Saab AB (publ)

Good morning everyone and welcome to Saab's first quarter 2024 earnings presentation. With me here today in the studio I have the company's president and CEO Michael Johansson and chief financial officer Christian Luiga. Before we start to the presentation, I would like to highlight that you can find this material on the Investor Relations section of the website. And we will, as usual, follow on with a Q&A and take your great questions in that session. Be reminded that you can also send your questions live directly through the webcast to me. I would like to now turn to you, Michael.

Thank you Mariton and good morning everyone and thanks for joining this call for the Q1 report 2024. Let's start by looking at a few highlights of this quarter. In summary this has been a strong quarter with high interest in the market and big demand. And you can see that in the order intake that is almost 18.5 billion. We also have been managing to grow the business as you will see later on 24% during the quarter. Which is about high activity in our projects of course and we are progressing well with the capacity increases that we are doing. We have employed more than 700 people net up this quarter and our investments in new infrastructure capacity is progressing well as also of course. Lots of things are happening around us and in EU for example we've seen during the last few weeks now it's been a new European Defense Industry Strategy table and also a plan to set up a fund called EDIP, European Defense Investment Plan, which will incentivize collaboration in Europe between countries and also companies, of course, to do common acquisitions, but also to develop things together. That will be really important to increase the capabilities and deterrence in Europe. And now, finally, eventually, Sweden is part of NATO, and that is, of course, initiating a number of activities in terms of how that affects the company, many forums that we can take part in now to look at future capabilities that NATO will be needing we're looking for the capability targets which is about what is the nordic countries going to manage in terms of the baltic sea the arctic perspective the the surveillance perspective in the nordic region and that will also going to affect us as a company going forward and we have also received contracts from the acquisition authority and spa within nate already on the support weapons side and the missile side We have had a couple of really important deliveries, many of course, but a couple that I would like to highlight is a delivery to Poland when it comes to an airborne early warning aircraft based on the Saab 340 turboprop aircraft already there. We contracted that last year in July and we have already delivered the first aircraft and soon we will deliver the second aircraft. But we have also early in April delivered the Ford Global I to UAE very important delivery so now we have delivered four aircrafts within four years time which is really excellent and so many good things are happening within the company as highlights so number wise then we as i said we increased our order intake with nine percent year and year quarter to quarter which shows that we have a great portfolio in the marketplace the demand is really high and we are growing the medium-sized and small orders more And of course that depends on sort of what larger orders we are negotiating, but this is a really good trend and a good foundation for the company. So the order backlog is also growing of course now, which creates also a good foundation for continuous growth. excellent organic growth of 24% based of course about on that we are capable of delivering things from our backlog and we increase our pace in the organization high project activity good material inflow and also an effect of that we are progressing well when it comes to capacity increases both when it comes to employees coming into the company but also What we do to increase efficiency and also new infrastructures, facilities, parallel production lines and things like that to be able to get sort of more out of the company continuously. We are continuing to increase our profitability levels more than our revenue growth, which is really important to us. And as you can see on the cash flow side, this is a quarter where we have been investing quite a lot. And then we have fluctuations between the quarters in Saab, as you know, when it comes to milestone payments. So this is nothing unusual. We're still confident that we will deliver positive cash flow for the full year. But we've said that during this year, next year, we will be a little bit front loaded when it comes to investments. And we have to do that to be able to grow the company long term. Orders, if we zoom in a bit on orders, we have had a number of really important ones. We had an order from Canada on the RBS 70, 1.7 billion roughly, and we also had a support contract for Global Eye in UAE. similar size. We got four new Gripen fighters for Hungary, which is really great for that organization and that has already driven sort of the sales growth in aeronautics. We have done a fantastic breakthrough when it comes to electronic warfare together with Airbus Defense for the Eurofighters in Germany. where we will equip them with really sophisticated electronic warfare capabilities, 15 of these Eurofighters, and there is more potential of course in that, so that's why I say it's a breakthrough. And as I mentioned, a couple of very important contracts when it comes to the NATO's acquisition organization on Carl Gustav, but also on RBS 70 has now come into the company. And then we've started the next gen discussion on what do we do, sort of how to complement the Gripen E, maybe with unmanned capability in the concept study with Sweden. And what comes beyond the Gripen E as well, of course, which is many decades to come. But this concept study, which includes demonstrations and things like that, is really important to us, of course, connected to the aeronautics business area. So a large portion of the contracts are of course from international customers and you can see how that is divided in the numbers here. Order backlog has increased 19% so 158 billion now in order backlog. A few highlights then from each business area and CombiTech. As I said, the growth when it comes to revenue in aeronautics has been really good during the quarter, and it's been driven by all programs. Sweden and Brazil, of course, has really high activity in those Gripeni programs. but also the Hungarian program now with the four new gripping fighters added to this growth in the quarter and that drives an improved profitability in aeronautics but still we have under absorption in the facility in West Lafayette Indiana And we have production ongoing, but we don't have full rate production going yet. So that will still be the case for a while. But that will be a good program in the end. But it's good to see that the Gripen programs now is driving an improved profitability in aeronautics. We have a few campaigns going as we talk about a lot and the main ones that I see right now apart from the next batch in Brazil is of course Thailand and who needs to replace their F-16 wing. We have Gripen's in Thailand and now they're looking at the other sort of they have a mixed fleet so they will need to replace the F-16s in Thailand. And that process is now ongoing and also Philippines are in the process of creating a stronger air force and that is an important campaign to us. And in Latin America we are working Colombia as you know. So those are a few of the campaigns we are putting effort into. Dynamics is not a business area that grows a lot this quarter, and that is mainly related to fluctuations in deliveries, specifically from ground combat. That will change in quarter two and three, definitely with more output. The training and simulation business is very strong in Dynamics this quarter and continuing to be strong because of all the troops that needs to be trained now. when defense exercises and defense boosting in many countries requires training, and we run complete training centers in many countries, and that's why this is growing. We have as you've seen maybe started now to build a manufacturing capability in India and that is ongoing as we speak and we will have output from that next year. And now we are quite sort of soon going to select the state in US where we will also build. a new facility for ground support weapon and ground launch small diameter bomb to manufacture that in the US. But we haven't selected the state yet. We have, as you know, signed a big contract in Poland that we expect to come into effect now in Q2 when the financing part of that contract has been settled. And I look forward