline in Brazil is being compensated through cost adjustments including a reduction in the workforce which has already been implemented (headcount down 16% or c.200 employees) and Rheinmetall is seeking to increase exports from its Brazilian plants to take advantage of the weakness in the real. Finally, the phase out of the PSA contract will be compensated by new contracts in Mechatronics over the course of Q2 and Q3. The Defence sector’s sales however rose by €17m, or 3% reported (+6% organic growth) to €526m. Higher sales from the Weapons and Ammunition business and Tracked vehicles compensated for lower sales of Air Defence products in the Electronic solutions segment. The division has changed its reporting segments to reflect the reorganisation of its operations surrounding military vehicles. • Operating earnings for the group improved by €9m to €31m resulting in an improved margin of 2.6% for the group. Automotive’s operating earnings of €52m were down from €55m in Q1 15, the margin target of 8% was however achieved and would have been exceeded but for a €3m cost related to the opening of a new plant in the Czech Republic. Defence operating earnings improved by €11m yoy to -€17m. Guidance confirmed: Group sales €5.5bn vs €5.2bn in 2015. Operating margin of 6% vs 5.5% in 2015. Automotive: c.€2.8bn vs €2.7bn in 2015. Operating margin of 8% still the target vs 8.3% in 2015. Defence: €2.8bn vs €2.6bn in 2015. Operating margin of 4.5-5%% vs 3.5% in 2015.
16 May 16
Overly cautious ahead of 2016 despite solid prospects?
Results: FY 2015 Rheinmetall presented FY results yesterday. The sales and EBIT came as no surprise given the release of preliminary results last month. As a reminder, consolidated sales grew by 11% to €5.2bn, above €5bn for the first time, and group earnings before interest and tax was up significantly to €287m as Rheinmetall did not record any exceptional items during the year. Automotive posted a record EBIT of €216m on the back of €2.59bn in sales, leading to a divisional EBIT margin of 8.3%. Defence achieved a turnaround to generate an EBIT of €90m. As a group, Rheinmetall returned to a positive FCF generation of €29m (significant negative outflow of €182m in 2014) as Automotive’s cash flow generation of €96m compensated for the outflow of -€38m from Defence and the -€29m from corporate structure. The group’s net debt stood at €81m with the November €230m equity raise having helped strengthen the balance sheet in view of a potential acquisition. Rheinmetall announced a proposed dividend of €1.10 per share. Guidance: Consolidated sales set to grow to €5.5bn – with a further improvement in the operating margin to 6%. Automotive expects further sales growth to €2.7bn and a margin of 8%, while Defence anticipates organic growth leading to revenues of €2.8bn and an improved margin of 4.5-5%. In addition, management mentioned that while Automotive would continue to generate positive FCF, Defence would return to at least a breakeven FCF generation situation in 2016 after significant outflows in 2014 and 2015.
18 Mar 16
Strong positive momentum
Rheinmetall released provisional figures for FY 2015 which highlighted strong sales and even stronger profit growth. Consolidated sales were up 11% to €5,183m, with Automotive revenues up 6% to €2,592m and Defence revenues up 16% to €2,591m. Group EBIT climbs by 181% to €287m thanks to the significant €167m swing in defence operating profit from -€67m in 2014. Automotive EBIT grew to €216m, resulting in a divisional margin of 8.3%. Defence returned to profitability with EBIT reaching €90m, resulting in a margin of 3.5%, at the very upper end of guidance.
02 Mar 16
Raising equity to fund growth
Rheinmetall today issued 3,959,850 new ordinary bearer shares, raising c. €230m. The new shares will carry full dividend rights as of 1 January 2015. The shares were offered exclusively to institutional investors by means of a private placement using an accelerated bookbuilding process. Rheinmetall suggests that the “net proceeds from the capital increase will be used to finance Rheinmetall's growth strategy in the defence and automotive sectors, to strengthen the financial position of the company and for general corporate purposes”. Rheinmetall has agreed to a 180-day lock-up period with respect to any transaction related to its shares.
12 Nov 15
Guidance raised and secure outlook
Rheinmetall saw revenues rise by 11% to €3.58bn with sales growing 7% in Automotive to €1.95bn and sales up 17% in Defence to €1,625m. With the solid momentum highlighted in Q3, especially in Defence (revenues for FY now expected to reach €2.5bn, a €100m increase) the group's revenue guidance has been raised to €5.1bn from €5bn. Group operational earnings were up 259% to €140m (EBIT also €140m as the group did not incur any exceptionals), with EBIT in the Automotive segment up 18% to €164m, and an €89m reduction in the losses from the Defence segment meaning that the Defence EBIT came in at -€11m, an improvement on the H1 loss of -€27m thanks to a positive contribution over Q3 of €16m. Rheinmetall's heavy weighting towards Q4 in Defence should result in the division posting an EBIT margin of slightly above 3% for the full year. We currently expect EBIT to reach €76m (3.1% margin from €2.46bn in revenues), marginally off the guidance upgrade.
05 Nov 15
VW impact and diesel market exposure
With Rheinmetall in AlphaValue’s central portfolio, we are keen to clarify the risks associated with the VW scandal and the company’s exposure to the diesel market if the latter was to weaken as a result. We therefore spoke to Rheinmetall’s IR team in length and believe that investors should keep the following points in mind. As a reminder, Rheinmetall’s Automotive division generates c.50% of the group's revenues, and 77% of the group's 2015 estimated EBIT. Hence, the bottom-line performance is very much dependent on a continuing solid performance from the Automotive division. The VW scandal: It is factually important to remember that the VW Group (VW, Audi, Porsche) is Rheinmetall’s largest client representing 12% (Ford 12%, Renault/Nissan 10%, PSA 5%, GM 5%, BMW 5%, Fiat 5%, Daimler 4%, Others 8%, Aftermarket 11%, Trucks & Other non-light vehicles 22%) of the company’s automotive sales (c.6% of group sales) and despite this appearing to be a high figure it remains less than most other automotive suppliers. The direct impact from the VW scandal with regards to the car model in question is extremely negligible, with Rheinmetall only having a tiny part in the vehicle which is unrelated to the scandal. As a result, Rheinmetall is not expecting any impact from stopped sales or even production of this model. Obviously, a decline in VW Group car sales overall would lead to reduced shipments but, with Rheinmetall having a well-diversified client base as long as clients substitute away VW products, the overall impact for the company should be limited. Information about the diesel market exposure: Rheinmetall’s Automotive division revenues are split into 45% from diesel cars and 40% from gasoline cars and 15% from non-vehicles sources (marine & Power generation markets). From a geographic standpoint, diesel car sales are mainly concentrated on Europe. According to Rheinmetall, the company has an equal product proposition on diesel cars as on gasoline cars. All these factors suggest that as long as customers select to substitute either away from VW products or from diesel to gasoline cars, Rheinmetall should not lose out in the medium term, however we do suggest that if the structure of the market were to change significantly auto suppliers would face operational impacts. Another way of looking at the potential impact for Rheinmetall which does place a more positive spin on this scandal is that emission targets could be tightened and/or testing method changes are very likely to be implemented. Any of these changes would place greater importance on emission-reducing technologies which Rheinmetall has developed and hence could benefit Rheinmetall given time. A word on Defence (50% of group revenues, 23% of group 2015 estimate EBIT): The Defence recovery is underway and the company remains confident that it will reach its full-year targets. The backlog remains very strong and the medium-term target remains to return the segment to a 7-8% margin within the next three years.
24 Sep 15