Rheinmetall AG — Call Transcript 2016

Mar 17, 2016

TECHNOLOGIES FOR SECURITY AND MOBILITY

Conference Call Fiscal Year 2015

Düsseldorf | 17 March 2016

© RHEINMETALL AG 2016

New headquarter: "Rheinmetall Wings" Düsseldorf

Review 2015 Strong sales and earnings growth

• Rheinmetall Group: targets achieved, Sales for the first time above EUR 5 billion
• Automotive: Record sales and earnings
• Defence: Turnaround accomplished, order flow underpins strong market position
• Restructuring phase 2013 2015 successfully completed
• Capital increase strengthening the balance sheet
• Dividend bouncing up to EUR 1,10 (proposal)

Fiscal year 2015 in detail Strong incremental sales, moderate increase of headcount

Fiscal year 2015 in detail Earnings boosted by turnaround in Defence

Fiscal year 2015 in detail Increased dividend proposal of EUR 1.10

* Proposal to the Annual General Meeting

Fiscal year 2015 in detail Net financial debt lowered by capital increase and improved earnings

Fiscal year 2015 in detail Positive free cash flow by improved earnings and working capital

2014 in EUR million 2015 in EUR million

Net	Depr./	Capex	Working	Free cash
income	∆Pensions	(Cash-out)	capital/	flow from
			others	operations

Review 2015 A strong year for Automotive

• Dynamic sales growth by 6%, clearly above market growth of 1%
• EBIT margin of 8.3% representing an all-time high
• Main contribution to sales growth by Mechatronics division (+10%)
• China: Solid sales growth, despite a less dynamic development of LV-production

Top- and bottom line growth Strong sales and earnings contribution from Mechatronics

Sales Automotive in EUR million Operational earnings Automotive in EUR million

Organic growth Main strategic drivers

AUTOMOTIVE

ORGANIC GROWTH

Market growth Light Vehicles (LV) Globally rising production

and

Expanding Non-LV business of Rheinmetall Automotive

More content

Increasing number of Rheinmetall products per car due to tightening environmental standards

and

Trend of Electrification esp. Hybridization

Higher value of products

Innovative solutions with higher price level, driven by rising demand for components which offer improved energy-efficiency and/or lower fuel consumption

Growth driver "Market growth" Ongoing increase of global demand for light vehicles

Forecast global light vehicle (LV) production in million units

Source: IHS Automotive (February 2016)

Growth driver "Market growth" China: Continuing growth, but with lower rates

− Expected recovery of the Chinese car market: Growth expectation 5.6% in 2016 after 4.3% in 2015

• − Growth rate expected to normalize but remains above global average growth
• − Double-digit sales increase of 100%-subsidiaries (WFOE) expected

JV: 100% figures shown of Joint Ventures, Rheinmetall Automotive owns 50% of JV; consolidated at-equity WFOE: Wholly Foreign-Owned Enterprise, 100% subsidiaries, fully consolidated Source: IHS Automotive (February 2016)

Growth driver "Market growth" India: Well prepared to take advantage of increasing demand for mobility

− Expected market growth 2016 of 9% with a meaningful share of Diesel engines (~35%)

− Automotive subsidiaries leaving start-up phase and moving into growth phase

Growth driver "Non-LV business" Truck engine production heading towards a growth phase

Forecast truck engine production in million units

Rheinmetall Automotive sales of non-LV and truck business in EUR million

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Growth driver "More content per car/hybridization" Trend to hybrid vehicles expected to accelerate

Forecast production of hybrid vehicles* in million units

• − Stricter emission regulations increase attractiveness of alternative energy concepts
• − Hybrid powertrains will raise significantly and become a major market
• − Estimated market share of hybrid vehicles:
• 2015: 2%
• 2025: 19%

*Mild hybrid, full hybrid, plug-in hybrid

© RHEINMETALL AG 2016 | FY 2015 REPORT | 17 March 2016

17

Mechanical coolant pumps

Oil pumps

Growth driver "More content per car"

Trend of hybridization opens potential for more Rheinmetall products

The traditional product portfolio for combustion engines …

Growth driver "More content per car" Trend of hybridization opens potential for more Rheinmetall products

… will be enlarged by products for hybrid engines.

