Speech by CEO Bengt Halse, at Saab's Annual General Meeting, Linköping April 8, 2002

Speech by CEO Bengt Halse, at Saab's Annual General Meeting, Linköping
April 8, 2002

Mr. Chairman, my fellow shareholders, ladies and gentlemen. I warmly
welcome you to Saab's Annual General Meeting.

Streamlining of the Group
During the year we continued to streamline the Group through extensive
divestments and the development of our core business. We acquired the
remaining 43 per cent of AerotechTelub and purchased Ericsson's share of
Saab Avionics. Both of these operations are now wholly owned

The acquisition of Ericsson's share of Ericsson Saab Avionics also made
it possible to combine these operations with our other avionics and
electronic warfare businesses to create a stronger Saab Avionics.

The acquisitions give us a better opportunity to improve both revenues
and costs.
In the Systems and Electronics business area, considerable structural
work was done during the year. Thirteen business units have been
restructured into 6. At the same time, a number of operations have been
divested or shut down.

Saab Systems and Electronics has thereby become a more homogenous and
integrated business area with a clear strategic focus on advanced
defence electronics.

During the year we also divested a number of operations outside our core
businesses. The last parts of Celsius Aviation Services were divested
and restructured and the 25 per cent holding in the German HDW shipyard
was sold.

2001 by the number

Financially, 2001 was a good year. We ended up well in line with the
year before, and cash flow was strongly positive.

Net sales amounted to SEK 15.6 billion, an increase of 5 per cent for
comparable units or, in other words, exclusive of the divested Marine
Electronics and Aviation Services, among other things.

Operating income rose by 4 per cent to nearly SEK 1.6 billion. This
includes the capital gain on the sale of Saab Marine Electronics.
Excluding this gain, income was nearly SEK 950 million, an increase of 5
per cent and an improvement in the underlying operating margin from 5 to
6 per cent.

Earnings rose to SEK 10.59 per share and the return on equity exceeded
18 per cent after tax.

Order bookings amounted to slightly over SEK 15 billion. The order
backlog at year-end remained at slightly over SEK 40 billion, which
corresponds to over two and a half years' invoiced sales.

If we look back, how well has Saab succeeded? Let's look at a few key

Growth since 1998 totals 90 per cent, of which Celsius naturally
accounts for the dominant share. The underlying organic growth has
averaged 5 per cent per year.

As I said, our order backlog is about SEK 40 billion or more than two
and a half times annual sales. The majority of order bookings in 2001
were from markets outside Sweden, even though this year we didn't have
anything the size of the Gripen order from South Africa.

We are building for the long term by maintaining our focus on the
defence market and investing in research and development. In recent
years research and development has corresponded to nearly 25 per cent of
invoiced sales, of which we pay about 5 of the 25 ourselves directly in
the income statement.

In the last two years we have acquired, among others, Celsius,
AerotechTelub, and Avionics, and earlier this year we acquired a
signature management business in the U.S.

As you can see in this slide, we have also divested a large number of
companies in the last two years that did not fit our core business or
have the capacity to reach our objectives.

Our operating margin compares well with that of our colleagues in the
industry and the competition. And our operating income has risen every
year since 1998.

Our policy is to distribute between 20 and 40 per cent of net income.
This year the proposed dividend is 31 per cent. Provided that the Annual
General Meeting this evening approves this year's proposed dividend, we
will have distributed over SEK 1 billion to our shareholders while at
the same time increasing our equity by nearly 60 per cent or over SEK 2
billion since we went public in 1998.

I feel that we more than well have delivered what we had hoped to in
1998. Now how about the future?

Growing defence market
Seventy per cent of invoiced sales last year was in the defence market.
We are seeing a shift in defence in the Western World toward greater use
of high technology.

Investments in advanced defence materiel are growing. Budget cutbacks in
recent years have resulted in latent investment needs in many countries.
In addition, rapid technological developments in and of themselves are
leading to investments in new technologies and systems.

The willingness to participate in international peacekeeping missions is
also driving new investments in what we call interoperability, by which
we mean the ability to co-operate with units from other defence forces.

We saw evidence of increased investments in defence materiel even before
September 11, although what happened in the U.S. naturally reinforced
the need for investments.

The United States by far accounts for the largest share of the defence
market and the planned increase in the U.S. budget alone is larger than
the total defence budget in any European country.

