Saab AB (publ) (OTCPK: SAABF) Second Quarter 2022 Earnings Conference Call July 21, 2022 4:00 a. m. m. ET
Participating companies
Merton Kaplan – RI Manager
Micael Johansson – President, CEO and Director
Christian Luiga – Chief Financial Officer and Deputy Chief Executive Officer
Conference Call Participants
Charley Olivia – Goldman Sachs
Heelan Ben – Bank of America
Golrang Erik – SEB
Tusa Sash – Agency Partners
Merton Kaplan
Hello everyone and welcome to the presentation of Saab’s current results for the 2022 quarter. I’m Merton Kaplan, Head of Investor Relations at Saab. And with me in the studio, I have the CEO of saab, Micael Johansson; and Saab’s Chief Financial Officer, Christian Luiga. We will start with a presentation and go, as usual, to our Q&A consultation at the end of it.
Without time, I would like to give you the floor, Micael.
michel johansson
Thank you, Merton, and thank you all for joining us in this presentation of the second quarter in a very current Stockholm. And before we jump a little bit to the numbers, I’d like to give you a little bit of insight into the environment we’re running in. now. What are discriminators kind for us in this business environment?
As you know, I mean, we have absolutely replaced the security landscape with a tragic war in Ukraine, and it is ongoing and ongoing. And many European defense countries, many ECU countries have now significantly improved their defense completion forecasts, adding Sweden, 2% of GDP. And many European countries too, even 3% we see in some countries. And this affects, of course, our environment, the result of which we have not yet seen, because many countries are still reading in the medium and long term. -deadline to make plans for mandatory capacities and they will be clarified, I would say, towards the end of this year in Sweden.
Our Supreme Commander will come out and communicate about it, how he will succeed in the 2% in November. Then, of course, the importance of source security and coverage of your country is much more important, which also affects us in the way you think about the supply chain, in the way we look at local endogenous capabilities in some countries in Europe. And, of course, it’s incredibly smart that Sweden has a company like Saab with a proper portfolio to support them in their defense growth. , becoming an integral component of our Swedish defence forces.
Eventually, Sweden and Finland were invited and implemented for NATO membership. And I’ve said many times before that I think it will definitely benefit us as a company. First of all, when it comes to credibility as an industry and also as a country. , being part of this alliance, of course, will give another long-term vision of us. Our systems and products are, of course, COMPATIBLE with NATO. That hasn’t changed. But we will have access to acquisitions and purchases within NATO, NSPA. And we have wonderful features to offer GlobalEye, surveillance capability, detection features. So I see something positive in hunting in this. And since I also believe that Sweden and the other Nordic countries will have a great duty in terms of capability in the Nordic region, in the Arctic region, we can help in terms of expansion in air defence, in air dominance and also when it comes to the Baltic Sea.
Overall, we see a lot of interest in Saab’s product portfolio. But I wouldn’t say that the accumulation of defense spending that we’re seeing right now has affected the expansion of our order intake, although, as you can see, it’s a big construct, which is still to come in the medium and long term. And I think we are exceptionally well placed to meet visitor demands in terms of shorter delivery times, increasing demands with the portfolio we have in our key areas.
And that shows in particular right now when it comes to supporting weapons and sensors and education and simulation, but other things will also come in the long run. And of course, we will work a lot with the other delivery times we have. in our portfolio for other parties, ranging from six months to two years, of course. And it’s a huge strain on all consumers today to see higher deliveries and shorter lead times. That’s the environment.
Given the numbers then. The quarter of the moment was a smart quarter. We recorded a very strong order intake, SEK 17. 3 billion and for the part of the year, SEK 25. 5 billion. This is a perfect sign of the attractiveness of our portfolio in the market. Our sales were in line with last year. And according to our plan for this year, where we said we have a much more powerful time part of this year. We have reiterated our direction of about 5% expansion. The same goes for profitability. We have a return accumulation of 3% quarterly and 6% year-on-year. And also on this side, we reiterate that we will have a more powerful part of the moment and that we will be in the most sensitive of our EBIT expansion diversity from 8% to 12%.
We have a positive cash flow, and that’s also in line with the plan. It will be positive for the year, not as positive as last year because we had big bills from the GlobalEye contract we had at the time, but it will be positive. Big: Some vital milestones we have achieved this quarter are the keel laying rite of the first A26. That’s when you actually assemble two of the larger parts of the submarine and put them together. Then, literally, start looking at the entire submarine. And we also finished the T-7A, the educational aircraft deliveries in St. So now we’re moving production absolutely to West Lafayette, Indiana. Sustainability remains a very important topic for us, and we have introduced a number of leading teams now for other areas, which I will return to later in the presentation.
