Saab 2014 Annual Report Download - page 112

FINANCIAL INFORMATION – NOTES
Note 37, cont.
Investment strategy and risk management
The Pension fund manages the allocation and investment of assets with the aim to
increase the consolidation level over time, assets versus pension liabilities. This
means that certain risks are accepted in order to increase the return. The invest-
ment horizon is long-term and the allocation ensures that the investment portfolio
is well diversified.
The Fund is subject to a number of restrictions and limitations followed up by
Group Treasury, Middle Office. Middle Office reports directly to the Board of Direc-
tors and to the Head of the Investment Committee. On an over-all level, stop loss
limit and alarm levels aim at assuring a maximum loss of the assets of the Fund.
Assets under management divided by asset class
Group
Per cent 2014
of which
listed on
an active
market 2013
of which
listed on
an active
market
Interest-bearing assets 48 100 48 100
Share-related assets 35 100 36 100
Hedge funds 14 - 14 -
Property 1 - 1 -
Liquid assets 2 - 1 -
Total assets 100 83 100 84
Assumptions for defined-benefit obligations
Group
Per cent 2014 2013 2012 2011 2010
Significant actuarial assumptions
as of closing day (expressed as
weighted averages)1)
Discount rate, 31 December 2.50 4.00 3.00 3.50 4.80
Future salary increase 2.50 3.00 3.00 3.00 3.00
Future increase in pensions 1.50 2.00 2.00 2.00 2.00
Employee turnover 3.00 3.00 3.00 3.00 3.00
1) Refers to Sweden since essentially all defined-benefit plans are in Sweden
The following assumptions serve as the basis of the valuation of Saab’s pension
liability:
Discount rate: The valuation is based on covered Swedish mortgage bonds
(AAA). The same discount rate has been used for all future payments. The rate is
based on the duration of all cash flows.
Long-term salary increase assumption: Assumed to be as high as the increase
in the basic income amount. This means that Saab expects the same salary
increases as the national average.
Long-term increase in basic income: Data from Statistics Sweden on current
wage increases in the private sector provide an historical average during the period
1974–2000 of approximately 1 per cent above inflation.
Long-term inflation assumption: The long-term inflation assumption is based
on market pricing of inflation on maturities corresponding to the pension liability’s
duration. For 2014, the assumption is 1.5 per cent.
Mortality: Mortality is the same assumption recommended by the Financial
Supervisory Authority (FFFS 2007:31), based on Makeham formulas for men and
women.
Marriage: Marriage is the same assumption recommended by the Financial
Supervisory Authority (FFFS 2001:13).
Employee turnover: The likelihood that an individual ends his/her employment is
assumed to be 3 per cent per year.
Parent Company’s pension obligations
Funds allocated for pensions according to the balance sheet correspond to the net
present value of existing pension obligations less funds that are secured by Saab’s
pension fund.
MSEK 31-12-2014 31-12-2013
Pension obligations ITP 3,982 3,818
Less funds secured in pension fund -3,982 -3,737
Total ITP and the book reserve method - 81
Other pensions 65 63
Other provisions for pensions 75 75
Total 140 219
Of which credit guarantees in PRI Pensionsgaranti 63 141
MSEK 2014 2013
Amount related to pension obligations ITP expected to
be settled within 12 months 165 162
Long-term incentive programme
In April 2007, Saab’s Annual General Meeting resolved to offer permanent employees
the opportunity to participate in a Share Matching Plan. The Board considers it
important that Saab’s employees share a long-term interest in the value development
of the company’s shares. Employees who participate in the plan can have up to 5 per
cent of their gross base salary withheld to purchase Series B shares on Nasdaq
Stockholm during a twelve-month period. If the employee retains the purchased sha-
res for three years after the investment date and is still employed by the Saab Group,
the employee will be allotted a corresponding number of Series B shares free of
charge.
In April 2008, Saab’s Annual General Meeting resolved to introduce a perfor-
mance-based plan for senior Executives and key employees entitling them to 2–5
matching shares, depending on the employee category to which they belong. Up
to 286 key employees, including the President and CEO, may allocate a maximum
of 7.5 per cent of their gross fixed salary for the purchase of Saab Series B shares.
In addition to the requirement that the employee remain employed by Saab after
three years, an additional requirement calls for earnings per share to grow in the
range of 5 to 15 per cent on average per year during the three-year period for allo-
cation of matching shares under the Performance Share Plan.
In April 2011, Saab’s Annual General Meeting amended the terms of the Perfor-
mance Share Plan, as compared to previous years’ programmes, to allow those
eligible for the programme to also participate in Saab’s Share Matching Plan and
entitling Performance Share Plan 2011 participants to 1–4 matching shares,
depending on employee category. The Board may reduce the number of shares to
be matched if the Board considers it reasonable in relation to the company’s finan-
cial results and position, conditions on the stock market and other circumstances.
In April 2014, Saab’s Annual General Meeting resolved to modify the Performance
Share Plan 2014 to increase interest of the program among the target group. The
purpose of the amendments is to attract and retain competence on competitive
terms as well as to better reflect Saab’s business strategy and financial targets. The
Performance Share Plan is designed for a maximum of 175 key employees, including
the President and CEO. Participants can save up to 7.5 percent of their base salary
to purchase series B shares during a twelve-month period. Investments made under
this programme also count as a basis for participation in the Share Matching Plan
2014, though only up to a maximum 5 per cent of base salary. If the purchased
shares are retained by the employee for three years and employment within the Saab
Group continues, the employee will be entitled to matching performance shares at
no cost, provided that the performance targets are met. The programme gives the
employee the right to 2–7 performance shares for each purchased share.
The number of performance shares is linked to the performance targets establis-
hed by the Board of Directors. The conditions for the performance matching are
based on three independent targets: organic sales growth1), EBIT margin2) and ope-
rating cash flow3-4) during the financial year 2015. The relative apportionment bet-
ween the targets is that 30 per cent of the allotment is attributable to organic sales
growth, 40 per cent to EBIT margin and 30 per cent to operating cash flow. The per-
formance targets are established by the Board of Directors with a minimum level and
a maximum level for each target. The Board of Directors will determine the perfor-
mance matching after the conclusion of the one-year performance measuring
period, i.e. the fiscal year 2015. If the maximum levels for the performance targets are
reached or exceeded, the performance matching will amount to (and not exceed) the
maximum of 440,000 shares. If the performance outcome falls short of the maximum
level but exceeds the minimum level, a proportionate performance matching will
occur. No performance matching will occur if the performance outcome amounts to
or falls short of the minimum level. Performance shares are allotted three years after
the investment, i.e. normally during 2018 and in January 2019. Before the perfor-
mance matching is ultimately determined, the Board of Directors will assess whether
the performance matching is reasonable in relation to the company’s financial results
108 – SAAB ANNUAL REPORT 2014