Growth driver "Higher value of products" Electrification and downsizing require more sophisticated products

Product Portfolio Divisions	Gasoline	Diesel	Hybrid	E-drive
Mechatronics				

Technological developments in line with customer requirements (e.g., electric and/or variable pumps, "E-Booster")

Hardparts

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Extension of the existing product portfolio for vehicle engines (e.g. steel pistons) and for products independent on engines (e.g. structural casting parts) for light vehicles; E-Drive-specific products (e.g. battery case)

• Further extension of the non-LV-business (e.g. large-bore pistons)
• → Flexible R&D and production capacities, adjusted to the need of the customers: Gasoline-, Diesel,- hybrid-engines, electro-mobility
• → Reducing dependency on specific LV-engine types

Review on 2015 Turnaround of Rheinmetall Defence successful

• Encouraging order flow leads to a stable book-to-bill ratio above one
• Sales pushed by 16% to €2.6 billion
• Strong turnaround due to growing organic sales, successfully finalized restructuring program and improving product mix; no further impact on earnings by one-offs
• Shaping profile in the global military vehicle business by the new division Vehicle Systems

Rheinmetall Defence

The new Vehicle Systems Division – a competitive international supplier

• Leading European supplier of military vehicle systems with expected sales of €1.4 billion (in 2016) and a strong order backlog of €4.0 billion (end of 2015)
• Sole provider of the complete product portfolio of military vehicles (tracked, wheeled, tactical, logistical) and turrets in the Western world
• New vehicles are ready for market launch: amphibious wheeled vehicle, infantry fighting vehicle
• Strong market position setting a solid basis in the further consolidation process of the industry

Turnaround of the operational performance Return to profitability by operational improvements and no further one-offs

Sales Defence in EUR million Operational earnings Defence in EUR million

Organic growth Main strategic drivers

DEFENCE ORGANIC GROWTH

High order potential in German home market

Global market growth

Increase of Defense budgets due to changing security situation

High order backlog

Secures solid future growth of Rheinmetall Defence in mid-term perspective

New markets Approaching new markets with local partners and with

Innovative products and developments (e.g. laser technology)

Growth driver "High order potential Germany" A number of projects targeted by Rheinmetall

Fox Upgrade order (2016) Potential ~€200 mill. Additional 6x6-vehicles Mid term potential €1 billion

Leopard 2 Upgrade order for 104 tanks Potential up to €200 mill.

Marder Lifetime extension Potential ~€75 million

Boxer Order for 131 vehicles, Volume €130 million

Gladius soldier system Order expected for 2016/17 Potential ~€250 million Further Soldier systems Mid term potential ~€500 mill.

Puma Additional equipment Potential €600 million Demand for additional IFVs Long term potential €900 mill.

2019 2020

2016 2017 BEYOND

Ammunition Restocking expected Short and mid term potential ~€500 mill.

Combat Training Center Additional equipment Potential > €50 million Service contract Potential €50-100 mill.

Military trucks Step-by-step replacement of 2,500 vehicles Potential until 2025 > €1 billion Additional demand for further vehicles

Growth driver: Global markets The Defence macro picture is changing

USA

• Trend of budget reduction stopped
• Defence spending expected of USD >600 billion p.a. EUROPE

NATO

Common target confirmed: Moving defence budgets to 2% of GDP until 2025

GERMANY

• Intention to return to fully equipped forces
• Necessity to spend EUR 130 billion for armament up to 2030

Return to increase defence spending especially in Eastern Europe (+4% annually until 2020) and Baltic states (+2%)

RUSSIA

Huge armed forces modernization program launched in spite of lower growth rates of defence budgets

CHINA

Mid-term budget growth of 7- 8 % p.a. expected

AUSTRALIA

EUR 127 billion until 2026 to modernize armed forces

Growth driver "High order backlog"

Increased order backlog leads to improved visibility of mid-term sales

Growth driver "New markets" Expanding local footprint by individual industrial partnerships

— Cooperation with the Polish defence industry for a major Leopard modernization program, Order volume about EUR 220 million

