Saab AB (publ)

Good morning everyone and welcome to the presentation of Saab's report for the second quarter 2026. My name is Johan Andersson, responsible for Investor Relations, and I will be the moderator here today. With me here in Stockholm, we have our CEO, Michael Johansson, and our CFO, Anna Vikander. Michael and Anna will present the report, and thereafter, we will start with the Q&A session. And remember that you can both ask your questions over the telephone, or you can post the questions in the web interface, and I will read them out here in Stockholm. So with that, warm welcome, and I will hand over to you, Michael.

Thank you, Johan. And also from my side, welcome to the second quarter report. Let's just dive into the highlights immediately. As you've seen, this was another strong quarter with lots of momentum on the business side. And what's been defining the quarter was, of course, the major contracts that we have received on the submarines in Poland and also the Gripen Echo version contract with Ukraine. Huge sort of breakthroughs and success of course. And then we are doing extremely well when it comes to improving our way on the operational execution and that drives gross margin and of course our profitability on the bottom line. and connected to that it's all about sort of production ramp up and increasing our capacity in achieving this and since we are investing and have done that for quite a few years now in capacity this is now coming into play and we also recruit many skillful employees, as we speak, roughly on a number of 3000 net up a year, which adds to our capacity to deliver to our customers. And that pleases me really well that we are doing well in that area. We will continue to do that of course but on top of that it's not only about capacity it's also about future capability and here we also deliver more energy into R&D and new capabilities which we are showing to our customers as we speak. And I think we have increased in the first half year now compared to the first half year last year. I think we've increased R&D with roughly 700 millions, which is a big step. We have a record order backlog, 318 billion and very strong prospects for the future growth. And I will come back to how that backlog looks like in terms of more short-term deliveries and what's sort of ahead of us beyond like three years in terms of deliveries. So, I need, of course, to spend some minutes on the success stories this quarter. And I think it was a big breakthrough when it comes to the contract with the submarines for Poland. They have now contracted us for three submarines that will be delivered in... in the next few years. And of course, this is not only an industrial success, it's also very good for the Baltic Sea, increasing our underwater capability together with Poland from a security perspective of the Baltic Sea. But it will also entail industrial collaboration with Poland. And we will have sort of shipyard capabilities on both sides of the Baltic Sea, which makes lots of sense in terms of security and redundancy going forward. So we're really happy about this. And it shows, of course, that this conventional submarine capability is the state of the art capability. And it's a big evidence of that, that we're doing something really right in this area. Same thing, of course, when it comes to the Gripen fighter, the Gripen Echo fighter. There's been lots of discussions about Gripen for Ukraine. And President Zelensky was here not so long ago in Uppsala discussing this and telling us that now we will go ahead with this. And he talked about up to 150 aircrafts. And this is now the first batch actually being contracted. by Ukraine, 16 gripenese. But we haven't booked this yet. It will be booked in the next quarter due to the fact that there were a couple of administrative things connected to receiving money then from EU that Ukraine has to sort of fulfill, and then that will be coming into effect, that contract, shortly. Big success, of course, but this is only the first batch, and we will diligently continue to work with the next batch. On top of that, of course, a couple of really big successes on the Global Eye. Canada selected the Global Eye earlier in May, and we are in negotiation now with Canada. We'll move ahead as quickly as possible to contract that, of course. We're talking about six aircrafts. And then not long ago, last week, I think, it was the NATO Summit and the Industrial Day and was a big release from the NATO side that they have now selected the Global Eye. We're talking roughly 10 aircrafts to NATO, replacing the E-3 in Galen-Kirchen as a common capability within NATO, supported by nine countries now. And it will be operational, of course, and supported by all the countries when it comes into play in Galen-Kirchen. big breakthrough and I think it shows an evidence of how important it is to be in the Alliance as a country and it's also another evidence of what fantastic capabilities we as an industry We have to be able to provide to NATO and to have Sweden and Saab to be delivering this sort of strategic capability to NATO is a really big thing. So it's been a fantastic quarter from a big contract, big sort of selection point of view. And it creates a big balance and good balance between our product sort of offering in the market and also the platform offering. So this is one of my favorite slides, I must say, this year and this quarter. A few words, not going into much detail, but on why this sort of capability, the Global Eye, is so attractive. And we have more in pipeline, but I can't talk about details about that. But first of all, it's a capability that can actually cover the air the sea and the land simultaneously. Normally, earlier, the