Rheinmetall AG ($RHM)

Ladies and gentlemen, welcome to the Rheinmetall AG Q1 2026 Conference Call. I'm [indiscernible], the Chorus Call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Armin Papperger, CEO. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen, and welcome to our Q1 '26 earnings call. Klaus and I are guiding you through our presentation today. But before I begin, please remind on our disclaimer on Page #2. Now let's go to Page #3. Here, you see the overview of the Q1 '26. On the sales side, we have a growth rate of about 8%. This growth is a little bit lower than expected because we have for about EUR 200 million trucks ready. And you know that we always have the contract with our customers, especially in Germany, that the delivery dates are fixed from them. And we expect now that we are delivering this EUR 200 million in Q2. Another delivery in Q2 is going out because we started with the powder production in quarter 1, but we were not able to deliver to the customer because of the lot acceptance tests, et cetera, et cetera. This is another EUR 100 million, which is going to Q2. That is the reason that quarter 2 will be a growth rate much better than quarter 1, and we expect in comparison to last year in quarter 2, a growth rate of more than 50%. The operating result, which is a plus 17% is very positive. Even if the growth rate is on 8%, 11%, 70% plus, still has a good leverage on the operating results, and we have an operating result of EUR 224 million. So that the operating margin is growing to 11.6%. Another very good information is that applications are still in good shape. And in the first quarter, we had more than 80,000 applications, so that like last year, we can expect that we have more than 300,000 people who want to join the Rheinmetall club. On the operational free cash flow, it's very clear that we prepare us for a huge growth in this year. And we have to invest and we invest a lot of money in materials so that the operational free cash flow is minus EUR 285 million. This is not a critical point for us because over the whole year, we believe that we still have a very positive cash conversion rate. On CapEx, we are on a good level. It's 10%. As you know, this year and also next year the CapEx will be still high. And over the next years, then we will go down to a CapEx of between 5% and 6%, maybe 7%. Rheinmetall nominations in Q1 is nearly EUR 5 billion, so exactly [ EUR 486 million ] and the backlog is growing especially also because of the naval systems from plus 32% to nearly EUR 73 billion. If you go now to Page 4, you see that Rheinmetall is really a key partner and a key industrial partner of German Bundeswehr. So as you know, the German Bundeswehr has 3 different phases to build up and to be the strongest force and starting to create the strongest army in Europe. On the short-term side, we are really at the moment in maximizing defense capability. That is the reason that our investment programs in Germany, but also in whole Europe, and in the United States are really focused on that. And we have an increase to 140% of the equipment level that we had before. On the medium term, it's very clear that we have a major buildup of sustainable armed forces. And as you know, we, at the moment, Germany has forces of 180,000 people and they have to grow up to 240,000 up to, let me say, minimum 2029. And as you also know, there are plus 200,000 reserves, but all that soldiers need equipment. And that is the growth program, which is coming up from today to '29, 2030. And then we have a long-term target picture. And on these long-term target pictures, it's a very, very clear point on the way to be the strongest force in Europe to have technologically superior armed forces. And all that is in combination with the budget that you have seen in the 2030, the budget for defense will grow up to EUR 190 billion. And as you see also here on Page #4, the block budget for 2027 will have a 21% increase of defense spending up to EUR 145 billion. Huge amount of money, and Rheinmetall is preparing them to help wherever we can help to bring the equipment to the army. The next slide, Slide #5. You see the highlights that we have on our new domain, our new division, Rheinmetall Naval Systems. So the acquisition of the NVL, the former [indiscernible] company was closed in February. So we have a very good start in the integration process. We started with a steel cutting process. We started with first ship launching ceremonies. And the baptism of the [ Corbet Lubeck ] was a really good start in the first month where we had the domain C. So we gave also a nonbinding offer to acquire the German Naval Yards. And with that known binding offer, we started now with due diligence and we expect over the next weeks that we have a result about that so that we can give a binding offer also to enlarge our capacities in ship yards. The financial results in Q1 and also the sales side are in line. So in the first month, about EUR 80 million sales and 10% EBIT. This is exactly what we expected at the beginning. As you know, the range is between 10% and growing over the next years growing up to 15% profitability. And in 2026, we expect huge orders. And there is an order of the F125 upgrade, and we gave also an offer for the new frigate contract of F126. And we also see internationalization and successful internationalization potential, for example, also in Romania. So all in all, very good start, a very good post-merger integration. We had the first Welcome Day also in [indiscernible] with the team. And I'm very happy with the team. I'm very happy with the motivation of the team and the spirit they have. Now let's go to Page #6. On Page #6, you see what Rheinmetall is doing to create autonomous vehicles, autonomous air vehicles, manned vehicles and also vehicles on the sea. And you see the 3 angle that we have, the Rheinmetall Autonomy Strategy. On the unmanned ground vehicle side, you know that we have since years a lot of vehicles where we may test where we are very successful in that area. And the biggest program at the moment is the U.S. tender. This is the S-MET program from the United States of America. And we took over the majority of DOK-ING. And with -- in combination with our U.S. business, our Canadian business and the European business, we think we have a huge potential over the next years also to build up this land part. This is not only a 1 product strategy that we have. This is a multiproduct strategy. And if you see [ Hamling ] and other things where we -- that we offer at the moment, also the German Bundeswehr think it's a great strategy to go the next steps also with European partners and with maker partners. On the unmanned air side, there is loitering and ammunition and drone technologies. And this category 2 and category 3 drones are in our portfolio, not category 1 drones. But CCA, this is a real strategic partnership. As you know, we have partnerships with Bundestag, also with Lockheed. And the MOU with Lockheed for European CCA is part of our PLCD program. So with both American partners, we try to open the market and to help Bundeswehr and because PLCD is not ready -- maybe, and we really hope that we can implement the Boeing [indiscernible] technology into Germany from Australia. On the unmanned surface vehicle, we made this joint venture with Kraken, where we have the majority. And last week, I have seen the production lines. We produce in Hamburg, these unmanned vehicles. And at the moment, we have a portfolio of a little bit more than 8-meter ships. But over the next year, we will build up 2 other ship classes. So that we think this is a real, real good start into the unmanned surface vessels. And over the next years, we see that there is a potential of about [ EUR 1 billion ], EUR 1 billion to EUR 1.2 billion also on the air vehicles and also about EUR 1 billion on the land side. So in total, it could be around a potential of EUR 3 billion per year that we do with autonomy, which would be a very positive signal. On Page #7, you see that we are expanding the role of drone producer. And if you see the drones portfolio of the German Bundeswehr and if you see how much Rheinmetall is doing, we sometimes really astonished that people said, okay, what is the reason that you're not going into the drone business, because we are since 25 years in the drone business. So Rheinmetall is the producer of Aladin, Luna and [ KZO ]. This drones are qualified and implemented in German Bundeswehr. And we implemented also the Heron plus. As you know, we sold that business later, but upto 2011 -- we -- Rheinmetall implemented the Israeli Heron technology into the German Bundeswehr. So [indiscernible] years and more before we started with this drone technology and the future system that we yet we see the MQ28 was the [indiscernible], this is what Rheinmetall is doing. And on the right side, you see the different categories from Aladin to the [indiscernible] where we see a sales potential of EUR 1 billion to EUR 1.5 billion, as I said before, per year. If you have a look to Page #8, you see the partnerships. So we believe in partnerships because with partnerships, we are faster than if we go into development programs. And we are grateful also that the risk partners from the U.S. like Boeing or also Lockheed are helping us with strategic partnerships to grow into these areas. And as you said -- as we said, the Ghost Bat should be implemented in 2029, and it's impossible to develop in that short time, unmanned vehicle like the Ghost Bat. So I think this partnership can help us to grow faster. Another partnership that we signed is the partnership with Indra in Spain. And this is very similar than that what we did with Italy, with Leonardo. And there is a huge need on military vehicles and military trucks for the Spanish army, and we build up this joint venture at the moment with Indra. Page #9, you see another partnership and what one point that was missing was the long strike side. We had -- we have very good enough delivery in tank arminitions. We are good now on the drone side, but the deep strike and long precision strike, this is what we missed. So we found a partner in our analysis, and this is Destinus, Netherlands Swiss company is an European defense technology, and this is a differentiator to the U.S. defense technology. So we made an agreement that we create a joint venture with the majority of Rheinmetall with Rheinmetall Destinus Strike Systems. And this includes cruise missiles, but also ballistic rocket artillery. And the work share should be that Rheinmetall is doing a lot on the rocket motor side. We do the warhead on the warhead side, and we make the infrastructure to build up the infrastructure until end of the year to build up the whole cruise missile starting end of this year or beginning of next year in [indiscernible] the North of Germany. So if you have a look now to Page #10. In Page #10, you see that there is an intensive discussion at the moment with a lot of Middle East customers. And the -- we got a lot of calls from after the U.S. Iran conflict. And we counted the systems that we have now in the Gulf region. It's about 150 systems in the whole Gulf region, gun-based air defense systems. And we think that new systems will be implemented also in very short time. Italy is a very strong driver in this area. The Italian government is helping a lot in this area to help the Middle East countries. The negotiations with already at the moment, we try to implement modern [indiscernible] systems in 2026, but we believe that this continues and especially the ammunition, the high consumption of ammunition is the thing that really helps us on band-based side, but also on missile base side. On the missile side, you see there is a heavy use of different missile types. And that is the reason that we made that investment on the rocket motors. And end of this year, the rocket motor production in Ontolos will be ready. The rocket missile integration factory will be ready, though that in '27, we will go into a qualification. And hopefully, in '28, we can be really in full scale production. Page #11 shows that Rheinmetall is fully in line with the Ukrainian priority areas. And the areas that we discussed in the discussion was now 1.5 weeks ago with the Ministry of Defense in Ukraine and the German that artillery ammunition, defense systems, deep strike and drone technology and in combination with combat vehicles, this is exactly what we offer. And the European Union decided to release financial support package. And as you know, there is a EUR 90 billion package, where EUR 60 billion should be earmarked for the procurement of defense goods. We are in negotiations at the moment with different nations and also with Ukraine, how much we can help in that area. And Page #12 is a highlight about the disposal of the Power Systems. We are nearly finished and as said and as expected, we want to make the signing in Q2 '26. So in some weeks, we are, let me say, 95% or more, 99% ready or sharing year on the signing process. So far, [indiscernible] about the technology. And now I take over to Klaus, and he will take care about the financials.