The current trend toward a more unified European defence identity will
help to speed up the renewal of defence materiel in the EU.

Saab is active in the fastest-growing segments of the defence market:
defence electronics and software, systems integration and high
technology services.
We are strategically well situated to benefit from the growth now taking

Always in the finals
In the areas where we are active, we are also among the world leaders.
We are often our customers' first choice in the areas where we deliver
our products and services.

This applies, for example, to naval information and command and control
systems for small and medium-size vessels.

In electronic warfare, we are the world's leading producer of passive
countermeasures, which are used on the F-14, Tornado, Harrier, Viggen,
and Gripen and have been sold to the Eurofighter and F-15.

We are the world leader in training and simulation for army purposes
with instrumented combat training centres and laser simulators.
Barracuda's signature management systems are definitely world leaders
and are sold in around 50 countries.

In certain high technology services in our core areas, we are often our
customers' first and only choice.

In anti-tank weapons, we are Europe's only supplier with its own
development capabilities, and we have a world market share of over 50
per cent. Right now the British defence is in the midst of a very
important procurement of a new anti-tank system. Here again, we are in
the finals with our system called MBT LAW.

We are the leading independent supplier of space equipment in Europe
and, for example, supply no less than 90 per cent of the global market's
separation systems and more than 20 per cent of frequency converters for
commercial telecom satellites.

The fact that we are not the biggest in the overall market from an
international perspective matters little to our customers or us. We have
a depth and breadth in our competencies that few companies can match.

We could be perceived as a niche company, but that's not the way we look
at it. We have segmented the market and chosen to be active only in
segments where we are competitive and where we feel can earn money in
the long term. In segments where we make it to the final round of

Saab's direction
You may think that our products don't have much in common, but they do.
They represent our three main areas: defence electronics, systems
integration, and high technology services.

Defence electronics means the hardware and software - the intelligence -
that is included in advanced defence systems. There are several examples
of this in the exhibit outside.

In 2001 we not only reached the final round, but also won many valuable

As you saw in the film, we have made several significant breakthroughs
in defence electronics, including with the GAMER combat training centre
in Norway and the BOL countermeasure system in the U.S. And less than
two weeks ago we received an order from the UK worth more than SEK 600
million for support of existing simulator systems.

The second focus area is systems integration, the ability to link
together complex technologies and subsystems into complete systems.
Gripen is without question our best example of systems integration.
Gripen stands alone as the only fourth-generation fighter in operational
service. But it is much more than just an aircraft; it is a complete
information, command and control, and weapons system.

Hungary's selection of Gripen, as the first NATO member state, is
extremely important to us. And now final negotiations are under way with
Czech Republic on the purchase of 24 Gripen. The decisions by Hungary
and Czech Republic are of major importance to our continued export
efforts, particularly in Central Europe.

Sweden's decision to acquire 18 NH90 multi-role helicopters has given us
the job of developing the tactical mission system. This contract was won
thanks to the broad base of expertise within Saab, the competence in
aviation systems technology, and the command and control, countermeasure
and maintenance know-how we acquired with Celsius.

Finland and Germany's selection of the RBS 15 MK3 anti-ship missile is a
further reflection of our capability and competitiveness in systems

The third focus area is high technology services: advanced technical
services, maintenance, and customised system solutions in a number of

The service content in all of Saab's products is growing. I am thinking
here, for example, of consulting services provided primarily by the
Technical Support and Services business area and AerotechTelub. More
than half these services are provided to the Swedish defence. Public
agencies and companies responsible for large infrastructure investments
are also important customers.

The Swedish Civil Aviation Administration is such a customer, and the
delivery of primary functions in the traffic control system for the new
traffic control tower at Arlanda Airport is a good example of a
customized system solution.

These three focus areas form our core business. It is within these fast-
growing segments that we conduct the majority of our operations. And it
is within our core business that we are working systematically with
acquisitions and structural deals.

One example is Saab Barracuda's earlier mentioned acquisition of a
signature management business in Lillington, North Carolina, in the U.S.
This is a natural step toward the goal of growing, organically and
through acquisitions, on both sides of the Atlantic.

