Saab : Report (en)

YEARStrengthened-ENDREPORTorder backlog for continued growth

KEY HIGHLIGHTS Q3 2021

Strong order intake of SEK 15,605m, an increase of 54%, from orders in Sweden and rest of Europe. Order backlog amounting to SEK 105bn (95).

Sales increased 32% and amounted to SEK 7,992m driven by high activity level in the defence business. The Q3 2020 included adjustments to project estimates of SEK -1.5bn. Adjusted for this, sales increased 6%.

EBITDA amounted to SEK 977m (-314), corresponding to a margin of 12.2%. EBITDA and the EBITDA margin improved compared to the adjusted EBITDA in Q3 2020 of SEK 794m and adjusted margin of 10.5%.

Operating income amounted to SEK 500m (-663), with a margin of 6.3%. The operating income and margin improved compared to the adjusted operating income in Q3 2020 of SEK 445m and adjusted margin of 5.9%.

Operational cash flow was SEK -1,238m(-363) in the third quarter and SEK 1,754m (-128) in the first nine month of 2021.

New organizational structure with four business areas in effect as of July 1.

Saab joins the "Race to Zero" initiative to reduce climate impact and adopts a long-term climate goal of net zero emissions by 2050.

FINANCIAL HIGHLIGHTS

	MSEK	Jan-Sep 2021	Jan-Sep 2020	Change, %	Q3 2021	Q3 2020	Change, %	Full Year 2020
	Order bookings	31,351	24,222	29	15,605	10,152	54	42,328
	Order backlog	104,570	94,652	10				99,816
	Sales	27,211	22,940	19	7,992	6,064	32	35,431
	Gross income	5,793	3,537	64	1,746	-174	n/a	5,676
	Gross margin, %	21.3	15.4			21.8	-2.9		16.0
	EBITDA	3,239	1,604	102	977	-314	n/a	2,833
	EBITDA margin, %	11.9	7.0			12.2	-5.2		8.0
	Operating income (EBIT)	1,812	549	230	500	-663	n/a	1,315
	Operating margin, %	6.7	2.4			6.3	-10.9		3.7
	Adjusted operating income ¹⁾	1,812	1,657	9	500	445	12	2,738
	Adjusted operating margin, % ¹⁾	6.7	6.8			6.3	5.9		7.4
	Net income	1,234	489	152	324	-371	n/a	1,092
	of which Parent Company's shareholders' interest	1,193	475	151	296	-380	n/a	1,073
	Earnings per share after dilution, SEK	8.95	3.55			2.22	-2.83		8.01
	Return on equity, % ²⁾	8.5	7.0						5.1
	Operational cash flow	1,754	-128			-1,238	-363		2,773
	Free cash flow	1,360	698			-1,403	676		3,753
	Free cash flow per share after dilution, SEK	10.20	5.21			-10.53	5.04		28.03
	Average number of shares after dilution	133,361,072	133,861,996			133,198,087	134,048,466		133,877,141
Q3
	¹⁾ Items affecting comparability, see note 5
	²⁾ Return on equity is measured over a rolling 12-month period.
			Order bookings			Sales growth				Operating margin
			15.6 BSEK		32%				6.3%

JANUARY-SEPTEMBER 2021

Q3 2021

COMMENTS FROM THE CEO

Strengthened order backlog for continued growth

Micael Johansson

President & CEO

Saab continued to win important contracts and delivered another growth quarter. Orders grew 54% in the third quarter and 29% in the first nine months of 2021. I am pleased to see orders growing in Sweden, rest of Europe and the U.S., which further strengthens Saab's position in important markets. Our order backlog is now SEK 105 billion and underlines the strength of our portfolio and the capabilities in our five core areas. With the opening of the new U.S. production site in West Lafayette, Indiana, in October, Saab took an important step in its international expansion.

Sales increased 32% in the third quarter. The same quarter last year included project estimate adjustments of SEK -1.5bn and adjusted for this, sales increased 6%. This was driven by solid project execution in the defence business, partly offset by the weak sales development in the civil aviation business, which continued to decline in the quarter. Sales for the first nine months increased 19% and 11% compared to adjusted sales in the same period 2020.