Thank you, Armin. Q1, we showed a solid growth of 8% on sales. But this does not give the full picture of the increase of our -- the execution on operations. If we look at the buildup of inventory, about EUR 0.5 billion of material went into finish and prefinished goods that are ready to be shipped in Q2, that would help us to basically show a very strong Q2 and have basically first half of the year that is fully in line with our full year expectations. Operational results went up by 17%. So even in this increase in buildup of structures, which are showing leverage across all the different segments of our business. Overall, there was only a relatively small impact from currency on sales and on profitability. Let's move on to Page #15 to have a closer look at the different segments. Vehicle Systems grew by 3% to nearly EUR 1 billion, mainly driven by more real technical vehicles and the links in Hungary. Operational margin improved to 9.6% to a more favorable product mix. Sales growth was, as mentioned, a little bit dam through the preproduction of trucks for the German customers, where we expect the drawdowns in the coming weeks and the additional sites in Q2. Weapon and ammunition were flat at EUR 600 million. Main reason for the -- [indiscernible] was the multi incidents in Q1 last year. In Q1, as you know, this year, the Murcia plant is fully operational again, but the products that are being produced will only drive the sales in Q2. And then there was further slipover or delays in acceptance. So that reduced the sales growth. Overall, operating margin increased, nevertheless, by 0.1 percentage points to 19.4%. Digital Systems grew by 16%, mainly driven by the Taiwan project and the consolidation of now Black net that was acquired in Q1 of last year. Also here, the division showed an improvement in profitability. The operating margin now stands at 5.2%, again showing at the other divisions, good leverage. The biggest growth of all the different segments was in Air Defense with more than 30%. As a result, also the increase in profitability was the strongest from 12.5% to 15.6% with a very strong performance and shows the additional demand for air defense products. Naval Systems are now included for the first time with 1 month of sales. The business contributed already EUR 77 million of sales at a solid profitability of 10%. Overall, as mentioned, the growth grew to EUR 1.938 million in the sales, you can also see the ongoing trends that consolidation increases as basically interaction between the different segments of our business intensifies. Let's move on to Page #16. With almost EUR 5 billion of Rheinmetall nomination, it was a solid performance on the sales side. You have to remember that in Q1 2025, the high order intake or nomination of almost EUR 11 billion was strongly driven by 2 digital projects in Germany, TaWAN and the [indiscernible]. The mix in 2026 was [indiscernible] across all the different segment of the business and also fixed orders were higher than in 2005. Overall, also including almost EUR 6 billion of additional order book from the Naval business, the Rheinmetall backlog increased to EUR 73 million. Let's move to Page 17. Operating free cash flow, as mentioned was negative at EUR 285 million, driven by strong investment, especially in inventory and basically as preparation of future sales. As mentioned, out of the EUR 1 billion increase in inventory, almost half was going into finished and unfinished products ready to be shipped then in Q2. The main driver for the increase in inventory were, as mentioned, weapon and ammunition, and also air defense. And they also include, obviously, the increase in vehicle systems for the trucks to be delivered in Q2. CapEx was -- as we are already early in the year, relatively modest, but higher than in 2025. Let's move to Page #19. To have a look at basically some of the supply chain issues that we are facing. Page 18, sorry. On Page 18, we see some of our financing numbers. Our net debt to EBITDA is very strong at 0.39 multiple, driven by a very low debt. And that needs to be considered in the context of having acquired the Naval business at the end of February. That is also the reason for a slight decrease in our equity ratio, but still with 30.7% of equity ratio, we are in our strategic bandwidth that we are aiming for. So even after the acquisition, we have a very strong balance sheet and are prepared to support the ongoing growth and further acquisition if there are opportunities. Concerning the convertible bond, almost all the bonds have been converted at the end of April 2026, only 8% of the Series B, the second tranche were still not converted. We also received some positive feedback from our rating agency, Moody's, we provide an update and confirmed the Baa1 rating with a positive outlook. Let's move to Page 19 and look at the supply chain. Our energy costs only account for about 1% of sales. We have coverage of 77% for electricity and 84% of gas procurement is covered by long-term contracts. So we are not that exposed to volatility in the purchase price. On raw materials, we -- as mentioned before, we are stockpiling, actively stockpiling strategic raw materials and also support -- intensify our supply diversification to make the whole supply chain more robust or more resilient against the possible disruptions and price fluctuations. As with many of the raw material prices, we have contracts in place on the sales side that we allow for the pass-through of increased purchasing costs in some case, specifically to certain materials in both cases for general inflation and production cost increases. Let's move on to the outlook. And for that, I hand over back to Armin.

