Saab AB (publ)

Good morning and welcome to Saab's Q2 presentation call. I'm Merton Kaptan, Head of Investor Relations at Saab. So this morning we released our Q2 report and we will go through that today in the normal hour session. We will deep dive into the business side and we'll also deep dive into the financial side. And that's why I have Saab CEO Michael Johansson and Saab CFO Christian Luiga here with me today. After the presentation, about 30 minutes, we'll have a Q&A and take your great questions. And then I will give back the word to Michael for concluding remarks and also present our new CFO. And we'll get back to that. And I think with that, I leave it to you, Michael, to start the presentation.

Thank you so much, Merton. And thank you for joining us this beautiful morning in Stockholm. Let me... Start with some highlights from the quarter. And as you've seen, our order intakes really shows how successful we have been in the marketplace lately. And the demand in our portfolio is actually great. We have really good position with our portfolio. And I see that that demand just continues. And this is the second strongest quarter we've ever had on the order intake side. So that is we are strengthening in our position all the time in the marketplace. We still see a long term demand. I mean, all the projections we've seen on the European market has been on the ten year perspective increasing dramatically. And now also attending the NATO summit last week, seeing how many countries now, 23 out of the 32, supporting the 2% floor target, I would say, when it comes to defense spending and also the NATO alliance, sort of Western support of Ukraine. and how to sort of spend money on that from the member states going forward also adds to that long-term demand I think. So there are fundamentals in the marketplace supporting the long-term demand. That goes for Ukraine as well of course where we have lately seen a package from Sweden 13 billion, including two airborne early warning aircraft that will then have led to a replacement contract for another global eye for us that then expedited also the delivery pace on the existing contract. So that's also a sign of how important the support of Ukraine is, of course, but that adds to the demand as well. for us i must say that the focus on on sort of supporting our deliveries and commitment to our customers i've underlined that before it's so essential going forward and all the initiatives and i will come back to that that we're doing to To increase our capacity and build up capability to support our growth is very much in focus. But then again, as I've said before, we cannot only look at here and now and capacity build up. We need to look at the capabilities needed for the futures. We are continuing to invest heavily in R&D. And that is in areas like how we use AI to digest information, to quickly get to a situation awareness picture for our users. That is really, really important. But also how we work with autonomous systems, both when it comes to counter the threats of the the drone technology that is now in place and swarm technology, but also how to use that in our capabilities going forward. Those are examples of things and partly we have demonstrated new capabilities during this quarter to our customers. So we are relevant also going forward in this. And this is really, really instrumental to us in the next few years to sort of keep up with embracing new technologies to be relevant in the 3, 5, 10 year period to come. And the pace of technology, as you know, is incredible out there. So this is really also important for Saab. looking at the number as such as i said the quarter was really strong when it comes to order intake almost 40 billion and that is a big increase year on year and and also the order intake for the half year almost 60 billion 58.2 is is great and i see the demand is really and the activities in the in the marketplace are really really intensive out there I'm really pleased with the growth, of course, continuing to grow to 22%, 21% organically and continuing with the trend to increase our EBIT more than our sales growth is good. That's what we've said and that's what we need to do. We do have a negative cash flow this quarter and the first half year. And that's not unusual when it comes to our type of business and in our segment. And we have different large payment milestones looking at different quarters over the year. And this year we do have large payment milestones in the third and fourth quarter, which means that we are extremely confident that we will have a positive cash flow also this year, which we've said before. And actually, already the first two weeks of July, we have received large payments. So that is also solidifying my view that I'm confident on that we will deliver a positive cash flow over this year as well. Looking a little bit more in detail on the order intake, a big portion of the order intake, both when it comes to the quarter and when it comes to the half year, is in the international side of things. We do keep our proportion of part of the defence increase, the defence spending in Sweden, but the international orders will grow more. going forward and we see that specifically Europe but also elsewhere is growing a lot and a couple of examples on this is of course that the Dynamics Carl Gustav contract with Poland was solidified this quarter we announced it earlier but we had a few sort of terms and conditions that needed come into place before we could actually recognize that contracts in our books and that's 13 billion Swedish We have received more contracts both within surveillance and dynamics when it comes to Western country that we can't reveal which country that is, but that is within their portfolio. And as I said, the replacement contract for the two airborne and airborne aircraft that will be delivered to Ukraine will be that we now get the third Global Eye and we now work with expediting the whole delivery schedule for the Global Eye to Sweden. We also have received, as a consequence of packages to Ukraine, new contracts on the combat boat 90s. So that part of the organization is really booming now with the continuous production of combat boat 90s. And we have several orders also in the naval domain, composite superstructures and both sensors and EW equipments on frigate ships to certain countries. So it's a really good spread of things over the portfolio, I must say. And it's a record high order backlog that we now have of 183 billion supporting, as Christian will come back to and talk about, the coming growth for the company. Looking at the backlog, I think a few comments on that is quite interesting to look at. We are growing 20%, and while we're doing that, we continue to increase our book-to-bill, which is a good sign of how that supports the long-term guidance and the target we have on 15% CAGR. when it comes to sales growth. And that is really impressive, I think. And the other portion of this is how the