TURKEY

― Rheinmetall Turk as a local entity is a designated partner of joint ventures with Turkish defence companies (Ammunition and vehicle systems)

AUSTRALIA: LAND 400 PROGRAM

• ̶ Tender submitted in 2015, offering Boxer with Lance turret
• ̶ Teamed up with Northrop Grumman
• ̶ Down-selection in 2016, final decision not before 2018
• ̶ Total volume: appr. EUR 2.5 billion
• ̶ Strong international competition

Growth driver "New products" New technologies and products ready for market launch

— New cannon with a larger caliber, performance increase: 50%

HIGH ENERGY LASER

• • ― Laser technology developed, ready for operations in 3-5 years

currently common project of Germany and France

*Main Ground Combat System

• ― Domestic R&D orders of EUR ~40 million received
• ― Qualification phase ongoing: Successfully tested by German Navy

Short-term perspective Outlook fiscal year 2016

	Sales	in € billion		Operational margin
	2015	2016	2015	2016
Group	5.2	~ 5.5	5.5%	~ 6%
Defence	2.6	~ 2.8	3.5%	4.5-5%
Automotive	2.6	~ 2.7	8.3%	~ 8%

Assumptions

• ― Key large-scale projects in Defence to be realized as scheduled, no significant one-offs
• ― Global automotive industry growing as forecast

Mid-term perspective Looking ahead: Markets and Rheinmetall

Markets with good mid-term perspectives: Global growth in Defence and Automotive

	MARKET	SALES	OPERATIONAL
		CAGR 2015-2018e
AUTOMOTIVE	2.8%	~ 4-5%	~ 8%
DEFENCE	1.1%	~ 8%	~ 6-7%

Changing markets

• Sustainable growth of global car production
• Gradually rising importance of hybridization

• R&D efforts in order to create higher independency from engine concepts

• Increasing number of global tensions and conflicts lead to enhanced efforts to modernize ground forces

• Broad existing product portfolio covers increasing demand of land forces

Key figures: Group

in EUR million		2011	2012	2013	2014	2015
Balance sheet	Total assets	4,832	4,899	4,866	5,271	5,730
	Shareholder's equity	1,546	1,465	1,339	1,197	1,562
	Equity ratio (in %)	32.0	29.9	27.5	22.7	27.3
	Pension liabilities	729	919	891	1,121	1,128
	Net financial debt	130	98	147	330	81
	Net gearing (in %)	8.4	6.7	11.0	27.6	5.2
Income statement	Sales	4,454	4,704	4,417	4,688	5,183
	Operating result	342	268	211	160	287
	Operating margin (in %)	7.7	5.7	4.8	3.4	5.5
	EBITDA	538	490	315	299	490
	EBIT	354	296	121	102	287
	EBIT margin (in %)	7.9	6.3	2.7	2.2	5.5
	EBT	295	216	45	22	221
	Net income after minorities	213	173	29	18	151
	Earnings per share (in EUR)	5.55	4.55	0.75	0.47	3.88
	Dividend per share (in EUR); 2015: proposal	1.80	1.80	0.40	0.30	1.10
	ROCE (in %)	14.9	11.5	4.7	3.9	10.1
Cash flow statement	Free cash flow from operations	93	125	20	-182	29
Headcount	Employees (Dec 31) according to capacity	21,516	21,767	20,264	20,166	20,676

2013 figures adjusted according to IFRS 5 (Discontinued Operations) with regard to the formation of the ATAG JV and according to IFRS 11 (Joint Arrangements)

Key figures: Segments 2011 – 2015

		AUTOMOTIVE
2015	2014	2013	2012	2011
2,621	2,466	2,270	2,378	2,357
445	416	392	418	409
2,592	2,448	2,262	2,369	2,313
216	184	158	139	151
8.3	7.5	7.0	5.9	6.5
332	295	225	243	254
216	184	124	139	151
8.3	7.5	5.5	5.9	6.5
167	158	142	148	104
10,934	10,830	10,927	12,003	11,548
1,540	1,322	1,171	1,091	1,025
118	96	66	69	69
8.1	7.3	5.6	6.3	6.7
952	934	889	1,087	1,092
73	72	27	57	65
7.7	7.7	3.0	5.2	6.0
285	269	268	265	258
27	26	27	25	24
9.5	9.7	10.1	9.4	9.3

in EUR million
Order intake
Order backlog (Dec. 31)
Sales
Operating result
Operating margin (in %)
EBITDA
EBIT
EBIT margin (in %)
Capex
	Employees (Dec 31) according to capacity
Mechatronics	Sales	Combat
	EBIT	Systems
	EBIT margin
Hardparts	Sales	Electronic
	EBIT	Solutions
	EBIT margin
Aftermarket	Sales	Wheeled
	EBIT	Vehicles
	EBIT margin

