Rheinmetall AG — Call Transcript 2020

Nov 6, 2020

Q3 driven by Auto recovery and Defence margin expansion

Conference Call Q3 Düsseldorf, 6 November 2020

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

In particular, such forward-looking statements include the financial guidance contained in the outlook for 2020.

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. 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. 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-Rheinmetall AG and its affiliates are neither associated with nor provide any support to American Depository Receipts programmes (ADR) or comparable offerings or affiliates has and or will accept any responsibility or liability whatsoever in relation to such ADR programmes or comparable investment schemes.

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 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.

investment schemes related to shares in Rheinmetall AG in the United States of America or any other jurisdiction. Therefore, neither Rheinmetall AG nor any of its

Q3 2020 Group: Highlights

- Global awareness campaign to support employee safety in Q3 Upgraded measures in place to prepare for second wave

• All sites fully operational in Q3
• Auto volume recovery supported strong operating leverage
• Strict cost management yielded results
• Continued expansion of Defence margin
• Defence order intake on expected lower level
• Lynx order intake to be included in Q4 2020
• Clear reduction of working capital
• Strict control of capex

Q3 2020 Group: Key financial data Strong profitability in a recovering market and effective cost management

Q3 2020 Group: Operating free cash flow Very strong cash generation

• Q3 2019 included €15m CTA funding in Auto 0
• Strong contribution from working capital reduction -150
  • €45 m restructuring provisions included
  • Automotive with strict capex control

Q3 2020 Group: Capex Cash preservation in Automotive remains a key priority

Capital expenditure

in €m

• +4% High confidence to achieve FY capex saving target of -30% in Automotive

  - YTD already down 37%

• Defence FYe capex plan includes Higher capitalized development cost (e.g. Land 400 Phase III, Future tactical truck family) €51 m non cash MilVehCoE leasing
  • agreement in Q3(IFRS 16 effect)

Q3 2020 Group: Group key financials Moody's confirmed financial strength in latest Q3 rating

Net financial debt and Net financial debt/EBITDA (LTM) in €m and ratio

• 1.00 Investment grade rating "Baa3 with stable outlook" confirmed by Moody's
• 0.75 Equity ratio remains on solid level
• 0.25 0.50 Net debt reduced and significantly below Q3 19
• 0.00 Cash on balance €690m
  • Undrawn credit lines of €0.7bn per end of Q3

Q3 2020 Automotive: Highlights

Return to earnings and cash generation on the back of recovering demand

• Sequential market recovery continued
• FX adjusted growth of -9.8% compares to -8.8% regionally adjusted IHS growth* 5.1
• Strong operating leverage of 15% driven by recovering volumes and continued disciplined cost management 572
  • EBIT included €40m for restructuring
  • OFCF improvement helped by lower capex and no CTA funding

	Quarterly sales and margin development					Comments on quarterly performance
In €m and %						Sequential market recovery continued
6.5	6.2	1.7		5.1	 IHS growth*	FX adjusted growth of -9.8% compares to -8.8% regionally adjusted
659	637	618	-15.3	572		Strong operating leverage of 15% driven by recovering volumes and continued disciplined cost management
			338			EBIT included €40m for restructuring
Q3	Q4	Q1	Q2	Q3		OFCF improvement helped by lower capex and no CTA funding
In €m					Q3 2019	Q3 2020	∆	YTD 2019	YTD 2020	∆
Sales					659	572	-13.2%	2,099	1,528	-27.2%
	Operating result				43	29	-31.0%	144	-12	-108.4%
	Operating margin in %				6.5%	5.1%	-140bp	6.9%	-0.8%	-770 bp
Special items					-	-40	-	2	-340	--
EBIT					43	-11	-124.9%	146	-352	-341.0%
	Operating Free Cash Flow				6	49	716.7%	-8	-97	1,112.5%
	Operating FCF / Sales				0.9%	8.6%	770bp	-0.4%	-6.3%	-600bp
	*IHS Markit: 3 November 2020; global LV growth adjusted for China								Analyst Conference Call Q3 2020	8

