Saab Annual Report 2010

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Saab Annual Report 2010

  1. 1. ANNUAL REPORT 2010SECURITY IN A CHANGING WORLD
  2. 2. CONTENTS THIS IS SAABChanging conditions for the defence industry 2 Saab serves the global market with world-leading solutions,Market dimensions 4The CEO and Chairman in a conversation 6 products and services ranging from military defence to civilBusiness concept, vision and mission 9 security. With operations and employees on every continent,Driving forces and trends in the market 10 Saab continuously develops, adapts and improves new tech-Long-term goals 12 nology to meet customers’ changing needs. Its most importantGoal attainment in 2010 13Saab’s starting position 14 markets are Europe, South Africa, Australia and North America.Employees 15Profitable growth 16 Saab has around 12,500 employees. Annual sales amount toMore efficient operations 18 around SEK 24 billion, of which about 20 per cent is related toFocused portfolio 20 research and development.Product development 22Saab’s core competence 24 Saab’s operations are divided into five business areas: Aero-Market segments 26 nautics, Dynamics, Electronic Defence Systems, Security andMarkets by region 28 Defence Solutions, and Support and Services.Financial review 2010 32Business areas 34Sustainability at Saab 44Risks and risk management 56Financial statements 60Notes 72Corporate governance report 126The Saab share 138Financial information 2011 and contact details 144While every care has been taken in the translation of this annual report,readers are reminded that the original annual report, signed by theBoard of Directors, is in Swedish.ORGANISATION CEO, EVPS & COO MARKET- GROUP STAFFS ORGANISATION Shared Marketing & Business functions Development Aeronautics Dynamics Electronic Security and Support and Combitech* Defence Defence Services Systems Solutions * Combitech is reported as part of Corporate. STRATEGIC PRIORITIES Profitable growth Evaluate current positioning and identify growth opportunities. PERFORMANCE Performance PROFITABLE PORTFOLIO GROWTH Work with efficiencies and continuous improvements. Focused portfolio Adapt the portfolio to areas with strong competitive advantages and growth opportunities. People PEOPLE To be an employer of choice in the global market. Our employees are the backbone of our offering and our growth.
  3. 3. A HISTORY OF ADVANCED TECHNOLOGY AND INNOVATION1941 1948 1979 1990 1993 2002 2005 2006 2008First B17 delivered Tunnan – first flight First order – RBS 15 First laser simulator BT46 First Gripen delivered First contract NLAW Contract for Neuron Saab 2000™ AEW&C First flight for Gripen Demo Saab Automobile Saab acquires Saab acquires Saab acquires • 1937 Saab is founded • 1990 independent company • 2000 Celsius • 2005 Grintek • 2006 Ericsson Mircowave Radar (EMW) 1646 1894 1948 1998 1950– 1970– 1980– 1990– Bofors Järnbruk is founded Alfred Nobel acquires Bofors First order for Carl Gustaf StriC in operation Development of fighter radar Development of GIRAFFE Development of ARTHUR Sea Giraffe AMB is launched Sweden: 38% of sales (31) Number of employees: 10,372 (10,916) Rest of Europe: 21% of sales (24) Number of employees: 432 (408) Africa: 12% of sales (14) Number of employees: 1,141 (1,171) Asia: 15% of sales (19) Number of employees: 31 (14) Americas: 9% of sales (8) Number of employees: 211 (272) Australia and other countries: 5% of sales (4) Number of employees: 349 (378)
  4. 4. SAAB 2010IMPORTANT EVENTS IN 2010• In March, Saab received an order from the Swedish Defence Key financial ratios (MSEK) 2010 2009 Materiel Administration (FMV) for the development of the exist- Sales 24,434 24,647 ing Gripen fleet. The order value amounted to SEK 2 billion, split EBITDA 2,187 2,598 over four years. EBITDA margin, % 9.0 10.5• During the second quarter, the Board of Directors received Operating income 975 1,374 requests from shareholders to convert 3,347,180 Series A shares in Operating margin, % 4.0 5.6 Saab AB to Series B shares. As a result of the conversion, the total Adjusted operating margin, % 6.5 5.4 number of votes in the company was reduced from 156,439,071 to Non-recurring items -602 50 126,314,451. The total number of registered shares in Saab AB is Income after financial items 776 976 109,150,344, of which 1,907,123 are Series A shares and 107,243,221 Net income 454 699 are Series B shares. Earnings per share, SEK (after dilution) 3.97 6.28• The contract between Saab and OKG Aktiebolag on the delivery Dividend per share, SEK 3.501) 2.25 of perimeter security for the Oskarshamn nuclear power plant Return on equity, % 4.1 7.0 was terminated during the first half-year. Saab’s income was Equity/assets ratio, % 39.1 35.1 charged with MSEK 290 in costs related to the contract.• In September, Håkan Buskhe took office as the new President and Order bookings Order backlog at year-end 26,278 41,459 18,428 39,389 CEO of Saab. He was previously President of E.ON Sweden and CEO of E.ON Nordic. The previous President and CEO, Åke Total research and development (R&D) expenditures 5,008 4,820 Svensson, remains a member of Saab’s Board of Directors.• In October, Saab received an order for an airborne surveillance Internally financed R&D No. of employees at year-end 1,203 12,536 1,194 13,159 system worth more than SEK 4.5 billion. The order comprises the delivery of the Saab 2000 AEW&C (Airborne Early Warning & Share of women, % 22.0 22.4 Control) system, which comprises a Saab 2000 aircraft equipped Academic degree, % 51.4 48.5 with the advanced ERIEYE radar system. The order also includes Sick leave2), % 2.1 2.3 ground equipment, logistics and support services. 1) Proposal by Board of Directors 2) Saab in Sweden• As a part of a long-term strategic adjustment to changing market conditions, Saab decided in November to reorganise the opera- OUTLOOK 2011 tions of the Dynamics business area. Notice was served to more than 200 employees. Moreover, efficiency improvements were In 2011, we estimate that sales will decline slightly compared to 2010. launched in the Electronic Defence Systems business area and in We expect the operating margin to increase slightly in 2011 compared to the Corporate functions. Costs of MSEK 519 related to these meas- adjusted operating margin in 2010. ures were charged against operating income in the fourth quarter 2010. The measures are expected to positively affect operating income by about MSEK 200 on an annual basis with a full effect from 2012.• At the end of the year, Saab received an order from FMV for six Gripen aircraft intended for the Royal Thai Air Force. The order is worth about SEK 2.2 billion.SAAB B, 1 JANUARY 2006-31 DECEMBER 2010 EARNINGS AND DIVIDEND PER SHARE, SEK250 20200 15150 10 8,000100 6,000 5 4,000 0 2,000 50 -5 2006 2007 2008 2009 2010 2006 2007 2008 2009 20101) 1) Proposal by Board of Directors Series B share OMX Stockholm_PI, SEK Earnings after dilution Thousands of shares traded, incl. off-floor trading Dividend per share
