THE 2001 REPORT
Statement by the CEO
"As expected, income in 2001 was well in line with the previous year and the strong cash flow improved yet further. Like previous years, the fourth quarter was a strong quarter for our core business. Order bookings in the quarter was also good and the order backlog remains at just over SEK 40 billion, or about two and half years sales.
For natural reasons, interest was focused on Hungarys decision and the Czech Republics choice of Gripen for equipping their respective Air Forces. Significant business has also taken place in other areas, such as combat training centers for new NATO customers, countermeasures for the US and the choice of the RBS 15 anti-ship missile in key markets.
Swedens decision to purchase 18 NH90 medium weight helicopters has provided us with important business potential. The fact that Saab has been given responsibility for development of a totally new tactical system is a testament to the strength of our systems integration and defense electronics capabilities. Development, adaptation and maintenance of the new helicopters mean considerable revenues for Saab.
Streamlining of the Group has continued during the year through extensive divestments and development of the core business. During the fourth quarter, Aerothrust has been divested, which means that we have now found solutions for all the operations that previously made up Celsius Aviation Services.
We have a clear future orientation in growth sectors such as systems integration, segments of defense electronics and high technology services. We intend to strengthen our orientation and concentration with continued acquisitions and divestments, and to play an active part in the continued restructuring of the global defense and aerospace industry.
For 2002, I anticipate further improvement in operating income and operating margin, excluding capital gains."
Major events and
structural changes
During the fourth quarter, Aerothrust and the 25 percent
holding in the German shipyard Howaldtswerke-Deutsche Werft, HDW,
were divested. The effect on earnings of the divestments has been
considered in the fair value analysis that was done in connection
with the acquisition of Celsius, and will not affect the earnings
of the Saab Group.
Saab Marine Electronics was sold earlier this year with a capital gain of SEK 650 million. The divestments of Celsius Amtec, Celsius Aerotech, Aero Systems Engineering, the defense related part of Hawker Pacific, the Kockums engineering workshop and other operations have taken place without any impact on income, and agreement has also been reached on the gradual divestment of Hawker Pacific. Through the venture capital function created during the year, the share in Triangle Equipment A/S, 60 percent in A2 Acoustics and the operation of Sanguistech have been divested during the year. The divestments during the year have had, in total, a positive effect of about SEK 3 billion on net liquidity.
With effect from the beginning of the year, the minority share in Saab Avionics has been acquired for SEK 225 million and with effect from October 1, the minority share in AerotechTelub has been acquired for SEK 1.1 billion.
Operations
Saab is one of the worlds leading high-technology
companies, with its main activities focusing on aerospace and
defense. The operation covers clearly defined areas within
defense electronics, missile systems and space electronics as
well as military and civil aviation. Saab also focuses on high
technology services and maintenance. Saab comprises the business
areas Saab Systems and Electronics, Saab Aerospace, Saab
Technical Support and Services, Saab Bofors Dynamics, Saab
Ericsson Space and Saab Aviation Services. For a brief
description of the business areas see the end of the report.
Sales, income and orders
Sales
Group sales decreased to SEK 15,689 m. (17,840), due to
divestments of companies and operations mainly within Systems and
Electronics and Aviation Services. Sales have increased for
almost all today remaining operations and the average organic
growth was about 5 percent for comparable units. The years
acquisitions have not affected sales, as they were acquisitions
of outstanding minorities. Seventy percent (62) of sales were
related to defense and 40 percent (48) of total sales were
export. Sales have increased for all remaining operations in
Systems and Electronics compared to the previous year. The
increase in Aerospace is related to both military and commercial
aircraft. During the year, 18 (17) Gripen aircraft were invoiced,
of which seven (five) in the fourth quarter. The delivery of one
more Gripen aircraft compared to the previous year was to some
extent evened out by lower rate in development orders. The sales
increase in Technical Support and Services is mainly attributable
to organic growth in the defense-related business and in the
field of medical technology within AertotechTelub. The increase
in Dynamics depends mainly on increased deliveries of Carl-Gustaf
ammunition and disposable anti-armor weapons and the delivery
start of Torpedo 62 to Sweden. The sales increase in Space is
attributable to higher volumes in the commercial market. The
sales decreases in Aviation Services and Other operations
respectively, are to all extent related to divestments, while the
customer support business and the other remaining operations are
on a level with last year.
Income and profitability
Operating income increased by 4 percent to SEK 1,594 m.