The improved sales had a positive contribution to EBITDA in the quarter, which increased 23% compared to the adjusted EBITDA in Q3 2020. The EBITDA margin was 12.2%. Operating income in the quarter grew 12% compared to last year's adjusted operating income and the margin improved from 5.9% to 6.3%. Dynamics was the main earnings driver in the quarter, supported by Ground Combat and Training and Simulation. In Aeronautics, we are now in the last part of the EMD (Engineering, Manufacturing and Development) phase of the T-7A programme. The T-7A operations will continue to have a negative impact on earnings until we ramp up the production in West Lafayette. In Surveillance, operating income improved compared to last year, mainly driven by higher sales, partly offset by higher amortisation cost. Kockums continued to show a year over year improvement in profitability in the quarter.

Whilst society and businesses are returning to normal following the pandemic, the risks in the global supply chains, including shortages in the electronic component market, remain. We have a close dialogue with our suppliers to mitigate potential future effects on supply shortages and secure delivery of products.

Operational cash flow in the third quarter amounted to SEK -1.2 billion (-0.4). The lower cash flow in the quarter was due to a temporary inventory build-up in Dynamics and Surveillance. The operational cash flow for the first nine months of 2021 was SEK 1.8 billion (-0.1). We reiterate our outlook of positive operational cash flow for the full year.

As we continue on our growth journey, we do so guided by our purpose and fundamental sustainability commitment to help nations keep people and society safe. This is in line with the UN's Sustainable Development Goal 16 for peace, justice and strong institutions. In the overall contribution to a sustainable society, an urgent focus on climate impact is also necessary. Saab is therefore dedicated to reduce the overall climate impact from emissions in operations, products and across the value-chain. During the quarter, Saab committed to the "Race to Zero" initiative to achieve net zero greenhouse gas emissions by 2050 by setting Science Based Targets. This commitment is one step in our work to meet the increased challenges in sustainability, climate change and emission targets. Year-to-date, Saab's reduction of carbon emissions from operations in scope 1 and 2 was 15%.

With some Covid-19 restrictions lifted, we now have the opportunity to meet and interact with our customers again. We have an exciting time ahead of us with several market campaigns ongoing, including opportunities for Gripen, GlobalEye, Ground Combat and in the underwater area. I remain confident in our ability to deliver on our long-term targets and create sustainable value for all our shareholders.

Outlook for 2021*

SALES GROWTH:

Organic sales growth for the full year to be around 10 per cent.

OPERATING INCOME:

EBIT margin for the full year to be in line with adjusted EBIT margin of 7.4 per cent in 2020.

OPERATIONAL CASH FLOW:

Positive for the full year.

*The uncertainty surrounding Covid-19 and its future effects remain.

JANUARY-SEPTEMBER 2021	2

Orders

THIRD QUARTER 2021

Order bookings increased 54 per cent and amounted to SEK 15,605 million (10,152) in the third quarter of 2021. Bookings of medium-sized orders grew 63 per cent while small orders declined 50 per cent. Key orders booked in the quarter included the further capability contract for the A26 submarines to Sweden of SEK 5.2 billion and the F123 Frigates contract to the German Navy of SEK 4.6 billion. Dynamics received important orders for combat training solutions to Poland of SEK 1 billion as well as a Carl-Gustaf order amounting to approximately SEK 0.9 billion.

JANUARY-SEPTEMBER 2021

Order bookings for the first nine months amounted to SEK 31,351 million (24,222), an increase of 29 per cent. This was mainly driven by growth in large orders amounting to SEK 13,763 million (6,731). The growth was predominantly driven by Sweden, rest of Europe and the U.S. Medium-sized orders grew 20 per cent and amounted to 9,157 (7,607). Bookings of small orders declined 15 per cent in the period and amounted to SEK 8,431 million (9,885).

In the period, index and price changes had a positive effect on order bookings of SEK 659 million, compared to SEK 556 million in 2020.

The order backlog at the end of the period amounted to SEK 104,570 million, compared to SEK 99,816 million at the beginning of the year. In total, 68 per cent of the order backlog is attributable to markets outside Sweden, compared to 71 per cent at the beginning of the year.

