Saab : Report (en)

Well positioned to capture

YEAR-END REPORT

long-term growth

KEY HIGHLIGHTS Q2 2022

Strong order intake of SEK 17,363m (9,875), corresponding to an order growth of 76%, driven by large and medium orders across business areas.

Sales in line with same period last year, amounting to SEK 10,171m (10,131). EBITDA amounted to SEK 1,255m (1,196), an EBITDA margin of 12.3% (11.8).

Operating income increased 3% and amounted to SEK 738m (715), corresponding to an operating margin of 7.3% (7.1).

Net income for the period amounted to SEK 433m (514) and was affected by unrealised negative market value changes of short-term investments.

Operational cash flow was SEK 531m (3,152) in the quarter and according to our milestone plan for the year.

FINANCIAL HIGHLIGHTS

MSEK	Jan-Jun 2022	Jan-Jun 2021	Change, %	Q2 2022	Q2 2021	Change, %	Full Year 2021
Order bookings	25,478	15,746	62	17,363	9,875	76	43,569
Order backlog	112,367	96,714	16				105,177
Sales	19,389	19,219	1	10,171	10,131	0	39,154
Gross income	4,156	4,047	3	2,122	2,113	0	8,205
Gross margin, %	21.4	21.1		20.9	20.9		21.0
EBITDA	2,403	2,262	6	1,255	1,196	5	4,826
EBITDA margin, %	12.4	11.8		12.3	11.8		12.3
Operating income (EBIT)	1,392	1,312	6	738	715	3	2,888
Operating margin, %	7.2	6.8		7.3	7.1		7.4
Net income	805	910	-12	433	514	-16	2,025
of which Parent Company's shareholders' interest	775	897	-14	421	505	-17	1,926
Earnings per share after dilution, SEK	5.80	6.73		3.15	3.78		14.45
Return on equity, % ¹⁾	7.8	5.2					9.0
Operational cash flow	352	2,992		531	3,152		3,276
Free cash flow	34	2,763		395	3,028		2,737
Free cash flow per share after dilution, SEK	0.25	20.72		2.95	22.69		20.53
Average number of shares after dilution	133,547,690	133,351,912		133,782,303	133,446,047		133,293,340

¹⁾ Return on equity is measured over a rolling 12-month period.

Q2
Order bookings		Sales growth		Operating margin
	17.4BSEK		0.4%		7.3%

JANUARY-JUNE 2022

Q2 2022

COMMENTS FROM THE CEO

Well positioned to capture long-term growth

Micael Johansson

President & CEO

The security landscape has changed dramatically this year due to the tragic war in Ukraine and its implications on geopolitical tensions. Many European countries, including Sweden, are increasing their defence spending, leading to an even stronger national defence. Sweden and Finland have also decided to join NATO. All of this is of course affecting Saab as a defence company.

We are well positioned to meet demand in our core areas, and currently see strong interest in training, advanced weapon systems and sensors. We are taking initiatives to increase future capacity and we are working closely with our partners to secure resources and supply for a ramp-up in production. With Swedish NATO membership, there are also increased opportunities for Saab to provide state-of-the- art defence capabilities to the alliance and its member countries, as well as gaining access to NATO research programmes.

In the second quarter, Saab's order intake increased 76%, driven by both large and medium-sized orders. An important order in the quarter was Sweden's acquisition of two GlobalEye aircraft. This will provide Sweden with world-class airborne early warning and control capability. We also received several Carl-Gustaf orders from both Sweden and international customers, as well as an upgrade contract for the Gripen C/D fighter aircraft from Sweden.

Our operational performance is progressing well and we have so far no significant negative impact from supply chain issues on our deliveries. However, inflation, availability of certain materials and transportation remain challenging.

During the period, Saab held the keel-laying ceremony for the first Swedish A26 submarine, where its first hull sections were connected. This is an important milestone in the construction of one of the most advanced conventional submarines in the world. Another key milestone in the quarter was the shipment of the last of five fully installed EMD T-7A aft fuselages to our partner Boeing. We are now preparing the manufacturing setup for the next phase while hiring continues for our new operations in West Lafayette, Indiana, U.S.

Sales in the quarter was in line with the same quarter last year and amounted to SEK 10,171 million (10,131). Year to date, sales is up 1%. We expect the growth pace to increase in the second half of the year based on our strong order backlog. We reiterate our outlook of an organic sales growth around 5% for the full year.

