Saab’s Results January-June 2021: Strong sales growth and positive cash flow

Strong sales growth and

YEAR-END REPORT

positive cash flow

KEY HIGHLIGHTS Q2 2021

Orders increased 7% and the order backlog amounted to SEK 96.7bn.

Organic sales growth of 15% driven by high project activity and deliveries.

EBITDA increased 19% to SEK 1,196m (1,004), a margin of 11.8% (11.4).

Operating income improved 10% and amounted to SEK 715m (652), corresponding to a margin of 7.1% (7.4), including costs for right-sizing measures of SEK 85 million.

Operational cash flow was SEK 3,152m (1,817) due to large milestone payments received in the quarter.

New organizational structure including Operational Excellence function effective as of July 1, 2021.

Changed outlook: Organic sales growth for the full year 2021 to be around 10% (previous outlook was an organic sales growth in line with long-term target of 5%).

FINANCIAL HIGHLIGHTS

MSEK	Jan-Jun 2021	Jan-Jun 2020	Change, %	Q2 2021	Q2 2020	Change, % Full Year 2020
Order bookings	15,746	14,070	12	9,875	9,247	7	42,328
Order backlog	96,714	90,458	7				99,816
Sales	19,219	16,876	14	10,131	8,836	15	35,431
Gross income	4,047	3,711	9	2,113	1,831	15	5,676
Gross margin, %	21.1	22.0		20.9	20.7		16.0
EBITDA	2,262	1,918	18	1,196	1,004	19	2,833
EBITDA margin, %	11.8	11.4		11.8	11.4		8.0
Operating income (EBIT)	1,312	1,212	8	715	652	10	1,315
Operating margin, %	6.8	7.2		7.1	7.4		3.7
Net income	910	860	6	514	518	-1	1,092
of which Parent Company's shareholders' interest	897	855	5	505	521	-3	1,073
Earnings per share after dilution, SEK	6.73	6.40		3.78	3.90		8.01
Return on equity, % ¹⁾	5.2	10.0					5.1
Operational cash flow	2,992	235		3,152	1,817		2,773
Free cash flow	2,763	22		3,028	1,722		3,753
Free cash flow per share after dilution, SEK	20.72	0.16		22.69	12.89		28.03
Average number of shares after dilution	133,351,912	133,690,023		133,446,047	133,625,118		133,877,141

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

Q2
Order bookings		Sales growth		Operating margin
	9.9 BSEK		15 %		7.1 %

JANUARY-JUNE 2021

Q2 2021

COMMENTS FROM THE CEO

Strong sales growth and positive cash flow

Micael Johansson

President & CEO

The activity in the defence market continued to be favourable in the second quarter and demand in our main markets remained good. This benefits Saab's growth both internationally and in Sweden, supporting our multi-domestic strategy.

In the quarter, orders continued to grow and increased 7%, amounting to SEK 9.9 billion. We secured a Future Development and Support contract for the Swedish Gripen C/D and orders for Training solutions for the Netherlands and for the U.S. Marine Corps. We also received orders for radar components for the G/ATOR system in the U.S., a Helicopter 15 support contract with Sweden and a contract for radar warning equipment for the German Tornado aircraft. Our solid order backlog is now amounting to SEK 97 billion, a good contributor for future sales growth.

Organic sales increased 15% in the quarter driven by high activity level and deliveries in our defence projects. The civil aviation business still reported a decline in sales. Five out of six business areas showed improved volumes. For the first half of the year we delivered organic sales growth of 15%. Combined with our strong backlog for this year, we now increase our outlook on organic sales growth in 2021 to be around 10%.

The strong sales in the quarter contributed positively to earnings and EBITDA increased 19%, corresponding to a margin of 11.8%

(11.4). Operating income increased by 10% and was SEK 715 million (652), with a margin of 7.1% (7.4). This includes right-sizing measures from the closure of our Barracuda facility in the U.S. and adjusted capacity in our operations in South Africa. These measures had a negative impact on operating income of SEK 85 million, corresponding to 0.8% margin impact. We reiterate our EBIT margin outlook for 2021.

