Hi, and welcome to Saab's Q1 earnings presentation. I'm Merton Kaplan, Head of Investor Relations. With me here in the studio, I have our CEO, Micael Johansson, and CFO, Anna Wijkander. We will, as usual, go through some slides on the business and some financials, and then we'll open up a Q&A session in about roughly 30 minutes. Without further ado, I'll pass over to you, Micael.
Thank you, Merton, and good morning. Thank you for joining us this morning for the first quarter result. To sort of introduce this, I think it's been a solid quarter with good momentum in the market, and we have a good order intake, many small and medium-sized orders, and also a couple of bigger ones from Latvia and Germany. All business areas are growing, which is good, and we continue to increase our profitability. That is sort of a super summary of what's happened this quarter. Let's look at some highlights. As I said, strong customer activity in the market. We have a little bit of a trend that since Europe is now realizing that it has to take a bigger responsibility for its own defense and security, we need more sovereign capabilities in this continent.
We see a trend that the customers want to sort of look at what can we get quickly and what do we need also to invest in going forward to create sovereign capabilities. There are two types of market activities, I would say. What capacity do we have to deliver something quickly, and also sort of what are the long-term capabilities that we lack in the European perspective? There is a lot of focus on the European industrial defense base and how we sort of grow that capability. We have a good base of industries in Europe, I must say. Of course, the dependency on the U.S. is quite strong today, and the tendency is, of course, from the Commission side in Brussels to start saying, buy more European, invest in more European capabilities. However, I think it's still important to have a good transatlantic link.
I think Saab is very well positioned with our broad portfolio, and Europe sort of outside Sweden is our biggest market. Having a combination of comprehensive, sophisticated platforms like the Gripen fighter, the GlobalEye, and submarines, and also the combination of command and control systems and support weapons and advanced weapon systems and sensors, it's a very good portfolio now when Europe is stepping up. We are, according to plan, when it comes to our capacity ramp-up, we have a number of things that must come into play later this year and early next year, both in Sweden, in Linköping and in Karlskoga, also in places like in the U.S., in Michigan, where we started to build a new facility for production of support weapons and precision weapons. Also in India, where we also build a facility for support weapons.
We opened a facility in the U.K., Fareham, for sensors, and also in Finland for passive sensors. A number of things are happening when it comes to capacity ramp-up. We have also employed, net up, another 800 people into Saab. It's fantastic to see how attractive we are as an employer and that we can attract these excellent competencies into Saab because we need them now when we continue to grow. Looking at the numbers, as I said, slightly above SEK 19 billion, an increase of 4% compared to the first quarter last year, still a very high level. I'm really pleased with the activity in the marketplace. The good foundation of small and medium-sized order is a good trend going forward. We have our best first quarter ever when it comes to the level of SEK 15.8 billion in sales.
As I said, all business areas are growing, a very good trend, and we continue to improve our profitability to be higher growth rate and then the sales growth rate, which is very good. Cash flow is much better than last first quarter, 2024, a couple of billion better. There is a big variation between the business areas here, and that sort of depends on a certain quarter where the milestones would be and the payment milestones would be and also the deliveries where they are. This quarter Dynamics have a very good cash flow, which is sort of compensated a bit by not such a good cash flow on the other business areas, but that must change over time, of course, and we are very confident that we will deliver a positive cash flow also 2025.
When it comes to the market, a number of sort of bigger sort of movements have been sort of developing lately. Of course, I mean, the global uncertainty and the geopolitical sort of changes that we see is, of course, creating a number of different things when it comes to where the demand would be. I mentioned earlier that Europe is really having a wake-up situation where they realize that you need to spend more. It's a bit different in different parts of Europe, but all in all, I think it's an alignment about that we need to have our own sovereign capabilities and capacity in Europe. We are well positioned to manage that, as I said. On top of that, the Commission has tabled a number of initiatives, which is called ReArm Europe.
It's both sort of a loan facility, and it's also a relaxation on fiscal requirements from the Commission side. But it's all up to the nations whether they want to use these EUR 800 billion to invest in defense going forward, but it's sort of facilitated by the Commission. Let's see how many countries now will jump into using these facilities to go even further. I mean, Sweden took a big step lately also by saying that we will aim for 3.5% and align ourselves with what the NATO summit will decide in June in The Hague. We're aiming for 3.5%, which is a very big step, of course, that adds another SEK 300 billion over time up till 2034. 3.5% must be reached by 2030. That is something now that the Swedish system is working.
