Good afternoon. I'm Martin Chapland, 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, Mikael Johansson and our new CFO and Deputy CEO, Christian Luga. So 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. And we're going to finish up with our Q and A session. And with that, I'm going to give the word to you, Mikael.
Thank you, Merten, and thank you all for joining us. And also, I understand, on short notice today. I'll start by talking about sort of the first 9 months and comments on the quarter as well. I must say that I'm really pleased with the quarter and also the 1st 9 months. In terms of order intake, I think it's been a very good year, and I'm really positive to the capability that we have to still finalize contract despite the difficult situation of traveling and all that.
So we have a strong organization in many countries of doing that. So we have seen order intake growing actually during the 1st 9 months with almost 30% compared to last year's same period and 8% in the quarter. It's a mix of larger and midsized 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. So we are building a strong backlog continuously, which is really, 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 our restructures delivering to our aircraft manufacturers around the world and also in the air traffic management business, we see a decline.
And 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. But 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 1st 9 months with the same period last year and also in the quarter. So 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. And if you look upon sort of the part of Saab that represent the civilian business, I would say that if that's roughly 15%, then we have a drop, the minus 2% in sales level compared to last year's 9 months. Would have been flat, so to say, if the civilian business would have been on par.
So then 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 our volumes 70% compared to last year's 9 months period. Also, the earnings, as I said, is resilient and almost on par with the last same quarter last year. And I think we 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. And I still like to underline that we see I still have the ambition to generate now positive cash flow during this year.
And then I'm excited to say that we have done important deliveries, milestones in our Brazil. We've seen the first flight later this week. There will be an Aviators Day in Brazil, which will be a big occasion for the Gripen in Brazil. And then we have 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. And 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.
But we have also seen a good progress on the establishment of the production facility related to the T7 training aircraft in West Lafayette, Indiana. And as you know, we have informed during July that we will invest in having establishing a center in Farnborough, U. K, to support the Future Combat Air System program in the U. K. So we're doing that as we speak, and there will be sort of more Saab employees working with UK industry as we go forward.
Then we had a tremendous success in Australia, getting a big contract when it comes to feed hospitals, which is a systems integration work for us. And that is a region now that has a need for that type of capabilities. So we will actually establish a center of excellence related to portfolio side. We have divested Rycon or a part of Raikon, and that's been completed during the quarter, and that will also be part of our financial statements, of course. So it's in summary, a strong 3rd quarter, a strong 9 months despite the situation on the civilian side compared to last year.
Then we go into how we look upon sort of the risks going forward. And as we've said today in our report, we see a continuing effect from the pandemic. It's not sort of slowing down. And we see sort of shutdowns, openings again, stop and start in many countries. And we have to take that into account now looking forward.
I don't have a crystal ball how long this sort of 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. But 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.
So 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 EF programs. And 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 sort of a need to re qualified equipment if you have to be able to put them in aircraft, so to make things flight safety, again, to certify them. And then, of course, we have other sort of 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. And 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 our structures move into the aeronautics organization to support that. We reallocate resources. We sort of make sure that we support our own employees and sort of move around consultants in the organizations.
So we're taking a lot of mitigating actions. And then, 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. But again, the best assessment, and this is assessment done just recently, looking at the risk going ahead. We have done then adjustments to the project estimates.
So we have an effect in Q3 and year to date of SEK 1,100,000,000 when it comes to the aeronautics organization. And then we have a more generic one for potential other types of programs, but not as big because this is not sort of things that you have to qualify for flying, if I put it mildly. And then 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. So all in all, total adjustments of project estimates is now SEK 1,500,000,000. Then looking at some more details.
I think one has to understand sort of 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. And as I said, they are all related to regulations when it comes to military aircraft certification. So changes in supply chain is not so easy.
It takes a lot of effort, lots of resources, hours, redesign, industrialization, requalification and those are some of the mitigating actions that we are taking as we speak, but what we'll have to take going forward. And what we do today in this environment, what we achieved today that is affecting us 2, 3 years ahead when it comes to the final delivery of aircrafts. So 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. And then we have a supply chain, which is global completely global, many in the U.
S, many in the UK, but also in other parts of the world. And many of these suppliers are also involved in the civilian industry as a supply chain when it comes to commercial aircrafts. And there is a whole range of situations that this supply chain now is experiencing. Some are not sort of getting back on track. Others are sort of halfway on 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. And 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 sort of explain a bit on that there are mainly 2 parallel sort of efforts we're working when you deliver a fighter system. 1 is, of course, to get your supply chain to deliver your parts so you can do final assembly and deliver your system.
