Saab: More Orders In while Net Income Falls

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Håkan Buskhe, Saab President and CEO

Swedish Defense and security company SAAB presented its 2010 results today. The report sends mixed signals to the market. On one hand, the company’s order bookings has increased this year by 43 percent, from 18,428 million Swedish krones (MSEK) about US$2.84 billion reported in 2009 the backlog jumped to 26,278 MSEK (just over $4 billion) by year’s end in 2010. This increase was due in large part to several orders in the fourth quarter, for the further development of the Gripen system received from FMV and a major order for an airborne surveillance system. International customers accounted for 66 per cent of order bookings.

Despite the increase in order intake, the company remains conservative in its vision, forecasting a slight decline in sales this year (2011) compared to 2010. This reduction is due to the lower orders received in 2009 which are being completed this year. The strong orders gained in 2010 are expected to sustain better performance in future years. 2010 sales (business recognized for the current year) remained flat, while operating income reduced to MSEK 975 ($150 million, compared to 1,374 or $211 millionin 2009).

Håkan Buskhe, SAAB President and CEO

For 2011 Saab expects operating margin to increase slightly over 2010. Order backlog at year-end amounted to MSEK 41,459 compared to 39,389 in 2009 with operating cash flow trippled over 2009 to MSEK 4,349 (compared to 1,447 in 2009). Over a business cycle, organic sales growth is expected to average 5 percent per year over the long term, primarily from operations overseas.

“We continuously evaluate our market potential and analyze how our technologies and solutions can meet demand in the around 90 markets, both traditional and emerging, where we sold our products in 2010” Håkan Buskhe, Saab President and CEO wrote in his annual report. “Today, Sweden and the rest of Europe account for over 59 per cent of our sales. In addition to the Gripen system, we see other significant business opportunities and growth potential in these markets.” Buskhe indicated.

For the future, Saab also focuses its investments on selected markets with good growth opportunities in a number of regions. “A large share of our growth will have to be found in markets with significant, stable defense spending and otherwise favorable conditions. These especially attractive growth markets include North America, Brazil, India and a number of countries in Southeast Asia.” Buskhe notes. He also emphasized the business potential of the United Nations, to which the company established itself in 2010 as a supplier with a local presence in East Africa. “The UN is expected to procure products and services for a total of around USD 15 billion (approx. SEK 100 billion), with a focus on services central to our offering: camp, medical and security solutions, vehicle maintenance, training and 3D mapping.” Bushke said.

Growing business overseas is not a simple task. “How we establish ourselves in various regions depends on an array of factors, including political, regulatory, competitive and industrial conditions, local business models and financial arrangements, and how our technologies meet local needs. The strategies in each market in turn include everything from an increased market presence and marketing to joint ventures and partnerships, industrial cooperation, technology transfers and re-exports. We may also strengthen our local presence through acquisitions in selected markets if opportunities arise within our prioritized areas.”

Saab still has a long way to go in recreating itself as a global-local company. “At present, slightly over 83 per cent of our employees work in Sweden and about 12 per cent in South Africa and Australia.” Bushke confirmed.