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Saab AB Interim Report January-September 2001

INTERIM REPORT January - September 2001 · Order bookings after nine months amounted to SEK 11 billion. · Sales amounted to SEK 11,000 m. (12,313), an increase of 3% for comparable units. · Operating income amounted to SEK 1,230 m. (876). · Earnings per share amounted to SEK 8.28 (4.81). · After-tax return on shareholders' equity 24.2% and pre-tax return on capital employed 18.1%. · AerotechTelub becomes a wholly owned subsidiary. · Helicopter purchase is expected to bring Saab business worth SEK 2 billion. · Hungary has started negotiations on leasing Gripen aircraft. Statement by the CEO "The defense-related operations continue to develop satisfactorily and during the third quarter it was decided that the highly qualified service company AerotechTelub will become a wholly owned subsidiary of Saab, which will create even better possibilities for collaboration and synergies within the group. Order bookings during the third quarter also continued to be good. Among other things, a Swedish order of about 500 million SEK was placed with Gripen for the integration of new precision weapons. Training Systems gained its fourth NATO customer for instrumented training systems with an order from Italy. The order backlog thereby continues to be some 40 billion SEK, equivalent to about two and a half years' sales. By utilizing the know-how in systems engineering from Gripen, together with the command and control competence added through the acquisition of Celsius, Saab can now undertake total responsibility for the tactical system in Sweden's new medium-weight helicopter, a contract that together with production of helicopter cabins is expected to give Saab contracts directly worth 2 billion SEK. In addition, negotiations are in progress on the sale of further RBS70 air defense missiles to Australia and in September Hungary decided to start negotiations with Sweden on leasing used Gripen aircraft. Streamlining and development of the group have continued also during the third quarter. The majority in American Aero Systems Engineering, which was part of Celsius Aviation Services, has been divested. Collaboration with BAE SYSTEMS in marketing and sales of Gripen, which started in 1995, has been further strengthened through the formation of a jointly owned company named Gripen International and we have acquired TietoEnator's 43 percent share in AerotechTelub. The tragic events in the USA last month and the subsequent world situation will have a negative influence on our operations in commercial aircraft, but it is too early to totally overview the consequences and quantify the effects on income. Our operations in commercial aircraft currently account for just over 10 percent of total sales. Owing to lower utilization of aircraft, the after market for the Saab 340 and Saab 2000 will probably see decreasing volumes with related fall in income. We are also analyzing the long-term consequences and impact on value for those parts of the former Celsius Aviation Services where we still have owner interests. For the leasing fleet of regional aircraft, revenues may be influenced, but here we have already made provisions and reduced risks through insurance, and therefore we do not expect any effect on income. In the case of deliveries to Airbus, operations are still in a build-up phase and volumes are small; consequently, any impact on income is expected to be limited. After nine months of the year, we can see that operating income both before and after capital gains has improved compared with the same period last year. We forecast that the profit per share for the whole year will be broadly in line with last year. The result depends on the possible impact on Saab Aviation Services of the recent events." Major events and structural changes During the third quarter, 51 percent of the shares in American Aero Systems Engineering Inc. have been divested to Minnesota ASE, LLC. Saab continues to own 29 percent of the shares and the remaining 20 percent are listed on Nasdaq. The effect on earnings of the divestment 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 divestment has had a positive effect of about 70 million SEK on net liquidity. With closing during the fourth quarter this year, the minority share in AerotechTelub has been acquired from TietoEnator for 1,100 million SEK. The acquisition has been approved by the Swedish Competition Authority. Discussions on the acquisition of 65 percent in Fokker Space are continuing. Although the EU Commission has approved the purchase, we have still not received satisfactory guarantees from the seller regarding certain earlier contracts. The risk that the acquisition will not be completed is therefore significant. Saab Marine Electronics was sold earlier this year with a capital gain of 650 million SEK. The divestments of Celsius Amtec, Celsius Aerotech, the military division of Hawker Pacific, the Kockums engineering workshops 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, the share in Triangle Equipment A/S, 60 percent in A2 Acoustics and Sanguistech has been