The other sort of process that is going on all the time is to incrementally increase the functionality of the system. So the one part that is related to production, if I start in the back end of things, is, of course, that you if you don't get your parts in, you have a stop and go and a standstill in production, have to go to find other suppliers, you have to, as I said, requalify them, redesign, industrialize it, and you might have to sort of pay a higher price to get all this as well. And then so we do things that we change suppliers we have to, and we will work with that. We might have to do in sourcing instead of doing the outsourcing that we planned. So that's one portion of it.
So we spend a lot more hours, and we get a bit of stop and go situation in production and in the testing. And that is, of course, one portion of why what we see as a risk going forward. We will do everything we can to mitigate this, of course. But then when we come to the development side of things, of course, this functionality 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 sort of develop together with them, and you have to have integration efforts in this.
So 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. So if you can't do that to an extent, then you enter into a problem with your verification and certification of functionality. So you get to stop and go in your test platforms as well in the organization. And you might have to work parallel paths with your organization spending more hours.
So you get sort of a reduction in productivity. And then you have your verification, which we do all the time, of course, and I was touching upon that. If you have to do sort of a requalification or change the supplier, you have to do a redesign and you have to reverify it and you have to go into your test platforms again. So you have 3 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. But of course, we continue to work with customers every day, and we will continue to deliver aircrafts, I can assure you. We will, of course, based 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. But we will continue to deliver aircrafts, 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.
But we have, during the quarter, received a lot of important contracts, both when it comes to RBS 15 for Germany, a big contract the support contract for the GlobalEye in U. A. And this big contract for SEK 2,000,000,000 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, so to say, crossroads when it comes to the portfolio.
Do we invest? Do we divest? Do we find partners? And now we're talking about sort of really looking into what's important to us going forward. So we've done some things now during this quarter related to the portfolio.
We have divested, as I said, our portion in the Raican company in the U. S, the joint venture with Maxar or DigitalGlobe. And we have divested QPS, which is working with software for the hydrography area on subsea market. And then we have launched a new product actually, a new one as well, which is a very important product for the Gripen going forward, a DECOL 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 FEED hospital side, of course, and we will move some of our capability when it comes to future combat there to U. K. But 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 T7 in the U. S. So that factor will be up and running next year. And the Gripen has now transferred into flight testing also in Brazil, which is an excellent thing. And I really look forward now to the Aviators Day later this week to see the Gripen again flying in Brazil.
So from my side and 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. Then I think the sales, which the underlying sales is on par, and Christian will come back to sort of why is the sales sort of 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 contracts. So also the sales level is being adjusted.
But it's on par the underlying with last year. And also when it comes to operating income, I'm very pleased with the underlying earnings. But then, of course, on top of that, we've reported now that we will we have taken this effect in Q3 to support the mitigating actions going forward. Create a buffer reserve resources to do that going forward. And a very, very good trend on cash flow, of course, when we are moving from a rather poor situation last year, the 1st 9 months, to much better situation this year.
And I underline again then that my view is that we will go we will actually continue to deliver positive cash flow this year because we have important milestones that will generate cash flows in the Q4. So looking at Q3s in isolations. This is a Q3 that is almost on par, but we had an extremely good Q3 last year. But 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 sort of 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 cost reductions to support EBIT going forward. But then, of course, as you see then, the items affecting comparability in the in the quarter had a net impact of SEK 1,100,000,000 in the quarter and for the 1st 9 months. So 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. We 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 subs 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. But as you see, the also the Swedish government is now putting more money into defense spending. So of course, we have an important part being an integrated embedded part of the Swedish defense.
And the same thing we're doing now internationally in U. S, U. K. And Australia, and 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.
And everything that's connected to project execution is instrumental to us. We have a 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. And I see really good trends also in our 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. So we will continue to spend money on R and D. We embrace new technologies. That will also lead to productivity improvements, of course, and new ways of giving our customers capabilities going forward. So we're not forgetting about that.
That's an incredibly important part. And also attracting the right skills, of course, in the marketplace, but rescaling, upscaling our own workforce is as an important part going forward. So 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 Louwiga.
