Rheinmetall sees record sales in 'new decade' of defence spending

By Matthias Inverardi and Rachel More

DUESSELDORF/BERLIN (Reuters) -German arms manufacturer Rheinmetall expects record sales and increased profitability this year, as the war in Ukraine drives up defence spending in the NATO bloc in a trend set to buoy the company for years to come, it said on Thursday.

Rheinmetall expects to top 10-billion-euro ($10.9 billion) in sales for the first time in 2024, according to a company forecast that also envisages an operating profit margin of 14-15%, up from 12.8% in 2023.

"A new decade of security policy has begun," Chief Executive Armin Papperger said as the group presented results for 2023, the first full year of the Ukraine war.

Rheinmetall has ridden a boom in defence spending after Russia's full-scale invasion of Ukraine in February 2022 pushed Germany and other countries to ramp up military purchases to support Kyiv and replenish their own arsenals.

A surging share price has boosted Rheinmetall's market value to 18.4 billion euros from 4 billion euros two years ago.

Its shares were up 4.75% at 1115 GMT.

Underscoring the scale of the company's ambitions, Papperger said he saw a good chance of it winning orders to develop a successor to the U.S. Bradley fighting vehicle in a contract from the U.S. government.

“I am optimistic that we have a good chance,” he said. "But that doesn't mean we've won this thing yet."

Rheinmetall will “fight hard” for two years, he said, expecting Washington to make a decision at the end of 2026.

As part of the tender, Rheinmetall has already received almost $800 million from the U.S. government to develop a prototype for the Bradley successor in an order that could top $45 billion.

Papperger sees potential revenues from the company's Ukraine business at around 2-3 billion euros a year and overall revenues at 20 billion euros in several years' time. Rheinmetall said it had no problems financing potential acquisitions but had no plans to buy any of fellow German defence firm Renk.

Consolidated sales rose in 2023 by 12% to just under 7.2 billion euros. In the weapon and ammunition division, sales rose 29% on the year before, while vehicle systems saw a 15% boost.

However, total sales fell short of the company's target of 7.4-7.6 billion euros.

Germany, Kyiv's biggest military backer in Europe, announced a new defence policy after Russia's attack on Ukraine, creating a 100-billion-euro defence fund to modernise its armed forces.

Other NATO allies have stressed the need for greater defence spending, and Ukrainian demands for ammunition have led to a European drive to ramp up production in that area.

As well as booking major orders for Germany and other armed forces in 2023, Rheinmetall said it made "extensive deliveries from the entire product portfolio" to Ukraine, including tactical vehicles and ammunition for Gepard anti-aircraft tanks as well as mobile field hospitals.

At the end of last year, Rheinmetall's order backlog was at an all-time high of 38.3 billion euros, up from 26.6 billion euros a year earlier.

($1 = 0.9147 euros)

(Reporting by Rachel More and Matthias Inverardi; Writing by Rachel More and Matthias Williams; Editing by Tomasz Janowski and Mark Potter)