to kick that off as well, of course. In surveillance, also good order intake and good growth. It's a huge interest in all the sensor capabilities and electronic warfare, as I mentioned, in Germany for the Eurofighter, but also on the ground-based radar side. And the factory is sort of stepping up and producing more radars, which is really important for this growth. And I would say that the improvements when it comes to profitability is driven by scale effects and very important delivery, as I mentioned on the Bornella warning to Poland and UAE. So surveillance is also performing well in this quarter and also big demand in the market, of course. On the naval side, we also have great growth. This is a mixed thing that is important to us between surface vessels, support contracts, upgrade contracts and how much is international and how much is Swedish. The mix right now is giving us a good growth and also a good increase in profitability. And it's interesting now to see that we have now started the next gen corvette type of ships for Sweden called the Luleå class. And that is the design phase we're talking about and that will of course continue to give us growth in the naval business years to come now. And then, as you know, we moved the underwater capabilities from Dynamics to Saab Cockrums because there is synergy effects between what we do unmanned, autonomous, between what we do in Saab Cockrums and also what we have in this underwater business that used to be part of Dynamics. and this will create sort of synergy effects on R&D but also in the portfolio management and in the marketplace what we offer for example to manage surveillance of infrastructure at the bottom of the sea but also unmanned capabilities underwater but also on the surface of the water so that is a good move and the initiatives have started Finally, Combutech. Big demand in the defense and security area, both when it comes to the total defense perspective, but also the military defense and helping authorities. So we have extended the framework agreement with the Swedish FMV to support some equipments that we have been supporting them with for a long time. And now we've extended that for two years. And then we also have other contracts with the Swedish Civil Aviation Administration on the total defense perspective and an important one will also conspire on the for in integrated logistics support so combatech is doing well in growing business with authorities and also industries going forward and we see a good margin level and we also see a good growth in the combatech business and all that is of course related to How many employees can we get into that organization and what efficiency can you get from the contracting with different customers? And this business is doing really well now. A little bit of a deep dive into an interesting initiative that we did actually this week, but I want to highlight the innovation activities that we are doing within Solve. We have in different sites in Sweden, but also this one is in the US. where we acquired Crowd AI, a smallish company with expertise in artificial intelligence. And now around that, we are building an innovation hub, I would call it, called Scapa. and that will be about naval autonomy so we have moved one of our combat boat 90s and made that autonomous with software and with different sensors and now we are creating use cases and working with customers to to create the capability around that and so they will focus on the maritime domain but much will be about ai and cloud technology and how that can be also spread to other areas within saab we opened a new facility in san diego just this week and there has been significant interest from research institutions and customers and potential partners to work with us on this And this is why I mentioned this, because this is a good example of where you actually build demonstrators, that you actually use what you have in-house, but you add new technology to them to create new capabilities for the future. So this is really something I look forward to, to grow in our company, embracing new technology. So it's been a great launch this week. When it comes to sustainability, a big focus area for us, we updated our strategy last year and for 11 areas now we have short, medium and long-term targets and we have all the initiatives going now to meet our objectives in these areas. It's not only about environment, it's about anti-corruption, it's about diversity, it's about technology development and so many more things. So I just want to underline how this is important to us and we want to be an industry leader in our business segment in this area. So we're putting a lot of effort into it. And then we have been rated on the A-list when it comes to the carbon disclosure program, which is a good step forward and that just proves that we have a good leadership and transparency and we're doing well in this area. Then we have fluctuations, we have decreased our emissions since we started this and with the base year 2020 with 23% and we've said we're going to be 42% down 2030 but some years and some quarters depending on how cold it's been and how much we have been flying with our test aircrafts and both on the globalized side but also on the gripping side it might fluctuate but all in all we are having a trend that going in the right direction but some quarters will be up but some another quarters will be down that's how it will be going forward but we're still confident that we will reach the 42 percent target 2030. and then we are upgrading our growth outlook for this year a few percentages to 15 to 20 percent and that is because we have better visibility now in how we can execute our backlog And we've seen good signs how capacity is increasing in the organization, both when it comes to infrastructure, as I said, and how we manufacture things, but also when it comes to how many employees we can actually get into our operations. And that's been also done really well in this quarter. So we will grow more, somewhere between 15 and 20% this year, which is really pleasing me to see that we're increasing the pace in the organization. Finally, you recognize priorities and of course they don't change every quarter our priorities and I just want to sort of give a view of that how important EU and NATO initiatives will be that we allocate and spend effort into getting into these programs, into these collaboration programs. and that we spend effort also catching now NATO opportunities going forward. I think Europe is getting its act together, spending more money together also, including member states, of course, separately. So there is more money being spent over the next 10 years in Europe. The last forecast I saw from January 23 to January 24, the projection for the next 10 years increased with 500 billion US. So there will be lots of growth going forward in this region. Then of course we have to deliver and I'm pleased to see that this quarter has shown that, that we are delivering on our commitments with our customers. That will give us, that's the best way of selling things. that you show that you meet your commitments and that is about increasing capacity of course but then you will also get new contracts and there is a strong demand out there and we need to catch that of course. continue to focus on capacity and production ramp up which has now been progressing really well but it will be as important going forward and including onboarding all our new employees which i'm happy to see that they will joining saab and we are an attractive company today but we also have excellent employees already in the company that we also need to make sure that they remain in the company and that they have energy to help us grow this company. And they need also upskilling, of course, to some extent. R&D is not only about capacity. This is about future technologies. And that's why I mentioned this initiative SCAPA in the US. We have many more things like that, embracing new technologies, connecting to cloud technology, AI, autonomous systems working together with manned systems. So lots of things are happening in that area as well. And I need to underline that it's not only us growing. We have to make sure that we have an ecosystem of companies joining us in this growth. So there are sort of weak links which we have to manage. We have to create redundancy. We have to make sure that they can afford to invest to come with us growing. So the focus on supply chain and how we manage that and mitigating any risk in that, which we've done really well so far, needs to continue. So these are our priorities to name a few going forward. With that, I will hand over with an excellent picture in the background to our CFO, Christian Luiga.

