This is Saab’s biggest strength

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ANNUAL

REPORT2007

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To be successful in times of change requires the

ability to create new opportunities. This is

Saab’s biggest strength.

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This is Saab’s Annual Report for 2007. Saab’s legal annual report is comprised by pages 32–115. These pages have been reviewed by the company’s auditors in accordance with the auditors’ report on page 116.

A more general description of Saab and the company’s development is provided in Annual Review 2007, which can be ordered at www.saabgroup.com or by telephone +46 13 16 92 08.

This symbol indicates that more information on the section in question can be found at www.saabgroup.com. ^{w w w}

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SAAB IN BRIEF

PRESIDENT’S COMMENT COMMENT BY THE CHAIRMAN

DESCRIPTION OF OPERATIONS

BUSINESS CONCEPT, VISION AND OBJECTIVES

STRATEGY

MARKET OVERVIEW

SAAB’S MARKET OFFERING PERSONNEL

SAAB IN SOCIETY

ADmINISTRATION REPORT

FINANCIAL REVIEW

FINANCIAL INFORmATION

FINANCIAL STATEMENTS NOTES

DIVIDEND MOTIVATION

PROPOSED DISPOSITION OF EARNINGS AUDITORS’ REPORT

QUARTERLY INFORMATION MULTI-YEAR OVERVIEW

INvESTOR AND ShAREhOLDERS INFORmATION

CORPORATE GOVERNANCE REPORT BOARD OF DIRECTORS

GROUP MANAGEMENT THE SAAB SHARE

SHAREHOLDER INFORMATION 32

49 59 114 115 116 117 119

120 126 128 129 133

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Saab’s largest shareholders As of December 31, 2007 according to Swedish Central Securities Depository

No. of shares in thousands

% of capital

% of votes

bAE Systems, UK 22,332 20.5 20.4

Investor 21,612 19.8 38.3

Wallenberg foundations 9,469 8.7 6.1

AMF Pension funds 5,299 4.9 3.4

Odin funds 4,696 4.3 3.0

Swedbank Robur funds 4,209 3.9 2.7

The Saab share 2007 Saab b share (SEK) OMX Stockholm_Pl (SEK) Thousands of shares traded (incl. off-floor trading)

Saab serves the global market with world-leading products, services and solutions ranging from military defence to civil security.

Saab’s operations are focused on three strategic business segments: Defence and Security Solutions, Systems and Products, and Aeronautics.

2007 2006

Sales, MSEK 9,300 8,028

EbIT, MSEK 934 875

Operating margin, % 10.0 10.9

Order bookings, MSEK 7,259 16,415 Order backlog at year-end, MSEK 10,764 13,654

Saab is the leader in advanced command and control and communication systems for military and civilian applications. The segment also includes a wide range of integration services, integrated support and logistical solutions, and sophisticated consulting services.

2007 2006

Sales, MSEK 9,091 8,580

EbIT, MSEK 756 631

Saab offers world-leading systems, products and components in defence, aerospace and civil security. The segment also includes long-term maintenance and operational services for the systems Saab delivers.

2007 2006

Sales, MSEK 6,510 6,010

EbIT, MSEK 454 190

Saab’s military and civilian aeronautics operations are dominated by the Gripen program, but also include future unmanned aerial vehicles (UAVs). In its civilian operations, Saab partners with Airbus and Boeing on subsystems and structural components.

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Defence and Security Solutions

Systems and Products Aeronautics

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Key financial ratios 2007 2006

Sales, MSEK 23,021 21,063

Operating income, MSEK 2,607 1,745

Income after financial items,

MSEK 2,449 1,693

Net income, MSEK 1,941 1,347

Earnings per share, SEK

(after dilution) 17.60 11.91

Dividend per share, SEK¹⁾ 4.50 4.25

Return on equity, % 18.5 13.8

Equity/assets ratio, % 32.6 30.6

Order bookings, MSEK 20,846 27,575 Order backlog at year-end, MSEK 47,316 50,445 Research and development, MSEK 4,523 3,537 No. of employees at year-end 13,757 13,577

Share of women, % 22.0 20.0

University-educated, % 41.0 38.6

Absenteeism, % 3.1 2.9

1) 2007 bOARD PROPOSAL.

IMPORTANT EVENTS IN 2007

The Swedish Armed Forces ordered an upgrade of 31 Gripen aircraft and a demonstrator program for Gripen’s future development.

Saab Aerotech received an order from the Swedish defence for the development of a resource management system and support solution for a field hospital for the Nordic battlegroup.

Estonia ordered an air defence system from Saab Microwave and MbDA.

Finland was the first export customer for the Next Generation Light Anti-tank Weapon (NLAW).

Saab Training Systems received a major order for a Mobile battalion Combat Training Centre from the Royal Netherlands Army.

