Rheinmetall ready to ship Saudi trucks as defense drives profit

The logo of German defence and automotive group Rheinmetall AG is pictured at the company's headquarters in Duesseldorf, Germany March 15, 2018. (Reuters)
Updated 13 March 2019
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Rheinmetall ready to ship Saudi trucks as defense drives profit

BERLIN: Rheinmetall is ready to ship 120 military trucks to Saudi Arabia as soon as Berlin decides on an export license the German firm said on Wednesday as it reported a 40 percent rise in full-year profit driven by growth in its defense business.
The German government imposed an arms export embargo on Saudi Arabia following the killing of journalist Jamal Khashoggi in October, leaving the Rheinmetall trucks deal, which is worth 136 million euros ($154 million), in limbo.
Despite the uncertainties surrounding doing business with Saudi Arabia, one of the world’s top arms buyers, Rheinmetall said its defense division, with a record order-book worth 8.57 billion euros, helped lift net profit to 354 million euros, beating an analyst consensus forecast of 277 million euros.
“Germany has to make a decision,” Rheinmetall CEO Armin Papperger said, adding that it was not necessary to sue the government as German law determined the compensation Dusseldorf-based Rheinmetall would be entitled to.
“According to the law, I would be allowed to deliver today,” Papperger added with reference to the military trucks.
Berlin, which has repeatedly said it was aware of the urgency, has said that it would decide before the end of March whether to extend the embargo.
But Berlin’s governing coalition appears divided between Angela Merkel’s conservatives and the Social Democrats who want to impose a ban on arms exports to Saudi Arabia.
Rheinmetall, which said it will propose a dividend of 2.10 euros ($2.37) per share against analyst estimates of 2 euros, is targeting revenue growth of 4 to 6 percent in 2019, mainly by driven by its defense units. It aims to maintain its operating profit margin at around 8 percent.
“Noticeable contributions to grow from the Automotive division cannot be expected in fiscal 2019,” Rheinmetall’s executive board said in its annual report, adding that global defense budgets, on the other hand, are set to increase.
Rheinmetall expects defense sales, which contributed around 52 percent of total sales in 2018, to rise by as much as 9 to 11 percent, while automotive sales are expected to only grow by 1 or less this year.
The operating profit margin of its defense branch should rise to 8.5 percent from 7.9 percent, while its automotive branch is expected to fall to around 8 percent from 8.9 percent in the previous year, Rheinmetall said. ($1 = 0.8853 euros)


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
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Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.