Thank you, Michael. I have my own one today. It's great to be here today. I love to have this fantastic picture behind. here that as Michael said illustrates our platform and our actually excellence that we have done in the past with our future technology and also the international expansion going to San Diego. We have a very strong momentum right now. Saab teams around the world are working very hard to deliver and bring up capacity and we do that well. We continue to report a margin improvement and we have a very strong financial position. So that's my summary in essence. If we then step into the order and momentum that we have, we see in this quarter it is orders to the international market that brings up the percentage, which is something we love and like. We are a company that will have an international expansion that is important. not least in Europe, which we also see the result of right now. The increase of order backlog of 19% is good and the 24% for the rest of the year is also comforting and give us actually less order to sales that is needed to deliver within our forecast. But what is also very, I'm very happy to see is that we have 50 billion already in the box for next year for that year's sales, which gives a comforting start now for going into 2025. As this is a business, as you also share, that we need to look at over years and it's a long-term business. On the financial summary, the reported and the organic sales growth was very close to each other. And it was 50-50 pretty much between how much was currency and how much was M&A related. The gross margin was quite flat, even though sales increased with 24%. And the main reason for that is that Dynamics grew slower than Aeronautics, Surveillance and Cockums, and Dynamics has the highest margin. So when Dynamics comes back with higher growth during the rest of this year, that will also have a positive impact on the gross margin, as now we see only a gross income increase similar to the sales increase. On the EBIT side, we do have some effects on OPEX, and I'll come back to them. Financial net, negative 182. And here we have around 170 million coming from currency effects in our tender portfolio. So our financial net, of course, which is positive, shouldn't drive a negative financial net from interest, which it doesn't. It has a slight positive, but the negative 170 comes from then the tender portfolio. Very simply put, because I want to explain this. So how does this come out? This is when we have a very close to finalized deal and we do a hedging. And until that is actually closed, we cannot take that into account. to the program as a full hedge, and therefore we need to take the fluctuations in the market every day into our income statement. In case, just to very pragmatic put this out, if we would close this deal on the 1st of April, that loss will actually result in a profit in the project. and vice versa. So this is not something to be scared about, these fluctuations, as long as we sign the tender portfolio, which we only do this on very likely and close to signed deals. Then on the tax rate we have guided around 21 to 23% and we see now that during the last year we have been within that frame and so there's nothing really to report there and because of this 182 negative on financial net the EPS only grows 5% in this quarter. Going into the development of sales and EBIT and EBITDA, sales is continuing up based on the growth we have right now, mainly driven then by aeronautics and COCOMs and surveillance. The growth in the regions are driven by Europe mainly. If we look at our strategic countries, Germany is growing very strong right now. And portfolio in total of Australia, Germany, UK and US is growing only just below 20%, but it will fluctuate also quarter by quarter there in this group. The EBITDA margin is a little bit lower in the last quarter compared to previous, and that is because that depreciation is growing slower than OPEX right now, the rest of the OPEX portfolio. And in the OPEX portfolio, what is increasing in this quarter? Well, there's three things that rise in this quarter. One is HR. And I would like to just emphasize that HR increases comes from the recruitment, not from having people on board. So as long as we recruit a lot of people, we will need to put effort on both recruiting and onboarding. As long as they are on board, it's not a higher cost to drive the HR in itself. IT, we are doing the transformation like many others, and that is costing money, but it is also fluctuating quarter by quarter. and then we have consolidated in some minorities that we have acquired therefore they have moved in the income statement up to EBIT and therefore it looks like we have a higher OPEX but the income statement in itself is not that much worse it's actually better but it goes from the line minority up to OPEX So it explains a bit on how the OPEX changes. In essence, I would say this is not a trend for the medium term, rather an impact now in quarter one. And for the year, I don't feel that we have that risk on the scale effects on OPEX. A little bit, this is a new picture we have added to make sure we actually have also the data we have in our quarter report available in our presentation. I want to just point out a couple of things on this one. First is dynamics, which maybe is a surprise for some people, but not for us. and there was a lot of trucks going out from dynamics in in quarter two in april we are in april right now and that therefore we know that from quarter two and forward we will