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German arms group Rheinmetall targets record sales as political landscape shifts
Global Banking & Finance Review®
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By Matthias Inverardi and Miranda Murray
BERLIN (Reuters) -Germany’s Rheinmetall, boosted by the lift in European defence spending sparked by the Ukraine war, on Thursday said political shifts in the United States and Germany would not affect its path to record growth.
Shares in Rheinmetall were up 7.83% at 1431 GMT and on track for their best day in over a year on Thursday, a day after European defence stocks rose following Donald Trump’s victory in the U.S. presidential election, which analysts say could prompt higher spending on weapons in Europe.
CEO Armin Papperger told analysts on a call to discuss the company’s third-quarter results that he expected Trump, who in the past has criticized Europe for underspending on defence, to pressure European leaders to invest more.
Analysts at JPMorgan said that the election of Trump will lead to many years of strong growth in German and European defence spending.
However, while Rheinmetall will be a long-term winner, it faces “more near-term uncertainty than other European defence stocks due to a potential Russia-Ukraine ceasefire under Trump” and German political uncertainty, they added.
Trump has said that he could end the war in Ukraine within 24 hours if elected, without saying how he would achieve that.
Papperger also downplayed the effects of the meltdown of Germany’s coalition government, saying it could lead to small delays, but more importantly could be the end of the debt brake.
At the end of the day, the pressure will be so high that there is no other option” than to suspend the brake that restricts Germany’s budget deficit to 0.35% of gross domestic product, said Papperger.
German Chancellor Olaf Scholz on Wednesday fired his finance minister for opposing his plan to suspend the debt brake in order to raise more funds for Ukraine and the economy.
Rheinmetall extended Papperger’s contract for another five years on Wednesday and created a new chief operation officer role as part of a reshuffle to respond better to high demand facing the company in future.
“We are experiencing growth like we have never seen before,” said Papperger on Thursday.
Rheinmetall, Europe’s biggest ammunition producer, is on its way to becoming a “global champion in the defence industry,” he said, citing projects in the U.S., Britain, Italy and Ukraine.
Papperger signed a deal last month with Italy’s Leonardo in a key step for consolidation in the sector as it benefits from higher military budgets.
Incoming orders rose 48% to over 21 billion euros ($22.61 billion) from January to September due to contracts from the German army and those related to Ukraine aid, and as a result, Rheinmetall’s backlog hit a new record of 52 billion euros.
Rheinmetall said it expects to reach the threshold of about 10 billion euros in annual sales for the first time in 2024 after sales rose 36% from January to September to 6.3 billion euros, with German customers making up almost a third of sales.
With the order backlog expected to grow to around 60 billion euros by the end of the year, the group is preparing to double annual sales to around 20 billion euros in just a few years.
($1 = 0.9286 euros)
(Reporting by Miranda Murray and Matthias Inverardi; Editing by Rachel More, Tomasz Janowski, Alexander Smith, Elaine Hardcastle)
An order backlog is a measure of unfulfilled customer orders that a company has received but has not yet completed or delivered.
Corporate strategy is a plan that outlines how a company will achieve its goals and objectives, including decisions on resource allocation, business direction, and competitive positioning.
Sales growth refers to the increase in a company's sales revenue over a specific period, often expressed as a percentage compared to previous periods.
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