Thank you, Michael, and I'm excited to be on board. I've been here for now 5 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. But enough about that and a little bit more about the numbers.
And I will try not to repeat what Michael have said and try to pick out the things missing for you to understand our numbers. But if we just look at the financial summary for the 1st 9 months, as you know, we have an 8% decline in revenue and 6% of that comes from the reevaluation of the projects in the group, and I'll come back to that in a second. And the impact on the group operating income is SEK 1,100,000,000 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 Kokom's, and I'll come back to that. So 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.
And as we talked about, we have reassessed our projects primarily with the Gripen EF program, The long term project and of Gripen has a future risk that we have reassessed on COVID-nineteen. And the reason why these are items affecting comparability is that they are COVID-nineteen related risk. Of course, a normal project adjustment would not be taken as an item affecting comparability. The as Mikael 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 375,000,000 hit on group for the same reason that relates to the other business areas.
We have seen an increased risk also from COVID-nineteen on the other projects in the group, but we have, at this time, not been able to reallocate that to the right BA, but that we will do over time as we see it suits us. And then in this quarter, we have also adjusted the inventory with SEK137,000,000 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 arise. It's a combination of several that we have done a reassessment on and seen that we should increase our provision with SEK 300,000,000 for that total portfolio. And then as you already knew and was announced already in July, we had a capital gain from the Ricon sales in the U.
S. And net all of this on the EBIT is SEK 1,100,000,000. And it has, of course, a big impact on the quarter EBIT margin, this onetime effect, and that is important that you understand where it comes from. If we look at the quarter 3, as also already discussed, The only thing I want to talk about here is that you understand the SEK 6,100,000,000 should have been SEK 7,600,000,000 in the quarter, adjusting for then the COVID-nineteen related adjustment on the projects. The other part I want to highlight here that we haven't talked about is the operational cash flow.
And 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, and I'll come back to the year to date numbers in a second. But in the quarter, around SEK 1,000,000,000 is coming from net working capital and release of milestones in the projects that drives a positive cash flow. And then, of course, the impact from the reassessment and the onetime 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.
So 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 percent 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. And 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 3,000,000,000 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 2 things here. Michael talked about the dynamics, good performance in sales, but 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. So that is a very positive improvement. And then 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 1,100,000,000 net effect from the reevaluation of the COVID-nineteen 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, and that is but that is primarily from the civil part as we talked about before. But also, there's 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 EF program. Then it would have been SEK 7,500,000,000 instead of SEK 8,600,000,000 on Aeronautics, very important to understand. But 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 as for support and services because this is year to date numbers. And we can see here the performance from Kockums from productivity that Michael talked about, which is very encouraging to see.
And we take these slow steps and improve day by day. Then for the operational cash flow for the year and for the 1st 9 months. So this is a somewhat complicated picture, but I'll try to explain it, but it looks simple. But 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. And 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.
And therefore, it could be interesting to understand what is the underlying difference here. So if we net out the state support and if we net out the impact between on the onetimers between cash flow from operations and change in working capital, the net improvement for the group is SEK 3,000,000,000 around, and that is the important number. Those SEK 3,000,000,000 is pretty much equally split between working capital from inventory and working capital from the milestones on the project release that we have done. And that is the improvement we have year on year, which is encouraging. The investment activities is pretty much the same.
It's divided equally between CapEx and R and D, and the numbers are very equal to last year. And net on net, we are at 0.1%. And we have said and 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
1,800,000,000.
My final slide is the on the financial position. Net debt is unchanged since year end. If we net out the pension obligation and the IFRS 15 leasing obligations, it's pretty much flat. It's important to understand that the Raikon divestment is the item here on the acquisition and divestment net. That is positive.
And it's also important to understand that the pension obligation is met by the pension fund, and there's not a deficit in that one. And we have a solid 36% equity asset ratio, which is important in a long term business company like ours. Thank you. Thank you, Mikael.
Thank you. So thanks for presentation, very clear. Now we are in the phase of opening up for Q and A session with our external audience. And we are going to allow questions from the line for those who you called in from the telephone conference, but we also pick up your questions from the email. So if you have questions and you want to email them, you can still do that, and we try to get back to you on those questions.
So I'm going to leave the word to the moderator.
Thank you. If you do wish to
Yes. Please go ahead.
Thank you. If you do wish to ask a question via the teleconference platform, Our first question comes from the line of Douglas Lindahl of Kepler Cheuvreux. Please go ahead. Your line is open.