airborne early warning capability was about air surveillance capability. Now this is all domains. And of course, it is also incredibly sophisticated when it comes to how it digests all the information from all the sensors. The primary sensor on the fuselage, on the roof of the fuselage is, of course, the one that covers sort of the longest distance over 650 kilometers. You don't have to be close to any hostilities, but then there is a passive system as well that surrounds the aircraft. So everything that is looking at you will be detected as well and gives you a passive quality, which is fantastic. All of this sense of information is fused and managed, of course, and digested by AI capabilities. So the the operators in the aircraft and what's linked to the ground or other platform makes sense quickly and you get a situation awareness picture which you understand in a very sort of skillful way and you have that quickly. And it is in production. I mean we have these aircrafts in operations in UAE and we have it in production so we can deliver it with short lead times and it adds to a very critical capability gap, of course. This is a node in a network, so you will have access to the information that this platform gathers, also from other platforms like ships and fighter aircrafts or ground centers or even sort of army sort of type of equipment. So it is a really important sort of capability to have strategic and tactical situation awareness. We are really proud about this. Now back to the numbers and as you've seen we had an order intake of slightly more than 68 billion this year of course dominated by the big contract on the submarines for Poland but also the underlying order intake is very good. the good organic growth of almost 30%, and that shows how we actually deliver and how our capacity investments come into play continuously to increase our delivery pace in all areas, I would say. And then, of course, we increase our profitability in a very good way, driven, of course, by sales, but also more efficient operations. And that improves the gross margin and by that also the bottom line operating margin. We had a zero type of cash flow quarter, but the half year is roughly 1 billion plus compared to the first half year last year, which was minus 1.1 billion. And normally we do have sort of a second half of the year that is a lot better than the first half year. And I just wanted to underline we have not sort of taken any payments yet connected to the submarine contracts in Poland. So we are confident in delivering a good positive cash flow for this year as well. And on track for our guiding on 60% cash conversion over the period. A few comments on the different business areas from my side. The growth in aeronautics is connected to good pace and deliveries of gripping aircrafts, but also the tactical software capability development adds a lot of revenue to the aeronautics side of things. And then, of course, I need to mention that was a big event in Linköping, Sweden, when we rolled out the first two seats of the Gripen called Gripen F, because that's also contracted by Brazil, which was a very important milestone, of course. And now these will also come into deliveries as we speak in the next quarter. We still have issues when it comes to under absorption, when it comes to getting up and running on the on the pace of delivering T-7s from our facility in West Lafayette. We're getting there. A very important milestone was reached in the US now, where the milestone C, which they call it when they actually start contracting Boeing on batches of aircraft. We have been working our batches for a while with contracts from Boeing to Saab, but now the US Air Force is starting to operate these aircraft, so now the pace needs to increase going forward. But it will take a few quarters more and a couple of years, I would say, before we actually get back to good numbers on this side. But eventually, this will be an excellent franchise program over many years. And then, of course, I talked about the Gripeni to Ukraine, so I don't have to go back into that, even though I would like to talk a lot about this success story. Dynamics then. Very good market demand still. It's a bit lumpy in sort of when the contracts come in. Lots of small contracts, but also a few big ones in the pipeline. So a few to mention now during this quarter is, of course, the NLO support weapon to France and also another M4 called Gustav to Lithuania and a vehicle training system to the US Army, which is important contracts and is good underlying pipeline also for dynamics. Good deliveries, really good growth, 36% quarter to quarter. And we also have new products coming into play. We have a new missile for the RBS-70 system. We have a new ammunition type for the Carl Gustav that we've launched. and we have a camouflage net type of product, a poncho for a soldier that is really taking effect now in the market. So many good things are happening and there will be more things that we're investing in in this area going forward now. So Dynamics is doing well and also Surveillance extremely well. A strong demand and I need to point out that we have high deliveries of products from Surveillance, especially on the sensor side. As an example, the Giraffe 1X is very high demand in the market. So we are manufacturing this on, you could call it speculation, not only on contract and I mean, compared to last year, we have done a lot more deliveries, 100 systems already in the first half year, and we are moving to a pace of more than 300 systems a year going forward when we talk about the Drop 1X. Also, of course, the global high has a great pipeline and a big interest in the market. And now, as I've