Saab AB (publ)

Hi and welcome to SOAP's Q2 earnings presentation. I'm Merton Kaplan, head of IR. We're gathered here to go through our presentation and results of the quarter, which was really strong. And we'll start again with some slides and then open up for questions. You have the details to the conf call on the presentation and the press release from this morning. So with that, I want to hand over to my CEO, Michael Johansson.

thank you martin and good morning everyone thanks for joining this uh quarterly report from uh i think a very strong quarter and i'd like to start with some highlights as i see it from the quarter and as all all of you are aware of of course we we still have continued geopolitical tensions and we have the war in ukraine just going on without sort of any real view of how it will end and hopefully it will end with a ceasefire and a reasonable peace deal and that's all what we want but we can't really see that's happening right now and we have had just recently a nato summit in the hague and A big step was taken from all the countries in the alliance to now agree on spending up to 5% on defense going forward, where 3.5% is sort of purely on defense capabilities and 1.5% is supporting infrastructure for defense buildup. I think that is an incredibly big step. And of course, there will be different sort of schedules for different countries achieving these 5% going forward. Some countries like Sweden is sort of aiming to go quickly into that towards 2030. And other countries is maybe sort of looking at 2035. So we're not sure about the schedules, but there is a lot of sort of spending to increase deterrence from that. from the Alliance now and also the focus on the European perspective that Europe has to take a bigger responsibility for our own security and doing more in Europe also from the European defence industrial base is really clear. And the statement from the Hague summit is super clear. Defence industries have to step up. You have to invest for capacity. We will need more and there is an incredibly strong demand now in the market. and that we see we had a strong quarter on order intake i'll come back to that i think we have a great portfolio looking at what we can achieve a mix between sort of important sophisticated platforms like the grip and fighter and the global eye but also advanced weapon systems and sensors as examples of sort of volume things that are needed in the market and that we've seen in this quarter specifically on the medium size and the small type of contract that we have achieved But we're doing a lot of progress also on the key campaigns for the grip and the global eye. And one example is, of course, the French declaration of interest now to go into a contract finalization on up to four global eyes, two plus two in an option, which is a very big step to us in the European perspective on the global eye. We have managed really well now on executing from our backlog, and we had specifically an extremely strong quarter on the dynamic side, and usually many deliveries, I would say. So they grew 72% compared to the same quarter last year, which is exceptionally good. But we are actually... ramping up our capacity and that's also why we have now and we will come back to that we have now upgraded our guidance because we have a strong first half of the year and we see we see that we can now manage deliveries from our backlog in a good way so we've stepped up that to 16 to 20 percent from 12 to 16. We will continue to build capacity, of course. We have seen some coming into play and some will come next year as well. The big sort of factories that we're building in India and the US specifically, but also a number of things in In Sweden, R&D will always be super important to us, and we will never compromise sort of not investing in research and developing. The pace of technology is really high, so we have to embrace these things to create autonomous capabilities, to use AI, And we are in the process of now creating a new organization, consolidating the way we actually develop software and also how we use AI going forward. So many important things happen during the quarter. Looking at the numbers, as I said, 28 billion roughly is a really good order intake without any sort of really big ones. If you remember last quarter, same quarter last year, we had two big contracts, 13 billion for ground support weapons to Poland and another big contract, roughly 8 billion, that also was in the dynamics and the surveillance area. And without sort of these big ones, we still deliver 28 billion. And we have a number of campaigns going that I will come back to that I hope will sort of also materialize in rather big contracts going forward. So this is a really good order intake. Substantial growth 32% compared to the same quarter last year. And a really good EBIT margin now growing, as we've said, growing more than the top line. That is the trend all the time. Cash flow is better than last year, but still a bit negative. We are confident that we will deliver a positive cash flow also this year. But one has to remember that it's important now because of the supply chain perspective of all the ecosystem of suppliers that needs to support the primes in growing in this market that we have to keep some sort of high inventory levels to be sure that we can deliver to our customers. And then, of course, we need to spend money on investing. As we've said, we said that we will be a bit front loaded going forward, but still every year we will deliver a positive cash flow. And that will happen also this year. And this is all based on sort of when we have our payment milestones over the year and how our cash is going out from the investments we're doing on inventory and also on capacity increases. So a really strong quarter. A couple of comments on the campaigns and sort of what we call mega deals, which is really difficult to predict when they will actually be contracted, because it