Those money must now be converted into defense capabilities on top of the existing defense bill. It will be acquisitions coming, of course. I must sort of say that sort of the speed of politicians stating more expenses on the defense side that must be converted into what are the defense capabilities needed, and then that comes into acquisition processes is sort of not super quick, but there are movements in expediting these things. This does not happen overnight, so to say, from the political statements. We still, as I said, are pleased with the activity in the market as it is right now, but there will be more to come, of course, looking at the spending numbers.
Also, Sweden announced the spring budget 2025, adding another commitment to be used for our Defense Material Organization, FMV, to commit to more money being spent that will then be sort of activated during 2026 through 2028. Finally, we have a very important summit, of course, in The Hague in June, and I cannot sort of predict exact numbers on where the spending levels will be set, but of course, the situation that we see with the number of countries going above 3% supports the fact that we will see something much higher than today, the 2% floor that we have. A couple of comments on each business area from my side then. Aeronautics has been growing from the comparing quarter last year. There is a big interest in the Gripen fighter system, the E/F version.
I mean, last year we were selected to negotiate the contract with Thailand. We are in the process of doing that as we speak and hopefully finalize that soon. In March, we were selected to negotiate a contract with Colombia, and hopefully we can expedite that also in the next number of months, at least during this year, to have that come into play. Those are really good sort of initiatives and a big step now getting more customers on the Gripen E fighter, which is an excellent fighter when it comes to the life cycle cost and the performance and so forth.
We have very high activity across the business units in aeronautics, and I'm really happy to see now that the Aero structures business, which is not the dominating part of Saab, but it has now been transformed into delivering black numbers again, so it's profitable, which it hasn't been for quite some time. I am pleased to see that. The parts that are still pulling sort of the profitability down a bit still is that we have not sort of reached the production levels we need to have in our facility around T7 in Indiana. When that sort of ramps up, of course, the numbers will look better. I need to also say that there is a currency effect for aeronautics that has affected in the positive direction the profitability of aeronautics this quarter.
On the group level, it's no effect at all because there is a negative effect, not material, in the other areas. All in all, it sort of sums up to nothing, but specifically in aeronautics, it added to the profitability level this quarter. Dynamics, as you've seen, a very high demand of the portfolio in the market, good order intake of SEK 8 billion, several orders that are sort of quite big, an order from Latvia on the RBS 70, which is on the level of SEK 2.1 billion. We had the Taurus missile, which we are part of together with MBDA to deliver its manufacturing in Germany. We have a contract from them on a good level and also a contract on the IRIS-T missile with Diehl. Good sort of set of contracts, and we do see that we also expand our business in the U.S.
We had an important contract with the U.S. Marine Corps in the U.S. on our training systems. In this area, really, the capacity expansion is really instrumental to us, and we are working that, and it's progressing according to plan at a very high pace, and we're following that diligently to make sure that we have the capacity in place now to keep our lead times to reasonable levels when the demand is so high. Surveillance have a good interest and strong interest in the sensor business, of course, when it comes to our weapon locating radars like Arthur and also the Giraffe radar systems. We have also, we are part of the CV90 sort of business with BAE Systems Hägglunds since we have the delivery of the sighting systems for the and fire control systems for the CV90s, which is good for us, good collaboration on that side.
That has generated order intake for Surveillance. We have now started the production facility in Finland in Tampere to now produce, and we produce many of these sort of serious compact passive electronic warfare sensors that can be used in both the land domain, of course, and also the naval domain, but also maybe on drones going forward. That is a very important product for us, and we have a good backlog on that. We have started, we have expanded our capacity when it comes to Giraffe 1X. We opened a facility in Fareham, U.K., to produce also Giraffes not only in Gothenburg, but also in the U.K. There is a high activity level in all the business units within Surveillance. The parts that are defense-oriented are doing really well. The growth and the profitability on the civilian side of Surveillance is at a lower level.
