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ThyssenKrupp Marine Systems (TKMS) is poised for significant growth in the coming years, with CEO Oliver Burkhard projecting that the company’s market could expand threefold by the end of the decade. Speaking at the Singapore Defense Technology Summit, Burkhard expressed his optimism regarding the potential for increased revenue in sectors such as electronics, drones, surface vessels, and submarines.
The anticipated growth is largely fueled by a recent decision from the German parliament to approve a substantial fiscal package that includes adjustments to longstanding debt regulations, permitting increased defense spending. Burkhard emphasized that this shift suggests a more flexible approach to the defense budget in Germany, indicating that there may no longer be strict limits on funding.
He noted, “When it comes to the defense budget, there is more or less no limit anymore,” highlighting a significant departure from traditional fiscal discipline in favor of expanding military capabilities.
The changes under the proposed reform mean that any defense and security-related expenditures surpassing a specific threshold will not fall under the constraints of the so-called “debt brake,” a policy that previously restricted federal borrowing and dictated fiscal deficits.
Reflecting on Germany’s new stance, Burkhard referenced a statement from Chancellor Friedrich Merz, who indicated that current geopolitical threats demand a “whatever it takes” mentality regarding defense funding, a phrase that stands in stark contrast to Germany’s historically cautious financial policies.
Burkhard explained, “This is unusual for Germany,” noting the broader implications of such spending, which could total €500 billion or more. He characterized this potential funding as unprecedented in post-World War II Germany.
The increase in defense spending signals a proactive approach from the government aimed at expediting military projects and boosting procurement from domestic manufacturers. As a part of ThyssenKrupp’s extensive operations in naval construction, TKMS specializes in producing submarines and other naval vessels.
In light of evolving military needs, the company is also adapting to new technologies, exploring the integration of unmanned sea drones alongside traditional vessels. Burkhard suggested that these drones should be viewed as enhancements rather than replacements for current naval platforms, anticipating a blend of submarines with autonomous systems for improved operational effectiveness.
He acknowledged the challenges posed by heightened demand, stating, “Everybody has higher budgets. Everybody wants to have it faster, and the demand is very strong.”
In pursuit of increased production capabilities, TKMS recently acquired a shipyard in Wismar, Germany, aimed at constructing vessels for multiple clients, including Germany, Norway, and Israel. Burkhard also mentioned the need for strategic partnerships, highlighting a planned joint venture with India’s Mazagon Dock Shipbuilders, which entails designing and engineering submarines for the Indian Navy, to be built domestically.
Spinoff Plans
In addition to its growth ambitions, TKMS is set for a significant structural change, with plans to spin off from its parent company, ThyssenKrupp, and list on the Frankfurt Stock Exchange. Burkhard confirmed the intention to initiate this process within the calendar year.
The market response to upward defense spending appears favorable, with ThyssenKrupp’s shares experiencing remarkable growth of 155% year-to-date as of mid-March. Burkhard acknowledged that this momentum could facilitate the planned spinoff.
He described the spinoff as a pivotal step towards TKMS’s independence, conveying a clear message to investors about the company’s dedicated focus on growth. Burkhard remarked that ThyssenKrupp shareholders have faced challenges recently, especially within the steel and automotive sectors, which has strained resources. Reports indicate significant job cuts in both these divisions, with 1,800 positions in the automotive sector and 11,000 in steel anticipated to be eliminated.
Burkhard referred to TKMS as the “pearl” of ThyssenKrupp’s portfolio, emphasizing that the spinoff will enable investors to engage directly with the promising trajectory of the marine systems division.
He concluded, “We try to turn this pearl out and give all shareholders of TK a TKMS share, and then they can decide on the first day of trading whether they want to keep it … I think they really value what we are.”
— CNBC’s Sophie Kiderlin contributed to this report.
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