Saab says defence spending on the rise despite pandemic costs

Defence spending is on the rise as countries worry about geopolitical tensions and their readiness for threats such as a cyber attack or another pandemic, according to the chief executive of Swedish defence group Saab.

Micael Johansson told the Financial Times that fears among some analysts that governments would cut spending on defence and other areas because of the economic effects of Covid-19 had not materialised.

“Right now we don’t see that. On the contrary, we see increased spending. We see many governments increasing their defence bills and spending, such as in our home country Sweden, where there has been a record increase,” he said.

Sweden’s parliament in December approved a 40 per cent increase in the next five years — the biggest rise in military spending in 70 years — as defence chiefs and the government become increasingly anxious about Russia’s intentions in the Baltic Sea.

Johansson said that some of the extra government spending was because of “increased tensions”. But he added that governments had also woken up to the need to boost their readiness for other threats. Finland, for example, is maintaining its long-term spending on training programmes and new measures to deal with events from cyber attacks to conventional military aggression and other threats including pandemics.

The pandemic had highlighted the importance of a certain amount of self-sufficiency during a crisis, he said. “If you have a shut down and can’t interact with your partners or friends, then you need some capabilities and readiness.”

His comments came as Saab reported annual results showing that its order intake increased 56 per cent last year compared with 2019, helped by a big contract for its GlobalEye early-warning aircraft from the United Arab Emirates.

Sales for 2020 were flat at SKr35.4bn ($4.3bn), ahead of analyst expectations of SKr34bn, but pre-tax earnings fell 55 per cent to SKr1.3bn, below the consensus estimate of SKr1.6bn.

Shares fell 8 per cent after the results were published over the disappointing profit guidance for 2021, even though the sales forecast of SKr37.2bn was ahead of analyst expectations. Forecast operating margin of 7.4 per cent was similar to 2020.

Analysts at Citigroup said weaker-than-expected profits would “raise some questions” but also noted that Saab, which sells products such as the Gripen jet fighter and submarines, had recorded positive free cash flow after two years of negative figures.