So the key things that happened in the current quarter in terms of order intake are of course incredibly pleased to see that Sweden has now made the decision to get GlobalEye two of them with features to buy two more and that it is SEK7. 3 billion orders received. We also had more contracts on the Gripen C/D to upgrade this one for Sweden. And we’re looking into the future, now we’ve introduced new projects to see what kind of goes beyond Gripen E and what formula of — the capacity of formulas that we’re going to want in our country in 2060 and beyond when it comes to hunting ability. Good orders also on the RBS15 missile formulas and in the United States for the sensor formula, the task-oriented surface-to-air radar sensor formula for the United States, which is an ongoing production that we have in the United States. very smart contract for us. And as you have seen, many countries have a great interest in our weapons. So we had several orders regarding the Carl-Gustaf and also ammunition for it, Sweden, the United States, Denmark and some others. So the quarter at the moment in terms of order intake was wonderful, I would say.
Looking at the activity box, some highlights about them. The Gripen program is progressing well. We had an incredibly high intensity in terms of flight verification activity during the quarter. And we continue with our deliveries. We have now made many arrangements and are in a position to begin production in West Lafayette, Indiana. The arrangements include, of course, the installation of the entire plant with respect to [indistinguishable] and processes, etc. , and it’s done. And aeronautics is strong in terms of sales, which is in line with our plan, and is affected by degrees of profitability in terms of arrangements for the T-7.
Dynamics has a very smart expansion in terms of order entry. Sales are very similar to deliveries when it comes to Dynamics. And we had a very smart quarter last year in the current quarter in terms of deliveries. And it’s a matter of time, and when deliveries come to Dynamics, they’re going to have a really smart quarter, I’d say half the moment. And, of course, the EBIT margins are excellent, and it will continue to be so. expansion domain for us, of course. Strong order taking, of course, thanks to GlobalEye in Sweden and also to several other medium orders for sensor systems. We’re seeing expansion across all business sets and have smart allocation execution. Therefore, margins are now expanding in tracking according to plan. And we are also making progress with regard to Saab’s resources as a whole, but more particularly also with regard to surveillance.
Kockums is in the trajectory of the margin trend, as we have noticed on the surface side, but also on the underwater side. We have a new contract for the modification of the third Gotland-class submarine, which increases our profitability at Kockums, but also a smart export contract as far as surface ships are concerned, which also gives us greater profitability. And they’re also moving forward in terms of expansion for the first part of the year in a very smart way.
Some comments. Innovation is incredibly vital to us, and we are known for being a cutting-edge agile company. I just need to give you a few highlights in terms of the things we presented this quarter. Support weapons are vital to us, and you might think the Carl-Gustaf is still a Carl-Gustaf, but we paint all the time with new inventions in terms of ease of use, levels of use, and accuracy as a weapon system. And now we have created a new programmable ammunition that communicates with the chimney device and the weapon. This means that it is much less difficult to use and much faster for an operator. And it’s a weapon you’ll be informed to use in an hour, even for a green soldier, I would say. Therefore, it is a huge step forward in making this weapon even more effective in terms of diversity and accuracy.
As for sensor formulas, we’re looking for a much lighter type of sensor generation that can be used, as you can see in this slide, by employing drones to bring it in. This is a wonderful example of engineering capability in which we have used our functions in Finland in Tampere and also here outside Stockholm in Jarfalla to create a lightweight and lightweight type of passive sensor. disorder that provides you with just the right awareness of what is going on around you without you being exposed to anything around you. It is platform independent. You can also use it on drones, vehicles, boats, masts, or laptops. It weighs only a few kilos, this sensor formula. These are two examples of wonderful inventions and product launches we’ve had this quarter.
As far as sustainability is concerned, as you know, we have come together to succeed in 0, and we have asked for clinical targets and we expect a reaction to that in the last component of the year. In the meantime, of course, we have introduced all of our execution teams, investigating how we continue with the power supply, how we ship, and also how we work with our aviation fuel systems and some other execution groups. So that’s what’s happening, on the environmental side. And, of course, we continue to enforce our policy of promoting culprits, which necessarily looks in detail at how the human rights facets of what we do in each country where we operate and where we sell products. So we put it in place in detail in our business model.
I look straight ahead next to me. I mean, there are priorities that are vital to us. We remain true to our multinational strategy, expanding into the U. S. USA, UK, Germany, Australia and, of course, Sweden, Finland and Brazil. Therefore, it is a vital strategy. We stick to our core areas. I think it’s very smart that we now have a broad portfolio, looking for the functions that will be needed because of the accumulation of defense spending. So everything from fighter jets to submarine systems, globalization and sensor systems for complex weapons systems will be so vital and will be mapped to the capability advances we’re seeing now in other countries.