Two important orders were received from the Royal Australian Navy: to upgrade the combat management system on its ANZAC class frigates and to design and develop the combat management system for a new amphibious class of ships.

Saab expanded to Switzerland through the acquisition of RUAG’s Warhead Division.

The acquisition of Seaeye Holdings Ltd of the UK strengthened Saab’s position in underwater vehicles.

Saab acquired 7.5 percent of the Norwegian company Aker Holding AS, which in turn owns 40.1 percent of the listed company Aker Kvaerner ASA. The agreement was approved by the Norwegian parliament in December.

Thailand selected Sweden and Gripen for final negotiations on six Gripen systems, and two Saab 340 aircraft, one of which will be equipped with Saab’s Erieye radar.

The agreement between the Defence Materiel Administration and Saab was signed on February 11, 2008.

Further order bookings were received from Airbus and boeing.

Tender requests for Gripen from India (126 aircraft), Denmark and Norway (48 aircraft).

In January 2008, tender request were received from Switzerland.

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EARNINGS PER SHARE

RETURN ON EQUITY

EQUITY/ASSETS RATIO

NET INCOME ATTRIbUTAbLE TO PARENT COMPANY SHAREHOLDERS’

INTEREST DIVIDED bY AVERAGE NUMbER OF SHARES.

NET INCOME FOR THE YEAR AS A PERCENTAGE OF AVERAGE SHARE- HOLDERS’ EQUITY.

SHAREHOLDERS’ EQUITY IN RELATION TO TOTAL ASSETS.

Definitions of key ratios

Sales Revenue (MSEK)

Growth (%)

Operating income Margin (%) Income (MSEK)

Earnings and dividend per share

Earnings Dividend

MSEK % MSEK % SEK

25,000

20,000

15,000

10,000

5,000

2,500

2,000

1,500

1,000

30,000 3,000

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In 2007, Saab celebrated 70 years as a com

pany, and a lot has happened over that time:

in the world, in Sweden and at Saab. To be successful in times of change requires the ability to create new opportunities, and this is Saab’s biggest strength.

When Saab was founded in 1937, the threat of a major war loomed ominously. Today the world is totally different, and what it will look like tomorrow is anyone’s guess.

In this rapidly changing world, a successful company must adapt. Our ability to quickly change and our technology, which has dis

tinguished Saab for as long as we have been in business, will remain a success factor in the future.

A market in change

The market for defence materiel continues to change. In Europe, discussions are under way to reach a consensus how defence materiel should be procured. Slowly but surely, the trend is shifting away from limita

tions by national affiliation to a more open market. It will take time, but Saab is positive to every step that creates a more transparent market where the country a supplier comes from is of limited significance.

This shift is also reflected in the intensive cooperation between countries and defence contractors in the EU. A growing number of major development projects are being carried out by multinational alliances. The idea, of course, is to share costs and bring together the best expertise. By offering cut

ting edge competence, Saab is an attractive partner in such situations, benefiting not only the company but Sweden as well.

Today Saab is part of a number of collab

orative projects.

Another distinct shift is from product to system and the growth in civil security. It is becoming more common for deliveries to entail more than just a product. We are facing increasing demands to combine our capabilities into fullservice solutions for both

military and civilian customers. Examples include Saab Training Systems’ complete training concepts, Saab Aerotech’s lifecycle support commitments, surveillance systems for airports and harbours, and the order received from Thailand in 2008 in which Gripen is only one part of the delivery.

A crucial factor in these international alliances and largescale system deliveries is that we maintain a close cooperation between the government and industry in Sweden. Major defence orders always have a political dimension, and in that way are similar in nature to multinational security agreements and alliances. Sweden’s public

private cooperation has been successful for many years, and it is vital that it conti

nues. As a respected supplier of hightech systems, Saab has been able to serve as a

“technology incubator” for society. This has been possible thanks to a close cooperation on development projects with the Swedish defence.

70 yEARs Of

world-class technology

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Outside Europe, we have continued to strengthen our operations in South Africa and Australia. New orders from the Australian Navy consolidate our position as a major supplier to the country. In South Africa, the integration of Grintek with the rest of Saab continues. This is creating an effective platform for the local market and strengthening the country’s export oppor

tunities.

Saab’s international footprint must be bigger. Only then can we maintain our position as a leading supplier in a dynamic market. This means that we will look to new markets, and we will become more important in the markets where we already operate.

A good year for Saab

An important event in 2007 was the order from the Swedish defence for an upgrade of the Gripen fighter and development of a de

monstrator program for the next generation of the aircraft. This ensures the continued development of the Gripen system for years to come, strengthening our sales arguments in markets that are in the process of procur

ing new aircraft. It is also gratifying that a number of leading international companies have joined Saab in devoting resources to this project.

We have worked actively in recent years to find applications for Saab’s technology and products in the area of civil security. This is particularly true of the protection of flows of various types as well as infrastructure.

