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War in Ukraine Has Supercharged This German Weapons Maker

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The war in Ukraine has made munitions maker

Rheinmetall AG

RHM -4.01%

a key player in the global arms trade, catapulting the once low-profile German manufacturer into one of Europe’s most important weapons suppliers.

Since Russia’s invasion last year, Rheinmetall’s shares have risen 150%, and the company has reported record earnings and orders, with the conflict’s artillery-heavy nature pointing to strong future demand for its shells. The company also has begun talks with German and Ukrainian officials about building a tank factory in Ukraine.

Rheinmetall nevertheless faces obstacles in its drive to capitalize on the surge in demand, including hiring staff and adding capacity. Analysts also remain skeptical about the company’s ability to pull off flagship projects such as the development of a new tank and the proposed factory in Ukraine.

“The epochal shift and the war in Europe has also ushered in a new era for Rheinmetall,” Chief Executive

Armin Papperger

said Thursday as the company reported upbeat annual earnings.

Rheinmetall Chief Executive Armin Papperger sees this year developing as the best ever for the company.



Photo:

Ina Fassbender/Agence France-Presse/Getty Images

Rheinmetall, which also makes automotive components, said its order backlog had reached a record 26.6 billion euros, equivalent to about $28.3 billion, including 3 billion euros worth of new orders for shells and weapons last year.

Mr. Papperger said rising geopolitical pressures, from the war in Ukraine to tensions in Asia, had triggered a period of unprecedented growth for Rheinmetall. This year, he said, is shaping up to be “by far the best year in the history of the company.”

Rheinmetall traces its roots to 1889, when a predecessor was established to supply munitions to the German empire. After World War I, the company made nonmilitary products, including locomotives. It later resumed weapons production, and the German state acquired a majority stake. It paused operations after World War II before restarting the production of military equipment in 1956, with the MG 42 machine gun. 

The recent meteoric rise of Rheinmetall, which is set to join Germany’s blue-chip DAX index later this month, comes amid gains for the broader European defense sector. Other European defense companies, like

Dassault Aviation SA,

the French maker of the Rafale jet fighter, Sweden’s

Saab

AB and Britain’s

BAE Systems

PLC, have all reported record orders in 2022. U.S. defense companies have seen smaller gains.

Growing order books are mainly tied to increases in military spending approved before Russia’s invasion, with Western weaponry being sent to Ukraine from national stockpiles. While various governments recently have said they would increase military spending—helping to boost weapons makers’ share prices—those commitments haven’t all come to fruition, and it isn’t clear which companies will benefit.

“Shares’ prices are going up not on earnings expansion but on the expectation of that,” said George Zhao, an analyst at Bernstein. “Orders have not gone up as much as their shares,” he said.

Shares of Rheinmetall fell 4% on Friday to close at 237.10 euros.

The more conventional, land-based nature of the war in Ukraine has meant Rheinmetall’s shells and armored vehicles are again at the forefront of military planning. The company is also based in Germany, which has promised a one-off, 100-billion-euro fund for extra military spending.

“Rheinmetall is the single best way to get exposure to European rearmament” and demand for artillery shells, said Sash Tusa, an aerospace and defense analyst at Agency Partners LLP.

Rheinmetall produces the gun on the Leopard tank that several European nations are sending to Ukraine. It also manufactures the Skynex air-defense system, battlefield reconnaissance equipment and several types of armored vehicles, among other armaments being sent to Ukraine.

The company is critical to Ukraine because it is the world’s biggest producer of the 155mm caliber artillery shells that experts say are running out in the West. 

Mr. Papperger said Rheinmetall can cover around half of Ukraine’s annual need for 155mm shells, which the company estimates to be some 1 million artillery shells.

Rheinmetall’s product line includes tactical military transport vehicles.



Photo:

Luka Dakskobler/Zuma Press

Ukraine said this month that overall, it needs at least 356,300 shells a month. U.S. and European militaries also need to rebuild their stockpiles after sending shells to Ukraine. 

