Good afternoon. I'm Merton Kaplan, head of investor relations at SAAB. I want to welcome everybody to our Q3 presentation of the results. With me today, I have our CEO, Micael Johansson, and our new CFO and Deputy CEO, Christian Luiga. We're going to have a presentation, and as you know, we had early release of the report this morning related to the announcements that we made with information around our reassessment of our projects, and we're going to talk more about that over the course of the presentation. We're going to finish up with a Q&A session. With that, I'm going to give the word to you, Micael.
Thank you, Merton. Thank you all for joining us. Also, I understand on short notice today. I'll start by talking about the first nine months and comments on the quarter as well. I must say that I am really pleased with the quarter and also the first nine months. In terms of order intake, I think it's been a very good year. I am really positive to the capability that we have to still finalize contract despite the difficult situation of traveling and all that. We have a strong organization in many countries capable of doing that. We have seen order intake growing actually during the first nine months with almost 30% compared to last year's same period. 8% in the quarter.
It's a mix of larger and mid-size contracts and also the smaller orders, and I'm pleased to still see an increase on the small order side, which is an important foundation for our backlog. We are building a strong backlog continuously, which is really good and important for the future, of course. We do see a big effect on the civilian or commercial part of our business when it comes to aerostructures, delivering to our aircraft manufacturers around the world and also in the air traffic management business, we see a decline. I would say we've seen almost more than 30% drop on the commercial side of the business, or even more, and that affects sales as well.
When it comes to sales, I think still we have an underlying sales which is good, and also the earnings on par, I would say, on the first nine months with the same period last year, and also in the quarter. We see improvements in many parts of the business, and we have compensated for the decline in the civilian part of the business with the military side of it. If you look upon the part of SAAB that represent the civilian business, I would say that if that's roughly 15% that we have a drop, the minus 2% in sales level compared to last year's nine months would have been flat, so to say, if the civilian business would have been on par.
We've seen parts of the business that has increased dramatically, and within Dynamics as a business area, we have a ground combat side that has significantly increased their volumes 70% compared to last year's nine months period. The earnings, as I said, is resilient and almost on par with the same quarter last year. I think which is really important to me, which is something that we are improving a lot right now, that is the cash flow side of the business, where we see a dramatic shift in improving the cash flow. I still like to underline that I still have the ambition to generate now positive cash flow during this year. Then I'm excited to say that we have done important deliveries, milestones in our programs, and we are continuing our international growth in a very good way.
The first Gripen is now in Brazil. We've seen the first flight, and later this week there will be an Aviator's Day in Brazil, which will be a big occasion for the Gripen in Brazil. Then we've delivered a second aircraft, the GlobalEye aircraft, to UAE in the quarter, which is a big milestone as well. Also, of course, improving the cash flow. Then I think we see steps now in the U.S. deepening our footprint or extending our footprint. U.S. is a country that has been supportive in terms of placing contracts earlier on us, and that has happened in the radar area. We have also seen a good progress on the establishment of the production facility related to the T-7A training aircraft in West Lafayette, Indiana.
As you know, we have informed during July that we will invest in establishing a center in Farnborough, U.K., to support the Future Combat Air System program in the U.K. We're doing that as we speak, and there will be more SAAB employees working with U.K. industry as we go forward. We had a tremendous success in Australia, getting a big contract when it comes to field hospitals, which is a systems integration work for us. That is a region that has a need for that type of capability, so we will actually establish a center of excellence related to field hospitals in Australia going forward.
A couple of things we've done also on the portfolio side, we have divested Vricon, or a part of Vricon, and that's been completed during the quarter. That will also be part of our financial statements, of course. It's, in summary, a strong third quarter, a strong nine months despite the situation on the civilian side compared to last year. We go into how we look upon the risks going forward. As we've said today in our report, we see a continuing effect from the pandemic. It's not slowing down. We see shutdowns, openings again, stop and start in many countries. We have to take that into account now looking forward. I don't have a crystal ball how long this pandemic will continue.
I have, together with my team, to make the best judgment on how we can mitigate the things we see affecting us in the supply chain maybe. We said in the early part of the year that we have resilience for some time because we have long-term contracts. We have things in stock to a larger extent than just-in-time type of businesses. Of course, with the extension of the pandemic, we have to look forward now and see how we must mitigate the risks that we see. That's what we have done. We have looked at the supply chain risks, and we have identified then primarily risks associated with the business area, Aeronautics, and related to the Gripen E/F programs.
