Saab AB (publ)

Good morning, everyone, and welcome to the presentation of Saab's Q3 report for 2025. My name is Johan Andersson, and I'm honored to have been appointed head of investor relations here at Saab. With me here in Stockholm, I have our CEO, Michael Johansson, and Anna Vikander, our CFO. Anna and Michael will present the report and thereafter we will start the Q&A session. And you can either ask your questions over the phone or you can enter them in the web interface and I will read them out loud here in Stockholm. So with that quick intro, I will hand over to our CEO, Michael.

Thank you so much, Johan, and thank you all for joining us this morning for the quarterly three report and the first nine months. I want to welcome Johan as well as head of investor relationships. You're most welcome to the company. And I also want to thank Mariton Kaplan for an excellent job during so many quarters and looking backwards. And then I wish him luck, of course, in his continued journey within Saab. Before I go into the highlights of this quarter, I just want to say a few words about the day we had Wednesday in Linköping, where we had the honor of receiving President Zelenskyy and his delegation and also our prime minister and his delegation to host them for this important statement and letter of intent that they signed in the direction of creating a strong air force in Ukraine going forward. This was of course a unique day and It was an important statement which we have been waiting for to now continue our journey in exploring scenarios and planning for how an establishment and deliveries of quite a few aircraft will look like in Ukraine. And it also adds to our assessment of investments that we need to do Looking into that. With all due respect, I mean, there's no contract yet. Still a lot of work to do. You heard the President Zelensky and also Prime Minister Ulf Kristersson talking about sort of the financing solution and what needs to be established there. And then, of course, there are a couple of other things, but we will start doing our work to sort of support this going forward. It was great to see our employees in Linköping spontaneously applauding and cheering when President Zelenskyy stepped out of the car. And we're so much committed as a company to support Ukraine going forward. That was a unique and fantastic day. And now we will work hard to sort of make this happen as well, of course. So with that, I just want to go into a few highlights then of the quarter. It has been strong demand in the market. We still have lots of your political tensions, of course, around us and strong demand from many countries in all avenues of our portfolio. And we develop contracts really well. We had a strong quarter when it comes to order intake, as you've seen. But it's also timing. It's sort of on the same level as the quarter last year. But in October only, after the closing of this quarter, we have 16 billion in order intakes. So we're looking toward a really strong year when it comes to contracts as well. We have a number of campaigns, a part for our product sort of demand in the market that we are running, of course, both when it comes to the Gripen side, and we'll come back to that, and also Globe Live, where a number of countries have a huge interest in our system. As you know, we've been selected by France and now we're just waiting for them to sign the contract in that country as quickly as possible. And then we have interest from NATO and from Germany and from Denmark and a number of other countries is looking into our globalized system. So there is still a need to continue to invest in capacity, which we're doing in a diligent way, I think. And looking at the execution this quarter, it's been solid and sort of a normally weaker quarter, but it's really been strong in this quarter. And as you've seen, I mean, the first nine months is now an organic growth to 21%. So we've done really well also adding the third quarter to the first two ones here. And we will continue to look at our development of our profitability, which has also been good. But we will also never trade off versus sort of investing in capacity to sort of meet the demand in the market, of course, but also being relevant when it comes to new technologies that we have to invest in going forward. All in all, it's been a strong quarter. And we have... As you've seen now, upgrading the outlook for 2025, I will come back to that in the end, but we're now sort of raising our guidelines on top line to 20% to 24% from 2016 to 2020. So back to the numbers, as I said, almost 21 billion in order intake, a good increase in the medium sized order. It looks a bit different between the quarters. And I think we as I said, we added 16 billion only in October, which we are press released. So it looks really good going forward as well. We have a book to bill of 1.3 and a very strong organic growth in this quarter, the strongest quarter we've ever had on top line and also in absolute numbers when it comes to EBIT. So the margin is now 8.7% in the quarter, but 9.3% looking at the first nine months. Cash flow is on the same level if you look at the first nine months, sort of minus a billion roughly. We have still the same view as last year. We will generate a positive cash flow. We have a number of important payments coming in now during the fourth quarter. So I'm confident that we will meet our guidelines on that as well. A few statements about the different business areas as usual. Yes, of course, a big interest in the Gripen Eco version now. We have contracted Thailand during the quarter, the first four, and they are looking into further contracts as well, of course. The batch two and batch three of their contract is being discussed already. And then, of course, we have been selected by Colombia and we are negotiating a contract there. We have no contract