This work has produced results, and in 2007 this sector represented approximately 10 percent of our sales, a figure that continues to grow.

The results for 2007 are distinguished by a steady flow of orders, totaling nearly SEK 21 billion (28), and continued sales growth.

Sales rose by 9 percent to slightly over SEK 23 billion (21). Operating income rose by 49 percent to MSEK 2,607 (1,745), an improvement mainly due to the acquisition of Saab Microwave Systems, higher sales, capital gains and nonrecurring items.

The operating margin was 11.3 percent for the year, but it is important to note that the adjusted operating margin after nonrecur

ring revenue was 9.4 percent, which shows that we are still slightly below our long

term objective of 10 percent.

Working together, we will now implement the efficiency program announced in late 2007. Increased efficiency is essential. The goal is to gradually reduce expenses and achieve annual cost savings of SEK 1 bil

lion by 2010. The resources we free up will allow us to increase marketing efforts and strengthen research and development so that we can continue to offer worldleading products in the future.

Code of Conduct

The defence industry and sales of defence systems in the international market often draw considerable attention and are the subject of speculation. Saab has been accused of bribery in connection with the lease of Gripen aircraft to the Czech Repu

blic and Hungary. The Director of Public Prosecutions for the Swedish AntiCorrup

tion Unit has launched an investigation of the alleged improprieties.

Bribes have never been, and will never be, permitted at Saab. We are fully cooperating with the public prosecutor and providing all the information needed in the investiga

tion. Until the investigation is completed, we cannot comment further on the case.

I would point out, though, that we worked actively during the year to build support for Saab’s common values. Among other things, a revised, expanded code of conduct will soon be shared with all our employees.

For us at Saab, it is extremely important to do business with the highest ethical standards and to thoroughly comply with the authorization granted by the Swedish government.

Saab – a strong brand

We celebrated our 70^th anniversary with a number of activities for employees, custo

mers and partners. It also gave us the op

portunity, in a natural way, to continue the work on our vision and values we started in 2006. The feeling of being part of one com

pany, sharing the same values and the same approach, has been greatly strengthened.

And this is important. Saab is the product of acquisitions, mergers and divestments.

This is why we are so pleased to have progressed so far with the value work that began a few short years ago. At that point, when Saab and Celsius had merged, the new company could almost be described as a conglomerate. Now we are experiencing the advantages of being a unified company with a strong brand.

The future is in our hands

If our history is any indication of what lies ahead, one thing is certain: changes will continue. And if Saab successfully takes ad

vantage of the potential that changes always create, it will open many new opportunities for us.

What is important is that we can impact how Saab develops. With our financial freedom and leading experts in our priority areas, we ourselves can decide our future. I am convinced that we will soon be writing another successful chapter in Saab’s history.

Åke Svensson President and CEO Saab AB (publ.)

Linköping, February 2008

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Saab has had a strategy to grow internationally for several years. A changing world and a sweeping modification of Swedish defence policies have created new opportunities as well as challenges. Saab’s ability to continue to grow internationally and expand operations in the civil security market will be decisive to our success.

We are certainly pleased today that Saab de

cided early on to grow internationally. The market for defence equipment has histori

cally been a national concern, and the step from there to a genuinely open market is quite a long one, and by no means a given.

As a panEuropean market for its products develops – though we certainly wish the process would speed up – Saab has already secured a position as a favoured partner and supplier. We have also seen how major orders at a high system level have helped Saab build strong positions in countries such as South Africa and Australia. There is good reason to believe these examples will be followed by others and that Saab will continue to broaden and expand its international operations.

One of Saab’s most important partners is the Swedish defence, and ultimately the Swedish government. Having the support of one’s own government is crucial to the success of defence exports and international alliances. This is especially true of large defence orders, which are generally made between countries, not between companies.

The Swedish government’s welcome deci

sion in 2007 to upgrade Gripen is a good example of longterm resolve. Gripen, one of Sweden’s most successful industrial projects ever, will therefore continue. The decision is also a powerful signal to current and potential customers that the Gripen system will be further developed for a long time to come.

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fOR THE fUTURE

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Future procurement decisions The new priorities reflected in Sweden’s defence budget are a natural response to the major changes in the world in recent decades. Saab also faces a new reality. Our most important customer and partner now accounts for a smaller share of our orders, but is still very important if we are to maintain our technological edge. The Swedish defence’s role as a reference custo

mer and partner in development projects cannot be overestimated. Of course, this also means that Saab’s increased exports are impacted by the spending priorities set by the Swedish defense. It is critical therefore that the government provide clarity as to the strategy it will follow. With clear rules, Saab and other defence contractors can play a significant role in improving efficiency in the procurement process.

There is room to discuss these issues within the framework of the Swedish defence’s changing procurement process, so that an effective balance can be achieved bet

ween domestically funded development and outside purchases. There is also the important question of what role Saab can play as a supplier over the entire lifecycle of various systems. This is an area where Saab has good opportunities to assume broa

der industrial responsibility for operating systems.

