Patria’s Financial Review for 2018 – preliminary data
Patria Group's sales and profitability for the financial year 2018 increased from the previous year. The Group’s net sales for the financial period totaled EUR 476.1 million (EUR 467.7 million in 2017). Defence material and maintenance accounted for 92% (94%) and civilian products for 8% (6%) of the net sales. Sales outside Finland accounted for 27% (33%) of the net sales.
The Group’s operating profit for the financial period was EUR 35.9 million, representing 7.5% of the net sales (EUR 33.9 million, 7.2%). The consolidated income before taxes amounted to EUR 33.7 million (EUR 31.3 million). The Group’s return on equity was 11.8% (10.4%).
The value of new orders received during the financial period was EUR 474.1 million (EUR 309.5 million). Defence material and life cycle support accounted for 95% (92%) and civilian products for 5% (8%) of the new orders. At the end of December, the Group’s order stock was EUR 687.1 million (EUR 691.4 million).
Major events in 2018
In January, Patria signed an agreement with the Finnish Defence Forces on the mid-life upgrade and overhaul of the Hamina Class fast attack craft. The total value of the delivery contract, excluding options, is around EUR 170 million. The estimated employment effect of the programme in Finland will be around 300 person-years. Patria will act as the prime contractor, designer and lead system integrator having the overall responsibility for the project.
Kongsberg Defence & Aerospace and Patria entered into an agreement to develop opportunities for cooperation on Missile Systems. The agreement comprises the establishment of a Missile Competence Center in Finland, Open Tactical Framework (OTF) core technologies and system architecture software for missile programs in Finland and international opportunities linked to these capabilities.
The Estonian Centre for Defence Investment renewed the public contract with Patria’s subsidiary Milrem LCM, provider of defence vehicle lifecycle management, for repair and maintenance of the Patria XA-180 and XA-188 armoured vehicles.
In February, Patria was in the middle of media attention in Finland in connection with a Finnish businessman tragically deceased in Uganda. The incident led to immediate corrective measures and changes in the management of Land business unit.
In March, Patria’s subsidiary Senop Oy signed a contract with the Norwegian Kongsberg Defence & Aerospace AS for the supply of the integrated command post shelters. The contract is a continuation for a long-term co-operation between Kongsberg and Senop. The deliveries will take place in 2019.
In April, Patria signed an agreement on bridge-laying equipment systems, providing the Finnish Defence Forces with four new Leopard 2L bridge tanks with ability to handle Leguan bridges of different lengths. The purchase’s total value is EUR 28,6 million and its employment effect with options in Finland is some 55 person-years of which Patria’s employment effect is some 35 person-years. The deliveries will take place in 2019 - 2021.
In April, Patria’s subsidiary Milrem LCM and BAE Systems signed a contract to support Estonia’s fleet of CV9035 Infantry Fighting Vehicles (IFVs). Milrem will provide maintenance and repair services for CV9035 vehicles from its facilities in Estonia.
During April and May, employee cooperation negotiations in Aerostructures and Land business units were finalised. In Aerostructures, the negotiations resulted in reductions that affected 13 persons as redundancies or lay-offs until further notice. 14 persons were temporarily laid-off part-time. In Land, the need for reduction was determined as 10 persons and at most 25 persons had their duties adjusted.
In June, Patria launched new products at Eurosatory event in Paris: two new passive RF sensor products, MUSCL for battle-proof air surveillance, ARIS-E ESM system for tactical situational awareness, and a new Patria 6x6 vehicle with its multifunctional transport capacity and modularity that adapts easily to customers’ needs.
In September, Patria AMV 8x8 vehicle took part in the European Land Robot Trial (ELROB) in Belgium. One of the R&D focus area within users of military vehicles is unmanned feature and to this end Patria has developed integrated drive-by-wire control system. This system enables use of remote and autonomous functions while keeping standard driver operated operation possibility in the same vehicle.
In October, Patria Aerostructures Oy completed the acquisition of all the shares in Patricomp Oy from Aerometallic Components SAU.
Patria Helicopters AB received an order for Hkp16 (Black Hawk) maintenance as the Swedish Defence Materiel Administration (FMV) exercised its option included in the agreement from 2014 on the support of the Swedish Armed Forces Hkp16 Black Hawk helicopters’ maintenance. Estimated total value of the agreement, including options, is approximately EUR 25 million.
