ANNUAL AND SUSTAINABILITY REPORT 2018 Partnerships for greater security Mission. To make people safe by pushing intellectual and technological boundaries. Vision. It is a human right to feel safe. PEOPLE Saab has seen strong growth in recent10 years at the The T-X is a totally new, advanced pilot22 training Sustainability is an integral part of Saab’s52 strategy. same time as the strategic focus has sharpened. aircraft developed collaboratively by Boeing and The sustainability report provides an overview of Saab has three strategic priorities. Saab specifically for the U.S. Air Force. Saab’s sustainability work. It is a basic human need and a human right to feel safe. Safety is subjected to many different types of threats, Contents however. This includes military threats, terrorism, Saab in brief 2 accidents or natural disasters. Chairman’s statement 4 Saab develops innovative, high-tech and cost-efficient CEO comment 6 systems to increase security for societies and Competitive advantages and strategy 8 individuals. At the same time, there is a realisation Saab as an investment 10 throughout the business that some of the systems Strategic priorities 12 and solutions that contribute to greater security can Market and trends 14 also be used in conflicts. This entails a major responsi- Strategy – Market 16 bility. By acting responsibly in everything we do, we Strategy – Innovation 24 earn the confidence of customers, employees and Strategy – Performance 30 society and contribute to a safer world. Saab’s share 36 Administration report 38 Group – Financial Review 2018 39 Business areas 40 Other important events 46 Risks and risk management 48 Statutory sustainability report 52 Corporate governance report 68 Board of Directors and Auditors 74 Group Management 76 Other information 78 Financial statements and notes 80 Dividend motivation 134 Proposed disposition of earnings 2018 135 Audit report 136 Shareholder information 141 Multi-year overview 142 Glossary 143 Saab in the world 144 About this report Sustainability priorities are integrated throughout the annual report. Pages of 52–67 the report describe Saab’s sustainability work in greater detail. The formal annual report comprises pages 38-135. Certain figures have been rounded off, so tables and calculations do not always add up exactly. A printed copy of the annual report can be ordered from [email protected]. Saab In brief Saab serves the global market with world-leading products, services and solutions from military defence to civil security. Saab has operations and employees on every continent. Important events during the year • During the first half year, Finland selected Saab as a • The U.S. Air Force announced in September that it major supplier for the Finnish Navy’s Squadron 2000 had selected Boeing to supply a new advanced pilot Mid-Life Upgrade programme. Within the framework training system. In October, Saab received its first of the programme Saab signed a contract to produce T-X related order from Boeing. and deliver the New Lightweight Torpedo, the first • Saab’s Board of Directors resolved on 18 November, export order for this new product. by virtue of the authorisation from the Extraordinary • In March, Saab made a successful first flight of the General Meeting on 16 November 2018, to increase Global Eye Airborne Early Warning & Control air craft in the company’s share capital through a SEK 6 billion Linköping, Sweden. GlobalEye combines air, maritime rights issue of series A and B shares. The issue was and ground surveillance in one swing-role solution. successful. • In May, Saab unveiled an aerostructures plant for Gripen: Saab Aeronáutica Montagens (SAM), in the city of São Bernardo do Campo, in São Paulo state, Brazil. Saab’s long-term Order bookings Saab’s long-term financial goals and sales financial goals, % 2018 2017 2016 MSEK 811 Organic sales growth 4 11 5 0000 Adjusted operating margin, % 7.7 7.1 6.3 % 0000 Equity/assets ratio 35.0 31.7 32.3 Organic sales5 growth will average 5 per cent per year over a business 0000 cycle. Financial highlights, MSEK 0000 Order bookings 27,975 30,841 21,828 Order backlog at year-end 102,184 107,233 107,606 20000 Sales 33,156 31,666 28,631 The operating margin% (EBIT) will 10 10000 average at least 10 per cent per year Operating income (EBIT) 2,266 2,250 1,797 over a business cycle. 