As of July 1st, our new organisation, where six business areas becomes four, and the new Operational Excellence function, came into effect. The aim is to improve efficiency in our business by removing internal interfaces, drive synergies in operations and improve customer interaction.

The uncertainty of the pandemic, along with ongoing travel and other restrictions, continues to impact predictability. This also impacts some areas of the supply chain, however, we continue to have a close dialogue with our suppliers to mitigate the effects.

Operational cash flow in the quarter improved significantly and amounted SEK 3.2 billion (1.8). The majority of this year's large milestone payments were received in the first half of the year. We reiterate the outlook of positive operational cash flow for the full year.

A commitment to society has been at the core of Saab's business since its founding, supporting nations to keep people and society safe. In our commitment to contribute to a sustainable society, we are also working actively to reduce the environmental impact, from our operations, the value-chain and products.

During the first half of the year, a project to identify and prioritise group-wideclimate-related risks and opportunities was conducted, through the Task Force on Climate Related Financial Disclosures (TCFD) framework. Moreover, together with Swedish industry, a concept for flexible production and resilience was presented to better prepare Sweden for the next crisis.

To visualize our progress in our sustainability work, in this interim report we have started to describe our sustainability progress. I am confident that Saab is well positioned on its journey to create long-term sustainable value for all our stakeholders and society as a whole.

Outlook for 2021*

SALES GROWTH:

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

Previous outlook: Organic sales growth to be in line with our long-term target of 5 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 remains high.

JANUARY-JUNE 2021

2

Orders

SECOND QUARTER 2021

Order bookings amounted to SEK 9,875 million (9,247) in the second quarter of 2021. Bookings of medium-sized orders increased 14 per cent and small orders grew 3 per cent. Key order bookings in the quarter included Future Development and Support contract for the Gripen C/D fighters of SEK 998 million, and a support contract for Helicopter 15 of SEK 550 million, both from FMV in Sweden. Dynamics received important orders for delivery of combat training systems, both from the Netherlands of SEK 1.4 billion and the U.S. Marine Corps of SEK 452 million.

JANUARY-JUNE 2021

Order bookings amounted to SEK 15,746 million (14,070), an increase of 12 per cent. This was mainly due to growth in large orders amounting to SEK 2,981 million (1,492). In addition to the large order from the Netherlands for combat training systems received in the second quarter, an order of SEK 1,571 million for Gripen support and maintenance received in the first quarter contributed positively. Medium- sized orders grew 4 per cent and amounted to 5,759 (5,522). Bookings of small orders declined 1 per cent in the period and amounted to SEK 7,006 million (7,056).

In the period, index and price changes had a positive effect on order bookings of SEK 428 million, compared to SEK 376 million in 2020.

The order backlog at the end of the period amounted to SEK 96,714 million, compared to SEK 99,816 million at the beginning of the year. In total, 70 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

SECOND QUARTER 2021

Sales in the second quarter amounted to SEK 10,131 million (8,836) and corresponded to a 15 per cent organic growth. Dynamics contributed with a sales growth of 52 per cent compared to the second quarter 2020 due to a high delivery and activity level. In addition to Dynamics, Kockums also showed a strong sales growth of 19 per cent driven by increased activity levels. Apart from Support and Services, all business areas grew sales in the second quarter.

JANUARY-JUNE 2021

Sales amounted to SEK 19,219 million (16,876), corresponding to an organic sales increase of 15 per cent. The business areas Aeronautics, Dynamics, Surveillance and Support and Services reported sales growth thanks to a high activity level in projects such as Gripen and GlobalEye, as well as high level of deliveries within Dynamics. Sales volumes in IPS continued to be negatively impacted by the downturn in demand in the civil aviation industry.

