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17-05-10, 03:44 PM
Military Deals Lifted German Firm in Rough Year
By ALBRECHT MULLER
Published: 17 May 2010
BONN, Germany - For Rheinmetall, the production of automotive components such as pistons, pumps and bearings was always more profitable than the group's defense activities, such as manufacturing artillery, ammunition and armored vehicles.
But that changed in 2009. For the first time, the sales of Rheinmetall's Defence sector exceeded those of its other sector, Automotive. Defense sales totaled 1.9 billion euros ($2.4 billion), making up 55 percent of the Düsseldorf-based company's 3.42 billion euros in consolidated sales.
The worldwide economic crisis last year hit the automobile market especially hard, and sales for Rheinmetall Automotive fell by 26 percent. Overall, the company's consolidated sales declined by 12 percent from 2008.
Rheinmetall reported 15 million euros ($19.1 million) in earnings before interest and taxes (EBIT) for 2009, and it expects earnings to recover this year, reaching 250 million euros.
An order from the German Army for 405 Puma infantry fighting vehicles boosted Rheinmetall's defense sales in 2009. The Land Systems division of Rheinmetall's Defence sector won the 3.1 billion euro contract in partnership with Munich-based Krauss-Maffei Wegmann (KMW). A 50-50 joint venture between the two companies, Projekt System & Management, will begin producing the Puma tracked vehicles this year.
Besides Land Systems, the Defence sector includes five other divisions: Weapon and Munitions, Propellants, Air Defense, C4ISTAR, and Simulation and Training.
Automotive sales bounced back for Rheinmetall in the first quarter of this year, but the company sees more growth opportunities in the defense market. It has gone on a shopping tour to expand its defense activities.
In January, Rheinmetall formed a joint venture with truck manufacturer MAN Nutzfahrzeuge, which went into effect May 1. The venture is called Rheinmetall MAN Military Vehicles, Munich, and Rheinmetall holds a 51 percent stake. Through this entity, the two companies have teamed up to cover the whole range of wheeled military vehicles, including armored and unarmored tactical and logistics models.
Sascha Lange, a defense expert at the German Institute for International and Security Affairs, said the joint venture between Rheinmetall and MAN is a logical step because of the two companies' complementary product lines.
Rheinmetall also is continuing to acquire smaller companies, as company CEO Klaus Eberhardt hinted during an April news conference on the company's annual results. First on the list this year was the defense operations of Italian armaments company SEI; the deal was announced in March.
In April, Rheinmetall acquired a majority stake in Krefeld-based Verseidag Ballistic Protection. Just recently, the company announced its intention to acquire Simrad Optronics, a Norwegian firm.
"We stick to our strategy, which includes acquiring small and medium-sized companies of a highly strategic fitting, but after these completed acquisitions, we will concentrate … on the integration of these companies," said Oliver Hoffmann, a Rheinmetall Defence spokesman.
"This acquisition strategy shows that Rheinmetall is well on its way to … [offering] a complete range of military land systems," analyst Lange said. "New vehicles in the product pipeline like the … Boxer [armored personnel carrier] … offer a very high level of protection and could open up some new markets, because such vehicles are in high demand in today's asymmetric [military] theaters."
Rheinmetall Land Systems manufactures the eight-wheel-drive Boxer, an armored personnel carrier, in partnership with KMW.
Better Prospects in 2010
"The development in the first quarter shows that we are already well on track this year to return Rheinmetall to earlier [levels of] profitability, before the [global economic] crisis," said Eberhardt, the company's CEO.
Besides the positive developments at Rheinmetall Automotive, the rising sales at Rheinmetall Defence should help the bottom line.
Sales reported by the Defence sector during the first quarter of 2010 totaled 346 million euros. Technically, this meant a decline of 24 million euros compared with the first quarter of 2009, but according to the company, these figures originated in the partial invoicing last year of several high-volume projects. Earnings grew by 2 million euros compared with the first quarter of 2009, with EBIT at 25 million euros.
The company reported that in 2009, the Defence sector received orders worth 3.2 billion euros, an 83 percent increase in volume compared with 2008, when orders totaled 1.7 billion euros.
During the first three months of 2010, Rheinmetall Defence received new orders worth 467 million euros. Two major orders, each about 100 million euros, were issued in Asia and involve support vehicles and radar systems, according to a company statement. In total, the Defence sector's backlog rose to 4.7 billion euros as of March 31.
With subsidiaries on all continents except Australia, Rheinmetall Defence wants to expand its activities in the Middle East, Southeast Asia and the United States.
According to analysts at Deutsche Bank, the company has been continuously improving its presence in the U.S. market, mainly via an order for 40mm ammunition from the U.S. Marine Corps. In the meantime, with its own production facility in East Camden, Ark., the analysts believe the company is in a good position to do more business with this and other products.
In five years, company leaders want Rheinmetall Defence to reach a goal of 4.5 billion euros in sales. However, according to a company statement, this requires the unit's large-scale projects to stay on schedule.
The analysts at Deutsche Bank also see growth possible with international expansion, especially with the Defence sector's strategic Weapon and Munitions division and the full consolidation of Rheinmetall's joint venture with MAN by 2012 as the main drivers.