We have these security systems for prisons and air traffic management systems in Surveillance as well. There is a sort of a mix of a business. We still have some effects on the margin and growth because of these businesses, which we are, of course, working hard to correct. Kockums is a very high activity level and a very good mix of businesses now on the surface and underwater side so that the growth has been really good, 14.6%. This is what we want to have in Saab Kockums, so a mix of submarine activities, but also other underwater vehicles that we manufacture. We have delivered now underwater vehicles to an international customer, which is really good. This is the AUV-62.
It's an acronym, of course, but this is a vehicle which you use to train your submarines, submarines to find submarines, I mean, anti-submarine warfare training. It simulates a complete submarine in many different ways. That's a good delivery. We had important deliveries both on the submarine side and on the surface ships, the SIGINT ships that we have on contract with Poland. Also a very high level of activity in Combitech. We employ more people and the more consultants we put in place, the more projects we get. The activity level is very high. We have good now new contracts on partnerships with the Defense Conscripts and Assessment Agency, Pliktverket, and help them with IT security issues.
It is obvious that the new technology areas like autonomy, AI specifically, and security solutions on the cyber side are drawing our competence to contracts in both the commercial civilian market, the agencies in Sweden and the Nordics. We have, of course, lots of contracts with the defense-related agencies. Part of Combitech is also sort of helping Saab, of course, with technical consultancy. It is a good, good development on the Combitech side, I think. On the sustainability area, I want to highlight a few things. If you look upon the part of sustainability, we have three main areas, but we have 11 areas that we follow in detail in terms of metrics. When it comes to the greenhouse emission side, we have, since we started now, lowered our emissions from the reference base 2020. The last 12 months has led to a decrease by 31%.
One should remember then that our target with SBTi is to reduce 42% until 2030. We have a good trend here. We will not, of course, affect, we will not sort of compromise our growth. We get a bigger footprint. We get more contracts. We have to fly more and all of that. We have to do a lot more in the areas we can to make sure that we compensate this growth, of course, in the business. It is also very important when you grow as a company that you keep track of, that you train your people correctly, that we do not have injuries in our operations. We have a good trend now of reducing the frequency rate of injuries and specifically now when we have a growth that is important to underline. For us, the diversity and equality issues are really important.
We have an ambition to grow our female base of our employees. We are now at 26%, which is a good level growing. We have a little bit of a dip on the manager side. When you grow like we are growing, of course, you need lots more managers as well. We are still aiming to reach 30% when it comes to women managers. I'm confident we will do that, but we were touching that lately, but we've dropped a bit now. We will, of course, work hard to get back to that level. We have a good development on that side as well. Yes, that was a few comments from my side, and by that, I hand over to my CFO, Anna Wijkander.
Thank you, Micael, and good morning, everyone.
Yes, as we've heard, we had a very solid first quarter with sales growth continuing, growth in all business areas. The EBIT improvement was also visible in all business areas and also cash flow improvement. With that, I will go into more of the details of the financials. Starting with our order backlog, it's increasing. Now we have a backlog of SEK 189 billion. That's an increase year-over-year with 19%. It's also good to see that our international business is increasing. 74% of our backlog is now coming from international customers. In the quarter, we have also a book-to-bill of 1.2x . It's very much driven by Dynamics and Surveillance this quarter with their high order intake. Dynamics and Surveillance is now representing 72% of our total order backlog, which is an increase from last year as well.
Overall, our backlog now corresponds to 2.9x our rolling 12 months sales. Looking into how it's growing, we now, compared to last year, have more than around SEK 20 billion in additional sales to convert from our backlog from year three and onwards. I think with that, that's a good foundation for our long-term ambition and long-term growth. Now let's look more into the sales growth development, both for the group and for the business areas. We have good growth that we have had for the last two years. We've been growing for more than 20% each year, the last two years. This first quarter, we grew 11.3%, of which the majority was organic. It was 10.9% organic, had a small impact from an M&A or acquisition of a minority company in Q1 2024, impacting.
Growth in all business areas where the highest growth is seen in Dynamics and where we have grown 20% this quarter. Very high project activity, several deliveries, and the main growth is coming from ground combat and missile systems. Also, Aeronautics is growing 12%, also good pace of project activities and across the business units, and also an improvement in the commercial business, in former air structure business that's impacting. Good to see Kockums growth, also double digit, 14.6%, delivering good project execution and also important milestones in the key programs that we heard Micael talked about earlier. Surveillance, a little bit lower growth rate, however, is a growth around 6%. Overall, good activity level, but the timing from variations in project mixing, project completions varies between the quarter.