have a higher delivery out of dynamics and dynamics is reporting their revenue recognition more on deliveries than on poc and the other units are reporting more on POC. So that's why it becomes a little bit more fluctuating and therefore we'll see very high numbers and maybe one quarter it will be a little bit lower and this one is a little bit lower. So we feel extremely comfortable that that sales growth will come back already in quarter two. And with that, of course, the margin will also come up in Dynamics, and that will also, the share of sales and the increased margin will also support the group. The other thing I want to point out is COCOMS, where we reported last year a bit higher numbers, and we talked about the 8-10% target, which we have on COCOMS, that they should be on operating margin in that level over time. but they could be higher if they have a good impact and right now they have still a good impact from the surface ship side and the international side but we have added a underwater business that as you understand then is negative in the numbers because you have seen how we have restated this That underwater business is negative in the quarter, but we have a very clear plan, and we see that it's actually going to happen, that we move out of the negative territory in the end of this year and into next year. So it's a very clear path there. I just want to also then emphasize that that means that we will move back into the 8 to 10 operating margin region, which we have said that Cockhams could perform in. where surfing ships and international drives higher margin and submarines is a bit bit lower in total uh also i want to add to to cocoons but give them a little bit credited on this this combat boat 90. it's been a tough business for cockhams for a couple years but now with new orders uh they have have actually uh the excellent team up there in doxta has has uh moved into positive territory and we have a good backlog so it will be a Hard work and fun only up there for the coming years. On the cash flow and investments, this quarter should be seen as something that can happen in the line of business we are in, in defence. The working capital is quite negative in this quarter. and it could be quite positive. There is a couple of things that drives that. The first thing is that if you ship out less from Dynamics, the trucks don't come because they go out in April instead, then the invoicing wall, that maximum up speed of growth will be in April and then it will come a month later. So actually delivery pace in Dynamics is driving a higher impact on the inventory. Then we also have the customer payments that could shift between quarters. Last year in quarter one, we had from our customer programs payments in quarter one. And in this year, we will have them in other quarters. So that's not something that is strange that happens in this line of business. And therefore, we feel quite comfortable with this negative 2 billion without actually compromising on our view of the full year guidance of positive cash flow. And then in general, what happens here, which is actually a positive thing, and this is what we have said, can we build capacity faster? This will help us to actually drive growth. So therefore, we actually think it's quite good that the the investments are moving from 0.5 to 1.0 billion and that i also can say with better comfort today because as we explained last year we have much more granular follow-up and and we have much more control or of our investment process in sob and therefore we also keep track on that we are really doing what we need to do to bring capacity and nothing else Finally, we have also added the return on capital, which is increasing and which I think is also something that is positive, hopefully for the shareholders, at least it is for me. This is one of the more important thing over time that we return on capital for our shareholders. Solid balance sheet, as we talked about. The net debt to EBITDA is strong. It's negative, and so it's a net positive. And we continue to have a strong balance sheet when it comes to cash and short-term investments. We did pay out the first half of the 6.4 krona dividend that we announced at the shareholders meeting in April. And the second half will be paid out in October. In between, we will make a share split of one to four. So on the four shares, you will get 80 öre or 0.8 Swedish krona compared to the then 320 on one share before. So it's just math to get there. And so all money will be paid out, but there will be a split in between. So I just want to highlight that for your information. Finally, we have then a new outlook when it comes to our sales growth. We have then increased that from 12 to 16 to 15 to 20. And technically, you could also say then that we have moved the floor from 12 to 15%. We have a bit of a challenge, but that we also have had all the time to figure out how fast can we grow. And so the range now of 15 to 20% is within the range we believe we have a great potential for. And the reason why it could be in the lower or upper end of this, as we've always said, is really the capacity and delivery pace that we can make out of this company, which so far, knock on wood, has been very good. We do not change our view on operating income. Therefore, the higher than organic sales growth on operating income stands. That means it's going to be above whatever 15% to 20% mark we reach, and we will deliver positive operational cash flow is our best estimate. With that, I leave back to you, Merton.