backlog has developed over the years when it comes to how it's divided between the Swedish part of that and the international part of that. And I've said that before, we will grow more internationally, but we will keep our position being roughly a third or a little bit more of the Swedish defense spending. And that is what we see here now. So in real numbers, we have increased our backlog with 88% since 21 up to now. And the biggest growth in that is on the international side. and the dynamics surveillance is of course the big driver of this and we're not basing our plans going forward on the mega deals as i've said before even though those will be and we're working hard on the mega deals mega deals being for example gripping contracts or submarine contracts or global eye contracts If they also add, they add on top of what we plan going forward. But it's a solid way forward when it comes to our growth now. Looking at a couple of comments on each business area then. High pace in the programs, of course, in aeronautics when it comes to deliveries for Sweden and Brazil when it comes to the Gripen program. We have better profitability supported a bit by the higher volumes, of course, in the area, but also that we have a slight recovery now in the civil business, which is nice to see. It's something we have been battling with for a while, which we call the air structures business. But we're getting better and better now when we're getting on the right side soon on the profitability level there. uh we still have sort of an under absorption when it comes to the t7 production the the the training aircraft together with boeing which we are manufacturing in indiana and that is sort of we are in the manufacturing phase but we are in the low rate initial production phase and and there will be some time before we get into the type certificate phase and the milestone c as they call it in the us when the more full-rate production starts. So we have to carry this, but it's a great facility we have there, and we are working, of course, to optimize this as we go along. We have a number of campaigns that is of interest for us, working hard on those, of course. I would like to mention Thailand, which I think is maybe the most imminent one for decision. They intend to take a type selection of which fighter system they're going for. I think it's between us and the US and F-16s. And that is hopefully within a short time frame. And then they will go into a budget sort of discussion over the fall to come to conclusion later this year. We have Colombia that is also in a decision phase, sort of tailing then maybe Thailand on that. And that is, in all countries, those are political decisions. But we have provided a very strong offer also in Colombia. And then we have the Philippines that have just now started or restarted their acquisition process. And they're now looking at more aircraft than earlier. They have taken an acquisition decision memorandum in the parliament. So now we're into that process going forward. And of course, Brazil continuing to invest in Gripen E going forward is important to us. There are a number of initiatives on the Gripen side that we are putting a lot of effort in to also sort of win mega deals going forward. Dynamics have a very strong order intake, of course, record high for them in the quarter, strengthening their backload tremendously. This strong growth that we see in Dynamics quarter to quarter, 37%, is still mainly driven by missile systems and training simulations. They have at least three legs that are really strong, missiles, training and ground combat. So the capacity initiatives, the investments we're doing will still come into play, of course, going forward step by step. But it's very much a growing business and of course the scale from high volume have now resulted in very much increased profitability level also in this part of Saab. So focus on capacity expansion which is generally speaking truly important to Saab of course. Surveillance still also have a good order intake, continuous high market interest, they have an excellent portfolio and will continue to grow of course and have a great interest in the market. The growth has been of course driven by very much a high activity in many businesses. But we do have a mix of things in surveillance that have impacted the margins a bit in terms of a few legacy contracts that we have to sort of handle in the quarter. So we need to manage that and that is of course something that is not something for the future but rather something we have to manage now. And then, of course, they employ a lot of people and that is the onboarding process and takes an effort. So that has affected the margins a bit as well. But surveillance, of course, will be a higher margin business for Saab going forward as well. And then we have had a very important delivery, a second airborne early warning aircraft to Poland. So we have now delivered in a very short time frame two aircrafts to Poland, which I'm really pleased to see that we managed those deliveries with such a short time. Saab Kockums have grown a lot, quarter to quarter, also half year to half year, and that is all about the mix between underwater business and surface business, and how we see the mix of support contracts and production and development contracts. And that, I think, is a mix that I think is good for Saab Cockhams. And they are building that mix going forward for a nice growth and also a good EBIT level, which is nice to see. We had a very important launch of a refurbished and overhauled Söderman 9-class submarine that is now back in the water. And that is also a sign of how capable this organization is now when it comes to submarine business, which is great to see. CombiTech is also carrying on in a good way, growing slightly, 6% quarter to quarter, and increasing the profitability level. There's a high interest in the CombiTech expertise now, especially within the total defense area, where many authorities and also private companies need help, and also the digitalization, where they are strong and in the cybersecurity area. where we run a number of security operation centers and all metrics are going in the right direction for CombiTech. We have divested early in July our Norwegian business that is 30 employees of the thousands that CombiTech employs. The focus is now mainly on Finland and Sweden when it comes to Nordic business. And we have also a new center established in India, not a big one, but to support Saab in India. And also, of course, a couple of other companies from India where we think we will be able to grow that business. So that is a good development, I think, for CombiTech going forward. But the main focus is still, of course, the Nordic business. Digging in a little bit more in the capacity initiatives that we are working with. I think this is really focus for Saab and of course we continue to employ people and as you can see we have a net increase this half year of 1600 people, but