Also in this quarter, we have some negative impact from the civil side of the business, impacting both the sales actually and the profitability. Finally, Combitech is also growing good this quarter, driven by a higher number of consultants in projects. They grow 13%. With that, all in all, good start of the year. As we said before, this is our highest sales in Q1 ever. Further, EBIT and EBIT margin, both on group and on business areas. I'm pleased to report that we now have that we grow our EBIT 22% year-over-year, and we have an improvement from 8.4% in Q1 2024 to 9.2% this quarter. Yes, we can see them per business areas. Aeronautics show very good profitability this quarter.
Please note then that we have this currency impact due to phasing of purchases in U.S. dollars that we had in this quarter. However, in the other business areas, we had some minor currency impacts going on the other direction. On group level, we do not have any impact on the EBIT. The Dynamics margin goes up from 14%- 14.7% compared to last year, very much driven by sales volume increase and scale by that. As mentioned on the previous slide, Surveillance showed slight EBIT margin improvement and were impacted by this civil business that we talked about earlier. In Kockums, the margin improvement was a result of successful project completions and mainly related to deliveries to international customers. I also, before finishing talking about EBIT, want to highlight that we see, I mean, the EBIT is fluctuating.
We are going to have different EBIT margin levels depending on the mix in each quarter, even also going forward. Next, a quick look at our income statement. I have talked already about sales and EBIT, so I just mention the things that we have not been focusing so much on already. Good to see a gross margin improvement across coming up 1.8% at this point, driven by good project execution and project completions. Going down to the financial net, it is very strong this quarter, and that is positive. That is related to our hedges that we have in our tender portfolio that is positively impacted. It is a revaluation impact since the Swedish krona has strengthened. If you compare to last year, the same quarter, we had the opposite impact with the krona that was weaker.
A bit lower tax rate due to lower share of taxable results from foreign operations. Our net income was finally improved both from EBIT, but also from the positive financial net. Finally, for our shareholders, the EPS improved substantially, 64%, going to SEK 2.35 from SEK 1.43. Cash flow then, it is an improvement from last year, as we heard, going from minus SEK 2 billion last year in Q1 to now minus SEK 14 million, to be exact, in the operational cash flow. That is despite that the investments are increasing. As you can see to the right here in the picture, Dynamics is really the one business area contributing to the operational cash flow this quarter, driven by high customer payments. In the other business areas, we have the timing of customer payments that were not so beneficial for us that offset that impact.
We also had, as planned, increased investments, SEK 1.6 billion, and that will continue to increase according to plan to support our ongoing capacity ramp-up and position us for future growth. We also have higher levels of inventories supporting our growth and also make sure that we have our ability to deliver in our projects. However, return on equity, return on capital employed is also a positive trend driven by this profitability increase, but also driven by higher capital turnover. Just a final remark on this is that, I mean, also the same as goes with EBIT, our cash flow will vary between the quarters. We remain confident that we will have a positive cash flow for the end of this year, as we have guided on. We have and remain our strong financial position and leaving this quarter with a net liquidity position.
Net Debt / EBITDA continued to be negative, which indicates a positive net position. Our balance sheet is robust, SEK 12.7 billion in liquid investments. We also have a stronger equity to asset ratio of 37.8%. Finally, at our annual general meeting, the meeting decided to have a dividend of SEK 2.00. It is an increase from SEK 1.60 per share. That is a total payment of SEK 1 billion this year. It will be paid likewise like last year in two installments, the first now here in April. With that, I hand over to you, Micael, to conclude.
Okay, thank you. I just want to underline that we will reiterate our outlook for 2025. Of course, there are uncertainties geopolitically, and we do not know really where the tariffs are going to sort of end up in terms of negotiations.
However, I want to sort of practically mention that I think we are a bit more resilient in our type of the business when it comes to tariffs in the way that we do regionalize our supply chains. We are, to a large extent, covered in contracts on financial things that we cannot control ourselves. We do not have a big hub somewhere that provides all the components to many of our systems. We are sort of dispersed when it comes to our hubs. I do think we carry a bit more stock than sort of many other businesses. We are a bit more resilient. Trade wars are never good, of course, and eventually it will, of course, affect our business as well.