yet, but we are moving ahead in a good pace in Colombia. And then, of course, the interest now from Ukraine is something we will sort of take into account and start planning for, as I mentioned earlier. We have a good, strong quarter from aeronautics. They have gone 34% up compared to the quarter last year. So they had really good project execution in the Gripen program mainly. But still, the profitability level is affected by ramp-up costs that we have mainly in the T7, the trainer aircraft in the US, in West Lafayette. So, that is still sort of a burden to aeronautics, but they're moving in the right direction, definitely. Dynamics, again, good growth. A quarter that is normally quite weak for Dynamics has been quite strong, actually. If you look at the first nine months of Dynamics, they have grown 34% or something, maybe even 36%, if I remember correctly now. It's an extremely strong year for Dynamics. They have had a number of medium-sized orders, but also a large one from the Czech Republic when it comes to the medium short range air defense system rbs 70. so there is still a big demand in the market and we are investing heavily as you know to increase capacity in this area i think we have only in in the cost school area sort of 40 projects ongoing to expand everything and building factories in the us and in india as you know and they have a huge backlog now of almost 90 billion as we speak Surveillance, also a very interesting portfolio. I said that the campaigns for the Global Eye are a number of them now, so we are intensifying that, of course. I hope that we will see this Global Eye system, which is the state-of-the-art system, most modern one, taking a bigger position now also within the Alliance, with multiple countries going for Global Eye. So that's what we're working. And the first one that we were selected upon is, of course, France, that you know all about. So there is not only on the globalized side, but the surface side, the surface sensors, the sensor side of surveillance is going really strong and getting more and more contracts. And they deliver quite well as well, growing 8%. And honestly, the quarter three of surveillance is the strongest ever, top line wise. So They are doing well also when it comes to project execution, and they have a huge potential going forward, I would say. I also want to mention that we are divesting TransponderTech, which is a communication and automatic identification system type of entity, as we have also already press released, and we will close that deal now in quarter four. also a very big backlog on the surveillance side as you can see 55 billion sob cockums also have a big interest in many segments you know we're working campaigns now on the submarine sides with with poland and that we're putting a lot of effort into of course and it makes lots of sense to have sweden and poland work together to protect the baltic sea But also on the surface side, we have the Swedish corvette slash frigate program coming out, which is called the Lulu class, which we are also seeing as a big potential going forward. But there are many other export contracts where we are involved and we have also now. invested but also got a contract to look to design and test a large underwater unmanned vehicle with the Swedish navy which is great to see that we're moving in that direction because also on the navy side it's not only in the air you will see collaborative combat entities working with manned entities that will also happen on the surface and subsurface going forward forward We also got the task, which is a fantastic honor, to lead the project within NATO when it comes to underwater battle space project, connecting and creating interoperability between manned and unmanned systems. So that we look forward to execute. And the growth is really good, 17% year on year when it comes to the quarter. And they are really moving in the right direction, and they have a substantial backlog. I need to mention, of course, that after the quarter in October, we got an additional contract, as you've seen, on the submarine side for 9.6 billion, adding to the backlog now going forward. And then finally, when it comes to our business area slash CombiTech, we have, of course, a very well moving forward CombiTech, our technical consultant entity. They are growing also rapidly, year on year, 17%. It's all about sort of employing new people, of course, and getting utilization into the operations that create these numbers. And I think we've employed 200 people up now only in this quarter from the CombiTech side. And that adds to the growth, of course. We're doing well as a consultant company. We're absolutely in the right place. in the right areas, in the right niches right now, cybersecurity, critical infrastructure, critical communication, creating security operation centers for many types of industries, and also from the public side, the authorities, and everything connected to total defense in terms of resilience is something that sort of generates business now for CombiTech going forward. So they had a good quarter as well, definitely, and they're growing quite a lot over the year as well. So I just want to say a few words about something that's been discussed every day, every week in terms of what's happening in Ukraine when it comes to drones and what kind of drone capability do we need going forward and counter drone capability. And also, the EU Commission have launched projects now during the last few weeks, which is sort of a drone wall, making sure that we have resilience versus sort of big drone capabilities coming from the east. And I just want to mention that this is something we really are investing in and we already have solutions in place. We don't talk so much about this, but we have already used these solutions in NATO missions in Poland. We call one system The way we approach this, I