Thank you, Klaus. On the backlog side, you see that the Rheinmetall backlog in Q1 is, as Klaus said before, growing up to EUR 73 billion. We are around EUR 5 billion on the Naval side. A very positive signal is that the fixed contract are growing up. And so this is, in total, more than EUR 44 billion fixed, the rest is the nomination. So as you know, we change more and more from nomination to fixed because especially Germany wants to do that. And this is what we will see over the next weeks also for contracts for trucks, et cetera, et cetera, to get more and more fixed contracts, but also ammunition, like artillery ammunition and also a new contract, which is coming up on 30-millimeter ammunition, which is -- could be multibillions. So in April, the biggest contract, there are a lot of smaller contracts, but the biggest contract of about EUR 2 billion is loitering ammunition. And we expect that in Q2, we will have a total nomination of around EUR 20 billion. There are this final negotiation, where we should sign it in -- we should have a signing also in May because of the safe money, it's MBT in Italy. There is a lease program that we have the final negotiations with Romania. The biggest contract will be, for sure, F126, where we expect that in Q2, there could be signing for ammunition trucks, et cetera, et cetera, or the other things. And in the -- in the second half of this year, the expectation is to have around EUR 60 billion opportunities where you see Ukraine packages. The biggest one is [indiscernible] is the Boxer program, which is coming up, but also British and other international programs. If you see that we have a backlog covering of nearly 100% because it's at the moment, 97% booked and service contracts and other things are coming in, and we can serve that over the next 2 months, so that the 100% are very clear. So our expectation is that it is really that we are in good shape to have this EUR 14 billion to EUR 14.5 billion sales in 2026 if everything is in line. So the potential that is that Rheinmetall backlog could be around EUR 135 million end of this year. So how does it work that the sales is really coming up, and they -- you get an overview about what happened in '25, '26 to compare it. So we had the best first quarter in '25 ever. And in the first quarter last year, we made 18% of our annual sales. This year, we have a better quarter 1, but we are growing strong. We have a growth rate of 40% to 45%. And as you know, about EUR 300 million, what we shifted into quarter 2 is because of the truck and the ammunition what Klaus and myself said before. So we had 14% in Q1. So it will be a stronger Q2. And last year in '25, we shifted from Q4 '24, something in the first quarter '25. But in total, and this is very normal in our business, in the second half of this year, we will make 64% of the sales last year, nearly the same. We made 62% of the sales. So it's a typical year, and sometimes it change from quarter-to-quarter, but nothing that we unexpected. And by the way, we expected also in '26 that the growth rate was around the 40%. So the importance that we have is now also that we have in Q1 '25, a full quarter with log performance contribution in Q1 '26, only 1 month of the naval systems. If you have a view now to Slide 23. So we say on the full year guidance that the sales is going from about EUR 1 billion to EUR 10 billion, EUR 10.5 billion. Operational margins from 18.5% to around 19% and the operational free cash flow, we expect more than 40% about the cash conversion rate in '26. And we stay also what is our plan in 2030, and as more we book and the backlog is really growing up as better it is so that we are on a good way also to reach our long-term target. So thank you very much for your attention, and now we are happy for Q&A.

[Operator Instructions] The first question from the phone from Alessandro Pozzi with Mediobanca.

The first one is on the NBL, can you provide an outlook for the opportunities that you see in the naval business. You mentioned the 125, the upgrade, the 126, we should put in as a potential contract in Q2. And if we [indiscernible], we read about EUR 12 billion potentially that could be worse. But again, it also comes with some maybe execution risk because taking over [indiscernible] under it's been ongoing with a lot of delays and some execution risk attached to it. But also I think Romania becomes an opportunity as well for NBN. So I was wondering if you can give us a sense about potential opportunities for NBN.

Let's start with the 126. On the 126 side is we have strong negotiations with the Ministry of Defense. About that, as you know, that this was a critical program. And as a critical program for us, it was very important to have a very, very deep technical analysis. And what we did is a technical due diligence that we did together with the team of German. In this technical due diligence, we found out that we are able -- we see the way that we are able to sort it out. And I don't speak about the exact numbers, but maybe you are right in the level where we said we always said it should be a program which is more than EUR 10 billion and we have to ask for that. I think on the technical side, our team in Bremen and Hamburg is able PAUSE to sort it out the program management tools, the IT capacities that we have to guide such a program is very positive. On the 125, this is an upgrade program. We see very low risk on this area. As I said, we are not speaking about the 127 because we believe that this will be nothing for this year. I believe that the capacity that we have at the moment in the Ministry of Defense to work out such big programs is not high enough. We gave also internally our offer. As you know, we do this together with our friends of [indiscernible], but I do not believe that this will come this year. So there are different opportunities. We speak with countries like Bulgaria, like Romania, like Croatia, et cetera, et cetera, where when we took over, they came to us and said, okay, we want to cooperate with Rheinmetall, and we want to do something also in that countries to build ships. So all in all, there is a huge opportunity and another huge opportunity we see on this cooperation with Kraken. And as I told you, I have seen the production line now that we have in Hamburg. And I'm very positive that very soon we are able to produce more than 200 of that ships. We want to produce to grow up to 500 per year in different ship classes. And as you know, the higher ship classes, they also will have higher prices in that area. So there is huge potential. And what we want to do is over the next years up to 2030 to grow this label business to a EUR 5 billion business. And how does it work? It works with a vertical integration. And again, our strategic point is to grow from a workshare of 30% up to 50%, to bring more ammunitions inside, more weapon technology, more launcher technologies, simulations, et cetera, et cetera, so that then we could be nearly a one-stop shop on the [indiscernible].

Yes. Just a follow-up on the 126, -- is it [indiscernible] changes in the procurement rules? And on the 127, can you quantify what could be the potential opportunity for [indiscernible]?

Yes. So the -- on the 126, we are in negotiations with the supply chain at the moment. And the point is, for me, very clear and nothing is fixed because we bring up everything new, and this is the negotiation that we have with the MOD, the German MOD. But we want for sure we want to implement the supply chain that we had before if we get a fair price and if we get a good technology. So if we see no risk in that area, we want to continue. On the F127 in total, there is also an opportunity for a high single or double-digit billion euro.

The next question from the phone comes from Sebastian Growe with BNP Paribas.