Taking advantage of those market opportunities is, of course, a stretch of business now. We are building our workforce to do this, and we are making a great effort to now access NATO’s functions within the alliance, working with other parts of the forums that you want to be connected to conquer this market. But we can’t do it here and now alone. I mean we now have an e-book order of SEK 112 billion. So we have a lot to do to move forward, as Christian will. communicate soon. But we are also investing in new technologies and adopting new technologies, working with autonomous formulas in all areas, especially in the aerial domain and the underground domain, but we are also taking the next steps in sensor formulas that employ complete virtual formulas that will connect in combination in a new way and also the search for our formula to connect to a cloud, a secure cloud, which we call fighting cloud technology. So there’s a lot to come from an innovation perspective.
It is also imperative for us to increase capacity, as I said. We have done this as an example, in Karlskoga. We have doubled our capacity with respect to the assemblies that come out of this facility from one year to the next. however, we will build more production lines, either in the delivery of the weapons component and the ammunition component in Karlskoga, but we will also look for redundancy, having production in the UK and potentially also in the US. USA It will be vital for us. For us too, the inflation component and the demanding situations of the source chain are essential, of course. We are in the contracts we have today through clauses to protect us from inflation, but also from foreign exchange exposure. And that will be vital for the future. And, of course, we allocate our costs to our consumers when necessary if our supply chain wants to increase its costs. Therefore, it is diligent work that we will do in the future.
We have a supply chain policy for some time in the future. We’re doing well this year and a little bit next year in terms of what we have in inventory. We don’t have any challenges to deliver our products as we see now. we are continuously working with the chain of origin to regionalize it, but also to make sure that we have things in inventory in the future. And then, of course, beyond the 23rd, 24th, we also have, if this continues, our jobs to make sure that we get our stuff internally, but we’re fine for now. And then, of course, the skill and skill of fighters is a huge thing today. Saab employs around 1800 more people this year, and we are fighting for the same skills. and skill like many other companies. These are our priorities for the future.
I just need to point out that of course what we’re seeing in the market right now hasn’t affected the expansion of our order intake right now. Just a little, I would say. We have wonderful opportunities for expansion in the future, taking advantage of the defense spending we see in Europe and also in the gigantic U. S. market. So with the portfolio we have, of course, we have even greater expansion opportunities. And I look forward now to see the more strategic plans, capacity plans and acquisition plans of each country in the coming months, adding Sweden and then in November.
With that, on a positive note about the future, I’m going to talk to my CFO, Christian Luiga, to tell you a little more about our numbers.
cristian luiga
Thank you, Micael, and good morning, everyone. I just need to start by pointing out, as Micael said, at the beginning of February, when we met to talk about the results of the fourth quarter, we were very transparent that this year will be illustrated with a weaker first part and a more powerful moment. part. And we stick to our plans. We deliver according to this, and we also have a smart positive recovery in most cases in our order entry.
And starting with our order book, I think there are a couple of things that are notable in our report and 76%, of course, in the quarter, driven by a larger order, but also by another medium-sized order between SEK one hundred million and 1 billion SEK and they are very important, of course, either because of the speed of production, but also because of the profitability. And the order book is now more sensitive at SEK 112 billion. We had never been there antes. de doors of Sweden, this quarter was very heavy for Sweden due to the GlobalEye to Sweden.
What is attractive to see is that our overdue sales order for this year, i. e. the current part of the year, now amounts to SEK 20. 2 billion. This means that without promoting anything else this year, we will have SEK 20. 2 billion to deliver in sales. And of course, last year we had 17. 3%, so it’s up 17%. And this number also means that we regularly sell anything at the top, which is also mandatory and natural, as we expect a higher expansion in the current part. of the year. But, quite attractively, we also see that the current year, the third year and the fourth year are now improving and then give us a smart expansion perspective and only next year it increases by 13%.
Let me start with the middle of the year first and I’ll come back to the quarter when I communicate the lines of business. The half year is weaker, as we said, it’s 1% sales growth. We still have our outlook of around 5% for the year. This means that we will be around 10 at the moment. And that comes from other facets that I’ll come back to when we talk about sales. Overall gross profit and gross margin are improving, and we’re seeing 0. 3% gross margin growth and innovations in all business lines except aerospace at this stage, which is very good. The EBIT point has risen. And here we can have. we can communicate about a number of things. The first is that last year we were affected by a one-time restructuring that we announced in the current part of the year, in the current quarterly report of SEK 85 million. But even without that, we’re seeing an improvement and depreciation and amortization, for example, have increased year over year with 0. 3% of — to 5. 2% of sales compared to 4. 8% of sales year over year. latest.
Another thing that is visual in our report is that we have higher commercial prices this period, this first part of the year. a building like the one we had in the first part. It will be particularly minor. And those examples are sharing-based systems that charge more. We’ve also had corporate projects to develop our logo symbol from an HR perspective, as lately we’re a wonderful employer of a lot of engineers and we need to bring that to life in this market. .