must say, is to make sure that we are quite agnostic when it comes to what effectors or interceptors do we use. We can use everything from a Bushmaster gun to electronic warfare type of effectors to nets or kamikaze drones or actually RBS-70. And we are now investing in a new missiles that you've heard about called Nimbrix. which is in a segment between the guns and the rbs-70 so that's sort of agnostic we can sort of integrate the system that would manage different types of threats and the look system as a sort of a brand name of the system includes of course a sensor capability with the one x which is excellent and the most state-of-the-art radar that will find everything from micro drones to larger drones and cope with many threats at the same time a commander control system which is really compact and then an interceptor vehicle that would have sort of the chosen effector on it that the counter us system already established in sweden and used in nato missions the loitering munitions side or actually having an own swarm technology capability we've always already released that that we have something that is self-organized in terms of software and using ai to have a swarm of drones doing different types of mission and i think we are focusing among other things on not only surveillance but also loitering munition that is important because of how you would manage an aggressor going forward, not only with support weapons that Carl Gustav and Antec tank weapons, but you can also use drones to accomplish part of the mission and work together with support missions. So we are involved in this area and ramping up our capabilities and we already have existing systems. A couple of highlights from the sustainability area, a very important area to us. We have this quarter established a biogas facility in our site, which is the Barracuda entity in Gamleby, which is doing camouflage and signature management, which reduces our energy dependence on fossil fuel, of course, dramatically. And if you compare year to year, the first nine months to last year, we have reduced 4% on the CO2 emissions. And we are on good track now to support our SBTI targets, where we've said we will be 42% down 2030. And if you look at the base year compared to where we are now, we are 33% down. We have a good progress on operational health and safety. We really make sure that we have a safe operational environment within the company and we measure this all the time and we must report every incident to mitigate everything that could happen. And another thing is, of course, diversity and inclusion. We are happy to see that we are now moving up when it comes to our female employees in the company now at 27 percent. That is a very good step. And we want to go further also, of course, when it comes to female managers. But we are moving in the right direction. And since we have employed 2,700 people net up during the first nine months. 34% of that employment is actually female, so we're going in the right direction. I'm really happy to see this. So last but not least, I already said that in my first slide, that we have, because of the good progress this year, the first nine months, organic growth of 21%, and also good visibility, of course, into the backlog, which is now over 200 billion. and we know what we need to deliver the remaining part of the year, we have now said that we will take this step from 16 to 20 growth rate to 20 to 24 instead. So that's our new guidance and we still retain the other portion saying that EBIT will grow more than the organic sales growth and we will generate a positive cash flow and we're confident doing that going forward. I just want to thank all our employees for doing a fantastic job during the first nine months and supporting this growth and the commitment to creating societies and make having people in society safe is a strong sort of purpose of the company, which is supported by our employees. And I'm really pleased to see that. With that, I think if I have not forgotten anything, I will hand over to Anna, our CFO.

Thank you, Michael, and good morning, everyone. Yes, as you have heard, we are delivering a strong third quarter, especially from a sales growth and EBIT growth perspective. So I think now it's time to dig more into the financial numbers, and we start with the order backlog. We left the third quarter with a strong backlog, increasing it to 202 billion Swedish crowns. In particular, it was the medium-sized orders that increased during this quarter. They more than doubled, actually, this quarter, so we booked 21 billion. And we have, since the quarter closed, we booked an additional 16 billion in order intake. So the start of Q4 looks promising. 73% of our orders in the backlog are international, and it's dynamics and surveillance that is the majority of the order backlog, 71%. If you look at to the left in the graph, you can also see that we are increasing our deliveries from the backlog for the fourth quarter with 35% compared to the last year. And we can also see that we're increasing the delivery from backlog the year one and two, that is 26 and 27. compared to last year. So that really shows that we are on a growth journey and that we are also expanding our production capacity to deliver on our commitments. Let's turn into some more comments on the drivers of our sales and profitability then. And yeah, as you have heard us saying, this was our highest sales in EBIT ever in third quarter. And we have strong sales growth, 17% reported or 18% organic for the group. And the EBIT grows 16% in the quarter. What's also good to see is that the gross margin is increasing in all business areas in the quarter due to high project activities. And looking into more in each business area, aeronautics, 34% growth this quarter, driven very much from the Gripen deliveries and high activities in the business areas. Also, we