Also one on the naval side. And on Romania, there has apparently been [indiscernible] press coverage on this one and also you released a good statement on it. So on this potential takeover of a shipyard in Romania together with [indiscernible] can you talk about the opportunity that you see there? And how can we think about the risk profile and also going forward because apparently, you mentioned the EUR 5 billion that you have on line for MBL over time. How does Romania really fit in here? And when you can start there and then I have one on the German order side?

Yes. So on the Romanian side, it's the Romanian government is asking us if we can help because they see that we need more capacities also on our side. And our calculation is that we have at the moment with the shipyards that we have under control, maybe 50% to 60% of the capacity that we need. So we have to grow. So we are looking for other shipyards for other investments. So that is the reason that we are looking Europe-wide what's possible. But the shipyard in Romania is a very big one. And we are not interested to take over everything there because it's too big, and we cannot use it in this way. That is the reason that the MSC people came to us, and they have more than 1,000 ships -- transporting ships, container ships, et cetera, et cetera. And they have -- they need maintenance shops. And if I see it right at the moment, and nothing there is no deal at the moment, yes. But if everything is going right, maybe we need from the shipyard [indiscernible] capacity and the rest is for the container ships. And we have to educate the people, but this is always the same. We have our internal education program. And that could be a win-win situation. But as you know, Mr. Growe, nothing is done at the moment, and we are still at the moment in the negotiation.

Okay. Understood. And then on the German order pipeline, how should we think about the U.S. decision to report [indiscernible] in German soil and how much benefit you and the mentioned joint venture with customers. So how does this impact your earlier EUR 5 billion revenue target that you had set out for the missile business over time? And if you could also quickly comment on how you think about the chances that come with the increased budget for '27 in Germany?

Yes. So the investments that we do on German, so we stay on that. This is exactly what we want to do. We try to find out more capacities, and we will invest also more. For example, this is what I can say that we try to build up relatively fast also in [indiscernible] or Hexagon [indiscernible] production line here also in Germany. Yesterday, I was in [indiscernible], where we have -- where we started yesterday, a huge new investment program, as you know. We doubled the capacity in the powder production, and we still doubled it again in that area with a huge investment. In total, it's an investment of EUR 450 million in total debt we do there in the powder production in [indiscernible]. So [ Bulgaria ] will be the biggest producer, I think, worldwide biggest producer also then for powder. So German soil is very important for us. And only with that investment and only with that vertical integration, it is possible to grab all of the money and to help because, as you know, a lot of companies have to invest, but only some companies really invest strong. And with that strong investment -- and we are sure at the moment that the German government really is going that way to spend this money that they have in their plan. And the German -- like Germans are if they have it in the plan, usually it works. And so with all the discussions we have with the Ministry of Defense, with the Ministry of Finance and we believe that we are on the right way to go forward and to grab a huge court. How much is exactly? I really cannot say because we have to -- we have a strong definition for this year, but we have to define for next year, what are the programs and how much we really can take into our order books.

That makes sense [indiscernible] because you just have some programs, if I may quickly go ask on the Boxer program. There has been [indiscernible] is probably the right way to put it in the sense how easy it might be to define the contractual agreements, et cetera. If you could just have a quick word on how to think about the time line?

Yes. On the Boxer side, it's -- there are 2 different ways at the moment. The Ministry of Defense discussed -- it is a direct contract from [indiscernible]. The next point is how much -- how many models should be implemented into this Boxer program, as you know, we don't speak about the figures, but there are at least there are some thousand which are coming up. Our negotiation is at the moment that we need our partner and us, we need this long-term contract because of the investments on one side. And what you see is we are investing at the moment, a huge amount of money. It's about EUR 600 million for long-term items on the Boxer program. And we believe -- and this is -- otherwise, you are not able to grow up their production lines, you are not able to grow up the numbers that we have to deliver. And if everything is running well and if we are producing in full scale, we have to produce 1,000 boxes per year, 500 from us and 500 for our partner, which is a huge amount of vehicles. I believe that in end of Q3 or Q4, we get a decision about that. And they have to make a decision. Otherwise, there will be a delay because if we get later decision then get later deliveries. And as you know, the Minister always said, we must be ready in '29. And we are not ready if we make no decisions on the contract so that I believe that the government is also in a position that they have to decide.

The next question comes from Sam Burgess with Goldman Sachs.

Just a big picture one to start. I mean you're obviously expecting very strong growth through Q2 and H2. Can you just give us some commentary on how you are seeing things developing operationally across the business? Its physical production capacity building out in line with your expectations? Do you feel like supply chain is generally in good health? Or is there anything we should be aware of that's giving you a headache across the business? That would be really helpful to know. And then the second one is actually on the JV with Kraken. I mean, if you could just give us some color on the customer requirements that you're targeting there? And I guess the initial opportunity is likely to be concentrated on smaller USDs. But you see that scaling towards larger platforms over time?

So the growth rate is we prepared a lot. This is the positive thing. And as Klaus said before, we have a lot of good ready goods in the Q2 that we can bring -- the customer has to press the button, we get the green light, and we deliver. So this is one positive thing. As I said, EUR 200 million was from the truck side. The powder is now already at the moment, the quality of the powder is good that we see no problems on the zero tests, so that everything is going forward. The capacity of the factories is in good shape. It's absolutely in the plan. What does it mean? So our factory in [indiscernible], who is producing the F-35 [indiscernible] are in time. Production line in Untolus is in line. We had a small delay of 2, 3 weeks where we had some impact on the explosives, but is not a big issue. We still have -- we work at the moment, 24/7. We are still able to do something on Sunday to bring something, but we want to produce about 140,000 rounds in that. The powder production and the modular charges in Bavaria and in other countries like also in South Africa are in full scale. Only an example about that. The modular charges that you need, and we are the biggest producer of that was over the years, always 150,000, 200,000. We are now on a level of 400,000 and we grow up to 2 million modular charges. So this is a point which is huge. And in '27, you will see the first -- it's running up now. We doubled it now, but it's really scaling up. So we will have 10x more up to 2030. And so everything is really good. The trucks on the truck side, we are ready. Everything was financed. We have a new painting shop. We have -- it's only some examples. I can give you 100 of that example. We did our homework. We made our investments, and we are ready with a lot of that investment so that we are able to produce. And we bought in with the division Naval Systems, the 200 -- more than 2,000 people, which we are really highly educated and which bring us for over the whole year, more than EUR 1 billion sales on top, and this is also part of our growth rate. So I'm very happy about that. Kraken. On the Kraken side, we start now with this 8 to 9-meter boats. But as I said, there is a 12-meter class and also higher plus. In long term, we believe it's the same trend that the airport has. On the airport side, we think at the moment, there is one F35 and there are [indiscernible], which fly with the F-35 to make the mission. On the naval side, we believe it's very similar about that. So that is the reason that we have to go in that area and that we believe also next year that we come to a higher ship cars and the first will be more than 12-meter boat that we expect. And so again, I think we are in good shape and Kraken and Rheinmetall relationship is a very positive one.

The next question comes from Christoph Laskawi with Deutsche Bank.