Hello, gentlemen. Hopefully, you can hear me. Few questions from my side. First of all, on your adjustments in Aeronautics. Can you give some more context on your sort of 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.
Well, I can start. I mean, yes, it's a number of things, of course. There will be, as I mentioned earlier, initiatives where we have to change suppliers. And that is not sort of an that's a big effort to do that in our business. So it's not just to take the blueprint from 1 supplier and go to the next one.
You have probably, you have to do redesign and you have to do reindustrialization and recertification. So we have a few of those which we have to work with. Then we must decide to boost our own internal manufacturing on the sort of the detailed which also will require some industrialization and boosting that organization, actually adding more hours to it. Then there is a support, of course, of some suppliers, which is not financially perfect, just to get them sort of to deliver things. So our sourcing cost might go up.
And 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. So there are a whole host of things, but I can't sort of say exactly how many supplies will be changed, how many we will actually have to sort of let go and in source it, but there is all aspects of that in the initiatives that we see.
Okay. Thank you, Mikael. And is there any on the cash flow standpoint, is there any further risk of escalation on that side? Or is that all sort of 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 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. And as you've seen in the report that we have 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. So and the effects of all that has been included, of course.
Can I just add to Mike another question on the Just to add one thing? I just want to emphasize also that this is a future provision for future risks, which is in a situation where things are very uncertain. So 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. But this is a future risk in a COVID 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 taking that. And on cash flow again, You had a comment there on a renegotiation on a contract in Aerostructures, I begos. 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 have taken all of those effects into our books.
Okay.
And a final question from my side then. Also on cash flow, Mikael, 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 for me.
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. So 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 on the from the line. Please remember to take one question at a time so everybody gets to ask to their questions and you can still get back to the line and follow-up. So please go ahead, moderator.
Thank you. Our next question comes from the line of Agnishka Villalala of Nordea. Please go ahead. Your line is now open.
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. So 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. And we said the same thing during Q2. We have decided, due to this 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 sort of take us through the first phases. But then as you know, as I said, what we do now will affect our deliveries in 2, 3 years' time. So 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. So it's I don't see that we have looked at this all the time, of course, and we have also communicated uncertainty going forward.
And just to make it clear, so the only reason really why you are taking this project write downs is related to the supply chain issues that you see. You don't think that or it's not that, for example, you have a new CFO now that is looking at the books and maybe checking in all your risks that you have in the projects?
No, it's not about that. It's absolutely about being proactive in managing the things going forward and taking that seriously now to work diligently on that. That's what this is all about. And we've had great respect for the situation all the time, but we see an extension of this. And we must sort of 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. And then the last one for me. Just if you could clarify what really happened with the cash flow and what of these nonrecurring items were resulting in cash outflow during the quarter. So if we could 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. It's the Raican deal. The other ones are provision for future risk.
So they are not cash out?
Exactly. And 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 Bjorn Enarson of Danske Bank. Please go ahead. Your line is now open.
Thank you. I'm not sure that the that your previous communication have been indicating this kind of magnitude of risk. But if you're looking at the actions now taken, will this 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?
So right now, we again, we made I do think we've talked about great uncertainties, everyone else have. We need to sort of decide at some point what to do going forward. And now we have taken the efforts and adjustments that we see needed to continue the project in a proper way. So to comment on the project as such going forward, I mean, the adjustments have been made now to make sure that we have a project going forward that is reasonable when it comes to profitability.
And this buffer that you are creating, is that what you will utilize going forward to keep the desired profitability? Or how should we look on that?
So we have made an assessment for risks from COVID-nineteen. And of course, this profitability of the future will in the project accounting will depend on 2 things: first of all, how will these risks materialize? And the second one is the completion rate of the project, and we don't answer that question.
Okay. Thank you. And the reason why you're not introducing a full year guidance now with just a quarter left. Why is that due to 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. And then, of course, we continue to monitor the market and work as diligently as we can.
But 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 e mails that we received here, and I'm going to pop one here for you, Mikael and Christian, regarding our business area, IPS. So 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?
