“One of the most eventful years in our history.”
President and CEO Geir Håøy
During the course of 2019, we have become a significantly larger supplier to the maritime industry. We have been heavily involved in the maintenance of military aircraft and helicopters, and we have an increased order backlog through large and small contracts.
At the time of writing, close to one year have passed since Rolls-Royce Commercial Marine was incorporated into Kongsberg Maritime. With this acquisition, we have doubled our sales in the maritime sector and gained a significantly stronger foothold in the maritime industry. We have strengthened our product portfolio, gained valuable expertise and are providing even more services. Propulsion, deck management and vessel design are now an integral part of our portfolio and put us in a position to deliver solutions from bridges to propellers.
Kongsberg Maritime is currently conducting important work in harmonising the existing products and solutions of Kongsberg Maritime and Commercial Marine. This is important for both us and our customers. With this, we will be in a position to make systems even smarter, through further seamless integration. This will give us a competitive edge in the market and costefficiencies internally.
We have increased our strategic presence, and now enter projects at an earlier stage, particularly when selling complete solutions. We are finding that customers want to talk to us to an even greater extent than previously. We have further strengthened our position in the high-end market, where we can take advantage of our entire product portfolio and be a key partner and contributor at an early stage, participating in the development of the solutions.
From a sustainability perspective, Kongsberg Maritime is a company that can genuinely make a difference. For example, we are currently delivering hybrid energy solutions helping to reduce CO2, SO2 and NOx emissions and enabling vessels to operate more efficiently, with lower fuel consumption. Now that large-scale resources are being invested worldwide to reduce climate gas emissions, Kongsberg Maritime is ready to deliver solutions to facilitate this reduction. We are currently just at the start of what will be an important source of income for Kongsberg Maritime in the years to come.
The acquisition of Commercial Marine was made possible by our shareholders contributing approximately MNOK 5,000 in a rights issue. Prior to the issue, we were clear on how we would realise synergies, and we have delivered on this faster and more effectively than we initially announced. This integration and improved profitability has come at a time when assistance from the market was minimal. Orders for new vessels were at a historically low level in 2019, which has put further pressure on us to realise synergies more quickly. Kongsberg Maritime has seen a large order intake despite the weakness of the market. We also managed to deliver positive underlying results from the first quarter of our ownership of Commercial Marine. A lot was due to good planning, which meant we were able to implement our plans as soon as we took over the company; we also enjoyed extraordinary efforts from our employees.
2019 was the year KONGSBERG took an important step into the growing market for the heavy maintenance of military aircraft and helicopters. We took over ownership of what had been the Norwegian Air Force's main workshop in Kjeller, and entered into agreements with the Norwegian Armed Forces for strategic partnerships and maintenance services. Both Norway and a number of European countries have begun to outsource maintenance services to industry. The reason for this is the desire to reduce maintenance costs, maintain qualified readiness and release funds for operational training.
The acquisition of 49.9 per cent of the shares in the Finnish company Patria in 2016 was the first strategic decision we made in order to gain a stronger foothold in this market. The purchase of what is today Kongsberg Aviation Maintenance Services (KAMS) at Kjeller has opened the door to providing more maintenance services to the Norwegian Armed Forces. For many years, Kongsberg Defence & Aerospace has performed maintenance of helicopter gearboxes. We are now taking on much greater responsibility for the entire Norwegian Air Force, in close collaboration with Patria, which has extensive experience in this area.
The maintenance of military aircraft and helicopters is a significant international sector. These platforms have a service life of several decades. We have seen more nations collaborating in bilateral agreements for the maintenance of these platforms. For example, KAMS has significant expertise in the maintenance of the F-16 fighter plane, which many nations worldwide will take advantage of for a long time to come. We will also be active in terms of tenders for other aircraft and helicopter types, especially the F-35, which is now being phased in by several nations. We are starting with our domestic market, and will work hard to win an international market share with our commitment to maintenance.
At the start of 2020, KONGSBERG is in a stronger position than at the start of 2019. There is evidence of this in our order backlog, which has increased significantly during the year. The contract we won in 2019 with Qatar for the NASAMS air defence system was the largest in our history at MNOK 5,600. We also signed a significant air defence contract with Australia. What is special about these two contracts is that we have the opportunity to develop NASAMS further. Both nations require new capacity in terms of range and flexibility in the use of missiles and radar development.
