Rheinmetall AG is an international technology group specializing in security and mobility. Urbanization, demographic change, globalization and climate change as well as the increasing frequency and intensity of conflicts have resulted in steady growth in the pursuit of security and mobility. Rheinmetall’s two divisions, Automotive and Defence, meet these key basic requirements of modern society: As a leading European systems supplier for armed forces technology, Rheinmetall Defence is a reliable partner to the armed forces of Germany, NATO and friendly nations. With products from its well-known Kolbenschmidt, Pierburg and Motorservice brands, the Automotive segment holds a leading position worldwide as an automotive supplier in the engine systems and modules sectors.
Why the Rheinmetall Share?
There is an increasing global need for mobility, which is why all forecasts anticipate a rise in vehicle production. Moreover, owing to stricter emissions and consumption guidelines, solutions for reducing emissions and CO2 are particularly in demand. Thanks to its effective and innovative product portfolio, Rheinmetall will benefit from this due to a higher value share per vehicle.
As a result of the increasing number of conflicts and changes in deployment requirements for global peace keeping missions, demand for suitable products for protecting and transporting armed forces has grown. This has led to a large order backlog that will ensure that Rheinmetall Defence will grow organically over the short and medium term.
In order to maintain technological leadership in many areas, Rheinmetall is investing a long-term average of around 5% of sales in researching and developing new products for future demand. This is yielding innovative solutions such as electric pumps and electric valves in the automotive sector or high-energy laser effectors and infantry systems for the defence markets.
The Automotive division is close to manufacturers and represented in all key production locations worldwide. Thanks to early recognition of growth markets, since 1997 Automotive has benefited from market growth in China through joint ventures and shares the entrepreneurial risk with a strong Chinese partner; at the same time, for some years it has steered wholly-owned subsidiaries from the start-up into the growth phase.
In the last few years the Defence segment has won numerous major international orders, such as in Australia, Indonesia and Scandinavia, for example. This is in addition to diversification of production through successful development of international production sites, including in Canada, South Africa and Switzerland. Moreover, Rheinmetall has founded new entities with strong local partners in Poland and Turkey.
4. Cost Efficiency
As part of its “Rheinmetall 2015” strategy program, in both segments Rheinmetall has adapted capacity and processes to meet current requirements with the aim of increasing profitability and competitiveness. The company is simultaneously striving to optimize the structure of its national and international locations. These savings effects will be fully realized in 2016.
5. Targets Relating to Sales, Profitability and Cashflow
The Automotive division will benefit from growth in global automotive markets and stricter environmental guidelines, thus achieving sales growth that slightly exceeds the market as a whole. As of 2015, it plans to generate over a third of its sales outside of Europe. Based on a stable economic and market environment, the division is aiming for an EBIT margin of around 8%.
In line with changes in security policy, the overall global increase in defence spending is expected to continue. In particular, strong growth potential is attributable to the MENA region, Asia and Australia. Therefore, as of 2015 Rheinmetall intends to generate around 50% of sales in its Defence segment from customers outside of Europe. In the medium term, Rheinmetall Defence is aiming for an EBIT margin of 6-7%.
With improved profitability in the Defence division, Rheinmetall has initiated a turnaround and is thus fulfilling a key criterion for returning to an investment grade rating once again. The company has also set itself the target of improving operating free cash flow to 2-4% of sales.