That is due to that when you work with supply chain, of course, in that area, and I will come back to that, you have a need to requalify equipment if you have to be able to put them in aircraft, so to make things flight safety again, to certify them. Then, of course, we have other disruptions which are related to that we can't go and see our suppliers, we can't exchange sensitive information. We can't work on softwares together. We have dependencies in our development on software, so other disruptions as well. We've talked about the civilian business. Of course, we then take mitigating actions on this. We work a lot with capacity adjustments. For example, people working with aerostructures move into the Aeronautics organization to support that. We reallocate resources.
We make sure that we support our own employees and move around consultants in the organizations. We're taking a lot of mitigating actions. Of course, we work with the supply chain every day to make sure that we understand what's going on, how can we secure the material, and I'll come back to what sort of initiatives we take. Again, the best assessment, and this is assessment that we've done just recently, looking at the risk going ahead, we have done then adjustments to the project estimates. We have an effect in Q3 and year to date of SEK 1.1 billion when it comes to the Aeronautics organization. We have a more generic one for potential other types of programs, but not as big because this is not things that you have to qualify for flying, if I put it mildly.
Maybe the supply chain looks a little bit different in terms of how integrated it is and how global it is, maybe connected to other projects. All in all, total adjustments of project estimates is now SEK 1.5 billion. Looking at some more details, I think one has to understand the characteristic of a fighter Gripen program. It's a long-term program, of course. You look at parts that you design in the beginning, and it takes a long time before you test them eventually. As I said, they are all related to regulations when it comes to military aircraft certification. Changes in supply chain is not so easy.
It takes a lot of effort, lots of time, resources, hours, redesign, industrialization, requalification. Those are some of the mitigating actions that we are taking as we speak, but what we will have to take going forward. What we do today in this environment, what we achieve today, that is affecting us two, three years ahead when it comes to the final delivery of aircrafts. We have to do mitigating actions today, otherwise we will get in trouble when it comes to our system deliveries in the future, of course. We have a supply chain, which is global, completely global, many in the U.S., many in the U.K., but also in other parts of the world. Many of these suppliers are also involved in the civilian industry as a supply chain when it comes to commercial aircrafts.
There is a whole range of situations that this supply chain now is experiencing. Some are not getting back on track. Others are halfway back on track with a huge backlog, and we might end up into priority problems with them since the volumes are still related to the civilian aviation business. Of course, we're working with them to get priority and going back. Some of them are actually back on track as well. I'd like to explain a bit on that there are mainly two parallel efforts we work in when you deliver a fighter system. One is, of course, to get your supply chain to deliver your parts so you can do final assembly and deliver your system. The other process that is going on all the time is to incrementally increase the functionality of the system.
The one part that is related to production, if I start in the back end of things, is of course that if you don't get your parts in, you have a stop and go and a standstill in production, which gives you productivity issues and cost. If you have to go to find other suppliers, you have to, as I said, re-qualify them, redesign, industrialize it, and you might have to pay a higher price to get all this as well. We do things that we change suppliers we have to, and we will work with that. We might have to do insourcing instead of doing the outsourcing that we planned. That's one portion of it. We spend a lot more hours, and we get a bit of a stop-and-go situation in production and in the testing.
That is, of course, one portion of what we see as a risk going forward. We will do everything we can to mitigate this, of course. When we come to the development side of things, of course, this incremental functionality steps that we take requires us to have a great exchange with our supply chain. We're talking about softwares that we stepwise develop together with them, and you have to have integration efforts in this. That requires us to be able to travel and meet each other. We have to be able to actually give them sensitive information and software, and they have to be able to give us that. If you can't do that to an extent, then you enter into a problem with your verification and certification of functionality.
You get to stop and go in your test platforms as well in the organization. You might have to work parallel paths with your organization, spending more hours. You get a reduction in productivity. Then you have your verification, which we do all the time, of course, and I was touching upon that. If you have to do a re-qualification or change your supplier, you have to do a redesign, and you have to re-verify it, and you have to go into your test platforms again. You have three components, but basically, one thing is to supply equipment. The other thing is to incrementally develop your functionality, and you get effects on both processes if you don't work with your suppliers. Of course, we continue to work with our customers every day, and we will continue to deliver aircrafts, I can assure you.