Thank you very much, Christian. And now we have the time to tune into our Q&A session. So if you haven't done that yet, you can do that on the links that we provided you in the report and press release this morning. So if we have a moderator, I'm going to invite that person. We do have a couple of guests online already, but I would like to also, as usual, remind you that please take your questions, one or two questions at a time, so we can allow for everyone to come forward with questions. So with that, let's start.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Sam Vargas. CT, please go ahead.

Morning, guys. Thank you for taking my question. Thank you for the colour you've given on dynamics margin. Just so we have a sense for the full year, should we expect margin to be fairly stable versus the pro forma 23 margin, obviously adjusted for the loss of the underwater business? And just a second one on dynamics margin. When we think about training and simulation growing within that business going forward, should we see that as accretive or dilutive to mix? Thank you.

Well, I mean, you can comment, Christian, but I mean, on the dynamic side, on the top line side, we said, as I tried to say, alluding to that there will be, and you said even trucks leaving the facilities. And that's true. I mean, the next quarters will be much more of delivery output, so that will drive volume. and there will be good margins there exactly what number i won't sort of guide you on but it will be good numbers on the on the on the bottom line as well and when it comes to training and simulation they they actually add very well to net margin on on dynamics because that's profitable business so if that grows dynamics grows as well so that's another portion of dynamics include If you look at ground combat, that is a good growth machine and good profitability machine. But training is similar. So that is good if training is growing. That's how much I can say.