always is prime ministers, presidents or defense ministers in the end will have to sign them. And there is a parliamentary process normally in countries to sort of eventually decide. So that's why it's a bit difficult to say when. I hope that we will see now on the Gripen side, we are in negotiations with Thailand and that hopefully will happen in the next couple of months that we will sign that one. And then we have been selected by Colombia and going into negotiations also there for 16 to 24 aircrafts. We're not sure yet how many they will acquire in the first step. and so we are selected in two countries and that's all about sort of finalizing the contract for and then that will be sort of going through the parliamentary process for approval so that's big steps and really really positive to us so even also in the area of the grip and fight the production we need to sort of ramp up capacity going forward then we have campaigns of course a number of them going and a couple of them are mentioned here philippines and peru And there's been lots in media on Peru lately. So I just want to comment on that to say, yes, we have a fantastic offer for Peru. They are still in an evaluation phase. And they have not selected which type of aircraft they will go for. And hopefully they will do that shortly. But we are, of course, in that race. Also on the globalized side, I see lots of potential. As I said, we've signed this declaration of interest from the French side, and that is all about now sort of finalizing the small details in the contract and having sort of the French parliamentary taking the decision on acquiring the Global Eye and hopefully that will also happen during this year. So we're looking at the number of months ahead and hopefully seeing a couple of mega deals coming in. But there is a big interest for Global Eye in the market. From the European and NATO perspective, since there is a gap now because the E3 version of an airborne early warning is not really reliable or available for many countries, we see a window of opportunity to go and sell more of these aircrafts in a number of countries, and we have that interest as we speak. I just want to comment that even though we talk a lot about medium and small type of orders now coming in, there is a lot of effort being put into these rather big campaigns also. A couple of comments on each business area. We have received contracts on the Gripen side, complementary contracts from the original one in 2013, because of course you want to add ground support equipment and things that will create high availability of the aircraft, and that's what we've received this quarter. I just want to mention that we had a fantastic sort of event flying, and we continue to fly, of course, an AI agent in the Gripen-E. And one has to remember, we take a production aircraft, a serial aircraft, and put an AI software agent in the aircraft to manage a specific type of mission that we call beyond visual range, that is sort of a complicated mission air battle many versus many where you need really skilled pilots to be seeing their cross at the aggressive side but also launching your missiles at the right moment and this ai agent is fantastic now being trained like you had a pilot training for 30 years around the clock already this AI agent can do fantastic things in this aircraft, but it shows what kind of architecture we have in this aircraft. No other fighter aircraft could have added sort of a software in a few weeks time and have it flying doing what we did. So that's a fantastic achievement and that will be something we will see going forward, having AI agents supporting certain types of missions going forward. We had really good progress on many of the programs in the aeronautics domain, but we still have under absorption and a low production rate in the C7 environment in West Lafayette, Indiana. That will change, as we've said many times, but it will take a couple of years before we're up into sort of the volumes that we want to see. But it will be long term, a fantastic business for us since we have hundreds of aircrafts on contract. Dynamics, obviously, have had an excellent quarter-to-quarter comparison. I mean, growing 72% is amazing, and they had a really strong delivery period now. Unusually good deliveries, as I said. And the capacity build-up is not coming into play in Sweden, of course, but also next year, as I mentioned, in Grayling, Michigan, and also in India. So we continue to make sure that we have the capacity to manage the increased demand and we are working hard with the supply chain of course to make sure that we have things in inventory to cope with our backlog that we have right now. You might think that, and Anna will come back to that, that our backlog is sort of reasonably short, and that is because a big portion of the backlog is within Dynamics, and the lead times on that type of equipment is shorter than sort of the big platform type of contracts. But of course, it will be refilled all the time because the need in the market is substantial on the equipments that Dynamics have. Surveillance also good performance, growing more than 20% year on year. We've had also medium size and smaller contracts on that side. So it's a good order intake and also good backlog. But the big sort of breakthrough was, of course, the French global decision. And also, we have taken a decision to ramp up capacity for installations on the Global Eye. We have to ramp up that capability in Sweden, in Linköping, of course, but we need partners on that, and that's why we signed a cooperation agreement with Sabina Tekniks in France. They are excellent in doing these things, and that's good for the whole market, since we see more potential for the Global Eye. A very important step also on the autonomous side is that we have a collaboration with General Atomics in the US. They make sort of big autonomous flying vehicles. MQ-9B is one of them, and that one will carry sort of