We will, of course, on the basis of how successful we will be with all these mitigation actions, we will talk to our customers about what we're doing now so they know where we are heading. We will continue to deliver aircraft, and we have absolutely no problem supporting the proposals that we have in the marketplace also, in terms of, for example, Finland and Canada. That was a long story on why we have done the risk assessment going forward and how we have looked upon that. We are not changing our strategy. We stand by our long-term targets. We are doing very good progress in all aspects now as we speak.
If you look upon the internationalization and being more and more international, we have, apart from being successful in the marketplace concluding contracts, we have also, of course, continued our effort to grow our presence in the important selected markets. We have, during the quarter, received a lot of important contracts, both when it comes to our RBS15 for Germany, a big contract, the support contract for the GlobalEye in UAE, and this big contract for SEK 2 billion, roughly, for field hospitals in Australia. When it comes to the portfolio, the other part of the strategy, my view is still that we have to focus on our core areas. We are now working with a more difficult crossroads when it comes to the portfolio. Do we invest? Do we divest? Do we find partners? Now we're talking about really looking into what's important to us going forward.
We've done some things now during this quarter related to the portfolio. We have divested, as I said, our portion in the Vricon company in the U.S., the joint venture with Maxar or DigitalGlobe. We have divested QPS, which is working with software for the hydrography area on subsea market. We have launched a new product, actually, a new one as well, which is a very important product for the Gripen going forward, a decoy missile , which is giving you the possibility to jam in great depth into hostile territory. When it comes to innovation, we're doing a lot of things, of course. We established a center of excellence in Australia on the field hospital side, of course, and we will move some of our capability when it comes to Future Combat there to U.K.
We're also doing a lot of things when it comes to the cybersecurity area and a number of things connected to autonomy, which I will come back to in the future. Performance-wise, I'm really pleased we have delivered on our schedules when it comes to GlobalEye. We are moving ahead according to plan with the T-7A in the U.S., so that factory will be up and running next year. The Gripen has now transferred into flight testing also in Brazil, which is an excellent thing. I really look forward now to the Aviator's Day later this week to see the Gripen again flying in Brazil. From my side then when it comes to financial highlights, we have very good order intake, as we've talked about, so I won't dwell on that further.
I think the sales, which the underlying sales is on par and Christian will come back to why is the sales adjusted, and that's the effect that you get from an adjustment of the project estimates also on the sales level because it's a percentage of completion contract. Also this sales level is being adjusted. It's on par the underlying with last year. Also when it comes to operating income, I'm very pleased with the underlying earnings. Of course, on top of that, we've reported now that we have taken this effect in Q3 to support the mitigating actions going forward. We must create a buffer, a reserve, resources to do that going forward.
A very, very good trend on cash flow, of course, when we are moving from a rather poor situation last year, the first nine months, to much better situation this year. I underline again then that my view is that we will actually continue to deliver positive cash flow this year because we have important milestones that will generate cash flows in the fourth quarter. Looking at Q3s in isolation, this is a Q3 that is almost on par, but we had an extremely good Q3 last year. It's still a very good Q3, I would say. Because of our execution in the programs, we've had a little bit lower sales in Surveillance and Support and Services, but that's only timing effects in the larger programs and a fantastic boost in especially ground combat, as I mentioned, within Dynamics.
EBIT also, adjusted EBIT, a good quarter again. We are working, of course, with cost reductions to support EBIT going forward. Of course, as you see then the items affecting comparability in the quarter had a net impact of SEK 1.1 billion in the quarter and for the first nine months. My final slide before I hand over to Christian. I completely stand by the long-term targets and our strategy. We have a journey. What we're doing right now is absolutely instrumental for us to be able to work with mitigating the effects. I don't have a crystal ball. We have to realize the pandemic is still out there. We see the effects from that, and we have to take mitigating actions. The international growth establishing, as I said, mini SAABs in different selected countries is still a very important growth path for us.
Not to the expense of Sweden, of course. Sweden is also, it's looking like it, the parliament will hopefully take a decision on the new defense bill in December. As you see, also the Swedish government is now putting more money into defense spending. Of course, we have an important part being an integrated, embedded part of the Swedish defense. The same thing we're doing now internationally in U.S., U.K., and Australia. We have also important countries such as Germany, Finland, to work with in that same respect. I will be diligent in continuing our portfolio efforts to make sure that we optimize that as far as possible, focusing on our core areas. Everything that's connected to project execution is instrumental to us. We have a roughly SEK 93 billion backlog now.
