Ladies and gentlemen, welcome to the Rheinmetall AG Q3 2026 confere nce call. I am Yusuf, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and that this conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star followed by one on your telephone. For operator assistance, please press star followed by zero. The conference must not be recorded for publication or for broadcast. At this time, it is my pleasure to hand over to CFO Klaus Neumann. Please go ahead, sir.
Good afternoon, ladies and gentlemen, and welcome to Rheinmetall's third quarter conference call. Before I start, please kindly take note of the disclaimer shown here. As you are probably aware, we adjusted yesterday our full year 2026 guidance. I will come later back to it in our outlook section. Our third quarter 2026 delivered again very satisfactory financials. Our top line grew year-on-year by 36% to more than EUR 3.1 billion. The operating result increased by 62%, resulting from our positive operating leverage effect. The operating result margin in the third quarter even exceeded that of the second quarter and came in at 17.5%. That is a very impressive improvement of 270 basis points year-on-year. Our operating free cash flow improved significantly compared to the second quarter and was only marginally negative at EUR -82 million.
Unfortunately, we did not receive some of the advance payments for the Romanian package until early October. That would have pushed cash flow into the positive range. At the end of September, the Rheinmetall backlog was with EUR 78 billion on a similar level at the end of our second quarter. I will elaborate on this a little bit later. CapEx spending was at 7.1% of sales and in line with the adjusted level that we announced as part of our Q2 communication. We continue with our expansion strategy and important projects, like the U.K. Gun hall and the Albacete medium caliber production saw their recent opening. Lastly, we continue to see very strong interest on the job market. Until the end of September, we received more than 250,000 CVs worldwide. It shows that the defense industry, and Rheinmetall in particular, are seen as highly attractive employers.
We are very confident that we will be able to hire all the talents that we need to achieve our ambitious growth path going forward. Allow me now to walk you through some of our operational highlights on page four. If we look at what happened in the third quarter, there are some projects that really stood out. Let's start with the United States. We successfully began handing over the first of eight XM30 prototypes to the U.S. Army. These vehicles will undergo rigorous customer testing with a formal decision or clear indication expected in 2027. Based on the positive feedback received to date, we remain optimistic regarding our chance of winning this tender for 3,000 infantry fighting vehicles with a total program value of around $45 billion. Furthermore, we expanded our engagement with the U.S. Armed Forces.
The US Marine Corps selected our autonomous Mission Master SP platform for testing. We have successfully delivered 12 of these unmanned ground vehicles under this contract. While modest in initial value at just over $7 million, this deployment serves as an invaluable operational reference and underscores the promising ramp-up in demand we foresee ahead for our autonomous systems in key allied markets. Next up, Germany and the Netherlands exercised an option for 69 additional Jackal infantry fighting vehicles on top of the existing contract for 222 placed in 2025. On the space front, we started the production of the first SAR satellites together with ICEYE at our converted sites in Neuss. The targeted production run rate, several dozen satellites per year, as we continue to see strong demand for the SAR technology.
On top of that, with fulfilling the initial operational capability, we reached a key milestone in the new SPOCK 1 satellite program for the German Army in October. For ammunition, we booked a significant contract for 155 mm from an international customer in the low triple-digit million euro range. Our capacity expansions for weapon and ammunition are well on track. Just last month, our subsidiary, Rheinmetall Expal Munitions, successfully commissioned our new highly automated medium caliber production facility in Albacete, Spain. With a targeted annual capacity of roughly 3 million components, covering projectiles and cartridge cases from 20 mm- 35 mm, this facility marks another key milestone under our group-wide firepower project. Financially and operationally, this project underscores our disciplined capital allocation. We invested around EUR 20 million with a short time to market execution, while expanding the local workforce by nearly a third from 210 to 300 employees.
It directly supports our long-term targets to reach 4 million rounds of medium-caliber capacity by 2030. Turning to our naval systems division, we are seeing continued strong momentum and customer trust, underscored by recent high-level announcements. During the keel laying ceremony for the third Type 424 class fleet service vessel at our Peene shipyard in Wolgast, the German Defense Minister, Boris Pistorius, announced the government's intention to order a fourth signals intelligence vessel before the close of the year. This prospective order reinforces our long-term partnership with the German Navy and provides good visibility into our future order intake and backlog within our naval portfolio. Building upon this momentum and expanding our international maritime footprint, I am also pleased to report that Rheinmetall, together with our partner MSC, has successfully secured the bid to acquire the Mangalia shipyard in Romania.
