Saab Role in US Military Program Will Drive Margin Improvement: CEO-X

    By Robert Wall and Dominic Chopping 
 

Saab AB's (SAAB-B.SK)role as a key supplier to Boeing Co. on the T-X future-trainer plane program for the U.S. military will help boost margin performance, particularly once the aircraft goes into production, the Swedish defense company's chief executive, Hakan Buskhe, said Friday.

Boeing last year won a hotly-contested battle to supply the T-X and initial 351 airplanes to the U.S. Air Force. Saab was closely involved in the development of the prototype and in October won a contract to help make the planes.

The deal will help Saab meet its target for 10% operating margin in the next few years, Mr. Buskhe said. The volume production associated with the T-X also will help lower costs for Saab's Gripen fighter program by sharing suppliers, helping boost earnings, he said.

Saab on Friday posted higher-than-expected fourth-quarter earnings. The Swedish defense company said net profit for the quarter rose to 982 million Swedish kronor ($105.8 million) from SEK601 million, compared with analysts' expectations for SEK921 million, according to a FactSet poll. Sales rose 8.6% to SEK11.02 billion, compared with a forecast of SEK11.07 billion.

Saab set the 10% margin target in 2016. It hasn't set a firm date to meet the goal, though it is expected to occur around 2021. Saab Friday reported a 7.7% operating margin for last year after stripping out one-time costs for some layoffs.

Saab said its operating margin this year should advance and that 2019 sales growth will be in line with its long-term goal of annual organic growth of 5%.

Mr. Buskhe said he doesn't want to set a firm timeline for the 10% target because it could limit the company's flexibility when chasing business overseas. Winning arms sales overseas can be expensive and weigh on margins. Saab is pursuing several opportunities for its Gripen combat jet, for instance, including in Finland and Switzerland.

Once the margin target is met, the Saab boss said he will pursue a higher figure. The partnership with Boeing on T-X could be important. The profitability of the program should improve meaningfully around 2023 when development comes to an end and production starts, Mr. Buskhe said,

The company also said it identified and implemented a series of measures during the year to bolster its long-term prospects and raise productivity, including operating efficiencies and a plan to adapt the product portfolio, improve marketing efficiency and increase digitization and automation. In the third and fourth quarters of 2018, a large share of the identified efficiencies were completed, the company said.

Saab said order bookings in the quarter rose to SEK10.79 billion from SEK6.59 billion in the same period last year, while the order backlog stood at SEK102.18 billion, from SEK107.23 billion.

The company announced a SEK4.50 dividend, down from SEK5.50 last year.

Write to Robert Wall and Dominic Chopping at [e-mail] and [e-mail]

(END) Dow Jones Newswires

February 15, 2019 03:57 ET (08:57 GMT)

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