a couple of smaller versions of the prime sensor that we have on the Global Eye. So that will be a capability not as a Global Eye, but a good capability that can act sort of in a way supporting a Global Eye in a mission going forward or fly in swarms by themselves to manage sort of hostile environments going forward. So that is something that will come into the market from us in General Atomics going forward from next year. And we have had really sort of good project activities and deliveries also in surveillance. In Saab Kockums, we had a great order intake on combat boats. That is a fantastic product that I think will have a great potential. And also in our shipyard in the northern part of Sweden, we are expanding now dramatically to manage all this demand. but also a couple of other contracts on torpedoes and the upgrades of the Visby corvettes. On the performance side, we had a launch event of the SIGINT ship in Poland, just showing the performance that we have. This is a similar type of SIGINT ship that Sweden contracted a number of years ago that we have already delivered, but this is now going really well in Poland. So there is a couple of them that will be delivered now. And we have put the last version of the Gotland-class submarine in the water, and they are doing sea trials now, and that's going really well as well. The only thing that we are working with that has, not the only thing we were working with, but something that has great potential is the underwater systems business unit with the remotely operated vehicles and autonomous vehicles for the underwater domain mainly. That has great potential, but we still have a couple of contracts that we have to get through the development and certification before that becomes profitable. That is pulling Saab Cockrums as a whole down a bit, but that's really the future of the underwater domain, to also have autonomous vehicles in the water. CombiTech is also really performing really well. They have a great growth quarter to quarter, year on year. And of course, I mean, this total defense perspective that they are working, protecting critical infrastructure, making sure on the cybersecurity side that there is a good sort of coverage and monitoring and implementation with different agencies and companies. with that type of capability, which is CombiTech's really capable organization doing, and the more and more demand we see in that area for digitalization, cybersecurity, and the connection to increasing the deterrence and protection of critical infrastructure, it's a new sort of avenue that CombiTech is taking market share in. So we see a great growth for them as well. And they are an attractive company to work with. So they, of course, grow people wise. They grow the revenue as well. So this is an entity that has grown quite dramatically over the last few years now. So I'm really pleased with that performance as well. A couple of highlights also on the sustainability side. I think it's important to realize that we are working hard on making sure that we reduce our CO2 emissions as much as we can, and we have a target of 42 percent 2030 and then being net zero 2050 we have now compared to the base year 2020 reduced our emissions by 34 so we are on a good path doing this and uh highlight this quarter is that on our special mission side of aircrafts firefighting for example or targeting targeting uh type of aircraft where we tow things to sort of test things upon we have now We have now fueled them with sustainable air fuels. Most of SAAB's aircrafts that we are operating now can be operating using sustainable air fuels. It's only that we need production of sustainable air fuels And that's sort of for them for this sort of the market of aviation. That's a big problem. As you know, everyone is talking about how do we get sort of aviation up, sustainable production up to a level where it becomes reasonably cheap and so we can transition completely. And also, as you know, the Gripen fighter can also fly on the sustainable air fuel to 100%. So technically, we're already there. It's just the availability of the fuel that is still not there yet. I'm really pleased to see, since we are employing still quite a number of really good talents into our company, adding to our fantastic workforce, We see a trend that the share of women employees are increasing, which is really good for the company. And also, of course, we have an aim to have more female managers in the company, and that is a very good trend. It's good for the company, it's good for our owners that we're going in that direction. It just shows the attractiveness of the company. now being ranked number one by Universum's ranking on the engineering side, which is fantastic to see. And the portion of women starting to work for us is increasing all the time. I'm really pleased seeing that now going forward. So finally, we have, as I mentioned, upgraded our guidance from on the top line. We are now saying we will be somewhere between 16 to 20% when it comes to growth this year. compared to what we've said before, 12% to 16%. And that is, of course, based on the fact that we have performed really well. We've shown to ourselves that we can deliver on our order backlog. And we still see a huge demand in the market. So that in combination have led to that we have taken this step. And we continue to say that the EBIT growth will be higher than the top line. And we are confident, as I said, that we will deliver a positive cash flow as well, also this year. It might fluctuate over the quarters, as you've seen, and that's based on our milestones for payments, but also that we need to carry some inventory to be sure that we can deliver, but also the capacity increase that is a bit front-loaded. But for the full year, it will be positive. So that's sort of an outlook for the full year 2025. And by that, I think I will transfer this to Anna, who will go a little bit deeper into the numbers. So thank you so far.