  5. 5. OUTLOOKCHANGING CONDITIONS FORTHE DEFENCE AND SECURITYINDUSTRYThe long-term geopolitical trend toward supranational A world of alliances requires intergrationstructures where governments work together and a In terms of security policy, these changes have essentially made indi-security doctrine based on common interests and re- vidual governments less autonomous and increasingly forced them to collaborate strategically and operationally. This has major impli-sponsibilities are fundamentally changing conditions for cations for the defence industry in terms of both where developmentthe defence industry. Financially strapped governments work is focused and how it is financed. Unique, solitary weapon sys-and growing civil security needs favour flexible, cost- tems are becoming less relevant in a world of alliances that demandseffective enterprises like Saab. integration and coordination. Global defence contractors cannot expect to fund their develop-In the last 50 years, the world order and political system have incor- ment to the same extent with defence appropriations from individ-porated greater diversity and larger network structures and seen a ual governments and instead will have to finance more of the workshift in power and initiative to new players. International alliances – on their own or through international collaborations. To participatepolitical, economic and military – increasingly focus on protecting in international projects, it is vital to have cutting-edge world-classcommon interests and the functions in a global flow-based society, technology, making this one of the defence industry’s biggest chal-that we are all dependent on. Multilateral civil and military coalitions lenges. This requires a well-focused portfolio and a large externalare becoming more common – within, outside and between the network. No one can be the best at everything.major political, economic and military blocs. To a growing degree, welive by a security doctrine where common interests outweigh individ- Need for cost-effective solutionsual interests and where we share responsibility for defending these In the former Western world, financial struggles are forcing manyinterests. Globalisation and economic integration are generally lead- countries to slash their defence spending and be more efficient ining to a shift in political power and economic resources from the their purchases. This is reinforcing the current trend of buying fullynational level upward to the supranational and downward to the local developed, proven weapon systems with documented performance,level. Far-reaching economic alliances between countries, major cit- which others also use and can be incorporated into larger co-ordi-ies, NGOs and transnational companies today are considered impor- nated efforts. For the defence industry, this makes it necessary thattant actors in the international political system. new programmes are commercially viable in multiple markets, Technological developments are also creating change, and not which in turn requires open markets with fair competition. Theonly in traditional armed conflicts where information and commu- defence market is the only one in the EU that has not fully adoptednication systems have long been of critical importance. To a growing the Treaty of Rome’s principle of free movement of goods, services,extent, information and information systems are becoming weapons capital and people, although progress is steadily being made. Eco-and targets. The digitalisation of our world is creating new conflict nomic development is also driving this trend in the right direction.zones and patterns that go beyond traditional antagonists. Conflicts Complex, advanced defence systems are also becoming morecan arise between nations and companies, as was the case between expensive to develop. Even the US, which has by far the world’s larg-China and Google in early 2010, or between nations and organisa- est defence budget, has recently announced that it may mothball ations, which happened at the end of the year between the US and number of costly weapons projects and instead utilise existing tech-WikiLeaks. In both cases, the conflict revolved around transparency nologies and systems to cut spending. It will buy more proven prod-and the extent to which it benefits common interests. Both cases also ucts and systems and may consider dealing more with internationalillustrate how technology is erasing traditional borders. suppliers if they offer better value for money.2 SAAB ANNUAL REPORT 2010
  6. 6. OUTLOOKToday we have to be able to protect national borders as well as global and regional trade as well as securing functions in the society and flows of people,goods, services, information and capital.A growing number of countries and international alliances simply KFOR) and the African Union (Darfur and Somalia). The EU alsowant more bang for the buck. The demand for co-ordination and maintains two battle groups, ready to deploy to crises anywhere incost effectiveness favours flexible, cost-effective industrial compa- the world. During the first half of 2011, the Nordic Battle Groupnies like Saab. The same applies to the expanding security needs of (NBG) is one of them. Under Swedish leadership, 2,000 troops fromcivil society. The gray zone between civil and military security is also Sweden, Finland, Norway, Estonia and Ireland will be available togrowing as “inside” threats in the form of terrorism and sabotage as the EU on short notice for everything from humanitarian actions towell as overloaded critical systems become more apparent and more military offenses. The Nordic defence forces also have a stated aim toreal than traditional “outside” threats. collaborate more as part of the Nordic Defence Co-operation. In January 2011, the Swedish defence had a total of 673 troops (againstInternational joint forces given a broad mandate 735 at year-end 2009) in international joint forces, of which KFORThe shift toward net-centric defence and international joint forces (Kosovo) and ISAF (Afghanistan) were clearly the largest.is best achieved when emergency preparedness is co-ordinated Defence and protection of joint forces – military, police and civilthrough as broad an international mandate as possible. Preparedness – has become an important new development area and market seg-applies to a variety of emergencies: threats to the economy and the ment in the defence industry.hubs it is based on, but also threats to public health, the environment In the final analysis, it is a question of developing and supportingand our common values. Joint efforts require not only that the sys- the ever-present and ever-important mission of protecting peopletems used can be co-ordinated, but also controlled centrally. and society from various threats and risks. This has been Saab’s mis- The UN currently has 17 peacekeeping missions around the sion since it was founded nearly 75 years ago.world, including those led by regional players such as the EU (Chad,Congo, Bosnia, Herzegovina, and Macedonia), NATO (ISAF and SAAB ANNUAL REPORT 2010 3
