One guy’s view – the numbers surrounding Koenigsegg-Saab

I know that I’m coming across as the eternal optimist when it comes to the Koenigsegg deal for Saab. I still believe, unequivocally, that Koenigsegg will pull this together, tap their funding sources and complete this deal.

In the interests of providing some balance, however, and out of respect for the views of some real hardcore Saab fans who are becoming skeptical about this deal (and for real reasons), I’ve agreed to publish the following analysis. It’s been put together by Blogo, who’s provided a number of good translations of Swedish news articles in recent weeks.

I need to say up front that I don’t necessarily agree with Blogo’s opinion here, but his article is well put together and well referenced. He mentions many figures that there are press references for, but some numbers are reasonable assumptions as well.

I’d like to thank Blogo for the work he’s put in here. There’s a lot of water to go under this bridge at this point, and whilst we disagree a little on the K-Saab’s prospects, this gives a good idea as to the size of the task.

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The numbers game revisited – by Blogo

There’s been lots of excitement and quite some disappointment following the recently announced deal between GM and the Koenigsegg Group. I find myself stuck in between the optimists and the realists (i.e. the ones optimists call pessimists). But as hard as I try I just can’t get on top of the numbers. I will share my analysis with you and would be glad if somebody could shed some light on these numbers. There is a lot of know-how among the SU-posters so I hope you can contribute to a clearer understanding of the situation. I don’t ever mind being proven wrong, and when it comes to a company like Saab I would be quite happy to be wrong.

One thing strikes me – how will one ever be able to judge the viability of Saab’s plan when information from media, Saab, Koenigsegg and the Government is so poor and lacks in consistency? Different media refer to different numbers and we can never be quite sure that the reporter in question actually has got the facts right. I have tried to check various sources against each other and this is my summary and MY conclusions. I have used Swedish kronor (SEK) as the currency throughout, and most often you will find MSEK i.e. million Swedish kronor. I have included some of my sources and they are listed at the bottom and of course inserted after statements to which I refer. Unfortunately, most of the references are in Swedish. I hope you excuse me for not translating all of them.

We are told that the deal involves some 11.000 MSEK. GM are said to have provided 2800 MSEK (ref. ttela-aug21) , K-segg will put in 700 and the EIB will provide 4500 and Mr A.Nother is supposed to put in the final 3000 MSEK. But what will this cover? For how long is this money supposed to last?

Payment of debt-reduction

According to the outcome of the reconstruction process the original debt to (subcontractors, suppliers, GM, the State etc) was brought down to some 2500 MSEK – to be payed in full prior to June 17, 2010. I have recently read that this debt has been payed (e24-aug18). I have also read (recently) that it has not (E24-aug24) and more surprisingly both statements are from the same source. I was surprised to read that it had been payed because the loan from GM to cover costs during the reconstruction period was (only) 1100 MSEK, so where did the extra 2.500 MSEK come from? Moreover, this 1.100 MSEK is part of the total GM dowery of 2.800 MSEK (ref. ttela-aug21) and most of the 1.100 has already been spent.

The EIB loan

According to some Bloomberg-source quoted on Saabsunited, the amount that Saab might want to borrow is now MUSD 700. Previously the sum mentioned was MUSD 600. Perhaps the increase is due to currency fluctuations? In Sweden the figure 4.500 MSEK is still the one most often referred to.

According to what would seem to be a credible source, Saab can only borrow as much as they are willing to invest in each respective project themselves (e24-jun16). Despite such statements it doesn’t seem to worry anybody that only 720 MSEK is being invested by K-segg & Co and that the anticipated loan from the EIB is 4.500 MSEK. If it were so that Mr Sjölander of Riksgalden is right, Saab would not be able to borrow more than MSEK 720 (i.e. MUSD 100) from the EIB. But maybe the assets on the balance sheet (see below) can be used as collateral. However, that would really not allow loans of more than 3.200 MSEK. I think we deserve to be told more about what decisions are based on.

Operational expenses

During recent years Saab has shown a loss of approximately 3.000 MSEK per year (DN-jul27). That’s at a production level of 100.000 units per year or more. When production is reduced to some 25.000 – 30000 units per year, I would imagine that losses will actually drop. This may be bold speculation but my guess is that Saab will run with an operating loss of 2.000 MSEK during 2009 and maybe 2.500 MSEK during 2010 increasing to 3.000 in 2011. The plan is to break even in 2012 (ttela-aug21), but I find that very hard to believe. My firm belief is that only when a new 9-3 has been available for a full 12 months Saab might reach a point of break even. I would also go as far as to say that break even will not be reached until possibly the second year following the introduction of a new 9-3, due to the major investments needed to promote the new model.

R&D of a NEW 9-3

There has been talk of how much the new 9-3 will cost to develop. Note that here we are talking about a NEW 9-3 and not the revamped 9-3X. Maybe 10.000 MSEK is realistic (ref Collin). Much of it could come from the EIB loan of 4.500 MSEK – but that is still only half of this major investment. Since there will be no operational profit to invest in the new model over the next 3-4 years, funding will have to come from elsewhere. But where?

If we are looking at Saab reaching break even in 2012 – as outlined in the plan that has been submitted (ttela-aug21), there will not be much available to spend on R&D. As I stated earlier, I think break even will not be reached in 2012. How on earth is Trollhättan going to get all of this together? We are looking at the new 9-3 PERHAPS being on the market 2015-2016. Will the 9-5 and the 9-3X really carry Saab through and provide the necessary profits? Sadly, I think not.

The Balance Sheet

According to TTELA (ttela-aug21) Saab has assets valued at 8.900 MSEK. However, these assets are valued at only 3.200 MSEK if the company has to file for bankruptcy. My conclusion of the difference is that there is a substatial portion of “good-will” in the books.

My P&L ends up like this, and INCLUDES the 3.000 MSEK K-segg would like the Government to contribute.

In: 3.000 (GM)+700 (Ksegg)+4.500 (EIB) +3.000 (?) = 11.000 MSEK
Out: 2.500+2.000+2.500+3.000+10.000 = 20.000 MSEK

Where is the 9.000 MSEK required over the next 3-4 years going to come from? It just doesn’t make sense to me. It’s beyond being a question of whether or not the Swedish Government lends Saab 3.000 MSEK on top of guaranteeing the EIB loan of 4.500 MSEK. Someone has got to agree to just as much again!! (DN-aug19)

In my mind the Saab plan only covers the first 1-2 years, which sounds like a plan developed by somebody who has no desire to really take Saab further. Is that what folks had in mind when supporting K-segg?

References

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