Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Saab AB (SAABF, Financial) reported a strong order intake for Q2, nearly SEK 40 billion, marking the second strongest quarter ever.
- The company has a record-high order backlog of SEK 183 billion, supporting future growth.
- Saab AB (SAABF) is experiencing significant growth in its Dynamics division, with a 37% increase driven by missile systems and training simulations.
- The company is heavily investing in R&D, particularly in AI and drone technology, to stay relevant in the future.
- Saab AB (SAABF) has received the SBTi's approval for its 2050 long-term emission reduction targets, making it the first defense company to achieve this milestone.
Negative Points
- The company reported a negative cash flow for Q2 and the first half of the year, although it expects a positive cash flow by year-end.
- There are ongoing challenges with under-absorption in the T-7 production, impacting profitability.
- Surveillance margins were affected by legacy contracts and the onboarding process of new employees, leading to higher costs.
- The company faces supply chain risks due to geopolitical tensions and sanctions, requiring continuous monitoring and adjustments.
- Saab AB (SAABF) is experiencing high corporate costs, partly due to increased IT and security expenses, as well as costs associated with its share program.
Q & A Highlights
Q: Can you provide more color on the uplift in Dynamics margins in Q2 and how should we think about these going into the second half of the year?
A: (Christian Luiga, CFO) The uplift in Dynamics margins is primarily due to better matching of sales with our production capacity. In Q1, sales were weak, but Q2 saw numbers that better matched our capacity, leading to improved margins. We expect this trend to continue as we maintain higher volumes.
Q: You mentioned needing to optimize scaling up. Does this mean internal improvements or slowing down employee additions?
A: (Micael Johansson, CEO) We are not slowing down capacity increases. Instead, we are optimizing manufacturing processes and redesigning products for better manufacturability. This is about improving efficiency, not halting growth.
Q: Will Surveillance margins improve after addressing legacy contract issues?
A: (Christian Luiga, CFO) Yes, the margin dip in Surveillance due to legacy contract write-downs is temporary. We expect margins to improve as we move forward, driven by radar and airborne early warning systems.
Q: How does the Ukraine military aid impact Saab's numbers, and what are the likely scenarios for its impact on Saab's business?
A: (Micael Johansson, CEO) It's difficult to quantify the exact impact of Ukraine aid on our growth. However, the support for Ukraine, replenishment of stock, and increased defense capabilities in Europe are driving demand. The Western support for Ukraine remains strong, and Europe is stepping up its defense investments.
Q: Can you elaborate on the profile of people being hired, particularly in Surveillance?
A: (Micael Johansson, CEO) We are hiring a mix of new graduates and experienced professionals, with a focus on software development, AI, and data engineering. The onboarding process is more expensive in Surveillance due to the specialized skills required.
Q: How confident are you in reversing the negative operational cash flow in the second half of the year?
A: (Micael Johansson, CEO) We are very confident in achieving positive operational cash flow for the year. We have already received large payments in July and expect more in the third and fourth quarters.
Q: What is driving the high growth in H1 corporate costs at the EBIT line?
A: (Christian Luiga, CFO) The increase in corporate costs is mainly due to higher IT and security expenses, a temporary recruitment body, and costs associated with our share program, which increases with our share price.
Q: Why not upgrade the cash flow target if you are confident in achieving positive cash flow?
A: (Micael Johansson, CEO) While we are confident in achieving positive cash flow, we prefer to maintain a conservative target due to the inherent lumpiness in our business. We have a medium-term target of 70% cash conversion, which we are confident in achieving.
Q: Can you provide some color on what share of Dynamics sales is driven by consumables like ammunition, which might be boosted by Ukraine?
A: (Micael Johansson, CEO) It's challenging to specify the exact portion of Dynamics sales driven by Ukraine-related consumables. The growth is driven by direct support to Ukraine, replenishment of stock, and increased defense capabilities in various countries.
Q: What is holding you back from upgrading the full-year guidance given your strong performance?
A: (Micael Johansson, CEO) We aim to be cautious due to ongoing capacity increases and the need to ensure these are operationalized effectively. We expect to be in the upper range of our guidance but prefer to maintain a balanced approach.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
