Speech by CEO Åke Svensson at Saab's Annual General Meeting in
Stockholm, March 30, 2004
Mr. Chairman, ladies and gentlemen. It is with great pride and
confidence that I address you, Saab's shareholders, here today. Pride
because last year was a show of strength in a number of important
respects, as I will soon explain.
The future always entails risks, especially in times of great change.
But today, as Sweden debates this year's major defence decision, I also
feel confident because I see so many opportunities for Saab. And I'm
certain you agree, since you're shareholders.
The film we just saw gives you a glimpse of Saab in its impressive
breadth. Despite that we are a relatively small company in an
international perspective, we have expertise in a number of areas with
great potential that can be found nowhere else.
Our strategy stands strong
As you know, we are active in defence, aviation and space.
Saab serves two roles that complement each other. We are a partner to
the defence sector in our home markets and a supplier of world-class
defence products in the global market.
The term partner means thoroughly understanding our customers' needs,
and knowing how new technology will be designed and integrated with
existing systems and environments to work today, and far into the
We manufacture and maintain broad-based defence systems in close
cooperation with customers. And we ensure that our various systems work
Sweden is Saab's home market, and it is with the Swedish defence that
our role as a partner has developed the furthest. South Africa, Hungary
and Australia are also becoming home markets, since we can now assume
turn-key responsibility for major, integrated systems solutions in these
countries as well.
Serving as a partner is important to us, since it is how we maintain
long-term technological leadership. Projects such as these are where new
technology is developed.
In our other role, we supply niche products to the global market. This
includes camouflage systems, anti-armour systems, and simulation and
As a niche supplier, we have good opportunities to grow, in part through
exports and in part through acquisitions. One example is Barracuda's
acquisition of a signature management facility in Lillington, North
One of the keys to our development work - in our home markets and the
global market - is international cooperation between nations and between
industries. Both roles - as a partner in home markets and supplier of
niche products in the global market - are dependent on each other and
have to be combined. Companies that partner with one or more large
customers will also be seen as reliable suppliers in the global market.
And successful suppliers in the global market are attractive as
partners, who can raise cost efficiency and help share development costs
for products and systems.
This is our core strategy.
Highlights of 2003
When you as shareholders evaluate Saab's development and potential, some
factors are more important than others. You look at our ability to win
major orders, to focus operations in accordance with our strategy and
profitability objectives, and obviously our financial results. When we
look back at 2003, we can see signs of strength in all these areas.
The film we just saw mentioned several of the last year's most important
orders. Let me describe a few orders that confirm our strategy.
The first is Gripen, which has gained success in Hungary and has now
been recommended in the Czech Republic, where we and the Swedish state
are, I hope, in final negotiations. As you know, Brazil is also
conducting an evaluation of its future air defence system, and Gripen is
one of the alternatives.
I would also mention the order we won together with IBM, Boeing and
Ericsson to build Sweden's new network-based defence.
And I am thinking about the European Meteor air-to-air missile program,
where we are taking part in every stage, from development to production
and integration. Gripen has been chosen as the test platform.
The order for wing sections of the huge Airbus 380 project is proof of
our world-leading aviation competence. The wing edges are a load-bearing
structure on the plane, and we are responsible for both development and
Other orders that consolidate our position were won in anti-armour
systems and simulation and training systems.
Saab is also a world leader in camouflage network systems, where
advanced materials technology is utilized to conceal units,
infrastructure and facilities.
At year-end, Saab had a record-high order backlog - SEK 46 billion. This
surpasses the 2002 all-time high by three billion kronor. Order bookings
in 2003 were SEK 19.6 billion, in line with the previous year.
Exports continue to grow in importance for Saab. Last year, 60 percent
of order bookings came from outside Sweden - and exports' share of the
order backlog reached 65 percent at year-end. The increase in exports is
also reflected in sales, though there is a slight delay. Last year
exports accounted for 46 percent of sales, an increase of five
percentage points from 2002. The historically high share of exports in
the order backlog is largely a conscious effort on our part to grow in
the international market.
The focus on our core business is another important basis of assessment
for you, as shareholders. Part of this involves strategic acquisitions.
Last year, for example, Saab purchased 21 percent of the South African
company Grintek, which was formally approved in January of this year.
The interest in Grintek is very important to us in that it helps us to
further extend our relationship with South Africa. During the six years
that have passed since South Africa selected Gripen, our cooperation has
developed quickly. South Africa is a new home market for Saab, and
Grintek is an ideal partner. The company, which provides electronics-
related products and services in telecommunications, defence, air
traffic control and security, is active both in South Africa and export
markets. During the year, Saab and Grintek established a joint venture
in command and control systems, GrIDS, Grintron Integrated Defence
Eurenco is an example of how Saab is participating in the structural
transformation of the European defence industry. Last year, Saab joined
with SNPE of France and Patria of Finland to merge their propellant and
explosives operations in this new European leader, EURENCO. Saab owns
19.9 percent of the new venture.