With a joint purchase price of EUR 138 million, this strategic acquisition establishes a robust dual-use production hub for both civil and military shipbuilding in Southeast Europe. Beyond expanding our industrial capacity, the Mangalia site will play a pivotal execution role, directly supporting the delivery of four recently commissioned naval vessels for the Romanian government, including offshore patrol and dive support vessels, while creating a scalable foundation for future defense programs in the region. All in all, Q3 reflected meaningful operational progress as well as our disciplined performance and execution. Ladies and gentlemen, let me dive into the financials. Looking at the performance across our five segments, we are seeing a very strong operating leverage across all segments, with air defense and weapon and ammunition leading the way. Vehicle system sales increased by 9.6% to nearly EUR 1.5 billion.
This increase was mainly driven by a high sales share of logistical vehicles to the German customer. In addition, our service business and sales from tactical vehicles contributed positively. The operating result margin improved to 13.0% year-on-year due to more favorable product mix effects. In the weapon and ammunition segment, we have seen a continued strong demand and robust revenue growth of 37%. The operating profit margin remained at high level of 22.9%. A key factor here was the change in the product mix due to a significantly higher growth in the direct fire segment, coupled with the expected ramp-up cost for the expansion of our new plants, as well as headwinds from currency and derivatives. In the air defense segment, we saw excellent operational performance with significant increase in turnover of around EUR 100 million.
The main drivers of this growth were sales to the MENA region and Western Europe. Earnings benefited from public funding in the area of research and development. The segment thus demonstrated strong scalability whilst maintaining disciplined cost management. Digital system sales were up by 39% to EUR 509 million. Here, the main contributors were TaWAN and the further ramp-up of the F-35 fuselage production, which pushed the operating margin to 10.7%, an increase of 1.5 percentage points. Naval system sales came in at EUR 345 million. The main drivers here were the contracts with Germany on a fleet service vessel, the Korvette K130, as well as a repair and service business. The operating result reached EUR 38 million, which resulted in an operating margin of 11.1%.
To wrap up the segment view, sales in our non-divisional consolidation line showed an increase from EUR -243 million- EUR -374 million, as inter-segment sales intensified. The operating result from the non-divisional consolidation line improved to EUR -8 million due to the positive contribution from at-equity investments. Let's turn to page seven. When we look at our Rheinmetall nomination in Q3, we see a slight decline compared to prior year. This is mainly because, as was the case over the last years, we expect to receive the majority of our orders in the final quarter of the year. The Rheinmetall nomination for the third quarter was EUR 2.9 billion. One point that really stood out was the lion's share of the Rheinmetall nomination figure was attributable to fixed order intakes.
The main orders were the previously mentioned Jackal Boxer for Germany and the Netherlands, the G-CAP modular camp for the German brigade in Lithuania, and an artillery ammunition order for an international customer. At the end of September, the Rheinmetall backlog rose by 38% compared to the previous year and came in at EUR 78 billion with a 70% fixed order share, up from 58%. This figure is reflecting the adjustment of the F126 contract of EUR 2.1 billion that we already reported during our Q2 call. Let's move on to page eight for a detailed look at our cash flow and working capital development. The operating free cash flow and working capital developments reflect our preparations for a strong year-end rally. Working capital continued to rise and was nearly EUR 2.2 billion at the end of Q3.
Here, weapon and ammunition and air defense account for most of the increase in working capital. With order and delivery momentum increasing, we expect this to reverse in the fourth quarter. The Q3 operating free cash flow figure came in at minus EUR 82 million. This figure included customer prepayment from orders that we signed in the second quarter. Unfortunately, we did not receive part of the advance payments for the remaining package until early October. Had we been able to recognize this advance payment in the third quarter, cash flow would have been positive. Following our CapEx plan for 2026, the Q3 CapEx is in absolute terms on previous year level. Let's move to page nine. We successfully renewed our syndicated credit facility ahead of schedule and doubled its size from EUR 750 million to EUR 1.5 billion.
This additional financial flexibility supports our continued growth trajectory and further strengthens our financial position following the successful bond issue in May of this year. At the end of September, the net financial position totaled EUR -2.9 billion, and the equity ratio was at 28.3%. As said before, we revised our 2026 full-year guidance. Previously, sales were expected to range between EUR 13.7 billion and EUR 14.2 billion. Following likely postponements for the signing of the Arminius Boxer project, as well as in acceptance tests for 155 mm ammunition, we are now expecting to reach a sales level of around EUR 13.2 billion. Hence, our operating margin is expected to adjust by 50 basis points to 18.5%, which is on prior year level and still leading among the European primes.
On the cash flow side, we are now guiding to a positive operating free cash flow after previously expecting a cash flow conversion rate of at least 40%. This updated guidance does not include any prepayments from the Arminius program. Ladies and gentlemen, that wraps up my presentation for today. Many thanks for your kind attention. Let me now open up the floor for our Q&A session.