For more information on orders received, see the business area comments on pages 7, 8 and 9.

Sales

THIRD QUARTER 2021

Sales in the third quarter amounted to SEK 7,992 million (6,064) and corresponded to a 33 per cent organic growth. Adjusted for items affecting comparability in the third quarter 2020, sales growth was 6 per cent. Sales in Aeronautics increased 40 per cent compared to the third quarter 2020 that was affected by adjustments to project estimates of SEK -1,121 million. Surveillance contributed with a sales growth of 24 per cent in the quarter driven by high activity level. Kockums grew sales with 20 per cent and Combitech with 6 per cent also due to good activity levels, while sales in Dynamics was in line with same quarter last year.

JANUARY-SEPTEMBER 2021

Sales in the first nine months amounted to SEK 27,211 million (22,940), corresponding to an organic sales increase of 20 per cent. Adjusted for items affecting comparability in the third quarter 2020, sales growth was 11 per cent. Dynamics, Surveillance, Kockums and Combitech reported sales growth compared to adjusted 2020 levels thanks to high activity in projects and deliveries. This more than offset lower sales in Aeronautics, affected by the civil aviation operations.

Sales from markets outside Sweden increased to SEK 17,241 million (14,736), corresponding to 63 per cent (64) of total sales. In the period, all regions reported sales growth. 90 per cent (86) of sales were related to the defence business.

SALES GROWTH

	Jan-Sep	Jan-Sep	Q3	Q3	Full Year
Per cent	2021	2020	2021	2020	2020
Organic sales growth	20	-8	33	-22	1
Acquisitions	-	-	-	-	-
Currency effects regarding revaluation of foreign subsidiaries	-1	0	-1	-1	-1
Total sales growth	19	-8	32	-23	0

SALES PER REGION

MSEK	Jan-Sep 2021	Jan-Sep 2020	Change, %
Sweden	9,970	8,204	22
Rest of Europe	4,374	4,351	1
North America	3,007	2,710	11
Latin America	4,230	2,945	44
Asia	3,841	3,417	12
Africa	161	126	28
Australia, etc.	1,628	1,186	37
Total	27,211	22,940	19

JANUARY-SEPTEMBER 2021

Q3 2021

Classification of orders	MSEK
Small orders	<100
Medium-sized orders	100-1000
Large orders	>1000

Order distribution

Orders exceeding MSEK 100 accounted for 73% (59) of total orders during January- September 2021.

Order backlog duration:

2021: SEK 10.3 billion

2022: SEK 30.8 billion

2023: SEK 22.7 billion

2024: SEK 16.9 billion

After 2024: SEK 23.9 billion

Defence/Civil

A total of 93% (89) of order bookings was attributable to defence- related operations during January-September 2021.

Market

A total of 53% (68) of order bookings was related to markets outside Sweden during January- September 2021.

Sales Jan-Sep, MSEK

27 211

	24 855
22 138	22 940

Jan-SepJan-SepJan-SepJan-Sep

2018 2019 2020 2021

3

Income

THIRD QUARTER 2021

The gross margin in the third quarter improved to 21.8 per cent (-2.9) compared to the adjusted gross margin of 19.3 per cent in the third quarter 2020. The improvement was a result of higher sales.

The strong sales in the quarter contributed positively to earnings and EBITDA increased 23 per cent compared to adjusted EBITDA in the third quarter 2020, corresponding to a margin of 12.2 per cent (-5.2). The adjusted EBITDA margin in the third quarter 2020 was 10.5 per cent.

Operating income grew 12 per cent and amounted to SEK 500 million (-663) compared to the adjusted operating income of SEK 445 million in the third quarter 2020. Operating margin was 6.3 per cent (-10.9), an improvement compared to adjusted margin in the third quarter 2020 of 5.9 per cent. This was primarily due to the improved sales in the quarter, partly offset by amortisation of capitalised development costs. During the quarter, operating income included right-sizing measures of SEK 26 million in the business areas Aeronautics and Surveillance.