see improvements in the commercial business in the sales growth. However, the EBIT is still impacted by the startup costs that we have in the T7 factory. as well as a bit higher marketing cost for all the gripping campaigns. And also, we're starting to do amortization on a capitalized R&D that's impacting the EBIT. uh dynamics again continued the strong growth from q2 they grow 12 this quarter and also delivered a higher ebit margin 19.3 percent in the quarter and that is a result also of project execution several deliveries a mixed situation you know in dynamics we have a lot of delivery projects and in this quarter lots of deliveries from uh ground combat that it's impacting the the margin in a positive way. Also, surveillance grew 8% in the quarter, good project execution and an EBIT level at the same level almost as last year. Here, it's very much delivers from also the URF1X radar production that's impacting in a positive way, but also good product execution in the business area. However, on surveillance, we can mention that there are still negative impact from the civil business impacting their margins. Cockums also high activity level and very significant growth in their EBIT margin year over year. That is very much driven this quarter from both high project execution and in particular in their export business. You mentioned also CombiTech, they grow 17% in the quarter, high utilization, high activity, and as we heard that they are working very much in an area which is growing as well. And their EBIT margin was on par with their EBIT margin last year if we deduct the divestment that they made in the Norwegian operation last year. And from a group perspective, mentioning also that on our corporate level, we have some corporate costs that are 200 million, approximately higher this quarter. And that is something that we expect to continue. It was driven very much of this share-based incentive program, but also somewhat higher costs for IT and security as we're growing the company. The financial summary then, I think I mentioned all items above EBIT. So I think I focus more here on the financial net that turned negative this quarter. And the reason for that is mainly because we had the revaluation of shares in the financial investment of around 50 million that impacted the financial net. And we had also a lower result from currency hedges related to the tender portfolio if you compare to last year. This revaluation that I talked about impacting also the tax rate this year. So compared to last year, it's a bit higher. And then the all in all, the growth net income is in line with last year and as well as the EPS. Let's zoom out then to nine months and look how it looks for us after nine months has passed. On a group level, the sales increased 20% or organic 21% related to effect on currencies. All our business areas have double-digit growth year-to-date. That's very positive to see. Also, our gross margin is improving 70 basis points, and it's all business areas that are contributing to this gross margin increase. But in particular, it's dynamics and surveillance where we see the improvements. So after nine months, our EBIT is up 30% and we delivered a margin of 9.3%. Year to date, the financial net is positive and here is supported by the appreciation from currency hedges related to our tender portfolio. And following that, we also have a lower tax rate decrease due to lower share of taxable income from foreign operations. So net income and EPS improvement driven by the EBIT growth and also the improvement in the financial net. Next, our cash flow. I think we can say that we have a strong cash flow from operations, despite increased working capital that is driven by our business growth. After nine months, we have generated 7.3 billion in cash from operations. That's 1.9 billion more than last year. Also in line with our sales growth, we are building working capital and we're doing that in line roughly with the same amount as we did last year. So if we look at the operation cash flow and deducted change in working capital, we actually have a positive cash flow of 3.9 billion after nine months. But as you know, we need to do our investments. That's something that we have communicated earlier in the Capital Markets Day and continue to communicate. It's important for our growth. And we have increased our investments. 4.9 billion is the amount now. That's 1.7 billion more than last year. And so we end up with a negative cash flow year to date, but we expect the operational cash flow to be positive this year since we are expecting several large customer payments by the end of the year. Finally, on this slide, I just want to mention also that it's very positive to see that we are improving our return on capital employed. It's now almost 15%, and that's driven both by our profitability, but also by increased return on capital turnover. Finally, our balance sheet. We have a strong financial position and a solid balance sheet. Our net debt to EBITDA is on a healthy level, 0.1 times. This quarter, we have a net debt of 700 million krona, and that was mainly due to that we have the lease of our newly opened office in Solna here in Sweden, and that's impacting around 1.3 billion in the third quarter. And we have cash and liquid investments of 12.2 billion. And during the quarter, we add the issue total bonds of 2 billion additionally. Additional to that, we have an unutilized revolving credit of 6 billion. So all in all, that puts us in a strong position to capitalize on future growth opportunities, both through increased investments and also enable us to do potential acquisitions. So in summary, I think a strong quarter, both in sales and EBIT across the business. The group has a solid financial position and we have a strong order backlog to deliver on. So with that, I hand over to you, Johan, to open the Q&A.