Security IT also contributed to this construction with the security scenario we experienced in the first part of the year. And most sensitively, we have minority portfolio investments that suffered impairments in the first part of the year. That is why the charge of the business is better. And possibly I wouldn’t go into details, but what I mean is that the accumulation in the current part of the year will be particularly less than in the first part.
Finally, on the net source of income. The net source of revenue decreases, while EBIT increases. As you may have seen, we have a strong liquidity position. We have SEK 9. 7 billion in bonds basically where we make short-term investments. And according to IFRS, we have to evaluate the market the price of investments every time, even if we keep them. So technically, what we have to do is that as the interest rate goes up, we have to compare them downwards. But then take that and cancel that provision until the maturity of that bond, unless you sell it beforehand, and there is no money effect. So, it’s about moving some kind of long-term source of income that we’re now going to oppose to today’s loss or vice versa. So, without it, the net source of revenue would be higher, the EPS would be higher between 7% and 5%, sorry, and the EPS would have been 7. 05 SEK.
Then in the business box a little. Sales expansion is weak in Aeronautics. I say low sales expansion because we think it will be a little more powerful, and that’s because of the Gripen program, which are two big, massive systems. It’s a little slower in the first part and will come a little more powerful later. This means that there is nothing strange. These are massive systems that go a little up and down and a rhythm. And it also means that, from a profitability perspective, it greatly affects the OpEx that it covers each time in that commercial area.
At Dynamics, we have our house managed last year in the current quarter. In the current quarter, all business sets achieved their most productive sales of all time in Dynamics. That’s why we have a negative expansion of 21% in this quarter. We see Dynamics’ incredibly strong pipeline and the comparison figures will disappear from the next quarter. Tracking was driven through many smart assignment executions, not just before the start through GlobalEye, but in many assignments we’ve taken in the business box over the past two years, they’re now starting to deliver and accelerate, which is promising and smart. And Kockums, flat for the quarter, there’s not much to comment on.
This, I’d like to show it all the time, is a kind of impulse counter or trend to see that we’re on the right track. We say those two deserve to keep going up. Sales, for 12 consecutive months, are an indicator of our expansion. Between the last quarter and this quarter and the beginning of the year, of course, it is a slower pace, and it is for this first part that the year is weaker. , and then we see that with a 5% expansion for the year that the moment part or — and the new yellow bars that we’ll show you in the next two quarters will recover. And EBITDA is developing and developing steadily, and is now at 12. 6%, up 1% in two years. And that’s where we want to see an improvement in the improvement in gross margin, making sure we have a more successful business over time.
A little bit about EBIT and EBIT margins. As I said, aeronautics is penalized by the somewhat slow speed of the Gripen programs. There are also negative currency effects the quarter in aeronautics that is hitting, which should not be thought of as something that will continue even if the currency continues to rise. We have some clauses on that, but there may also be time effects and currency effects. But it’s a currency effect that hits the quarter.
Diversity and project execution within Dynamics further increase the margin. And even if it suits this unique effect last year, when we closed our Barracuda in the US. So, the dynamics are getting bigger, as we also find that they increase the power and get a smart pipeline to deliver. And it’s the same trend we see in Surveillance, albeit at a much lower level.
Kockums has a smart mix, whether it’s on surface and subsea projects, and he’s also expanding the margin. And that’s the point, as I said before, where we deserve to see Kockums and not the last point we had last year. Combitech had a rough quarter, but I’ll talk about that in a bit. And this is the moment. Here we are. Digital transformation and indeed contracts, adding the personal 5G network but also many attractive projects towards the defense sector were signed in the current quarter. And it’s very encouraging to see that we. . . Combitech is a company that works both for Saab and for external customers. And where we’re seeing strong expansion is in our external consumer market and that’s driving a lot of business, however that’s also an industry right now, the consulting industry, where there’s a lot of festival of skills and resources , is still a challenge. And we’ve had pretty high profits in this early part coming out of COVID and a lot of other people are missing to look for new opportunities, but we’re hiring a lot, and that means we’re getting a top job to drive the business. at this stage, this is one of the reasons why the margin is shrinking.
Then the flow of money. We have guided for the positive cash flow for the year. We are in our plan in this direction. We have one express thing that I need to communicate about, two or three things. One is truly stock. We have a replacement in current capital that is negative. If you take a look at our balance sheet, you will see that stocks increased since last year and also since the end of the year. And it’s part of our adventure to make sure we’re safe in our deliveries. There are many facets that we deal with our suppliers to renegotiate with them. We’re making sure we’re supplying, we’re building other types of component societies, and we’re building actions to make sure we’re going to have less impact than mandatory on the supply chain issues we see. And that’s all we’ve already started during COVID. We’ve communicated about it before, and that’s what we continue to do. And we believe that every penny is indeed valuable in making sure we can deliver to our consumers and be well prepared.