JANUARY-SEPTEMBER 2021

Gross income for the period increased 12 per cent compared to the adjusted gross income of 2020 driven by improved sales. The gross margin during the first nine months of 2021 was 21.3 per cent (15.4) and improved slightly compared to adjusted gross margin in the same period last year of 21.2 per cent.

Total depreciation, amortisation and write-downs amounted to SEK 1,427 million (1,055). Depreciation of tangible fixed assets amounted to SEK 918 million (864).

Expenditures for internally funded investments in R&D amounted to SEK 1,507 million (1,754), of which SEK 677 million (969) has been capitalised. Capitalised expenditures are mainly attributable to the development of Gripen E/F for future exports.

Amortisation and write-downs of intangible fixed assets amounted to SEK 509 million (191), of which amortisation and write-downs of capitalised development expenditures amounted to SEK 412 million (105). The increase is mainly explained by amortisation of GlobalEye, amounting to SEK 281 million in the first nine months of 2021.

The share of income in associated companies and joint ventures amounted to SEK -43 million (-134).

EBITDA in the first nine months amounted to SEK 3,239 million (1,604) and improved compared to the adjusted EBITDA in the same period last year of SEK 2,712 million. The improvement was a result of the positive contributions from sales. The EBITDA margin during the first nine months was 11.9 per cent (7.0) and the adjusted EBITDA margin for the corresponding period was 11.1 per cent.

Operating income increased by 9 per cent compared to the adjusted operating income of SEK 1,657 million in the first nine month 2020 and amounted to SEK 1,812 million (549). The operating margin of 6.7 per cent (2.4) was in line with the adjusted margin of the first nine month of 2020 of 6.8 per cent. In the period, operating income included right-sizing measures and capacity adjustments in the business areas Dynamics, Surveillance and Aeronautics of SEK 111 million.

Financial net

Q3 2021

Adjusted operating income (MSEK) and margin (%), Jan-Sep

7.0	6.8	1,812
1,739	1,657	6.7

5.2 1,142

Jan-Sep	Jan-Sep	Jan-Sep	Jan-Sep
2018	2019	2020	2021

Earnings per share after dilution,

SEK

8.95

8.21

		3.55
2.84
Jan-Sep	Jan-Sep	Jan-Sep	Jan-Sep
2018	2019	2020	2021

Earnings per share have been adjusted in accordance with the rights issue completed in 2018.

Internally funded R&D expenditures, MSEK

MSEK	Jan-Sep 2021	Jan-Sep 2020
Financial net related to pensions	-39	-55
Net interest items	-45	-52
Currency gains/losses	-27	56
Lease liability interest	-73	-70
Other financial items	-52	-34
Total	-236	-155

1,629

1,707 1,754

1,507

The financial net related to pensions is the financial cost for net pension obligations recognised in the balance sheet. See note 13 for more information regarding defined-benefit pension plans.

Net interest items refer to interest on liquid assets, short-term investments and interest expenses on short- and long-terminterest-bearing liabilities and interest on interest-rate swaps.Currency gains/losses recognised in the financial net are mainly related to currency hedges of the tender portfolio, which are measured at fair value through profit and loss.

During the first nine months of 2021, the Group had a negative impact on results from derivatives that hedge tenders in foreign currency while the result was positive in the comparative period. Lease liability interest consists of the interest portion related to lease liabilities recognised in the balance sheet.

Other net financial items consist of realised and unrealised results from short-term investments and derivatives as well as other currency effects, e.g. changes in exchange rates for liquid assets in currencies other than SEK.

Tax

Current and deferred taxes amounted to SEK -342 million (95), which means that the effective tax rate amounted to 22 per cent. Taxes for the first nine months of 2020 were affected by a tax-exempt income from the divestment of the joint venture Vricon.

JANUARY-SEPTEMBER 2021

Jan-SepJan-SepJan-SepJan-Sep

2018 2019 2020 2021

4

Financial position and liquidity

At the end of September 2021, net debt was SEK 3,076 million, a decrease of SEK 1,197 million compared to year-end 2020, when net debt amounted to SEK 4,273 million.

Cash flow from operating activities improved and amounted to SEK 3,547 million (1,910).