DEFENCE
2011	2012	2013	2014	2015
1,831	2,933	3,339	2,812	2,693
4,541	4,987	6,050	6,516	6,422
2,141	2,335	2,155	2,240	2,591
212	146	60	-9	90
9.9	6.3	2.8	-0.4	3.5
303	262	96	17	175
223	173	4	-67	90
10.4	7.4	0.2	-3.0	3.5
102	90	62	76	96
9,833	9,623	9,193	9,184	9,581
1,198	1,136	1,027	977	1,382
146	102	31	-4	88
12.2	9.0	3.0	-0.4	6.4
799	748	710	705	759
86	97	11	-53	26
10.8	13.0	1.5	-7.5	3.4
255	567	539	667	600
-12	-25	-35	-9	-11
-4.7	-4.4	-6.5	-1.4	-1.8

2013 figures adjusted according to IFRS 5 (Discontinued Operations) with regard to the formation of the ATAG JV and according to IFRS 11 (Joint Arrangements)

Cash credit facilities and net financial debt

* Net debt in % of equity

Fiscal year 2015: survey

in EUR million	2014	2015	∆ 2015/2014
Sales	4,688	5,183	+ 495	+ 11%
Operational earnings	160	287	+ 127	+ 79%
Special items: one-offs, restructuring costs	- 58	0	+ 58
EBIT (reported)	102	287	+ 185	+ 181%
EBT	22	221	+ 199	+ 905%
Group net income*	21	21	+ 0	± 0%
Earnings per share* in EUR	0.47	3.88	+ 3.41	+ 726%
in EUR Dividend	0.30	1.10**	+ 0,80	+ 267%
in% Payout ratio	64	28	- 36 pp	- 56%
Employees (Dec 31)	20,166	20,676	+ 510	+ 3%

* Continuing and discontinued operations

** Dividend proposal to the Annual General Meeting

Quarterly development

Sales in EUR million Operational earnings in EUR million

Research & development, capex, depreciation & amortization

R&D in EUR million Capex in EUR million D&A in EUR million

* Subsidies for tooling costs

Cash flow statement

Continuing operations in EUR million	Q4 2014	Q1 2015	Q2 2015	Q3 2015	Q4 2015	∆ Q4 2015/ Q4 2014
Group net income	41	5	29	30	96	+55
Amortization / depreciation	59	49	50	49	55	-4
Change in pension accruals	- 2	0	1	0	2	+4
Cash flow	98	54	80	79	153	+55
Changes in working capital and other items	337	-202	-100	8	267	-70
Net cash used in operating activities	435	-148	-20	87	420	-15
Cash outflow for additions to tangible and intangible assets	- 120	-56	-55	-78	-121	-1
Free cash flow from operations	315	-204	-75	9	299	-16

	RHEINMETALL AUTOMOTIVE	EUR 2.6 billion
Hardparts	Mechatronics	Aftermarket
Pistons	Emission Systems	International
Large-bore pistons	Solenoid Valves	National
Bearings	Commercial Diesel Systems
	Actuators
	Pumps

Sales figure FY 2015

Fiscal year 2015: survey

Continuing operations in EUR million	2014	2015	∆	2015/2014
Sales	2,448	2,592	+ 144	+ 6%
Operational earnings	184	216	+ 32	+ 17%
Special items: one-offs, restructuring costs	0	0	± 0	± 0%
EBIT (reported)	184	216	+ 32	+ 17%
Employees (Dec 31)	10,830	10,934	+ 104	+ 1%

