Saab AB

STO:SAAB B

Earnings Call Transcript 2022-Q4

[Merton Kaplan, executive]

My name is Merton Kaplan. I'm Head of Investor Relations at Saab. I would like to welcome you all for listening in to our Fourth Quarter Earnings Presentation. With me here today in the studio, I have our CEO, Micael Johansson; and Saab CFO, Christian Luiga.So we will, as usual, start with the presentation and continue with a Q&A, and you'll be able to ask questions on the website directly to me. So continue with that. And with that introduction, I'll hand the microphone to you, Micael.

[Micael Johansson, executive]

Thank you, Merton, and good morning, and welcome, everyone. Thank you for joining our call today for the fourth quarter of '22 and also for the full year report.And I will jump right into the numbers, I think, and I'll start with a few comments on the full year of last year 2022, a few highlights. And I think we had a very good year when it comes to the market positions that we took and we had an order intake of more than SEK63 billion, which is a huge growth in order intake. Still, I would say that maybe in the last quarter, we start seeing some effects specifically on the tragic war in Ukraine. Most of the contracts were still discussions we've initiated with customers quite a long time ago.We delivered on our outlook when it comes to sales growth, and we have an organic growth of slightly, slightly above 5%, 7.3% reported. And we also continued to grow our EBIT, which is really important to us, 13%, which is slightly above the range that we did our outlook on, and we continue to generate cash, which is extremely important to us as well, of course. And looking at the fourth quarter, more specifically, we had an extremely good quarter, of course, when it comes to order intake. I think it's a record high order intake, almost SEK30 billion. And also the growth was good, 14% organically, 16% reported. And we had growth of EBIT in all business areas, except in aeronautics, which is also a good growth situation in most of the organizations, and we generated a margin of 9.5%, which is a lot about volumes, of course, but also that we continue to improve our efficiency.Good cash flow generation in the quarter, SEK1.7 billion. And the machine, the organization is running at high intensity, of course, and this reflects the quarter very well, I think. And as you've seen, the Board has proposed a dividend increase with 8% to SEK5.30, which will be taken now to the AGM in April. I think it's worth looking at and reflecting upon the huge backlog we have now. It's a record high. We increased that backlog with 21% during the year. So we are at SEK128 billion, and as I said, we start seeing an impact directly on orders connected to Ukraine. And I think many countries now in Europe have seen their stocks being depleted, and they need to be replenished and they will go above maybe what they had before because of the necessity of having resilient societies and thresholds, if things go really wrong. So I think we will see that continuing in terms of a good market situation. And I really hope the war in Ukraine will end, of course, with tragic, but I still think that the country, specifically in Europe will continue to grow the defense spending for many years to come.And most of the order intake has been in the large and the medium order side, still, we didn't have sort of a huge sort of order in 2022. So it's still an extremely strong order intake situation, looking at medium and large orders, but not sort of a substantially large order involved at all. We had the mix between international markets in Sweden, roughly 50-50, I would say. And we now see a more short-term high sort of delivery pace of that backlog that we see and Christian will come back to that in his presentation.Important contracts during the quarter was, of course, the 2 SIGINT ships that we have contracted for Poland, which is all of our situation awareness, of course, that was SEK6.7 billion. We got a couple of contracts on the Gripen support contract, but also an upgrade contract of the Charlotte Delta version of the Gripen, which is extremely well since Sweden will continue to fly that aircraft well into the 30s. And also that will generate more potential business for other countries that fly the Gripen.The NLAW contracts from the U.K. and Sweden is an important contract, which we now really start up the production at high volumes again when it comes to the support weapon, which has been extremely successful in the tragic war. And that will now continue to be a sort of a volume product for us going forward. And we also had an important contract from a neighboring country, Finland, when it comes to the missile side of things. So it's a good mix of contracts during the quarter, of course, and also during the full year.A few highlights from quarter 4. I think I've already alluded to that, that we have a very intensive market activity out there with many countries needing to replenish their stocks. But also, of course, discussions on more sophisticated equipment and systems going forward. And we need to be diligently working that market going forward. And I mean, NATO is also now gathering again to discuss what is actually the floor of spending to be a strong alliance. And now it's 2%, but I wouldn't be surprised if it's actually more than that when we have passed the next summit. We have a very important milestone now which we passed related to the Gripen program. We have miles, the type certificate approved from the Swedish authorities and the Brazilian authorities, so now both air forces can take this new version of the Gripen in full operational aspects. And I was in Brazil in December, taking part in the inauguration of the aircraft in their operational use at the wing in Annapolis.We've started also the production of the Gripen E version in Brazil. We also have delivered a very important Torpedo to Sweden, which is all about an adapted torpedo for the [ covets ], of course, and also for the submarines in our type of environment in the Baltic Sea, very strong capability. And then again, this is all about increasing capacity. And of course, we have fantastic employees in the company that we need to retain and the momentum is really good, but we also need to employ new people. So we increased our full-time equivalents with more than 1,000 people in 2022 in Sweden and internationally. And we will continue to do that during 2023, and we'll probably be above another 1,000 people in 2023. So we are growing, but we also are investing in infrastructure to be able to manufacture things and be more efficient in manufacturing, automization is important to us. We also have done a divestment of the maritime traffic management part of Saab, which is sort of back to being focusing on our core business and that divestment, I hope we will not close in the first half year of 2023.A couple of comments on each business area. As I said, the type certificate for the Gripen E is, of course, extremely important for aeronautics. There is intensity in the market. We are involved in a few campaigns, both in South