Hello, everyone, and welcome. I'm Martin Kaplan, Head of Investor Relations at Saab. With me today, I have our CEO and President, Mikael Johansson And Saab's CFO, Christian Louiga. We're here today to present Saab's Q4 and full year results, And we'll have some slides for you. As usual, after the presentation, we will also have a session for questions for analysts and investors and also other stakeholders listening in on the webcast.
I would also like to remind you that you'll be able to send us questions during the presentation through the e mail, but you'll also be able to dial in and ask your questions directly to us later. With those opening remarks, I would like to give the word to you, Mikael.
Thank you so much, and thank you for joining us this morning for this presentation of the Q4 result twenty 2020 and the full year presentation. I will jump right into giving some comments on our performance for the quarter and also for the full year, a year that I think we will remember in many different ways, all of us, and we look forward to better times, of course. Looking at our numbers, I'm really pleased to see how well we have performed in the marketplace. Our order intake has Grown dramatically both in Q4 and for the full year. And this is despite the restrictions in traveling and interacting with around the world.
We have an international organization that has performed really well in growing our order intake, And that is growing the order intake internationally and also in Sweden. When it comes to sales, I think we have done well. The Q4 is really strong in sales, dramatic growth on that side. And If we adjust our sales for the nonrecurring actions we took in Q3, we also have an underlying growth in our company that is really good for the future. And since the order intake is so good, we will, of course, have a great backlog now to work from SEK 100,000,000,000 in backlog going forward, which is good for us.
Margin wise, we have done Good margin. It has been affected during the year by pandemic effects, of course, and that's why we took proactive actions in Q3 to mitigate things going forward. The underlying margin is, of course, also affected in ways of working and the supply chain. But I think it's a good margin, a 7 point 4% underlying margin and also in the quarter 8.8%. I'm really also pleased with how we have been able to deliver on our milestones.
Important customer have received their equipment and systems. And we have as I told you before, we had a plan to turn around our cash flow, and we are strongly positive both in the quarter now and for the full year. And we have also now paid back all the tax relaxations that we used during the year. So this is clean from any support from the authorities. That is important going forward, of course, and we now look forward to continue to generate positive cash flow.
Looking at the market, I think we see a very high Activity level globally. In many countries, governments are spending more money on defense related capabilities and securing their for different types of crises. That's also true for Sweden. We have a new defense bill in Sweden And now that's going to be implemented. That represents a significant growth on the defense side.
We have We are relevant in all domains, air, land and sea going forward, and we see quite a few prospects now that we are working with to increase our order intake on the Swedish side as well. We have things like sensors, chain that needs replacement in Sweden, we have airborne early warning capability. We have upgrades on naval vessels that we are all working with this now during the next few years. So we have good prospects in Sweden as well. As I said, the order intake full year has increased more than 50% and landed on a level of SEK 42,300,000,000, which is extremely good.
It's up dramatically in international orders, but also in Sweden. And a few sort of Examples of order intake or contracts that we have secured during the year is an important one in Sweden, sensors and Command and control system for an air defense systems to Sweden, which will be connected to the sensor chain going forward. We have a very strong Growth in the Ground Combat segment in the Dynamics business area. And quite a few countries are now sort of shifting from the Mark III version to the Mark IV on the Carl Gustaf equipment. So we are growing dramatically on that side.
We secured Deployable health capability contract in Australia, which is significant to us, SEK 2,500,000,000 roughly. And we eventually then we've talked about that many times when is the next contract on the GlobalEye coming in. Very late in the year, we secured 2 additional systems with the existing customer for the GlobalEye system, which is extremely pleasing to see. And I'd like to give you some flavor on what we have in that type of capability because I think that is a very positive development, and I think it has great potential now going forward. So just a few words on the GlobalEye, what that represents.
This is all about situation awareness. It's not connected to only the Air Force or an Army or a Navy. It's Cross domain information exchange we're talking about. So it's a joint capability from a defense force perspective. It has absolutely the latest sensor technology in that system.
So the ranges and the accuracy you get from the sensors are fantastic. And we can monitor and surveil both air, land and sea at the same time. And we do lots of information fusion to give the users The market potential is really good, I think. We have already secured more than SEK 23,000,000,000 in contract values in contract value since 2015. And we have a number of countries now that we are in dialogue with.