(1,533). The result includes the capital gain from the divestment
of Saab Marine Electronics of SEK 650 m. (638). Operating income
before capital gains was thus SEK 944 m. (895), corresponding to
an increase of 5 percent and an improvement of the margin to 6.0
percent (5.0). The improvement is mainly due to the continued
restructuring and increased volumes in Aerospace and
AerotechTelub.
Operating income and margin for the remaining operations in Systems and Electronics have improved during the year and by that, the total margin is on a level with the previous year despite the divestment of Saab Marine Electronics. Operating income for Aerospace and Technical Support and Services were as a result of volume increases compared to previous year higher with maintained margins. As a result of the integration work to realize cost synergies and focus the operation, which started in 2000, Dynamics has increased both operating income and margin. Operating income for Space has been affected by the situation in the telecom market and has during the fourth quarter also deteriorated due to major cost over runs in a few development projects. The cost overruns are mainly related to the development of the computer based sensor system for the Metop meteorological system. Operating margin for Saab Aviation Services and operating income for Corporate/Other operations have improved sharply as a result of the years restructuring. Fourth quarter income, however, for Aviation Services has been affected by the general situation in the aviation business.
Operating expenses have decreased as a result of continued cost rationalization and divestments. Development costs for the export version of Gripen were on a level with the previous year. Other operating income during both the present and previous years consists mainly of capital gains, trading income in Treasury and currency gains etc. Other operating expenses consist mainly of currency and capital losses. Items affecting comparability the previous year related to reversal of reserves regarding Regional Aircraft, funds received from Alecta (SPP) and provisions for certain development projects. Project interest on non-utilized advance payments, shown in the gross margin, amounted to SEK 168 m. (172).
Net financial income and
expenses amounted to SEK -40 m. (-85), of which Saab Aircraft
Leasing SEK 80 m. (68). The average return on external
investments was 5.32 percent (4.72) and the average liquidity was
SEK 3,066 m. (5,400). The increase is attributable to both the
higher return and non-recurrent items. The financial net has also
been positively affected as a result of that the former long-term
net present value calculated receivable on Alecta (SPP) due to
changed payment rules and an agreement with the employee
organizations has become short-term. Income after financial items
amounted to SEK 1,554 m. (1,448). Current and deferred taxes
amounted to SEK -379 m. (-333). The tax portion of income after
financial items has been affected by the fact that certain
capital gains have been assessed as tax-free and that certain
capital losses have been assessed as non-deductible and goodwill
amortization. The Groups effective tax rate for the year
amounted by that to approximately 24 percent compared to normally
29 percent. Minority interest in income has decreased as a result
of the acquisitions of the outstanding minorities in Saab
Avionics and AerotechTelub during the year.
Net income for the year was SEK 1,127 m. (1.038), corresponding to an income per share of SEK 10.59 (9.75). Income per share before goodwill amortization amounted to SEK 12.11 (11.47). Pre-tax return on capital employed was 15.5 percent (14.6). After-tax return on shareholders equity was 18.3 percent (20.0).
Orders
Group order bookings amounted to SEK 15,274 m. (28,141), of
which the fourth quarter SEK 4,820 m. (5,043). Of the years
order bookings 52 percent were export. Fourth quarter order
bookings included the adaptation of the Gripen aircraft which
Hungary will lease from the Swedish Government, reconnaissance
pods for Swedens Gripen aircraft, naval fire control system
to Finland, countermeasure dispensers to USAF F-15 and order for
maintenance equipment for Swedens fourth Gripen wing. The
order backlog at year-end amounted to SEK 40,034 m. (41,091), and
includes defense orders worth SEK 38,040 m.
Liquidity, finance and investments
Balance sheet
Goodwill has net increased through the acquisitions of the
outstanding minorities in Saab Avionics and AerotechTelub and the
divestment of Amtec. The goodwill amount related to the
acquisition of Celsius has finally been confirmed to SEK 700 m.
The acquisition of the outstanding minority in AerotechTelub
brought additional goodwill of SEK 586 m. From 2002, all goodwill
will be allocated to the business areas.
Remaining provision for the phase-out of regional aircraft production amounts to SEK 1,567 m. and relates mainly to estimated costs for the responsibility of airworthiness. The loss risk reserve for the leasing operation amounted to SEK 1,648 m. at year-end. After offset against the lease assets with SEK 1.030 m., the provision shown in the balance sheet amounts to SEK 618 m. Remaining provisions are mainly related to restructuring and project reserves resulting from the acquisition of Celsius.
