Interim report for January – June 2008
Net sales totalled EUR 288.4 million (EUR 258.1 million).
Operating profit was EUR 19.3 million (EUR 19.5 million).
Millog Oy and the Ministry of Defence of Finland signed a partnership agreement concerning army material maintenance.
The outlook for the full year is mainly unchanged, but risks related to certain delivery projects have increased.
President and CEO, Jorma Wiitakorpi, in conjunction with the review:
“The financial performance of the Group as a whole for the first half year was mainly as expected. The consolidated net sales increased, but the profitability decreased compared to the corresponding period last year
In June Millog Oy signed a partnership agreement with the Ministry of Defence of Finland concerning the transfer of the army material maintenance to Millog Oy at the beginning of 2009. I am confident that the partnership will be fruitful for all related parties.
In May the National Bureau of Investigation of Finland (NBI) started pre-trial investigations concerning former Patria Vehicles Oy’s vehicle deal in Slovenia (2006) and former Patria Vammas Oy’s (later Patria Weapon Systems Oy) howitzer deal in Egypt (1999) due to suspected bribery and other malfeasances.
The Group management and personnel openly and actively cooperates with the NBI and other relevant authorities in order for the investigations to be completed as soon as possible. In addition, Patria is conducting an internal review of the aforementioned deals with the help of external resources. Patria will carefully evaluate the results of the investigations and the internal review in order to assess and, if needed, to develop and improve the Group’s internal directives, processes and control.
The outlook for the full year is still mainly unchanged. The net sales in 2008 are expected to be on the same level as last year, but the operating profit is estimated to be lower than in 2007. Risks related to certain delivery projects of the Land & Armament and Aerostructures Business Units have increased and, if materialising, will have a negative impact on the Group’s operating profit.”
REVIEW FOR JANUARY – JUNE 2008
New orders and order stock
The value of new orders received by the Group during the review period was EUR 171.6 million (EUR 302.4 million). Defence material and maintenance accounted for 79% (84%) and civilian products for 21% (16%) of the new orders. At the end of the review period, the volume of the Group’s order stock was EUR 789.6 million (EUR 925.6 million).
Net sales and profitability
The Group’s net sales for January – June totalled EUR 288.4 million (EUR 258.1 million). Defence material and maintenance accounted for 87% (87%) and civilian products for 13% (13%) of the net sales. Sales outside Finland accounted for 54% (46%) of the net sales.
The Group’s operating profit for January – June was EUR 19.3 million (EUR 19.5 million), representing 6.7% (7.6%) of the net sales. The consolidated income before taxes amounted to EUR 16.3 million (EUR 19.2 million).
Financing and ownership
The Group’s equity ratio was 43.9% (48.3%) and net gearing 45.3% (30.6%).
Consolidated liquid funds at the end of the review period amounted to EUR 11.2 million (EUR 14.4 million). The Group’s interest-bearing liabilities totalled EUR 103.7 million (EUR 75.4 million) at the end of the review period. The interest-bearing liabilities included finance lease liabilities of EUR 23.4 million (EUR 24.9 million).
The change in the Group´s balance sheet structure was mainly due to the increase in net working capital of the Land Solutions Business Segment.
The shareholders of Patria Oyj are the State of Finland with a 73.2% stake and the European Aeronautic Defence and Space Company EADS N.V. (EADS) with a 26.8% stake.
Changes in the Group’s structure
Patria Vammas Oy sold its Vammas airport snow removal equipment product rights to Hagie Manufacturing Company (USA) on 10 March.
Patria Weapon Systems Oy was merged with Patria Vehicles Oy, and accordingly Patria Weapon Systems Oy was dissolved on 31 March. Patria Vehicles Oy’s company name was changed to Patria Land & Armament Oy on the same date.
Capital expenditures
The Group’s gross capital expenditures, excluding acquisitions, totalled EUR 8.3 million (EUR 6.1 million).
Research and development
The Group’s expenditure on research and development during the review period amounted to EUR 17.7 million (EUR 26.9 million), representing 6.1% (10.4%) of the net sales. The most significant research and development areas included development of new generation mortar systems, armoured wheeled vehicles and ammunition.
Personnel
During the review period the Group employed an average of 2 791 (2 570) persons. At the end of the review period the personnel totalled 2 874 (2 757).
Business Segment Review
Land Solutions Business Segment develops and delivers the technologically most advanced armoured wheeled vehicles, 120 mm mortar systems and ammunition products as well as their life-cycle support services.
The Business Segment’s net sales for January – June amounted to EUR 214.8 million (EUR 192.3 million). The operating profit was EUR 17.9 million (EUR 19.2 million), representing 8.4% (10.0%) of the net sales.
The net sales of both the Land & Armament Business Unit and Nammo increased. Nammo improved its operating profit, but the Land & Armament Business Unit’s operating profit decreased compared to the previous year.
In May the National Bureau of Investigation of Finland (NBI) started pre-trial investigations concerning former Patria Vehicles Oy’s vehicle deal in Slovenia (2006) and former Patria Vammas Oy’s (later Patria Weapon Systems Oy) howitzer deal in Egypt (1999) due to suspected bribery and other malfeasances. Due to these investigations, an internal review of the aforementioned deals, with the help of external resources, is being conducted. The results of the investigations and the internal review will be carefully evaluated in order to assess and, if needed, to develop and improve the Group’s internal directives, processes and control.
Systems and Services Business Segment provides life-cycle support services for aircraft and helicopters mainly for military and governmental customers in the Northern European region. The Business Segment also supplies pilot training and provides systems for command & control and situational awareness as well as systems integration.
The Business Segment’s net sales for January – June amounted to EUR 57.9 million (EUR 49.6 million). The operating profit was EUR 5.3 million (EUR 2.9 million), representing 9.2% (5.9%) of the net sales.
Both the Aviation and Systems Business Units contributed to the increase in net sales, but the higher operating profit resulted from the Systems Business Unit’s improved performance compared to last year.
Other Operations Business Segment designs and manufactures advanced composite aerospace structures and airport cargo ground handling equipment. In addition, Millog Oy and the Group support functions are included in this Business Segment.
The Business Segment’s net sales for January – June amounted to EUR 22.1 million (EUR 25.3 million). The operating profit was EUR -4.0 million (EUR -2.6 million). The decrease in operating profit was due to weaker profitability in the Aerostructures Business Unit as well as increased expenses in Millog Oy and the Group support functions.
In June Millog Oy signed a partnership agreement with the Ministry of Defence of Finland concerning the transfer of the army material maintenance to Millog Oy at the beginning of 2009.
Outlook
The outlook for the full year is still mainly unchanged. The net sales in 2008 are expected to be on the same level as last year, but the operating profit is estimated to be lower than in 2007. Risks related to certain delivery projects of the Land & Armament and Aerostructures Business Units have increased and, if materialising, will have a negative impact on the Group’s operating profit.
Helsinki, 25 July 2008
Patria Oyj
Board of Directors
This review has not been audited.
Contact persons:
Mr Jorma Wiitakorpi
President and CEO
Tel. +358 20 469 2001
Mr Kai Nurmio
Executive Vice President, CFO
Tel. +358 20 469 2020
Mobile: +358 40 869 2020
Patria is a defence and aerospace group with international operations delivering its customers competitive solutions based on own specialist know-how and partnerships. Patria is owned by the State of Finland and the European Aeronautic Defence and Space Company EADS N.V.
Interim report figures
Further information: www.patria.fi
