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.