Operating income increased 3% in the second quarter compared to last year and amounted to SEK 738 million (715) with an operating margin of 7.3% (7.1). For the full year, we estimate the operating income improvement to be at the upper end of our outlook range of 8-12%.

Operational cash flow amounted to SEK 531 million (3,152) in the quarter. The second quarter last year included large milestone payments related to GlobalEye. The cash flow is in line with our milestone plan for the year and we also expect it to remain positive for the full year 2022, according to our guidance.

We believe nations' defence capabilities are vital for peace and democracy, which is the foundation of sustainability and the UN Sustainable Development Goals. We continue to execute on our new sustainability strategy. During the quarter, focus has been on strengthening governance and initiating Climate Task Forces within our Science Based Targets project.

Our opportunities for growth have improved as governments increase their defence budgets to protect their people and societies. With our strong product portfolio and international presence as a foundation, we are prepared to meet our customers' increased demand.

Outlook 2022

SALES GROWTH:

Organic sales growth of around 5%.

OPERATING INCOME:

Operating income improvement between 8-12% compared to 2021.

OPERATIONAL CASH FLOW:

Operational cash flow to be positive for 2022 however at a lower level than in 2021.

JANUARY-JUNE 2022

2

Orders

SECOND QUARTER 2022

Order bookings amounted to SEK 17,363 million (9,875), an increase of 76 per cent compared to the same quarter last year. Bookings of large orders increased to SEK 7,316 million (1,410) with the GlobalEye contract to Sweden. Medium-sized orders increased 40 per cent and amounted to SEK 6,583 million (4,710) while small orders declined 8 per cent. Medium-sized orders included several contracts in Dynamics related to Carl-Gustaf to both Sweden and international customers, and an order for a Gripen C/D upgrade to Sweden.

JANUARY-JUNE 2022

Order bookings amounted to SEK 25,478 million (15,746), an increase of 62 per cent compared to the first half-year 2021. This was due to growth in both large orders, amounting to SEK 8,484 million (2,981), and medium-sized orders that increased with 82 per cent amounting to SEK 10,475 million (5,759). Bookings of small orders declined 7 per cent and amounted to SEK 6,519 million (7,006). In addition to the orders received in the second quarter, large and medium-sized orders in the first half-year included an order for the Mid-Life upgrade of the third Gotland class submarine to Sweden in Kockums, training systems to the U.S. and Finland in Dynamics and order for a security solution to Australia in Surveillance.

The order backlog at the end of the period amounted to SEK 112,367 million, compared to SEK 105,177 million at the beginning of the year. In total, 62 per cent of the order backlog is attributable to markets outside Sweden, compared to 67 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

SECOND QUARTER 2022

Q2 2022

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

Order distribution

Orders exceeding MSEK 100 accounted for 74% (56) of total orders during the first half-year 2022.

Order backlog duration:

Sales in the second quarter was in line with the comparison period and amounted to SEK 10,171 million (10,131). Surveillance showed a sales growth of 17 per cent compared to the second quarter 2021 driven by high activity level as well as pre-start work on the GlobalEye contract from Sweden, while sales decreased in Dynamics as the comparison quarter included a higher level of deliveries.

JANUARY-JUNE 2022

Sales amounted to SEK 19,389 million (19,219) corresponding to a growth of 1 per cent. Sales growth was flat in Aeronautics while Surveillance, Kockums and Combitech reported sales growth driven by high activity in projects and deliveries. Sales declined in Dynamics, due to a strong comparison period.

Sales from markets outside Sweden amounted to SEK 11,521 million (12,244) and corresponded to

59 per cent (64) of total sales. In the period, primarily Europe and Asia reported sales growth. 88 per cent

1. of sales were related to the defence business.
   SALES GROWTH

	Jan-Jun	Jan-Jun	Q2	Q2	Full Year
Per cent	2022	2021	2022	2021	2021
Organic sales growth	-1	15	-1	15	11
Acquisitions	-	-	-	-	-
Currency effects regarding revaluation of foreign subsidiaries	2	-1	1	0	0
Total sales growth	1	14	0	15	11

SALES PER REGION

MSEK	Jan-Jun 2022	Jan-Jun 2021	Change, %
Sweden	7,868	6,975	13
Rest of Europe	3,410	3,080	11
North America	2,027	2,200	-8
Latin America	2,066	3,108	-34
Asia	2,797	2,548	10
Africa	38	153	-75
Australia, etc.	1,183	1,155	2
Total	19,389	19,219	1

2022: SEK 20.2 billion

2023: SEK 32.2 billion

2024: SEK 24.7 billion

2025: SEK 18.3 billion

After 2025: SEK 17.0 billion

Defence/Civil

A total of 92% (88) of order bookings was attributable to defence- related operations during the first half-year 2022.