Earlier we had made acquisitions in Australia with the technology
company Saab Systems and in the U.S. - in Lillington, North Carolina -
where Saab Barracuda manufactures advanced camouflage systems.
For you shareholders, our financial results are naturally the most
concrete basis of evaluation. And in this respect as well, 2003 was a
show of strength.
Sales rose to slightly over SEK 17.2 billion, corresponding to growth of
4.3 percent, and operating income rose to SEK 1.3 billion.
Our operating margin - if you exclude structural costs for lay-offs,
among other things - improved substantially, from 7.6 percent till 9.3
percent - close to our objective of 10 percent. Including structural
costs, there was a slight improvement, from 7.4 to 7.5 percent. The
significant improvement in the margin, excluding structural costs, shows
that the measures we have taken are producing results.
Earnings per share amounted to SEK 7. The Board of Directors has
proposed a dividend of SEK 3.50, in line with the previous year.
This year we expect to maintain organic growth of around 5 percent. And
we feel that our objective of an operating margin of 10 percent is
within reach, provided there aren't any other structural adjustments
needed in our home market.
That's a possibility that can't be taken lightly. Just last year we were
forced to lay off a number of employees, mainly due to lower development
orders from the Swedish defence. Only two weeks ago SaabTech gave notice
to 70 employees due to a reduced workload. These are painful measures
that unfortunately were necessary for us to remain competitive and
profitable in the long term.
Changes in our operating environment
The events of 19 days ago, March 11 in Madrid, like September 11, 2001
in New York, are a frightening example of how the threat assessment from
the Cold War has been replaced by new threats. More diffuse, but just as
devastating and unquestionably very serious.
There is no major threat of invasion with conventional forces hanging
over Sweden. The Swedish defence instead is gradually transforming from
an invasion defence to a rapid reaction force, which is faster to
respond and more focused. Sweden is also helping to build a European
capability to handle crises and threats of war. This has become an
important element in our national security policy.
The Swedish defence therefore has to be able to serve in new situations,
and in new partnerships with civil entities - for example, in the event
of natural catastrophes and terrorist attacks - and with foreign
military units, if there are crises or threats of war close by or far
One of the strongest trends in our area right now is so-called network-
based defence. It means using information technology to link various
military resources to achieve higher efficiency and precision.
The superiority of the U.S. military in Iraq was due in large part to
its superior ability to coordinate information gathering, command and
control, and precision engagement.
Saab is among the market leaders in network-based defence thanks to our
extensive background in systems integration and the development of
advanced systems solutions, which we also combine with experience in
integrating commercial and military systems.
Imagine that this network approach were applied in a totally different
country or an entire region where the traditional separation between
military and non-military threats no longer applies. The result is
"network-based civil defence," where a network-based defence is
integrated with civil units such as the police, fire department, coast
guard and emergency services.
This kind of defence - where civil and military units work together -
would protect society much more efficiently than is possible today.
Earlier today, we saw examples of this here in Kungliga Tennishallen at
the seminar, "Society's Security in a New Age." Guests from the
parliament, government and military were able to see how various units
can be linked to handle different types of situations, such as accidents
and anti-terrorism actions, more efficiently. We also saw how the
municipality of Linköping, the regional utility Tekniska verken, and
Saab have brought home healthcare services together in what we call "the
Hub," so that this type of social service can be provided more
efficiently to everyone.
Swedish Defence Decision 2004 and the defence industry
Against this background, the Swedish Defence Decision 2004 is extremely
important. This is where the government lays down the direction and
assumptions by which Swedish defence will be organized, and how it will
be equipped. It also sets the terms for the defence industry, and for
Saab in the Swedish market, for many years to come.
I am an optimist. Based on the reasoning that has been put forth, I
believe that the government shares my opinion, at least in principal, of
how important it is that Sweden's defence industry maintains its
This is what the government wrote in its budget proposal, and I quote:
"Multilateral collaborations, bilateral alliances and the need for
international responses are expected to further increase the need for
joint materiel development, including research and technological
development. As a result, the plans for materiel procurement by the
Swedish Armed Forces will increasingly have to take into account, and
coordinate with, other countries' needs. It is imperative for such
international cooperations that Swedish competence in industry and
public authorities is sought after, and in certain cases world leading."
It is obvious that the government appreciates the value of international
cooperation, based on domestic defence industry development projects.
Today the Swedish defence industry indeed has a competence that is
sought after and in several cases world-leading.
Our opinion is that research and development resources should now be
targeted in areas where the Swedish defence industry can remain truly
competitive. Areas where we are already on the cutting edge. Areas where
our products, and our competence, are already sought after in the global
Gripen naturally comes to mind. As do our missile systems, underwater
systems, and command and control systems, all of which can play
important roles in a future network-based defence.
Investments in these areas would benefit Sweden, since the defence
industry can then continue to provide the country with access to
advanced technology, continue to ensure that high-tech competence
remains within the country, continue to spread technology to commercial
industry, and continue to generate considerable export sales. Plain and
simple, the defence industry can continue to serve as a growth engine,
at the same time that it helps to defend society.