we cannot just only continue to employ people to manage our revenue growth. We need to sort of take a step back to look at how can we optimize our production? How can we industrialize things in a more optimized way to sort of support the volumes that we see going forward? And that is the key, I think, to continue to grow Saab going forward. So there is a mix of things happening now. And if you look at aeronautics, we are investing in Linköping in certain things like surface treatment and painting facilities and a couple of other things to support the ramp up of the Gripen production. but also the global eye actually, that production in Linköping. And then the increase of workforce in West Lafayette, Indiana, is important to support the growth of the T7 going forward. Dynamics have many initiatives going, everything from building new facilities in Karlskoga and in Linköping, tube production in Linköping and fuse assembly facility and other assemblies lines in Karlskoga. So there are a lot of construction activities going on in that part of Sweden right now. But not only that, it's of course about optimizing the production through automation. So we have implemented robotics capabilities in parts of the production. And we are also looking at the maybe you need to sort of reindustrialize things to actually, as I said, to optimize the flows in production going forward. Then you have to have redundancy. So we have, as we've talked about before, started the facility development in India. supporting that market, but also the export market. And then we have decided to build a manufacturing capability to support both the ground-launched small-diameter bomb production, but also support weapons production in the US. We haven't officially stated yet exactly which state it is, but we have decided. So that's going to be an imminent sort of communication. And these things will come into play 26 roughly timeframe. So there are a number of things happening to support the growth of dynamics going forward. But also from a surveillance perspective, we've done a lot. We are, of course, expanding in Stockholm. We are relocating to Solna Strand to support that capability. We are implementing and ramping up in the UK to manufacture radar capability in Fairham. And we are also booming our underwater capability in the UK. And we will be inaugurating later a big new site in Australia supporting our naval business in Australia. We are employing a lot in Australia and that business is growing a lot as well. And also in Finland we have another new facility for production of our EW equipment. which is called Sirius Compact, which has been a great success since we implemented or industrialized that innovation, I would say. And on the Kockrum side, we will move our facilities from the engineering perspective to Lund, from Malmö, which will also optimize the engineering capabilities in that side. So there are so many things going on in Saab when it comes to capacity increases and optimizations of ways of working and our flows. And this is really highest on the agenda every day from corporate management to make sure that this comes into play at the right time. This is not without pain points. I wouldn't say that, but generally speaking, this is going really well, I would say. When it comes to sustainability, we had a big breakthrough this year, this quarter, I mean, when it comes to being the first defense company to receive the SBTI's approval for the 2050 long-term emission reduction targets, which we are the first company to establish. So 2050, we will be completely neutral when it comes to all scopes of our sustainability efforts, scope one, two and three. We have taken a decision supported by the annual general meeting to include diversity and inclusion target in the performance plan for senior management, which is really pushing us in the right direction to increase our share of women employees to start with. And that is already showing signs of improvements across the company, which is great to see. That is really important and good for Saab. And looking at how many people we now employ, we put a lot of effort in the really diligent anti-corruption training program that we have. We have a best-in-class program when it comes to anti-corruption and compliance and the code of conduct that is really, really sophisticated and good. And that is so important now that we work with that continuously when we have so many new employees coming in to to the company. And I also want to underline we have taken the decisions to be a leader in sustainability within our business type of segment going forward. So this is something we put a lot of effort in from a SAAR perspective. So finally, from my side, priorities are, of course, obvious from my side, and probably you recognize many of them. So many things are happening within EU and NATO, of course, not at least looking at the summit that I attended last week, there will be Of course, lots of things happening when it comes to establishing regional defenses from NATO. We will receive our capability targets in Sweden and all that, so that's really high on our agenda to support that going forward, and also all the initiatives within EU. The strong demand that we see deliveries, the capacity ramp up that I've talked about is really, really important to us, including also, of course, the onboarding of all our new employees, adding to our excellent existing employees. But not only managing sort of the capacity, as I said, but also continue to have the strength to invest in new technologies and quickly industrialize those to offer something in the marketplace, of course. Then the ways of working and how you work with software development and how you digitalize lots of what we do is also really important to us. to be competitive going forward and to quickly shorten the lead times in what we offer to the marketplace. I haven't said too much about the supply chain risks, of course, that is really, really important. And we monitor, of course, all the and follow strictly all the sanctions which might lead to we have to find new suppliers on certain raw materials, or it will be that our suppliers will have to find new suppliers for raw material. And we have to create redundancy in this. And sometimes we regionalize our supply chain as much as we can. So this is something that we work diligently upon as well. We have a little bit of sort of time to do these things since we carry a little bit more in inventory and in stock so but it's something we have to work with and we are not of course immune to things happening around us when it comes to your political tensions when it with the effects it has on restrictions and supply chains. So lots of good things happening in Saab, lots of focus, fantastic support of our employees to grow this company, and we do great things. And with that, I am really pleased with the quarter, and I by that hand over to Christian to talk a little bit more in detail about the numbers.