talked about, Canada and NATO have selected that. So that's negotiations for contracts ongoing. But also here we work a lot with a counter U.S. portfolio, the counter unmanned aerial system portfolio, which is a very important part of our portfolio where you where we have the components in terms of sensors and command and control and then we use different type of effectors to take out aerial threats and that is a portfolio i think has a big potential going forward being an open type of architecture system that we have now launched Good growth, as you can see, 47%, quarter to quarter, excellent, and an increasing backlog. The naval side, I must say there's high demand also in that sort of market. I mean, you know that we didn't get selected together with Babcock on the frigates for Sweden. But you maybe saw yesterday that we were contracted by TKMS ThyssenKrupp Maritime System in Germany to provide everything from composite structures to sensors, to command and control, to fire control systems. for that frigate F-128 going forward. Four of them, that was almost 9 billion in order intake. And they might need another four going forward. So that was a big breakthrough, of course. So there is a demand for that portfolio. I must underline that. And now the contract on the submarines for Poland and in combination with the Swedish contract, of course, means that we are ramping up production capacity both in Karlskrona, the shipyard there, and also taking more facilities into play and ramping up capability in Landskrona, the other shipyard, where a number of things will be done on the submarine side as well. We have other contracts also in Australia. We are selected as being the provider of all the surface vessels, and we have received another reasonable contract from them this quarter. And also the combat boat is increasing in interest in many countries. So we're building a new facility, increasing our production capacity up north in Doxta, outside of Sjölsvik, for that capability as well. And we have really good progress on the A-26 submarine program in Sweden. The profitability of the naval side is a little bit weaker than the comparable quarter. But that's due that we took sort of an effect of that we didn't get selected on the Swedish frigate side together with Babcock. So we did a write down and took the whole effect of that during the quarter. Otherwise, the profitability would have increased also in this area. So that was once off. Huge backlog now, of course, due to the contract in Poland. Combutech is also doing really well. The sales is a bit flat, but that's mainly through effects of the mix between consultant hours and how we treat other more commitment projects delivering things timing-wise. So that's not a problem at all. They are doing well on their growth side as well. So there's more like a timing effect, but then of course the profitability is increasing in a very good way. And we are growing in our commitments and contracts with, for example, the NATO Communication Information Agency on the cybersecurity side, but also new contracts with the Swedish Defense Material Administration. So CombiTech is doing really well, I must say, and that's really good for Saab because it's a resource and competence that we can handle sort of between internal projects within SAW but also having good contracts externally. On the sustainability side, we are doing a lot to, of course, support our commitments to reducing our emissions. This quarter, we actually increased 8% due to lots of business activities, mainly, and many, many flight tests, test flights, but we're doing well in comparison to the commitment we've done with SBTI. So we're on a good track and a couple of examples you can see here what we're doing more and more automated capabilities introduced. We have a robot assisted welding procedure now which is reducing lots of material and by that also CO2 emissions of course same thing on the aeronautics side. We use 3D printing and we reduce emissions from that because of material usage and all that. So many small, small but important parts are being done to to improve going forward in the way we do things when it comes to sustainability and environmental aspect of things. And we are at the second place in the aerospace and defense sector in the ranking done by Financial Times and Statlista's ranking when it comes to European climate leaders. And our ambition is to be a leader in this area going forward, of course, all the time. Last slide from my side, and I think this slide is important to reflect upon. This shows how our backlog is divided in terms of How much is going to be delivered in the next two and a half years from now and how much that is increasing quarter to quarter. If you look upon a quarter, second quarter, a few years back. And as you can see, 60% roughly of the backlog is related to things that will be delivered in two and a half years timeframe. And if you look back to the last second quarter last year, that has increased 36%. But now, also because of the successes on the platform side, which is a bit longer contracts, of course, if you look upon what will be delivered from year three and onwards, that has increased dramatically, of course, from last year, second quarter, and now is 120 billion and an increase of 132%. So this is just to show you that Even though we get large platform contracts, still our short-term deliveries are increasing also a lot in the backlog, and that's still 60%. So we have a very good mix in our backlog, I must say. So without sort of complicating myself too much into numbers, which I think is Anna's responsibility more, I will now hand over to Anna for a more detailed review of our numbers. Here you go, Anna.