Q3 2020 Automotive: Highlights Ongoing cost discipline and recovering volumes helped operating leverage

*IHS Markit: 3 November 2020; global LV growth adjusted for China

Q3 2020 Automotive: Divisional highlights Divisional business environment on different recovery levels

Mechatronics

• Margin Q3 2020 • Market in recovery mode, but strain from FX-effects
  • 5.1% • Strict cost management

Hardparts

• Very weak pistons business
• Result gained on strict cost cutting
• 6.7% • At equity almost back to PY level

Aftermarket

• 9.1% • Strong sales recovery in Europe
• 2 -1.7% • Favorable customer mix and cost cutting held back by expenses for micro mobility

Q3 2020 Automotive: Highlights Non-LV still a drag, but trucks with sequential improvement

Analyst Conference Call Q3 2020

11

Q3 2020 Automotive: China performance Strong results, but sales burdened by adverse FX effects

• Comments on the quarter
• Operational sales increase of +2.4% compares to very strong PY Q3 (first ramp-up quarter of electric vapor and vacuum pumps), but held back by adverse FX effects Chinese market recovery of 10.3% (IHS Markit 3rd Nov 2020)
• benefitted from low base effect (Q3 19 -7.1%)
• All plants operational, business activity approaching 100% pre corona level
• EBIT improved by 20% to €24m
• JV EBIT margin increased from 7.5% to 8.7%

Analyst Conference Call Q3 2020 *Including 100% figures of 50/50 JV, consolidated at equity 12

Joint Venture Wholly owned foreign enterprise

Q3 2020 Automotive: Innovation Latest order for EVAP increases life time order value to above €1bn

Electronic Vapor Pump (EVAP) Regulatory requirements for fuel emissions tightened Pump allows cleansing of activated carbon filters during standstill or electric operation Product will be sold for vehicles in the US, China, Japan and South Korea

Serial production in the US and China started in mid-2018 and rose to > 750k units in 2019

market EVAP

Q3 2020 Defence: Highlights Further improvement of operating margin and cash generation

• Sales better than expected including slightly negative FX effect
• Good execution supported margin development
• EBIT included site closure cost and positive one-off income
• OFCF was largely driven by higher earnings and improved working capital

Quarterly sales and margin development		Comments on quarterly performance
In €m and %				Sales better than expected including slightly negative FX effect
1,324 15.8				Good execution supported margin development
901 823 809 740				EBIT included site closure cost and positive one-off income
9.4 3.9 10.3 7.8 Q3 Q4 Q1 Q2 Q3	 capital	OFCF was largely driven by higher earnings and improved working
In €m	Q3 2019	Q3 2020	∆	YTD 2019	YTD 2020	∆
Order intake*	1.136	477	-58.0%	2.201	1.960	-11.0%
Sales	823	809	-1.7%	2.198	2.450	11.5%
Operating result	64	76	17.7%	134	197	47.6%
Operating margin in %	7.8%	9.4%	160bp	6.1%	8.1%	200bp
Special item	-	5	-	-2	3	-258.8%
EBIT	64	81	25.5%	132	200	52.2%
Operating Free Cash Flow	-104	-7	93.3%	-328	-300	8.5%
		-0.8%	1.190bp	-14.9%	-12.2%	270bp
Operating FCF / Sales	-12.7%				Analyst Conference Call Q3 2020	14

Q3 2020 Defence: Divisional highlights All divisions were able to expand margins and absolute results

Weapon & Ammunition

• Q3 2020 • Stronger ammunition sales
• 9.4% • Additional personnel protective equipment sales