And I think an important aspect of this is that we have combined now the GlobalEye with the Gripen aircraft in our offer to Finland. The GlobalEye gives The whole package will be a force multiplier in terms of actually using the fighter systems in a very efficient way. And we see that around the world that we see demand for joint defense situation awareness, which is quite new that this sort of capability, knowing what's going on at long distances is really important. This is not something we invented in the last 5 years. We worked with systems like this for 30 plus years, so it's been an incremental development, but we have absorbed new technology all the time.
And us being an aircraft manufacturer, we have a great system integration capability and we know sensor capability. All these components come together and generates this fantastic capability. So we have 5 sold now and we have delivered 2 out of 3 aircrafts to one customer and we are continuing imminently to deliver a third one. So this is going to be a great market for us and a great capability for us going forward. A few comments on each of our business areas.
I would say that Aeronautics have high activity in the marketplace. Several campaigns are ongoing. Of course, one really important one is Finland, which has now sent us a request for a best and final offer that will be delivered to them in a few months, and I commented upon the pact being both the Gripen's and also the Global Eye. So we spend a lot of effort in the marketplace. We have Some effects then on our margins because of spending on these campaigns, But I think we have also good performance in the programs that we are looking at in Aeronautics.
So lots of activity in the Gripen programs. And we have also taken our steps and finalized our production plant in the U. S. When it comes to the training aircraft T-seven. So during the year, we will transfer our capability on the training aircraft from Linkoping to West Lafayette in Indiana and then we will start manufacturing these portions of the aft fuselage and a number of things in West Lafayette.
Going forward for Aeronautics, I think we're looking at the future combat air system, our collaboration with the U. K. And now also Italy. This will go into a concept assessment phase in April. And in a couple of years, we will start building demonstrators.
We have a clear focus on what we want to do with that, and it will be beneficial for the development of the Gripen aircraft, of course, but it will also mean that we will be part of the future combat air system, which will be a systems of systems approach. I also want to say that the delivery of the Gripen to Brazil was a great achievement this year last year, 2020 and well received in Brazil. On the dynamics side, we have a very favorable market situation. Most of the areas are growing dramatically. I did comment on the ground combat, which is absolutely fantastic growth as we see it right now.
And we also had a contract from Germany on the RBS 15 anti ship missile, which is really important to us. The business area is growing, generating good profits, and it's all about ramping up production, I would say, during the next phase of that business area. On the surveillance side, we also have a very strong market position. Surveillance is the sort of the lead and the prime for the GlobalEye, of course, but also the technology and the sensor capability that we are working with Sweden and many other countries. And we have won a number of orders now during 2020 in combining sensor technology and command and control on the naval side and on the land side.
We will continue to grow in U. S. And Australia. We've had great wins In both of these countries, I do see that since surveillance is an international has an international footprint with capability both in South Africa, Germany, U. S.
And Australia. We've seen different effects from the pandemic depending on the lockdown situation during the year, and that has affected the margin somewhat during the year. Support and services is doing really well. They are moving into creating support packages for our larger platforms now when we start the deliveries, turning from development, industrialization into production and delivering. And that means that you need to sort of set up support capability for all these platforms.
And The only negative side is, of course, that the support of the regional aircraft, the Saab 340s and the Saab 2000 that are still flying out there It's, of course, had a downturn due to the pandemic during the year, but good support business on the larger platforms. Sweden with a great readiness in handling fires in different types of in different times of the year. Lastly then, IPS is the business area that's been affected mostly by the civil aviation downturn. And we have received sort of lots of lower volume messages from the large aircraft manufacturers during the year. And that you've seen and we've reported that earlier and we have also in this quarter, we've taken a provision to handle that going forward.
We have, however, kept our orders booking quite good during the year and Especially late in the year, we got a number of contracts on the air traffic management side, which is supporting the airports with command and control systems and digitalizing the airports. We have a strong focus on cost reductions, and we are taking mitigating actions then to manage competence and the resources we have in this area, especially connected to our structures and using that competence also on the military side. I do like to comment upon CombiTech's strong performance. They have been able, despite the COVID-nineteen, to grow their business during the year and also increase their margins, which is to some extent then compensating the downturn in the civilian market. In the Kokam's area, we are still step by step improving our efficiency.
We have Taking steps and you can see that on the margin that it is improving somewhat. We're still not sort of pleased with the margin. We're continuing that effort, Of course, and we are in the middle of the industrialization of the latest sophisticated submarines, the A26, But we have also been able to deliver the upgraded submarines, the Gotan class submarines during the year, which is a great achievement. And we have a couple of campaigns we're working. Sweden and Poland are discussing submarine opportunity in having Poland to use upgrade Sodermaland class submarines going forward.