We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you press star and then two. Participants are requested to only use handsets while asking a question. In the interest of time, please limit yourself to two questions at a time. Anyone who has a question may press star one at this time. Our first question comes from Alessandro Pozzi, Mediobanca. Please go ahead.
Hi there. My first question is about broadly on guidance in general. We all appreciate that you guys are going much faster than almost anyone else of your size, and it's going to be always difficult to provide the precise guidance on revenues, also given the lumpiness of some of your revenues as well. But when you look back at 2026, of course, you've changed guidance twice now. Do you think it's just one-offs, or do you think there is a need to be a bit more conservative with the guidance going forward? I'm thinking about when you go out eventually with the 2027, and whether you need to have more contingencies there, or it's just the nature of the business that makes revenues more unpredictable.
If you can give us maybe an update on where we are with regards to any target for backlog and timing also of the Boxer contract, when do you expect to have that finalized, whether it's going to be in the first part of Q1 or it's going to be later on next year? Thank you.
Okay. Yeah, thank you for your questions. Let's start with the guidance. The adjustment that we announced in July this year was definitely a one-off event. The customer basically not continuing with one of the biggest naval programs in its history is a really unusual event, and that's something we definitely did not foresee. The situation at the end of 2026 now is somewhat different.
We have the delay, or the likely delay of the signing of the Arminius contract. I will come back to the situation a little bit later. The issue with basically final approval and acceptance of already produced ammunition lots. As of today, we don't see that this will all happen still in 2026, and for that reason, we had to adjust the 2026 guidance. It does not change that we have produced it, that we have the orders.
It is just that we will not, from today's perspective, be able to deliver and recognize the associated revenue. Regarding the update going forward, I will have to ask your patience. We will communicate more guidance on the 2027 and future years during our Capital Markets Day later this year. Today is not the time to basically be more specific for those years. Concerning the Arminius contract, our team is currently in final negotiations with the customer. The customer has decided to go through a phase of price audits and challenge the calculation in detail. This may take, and is likely to take longer than would allow an approval by the German Bundestag by the end of this year. As of today, we expect that it will be pushed into the fourth quarter.
Into the fourth quarter of?
First quarter 2027.
First quarter 2027, yeah. I think my first question on the guidance was, I was not really looking forward for the 2027 guidance, but whether maybe there was a change in the way you are approaching the guidance, and perhaps you will provide maybe guidance with more contingencies to flag the fact that some of the revenues can slip between quarters and between years as well.
The guidance that we provide for 2026 is our best assessment as of today for what we can achieve this year. In terms of basically general adjustment, I wouldn't say that that is different in a way than guidance we provided before. What we are trying to do is to basically, when we see that things have significantly changed to guidance before, that we update the market as soon as possible.
Okay. On Q4 revenues, is there any element that potentially could slip into Q1 on the new guidance?
No, we have evaluated all. You are rightly highlighting that we are in a situation with some lumpy businesses and some deliveries. The guidance that we provide basically has evaluated all the risks and opportunities that we still have for the end of the year and gives you the best midpoint that we currently have.
All right. Thank you very much.
The next question comes from Sa m Burgess, Goldman Sachs. Please go ahead.
Thanks very much for taking the question. Good afternoon.
Good afternoon.
Can you just help us split the EUR 500 million reduction in weapons and ammunition sales guidance between that artillery acceptance delay, Destinus, or any other factors? Just help us get a sense of the moving parts there. And on the artillery ammunition acceptance, just to be clear for investors, is this an existing contract that has had a timing issue rather than a delay to a government call-off? That would be very helpful to know. Thank you.
Yeah. No, and thank you for the question. Let's start with the second question. It's not in relation to any delay in call-offs. It's all in relation to existing contracts. What is happening, and I think maybe this is important to explain, we are building up new facilities, and we are ramping up production at several sites. That also impacts the way we basically structure our supply chain. The customer has now asked us to go through more rigorous testing, depending on the structure of each individual by the supply chain going into a single lot. That is now taking more time than anticipated, and it is also somewhat limited due to limited availability on the customer side of doing this kind of tests.
It's really just a timing issue, and the production for the products has already happened, but the acceptance and the final approval by the customer is what is still pending. We are now assuming that for a significant amount, and this is in the three-digit range for artillery ammunition, this will be delayed to future periods. This is also one part of the answer to your first question. Destinus, we did anticipate revenues in the lower three-digit range as a potential, and that is, as of today, also definitely not happening in 2026, as the discussions have not yet reached a stage where we can basically take and execute orders. There are some other issues that we otherwise would have been able to compensate, but basically, the mix of all the different elements together forced us to reduce the guidance for 2026.