To deliver upon that backlog is, of course, totally instrumental to us, and we have still productivity improvements to do, even though we're going in the right direction. I see really good trends also now in Saab Kockums going forward. One cannot forget that we must be a company that have state-of-the-art technology and having the right skills, attracting the right talents going forward. We will continue to spend money on R&D. We embrace new technologies that will also lead to productivity improvements, of course, and new ways of giving our customers capabilities going forward. We're not forgetting about that. That's an incredibly important part. Also attracting the right skills, of course, in the marketplace, but reskilling, upskilling our own workforce is as an important part going forward. I see a bright future.
We're still continuing our journey towards growth and profitability, and I think we're taking the right actions now to support that going forward. With that, I will hand over to my new CFO, Christian Luiga.
Thank you, Micael. I'm excited to be on board. I've been here for now five weeks today. It's a journey that has just started, and I can just feel now that it's confirming my view that this is a company that is well-recognized by its customers. It has world-leading technology and fantastic people. Bu enough about that, and a little bit more about the numbers. I will try not to repeat what Micael has said, and try to pick out the things missing for you to understand our numbers. If we just look at the financial summary for the first nine months, as you know, we have an 8% decline in revenue, and 6% of that comes from the re-evaluation of the projects in the group, and I'll come back to that in a second.
The impact on the group operating income is SEK 1.1 billion of the items that are affecting comparability. Overall, important message on this page is that excluding these items that we will talk about in just a second, the margin is on par with last year, 6.8%, and that is the civil business decline that is compensated primarily with Dynamics in Kockums, and I'll come back to that. Here's the details of what is the negative effects that also required us to come out early to make sure you get the information as soon as possible. As we talked about, we have reassessed our projects, primarily with the Gripen E/F program. The long-term project of the Gripen has a future risk that we have reassessed on COVID-19. The reason why these are items affecting comparability is that they are COVID-19-related risk.
Of course, a normal project adjustment would not be taken as an item affecting comparability. Micael said, the effect is actually when you do a reassessment of a project with project accounting, you reassess the percentage of completion, and you reassess then the sales that you have taken, and it impacts therefore sales and then EBIT after that. We have taken also a SEK 375 million hit on group for the same reason that relates to the other business areas. We have seen an increased risk also from COVID-19 on the other projects in the group, we have at this time not been able to reallocate that to the right BA, that we will do over time as we see it suits us. In this quarter, we have also adjusted the inventory with SEK 137 million.
We have taken a write-down related to associated companies in the company, and we have made a provision on litigations and ongoing legal disputes. This is not one legal dispute that has arisen. It's a combination of several that we have done a reassessment on, seen that we should increase our provision with SEK 300 million for that total portfolio. Then as you already knew and was announced already in July, we had a capital gain from the Vricon sales in the U.S. Net all of this on the EBIT is SEK 1.1 billion. It has, of course, a big impact on the quarter EBIT margin, this one-time effect, and that is important that you understand where it comes from.
If we look at the quarter three, as also already discussed, the only thing I want to talk about here is that you understand the SEK 6.1 billion should have been SEK 7.6 billion in the quarter, adjusting for then the COVID-19-related adjustment on the projects. The other part I want to highlight here that we haven't talked about is the operational cash flow. The reason for the improvement in cash flow is pretty much the same on the quarter as it is on the year-to-date numbers. I'll come back to the year-to-date numbers in a second. In the quarter, around SEK 1 billion is coming from net working capital and release of milestones in the projects that drives a positive cash flow.
Of course, the impact from the reassessment and the one-time items that has charged to the EBIT, they of course also end up in net working capital, but that adjusted, it is the inventory and the milestone that has improved on a year-on-year basis. Order backlog duration. The end of September this year looks very much similar to last year. We have an order intake that is increasing when it comes to the defense orders. They are 89% this year compared to 84% last year. That has not come completely fully into these numbers yet because it's a big order backlog that we work with over time. The orders from outside Sweden is 68% right now compared to 75%, also something that is moving slowly and not part of this picture completely.