The first one is a follow-up on Sebastian's question on the Boxer contract. Should we expect this to be in 1 contract, 1 announcement? Or do we prepare for essentially sliced pieces or by vehicle type, more contracts in smaller sizes, but the total sum is still heading up to the amount that you flagged? And then the second question, a very long-dated one. But if I understand it correctly, obviously, you had discussions with your customers for fixed cost sharing and potential payments to keep capacity ready in future years, especially for very fixed cost in terms parts of your businesses could be, I think, quite a good solution once growth will slowed down. Could you elaborate a bit on how that could work? What kind of cost sharing one might expect? And is it largely Germany or also other nations that could do something like that?

So on the Boxer side, the first offer that we gave was a frame contract for all different types. So this is the first thing that we gave to [indiscernible]. And this is exactly what we said. The total amount for both companies, which was nearly EUR 80 billion. So there is a discussion at the moment if we should carve out some of the types to have, let me say, a better risk management, et cetera, et cetera. This is at the moment in discussions. There is, for me, very clear that there is a huge need and nobody at the moment is discussing about that. There is no need. But if whatever will come out from the risk analysis from the customer for us, it will not have a big impact because the total frame contract is a contract up to [ 35% ]. And if we reduce that, and if we come now to get contracts up to [ 29], this is also very helpful from other side because we have it for the next 5 years in the order books, and we are safe also on the production. As I said, we invested in between EUR 600 million, and we -- it's not all paid. It's not all cash out, but some of them for long-term items for the Boxer, because if we don't do this, we are not able to produce hundreds of boxes per year. And the -- we, as the 2 companies are fighting at the moment to have this long-term frame agreements with a fixed contract that would be at the moment on the level for Rheinmetall between EUR 12 million and EUR 13 billion. Fixed cost sharing. On the fixed cost sharing, we have one discussion with the government, especially on the ammunition side. Because the government wants that on the ammunition side, we still should grow on -- to build up the capacity to have a [indiscernible] on 1 side on the -- in the stocks with goods ready ammunition. And on the other side, to have materials that we take into our stocks. And where we have extra capacities in the production line that we can grow up the production very fast. So for example, that we are able to start in 5 months to produce 20%, 30% more. So my question was, okay, if I have overcapacities and if I have this material to pay for that, and the government at the moment, and this is still a concept. It's nothing in contract. It's still a contract that we discussed with the Minister of Defense to say the government will pay the material, and the government will pay us if we have higher capacities and underutilized machines, we are on the -- in the calculation phase how it was. It's not ready. So that is the reason then I can give you more information about that.

Next question comes from Benjamin Heelan from Bank of America.

First question on the offers that you're making for shipyards, right? You obviously highlighted in the presentation the German Naval Yard, you've talked about this. Yard in Romania and [indiscernible] has historically been a very difficult business for most of the naval companies that have done naval. So how are you going to manage the risk around these shipyards? How are you going to manage these programs now we're just absorbing all of your time? Like how are you thinking about that? Second question was on Boeing and the MQ28. What exactly do you envisage yourself and Rheinmetall doing on that platform? If you could outline what that could look like? And then also, we've not heard an update on the missile venture with Lockheed recently. Just wondering if you can provide a bit of an update on how things are progressing? Are you still waiting for the U.S. approvals and where we are on that?

So on the shipyards, we really analyzed what we are able to do with our team. So -- and what I see is that the 2,200 people that we have there, especially the management of the division is very [indiscernible]. And that is the reason that -- and you see it also, even if we had only 1 month there. We still have an EBIT rate of about 10%, so which is a lot of people say it's impossible to make 10% with a shipyard in this area. This is because of good digitization. They -- this is that we are able to make sales with, let me say, maybe less people than others are doing there. And this is because of the program management that the people have and the program management skills, we have some very good IT programs also for the program management. It was very, very positive when we -- when we had a look into this factory. So it is possible, and we will see this year, it is possible that we start as the shipyards always need with good profitability and that we are good in handling the programs. So taking over other shipyards -- it's better to take over a warm shipyard. So with one shipyard needs that you have people who are really able to do it, who know what's going on. But to reduce the risk is that we have to educate them. We have to give them the same skills that we have in Hamburg. The same skills that we have in Bremen or that we have in our other shipyards in Germany and around the world. And this education and communication program is key for me to give them the same know-how level than we have at the moment in our shipyards. On Boeing, the Rheinmetall has to be and must be the point of contact for the Germans. We are the program managers. We want to make the service. And we want to also to do some production because we have [indiscernible] we have a production line that can handle U.S. data. So we have terabytes of U.S. data, secret data from the U.S. government in Weeze, which are safe on our service. This server is highly protected. It's certified from the U.S. government. And so we see it very positive because our relationship to the U.S. companies brings us a good opportunity and a good advantage to handle the data. And that we are able to produce something everybody knows because what we did in 16 months to build up this production line in the American we're very positive about that. And some weeks ago, the [indiscernible] had a look into the production line. I said it's outstanding what you guys did in 1.5 years. And so we are very happy and very positive about that. So missile. On the missile side, we have at the moment because we don't want to be dependent from 1 side. We continue our activities with Lockheed, but we are looking for a good business case on the locked side. So the numbers of missiles must be big enough if we implement that into our production lines. So that is the reason that we have a look to different partners. We speak at the moment with [indiscernible], about ship missiles. We speak about [indiscernible], and we are very near to have this joint venture. We speak with other producers of missiles to do the rocket motors for them and maybe also the warhead. So at least 5 to 6 different partners we want to have to fill our production line. End of the year, the production line of the rocket motors will be ready. And in 2027, we want to qualify these rocket motors that we are ready end of '27, beginning of '28 to produce this rocket motors. But not only the rocket motors, maybe to have also the full assembly. The assembly of missile is not the complicated stuff. The complicated stuff is the rocket motor and the warrant and some of the electronics for sure reaches there. But you see then that we are not looking only for 1 source. We are looking for different sources to fill our production lines where we, at the moment, invest a lot of money. But I think very, very clear that there is a huge need at the moment for Rheinmetall and the huge need of rocket motor, and that is exactly what our strategy says and that's the reason that we invest. That's good enough for you.

No, that's helpful. Just one quick follow-up. Is there a reason then the Lockheed venture wouldn't be able to fill up the motor facility in until because of the -- when you look at the Lockheed missile portfolio, it's very broad. So is it they only want to work on certain programs, not the whole suite of platforms? Is that what's going on?

What I want to do is I want to cooperate with not only one. I want to cooperate with more, and I want to have it on a broader base, and that is the reason that we speak not only with Lockheed, we speak also with others. But as much we can do with them, we will do. If you ask me if I'm happy with the progress at the moment with the U.S., no, I'm not. I'm usually faster. And so you see that we again build up in 12 months, the production line about that. I thought that we could be faster also on the qualification. But that as we look for different partnerships.

The next question comes from David Perry with JPMorgan.

I have 2 questions. First one is quite a long question, I guess, it's on ammunition. So we're getting a lot more questions from investors about whether Germany and Europe are going to buy as much ammo as perhaps you'd hoped for because of the rising use of drones. So it'd just be helpful if you could give us an update on a few things. One of them is, will the book coverage you've got for the next 5 years? Are the prices locked in? And something that I can't find good data on, but you may have insights on our [indiscernible]. What is the current usage of [indiscernible] If you could help us on those things, that would be fantastic. And then my question -- can I just [indiscernible] question? Or should I hold and wait till you do to the first one?