By ALBRECHT MULLER
Published: 17 May 2010
BONN, Germany - For Rheinmetall, the production of automotive components such as pistons, pumps and bearings was always more profitable than the group's defense activities, such as manufacturing artillery, ammunition and armored vehicles.
But that changed in 2009. For the first time, the sales of Rheinmetall's Defence sector exceeded those of its other sector, Automotive. Defense sales totaled 1.9 billion euros ($2.4 billion), making up 55 percent of the Düsseldorf-based company's 3.42 billion euros in consolidated sales.
The worldwide economic crisis last year hit the automobile market especially hard, and sales for Rheinmetall Automotive fell by 26 percent. Overall, the company's consolidated sales declined by 12 percent from 2008.
Rheinmetall reported 15 million euros ($19.1 million) in earnings before interest and taxes (EBIT) for 2009, and it expects earnings to recover this year, reaching 250 million euros.
An order from the German Army for 405 Puma infantry fighting vehicles boosted Rheinmetall's defense sales in 2009. The Land Systems division of Rheinmetall's Defence sector won the 3.1 billion euro contract in partnership with Munich-based Krauss-Maffei Wegmann (KMW). A 50-50 joint venture between the two companies, Projekt System & Management, will begin producing the Puma tracked vehicles this year.
Besides Land Systems, the Defence sector includes five other divisions: Weapon and Munitions, Propellants, Air Defense, C4ISTAR, and Simulation and Training.
Automotive sales bounced back for Rheinmetall in the first quarter of this year, but the company sees more growth opportunities in the defense market. It has gone on a shopping tour to expand its defense activities.
In January, Rheinmetall formed a joint venture with truck manufacturer MAN Nutzfahrzeuge, which went into effect May 1. The venture is called Rheinmetall MAN Military Vehicles, Munich, and Rheinmetall holds a 51 percent stake. Through this entity, the two companies have teamed up to cover the whole range of wheeled military vehicles, including armored and unarmored tactical and logistics models.
Sascha Lange, a defense expert at the German Institute for International and Security Affairs, said the joint venture between Rheinmetall and MAN is a logical step because of the two companies' complementary product lines.
Rheinmetall also is continuing to acquire smaller companies, as company CEO Klaus Eberhardt hinted during an April news conference on the company's annual results. First on the list this year was the defense operations of Italian armaments company SEI; the deal was announced in March.
In April, Rheinmetall acquired a majority stake in Krefeld-based Verseidag Ballistic Protection. Just recently, the company announced its intention to acquire Simrad Optronics, a Norwegian firm.
"We stick to our strategy, which includes acquiring small and medium-sized companies of a highly strategic fitting, but after these completed acquisitions, we will concentrate … on the integration of these companies," said Oliver Hoffmann, a Rheinmetall Defence spokesman.
"This acquisition strategy shows that Rheinmetall is well on its way to … [offering] a complete range of military land systems," analyst Lange said. "New vehicles in the product pipeline like the … Boxer [armored personnel carrier] … offer a very high level of protection and could open up some new markets, because such vehicles are in high demand in today's asymmetric [military] theaters."
Rheinmetall Land Systems manufactures the eight-wheel-drive Boxer, an armored personnel carrier, in partnership with KMW.
Better Prospects in 2010
"The development in the first quarter shows that we are already well on track this year to return Rheinmetall to earlier [levels of] profitability, before the [global economic] crisis," said Eberhardt, the company's CEO.
Besides the positive developments at Rheinmetall Automotive, the rising sales at Rheinmetall Defence should help the bottom line.
Sales reported by the Defence sector during the first quarter of 2010 totaled 346 million euros. Technically, this meant a decline of 24 million euros compared with the first quarter of 2009, but according to the company, these figures originated in the partial invoicing last year of several high-volume projects. Earnings grew by 2 million euros compared with the first quarter of 2009, with EBIT at 25 million euros.
The company reported that in 2009, the Defence sector received orders worth 3.2 billion euros, an 83 percent increase in volume compared with 2008, when orders totaled 1.7 billion euros.
During the first three months of 2010, Rheinmetall Defence received new orders worth 467 million euros. Two major orders, each about 100 million euros, were issued in Asia and involve support vehicles and radar systems, according to a company statement. In total, the Defence sector's backlog rose to 4.7 billion euros as of March 31.
With subsidiaries on all continents except Australia, Rheinmetall Defence wants to expand its activities in the Middle East, Southeast Asia and the United States.
According to analysts at Deutsche Bank, the company has been continuously improving its presence in the U.S. market, mainly via an order for 40mm ammunition from the U.S. Marine Corps. In the meantime, with its own production facility in East Camden, Ark., the analysts believe the company is in a good position to do more business with this and other products.
In five years, company leaders want Rheinmetall Defence to reach a goal of 4.5 billion euros in sales. However, according to a company statement, this requires the unit's large-scale projects to stay on schedule.
The analysts at Deutsche Bank also see growth possible with international expansion, especially with the Defence sector's strategic Weapon and Munitions division and the full consolidation of Rheinmetall's joint venture with MAN by 2012 as the main drivers.