The first quarterly financial report for 2019 is in, and we conclude that Heckler & Koch continues to fight their red numbers.

In July 2018 TFB reported that Heckler & Koch were in financial trouble, in Heckler & Koch fights for survival. It’s not the first time either (2013), unfortunately.

Despite the increased business and large order intake, Heckler & Koch continue to make a loss.  

Recently the staff of Heckler & Koch voted by a very narrow majority for a wage waiver, so that the company can get some relief.  For instance, the weekly working time was increased by 2.5 hours to a total of 37.5 hours. Also, there is no extra money for overtime work, and additionally the planned one-off payment of €400 per full-time job scheduled for July was canceled.

I sense that the feeling on the shop floor might not be the best, and you can read more details in TFB’s article here.

The Union has pointed out that there are also a lot of obligations from the management, with heavy investments in the German Oberndorf site as a safeguard for future employment and the company’s ability to innovate.

The good news is that the sales in the first quarter of 2019 have increased compared to the same period last year. In addition, productivity has improved.

The stakes are high, and H&K has great hopes and expectations in a major order from the Germany Bundeswehr (Army), as the standard issue G36 rifle is to be replaced by a new model.

This decision could be made at the end of 2019, but probably it is going to be delayed until 2020.

H&K have recently criticized the tender and suggested that the tender should be for 7.62 NATO caliber rifle instead of 5.56 NATO. (Source in German) As you can understand, TFB may return to this subject in the near future.

Does it mean that H&K think they have a stronger position in the 7.62 NATO segment? Their 5.56 NATO lineup isn’t exactly weak, and it would be a step back to the H&K G3 caliber.

Below: Field-testing the Heckler & Koch HK417P, for Austria in a Concamo photoshoot. (Photo by Concamo).

RESULTS AS AT AND FOR THE THREE MONTH PERIOD ENDED MARCH 31,
2019

Chief Executive Officer Dr Jens Bodo Koch and Chief Financial Officer Dr Björn Krönert commented:

In Q1 2019 Heckler & Koch’s order intake is higher than our sales and our planned order book will cover our current expectations for the year’s sales. The increased revenues were linked to significantly increased quantities, and therefore to higher production volumes, resulting in an increase in headcount in almost all departments and a significant increase in purchase volumes for raw materials and bought-in parts.

The resulting increased organisational complexity led to lower than expected deliverable quantities from the main site in Oberndorf.

The new production processes were still not able to reach their full potential under these circumstances.

In the medium-term however, the positive effects of this restructuring will lead to a sustained increase in efficiency and therefore to an improved delivery situation. This, together with changes in the product mix, resulted in an EBITDA below the corresponding period Q1 2018 but higher than our Q4 2018 results.

In addition to that, management and the trade union in Oberndorf reached an agreement about an uncompensated worktime increase for the employees for two years starting in Q3/2019 which will also help and increase the production output by better use of its trained and experienced personnel.

Furthermore:

Q2/2019 Guidance: We currently expect to achieve higher net sales and EBITDA than in Q1/2019.
Net working capital is currently expected to be lower than for Q1/2019 however operating cash flow is currently expected to be slightly lower than in Q1/2019.

If you are a numbers person you can download the HK AG Q1 report as pdf here.

You can also find the numbers, over the years, here: Material key figures related to the H&K AG Group

It’s easy to forget, but here is how HK AG describe themselves and what they do.

ABOUT HK
We are a leading defence contractor in the small arms sector of the European NATO
defence industry. We supply the armed forces of NATO and its allies, many law enforcement agencies and we are the sole supplier of the standard assault rifle to the majority of European NATO members including Germany, Britain and France.

We design, produce and distribute small arms, including rifles, side arms, fully automatic weapons and grenade launchers, and a variety of other related products. We have been in operation for more than 65 years and have a strong history of design innovation. We have a strong management team and a highly skilled work force. Our brand name, Heckler & Koch, is well respected and our products are widely considered to be of the highest quality.