It's all about the money

Yesterday Spyker Cars NV released the annual report for 2010. This report reveals that Saab Automobile AB is burning through cash much faster than expected. Here's what is written about the cash flow and liquidity situation:

The Group has, as set out in the cash flow statement, been cash flow negative in 2010. [...]

Although it was already envisaged in the overall business plan that Saab Automobile would be cash flow negative during its rejuvenation phase in the coming years, the actual cash deficit turned out higher than planned. [...]

The Group is expected to remain cash flow negative for most of 2011 [...].

The funding situation for the Group is as a result of the aforementioned currently tight. Management is accordingly arranging for some direct relief via, in particular, additional funding, in form of equity or similar facility. Management however recognizes that substantial further funding is still required and is presently working on certain specific transactions to improve the Group's funding position in a more structure manner and to strengthen its balance sheet going forward, also from a more strategic perspective. Negotiations around these transactions are in an advanced stage. These transactions are also subject to, among others, approval by the Swedish Government.

Management is accordingly confident that it will be able to generate the necessary additional funding and expects to be able to come with further announcements soon.

In other words, liquidity seems to be a real problem. And as far as I can tell, the only way to interpret what is written about additional funding and approval by the Swedish Government, is that they are working hard on getting Russian businessman Vladimir Antonov into Saab. At the moment that is the only long term funding that seems to be available.

Vladimir Antonov 

In the annual report it is also written that additional funding is expected to be required after the second quarter of 2011:

Including cash flow from normal operations peak funding requirement is expected to occur after the second quarter of 2011.

With the past week freshly in mind, it looks like the additional funding requirements came earlier than expected.

The annual report also has a few sentences about efforts to improve the working capital in the short term: 

To strengthen working capital in the short term, management is raising liquidity from current shareholders and other available sources such as GEM standby equity facility.

The GEM equity facility is, as far as I understand, a very expensive means of cash, and thus should be avoided if possible. And therefore it is very important to secure the long term funding as soon as possible.


In the annual report, Saab's relationship with suppliers is also mentioned:

Saab Automobile depends on suppliers for its car components. In principle the relationship have been re-established and normalized after the standstill period before the acquisition on 23 February 2010. Most payment terms are normalized again, but the general attitude with suppliers is a cautious one as Saab Automobile still needs to demonstrate long term viability in the view of certain suppliers. Some major auto parts suppliers are key for certain parts like GM, Lear, Valeo and Bosch. The normalized trade relation with these kind of suppliers is extremely important for Saab Automobile's normal operations. Management continuously works on its relationship with suppliers.

The past days have taught us that not only the big suppliers can cause hiccups, and that a good relationship and communication with suppliers is very important. If there is a payment trouble, regardless if it is due to money problems, payment system problems or disagreement on the terms, talk to your supplier and resolve the issue before it stops production and becomes a news piece.

The Saab factory in Trollhättan

Upon recruiting and keeping skilled personnel, the annual report says the following:

Saab Automobile's success depends to a certain degree upon the efforts and abilities of members of its management team and its workforce. Also Saab Automobile relies on its ability to attract, train and retain skilled personnel.[...]

The centralization to Trollhättan of all office functions could be a risk as many skilled persons live in the Gothenburg area, which is a long way to commute.

Two days ago I wrote about Volvo's plans to hire 900 new engineers (and a few hundred other professionals) in Gothenburg. In other words, the competition to attract and keep skilled employees is getting tougher and tougher.

Not surprisingly, in the end it all comes down to money. With money Saab hopefully can keep the suppliers and the employees happy. Both which are important factors to make Saab a successful car company. And the only long term source to new money seems to be the companies controlled by Vladimir Antonov. But at the moment it is the Swedish Government which has the final say. Spyker Cars needs the Government's approval to let Antonov in as a new shareholder, since it is the Government, through the National Debt Office, which has guaranteed the loans from the European Investment Bank (EIB). Loans Saab is dependent on to develop the next generation of cars.

But news reports indicate that Spyker Cars is also working on another slightly different solution. If they can transfer the loans from the EIB to normal commercial banks, then the Swedish Government would have no say in who is shareholder in Spyker Cars and thus in Saab, and Antonov could be part owner and provide further funding.

Time will tell which solution Spyker Cars and Victor Muller can find.