And we're still pursuing the Dutch campaign, of course, on the submarine side. A few comments still then sort of more generally speaking about the COVID. I talked about when I talked about the business areas, but mainly the effects on Saab have been on the civil aviation side Because we have a very global supply chain and we don't have the luxury of just sort of changing suppliers, especially not on the platforms that are flying Since that requires re qualifications and certifications to make them flight worthy and that is a long lead time to do that. So we are working diligently to make sure that our supply chain is up and running. We become more and more capable on working that.
And of course, we're taking much many more proactive actions to make sure that we have stuff in house. But it has continuously affected somewhat the margin during 2020, but I'm still really pleased that we delivered a solid margin of underlying 7.4%. So we will continue this work diligently because this is not over yet. I hope that the vaccine will push through so we can sort of open up and start traveling in an easier way, But it's still a difficult situation. But I think we've managed well so far.
As I said, one of the Most important parameters to me has been to turn around the cash flow, and that has always been the plan for the last year, the 2020 year and we managed to do that to a very good level. So we have an operational cash flow for the year of SEK 2,800,000,000 And that is, of course, due to our capability of delivering to our customers and receiving payments on those milestones. Now I am very positive going forward now that this will continue, that we will continue to deliver positive cash flow. So we've had a couple of tough years now, but I think we are in a phase where we will see positive where we will see positive cash flow coming in. And this is a very good example and the performance parameter that is important to notice, I think.
So the board has also now in connection to this, of course, and the financial stability that we have in the company decided to propose for the Annual General Meeting to have a dividend of SEK 4.70 this year. And I think that is sort of resuming our path of giving dividend on a certain growing scale. So that's good. I look forward to that. But that will be decided during the Annual General Meeting.
So looking forward, I think I view Saab's journey now as maybe 3 pillars. 1 is Establishing our capabilities internationally more solid in certain countries, becoming, as I've said before, an integral Part of the defense capability in certain countries having operations, products, IPR in countries, not at the of Sweden, of course. Sweden will always be most important customer. We've always have great capability here. But to grow Saab, We have to move operations and create operations outside Sweden in certain countries.
We are doing that as we speak. That has continued during 2020. The other portion is connected to efficiency, focus on our core areas where we want to be world class supplier. So we optimize our portfolio and we work hard to sort of look at the ways of working to improve our margins as well, but it's also connected to our portfolio. This is a journey, however, where the balance has to be that we need to absorb new technologies, we need to invest in new technologies to be world class over time.
So when we reach and I reconfirm our long term targets, when we reach a 10% margin level, that will be a sustainable level. And of course, we have a strong backlog now supporting our future growth. So our outlook now for 2021 is that we see now with the measures we've taken during 2020. And the backlog that we have now, SEK 100,000,000,000 in house that we will be able to grow in line with our long term targets. We have With respect for the COVID situation and the pandemic, we think we have stability now in our execution of things that we will continue to deliver solid margin in line with the adjusted EBIT margin for 2020, which is around 7.4%.
And definitely most important not most important, but very important is to continue to deliver positive cash flow, which I'm certain that we will. So this is our outlook for 2021. And Then of course, I again reconfirm our long term targets, but that will be a balanced journey connected to our strategy of international expansion, our portfolio optimization and also, of course, working with new technologies over time, but we will get there, absolutely. So with that, I think I will hand over to my CFO, Christian Louiga.
Thank you very much, Mikael. And good morning, and happy to be here. And I will go through the numbers after This excellent presentation from Michael. I start with the order intake, and I must say it was a fantastic year. The order backlog is now up at SEK 100,000,000,000.
It's up 7% compared to last year. And if we look at why that is, it's order to book to bill ratio of 1.242.3000000000 in Increased order. Orders increased both internationally, 52%, which is part of our strategic agenda and very important for us to create a more stable company overall and also a better foundation for future growth. If we look at the orders that are in our backlog and are supposed to return into sales into in the next year, We have increased that with 9%. And all these together is creating a good foundation for the future and something that I'm both proud and gives me comfort going forward into the next coming years.
