Rheinmetall AG of Düsseldorf is pressing ahead with its systematic transformation into a fully integrated technology group, reorienting its corporate structure in the process. With this restructuring, Rheinmetall is pursuing three strategic goals:
Reducing the share of automotive components in total Group sales, especially products for internal combustion engines.
Achieving a level of profitability of at least 10% in relation to operating margin in all business units.
Continuous management of the Group’s portfolio in pursuit of the first two goals.Continuous management of the Group’s portfolio in pursuit of the first two goals.
The Group’s current division into two separate entities—Automotive and Defense—will end. The intermediate holding company Rheinmetall AG will be dissolved and integrated into the Group structure.
Rheinmetall’s new structure encompasses five divisions, all of which will be directly run by the executive board of Rheinmetall AG. This reorganization is especially designed to promote the transfer of technology between individual parts of the Group, and to encourage a sharp focus on futureproof technologies with strong potential for sustained value added.
The five divisions are Weapon & Ammunition; Electronic Solutions; Vehicle Systems; Sensors & Actuators; and Materials & Trade. The former pistons unit will be run as a non-core business, following the Group’s announcement in summer 2020 that it would be reviewing strategic options for the future development of the former Hardparts division, especially the small- and large-bore pistons segments.
Rheinmetall has tasked Goldman Sachs to assist it in the process. The initial results are to be submitted in the first half of 2021 for review by the Executive Board of Rheinmetall AG.
In line with the goals of the transformation process and the accompanying expectations for growth, the medium-term financial targets for the Group have been updated. Sales, which came to around €5.8 billion in 2020, are to increase to about €8.5 billion in 2025. In future, the operating margin is to be at least 10%, while operating free cash flow should be in the range of 3% to 5% of sales.
Security technology and electromobility are expected to be particularly strong drivers of growth, and thus to account for a greater share of Group sales. The percentage of sales relating to the internal combustion engine will be adjusted in accordance with the new market parameters.
By 2025, security technology is expected to account for approximately 70% of Group sales, as opposed to roughly 63% in 2020. Reliance on the internal combustion engine will continue to decline, contracting from around 30% of total Group sales today to less than 20%.
Moving forward, environmental sustainability will remain an integral part of Group strategy: Rheinmetall AG intends to be CO2-neutral by 2035. Energy consumption is to be substantially reduced and water use cut by around 10%. Transparency and Environmental Social Governance ratings are to see steady improvement. In future, meeting ESG goals will form part of the compensation policy for upper and middle management, accounting for around 20% of long-term incentives.
Currently, Rheinmetall’s Automotive sector is a global Tier 1 supplier to the automotive industry for modules and systems. The Rheinmetall Group’s Defense sector is Europe’s foremost supplier of defense and security technology and a longstanding partner of the armed forces.