QUESTION 3 (25 marks) Read the following and answer the questions below: Saabs net profit plunges On Tuesday Saab reported a 25 percent drop in net profit in the first half of 2005, due in part to project delays and declining orders, and confirmed further job cuts will be needed. Net profit for the first six months of this year fell to 386 million Swedish crowns ($65.89 million) compared with 519 million SEK during the same period of 2004, the company said in a statement. Orders fell to 6.96 billion SEK, about 20 percent less than orders in the first six months of last year. Revenue for the period showed a slight increase to 8.43 billion SEK versus 8.37 billion SEK in 2004. "The first half of the year did not unfold as we had expected, except for the necessary provision for one of our projects in development," said the group's chief executive Aake Svensson. He was referring to the delay in the delivery of command and control systems for 18 helicopters produced by the European consortium NH Industries, which Saab had previously announced. Saab also suffered from a reduction of work on the Gripen JAS 39 fighter plane, a project with British defence contractor BAE Systems in their joint enterprise Gripen International. Saab confirmed that due to cutbacks in Swedish defence spending the group would have to lay off between 1,000 and 1,500 employees during this year and next. The group laid off 350 workers last month, bringing the total so far this year to 760 people. Saab is now counting more on its exports which represented 62 percent of orders in the first half of the year.

Questions: a) What caused the unexpected financial outcome for Saab? (10 marks) b) Explain one aspect of financial planning that Saab got right. (10 marks) c) How serious were the consequences of the error in financial forecasting? (5 marks)