Then we have decreasing investments, basically by a decreasing capitalization in the R
So it’s about money flow. And then that brings us to what I talked about earlier, our very strong monetary position. If you have an accumulation in EBITDA, which we have, of 5% this quarter and you have a positive cash flow, then net debt, a -The EBITDA ratio will automatically become, of course, more positive in each quarter, and that’s something we’ve noticed over the last 3 years. And now we have a very strong and healthy balance sheet, but we also have a healthy liquidity position, which also prepares us for anything that may come up in the long run that can help us capture the opportunity that we see now, which is bigger than ever.
Finally, our perspectives. As Micael said, we see more opportunities than ever before. But still, there are some delays in some of those things. And the e-book of orders is improving day by day, and we have recorded 76% of the order intake. But for now, we stick to our biological sales expansion of around 5%, which means it will increase in the current part of the year. We need to be a little more direct about the operating result to make sure we don’t underestimate the improvement we’re seeing. And therefore, we said in addition to our forecasts that it is between 8% and 12%, which remains that we estimate that it is in the upper component of this range. And the operating money will have to be positive as we said, however, at a point of decline than in 2021, when it was 3,300 million Swedish crowns.
That’s all on my part. Thank you.
Merton Kaplan
Super. Thank you, Christian, and thank you, Micael. So, now we have, before leaving it, the hand of our moderator to open the session of consultations and answers. I need to emphasize for everyone and our entire audience that you can log into the convention to make your inquiry and you can also send them to ask and we will take the inquiries. And I would also like to point out that you do your consultations one or two at a time, because everyone has the opportunity to do the consultation, because we have time for that, so you will have the opportunity to make more inquiries. With that, I’ll turn the moderator around.
Q&A session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first is from Charley Olivia’s lineage with Goldman Sachs. Continue.
charley-olivia
Hello, hello. Thank you very much for answering my question. I have two questions to start with. The first is that we have just seen announcements about the Czech Republic’s decision to take F-35 aircraft instead of the Gripen, and I know that you have been in a tender procedure there and that pre-existing Gripen in the Czech Republic. Could you just comment on the final results of this tender procedure and what happened?And then also looking long-term, what do you think is the long-term type for the Gripen program here?Where are the long-term orders?What are the possible countries of expansion of Gripen?
And then my query at the moment is also in the aeronautics box. Could you tell us about the accumulation of margins in aeronautics, and in particular with the concentrate on the T-7?We saw a drop in margins in aeronautics in the first part. of the year, and I know you pointed out that there was some kind of higher progression: higher progression loads of T-7. Would it be great to get a concept of those load spikes?So when can margins be expected to recover?? And also in a way, what is the absolute point of progression that you reach?Thank you.
michel johansson
Thanks for the questions, and let me start with Gripen in. . . or the Czech Republic then. Well, we noticed that yesterday they made a statement, of course. It is a fact that today we have a very successful Gripen program. in the Czech Republic, and they are very happy with the system. Today they have capacity. It is completely scalable many steps from now on in the Gripen C/D edition you have. And they can seamlessly upgrade to the E edition if they want, which would be incredibly effective from an infrastructure and transition standpoint with other people and pilots, etc. So, of course, we will also make you a proposal. And if they need to have a referral and move on to communicating with the United States, it’s up to them, of course.
We have a contract with them, and this is where Sweden FMV, Defense Materiel Organization, has a direct lease with them up to 27 with an option to go ahead here. This will generate profits for us for many years to come, and update the formula for them. So, and in parallel, of course, we will compete with the United States to say that we also have an attractive offer to make them in capacity expansion with the next-generation fighter with the Gripen E. Therefore, it is not yet done. They say they should do it in a direct dialogue, without some kind of open procurement process, which is normal. parallel, and then we will see what in the end.
When it comes to the Gripen as a whole, of course we still see a lot of long-term opportunities. As you know, I mean, I’m pretty sure Sweden will still have more platforms in the long run beyond 1960. Let’s also take a look at the capacity targets and what they want to do with other Nordic countries in this region. In cargo, Brazil announced that it would promptly add 4 aircraft to the existing contract. And then, in parallel, we started: we started a discussion about when I batched another 26 planes with them. There are a few other countries in Latin America and it looks very promising. And then we have the existing consumers of Gripen, adding the Czech Republic, I will have to say, where we will not give up, but we have Hungary, we have Thailand and some others. So I’m still very positive about our position on the look of hunting systems in the world.
