Editorial 2023

Old and new events with which RUAG MRO Holding Ltd was confronted in the year under review prompted us to initiate an independent and rigorous investigation with external support. Despite many challenges, we are doing everything we can to fulfill our mission: being a reliable partner to the Swiss Armed Forces in ensuring their operational readiness. Our dedicated employees are the key to achieving this goal.

Governance put to the test

The departure of our CEO, Brigitte Beck, was compensated for by the appointment of our CFO, Christian Priller, and the Head of Business Area Air, Thomas Kipfer, as co-CEOs ad interim. The Board of Directors thanks them for their willingness to co-manage the company during this very challenging year. In addition to this change in leadership, the decision of the Federal Council not to approve the sale of 96 non-operational
Leopard 1 main battle tanks owned by RUAG had a significant impact on the public and within the company. As a result, the deal was not concluded. Since not all the facts in the relevant contracts were fully transparent for us either, both the Swiss Federal Audit Office (SFAO) and RUAG itself initiated investigations. The SFAO took the lead in order to ensure independence. At the end of the year under review, these investigations were still ongoing. Moreover, the SFAO will examine the interaction and flow of information between RUAG and the owner. These further investigations will be carried out in 2024.

This issue may be a legacy from 2016 – the tanks were purchased by the former RUAG Defence, a division of the old RUAG – but it is absolutely crucial for us that all business activities for which we assume responsibility are carried out transparently and consistently compliant with the law as well as the owner’s requirements.

Over the course of 2023, RUAG further refined the overall cooperation with its owner. Furthermore, an external auditor confirmed that the company’s risk management system has reached a good level. Despite the difficult challenges that placed a heavy burden on key individuals at RUAG, the company proved itself to be resilient and able to persevere.

Financially sufficient for 2023 annual budget but insufficient in the long term

In the year under review, the company was confronted with business challenges which weighed on the EBIT. On the one hand, the Business Area Air was not able to achieve the budgeted results because the Armed Forces placed less orders and RUAG was unable to deliver the desired capacities in fullfor certain service elements. The Business Area Ground improved its operational results significantly compared to the previous year, but had to make provisions of CHF 12 million due to possible additional charges from old contracts. The result of RUAG Real Estate, on the other hand, was higher than planned and had a compensating effect. This was both due to the sale of part of the Stans site to Pilatus Aircraft Ltd and to lower operational expenses.

Overall, the achieved EBIT margin of 3% is not yet satisfactory and does not provide the company with a long-term, sustainable financial basis. With regard to liquidity, it is evident three years after the unbundling that the scarce capital resources at that time are not sufficient to overcome the numerous inherited issues and at the same time pre-finance both the investments necessary for securing RUAG’s future and replacing the systems of the Swiss Armed Forces.

In spite of these developments, RUAG was able to achieve numerous business-relevant successes which helped to keep the company on track and to consolidate its position as a comprehensive and innovative security company.

Strategically on course

RUAG has worked intensively on shaping and implementing its company strategy. In this regard, the company was able to make progress in a few areas of activity.

In close coordination with armasuisse S+T and the Swiss Innovation Forces, the RUAG Innovation Organization (RIO) has established itself in the Swiss security innovation ecosystem.

In the cyber security business, RUAG was able to conclude the acquisition of CyOne Security Ltd in close coordination with the owner and the Armed Forces. CyOne Security Ltd is a core element of the Confederation’s secure communication, also outside the Armed Forces, and is one of the leading companies in cryptology in Switzerland. It therefore stands for “sovereign security”, one of RUAG’s brand promises.

RUAG’s ability to successfully bid in the economically competitive international third-party business was demonstrated by the Artemis project. The contract to recondition and modernize F-5 jets for the United States Navy is a clear sign that RUAG’s expertise and capabilities are competitive and highly valued internationally. Moreover, this contract is also strategically important for maintaining the capabilities for the Swiss Armed Forces.

The extensive preparations and ultimately the conclusion of the multi-year service level agreement for the period 2024–2027 with the Armed Forces Logistics Organisation marked a successful milestone for the future. This contract demonstrates trust and transparent cooperation and guarantees the Armed Forces a high level of availability for 130 systems.

Operational excellence strengthened to increase efficiency of the Armed Forces

Another important milestone was the successful conclusion of the three-year Cervino program (e2e process redesign and SAP S/4HANA migration), which went live on 1 January 2024. With this program, RUAG is harmonizing its inherited disparate process landscape in a comprehensive system environment. This enables significantly better control of efficiency and availability and therefore contributes to the operational performance of the Armed Forces.

Especially in a fundamentally changing global political environment with the war in Ukraine and major upheavals in the Middle East, which led to delays in deliveries from foreign defense companies that also affected Switzerland, RUAG proved to be a stabilizing force and was able to compensate all delivery delays for the benefit of the Swiss Armed Forces.

To ensure a reliable and future-proof provision of services for the main customer, RUAG was able to implement important construction projects such as a state-of-the-art facility for electromagnetic compatibility (EMC) testing and an electrically powered and thus ESG-compliant universal transmission test bench.

Focus on sustainable expertise

With these positive developments, RUAG demonstrates its security policy relevance and makes a significant contribution to the sovereign security of Switzerland. Fulfilling this mission, which will remain a priority in the future, is only possible with a consistent focus on sustainable expertise and competent employees. This focus on the training of specialists is why RUAG is regularly ranked among the best training companies in the country. In 2023, a total of 60 apprentices in 13 different professions completed their training at RUAG. Four of these apprentices won medals at the national vocational championships, impressively proving that they are among the best in Switzerland.

2024 will be a year of focus. The aim is to stabilize leadership, embrace the new process and system landscapes and continue to consistently and reliably deliver the required performance and thus financial results. In 2024, the global political situation will remain a challenging environment for
securing the supply chain and thus the availability of military systems. Our strategy leads the way and we will work consistently on its implementation. The legacy issues will continue to affect us in 2024. For this reason, we expect EBIT for 2024 as a whole to be roughly on par with 2023 due to the continuing high extraordinary charges.

Despite – or precisely because of – the unfortunate nuances of the past year, it is particularly important to us not to lose sight of the future and to demonstrate the rapid development of this company’s future viability. We want to be a reliable partner and fulfill our main task of serving the security of this country with professional governance and an efficient and recognized management structure. This will be RUAG’s highest priority.

Nicolas Perrin, President of the Board of Directors RUAG MRO Holding AG

Thomas Kipfer, Co-CEO a.i. RUAG MRO Holding AG

Christian Priller, Co-CEO a.i. RUAG MRO Holding AG