  7. 7. MARKET DIMENSIONSMARKET DIMENSIONSUnderstanding the development of, and overlap between, points such as ports, airports, train stations, banks, computer serv-the two main dimensions of security policy is essential to ers, distribution centres and loading terminals are centered.understanding the opportunities, breadth and potential in Cities cannot be allowed to become too vulnerable to disruptions and breakdowns caused, for example, by insufficient capacity andSaab’s market. maintenance of critical systems, natural disasters, criminality, sabo-The purpose of traditional security policy is to maintain national tage or terror. Urban security, efficiency and sustainability are vital tosovereignty by defending borders, a market Saab is well-positioned society’s functionality. The three operating areas unify and constitutein. The purpose of the new dimension, which stresses the vulnerabil- the lowest common denominator between the two security dimensions.ity of civil society, is to safeguard society’s essential functions by pro- The areas of training, command and control, and maintenancetecting critical flows and infrastructure. are shown as “links” between the circles in the schematic figure The two market dimensions face different conditions and work in below. For Saab, the links originate in a traditional border-protectingdifferent ways. military context, where Saab has proven its innovative capabilities. The first market is dominated by national governments and mili- But they are just as relevant and applicable in an urban-centeredtary organisations, while the second is dominated by cities, compa- flow-protecting context. Aeronautics and defence as well as urbannies, organisations and individuals. Cities are the most flow-inten- development and security fit well together, and Saab’s experiencesive locations on the planet, and it is there that key infrastructure working with complex systems is a big advantage in both markets.4 SAAB ANNUAL REPORT 2010
  8. 8. The new market structure – macro development leads to a broad security concept DEFENDING TERRITORY There are three lowest common denominators between the two security concepts. This creates momentum between markets and technology . TRAINING C4I SUPPORT & SERVICES SECURING FUNCTIONS IN THE SOCIETY SAAB ANNUAL REPORT 2010 5
  9. 9. THE CEO AND CHAIRMAN IN A CONVERSATIONConversation between Chairman Marcus Wallenberg (MW) and CEO Håkan Buskhe (HB).ADVANTAGES UNDER NEWCOMPETITIVE CONDITIONSThe conditions Saab faces in its operations continue to HB: A growing number of customers in the defence market want tochange, as they do for other defence companies. Fiscal buy the best solutions available regardless of the country of origin. Smaller national budgets mean that more companies that previouslychallenges are forcing many governments to cut their de- relied on the defence authorities in their homelands now have to gofence spending. At the same time, international defence out and compete in the international market. This requires, however,alliances and civil security needs are increasing. Chair- that their defence systems can be integrated into larger systems andman Marcus Wallenberg and CEO Håkan Buskhe work in international alliances. This is leading to tougher competi-discuss what this means for Saab. tion and changing the competitive landscape. MW: At the same time that we are seeing greater competition, thereMW: The global economy improved in many respects in 2010, but is a risk of protectionism when governments have to explain to theirthere are still major structural problems that directly and indirectly citizens how their tax money is being spent. This is one of the bigaffect Saab’s ability to conduct business. Many countries in the West, unresolved questions.especially in Europe, have large debts and fiscal deficits, which is HB: The overarching, long-term change that is affecting Saab’sincreasingly affecting how they think strategically about their opportunities internationally is the growing importance of emergingdefence investments. In an effort to get their budget deficits under economies. Traditionally we have focused on the West, but defencecontrol, it is inevitable that more nations will start to reassess their spending there is shrinking. We are therefore turning to countriesdefence budgets. such as India and Brazil, where budgets are expected to increase.HB: One current trend that is becoming more prevalent is the coor- MW: To a growing extent, the global economy is being driven bydination of defence resources between countries and political alli- demand from emerging economies, which is leading to more com-ances in order to maintain capabilities at the same level without petition for natural assets from a global perspective. This is creatingincreasing costs. In Europe, the extensive military alliance entered new conflicts of interest and of course affects defence needs as well.into by the UK and France in 2010 and the Nordic cooperation pre- HB: The world’s oceans are playing a greater strategic role in main-viously established through NORDEFCO are examples of collabora- taining production, trade and demand from growing populations.tive initiatives. This has changed threat scenarios and placed more emphasis onMW: Shrinking investments are forcing countries to buy cost- maritime security.effective solutions that offer value for the money – in this case, MW: Global security conditions have become more complex, espe-defence capabilities. cially considering developments in North Africa and the Middle6 SAAB ANNUAL REPORT 2010
  10. 10. THE CEO AND CHAIRMAN IN A CONVERSATIONMarcus Wallenberg, Chairman of the Board, and Håkan Buskhe, President and CEO.East. It is easy to forget that both are key regionsnot only to the world’s energy supplies but also to “From an historical perspective, Saabglobal trade. The Suez Canal remains the world’s has been an innovation powerhouse formost important trade route, carrying around tenper cent of seaborne trade. Developments in these advanced Swedish technology, and it isregions are critical to the global economy goingforward. High oil prices may drive inflation, important that this capacity remains inwhich in turn is raising interest rates. Serious dis- place – for both Saab and Sweden.”ruptions to energy supplies and global trade couldlead to new crises. MW: Our aim is to significantly strengthen our international marketHB: It is clear that we live in a globalized world. As security condi- coverage during the next five-year period and gain a leading positiontions change, our customers’ needs change as well. Consequently, we in terms of how customers feel about our local connection and presence.have to strengthen our local and regional presence and continue the HB: Growth may be supported by acquisitions. Increased competi-international expansion. tion is leading to consolidation pressures, and we may take an activeMW: We have a goal of five per cent organic growth per year from role in this process if the right opportunities arise. Our portfolio2011, and this means that Saab will grow primarily outside Sweden. strategy and strong balance sheet give us enough room for selectedWhile we anticipate a larger share of our growth opportunities in acquisitions in the years ahead. They will strengthen our core offer-developing regions such as India, Asia and South America, we also ings and international presence. We acquire basically sound unitsbelieve that we can gain market share in the West thanks to our com- that can improve our market position and will eventually contributepetitive offerings. to organic growth.HB: One of our main strategic priorities is to organise marketing MW: To maintain such investments, Saab must increase its profitability.and sales regionally and locally. We have been operating in the US HB: Saab’s strategy has been carefully reviewed and lies firm. Sincefor many years. Saab is currently one of the twenty-five largest defence September we have defined the main features in order to concentrateand security companies in the world, and probably one of the three or on implementation. It is important to keep momentum going andfour top in terms of international market coverage. We have sales in drive and implement on our strategy. We will create profitablearound 90 countries and our own presence in around 30. growth through a focused portfolio and by implementing efficien- SAAB ANNUAL REPORT 2010 7