However, the interesting aspect of this is that there are sort of reciprocal defense agreements with many countries, including our country with the U.S., that sort of stipulates actually that sort of tariffs and these things shouldn't sort of come into play on the defense side. However, we don't know how they will be, what kind of precedence they have in sort of the statements and the decisions that have been taken by the U.S. So that's uncertain. Of course, geopolitical also situation is unbelievably difficult to predict. I just want to say that I do think that Europe has a way to go before we have created our own sovereign capabilities, before we are back to sort of having a deterrence level that we need to have an unpredictable neighbor to the east.
Even though I really hope that we will get a reasonable ceasefire and then a peace deal on Ukraine, we will have to continue to build our defense capabilities. That, I think, the political leadership in Europe also realizes. NATO is also pushing that, of course, going forward. In essence, I think we can underline and just reiterate our organic sales growth for this year, 12%-16%. We have a long-term ambition of 18% in the period of 2023-2027 average. Our growth on the EBIT side should be higher than the organic sales growth. Again, we're not a quarterly type of business. We will continue to generate positive cash flows year by year going forward, definitely. By that, I guess I hand over to Merton to sort of highlight an upcoming capital market day, which I will attend, of course.
Thank you very much, Micael and Anna, for a very great summary. Before we move into the Q&A, I want to make a couple of statements on the upcoming event on the 26th and 27th in Karlskoga here in Sweden. We have gone out with a press release on this. I want to remind our viewers and our investors and shareholders to register if you have not done so. Seats are limited, and we will secure them and get back to you by latest on the 2nd of May. Do not forget that. Without losing the time, we are actually spot on time. I will actually move straight to the Q&A and open this up.
Before I hand over to the moderator, I want to just briefly also, you will have the conference call dial-in links on the back of the report or the press release from this morning. If you want to ask questions, you can dial in, and the moderators will put you on the line. We have a few online already, and we will take those questions first. We also have some questions from the website that you can post to us in real time, and we'll get to pick them up. One final thing, please do ask your questions, two questions at a time, so we leave room for everyone to participate. With that, I'll give the word to you, Operator.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone.
You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one or two questions. Anyone who has a question may press star and one at this time. The first question comes from Henric Hintze from ABG Sundal Collier. Please go ahead.
Hi, good morning. This is Henric at ABG. First, a sort of higher level question. I was just wondering if we could get your view on how you think your ability to maintain your share of the Swedish defense budget is given its relative focus on strengthening ground capabilities and your relatively larger focus on the air and naval domains here.
Okay, I can start.
No, I think we have a very good position to continue to be a big portion of what the Swedish defense spending is. I don't know the exact number, but I think on average we've been at 40% roughly of the procurement budget that they have. I see no reason why we shouldn't be able to continue that at least. It depends, of course, on whether they intend to do any mega deals on more fighters or submarines, which I don't know yet. On the land side, of course, we have plenty to offer in terms of both the sensor capability, the command and control side of things, the missile side of things, and also support weapons. Of course, even though we do not do sort of the CV90s and that type of stuff, we have plenty to offer in the land domain, definitely.
I'm not concerned about that. I think we have a very good portfolio to support that going forward.
All right, very good. One more from me then. Could you maybe tell us a bit more about what drove the strength in Kockums this quarter and also the sales grew 15% year-on-year, but the order backlog is down 21%? Can you say anything about the outlook for orders in this segment and what is needed to keep up sales given the shrinking order backlog?
What is important for Saab Kockums is that we have a good mix of, first of all, Swedish and international contracts, which we do have on the surface side specifically, and also on the sort of more unmanned underwater sort of vehicle side of the business.
The submarine side is, of course, very Swedish today, even though I really hope that we will get a partnership with someone to expand that. The growth in Saab Kockums is about that mix, to have international contracts, which we have been really successful on with the superstructures that we do, with the design of ships that we do, and then a mix of support business together with development and production. It is all about that. It has been quite successful lately, and we will try to support that going forward. They have been developing that business very well. I am pleased with that.
All right, thank you very much.
The next question comes from Björn Enarsson from Danske Bank. Please go ahead.
Thank you. I got two questions. First, would it be possible to certify Gripen for nuclear weapons? The second one is on your order backlog duration.