If we look at the financial summary then, the sales for the full year is flat. Sales was impacted by SEK 1,300,000,000 primarily in quarter 3 adjustments related to COVID-nineteen. Excluding these, the sales is 4% up. If we look at the difference between the civil and the defense side, The civil side was down 17% in revenue and the defense side was up 7% adjusted. Also another signal on that we have a stable foundation in our core business.
The income is impacted by these adjustments is also impacted by somewhat higher R and D cost, partly driven by increased depreciation. And the EPS is down due to this onetime effect. And I will go back on the cash flow a little bit later on in the presentation. If we then focus in on quarter 3 and look at that, it was extremely good and the sales was boosted 1% affected by onetime effect provision in IPS. That is an effect of less orders in the civil side.
And without that, it was 8.8%. We have increased our depreciation related to the GlobalEye program, And that is not impacting, of course, the cash flow. It's the EBITDA that does. And that stands for around 0.8% on margin if you calculated backwards. And that's something we will bring with us into next year.
So the net on net effect will be around SEK 300,000,000. And that is, of course, included when we have calculated our forecast. This is a busy picture that I hope is the last time I'll bring to this audience. It is a reflection of a complicated year where we have worked hard with many elements, succeeded to still deliver 7.4% underlying performance. That also affected by COVID.
But already in quarter 3, most of these items were declared to you, and we have gone through them. I want to highlight especially one item, and it's the SEK 375,000,000 provision we made in quarter 3. We said that, that will be allocated out on the business areas to the right business area in quarter 4, and we have done so. And the big ticket items is surveillance, SEK 166,000,000 Ereson Support and Services, SEK 118,000,000 Dynamics, SEK 15,000,000 and then we have some corporate programs that we also have taken a hit on. So with that, we have then allocated and reversed those SEK 375,000,000 and we don't have to dwell on those going forward.
But this has been provisions related to COVID-nineteen primarily and is a reflection of the tough times and the risk provision we feel is important to feel stable going forward. That doesn't mean we are past COVID-nineteen. We, as many others, still see risk in the future. Other than that, on this list is the SEK 315,000,000 that we have taken in IPS on a loss contract provision related to our supply to our customers in the air manufacturing aircraft manufacturing sector that has decreased their orders dramatically in the end of the year. This is a provision that is noncash going forward because of the drivers For this cost, we have already cashed out on before year end.
If we then go into the different business areas, this picture is positive in many aspects. We can see Aeronautics, where we have an increase, slight increase, which is a slow step up in the programs ongoing. In Dynamics, we have a Fantastic development in ground combat, but we also have a positive development less but positive in Barracuda and in our training systems. Surveillance is really boosted by a good radar year, both GlobalEye but also a lot of other programs and orders in the radar side. Support and services, It has been hurting most from the civil side.
So meanwhile, we have a positive growth in Combitec, our consulting business, we have a negative development in most areas, including traffic management. And in traffic management, We didn't expect it to be negative, but we were expecting to get some orders early in the year. They were delayed, but we did get them in the end of the year. So we now have past that risk zone of getting back to growth in traffic management. And it came primarily through some great orders like prison systems in Australia and an air traffic management in Hong Kong.
If we look at the profitability performance then in the different business areas, we can see that Aeronautics is down And it is hampered by COVID-nineteen. It is hampered by many large campaigns ongoing right now. And we are still in a ramp up phase, both in the Gripen program and in T7. Dynamics performing well. And here, we outperformed last year on ground combat but also on Barracuda and in the training system side.
Surveillance has been hit, both from slightly increased of the depreciation that I talked about, the amortization of before, but also on some of our units In some of our countries outside Sweden, that has been more affected by COVID-nineteen. Support and services, Extremely stable and is boosted a bit on the GlobalEye. IPS dramatically down, as I said, the civil side. And that is even though Combitec is improving its margin year on year and doing really good in their journey to the better. Cockums, Mikael already talked about, so I will leave that for later.
We had a Positive cash flow. We talked about positive cash flow throughout the year. It came out on the operational cash flow of SEK 2,800,000,000 and then the free cash flow was SEK 1,000,000,000 more primarily coming from the Rycon sales in the middle of summer last year. And The big driver here is the change in working capital. And that change in working capital is exactly what Mikael said.
It comes from Program execution. We are delivering on our milestones. And when we deliver on our milestones and deliver on our projects, We get paid by our customers. And that has been a main driver for this shift, and this is something we see going forward. If we look at the investments, they are pretty much the same level as last year.
