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Saab Global

Interim report january - june 2001

INTERIM REPORT January - June 2001 · Order bookings after six months amounted to SEK 8 billion. · Sales amounted to SEK 7,840 m. (8,337), an increase of 7% for comparable units. · Operating income amounted to SEK 1,059 m. (656). · Earnings per share amounted to SEK 7.47 (3.90). · After-tax return on shareholders' equity 25.4% and pre-tax return on capital employed 17.9%. · Streamlining of the Group and development of the core business have continued according to plan. · Statement by the CEO "Business continues to develop well and divestments and capital gains aside, both sales and operating income show an increase. Order inflow has also continued to be good for the second quarter. Training Systems, for example, won another order for a Combat Training Center, worth approximately half a billion SEK, this time for the Norwegian national defense forces and Finland has ordered an upgrade of the Rbs15 anti-ship missile. This means that we still have an order backlog amounting to some 40 billion SEK, equivalent to approximately two and half years' sales. Also during the second quarter it became definite that Saab will be participating as an industrial partner in the Airbus A380 project, which will give us estimated revenues of more than 10 billion SEK over the next twenty years. We shall develop and manufacture advanced parts of the wings. Streamlining and development of the Group have also continued during the second quarter. In addition to the value realization from defense technology, Celsius Aerotech in the USA and Hawker Pacific in Australia have been sold. Our co-operation with Grintek in South Africa around our joint venture Avitronics, has been broadened in the communications and Network Defense area. We have also acquired Ericsson's 50% holding in Ericsson Saab Avionics, which is now a wholly owned subsidiary under the name of Saab Avionics. We expect to incorporate Fokker Space within a few months. Our new Venture Capital function, formed this year, has reinforced and further focused our strategy of continuously creating value through the application of defense technology in civil markets. During the second quarter, three interesting technologies with high growth potential, outside Saab's core areas, have acquired new principals, while we remain as minority owners or royalty owners and can thus share in any future appreciation. In line with our forecast in the 2000 Report in February, the year began somewhat weaker than last year as regards operating income before capital gains. After six months, we can now see that operating income have improved compared with the same period last year and we are still confident that earnings per share for the whole year will be well on a par with last year." Major events and structural changes During the second quarter, Celsius Aerotech in the USA was sold to Reliance Aviation-Tennessee Inc. and the military division of Hawker Pacific in Australia to EADS. An agreement was also reached to sell Hawker Pacific to Lynton International by stages, the first stage being that they take over 25% of the shares and management responsibility for the company. In addition, parts of Saab Aviocomp's operations in Holland have been sold. The effect on earnings of these 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. The second quarter's divestments have had a positive effect of almost 200 million SEK on net liquidity. Three companies have also been sold through the new Venture Capital function. Saab's holding in the associated company Triangle Equipment A/S, whose product for the oil industry is based on technology developed by Saab Avionics, has been sold to Global Geo Services, GGS, who are listed on the Oslo stock exchange, for both a cash payment and shares equivalent to about 3% of GGS. 60 percent of our subsidiary in the field of active sound control, A2 Acoustics AB, has been sold to WM-Data and the subsidiary Sanguistech, active in systems for blood centrifuging, has been sold to Gambro. With effect from January 1 this year, Saab has acquired Ericsson's minority holding in Ericsson Saab Avionics from Ericsson for 225 million SEK. The acquisition will not affect sales or operating income, but is expected to have a positive effect on net income. Fokker Space, which will become part of the Saab Ericsson Space business area after the take- over comes into effect in a few months' time, has an annual turnover of approx. half a billion SEK and 400 employees. Saab Marine Electronics was sold earlier this year with a capital gain of 650 million SEK. The sale of Celsius Amtec and Kockums Industries had no effect on income. These divestments have had a positive combined effect on net liquidity of approx. 1,300 million SEK. Operations Saab is one of the world's 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 & Electronics, Saab Aerospace, Saab Technical Support & Services, Saab Bofors Dynamics, Saab Ericsson Space and Saab Aviation Services. For a brief description of the business areas see the last page in the report. Sales, income and orders Sales Group sales decreased to SEK 7,840 m. (8,337), due to divestments of companies and operations mainly within Systems and Electronics and Aviation Services. For comparable units, sales increased by 7 percent. During the first six months, eight (nine) Gripen aircraft were invoiced, of which six (five) in the second quarter. The sales increase in Technical Support & Services is mainly attributable to the defense related business within AerotechTelub. The increase in Dynamics is mainly related to anti-armor weapons and for Space the volume growth continues. Sixty-seven percent of sales were related to defense and the foreign markets' share of total sales was 45 percent. Income and profitability Operating income amounted to SEK 1,059 m. (656). The half-year result includes the capital gain from the divestment of Saab Marine Electronics of SEK 650 m. and last year's income included capital gains of SEK 353 m. Operating income before capital gains was SEK 409 m. (303) corresponding to an increase of 35 percent, which mainly is due to the restructuring of Dynamics and continued good profitability in Saab Aviation Services. Operating margin for the remaining operations in Systems & Electronics are on a level with the