Good morning, and welcome. My name is Merton Kaplan, Head of Investor Relations at Saab. With me here in the studio today, I have Saab CEO, Micael Johansson, and Saab CFO, Christian Luiga. As you know, this morning, we reported our Q2 report. We will begin the presentation shortly to go through with the numbers and the highlights in more detail. We will also continue to open the floor for a Q&A session afterwards for viewers online, as well as our analysts that dial into the call. We'll have more information on that after the presentation. I would also like to remind you that you can send in your questions to me during the presentation through the website link that we provided to you. With those remarks, I would like to hand over to you, Micael, to go through the presentation.
Thank you so much, Merton, and thank you for joining us this morning in the middle of the summer. Let me just start this by going through a few highlights related to our Q2 . Of course, as we've said, the demand in the market is still high, so we have a good momentum in orders, I think, SEK 14 billion+ in the quarter. Even if that was a bit lower than the Q2 last year, one has to be remembered then that last year we had a big mega deal order on the GlobalEye for Sweden. The medium-sized orders have continued to develop really well, and half year is up 23% and amounts to SEK 31 billion.
I think this will continue for a long time because many countries are rebuilding the capabilities, which they haven't had for a number of years, spending more money on defense. It's tragic that it took a war to make many countries wake up, and also, of course, continuing to support Ukraine in winning the war is also one of the reasons that we see a strong demand in the market. We have also a good sales development, as you've seen, 22% organic growth in the quarter and 23% on the half year, which is, of course, something we are proud of, that we have managed to sort of grow now and increase capacity.
A few other highlights is, of course, the delivery of the second ship to Sweden, a very important capability, of course, to be able to listen with sophisticated sensors on the ship. It also shows how qualified we are when it comes to deliver complicated, sophisticated, surface ships. They may now take that soon into operation. There's clear visibility on how attractive we are as a company now for other companies to work with us.
An example of that is, of course, the rather new partnership with Boeing on what we call the Ground-Launched Small Diameter Bomb, with a simple acronym of GLSDB, which I think have a great sort of promise into the future on demand side, and that is a very important capability in many countries. We have been selected in Germany to provide an EW solution for the German Eurofighter, an extremely important contract for us going forward. And that will be done also in partnership with a company called Helsing, which is an expertise company in artificial intelligence. We now start to involve artificial intelligence in the mass data fusion, also in our EW solutions going forward.
It's all about building capacity, of course, and making sure that we can support the defense forces around the world. The lead times must be shorter. The demand is high. We have to deliver, and we do that really well right now. We have also opened up production now in the U.K., where we have started to manufacture the Giraffe 1X type of radar, and potentially also we will manufacture the G4A, the Giraffe 4A radars in the U.K. We have a sensor manufacturing capability in the U.K. Our capacity build-up on the ground combat side is continuing in Sweden, of course, sort of boosting our infrastructure and also employing a lot of people, but also setting up capability in India and in the U.S. I'm really happy to see that so many new employees, talented people, have selected to work for Saab.
We have an increase of more than 1,000 employees year to date and 2,000 the last 18 months. To retaining our skillful employees is, of course, extremely important, but these new ones are also extremely important to continue our growth pace into the future. It's been a very intensive and good quarter. Looking at the numbers, the key figures that Christian will go through in more detail, as I mentioned, we had a strong order intake quarter as well. This quarter, even though I said it was a little bit of a decrease, but that was connected to the GlobalEye contract last year. I'm very pleased with the order intake, and the SEK 31.1 billion we have for the first half year is extremely strong.
As I said, an organic growth, 22%, and as you've seen, we have also decided now to change our outlook for the growth this year. I will come back to that. EBIT is growing 44% in the quarter and 43% the half year, and that is, of course, extremely important as well. On the cash flow side, this is like how it is in Saab, when you have sort of a number of outputs in terms of an outflow, I mean, when it comes to cash to our suppliers. When that doesn't match with sort of payment milestones from customers, you can have a quarter looking like that.
I mean, half year is still positive SEK 1.5 billion, and we are confident in that we will deliver a good positive cash flow for the year. This is not unusual, that it can be like this, when it comes to cash flow and so on now and then. Looking at the market fundamentals, of course, as I said, the support to Ukraine's defense remains strong to have them win the war. Many countries are boosting that. To us, that means that we deliver to many other countries, and I don't know exactly how many defense forces delivers what into the Ukrainian defense.