I'll give you an answer, and then you have as much time if you want to [indiscernible]. So on the ammunition side, so we are, at the moment, fine with the German contracts. So the German contracts that we expect now is -- for the -- there are different lots that they order. For the -- we call it lot #9 will be in negotiations between 100,000 and 120,000 and then another [indiscernible]. This is much, much more than they expect in the future, but this is the near time orders that will come. On the price side, we are fine. There is -- and as I always said, the reason for that is because our price is better than the price of our competitors. And the main reason for that is automization and vertical integration, discussed it several times with you. So the other point is that a huge amount of medium caliber will come now. And as you know, there are huge programs for inventory fighting vehicles in Germany. The Boxer is an inventory fighting vehicle on Boxer chassis. And you need and we produce, as you know, the guns for that and especially the [indiscernible] ammunition, where we have -- where we are also a sole source. There is nobody at the moment who is able to produce it. So on the medium caliber, we expect multibillion contracts also on the medium caliber because they need something for restocking. And on the restocking side there, as I said, we need years -- a lot of years of that. At the moment, the backlog that we have on the weapon and ammunition is on a level of EUR 26 billion. So this is the backlog that we have. So this is good for some years, but we will fill it up. It is a part of our growing strategy. And there is only small numbers for missiles inside because we have some smaller contracts, 70-millimeter missiles, smaller contracts. As you know, EUR 200 million, EUR 300 million for rocket motors. But it's not -- it's small in comparison to the rest that we have. So I'm fine. I'm fine with the level of the order book and then fine also at the moment with the price.

So can I just clarify a couple of things there. One, if you do have any insights as to just how much artillery is being used at [indiscernible] just the other one is the EUR 26 billion order book you gained. I think that's the frame backlog rather than the firm backlog? [indiscernible] If Germany or other countries change their view? I'm not saying it will, but just if they were to change their view because of growing and evolving trends in the battle thing, can they walk away from that frame back book?

At the moment, I've seen -- I have no signals about that. And I can also tell you why. So the Ukrainian war at the moment is because of this, let me say, gray zone or black zone or however you call it is 35 kilometers above that. There is a huge use of drones and unmanned vehicles, et cetera, et cetera, because it's a stack war. I had a lot of discussions with Germany. So if Germany or NATO is involved, that never will happen. Never -- there is never -- it will be never with nature of [indiscernible] the first world war. This is at the moment a typical situation between Ukraine and between Russia. But I think it's too deep that I go into all the strategic points. Maybe we have some time [indiscernible] on the next conference about that. This is, I think, too detailed about, but there is a mixture. It must be a mixture of ammunition. So drone is one ammunition. The ancillary need on the Ukrainian side. And I spoke still with the Ukrainians and the need that they see, and this is also something. They don't need -- and this is very simple. They don't need a ammunition, which has a length of 12 or 20 kilometers. Because if you have that, you cannot overcome the death zone. So you need now a long range of ancillary. This is 1 point that the Ukrainian asked for, and they asked for 1.2 million rounds per year. And the -- they do not have enough at the moment. And what we know is that the short range of ancillary, they do include the stocks at the moment because they don't need it. But we are -- it's beautiful for us because we have low range ammunition. We have a lot of long-range ammunition up to 60 kilometers in this area. And I believe for the next budget around, we will have and we offered now, again, some hundred thousand rounds for the Ukrainian via different countries. So at the moment, I do not see that 155 is going down, but there is a need -- a lot of need and the Germans know it, say, okay, we need high-technology rounds. We need long range, right, and we need to keep ammunition. And cheap ammunition is grown, and we combine that. And the drone side is especially for the [indiscernible] side, but also in some areas, but these are then more cruise midsize or long-range drones about that for the precision dip strike.

All right, to be answered. If I could ask my question to Klaus. Klaus, you've got its guidance for EUR 2.8 billion of CapEx this year. I mean it's a massive number. I just wanted to check my understanding if I'm wrong, please correct my understanding is this is a gross number because you're including in that all the JVs, but it's 100% share. If I'm right in that, I think I'm not embarrassing myself and I'm wrong, but if I'm writing that, is there a mechanism you're going to get reimbursed? And so when and how, how would it flow through [indiscernible]?

Yes. You're absolutely right. The main driver for the significant CapEx number that we anticipate for 2026, the projects within joint ventures. And the mechanism where we would be -- would get contribution from the JV partner would be through capital injections. So we get basically a capital contribution as equity, and that would be part of the financing for the additional CapEx...

And we see that -- how will we see in [indiscernible] you not know?

In 2 ways, of course, you would see it in the cash flow -- in the capital section of the cash flow statement. But because it is such a big number in case we do have these large investment programs, we will provide you with specific information how much of the capital contribution is related to such projects. We have only done so at the financial statements for 2025, where we provided this additional piece of information. And if this is significant in 2026, we will do so as well.

David, we have also, at the moment, a very, very strong program to cut the costs. And we found some areas where we really can reduce prices also into our investments, so that I believe there is massive potential to have a better cash flow in that area.

The next question from the phone comes from Adrien Rabier with Bernstein.

Could you please quantify the merchant and the truck delivery impact in Q2? I guess my question is we're all expecting to see backlog translate into very strong sales growth. So how confident are you that the inflection will actually happen in Q2 and what's going to drive it?

Yes. So one of the point is, as I said, we have a growth rate in Q2 in comparison to last year, as I have shown you in the presentation, which is the best Q2 ever in this area. And part of that is that our expectation is that the customer really gives the permission to deliver. There are different problems on the customer side. Sometimes the customer has not enough driver to take over the -- it's massive of trucks, hundreds of trucks that we deliver. Sometimes, there is a contractual part, I should say, I want to have it in that month. And number 3 sometimes is a contractual part that the frame contract is coming later. So the beauty is that last year, we had the problem in December. And now we switched it from December and January. This year, we have a point in the first half of the year, but we believe that we have, over the next 2 months, a final decision about the deliveries of the trucks. But what we do is, and this thing is also very positive. We continue production because there is no risk because the customer -- the customers, it's not only Germany. It's a lot of customers, they need these trucks. And with continuous production. And with that continuous production, we have a good leverage effect so that the profitability is fine. If you would stop. If you would start again, maybe we could have a better cash management in that area, but that wouldn't help us on profitability because going down, coming up, it has quality problems, et cetera, et cetera. So in total, the numbers of trucks, and you will see it over the next weeks, we will sign new contracts on trucks, thousands of trucks, which are coming up, and we are totally relaxed about that.

The next question from the phone comes from Sven Weier with UBS.

A few questions from my side. I'm afraid I have to bother you again on the Boxer [indiscernible] contract and the F126, because on the Boxer, I mean, I understand the procedural questions around [indiscernible] and the procurement office and maybe some slicing and dicing on the contract. But what is your sense of maybe fractions in the MoD having second thoughts in general about buying tanks in general, and that would obviously be the biggest order in the history of the German army and how much they are maybe afraid of the media feedback if they are seen buying tanks was EUR 80 billion. And then people ask them why they're not investing more into new technology. So are you getting a sense that they're having second thoughts because of that. And that is actually delaying the process, and should you not be able to also get more political loving because, I mean, [indiscernible] has done exactly the same as you in terms of investing into Boxer production. So shouldn't you also get like the [indiscernible] on board to do the right amount of lobbying for the contract in Merlin. Is that your sense that is it happening?