Electronic Systems

11.5% • Favorable product mix and good execution

Vehicle Systems

8.8% • Expiring Puma sales partially compensated by better margin programmes

Q3 2020 Defence: Order overview Order intake on expected level

Q3 2020 Defence: Launch of new IFV platform Hungary is the first NATO member to select the Lynx

Details

• Establishment of JV with the Hungarian MOD with a 51% Rheinmetall share
• Order Size Quantity: 218 Lynx and 9 armored recovery vehicles "Büffel"
• Order volume: clearly above €2bn
• 2 phase delivery model:
  • Phase 1 (22-23): Delivery of 46 Lynx produced in Germany
  • Phase 2 (24-29): Delivery of the remaining vehicles from Hungarian JV
• Order intake expected in Q4 2020
• Additional aftermarket potential for maintenance, spare parts, ammunition and future upgrades

The IFV is more than just a new, highly advanced vehicle: it is a future-proof platform, blending protection with firepower and mobility in a uniquely modular concept. Deal enables the Hungarian Army to meet its NATO commitments through continued modernization

2020 Guidance update FY result guidance upgraded

• GROUP Operational sales growth for 2020 between minus 7% and minus 6%
  • Operating margin expected between positive 6% to 6.5%
  • Based on the current IHS' FY 2020 regionally adjusted outlook of 21.9%* we guide our operational sales development for 2020 between minus 20 to minus 23%
  • Operating result expected between 10 €m to 20 €m positive
  • Operational sales growth expectation of around 6%
  • Operating margin between 10 to 11%

Disclaimer:

Next events and IR contacts

Next Events*

Deutsches Eigenkapitalforum 16 November 2020 Berenberg, European Conference 2 December 2020 Credit Suisse, Industrial Conference 3 December 2020 Commerzbank, German Investment Seminar 12 January 2021 Bank of America SMID Cap Conference 13 January 2021 Kepler Cheuvreux UniCredit, German Investment Seminar 18/19 January 2021 FY Earnings release 18 March 2021 *All events will be conducted as virtual conferences

IR Contacts

Dirk Winkels Head of IR Tel: +49-211 473-4749 Email: dirk.winkels@rheinmetall.com

René Weinberg Senior Investor Relations Manager Tel: +49-211 473-4759 Email: rene.weinberg@rheinmetall.com

Rosalinde Schulte Investor Relations Assistant Tel: +49-211 473-4718 Email: rosalinde.schulte@rheinmetall.com Corporate Presentation Annual Reports Interim Reports

Quick link to documents

APPENDIX

20

Group: Quarterly development

Analyst Conference Call Q3 2020 21

Consolidation/Others

Defence Automotive

Group: Free cash flow summary

			Group: Free cash flow summary
		Δ YTD		Q3	Q4	Q1	Q2	Q3 Δ Q3
YTD 2019	YTD 2020		in €m
		'19/'20		2019	2019	2020	2020	2020	'19/'20
170	-185	-355	Net Income	60	184	18	-252	49	-11
204	476	272	Amortization / depreciation	68	75	46	75	62	-6
-16	-43	-27	Change in pension accruals	-15	-1	-43	1	-1	14
358	248	-110	Cash Flow	113	258	21	-176	110	-3
-392	-462	-70	Changes in working capital and other items	-159	423	-182	-192	-88	71
-133	-10	123	Changes in other items	-22	87	-10	-70	70	92
-167	-223	-56	Net cash used in operating activities	-64	769	-142	-172	91	155
-167	-146	21	Cash outflow for additions to tangible and intangible assets	-63	-120	-46	-49	-50	13