America and in Europe when it comes to the Gripen aircraft. We still have a difficult position when it comes to the civil aviation part of aeronautics, but also that the T-7 ramp-up is still affecting the profitability in a negative way. This is a timing issue, of course, over time since we are going to manufacture many, many aircrafts of T-7 going forward. So we have to sort of mitigate as far as we can this negative effect and then that will sort of fade out over time.Dynamics have had an extremely strong year and lots of interest from customers, specifically related to the sport weapons and missile activities but also training and simulation. One must remember that when activities are intense within the defense forces, they need to train. So our combat training centers are also being extremely important for our customers. Now this year have been exceptionally favorable when it comes to both sort of the mix of contracts and the support weapon side of Dynamics. It will be favorable going forward in terms of high levels of growth, and I think also good profitability, but this has actually been an exceptional year when it comes to the sport weapon. And we do invest now to expand all the time our capability in terms of deliveries in Dynamics.Surveillance also have a strong interest in the marketplace for their portfolio when it comes to sensors, of course, but also command and control systems and electronic warfare. And they improved continuously in all business units. And the EBIT margin is going in the right direction, and we are performing better and better on certain low performance [ orders ] and have been a turnaround in a couple of units. I'm really pleased with that. There's still more to do, but we are going absolutely in the right direction.On Saab Kockums side, we have a much better position as a whole in that business area since we have a good mix now, Swedish and international contracts and the surface side is complementing the submarine side in a good way. And we have an aftermarket sales that is impacting things in a good direction. So the profitability is growing in the right direction all the time. And quarter 4 was a good year when it comes to profitability, as I say, and a good order intake as well. So Saab Kockums is delivering in the right direction, and it's on a good journey of growth and becoming more profitable, as we've talked about before.When it comes to sustainability, which is an extremely important area to us, we have, during this quarter, now being approved by science-based targets initiative related to our science-based targets, which is older scopes. And we're going to reduce our emissions with 42% until 2030, and become neutral 2050. And we're going to also have the reductions in Scope 3, which is connected to our supply chain, of course, but also to the customer side of things, things that we can affect on the customer side. For the fourth consecutive year, we have been rated as A minus on the climate disclosure reporting side. We are taking initiatives all we can do to make sure that we have good provisions of energy to the company in the right way and right energy sources. We have a savings campaign, which has already received a reduction or achieved the reduction in the first 2 months of 11%, and we're going to phase out our fossil fuel-driven vehicles from mid this year now. So we'll only be supporting having electrical vehicles being ordered in the company from June onwards. So many good initiatives in this area as well. But the foundation of everything is that what we do is the purpose, of course, is to protect societies, and that is a really important foundation for everything we do on top of that when it comes to sustainability.So looking ahead, we have now looked at the backlog and we think now that we can give an outlook to where we will grow around 15% at 23%. And we continue to have the view that our profitability must grow more than that. So we continue to become more and more profitable, but all the time with the trade-off of having the strength to invest in R&D for the future. So we will be a strong company also in 5 and 10 years to come. And we will continue to generate a positive cash flow. That is so important to us. So we have a strong outlook for '23, as you can see.So in summary, looking at things going forward, of course, extremely high intensity in the market. We must continue to capture market opportunities, both in Europe and the U.S. and also in Asia. And we, of course, need to get inside the NATO acquisition processes, and there are cases now that been worked on, but also taking part in all the forums and so forth. And we are in NYT even if it's sad that it's dragging on to become a full member, so we participate in the forums already. Lots of initiatives to increase capacity and expansion but also, again, on a standard line that retaining our skillful employees is as important as actually employing more people and then it's sort of infrastructure investments, of course, also that is involved in that.We have respect for the macroeconomic situation, of course, and supply chain issues, and we can have a sort of stop sort of focusing on things to mitigate all these things, which I think we've done in a very good way, and we are prepared. Of course, when it comes to supply chain, it's all about having a little bit more working capital, making sure we understand the full fledge of the depth of the supply chains, having redundant suppliers and some in-sourcing activities, of course. And then contracting when it comes to being hedged for cost increases and currency exposure is also incredibly important.I also need to say we have a backlog now of SEK128 billion. It's a lot about deliveries here and now, but this company needs to be capable of using its best brains to look at future capabilities as well. So we do put efforts on that. So the trade-off is important between growth, growth and profitability, but still the strength to create fantastic things going forward. And as you've seen, I've also taken a step to strengthen again the Group management team. I need a strong person looking at government affairs, both for the Swedish perspective, but the European perspective. We have much more presence needed in Brussels and other and also connected to NATO, we need to increase our focus on stakeholder management and understanding how we work the possibilities in that context.And then I've decided then that we need to go into the next phase with aeronautics. So I have a new BA Head of Aeronautics, which is Lars Tossman, who used to be the business area head of Saab Kockums. And in consequence, we have a new business area head to Saab Head:Kockums, which will be Mats Wicksell. So Jonas Hjelm will stay in corporate management, but take the role of the government affairs position. So this is good sort of adjustments of Group management to become even stronger going forward.So that is the quick summary of quarter 4 and the full year and also a little bit of what's going to happen in the future. With that, I will hand over to Christian, who will dig in a little bit more into the numbers.