It is also critical that the decisions that will be made following the current defence de

bate are based on facts. While it may seem better and less expensive to buy equipment

“off the shelf” than to pay for development, our experience and independent studies suggest otherwise.

Together with the rest of the Swedish defence industry, Saab has built up a solid foundation of competence and capabilities that cannot be overlooked in any future decisions. Buying off the shelf sounds easy, but can be difficult in reality. One obvious advantage of domestically developed products and solutions is that development resources and pioneering technologies, as well as further development, stay in the country. This is extremely valuable to Saab and to Sweden. A good example of this is Gripen. The innovations that have been produced during Gripen’s development in many cases have found applications in civil products and created successful civil companies.

Another aspect of having our own develop

ment resources is that it serves as a gateway to the extensive development projects done collaboratively between countries, particularly in Europe. Saab is involved in a number of such projects, where the cost must be reasonable to play a role in deve

loping worldclass technology. Sweden is not the only country that sometimes has to share the costs of advanced – and therefore expensive – new systems. We hope and believe that our politicians realize the direct and indirect value that the defence industry generates through research and develop

ment, and that their decisions are made after careful consideration and analysis.

We are naturally willing to constructively participate in this discussion.

An important precondition for active participation in transformational processes is that there is an understanding of the need for a longterm perspective. Maintaining a place in the technological forefront requires years of development, along with stable finances. Consequently, the priorities set by our largest customer and partner are crucial.

Growth creates new opportunities Saab will have to free up its own resources for increased marketing and development by being more efficient and setting more stringent priorities. In doing so, Saab can retain a position as a technological leader in its priority product areas. Saab has for many years proven that it has engineering expertise of the highest international class.

This capability is fundamental to future growth in new markets and with innova

tive solutions for both military and civil security.

During the year, Saab was the target of an investigation concerning possible bribes in connection with the lease of Gripen aircraft to the Czech Republic. Since the investigation is still under way, I cannot comment on the facts of the case, but I would still like to stress that the Board and I are unequivocally opposed to any illegal actions in connection with sales activities, and I know that our management shares the same opinion. Saab will assist in any way possible with the current investigation.

The Board has asked Group Management to provide training on these issues to all Saab’s employees in 2008.

There are always challenges to confront, but Saab has great opportunities to grow. We will remain an active partner in develop

ment projects internationally and invest more of our own energies. The Board looks forward to supporting management in its efforts to shape the Saab of tomorrow. A more resourceful company will benefit our shareholders, employees, customers and partners.

Stockholm, February 2008

Marcus Wallenberg Chairman of the Board

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FINANCIAL OBJECTIVES

Growth. Saab’s organic growth will average 5 percent per year over a business cycle. In 2007, organic growth was 4 percent. Including acquisitions, growth was 9 percent.

Operating margin. Saab has two objectives, both of which are formulated as averages over a business cycle. The operating margin after depreciation/amortization will be at least 10 percent and the operating margin before depreciation/amortization will be at least 15 percent. The operating margin after depreciation/amortization was 11.3 percent (8.3). The operating margin before depreciation/

amortization was 16.0 percent (12.0).

Return on equity. ROE should average 15 percent. During 2007 Saab generated a return of 18.5 percent, compared with 13.8 percent in the previous year.

Equity/assets ratio. Saab’s equity/assets ratio will exceed 30 percent. At the end of 2007, the equity/assets ratio was 32.6 percent (30.6).

Dividend policy. Saab’s long-term dividend should correspond to 20–40 percent of income after tax over a business cycle. For 2007, the Board of Directors proposes a dividend of SEK 4.50 per share, corresponding to 25 percent of net income.

RESULTS 2007 IN BRIEF

The Group’s order bookings amounted to MSEK 20,846 (27,575), of which 62 percent (72) related to orders from customers outside Sweden and 72 percent (77) to defence-related operations.

The order backlog at year-end was MSEK 47,316 (50,445).

The Group’s sales increased by 9 percent to MSEK 23,021 (21,063), of which 65 percent (65) was received from customers outside Sweden. The defence market accounted for 81 percent (79) of sales.

Operating income after depreciation/amortization amounted to MSEK 2,607 (1,745), or an operating margin of 11.3 percent (8.3).

In connection with the third-quarter report in October 2007, the company announced an efficiency improvement program with the goal of improving operating income by SEK 1 billion per year. The program is expected to reach its full effect by the end of 2010 and is necessary in order to balance further investments in self-financed development as well as marketing.

BUSINESS CONCEPT, VISION AND OBJECTIVES

BUSINESS CONCEPT

saab constantly develops, adapts and improves new technology to meet changing customer needs. saab serves the global market of governments, public auth

orities and corporations with products, services and solutions ranging from military defence to civil security.

