Keeping people and society safe ANNUAL AND SUSTAINABILITY REPORT 2020 THIS IS SAAB This is Saab Since Saab was started, we have strived to keep people and society 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. Today, we serve the global market with world-leading products, services and solutions from military defence to civil security. With operations in most continents, Saab continuously develops, adapts and improves new technology to meet customers’ changing needs. 1 Why we are here? Saab was founded over 80 years ago 2 after the Swedish government’s assess- Mission ment that it needed help in expanding Saab’s mission is to the country’s defence industry’s capa- develop innovative, bilities to protect its people. high-tech and cost- Read more on page 7 efficient military systems to keep society and people safe. 3 Sustainability and values Saab’s core values and sustainability commitments are the foundation of the entire business. By acting ethically and taking responsibility for people and the Strategy environment, we earn the trust of our Saab’s strategy is based on stakeholders. market factors in combina- tion with our innovation capa- Read more on page 60 bilities. By executing on our strategy we can reach our mission and work towards 4 our vision as well as creating greater value. Read more on pages 8-9 CEO comments on 2020 Saab’s investment story Business cases showing Read more about the Saab is a growth company in a growing how we execute in core areas achievements and how Saab market. Read more about how we will Read more about our execution executed on its strategy execute on our strategic priorities to towards our long term financial and during the full year create sustainable shareholder value sustainability goals 4 9SAAB ANNUAL AND SUSTAINABILITY14 REPORT 2020 THIS IS SAAB Vision It is a human right to feel safe. Content 7 The year in brief 2 CEO statement 4 Our mission 6 Global footprint Saab’s strategy 8 and customers Creating value 9 Saab today has a global foot- A growing market 10 print with customers around Sweden - a strong base for growth 16 the world. Our revenues comes Investing in innovation 18 from long-term customer International expansion 24 contracts in the form of devel- Sustainability as a value driver 32 opment and manufacture of complex systems, products Letter from the Chairman 42 and service assignments and maintenance. Administration report 44 6 Business areas 46 Risks and uncertainties 54 Sustainability report 60 Innovation Corporate governance report 84 Saab is continuously develop- Board of Directors 90 ing new innovations and invests Group Management 92 about a fifth of its sales in research Financial statements and notes 98 and development. We have close Dividend motivation 150 collaboration in development with Proposed disposition of 151 customers, suppliers, academia earnings 2020 and the public sector. Auditor's report 152 Read more on page 18 The Saab share 158 5 Multi-year overview 160 Glossary 161 Sustainability is an integrated part of About this report the business to create further value Sustainability priorities are integrated throughout the annual report. Pages 60-83 describe Saab’s sustain- In 2020, we increased our efforts to deliver ability work in greater detail. The formal annual report sustainable value for our society, customers, comprises pages 44-151. Certain figures have been employees and shareholders rounded off, so tables and calculations do not always add up exactly. A printed copy of the annual report can be ordered from [email protected]. SAAB ANNUAL AND SUSTAINABILITY REPORT32 2020 1 THE YEAR IN BRIEF The year in brief In 2020, Saab strengthened its order backlog significantly, proving the competitiveness of its innovative product portfolio and recognition internationally, while securing continued future growth. Despite a dramatic year with the Covid-19 outbreak and the challenges arising from it, the Group met important milestones and generated a strong positive cash flow for the full year. KEY HIGHLIGHTS 2020 • Strong order growth of 56%. Continued new contract wins with key customers in a challenging pandemic OPERATING MARGIN environment. Small orders were in line with last year. • Sales in line with previous year. Growth in the defence business but decline continued in the civil business. • Resilient underlying earnings. Operating income, excluding items affecting comparability, was MSEK 3.7% 2,738, corresponding to an adjusted margin of 7.4%. • Positive operational cash flow. Increased to MSEK 2,773 (-1,300) driven by good project execution. • Solid balance sheet. Net financial debt position of SEK 4.3 billion, corresponding to 1.5 net debt/EBITDA. SALES • Sustainability. Saab received A- from the Carbon Disclosure Project, for the second