To meet demand, Rheinmetall is making artillery munitions in 24-hour, seven-day shifts and, helped by its acquisition last year of Spanish ammo giant Expal Systems, has doubled its manufacturing capacity to 440,000 shells a year.

It has increased capacity at sites in Germany and Hungary, where it built an explosives and ammunition factory, as well as in Australia and the U.K., where it will make the Boxer 3 armored vehicle this year. Production lines have also been expanded and enhanced to handle additional products. 

Rheinmetall increased its head count by more than 1,500 employees last year, giving it a workforce of almost 25,000. To help keep up with orders, it wants to create a further 3,000 jobs this year, Mr. Papperger said. In doing so, though, the company joins other European defense companies in hiring mode at a time when there is a shortage of engineering specialists. 

Rheinmetall is now in talks with Berlin and Kyiv about building a factory in Ukraine to make a new tank called the Panther, as well as its Lynx infantry vehicle.

Mr. Papperger said the factory could take 12 to 14 months to build and produce about 400 Panthers a year. The company expects a decision from officials on whether to approve the site in the next few months.

Analysts say the plan will be hard to pull off given the security risk, difficulty of getting supplies in and out of Ukraine, and the time required to set up what would be a complex manufacturing plant. 

“The Panther timeline and the numbers don’t make any sense, it’s too little time and too many tanks,” said Mark Cancian, a senior adviser at the Center for Strategic and International Studies in Washington.

Rheinmetall rolled out the Panther last year, saying it had greater firepower and precision than existing tanks. Mr. Papperger said the tank would take some 15 months to enter mass production. Analysts are skeptical, however, saying the tank remains untested and yet to win orders.

Rheinmetall didn’t respond to requests for further comment on the new tank or the proposed factory in Ukraine. 

While Rheinmetall’s connection to the war in Ukraine has benefited the company, it has also made it a target. Earlier this month, Rheinmetall was targeted by a pro-Russian hacking group, though the company said it hadn’t suffered a loss of data.

Write to Alistair MacDonald at [email protected] and Bojan Pancevski at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8


The war in Ukraine has made munitions maker

Rheinmetall AG

RHM -4.01%

a key player in the global arms trade, catapulting the once low-profile German manufacturer into one of Europe’s most important weapons suppliers.

Since Russia’s invasion last year, Rheinmetall’s shares have risen 150%, and the company has reported record earnings and orders, with the conflict’s artillery-heavy nature pointing to strong future demand for its shells. The company also has begun talks with German and Ukrainian officials about building a tank factory in Ukraine.

Rheinmetall nevertheless faces obstacles in its drive to capitalize on the surge in demand, including hiring staff and adding capacity. Analysts also remain skeptical about the company’s ability to pull off flagship projects such as the development of a new tank and the proposed factory in Ukraine.

“The epochal shift and the war in Europe has also ushered in a new era for Rheinmetall,” Chief Executive

Armin Papperger

said Thursday as the company reported upbeat annual earnings.

Rheinmetall Chief Executive Armin Papperger sees this year developing as the best ever for the company.



Photo:

Ina Fassbender/Agence France-Presse/Getty Images

Rheinmetall, which also makes automotive components, said its order backlog had reached a record 26.6 billion euros, equivalent to about $28.3 billion, including 3 billion euros worth of new orders for shells and weapons last year.

Mr. Papperger said rising geopolitical pressures, from the war in Ukraine to tensions in Asia, had triggered a period of unprecedented growth for Rheinmetall. This year, he said, is shaping up to be “by far the best year in the history of the company.”

Rheinmetall traces its roots to 1889, when a predecessor was established to supply munitions to the German empire. After World War I, the company made nonmilitary products, including locomotives. It later resumed weapons production, and the German state acquired a majority stake. It paused operations after World War II before restarting the production of military equipment in 1956, with the MG 42 machine gun. 