Thank you, Michael, and good morning, everyone. Yes, as you have heard, we are very pleased to report a strong second quarter. We have this sales growth coming from all our business areas. We have a good EBIT margin of 10% in the quarter, also growing in our business areas, and a cash flow, operational cash flow that has improved from last year, although negative. in the quarter. So I will go into the financials a bit more now in detail. So I will start looking into our backlog that has again strengthened this quarter. It's increasing by 8% year over year and it's now 198 billion Swedish crowns. It is dynamics and surveillance that is having the largest share of the backlog. 71% of the backlog comes from these business areas. It's an increase from last year when it was 65%. We also, in the quarter, have a very solid order intake with a book-to-bill of 1.4 times. And this quarter is mostly medium and small orders. and a large share coming from Sweden. It's more than half of our order intake coming from Sweden this quarter, 57%. So all in all, a good foundation in our backlog growing, our backlog, which is a good foundation for our growth going forward. And what is very visible here in the slide is that you can see that we're growing our backlog to be delivered the first three years. That's very much driven from the orders coming from the small, medium sized orders coming from Dynamics. And then in the end of the years, it's decreasing a bit, but that is also a reason for that is also that we are also re-evaluating the backlog duration as the projects are being executed during the project. So all in all, growing our backlog and a good foundation for growth going forward. Further then, let's look at the sales growth for the group, as we have heard. It's growing very much year over year, 30.4% at group level. And in terms of sales, this is our strongest second quarter ever. And all business areas are growing, including CombiTech. And as the most substantial growth is within dynamics, there you had an extraordinary one, usually strong sales growth, driven by lots of deliveries in the quarter, mainly from ground combat, but also from the missiles business. Surveillance is also growing with 21% year over year. Very good product execution across the business area. Several business units supporting that growth. So it's good to see that we're ramping up and that we are seeing that in our sales growth. Aeronautics is also growing, and here it's mainly coming from the Gripen program, where we have good pace now in working on our deliveries there. Also, COCCOM is growing finally, not at a high pace, but 9% almost. This quarter primarily driven by the surface ship business. So all in all, we're reporting a strong second quarter and the first half of the year reporting a sales growth of 21.9%. And as we have heard Michael say, we are raising our guidance for growth from 12 to 16% for the full year now to 16 to 20% 2025. What I think we should also have in mind by looking at this slide and also remember is that we have seasonality and timing factors in our business. So this was a very strong quarter. We know that the third quarter is often impacted by seasonal factors and also the sales varies from also the pace where we have in our customer deliveries. So dynamics is one example of that, but we often see the changes between quarters. Going into then looking at our profitability for the second quarter, EBIT growth at the group level was strong, 48.5%. And of course, that is a result of the strong performance that we have in both dynamics and surveillance in this quarter. What's also good to see is that the trend is increasing. We have a positive trend growing up to 9.4% rolling 12 months compared to last year where we had that 8.4% EBIT margin. What we should also mention in the quarter is that we have a positive impact of 105 million Swedish crowns on a non-recurring contribution from the minority portfolio. But if we exclude that non-recurring item, we still have an improvement in the EBIT margin. Looking into aeronautics, the EBIT margin is decreasing a bit year over year, and there we had startup costs for the T7 program. We're also running several campaigns, so marketing costs are up a bit and also doing a lot of R&D and starting also depreciation or increased amortization on the Gripen program in particular. So that's impacting the EBIT in the quarter. Cockrum is also a bit lower year over year. Here we have the impact, as Michael mentioned, with the underwater business and the project there where we are in the development phase that we are not yet finalized. So we are working on that and we hope to see that improve going forward. CombiTech not visible here on the slide, but I should mention that we have good performance. We had good growth in CombiTech, but the margin was slightly down in the quarter mainly due to calendar impact during year over year. Next, the financial summary in the quarter. I have commented quite a lot on sales and the EBIT growth, so I'll focus on the other items that I have not yet talked about. Gross margin is declining year-over-year