At the same time, we have many EU and NATO countries that needs to boost their own defense capabilities to move from a peacetime type of mindset to be prepared for conflict and war, and to support the war. To have much more resilience when it comes to stock levels means another thing. This will continue for years to build sort of capabilities in many European countries, I would say, specifically going forward. Many countries are in the processes of establishing new defense planning processes, including our own country, Sweden, which is now having a defense committee in play, which have delivered the first security politics report. Next year, they will deliver sort of what capabilities do we need them to be coping with the threat environment that we see. This is going on in a few countries.
There are also many initiatives when it comes to how we boost capacity, specifically when it comes to ammunition and missile capabilities. There is a new initiatives within EU, called ASAP, which includes things to make sure that we can invest in infrastructure and joint procurements when it comes to specific ammunitions and missiles, but also to take care of raw materials and the supply chain. Also, NATO have decided, in Vilnius to initiate the Defence Production Action Plan. All these initiatives are extremely good. However, I would like to say that the mechanism to actually access these funds and money, for a country and industry is not 100% clear yet, but I do support initiatives to help us boost the capacity, of course.
I hope really that now the ratification of the agreement to really join NATO after the very important step we saw in Vilnius will happen soon, because, of course, there is potential in being NATO and alliance rather than relating to it and being compatible only. Being inside the alliance is a completely different thing. I see that a very positive thing for Sweden, of course, but also really important for us as an industry. I think we will see growth in many years going forward, looking at what we're seeing in the marketplace right now. A few comments on specific contracts then.
I mentioned the numbers on orders, the international part of the orders is 67% during the first half year on the international side, and 33% on the Swedish side. We have a record high order backlog of SEK 135 billion. A few examples of contracts that we have signed is more Carl-Gustaf ammunition to Sweden, and I appreciate the long-term view now Sweden is taking on the security of supply when it comes to ammunition. A little bit of a new trend that we also get sort of contracts that will give us a foundation for deliveries sort of beyond 2025 when it comes to things like ammunition. I think that's really important and a good step by Sweden.
We also are a part of the successful contracts for BAE Systems Hägglunds on the CV90s, of course, where we have important systems on that vehicle, like sight and fire control systems. That was almost SEK 1 billion in order intake. We've had the largest order ever for our unmanned Sabertooth autonomous underwater vehicle, which is about the new important area of monitoring seabed infrastructure. This will become a very important area going forward. Having unmanned underwater vehicles that can actually take care of the situation awareness underwater, looking at the infrastructure, will be important. A few contracts also on the Gripen development and support to Sweden, both for the CD version and EF version, have also come into play. We got a new contract on the Carl-Gustaf for Australia, roughly SEK 400 million for the M4.
Examples of important contracts, in essence, I would say that areas like Dynamics business area and the Surveillance business area are still driving sort of the order intake in the marketplace. The demand for those type of things, like support weapons and air defense systems, like RBS 70, and sensors like 1X and G4, is really strong. A couple of comments on each business area. Aeronautics is growing, absolutely, quarter and quarter, if you look at last year. On par when it comes to EBIT.
I mean, we have a situation where the Gripen contracts are of absolutely moving in the right direction, but we're still a bit affected by that we are not really up and running in the full rate production when it comes to the T-7, and we still have a negative effect of the commercial aerostructures business, which is sort of pulling the EBIT level down a bit. Very important milestones in the Q2 when it comes to inaugurating the Gripen E production line in Brazil. I think this is so important now we have.
capability in Brazil for, which is a design center, a flight test center, and also final assembly and test capability for the Gripen E outside Sweden, which will be important for the Latin American market and also, of course, the next step in Brazil. A very high-level delegation took place to inaugurate that. That is incredibly important milestone. Also now, which is a good step on the training aircraft, T-7, in the U.S., is that we've had the Air Force flying the T-7 for the first time in the quarter.
Now the test phase from the Air Force perspective takes place, and then we can continue to move forward to the important type certificate for deliveries to the Air Force and also the further acquisitions of the production contracts. There are a number of campaigns we're running, of course, on the Gripen side. Brazil, second step, of course, but also Colombia and the Philippines and Hungary and Czech Republic are part of our campaign countries for the Gripen. Lots of intensity in Aeronautics. Dynamics, very strong growth, of course, and across several business units, not only the support weapons side, but also, for example, training and simulation. Training is so important when we now have more people defending the NATO alliance and also boosting resilience in many countries.