Despite invoicing and milestone payments in large projects, contract assets slightly increased by SEK 88 million due to high activity level, while contract liabilities increased by SEK 1,677 million compared to year-end 2020. Inventories increased by SEK 1,552 million during the first nine months of 2021, mainly related to future deliveries within Dynamics and Surveillance.

Net provisions for pensions, excluding special employer's contribution, amounted to SEK 4,475 million as of 30 September 2021, compared to SEK 5,067 million at year-end 2020. The change had a positive effect on net debt of SEK 592 million. For further information on Saab's benefit pension plans, see note 13.

Tangible fixed assets amounted to SEK 7,023 million at period end compared to 6,608 at the end of 2020.

Right-of-use assets recognised in the balance sheet amounted to SEK 2,411 million compared to 2,516 million at the end of 2020.

Net investments in the first nine months of the year amounted to SEK 1,836 million (2,063). Investments in tangible fixed assets amounted to SEK 921 million (908).

Investments in intangible fixed assets amounted to SEK 938 million (1,169), of which SEK 677 million

1. related to capitalised R&D expenditures. Capitalised R&D in the balance sheet increased by SEK 265 million. The increase was mainly related to investments to develop Gripen E/F for future exports. Of the total investments in intangible fixed assets, SEK 261 million (200) related to other intangible fixed assets. The increase mainly relates to IT security.

As of 30 September 2021, short-term investments and liquid assets amounted to SEK 10,292 million, a decrease of SEK 85 million compared to year-end 2020. In the second quarter a dividend of SEK 622 million was paid to the Parent Company's shareholders.

Capital employed decreased by SEK 136 million during the first nine months of 2021 to SEK 36,573 million. The return on capital employed was 7.7 per cent (5.4) and the return on equity was 8.5 per cent (7.0), both measured over a rolling 12-month period. Performance indicators for return on capital employed and return on equity have been significantly impacted by items affecting comparability in 2020.

Q3 2021

Change in net debt

Jan-Sep 2021

	MSEK
Net liquidity (+) / net debt (-),
31 Dec 2020	-4,273
Cash flow from operating activities	3,547
Change in net pension obligation	592
Net investments	-1,836
Sale of and
investments in financial assets,
associates and joint ventures	-11
Repurchase of shares	-246
Dividend	-622
Dividend to and transactions with
non-controlling interest	41
Additional lease liabilites	-240
Other items, currency impact and
unrealised results from financial
investments	-28
Net liquidity (+) / net debt (-),
30 Sep 2021 ¹⁾	-3,076
¹⁾ Net liquidity (+) / net debt (-)
excluding net provisions for
pensions, lease liabilities and
interest-bearing receivables, 30
Sep 2021	3,363

Key indicators of financial position and liquidity

	MSEK	30 Sep 2021	31 Dec 2020	Change	30 Sep 2020
	Net liquidity / debt ²⁾	-3,076	-4,273	1,197	-7,097
	Intangible fixed assets	11,972	11,520	452	11,333
	Goodwill	5,224	5,141	83	5,251
	Capitalised development costs	5,964	5,699	265	5,444
	Other intangible fixed assets	784	680	104	638
	Tangible fixed assets, etc ³⁾	7,406	6,984	422	6,889
	Right of use assets ⁴⁾	2,411	2,516	-105	2,384
	Inventories	11,804	10,252	1,552	11,416
	Accounts receivable	3,841	4,062	-221	2,826
	Contract assets	9,988	9,900	88	10,277
	Contract liabilities	10,086	8,409	1,677	6,770
	Equity/assets ratio, %	36.4	35.7		35.5
	Return on equity, %	8.5	5.1		7.0
	Equity per share, SEK ¹⁾	170.42	162.32	8.10	152.91
	1) Number of shares excluding treasury shares
	131,675,887	132,247,073		133,278,501

1. The Group's net liquidity/debt refers to liquid assets, short-term investments and interest-bearing receivables less interest-bearing liabilities and provisions for pensions excluding provisions for special employers' contribution attributable to pensions. For a detailed break-down of interest-bearing receivables and interest-bearing liabilities, see note 8.
2. Including tangible fixed assets and biological assets.
3. Relate to right-of-use assets for leases.

JANUARY-SEPTEMBER 2021	5