Well, we did say, so I can reiterate that, is that and that it was before and the same conclusion after underwater has been moved, that if there is any potential to the margin in dynamics, it's upwards as we grow. We said that at the quarter four report. So we can restate that very clearly today. Nothing has changed. the potential when they grow now into quarter two to quarter four is that the full year numbers actually rather can go up a bit great thank you my next question is from henrik hinze abg sandal collier please go ahead good morning

So you mentioned as a reason for raising your full year guidance, there are better visibility on deliveries and timing of capacity increases. I'm just wondering if you could expand a bit on what has changed there and what makes you more confident now?

Well, I would say that you can start in the end of saying that if you add people, you can actually increase pace in your programs, which is absolutely necessary in some programs. And since some of them are POC programs that will give you more growth and output. But then, of course, there's the capacity parts, which is related to how we work shifts and add more automation into the production of the volume parts of SOB, like ground combat and things like that. And that increases, of course, output. All the initiatives we're taking on that side, adding equipment into production. All the facilities that we also are investing in, both in Linköping and Karlskoga, are of course not up and running all of them yet. But this is not sort of a one stepwise thing. There will be more coming, of course, when we get those facilities in play as well. But other things are happening in production. Those are examples of things that creates growth, but also included is, of course, how well we can forecast the material flow and how much we have in stock to be sure that we can build and integrate our systems. and we have better visibility and have been managing the supply chain in a way that we can now forecast growth in a more optimistic view than we could for a quarter ago, actually. So those are a few examples.

I just want to reiterate, because it is more complex than just thinking that when the building is done, everything is going to go. So it is people, it is capacity uplift, it is supply chain, it's dependency on partners. And just take an example, if you start a year and they say, well, will the production be up running in August or will it be in October? Well, that depends on the machine that comes in April and they could take three weeks to test that machine or they could take eight weeks to test that machine, depending on how well it works out in that testing before we can get going on putting carbon fiber or whatever in that line. And then it made me work out to be three weeks instead of eight weeks. And that is a simple, small thing that is everyday life for people out there in this capacity uplift. They have to remember it's an enormous capacity uplift we're doing right now.

All these things come together and mean better visibility in the end and better sort of planning how to get things out of the house. So, yeah, that's a number of things.

Great, thank you.

The next question from Björn Ennarsson, Danske Bank. Please go ahead.

Thank you. I have a question on aeronautics. We have previously talked a lot about the civil business and the new contracts and also the T7 development. As I've understood it, they are both weighing on the margins or actually at loss as we speak. Could you update us again on how you expect those segments to develop and when to start contributing to profitability? And when up and running, are they positive versus divisional margins or dilutive? Thank you.

Well I would say that we have production as you know ongoing if we start with T7 West Lafayette we call that low rate initial production that will probably be the case also through the end of next year I would say so I would sort of look at 26 from getting into profitable numbers and that would add to the division margin and I would say the same we are improving continuously within their structures business so it's less loss but we still have a year to go roughly before we are out of the contracts that we have now renegotiated to be something more profitable that will come into play correct me if I'm wrong next year quarter four next year exactly so that's how it looks like

So one is not dependent on something else. We already have the contracts and the loss is less in the civil business than in T7. And T7 is more to move in this production, which is still a bit uncertain, but it looks very promising and to early 2026.

It will gradually improve under absorption during next year, but I think forecasting it, it's probably positive from the end of next year.

Correct. Perfect, very clear. And then, I mean, you talked a lot about capacity and investments, both in people and plants. With the plans that you have and given the market demand is where it is, is it to get a sense on for how long you can basically grow at around these levels as you are growing this year in the years to come. Forever.

Yeah, I mean, you know, the outlook that we have given, I mean, is 15% average until, I mean, in the timeframe up until 27. And that's still our view. We reiterate that. And what we do in capacity-wise supports that, of course. Then we will see, I mean, the demand is high in the marketplace and of course it's about lead times also. You continue to get sort of the orders, the contracts, and then you need to sort of squeeze the lead times and the capacity is a lot about that. And that's about the growth as well, of course, but it supports the 50% average. And we're fighting to do as quickly as possible to, of course, to do that in a good way. And as you know we are now soon selecting a state in the US also to build a facility to do these things, to have redundancy between Sweden, India and US. And that will be excellent going forward and that hopefully will drive also the demand in those markets because it's sovereign capability that US and India will get. That's as much as I can say.

