Patria’s Financial Review for 2014 – preliminary data

In many respects, Patria Group's earnings for the financial year 2014 measured up to expectations. As expected, net sales fell, but profitability remained at a satisfactory level. In the course of the fiscal year, operations were developed further, and were geared in a more cost-effective and flexible direction in order to cope with the changes in the operating environment. At the end of the fiscal year, a substantial change in Patria’s ownership structure took place, when Airbus Group sold its share (26.8%) of the company.

New orders and order stock in 2014

The value of new orders totalled EUR 875.7 million (EUR 376.5 million in 2013). Defence material and maintenance accounted for 95 % (92 %) and civilian products for 5 % (8 %) of the new orders. At the end of December, the value of the order stock was EUR 1,201.7 million (EUR 780.6 million).

In terms of new orders, the most significant event during the fiscal year was the signing of a long-term contract between Millog and the Finnish Defence Forces (FDF) on the deepening of the strategic partnership. This contract brought the Army garrison repair shops and the Navy maintenance centres under the responsibility of Millog. Both Millog and the Aviation Business Unit saw the number of new orders increase. By contrast, the order intake of the Land Business Unit decreased compared with the previous year due to project postponements. This aptly reflects the current market situation, particularly in the international market.

Net sales and profitability

Patria Group’s net sales declined, as expected. Net sales for 2014 were down by 21.6% from the previous year to EUR 462.4 million (EUR 589.5 million). Defence solutions and their lifecycle business accounted for 89 % (93 %) and civilian products for 11 % (7 %) of net sales, while 50 % (54 %) of net sales accrued from abroad.

The Group’s operating profit was EUR 56.0 million, representing 12.1 % of net sales (EUR 87.8 million). Consolidated income before taxes amounted to EUR 54.7 million (EUR 84.7 million), and the Group’s return on equity was 18.7 % (21.4 %).

Many projects important to Patria made headway during the fiscal year. Deliveries of AMV vehicles to Sweden, the second life-cycle upgrade of Hornet fighters and the structural upgrade of the domestic fighter fleet progressed as planned. Furthermore, a project on vehicle deliveries to the South African National Defence Force and retrofit installations on the NH90 helicopters already delivered were launched. In addition, our cooperation partner Patria Hägglunds Oy handed over the last serial production phase AMOS mortar systems to the FDF.

Reorganisation of operations

In 2014, the Sastamala ammunition unit was sold to Nammo Lapua Oy, and the space business operations to RUAG. Due to financial and production reasons, cooperation negotiations were conducted in the Land, Systems and Aerostructures Business Units. The purpose of these measures was to adjust the number of personnel and the organisation of the various Business Units to match their work situation and order book, and to ensure their future competitiveness.

Responsibility and transparency in operations

Patria follows the Common Industry Standards (CIS) of the Aerospace and Defence Industries Association of Europe (ASD) and supports the UN Global Compact initiative. During the financial period, Patria signed the UN Global Compact Call to Action as a measure to combat corruption. Patria has absolute zero tolerance for corruption.

Patria organised its annual online training on ethical conduct for the personnel. Furthermore, Patria has internal and external reporting channels for suspected cases of misconduct, including anonymous whistleblowing.

Patria has begun its chairmanship of the European Land Defence Industry Group (ELDIG), which operates under the auspices of the AeroSpace and Defence Industries Association of Europe (ASD). This will open up new opportunities for the development of the industry, helping to create standardised industry-wide practices.

In Finland, the Group continued its long-term work on the prevention of youth marginalisation by supporting the activities of the Save the Children Finland organisation and acting as the main sponsor of the VL Myrsky (‘Storm’) fighter aircraft restoration project, which engages young people through workshops.

The legal processes related to Patria’s two export projects (2005-2008) proceeded. At the beginning of 2014, Kanta-Häme District Court dismissed all charges related to the Slovenian export project (2005–2007). The State Prosecutor has appealed against the judgement, and the case is pending at the Turku Court of Appeal. The main hearing will be held in February–March 2015. The main hearing concerning the Croatian vehicle deal (2007–2008) was held at Kanta-Häme District Court in the autumn of 2014. In February 2015, after the close of the fiscal year, the District Court sentenced two former Patria employees to conditional imprisonment for aggravated bribery. The charges against one person were dismissed. The sentence also included a corporate fine of 297,000 euros imposed on Patria Land Services Oy. The convicted persons and the company have denied all charges and declared their intention to appeal. Consideration of the case will continue in the court of appeal.

Outlook

The outlook for the Group's operations is expected to continue stable. Many of the projects already under way related to equipment life-cycle management, and the maintenance activities outsourced to Millog, are progressing as planned. In terms of orders, the situation will depend on whether certain large export projects, now at the tendering stage, are launched on international markets. The company is involved in several significant tendering processes. Internal action will be taken to increase the cost-effectiveness and flexibility of operations.

At the beginning of the fiscal year 2015, the state owner, in collaboration with Patria, began measures to find a new minority shareholder for the company. The objective is to find a strong industrial partner that will strengthen the company’s business development and create synergy benefits especially for the international market.