  11. 11. THE CEO AND CHAIRMAN IN A CONVERSATION“ We have lived with cost constraints for some time, and today it isn’t only the performance of our products that is world class. Few, if any, our of competitors can beat us in terms of cost effectiveness.”cies at every level with committed, qualified employees. We have to since the Berlin wall fell. Today many of our competitors find them-create a culture of execution, where we trust each other. This requires selves in a situation where their countries are spending less ona common vision of where we are going and an understanding of defence, and they have to compete internationally more than before.what we have to do. This gives us a head start in terms of both presence and efficiency.MW: Focusing is critical, since it is so hard to get an overview of this We have lived with cost constraints for some time, and today it isn’tcomplex industry. only the performance of our products that is world class. Few, if any, of our competitors can beat us in terms of cost effectiveness.HB: We are clearly focused on the regions and selected marketswhere we want to expand our local presence. In addition, we are MW: Gripen is a good example of this. In addition to its operatingworking continuously to develop our portfolio in a way that capabilities, which are just as good as if not better than the competi-strengthens areas where we have leading technology and invest in tion, we are far more cost-effective throughout the supply chain: innew areas that we feel can improve our offerings and core competen- development, production, delivery and operations. This is morecies. Our systems know-how is unique, and the ability of our obvious from a lifecycle perspective.employees to integrate solutions is our core competency. This can HB: The implementation of our efficiency programme – the Billion+never be compromised. On the contrary, we have to keep our cutting programme – has led to further improvements, and underlying prof-edge, which we can do by always listening to and working with cus- itability continued to rise in 2010. We will not lose our focus on con-tomers to create value for them and, by extension, for our sharehold- tinuous efficiency. This will be decisive to compete going forward.ers and our own organisation. We must constantly increase efficiencies in our core business.MW: Saab is a pioneer in many respects. From an historical perspec- MW: This strong focus on efficiencies has improved our underlyingtive, it has been an innovation powerhouse for advanced Swedish profitability and generated very strong cash flow. As we look ahead,technology, and it is important that this capacity remains in place – we have to keep our eye on market developments – at the same timefor both Saab and Sweden. Many innovations generated here have that delivering on our financial objectives and Saab’s strategic priori-later been further developed outside Saab and today employ tens ties is crucial in order to remain competitive.of thousands of people. It is important to keep this in mind when HB: Our core competence is the ability to integrate our own andlooking at Saab from an overarching perspective. others’ systems and components in complex, cost-effective solutions.HB: Innovation means not only coming up with new ideas but This drives Saab’s employees every day. I look forward to workingapplying them in practice. Our strength is that we have both techni- together to improve our competitive strength in 2011 and deliver oncal and social capabilities. Social systems and co-operation between the goals we have set.different cultures are extremely important and contribute toimproved efficiency. Personal relationships are an important part insucceeding with complex development projects.MW: This is especially true of international industrial alliances, whichare critical in order to deliver on large, complex systems orders in thebest way, and then get them to work on an operating level. To a largeextent it involves co-operation and social engineering.HB: We started going international many years ago, when we real- Marcus Wallenberg Håkan Buskheized that our growth opportunities were outside Sweden, especially Chairman President and CEO8 SAAB ANNUAL REPORT 2010
  12. 12. SAAB’S MISSIONOUR MISSION ESSENTIALLYIS TO PROVIDE SECURITYThe demand for security on the part of people, society and companies is the ultimate drivingforce in our business.Security needs and threat scenarios have changed in significant respects as our globalsociety develops new structures and trade patterns. Our business concept Saab constantly develops, adopts and improves new technology to meet changing customer needs. Saab serves the global market of governments, authorities and corporations with prod- ucts, services and solutions ranging from military defence to civil security. Our vision It is a human right to feel safe. Since Saab was started, we have strived to keep society and people safe. It is a basic human need to feel safe and, as we see it, a human right. Through systems and solutions that increase security, we can make this possible. Our mission To make people safe by pushing intellectual and technological boundaries. Our mission describes how we work to achieve our vision. By improving and updating technolog- ical systems and solutions, we increase security in society, for its citizens and for those whose job it is to maintain security. We also contribute insight into how threats to our security change and develop innovative new solutions that make society secure. SAAB ANNUAL REPORT 2010 9
  13. 13. DRIVING FORCES AND TRENDSDRIVING FORCES AND TRENDSIN THE MARKETThreat scenarios and changing security needs, more than The civil market is directly dependent on the economy. Fluctuationsanything else, are driving development in Saab’s markets. in the economy affect the size of trade volumes and the overall flowThis applies to the defence sector and civil society, as well of goods, people, capital and data around the world – as well as the need for security. The civil aviation market is highly dependent onas the growing gray zone between them. the economy, but also extremely sensitive to security threats.Macroeconomic factors and geopolitical developments ultimately DEFENCE SPENDING 2009create the framework for Saab’s business. The defence market tradi- Defencetionally has little co-variation with the global economy. Instead, spendingpolitical developments are the decisive factor globally, regionally and Rank Country (USD billion) Global share (%)locally. Fiscal constraints are obviously affecting defence spending, 1 USA 661.0 43.2however. 