And of these, internally funded R and D is SEK 2,500,000,000. We invest around SEK 7,500,000,000 in R and D in this company and SEK 5,000,000,000 is paid by and SEK 2,500,000,000 is paid by ourselves and SEK 1,400,000,000 is capitalized of this. And That number is pretty much flat year on year. Going forward, we have delivered SEK 2.8 SEK 1,000,000,000 this year. We are giving a guidance that it will be positive next year.
And it will be based this is really based on our expectations on the deliveries and execution that we have both in the pipeline and ongoing things. So we will not go into exact how much at this time, and you have to live with that, unfortunately. Net debt. Our balance sheet, we have strengthened during the year. We have a reported net debt to EBITDA of 1.5 percent.
If we would assume next year's guidance on EBITDA, around 7.4 percent, it will be adjusted to SEK 1,000,000,000. The net debt is minus SEK 4,300,000,000, And that is SEK 3,000,000,000 better than last year. And that SEK 3,000,000,000 doesn't come from the pension or the leasing liability side. They are pretty much flat. It comes from an improved net cash and other borrowings side, which has improved down SEK 3,000,000,000.
Important to note that we still have revolving credit facilities of SEK 10,000,000,000 where of 4 of them do not mature until 2023. So we feel we have a solid financial position a safety net going forward. And we Still see that there is risk in COVID-nineteen. We have not different from anyone else past that, But we feel much more stable today in giving a guidance. And based on the good order backlog we have and the performance we are At right now, we think that the organic growth will be in line with the long term target of 5%.
The EBIT margin will be in line with our adjusted EBIT margin of 7.4%. That implies that the absolute EBIT should grow in the year and a positive cash flow for the year. With that, I think we I end and open up for some questions.
I can take the go to the next slide. Yes So I'm looking at the clock, and we have some time here to as usual. Take your questions, both from your from our sell side, but also from our analysts and any other who wants to send us There are questions through email that you can find on the webcast link. And before I give Our moderator, the world to manage the queuing, I would like to also remind you everybody that is question. Please take one question at a time, so everybody gets the opportunity to ask a question.
And If you have more questions, you can put your back self back in the line and we will try to answer them as well. So moderator, are you Ready to open up the floor?
Thank you.
And our first question comes from the line of Bjorn Ersen of Danske Bank. Please go ahead.
Thank you. And hello. I have a question on your outlook. The if you can give some flavor on IPS in 2021, since we maybe Can ring fence the issues that are holding back unexpected margin expansion in the year. So if you can give some color on the magnitude of the expected loss for that unit Or any other color on the different BAs would be appreciated.
Thank you.
Well, I can start. And as you know, we don't guide specifically on the business areas. But connected to IPS, Of course, we're taking mitigating actions to be more flexible to fluctuations on the civilian aircraft side, One thing being that we are allocating resources from Aerostructures into the aeronautics side working on the training aircraft and on the Gripen production team instead of sort of staying in Aerostructures. So that's one mitigating action. So we will improve, but I'm not going to quantify how much.
And we've seen, As Christian was saying that the orders are starting to come in on the air traffic management side and on the civil security side. So I think we will see an improvement there as well. And Combotech is doing really well. So An improvement, yes, but I'm not going to quantify how much. But I can assure you we're taking all the actions I think we need to take to be able to sort of mitigate the situation we've seen in 2020.
On the other I
think something else holding back margin expansion then. I mean, if you are growing and you have a strong backlog and strong outlook for growth And you see an improving situation for APS. So it's something else that's holding back your margin expansion, I guess.
No. But it's also, of course, connected to some respect for that we may not have seen all the effects On the civilian side, but also the supply chain side is something we're working. And we can manage some disruptions with that Solid level, but I really hope that we will not have any surprises on the supply chain for the larger platforms because we have important deliveries during this year, 2021. So this is a sort of an assessment we made between the civilian side and the defense side. And we've done measures now, so we are more solid going forward.
But there's still some respect for the COVID situation and what the pandemic can do to us if we have complete lockdown. So it's sort of a combined assessment. I can't say it more than that.
Thank you.
Thanks. Our next question comes from the line of David Barker of Bank of America. Please go ahead.
Good morning, gentlemen, and thanks for taking my question. I've got a follow-up on the margins. You've clearly reiterated your ambition to get to 10% over the midterm. But in 2021, we're talking about 7.4%, so quite a big step up you're anticipating. Can you talk about your Time line for the expectations of getting to 10%, is that a 3 year story?