Sales from markets outside Sweden increased to SEK 12,244 million (9,991), corresponding to 64 per cent (59) of total sales. In the period, all regions reported sales growth. 90 per cent (87) of sales were related to the defence business.

SALES GROWTH

	Jan-Jun	Jan-Jun	Q2	Q2	Full Year
Per cent	2021	2020	2021	2020	2020
Organic sales growth	15	0	15	5	1
Acquisitions	-	-	-	-	-
Currency effects regarding revaluation of foreign subsidiaries	-1	0	0	0	-1
Total sales growth	14	0	15	5	0

SALES PER REGION

Q2 2021

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

Order distribution

Orders exceeding MSEK 100 accounted for 56% (50) of total orders during January-June 2021.

Order backlog duration:

2021: SEK 17.3 billion

2022: SEK 28.4 billion

2023: SEK 17.4 billion

2024: SEK 14.1 billion

After 2024: SEK 19.5 billion

Defence/Civil

A total of 88% (85) of order bookings was attributable to defence- related operations during January-June 2021.

Market

A total of 54% (59) of order bookings was related to markets outside Sweden during January- June 2021.

Sales Jan-Jun, MSEK

MSEK	Jan-Jun 2021	Jan-Jun 2020	Change, %
Sweden	6,975	6,885	1
Rest of Europe	3,080	2,815	9
North America	2,200	1,900	16
Latin America	3,108	2,136	46
Asia	2,548	2,159	18
Africa	153	101	51
Australia, etc.	1,155	880	31
Total	19,219	16,876	14

15,719

19,219

16,941 16,876

JANUARY-JUNE 2021

J an-J un	J an-J un	J an-J un	J an-J un
2018	2019	2020	2021

3

Income

SECOND QUARTER 2021

The gross margin in the second quarter was in line with last year at 20.9 per cent (20.7). The gross income increased with 15 per cent due to improved sales volumes.

The strong sales volumes in the quarter contributed positively to earnings and EBITDA increased 19 per cent, corresponding to a margin of 11.8 per cent (11.4).

Operating income grew 10 per cent to SEK 715 million (652) with an operating margin of 7.1 per cent (7.4). The operating margin decreased somewhat following increased amortisation of capitalised development costs and increased R&D expenses compared to the second quarter 2020 while volume growth had a positive contribution. The operating income includes right-sizing measures from the closure of the Barracuda facility in the U.S. and capacity adjustments in the operations in South Africa of SEK 85 million. These measures had a negative impact on operating margin with 0.8 per cent.

JANUARY-JUNE 2021

The gross margin during the first half of 2021 was 21.1 per cent (22.0). The decline, compared to last year, is mainly explained by Aeronautics due to the project estimate adjustments related to Covid-19taken in Q3 2020 and ramp-up costs in the T-7A programme. Gross income for the period increased 9 per cent to due improved sales volumes.

Total depreciation, amortisation and write-downs amounted to SEK 950 million (706). Depreciation of tangible fixed assets amounted to SEK 610 million (578).

Expenditures for internally funded investments in R&D amounted to SEK 1,106 million (1,286), of which SEK 510 million (730) 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 340 million (128), of which amortisation and write-downs of capitalised development expenditures amounted to SEK 275 million (70). The increase is mainly explained by amortisation of airborne surveillance systems, amounting to MSEK 187 in the first half of 2021.

The share of income in associated companies and joint ventures amounted to SEK -27 million (-5).

Operating income increased by 8 per cent in the half-year and amounted to SEK 1,312 million (1,212), corresponding to an operating margin of 6.8 per cent (7.2) following increased R&D expenses and amortisation of capitalised development costs. The costs for the right-sizing measures in the second quarter had an impact on operating margin with 0.5 per cent for the first half of the year.

Financial net

MSEK	Jan-Jun 2021	Jan-Jun 2020
Financial net related to pensions	-27	-37
Net interest items	-29	-32
Currency gains/losses	-18	31
Lease liability interest	-49	-48
Other financial items	-35	-12
Total	-158	-98

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 half 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 -244 million (-254), which means that the effective tax rate amounted to 21 per cent (23).