Another clear message here is, of course, that if you do your calculation and look at this and see what we have left for this year, 2020, you would say that it means that we need another SEK 3 billion book and bill to meet last year's revenue number. That's just pure mathematics, not the forecast. When it comes to the order bookings, I just want to highlight two things here. Micael talked about the Dynamics, good performance in sales, the Dynamics order book is also great. It comes from the missiles primarily, and then secondly, from ground combat, and then also some other areas in Dynamics is also doing well. That is a very positive improvement.
We can see on Support and Services that the order booking is also up, and that is both the Australian order on the field hospitals as well as the UAE support to GlobalEye. Sales per business area. Aeronautics here is minus 20%, and that is the SEK 1.1 billion net effect from the reevaluation of the COVID-19 project impact. If we then disregard that, Aeronautics would have been a decline of 1% only. We can also see here that we have in Support and Services a slight decline, but that is primarily from the civil part as we talked about before. There is a timing of projects in the sales area of Support and Services. Dynamics is up, and that is a good performance, and ground combat has over 70% increase in its sales.
If we look at the operating income for the quarter, we have not adjusted these numbers for the Gripen E/F program, then it would have been SEK 7.5 billion instead of SEK 8.6 on Aeronautics. Very important to understand. This is the underlying performance without that hit. Dynamics is up, as we said, from improved sales, and IPS is down from the civil part and as well for Support and Services because this is year-to-date numbers. We can see here the performance from Kockums from productivity that Micael talked about, which is very encouraging to see. We take these slow steps and improve day by day. For the operational cash flow for the year and for the first nine months. This is a somewhat complicated picture, but I'll try to explain it. It looks simple.
I know and you know that the impact from the write-downs and the impact from the change in the projects, it has impacted operations, but it also impacts working capital. You all know also that we have support on this from cash flow, from Social Security and taxes that we got from the state that we will repay. Therefore, it could be interesting to understand what is the underlying difference here. If we net out the state support and if we net out the impact on the one-timers between cash flow from operations and change in working capital, the net improvement for the group is SEK 3 billion around, and that is the important number. Those SEK 3 billion is pretty much equally split between working capital from inventory and working capital from the milestones on the project release that we have done.
That is the improvement we have year-over-year, which is encouraging. The investment activities is pretty much the same. It's divided equally between CapEx and R&D, the numbers are very equal to last year. Net on net, we are at 0.1, we have said, we continue to have the same ambition to deliver a positive operational cash flow for the year, excluding the support we have from the state of around SEK 1.8 billion. My final slide is on the financial position. Net debt is unchanged since year-end. If we net out the pension obligation and IFRS 16 leasing obligations, it's pretty much flat. It's important to understand that the Vricon divestment is the item here on the acquisition and divestment net that is positive.
It's also important to understand that the pension obligation is met by the pension fund, there is not a deficit in that one. We have a solid 36% equity/assets ratio, which is important in a long-term business company like ours. Thank you. Thank you, Micael.
Thank you. Thanks for presentation. Very clear. Now we are in the phase of opening up for Q&A session with our external audience. We are going to allow questions from the line for those who called in from the telephone conference, but we'll also pick up your questions from the email. If you have questions and you want to email them, you can still do that, and we'll try to get back to you on those questions. I'm going to leave the word to the moderator.
Thank you.
And-
If you do wish to-
Yeah. Please go ahead.
Thank you. If you do wish to ask a question via the teleconference platform, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will now be a brief pause while the questions are being registered.
Thank you.
Our first question comes from the line of Douglas Lindahl of Kepler Cheuvreux.
Hello, gentlemen. Hopefully, you can hear me. A few questions from my side. First of all, on your adjustments in Aeronautics, can you give some more context on your base case from a supplier standpoint? Are you expecting suppliers to go out of business, or what more specifically is included in your base case there going forward? That's my first question. Thank you.
Well, I can start then. It's a number of things, of course. There will be, as I mentioned earlier, initiatives where we have to change suppliers, and that's a big effort to do that in our business. It's not just to take the blueprint from one supplier and go to the next one. Probably, you have to do redesign, and you have to do re-industrialization and recertification. We have a few of those which we have to work with. We must decide to boost our own internal manufacturing on the detail, the manufacturing part of Aeronautics. I think we actually have to insource a number of things, which also will require some industrialization and boosting that organization, actually adding more hours to it. There is the support, of course, of some suppliers, which is not financially perfect, just to get them to deliver things.