Okay, thank you. That's very helpful. If I could just have one quick follow-up on the ammunition timing point. I mean, does this higher threshold for government certification or acceptance have implications for next year or the year after, or is it something you expect to be able to address?
No, this is now basically quite an intense process because we are starting new production sites and new ways of production. The tests by the customer are at the moment more rigorous than it will be in the future once production has stabilized.
Understood. Thank you very much. That's very helpful.
The next question comes from the line of Sebastian Growe, BNP Paribas. Please go ahead.
Yeah, hi, Klaus. Hi, Dirk. Thanks for taking my questions. The first one is a quick follow-up to the sales guidance question, and firstly on the artillery ammunition. From the earlier comments, I would take that it's fair to assume we can add that very sort of slippage back to 2027, right? And similarly here, for the Arminius-related POC revenue delays, is there any risk of a spillover to outer years? And I have one more on free cash flow, please.
I will not comment specifically on 2027. I think this is a discussion we'll have later this month. But it's important that this is all, in terms of the artillery, it is contracts that we already have that we're in the process of execution. In terms of Arminius, yeah, the situation is that we basically pre-ordered and started production or preparatory works for the program, basically relying, as we've done with some limited contracts in the past, on basically the customer executing the order. So, yeah, technically, that will basically then will be revenue in 2027, but in terms of giving out the total number for 2027 and future years, I will need to ask you to be patient for our Capital Markets Day.
Okay. Let's move on to free cash flow then. You still see apparently a free cash flow positive in 2026, so that would require EUR 10 billion or more in the fourth quarter. At the same time, as has been said before, you are no longer providing an order intake bridge. Given the importance of down payments to achieve that target, I was hoping for at least a bit more color around what you have baked into that bridge. What are the working capital tailwinds that you would assume here, and how should we think about order wins and also CapEx in particular for the fourth quarter, please?
The cash flow that we provide does not include the Arminius contract, any prepayment on that contract. I think that's quite clear. We do see lots of payments coming from contracts that are already in execution, so it's some large level of payments for contracts that we already have. About overall higher three-digit number we anticipate from contracts that we anticipate to sign in the fourth quarter. As mentioned earlier, we did already receive a significant prepayment from the Romanian package of around EUR 150 million that is not included in the cash flow as of the end of September. In terms, we did not provide more detailed guidance or information for the end of the year because it will be difficult to really pinpoint it to the end of the year.
Some information on the contracts that we still see coming towards the end of the year, whether with prepayments or not, we are optimistic on the signal intelligence part that basically the German Defense Minister himself basically wants to push through this year, as he has commented publicly. We are working on an additional order for trucks and some Boxer programs for European countries. There is a number of larger programs, but the cash flow does not, to a large extent, depend on new contracts.
Okay, understood. Finally, can you just quickly say something around CapEx, how to think about this, particularly with quarter four?
We have updated our cash flow guidance in July during our Q2 call. As of today, we do not see any change to that guidance, so above EUR 1 billion for the full year.
All right, thank you.
The next question comes from Sven Weier, UBS. Please go ahead.
Yeah, good afternoon. I have two questions, please. I will ask them one at a time. The first one is just coming back to Destinus. Obviously, the company has now teamed up also with Helsing, and I was just wondering how you see the future of the joint venture with Destinus. Is this still going concern, or should we kind of not assume this JV to go ahead anymore?
No, you are absolutely right. Destinus has now set up arrangements with Helsing. This is one of the reasons why basically negotiations or conversations we still have with Destinus have not resulted in any concrete agreement. Those discussions continue. Obviously, with this situation, we can be less certain that it will come into fruition than before, but it is not finally decided where it is going.
The other question I had was just coming back to the first question on your guidance approach, right? Because I guess we have now seen in quite a number of years that there are always delays, mostly customer-induced and some eventualities there. I mean, is not that a lesson learned for you in terms of how you approach guidance in general to make a bigger kind of safety discount when you guide? Regarding the 2030 targets, at the moment, you have a point value target of EUR 45 billion organic. Would it not make sense to have a range and suppliers also with the building blocks of this guidance, what you need in terms of projects to get there? Should we expect something along these lines from the CMD?
For the CMD, definitely, yeah. In terms of, yeah, we have heard this feedback on several occasions, and I fully understand it. It will be one key part of our presentation to explain not just what the number is, but also how we want to get there, so really the building blocks, as you mentioned. In terms of 2026, I can only say I do not want to have another profit warning this year or early next year. So this is really the best assumption that we currently have based on all the opportunities and risks that we see.