VISION

by power of innovation, competence and creativity, our vision is to be a leader in the global evolution, expand

ing the defence industry to overall human security.

FINANCIAL OBJECTIVES TARGET 2007 2006 2005 2004 2003

organic sales growth, % 5 4 3 6 5 4

return on equity, % 15 18.5 13.8 13.5 16.7 10.8

operating margin, % 10 11.3 8.3 8.6 10.4 7.5

equity/assets ratio, % 30 32.6 30.6 31.0 29.9 24.4

Dividend, % of aftertax income 20–40 25 36 37 32 50

Dividend per share, seK – 4.50¹⁾ 4.25 4.00 3.75 3.50

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BUILDING A SAFER SOCIETY

In the future, a larger share of sales in Defence and Security Solutions will come from civil security. Saab’s deliveries will to a greater extent consist of full-service solutions for the defence and civil securities sectors. Systems and Products will concentrate on a streamlined range of products that also supports system sales. In Aeronau- tics, Saab will remain a strong player in the global market with the Gripen system.

The business units in Saab’s three segments face somewhat different challenges depending on the structure of each contract.

Generally, those signed in Defence and Security Solutions are the end-result of long-term customer relationships and a local presence, in addition to price and performance. They often entail products and solutions that are part of the customer’s most sensitive systems. In Systems and Products, orders primarily involve the development and manufacture of advanced products and subsystems for the global market. Here, contract decisions are mainly based on price and performance. Saab’s deliveries consist of individual products or parts of a system, though in some cases complete deliveries as well. In Aeronautics, the business logic is often a combination of what we see in the other two segments, particularly with regard to the Gripen system.

Saab’s business units work closest to the market and customers. Though they are grouped into three segments, their products and systems are combined into various constellations depending on the customer’s needs. One of the units is always the principal supplier and has overall responsibility. For large, complex orders, a number of business units and capabilities can be brought together so that the Group’s whole range of expertise is effectively utilized.

The Group supports this work with shared functions for business development and marketing. Moreover, Saab Industrial Co- operation arranges industrial cooperations – offset programs – which are integral to major orders and constitute an important success factor. Industrial cooperations often entail a portion of production or development in the buyer-country or some form of industrial, commercial or research-related alliance.

the three segments reflect the differences in the conditions facing saab’s various markets and businesses.

saab’s fundamental strategy remains firm. saab will continue to grow internationally from a position as the dominant defence contractor in the nordic region.

AERONAUTICS SYSTEMS AND

PRODUCTS

DEFENCE AND SECURITY SOLUTIONS

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The Defence and Security Solutions business segment brings together Saab’s capabilities in the development and integration of high-technology systems for reconnais- sance, surveillance, communication, and command and control. One example is the Swedish Air Force’s combat management system, which links command and control centers, aerial surveillance, and radio and data communication. The airborne surveillance system Saab is supplying to Pakistan is another example. In the international market, tactical command and combat systems for land, sea and airborne forces is one of the areas where Saab has an especially strong position.

Saab’s main customers in Defence and Security Solutions, defence authorities and other government agencies, are increasingly outsourcing their operations. Saab therefore

offers a wide range of lifecycle support solutions.

The Defence and Security Solutions segment also offers consulting services in systems development, systems integration, and information and system security mainly for the defence and telecommunication industries as well as government depart- ments and authorities with responsibility for infrastructures.

The market for civil security systems continues to develop, creating new opportunities. Saab can supply systems to handle information flows and coordination between various authorities responsible for terrorist threats, natural disasters and organized crime. The market for civil security includes companies based in both the defence industry and the civilian sector.

Develop new home markets In several of Saab’s product and service areas, having local operations is critical to be considered as a supplier. Saab is currently a major supplier of defence materiel at a high system level in Sweden/Nordic region, South Africa and Australia. In these markets, Saab has a significant industrial presence and is already a long-term partner in the development of national defence and security solutions. The goal is to create similar relationships in other countries.

To reach new markets and strengthen its current position, Saab continues to expand its local presence by utilizing cooperative projects and partnership solutions.

SAAB’S STRATEGIC BUSINESS SEGMENTS

Defence anD securitY soLutions command and control and communication systems

integrated systems solutions

integrated support and logistics solutions technical consulting services

solutions for civil security

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strateGic cHaLLenGes Develop new home markets expand operations in civil security broaden saab’s industrial role

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Expand operations in civil security The market for civil security products and systems is clearly growing. Saab sees the potential for the sector to account for a significantly larger share of its sales over the next few years. The challenge for Saab is to effectively utilize its experience and competence in military technology in the civil market.

Broaden Saab’s industrial role

There is a clear trend that customers want to outsource greater responsibility to defence contractors. This creates an oppor- tunity for Saab to broaden its deliveries and become more of a system integrator. This could entail responsibility for everything from development, financing, operations and maintenance to phase-out of the system. These public-private cooperations will grow in importance and create opportunities in more markets globally.