Thank you, Michael. And I will give a little bit more about the financial perspective. And on the screen you see now Södermaland in the water. I think it's a fantastic picture of a delivery, but also a great competence we have. and a great submarine, actually. So with that, I just wanted to summarize the quarter, as I always do. What I think about for this quarter, well, it is a strong order intake, as Michael talked about. We also, I would like to emphasize the margin improvement we continue to do, and we also do in quarter two. And then finally, we have a strong financial position. And that will be even looking better in the numbers as we deliver a positive cash flow for the year. So that's my summary of of what I think is important to think about. And if we start on the order side and look at how this new big order intake has over the last 12 months, 100 billion coming in, how has it then populated over the years? And I think this is actually a picture that gives some comfort. The population has been very much over these coming three years and gives us then comfort for how we can deliver also step up in growth. It puts more than emphasize on capacity, as Michael talked about, and not so much about getting orders into the box. it was 82 and 80 on the on the half year coming from international orders which means that sales will also move from today 40 going to sweden probably if we don't get more orders from from sweden than we do internationally a little bit more on international sales over time in our books This also shows that we have a good step up for next year, already 52.4 billion in the box. And we have 28.6 billion in the box for this year. And if you add that to the current sales and look at what we normally have in order to sales in a half a year, you will see that our guidance and where we believe we will be in the guidance is probably in the upper range for the sales for this year. A final comment on this that we will come back to, and this also reflects then in the timing of this order intake, is that we have moved from 22% to 38% just in two years' time on how much the share of Dynamics order book is of the total backlog. And that of course drives a shorter pace in delivery, but it also will mean that the Dynamics income statement will have a bigger portion of the income statement in the coming years. I will skip the quarter and do some reflections on the half year. Half year, we have then moved up in sales, as Michael said, and if we look at the EBIT increase from 8.3% to 8.6%, the main drivers are the sales growth, but also a margin improvement. from scale over the OPEX, and that I will come back to shortly. Tax rate is impacted last year from the sale of divestment of MTM, which gave a positive 270 million income to the income statement and also to surveillance, which I'll also come back to. Other than that, there's no big surprises or things in our income statement. We did have in quarter one a big financial impact from currency effects, which we see in quarter two is starting to come back and nothing that is a long-term thing. But we will be closer to last year's number over time when it comes to financial net with this kind of balance sheet that we carry right now. If we look at the sales, as I said, Sweden now stands for 40% of the sales in the quarter and pretty much the same in the half year. We have a CAGR over the last 12 months, which is similar to what we have in the first half year. We do see strong delivery and an impact from growth in all business areas. If you look at half year, it is pretty much 20% for all business areas, except for Kockums, where it is 44%. So we have a strong momentum in all four business areas. And the EBIT margin and the EBIT growth is then coming from sales, as I said, increasing. But if you look then on OPEX, a couple of reflections. We do have in the investments, and we'll come back to that in the capitalized R&D, no increase. We have the same capitalized R&D this year as last year. So the first reflection could be from a viewer, don't you invest in R&D? Yes, we do. But we carry much more of that in the income statement that we have done previously. So R&D cost increases with 37% in the first half year. And if you put that 37% together with what we have invested then in the balance sheet, we will have a total increase about 60 and 70% on half year. So we do invest in R&D, but it is more hitting to our P&L in this half year. And then if you take away those 37% and look at the rest of OPEX, administrative expenses, marketing expenses, et cetera, and the depreciation, they are around 13, 14%. So we do have a scale on top of those kinds of costs. And this is what we have said also previously. We don't seek to scale on R&D, but we do seek to scale on marketing, administration, et cetera. So this follows the pattern we have talked about before. If we then deep in a little bit to the different business areas, Michael have touched on them. I'm just going to go through it a little bit from a