divested during the first six months. With effect from the beginning of the year, the minority share in Ericsson Saab Avionics has been acquired for 225 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 11,000 m. (12,313), due to divestments of companies and operations mainly within Systems and Electronics and Aviation Services. For comparable units, sales increased by 3 percent. During the first nine months, eleven (twelve) Gripen aircraft were invoiced, of which three (three) in the third 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 1,230 m. (876). The result includes the capital gain from the divestment of Saab Marine Electronics of SEK 650 m. and last year's income included capital gains etc of SEK 386 m. Operating income before capital gains was SEK 580 m. (490) corresponding to an increase of 18 percent, which mainly is due to the restructuring of Dynamics and good profitability in Saab Aviation Services. Both this year and last year, third quarter operating income have been affected by lower volumes due to the holiday period. Operating income and margin for the remaining operations in Systems & Electronics are on a level with the previous year. Operating margin for Aerospace continuos to be on the 9-percent level. Operating income for 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. Operating margin for Space is still somewhat low as a result of internally financed development. Saab Aviation Services reports continued good profitability. Project interest on non-utilized advance payments, accounted for in the gross margin, amounted to SEK 85 m. (128). 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. Other operating expenses consists mainly of currency and capital losses. Items affecting comparability the previous year related to funds received from SPP and provisions for certain development projects. Net financial income and expenses amounted to SEK -33 m. (-67). The average return on external investments amounted to 4.63 percent. Income after financial items amounted to SEK 1,197 m. (809). Current and deferred taxes amounted to SEK -267 m. (-234). 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 Group's effective tax rate for the year, excluding these one-recurrent items and before goodwill amortization, is calculated at 29 percent. Net income for the period was SEK 882 m. (512), corresponding to an income per share of SEK 8.28 (4.81). Income per share before goodwill amortization amounted to SEK 9.37 (6.10) and to SEK 11.47 for the year 2000. Orders Group order bookings during the first nine months amounted to SEK 10,897 m. (23,098), of which the third quarter SEK 2,977 m. (5,209). Third quarter order bookings included the integration of new precision weapons for the Swedish Gripen program, an order from Italy for GAMER instrumented training systems, a new Swedish aerial target towing agreement, an order from Norway for camouflage systems and further development of the Swedish Armed Forces' command and control system, StriC. The order backlog at the end of the period amounted to SEK 40,492 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 increased by SEK 473 m. to SEK 4,415 m. (3,942). The increase is mainly a net of new advances and divestments of businesses and high utilization of advances within Gripen, utilization of structural reserves, payment of dividend and acquisitions of businesses. The Group's net liquidity after deduction for allocations to pensions amounted to SEK 802 m., compared with SEK 415 m. at the beginning of the year. Group equity/assets ratio amounted to 21,3 percent (14.9) compared with 18.2 percent in the opening balance. Shareholders' equity amounted to SEK 6,495 m. (5,147), corresponding to SEK 61.01 (48.35) 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 has despite higher advances developed negatively mainly due to increased inventories, utilization of part of last year's provisions within Dynamics, payments related to the regional aircraft business and decreased lease obligations. The cash flow from investments has been positively affected by divestment of lease assets. Operating cash flow was positive and amounted to SEK 585 m. (88). Capital expenditures The period's capital expenditures in property, plant and equipment, excluding lease assets, amounted to SEK 335 m. (304). Personnel At the end of the period, the number of employees in the Group was 14,281, compared with 15,453 at the beginning of the year. The decrease is mainly related to divestment of operations. Ownership Saab's principal owners are Investor AB, BAE SYSTEMS, the Wallenberg foundations, AMF, Fidelity Funds, MFS Funds, Skandia and Third AP fund. 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, Celsius Aerotech and Aero Systems Engineering 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, October 19, 2001 Bengt Halse President and Chief Executive Officer This Interim Report has not been subject to review by the Company's auditors. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/19/20011019BIT00670/bit0001.doc Full Interim Report http://www.waymaker.net/bitonline/2001/10/19/20011019BIT00670/bit0001.pdf Full Interim Report