Is that a 5 year story? And do we need to see any further restructuring on major cost savings to kind of bridge that gap? Or can you do all of this just through volume recovery and recovery and things like IPS?
As I've said, I mean, I can start answering questions. Thank you for that question. I think what we need to do is to increase our footprint internationally to sort of secure programs in a few selected markets. We need to continue to work with our portfolio to drive efficiency and cost, but we also need to be on our toes when it comes absorbing potentially disruptive technologies or new technologies and have strength to invest in that. That come that when You combine all these three, it's a journey.
And I'm not going to talk about a number of years or sort of a time period as such. But I'm certain with that combination of activities, we will go and meet our long term targets Definitely. So I'm reconfirming those, and we will guide you more and more going forward on how this journey looks like, of course. But I'm confident that Combining these 3 will create a sustainable situation on a higher margin situation.
And just to add there, I mean, We don't see a big, big major restructuring coming very shortly, but this company has created a platform both from a customer and order Both from a customer and order side and from the international presence, but also in the activities we are doing on the activities and improving efficiency. And that is both from selling out maybe smaller parts or reshuffling that and creating a better opportunity for operational excellence. And that is also something that doesn't happen overnight but is a journey we have now a grip of and give us confidence, like Mikael said, that we are on that journey now.
Just a very thank you. Just a quick follow-up, if I may. You've referenced increasing your footprint internationally. And typically that's done through winning international contracts. Can you talk about how you envisage increasing your Do you need to raise CapEx?
Is this going to be done with contracts over the midterm?
So A combination, of course, of organic growth in countries where we have presence and where we have been successful, but they can include M and As as well, of course. So it's non organic and organic. And normally, it is connected to where you have sort of a customer footprint as well and there are potential contracts coming in. So we have pinpointed a number of countries so far in Not sort of surprisingly being U. S, U.
K. And Australia, but there are also runner ups to that. And I think we have A couple of countries in Europe where we have great potential and good presence already, which can grow dramatically to us. So this is what talking about in terms of creating a larger footprint and larger presence in these countries, sort of complete operation.
Understood. Thank you very much. Our next question comes from the line of Douglas Lindahl of Kepler Cheuvreux. Please go ahead. Good morning, gentlemen.
Hopefully, you
can hear me. I will not dwell on the margin question again, but You reported pretty solid or very solid order intake here in the quarter. Can you comment a bit more specifically on your Expectations for 2021, what big upcoming orders do you see potentially? You mentioned Finland. Any other big things you see in Horizon for 2021?
Well, I mean it's difficult to talk about sort of predictability when it comes to these mega deals. I mean, you've asked me many times, where is this new contract on the Globalize? And I've been Persistent in saying that it's coming, it's coming. We're negotiating, and it took us more than a year to finalize it. So it is difficult to predict mega deals.
What I can see is that we have quite a few initiatives and campaigns out there That can happen to us. But what's important is that we have a stable small order situation. I think it was SEK 13,000,000,000 something roughly during 2020. And we do not, based on the activity out there, see that, that changes over time. And we have an increased level of sort of midsized orders now when we start getting traction on command and control systems and sensors and The ground combat framework contracts are delivering for us.
So those foundations are important. So I'm positive on the order intake also for this year, 2021, and that could be sort of Upgraded with, of course, Omega deal if that happens, but I won't predict exactly when that can happen. As you know, that's political decisions and its complicated campaigns, but I'm really pleased to see the activity out there. So We can grow this company through more order intake, definitely.
And just coming back on small versus large orders, what would that mean In terms of profitability mix, would you say?
Well, I think the foundation of smaller orders combined with the midsized orders up to sort of SEK 3,000,000,000 is very essential to us since it's normally a bit shorter lead times on them for delivery from contract to delivery and normally good margins. So that, that foundation exists is growing, supports our margin growth towards our long term target.
And by good, you mean above group average or?
Good is supporting our long term target, yes.
Okay. One final question, if I may. Just On Dynamics, typically, you have a pretty solid or very strong Q4 from a margin standpoint. This year was not really the case. Was this all due to COVID or anything else there that we should have in consideration?
I think you should focus more on the quarter by quarter growth than the comparison with last year. So we had a
But Q4, typically there's a significant amount of deliveries from what I can Remembering that this is a big margin driver just
And this is clear. We are building a bigger foundation overall. So the base is bigger, and we're growing quarter over quarter more. It's becoming more that kind of business than the cyclical business that we have seen before in Dynamics.
