* Rheinmetall CEO sees boost from German orders, EU projects
* Sees avg annual German army orders of 2 bln euros
* Sees 2018 sales up 8-9 pct thanks to defence order backlog
* Sees 2018 operating margin of 7 pct vs yr-earlier 6.8 pct (Recasts, adds CEO comment, further details on guidance)
DUESSELDORF, Germany, March 15 (Reuters) - Germany's Rheinmetall expects its annual defence sales to grow by an average 10 percent through 2020 on the back of orders from the German military forces, European Union defence projects and a shift to digital applications.
"In the coming years we expect an average of 2 billion euros in orders (per year) from the (German army) Bundeswehr," Chief Executive Armin Papperger told journalists at a news conference on Thursday.
Germany's new governing coalition has agreed to add 10 billion euros ($12.4 billion) to the military budget over the next four years. Defence Minister Ursula von der Leyen has said further increases will be needed to rebuild the military after years of spending cuts.
Rheinmetall expects Germany to account for more than 30 percent of its defence business in the future, Papperger said. In addition, France, Germany and 21 other EU governments signed a defence pact in November that should bolster the defence industry.
Rheinmetall also expects success in Australia with further vehicle types after beating BAE Systems to a $2.5 billion order for armoured reconnaissance vehicles.
The group expects its 2018 group sales to grow by 8 to 9 percent, driven by a jump in defence sales by 12 to 14 percent thanks to a backlog of orders, including a previous contract with Australia, Puma infantry fighting vehicles for Germany and parts for Fuchs vehicles in Algeria.
The group operating margin will improve only slightly, to 7 percent from 6.8 percent in 2017, partly due to costs related to marketing new technologies. ($1 = 0.8090 euros) (Reporting by Anneli Palmen Writing by Maria Sheahan Editing by Douglas Busvine and Jane Merriman)