The interesting strategic sort of conflict here is not a conflict, but in nature, it's harder to see going out three to five years how the market will be for us. We need to do what we can on a technology shift and be as good as we are today in our position on the market. In the same time, we are actually learning, as every year goes, on how to grow. which is also something to bring in and for so we will be better in in growing in two years time than we are today and we are better than we were two years ago so that that's also something to put into account thank you and on the same topic if i may one more question it is this discussion in europe and and not the least in in sweden on

supporting the industry in terms of capacity built out? Has there been a discussion of guarantees or the certain demand or perhaps also instead of that, some financial help for building out capacity? Are there anything that you could add to that? I mean, the political will is clearly there, but what is something happening that is more tangible?

Still discussions, but you're right. I mean, if you want to take bigger steps, we're taking big steps. We're investing heavily, looking at sort of the business case, the forecast. But if you really want to realize that and set this sort of the target level of where you have to be when it comes to deterrence and stockpiles and what areas you have to have production capacity in and critical mass and all that. Those things are not really settled in many countries. We have a report coming out today from the Defense Committee that will turn into a proposition in the fall, which will sort of decide the level or where we need to go in the next few years and that probably will be a reiteration because of the nato now integration and what capability targets we will get from nato but i i i must say that if you want to go further to really do big investments we need to know as companies and industries that we will not have to sort of go below a critical mass again dismantling things let too many people go and all that so we have some security in the 10-15 year time period so to say and then we can take the bigger investments and hopefully we'll get sort of european investment bank to say we can and they can invest in in defense as well which will bring with them lots of big funds like pension funds these things needs to happen i think but of course we're growing a lot today but you have to set where is the target we have to realize that we have this aggressive neighbor to the east for decades to come and it's going to be interesting to see these things then you need long-term commitment that's a risk sharing model i can take risk on the global market so to say But I need to know that we need sort of to keep certain areas of capacity in stockpiles so we can sustain a higher level of capacity. Then you need long-term commitments beyond mandate periods, which politicians are looking at.

Thank you. And let's get back to the Defense Committee. I think they have their press conference as we speak. Yeah. Thank you.

The next question is from Sash Tusa, Agency Partners. Please go ahead. Thank you.

Good morning. I've got two slightly detailed questions. The first is on the FX impact on your tender portfolio. And I just wondered whether you could give some color on the sort of period that you are exposed. Are we talking about weeks or months in terms of individual tenders here? And then my second question is on stocks. You were very early in the current upturn to start building your stocks up, I think particularly for Dynamics. I just wondered whether you still had the same level of stocks proportionately for your business, or have you actually eaten into your stockpiles? And would it be harder to rebuild thereafter?

Well, if we take the detailed question on FX, it depends not so much on if it's a week or a month, it depends on how certain we are that this will probably close. So we could be very certain that this will close, but it needs an approval from some kind of authority that we know will happen most likely, and therefore we can take a risk on that, but it's still not signed. So if that is two months away or one week away, That depends sort of on the highly probability rather. Secondly, on the stockpile, we have high stock level today, period. And on an average, we do have a high stock level. So we are quite fully filled in our barns, as I usually say. Then, of course, on specific things that we have issues with, as we have said, we have issues every day on different things. But on average, we have a very full stockpile today.

Thank you very much.

Next question from Aymeric Poulin, Capital Chevro. Please go ahead.

Yes, good morning. Thank you for taking my question. I've got three, if I may. The first is on aeronautics and perhaps could you give a bit more detail on the contribution of the Gripen and the recent R&D contract with Sweden and how sustainable the current momentum is for this division? I think you gave already some color on the T7 and and the civil activities, but just to get a sense of the new momentum we're starting to see at this division. The second question is on the Swedish performance. You reported 5% growth. I think inflation in Sweden is around 4%, so that would mean 1% real growth. Just curious about what it means, especially given the kind of budget that the country has. Should we expect a massive catch-up later in the year? What would be the normalized rate of growth for Sweden? That is my question. And last, on the margin performance, 40 pips, which I think was expected, there's a lot of moving parts, obviously, but would you be able to give an idea of the impact of the various effects, whether it's OPEX leverage, mix, inflation on the cost side or the self-inflicted investment cost effect. Thank you.