Yeah, because you would probably also agree that things like on the ammunition side can always happen without this having a greater meaning whether Germany still wants to buy ammo or not. But I guess if you build in contingencies from the outset, we do not need to have this discussion, I guess, yeah?
Yeah. The guidance that we presented earlier this year was also based on production programs and production schedules, contracts that we had already booked, and some that we were anticipating to sign during the year. The situation for 2026 is that unfortunately two extremely big programs did either not come, like F126, or are now likely to be delayed, as Arminius, and that then has an impact that we did not plan ahead for. Maybe going forward, that's something to think about how to deal with such big events, also in terms of the guidance. But that's what happened this year, and as of today, the information we provide is to our best knowledge.
Yeah, I guess the shortage on staff on the client is also something that happened on the truck side. It seems that German customer isn't growing as fast on the staff side as you guys.
That is also one issue that basically increased production and basically increased deliveries to customers also hitting limits on the acceptance side of the customer. I think, while for trucks it is an ongoing issue, here, as I explained earlier, it's driven by the one-time ramp-up of new production facilities that also come with basically a broader supply chain than what we had in the past. All basically happening in a short period of time. I think that kind of issue will not appear again in future years.
Understood. Thank you, Klaus.
You are welcome.
The next question comes from the line of George McWhirter from Berenberg. Please go ahead.
Good afternoon. Thank you very much for taking my questions. I have two, please. I may have missed it. Can you please outline what you expect on the ammunition contracts in Q4? For instance, on the medium caliber smart ammunition and artillery ammunition. The second question is on the newer parts of your business. Can you just give an outline on how these are progressing more broadly apart from Destinus, for instance, the joint venture and the space partnerships? Thank you.
Yeah. In terms of ammunition, I assume that you are referring to order intake. We still are in discussions and have put out offers to the German customer and other countries for all different kinds of ammunition types, including smart, medium caliber, and artillery. But we will not go into more detail about the size and the scale and the timing of these contracts. But these contracts do not significantly, that we have not yet signed, impact significantly any result for 2026. In terms of rockets, the rocket artillery, the cooperation with Destinus and Lockheed Martin, I explained in terms of Destinus that discussions are continuing but have not resulted in either a go or no-go final decision. In terms of Lockheed Martin, discussions are also progressing and are continuing, but we are not in the stage to make any more detailed announcements.
Thank you very much.
The next question comes from the line of Sash Tusa, Agency Partners. Please go ahead.
Oh, thank you very much indeed. I would just like to follow up on the delayed artillery lots, just to make sure that we understand. Have you been mixing supplies from different suppliers, maybe of powder or explosives or fuses, into the same lots for delivery to your customers? Or is the customers worrying more that you have had a quality escape and
No
that they can't
Yeah, I can explain that. We have not mixed lots, but now we are basically producing more lots from the same facility because we are, as you mentioned, we are using basically material from different sites that go into the final product. We are not mixing these products into a single lot, but we now have more lots coming out of the same facility, and that creates more work in that acceptance. Yeah.
Right. Okay. Thank you very much indeed.
You are welcome.
The next question comes from Marie Riggio, Morgan Stanley. Please go ahead.
Hi, Klaus. Thanks for taking my question. The first one is on the Boxer contract. You mentioned that basically you had a EUR 100 million cut linked to the Boxer contract this year because you expected to recognize percentage of completion revenue if signed in December 2026. Just doing basic math, and I reckon that it is not perfect, but is it fair to assume a run rate of EUR 100 million revenue per month for 2027? Or probably just to frame it in a different way and taking a bare approach here, what could be the impact per month of delay from now? That is the first question on Boxer.
The second question is on your 2026 backlog target, because until now it is still above EUR 100 billion, but when we look at your nine-month order intake, it would imply a Q4 above EUR 25 billion. Probably what is your level of confidence to achieve that, and what are the main contracts you expect to breach the target? Thank you so much.
The last target, I do not think that we will reach EUR 100 billion order backlog by the end of the year without the Arminius contract suddenly or against our current assumption still being signed in 2026. I mentioned earlier that we have some orders that also for the German Kanzleramt that may also find it hard to be on the agenda for approval this year. That is why we are not providing you more specific guidance. We see a strong interest in our products. We have lots of discussions reaching the final stages. But without Arminius suddenly or still being signed in 2026, we will not reach EUR 100 billion.
Probably just a quick follow-up on this one before moving to the Boxer contract. The EUR 100 billion included the Arminius, so without that, let us assume like a guidance between EUR 80 billion or EUR 85 billion.
Correct.
Okay. So 80-85. Thank you.
