Saab – a Step Ahead
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Annual and Sustainability Report 2017 Saab – A step ahead Contents Vision and mission 1 Why invest in Saab 2 MARKET A strong local presence Chairman’s statement 4 built on collaborations, CEO comment 6 partnerships, longevity and responsible busi- External factors 8 ness strengthens our market position and VALUE CREATION 10 growth. Strategy – A step ahead 12 Long-term targets 14 Saab creates value 16 Perspectives on value creation 18 Saab’s share 20 MARKET 22 Defence and security market 24 Stronger local presence 26 Zero tolerance for corruption 27 PERFORMANCE 28 Digitisation 31 PERFORMANCE Business-oriented culture 32 Our focus is on making functional processes more Sustainable solutions for the future 33 efficient, creating a more INNOVATION 34 business-oriented culture and developing leaders Forefront of technology 37 and employees. Innovation partnerships 38 Attracting and retaining talent 39 SUSTAINABILITY MANAGEMENT 40 GRI Index 41 Auditor’s report on the statutory sustainability report 44 ADMINISTRATION REPORT 45 INNOVATION We concentrate our product Group – Financial Review 2017 46 portfolio on innovations in Business areas 47 systems integration and in Other significant events 53 five core areas and strongly believe that diversity drives Risks and risk management 54 innovation. Corporate governance report 58 Board of Directors and Auditors 64 Group Management 66 Other information 68 FINANCIAL STATEMENTS AND NOTES 72 DIVIDEND MOTIVATION 128 PROPOSED DISPOSITION OF EARNINGS 2017 129 AUDIT REPORT 130 SHAREHOLDER INFORMATION 136 MULTI-YEAR OVERVIEW 138 GLOSSARY 139 SAAB IN THE WORLD 140 Cover: Fredrik Wising, PhD in Nuclear Plasma Saab publishes an integrated annual and sustaina Calendar Fusion, Business development and strategy, bility report, inspired by the IIRC’s framework for Annual General Meeting 10 April 2018 business area Surveillance. See interview with integrated reporting, with additional information in Interim Report Jan – Mar 26 April 2018 Fredrik Wising on how Saab develops future the Sustainability fact book at www.saabgroup. Interim Report Jan – Jun 20 July 2018 technology on page 36. com. The formal annual report comprises pages 45–129. Certain figures have been rounded off, so Interim Report Jan – Sep 23 October 2018 Right: North American wilderness tables and calculations do not always add up Year-end report Jan – Dec 15 February 2019 exactly. A printed copy of the annual report can be ordered from servicecenter@servistik. II SAAB ANNUAL AND SUSTAINABILITY REPORT 2017 MISSION To make people safe by pushing intellectual and technological boundaries. VISION It is a human right to feel safe. It is a basic human need and a human right to feel safe. Safety is subjected to many different types of threats, however. This includes military threats, terrorism, accidents or natural disasters. Saab develops innovative, high-tech and cost-efficient systems to increase security for societies and individuals. At the same time, there is a realisation throughout the business that some of the systems and solutions that contribute to greater security are not only used in a state of peace, but can also be used in conflict. This entails a large responsibility. By acting responsibly in everything we do, we build the confidence of customers, employees and society and contribute to a safer world. SAAB ANNUAL AND SUSTAINABILITY REPORT 2017 investment case Why invest in Saab? Saab AB has been listed on Nasdaq Stockholm since 1998 and on the Large Cap list since 2006. Ticker: SAAB B ISIN code: SE0000112385 On the ground close to customers Saab has expanded its marketing organisation in recent years and created a stronger local presence and relationships with customers in selected markets. The ability to build long-term industrial partnerships provides us with greater insight into what is in demand and helps us to further develop technologies and end products in order to provide customers with the new technology and sustainable solutions they want. Cost efficient Saab is working constantly to shorten lead times and increase efficiency in its production. This has resulted in lower costs for Saab and for customers. Cost efficiency is always integrated as a parameter back when products and solutions are designed, and Saab is continuously making processes more efficient through automation and digitisation. Highly innovative Technological development is accelerating and competition intensifying. Staying on the forefront of technology, combined with cost efficiency, is in Saab’s DNA. Cutting-edge expertise, talented employees and business strategy drive Saab and its customers to stay a step ahead and meet future challenges. Financial highlights (MSEK) Order bookings 2017 2016 2015 and sales Order backlog at year-end 106,849 107,606 113,834 SEK m Sales 31,394 28,631 27,186 0000 Operating income (EBIT) 2,155 1,797 1,900 0000 Operating margin (EBIT), % 6.9 6.3 7.0 70000 Net income 1,438 1,175 1,402 