So more sustainable high margins.
Exactly.
Our next question comes from the line of Agnieszka Villela of Nordea. Please go ahead.
Thank you. So your cash flow in 2020 was strong, not least in the last quarter. Could you just give us some kind of building blocks how we should think about the cash flow in 2021? I appreciate the fact that you don't want to provide us with a number, but how should we think about change in working capital specifically? And also what kind of investment level in total do you want to run this company in 2021 and in coming years?
Well, we thank you for the question, Anas So we already guided you on profitability. So you have that piece. And on the investments, we don't see any dramatic increases in our investment levels in this company. I don't want to guide exactly because we keep the freedom of flexibility as a technology company to decide day by day what we need to do to actually be the company we are. But it's not going to be any dramatic changes in that element.
So then the rest is our programs that we'll deliver like this year.
And of course, the programs We did manage to contract now during 2020 will have a positive effect in terms
of
milestones Already 2021. Yes.
Yes. Yes.
So we could expect some working capital raises because of that?
Yes. If you look at the profile to be positive, you probably need to have a positive on working capital. That's exactly your conclusion. If that's your conclusion, then it's probably right.
All right. And then just a follow-up also on capitalization of the R and D costs. You be running that on a similar level? And also you're thinking about amortization because my impression is that Amortizations of R and D is the one factor which is kind of burdening the margin development in 2021. So should we expect about €500,000,000 level for amortizations in 2021 and in the coming years?
Well, I tried to clarify that it's up around SEK 300,000,000 in amortization, which is equal to the quarter 4 impact, it's going to be if you put it on 2020 year sales, it's going to be 0.8% margin impact. And that is an impact of previous investments in R and D, not future investments. And we don't see we're going to increase future investments at this point. So the cash flow effect will be You put net net positive from that, if you put it that way, because we already cashed out that increased depreciation. And on I don't want to go into how much We capitalize and we put in the income statement, but I can say the trend is that we are putting more in the income statement and less capitalized over time slightly, that direction rather than the other one.
All right. Perfect. Thank you.
Our next question comes from the line of Erik Golrang of SEB. Please go ahead.
Thank you. Actually, we'll go back to the margin topic. And Just trying to get a better sense because it's obviously very difficult from the outside here. I mean, your guidance now for 2021 of 7.4%, I guess it's about where the margin was 10 years ago and that you talk about the road map to 10%, which is execution on the backlog, productivity efficiency. It's all very much what we've been told for a number of years.
So if you take a bit of perspective, what's the What is it that consistently is more challenging compared to expectations? Is it the cost for innovation and the new technology? Or is it more of a pricing factor in contract? What's the factor that seems to price negatively here over time in the margin equation?
That's a good question. I mean, I think one important part of this to reach a sustainable level is connected to our portfolio. Over time, you We assess and we dive into how can we develop certain portfolio segments of Saab and can we or should we harvest them and close them down, should we divest it or should we invest in it? I think to expedite that discussion and to optimize that's why I call optimization of our And to optimize that's why I call optimization of our portfolio and focusing on our core areas will be a decisive thing to have sort of a reasonable journey time wise to our 10%. Then, of course, You have large development contracts and you turn them into production.
We're not really there yet. We haven't ramped up production. We're a bit careful about sort of what the industrialization and the transition into production will mean to us. But the potential when you get into production margin wise and get into more balanced situation is sort of better, I would say, than the last few years when we've seen a peak peak, I would say, on top of each other large programs in complicated development phases. So those two things will move us in the right direction, I would say.
And the difference from before is, As I said, the focus on the portfolio being sort of more core focused and also that we move into this production phase on many programs. Technology Innovation, we will always be a heavy investor in that area. That sort of the long term credibility and for Saab going forward being world class, but I'm not seeing a dramatic shift in that area. The other 2 are more important to us. And then, of course, not to be too much focused on certain countries being more international, as I've said, More contracts with higher margins, easiest to say, coming in will help us as well.
But not all components like I talked about now have been in
play earlier, I think. Not to dwell on the same thing again, but COVID has also then put a sort of hiccup in the journey now.
No, of course, we've said that several times, but we won't sort of We can't come back to COVID all the time. But in our assessment, in our carefulness going forward, of course, we have respect. For we're not this is not over And we have a very international organization.
Our next question comes from the line of Sash Tusha of Agency Partners. Please go ahead.