However, I mean, also, I would say that NATO is kind of a piece of that puzzle in the future, because we’re going to be part of an alliance where we’re going to be credible in the long run as an industry in the country that’s part of that alliance. And this, I hope, will also give us more substance and, from the point of view of security policy, a better position when it comes to creating more contracts on the side of the Gripen, because those decisions are political. It is about security policy and the relations it must have with certain countries. So, it’s not just about having a wonderful system, which we have, but also about having a position where you can create an alliance with the country. But I’m positive about the future, absolutely.
On the aeronautics side, when it comes to. . . When will we see margins accumulate?We don’t consult the activity spaces now. But of course, I mean, the increase in production of Gripens will begin in a few years, when the volumes will be higher. We’re about to start production at West Lafayette on the T-7, as we speak. And immediately, when the first batch of initial low-index production comes into play, of course, the kind of – the kind of spending that we’ve noticed right now will stop, and we’re going to start to see higher margins in aeronautics. These are two vital elements to build the margins of aeronautics. Don’t know if you need to upload something, Christian?
cristian luiga
Yes, let me go up then that the T-7 is correct, and I think we have also tried to illustrate this in the report. It has a curtain effect on the margin right now and it’s had that, and it’s going to disappear as Micael says, as we start to ramp up production more slowly than at West Lafayette. And that’s all we maintain and it’s true.
charley-olivia
It is ok. It’s useful. And just to explain the T-7. So would it be fair to assume that if production starts at West Lafayette very imminently, is it an off-peak year for margins or can we expect a few more years where margins will continue to be affected?
michel johansson
Well, in fact, we will start production of the low-flow T-7, from the point of view of initial production, imminently, hopefully, within a month, so to speak. But again, this will gradually increase the prices we have. noted so far, as Christian said, without giving express rules about it, however, it will disappear, of course.
cristian luiga
It’s a little bit about how temporarily we get to the kind of resolution we made with Boeing about how temporarily we do it next. That’s why we’re a little confused about this statement.
charley-olivia
It is ok. It’s useful. Thank you.
Merton Kaplan
Thank you, Olivier. Can we ask the following question please?
Operator
Next is Heelan Ben’s line with Bank of America. Continue.
Healan Ben
Yes, good morning guys. I’m Ben from BofA. First, the orders were obviously very, very strong. What effect does this have on your way of thinking about the medium-term outlook?I know you’ve only said one number in the past, but how do we deserve us to think about that?At the time of the consultation, you communicated there about this latest consultation about the fact that being part of NATO would potentially be positive for the Gripen programme. Are there other sectors of activity that could benefit from Sweden?What if you simply communicated about it?And finally, in terms of inflation and your ability to transfer costs, are there spaces in the business where you’re concerned that you might not be able to transfer them or stick to some kind of fixed-price contract?? Thank you.
michel johansson
Thank you so much. As for order intake, yes, as I said, I don’t think we’ve really noticed the effect of some sort of build-up on defence spending in many countries in Europe. It remains to be clarified, in the medium and long term, precisely what capabilities will be needed and at what pace. Yes, however, I am very sure that we have a smart portfolio for this in our country, in other European countries. So I think we’ll have a lot of opportunities for expansion. in the future, especially when we have settled down, either in Europe and in the US. I am therefore very positive about this. So the order taking and the expansion were based on that, yes, wonderful opportunities. That’s all I can say.
As far as NATO is concerned, express spaces in which I think we really have things to make a contribution. First of all, I think on the surveillance side, I think we have GlobalEye, we have other wonderful electronic warfare and detection and command functions. and control functions, where we have not been a kind of internal defense to make a contribution to the functioning with other countries and with the alliance in those things. So those are examples of spaces where I think we can be very strong, with the exception of many countries, of course, within NATO across our portfolio, adding weapons and missile technology. this region will also climb to what we have noticed before in terms of making plans in Sweden and in the Nordic area.
So I see, hopefully, some kind of more powerful air domain capability based on more Gripens, but also the Baltic Sea protects that. And since we have traditional submarines, this will also be a domain that I’m in a position to talk about. with them. So, there are a lot of opportunities, but we are chasing all those things now by entering all the forums to perceive what we can access, of course, opportunities.
Well, I don’t see any express domain where we care about inflation. I mean, we have in our portfolio an e-book of orders that we have now, the SEK 112 billion, we’ve gone through that, and we’re covered with clauses when it comes to exposure to value increases, indices and currencies. Different types of clauses, depending on the moment and precisely the contract concluded. But overall, we’re doing well, and that’s going to be very important to protect us in the future, of course, adding to be on guard to increase our values if it’s mandatory based on the value increases of the supply chain. So no, I don’t see — short answer, no, I don’t see that the threat domain is similar to inflation on our side.