You have to have more people training on the equipment, and we have excellent systems to provide doing that, delivering complete training centers to armies, for example. We have a very good profitability level within Dynamics. A little bit calibrated now in terms of the mix of things that we had last year were extremely favorable. We still have a high profitability level, and it will be high in the future as well, but it has lowered a bit from the last quarter. This is about ramping capacity. I mean, we have invested, we continue to invest to double it and double it again, including redundancy and, as I mentioned, in India and the U.S.
Extremely good development within Dynamics, and of course, a record high backlog of SEK 42 billion almost in that area. When it comes to Surveillance, very good development when it comes to growth and EBIT development, and they are moving into the right level of profitability now. We see a very good interest and large interest in the GlobalEye system from several countries, and of course, we're participating in the common acquisition within the NATO, but also country by country or several countries taking an interest in the GlobalEye system, apart from Sweden and UAE so far. As I mentioned, the EW solution and establishing EW capability on the Eurofighter in Germany will build capacity in Germany also when it comes to our employees in Germany.
We have deployed a very important sort of Digital Tower, which you can actually set up for disaster relief campaigns or within the military forces to do air traffic control in a very flexible way. It's sort of a Remote Tower, but more deployable version of it that will be used in many instances. Saab Kockums is developing fantastically in a mix of good aftermarket contracts and also good activity in the bigger projects like A26 and the surface ships. That drives growth, almost 30%, 27% quarter-on-quarter, and also that drives EBIT in a very good way, improving the EBIT to a very good level, over 100% growth within a quarter-to-quarter.
There are a number of things happening in this area which are very important. We are, of course, continuing the campaign when it comes to the Netherlands, and soon, I think, the competitors are asked to hand in proposals, and then the assessments will take place over the next year in the Netherlands. Also Sweden, Australia have now signed up, so we can use the submarine technology that we have in Sweden to support the life-of-type extension of the Collins-class ships, boats, submarines in Australia. That is a very good step, so we will build our capability related to submarines even further in Australia going forward.
Apart from the Sigyn ship delivery to Sweden, we also are going to deliver two ships of, with the Sigyn capability to Poland, and we've already, together with the Remontowa Shipyard, had the steel cutting ceremony, and that project is really moving well ahead as planned. I'm really proud to see that Combitech are continuing to grow, increasing the number of consultants, of course, but also continuing to improve the margins. We are setting up agreements which are important. We did win a support contract, technical support contract for the Swedish Army with a potential value of SEK 1.2 billion, which is more of a commitment, like a normal project, and not only sort of a consultant contract by the hour.
We also have a similar thing together with BAE Systems Hägglunds, helping them on the CV90 when it comes to safety management, technical project management, and some parts of the construction, which is extremely good contracts to have for Combitech. This is nice to see. On the sustainability side, there are a number of highlights that I want to mention. We, of course, take a big responsibility to make sure that we can work with our suppliers to make to find solution to become more sustainable in how we go about things. We have hosted supplier days, and many new ideas have come up in that.
We also launched an innovation call within the organization, and we have now down selected a number of initiatives connected to how we work with different things, how we can simulate things rather than actually testing things in a, in a sort of real life, how we can work with energy efficiency, with renewables, rather than the normal sort of provision of energy. Those are extremely important measures going forward. Because in essence, since we grow, we have higher production activity, but we also fly more in terms of testing our aircrafts. We have more flights with our firefighters aircrafts.
We have to boost our plan when it comes to the reduction plan a lot to cope with the decrease in CO2 emission, which must be 4.2% per year to reach our targets. That cannot sort of be on the expense of growing the company, so we have to do more to reduce our emissions. Quarter-on-quarter, we did have actually an increase in emissions, but we are working hard to boost our impact plan now going forward. As I mentioned, we have now, because of better visibility and confidence after the half year, updated our outlook for the growth perspective.
Now we say we will reach a organic sales growth between 16% and 20%, which I think is a very good and strong message. We keep our long-term sales growth targets, the compounded annual grade yearly growth for 10%. We keep our EBIT growth. That must be higher than the organic sales growth. Of course, we keep our views on cash flow to have a good positive cash flow for 2023. We have now replaced the former target of around 15% with a sales growth that will be between 16% and 20%. That's the basic message. Finally, looking forward, with no big surprises, of course, we focus a lot on deliveries and reducing lead times to meet our customer demands in the market, which are extremely high.