I would also like to say that we have confirmed our number one worldwide position in remote weapon control systems, RWS. The USA continues to purchase RWS within the framework contract with Kongsberg Defence & Aerospace. This confirms our position in this market and means we have a good chance of being awarded new framework contracts with the USA, which is by far our largest customer in this sector. In addition, we have added new nations to our customer list, including Denmark and Germany. The latter is for a solution to combat drones, a major issue in today's world.
In 2019, we won our first Joint Strike Missile (JSM) delivery contract with Japan. It was only a matter of time before we received the first contract. We are approaching full operational capacity for F-35 missiles. Eventually some of the countries that have chosen the F-35 fighter plane will have to consider ordering the JSM if they need this type of capacity.
Another important breakthrough in 2019 was the contract with Shell for a dynamic digital twin of its processing plant at Nyhamna. This is a full-scale, real time twin of a physical processing plant where you can monitor, operate, simulate and plan. The fact that Shell chose Kongsberg Digital is confirmation that we have developed digital solutions which can be part of changing the oil and gas industry in the future. Digital twins can be used in many areas. Our particular key areas are shipping, oil and gas and offshore. I believe that we have only seen the start of what digital twins can do for safety, efficiency and, not least, sustainability. It will be an extremely important tool and will open up new opportunities for industries where we have a high level of knowledge.
Throughout 2019, order intake has increased organically for Kongsberg Maritime and Kongsberg Digital. We are extremely proud of having won contracts and increased the order backlog, in spite of a tough market. We will closely monitor developments in the market, especially relating to the ordering of new vessels. For Kongsberg Maritime, the after-market has gradually become more important and will be just as significant over the next 2-3 years, before normalisation of the new builds market.
Within defence, we have doubled our order backlog during 2019. We have communicated to the market that we are in a good position to win contracts worth more than MNOK 100,000 in the coming decade. With the predictability we are seeing in terms of the defence sector and delivery times, we are confident that we are well positioned for further growth within defence going forward.
We have seen that a number of nations are now upgrading their defence capabilities. The entire geopolitical situation has become more challenging and unpredictable than it has been for a number of years. At the same time, NATO member states are being challenged to spend a greater proportion of GNP on defence, and we are also seeing the effects of this in the European defence market. Here, we are in a position to offer defence materials that fit well with current and future defence strategies. Together with our partners and subcontractors, we have developed products and solutions to meet the needs of individual defence strategies. I believe this is the main reason behind our success. We have world-leading products, in many cases superior to our competitors. The Norwegian defence industry is known for delivering quality and being trustworthy. Our customers know that we are in a position to deliver what has been agreed.
Our products are well-positioned in today's market, but we have to develop constantly in order to retain this position. In 2019, the US Navy conducted its first live exercises with the Naval Strike Missile (NSM). The fact that the US has chosen our NSM means we have made the right choices, stood by them and created products that are in demand from many nations.
But we shouldn't forget that many years of work are behind 2019's order intake. We have worked systematically on many of these programmes for a number of years. This shows that we are in an industry where it is important to be patient and work systematically with end users and decision-makers in order to successfully get to the right position. To sum up, 2019 has been one of the most eventful years in our history. We have adapted to the markets of today and prepared for the future. Throughout 2019, KONGSBERG has positioned itself through acquisitions and strategic cooperation agreements.
When entering 2020 the world experienced the outbreak of a new virus, COVID-19. The outbreak, that started in Asia, have now spread around the world. Norway as well as other nations have launched measures both to prevent spreading of the virus as well as measures to support industries. Among the measures are; closing of schools and universities, strong restrictions on travel as well as measures that limit normal operations for business and individuals. Several measures have also been initiated to help industries through the challenging situation, which to most areas of the industry seems unavoidable. KONGSBERG has implemented several preventive measures, in order to protect our employees and business partners, and to the largest possible degree secure normal operations.
Despite a challenging and unpredictable situation going forward I can assure that we will work hard to secure our employees, generate value for our owners and continue to make a difference for our clients and business partners.
Finally, I would like to thank our customers and owners for their trust in us, and our employees for their drive and spirit.
President and CEO