Business Partner Management

To protect the company's reputation and to ensure cooperations built on the basis of trust Rheinmetall expects its suppliers, service partners, sales partners and customers to follow the same behavior and share the same basic attitude. This shared understanding was therefore condensed into our Supplier Code of Conduct (target group = suppliers and service providers) and Business Partner Code of Conduct (target group = intermediaries and re-sellers) which must be confirmed by all of the respective business partners on a mandatory basis.

Integrity" is therefore an essential selection criterion for cooperating with all kinds of business partners along the entire value chain. Because of the abundance of contracted business partners Rheinmetall follows a risk-based approach if and how to check our third parties which relies on different factors such as value of a transaction, country of registration, type of business and type of company / individual of the prospective business partner. Another criterion is whether a business partner is new to Rheinmetall or has already been audited in the past.

The following graphics show the overall structure as well as the detailed flow chart of the globally applicable Rheinmetall Business Partner Approval Process for third parties.

Screening our Supply Chain

The Rheinmetall Group pursues a structured process for the qualification of new suppliers including the assessment of Compliance-related risk factors. The following graphic shows the overall approach.

The process begins with the supplier self-assessment factoring in various commercial, technical and other parameters. On the basis of this data, we evaluate the general suitability of the supplier. This initial assessment is later supplemented by supplier audits.

For selected suppliers - based on the criteria of business country, sales and other risk factors - we additionally apply a variety of more comprehensive evaluation procedures. The following table shows on what basis we determine if a supplier is applicable for this more extensive Compliance Due Diligence or not.

These assessments not only include a thorough validation of the supplier's policies, processes and general commitment to ensuring Compliance. We also conduct thorough background checks of:

• KYC factors such as name, registration, ownership and management
• Track record in the relevant line of business / contractual scope
• Integrity and transparency of the business partner and its affiliates
• The supplier’s performance on ESG aspects such as human rights, labor rights, occupational safety, gender equality, anti-discrimination and environmental protection.

The following sample assessment result shows how the Compliance Organization informs its internal stakeholders about the results on a Third Party Assessment.

In the event of relevant evaluation results, Rheinmetall will work with the supplier to clarify any potential problems identified. The final recommendation as to whether the transaction should be pursued further is made by the Compliance Due Diligence department, which belongs to the Corporate Compliance organization.

During the series delivery phase, Purchasing regularly checks the supplier's quality and ability to deliver. These performance indicators are the most important input for our series supplier evaluation, which is regularly updated and shared with the suppliers. We strive for a continuous improvement of supplier performance through our supplier evaluation. At the same time, selected suppliers are continuously monitored for > 1,000 sanctions, criminal records and databases for adverse media - including human rights-oriented sources of information.

Some more information on the oversight of our supplier base can be found in AR 2019 on page 118.

Our transparency and responsibility approach regarding our supplier on-boarding activities is also made clear in the AR 2019 on page 120.

Safeguarding the Sales Process

Given the generally elevated Compliance risks when it comes to sales-related business partners such as agents, sales consultants, re-sellers, dealers or JV partners Rheinmetall applies an even stronger third party assessment regime to those kinds of commercial counterparts. This means that the parties as shown in the following tables undergo not only a screening, but also a very thorough business case and remuneration / commercial evaluation process performed by our operational Compliance teams to substantially decrease the risk for bribery, corruption, fraud, export control or competition law-related offences by or funneled through our sales partners. The following excerpt from our Business Partner Policy shows what kinds of cooperation partners and sales partners are prone to undergo the described elevated third party Due Diligence evaluation process.

In our global defence contract database that is operated and maintained by our divisional headquarters as well as larger subsidiaries, we have currently a greater number of pre-approved and closely monitored external sales supporters including sales agents deployed all around the globe. In order to assure and incentivize Compliance amongst our external sales support, each contract for sales agents contains a clause on compliant conduct and a special termination right that becomes valid in cases of misconduct. See our standard Conduct Clause as follows.

Involving important Interfaces

As Compliance is not a one-man-show, it is paramount to involve multiple important interfaces within the company when it comes to third party Due Diligence:

• Management bodies that are responsible for the implementation of the policies in terms of personnel, organization and administration
• Departments outside the Compliance Organization that are in direct contact with business partners (e.g. sales, purchasing, M&A, export control, project management, marketing)
• Departments/functions that are involved in the initiation of a business relationship and in the creation of contracts
• Departments that perform audit or control functions (e.g. legal department, treasury, or export control)
• Internal Audit to verify compliance with the requirements of this Directive

Acquisitions, strategic alliances and joint ventures are a central element of Rheinmetall’s ongoing internationalization and growth strategy, in order to improve its market positions, supplement existing business or penetrate new segments. For this, Rheinmetall defines recommended actions based on continuous analyses of the market environment and its own portfolio.

In accordance with group-wide guidelines, potential target companies are subjected to a careful analysis of opportunities and risks through standardized processes such as extensive due diligence procedures and are assessed on the basis of strategic, commercial, operational and financial aspects. Following an approval process carried out over several distinct stage gates, the Executive Board and, where the transaction volume exceeds defined value thresholds, the Supervisory Board of Rheinmetall AG decide on the acquisition project.

As a Group for leading technologies in mobility and security, we always present ourselves to our customers transparently, impartially, and with the requisite professional distance, regardless of whether customers are from the public or private sector or how far back the business history extends. We only use critically preselected consultants or lobbyists at the interface to politics and authorities. They are subject to the same high compliance standards as Rheinmetall employees themselves.

Rheinmetall Defence has representative offices in Berlin and Brussels. Rheinmetall does not send or employ any staff in ministries. Contributions to democratic political parties are subject to applicable laws and internal, often stricter compliance regulations. They fall within the remit of Rheinmetall AG's Executive Board, which restrictively handles approvals.

We conduct lobbying in accordance with the rule of law as well as the principles of openness, traceability and accountability. Neutrality in dealing with political parties and interest groups is a matter of course for us. Unfair influence on politics and legislation is not permitted.