JANUARY-JUNE 2021

Q2 2021

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

7.2	7.2	6.8
5.8
1,221	1,212	1,312
905

J an-J un	J an-J un	J an-J un	J an-J un
2018	2019	2020	2021

Earnings per share after dilution,

SEK

	6.40	6.73
6.20

3.65

J an-J un	J an-J un	J an-J un	J an-J un
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

	1,286
	1,195
1,082	1,106

J an-J un	J an-J un	J an-J un	J an-J un
2018	2019	2020	2021

4

Financial position and liquidity

At the end of June 2021, net debt was SEK 1,485 million, a decrease of SEK 2,788 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 4,319 million (1,776).

Due to invoicing and milestone payments in large projects, contract assets decreased by SEK 1,053 million, while contract liabilities increased by SEK 823 million compared to year-end 2020. Inventories increased by SEK 810 million during the first half of 2021, mainly related to future deliveries within Dynamics and Support and Services.

Net provisions for pensions, excluding the special employer's contribution, amounted to SEK 4,525 million as of 30 June 2021, compared to SEK 5,067 million at year-end 2020. The change had a positive effect on net debt of SEK 542 million. For further information on Saab's benefit pension plans, see note 13.

Tangible fixed assets amounted to SEK 6,919 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 2,447 million compared to 2,516 million at the end of 2020.

Net investments in the first half of the year amounted to SEK 1,324 million (1,554). Investments in tangible fixed assets amounted to SEK 667 million (687).

Investments in intangible fixed assets amounted to SEK 669 million (882), of which SEK 510 million

1. related to capitalised R&D expenditures. Capitalised R&D in the balance sheet increased by SEK 236 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 159 million (152) related to other intangible fixed assets. The increase mainly relates to IT security.

As of 30 June 2021, short-term investments and liquid assets amounted to SEK 12,016 million, an increase of SEK 1,639 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 161 million during the first half of 2021 to SEK 36,548 million. The return on capital employed was 4.4 per cent (8.7) and the return on equity was 5.2 per cent (10.0), 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.

Q2 2021

Change in net debt

Jan-Jun 2021

	MSEK
Net liquidity (+) / net debt (-),
31 Dec 2020	-4,273
Cash flow from operating activities	4,319
Change in net pension obligation	542
Net investments	-1,324
Dividend	-622
Dividend to and transactions with
non-controlling interest	52
Additional lease liabilites	-162
Other items, currency impact and
unrealised results from financial
investments	-17
Net liquidity (+) / net debt (-),
30 Jun 2021 ¹⁾	-1,485
¹⁾ Net liquidity (+) / net debt (-)
excluding net provisions for
pensions, lease liabilities and
interest-bearing receivables, 30
Jun 2021	5,069

Key indicators of financial position and liquidity

	MSEK	30 Jun 2021	31 Dec 2020	Change	30 Jun 2020
	Net liquidity / debt ¹⁾	-1,485	-4,273	2,788	-7,360
	Intangible fixed assets	11,888	11,520	368	11,193
	Goodwill	5,190	5,141	49	5,335
	Capitalised development costs	5,935	5,699	236	5,240
	Other intangible fixed assets	763	680	83	618
	Tangible fixed assets, etc ²⁾	7,295	6,984	311	6,861
	Right of use assets ³⁾	2,447	2,516	-69	2,483
	Inventories	11,062	10,252	810	11,720
	Accounts receivable	3,793	4,062	-269	4,244
	Contract assets	8,847	9,900	-1,053	11,009
	Contract liabilities	9,232	8,409	823	7,121
	Equity/assets ratio, %	36.3	35.7		36.2
	Return on equity, %	5.2	5.1		10.0
	Equity per share, SEK	168.50	162.34	6.16	160.03
	Number of shares excluding treasury shares	132,557,343	132,247,073		133,174,124

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-JUNE 2021	5