Market

A total of 35% (54) of order bookings was related to markets outside Sweden during the first half-year 2022.

Sales Jan-Jun, MSEK

19,219

16,941 16,876

19,389

Jan-JunJan-JunJan-JunJan-Jun

2019 2020 2021 2022

JANUARY-JUNE 2022	3

Income

SECOND QUARTER 2022

The gross margin was in line with the second quarter last year at 20.9 per cent (20.9). EBITDA increased 5 per cent, corresponding to a margin of 12.3 per cent (11.8). Operating income grew 3 per cent to SEK 738 million (715) with an operating margin of 7.3 per cent (7.1). Higher corporate cost in the quarter had an unfavourable impact on operating income compared to the same quarter last year. In the comparison period last year, the operating income included costs of SEK 85 million for right-sizing measures for the closure of the Barracuda facility in the U.S. and capacity adjustments in the operations in South Africa.

JANUARY-JUNE 2022

The gross margin during the first half of 2022 was 21.4 per cent (21.1). The improvement was mainly driven by favourable project mix in Surveillance and Dynamics and higher efficiency.

Total depreciation, amortisation and write-downs amounted to SEK 1,011 million (950). Depreciation of tangible fixed assets amounted to SEK 660 million (610).

Expenditures for internally funded investments in R&D amounted to SEK 823 million (1,106), of which SEK 248 million (510) has been capitalised. Capitalised expenditures are mainly attributable to the development of Gripen E/F.

Amortisation and write-downs of intangible fixed assets amounted to SEK 351 million (340), of which amortisation and write-downs of capitalised development expenditures amounted to SEK 280 million (275). This was mainly related to R&D amortisation of GlobalEye, amounting to SEK 187 million (187) in the first half-year 2022.

The share of income in associated companies and joint ventures amounted to SEK -21 million (-27). EBITDA grew to SEK 2,403 million (2,262). The EBITDA margin was 12.4 per cent (11.8).

Operating income increased by 6 per cent and amounted to SEK 1,392 million (1,312). This was driven by increases in Surveillance, Dynamics and Kockums. Higher corporate cost in the first half of 2022 had an unfavourable impact on operating income compared to the same period last year. The operating margin was 7.2 per cent (6.8) driven by the improved gross margin.

Financial net

MSEK	Jan-Jun 2022	Jan-Jun 2021
Financial net related to pensions	-36	-27
Net interest items	-42	-29
Currency gains/losses	-28	-18
Lease liability interest	-47	-49
Other financial items	-204	-35
Total	-357	-158

The financial net related to pensions is the financial cost for net pension obligations recognised in the balance sheet. See note 12 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-term interest 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.

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. The loss in the first half-year 2022 is largely attributable to unrealised negative market value changes of short-term investments due to movements in market interest rates and credit spreads.

Tax

Current and deferred taxes amounted to SEK -230 million (-244), which translates to an effective tax rate of 22 (21) per cent in the first half of the year.

JANUARY-JUNE 2022

Q2 2022

Operating income (MSEK) and margin (%), Jan-Jun

			1,392
		1,312
7.2	7.2	6.8	7.2

1,221	1,212

Jan-Jun	Jan-Jun	Jan-Jun	Jan-Jun
2019	2020	2021	2022

Earnings per share after dilution,

SEK

6.73

6.40

6.20

5.80

Jan-Jun	Jan-Jun	Jan-Jun	Jan-Jun
2019	2020	2021	2022

Internally funded R&D expenditures, MSEK

1,286

1,195

1,106

823

Jan-JunJan-JunJan-JunJan-Jun

2019 2020 2021 2022

4

Financial position and liquidity

At the end of June 2022, net debt was SEK 116 million, a decrease of SEK 2,009 million compared to year-end 2021, when net debt amounted to SEK 2,125 million. Net debt to EBITDA was 0.02x (0.47) at the end of the period.