previous year. Due to fewer deliveries Aerospace has a somewhat lower operating income compared with the corresponding period last year, however, the margin is on level. Technical Support & Services is on a level with the previous year, but due to variations during the year the business area had a somewhat lower operating margin. For Dynamics the positive trend following last year's rationalization has continued. In the second quarter, operating margin for Space is back on level, but is for the total period still somewhat low as a result of internally financed development. Saab Aviation Services, which core consists of Saab's leasing and customer support operation in regional aviation and remaining activities from Celsius Aviation Services until these are divested, reports continued good profitability. Project interest on non-utilized advance payments, accounted for in the gross margin, amounted to SEK 49 m. (82). Operating expenses are generally somewhat lower compared to the same period in the previous year. Other operating income during both the present and previous years consists mainly of capital gains, trading income in Treasury business and currency gains, etc. Net financial income and expenses amounted to SEK -8 m. (-27). The average return on external investments amounted to 4.89 percent. Income after financial items amounted to SEK 1,051 m. (629). Current and deferred taxes amounted to SEK -215 m. (-183). 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. The Group's effective tax rate for the year, excluding these one-recurrent items, is calculated at 29 percent. Net income for the period was SEK 795 m. (415), corresponding to an income per share of SEK 7.47 (3.90). Orders Group order bookings during the first half-year amounted to SEK 7,920 m. (17,889), of which the second quarter SEK 3,922 m. (4,325). Second quarter order bookings included combat training center from Norway, upgrade of anti-ship missile RBS15 from Finland, add-on orders for the Swedish Gripen program, the first order to conduct a study related to the Swedish Defense's future command and control system, eye-safe laser rangefinder from Thales for French fighter aircraft, upgrade of the fire control on the Swedish Defense's Göteborg-class corvettes, next generation of separation system for Lockheed Martin's new Atlas V launch vehicle and Sweden's first commercial TETRA system (digital platform for two-way radio) from the city of Gothenburg. The order backlog at the end of the period amounted to SEK 40,748 m., compared to SEK 41,091 m. at the beginning of the year. Liquidity, finance and investments Finance and liquidity Compared to opening balance, liquid funds less liabilities to credit institutions decreased by SEK 125 m. to SEK 3,817 m. (3,942). The decrease is mainly a net of high utilization of advances within Gripen, utilization of structural reserves, payment of dividend, acquisitions and divestments of businesses. The Group's net liquidity after deduction for allocations to pensions amounted to SEK 222 m., compared with SEK 415 m. at the beginning of the year. Group equity/assets ratio amounted to 20.4 percent (14.0) compared with 18.2 percent in the opening balance. Shareholders' equity amounted to SEK 6,295 m. (4,849), corresponding to SEK 59.13 (45.55) per share, compared with SEK 53.26 at the beginning of the year. Cash flow Group cash flow from operating activities continued to be good. Working capital decreased as a result of utilization of part of last year's provisions within Dynamics, utilization of advances within Gripen, payments related to the regional aircraft business and decreased lease obligations due to the divestment of Amtec. The cash flow from investments was positive as a result of the divestment of Amtec and lease assets included therein. Operating cash flow was positive and amounted to SEK 164 m. (-302). Capital expenditures The period's capital expenditures in property, plant and equipment, excluding lease assets, amounted to SEK 197 m. (175). Personnel At the end of the period, the number of employees in the Group was 14,552, compared with 15,453 at the beginning of the year. The decrease is mainly related to divestment of operations. Parent Company During the first six months, parent company sales amounted to SEK 1,800 m. (1,871). Operating income was SEK 113 m. (179) and income after financial income and expenses was SEK 132 m. (455). Cash and marketable securities, less liabilities to credit institutions, amounted to SEK 780 m., compared with SEK 1,785 m. at year-end. Capital expenditures in property, plant and equipment amounted to SEK 54 m. (59). The number of employees at the end of the period was 4,168, compared with 4,230 at the beginning of the year. Ownership Saab's principal owners are Investor AB, BAE SYSTEMS, the Wallenberg foundations, Fidelity Funds, AMF, Third AP fund, MFS Funds and Skandia. Accounting Principles The report has been drawn up in accordance with earlier accounting principles. This means that divested companies such as Saab Marine Electronics, Celsius Amtec and Celsius Aerotech 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, July 12, 2001 Bengt Halse President and Chief Executive Officer We have reviewed this interim report in accordance with the recommendation issued by the Swedish Institute of Authorised Public Accountants, FAR. A review is significantly limited compared to an audit. We have found nothing to suggest that this interim report does not comply with the requirements set out in the Exchange and Annual Accounts Acts. Linköping, July 12, 2001 Gunnar Widhagen Caj Nackstad Authorized Public Accountant Authorized Public Accountant Ernst & Young AB KPMG Bohlins AB Dates for financial information: Interim Report for January-September will be published on October 19, 2001 The 2001 Report will be published on February 14, 2002 For further information, please contact: Agneta Kammeby, Manager Investor Relations tel. +46 13 18 71 25 Jan Nygren, Head of Corporate Communications tel. +46 13 18 19 99 Telephone interview with President Bengt Halse: Today, Thursday July 12, approx. 14.00 - 14.45 tel. +46 703 19 28 15 Contact Eva Aldenstedt International teleconference: Today, Thursday July 12, 15.00. Contact Marita Sidén tel. +46 13 18 71 49 for registration and further information. 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