I'll try to take the two last questions, and I'll leave Michael to aeronautics and sustainability, but I'm not sure I will answer your questions properly, but I'll try. So on the 5% growth in a quarter, it really doesn't mean anything for us that Sweden only grew 5% in quarter one. you have to look more on a 12-month, maybe 18-month rolling perspective when you look at Saab's sales numbers. And therefore, in the same way I said that our strategic countries was actually slightly below 20% this quarter, that's not something to worry about. They were 54% last quarter. So you need to add this together. And I think that that strategic country growth illustrates also how Swedish growth could be one quarter more and one quarter less, depending on what is delivered and what we are doing

in in the production plant at this moment on poc i'm just going to add a comment on that because i mean if you look at the sort of the strategic update that we did in the beginning of the year, we looked upon the different markets, the important ones to us, and we have a big portion of the Swedish market and we are following the growth, you would say, proportionally. And we are... So it's more important to look at that, that we actually get the same market share of the Swedish market going forward, which is what we've seen. and then the other countries where we have invested building mini sobs as i call it we gain market shares quite a lot from beyond their growth so that's the important trend to look at and that will transfer of course into sales growth going forward yeah

And I'll make a very simple example as usual. If the guys down in Karlskrona is working on the Siget ship for Poland this quarter and next quarter they actually step over and work on the Swedish ships to do support on them, there will be a lot of Swedish sales next quarter and a lot of Polish sales this quarter. So it's very hard to just judge from a quarter on that percentage. And we try to be most efficient in just how we produce things. On the impacts on the currencies and on the inflation, I tried to read in that, of course, we will probably then, our sales growth will be impacted by by the the effect of the the inflation as we have a lot of inflation coverage in our contracts so if inflation goes up we will move that to the customer and therefore if inflation is two percent we will have two percent added on and if it's five percent it will be five percent added on because we have around 80% of our contracts sort of hedged in that sense in our customer contracts. So if that was what you meant, I didn't really understand, but that's the answer to maybe a question.

And the aeronautics side, finally, do you want to sort of follow up on that?

Just to just add, what would be the level of inflation pass-through effect on the top line at the moment?

Well, I'd say we have pretty much around 80% coverage on our contracts. But it doesn't say if we are a little bit better hedged or less hedged sometimes because these indexes are very different. There's not one package that Saab uses. It's actually a different package that customer demands and we negotiate. And we have probably over 150 variants of how the inflation coverage is made between our customers.

Quickly on the aeronautics side, I mean, the gripping programs for Sweden and Brazil will continue, of course, to create momentum in aeronautics. And also, a sustainable important part of our business will be this new concept thing. It's not just sort of paperwork, it's of course simulations, it will be demonstrators be flying and all that. So that will be a sustainable business for years to come. So that's an important addition to aeronautics to sort of create this good trend. The Hungary case, yes, it was sort of a little bit of a peak in quarter one because we had something to recognize as revenue already. And then of course it will be more a normal

development of that program going forward good are you happy with that emiric yeah thank you thank you we have literally less than two minutes left so we and but we have to do have one more question um perhaps two on the line so please let's invite them as well we will answer quickly sorry go ahead

Next question from Tom Greenchart, Pareto Securities.

Please go ahead. Thank you. Two quick ones from me. Can you just provide a split on the working capital changes here for business area and then comment a bit on the supply chain risk that you see moving forward and how you're mitigating them?

Okay, so first of all, which we also wrote a report in aeronautics is more on the payment side from customer where does the Swedish and Brazilian customer pay in which quarter this year. On the inventory side, it is more surveillance, but primarily dynamics because we had lower sales out there for the stuff is still in inventory before the trucks comes and picks it up and makes it the delivery. And the other one was on supply chain.

Supply chain is a mix of things. I mean, you have the larger suppliers of important subsystems that needs to perform, of course, and that is being managed more on a strategic level. And then, of course, you build stocks on things like powder, which we've been successful of doing, and it still looks good. You have some other raw materials, of course, that are important to us. Components looks a bit better now. in terms of supply so that's the one reason we can grow the training and simulation business in a good way but I mean this is something we have to manage all the times and we do have initiatives to make sure that we well we can create redundancy we will where we can maybe in source something we might things like that are happening all the time but When you're growing like we're doing now, 24%, which is fantastic, you have to be sure that you bring with your supply chain. And looking at where we're going this year, 15% to 20%, that's so incredibly important because we have to have them with us. And so far, so good. But I'm just saying we put a lot of effort to making sure that they are also performing as we are. That's all I can say. But it's not sort of one specific weak link that I can point at right now.

All right. With that, Michael, thank you very much. And thanks for listening in to this quarter. Would you like to say anything?

Thanks for listening in and thanks for good questions. And we have a very strong quarter behind us.

Looking good for the year.

Thank you so much.