In addition to our core business, we work with support businesses. This
involves resources that already exist in the company and which can be
applied in other markets. For example, our work with Airbus and Boeing.
You saw the superjumbo A380 in the film. We will be building parts of
the wings right here in this hangar.
Our work constantly generates new ideas how defence technology can be
utilised in other situations. We further develop such ideas ourselves or
in partnerships - or we divest them - to create more value from the
technology we generate.
The most recent examples are Marine Electronics, Triangle Equipment, A2
Acoustics, and Sanguistech, as mentioned in the film.

In 2000 and 2001 alone we generated approximately SEK 1 billion in cash
flow and profit from these operations.

Is this the right direction long-term? Will it help us to consistently
deliver to our shareholders? Yes, I naturally think it will.

Clearly, there has been a growing acceptance of the concept of a
Revolution in Military Affairs, with information superiority, decision
support and precision engagement, as I have talked about at previous
general meetings.

Information, intelligence, and decisions that only a few years ago could
take a day to process in the hierarchy from the front line to staffs and
operation control now are usually processed in real time. But we still
have a ways to go before all units are online at the same time, until
everyone can see everything. That will require networks.

Tests in the U.S. show that small units in a network-centric defence can
defeat much larger units. It's called self-synchronized effects when
everyone has full and accurate information. In business, we call it
productivity gains.

I know these sound like advanced theories and new doctrines, and they
are. But basically it is a question of making productivity gains in
defence similar to those we have made in business since the breakthrough
of the personal computer in the early 1980's, the mobile phone in the
early 90's, and the popularisation of the Internet in the late 90's.

There is a growing interest in network-centric defence solutions that
link existing and future sensor systems, command and control systems,
and weapons systems to increase overall defence capabilities. High
demands are placed on security and reliability though also on mobility
and logistics.

The focus on network-centric defence solutions is clearest among the
world's leading defences - most obviously the U.S., though even Sweden
is on the cutting edge, and we are also seeing a big interest in
Australia, for example, where we have strong operations.

Now maybe it should be called Evolution in Military Affairs rather than
Revolution in Military Affairs.

Saab actually has already begun to deliver network-centric defence
systems. The system integration of the Swedish Air Force 2000 air
defence system, and the naval command and control systems are truly
trailblazers in this respect.

Saab Net Defence comprises our range of products and services in network-
centric defence solutions. This is an area in which we really combine
our know-how in defence electronics, systems integration, and high
technology services.
The revenue potential for systems integration is in the hundreds of
millions of kronor in the short to medium term. But the true potential
is in adapting existing and future products and systems to work in
networks. Then we are talking billions.

Strengths and weaknesses and possibilities and threats
Are there no problems facing Saab? Yes, of course there are!

I would like to conclude by looking at our strengths and weaknesses and
possible opportunities and threats.

What are our biggest weaknesses?

The fact that we are a relatively small company within what is called
aerospace and defence could be seen from an international perspective as
a weakness. The relatively small size of our home market could also be
considered a weakness. We cannot generate the same volumes and economies
of scale that other contractors can in their home markets. We are more
dependent on international success and alliances.

These weaknesses are offset in part by the fact that our home market is
one of the most advanced in the world. And our size isn't a big factor
either for our customers or us as long as we make it to the final round,
as long as we are leading in our selected market segments.

We have a modern and competitive product portfolio whose markets are
growing. Our high-quality order backlog gives us stability and strength.

We are working with international partnerships to develop future systems
with greater efficiency and lower costs, which will strengthen our
position on the global map.

We are clearly focused on future growth sectors.

Our financial strength and access to two principal owners, BAE SYSTEMS
and Investor, that add significant value to our business are also
important factors for us as a company.

Are there then any threats? Yes, of course there are!

But we also have great opportunities. One major opportunity is from the
growing demand for, for example, investments in advanced defence
materiel that I have pointed to today. This creates major export
opportunities for us. Exports already account for a steadily increasing
share of our sales.

Changing economic conditions have led to a consolidation of the
industry. We have an attractive position in this restructuring and are
actively seeking out further opportunities for structural deals and co-

We see an opportunity in the increased outsourcing of defence services
and maintenance. And we have the opportunity to continue to create
further value through technology transfers from defence technology to
other applications.
Ladies and gentlemen, shareholders, I can't help but see more strengths
than weaknesses and more opportunities than threats.

Saab should therefore have every reason to continue to deliver value to
its shareholders in the future.

Thank you, Mr. Chairman.

This information was brought to you by Waymaker http://www.waymaker.net
The following files are available for download:
This information was brought to you by Cision


The following files are available for download