[Christian Luiga, executive]

Thank you, Micael, and good morning to everyone. Happy to have you on the call today. Just to recap and summarize again. I think it's worth to mention that we said and we set out this year with an outlook and we said that, that outlook will be achieved through a weaker first half and then a stronger second half, and that's exactly what we see. And on top of that, we have delivered a fantastic order intake and that has then built a great foundation for the growth going forward. And that order book that came from the SEK63 billion in order intake, 1.5x sales this year and SEK30 billion coming through in quarter 4. As you see on this picture, it has increased and pushed up year 1, year 2 and year 3 in our order to sales backlog. Next year or this year, actually, the coming year is up 19%. And and that supports the 15% growth uplift that we believe in for next year.The orders have come in a bit more towards Sweden than we have in the past. And meanwhile, the small orders have been quite flat, medium-sized and large have been increasing substantially. And I think this is, as I said, something that is important to look at and see how this shift from sometimes before when we had large orders coming in but should be delivered in the long-term time frame, they are now coming much faster through our backlog sales cycle.If we look a bit on the full year numbers for 2022, we are also closing the year, as Micael said, not only a quarter and just summarize and see how did this year work out. We have a sales growth of 5%, and that has delivered scale and the improvement is driven primarily in Dynamics with Surveillance and Kockums. The EBIT improvement of 13.4% is driven by scale effects and efficiency. Efficiency comes through a small increase in gross margin and through the scale effects that we have on top of the OpEx development.Depreciation has increased faster than sales. We talked about it last year because then we had a big step-up in depreciation between 2020 and 2021. We still have a quite big step up faster than sales, and that has also had a negative impact. So if you would have followed sales pattern, it would have been 0.2% more in EBIT margin. So how is the depreciation and amortization going next year? Well, it will be more in line or below the sales growth we have set out in our outlook.Another thing that is important to see, we did achieve our outlook, even though the corporate costs increased a bit more than expected. There's different factors that have driven the corporate cost this year. Those that we didn't sort of plan for is that the share price went up as it did and therefore, our share program cost more for paying off for all employees that are participating in the share program. The other part is the minority losses that we have in some of our portfolios that also came out higher than expected. But what has also come through is more recruitment cost and more IT and IT security costs, which is important, of course, in this new situation to take on. These will be moved out, of course, into the BAs and part of the BA's profitability over time. But as we did react quickly on this, on Group level, they are corporate costs for now.Finally, if you dig into the financial net and the bridge between EBIT and net income, you will see, and we talked about it in quarter 3 that we have an unrealized loss on our portfolio for the year and the portfolio of placement that we have on our excess cash, the SEK12.9 billion that we have in cash. We have placed that in bonds. And as the interest have increased during the year, we have had unrealized losses on those. As long as we don't sell these bonds, we will not have a realized loss. So we will actually revert that back and get a positive from that. In quarter 4, we had a positive financial net. That is partly because now we start to see that positive coming back, and it was partly because of financial impact from currency revaluations on some hedges we have. So those impacted positively in the quarter. we still had a SEK200 million impact on those unrealized effect on the full year on net income. And despite that, we increased our net income with close to 13% and the EPS close to 14%.Looking a bit on the sales growth. We can see on this picture that pretty much all our units, except for Kockums, did grow double digit. And Kockums actually had a 7% nice growth for the year. So this is more a quarter effect than anything that we should be worried about. As Micael said, we have a strong backlog also in Kockums. Actually, all these 4 business areas have a backlog that is close to 3x sales when we end the year. Aeronautics is driven by high activity in the Gripen programs that start to ramp up. And the sales growth in Dynamics and in Surveillance are in all business units in this quarter, which is very, of course, fun and encouraging that all business units are driving growth. Combitech, I will come back to when I present that separately.You know that I come back to this. This is for me to make sure that we continuously improve our EBITDA in the same time as we continue to grow our sales on a rolling basis. And now we are in the end of the quarter, so it becomes full year numbers. But before we have the depreciation and before we have the amortizations, what is the achievement we do on our profitability? And since 2020 when we had a dip from the COVID situation, as you all may