I think it is important to remind people of the great benefit to society
that our industry creates. It is something that is often forgotten in
Saab cooperating internationally
Today Saab participates in a number of international development
This slide shows you a selection of the major research, technological
and product development projects in which Saab is participating in
Europe. These are all technology transfers of the very highest level.
We are taking part in integration work between different weapons and
defence systems right from the development stage. In this way, Sweden
gains access to advanced technology that otherwise would not have been
available, unique expertise is built up in our country, and defence
materiel procurement is more cost efficient.
As the government mentions in the quote I just cited, these cooperative
projects are extremely important to Sweden and its security. We are
invited because of Sweden's willingness to participate, and because Saab
is the world leader in certain technological areas.
Here are three examples. Saab is participating in the NLAW alliance,
which is developing a light anti-armour system for the British defence.
We are also participating in international development work on Taurus, a
cruise missile that can be integrated with Gripen - and a number of
other fighter aircraft. And Saab has signed a memorandum of
understanding with Dassault Aviation of France to jointly develop an
Unmanned Combat Aerial Vehicle.
But our participation in advanced international cooperations cannot be
taken for granted. It requires a genuine willingness on the part the
Swedish defence to invest in development and the ability of Saab to
maintain and enhance its competence. Only companies with cutting-edge
technical expertise have access to this type of international
Let's therefore hope that Defence Decision 04 sends the right signals,
and that the government sets priorities that in the long term will help
Saab and the rest of Sweden's defence industry to take part in
international development projects.
And that wouldn't be the only positive effect. The huge technological
and economic impact that the defence industry generates would continue
to benefit our whole society.
Unique investment in research and development
In 2001 and 2002, research and development corresponded to approximately
25 percent of our sales.
Why is such a high figure important? Well, because the investments we
made 10-15 years ago have led to the world-leading products and systems
we have today, and to our success in the international market. So when
we invest in research and development now, it is to ensure our ability
to sell new products and system ten years in the future.
This is why we are so concerned by what has happened in the last year,
as the Swedish defence has reduced its allocations for development
orders. It has meant fewer resources for research and development and
that fewer new products and systems get developed.
In the short term, it is not so important, but if the trend continues,
it will have serious consequences. If you look back a few years, you can
clearly see how technology has spread from the defence industry to
commercial businesses and society as a whole.
You might remember after all that there is a car named after Svenska
Aeroplan Aktiebolaget and that Saab helped to build Sweden's first
computer or that we are the company behind the advanced dental implants
that are now designed and manufactured by Nobel Biocare, just to name a
If Sweden can maintain its position on the cutting edge of technology in
a number of areas, it would competitively benefit the entire business
sector. Saab plays a part through a systematic approach to
commercializing inventions that fall outside our core business.
One example is SMM Medical, which uses the experience we have gained in
designing pilots' uniforms for medical applications. And Saab Marine
Electronics, which became the world-leader in level-gauging systems for
the oil and process industries by applying the expertise from Saab's
radar altimeters. And Biosensor Applications, which works on the very
cutting edge of technology in mine detection as well as electronic drug
and explosive detection systems that are used by police and other law
Saab also cooperates extensively with Swedish universities and
institutes of technology. Over the years, procedures and models have
been developed to make sure that these cooperations are mutually
For Saab, they are an effective way to find out what's new in commercial
technology development. Our own research can then be focused on higher
systems levels, concept studies and demonstrators.
For universities and institutes of technology, they open up new
opportunities to take part in advanced research projects that benefit
many areas of society.
Furthermore, Saab is helping to increase interest in technology among
young people and broaden contacts with the country's engineers, who are
an important target group for us. One popular event at the country's
institutes of technology is the "Teknik-SM" technology championships,
which Saab arranges and where the nation's engineering students compete
each year for the title of Swedish champion in future technology.
A look ahead
In the defence industry, one of the major concerns right now is
integration. Integration between defence systems that were traditionally
used by specific branches of the military. Integration between military
and civil information systems. Integration between military systems from
different countries and defence alliances. Integration between current
and newly developed systems. Saab knows integration.
Looking ahead, Saab has a well-filled order book, not to mention
documented expertise in producing internationally sought-after products,
and the ability to always "make it to the finals" when customers make
their procurement decisions.
The emphasis in our work will be on airborne systems and missiles,
command and control systems and advanced electronics, and service and
In 2004, Saab will continue in its efforts to expand in the
international market. We will continue to focus on acquisitions to
strengthen our presence in key markets and enter new ones.
Hopefully we will also see a defence decision this year that gives
Sweden an effective, sophisticated defence against today's threats,
contributes to good growth opportunities, and at the same time offers
Saab stable, long-term operating conditions.
We all know that you can't make any guarantees about the future, but I
began by saying that I feel proud, since last year was a show of
strength and confident, since I see so many opportunities for Saab even
in times of great change. I hope that you, my fellow shareholders, feel
the same way. You have every reason to.
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