year in a row. KEY RATIOS 35,431 MSEK 2018 2019 2020 Sales 33,156 35,433 35,431 MSEK Organic sales growth, % 4 6 1 EBITDA 3,182 4,305 2,833 EBIT 2,266 2,937 1,315 EBIT margin, % 6.8 8.3 3.7 ORDER INTAKE Adjusted EBIT margin, % 7.7 8.3 7.4 Income before taxes 1,796 2,607 1, 112 Net income for the year 1,366 2,025 1,092 EPS, SEK 11.21 14 .81 8.01 Free cash flow -3,195 -2, 036 3,753 42,328 Net debt to EBITDA ratio 0.46 1.64 1.51 MSEK Dividend per share, SEK 4.50 - 4.70* * Proposed dividend 2 SAAB ANNUAL AND SUSTAINABILITY REPORT 2020 THE YEAR IN BRIEF OPERATIONAL CASH FLOW EQUITY/ASSETS RATIO 2,773 MSEK 35.7% Covid-19 impact on the business The Corona pandemic has continued to impact the world negatively and not least the global aviation industry. During the second half of 2020, Saab saw increased risk related to the effects of Covid-19, impacting parts of its businesses negatively. BUSINESS IMPACT FINANCIAL IMPLICATIONS ACTION TAKEN SOCIAL CONSIDERATIONS/ The Covid-19 impact on Saab Our assessment of the Covid- Saab took a number of meas- ESG EFFECTS as a company has mainly been 19 related risks had a negative ures to mitigate the pandem- During the height of the crises, associated with uncertainties impact on sales and earnings ic’s impact on its business, in Saab adapted to the needs of and disruptions in the supply during the full year 2020. Total addition to actions to reduce society by temporarily pro- chains. In Q3, actions were impact of project adjustments risks in the supply chain. In ducing protective equipment taken to mitigate increased was SEK -1,779 million. The businesses where demand for the Swedish health care future risks in our operations impact from lower demand in declined, capacity, including system. Moreover, as Saab’s by adjusting project esti- Saab’s civil business affected staffing, was reassessed. customers are dependent on mates, especially within our sales and earnings, especially Saab also introduced shorter Saab for service and support, Aeronautics division. Our civil in the business area IPS. working hours for employees Saab has had to be flexible. business was also impacted in certain business areas. By being prepared, Saab has by the significant downturn in been able to manage the the aviation industry. crises, its risks and contingencies. SAAB ANNUAL AND SUSTAINABILITY REPORT 2020 3 CEO STATEMENT Focused strategy for profitable growth For Saab, as for many others, most of 2020 was a dramatic year. We have had to adapt to the challenging times, and we have had to take substantial actions to mitigate the effects of the Covid-19 pandemic on our business. However, Saab is still on a growth journey and has seen exceptionally strong order growth throughout the year. Moreover, we managed to reach several key milestones in our large programmes. We also accelerated our international expansion, and we continued to optimise our product offering. A CLEAR ROADMAP FOR PROFITABLE GROWTH Saab is on an international expansion journey. Our aim is to become a truly global, multi-domestic company; a technology leader, with increased sales and strengthened profitability. In order to achieve our goals, we work strategically with market priorities and performance efficiency. The portfolio offering is opti- mised towards our core areas; Aeronautics, Advanced Weapons Systems, Command & Control, Sensors and Underwater Systems. As a defence and security company, our commitment to sustainability and the UN Global Compact Principles is profound. We aim to deliver sustainable value for customers, partners, employees, owners and society as a whole. Saab’s sustainability commitment serves as the basis for our long-term development and growth. NEW WAYS OF WORKING IN CHALLENGING TIMES 2020 was a year where our agility was tested more than before. We had to find new ways of working to address the challenges posed by the pandemic and to be able to continue our journey even under these circumstances. The pandemic’s impact on Saab’s military business has mainly been associated with uncertainties and disruptions in the supply chains. We therefore took actions to mitigate increased future risks identified in our operations. Our business within civilian aviation has been severely impacted by the lockdowns and the subsequent downturn in travelling. Altogether, this had a negative impact on Saab’s result. We achieved some very important project mile- stones during the year: the historic delivery of the first Gripen E to Brazil and the delivery of the first and second GlobalEye to the United Arab Emirates. We de- livered the second upgraded Gotland-class submarine to Sweden, and we completed the first Surface Ship and Submarine Firings of our new Saab Lightweight 4 SAAB ANNUAL AND SUSTAINABILITY REPORT 2020 CEO STATEMENT Torpedo.