INTERIM REPORT

January - June 1999

• Sales increased 23 % to SEK 4,810 m.
• Operating income increased 60 % to SEK 549 m.
• Net income amounted to SEK 486 m. (332) and earnings per share to SEK 4.57 (3.11).
• The outlook for the full year remains encouraging.
• During July, Saab acquired Barracuda Technologies AB, which is active in the field of countermeasures technology.
• Survey Systems, Pronesto and Combitech Electronics have been divested.

Comment by the President
"Operative business is developing favorably. Projects are progressing according to plan and work on cost rationalization is proving successful. The phase-out of regional aircraft production has gone better than planned. Altogether, both sales and income show a positive trend and are considerably better than in the same period last year. Operating income for the whole year is also expected to be better than last year.

Training Systems is maintaining its leading position in its niche. During the period, two new product areas received their first orders - Gamer (Gunnery and Maneuver Exercise System) for the American 7th Army, to which the first delivery has already been made, and the new BT47 small arms simulator for Austria.

Renegotiation of the delivery contract for the Gripen has enabled FMV to purchase warning and countermeasures systems, and an initial order valued at SEK 100 million was received in July. The systems are very similar to those being offered with the export version of Gripen.
The phase-out of regional aircraft production is continuing as planned and is well within the framework of the allocated reserves, at the same time as it has been possible to maintain the value of the existing aircraft fleet on a satisfactory level. The last regional aircraft were produced during the second quarter. Now that production has been terminated, it has been possible to make a more reliable assessment of the costs, which has enabled reversal of reserves of SEK 174 million in the financial statements for mid-year. Further structural measures remain to be made according to plan.

The acquisition of Barracuda Technologies, which works on protection against detection and identification through signature adaptation, will strengthen our competence in countermeasures technology, with applications to several of our other military product areas.

The streamlining of Combitech is continuing and a further three companies have been divested.

The recently acquired Nyge Aero has been combined with Saab Helikopter. Nyge Aero is already making a positive contribution to income, even after acquisition costs.

On 15 June, the Swedish Armed Forces presented their proposals for a new materiel plan. The proposals entail among other things that the role of the Gripen as a cornerstone in a defense based on rapid information and command warfare is confirmed. However, the plan at present allocates no funds to participation in certain related development projects, including the development of the Meteor air-to-air missile, a project which has high priority and has been carried on internationally for several years with Swedish involvement. Following the political process, a final decision will be made by Parliament.

In regard to the export version of Gripen, expenditures for development and adaptation of in-flight refueling, tropicalization and NATO adaptation have increased during the year. As planned, the expenditures have had an effect on income of Military Aerospace.

Cooperation with the Swedish Government has opened up the possibility of leasing Gripen aircraft to export customers, conditional to subsequent purchases of new aircraft. In July, Poland received an offer for the renting of 18 Gripen aircraft and later delivery of 60 new aircraft. As part of the long-term work of marketing Gripen abroad, Saab-BAe has replied to a formal request from Chile for information, while a similar request from the Czech Republic is currently being processed. Since November 1998, final negotiations have been in progress with South Africa, which has decided to negotiate with Saab-BAe on the delivery of 28 aircraft."

Business Areas
Saab is active primarily in the aerospace and defense industry, and supplies advanced products and systems based on sophisticated information technology. The business areas are Military Aerospace, Space, Training Systems, Commercial Aircraft and Combitech. Regional Aircraft is currently being phased out.

Military Aerospace. During 1999, business unit Gripen has delivered 9 (9) Gripen aircraft, bringing the total to 74 out of the 204 aircraft ordered by the Defence Materiel Administration, FMV. Dynamics' operations comprise high technology products in guided weapons and optronic systems. Avionics, which is owned to 50.1%, develops and builds display, reconnaissance and electronic warfare systems. Order bookings for Military Aerospace during the second quarter amounted to SEK 440 m. and included development orders and spare parts for Gripen.

Space, which is owned to 60 percent by Saab and 40 percent by Ericsson, develops and manufactures onboard computers, antennas and other equipment for the space industry. During the second quarter, order bookings amounted to SEK 172 m. and included computer systems for the unmanned cargo vehicle being developed for the new international space station. Negotiations are in progress for additional systems.

Training Systems leads the world in simulation systems based on laser technology for direct fire weapons. During the second quarter, order bookings amounted to SEK 113 m. and included the first order for the new small arms simulator BT47.

Commercial Aircraft consists of three business units, Collaborative Programs, Customer Support (Saab Aircraft AB) and Saab Aircraft Leasing. During the second quarter, no changes have taken place in the leasing portfolio administered by Saab Aircraft Leasing. At the end of the period, it comprised 314 Saab 340 and Saab 2000 aircraft, compared with 316 at year-end 1998. At the end of the period, six aircraft were not contracted to any operator, compared with eight at year-end. Order bookings for Commercial Aircraft during the second quarter amounted to SEK 204 m.

Combitech's operations comprise products in commercial high technology niches. During the second quarter, Pronesto and Survey Systems have been divested with a positive effect on income and an agreement has been reached with the Norwegian company Kitron on the sale of Combitech Electronics. Marine Electronics has signed a worldwide delivery agreement for radar-based level-gauging systems for oil tanker terminals with one of the world's largest independent tanker terminal companies, van Ommeren. During the second quarter, Combitech's order bookings amounted to SEK 297 m.