remember, we are now returning back up, and we continue to steadily improve that EBITDA margin year-by-year. And as Micael said, it's extremely important for us to continue to drive profitability. And that said, we have that sort of locked in, we know how to do that. Growth is going to be fundamental, and we need to be innovative in the future. So we will come back to that mix and how we work with that over time.But in principle, we work with a volume scale effect, and we work with efficiency, those 2 boxes. In addition to that, we also work, of course, with our portfolio management where [ MTM ] was part of that in this last quarter. The margins per business area, Aeronautics did have a somewhat weak quarter and it is Aviation Services where we had strong quarter 4 last year. That gives a comparison effect in this quarter. So without that, it would have been an increase in the rest of the business. That said, as Micael said, the civil aviation side is still impacting negatively. And there, we will have to look at how we take contracts in the future, and we have taken a decision during the fall to make sure that we will be much more diligent on what kind of contracts we take with the big customers there to make sure we are profitable.Strong margins in Dynamics is a result of high volumes in quarter 4, but also in quarter 4 and in 2022, we want to point out, it has been an exceptionally favorable mix from the type of contracts that have come through. So that will be something to look at going forward. Strength in EBITDA in Surveillance. We had 3 business units that were below our expectations on what they should achieve previously. They are now moving slowly up very, very good pace and very steady pace in their movement, which is encouraging, and that is driving Surveillance profitability growth, and that should continue also into next year. And as we have said, Kockums good performance. Here, we have also a favorable customer mix, but that will also continue for the future. It is a mix of more foreign contracts and aftermarket sales that drives margin upwards. It's still a low-margin business, but it is actually improving and coming up to decent levels.Quickly on Combitech. Combitech is something we came to you and said in the spring that we were not too satisfied. Actually, year-end, we said it came out on a weaker note and we had to work with how to improve the profitability in Combitech. I'm happy now to see that the quarter 4 results of this year shows signals of that we have started to see results from this work. We are improving utilization. We are hiring more people, and we have good tractions, not least from the defense and civil security market. And that is a good foundation for future improvement. It also shows in the result of quarter 4 being an improvement year-on-year compared to last year. We also closed our Danish business that was not profitable in quarter 4, and we have taken the cost in this result for that closure, and we continue to recruit people as we have a strong demand.Cash flow. We indicated that cash flow would be positive but below last year. And last year, we had SEK3.3 billion in operational cash flow. And this year, we had SEK2.6 billion. So we were SEK0.7 billion below. With that, we have also built up inventory quite substantially in Dynamics and a bit in Surveillance. And as you understand, with the short lead times, we need to have both in Dynamics and partly in Surveillance, that is important for security supply, but also to be able to deliver on new demand coming in. And that has been a quite easy decision to take to secure that we actually can be resilient in our growth journey. We do have investments that are on the same level on property equipment and tooling, and they may increase a bit going forward. But on the other hand, we also had lower investments in R&D, but that was primarily Gripen and T-7. And these are program maturing now, and therefore, it's natural that they are starting to phase out.We end the year and have had actually during the year a strong balance sheet. We have a net liquidity position, which makes the net debt-to-EBITDA equation quite uninteresting to talk about actually. But we have a strong position. We have SEK12.9 billion in short-term investments that we sit on, and we are prepared to take on both a growth journey, have the flexibility in the growth journey to do M&As and to work with partnerships going forward, which will be important to have that strength now in this next phase.I'm not going to reiterate what Micael said on this. I just wanted to then point out that we don't guide specifically on a range this year on operating income, but what we say it is going to be higher than the organic sales growth. And we will see if and how we can come back during the year with more specific details. But right now, this is what we would like to communicate, and we feel comfortable that this should be achievable.And before I leave back to you, Merton, I just want to say that we have a Capital Markets Day on Tuesday. For those of you that haven't haven't decided to go there yet. I really urge you to contact the IR or the communication department to make sure you get there. It's going to be a super day with my colleagues in group management, our CEO and some other people. And I hope we can give you more details, both on the position we have and the future we see for Saab and our market.

