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Ukraine War has ‘Ushered in a New Era’ for German Defence Contractor

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Germany’s largest defence contractor Rheinmetall has reported record earnings and raised its forecast for next year, as it declares “a new era” ushered in by the war in Ukraine.

Demand was particularly strong for its weapons and ammunition, including armament for the Leopard 2 tank, with the division reporting an order intake of €3bn in 2022, more than double that of the previous year.

“The war in Europe [has] ushered in a new era for Rheinmetall,” said chief executive Armin Papperger. “The chancellor’s speech really was a turning point for the German people,” he added, referring to Germany’s decision to increase its military after decades of reluctance following the second world war.

Operating profits jumped 27 per cent to €754mn last year, and Rheinmetall said it expected the figure to rise further next year. Sales in 2023 are expected to reach a range of €7.4bn- €7.6bn compared with €6.4bn in sales in 2022.

Shares in Rheinmetall, which have risen 55 per cent in the past year, fell 2 per cent to €240.50 by Thursday afternoon in Frankfurt.

The figures reflect the unusually strong demand for weapons and ammunition in Europe since Russia invaded Ukraine.

European allies are scrambling to offer support to Ukraine, which is firing more than 5,000 artillery rounds every day — equal to a smaller European country’s orders in an entire peacetime year.

The unexpected war in Europe has created a supply chain crisis in the region, as defence manufacturers have struggled to increase production to replenish national stockpiles as well as maintain supplies to Ukraine.

Papperger has been a loud critic of Berlin and other governments trying to boost their defence, arguing that they are to blame for the ammunition shortfall due to a lack of orders.

Rheinmetall is, despite warnings from Ukraine that it is running low on ammunition, only producing at two-thirds of its capacity owing to a lack of orders, Papperger told Bloomberg this week.

Papperger previously said he had talks with the Ukrainian government about building a tank factory in the country, despite it currently being under invasion.

On Thursday, he said the company would also be ready to build an ammunition plant in Ukraine, adding that while Rheinmetall was willing to co-operate “the risk lies with Ukraine — we cannot bear risk in a war zone”.

Other companies in the defence industry have already started transforming their business models.

Hensoldt, another large German defence contractor, said earlier this year it had started producing weapons and equipment without pre-orders because of booming demand — unprecedented in an industry where orders often run into several millions of euros.

Source: Financial Times