And these things are needed as we speak. This is the focus right now, to deliver and boost capacity in many areas. Of course, at the same time, capture the market opportunities, including then, of course, the NATO planning processes and what is going... Because NATO are also expanding the defense capabilities in regions, but also capability-wise. Of course, we have to be a part of that. Then we continue to support all the European countries, specifically in their growth path going forward. Everything is about capacity build-up and resource onboarding, and I'm happy to see then that we are, as I said, more than 2,000 new employees into the organization on top of our skilled employees that we have, since the last 18 months. Managing supply chain and inflation, that's important.
I need to underline that the strong backlog we have sort of mitigations in terms of contract provisions, in terms of index development, and also currency fluctuations. Those are secure and will not, of course, affect us that much, not at all, actually, when it comes to inflation and currency movements. However, I mean, new contracts, we have to take this into account when we offer new things into the marketplace. Even if it looks a bit better when it comes to the stability in the provision of materials and components and so forth in the supply chain, we have to be on our toes to work really hard with that also going forward.
We've done well so far, it looks a bit generally better in the marketplace, I think we need to be on top of that going forward as well. We cannot only sort of do here and now, my view on that Saab must continue to be state-of-the-art in important areas going forward, there will be new capabilities needed in the marketplace. Everything will be connected, so much information will have to be digested using AI. It is going to be implementing cloud technology in the defense forces. There are going to be new capabilities in terms of sensors and so forth, we are investing and have many good innovative projects in that direction going forward. They're going to be manned-unmanned teaming, autonomous systems in play.
Of course, we have to bring our best engineers also in working on that, which we are doing. To do that in a efficient way, of course, we have to find like-minded partners that, where we benefit, win-win, both of us to do new things in the marketplace. The interest in working with Saab has increased dramatically over the last two years, I would say, and we need to benefit from that and take those opportunities. I think that, in short, was, how I view the Q2 . With that, I will hand over to Christian Luiga, my Deputy CEO and CFO.
Thank you, Micael, and good morning, everyone. As Micael said, this is a strong quarter. I like also to say that is pretty much in line with what we expected from the company. We expected the first half that would be having a higher growth than the second half. We have said that we continuously should improve our EBIT margin and that the cash flow should be positive for the year, but it could be sluggish between the quarters, depending on how we are paid and need to pay and build up inventory. That is really reflected in this quarter as well. Starting out then with the order and the strong order momentum we have, I think it's with the SEK 14 billion now in the quarter, we still grow.
We started the year at SEK 128 billion in the backlog. Then we increased it in quarter one. Now we increase it again in quarter two to SEK 135 billion, which Micael said is a record high. Every quarter now, we have been doing a record high for a long time. What is it then behind this? I think the important thing is to see that first, we have then, during the last year, filled up the first bars in this picture, the year one and year two, increasing sort of the order to sales that is in the coming few years.
Now in this quarter, which is very positive, is that we are filling up the bar called after year four, the four years ahead and beyond. That is also a very important step change. So we don't only fill up the next year, but we fill up over time. We do it actually with orders that typically would not come in that, in that range. It is more Dynamics orders coming in also now after year 4, and they were typically before always year one and year two order. That is going to give us more stability for that business over time.
Another interesting fact, except what's on this page, is that over the last years, if you go back one or two years, not only we have a much lower backlog, we also had a much more heavy Aeronautics backlog. Today, our backlog, as you could see in the previous pictures that Micael showed, we have around SEK 40 billion, both in Surveillance, Dynamics and Aeronautics. They actually stand for 30% each. Just two years ago, Aeronautics were closer to 50% of our backlog. That is a great stability statement for what we look ahead on sales. We have a much broader and stable backlog, but we also have a bigger backlog.
That is two very promising messages for how to keep a lower risk in our delivery going forward. If you look at the Q2, I'm not going to spend so much time on this. I will actually spend a little bit more on the half year because I think we shouldn't be measured that much on a quarter. We are a long-term company, and you have to look more than a quarter to understand what we're doing. The quarter was very similar to Q1. We had a growth of 23%. It was a little bit higher in Q1, and we have a increase in EBITDA margin, and we have an increase in EBIT margin. That both comes from scale and also from gross margin improvement.
