By Rachel More

BERLIN (Reuters) -German arms manufacturer Rheinmetall said on Thursday it expected record sales and increased profitability this year, as the war in Ukraine drives up defence spending in the NATO bloc, in a trend set to buoy the company for years to come.

Rheinmetall expects to crack the 10-billion-euro ($10.93 billion) mark in sales for the first time in 2024, according to a company forecast that also foresees an operating profit margin of 14-15%, up from 12.8% in 2023.

“A new decade of security policy has begun,” Chief Executive Armin Papperger said as the group presented its results for 2023, the first full year of the Ukraine war.

Consolidated sales rose in 2023 by 12% to just under 7.2 billion euros. In the weapon and ammunition division, sales rose 29% on the year prior, while vehicle systems saw a 15% boost.

However, total sales fell short of the company’s own target of a range of 7.4-7.6 billion euros.

Shares in Rheinmetall were up 3.3% at 0820 GMT.

Germany, Kyiv’s biggest military supporter in Europe, announced a new defence policy after Russia’s invasion of Ukraine in February 2022, with a 100-billion-euro special defence fund created to modernise its armed forces.

Other NATO allies have stressed the need for greater defence spending, and Ukrainian demand for ammunition has led to a European drive to ramp up production in that area.

As well as booking major orders for Germany and other armed forces in 2023, Rheinmetall said it became an important partner for Ukraine, with “extensive deliveries from the entire product portfolio”, including tactical vehicles and ammunition for Gepard anti-aircraft tanks as well as mobile field hospitals.

At the end of last year, Rheinmetall’s order backlog had climbed to an all-time high of 38.3 billion euros, up from 26.6 billion euros a year earlier.

($1 = 0.9147 euros)

(Reporting by Rachel More and Matthias Inverardi; editing by Miranda Murray and Tomasz Janowski)