Our sourcing cost might go up. Then again, we must find new ways of trying to improve functionality over time, which will require different new paths to work with parallel efforts, I think, when it comes to hours and resources. There are a whole host of things, but I can't say exactly how many suppliers will be changed, how many we will actually have to let go and insource it. There is all aspects of that in the initiatives that we see.
Okay. Thank you, Micael. On the cash flow standpoint, is there any further risk of escalation on that side, or is that all included now?
Can you repeat the question, please?
From a cash flow standpoint, given your adjustments, is there any additional risk going forward in light of your adjustments? You mentioned the milestones that you potentially might miss and those types of effects. Is all of that reflected in the numbers you've shown today?
Well, we've made the best assessment that we can at this point in time, of course. As you've seen in the report that we've delivered, we have assumed a situation of some sort with complicated interactions with suppliers during the fall of 2021. That's the best assessment we can do today. The effects of all that has been included, of course.
Can I just add something?
And another question on the-
Just add one thing. I just want to emphasize also that this is a provision for future risks, which is in a situation where things are very uncertain. It's not something that happened that we know that this supplier got bust and therefore we need to take provision because that would already have been part of the project. This is a future risk in a COVID-19 situation that is now prolonging, and that makes it very uncertain, even though, yes, we have made our best estimate at this point. I think that's important to understand.
Thank you for clearing that. On cash flow again.
Please.
you had a comment there on a renegotiation on a contract in Aerostructures, I believe it was. Is that cash that is being basically shifted from future into now, or is that additional cash above what you had expected internally previously? How should we interpret that?
Right now we have no outstanding negotiations on the commercial side at all. We have finalized those, and we've taken all of those effects into our books.
Okay. A final question from my side. Also on cash flow, Micael, you've been quite confident here on cash flow generation and saying that Q4 will most likely be good as well. Are you as confident if we look at cash flow beyond Q4? Final one from me. Thanks.
We don't really guide on cash flow, but you know, as I've said before, that a number of projects that's been very development heavy move into more of a production phase. We will be more balanced on development and production going forward. We don't have the same sort of perfect storm of only development that we had with the larger projects earlier. We had a couple of really difficult years. I don't see that going forward, no.
Okay. Thank you. That's it for me.
Thank you. We have a few more questions from the line. Please remember to take one question at a time so everybody gets to ask their questions, and you can still get back to the line and follow up. Please go ahead, moderator.
Thank you. Our next question comes from the line of Agnieszka Vilela of Nordea. Please go ahead.
Thank you. I have some questions, gentlemen. Starting with the supply chain disruptions that you are seeing right now, were you surprised by them? If I recall correctly, you have not seen that happening in Q2. Did it come as a surprise to you?
I would say that we were really clear from the beginning of the year, already after Q1, to say that it's difficult to predict what's going to happen. We removed our outlook, and we said that it's a great uncertainty going forward. We said the same thing during Q2. We have decided due to this, the extension of the pandemic, and right now we're looking at what's happening and what could happen, of course, going forward, as Christian was saying, to make sure that we can work proactively with these mitigating actions, securing our deliveries going forward. It's not that we haven't had respect to what's going on, but we don't have the crystal ball. We didn't know how long the pandemic was going to go on. We did have a situation with some stuff in stock that would take us through the first phases.
As you know, as I said, what we do now will affect our deliveries in two, three years' time. It's really important to look forward now and to make sure that you do the right things, not to have any effects on the deliveries. We have looked at this all the time, of course, and we have also communicated uncertainty going forward.
Just to make it clear, the only reason really why you are taking these project write-downs is related to the supply chain issues that you see. It's not that, for example, you have a new CFO now that is looking at the books and maybe checking your risks that you have in the projects?
No, it's not about that. It's absolutely about being proactive and managing the things going forward, and taking that seriously now to work diligently on that. That's what this is all about. We've had great respect for the situation all the time, but we see an extension of this, and we must create some sort of scenario, the best estimate. We do not have the crystal ball. We made a big effort now just recently to look at what we have ahead risk-wise, and we decided that this is the best way to address it.
Perfect. Thank you. The last one from me, just if you could clarify what really happened with the cash flow and what of these non-recurring items were resulting in cash outflow during the quarter? If you could help us with that and take us through that?
