Conversion in global aerospace group launched. Exceptional charges impact the results.

Operational activities were uneven in 2019. Individual business units in all divisions failed to meet expectations. The stable business year of RUAG Space was characterised by the development of the new production facility for carbon fibre structures in Decatur, Alabama (US). Numerous prototypes of payload fairings were handed over to our partner, United Launch Alliance (ULA). Delivery of the first structures designed for use in space is scheduled for April 2020. The second US production facility in Titusville, Florida, reached a new level of industrialization with a production rate – unparalleled anywhere in the world – of 30 dispensers per month for the OneWeb satellite constellation. In Europe, the 250th start of an Ariane launcher marked yet another milestone. Since the very first flight in 1979, RUAG on-board computers have controlled the rockets and protected RUAG payload fairings with 100-percent mission success. A highly promising breakthrough was achieved in Asia. The division will provide Mitsubishi Heavy Industries with the payload fairings for the new Japanese H3 launcher. In addition to investments in developing production in the US, an increase in pension liabilities in Sweden caused by significantly lower interest rates also impacted the result. This ultimately led to a decrease in both sales and the operating result (EBIT). 

The Aerostructures division found itself midway through a turnaround process in 2019. Intensive work was being carried out on restructuring and stabilisation programmes at the Oberpfaffenhofen (Germany) and Eger (Hungary) sites. Driven by the Airbus single aisle programme, sales nevertheless increased again by more than 12 %. However, a loss was again recorded in 2019 due to additional valuation adjustments, impairments and provisions that had to be operated for the activities at the Emmen site. The abrupt termination of the Airbus A380 programme and falling production relating to the Pilatus PC-21 meant that a fundamental reorientation of the site was necessary. Within the framework of a transition project, the site focussed on promising core technologies such as surface treatment, composite materials, military assemblies and development activities. The renewal of the single sourcing partnership with Airbus for another six years, relating to the delivery of sections of fuselage for the A320 family, forms a strong basis for the future. This safeguards about 80 % of current Aerostructures sales in the coming years.

The business operations of MRO International developed very unevenly, in which – with the exception of munitions production – all RUAG activities to be sold are accumulated. While the Simulation & Training and Aviation International business units achieved good or very good results, and the fields of military and civil aviation and helicopter repair and overhaul remained profitable, valuation adjustments on inventory and impairments of non-current assets totalling about CHF 58 million were necessary in the Dornier 228 production programme. Accordingly, the division clearly failed to achieve the goals set. The Simulation & Training contract for an upgrade of the Swiss Armed Forces’ combat training centres together with a number of new orders for the repair and overhaul of the German Bundeswehr’s NH90 helicopter are future-oriented, more than offsetting the downturn caused by the loss of a previous MRO order.

RUAG Ammotec once again displayed particularly positive developments. Thanks to a consistent market orientation and constant investments in the production facilities, there was considerably stronger growth in this division than the market as a whole. The Armed Forces & Government Agencies business unit continued to be a growth driver during the reporting year. It benefited from both the growth in the defence budget in the NATO member states and the growing demand for high-quality special munitions. An example of this is another major contract from the Dutch Police won, among other things, thanks to a patented priming composition which facilitates a forensic firing release determination. In contrast, the Hunting & Sports segment once again proved to be difficult during this reporting year, with persistent over-capacities in the US putting prices under pressure. Fortunately, a slight increase in sales was recorded in this sector. Overall, Ammotec increased sales by 7 %. The operating result (EBIT) was impacted by an increase in pension obligations in Germany and Sweden, which was caused by the significant fall in interest rates.

The activities for the Swiss Armed Forces accumulated in the MRO Switzerland division achieved a generally satisfactory result with a slight increase in sales. The MRO services for land systems and the activities falling under service level agreements (SLA) with the Swiss Armed Forces displayed positive development. In the service life extension programme for the TH98 transport helicopter, the prototype was completed and series production was launched. The structure upgrade for the Swiss Air Force F/A-18 fighter aircraft was prepared. Unforeseen difficulties in the development of the Cobra mortar system and in a project providing additional armour for armoured personnel carriers for the Belgian Armed Forces had a negative impact on the income statement.

The unbundling of RUAG requested by the Federal Council progressed considerably during the reporting year and MRO Switzerland will begin operations as planned on 1 January 2020. Henceforth, the business processes will run independently, the employees are completely separate from one another in organisational terms and the businessrelevant data of MRO Switzerland will be transferred to the FUB system (Armed Forces Command Support Organisation). The completion of the entire data transfer will nevertheless be postponed due to the challenging scenario adopted. To achieve the highest possible level of data security, the decision was taken to fully incorporate the MRO Switzerland computer system into the security scope of the DDPS. The complete IT and legal unbundling will be completed in spring 2020.

In 2019, the organisational structures for the new units were developed and the legal entities were established. The relevant committees also determined the boards of directors and management teams of the new companies. Dr. Jennifer P. Byrne, Jürg Fedier, Rainer Schulz and Dr. Laurent Sigismondi were elected to the Board of Directors of RUAG Holding, which will oversee RUAG International from 1 January, 2020. They will support the supervisory body by providing additional know-how in the fields of international aerospace, finance, global supply chain partnerships and legal issues. Paul Häring and Markus Hutter have stood down. Prof. Sibylle Minder Hochreutener has switched to the Board of Directors of MRO Switzerland.

There was also a change at the very head of the group at the end of the year. The Board of Directors of RUAG and the CEO, Urs Breitmeier, parted company by mutual consent following the completion of the unbundling process. In recent years, Urs Breitmeier has successfully developed RUAG into an international group. The Board of Directors and Executive Board would once again like to express their gratitude to Urs Breitmeier for his deep commitment. The Board of Directors is looking for a suitable successor from outside to handle the forthcoming transformation of RUAG International into a global aerospace group. Until the new CEO takes up their role, CFO Urs Kiener has taken over responsibility on an interim basis.

In the coming two to three years, and in addition to the economic challenges on the different markets, RUAG will focus its attention on the conversion of RUAG International into a global aerospace group, with the sale of the business units amalgamated within MRO International as well as RUAG Ammotec, the restriction of the support functions to the aerospace group and the consolidation of MRO Switzerland.

The new aerospace group will gradually have to adjust the support functions inherited from RUAG Holding to sales representing only a little more than half of those recorded during the reporting year. During this challenging transformation, additional expenses of about CHF 34 million can be expected over the next three years. MRO Switzerland will have to develop its own support functions. The dyssynergies resulting from the separation will cause costs to rise in both sub-holdings.

For all business units within MRO International and for RUAG Ammotec, the aim is to sell. The Board of Directors and Executive Board are confident that a solution can be found for all units that will be satisfactory to RUAG, its owner and the employees.

The unbundling and transformation costs that will continue into 2020 and the possible effects of the corona crisis will have a negative impact on the business results of both RUAG International and RUAG MRO Switzerland.

In 2020, the Executive Board and the Board of Directors will present the implementation plan to the Federal Council for the furtherdevelopment of RUAG International, as required within the framework of the unbundling. This will define all the planned steps necessary to create a streamlined, globally competitive aerospace group ready for a public flotation.

The Board of Directors and the Executive Board are looking forward to addressing the path forward together with its employees, customers, partners and the owner.