11/10/2009

Rheinmetall Group: Third-quarter EBIT of €30 million, for the first time in 2009 back in the black

• Defence with record orders and repeatedly high earnings
• Automotive achieves turnaround, Q3 operating EBIT close to break-even
• Rheinmetall reaffirms forecast for 2009: positive EBIT after restructuring expenses
• Successful capital increase of €102 million
• Net financial debt shrunk by €196 million

For the third quarter of this year and the first time in 2009, Düsseldorf-based Rheinmetall AG reports a black quarterly EBIT which, thanks to the improved situation in Automotive business and the ongoing robust profitability at Defence, totals €30 million for the period.

Defence’s strong performance and a slight rise in sales at Automotive over the past nine months did not, however, suffice to offset the severe H1 earnings erosion suffered by auto-component manufacturing business.

Regarding all of 2009, Rheinmetall is squarely on track to attain its annual targets and even after including the restructuring expenses at Automotive, achieve a positive EBIT at group level thanks, in particular, to once again Defence’s high EBIT margin, a significant improvement in cost structures at Automotive, and a gradual recovery in order placements perceptible among the carmakers.

Says Klaus Eberhardt, Rheinmetall AG’s CEO: "We’re confident that we will emerge from the crisis strengthened and that we will achieve our annual targets. The lion’s share is attributable to our profitable Defence sector for which, in terms of sales, the traditionally strongest fourth quarter still lies ahead. Our efforts at Automotive are showing effect and with our rigorous cost reductions we have not only generated a positive result by the end of September, we have also sustainably made sure that even with lower sales the sector can still post a clear profit in future."

Rheinmetall Group: results burdened by auto business crisis

Rheinmetall AG’s sales during the period January through September (3Q) 2009 added up to €2,307 million, year-on-year down €520 million or 18 percent. The shortfall is solely attributable to the Automotive sector where 3Q sales slumped by 33 percent. Defence’s sales, in contrast, rose slightly by 2 percent.

Earnings at the Rheinmetall Group were likewise eroded by Automotive business and
3-quarter EBIT for 2009 shrank by €196 million, from a black €163 million to a red €33 million, including a massive €71 million for the restructuring expenses at Automotive.

During 3Q/2009, the Rheinmetall Group booked orders worth €3,692 million, an increase of
33 percent. Featuring prominently in this amount are Defence megacontracts topped by a
€1.3 billion order for 405 Puma infantry fighting vehicles destined for the German armed forces.

At quarter-end, net financial debt totaled €432 million, having been slashed year-on-year by €196 million (including €102 million from the July 2009 capital increase). The equity ratio rose from 31 percent (year-end 2008) to 33 percent at September 30, 2009.

Defence: sturdy and very profitable growth

The Defence sector again reported growth with 3Q sales climbing €18 million, from
€1,177 million to €1,195 million. Order intake more than doubled, from €1,125 million to
€2,546 million. Alongside the contract for the series-production of the Puma infantry fighting vehicle, additional orders totaling over €200 million for e.g., camp protection systems and armored transport vehicles for the German forces, emphasize the sector’s capability in terms
of field protection for soldiers.

Orders on hand at the close of September 2009 reached a new record of €4,685 million, up €1,336 million or 40 percent over €3,349 million a year ago.

Earnings at Defence also made progress with the 9-month EBIT reaching €110 million, year-on-year up €2 million. The operating EBIT increase amounted to €15 million or 16 percent since
the year-earlier €108 million had included €13 million badwill income from the acquisition of
Denel Munition, South Africa.

The 3Q operating EBIT margin also rose significantly, from 8.1 percent a year ago to 9.2, and for Q3/2009 alone from 9.3 to 10 percent.

Automotive: sales rebounding

The severe auto industry recession led to shrinking demand for the Automotive sector.
In the triad markets of NAFTA, Western Europe and Japan (all important for the sector), demand declined by around 35 percent. Its three-quarter sales totaled €1,112 million in 2009 (down by €538 million or 33 percent a year earlier).

As the period progressed, however, the year-on-year quarterly reductions narrowed and the Q3 sales of €395 million, though down by 21 percent, were well short of the Q1 and Q2 decreases. Sales in the preceding Q1 and Q2 quarters had amounted to €340 million and €377 million, respectively.

Automotive’s 9-month EBIT plummeted year-on-year by €202 million to a red €136 million.

The operating loss (excluding the €71 million restructuring expenses) added up to €65 million for 3 quarters. Losses by quarter were €40 million (Q1), €21 million (Q2), and €4 million (Q3). The sector is therefore approaching break-even.

Sharing in the improvement were a slight rise in revenue and, especially, the increasingly impacting cost-cutting measures launched back in 2008. By the end of the third quarter savings of €50 million had been achieved.

Forecast: despite higher restructuring burdens, a black EBIT for 2009

In line with the forecasts for their respective global markets, the business and EBIT trends predicted for the Defence and Automotive sectors differ accordingly. How well Rheinmetall develops in 2009 will mainly depend on the strong performance of its Defence sector.

For Defence, Rheinmetall is looking to a continuation of growth and to sales of €1.9 billion accompanied by an EBIT margin of at least 10 percent.

Based on the 27-percent decline predicted in a current estimate by CSM Worldwide for the triad market output of cars and light commercial vehicles, the Automotive sector foresees for all of 2009 a sales contraction of €500 million from the 2008 level. As a consequence of the additional measures for streamlining corporate structures, the Automotive sector is expected to bear
€20 million higher one-off costs for restructuring and write-downs, restructuring expenses then totaling €120 million; this increase will, however, be completely offset by improved operating results by both corporate sectors. Defence is expecting an EBIT of over €190 million while Automotive’s operating loss will stay below the €80 million so far predicted.

As a consequence, the previous forecasts for Rheinmetall are reaffirmed. Even after accounting for the restructuring expenses, the Group’s EBIT for 2009 will remain in the black.