Thank you, Michael, and good morning, everyone. It's so clear that we have delivered a strong second quarter. We have continued to strengthen our market position and executed on a strategy to both increase our customer deliveries while we at the same time are increasing our investments in capacity expansion and also future capabilities. So altogether, our strategy execution is really reflected in our solid financial performance. So before going into the details into the quarter, I would like to take a step back and look into our performance during the last years and how it is in relation to our financial targets. And we can see that our sales growth CAGR is now at 24% over this period. And we have done this growth with a profitable growth journey, meaning that we have increased EBIT more. It's at 34% now, supported by expanded gross margin, as well as operating leverage. Our cash conversion reached 53 percent after this quarter. It was a little bit lower than we were after the first quarter, but a huge improvement compared to where we were last year at the same time. Also, as Michael said, we normally have a more stronger and positive cash flow profile in the second half of the year. So all together, we remain confident that we are well progressing towards our medium term targets in cash conversion as well. Now let's look at the numbers more in detail and focusing on gross margin and operating income. We delivered a record of gross margin for the single quarter. Importantly is that we expanded the gross margin by more than one percentage point compared to last year. And that is very much driven by surveillance and dynamics, which increased their share of the total sales revenues in the quarter. In addition, we significantly increased the R&D, which is according to our strategy. And we are at the same time leveraging and scaling on administration and marketing and sales costs. And all in all, we are improving our EBIT margin to 11%, an increase of 41% in the quarter. Turning to our business areas and let's start with Dynamics where we have the ramping up is done successfully and we have had several delivers in the quarter which has contributed to the EBIT which is an EBIT that is at record numbers this quarter. The sales and EBIT growth in Dynamics is broad across the business units So very good performance from Dynamics. The same goes for Surveillance, where we have the EBIT growth of 55% in the quarter. Here it is very much the sensor systems business that is supporting both the growth and the EBIT margin expansion. And like Dynamics, Surveillance is ramping up, and that is something that we see in the G1X production, which is ramping up and contributing to several deliveries and the EBIT margin increase in the quarter. In aeronautics, it's the Gripen business that is expanding the production capacity with delivery levels that are increasing. And as we have mentioned before, we still have negative contribution from the T7 program, which is something that we will have for some more time until we have ramped up and have scale in that production facility. Finally, our business area, Naval. The highlight for Naval this quarter is, of course, this huge contract for the three submarines to Poland, a large order of 47 billion Swedish krona that will contribute to sales and revenues for a long time and several years ahead. On the other hand, we were not selected for the Swedish Frigate program. And as Michael said, we have recognized costs that was related to that program that we have taken now in this quarter. And that is what's impacting the EBIT and EBIT margin negatively in business area enabled this year. So all in all, we have delivered strong EBIT across the group. Importantly to mention is that we have achieved that while we at the same time are making significant investments for R&D in future growth, innovation and technology leadership. On a rolling 12-month basis, we have spent 4.4 billion Swedish krona in internally funded R&D. It is more than doubled since three years ago. Our R&D is focused on key technology areas, including autonomy, next-generation sensor capabilities, advanced weapon systems, and AI-enabled command and control systems, all of which are supporting the future growth. These efforts are generating fast results, and some examples during the quarter are, for instance, that we did a first test flight for an unmanned airborne early warning system together with General Atomics. We also performed a successful remote torpedo firing from an unmanned and remotely controlled Combat Boat 90. These are just some examples of new capabilities that will reinforce our ability for future opportunities while we're also going to strengthen our existing platform. Now, let's take a look at cash flow. Looking at the first half year, we have a positive cash flow of 1 billion Swedish krona, which is a significant improvement from last year. And that is coming from while we at the same time are increasing our investment in capacity that is increased by around 1 billion SEK compared to last year. The higher cash outflow from financial items and taxes is mainly related to the higher taxes that were paid in Q1. So with support from the recent major wins, we see good prospects for good cash flow for the rest of the year. And as Michael also mentioned, we have not yet received the advance payment for the Poland contract. So we remain confident to deliver continued positive cash flow during the year. Notably as well is that we are improving our return on capital employed and that is driven both by higher profitability and also higher capital turnover. Our balance sheet is strong with a net liquidity of 2.5 billion SEK. It's a decrease since year end and that is primarily from tax and the dividend payments done. We have a cash and liquid investments of approximately 17 billion SEK and in addition to that an unutilized revolving credit. Also worth mentioning is that S&P has made their annual review in June, and they reconfirm our investment grade rating of BBB+. So overall, this provides a strong financial position and a flexibility going forward. So all in all, we remain confident in our medium term targets. They are supported by strong market demand and increasing defense spending. And our portfolio is well aligned with customer requirements. And we continue to invest heavily in production capability, technology and talents, both to support future growth and to make sure that we can deliver on our commitments. These investments are increasingly translated into higher delivery volumes and improve scalability across the company. So against this backdrop, we are well positioned to reach our medium-term targets of organic sales growth in this period 23 to 27 of around 22% CAGR. We have an EBIT growth higher than the sales growth and a cash conversion above 60%. So we see that the combination of the record backlog, the strong demand, the capacity expansion, the discipline execution is a solid foundation for achieving these targets. So with that, I hand over to Johan and the Q&A.