2 China 100.0 1) 6.5 1) A new economic world order is taking shape in which the BRIC 3 France 63.9 4.2countries (Brazil, Russia, India and China) in particular are gaining 4 UK 58.3 3.8strength. This has not been reflected to a great extent in the distribu- 5 Russia 53.3 1) 3.5 1)tion of defence spending in recent years. In 2009, total defence 6 Japan 51.0 3.3spending increased the most in Asia and the Pacific Rim. Neverthe- 7 Germany 45.6 3.0less, the US still accounted for the largest share (43 per cent) of the 8 Saudi Arabia 2) 41.3 2.7global total defence spending in 2009. On the other hand, there is 9 India 36.3 2.4 10 Italy 35.8 2.3expected to be a shift going forward from traditional to emerging 11 Brazil 26.1 1.7markets in terms of total global expenditures, although this will level 12 South Korea 24.1 1.6off in the long term, according to SIPRI. 13 Canada 19.2 1.3 Growing imbalances in international trade are creating complex 14 Australia 19.0 1.2new dependencies and conflicts. At the same time, the long-term trend 15 Spain 18.3 1.2is toward stronger alliances for peacekeeping and economic develop- 16 Others 277.8 18.1ment purposes, which is increasing security-oriented demand. Joint Total 1,531.0 100.0commitments to keep conflict zones under control are having a similar Defence spending at constant prices and exchange rates Source: SIPRI Yearbook 2010effect. Many of the world’s conflicts have lasted for long periods. A large 1) Estimates. 2) Figures for Saudi Arabia include costs for civil security..percentage of all armed activities is in these regions, as are preparationsfor armed conflict by both regional and international players. The US has retained its role as a geopolitical leader and its impact Supranational initiatives by the UN, the EU and the African Unionon the global security arena. Ideologies have declined in importance (AU), among others, and other political alliances steer and govern aas a driver of global conflict scenarios, while religious fundamental- large part of the defence and security-oriented civil market. Climateism has grown. change is an area where the EU has taken important initiatives. The EU- As the world’s population continues to grow along with demand for financed research project Clean Sky, which is designed to promotea higher standard of living, global competition for commodities and greener air transports, and SESAR, whose purpose is to modernise traf-resources, especially fossil fuels, could become an increasingly impor- fic in the European airspace and reduce its environmental impact, aretant driver of conflicts (see, e.g., “A Strong Britain in an Age of Uncer- two examples. A number of initiatives have also been launched at thetainty: The National Security Strategy”, October 2010). In the long run, nation state level within the EU. In November 2010, France and Englandaccess to food and fresh water could also potentially lead to conflicts. signed an ambitious defence and security treaty, which entails a far-10 SAAB ANNUAL REPORT 2010
  14. 14. reaching defence co-operation. Sweden and Germany have launched a defence business is also limited by export restrictions in a numberjoint initiative to distinguish between defence areas which should of markets.remain strictly national within the EU and areas where alliances and Public opinion influences security policy in Sweden and many othershared resources can increase the efficacy and cost-effectiveness of the countries. Sweden’s participation in peacekeeping missions has receivedEuropean civil and military defence. greater attention due to the deaths of a number of Swedish soldiers in Nation state activity on a governmental level also has a major 2010. Terrorist activities in Sweden have also raised awareness abouteffect on the volume of defence business, especially for large strategic civil security. Another aspect that has impacted security policy in recentsystems such as fighter jets. At the same time, the trend in the tactical years is that public acceptance of civil security measures has come intoarea is toward increased commercialisation, including the further conflict with the need to protect personal privacy.development of proven products and systems. In Saab’s case, its MEGATRENDS – A WORLD IN CHANGENew security needs in a transaction society country of origin and want it delivered on short notice. As a result, a largerThe development of a global transaction society requires the protection of share of research and development must be self-financed by the defence in-critical flows and hubs. The latter include major facilities and systems: air- dustry. This is a worldwide trend.ports, harbours, railways, highways and energy systems. The focus is on Need for broad, deep, long-term solutionsfunctionality, efficiency and security, which requires advanced monitoring of Customers in both the military and civil markets increasingly want broad-operations and external threats. based, integrated solutions with more service content. The trend is shiftingNew forms of co-operation toward full operational and functional commitments covering the entire life-Continued global integration and new international structures have led to cycle, where solutions are evaluated not only based on performance but alsomore cross-border and supranational (UN, EU, etc.) co-operation with a shift in terms of the cost to own and operate. Outsourcing of activities that hadtoward net-centric defence and international joint forces. Civil and military previously been performed internally is becoming increasingly common,alliances are becoming more common – within, outside and between the in-cluding in the military field. This also increases demand for education,major political, economic and military blocs – and require open systems and training, support and maintenance.coordination, where a larger share of development work is done collabora- Local presence is decisivetively. At the same time, it is becoming more common that large develop- Despite the trend toward international alliances, the need for a strong localment projects are conducted as part of public-private partnerships. presence is crucial to success in both the military and civil markets. Custom-Higher percentage of self-financed R&D ers want integrated solutions from companies that understand local condi-The increase in international alliances and system coordination at the same tions. This significantly increases opportunities to be selected as a suppliertime means that the defence industry can expect to finance less of its devel- and, no less importantly, have a portion of their development financed throughopment work through national defence budgets. Defence authorities in- defence appropriations or gain access to local product development.creasingly want access to the best the market has to offer regardless of SAAB ANNUAL REPORT 2010 11
