Patria Group Interim Report for 1 January–30 June 2014: Declining sales to follow solid first half

Patria Group's result for the first half of the financial period corresponded to expectations. Net sales were EUR 260.2 million, compared to EUR 244.1 million in the previous year. Operating profit was EUR 22.7 million compared to EUR 23.2 million in 2013. The Group's equity ratio was 59.7% (50.7%). The Group's gearing was -6.5% (18.2%). The number of new orders increased from the previous year, particularly in the Aviation business. However, meanwhile the lack of significant new orders is reducing the order intake for the Land business from the previous year's level, illustrative of the market situation both in Finland and internationally.

Early 2014

Patria and RUAG signed an agreement on industrial cooperation regarding life-cycle support services for Finnish and Swiss F/A-18 Hornets.

Patria delivered four upgraded Rauma Class Fast Attack Crafts to the Finnish Navy. The upgrade of the vessels called Rauma, Raahe, Porvoo and Naantali was completed at the end of last year. Patria was the project’s main supplier, responsible for overall renovation planning, subcontractor delivery co-ordination, and general integration.

Patria handed over the last upgraded aircraft of the 18 ex-Swiss twin-seat Hawk Mk 66 jet trainers to the Finnish Air Force. Working in cooperation with the Air Force, Patria had responsibility for the specification, design and implementation of all system integration for the modernisation project.

The Kazakhstan Civil Aviation Academy and Patria Pilot Training signed an agreement on the provision of commercial pilot training. Patria is training 12 Kazakh students by the end of 2015. Upon completion of the training, the students will receive commercial pilot licences (CPL) with multi-engine and instrument ratings in compliance with the regulations of the European Aviation Safety Agency (EASA). The students will also be fully trained in airline transport pilot theory and crew operations.

Patria Pilot Training is the Finnish Aviation Authority's training partner for the Finnish Aviation Academy’s 24th and 25th courses, which will begin in July 2014 and January 2015 respectively. The training content covers a private pilot's licence and night flying qualification.

Patria signed an important agreement on the maintenance of Sweden's HKP16 Black Hawk helicopters.

At Eurosatory in Paris, Patria showcased a new training simulator for the Patria Nemo mortar system. This training simulator creates a realistic training environment for the provision of training on all firing procedures enabled by the Patria Nemo mortar system.

A new vehicle concept, launched at DSEI in London in late 2013, has been tested and fine-tuned in extremely demanding tests to comply with the customers' future needs. The new vehicle, Patria AMVXP, will notably strengthen Patria's range of armored wheeled vehicles.

The Army Materiel Command and Patria's subsidiary Millog signed a purchasing agreement for new fire control sensors with accessories, used for target location. The value of the contracts is EUR 26.8 million.

In June, the Finnish Minister of Defence proposed to the Cabinet Committee on Economic Policy that the partnership with Millog to maintain the material falling under the Army and Navy system responsibility should be extended. The aim is to launch the extended partnership at the beginning of 2015. With this partnership, nearly 350 employees and 12 new sites would transfer to Patria Group from the Finnish Defence Forces.

Millog’s subsidiary Oricopa has signed a major deal with Kongsberg Defence & Aerospace AS on the delivery of components for the communications and control system of the NASAMS surface-to-air missile system. The value of the deal is approximately EUR 25 million, the deliveries taking place between 2015 and 2017.

Patria will chair the European Land Defence Industry Group (ELDIG) for the next two years. ELDIG serves as a forum for the land systems industry under the AeroSpace and Defence Industries Association of Europe (ASD).

The three-year Get Moving -project sponsored by Patria ended with excellent results. During the project, the Finnish conscripts’ amount of free time sports activities rose by almost 30 per cent and now opportunities for leisure time sports are available in all the training units.

The Aviation Museum Society of Finland, the Aviation Museum of Central Finland, the Finnish Aviation Museum and Patria agreed on the restoration of Myrsky, the only Finnish fighter aircraft ever under serial production. Young students from a number of technical education institutions, as well as youth workshops from locations such as Jyväskylä and Vantaa, are also strongly involved in the restoration project.

Cooperation negotiations

In early 2014, cooperation negotiations were held in the Aerostructures, Systems and Land businesses. The number of redundancies will be 13 in the Aerostructures business, 39 in Systems and 133 in the Land business. The aim is to adjust the number of employees and the organisation of the businesses to correspond to the current market and employment situation and the order book, to ensure future competitiveness, and to maintain and secure strategically important functions and competences.

Court proceedings

The District Court of Kanta-Häme dismissed all charges of bribery related to the Slovenian export project. In July, the Court of Appeal of Turku dismissed the prosecutors' demand for returning the Slovenia case to the District Court of Kanta-Häme for reconsideration in connection with the pending Croatia case. The consideration of the case will continue in the court of appeal. With regard to returning the case to the district court, the judgment is in agreement with Patria's demands and those of the defence as a whole. The prosecutor shall have no leave to appeal against the judgment.

The preliminary hearing concerning the Croatian vehicle deal began in May at District Court of Kanta-Häme. The matter will proceed in the manner decreed by the court.

Outlook for the rest of the year

Intensified competition for new projects in the defence industry can be observed globally and is believed to continue to affect Patria's order book. Millog's extended partnership agreement is expected to become effective as of the beginning of 2015 and will therefore not affect the 2014 figures. Patria's net sales and level of operating profit are expected to decrease year on year. However, the outcome of certain significant international projects, under preparation for a long time, is expected to be determined by the end of the year.