The only main item that is affecting cash flow, and that's outside operational cash flow, by the way, so it's not part of the operational cash flow reporting that I just presented, is the Vricon deal. The other ones are provision for future risk.
They are not cash out?
Exactly. That's why I said they are actually a minus on the operational result and a plus on the working capital side, or the net working capital side.
Okay, perfect. That's clear. Thank you.
Thank you. Next question, please.
Thank you. Our next question comes from the line of Björn Enarson of Danske Bank. Please go ahead.
Thank you. I'm not sure that your previous communication have been indicating this kind of magnitude of risk. If you're looking at the actions now taken, how will this impact the profitability on the Gripen projects from Q4 and onwards? Are there anything that we should be more cautious about, or have you adjusted for the uncertainties that you can see right now, or is there also involved sharply lower profitability as you can see going forward? Thank you.
Right now, again, I do think we've talked about great uncertainties, everyone else have. We need to decide at some point what to do going forward, now we have taken the efforts and adjustments that we see needed to continue the project in a proper way. To comment on the project as such going forward, the adjustments have been made now to make sure that we have a project going forward that is reasonable when it comes to profitability.
This buffer that you are creating, is that what you will utilize going forward to keep the desired profitability, or how should we look upon that?
We have made an assessment for risks from COVID-19. Of course, this profitability of the future in the project accounting will depend on two things. First of all, how will these risks materialize? The second one is the completion rate of the project. We don't answer that question.
Okay. Thank you.
Thank you.
The reason why you are not introducing a full year guidance now with just a quarter left. Why is that? Is it huge uncertainty on the Support and Services side, or what could that be?
I would still say that we don't have the crystal ball, of course. We have good execution in the projects as we see very important milestone. We've said that we have the ambition to generate a positive cash flow still 2020. We reiterated that today. Of course, we continue to monitor the market and work as diligently as we can. I don't think it's time to give an outlook even though we are 10 months into the year.
Okay. Thank you. Thanks.
Moderator, we have some questions from the emails that we received here. I'm going to pop one here for you, Micael and Christian, regarding our business area, IPS. The question here is that given the history of IPS being a bit of lower margin business versus the group, what is the plan regarding that business unit going forward for the longer-term plans to restore profitability? How do we think about their future?
We're taking a number of actions or initiatives related to IPS, of course. As we talked about, the civilian part of our business, including aerostructures, have been affected heavily. We are reallocating resources in the organization to adapt the resources working on aerostructures, of course. We are also working heavily to reorganize and focus more in the air traffic management side to make sure that we have a proper operation working in the U.S. with FAA, and we have an international business run from Europe that can manage the other parts of the market. We do a market focus that is substantial, and we review the portfolio. Yes, there are initiatives on the civilian side to mitigate the effects that we have seen going forward.
Then we have, of course, in IPS also avionics business related to the Gripen aircraft and other things that is going reasonably well. Also the consultants business, Combitech, is improving and actually keeping up really good, I think, in these difficult times.
Great. Thank you. Should we go back to the line and have some other questions from the audience outside?
Thank you. Our next question comes from the line of Erik Golrang of SEB. Please go ahead.
Thank you. I have a couple of questions, and they're probably repeating what's been said, but just to be clear on the cash side. This is all provisions, no cash impact in Q3. We should mean if this happens the way you believe it does based on the provisions, then the cash impact will come. Could you put a timeframe of that over what period does these provisions cover? Also the risk that the provisions grow with time. I mean, you've done an initial assessment now. I'm guessing it could be worse, and certainly as it combined to the last question, why no guidance for the full year, given that you do talk about expecting high deliveries, you expect good cash flow, yet you don't want to commit to something specific.
That certainly opens for an assumption of these provisions growing as you get closer to the issues. The first question.
Thank you, Erik, for the question. On the cash side, I think we need to go back and remember what Micael said about the characteristics of the Gripen program. If we take just that part to SEK 1.1 billion, we have made an assessment of future risk of COVID-19 in that program. Programs that are 10 years plus and go over many, many years and where actually an impact today could hit in two or three years' time. Therefore, this is not a provision for a cash out in quarter four. This is a provision, as I said, also in a very uncertain situation. With high uncertainty, we have had to make our best estimates on a provision for the future for these programs, and that resulted in this change of the project.