  15. 15. SAAB’S LONG-TERM GOALSLONG-TERM STRATEGIC ANDFINANCIAL GOALSSaab’s strategy is focused on four Portfolioareas: profitable growth, efficient oper- To achieve our growth target, we have to invest partly in productations, a focused portfolio and our peo- innovation and partly in renewal and upgrades of existing products PERFORMANCE PROFITABLE PORTFOLIO and systems. Investments in the portfolio will be prioritised in areas GROWTHple. We create long-term value by where we already have competitive technology and/or a competitiveworking to accomplish our strategic market position and our aim is to strengthen or retain our uniquepriorities, delivering sales growth and systems expertise. PEOPLEprofitability, and maintaining a solid bal-ance sheet. Our focus on capital efficiency and generat- Peopleing strong cash flow also contribute to this. Our employees are the foundation that enables us to implement our strategy and achieve our strategic and financial goals. Our market is changing, and successful changes require confidence in the future.LONG-TERM STRATEGIC GOALS We want to be an employer of choice for current and future employ-In 2010, an analysis was made of Saab’s long-term goals. In light of ees who seek development opportunities and continuous change.the strategic priorities, the long-term financial goals communicatedexternally were revised slightly. LONG-TERM FINANCIAL GOALS The long-term financial goals now consist of goals for organic Growthsales growth, operating margin after depreciation and amortisation Over a business cycle, our organic sales growth will average 5 per(EBIT) and the equity/assets ratio. cent per year. The previous targets for the operating margin before depreciation/ It is possible that growth will also be achieved through acquisi-amortisation (EBITDA) and return on equity will not be reported as tions if value-creating opportunities arise within our priority areasof 2011. in the years ahead.Profitable growth Operating marginIn order to achieve our long-term sales growth goal, we will stay The operating margin after depreciation/amortisation (EBIT) will befocused in coming years on markets where we are already estab- at least 10 per cent.lished: the Nordic region, many European countries, South Africaand Australia. In addition, we will establish a stronger local presence Equity/asset ratioin selected markets such as North America, the UK, South America The equity/assets ratio shall exceed 30 per cent.(Brazil) and Asia (Thailand and India). Dividend policyPerformance Saab’s long-term dividend objective is to distribute 20–40 per cent ofOur efficiency improvement program was successfully finalised in net income over a business cycle to shareholders.2010. We have now reduced Saab’s cost base by SEK 1.5 billion overa three-year period. The market is constantly changing, whichrequires that we keep up with developments and in many cases thatwe stay on the forefront of change. This is why we continue toimprove efficiencies in operations, focus on capital efficiency andgenerate strong cash flow.12 SAAB ANNUAL REPORT 2010
  16. 16. SAAB’S PERFORMANCEATTAINMENT OF LONG-TERMSTRATEGIC AND FINANCIALGOALS FOR 2010Despite a continued challenging business environment, Peopleour order bookings increased in 2010 and the order back- In 2010, we worked on harmonising overarching HR processes inlog grew. Underlying profitability improved throughout the order to better address business-critical HR-related issues. We have also focused on our change process with the goal of strengtheningyear, we improved the level of capital employed and gener- the communicative leadership abilities of our managers. In 2010, 22ated strong cash flow. In addition, measures were taken to per cent (22) of employees in the organisation were women, and therestructure operations and improve efficiencies as an ele- share of female managers is 19 per cent (17). Saab was named Swe-ment in a long-term strategic adjustment to changing mar- den’s best workplace during the year by the business magazine Veck-ket conditions. ans Affärer, which made gender equality an important part of its evaluation.STRATEGIC PRIORITIESProfitable growth LONG-TERM FINANCIAL GOAL PERFORMANCE IN 2010In 2010, we received major orders for both the Gripen system and Growthairborne surveillance systems, which consolidated our strong posi- Goal: This goal was previously the same as in the new long-term goaltion in the area. We also took measures to strengthen our local pres- formulation. Our organic sales growth will average 5 per cent perence in markets such as Thailand, Brazil and the US. In South Africa, year over a business cycle.we entered into a collaboration with Sekunjalo Investment Ltd – a Result 2010: In 2010, organic sales growth was -1 per cent (4).step to further strengthen position in South Africa and in the sub-Saharan region. Operating margin Goal: We had two margin goals in 2010, both formulated as an aver-Performance age over a business cycle.Our efficiency improvement programme was successfully finalised in The goal for operating margin after depreciation/amortisation2010. In addition to this programme, we took measures to improve was at least 10 per cent and it remains the same in the new long-termefficiencies. We decided to reduce the number of operating locations goal formulation. The goal for the operating margin before deprecia-and improve efficiencies in areas with high administrative costs. This tion/amortisation is at least 15 per cent.means that the Dynamics business area’s operations in Eskilstuna will Result 2010: The operating margin after depreciation/amortisa-be terminated in 2012 and that the underwater vehicles operations in tion (EBIT) in 2010 was 4.0 per cent (5.6). Adjusted for non-recur-Motala will be restructured. All employees in Motala were served ring items, the operating margin was 6.5 per cent (5.4).notice. In addition, efficiencies were achieved in the Electronic The operating margin before depreciation/amortisationDefence Systems business area and in Corporate functions. (EBITDA) was 9.0 per cent (10.5).Portfolio Return on equityIn 2010, we continue to focus the portfolio through structural meas- The ROI goal in 2010 was an average 15 per cent. In 2010, we reached aures. We decided to integrate the Motala-based underwater vehicles return of 4.1 per cent (7.0).operations with UK-based Saab Seaeye Ltd. The launch of SAFE (Sit-uational Awareness for Enhanced Security) illustrates the progress Equity/assets ratiowe have made in civil security and product innovation. Based on a Our goal in 2010 was an equity/assets ratio exceeding 30 per cent,powerful command and control system and an advanced and inte- which still remains in the new goal formulation. At year-end 2010,grated platform, SAFE serves as a core to monitor and oversee safety the equity/assets ratio was 39.1 per cent (35.1).and security in daily operations. SAAB ANNUAL REPORT 2010 13
  17. 17. SAAB’S STRATEGIC PRIORITIES PERFORMANCE PROFITABLE PORTFOLIO GROWTHSAAB’S STARTINGPOSITION PEOPLE Saab’s four strategic prioritiesSaab operates in the global market for defence and secu- Organisation and culturerity solutions and develops world-leading solutions and As of 1 January 2010, Saab’s operations are divided into five businesssystems with broad-based military and civil applications. areas: Aeronautics, Dynamics, Electronic Defence Systems, Security and Defence Solutions, and Support and Services. A large part ofAs one of Sweden’s most R&D intensive companies, business operations are conducted by the Parent Company and thedevelopment co-operations are an important pillar of rest by the Group’s wholly and partly owned companies.our future. Four strategic prioritiesCore competence Looking ahead, our aim is to continue to work toward our strategic pri-Systems engineering – understanding and being able to integrate orities: profitable growth, performance, the portfolio and our people.complex systems, our own and others’ – is Saab’s core competence. The following pages present our work in each of these four areas. At the same time that we have world-leading technology in anumber of important areas, we work today with open systems as far STRENGTHS, WEAKNESSES, OPPORTUNITIES AND CHALLENGES FOR SAABas possible. Multiple applications and the ability to coordinate sys-tems