In 2023 and 2024, year two orders were indicating 20%-40% growth, and now it looks like 6%. Is that something we should think about when looking at 2026 invoicing?
Thank you. I cannot comment on the first question, actually. I mean, there is no intentions, no initiatives in that direction. We never got the question in that direction. It is really speculative. I think I refrain from sort of trying to get into any direction on that. If that happens, it is a very political question also, of course. It is really nothing we up to now have even considered. Let us see what happens in the future. I cannot say more than that. Do you want to comment on the backlog?
I cannot comment on the backlog.
No, I mean, I think what we can say, I mean, we reiterate that we're going to grow our company 2023 to 2027 and have an average growth rate of 18%. Given that, we don't give any guidance really on the 2026 year in specifics, but we have a strong backlog that we are executing on and are confirmed to grow our company.
Thank you.
The next question comes from Erik Golrang from SEB. Please go ahead.
Thank you. Two questions then. First one is on anything you can say about the potential timing in terms of actually signing Gripen deals with Thailand and Colombia. Secondly, a bit more conceptually, I mean, you set your current targets prior to the Munich Security Conference. Is there any other way to think of them than that they are too cautious given the developments since? Thank you.
When it comes to Thailand and Colombia, I think we are a bit further ahead with Thailand when it comes to negotiation with Thailand. Exactly when, but I think my ambition is that we will finalize these contracts this year, as we've said before. I mean, it was in March that we were selected by Colombia to negotiate that contract. We are in the process of doing that as well, of course. There are many things in place, but you have to sort of get all the documents in place and all that. We are working hard on that in both campaigns.
This is sort of a this year type of objective that we have, of course. It is also about the other party, of course. That is my view as of now. I also want to sort of highlight something which has been surfaced this morning about that Colombia would not sort of pay us until many years ahead. I just want to underline the fact that it is normal that we have a financing offer supported by SEK and EKN in Sweden with a loan and a guarantee type of setup. That does not mean that we as a company, we will get paid, of course, when we deliver our stuff to Colombia according to that plan. Colombia can use the financing scheme to defer their payments a bit into the future. We do not sort of conflict what is happening to us with what the financing scheme means.
I just wanted to underline that. When it comes to the growth side of things, we, of course, monitor this all the time. As of now, we stick to our this year guidance of 12-16%. Let's see how quickly the European perspective changes in terms of transforming the statements of spending of GDP from the political side into defense capabilities that must be defined by the defense forces that must move into acquisitions. That sort of process is not super quick. It's been improvements, absolutely, also in our country. It still takes some time before sort of this spending decision moves into actual contract. Of course, we have to execute on these contracts. We will look at this going forward, but it's too early to say how that will happen, how that will develop.
There is a sort of a focus on raising the level of, as I talked about before, the European defense capabilities and capacity as a trend.
The next question comes from Tom Guinchard from Pareto. Please go ahead.
Thank you. I was wondering if you could give us a sort of split on the margin improvements in aeronautics. You said half was currency driven. How about Aero structures, T7 and Gripen production? Can you give any split on that?
Not in detail, of course, since we do not sort of guide or comment each and every business unit in detail. I think we can sort of make the general comments that we are happy now that we have positive numbers on Aero structures and an increased revenue on that side. It is not sort of the biggest part of aeronautics or Saab, but it is good.
It's not sort of pulling us down. We're still not out of the sort of negative underabsorption situation we have with T7. Of course, we're working hard to get to that as quickly as possible. That will be, I will underline again, a good contribution when we sort of get to the ramp-up of the T7. That is pulling it down a bit. The Gripen side is a high activity level and is a good business. That's how it looks like. We have a services business also. You mustn't forget about that, supporting the GlobalEye also and the support side of things, which is, of course, positive in terms of how they contribute. That's sort of the general picture of aeronautics.
The next question comes from Aymeric Poulain from Kepler Cheuvreux. Please go ahead.
Yes, good morning.
Thank you for taking my questions. My question is a bit of a follow-up of a previous one on the speed at which some of the increase in defense spending impacts your sales. Now that Sweden has announced it's going to 3.5% by the end of the decade, how quickly, I mean, we already see some impact in the Q1. How quickly do you see that translate into higher sales, up and above the 18% organic growth CAGR you were projecting before that announcement? On the supply side, you made a bet at the start of the war in Ukraine by front-loading a bit the dynamics, capacity to capture the opportunity. Are you ready to do the same now, or are you going to be like some of your peers, perhaps a bit more cautious and waiting for others to actually become firm before adding the necessary capacity?