Notable on this page is that we had a few items affecting comparability, and there were 2. We had a property divestment, and then we had a write-down of minority portfolio again. They were the minority portfolio write-down was around SEK 24 million. Those 2 together gives us a small boost of SEK 34 million, which is around 0.2% of the EBIT margin. The other thing, which you remember from last year, we had a heavy impact on our financial net from the revaluation of the unrealized bonds that we have placed some of our money in.
We have a very strong balance sheet. That was a negative 106 last year on the quarter, and now it's starting to turn back and it's a plus 22. That net, of course, impacts in both quarters, non-cash impact, but it coming back now, the loss we had to take before, and making our EPS more normalized. Looking at the half year, which I think is more interesting than we have started out with a 24% growth, and it's 23% organic growth. It is a healthy balance where we have all business areas are growing. This has led to a 1.1% increase in EBIT margin. Of that 1.1%, 0.6% comes from gross margin improvement.
That gross margin improvement is not only that Surveillance and Kockums are driving up their gross margins, it's also from the volume increase, relative wise, from Dynamics and Surveillance becoming bigger part of this group. This is what we have talked about also at our capital markets day. The other part then below that is 0.3, is actually the scale effects from the growth on OpEx. We are growing OpEx less than we are growing sales, and we get the scale effects. Meanwhile, we actually do have a pretty stable development of the R&D cost in this period. Then finally, we have a small part that is then related to the items affecting comparability, and that makes up the 1.1%.
That's just to give you a flavor of how you should think about what is driving this EBIT margin growth. Here again, on the half year, we have a big difference in financial net that when you look at it first time, you say, "What, what is happening here?" It is really the SEK 209 million that we had to take in a loss last year, is now a SEK 26 million plus in this half year, and that makes out the biggest difference between the years. We are keeping within the tax rate that we also announced around the capital markets day of 21%-22%, and you can see that we follow that. All in all, we are 93% up on our EPS, which is, of course, very positive.
If we look at the sales development, we are continuing to improve then our rolling 12-month sales, and this is, of course, part of our growth journey. We have been growing 10% over the last 3 years, if you look on a CAGR point of view. We have said that between 2022 and 2027, we should grow 10% as well in a CAGR amount. That is actually showing that we are around 10% growth company. We've proven it, and we are gonna prove it also going forward. What I think is interesting in this picture is the SEK 47 billion.
We are now up to SEK 47 billion when it comes to rolling 12 months, that is an 18% increase compared to 12 months ago, rolling 12-month number. If we look at the sales per business area, we see that which I think is then supporting my statement on the income statement. We see that Dynamics and Surveillance, if you look at the absolute bar, they are the ones driving then the sales growth in numbers. I also talked about in quarter one, where we had no growth in Aeronautics, that they would come back with some growth this year. They will be much lower than the other business areas, they will have growth also this year.
quarter two, we see that they have taken that step into a growth for the year. Encouraging to see also as Micael said, that Kockums is growing. It's a lot of off the market and a lot of production right now. I also have mentioned that the 40% is difficult to handle over time for Kockums because it is a small shipyard, but it is a very excellent shipyard. They are having a little bit lower growth than this quarter as a result of that. EBIT and EBIT margin. I mean, here we can see something for the quarter, where Surveillance is actually the locomotive this quarter.
Last quarter, Dynamics was the locomotive, now Surveillance is the locomotive for driving the EBITDA 44% growth that we have in the group. If you look at the half year, Dynamics would be positive as well. I think this is a supportive picture to how this group is developing. We are then taking the steps upwards steadily on the EBITDA and the EBIT margin as we go. R&D increases, as I said, and they increase with 19%, not exactly as much as the sales growth, but we are lifting it up. And they are, of course, more even over the year than the sales growth will be. Cash flow. Cash flow, I thought...
I actually think Micael presented it in a very, very good way. In quarter one, we had a lot of prepayments, in the Q2 , we had less prepayments, but we also had to pay suppliers for what we then were ordered and got prepaid for, that has evened out. On top of that, we also have a working capital that is quite flat, actually, year-on-year. The storyline here is that the prepayments, the new contracts, they compensate then for the increased inventory we have in general, and the more payments we have to suppliers, and that makes a very small number, as you see, 0.1 for the half year.
We have an increase in our investments, and the increase in tangible assets by itself is about, just about SEK 400 million. This is what we have talked about. We will be trying to be more front and heavy on our investments, and we will have to invest for higher capacity over the coming years. The SEK 400 million increase really comes from Surveillance and Dynamics. They come from production and facility build-up, and they come from IT investments that we do to improve further our security in our IT systems, but also handle the growth that we have and the future demands from our customer. That is really the cash flow story. How does this sum up in our balance sheet? We remain on a positive net cash position.