The 100, correct. That always included some part of the Arminius contract. In terms of the Boxer, the rate that you could basically, in terms of scale, it makes sense because we are in the ramp-up phase. We started acquiring and procuring products and also started preparatory work so that we could achieve the deadlines and timelines that the customer is still requesting. That we would have been able, upon signing the contract, really starting bringing this into production and then achieving a lower three-digit million revenue before the end of the year. That requires obviously a contract being signed and not being signed on the last day, but at least a few weeks before the year end, and that now seems unlikely to happen.
Just to confirm, you said that the scale of basically lower triple digits per month, it is quite a fair assumption?
Yeah. The rough type, it makes sense because deliveries, real final deliveries at scale would only start in 2028.
Yeah, but I mean going forward in 2027. Yeah, okay. In 2027, assuming a lower triple-digit revenue per month is probably like the right assumption, just to confirm that I understood correctly.
Yeah, we never really provided more detail, but I think in terms of when to model it is not too far off.
Okay, perfect. Amazing. Thank you so much, Klaus Neumann.
You are welcome.
The next question comes from Afonso Osório, Barclays. Please go ahead.
Klaus, hi. Thank you for your time. Can I just follow up on this margin guide, please? Looking at the implied guidance for Q4, it looks like vehicles margin is lower sequentially and also versus last year. If you look at the recent track record, margin has been going up sequentially in year-over-year in all the quarters this year.
Yeah.
Just wondering if there is any particular reason for that Q4 dip. The second quick one is on air defense as well on margin. Were there some one-off benefits in Q3 that we should know? I think the new guide imply margin being lower again year-over-year in air defense, so I think it is quite unlikely. Just curious to hear your thoughts. Thank you.
Yeah. Let us start with air defense here. We did increase the guidance for air defense on revenue, but not yet on profitability. We will see whether there is some potential to basically be more on the upper end of the implied range. In Q3, we did see support from basically R&D programs that we have signed with the Italian government, and that provided an additional benefit to profitability. That is not a program that is consistent over time, so whether it will provide the same benefit in Q4, we do not yet know for certain.
Okay. I will do a quick follow-up if I have you on the line.
Yeah. The benefit, I think maybe that helps, is in the range of EUR 10 million.
Okay. Okay, that is super helpful. Thank you, Klaus Neumann. One final one for me, if I can. I know it is still under price negotiations and all, it is still going through for the Boxer next year, but can you comment more broadly on the articles in the press talking about EUR 20 billion fixed price for this Boxer contract initially, of which EUR 10 billion would roughly go to you? That is below what you said previously. Is there any comment you can tell us at this point on that?
Yeah. I can tell you as much that this EUR 20 billion is not evenly split between KNDS and Rheinmetall. We would get a larger share.
Perfect. Thank you so much, Klaus.
The next question comes from Christoph Laskawi, Deutsche Bank. Please go ahead.
Good afternoon. Thank you for taking my questions. Two follow-ups only, really. The first one on the lot acceptance test, and sorry to come back to that. Is this relating to several customers or essentially one? Just wondering because if it is only one, then once it is resolved, you could obviously generate the revenues quite quickly. If it is several, that might spread over a couple of quarters. Then, just on your comment that Germany basically moved to more detailed price analysis or pricing checks on the Boxer. Do you see this as general behavior of the customer also on other contracts, which slows down the approval and signing? Or is this basically because it could be the largest contract they will ever sign, or at least to date, and it is more specific to this one contract?
Let me comment first on the second question. The one key element is the biggest contract that they basically have ever awarded for the army. So, there is more scrutiny, and we always expected that there would be more scrutiny on this contract. What we also see, and whether that is important here, we do not know, is that the customer is now looking more at value for money, and he wants to be certain that he gets a good product and at the right price. So, that is what is happening, but I think the main driver is definitely that it is the largest program that is being negotiated.
The other point in terms of the lots, it is mostly one customer, but it is, as explained earlier, there are several lots due to basically different structure of the supply chains going into the final product. That basically requires several acceptance tests, even if it is just one customer.
Could those be done relatively soon after one another, or does it generally require more preparation before one can follow the other?
It depends on the availability of shooting ranges and staff and people on the customer side to basically be present and approve the testing. It is not that you can do everything on one day, even with the same customer. Yeah.
Helpful. Thank you very much.
The next question comes from the line of David Perry, JPMorgan. Please go ahead.
Yeah. Hi, Klaus. I will ask three questions. If you do not want to answer them all, you can choose which one to drop.
Okay.
