Rheinmetall: A Record Half-Year with a Downside
Rheinmetall reported its half-year results on August 6, and at first glance, they look positive. Consolidated revenue rose by 39% to EUR 5.227 billion in the first half of the year. The strong performance is primarily attributable to the second quarter, which alone delivered 69% growth to EUR 3.289 billion. Operating profit increased by 74% to EUR 786 million, significantly exceeding analysts’ estimates. The operating margin reached 15.0% for the half-year and 17.1% in the second quarter alone—a new record high. The order backlog stands at approximately EUR 80 billion, with new orders rising to EUR 16.2 billion—an increase of 28%.
The flip side of the coin is operating free cash flow, which slipped to minus EUR 1.616 billion. This represents a decrease of approximately EUR 1.0 billion compared to the previous year. The main reasons are significant investments in new capacity and the build-up of inventory to fulfill existing orders. In addition, the Group was hit hard by the loss of the F126 naval program. The cancellation resulted in a shortfall of approximately EUR 20 billion in new orders. Consequently, Rheinmetall expects a revenue shortfall of up to EUR 300 million in the naval sector this year. The full-year forecast has been adjusted accordingly to between EUR 13.7 and 14.2 billion. Management has responded to the weak operating free cash flow and plans to invest only 8 to 9% of revenue in the future, down from the recent level of around 16%.
In addition to vehicle autonomy, Rheinmetall is increasingly focusing on drone technology. In July, a project was launched to integrate the control of reconnaissance drones and ground-based systems, with PATH AI serving as the central control unit. This was followed in August by the announcement of a strategic partnership for tactical micro-drones that can be seamlessly integrated into the digital battlefield. Accordingly, the opening of the British Center of Excellence for Autonomous Systems was expanded to include a focus on drones. With this move, the Group is underscoring its ambition to supply entire system networks comprising air and ground platforms in the future.
Volatus Aerospace: With New Partnerships
Volatus Aerospace is in the midst of a transformation. The company originated in the commercial pipeline inspection sector and has recently evolved into a defence technology provider. Production capacity has been significantly expanded with the opening of the 53,000-square-foot production facility in Mirabel. The first production lines for docking stations are already up and running there. The V-Series is also set to go into production here in the future. Management estimates an annual revenue potential of up to CAD 250 million from this facility.
The most recent collaborations are particularly exciting. The strategic partnership with Kraus Hamdani Aerospace brings the K1000ULE into play. This is an ultra-long-endurance unmanned aerial vehicle with over 6,000 hours of operational flight time on US military missions. On August 4, the companies announced their joint plan to introduce the Singular Aircraft FlyOx 1, a heavy amphibious aircraft for wildfire suppression with a 1,560-litre fire suppressant capacity, in Canada. Both agreements not only expand the company’s areas of operation but could also help maximize capacity at the Mirabel manufacturing facility in the medium term. This is a smart move, as the Canadian government has decided to allocate 70% of its defence spending to Canadian manufacturers.
Most recently, the company reported its second-quarter results. Revenue of CAD 8.4 million represents a 49.5% increase compared to the previous quarter. The result would have been significantly better had a defence contract worth CAD 2.6 million not weighed on earnings. The gross margin fell to 29.3%, due to a shift in the product mix. With CAD 59.2 million in cash, the company has sufficient capital for its next phase of growth. The company has set the course. Now the focus is on translating its capabilities and partnerships into growth.
DroneShield: With New Technology
On August 10, DroneShield unveiled RfRecon, a new generation of its drone defence technology. This portable radio reconnaissance solution combines broadband spectrum scanning with the company’s proprietary AI analysis, RfAI-3, and enables the continuous detection of radio signals ranging from 100 MHz to 7.1 GHz. It is set to be the first generation of the platform to generate recurring software revenue, currently projected at 10–15%. The company has recognized that hardware sales alone will not convince investors in the long term. A service and subscription model would give investors greater peace of mind due to its predictability.
At the end of July, the company announced a AUD 23.2 million order from a European military customer for vehicle-mounted defence systems. With a secured revenue volume of AUD 206 million, the company has already reached 95% of last year’s record revenue. The gross margin in the first half of the year was estimated at 60%, slightly lower than in the same period last year. While the company forecasts revenue growth of 15–25% for 2026, analysts at Jefferies have set a price target of AUD 2.05 for the stock. They lowered their forecasts by about 16% because too few major orders were announced.
The market for drone defence is growing rapidly. In the US alone, USD 21 billion is earmarked in the 2027 budget proposal. With customers in over 70 countries and 500 employees, DroneShield has established a solid position. However, the high short interest of over 12% and the ongoing ASIC investigation are weighing on investor confidence. The coming months will show whether the new product platform can gain traction and generate the major contracts that analysts are hoping to see. Additionally, the question remains whether the business model can successfully shift toward recurring revenue.
The drone incident in Leipzig reveals a dangerous security vulnerability—while simultaneously fueling a billion-dollar market plagued by regulatory grey areas. Rheinmetall shines with record figures and margins, but is struggling with negative free cash flow and the loss of the frigate contract. Volatus Aerospace is driving its transformation into a defence provider with new production capacities and partnerships. DroneShield is banking on recurring software revenue and a major contract, but is weighed down by analyst skepticism and regulatory investigations.
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