in the quarter, mainly related to somewhat higher corporate costs due to IT security and also this digitalization effort that we are starting up now within our group. And then EBITDA was improved, driven by the higher sales volumes. Financial net, I can mention as well, slightly negative in the quarter, but less negative than last year, due to that the corona has been stronger, and that we have a more positive impact from our currency hedges related to the tender portfolio than last year. Still negative, though. Lower tax rate due to decreased share of taxable results from foreign operation. So all in all, most of our gross net income came from improvement from the EBIT and not so much impacted by the other items such as financial net or lower tax rate. So all in all, translated into EPS, that has also increased from 1.85 to 2.83 this quarter, driven by the EBIT growths. Some words of the summary of the financials for the first half year then. Yes, the organic sales growth, as you have heard, has grown 21.9% with contribution from all business areas. Also, on a year-to-date basis, we have a gross margin improvement mainly driven from improvements from dynamics and surveillance, but slightly offset by some higher corporate costs. So for the EBIT, it is definitely dynamics and surveillance that are the main contributors and also increasing the profitability. And it's also supported by the mix because they are getting a bigger share of the total group sales in EBIT. So the margin improved one percentage point from 8.6% to 9.6% year-to-date. And if we exclude the non-recurring item that we have in Q2, we still would see an improved year-to-date EBIT margin of 9.3%. We have a huge difference between last year and this year in the financial net, and that is related primarily from the revelation of the currency hedges that we have in our tender portfolio due to our strengthened Swedish krona. Last year, we had the reversed impact, so we had a negative financial net last year. So with that, the EBIT improvement and the financial net improved the group net income to 56.6% year over year. And also, EPS increased by 58% this year so far. Next, cash flow, important to talk about. And I think what we can see here year to date, we have a negative cash flow of 1.2 billion for the first half year. We should remember that this is still an improvement compared to last year where we had minus 4.2 at the same period. And as Michael said, we are reiterating that we are going to have a positive cash flow for the full year 2025. So that means that we are expecting stronger customer payments in the second half of the year. I think it's important to elaborate a bit on the cash flow, actually. We are in a period where we know it's important that we increase our capacity and we are doing investment for future growth. And by that, we also need to be able to secure that we can deliver on our backlog. So working capital will be tied up in a period like this and investments are going to increase. So that's something that we're closely monitoring and working with, but that's something that's the reality that we are facing. But looking into our cash flow graphs, I think it's important to mention anyway that the cash flow from our operations is positive, and 5.1 billion is increasing year over year, driven by our increased sales and profitability. That's a good foundation for our company. So with our high growth rate, as I said, the working capital is going to be growing. But as we deliver in our project, it will gradually improve because we're going to get paid from our customers and by then also lowering our inventories. In the first year, we have increased our investments as planned. 3.3 billion compared to last year. It was minus 2.2 billion. And by that, we deliver the negative cash flow for this half year. although improved from last year. What's also positive, and I think worth mentioning, is that we see that we improve our return on capital employed during the year as we are increasing our profitability as well as our capital turnover. So it goes to 15.3% compared to 12.8% last year. Finally then, our financial position and our balance sheet, a few words on that. I think we have a solid balance sheet and we can see that we have cash and liquid investment totaling 10.7 billion in June. Our net liquidity position is positive in the quarter, amounting to almost 700 million. And it showed an improvement year over year. It was, as you can see, a bit lower than last quarter. And that is, of course, a fact that we have higher investments and also more money tied up in working capital. Also, in this quarter, we paid a dividend of 537 million for our shareholders. In the quarter, we have also signed a new revolving credit of 6 billion. So that's also something that's strengthening our financial flexibility in a situation now where we're growing. So that's good. The net debt EBITDA is also having healthy levels. And we have a solid equity to asset ratio of 37.7%. So all in all, a solid balance sheet, I would say. So with that, I end my presentation and hand over to you, Merton.