financial perspective. The first thing I wanted to point out, we had actually quite high aeronautics growth in quarter one, over 30%. And we said that is not representative for the year. It will come down. And now we see it has come down to 10%. So that's just confirming what we said in the first quarter. Secondly, as we have seen, Dynamics is pushing now quite hard with growth in this quarter. We there said we had a very low growth in quarter one and we said it will come back from quarter two and forward and it will come back now and it is proven to come back from quarter two and will continue forward. So now we do have a better growth momentum and that of course will impact the margin. and will support a higher margin than last year as we go forward. So without guiding on what the margin will be. On surveillance, we did have an impact on the half year last year of 270 million, and we did have it on the full year because it was a quarter one impact. Last year, we reported in surveillance a 11% EBIT margin for the year, but in reality, without those MTM profits, it was only 9.5. And that is the reference point that we should think about when we look at the margin in surveillance. This quarter, as Michael said, we had some legacy contracts where we have made some write downs and it will be a business area where radar and an airborne early warning will drive over time the margin upwards. Kockums, we said last quarter that the operating margin should be around 8-10% and we will get there in some quarters maybe. I'm really happy to see we already came there in quarter two. We are at 8%. We still are moving up a bit in profitability in the underwater business, but the surface ships and composites, et cetera, that Michael talked about is supporting the business in a balanced way. So we do get a okayish margin of 8% anyway in the Cockrum's business. Good. Moving into cash flow, always interesting. And we started out with a negative half year, very much something that we have understanding and control of in the sense that customer payments in 2023 was in some of our bigger programs heavier on the first half year, and now they are heavier on the second half year. And then we have also the new orders we have taken in over the last 18-24 months that are also coming through in both milestone and scheduled payments that we then will receive in the second half. So those timing of customer payments is something we have quite good visibility on. Inventory has increased in the first half year, partly because of things that are supposed to go out in delivery. and not least in dynamics in the second half, now when growth is picking up. But also as we grow, we do have a touch of increased inventory as we grow more than we expected in the beginning of the year. Finally, investments, that's the smallest part of this negative cash flow and something we have talked about and we have expected and something that is actually moving on as we expect internally. And mainly then, as we have said before, I would just confirm that it's dynamics and surveillance driving that investment growth. And then we can see on the right side that we have moved from 1 billion to 1.8 in tangible assets. And confirming what I said before, in tangible assets, the R&D is not increasing at all in the balance sheet, but in total R&D spend, we are moving up. Thank you. We do have a solid balance sheet, I say, and then you can look at this picture and say, well, it goes downwards. Yeah, but we still only have 0.33 in net debt to EBITDA. We have 2.4 billion in negative or in debt on the net side. Actually, the lease liabilities are 2.7 billion. So taking that out, we are on sort of the pure debt and cash point of view, quite neutral. And we do expect a positive second half. So I still think we have a solid balance sheet. And I think that was also something that was confirmed by our BBB Plus investment grade rating that we received from S&P now during the second quarter, which is then a good confirmation and also good, I think, for Saab now, growing as a company and establishing itself on the markets and will have to sort of play on the capital markets like anyone else over time. This is a good foundation to have going forward for the company. Either it is growing our investments in order business development partnerships or in M&A over time. Finally, last quarter, we upgraded our sales growth. As we indicated, we believe we will be in the upper range of the 15 to 20%. We still believe then and did believe also last quarter that our operating income growth will be higher than sales growth, so margin will improve. and the 70% cash conversion is a long-term thing, but to do that, we also need years with positive operational cash flow. This year and next year, we said, we'll be a little bit pushed by investments, and that we should expect, and we see that, and that has not changed, and it has not changed that we also believe that we will have a positive operational cash flow for 2024. Thank you very much.