We have a strong balance sheet, and we have also a good equity asset ratio. We have a very solid position, which we think is good going forward, both when we're gonna have to handle our growth, but also that we look on M&A very disciplined and carefully. We look at doing future M&As to support our strategy in becoming excellent in within our core areas.
Finally, the outlook, Micael has explained that we now have increased than the organic sales growth from around 15% to 16%-20%, and that uplift is then reported today, but the other two parts are not affected. Operating income growth, of course, then needs to be higher than 16%-20% compared to before, higher than 15% for the year, and that's something we believe in and reiterate, and then we're going to have a positive cash flow for the year. With that, I hand back to you, Merton.
Thank you very much, Christian. We have a bit more than 20 minutes, and we're about to open the floor for a Q&A session. Before I hand back to our moderator, I would like to remind you that you should or recommend you to ask 2 questions at a time, so everyone gets the chance to ask their questions over these 20 minutes. I can already see that we have a few on the line, I'll give the word to you, moderator.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question is from Sam Burgess of Citi. Please go ahead.
Hey, good morning, guys. It's Sam Burgess from Citi here. Two questions, if I may. Firstly, you mentioned Sweden's possible admission to NATO. Do you think this now makes the likelihood of NATO selecting GlobalEye for its AWACS replacement more likely? If you could just give any other color around whether this would make you more eligible for kind of sensitive contracts within the alliance. Then the second question, maybe for Christian on corporate costs, excluding the items obviously affecting comparability, could you just give us a little bit more granularity on what the key costs are right now and whether we might expect any of these to moderate in the second half? Thank you.
Thank you for those questions. I'll start by trying to sort of give a little bit more flavor on the NATO ratification. Of course, when it comes to, when we became an invitee as a country, we also, as an industry, Saab, saw that we were invited to many more NATO forums to discuss the need of new NATO capabilities and how to boost capacity and what have you, and seeing a little bit more about the overall defense planning. However, as I said, it's not the same thing, being compatible, and we sell into many NATO countries today. They use our systems. They are compatible within the NATO structure. It's not about that really, relating and being compatible with NATO, but being NATO is, of course, a different thing. You alluded to it.
It comes to, can we then be part of supporting capability development in the command and control area, the sensitive areas like EW, which we haven't been able to access before. All the NSPA acquisitions, of course, comes into play. Of course, I mean, if we're not part of NATO, I think I see there's a real uphill to be able to provide a very important capability like airborne early warning and control. Being inside the alliance, this of course, makes that more a level playing field, I would say, but we still have to be very competitive. It's hard to quantify exactly what it means, but I think it's a very positive step.
As I've said many times, I mean, you can't sort of point to Sweden or the Swedish industry to be non-reliable long term because we're not part of an alliance. This will mean that we're committed to alliance long term, and that includes industry. Of course, still being competitive, we have better chances to support growth to NATO capabilities. That's how I would sort of phrase it.
On the corporate cost, Sam, good, well spotted, and something I should probably have commented on. The quarter, if you extract the sort of items affecting comparability on the corporate costs, we were at SEK 150 million in quarter one and SEK 120 million aroundish in quarter two. Quarter two is actually impacted of timing, of course. You should think more about being closer to the quarter one than the quarter two number when you thinking for the rest of the year.
Great. Thank you, guys.
The next question is from Björn Enarsson of Danske Bank. Please go ahead.
Yeah, thank you. I have a question on Surveillance, which had a super strong quarter, obviously. I guess we have talked about this for quite many years, that Surveillance is or should be a definitely a contributor to the group, EBIT margins. Are there anything you would like to add here in terms of the profitability situation on Surveillance? Are they-
... on the roadmap towards the more normal and higher profitability level, or are there anything extraordinary that is quite strong in this quarter? Thank you.
I can start by saying that I think absolutely they are on a journey, both growing and improving profitability. We don't guide on business area level, but they can do more. That's my view. This is not sort of something extraordinary that has happened, of course, looking at Surveillance for this quarter. I think they're on the right track, and it means that we're doing better in the sensor side, we're doing better on the command and control side, and then the whole of Surveillance actually moves in the right direction. Do you want to say?
A follow-up-
Yeah, I can just.