I believe, we do a lot of lobbying in that area. And this is -- I do not see -- so there are always very funny discussions about that thing. If you think that the Boxer with a modern inventory fighting vehicle target or a Boxer with a modern air defense kind is not a new technology. So what is new technology, if the people say the new technology is to create some software, we do this, but this is in these vehicles. And you cannot fight with software. So this is -- it's always funny if the people say, okay, what are new technologies. And look, what we are doing, we do -- we do know long straight. We do missiles. We do drones, and we sign more contracts about that thing, but you need vehicles if -- and the point is always speak with the Chief of the German Army, speak with the politicians to say, okay, what you need is logistics. What you need is safe transportation of troops, you cannot do everything like in a death zone with very small vehicles, which has nearly no price. And as I said, it's not my words. It's a word of general [indiscernible] also that we had on the Hanover exhibition that to say a really cheap stuff, and we need high-tech stuff. But the cheap stuff at the moment, mostly that this is high tech. And this is a differentiator in thinking about that. So I believe we need a mixture. And the mixture is to have high-tech vehicles to have high-tech ships. And it would be the same if we would say we don't need submarines and we don't need [indiscernible], but very soon, we only have unmanned vehicles. That will not happen for the next 20, 30 years. And the same will be on the land side. So therefore, I'm relaxed. I don't know how much they really in the first scale order, it was planned, and that is what we offer to have a fixed contract from Rheinmetall side of about 12 -- a little bit more than EUR 12 billion. And we are still -- this is the only offer that we gave. And if the customer is coming back and said, okay, we want to change something, we will see. But I can say not more at the moment about that because that is what we did. F126, so what was the real question about the F126?

I mean the question for me was more -- I haven't asked it yet, but the question was that kind of -- because you sounded like you're still sorting out supply chain, you're still discussing with the customer because it didn't sound to me like the order would be really ready for the budget committee in Q2 then, right? If there's still quite a few things that you need to iron out with supply chain and with the MOD?

The order is ready. We gave the order to the Ministry of Defense. So we gave it, they have it. And if they make tomorrow a decision, then we can sign the contract. The order is ready. What we did is we created for sure, a risk package around that thing. And the point is that we have also from our supply chain, also the offers. But with some of the offers, we know that we have to make a renegotiation.

Other question I had was just coming back on the Lockheed corporation. I mean given the consequences also of the Middle East conflicts, I mean, is your impression maybe also that Lockheed wants to pocket the profit for themselves and don't want to share it, and that's kind of slowing down the process. And I think they also need some technology transfer approval from the U.S. government. Is that maybe also behind why it's going slowly?

There are 2 things at the moment. Government is one thing. The other thing is really the expectation that one or the other company has about the monetary packages of transfer of technologies. I cannot pay everything. So what I want to do is I want to have, let me say, a fair also package about that thing. And this is what also takes some time. I'm not negative about that. The only thing is what we usually do, and this is what I said. If I can build up in 12, 14 months ammunition factory, it should be also possible to implement the technology that we have in that time.

Final question for me, if I may, just on the [indiscernible] because that hasn't been discussed at all today and in the previous calls. But just was wondering, of course, it has a place order in the '27 budget. I mean how you're seeing the progress on the program. Do you also sense that maybe U.S. is kind of rethinking it in terms of how many tanks they actually need? Or how things are going?

Yes, we are a full [indiscernible] on that program. So the prototypes are running to the army. The first tests are positive. And as I said, I believe beginning of '27, maybe end of '26, we have an indication of who is the -- which is the preferred system. I personally believe that the U.S. wants that. They have not new technologies. They have the same decision in the German and other major countries. By the way, the [indiscernible] very, very clear that how many tanks, how many logistics [indiscernible], et cetera, et cetera, we need. This is nothing changed in that. So -- and the Americans need that also. So I'm still positive that this program will come. If they really order at the beginning, 3,000 or 3,500 vehicles, I really don't know. And this is also not my expectation. But if they only order 1,000, it's a great thing.

The next question comes from George Mcwhirter with Berenberg.

I got 2 [indiscernible] brief ones. Firstly, on the European Union, EUR 60 billion defense support package for Ukraine. Can you just comment on how much of that you think Rheinmetall can capture? And the second one is on air defense. So you're seeing quite strong demand for your products currently. Are you considering further capacity expansion in our defense than you previously outlined? Or are you sticking to your current plan?

Yes, European Union, the EUR 60 billion, I really cannot say at the moment how much it will be. What we did is we offered -- we gave a catalog. We gave a catalog with our capacities to European Union, how much air defense system, how much ammunition, how much drones, how much interceptors or whatever we could deliver. This is coordinated by the Office of the Commissioner in the European Union. So now because you know that the money is still not really running. The first money would be for about EUR 5 billion for the factories that we and others, which you have in Ukraine to have them and also the Ukrainian drone program that they can go forward in this area. So if I would say, yes, I really don't -- I really cannot say how much from the [indiscernible] at the moment either. What we offered is huge, but what we get, I can give you a little bit later. Expansion or capacity expansion we need -- and this is what I told before. We need more capacity again, and this is -- that is the reason that we invest on powder. And on [indiscernible] so as I always said, is Hexagon and Octagon. This is the next investment that we have. And we will make also an investment on base bleeds, and we will make an investment also on the laser side. These are the 4 things that we go forward and maybe also on AP, [indiscernible], maybe we invest in Germany, and the rest will be invest than in Europe. But we only do it if we really have then 100% vertical integration of everything, what's going -- what's going on there.

That's really helpful. Just a quick follow-up. You potentially looking to increase capacity expansion of the products in [indiscernible] Sky range and Sky Gaurd systems? Or is it any really the ammunition that might be -- might be for increased?

No, no. We won't -- at the moment, we have -- we build up a capacity of 400 Air Defense systems per year. And with that 400, the total capacity or the total sales if we are fully booked about that could be more than between EUR 4 billion and EUR 5 billion, so that we have to grow up on the defense side. And on top, we have, at the moment, build up a capacity of nearly 1 million of air defense rounds. And because we need that for air defense, but also for the inventory fighting vehicles, I think we have to invest more especially into the fuse production and the medium caliber production in this area. So -- but these are not huge investments that we have to go to there. It's the beauty is that we did all the investments on the ammunition. This is the most expensive side. On vehicles, on air defense, on electronics, the investment is much smaller than on the ammunition because on ammunition, you have to make a chemical plant. You have to build up an asset plant. You have to build up big mixers, you have, yes, a chemical factory and these are huge investments. If you want to produce vehicles, yes, you have to buy some tooling. They have an either production line in that area, and I have to have the supply [indiscernible] control.

The next question comes from Marie-Ange Riggio with Morgan Stanley.

