Rheinmetall optimistic for 2023 as defense spending rises

Rheinmetall (RHMG.DE) expects a strong 2023 after the German defense contractor reported its highest-ever operating result for last year due to the Ukraine war and increased defense spending in Europe.

Rheinmetall said the changes in defense policy had put the group in a promising position in terms of an increase in defense capability, with security-related products in Germany and partner countries.

"The war in Europe has also ushered in a new era for Rheinmetall," Chief Executive Armin Papperger said on Thursday.

Papperger told reporters he expected 2023 to be a record year for order intake, with the backlog increasing substantially from the 26.6 billion euros ($28.22 billion) last year due to major orders from military customers.

In particular, the weapon and ammunition division order volume more than doubled in 2022 to nearly 3 billion euros.

Some projects on the horizon include a tank factory in Ukraine, which Papperger expects Kyiv and Berlin to decide on in the next two months, and a weapons factory in eastern Germany set to be decided within weeks.

Rheinmetall could cover about 50% of Ukraine's ammunition needs, Papperger said.

Ukraine's foreign minister this month urged Germany to speed up ammunition supplies, calling shortages the "number one" problem in Ukraine, and said manufacturers were ready to deliver but were waiting for the government to sign contracts.

The company, which recently joined Germany's DAX blue-chip index, reported 2022 earnings before interest and taxes (EBIT before special items) of 754 million euros, up 27% compared with the year before and a new record.

The operating profit margin is expected to reach roughly 12% this year after growing to 11.8% in 2022 from 10.5% in 2021.

Sales hit 6.4 billion euros, the company said, confirming preliminary results reported in January that were below Rheinmetall's 2022 outlook.

The company had cited advance investments in its defense business and a slower-than-expected recovery of automotive markets as reasons for the lower than expected outcome.

The company now expects 2023 sales to reach between 7.4 billion and 7.6 billion euros before mergers and acquisition effects, it said.