Automotive: Quarterly development

Sales by division

in €m

Operational result by division in €m

Automotive: Free Cash Flow summary

			Automotive: Free Cash Flow summary
YTD 2019	YTD 2020	Δ YTD		Q3 in €m	Q4	Q1	Q2	Q3	Δ Q3
		'19/'20		2019	2019	2020	2020	2020	'19/'20
103	-309	-412	Net Income	30	30	3	-301	-10	-40
119	386	267	Amortization / depreciation	41	43	45	309	33	-8
-16 206	-33 44	-17 -162	Change in pension accruals Cash Flow	-15 56	-2 71	-32 16	-1 7	- 23	15 -33
-61	-69	-8	Changes in working capital and other items	-3	92	-46	-4	-18	-15
-47	-17	30	Changes in other items	-8	-18	1	-82	65	73
98	-41	-139	Net cash used in operating activities	45	145	-30	-80	69	24
			Cash outflow for additions to tangible
-106	-55	51	and intangible assets	-39	-63	-19	-17	-20	19

Defence: Quarterly development

Sales by division

in €m

Operational result by division

Defence: Free Cash Flow summary

			Defence: Free Cash Flow summary
YTD 2019	YTD 2020	Δ YTD '19/'20	in €m	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	Δ Q3 '19/'20
73 79	133 85	60 6	Net Income Amortization / depreciation	37 29	172 30	11 28	64 29	58 28	21 -1
2	3	1	Change in pension accruals	1	1	-1	3	-	-1
154	221	67	Cash Flow	67	203	40	96	86	19
-331	-393	-62	Changes in working capital and other items	-151	331	-138	-183	-71	80
-91	-39	52	Changes in other items	5	111	-24	-22	7	2
-268	-211	57	Net cash used in operating activities	-80	646	-124	-110	23	103
-61	-89	-28	Cash outflow for additions to tangible and intangible assets	-24	-52	-28	-32	-29	-5

In €m 9m 2019 9m 2020 Δ Q3 2019 Q3 2020 Δ 3.979 -315 Sales 1.481 1.382 -99 4.294 233 -38 Changes in inventory and other own work capitalized 107 75 -32 ²⁷¹ 4.212 -353 Total operating performance 1.588 1.458 -130 4.565 70 -39 Other operating income 31 19 -12 ¹⁰⁹ 2.201 -255 Cost of materials 868 770 -98 2.456 1.291 41 Personnel expenses 408 442 34 1.250 476 272 Amortization, depreciation and impairment 71 62 -9 ²⁰⁴ 462 -49 Other operating expenses 179 150 -29 ⁵¹¹ 4 -18 Income from investments carried at equity 9 18 9 ²² -7 -23 -16 Other net financial income -3 -6 -3 -166 -435 Earnings before interests and taxes (EBIT) 99 66 -33 ²⁶⁹ 4 7 3 Net interest income 0 3 3 -38 -33 5 Interest expenses -16 -9 7 234 -192 -426 Earnings before taxes (EBT) 83 60 -23 -65 7 72 Income taxes -23 -11 12 -185 -355 Earnings after taxes ¹⁷⁰60 49 -11 Of which: 6 -1 Minority interests 3 5 2 ⁷ -191 -354 Rheinmetall AG shareholders 57 44 -13 ¹⁶² 310 -163 EBITDA 171 127 -44 ⁴⁷³

Group: Income Statement

Group: Cash Flow Statement

	Group: Cash Flow Statement
9m 2019	9m 2020	Δ		Q3 2019	Q3 2020	Δ
170	-185	-355	Net income	60	49	-11
204	476	272	Amortization, depreciation and impairments	71	62	-9
-15	-42	-27	Allocation of CTA assets to secure pension and partial retirement obligations	-15	0	15
-1	-3	-2	Changes in pension provisions	0	-1	-1
-1	-7	-6	Income from disposition of non-current assets	0	-8	-8
-44	64	108	Changes in other provisions	-2	73	75
-392	-462	-70	Changes in inventories	-159	-88	71
-78	-60	19	Changes in receivables, liabilities (without financial debts) and prepaid & deferred items	-10	5	15
-22	6	28	Pro rata income from investments carried at equity	-9	-8	1
7	7	-	Dividends received from investments carried at equity	1	1	-
5	-17	-22	Other non-cash expenses and income	-2	6	8
-167	-223	-56	Cashflows from operating activities	-64	91	155
-149	-97	52	Cashflows from investing activities	-59	-20	39
-59	99	158	Cashflows from financing activities	-67	36	103
-374	-221	153	Changes in financial resources	-190	107	297
4	-9	-13	Changes in cash and cash equivalents due to exchange rates	3	-3	-6
-370	-230	140	Total change in financial resources	-186	104	290
	920	196	Cash and cash equivalents 31.12.2019	724	920	196
724	690	335	Cash and cash equivalents 30.09.2020	355	690	335