Healan Ben
It is ok! Super. Thank you.
michel johansson
thanks ben
Operator
The following is from the lineage of Golrang Erik with SEB. Continue.
golrang erik
I have a few questions ici. La first refers, I suppose, to the inflation factor as well. The programs have not yet been defined. But do you see any signs that costs are strengthening in the margin in the order eBook because of the improvement in this?That’s the first question.
And then I need to continue the discussion about aeronautics and margin there. It turns out that there is something, we intend to look a few years ahead, but something has happened and the margin will increase and anything else appears and weighs on it. . What, I mean, is there a style there? I mean it’s quite possible that we’ll have another big order that comes with initial progression pricing and so on, once the T-X program is up and running. Is it really moderate to be waiting for a margin in line with the objective of the aeronautical group over time?There I will prevent.
michel johansson
Well, again, in terms of expanding the demand in the market in the short term and if you look at the level of the product, of course, weapons, for example, or sensors. I mean, volumes, deadlines are incredibly vital for our consumers. today. And by adding volumes, we can do more, of course, to increase the productivity and power of what we do, no doubt. So, I mean my short answer is that we can manage costs in the market by being very competitive and also building our margins at the same time when volumes are lost — getting into that component of the portfolio. Is that clear? Aeronautics, other things are emerging, well. . .
golrang erik
Sorry, just to go on. So is it more a matter of volume that would make you increase margins rather than net costs a bit due to strong demand?
cristian luiga
Well, the value can be lost if the charge of the entrance curtains is higher, because we have some kind of additional charge model, you can also say with our customers, even if it is not a transparent charge. Plus model, if the curtains and we have increase clauses that say that if the curtains become more expensive, then we will quote more for that hardware and then we will have higher sales, and possibly we will have the agreed margin or we will have the opportunity to work with that. But it’s kind of, and it also means that some of that budget would be spent on higher values in the same curtains of our customers. It’s like no, it’s nothing we can with the scenario we have in the world.
But then, having said that, how do we improve our margins in this environment where inflation is rising?So inflation will corrode our margin? It’s not the answer. We don’t do that. Then we will continue to increase our margin. So the key question is that, in this accumulation of volume, can we use it even more to achieve the effects of scale, as Micael said, in our production?So, there are two other answers to this query.
michel johansson
When it comes to aeronautics and margins, I mean, you can assume that anything else seems to put some kind of strain on your margin. But we’ve been in an era of unusually intense progression within aeronautics. And if that’s something The delight of aeronautics shows, is that when you go into production and you have a balance between production and progression, the margins pass, because we are very effective in building airplanes. So that’s what I see for the future.
Merton Kaplan
Super. Thank you. Was that the answer to your question?
golrang erik
Yes. Guess. Thank you
Merton Kaplan
Merci. Je I know we have one more online, however, I will pause and answer some queries that we also receive here from other viewers. There are some queries that we have already addressed, but I will have a consultation for you, Micael and a consultation for you, Christian. One of our investors here wonders about Australia’s potential, which we haven’t talked about, especially in the submarine segment. Is there anything you can say about Saab’s appointments with Australia?
michel johansson
That’s a smart question. I mean we still have some uncertainty about the end-of-life hole of existing Collins-elegance submarines. which, in my opinion, there will be a time delay today. And the lifespan of Collins’ kind of elegance extension is certainly something we’re looking at with Australian Submarine Corporation. But again, the perspective is also, will there be. . . it will have been a desire to fill in the holes, so to speak. We call him Collins’ son or anything else, and surely we are players who wish we were at this festival because, however, it is not yet transparent to the defence forces in Australia. , however, we are proceeding with this as a kind of crusade today. So there is prospect in Australia.
And of course, then we have to expand that capacity locally. We have another 700 people in Australia involved in command and control systems and other things. And we have a wonderful engineering capability, and we can move the generation to Australia for that.
Merton Kaplan
Super. Merci. Et we have a consultation for you, which is a little more detailed, Christian, from an investor in London, who needs to know a little bit more about the effect of the currencies we had during the quarter. What was the nature of that?And is this something that is going to continue with this type of currency?
cristian luiga
Well, to complicate things a bit, but still simplify, we have a lot of purchases in foreign currencies, Gripen and aeronautics end up in other types of currencies in this production. Meanwhile, we have indexing clauses that are taken more as normal, but with a longer era in between. So, we may only have monetary effects at this time, and then we can only have an update of the escalation clause until the end of the year. And then we see if we are more/less or if they are on par with what can affect us. And some of them, we don’t cover them because we think the financial clause will affect them later. And part of that, we cover it because we take our day-to-day jobs and we already cover them when we made the purchase.