Customers in the Systems and Products business segment mainly consist of defence authorities and to some extent other defence contractors around the world.

Demand is affected by a number of factors, including the increase in international missions. Many customers are increasingly requesting finished products and solutions, which in some cases requires cooperation with other suppliers.

In avionics (aeronautical electronics), Saab is a leading supplier to both military and civil aircraft manufacturers. In 2007, for example, it received two avionics orders for the Airbus A400M military transport aircraft, a High Lift Control & Monitoring System and a Terrain Masking Low Level Flight Computer.

Another product with a market-leading position is the Carl-Gustaf anti-armor weapon, which has been sold to more than 40 countries and has two successors in the AT4 and NLAW anti-armor systems.

Electronic warfare – warning, jamming and protection against detection and weapons – is also an area where Saab has developed products that are currently in use in a large number of combat vehicles, aircraft, helicopters, submarines and surface vessels the world over.

The unique products in the radar and sensor operations (Saab Microwave Systems) acquired in 2006 were already vital components of Saab’s BAMSE missile platform, Gripen fighter and airborne surveillance system. They include products that in themselves command a leading position in the global market.

sYstems anD proDucts

unique systems, products and components Development, production and upgrades studies and demonstrators

maintenance and operations

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The weapon detecting radar ARTHUR and the search radar GIRAFFE are two examples. Signature management, which prevents detection by even the most advanced technical equipment, is another area where Saab has a strong position.

The need for training is growing as more countries participate in international missions and have to train their troops under realistic conditions. Saab has a prominent position in advanced training systems for land-based forces and now lists special police units among its customers.

Underwater technology for shallow water and harbours is an area where Saab has leading expertise. Significant potential exists in autonomous, unmanned underwater vehicles for both military and commercial applications. Saab is also Europe’s leading independent supplier of advanced subsystems to the space industry.

Sell products directly to customers or as part of a Saab solution

Systems and products are almost always components in a larger, comprehensive solution. Final integration of these systems is done either by the customer, Saab or another company. Saab must be prepared to supply systems and products according to all these models. This means that its deliveries sometimes are part of a competitor’s solution.

Invest in increased market penetration Products and subsystems in this segment are sold globally. Saab’s goal is to grow in selected niches and generate an even higher share of sales from the international market. This requires a strong presence with local development and production.

Saab must therefore strengthen its position in selected markets for its priority product areas.

Maintain competitiveness

technologically and in terms of price Saab currently has a number of products that are global leaders – and the Swedish defence as a major, long-term customer.

In order to maintain its leadership while increasing sales, Saab will have to self- finance a larger share of development costs and in the future will have to concentrate its product portfolio. Saab’s future development work will be done on its own and in collaboration with others in the market.

Financing must also be secured through higher gross margins on sale of finished products and systems.

EXAMPLES OF PROGRESS IN 2007 a number of important orders were received in civil security, which has grown as a share of saab’s operations. they include a cooperation with securitas on future surveillance systems and an order received in early 2008 to supply physical protection for the ringhals nuclear power plant.

saab’s position in naval systems was strengthened through the royal australian navy’s orders for a combat management system for its new amphibious class of ships and for the maintenance and upgrade of its anZac frigates.

several orders from the swedish Defence materiel administration for system support for operations and maintenance illustrate the growing importance of longterm industrial cooperations between the public and private sectors.

in an effort to concentrate its operations, saab announced in the last quarter of 2007 that it is considering a sale of saab space.

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several strategic orders were received for the Giraffe and artHur systems, some in new markets, underscoring the importance of the acquisition of saab microwave.

the acquisition of seaeye Holdings Ltd strengthens saab’s product portfolio in underwater vehicles and gives it access to the civil market.

the swedish air force ordered an upgrade of its Gripen aircraft as well as a demonstrator program. this important order ensures the Gripen system’s future development.

several important tender requests were received for Gripen.

saab consolidated its position as a partner to the commercial aircraft manufacturers airbus and boeing with orders for structural components and subsystems for new aircraft models.

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• strateGic cHaLLenGes sell products directly to customers or as part of a saab solution invest in increased market penetration

maintain competitiveness techno

logically and in terms of price

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Saab has unique competence in aeronautics, making Sweden one of a handful of countries in the world that can develop and produce advanced fighter aircraft.

Saab’s aeronautics operations are dominated by the Gripen program. In civil operations, Saab serves as a supplier of aerostructures and subsystems to Airbus and Boeing, but it has also developed and manufactured more than 500 Saab 340 and Saab 2000 commercial aircraft currently in service around the world.

Gripen, the world’s most modern fighter aircraft in operational service, is currently used in Sweden and NATO members the Czech Republic and Hungary. Deliveries to South Africa begin in 2008. The program includes significant sales of modifications, training and maintenance.

