Rheinmetall Starts Reaping Rewards of Restructuring

Diversified industrial group Rheinmetall AG weathered the turbulence of its 2001 business year without difficulties and on Thursday forecast substantial growth rates for the medium term as its restructuring program is starting to kick in. "We have done most of our homework and will complete it during the course of 2002," Klaus Eberhardt, chairman of the defense, automotive and electronics group told the results conference in Düsseldorf.

Rheinmetall's restructuring program, aimed at focusing on its three core businesses and at increasing efficiency, is to generate organic sales growth of around 6% in the medium term and bring a clear increase in returns.

Eberhardt also forecast an improvement in earnings before interest and taxes (ebit) as early as the current year.

At the start of 2001, U.S. corporate raider Guy Wyser-Pratte acquired a stake in Rheinmetall and demanded that the company focus exclusively on defense technology. The management took a different view and in autumn of last year Rheinmetall majority shareholder Röchling bought Wyser-Pratte's stake.

Röchling then presented the company with a shareholder-value program, including performance-related incentives for the management, with the aim of getting Rheinmetall into shape for a possible sale in the medium term. "We are on target," Eberhardt said when asked about Rheinmetall's progress with these plans. But he stressed that the shareholder-value program was merely a continuation of the group's strategy from 1999 to focus on its three core business areas.

While continuing with the divestment of fringe activities, the group is also looking to gain access to foreign markets through alliances. "We have some ground to make up in the United States and Asia," Eberhardt said, without providing further details.

The restructuring program is to generate savings of 100 million euro from 2003. Return on ebit is to rise to 7% in the medium term, from 4.3% last year, while return on capital is to rise to 15%. "We are confident that we will meet these targets," Eberhardt said.

In 2001, Rheinmetall raised ebit 91% to 197 million euro, despite "difficult framework conditions", on sales of 4.6 billion euro, up 1%. Adjusted for acquisitions and divestments, sales were up 3%. In the first quarter of 2002, sales were up 6% to around 1 billion euro. Rheinmetall did not provide earnings figures for the period.