Rheinmetall: ammunition shortage keeps orders rolling in

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Ukraine’s counteroffensive is a war of attrition that is quickly depleting stocks of equipment and munitions. Regaining lost territory will require more supplies and help from allies. Rheinmetall, the German weapons manufacturer, is set to benefit from the European rearmament cycle.

A €37bn order book is proof of the company’s strong position and its role as a key contractor to the German government. Germany has reversed a decades-long policy of military aversion and is rapidly deploying a €100bn special fund to modernise its armed forces. Since the end of March, the country has ordered more than €8bn of equipment from the defence group. This is equal to about 90 per cent of the orders Rheinmetall secured over the period. 

War in Ukraine has lifted demand for weapons and artillery, which accounted for 55 per cent of Rheinmetall’s ebit in the second quarter. Rheinmetall accounts for more than half of Europe’s manufacturing capacity for 155mm shells following its €1.2bn acquisition of Spain’s Expal. 

These shells, fired by Howitzers, are the mainstay of Ukraine’s counteroffensive as it seeks to break through 800km of Russian trenches. Allies have already supplied millions of rounds. Refilling Europe’s store will cost €24bn by 2030, estimates Sash Tusa of Agency Partners. A large portion of this is expected to flow to Rheinmetall.

Growing tank sales will also lift artillery demand. Ebit at Rheinmetall’s vehicles division rose 23 per cent in the second quarter. Sales of tanks such as the Leopard 2, made in collaboration with KMW, create a future market for Rheinmetall’s 120mm shells. It hopes to add 800 tanks to Europe’s armoury. Assuming each carries 30 rounds priced at €5,000 each, and 30 days of supplies are kept on standby, that would account for €3.6bn of additional sales.

Not every part of the business is performing as well. Results at non-defence divisions were disappointing. But the key risk to the company’s growth trajectory is the speed with which contracts are agreed. Cash is being absorbed by growing inventory, as Rheinmetall pre-manufactures shells and vehicles ahead of large orders. Government approval for these orders has a tendency to go slow.