In 2007, the Swedish defence ordered an upgrade of 31 Swedish Gripen aircraft to the latest standard. The contract also comprises a demonstrator program for Gripen’s future development. Included in the demonstrator program are a new, stronger engine, new radar and the capability of carrying more payload and fuel. The order is of major importance to Gripen’s long- term development and will keep the system competitive for years to come.

Export potential is high, and Saab is working aggressively in a number of markets to win new contracts. In 2007, the government of Thailand decided to begin negotiations with Sweden on a comprehensive defence package that includes Gripen. The sale was approved by the Swedish government in early 2008 and a contract was signed in February. In addition, campaign work is under way in several countries where calls for tenders are expected in 2008.

Saab’s world-leading competence in aeronautics is built and maintained through development projects, in-house research and international cooperations. For example, it has chief responsibility for key subsystems in the Neuron program, a European project to develop technology for an unmanned combat aerial vehicle and next-generation fighter aircraft.

As a supplier of subsystems, Saab utilizes its expertise to develop complex structural units and subsystems for commercial and military aircraft manufacturers. For example, it has developed the mid and outer wing leading edge for the Airbus A380 superjumbo and avionics equipment and the crew entrance door for the A400M.

With its unique expertise in aeronautics, sensors and systems integration, Saab is a leader in the development of unmanned aerial vehicles. Successful flights have been conducted by the SHARC and FILUR technical demonstrators as well as the unmanned helicopter Skeldar.

Investments in the development and export of Gripen

Further investments in Gripen’s development have already been approved and will remain a priority. This is vital in order to maintain cutting-edge aeronautics competence and for the Gripen export orders now being discussed. A leading position in aeronautics is of major strategic importance to Saab as a group. Among other benefits, long-term customer relationships create opportunities for sales by other parts of the Group.

Secure a position in the UAV market Saab has been investing in the development of UAVs for a number of years. The challenge at this point is to ensure that the products become established in the market now taking shape.

aeronautics the Gripen fighter

unmanned aerial vehicles (uavs) supplier to international aeronautics programs

Leasing of regional aircraft

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strateGic cHaLLenGes investments in the development and export of Gripen

secure a position in the uav market

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Global defence spending is estimated at approximately USD 1.2 trillion per year, according to SIPRI. In 2006, growth was 3.5 percent (3.4). The main growth driver since the beginning of the decade is the rapidly growing U.S. defence budget. Moving forward, market growth is expected to stabilize at around 1 percent. The largest players in the defence area are Boeing, Lockheed Martin and General Dynamics in the U.S.

and EADS, Thales and BAE Systems in Europe.

The international defence market available to Saab faces growing competition for government resources. Most defence budgets are shrinking as a share of the total economy, though some are growing in absolute terms. To improve cost efficiency and accommodate lower budget allocations, there are expectations of some consolida- tion among defence contractors in both Europe and the U.S.

In most respects, the U.S. will remain the dominant defence market for the foresee- able future. A local presence is necessary to be a major supplier in the U.S. market. For advanced systems such as fighter aircraft, the U.S. market is closed to non-American companies. The Western European market is expected to remain stable in the short

and intermediate term, and countries in Eastern Europe are increasingly expected to purchase defence equipment from suppliers based in EU member states and the U.S.

Further alliances between the Nordic countries will mean that the region as a whole will continue to grow in importance for Saab. However, growth potential for available markets in the Middle East and Asia is considered significantly higher than in Europe and the U.S.

In Sweden, defence authorities are con- centrating on building operational forces for national and international needs. As a result, development work for the Swedish defence industry is being reduced. This was clearly evident in the budget proposal in the fall of 2007. Though it has not yet been voted on, it would mean further cutbacks in the Swedish defence budget with a continued focus on international missions. While this would create new opportunities for Saab, it would also require it to self-finance technological development and international marketing. Over time, Saab expects that stringent demands on cost efficiency will lead to a high level of outsourcing and that lifecycle commitments will grow in importance. Saab has an oppor- tunity to grow in both of these areas.

Among the trends with a long-term impact on the defence market are globalization (with an increased dependence on physical flows of raw materials and energy), the growing scope of international military operations, the need for coordinated international rescue efforts (e.g., in connection with natural disasters) and nascent cooperations on global health and environ- mental issues. The vulnerability of global infrastructure is increasing and, in addition to developments in the defence market, is leading to growing global demand for civil security with strong future potential.

Saab will continue to grow in civil security and anticipates good opportunities in this market.

AN INCREASINGLY

BORDERLESS MARKET

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For the defence industry, this means that a larger share of product development will have to be focused on solutions to handle asymmetrical attacks and natural disasters, to support multilateral military and civilian alliances, and to facilitate maintenance and protection of troops stationed abroad. The ability and know-how to integrate systems will continue to grow in importance. This trend will necessitate a harmonization with international standards and regulations.