are the keys to our product development, making it possible to • Saab has a well-positioned product portfolio based on world-leading technology. We have unique systems expertise and the capability to sup-integrate products into larger military and civil operations. ply complex systems. • Our strong balance sheet gives us a solid platform to implement our strat-Market position egy. Cash flow generation is good as well. Our management and controlWe address traditional defence needs with a core offering consisting systems ensure a business focus and continuous efficiency improvements.of products and systems to safeguard national borders. To a growing • Although we created cost efficiencies in 2010, further improving operatingextent, we also address the functional and security needs of the glo- efficiency and productivity is critical.bal flow society, which includes the civil security market. • International competition is increasing, partly due to lower defence spend- The large market segments where we have a strong position and ing in Western democracies, where many leading defence companies aregood growth opportunities are fighter aircraft and command and con- based.trol systems, reconnaissance and surveillance systems, including Air- • Our dependency on customer-financed R&D is a challenge. Around two-borne Early Warning (AEW) systems, tactical weapon and missile sys- thirds of customer financing currently comes from Sweden. Our growthtems, and Command, Control, Computing Intelligence, Surveillance opportunities are primarily in other countries, including selected marketsand Reconnaissance (C4ISR) systems. We also have a strong niche where we are working to increase customer financing.position in civil aeronautics as a supplier to Airbus and Boeing. • The reliance on major orders such as Gripen, AEW and Bamse is a challenge. We have very strong positions in selected regions in the growth seg- Saab’s advantage is that our Swedish base makes us a neutral choice.ments of civil security, support and service, training and underwater • Finding the right civil applications for our core technologies is both a chal-systems, as well as niche segments such as signals intelligence. lenge and an opportunity. We have the ability to supply systems that main- In the military field, we sell to defence authorities as well as other tain various flows in society, in defence and civil security.defence companies as a subcontractor. Geographically, we have a • One of our strengths is that we have about 80 per cent of our employeesstrong position in Sweden and good positions in South Africa and in Sweden at the same time that our growth potential is primarily outside the country, which enables us to create interesting job opportunities inAustralia. Our goal is to consolidate and strengthen our position in the other markets, create greater diversity and attract talent from markets out-other Nordic countries and selected countries in Europe, while build- side Sweden.ing strong positions primarily in North America, Brazil, India and • We have a unique industrial co-operation offering and a large network ofSoutheast Asia. contacts around the world. Our commitment to the community and focus on sustainable business (social engagement and business ethics) give us a stable platform to build on.14 SAAB ANNUAL REPORT 2010
  18. 18. SAAB’S STRATEGIC PRIORITIES > EMPLOYEES PERFORMANCE PROFITABLE PORTFOLIO GROWTHOUR EMPLOYEES ARECONSTANTLY DEVELOPING PEOPLE Saab’s four strategic prioritiesAt Saab, our employees are the key to everything we do Diversity creates valueand a critical factor in order to implement the strategy and At Saab, we regard differences as an asset and strategic resource. Wereach our strategic and financial goals. Technology is con- encourage diversity and have challenging gender equality goals. Diversity and gender equality are critical to our profitability and howstantly changing, and we at Saab are naturally along for the we are seen by the public. This requires management by objectivesexciting journey to the technology of the future. and continuous oversight to succeed. At Saab, we have clearly defined values, which we believe make usOur core business is our unique technology and ability to integrate a better employer for current and future employees. We are a com-products and systems in advanced solutions. We have been one of pany distinguished by openness, cooperation and mutual respect.the leading technology companies in Sweden for over 70 years. It is Successful changes are the result of confidence in the future and are anot so strange, therefore, that around 50 per cent of our employees vital element to succeed in business.has a college degree and that over 7,000 are engineers. This is why we want to be a company of opportunities and take Staying on top of technological advancements requires that we responsibility for offering personal development tied to our businesshave employees who are interested in, take responsibility for and challenges. We are the natural choice for talented people who arelead this development. looking to grow and want to embrace change in a stimulating work This places tough demands on us as an employer. We look for top environment.talents in the global market and cannot limit ourselves by intellectual Learn more about Saab’s employees on pages 50–51.and national borders. SAAB ANNUAL REPORT 2010 15
  19. 19. SAAB’S STRATEGIC PRIORITIES > PROFITABLE GROWTH PERFORMANCE PROFITABLE PORTFOLIO GROWTHPROFITABLE GROWTH PEOPLE Saab’s four strategic prioritiesHow we drive our growth is our fundamental strategic account for over slightly over 59 per cent of our sales. In addition tochallenge. Our business must focus to a growing extent on the Gripen system, we see other significant business opportunitiesmarkets with strong demand and areas where our technol- and growth potential in these markets. In the future, we will also focus our investments on selected mar-ogies and solutions can meet existing security needs to a kets with good growth opportunities in a number of regions.higher degree. A large share of our growth will have to be found in markets with significant, stable defence spending and otherwise favourable condi-One of Saab’s main strategies in the last decade has been to transition tions. These especially attractive growth markets include Northfrom a dominant home market and reliance on a single customer, America, Brazil, India and a number of countries in Southeast Asia.the Swedish defence forces, to more international operations. Sales Another example of a new and growing customer is the Unitedoutside Sweden gradually increased during the latest ten years. Nations, to which we established ourselves in 2010 as a supplier withToday we address not only traditional defense needs, but increasingly a local presence in East Africa. The UN is expected to procure prod-the security needs of society as a whole. This represents a shift in ucts and services for a total of around USD 15 billion (approx. SEKfocus for our operations and further expansion in the civil security 100 billion), with a focus on services central to our offering: camp,area, which increases business potential at the same time as it diver- medical and security solutions, vehicle maintenance, training andsifies our risks. 