That would be the first question on the growth target. The second would be more on M&A. I think the last call you mentioned a few opportunities you were looking at, but since then valuations have moved quite a lot. Does that change your view on M&A for 2025?
Okay, I think that's sort of three questions, but okay, I'll answer them. I think one should be, of course, the new sort of statement on another SEK 300 billion added to the defense bill up until the period of 2034 in Sweden and reaching 3.5% of spending in 2030 has not affected the Q1. Definitely not. This is sort of backlog things that we have.
The one important thing one should look upon in the statements from Sweden today, and how quickly that will sort of transform into contracts through sort of added defense capabilities, it's a little bit hard to say right now. I think we will see more of that sort of in the middle of this year when they will start talking, or in September rather, when they start talking about the budget for 2026 and what sort of capability they will need. That's, I think, where it will be a bit more clarified where this additional money will be devoted to.
What's important also is that this year now in the spring budget, our defense material organization, FMV, got sort of the right to commit to another SEK 25 billion in spending, where the money will flow in 2026, 2027, and 2028, just to contract quickly things that we need. That's a big step. That can affect the year, of course, at least on the order index side. That's one of the comments I have. We are still on the Dynamics side. We are forward-leaning and investing according to the demand that we see, and we will continue to do that as quickly as possible. We are continuing to invest much more this year than we did last year on the capacity side because we see the demand in the missile and the ground combat and also in the training and simulation business is very high.
We will continue to be forward-leaning, and we're trying to figure out the market, and I think the European side of the market will be strong. That's how I see that. M&A is super important to us, but it's unfortunately not a very quick process. We have a number of candidates we're looking into, but I cannot sort of predict exactly how that will sort of transpire into outcomes and when exactly. I can't do that today, but I just want to sort of assure you that this is an important part also, not only organically growing, but also doing M&A.
Thank you. Great,
thank you. We have one final question. Please go ahead.
Right. The next question comes from Carlos Iranzo Peris from BofA Securities. Please go ahead.
Hi guys, good morning, and thanks for taking my questions.
If I might follow up on aeronautics, if you can give more color on the commercial side of the business, just wonder if profitability has improved because of higher volumes or better pricing. Is this a positive one-off of this quarter, or do you actually expect the commercial business in aeronautics to be profitable going forwards? Thank you.
Again, we do not guide on business unit level, but I can sort of comment on a couple of things. We were affected by sort of or locked in by currency contracts and hedging contracts that were not favorable to us. We are out of those contracts, which is good for us. We have also renegotiated contracts with both Airbus and Boeing, which gives us a much better position. Those things should sort of create a better future for that business. That is what this is all about.
This is not only, yeah, we grew our revenue, and by that we got sort of to black numbers. We also have sort of better contracts now in our portfolio, in our backlog. We have taken sort of a number of actions to correct a number of things in that business.
We should also remember that it's just a small share of total aeronautics business. It is good to see these positive signs and positive business.
Is that okay? Yeah, I think that was okay for Carlos. We have a bit more time. I actually have two or three questions from the viewers, which are really good. One is for you, Anna, and one for you, Micael, that we have not covered yet. We have Delaney here, Murray, asking about the strong cash flow in Dynamics.
Could you explain a bit more what was the driver behind that?
In this quarter, it was really driven by high customer payments that we received in the quarter that had that huge impact, SEK 5 billion.
Good. And Micael, on the do you have on the fighter campaigns, what is your expectation on the fighter decisions in Peru is one question one of our viewers asking you.
No, we are, of course, campaigning to be having the best offer in Peru as well. We have given them an offer, and they are evaluating as we speak. I think we should have a good chance, but I cannot predict what they will select, of course. We are treating that campaign as very important to us. It helps that we now we are both in Brazil and we are negotiating in Colombia.
It creates a good Latin American sort of hub and footprint. I hope we will be successful, but I do not know yet. We are offering the best we have.
Okay, great. I think those were the main questions. I think we have covered more. We can, with those words and answers, conclude this Q&A call. Thank you all for joining us.
Thank you.