For Rheinmetall boss Armin Papperger, his extremely ambitious corporate goals are coming true step by step. The defense company has just announced the largest order in the company’s recent history: a framework agreement with the German army for the purchase of 155 millimeter artillery ammunition worth up to 8.5 billion euros gross. This ammunition is fired, for example, in the Panzerhaubitze 2000, which was also delivered to Ukraine.
Order secures capacity utilization of the new Unterlüß ammunition plant
According to Rheinmetall, the contract will provide security for the capacity utilization of its ammunition plant in Unterlüß, which is currently being expanded. However, the ammunition has not yet been firmly ordered in this huge volume. The main deliveries are to be made to the German army, which will then pass some of the supplies on to Ukraine. The Netherlands, Estonia and Denmark would also benefit from the order.
A Rheinmetall spokesman explains that the new framework contract represents an extension of the framework agreement worth around 1.3 billion euros announced in July last year.
It is certainly helpful for the DAX40-listed group if the highest possible number of prospective orders is mentioned. For the first quarter of 2024 alone, Rheinmetall reported an increase in the order backlog of almost 43 percent. This amounted to 40.2 billion euros. A new record. However, this figure represents a mixture of firm orders, firm framework agreements (frame backlog) and expected framework agreements (nominated backlog).
Given the relatively empty ammunition depots of the German army, the increase in defense spending and the goal of war readiness – as Federal Defense Minister Boris Pistorius (SPD) put it – Rheinmetall is assuming that the framework agreements with the German army will be fully utilized. Framework agreements will become firm orders and then sales and earnings.
In a first step, the expanded framework agreement announced now will see the call for projectiles worth 880 million euros, which are to be delivered next year. Further increased calls are expected in the coming years, according to Rheinmetall. Ammunition production is one of the business areas with the highest returns for the Düsseldorf-based defense company.
For the current 2024 fiscal year, Rheinmetall has predicted an increase in sales from 7.2 to around ten billion euros. The operating margin in the weapons/ammunition segment is expected to improve from 23 to 25 to 26 percent. Analysts estimate that Rheinmetall will receive orders of 30 to 40 billion euros this year.
As a Rheinmetall spokesman explained, the recently announced ammunition framework agreement “does not change the company’s forecasts.” The fact that Rheinmetall had expected this framework agreement is clear from a quote from CEO Armin Papperger: “The federal government is keeping its word,” he said of the new contract. It will ensure that the new Unterlüß plant is fully utilized. Chancellor Olaf Scholz assured this during his visit to the groundbreaking ceremony for the plant expansion in February 2024.