0 Operating margin (EBIT), % 6.8 7.1 6.3 14 5 16 17 18 Adjusted operating income 2,564 2,250 1,797 Order bookings Sales Adjusted operating margin, % 7.7 7.1 6.3 % Net income 1,366 1,508 1,175 The30 equity/assets ratio Earnings per share, SEK (after dilution) 11.21 12.70 9.79 will exceed 30 per cent. Operational cash flow -2,424 1,388 2,603 Free cash flow -3,195 852 2,359 Operating margin EBIT (%) and operating income EBIT (MSEK) Dividend per share, SEK 4.50 5.50 5.25 by business area Equity/assets ratio, % 35.0 31.7 32.3 Aeronautics, 8.4% 680 Saab’s GHG reduction (relates to 2017) 3.3 Dynamics, 10.1% 535 Percentage of female managers 25.1 25.2 24.5 Surveillance, 8.5% 631 Percentage of female employees 23.4 23.2 22.6 Support and Services, 12.5% 685 Internally funded R&D, share of sales, % 6.7 6.5 7.2 IPS, 3.3% 202 Number of employees at year-end 17,096 16,427 15,465 Kockums, 5.3% 173 2 SAAB ANNUAL AND SUSTAINABILITY REPORT 2018 Saab In brief Saab’s operating structure is divided into six business areas Aeronautics Dynamics Surveillance Aeronautics is a world-leading manufactu- Dynamics offers a market-leading product Surveillance provides efficient solutions for rer of innovative aviation systems and is portfolio comprising ground combat safety and security, for surveillance and engaged in the development of military weapons, missile systems, torpedoes, decision support, and for threat detection, aviation technology. The Gripen fighter and unmanned underwater vehicles, training location, and protection. The portfolio Saab’s share of the T-X training aircraft both systems and signature management covers airborne, ground-based and naval fall within this business area, which also systems for armed forces as well as niche radar, electronic warfare, combat systems conducts future studies of manned and products for the civil and defence markets. and C4I solutions; Command, Control, Com- unmanned aircraft. munications Computers and Intelligence. Support and Services Industrial Products and Services Kockums Support and Services offers reliable, cost- The business units within Industrial Products Kockums designs, delivers, and maintains efficient service and support for all of Saab’s and Services, which are mainly focused on world-class solutions for naval environments. markets. This includes support solutions, civilian customers, include Aerostructures, The portfolio includes submarines with the technical maintenance and logistics as well as Avionics, Traffic Management and the consul- Stirling system for air independent propulsion, products, solutions and services for military ting business Combitech. surface combatants, mine hunting systems and civil missions. and autonomous vessels. Kockums’ unique competence is in signature management, impact strength and advanced stealth technology. Sales per business area Sales by significant source, SEK billion Kockums Sale of goods 4,0 10% Dynamics, 62% Aeronautics Surveillance, 18% Support and Services, 14% IPS 23% IPS, 5% 14% Kockums, 1% Long-term contracts 21,2 Support Dynamics Aeronautics, 33% Service assignments 8,0 and Services 15% Dynamics, 9% Aeronautics, 9% 16% Surveillance, 23% Dynamics, 8% Support and Services, 11% Surveillance Surveillance, 18% IPS, 12% 21% Support and Services, 32% Kockums, 12% IPS, 24% Kockums, 9% SAAB ANNUAL AND SUSTAINABILITY REPORT 2018 3 ChaIrman’S Statement Innovation creates a strong base for the future. Saab is developing in a positive Stronger capital base the Swedish defence forces, and Swedish Saab’s work increasingly involves international authorities is critical to our success. Saab was way, but we cannot become collaborations and large-scale projects. From founded just before World War II for the complacent. We have to stay this perspective, a robust balance sheet is specific purpose of guaranteeing the nation’s focused on the future by essential in order to be an effective partner and supply of high-tech defence materiel. Political to be a sustainable business. The approxi- decisions in Sweden continue to this day to investing in research and mately SEK 6 billion rights issue last autumn set the basic terms for our business. Saab’s development and we have to allows Saab to continue to execute its strat- role in Sweden is still to secure access to keep pace with our changing egies with renewed confidence. We are very defence materiel and high-tech skills. Today world. Companies that want to grateful for the strong support of our share- we stand firmly on two legs: a base in Sweden holders in strengthening Saab’s capital base. and an increasingly export-oriented business. continue to grow have to invest more than ever in the right Standing firmly on two legs Changes in the market technology and strive to be Sweden is a country dependent on exports. At the same time, the world is changing faster Swedish companies have never had a large than in a very long time. We are increasingly more competitive both short- home market and been forced early on to look affected by geopolitics, international political and long-term. abroad for growth. As a result, they are often tensions and protectionism. This is a trend globalized in terms of their customer base and that could threaten Swedish business employees, as well as production and supply opportunities. Add to that the impact and chains.