Yeah
I can just reiterate what we mentioned at the Capital Markets Day. I mean, we have said that both Surveillance and Dynamics should be two business areas that should be above 10% margin. We said also that we expect that Surveillance will show that they are starting that journey already in 2023, and you will be able to see that. Then, of course, just to not get sort of too triggered on a certain number, like in our other business areas, and this is why I said it's very hard to look at a specific quarter. It will improve in Surveillance this year, but a quarter one and a quarter two and a quarter three and a quarter four could go up and down a little bit in between.
Meanwhile, it does that, we should have an improvement over the year.
Thank you. Just if you can give a short comment on where you are on your two GlobalEye contracts right now? I mean, UAE have come quite along, but maybe some details there, Swedish contracts is brand new and how that will ramp, et cetera. Thank you.
Well, on the UAE side, we are now sort of doing the flight evaluation on the 4th system. The 5th system is sort of moving into that later this year. They will be delivered now next year to UAE, which is good, and the Swedish program is doing really well, and they will come after that, of course, in deliveries. We are doing really well in that project.
Thank you.
The next question is from Virginia Montorsi of Bank of America Merrill Lynch. Please go ahead.
Good morning, and thanks for taking my question. Just a quick one from me. If I think about the 10% CAGR that you've got as a guide for the next 5 years, more or less, how should I think about phasing, meaning 2024 versus the remaining part of the time? Anything specific we should keep in mind over the medium term? Thank you.
Well, I think, we are confident, as we've said before, that we will do compounded annual growth of 10%. We will have to come back, guiding year by year, going forward. As we've seen this year, the confidence in how our planning exactly looks like when it comes to things like material supply, which is needed to make the milestones in the project, and by that, increasing the growth and also specific deliveries. It takes a while into year before you realize that we are confident in actually delivering things on certain points in time that will actually make us reach those growth targets. We'll have to do the same thing next year again, look at that year specifically.
I'm not sort of ready to comment exactly on which year will give what over the next four or five years, but we are confident on the guiding we've done. We will have to come back to that sort of every year, I would say. I don't know if you want to add something.
I would even dare to say it's more likely that you have a sliding curve than you have a bathtub. That's just to guide you. I mean, and that's sort of part of also when we start now higher. We have already started and guided 16%-20% this year, and that's part of the 10% journey, of course. It must be going down in some way, and it's more probable that we will have a sliding curve than we will have a bathtub.
Okay, thank you very much. Very clear.
Thank you, Virginia. May I also pop in here? Because we have a few questions from our viewers, and one of our analysts have sent me some questions, and I think I'm gonna read the question to both of you, and you can decide. We mentioned previously back in the Capital Markets Day about M&A being an optionality in our growth. Could you give us some color on the pipeline, potential size of deals, and your views on the valuation of those types of companies, given the defense environment we are in right now? A follow-up on that is: How do we see on our non-core assets going forward?
Well, I think, it's important to have a strong balance sheet, definitely, and a great liquidity position, absolutely. Definitely right, a portion of the growth ambition that we have includes M&A opportunities. I'm not going to talk about sizes or exactly when, but of course, we have a pipeline when it comes to important countries like the U.K., the U.S., and we also look at maybe Germany. Sort of really, sort of key markets to us, where we build capability, which I call mini subs, that's where we're looking. And it's all about opportunities and valuation, but I can't say more than that right now on that side. That's how it is.
Non-core assets, the question was here on the follow-up.
Mm-hmm
... for instance, our civil business, side of the business.
Mm
... and the aerostructures units being non-core or core. How do we?
We continue to monitor sort of how we optimize our portfolio, definitely. We still have a few crossroad decisions to make, and we have to do that in a diligent way, so we get the best out of it. We're doing both, looking at acquisitions, but also how do we move forward in optimizing the portfolio? I can't say exactly what and when. You've seen the Maritime Traffic Management being divested now, and that's sort of the key things we're looking at. There might be coming some more, but we'll come back to that when it happens.
Thank you. moderator, do we have more questions on the line?
Mr. Kaplan, at the moment, we don't have any other call participants registered for questions.
Thank you. I think everything was super clear this quarter.
Very good. I hope it was.
Comments.
Happy summer.
Thank you so much, and have a great summer.
Mm
... if you are in this part of the world, and also if you are in another part of the world, of course. Looking forward to see you again, next quarter. Thank you.
Thank you.