[Merton Kaplan, executive]

Thank you very much, Christian, and thank you also, Micael, for walking through the business in this quarter for us. So now we continue our live stream, and we will have a Q&A session. So is our moderator around?

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question from the phone comes from Erik Golrang from SEB.

[Erik Pettersson-Golrang, analyst]

Thank you. Thank you for the presentation. I appreciate your comment there on sort of maybe coming back to the EBIT guidance a bit later in the year. But just so we don't get too carried away here. Could you say something about, I mean, is it fair to assume that Dynamics will be the fastest-growing business this year? And is it also fair to assume that based on your commentary about a very favorable mix that it's going to be a struggle for Dynamics to further expand their margin. Is that a potential sort of factor holding back EBIT growth a bit? Because otherwise, given what you said about corporate items, some of the other divisions, you can easily get to an EBIT growth level 2x what you guide for in terms of sales growth. So what should we think about here to not get too carried away?

[Micael Johansson, executive]

Well, I can start and Christian can add. I mean, I don't want to guide on business area level, of course, in more specific terms. But you're right in assuming that we were trying to say that this year was exceptional when it comes to the mix and how that turned out into high margin level for Dynamics. And I actually don't think that level is sustainable really, but it's going to be high level going forward. And then of course, we do see potentially in Surveillance continuing to improve their margins going forward. And also Combitech is on the right journey, and that is also true for Saab Kockums. And of course, there is more to do on Aeronautics side to also continue profitability. But of course, you shouldn't be too carried away, of course. But I think the most important part to say here that Dynamics will continue to do well, but this was an exceptional year. I think we have to understand that.

[Christian Luiga, executive]

And on the growth side, I think we see favorable growth in all business areas. But of course, things that are faster moving, both Surveillance and Dynamics will probably have a better potential for growth in the year, but we see all areas actually growing quite good next year.

[Erik Pettersson-Golrang, analyst]

Okay. And 2 follow-ups. Still, I mean, the above 15%, I would assume that we're not thinking about 16% or 17%. Is that the right way to think about it?And then the second question is the 15% organic growth. In terms of risk for bottlenecks and supply chain constraints, et cetera, cost overruns, what's your thinking there? How do you prepare the business for this level of growth?

[Christian Luiga, executive]

Maybe, Micael, if I take the first one and you take about the second one first, I mean, as we talked about this balance, we have worked with the balance in 2022 as well on making sure we have a profitability growth and we have said that before. We don't want to just make a dot profitability growth. We need to make something that is visible, sustainable. And that, of course, is some kind of great. But we don't want to go into exact details at this point. It's a very special year. But we will have a goal to make a profitability growth, and then we need to grow as held and then we need to make sure we innovate for the future. So that is very simple put on without guiding anything on it.

