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Latest Content

Q1 softness but guidance confirmed

  • 16 May 16

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.

Overly cautious ahead of 2016 despite solid prospects?

  • 18 Mar 16

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.

VW impact and diesel market exposure

  • 24 Sep 15

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.