Group: Balance Sheet

Group: Balance Sheet
	31.12.2019	30.09.2020	Δ		31.12.2019	30.09.2020	Δ
Non-current assets In €m	3.195	2.927	-268	Equity	2.272	1.869	-403
In €m Goodwill	567	475	-92	Share capital	112	112	-
Other intangible assets	233	250	17	Additional paid-in capital	553	556	3
Usage rights	204	238	34	Retained earnings	1.478	1.081	-397
Property, plant and equipment	1.361	1.084	-277	Treasury shares	-17	-13	4
Investment property	42	39	-3	Rheinmetall AG shareholders' equity	2.125	1.735	-390
Investments carried at equity	309	290	-19	Minority interests	146	134	-12
Other non-current financial assets	255	260	5	Non-current liabilities	2.365	2.353	-12
Deferred taxes	224	292	68	Provisions for pensions and sim. obligations	1.169	1.134	-35
Current assets	4.220	4.235	15	Other non-current provisions	214	206	-8
Inventories	1.463	1.682	219	Non-current financial debts	880	907	27
Contractual assets Trade receivables	388 1.147	458 1.117	70 -30	Other non-current liabilities	86	88	2
Liquid financial assets	20	0	-10	Deferred taxes	16	18	2
Other current financial assets	242	232	16	Current liabilities	2.779	2.939	160
Income tax receivables	41	57	-20	Other current provisions	709	750	41
Cash and cash equivalents	920	690	-230	Current financial debts	112	353	241
Assets for disposal	-	-	-	Contractual liabilities	948	880	-68
Total assets	7.415	7.162	-253	Trade liabilities	695	616	-79
				Other current liabilities	215	239	24
				Income tax liabilities	99	102	3
				Total liabilities	7.415	7.162	-253
				Analyst Conference Call Q3 2020

Group 2015 –	2019: Key figures (as reported)
in €m		2015	2016	2017	2018	2019
Balance Sheet	Total assets	5.730	6.150	6.101	6.759	7.415
	Shareholder's equity	1.562	1.781	1.870	2.173	2.272
	Equity ratio (in %)	27,3	29,0	30,7	32,1	30,6
	Pension liabilities	1.128	1.186	1.080	972	1.169
	Net financial debt	-81	19	230	-30	-52
	Net financial debt / EBITDA	0,17	-0,03	-0,37	0,04	0,07
	Net gearing (in %)	5,2	-1,1	-12,3	1,4	2,3
Income	Sales	5.183	5.602	5.896	6.148	6.255
statement	Operating result	287	353	400	491	505
	Operating margin (in %)	5,5	6,3	6,8	8,0	8,1
	EBITDA	490	581	626	836	792
	EBIT	287	353	385	518	512
	EBIT margin (in %)	5,5	6,3	6,5	8,4	8,2
	EBT	221	299	346	485	477
	Net income	160	215	252	354	354
	Earnings per share (in EUR)	3,88	4,69	5,24	7,10	7,77
	Dividend per share (in EUR)	1,10	1,45	1,70	2,10	2,40
	ROCE (in %)	10,6	12,3	13,8	17,1	15,4
		29	161	276	-35	314
CF statement Headcount	Free cashflow from operations Employees (Dec. 31) according to capacity	20676	20993	21610	22899	23780