[Micael Johansson, executive]

And I think on sort of the risk level on supply chain issues and so forth, I think we're doing well. I do have respect for the fact that the weakest link in the chain can have an effect and all that. But I do see, and I feel confident about the growth perspective, looking at the backlog that will generate turnover next year. And what we have now built up in inventory and working capital, we can generate a growth level of that magnitude. But we still continue to work extremely diligent on making sure that we prepare ourselves through understanding the depth of the supply chains, also our suppliers supply suppliers, so to say, but also creating redundancy when it makes sense and also some in-sourcing and building, unfortunately, but I think it's wise now more inventory and working capital to make sure we can sort of deliver on our commitments. So I do feel confident in what we've said about our outlook going forward. Despite that, we need to work diligently on all what you said.

[Merton Kaplan, executive]

Thank you very much, Erik. I think we have more people on the line. Moderator?

[Operator]

The next question comes from Virginia Montorsi from Bank of America.

[Virginia Montorsi, analyst]

I had a few actually. The first one would be going back to your EBIT guidance. I understand that you don't want to give us more than what you've provided, but would you be able to give us any color on what is sort of the variable or the variables that have made you not provide a specific number range? Is there any more color you can give us on that?The second one would be on Dynamics. So I know you've said that so far this year, the mix effect was extremely favorable. Can you give us any more color on exactly what this means or what happened specifically?And the third one would be on civil on aeronautics, how to think about the civil aviation business for 2023 as it recovers?And maybe one last, on cash, given your currently very good cash position, how you think about that for 2023?

[Christian Luiga, executive]

So maybe I start to say EBIT guidance No. Sorry, you will not get more details on that to be a little bit brutal, but I think I had enough answer to Erik on that. I can't say that much more. On Dynamics, of course, Dynamics has a great portfolio and a big portfolio and a broad portfolio. And certain things have higher margin and certain things have lower margin. And of course, if the stars are right and all the high-margin stuff and the high-margin contracts get delivered in a certain period and maybe others come later, then that mix is very favorable for the company. And we have also said during the year as we get larger contracts, we will probably have a bit more pressure on margin, but we will have much more stability. And over time, we will have much more security in our profitability and cash flow. And that's something we probably will see in part of our business going forward.

[Micael Johansson, executive]

And sometimes, I need to add on that. I mean, sometimes when you get to a certain position, you need to work with obsolescence issues and manage sort of the growth of the manufacturing side and change a few parts and re-certify. And all of that, so far, we just pushed on. We're investing in new capacity. We also need to adjust for the future, of course, but it will be good levels and high levels. But this year was sort of, okay, the stores were actually in the right positions on exactly what contracts we got. But you're going to see good levels going forward also, there won't be a big surprise. We are saying that this was exceptional on Dynamics. On the civil aviation side, we're not a big player in the civil aviation side. So we need to work on how we complement our portfolio on the civil side, how we also potentially renegotiate a capital contract to mitigate what we're seeing in our Aerostructures side. And those discussions we have with Airbus and Boeing, of course, and it's a timing thing also. So we get off sort of the legacy things that affects our profitability now when it comes to currency hedging and exposure and things like that. So it's both sort of a size issue, but then it's also about sort of what contracts we have legacy-wise and how we mitigate that going forward. So it's a timing effect, but it will drag on for a little bit further going forward. T-7, I mean, we say that, that affects also negatively right now. That is definitely a timing effect because, I mean, we are in the startup phase of production, and we're going to do many aft user launches in West Lafayette. So that will be a good business to us going forward.

[Merton Kaplan, executive]

The last question...

[Christian Luiga, executive]

We don't foresee any material improvements on the civil aviation or aeronautics side next year. It's too early for that. And I think we have mentioned before, we need to wait until '25 to get into some kind of turnaround in that. And on the cash position, of course, it is a strong position. And as a shareholder, you wonder what we're going to do with all the money. And I promise you, we are very careful with money in this company and the return we need to achieve on them. But at this time, we will probably elaborate more on that on the Capital Markets Day, but we see more interest in building up our operational countries and their M&A could be a possible route. But in this industry, it's important not only to be making good sound decisions from a financial point of view and strategic point of view, you also need to make sure from a security point of view, all stars are aligned in that as well.And secondly, we are going into a new pace and situation where we just want to make sure we have flexibility also on not having to wonder about what the capital markets is going to change over time. Even though we all predict it's going to be better, we want to be on the safe side, making sure we can deliver on our journey.

[Merton Kaplan, executive]

Thank you, Virginia, for your questions. We have a lot of questions from the chat as well, but I'll get back to you on moderator. So please let's have 2 more analysts questions.