Key figures by division

Figures before intra-segmental consolidation

Quarterly development

Sales Automotive in EUR million Operational earnings Automotive in EUR million

Figures adjusted according to IFRS 5 (Discontinued Operations) with regard to the formation of the ATAG JV and according to IFRS 11 (Joint Arrangements)

Cash flow statement

Continuing operations in EUR million	2014	2015	∆ 2015/2014
Group net income	131	161	+30
Amortization / depreciation	121	116	-5
Change in pension accruals	-1	-2	-1
Cash flow	251	275	+ 24
Changes in working capital and other items	- 21	+7	+28
Net cash used in operating activities	230	282	+52
Cash outflow for additions to tangible and intangible assets	- 196	-186	+10
Free cash flow from operations	34	96	+ 62

Research & development, capex, depreciation & amortization

R&D in EUR million Capex in EUR million D&A in EUR million

* Subsidies for tooling costs

Sales by customers and by regions

Sales by customer in %

Sales by region in EUR million Sales growth in % 493 520 ^{241 307} 523 528 1,191 1,238 2014 2,448 2,592 2015 Europe (excl. Germany) Rest of the World Germany Asia (w/o China JVs) +1% +4% +27% +6% Market Growth** in % +4% +2% -1% +2%

* MIR: Marine, Industrial , Recreational

** Source: IHS Automotive (February 2016)

Automotive in China

Automotive in India

Source: Shriram, annual reports

New divisional structure of Defence Transfer of Combat Platforms

Sales figure FY 2015

Fiscal year 2015: survey

in EUR million	2014	2015	∆ 2015/ 2014
Order intake	2,812	2,693	- 119	- 4%
Order backlog (Dec 31)	6,516	6,422	- 94	- 1%
Sales	2,240	2,591	+ 351	+ 16%
Operational earnings	- 9	90	+ 99
Special items: one-offs, restructuring costs	- 58	0	+ 58
EBIT (reported)	- 67	90	+ 157
Employees (Dec 31)	9,184	9,581	+ 397	+ 4%

Key figures Defence by division

Figures before intra-segmental consolidation

Quarterly development

Sales Defence in EUR million Operational earnings Defence in EUR million

Cash flow statement

Continuing operations in EUR million	2014	2015	∆ 2015/2014
Group net income	- 72	32	+104
Amortization / depreciation	85	85	0
Change in pension accruals	0	8	+8
Cash flow	13	125	+ 112
Changes in working capital and other items	- 69	- 67	+2
Net cash used in operating activities	- 56	58	+114
Cash outflow for additions to tangible and intangible assets	- 76	- 96	-20
Free cash flow from operations	- 132	- 38	+ 94

Research & development, capex, depreciation & amortization

R&D in EUR million Capex in EUR million D&A in EUR million

* Subsidies for tooling costs

Disclaimer

This presentation contains "forward-looking statements" within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to Rheinmetall's financial condition, results of operations and businesses and certain of Rheinmetall's plans and objectives. These forward-looking statements reflect the current views of Rheinmetall's management with respect to future events. In particular, such forward-looking statements include the financial guidance contained in the outlook for 2016.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "will", "anticipates", "aims", "could", "may", "should", "expects", "believes", "intends", "plans" or "targets". By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. In particular, such factors may have a material adverse effect on the costs and revenue development of Rheinmetall. Further, the economic downturn in Rheinmetall's markets, and changes in interest and currency exchange rates, may also have an impact on Rheinmetall's business development and the availability of financing on favorable conditions. The factors that could affect Rheinmetall's future financial results are discussed more fully in Rheinmetall's most recent annual and quarterly reports which can be found on its website at www.rheinmetall.com.

All written or oral forward-looking statements attributable to Rheinmetall or any group company of Rheinmetall or any persons acting on their behalf contained in or made in connection with this presentation are expressly qualified in their entirety by factors of the kind referred to above. No assurances can be given that the forward-looking statements in this presentation will be realized. Except as otherwise stated herein and as may be required to comply with applicable law and regulations, Rheinmetall does not intend to update these forward-looking statements and does not undertake any obligation to do so.

This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire or dispose of securities in Rheinmetall AG or any of its direct or indirect subsidiaries.

160317 Analysts conference FY2015