Cash flow from operating activities amounted to SEK 1,095 million (4,319).

Contract assets increased by SEK 1,390 million following lower milestone payments while contract liabilities decreased by SEK 195 million compared to year-end 2021. Inventories increased by SEK 1,660 million during the first half-year 2022, mainly related to future deliveries within Dynamics.

Net provisions for pensions, excluding special employer's contribution, amounted to SEK 2,106 million as of 30 June 2022, compared to SEK 4,774 million at year-end 2021. Changes in actuarial assumptions regarding discount rate, inflation and demographics had a net positive effect on net debt of SEK 2,668 million. For further information on Saab's benefit pension plans, see note 12.

Tangible fixed assets amounted to SEK 7,453 million at period end compared to 7,147 at the end of 2021. Biological assets decreased during the first half of 2022 and amounted to SEK 353 million at the end of the period. During the second quarter 2022, a subsidiary to Saab AB sold forest property at a market price of SEK 54 million to Kopparfors Skogar, a subsidiary owned by Wallenberg Investments AB.

Right-of-use assets recognised in the balance sheet amounted to SEK 2,333 million compared to 2,472 million at the end of 2021.

Net investments in the first half of the year amounted to SEK 856 million (1,324). Investments in tangible fixed assets amounted to SEK 620 million (667).

Investments in intangible fixed assets amounted to SEK 335 million (669), of which SEK 248 million (510) related to capitalised R&D expenditures. The investments were mainly related to the development of Gripen E/F. Of the total investments in intangible fixed assets, SEK 87 million (159) related to other intangible fixed assets.

As of 30 June 2022, short-term investments and liquid assets amounted to SEK 12,382 million, an increase of SEK 541 million compared to year-end 2021. In addition to this, the Group had revolving credit facilities amounting to SEK 6,000 million. No credit facilities have been utilised during the period.

Capital employed increased by SEK 2,355 million during the first half of the year to SEK 40,132 million. The return on capital employed was 8.1 per cent (4.4) and the return on equity was 7.8 per cent (5.2), both measured over a rolling 12-month period.

Q2 2022

Change in net debt

Jan-Jun 2022

	MSEK
Net liquidity (+) / net debt (-),
31 Dec 2021 ¹⁾	-2,125
Cash flow from operating activities	1,095
Change in net pension obligation	2,668
Net investments	-856
Dividend	-647
Dividend to and transactions with
non-controlling interest	-30
Additional lease liabilites	-85
Sale of operations	42
Other items, currency impact and
unrealised results from financial
investments	-178
Net liquidity (+) / net debt (-),
30 Jun 2022 ¹⁾	-116
¹⁾ Net liquidity (+) / net debt (-)
excluding net provisions for
pensions, lease liabilities and
interest-bearing receivables, 30
Jun 2022	3,816

Key indicators of financial position and liquidity

	MSEK	30 Jun 2022	31 Dec 2021	Change	30 Jun 2021
	Net liquidity / debt ²⁾	-116	-2,125	2,009	-1,485
	Intangible fixed assets	12,318	12,162	156	11,888
	Goodwill	5,419	5,253	166	5,190
	Capitalised development costs	6,010	6,040	-30	5,935
	Other intangible fixed assets	889	869	20	763
	Tangible fixed assets, etc ³⁾	7,806	7,532	274	7,295
	Right of use assets ⁴⁾	2,333	2,472	-139	2,447
	Inventories	13,269	11,609	1,660	11,062
	Accounts receivable	4,579	5,884	-1,305	3,793
	Contract assets	10,642	9,252	1,390	8,847
	Contract liabilities	10,492	10,687	-195	9,232
	Equity/assets ratio, %	38.7	35.7	-	36.3
	Return on equity, %	7.8	9.0	-	5.2
	Equity per share, SEK ¹⁾	201.55	174.31	-	168.50
	1) Number of shares excluding treasury shares
	132,168,930	131,810,178	358,752	132,557,343

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 7.
2. Including tangible fixed assets and biological assets.
3. Relate to right-of-use assets for leases.

JANUARY-JUNE 2022	5