Military aviation

The military aviation segment is dominated by manned fighter aircraft, the market for which is estimated at USD 15–17 billion per year in the next decade. Growth is driven by latent demand to replace older generations of fighter aircraft still used in a number of nations.

The largest suppliers are Lockheed Martin, Boeing, the Eurofighter consortium, Dassault Aviation, the Russian aviation industry and Saab. Saab’s market share is 5–10 percent, including the U.S. market, which is not open to non-American suppliers.

Sweden’s order to upgrade 31 Swedish Gripen aircraft to international standards is of major importance to Saab. The order facilitates efficiency improvements in the armed forces, while at the same time strengthening Gripen’s export potential.

The contract also includes a demonstrator program for Gripen’s future development, coordinated with the current European alliance that is developing technology for an unmanned combat aerial vehicle, Neuron.

The market for unmanned aerial vehicles is still at an early stage of development.

Initially, military applications are expected to dominate the market. Eventually, however, the market will grow to include civil applications, and Saab is well-positioned.

By 2015, the global market for UAV’s is estimated at over USD 4 billion.

Market for military land-based and naval operations

Military land-based operations have grown in importance for customers. The international trend is clearly toward greater participation in multinational missions outside the home country. Land forces are the basis of this capability. The complexity of today’s conflicts, the multinational element and the growing need to act in urban environments require new strategies, new technology and new materiel systems adapted to these demands. In particular, more emphasis is being placed on cooperations between different types of forces and different countries’ forces.

DEFENCE EXPENDITURES 2006

usD biLLion source: sipri

usa 529

uK 59

france 53

china ~49

japan 44

Germany 37

russia ~35

italy 30

saudi arabia 29

india 24

Total, 10 leading countries ~889 TOTAL, GLOBAL MARKET ~1,158

saab on tHe GLobaL marKet

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are increasingly becoming a multinational effort. The Middle East and Southeast Asia are growing more active with a greater willingness to invest.

Saab’s product portfolio includes weapon systems, sensors, signature management, vehicle protection, radar systems, electronic warfare and combat management systems.

Saab also offers interdisciplinary capabilities in systems integration, training, service and support.

The naval segment is dominated by systems for military vessels, where Saab’s offering comprises sensor, weapon, communication and combat management systems with accompanying services such as training, maintenance and simulation. Total market potential (vessels and system) is estimated at USD 45–55 billion per year, with the U.S.

accounting for approximately 25 percent.

The largest competitors in this market are Thales, EADS, Atlas Elektronik, BAE Systems, MBDA, Boeing and Selex. In the naval segment, Saab is a relatively small player in the global market.

Customers primarily include naval forces and coast guards. The trend is toward larger industrial commitments to overall systems, where integration and lifecycle services are becoming important components. Discus- sions on public-private cooperations are under way throughout the market segment, and there are attractive opportunities in Australia, South Africa and the Nordic region.

There is a growing interest in Ocean Patrol Vessels, which carry small crews and where sensors and command and control systems are given priority over advanced weapon systems. There is a growing desire to be able to act far from home base – for example, in the case of complex landing ships. The Royal Australian Navy’s order for two Landing Helicopter Dock ships, where Saab has a systems integration role, provides opportunities for future contracts and strengthens Saab’s position with regard to major commitments.

domains. The market’s size, excluding the U.S., is estimated at USD 8–12 billion and is growing by more than USD 1 billion per year. Growth in the defence area is driven by demand from several nations to upgrade existing systems for greater interoper- ability and over time to net-centric defence systems.

The largest suppliers are General Dynamics, Raytheon, Thales, BAE Systems and Thales- RaytheonSystems. New players in the IT and telecommunication market such as IBM and Logica CMG are positioning themselves in this segment. Saab has a dominant position in Sweden, a strong position in Australia and Denmark and is growing in South Africa and Finland.

The available market for air-based surveillance is estimated at 6–8 systems per year in the next decade. In this area, customers are increasingly demanding systems that can provide surveillance for air and sea as well as land. This increases the areas of applica- tion, both civil and military.

net-centric systems that several nations are planning.

Training market

Security solutions are becoming more complex and sophisticated and thereby creating demand to integrate training as a natural part of a total solution. Here Saab has an advantage compared with tradi- tional companies by being able to integrate training into its offering, though also through partnerships with other suppliers.

This, coupled with a growing trend among defence authorities to consider outsourcing their entire training operations through full-service commitments, makes for a bright future for Saab in the training sector.

Saab’s offering comprises civil and military training for land, air, sea and command and control systems for the individual soldier all the way up to tactical and operational training at the highest level. By combining products in laser-based and computer-based training (CBT) with extensive services, Saab can offer the market a complete, broad-based training portfolio.

SAABS OFFER

saab serves the global market with worldleading products, services and solutions ranging from military defence to civil security. saab has operations and employees on all continents and constantly develops, adopts and improves new technology to meet customers’ changing needs.