RUAG Defence

RUAG to Focus on Core Business in Next Financial Year

RUAG to Focus on Core Business in Next Financial Year

RUAG Defence

In 2009, Swiss technology group RUAG began to focus more closely on its solid core business in the aerospace and defence segments while reducing risks in aerostructures. RUAG's net sales grew 10.3% to CHF1696 million in the 2009 financial year, thanks to the strengthening of the space business and the solid foundation in defence. RUAG's business is profitable in five of six divisions. As a result of one-time charges of CHF160 million in aerostructures for impairment of fixed assets and inventories and for provisions, earnings before interest and taxes (EBIT) fell to CHF-113.3 million. This reflects the impact of the economic crisis on civil aircraft maintenance (business jets) and in the automotive and semiconductor industry supply sector. Excluding one-time charges in Aerostructures, EBIT came to CHF45 million, 21% below the figure for the year-back period. The net loss was CHF107 million (previous year, CHF51 million net profit). At CHF131 million, operating cash flow was well ahead of the previous year's figure of CHF81 million. RUAG is driven by innovation. Expenses for research and development thus increased by 21% to CHF148.9 million (previous year, CHF123.4 million).

Technology group RUAG began to realign its activities in the 2009 financial year. RUAG operates in two market segments: aerospace, with its three divisions of space, aviation and technology, and defence, with the three divisions electronics, ammotec and land systems. Operating income (EBIT) is reported for each of these two market segments for the first time in the 2009 annual report. A corresponding transparent breakdown by divisions is planned for 2010.

Overall, RUAG saw net sales growth of 10.3% to CHF1696 million in the 2009 financial year. The aerospace market segment (CHF902.8 million, up 9.7% from the previous year) accounted for 49% of total sales. The defence market segment (CHF796.8 million, up 4.6% from the previous year) for 43%. 45% of growth came from the acquisition of Oerlikon Space completed at the end of June 2009.

Sales and earnings for 2009

Sales remained evenly balanced between civil (47% previous year: 46%) and military applications (53% previous year: 54%). The Swiss federal department of defence, civil protection and sport (DDPS) remained the most important single customer, accounting for 36% of total sales (36%). 45% of total sales were generated in Switzerland (47%), 43% in Europe (41%) and 7% in the United States (6%).

In total, earnings before interest and taxes (EBIT) amounted to CHF-113.3 million compared to CHF57.1 million the previous year. The decline in the operating result is attributable to the effects of the economic crisis and the reassessment of risks that led to one-time charges in aerostructures (structures and components) for impairment of fixed assets and inventories, and for provisions. Excluding one-time charges in aerostructures, EBIT came to CHF45 million, 21% below the figure for the year-back period.

Staff headcount rose 13% in 2009 to 7534, with around half of this growth due to acquisitions. Around 10% of staff in Switzerland are trainees.

Stable core business in defence market segment sales in the defence market segment grew 4.6% to CHF796.8 million. Earnings before interest and taxes (EBIT) rose to CHF65 million compared to CHF39 million the previous year. All threedivisions, RUAG Electronics (2009 sales: CHF242 million, 13% of consolidated sales), RUAG ammotec (CHF336 million, 18%) and RUAG land systems (CHF223 million, 12%), surpassed the prior-year figures. As a technology partner to the Swiss army, RUAG continues to contribute significantly to Switzerland's security and independence. International customers are also benefiting increasingly from RUAG's expertise. The "Swiss Army" label is thus still a success factor for the company.

"RUAG's business is profitable in five of six divisions. Our goal is to achieve profitable growth in all six divisions," says Dr Lukas Braunschweiler, CEO of RUAG Holding. "The Defence business has developed in a stable manner, all three divisions are on track. In the aerospace market segment, the technology division is the only one of the three which is not profitable. Based on a detailed analysis, we identified several risks at RUAG technology that need to be dealt with. In particular, the risky outlook in operations for civil aircraft manufacturers, program delays in major civil aircraft projects and unfavourable price and exchange-rate trends therefore led to one-time charges of CHF160 million in aerostructures for impairment of fixed assets and inventories, and for provisions," explains Dr Lukas Braunschweiler.

Challenges and realignment in the aerospace market segment sales in the aerospace market segment rose by 9.7% to CHF902.8 million. EBIT includes one-time charges of CHF160 million from the technology division, which together with additional charges from civil aircraft (business jet) maintenance amount to CHF-189 million. In 2009, RUAG concentrated in particular on strengthening its core businesses in aerospace. The newly founded RUAG space division (2009 sales: CHF226 million, 12% of consolidated sales) was further strengthened with the acquisition of Oerlikon Space. As Europe's largest independent space supplier, RUAG Space contributes to practically every European space mission from its sites in Switzerland, Sweden and Austria.

The RUAG Aviation division (CHF438 million, 24%) was propelled forward by strong business in military aircraft maintenance as a partner to the Swiss Air Force and other customers abroad. Performance in business aviation impacted on sales and the operating result owing to a sharp decline in orders. A strategy rethink helped optimize the business model in business aviation. The company now operates centres of excellence for various aircraft types at the Agno, Bern-Belp, Geneva und Oberpfaffenhofen (Germany) sites. In addition, the maiden flight of RUAG's own aircraft, the Dornier 228 New Generation, was a highlight.

In the RUAG Technology division (CHF252 million, 14%), the economic crisis severely impacted the aircraft structural components business in particular, along with the automotive and semiconductor industry supply business, where work hours in some areas were cut for the entire year. Sales and operating income were hit hard.

RUAG's board of directors has decided to focus RUAG Technology's operations on high-value and profitable special products and niche applications, and to sharply reduce the risks to the RUAG group as a global supply chain participant. Measures initiated earlier on to systematically limit risks and tighten the focus in aerostructures will continue in 2010.

Change on the board of directors

Changes will occur on RUAG's board of directors as of the annual shareholders' meeting on 6 May 2010. The owner has decided to no longer delegate a representative to RUAG's board of directors in future. Major General Andreas Bölsterli, who has taken on a different function in the DDPS, is therefore stepping down from the board. Regular shareholder talks are held each quarter between the head of the DDPS and the chairman of the board of directors and CEO of RUAG Holding.

On 1 June 2009, Dr Lukas Braunschweiler succeeded Toni J Wicki, who had reached statutory retirement age, as CEO of the RUAG Group. Dr Braunschweiler has international management experience in various technology sectors. Since RUAG's inception in 1999, Toni J Wicki has transformed it from the former state-owned and operated defence companies into a technology group that today enjoys worldwide acclaim in the aerospace and defence segments. He will continue to provide his expertise to RUAG on the board of directors until the 2010 annual shareholders' meeting.

The board of directors and executive board would like to thank both gentlemen for their commitment. Special thanks are due to Toni J Wicki for his vision and commitment during RUAG's first ten years.