Thank you very much indeed. I've got a question about Kockums. And it's essentially whether You can get to your 10% margin targets while still owning Kockums in more or less its current shape, I. E. A fairly A small backlog of submarines and not a big skyline of either new submarines or surface warships in the next 5 years or so.
Is Cochrane is one of the businesses that you would look to divest to get to the 10% margin target?
Thank you. It's a good question. First of all, no, there are no plans to divest There is sort of a we need to get to a situation in Saab Kockums where we perform more efficiently. We're on that journey. We see a good trend in the programs.
So we do perform better and better. But again, in this part of Saab, you also have to have a combination of different types of contracts, not sort of 1 or 2 large mega deals contracts with complicated developments. You need the support contracts. You need the upgrade contracts on the surface side. You need international contracts.
It would be great if Sweden and Poland would agree on a contract which could support sub cockums. It's hard to say how complicated it will be Specifically in sub Kokkums to reach the 10%. It's a journey. It's a more complicated journey. We have more to do to have the mix of things in sub Kokam's than in other areas, I would say.
So right now, they have to be compensated somewhat by higher margins in other
Our next question comes from the line of Bjorn Enersen of Danske Bank. Please go ahead.
Yes. Just a short question on the production and the ramp up, if you can give some details on when you expect to ramp up in a bigger way for the mega projects? Thanks.
I think you're alluding to sort of the ramp up on the Gripen And there will be more deliveries this year, 4 aircrafts to Brazil this year and a few to Sweden. But the ramp up is not sort of huge this year. It will be, as we've said before, a couple of years ahead when we reach sort of a Higher level of rates in the production of those aircrafts. The globalized are you can't call that maybe sort of high rate production, but it's good margin projects with and we performed extremely well on that side. Dynamics underground combat side, that's sort of the opposite.
We need to sort of boost the production capability to manage lead times and to take more contracts. So we are a little bit more limited there. But we are working that heavily, and we want to create redundancy on where we can manufacture as well. So it's different in different areas, but sort of that's
Our next question comes from the line of Mikael Lasen of Carnegie. Please go ahead.
Thanks. Good morning. You expect 5% growth in 2021. And I was wondering if you could And talk about the development per business area and by region, maybe if you can Give us a favor on that if something is significantly better or a bit below? Thanks.
Well, I think we have Potential to continue to grow based on the record high order intake in the U. S, if you look at that. We are growing in Europe as well. We Got good contracts from both Germany and France this year in Europe. I think Framework contracts in quite a few countries now support dynamics growth definitely.
And we just need to sort of ramp up our production and create revenue and margin on that, that's for sure. And now we start sort of really manufacturing sensor systems where we've invested heavily earlier and that will go to Sweden but also to other countries. So I would say it is a little bit like we've seen in 2020. We are growing both in internationally, Europe, U. S, Australia has grown dramatically.
And of course, Middle East In terms of UAE, it must be sort of underlined as well. That is an important country to us with the global eyes. And Sweden and the defense bill will, of course, give us more opportunities to increase Our overall revenue in Sweden based on the extension of spending in Sweden, and we are relevant in all areas. What they want is Sensor technology, a bigger army, and that's also connected to surveillance and dynamics. And they will continue to fly the CD version of the Gripen, which will give us more business and continuing supporting and upgrading that version of the aircraft at the same time as they take delivery of the Gripen E.
So I was all over the place now. I understand that. But there are regions and All business areas have great opportunities.
But I think to that point, I mean, it is really encouraging to see how we grow in so many places. And that gives us the challenge to as we said, we've started that work already to improve our efficiency in how we work and that element comes with that, but also creates a huge stability to the company spreading out the risks in many places.
Okay, great. Got it. So Quite broad based then, I guess. And just one follow-up here on the
Can you make it very short, Mikael, because we're running out of time here,
please? In which segments should we expect that increase to margins, it's surveillance and corporate?
Can you say that again? Sorry?
The amortization of capitalized R and D.
It's in Support and Services.
Support and Services.
Support and Services and Surveillance. And you can see it in the notes on amortization and depreciation in the quarter report, you will see on those two units, you have an increase in quarter 4.
Thanks.
Perfect. Thank you very much. We're running out of time. So I want to thank you both, Mikael and Christian, for a really good presentation and for your good questions. Hope to see you the next quarter.
Thanks for all the good questions and a big thanks to all our employees for 2020. They have done a fantastic job