I have a few follow-ups basically. The first one is on Germany because you mentioned the recent German package of the [indiscernible] 3 different phases. Can you explain us how do you believe Rheinmetall will be placed in terms of project exposure or potential growth for each player. So that's the first one. On air defense, again, it's a very strong quarter across all the metrics and especially on your phase because it's above [indiscernible] your sales growth expected for the year. So how should we think about the [indiscernible]? And is there like any indication to believe that guidance is a bit conservative, especially with a higher and unexpected demand from Middle East? And the last follow-up is on the U.S. and beyond the X30. Is there like any recent development in terms of opportunity across any offshore activities, given the fact that we are seeing quite a significant increase of the U.S. project?

So in the 3 different areas on Rheinmetall, I think Rheinmetall has to be and will be one of the main players here in Germany about that. We are, at the moment, and we will continue, especially because we are now also in the satellite business, we are now also in the naval business, et cetera, et cetera. So we have all domains, and we will be a good service partner. And at the end of the day, and this is the point to make our customer happy. We have to serve the customer and then you play a good role in all 3 areas where the German government wants to be up to 35 or 40. So I'm very sure about that also in service and other things in the logistics. If you see what we are doing at the moment also to build up for transportation, for ammunition, for storage for vehicles. As you know, we have to store vehicles because if we have -- if we get all the vehicles and if we have 200,000 people in reserve, you have to store it, you have to maintain them, maintenance them. And you only can do it if you have the IPRs and the know-how of these vehicles. Otherwise, we are not able to do it because they lose also guarantee. And so I think we play a really a very strong role. On the air defense side, yes, I believe there is a huge need on the Middle East side, but not only on the Middle East. There will be a game changer on how to fight against drones. And it will be a mixture, and some of them -- a lot of them will be drone based. And it's not only at the air defense system that we have at the moment. We offer now also a new defense system, which is where we produce with other calibers, maybe 25 millimeter, but also with 0.50 with acoustic sensors where we fight automatically, and this is a small robot who is doing that fighting automatically on vehicles against that. This is new demos that we gave to the German government now or will give over the next 2 weeks. There are huge more opportunities on the air defense side. So at the moment, the drones, the category 1 drones are very dangerous. As you know, in the Ukrainian -- in Ukraine, they take these net. There are 3 areas where the small fishnets are inside. And with that net, they catch them. And in the future, there will be very cheap systems as we said. We have, for example, a 40-millimeter hand gun, which is where we are able to catch drones if the soldier -- if the inventory guy is running around. So there are a lot of new technologies that are coming up because, you know if there is a guy who is acting who is giving you also a new threat, you have to fight against that. United States of America, it's XM30. It's [indiscernible] we offered now also the ancillary program. This is the RCH. Rheinmetall offered that because we have to [indiscernible] mitigation in the United States. We offered autonomous vehicles. We offered a new gun technology, which they want to implement about that. There are minimum 10 programs. We have huge programs on the missile side because the U.S. want to produce much more missiles. Rheinmetall is a component producer for missiles in the United States. So lock performance is producing components for the United States. So you say, Marie-Ange, it's huge. It's a lot of programs that we offer there.

The next question comes from Afonso Osorio with Barclays.

I have a couple as well. The first one is on this [indiscernible]. Correct me if I'm wrong, but looking at your previous slides from the CMD last year, you had the pencil contract to Italy falling in 2027, but now you have this falling in the second quarter of this year. I just wanted to confirm the exact case and also the potential size of that opportunity? That's the first question. And then secondly, like bigger picture, given the significant increase in the German budget next year, just wondering how can you -- how are you thinking about your long-term targets? Is there upside for the long term because of that outfacing 2027? Or do you think it's still too early to say?

Let's start with the second part. I think it's still too early to really say how this is going to develop. Regarding the reconciliation for our order backlog. As we mentioned in several times, there are always some movements, some shifts. But overall, we can confirm positively the guidance that we provided already in the last year of EUR 80 billion order intake for 2026 that would take us to an order backlog by the end of the year of EUR 135 billion. So there are lots of additional opportunities are moving around, but that is our best estimate as of today. Does it help?

Yes, it does help. Just to confirm with the [indiscernible] contract that was expected before in 2027. That definitely this one in [indiscernible] , right?

We have it on the Page #21 as part of the EUR 18 billion [indiscernible]?

And what's the size of that one? If you can confirm.

It's a [indiscernible].

The next question comes from Chloe Lemarie with Jefferies.

I'd actually like to follow up on Ben's question on the missile [indiscernible], should we assume that the JV business would be able to replace what the Lockheed marketing would have contributed to the EUR 5 billion revenue project if it doesn't materialize? Or is it exactly the same scale from your perspective? On my second question, if I could ask on the F126 order, how long should we assume from the order until it starts hiking to revenue? And what would be the revenue rent profile? Is it like a step -- step change? Or is it like going to be a progressive right?

So the missile is an add-on. On the missile side, it's an add-on to that, what we have. As I said, missile are -- as a businessman, you will not take all the eggs in 1 basket. So what we want to do is if we invest between EUR 100 million and EUR 200 million into rocket motors, if we invest EUR 50 million into an assembly hall to make missiles, I won't be sure that we can fill this factory. So that is the reason that we are looking for different partnerships. Lockheed was one [indiscernible] be another one. We are in negotiations with them if we can do something. European partners want that we have the European sources. They want that we do something and that we build up capacities here in Europe. And it's a win-win situation also for the Americans because as you know, the American capacity is not so high that we have -- that they have a problem also to deliver. So what we want to do is we want to make risk reduction program that we do not have factories which are not fully filled even if the need is huge outside. And we want to call it a qualification programs in different areas. So take the risk data. F126. On F126, if we sign the contract, we will have the POC mechanism in this area and with the POC mechanism, we will -- we can book sales not immediately, but over the first year and then year by year. So what we want to do is we want to have a ready ship in '29, and we want to have ready for sale in '31, latest '32. This is what we want to do, and this is what we speak at the moment. '31 would be possible, if we make parallel qualification programs with the German Navy and our internal qualifications, but we don't want that, let me say, all the sales will come when we deliver the ships because we have a lot of cash and also the cash must be in milestone payments above that. So we take care about that. Otherwise, it would be bad for us.

The next question comes from Joe Orchard with Rothschild & Co Redburn.

Just one question on my side. And it's one of our ammunition really and the competition there with the JV between deal and [indiscernible] getting the green light to proceed. I guess, how do you think about the long-term competitive landscape for 155-millimeter artery production and how well protected do you think your market shares are there?

Yes. So on the 155, it's -- I think always it's very important how much capacity the different companies work out. Are you aware how much capacity they build up?

No, not at this point.

So I can tell you it's a different scale that we do. And I'm not responsible for that company. But I think if you really ask for that, you will see that this is another category of ammunition production on 155. We still think that with our investments, with our automation, we have a very good situation because of the pricing of the costs that we have and the vertical integration, which most of them they do not have. And I love competition.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Armin Papperger for any closing remarks.

Yes, ladies and gentlemen, it's again a pleasure like always to discuss with you. I'm happy to see you again in the next conference or in the next fireside chat calls. Thanks for your time. Thanks for your interest in Rheinmetall. Stay with us. My whole team will do really the best to make our customers happy. Thanks for your time.