Saab 2013 Annual Report Download - page 10

6 SAAB ANNUAL REPORT 2013
CEO COMMENT
UNIQUE EFFICIENCY OFFERS
GROWTH OPPORTUNITIES
Saab is in many respects a unique company. Our ori-
gins and our DNA have resulted in us doing things both
smart and cost-effectively. The ability to anticipate
requirements for defence and security solutions means
that Saab is at the absolute forefront of developing and
customising its product portfolio.
Saab has a clear focus. We supply high-tech products, integrated
solutions and services in a cost-eective manner to our cus-
tomers. In this way we assure returns for our shareholders and
achieve our growth targets. Guiding Saab in the right direction
in a challenging market requires that we have very good under-
standing of both global and local markets and of our customers.
We need to have dedicated employees and the right cost structure.
Saab’s strategy is based on four cornerstones: creating long-
term protable growth; constantly reviewing and adapting our
portfolio; creating more ecient operations; and continuously de-
veloping our employees. e past year has been marked by both
challenges and very positive breakthroughs. Clear examples of the
latter are Brazil’s choice of Gripen and the decisions of the Swiss
parliament to proceed with its procurement of Gripen.
Changing market
When I summed up 2012 at the annual general meeting in April,
one subject I spoke about was the way eciency, active portfo-
lio management, and research and development contribute to
growth, competitiveness and good protability. I also brought up
the challenging market situation that requires us to constantly
develop our ability to deliver according to our customers’ needs.
I can now say that the tough market situation is a continuing
reality. Competition is erce and customer needs are changing
faster than ever before. is requires us to always be prepared for
change and to develop together with our customers.
A more customised and focused portfolio
e new market area organisation will ensure a continuous dialogue
with customers in key markets. is means that the investments
made in research and development are better able to match future
customer needs for defence and security solutions. In turn, this
leads to lower costs today and more secure revenues in the future.
Saab is one of the most research-intensive companies in Sweden
and in the global defence market. In the past year we invested 28
per cent of sales in research and development. e technologies
we are investing in will complement existing product areas and
enhance Saab’s competitiveness. In order to shorten lead times
from identied need to delivery and revenue, we have strength-
ened the portfolio management system used by both the develop-
ment and the sales organisations. Identied customer needs are
now better matched with decisions on development eorts.
Focus on efficiency
Sales amounted to MSEK 23,750, an organic decline of 2 per
cent. Budget constraints in the US had a negative impact on our
training and trac management operations in the US. Business
area Dynamics was also aected by budget constraints and delays
in customers’ investment processes. is was compensated by
growth in the business areas Aeronautics and Combitech.
e order backlog has been lled with strategically important
orders and was at a historically record high of MSEK 59,870
(34,151). During the year we received orders worth SEK 29.8bil-
lion from Sweden’s FMV, related to the development and produc-
tion of the Gripen E. Apart from these orders, we are seeing a
clear shi in the defence market. Saab’s business has previously
experienced its main growth in the traditional markets of the
West, but business is now being won and is growing in emerging
markets, such as those in Asia.
e continued challenging market conditions have prompted
us to announce eciency measures in 2013 that are expected
to generate MSEK 500 in cost reductions at the close of 2014.
Another example of action is the establishment of the new market
area organisation at the beginning of 2013. Our nancial position
is strong, which ensures that we can work with a long-term stance.
is is essential in our business, where we oen have commit-
ments with our customers for many years.
Focus on governance and cash flow
Achieving sucient protability is about being in control of the
margins on execution and deliveries. Our portfolio includes
everything from long-term contracts with complex systems
to products and services delivered to customers on short lead
times. e reported margin varies according to the particular
project mix. During the year a more transparent and more clearly
broken down governance model was introduced in order to
obtain greater internal transparency. e gross margin for 2013
amounted to 26.6 per cent (30.0). Operating income for 2013
totalled MSEK1,345 (2,050) and the operating margin was 5.7
per cent (8.5). e result includes a material non-recurring item
of MSEK231 related to a lost legal dispute in Denmark. Adjusted
for material non-recurring items the operating income amounted
to MSEK 1,576 (1,843) and the operating margin was 6.6 per cent
(7.7), which is in line with the revised guidance provided in the
half-year report.
A key priority is to secure a positive cash ow. As part of the
eorts to work actively on cash ow during the year, inventory
and outstanding accounts receivable have been analysed. It is not
uncommon for working capital to vary over time in the defence
industry. is depends largely on when milestone payments are
made and on the current project mix. 2013 operating cash ow
totalled MSEK -1,480 (-396). e lower operating cash ow in
2013 is mainly attributable to timing dierences in milestone pay-
ments in large projects, investments and acquisitions, as well as a
payment related to the Danish legal dispute.
International breakthrough proves Saab’s capability
e Gripen system’s cost-ecient multifunctionality is a success
on the international export market. e Gripen C/D is today
in use with ve air forces and with the British Empire Test Pilot
School. During the year, FMV ordered development, modica-
tion and production of 60 Gripen Es for the period 2013–2026.