They are all a bit philosophical. The first one, just curious about the overall relationship with the German government. It is one customer, big customer, but lots of different contracts. And I just wondered philosophically whether every contract is negotiated in isolation. What I am essentially asking is, does the conversation ever go like this? "Oh, offer us, we will pay this much for the Boxer, but we want you to charge us less for the ammunition." Or are these discussions always separate? That is the first question. The second Shall I-
Yeah, I can answer. From all I know, many contracts are negotiated by different departments at the procurement agency. But further detail can be answered better by people who are really involved in sales. I am in no position to give you more specific information on that.
Okay. The second question is, I may have missed some, but based on all your announcements, I think you have announced 21 JVs since October 2024. I just wondered, roughly how many of these JVs are actually up and running? How many of them do you think might not get to fruition? Are they a meaningful contribution to the guidance you gave us at the CMD last year?
I do not have now the exact number, but the 21 joint ventures that you mentioned is a mix of different kinds of cooperation. Some is where we basically are in a fully consolidated working relationship, where basically the former owner is still a minority shareholder. Others are actual joint ventures that are already in place. Others are basically in the process of being put into action. Overall, one of the ones that basically contributes most significantly is the blackned acquisition, where we still have a joint venture partner, and we only earlier this year basically took over the majority. That contributes already significantly. We acquired DOK-ING, as an example, this summer. It is still a joint venture company that is now starting to provide lower million numbers in terms of revenue, but we see great potential due to their capabilities in the autonomous vehicle area.
There is no. The biggest contribution by far is blackned. The others are areas where they either are still in the build-up mode. For example, also the joint venture with ICEYE is only now starting to generate significant contributions. But they will provide technology and basically a foundation for the growth in coming years.
Okay. Well, maybe you will update us at the CMD. My last one, if I may, is, this year now with the new guidance, if we take out the naval acquisition, your organic growth is probably 22%. Last year it was 25%. As the companies get bigger, most companies struggle to have accelerating growth rates. It is just difficult. But you have still got this guidance of 25%-35% organic growth through to 2030. Just given that customers will always want to inspect things, you are growing, you are diversifying, supply chains more complex, are you still comfortable with this framework of 25%-35% organic growth over five years?
I won't comment on that. I also beg your patience for the upcoming CMD for more clarity on our expectations for the years to come.
All right. Thank you, Klaus. Appreciate it.
You're welcome.
The next question comes from the line of Benjamin Heelan, Bank of America. Please go ahead.
Yes. Afternoon, Klaus. I hope you are well. I had a couple just to follow up. The first one on Arminius. There have been some comments, I think Armin made some comments in the past couple of months as well about changes in scope of the contract, and there have obviously been some news articles indicating lower pricing for Arminius. Could you give us a bit of an update? Where are you seeing the scope of the contract, and is that potentially one of the things that has caused the decision to be pushed to the right? That would be the first one. The second one on this artillery slowdown. You have mentioned these increased supplier investigations, but similar to the comments that you made on Arminius, where the customer is looking for more value for money.
The question I have is the customer starting to look at artillery and discuss more value for money, and that is part of what the supplier investigations, assessments are about as well?
No.
I get Sorry.
Yeah, I can answer quickly.
Go on.
The artillery is based on all of the prices and agreed prices for long-term frame contracts, and the customer has always looked basically to structure to make sure that he gets a good price. The delay that we talk about has nothing to do with scrutiny or new scrutiny on prices whatsoever. It is really down to basically the mechanics of getting the required testing done, and that just takes more time than we anticipated.
Fine.
Yeah.
Go on. Sorry, Klaus Neumann. I will follow up after.
Yeah, yeah. In terms of the Arminius contract, the discussion in terms of the scope that Armin Papperger mentioned, it was mostly in terms of how to structure basically the options and additional packages that are part of the negotiations. They do not relate to the main package that is being The fixed contract, the scope has, over the last months, changed only minimally. There was some fine-tuning in terms of the pricing and whether the audit, whether there are some findings and some elements adjusting the final price. It is something to wait until these negotiations have concluded.
Okay. Okay, one quick follow-up and then my third question. Back on artillery, the order momentum has slowed a lot in the last 12 months. Could you talk a little bit about how you see the pipeline for artillery and what the kind of opportunity set is that you see today? My final question is coming back to a similar sort of question that David Perry just asked, but my view of the JVs when they were being announced at the time was that it's a way of companies like Destinus or Lockheed Martin, et cetera, leveraging Rheinmetall as a way to get into Germany, and that's what a lot of the joint ventures were kind of gauged at.
Do you feel that part of the reason some of these joint ventures are taking a lot longer to materialize or just aren't materializing at all is that companies are getting opportunities to just sell into the German customer on their own, on a standalone basis? I was just wondering if you could comment on that angle. Thank you.