Thank you very much, Christian. So we have a strong interest from what I can see online, which means that we have to speed up a bit so we can get everyone's question. And if you still don't know how to dial in to the conf call, we have the details on the press release and the report that we sent out this morning. So without losing time, I also want to highlight that please do maximum two questions at a time because we have several on the line. And then in the last couple of minutes, Michael, I will get back to you to present Anna. So moderator, please go ahead and start the Q&A.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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 Xenia Maslova, UBS. Please go ahead.

Thanks for taking my questions. I have two, please, if I may. So first one, maybe if you can just give us a bit more color on the uplifting dynamics margins in Q2, sort of, you know, the building parts of that and how should we think about these going into second half of the year. And then my second question will be, during the call you made a quick comment that you need to take a step back and see how you can scale up in a more optimized way. I just want to double check, how can we interpret this statement? Are you sort of doing some internal improvements program, potentially slowing down the rate of employee additions? Because I should say in some divisions, especially surveillance, potentially the margin improvements or the pace of those has been a bit slower than what we would expect it maybe 12 months ago. Thank you.

So if I start with the second question, Christian can come back to the first one. I didn't mean that we are slowing down, our capacity increases in any way, but you know, While we are optimizing the way we manufacture things, specifically in dynamics and surveillance, we also need to take a look sometimes at how we have industrialized for volume production, or even some products may have we may have to do some redesigns for better manufacturability. That is not slowing down what we're doing right now, but it will support even more the potential sort of volumes going forward. So sometimes you have to fix the root causes also while we're doing sort of optimization. So it's just sort of Doing what we do in a better and better way. It's not sort of taking a step back and halting anything. I didn't mean that.

So on dynamics, as we all know, we have received fantastic orders into dynamics. We have a great potential. Therefore, we are building capacity. We're building a bigger base to produce from. First quarter was a very weak sales, so we didn't get enough sales to meet what we are starting to build up in production. This is the simple way of explaining it. Now we're moving into a quarter where we have numbers that better match our capacity and therefore also margins better match the margins we should be able to deliver over time, i.e. higher margins that we had had before. So that's the simple explanation. So continuing on this volume base, we should be able to have a better margin than not having this volume base. So that's the simple answer to that.

Thank you. Thank you, Xenia. We have to move on to the next person.

The next question is from Emerick Poulin, Kepler-Chevreau. Please go ahead.

Yes, good morning. I've got two questions. First is a follow-up to the development of margin at the divisional level. So you suggest Dynamics should retain this superior level of margin going forward. But surveillance also was a bit weaker. You alluded to some contract, legacy contract being written down. Does that mean that the margin deep is kind of temporary and we should see also surveillance margin going higher as we move forward? That's the first question. And secondly, I think you mentioned the urgent need to support Ukraine. However, in the last Republican convention, we heard the both the VP and Donald Trump, not agreeing with that view. So in preparation for this, first, do you have a quantification of the impact of the Ukraine military aid in SAP's number? And indeed, what would be the most likely scenario in your view at this stage on the Ukraine war and its impact on SAP's business? Thank you.

so let me start with the second question again then and christian can take the first one uh i i want to say that um i don't have a view sort of on the administration and how that how that sort of develops going forward in the us but the most important thing is of course to recognize that europe is stepping up and that needs to be something that we continue to do as countries and defense industries and as a continent in terms of taking a bigger responsibility for our security and deterrence and resilience, and thereby investing more. And that we are seeing, and we should do more, I think, independently of the administration in the US. I can also recognize from the summit I attended last week the huge support from the members in the Alliance to support Ukraine with the 40 billion US dollar support going forward, but also to coordinate now the efforts which the US had earlier from the Rammstein Group. So there is a big Western support to continue to support Ukraine. That's where we are. And then continue for Europe to step up and then we'll see what happens. We do not. I cannot calculate exactly the number which is related to our growth or our revenue when it comes to what is Ukraine support or not because we we don't exactly know what different countries donate or what they actually use with which we deliver to replenish their own stock or sort of grow their own capabilities in country. So that is incredibly difficult to sort of pick a number and decide what is Ukraine related. But generally speaking, of course, there are three parts. Support Ukraine, replenish stock, which has to be done because of the support of Ukraine from different countries, and then to step up and increase capability and stock levels. So But that is sort of in combination something that's happening in the marketplace.