If it becomes worse or if it becomes better and we have to update and do a new best assessment, we will do that. It will have either another positive or negative impact as we should at all times. This is the best assessment we have right now. That leads me to just answer on how will this impact cash. That is not something we could answer at this point because it's a very uncertain and long-term risk assessment we have made.
Have you got and have you assumed that you get any kind of I'm guessing, as I understand it, a lot of these issues means that you need to find new suppliers, which costs money. You need to do some of it yourself. Have you had any early discussions with clients of getting compensation, or are they telling you that you're left on your own to carry the additional costs?
Well, this is now something that we have done to create provisions for managing this. Of course, we are not responsible for the pandemic and the effects of the pandemic, so it's reasonable to have discussions with our customers, of course, on what we're going to do to secure this program. It's too early to say what that will result in.
Okay. I guess two questions on a separate topic. First one on Kockums. Backlog there continues to decline, SEK 3.6 billion now left. When does this become a problem for you, i.e., would there be a bigger sales drop coming, and what would that do to cost absorption and margins, assuming that there's no big deal coming in within short? Secondly, orders now with 2021 duration, if I'm not wrong, they're lower compared to where they stood a year ago for 2020 duration. Is the base case now then a sales drop in 2021?
Well, we talk about Saab Kockums first, and as I've said earlier, it is really important to fill up, especially with R&D and development work in Saab Kockums already next year. Then, of course, it's important to start adding also contracts. Normally, development leads to a platform. What I do see, and there's no decision taken yet in the defense bill that will be taken to parliament in December. There are a mix of things on the naval side that can support Saab Kockums if it comes in early enough. We haven't seen that yet. It's early days. At least on headline level, there are a number of initiatives or investments that the Swedish government and the defense forces would like to do on the naval side, which looks promising. Then we're continuing to work the export market, of course, especially in the Netherlands and Poland.
Absolutely, we need to get development work into the organization next year. We're working hard to make that happen as we speak, both on the export market, but also with positiveness with regard to what the Swedish defense forces want to do.
On the order backlog for next year, it's on par as we had last year, so I wouldn't say it's a decline. It's minimal, but we have another two and a half months to work, and we'll come back and see how it looks then. We feel quite okay.
Thanks. One final question, just to be clear, the inventory writedowns, the associated companies writedown on the legal dispute provisions, that's completely separate from the other provisions, i.e., it's not COVID-19 related?
Exactly.
related to these supply chain issues.
Correctly.
That's right.
Thank you.
Thank you, Erik.
Thank you.
Do we have more questions from the line?
Yes. Thank you. Our final question comes from the line of Mikael Laséen of Carnegie. Please go ahead. Your line is now open.
Okay, thanks. Just wanted to check here, is the Gripen E project execution on track so far from your internal perspective?
As I said, we're continuing to deliver aircraft. All the actions we're taking now are related to things that should not happen then in two, three years' time. That's why we have done this sort of provision to make sure that we can handle the supply chain. As I said, we do take actions to support the functional development of the system and also to supply the parts. We are delivering aircraft, and you've seen that just recently with the aircraft now flying over Brazilian or in Brazilian airspace, I would say.
Okay. Got it. Just curious why revenue recognition or revenue is affecting primarily Sweden or only Sweden and not South America or Latin America, where you also have Gripen revenue.
No, it actually impacts both programs. I'm not going to tell you the split, but it impacts both programs.
It looks very much that your Swedish revenue is affected and FND revenue as well. It must be a lot more in Sweden, right?
Let's take that separately to guide you on that. It could also be how the underlying sales in both these program looks like also. Let's come back to that. That's a good question.
Yeah.
Okay.
Our time is also running up now. We have to wrap it up. Are you happy with the questions and answers, Mikael?
Well, the questions, definitely he should be.
Are you asking me now?
No, I'm asking, are you happy, Mikael Laséen?
There are many Michaels in here.
Yeah. Perfect. If you want to say any final words, I think we need to cut.
Again, thank you for your support of this press conference today on very short notice. I hope that we've given you some thoughts and some explanations on why we've done this, and that we actually have a really good business, underlying business that is progressing really well with good energy in the organization. I have a great outlook for the future, looking at what we're able to get in from the market in terms of order intake. Thank you for today. Thank you.
Thank you.