Finance and liquidity
Liquid funds less liabilities to credit institutions have
increased by SEK 621 m. to 4,563 m. (3,942). The increase is
mainly a net of new advances and payment from divestment of
businesses and high utilization of advances within the Gripen
program, utilization of structural reserves, payment of dividend
and acquisitions of businesses. The Groups net liquidity
after deduction for allocations to pensions amounted to SEK 885
m. (415).
Group equity/assets ratio amounted to 22.3 percent (18.2). The interest coverage ratio was 5.50 (5.32). Shareholders equity amounted to SEK 6,679 m. (5,670), corresponding to SEK 62.74 (53.26) per share.
Cash flow
Operating cash flow was positive and amounted to SEK 1,642 m.
Group cash flow from operating activities have further improved
to SEK 2,652 m. Working capital has despite higher advances
increased mainly due to utilization of part of last years
provisions within Dynamics, payments related to the regional
aircraft business and decreased lease obligations due to planned
changes in the portfolio. In cash flow from investments, the
investments in lease assets are a net of decreased lease assets
due to the divestment of Amtec and a planned increase of leasing
aircraft on balance sheet, regarding aircraft already included in
the portfolio.
Operating cash flow of SEK 1,642 m. is distributed between cash flow from the operation of SEK 566 m., from divestments and acquisitions SEK 2,336 m. and from increase according to plan of internal funding in the lease portfolio and phase-out of regional aircraft production of SEK 1,260 m.
Capital expenditures
The years capital expenditures in property, plant and
equipment, excluding lease assets, amounted to SEK 532 m.
(1,077). Net investments including lease assets and intangible
fixed assets amounted to SEK -331 m. (-502), including lease
assets of SEK -120 m. (476).
Research and development
The years expenditure on research and development
amounted to SEK 3,819 m. (3,808), of which SEK 3,101 m. (2,948)
relates to development paid for by customers.
Personnel
At the end of 2001, the number of employees in the Group was
14,028, compared with 15,453 at the beginning of the year. The
decrease is mainly related to divestment of operations.
Parent Company
Sales and income
Sales of the parent company amounted to SEK 4,097 m. (3,921).
Operating income amounted to SEK 421 m. (838). Net financial
income and expenses amounted to SEK 930 m. (843) and income after
financial income and expenses was SEK 1,351 m. (1,681). Of the
financial net SEK 954 m. (743) are group contributions and
dividends. After appropriations of SEK -6 m. (-148) and paid and
deferred tax of SEK -102 m. (-305), net income for the year
amounted to SEK 1,243 m. (1,228).
Proposed dividend and
repurchase of own shares
The Board of Directors long-term dividend policy is for 20-40
percent of the Groups net income to be distributed. For
2001, the Board of Directors and the President propose to
distribute to the shareholders SEK 3.25 (3.00) per share or a
total of SEK 346 m. (319), corresponding to 31 percent (31) of
the Groups net income. April 11, 2002 has been proposed as
the record date and the dividend is expected to be distributed,
April 16, 2002.
Further, the Board of Directors will as the previous year propose the Annual General Meeting an authorization for the Board to decide on repurchase of the companys shares up to 10 percent of the total shares outstanding. The mandate is proposed to be valid until the next Annual General Meeting. The purpose of the empowerment is to provide the Board with increased scope for action in working with the companys capital structure and to enable acquisitions to be made where considered appropriate. Such repurchases may be effected over the stock exchange or through offerings to shareholders. It is also proposed that the Boards mandate includes the possibility to transfer repurchased shares in accordance with current legislation.
Annual General Meeting
The Annual General Meeting will be held at Saab, Linköping
on Monday, April 8, 2002 at 18.00. Saabs revised annual
report will be available at the companys office in
Linköping. The printed Annual Report will be distributed upon
request to shareholders from March 4, 2002.
Ownership
Saabs principal owners are BAE SYSTEMS, Investor AB,
the Wallenberg foundations, AMF, Fidelity Funds, Third AP Fund,
Eikos Fund, Skandia and SHB Funds.
Accounting Principles
The report has been drawn up in accordance with earlier
accounting principles. This means that divested companies, such
as Saab Marine Electronics, are not included in the Group for any
part of 2001. The figures for 2000 have not been adjusted for
external acquisitions and divestments made during 2001. However,
sales and operating income by business area for the year 2000
have been adjusted for internal reorganizations.
Linköping, February 15, 2002
Bengt Halse
President and Chief Executive Officer
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