On dynamics, of course, we don't guide on business areas. And when you say it's going to be higher, everything is relative to something. So the question is to what? And I'm not going to comment on the quarter and the quarter margin. But if we looked at last year and what we said last year, we said that we had a margin last year and we said as we scale up, and get bigger volumes, that should have a positive push on margin. Meanwhile, that should be more than compensating the cost for increasing the base and the cost of growing. And how much that is, we will not talk about. Great.

Thank you.

Thank you.

Shall we move on to the next one?

Next question from Virginia Montorsi, Bank of America. Please go ahead.

Good morning and thank you for taking my question. Could you elaborate a little bit more on the profile of the people who you're hiring, particularly in surveillance? Is it mostly a younger workforce straight out of school, or is it more seasoned professionals? And specifically for surveillance, should we think about this hiring increase as something that becomes kind of the normal level for next year as well, or is it mostly trying to catch up with demand and supply this year? Thank you.

Well, I would say that looking at the competencies that we have in our employment structure right now, of course, quite a lot looking at surveillance is related to software development, AI knowledge, data engineering, that kind of capability. Looking a bit broader on this, it's every type of expertise from skilled production personnel to support people as well. But if I should pick some sort of center of gravity, I would say it is a lot related to software, AI capability and data engineering, that we need to add competencies on that area, which we have done in a successful way. Quite a lot of that is coming, I think, from rather new graduated engineers. Not all of it. We also employ skillful people with experience from other companies as well. But of course, it's a younger generation coming into Saab, generally speaking. Yes.

Okay, thank you. And going back to the surveillance margins,

What was the question?

The cost of the hiring.

Because if you look at the difference, surveillance and dynamics is recruiting most people. Dynamics is recruiting people that is easily getting into work in a production plant and can start to be sort of allocated into the production and cost and do a good job. And in surveillance, we're also hiring a lot of good people, but it takes longer time. And it takes up to four months to get them into to be sort of productive. And therefore, there's a higher cost when you have this kind of big pace of increase to unallocated cost until we get them into the programs.

I mean, and I said before that, yes, of course, we will employ people and we have some attrition if it's not high. But I can't see going forward in the coming years that it will be this type of sort of growth net that we've seen sort of the last couple of years now and this year. So there is new ways of working, supporting and digitalization, transformation on how we do software, for example, that supports sort of... a little bit less of a workforce. But onboarding is slightly more expensive, of course, in that kind of area than it is in the production side.

Thank you, Virginia.

Next question from Sam Burgess, CT, please go ahead.

Good morning, everyone. Thanks for taking the question. So firstly, there was some big working capital movements in the first half driving that negative op cash flow. Fully understand that cash can be very lumpy, but just wondered how much visibility and confidence do you have that that will reverse in the second half and you'll meet that positive op cash flow guide for the full year? Second question was just around the corporate costs. fairly high growth in H1 corporate costs at the EBIT line, even stripping out the FY23 exceptional items. I just wondered, is recruitment a significant part of this growth? Any clarity there would be really helpful. Thank you.

So on the cash flow side, I am really confident that we will be positive this year. I said that in the call, and I reiterate that. Also by the fact that we have already, in the beginning of July, before this call, received big payments. So it would have looked differently if the quarter had been a couple of weeks longer. But it's not like that. It's really digital when you get the cash in. But I am confident, and this is... things we have delivered that will get us payment, and then we have a few milestones that we will deliver upon, which will get us payments over the third and fourth quarter. So yes, I am confident.

On the corporate cost, the lesser part is the employment. We don't try to or are forced to hire at the same pace as we do in production on people and corporate. We try to also keep the scale on corporate cost. A big portion comes from IT and security, to be very clear, which that is a cost that increases together with actually You can call it temporary. We have built up a recruitment body on corporate that actually helps also the business areas. And finally, on corporate, we do have a high cost for our share program. And as long as our share price continues to improve, which is good for our shareholders, it also is good for employees. And then that's a cost we carry in our income statement.

Great. That's really helpful. Thank you, guys.

Next question from Eric Goldrang, SEB. Please go ahead.

Thank you. Two questions then. First one on coming back to cash flow and just from a bigger perspective. One would have thought that you're becoming a much bigger company and more diversified between contracts and clients and that that would reduce cash flow volatility a bit, but maybe not the case or not the case yet, but is that something you see moving forward? And then second question on guidance for the full year, what's holding you back there from an upgrade given you don't need much to hit the very top end or even top the top end for the full year? Is it a capacity issue or just some timing uncertainty? Thank you.