3D mapping. While we have a high market share in Sweden, our future growthmust come in large part outside the country, especially in markets Local presence is criticalwhere conditions are more favourable. At present, slightly over 83 per cent of our employees work in Swe- den and about 12 per cent in South Africa and Australia.Clearer regional focus Our goal is annual organic sales growth of 5 per cent. This willWe continuously evaluate our market potential and analyse how our require that we establish a stronger position locally in the marketstechnologies and solutions can meet demand in the around 90 markets, where we see growth potential in the future .both traditional and emerging, where we sold our products in 2010. To succeed in a market requires that we establish ourselves locally In markets where we have a good position, we are working to con- in the best way possible. How we establish ourselves in varioussolidate it while at the same time investing in selected areas where we regions depends on an array of factors, including political, regula-see good opportunities. Today Sweden and the rest of Europe tory, competitive and industrial conditions, local business models SALES BY REGION 2010 SALES BY MARKET SEGMENT 2010 38% (31%) Sweden 42% (44%) Military aeronautics 19% (23%) EU excl. Sweden 31% (29%) Land 2% (1%) Rest of Europe 9% (9%) Naval 9% (8%) North and South America 6% (7%) Civil security 15% (19%) Asia and Middle East 6% (6%) Commercial aeronautics 12% (14%) Africa 6% (5%) Other markets 5% (4 %) Australia16 SAAB ANNUAL REPORT 2010
  20. 20. SAAB’S STRATEGIC PRIORITIES > PROFITABLE GROWTHand financial arrangements, and how our technologies meet local HISTORIC PERSPECTIVEneeds. The strategies in each market in turn include everything from 25,000 14an increased market presence and marketing to joint ventures andpartnerships, industrial cooperations, technology transfers and re- 12 20,000exports. 10 We may also strengthen our local presence through acquisitions 15,000 8in selected markets if opportunities arise within our prioritized areas. 6 10,000 4 5,000 2 0 0 99 00 01 02 03 04 05 06 07 08 09 10 Sales in Sweden, MSEK Operating income margin Sales in markets outside of (EBIT),% Sweden, MSEK 2000 Acquisition of Celsius 2006 Acquisition of EMW 2005 Acquisition of Grintek 2008 Divestment of Saab SpaceSTRATEGIC INVESTMENT IN THE U.S. The American continent represents half the global defence and civil security market. Saab has been represented here for many years through Saab Barracuda, which produces camouflage products. Moreover, Saab supplies training systems as well as support and services to the U.S. and command and control systems to the Canadian Navy through a partnership with Lock- heed Martin. North America is also home to the large part of Saab Aircraft Leasing, a business that owns and manages the more than 100 Saab 340 and Saab 2000 aircraft. With a goal to strengthen our presence in North America, we opened a new office in April 2010 in Washington, DC, where all our US and Canadian oper- ations are now managed. In the near future, Saab’s goal is that all five busi- ness areas will be represented on the continent. Growth in North America will be achieved organically as well as through part- nerships with the industry. We also anticipate acquisitions if they provide the opportunity to strengthen our offering within prioritized areas.North America is becoming an increasingly important market for Saab. SAAB ANNUAL REPORT 2010 17
  21. 21. SAAB’S STRATEGIC PRIORITIES > EFFICIENT OPERATIONS PERFORMANCE PROFITABLE PORTFOLIO GROWTHMORE EFFICIENTOPERATIONS PEOPLE Saab’s four strategic prioritiesTo be more competitive, we have to continuously develop, Five prioritiesmanage and realise the most effective ways of working. In our efficiency improvements, we focus on five strategic areas toIncreasing the degree of standardisation is one way of become a more cost-effective organisation. They can be summarised as follows:raising efficiency. • Standardise and harmonise operations in order to drive cost effi-Higher efficiency to us primarily means working in a structured ciencies through functional synergies.manner, so that the costs of reaching our goals in various areas are as • Optimise R&D efficiency through standardised product manage-low as possible. Initially, have to ensure that standardised and har- ment and development processes.monised work methods are in place and to prioritise among our • Focus on contract quality, project implementation and risk man-activities. The next step is to measure the results of our work and agement to improve project results and forecasting abilities.make the progress we have made visible in the organisation. For this • Increase flexibility in our cost structure to adapt to variations into succeed, we have to promote a culture that puts our common volume.good ahead of what might be best locally. • Ensure we can maintain a stable cash flow to facilitate invest- ments for growth in acquisitions, R&D and marketing.An efficient SaabSaab has been working for some time to be a more integrated com- In each of these areas, we are working on a number of activities. Inpany in terms of goals, priorities and processes. The reorganisation terms of standardisation and harmonisation, this includes every-into five distinct business areas at the start of 2010 was an important thing from maintaining efficient enterprise systems with the beststep. It makes it easier for us to capitalise on functional synergies and industry standards and co-ordinating sourcing (higher volumes andfinancial resources, develop new, standardised processes and fewer suppliers) to optimising our assets.develop a more focused product portfolio. In addition to the reor- To improve R&D efficiency, we are trying to adopt a uniform life-ganisation, we have established a number of functions to support cycle process for our products and to increase modularity. We alsoour collective efforts and internal efficiency, including centres of need to have clearly defined criteria in order to prioritise R&Dexcellence in research and development. For more information, see investments. Learn more about our research and development onnext page. pages 22–23. At the end of 2010, we completed a SEK 1.5 billion cost-cutting With the help of a well-defined business and management model,programme on schedule. This work has now become an integral part as well as a uniform project model, we can improve our earningsof our day-to-day operations, where we continue to reduce our costs potential through contract formulations and effective project imple-through improvements. mentation in all our business areas. We are also reassessing our cost structure to better adapt it to our We are increasing the flexibility of our cost structure by continu-long-term strategy. This includes structural changes beyond those to ously evaluating the size of the organisation’s workforce, buyingimprove efficiencies in internal processes. For example, we have expertise that falls outside our core competencies and conduct costtaken measures to reduce our administrative costs. benchmarking. We also have to maintain a stable cash flow to facilitate growth- driving investments. We achieve this by focusing on payment plans in tenders/contracts and resource-efficient project implementation, while reducing capital tied up in account receivables and inventories.18 SAAB ANNUAL REPORT 2010

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