The recent meteoric rise of Rheinmetall, which is set to join Germany’s blue-chip DAX index later this month, comes amid gains for the broader European defense sector. Other European defense companies, like

Dassault Aviation SA,

the French maker of the Rafale jet fighter, Sweden’s

Saab

AB and Britain’s

BAE Systems

PLC, have all reported record orders in 2022. U.S. defense companies have seen smaller gains.

Growing order books are mainly tied to increases in military spending approved before Russia’s invasion, with Western weaponry being sent to Ukraine from national stockpiles. While various governments recently have said they would increase military spending—helping to boost weapons makers’ share prices—those commitments haven’t all come to fruition, and it isn’t clear which companies will benefit.

“Shares’ prices are going up not on earnings expansion but on the expectation of that,” said George Zhao, an analyst at Bernstein. “Orders have not gone up as much as their shares,” he said.

Shares of Rheinmetall fell 4% on Friday to close at 237.10 euros.

The more conventional, land-based nature of the war in Ukraine has meant Rheinmetall’s shells and armored vehicles are again at the forefront of military planning. The company is also based in Germany, which has promised a one-off, 100-billion-euro fund for extra military spending.

“Rheinmetall is the single best way to get exposure to European rearmament” and demand for artillery shells, said Sash Tusa, an aerospace and defense analyst at Agency Partners LLP.

Rheinmetall produces the gun on the Leopard tank that several European nations are sending to Ukraine. It also manufactures the Skynex air-defense system, battlefield reconnaissance equipment and several types of armored vehicles, among other armaments being sent to Ukraine.

The company is critical to Ukraine because it is the world’s biggest producer of the 155mm caliber artillery shells that experts say are running out in the West. 

Mr. Papperger said Rheinmetall can cover around half of Ukraine’s annual need for 155mm shells, which the company estimates to be some 1 million artillery shells.

Rheinmetall’s product line includes tactical military transport vehicles.



Photo:

Luka Dakskobler/Zuma Press

Ukraine said this month that overall, it needs at least 356,300 shells a month. U.S. and European militaries also need to rebuild their stockpiles after sending shells to Ukraine. 

To meet demand, Rheinmetall is making artillery munitions in 24-hour, seven-day shifts and, helped by its acquisition last year of Spanish ammo giant Expal Systems, has doubled its manufacturing capacity to 440,000 shells a year.

It has increased capacity at sites in Germany and Hungary, where it built an explosives and ammunition factory, as well as in Australia and the U.K., where it will make the Boxer 3 armored vehicle this year. Production lines have also been expanded and enhanced to handle additional products. 

Rheinmetall increased its head count by more than 1,500 employees last year, giving it a workforce of almost 25,000. To help keep up with orders, it wants to create a further 3,000 jobs this year, Mr. Papperger said. In doing so, though, the company joins other European defense companies in hiring mode at a time when there is a shortage of engineering specialists. 

Rheinmetall is now in talks with Berlin and Kyiv about building a factory in Ukraine to make a new tank called the Panther, as well as its Lynx infantry vehicle.

Mr. Papperger said the factory could take 12 to 14 months to build and produce about 400 Panthers a year. The company expects a decision from officials on whether to approve the site in the next few months.

Analysts say the plan will be hard to pull off given the security risk, difficulty of getting supplies in and out of Ukraine, and the time required to set up what would be a complex manufacturing plant. 

“The Panther timeline and the numbers don’t make any sense, it’s too little time and too many tanks,” said Mark Cancian, a senior adviser at the Center for Strategic and International Studies in Washington.

Rheinmetall rolled out the Panther last year, saying it had greater firepower and precision than existing tanks. Mr. Papperger said the tank would take some 15 months to enter mass production. Analysts are skeptical, however, saying the tank remains untested and yet to win orders.

Rheinmetall didn’t respond to requests for further comment on the new tank or the proposed factory in Ukraine. 

While Rheinmetall’s connection to the war in Ukraine has benefited the company, it has also made it a target. Earlier this month, Rheinmetall was targeted by a pro-Russian hacking group, though the company said it hadn’t suffered a loss of data.

Write to Alistair MacDonald at [email protected] and Bojan Pancevski at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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