No, we're taking a number of sort of actions or initiatives related to IPS, of course. As we talked about, the civilian part of our business, including our structures, have been affected heavily. So we are reallocating resources in the organization to adapt the resources working on our structures, of course. We are also working heavily to reorganize and focus more in the 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 1 from Europe that can manage the other parts of the market. And we do a market focus that is substantial, and we review the portfolio. So yes, there are initiatives on the civilian side to mitigate the effects that we have seen going forward. So of course and then we have, of course, in IPS also avionics business related to the Gripen aircraft and other things that is sort of going reasonably well. And also the consultants business, Combotech, 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 Eric Goldren of SEB. Please go ahead. Your line is now open.
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, so this is all reservations, 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 then come. Could you put a sort of time frame of that over what period does these provisions cover?
And then 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 you combine 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. So that certainly opens for an assumption of these provisions growing as you get closer to the issues? The first question.
So just on the cash thank you, Erik, for the question. But on the cash side, I think we need to go back and remember what Mikael said about the characteristics of the Gripen program. If we take just that part, the SEK 1,100,000,000, we have made an assessment of future risk of COVID-nineteen in that program, programs that are 10 years plus and go over many, many years and where actually an impact today could hit in 2 or 3 years' time. And therefore, this is not a provision for a cash out in quarter 4. This is a provision, as I said, also in a very uncertain situation.
So 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. And if it becomes worse or if it becomes better and we have to update and do a new best assessment, we will do that, and it will have either another positive or negative impact as we should at all time. And but this is the best assessment we have right now. So that leads me to just answer on how will this impact cash. That is to that is not something we could answer at this point because it's a very uncertain and long
term risk assessment we
have made. Okay. Have you gotten that you assume that you get any kind of I mean, I think as I understand it, a lot of these issues means that you need to find new suppliers, which cost 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, I mean, this is now something that we have done to create provisions for managing this. But 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, of what we're going to do to secure this program. But it's too early to say what that will result in.
Okay. Let me get 2 questions on a separate topic. First one on Kokkens. Backlog there continues to decline, SEK 3,600,000,000 now left. When does this become a problem for you, I.
E, when 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? And then 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 safe drop in 2021?
We talk about Saab Kokum's first. And as I've said earlier, it is really important to sort of fill up, especially with R and D and development work in sub cockums already next year. And then, of course, it's important to start sort of adding also contracts. Normally, development leads to a platform. So but what I do see in the and there's no decision taken yet in the defense bill or the defense yes, the defense bill that will be taken to parliament in December.
There are a mix of things on the naval side that can support Chalkokums if it comes in early enough. We haven't seen that yet. It's early days. But 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. And then we're continuing to work the export market, of course, especially in the Netherlands and Poland.
But absolutely, we need to get sort of development work into the organization next year, And we're working hard to make that happen as we speak, both on the export market but also with sort of positiveness with regard to what the Swedish Defence Forces want to do.
And 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 2.5 months to work, and we'll come back and see how it looks then. But we feel quite okay.
Thanks. And then one final question just to be clear. The inventory write downs, the associated companies write down on the legal dispute provisions, that's completely separate from the other provisions, I. E, it is not COVID-nineteen related or related to the supply chain issues?
Correctly. That's right.
Thank you.
Thank you, Erik. Do we have more questions from the line?
Yes. Thank you. Our final question comes from the line of Mikael Larsen of Carnegie. Please go ahead. Your line is now open.
Okay. Thanks. Just wanted to check here, if the Gripen EEF project execution on track so far from your internal perspective?
As I said, we're continuing to deliver aircrafts. All the actions we're taking now is related to things that should not happen then in 2, 3 years' time. So 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. But we are delivering aircrafts, and you've seen that just recently with the aircraft now flying over Brazilian or in Brazilian airspace, I would say.
Okay. Got it. And then just curious why revenue recognition or revenue is affecting primarily Sweden or only Sweden and not South America or Latin America? Or 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 SMB revenue as well. So it must be a lot more
in Sweden, right?
Let's take that separately to guide you on that. But it could also be how the sales underlying sales in both these programs looks like also. So let's come back to that. But that's a good question.
Yes.
Our time is also running up now, so 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 Lasien?
Many Michaels in here.
Perfect. Then we have if you want to say any final words, I think we need to cut
But again, thank you for your support of this press conference today in very short on very short notice. And I hope that we have given you some thoughts and some explanations on why we have done this and that we actually have a really good business, underlying business that is progressing really well with good energy in the organization. And I have great I have a great sort of outlook for the future looking at what we are able to get in from the market in terms of order intake. But thank you for today. Thank you.
Thank you.