[Operator]

The next question comes from Bjorn Enarson from Danske Bank.

[Björn Enarson, analyst]

First question is on NLAW capacity build out. When will that take place and how much are you expected to build out that capacity? And then if you can get some color on Aeronautics of stability, excluding the civil and the T-7 impact that we have seen and will see for some time. Are you happy with the kind of underlying profitability or so? And then if you can say something about guidance for CapEx for the year, that would be helpful.

[Micael Johansson, executive]

Well, the capacity on NLAW is, of course, we more or less start up the production again, as you know, to a higher level because there will be more to come. So we can handle the requests that we see coming and the ones that we got already last year now from U.K. and Sweden. But it's mainly going to be in the manufacturing side of Northern Ireland, but we provide the kits, of course, to make that final assembly and test. So we have invested now in building up that capacity to the extent that it will be sufficient for quite some time now. I'm confident of that. I can't sort of say exactly how many weapons per year and all that. But I mean, just in the context of looking on how we double our capacity from 1 year to the other in the Swedish sites, and then we invest again and we, including the Northern Ireland a little bit in the U.S. and Sweden, we double again. So '25, we will have a double capacity again. And then it will be possible to generate 400,000 units from our sites delivering ammunitions and weapons per year. So it's a huge sort of ramp-up.

[Björn Enarson, analyst]

And that includes, and then you're talking about all support weapon...

[Micael Johansson, executive]

Yes, yes. That's the whole thing.

[Björn Enarson, analyst]

Cool... And then on the Aeronautics, excluding T-7 and the civil, if you are happy with that or if you can say something more that you see even better?

[Micael Johansson, executive]

There's more to do on that side even if you exclude sort of the things that are affecting us negatively. Of course, we have a ramp-up now in production. that will give us a better profitability. And then we have an incremental software upgrade organization for this aircraft for many years to come, and that is becoming more and more efficient. So I see opportunities for efficiency improvements without guiding on exactly how much definitely going forward.

[Christian Luiga, executive]

And then we will increase CapEx. I won't go in exactly how much, but it's going to be a bit more CapEx actually next year. But we also have built inventory of SEK2.5 billion in 2022, which is unexceptionally high. So I think they will compensate partly each other. We are actually dealing with that CapEx right now in timing because some will end up in 2023 and some in 2024, but over these 3 years, based on now the contracts coming in primarily in Surveillance and in Dynamics and in that primarily in Dynamics, we are looking at, as we've talked about, building the infrastructure. Just to give a view, I will share one number is that in Dynamics, we will invest between SEK700 million and SEK900 million over 3 years period. So it's not SEK1 billion in dynamics in 1 year. So -- but exactly how this will play out, of course, in essence, we would like them to play out as fast as possible to ramp up, but that's not always something we can control.

[Merton Kaplan, executive]

Thank you, Bjorn.

[Björn Enarson, analyst]

Perfect.

[Merton Kaplan, executive]

Are you good? Should we continue to the next person on the line...

[Operator]

The next question comes from Sash Tusa from Agency Partners.

[Sash Tusa, analyst]

Thank you very much, but my questions have all been answered.

[Merton Kaplan, executive]

And moderator, do we have one more on the line?

[Operator]

Yes, sir, we have another question from Sam Burgess from Citi.

[Samuel Burgess, analyst]

Just a question on corporate costs. Obviously, they've been notably higher than last year, though this has been largely offset by margin improvement in your fleet segment. Just wondering which are the key elements of those corporate costs do you see reducing next year?

[Micael Johansson, executive]

Well, on shareholder program. I'm not sure I would like them to go down, but to be a little bit funny here. But honestly, the minority cost and the minority interest portfolio, if that would increase as much next year or not even go down, I would be very disappointed. IT and other corporate cost is built into sort of the plans for the other organizations, and they should also be reduced on corporate Meanwhile, we increased the profitability in the other units. So that's more a timing effect of how we move them out. And so therefore, both on IT and recruitment costs and the minority portfolio, it should be not higher or below in the next year.

[Merton Kaplan, executive]

Thank you, Sam. We have received a lot of questions from our viewers online. So I'm going to actually break out here and dive myself to you, Micael, because I'll give you 2 business-related questions, and I'll have one question to you, Christian, which I think is interesting. So one is one of our viewers wants to know a bit more about our plans in India? And how does the tender on fighters go there? And how is Saab positioning itself in the Indian markets?