Patria attended Helitech International 2018 in Amsterdam, where its helicopter life-cycle support services covering a full range of maintenance, repair and overhaul (MRO) and supply services for helicopters, their components and equipment as well as helicopter upgrades and modifications were showcased.
In November, Patria Helicopters AS received an order for NH90 helicopters heavy maintenance taking place in Bardufoss, Norway as the Norwegian Defence Logistics Organisation (NDLO) released the first one-year option from April 2019 onwards. The estimated value of the agreement, including options, is approximately 100 million NOK.
Esa Rautalinko was appointed as Chairman of the Board of Directors as of 30th of November 2018.
In December, Patria Pilot Training made an agreement with the Kazakh airline Air Astana to train their new pilots till 2022. The first students chosen by Air Astana will start their training in February 2019.
Kongsberg Defence & Aerospace (KDA), entered into an agreement with the Norwegian Ministry of Defence for the purchase of Aerospace Industrial Maintenance Norway AS (AIM Norway), which is the Norwegian armed force’s business for maintenance, overhaul and upgrade of the Air Force’s aircraft and helicopters. In order to further strengthen AIM Norways’s deliveries, capability and competence, KDA and Patria entered into agreement for a shared ownership where KDA’s ownership is 50.1% and Patria’s 49.9%.
The beginning of 2019
In January 2019, President and CEO Olli Isotalo left the company, and CFO Ville Jaakonsalo was named interim CEO for the transition period. CEO change is partly connected to Patria’s strategy, in which the company states that it is looks for growth especially in international service business. Patria wants to expand the maintenance and life cycle support services in different defence sectors and the system and integration business. The new CEO is expected to have a strong emphasis on Patria’s service offering.
Responsibility and transparency of operations
Export license practices were a topic of a vivid discussion during 2018. Patria complies with the national legislation and international commitments. A decision made by the government officials to grant an export license is made on a case by case basis with the big picture in mind and one of the prerequisites is a reliable end user of the materiel. Granting a license is based on the EU criteria and in consultation with other EU countries. Patria leans on the government officials’ capability to evaluate the end user reliability and other export prerequisites when assessing the possibility of export in complex situations and circumstances.
During spring 2018 Patria commissioned an internal audit targeted at Patria’s international operations and especially the key processes in sales, marketing, and selection of business partners. The audit was performed by an external party specialised in internal audits. The audit was initiated after in February 2018 it turned out that a sales person at Patria had given a written permission to a party, who was not a consultant or market representative of Patria, to distribute Patria product brochures. The audit concluded that nothing could be found which would require new, major corrective measures.
Patria continued to develop its ethical training so that in addition to the annual training for all personnel there is an in-depth training for the specific groups with stakeholder relations. Also, the group-level Business Partner Selection process was further developed.
Patria continued to support third-sector work to prevent social exclusion of young. The group supports the restoration of the VL Myrsky, the only Finnish fighter aircraft having entered into serial production.
Patria’s domestic customer, the Finnish Defence Forces, has significant projects (HX, SQ 2020) in progress. Industrial participation is extremely important and a great opportunity to Patria. General development and changes in the security environment have also increased defence budgets and readiness requirements. These are likely to have an effect for Patria’s sales and profitability in the long run.
The development of the order stock depends to large extent on whether certain large Land export projects, now at the tendering stage, are launched on international markets.
The Annual Review for 2018 will be available after the Annual General Meeting on 27 March 2019 at www.patria.fi.
Ville Jaakonsalo, CEO, act., Chief Financial Officer, phone +358 500 881 070, email@example.com
Patria is an international provider of defence, security and aviation life cycle support services and technology solutions. Patria provides its aerospace and military customers with equipment availability, continuous performance development as well as selected intelligence, surveillance and management system products and services. Patria’s mission is to give its customers confidence in all conditions, and the vision is to be the #1 partner for critical operations. Patria has several locations including Finland, Sweden, Norway and Estonia. Net sales totaled EUR 467.7 million in 2017, and Patria employs 2,800 professionals. Patria is owned by the State of Finland (50.1%) and Norwegian Kongsberg Defence & Aerospace AS (49.9%). Patria owns 50% of Norwegian Nammo, and together these three companies form a leading Nordic defence partnership.