Segments 2015 – 2019: Key figures Automotive Defence 2015 2016 2017 2018 2019 in €m 2015 2016 2017 2018 2019 2.621 2.670 2.922 2.888 2.705 Order intake 2.693 3.050 2.963 5.565 5.186 445 458 520 478 447 Order backlog (Dec. 31) 6.422 6.656 6.416 8.577 10.399 2.592 2.656 2.861 2.930 2.736 Sales 2.591 2.946 3.036 3.221 3.522 216 223 249 262 184 Operating result 90 147 174 254 343 8,3 8,4 8,7 8,9 6,7 Operating margin (in %) 3,5 5,0 5,7 7,9 9,8 335 356 367 421 348 EBITDA 175 239 268 403 450 216 223 227 266 186 EBIT 90 147 172 247 341 8,3 8,4 7,9 9,1 6,8 EBIT margin (in %) 3,5 5,0 5,7 7,7 9,7 167 149 154 161 143 Capex 96 95 89 101 166 96 105 106 26 73 OFCF -38 103 238 -29 266 10.934 10.820 11.166 11.710 11.405 Employees (Dec. 31) according to capacity 9.581 10.002 10.251 10.948 12.100 1.450 1.499 1.621 1.664 1.525 Sales 881 1.111 1.175 1.056 1.018 Weapon & 118 140 176 171 118 Mechatronics Operating Result 73 108 117 121 123 Ammunition 8,1% 9,3% 10,9% 10,3% 7,7% Margin 8,3% 9,7% 10,0% 11,5% 12,1% 952 921 968 988 937 Sales 759 745 691 839 948 Electronic 73 62 60 65 28 Hardparts Operating Result 12 25 20 46 75 Solutions 7,7% 6,7% 6,2% 6,5% 3,0% Margin 1,5% 3,4% 2,9% 5,5% 7,9% 285 319 358 367 361 Sales 1.195 1.392 1.480 1.568 1.787 Vehicle 27 29 33 36 35 Aftermarket Operating Result -9 29 53 108 150 Systems 9,5% 9,1% 9,2% 9,7% 9,8% Margin -0,8% 2,1% 3,6% 6,9% 8,4% Analyst Conference Call Q3 2020 31

Glossary

Glossary
bn	billions	LBP	Large bore piston
bp	basis points	LEP	Life extension programme
CAGR	compounded average growth rate	LV	Light vehicle
CER CP	Constant Exchange Rates Commercial Paper	m MIV	million Mechanized Infantry Vehicle
CTA	Contractual trust agreement	MGCS	Main Ground Combat Vehicle
D&A	Depreciation & Amortization	NWC	Net working capital
e	expected	OEM	Original Equipment Manufacturer
EA	Export approval	Op.	operational
EBIT	Earnings before Interest and Tax	Op. res.	Operating result
EBITDA	Earnings before Interest, Tax , Depreciation and Amortization	Operating FCF	Operating free cash flow
EBT	Earnings before Tax	Op. margin	Operating margin
EIB	European Investment Bank	P&L	Profit & Loss Account
EPS	Earnings per share	PPE	Personnel Protection Equipment
EPL	Einzelplan	PY	Previous Year
EV	Electric Vehicle	rep	reported
FTE FX	Full Time Equivalents Foreign exchange rate	ROCE RoW	Return on capital employed Rest of the World
GDP	Gross Domestic Product	SOP	Start of production
HEV	Hybrid and Electric Vehicles	USMCA	USA, Mexico, Canada
IDZ	Infanterist der Zukunft	WACC	Weighted average cost of capital
IFRS	International Financial Reporting Standards	WLTP	Worldwide Harmonized Light-Duty Vehicles Test Procedure
IFV	Infantry Fighting Vehicle	WFoE	Wholly foreign owned enterprise
JV	Joint Venture
			Analyst Conference Call Q3 2020	32