0000 Of which Parent Company's 0000 shareholders' interest 1,407 1,133 1,362 0 000 Earnings per share, SEK (after dilution) 13.10 10.60 12.79 Free cash flow 852 2,359 -726 0000 Dividend per share, SEK 5.50* 5.25 5.00 20000 Equity/assets ratio, % 32.2 32.3 36.8 10000 Internally funded R&D, share of sales, % 6.6 7.2 6.5 0 13 14 15 16 17 Number of employees at year-end 16,427 15,465 14,685 Sales * Board of Directors' proposal Order bookings 2 SAAB ANNUAL AND SUSTAINABILITY REPORT 2017 The road to profitable growth The road to profitable growth has been paved by Taken together, this has laid a stable foundation conscious choices over the years, with strategic for profitable growth, which is also a prerequisite investments in the development of new techno- for creating long-term value for shareholders, logies and products as well as a new strategy customers, employees and the communities to closely partner with customers through the Saab serves. marketing organisation. Performance Saab is becoming more efficient and focused on pro ject execution, marketing and 2 sales. Strategic investments Market A local presence close to customers creates stronger A step Profitable relationships and alliances and ahead growth 1greater insight into their needs. Long-term value creation Innovation Greater insight into customers’ needs creates opportunities to develop the right combination 3 of products and solutions. Share Six Five of sales business areas market areas 84% defence-related Saab’s operations are Aeronautics, 22% To ensure a presence in key Europe, 57% products and services divided into business areas Dynamics, 16% local markets, Saab has five Middle East & Africa, 14% 16% civil products and based on products and Surveillance, 24% market areas: Europe, Middle North America, 9% services technologies. Learn more Support and Services, 19% East & Africa, North America, Latin America, 8% about Saab’s business Industrial Products and Latin America and Asia Pacific. Asia Pacific, 12% areas on pages 47-52. Services, 9% Kockums, 9% SAAB ANNUAL AND SUSTAINABILITY REPORT 2017 3 Chairman’S statement Internationalisation, flexibility and speed will decide the future My fellow shareholders and others interested in Saab, we live in a world of conflicts, extremes and growing tensions. A world that is less stable than the one we had grown used to in recent decades. Globalisation, cooperation and openness are being called into question, but at the same time we are seeing how individual regions are integrating their societies and economies even more and how technological breakthroughs are linking various parts of the world together. 2017 was a year marked by terrorist attacks and escalating geopolitical threats. In times like these, the focus shifts to security, and the defence of national sovereignty and basic human freedoms and rights becomes more important. Saab celebrated its 80th anniversary during country's defence capabilities, is just as tionally. It is important, however, that we grow the year. The company was founded with a important today, but now Saab also has large where we have the potential to further develop mission to safeguard Swedish air combat parts of the world as its market. our business in a way that benefits both the capabilities and thereby became an important new and old customers. Growing through sus- part of Swedish security and neutrality. This Internationalisation will remain a watchword tainable business is also a critical factor. And mission, to supply the Swedish Armed Forces for Saab as we look to the future. We are build- we have to grow with strict profitability require- with high-tech systems that increase the ing on established businesses in a number of ments to be able to handle the major invest- countries and will continue to grow interna- ments needed to stay a step ahead. High-tech expertise and innovation are the very foundation of our international competi- tiveness. Saab has a technological depth and breadth few others can match. This is a result of strategic, long-term and extensive invest- ments in research and development, thanks to which we now have some of the most modern systems on the market. But to stay interna- tionally competitive at a time when technolog- ical advances are being made at an astonish- ing rate we have to encourage innovation in every possible way and place high demands on efficiency at every level of the business. To grow and collaborate internationally are essential for Saab to remain a competitive high-tech Swedish company in the future. In addition, we must benefit from industrial digiti- sation. Saab is a unique company and the Important events 2017 Order for next generation anti-ship missile First successful flight for Gripen E Saab signed a contract with the Swedish Defence Material On June 15, Gripen E took off on its maiden flight. Its flight Administration (FMV) in March for the development and produc- characteristics and embedded functions were tested while air- tion of the next generation anti-ship missile.