Yeah, let's start with the joint ventures. I don't see this being a driver for the delays. Also in the discussions, it's not just we basically are the people bringing into the market in Germany and just opening the door. What we are offering in this context is that, yeah, the partner brings in technology. We basically provide not just the presence, the access, but also the capability to produce and scale up production in Germany to go further with the existing production and technological capabilities that we already have. So, we don't see that it makes sense for, in many cases, to basically say, "Okay, I go directly to the German customer and sell." I don't see that as a feasible alternative for most of these arrangements.
Okay. On the artillery pipeline?
Different, yeah. Sorry?
Then the artillery pipeline?
The artillery pipeline. We have long-term contracts or framework agreements for artillery with many customers in Germany, in Europe. It was correct that we would like to see faster drawdowns on the existing frameworks. That is something that we are highlighting towards our German customer because the need to basically restock and procure the product is still there. It may not be at the same level as maybe two years ago, but it still is an intense need to restock and replenish inventory with the products that are still being used. Yeah.
Okay. Very clear. Thank you, Klaus Neumann. Appreciate it.
The next question comes from the line of Joe Orchard, Rothschild & Co. Please go ahead.
Good afternoon. Thank you for taking my question, Klaus Neumann. I have one about the acquisition of the shipyard in Romania. It seems that Damen is challenging the sale process, and there will be a court hearing about that in December. My first question is that correct? The follow-up to that is, I guess, why did you decide to announce the acquisition publicly when there is still this legal process that needs to play out?
Yes, there have been legal challenges. Whether they will come to any It is a different matter. We do not see that they have a basis, but that is for Romanian legal institutions to decide. We actually were not the first to announce the result. We basically acquired or basically got the award in an auction, and the company who ran the auction announced the result basically the same day. We basically followed in order to explain to the market why we entered into the process, why we acquired the business, and what we intend to do with it together with our partner.
Okay. Okay, thank you.
The next question comes from the line of Rory Smith, Oxcap. Please go ahead.
Afternoon. It is Rory from Oxcap. Thank you for taking my questions. I have just got one, please, and it is related to David Perry's questions on the JVs. I guess what I would like to know more of is what kind of processes and controls you actually have in place when you go out, do your diligence on some of these JVs and partnerships. Because I have been to quite a lot of defense tech companies, and to be rather blunt about it, they are all quite immature in terms of, or some of them certainly are, in terms of their own internal processes, manufacturing capabilities, et cetera, et cetera.
So, is there anything that you can tell us from the inside, things that we cannot see, that gives us a little bit more confidence around the kind of outlook across that kind of JV partnership piece on, I guess, maturity? That would be really helpful. Thank you.
Yeah. No, any acquisition or any joint venture goes through the diligence process on our side. We look at all the different aspects, legal, production, technology, tax, all the different aspects before we enter any contract. In some cases, yeah, you are right, the level of maturity of the organization is not where we want Rheinmetall entities to be, but these entities may have technology or production capabilities, ideas that can benefit us, and for that reason, we factor in the cost to bring the organization to our standard into the business case before we decide.
Thank you so much.
You are welcome.
The next and last question for this call is a follow-up question from Sven Weier, UBS. Please go ahead.
Yeah, sorry, just one quick follow-up on the Boxer, actually. What I was wondering, because on the truck side, right, when we had the delays, I mean, I think you were still producing the trucks even before you had the official call-off. I mean, could we imagine you do the same with the Boxer, right, that even before the official decision is being made, that you start production, or would you definitely wait until you have the final order?
No, for contracts on armored vehicles, we generally do not start before we have the contract in production. What we sometimes do is to start procuring products if basically we are in the final stages of negotiations and we have to order products or components that we can use also for other programs. In case of the Arminius contract, due to the kind of desired timeline of the customer, we went further than we would otherwise do for any other customer, and that's why we basically were in the position to really generate progress directly after signing a contract for in 2026. Now that it is likely that the signature of the contract is delayed, we will not be able to generate revenue from basically preparatory work that we have started.
There's further work you do from here, so I guess the number that you generate as a revenue once the contract is being signed is then bigger than what you would have had in 2026. Is that right?
There's a limit of how much we will do without the contract, and that is something we have made quite clear to the customer. Yes, the work that we have already started doing, our preparation work, would basically add to the revenue we would otherwise generate on a run rate.
Understood. Thank you, Klaus Neumann.
You are welcome.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to CFO Klaus Neumann for any closing remarks.
Ladies and gentlemen, thank you for joining our Q3 earnings call today. If you have any further questions or remarks, please get in touch with Dirk and his team. Have a great day, and I hope to see many of you at our Capital Markets Day in Hamburg later this month. Take care and goodbye.
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