[Micael Johansson, executive]

Well, in many ways, I would say. I mean we have taken the decision to set up shop in India for our support weapons capability, which I think is necessary looking at how much they view the importance of having indigenous capability. So that we're continuing. We haven't decided exactly where, but in the vicinity, I think, of Delhi. So that is continuing and that will be up and running in '24. We also are looking for the decision from the politicians to say that we have an acceptance of necessity, which will be the milestones to start the acquisition process of multi-role aircraft acquisition. So that we're waiting for that, and then we are, of course, preparing to be able to give a good proposal to them. So that are sort of the major ones. Then we are onboard helicopters for EW equipment and have other initiatives as well. So India is an important market to us. But I assume the fighter acquisition process is of a big interest, and that is true for us as well.

[Merton Kaplan, executive]

Maybe I'll flick into you, Christian, just to have a question from Charles here also from Citi. And he wants to understand the cash profile, especially the outflows during this year and the investment levels that you mentioned earlier in the presentation for 2023 versus 2022? How is that going to work out in terms of working capital investments?

[Christian Luiga, executive]

Well, as I said, I mean, this year, we have had a positive cash flow of SEK2.6 billion. We have a bit lower investments this year, but they are primarily related to R&D and the Gripen and T-7 program, which are maturing. Meanwhile, we have had good payments from our customers. So it's been quite flat. That means our customers have paid us this year as well, and we have a very special type of customers, and they typically pay us. So that's not a shock in a sense, but then we have built inventory of SEK2.5 billion, which is much faster than our sales, and that is coming back to and 70% of that actually is in Dynamics, and the rest is primarily Surveillance, which is the short lead times and making sure we are resilient. Of course, depending on how we come back on growth in the future, but right now, it looks like that we're not going to have to do the same trick on inventory at the same level every year. We may want to keep the same kind of level of resilience, but not grow it as fast we've done this year. We deliberately stepped in, in the beginning of this year and did build inventory on the things we knew would come through the pipeline. So I think it will be an easening on the working capital going forward. But I think also there will be some pressure on the investments actually in the same areas we talk about Dynamics and Surveillance primarily in this midterm period. But if we see you at the CMD, I will elaborate more on this.

[Merton Kaplan, executive]

Thank you, Christian. That clarifies. Micael, I'm going to go back to you. And I know that we have a very strong portfolio in the underwater segment, and I know that we have these products that are amazing. How would you describe that our way to capture market in the underwater segment?

[Micael Johansson, executive]

Well, there are many products in the underwater segments. I mean, first of all, we have our submarine business. And that is, of course, we have a lot to do in Saab Kockums now to deliver the upgrade of the third version of the Gotland-class submarine. And then we have the 2 A26 submarines to deliver going forward. So there's a lot of activity on that side. And then, of course, we have a campaign in primarily the Netherlands to try and win that business. So there are a few things campaign-wise boiling, to say, at least on the submarine side and lots of internal activity. Then there's new capability requirements, which I call seabed warfare, protecting infrastructure and mitigating sort of mine neutralization systems and things like that, both surveillance and neutralization systems and where we have a great commercial portfolio in terms of underwater vehicles, autonomous ones, which we are adding military capability to, to address customer requirements going forward in European countries, U.K., Sweden and elsewhere. So I see an interesting future in terms of capability development on that side.

[Merton Kaplan, executive]

Thank you. We have a couple of more minutes left, so I just want to do a shout out if anybody have more questions, please dial in. Moderator, would you like to update us for anyone else who wants to ask questions on the line?

[Operator]

[Operator Instructions]

[Merton Kaplan, executive]

Thank you. So you have a couple of more minutes, if you want to get back to the line. Otherwise, I have one more question from a person here that wants to understand a bit about our work or the status on the 2 GlobalEyes to UAE and how that is progressing?

[Micael Johansson, executive]

Progressing really well and delivery is same for next year, not '23, but '24, but they are now going into soon-flight test campaign. So that is progressing really well.

[Merton Kaplan, executive]

Thank you. Then I guess if we don't have any more questions.

[Micael Johansson, executive]

I just like to thank you for being part of this call. And I must say, I really look forward to seeing you all hopefully at the Capital Market Day Tuesday, February 14, and we can have more in-depth discussions then. I look forward to that. Thank you.

[Christian Luiga, executive]

Thank you very much.

[Operator]

Ladies and gentlemen, the conference is now over, thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.