Regional Aircraft delivered three Saab 2000 to Crossair and one Saab 340 AEW to FMV during the second quarter. Remaining deliveries for 1999 consist of two completed Saab 340 to Japan Air Commuter.

Sales
Sales of the Group increased 23 percent to SEK 4,810 m. (3,921). The improvement is related to Dynamics, partly deliveries of Strix to Switzerland, and Training Systems through large deliveries of simulators to Germany. Within Combitech, sales increased mainly in Traffic Systems for the Melbourne project, and in the software companies Software and Network. Sales also increased through the consolidation of Avionics in Group sales from 1999 and the acquisition of Nyge Aero.

Income
Operating income increased 60 percent to SEK 549 m. (344). All business areas improved their income, except Military Aerospace as a result of higher planned development costs for the export version of Gripen. The increases in Space and Training Systems are mainly the result of higher volumes. The increase in income of Combitech is mainly due to the fact that Traffic Systems has had no negative impact on income during the first half of 1999 as provisions were made already in 1998 for the anticipated deficit. The performance of Traffic Systems has however improved compared to last year. Capital gains in Combitech from divesting operations were lower, SEK 19 m. compared to SEK 70 m. the previous year. Income for the period has been improved by SEK 174 m. through reversal of the reserve for phasing out Regional Aircraft. Other operating income of SEK 86 m. (191) consists mainly of capital gains from divesting operations, SEK 19 m. (70), reversal of provision corresponding to the loss in Customer Support, SEK 14 m. (61) and trading income from Treasury business and exchange rate gains, etc., SEK 53 m. (60). Project interest on non-utilized advance payments amounted to SEK 113 m. (115).

Net financial income and expenses amounted to SEK 172 m. (131). In the previous year, the financial net was burdened by a non-recurrent item of SEK 44 m. The average return on liquid funds was 5.17 (5.25) percent. Income after financial income and expenses amounted to SEK 721 m. (475). Current and deferred taxes amounted to SEK -209 m. (-133), corresponding to an effective tax rate of 29 percent on income after financial income and expenses.

Finance and Liquidity
Since January 1, cash and marketable securities, less liabilities to credit institutions, have decreased by SEK 1,533 m. to SEK 11,458 m. (12,991). The decrease is mainly due to the utilization of advances as the projects progress within Gripen, phasing out of Regional Aircraft, large VAT payments and payment of dividend of SEK 213 m. The Group’s financial position is strong and net liquidity after deduction for provision for pensions amounted to SEK 9,526 m., compared to SEK 11,026 m.

Orders
Group order bookings during the first six months amounted to SEK 2,565 m. (3,289). The order backlog at the end of the period was SEK 23,485 m. (25,683).

Capital expenditures
The Group’s capital expenditures in property, plant and equipment, excluding leasing assets, amounted to SEK 294 m. (223).

Personnel
At the end of the period, the number of employees in the Group was 8,214, compared with 8,577 at January 1, 1999.

Parent Company
During the first six months, parent company sales amounted to SEK 2,764 m. (3,536). Operating income was SEK 321 m. (217) and income after financial income and expenses was SEK 463 m. (424).

Cash and marketable securities, less liabilities to credit institutions, amounted to SEK 11,160 m., compared with SEK 12,487 m. at year-end. Capital expenditures in property, plant and equipment amounted to SEK 88 m. (89). The number of employees at the end of the period was 4,863.

Ownership
Saab's principal owners are Investor AB, British Aerospace, US funds, the Wallenberg foundations and AMF.

Accounting Principles
The report has been drawn up in accordance with earlier accounting principles, but with the exception that Recommendation No. 8 of the Financial Accounting Standards Council has now been applied. The change consists of translating integrated foreign operations in accordance with the monetary method. No restatement has been made for earlier periods since the effect of the change of accounting method has been considered immaterial.

Linköping, August 20, 1999

Bengt Halse

President and CEO

We have performed a review of this interim report and thereby followed the recommendations set out by the Swedish Institute of Authorised Public Accountants, FAR. A review is significantly limited in scope compared to an audit. We have found nothing to suggest that this interim report does not comply with the requirements set out in the Exchange and Companies Acts.

Linköping, August 20, 1999
Gunnar Widhagen Caj Nackstad
Authorized Public Accountant Authorized Public Accountant

Dates for financial information
Interim Report for January - September will be published on November 9, 1999
The 1999 Report will be published on February 18, 2000

For further information, please contact
Lars Jagerfelt, Vice President, Corporate Communications, tel +46 13 18 71 65
Agneta Kammeby, Investor Relations, tel +46 13 18 71 25
(President Bengt Halse will be available for questions by phone today between 2.30 pm and 3.30 pm.)

Income Statement

Sales by business area

Operating income by business area

¹⁾ Whole year 1998 includes reversal of loss risk reserve of SEK 100m.

Sales and income per quarter

1. Number of shares: 106,459,675 as per June 30, 1999

Key ratios

1. January 1, 1999 including Avionics.

Balance sheet

²⁾ Including Ericsson Saab Avionics, which is consolidated in the Saab Group from January 1, 1999.
Subdivided summary of income statement, January - June 1999

Subdivided summary of balance sheet, June 30 1999

Summary of cash flow statement

¹⁾ From January 1 to June 30.

Subdivided summary of cash flow statement, January- June 1999

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