So, well, I mean, contracts within surveillance and dynamics, if I take that as an example, over time, they representing a bigger portion of the company will probably lead to more sort of smooth cash flow profile. But depending on the contract setups and how they are structured, But you're right, it would get to that point in the end. But it's still a bit lumpy over the quarters, I would say, over a year, depending on how the contracts are designed. But generally speaking, The mega deals as such are more lumpy when it comes to payments. So when we have less mega deals in the structure going forward, even though I want them, of course, the cash flow will smooth out. Yes, I support that. And the second question was? that was on the guidance for the year what will make it listen about 20. look i mean i said we will be in the upper range of that that guidance now i i still want to be careful about sort of all the things i try to describe here on the capacity increases that we have everywhere ongoing, step-by-steps come into play. And the more they come into play and they start sort of being operationalized, I will be more and more confident in how the growth looks like. So that's sort of a balance that we have to look at. That's what it is.

Good. We need to start to round off.

Thank you, Michael. I want to have one more question, and then we try to round off.

One more.

Yeah.

The next question from Henrik Hintze, ABG Sandalkoje. Please go ahead.

Good morning. I just want to sort of follow up on two of the questions that were asked earlier. You say that it's impossible for you to calculate what portion of your growth or revenue are related to Ukraine in some way, but can you maybe give us some color on What share of, for example, dynamic sales, the growth there is driven by consumables, things like ammunition and 84N laws, things like that, which one might assume are being boosted by Ukraine. And secondly, on cash flow, you seem very, very confident that you will reach the target. So my question is, It's quite an unspecific and not very aggressive target to have positive cash flow. If you're so confident, why not increase this target?

Well, I don't know what you want to comment on the first one. It is really difficult actually to give details on and quite sensitive also actually to talk about sort of how much of a portion of what is being delivered from Dynamics ends up in Ukraine. Of course, the growth, as I've said, on these three parts is driven by by Ukraine to some extent that we deliver directly to Ukraine, countries donate, we replenish stocks and we also help countries build their own defenses. The mix of that I don't want to go into actually. Why don't we upgrade our cash flow more specifically? Well, I think we are in a business where cash flow is a bit lumpy. Everything I'm saying is that we are very confident on delivering a positive cash flow. We've never delivered any guidance on a specific number or a specific range on cash flow. We will come back to that when we feel more confident and it's more predictable exactly over the quarters. But still, you have to respect the trade-off between capacity increases, delivery of milestones, and and the payment structures that we have and i can only say and reiterate reiterate again we have received dodge payments in july we have more to come during the third and fourth quarter and it will be positive i won't go further than that

I just wanted to make a remark. We have given a guidance of 70% on the medium term target in the cash conversion. And that is a clear guidance for you. And then between the years, this is not a stable one type of business company. This is a growth company with very diversified portfolio and a lot of opportunities. And I think the best thing for me, at least as a shareholder, is to make sure we grab these in time and do the right thing at the right time. With that, we're quite confident that we can deliver 70% cash conversion, and we're super confident that we'll have a positive cash flow for the year.

Thank you. And let me just start by saying a big thanks to Christian for his excellent commitment to helping this company grow. and your excellent work. Thank you. And it's been a privilege and an honor to work with you. And I wish you the best going forward now in your next adventure. Thank you. But I also want to welcome Anna, who is my now excellent new CFO from 9th of September, who has a great experience from Ericsson, but also from Saab working with us for 10 years. So just give a short description of yourself.

Thank you, Michael. And first of all, thank you, Michael, for giving me this opportunity to take over this challenging and exciting role as CFO after Christian now in September. So as you said, I have been within Saab for 10 years almost, and I have been working in various positions, both within business area as CFO and also within group. And the last three years, I have been the deputy CFO of Saab. and working as head of corporate control. So I've been working very close with the global finance management team and the group management team. And I think I've also got a good knowledge about our company and our challenges and also know a lot of people, which is good for the next position that I'm now taking. As we heard today, we are in interesting times. We are in a growth company, we are building capacity, and I think it's going to be fantastic to be part of this journey, contributing to our improving performance and also focus continuously on the capital efficiency. And I think, I mean, by that, I will come back the next quarter and present our financials together with you. and uh yeah you will get much more exposure next time yeah i will now just a couple of minutes so thank you and see you

But thank you all for joining us today and for taking a big interest in Saab. It is exciting times. It's tragic that we have a war, of course, but we have so much to do to create defense and deterrence capabilities for so many countries. And I'm so proud of this company and our employees, how we are supporting this adventure going forward. So thank you so much. And I wish you the best of summer. Thank you.