So, and this is not a simple mathematical solution, unfortunately. This is something that happens regularly with giant projects in which we work for several years with our consumer, who can be the Swedish or foreign consumer and what component deserves to happen directly and what it deserves. we take the threat. And if we take the threat, we charge the value of that and maybe we charge the currency hedging and take that hedging right away. And that’s really several hundred pages of hardware details. So I don’t need to complicate myself, however, I also need to keep it simple. That’s what it looks like.
Merton Kaplan
These are very clear. Then we come to the moderator, please, questions about the call.
Operator
The following is in line with Tusa Sash with Agency Partners. Continue.
Tusa Belt
Sash Tusa from Agency Partners speaks. I have some questions about the UK, a bit directed at the UK. The first considerations are the air of long-term struggle. You discussed in your previous comments the exhaustion of the Swedish Gripen program in the 2060s. I wonder if you can link this to your participation in the British Future Combat Air programme. And also this week’s announcement of Japan’s access to the British Tempest. Was it a marvel for you?Does this in any way replace your technique to your involvement in the UK and BAE?
michel johansson
Good preguntas. Merci. Eh, well, I mean, there’s still a memorandum of understanding between Sweden and the UK on the long-term combat air system, and we’re committed and proceeding with our paintings in relation to that. As I said before, Sweden also strategically seeks what happens in parallel: what do we want in a longer-term perspective?And, as we know, this is a systems approach. the Eurofighter, of course, and you have to have a hunter. That’s also my point of view. But we are talking about systems of systems. So it’s very appealing to us, and we’re still working very well with BAE on how we can help the FCAS program elsewhere or as a whole. So it will continue. Sweden wants to provide its strategy on what it wants to do with it – in its box in the long run.
And we’re waiting for that until we know where Sweden, as a country, will now be very involved in long-term feedback systems, but from now on the type of business will be the same as usual for a while until the study is over, and then we’ll see. But we will continue our business appointments with the UK industry whenever possible. And now we’re focusing on other portions of systems systems. So I’m still very willing to be a component of it. In the meantime, we are looking into the exam that was conducted in Sweden. Japan didn’t surprise me. I know there have been discussions, and I don’t know if anything has been completely resolved and it remains to be seen how worried they will be and what this means for the Japanese assignment F-X Two and FCAS in the UKArray But no, it was not a wonder. They have capabilities, smart capabilities, but FCAS is still vital to us as an industry, absolutely, and we have a smart relationship with the UK industry. That’s what I can say now.
Tusa Belt
Súper. Et, just turn to NLAW. A few months ago, there was a very attractive SMV that extended appointments with the UK in NLAW to a low note, at least that’s why I’m reading about it. And communicate about the continuation of the production of existing missiles and long-lasting micelles in the UK. Does that mean there is still British and Swedish production of NLAW?And is there a big difference in your percentage of paints depending on when the missiles — when the missiles are produced?
michel johansson
Well, I also see this as a very promising kind of frame painting agreement where they will paint together, including, I think, Finland and the Baltic States as well. We’ll continue production in the UK and Northern Ireland, of course, to put that in position and push it back in, and that’s very important. I’m just waiting for the contracts right now. And there may be parts of that that are also made in Sweden. But essentially, today we are supplying the kits, so to speak, to Northern Ireland.
So I don’t have the details, but I wouldn’t say it’s a big difference. Of course, the difference would be that if we did it entirely in Sweden, the last meeting and test, of course, would be done in Sweden, and that’s a difference, but then we send the kits to Northern Ireland and they do the final meeting and testing. It’s not so much the difference. It’s smart to have redundancy. But what’s vital now, based on this framework agreement, is to get us to sign a contract to get started with that. And I hope that happens soon.
Tusa Belt
Thank you.
Merton Kaplan
Merci. Je I think we still have one more matrix so let’s see to finish with this last one from, I think, Erik.
Operator
Oui. La next is one to follow the lineage of Golrang Erik. Continue.
golrang erik
Ouais. Merci. Je I think you said something, however, I mean you’re evidently very positive about the business prospects for you now given everything that happened. Don’t you commit to anything right now? So is it moderate to expect it to have some sort of event after gaining some visibility of where other countries are headed and their expansion plans later this year or early next year?
michel johansson
Of course, we’ll take a look at all sorts of medium- and long-term spending plans and strategic instructions on functions and all that. And, of course, when we’ve made our changes or our assessments, I would say, of expansion potentials. , of course we will tell the market our point of view. I can’t say precisely when. But of course, it’s in our brain to go in that direction.
golrang erik
Thank you.
Merton Kaplan
Merci. Je think the last question. So with that, I think this call to convention is over. Thanks a lot.
michel johansson
Thank you so much for listening. And this time it all worked with questions and everything, and I’m pleased to see that and hear that, and thank you for being with us today. I look forward to next time.
A – Christian Luiga
Thank you. Good bye.