Good morning, and welcome to Saab's Q2 earnings presentation. I'm Merten Kaplan, Head of Investor Relations. And with me today, I have our CEO, Michael Johansson and our CFO, Christian Louiga. So without losing any time, we will start up with some slides and then follow on to a Q and A session. And you'll be able to participate in that through the telephone conference and through the website.
So don't forget to do that. And without losing any time here, we I give the word to you, Mikael.
Thank you, Maarten, and good morning, everyone. Thanks for joining us This beautiful summer morning in Stockholm. I will jump right into the summary of the second quarter, And I think we have a very strong quarter behind us. We have continued to do business in the marketplace. Europe has been a strong market to us this quarter and also the U.
S, but also Sweden is on par with the same with the Q2 last year. As you've seen, we have grown substantially 15% in the quarter, and we, of course, then have a really good execution Of the backlog, that is a substantial win in Saab. So we succeeded with many things during this quarter in terms of different programs. So the mix have been favorable to us. Also then, of course, that leads to fulfilling many commitments with our customers, meaning that we have Many milestone payments of substance in this first half year, but also in the quarter.
So the operational cash flow is substantially better than the corresponding quarter last year. Now we have sort of a different balance this year when it comes to milestone payments. So the first half year is stronger than the second On payments, so the first half year is stronger than the second half year will be in terms of milestone payments. All in all, we will still generate a positive cash Slow this year, absolutely. And then we are continuing our journey to improve our margin.
And so the EBIT There is now sort of SEK 715,000,000 and included in that is a couple of non recurring items That we have taken, we have closed the factory in the U. S. On camouflage nets and we have also Reduced our personnel a bit in South Africa, but that is included in cost wise in the SEK 715,000,000. So in summary, a very good quarter to us and we are on the right track. Looking at market highlights, I would say that, as I said, the strong demand in Europe and the U.
S, we see now that the European Defense Fund is launched and calls for different programs is out. I think that will drive sort of collaboration between industries And countries in Europe is going to be an interesting research and development phase and quite substantial amount of money now being Devoted to new research programs. And we as a company is, of course, forward leaning to be part of that Going forward and also Sweden, it's a very important item to work with going forward, I think. We have many things happening in the marketplace. As you know, we delivered a very strong offer to Finland for the Gripen and GlobalEye in April.
We are now in a silent period on that matter, and we will see what the valuation outcome is And later this year and hopefully, the time schedule is they are sticking to the time schedule that they have Communicated, so they will make some sort of a decision in the later part of this year, but also campaigns in Canada For the Gripen, and we have several things going on also in other countries in Europe. In Germany, for example, we are part of a competition on combat management systems on the upgrade of frigates. So high activity in the marketplace. I have to mention also still that the civilian market, even though there have been signs from The larger aircraft manufacturers that there is some recovery, I think it will take time before we see sort of An implication of that in our business, we still see weak developments in terms of volumes on the Structures side for the larger aircraft manufacturers. We have done everything we can, of course, to reduce cost connected to our Aerostructures business, we are improving our profitability levels, but we don't see a volume increase, rather the contrary, I would say.
In the quarter, we have several good contracts. We have a couple of them in Sweden related to the Gripen CD aircraft, the basic Support and development contract, a rather large one, almost SEK 1,000,000,000. And also, we have got another support contract for Head COP15, which now means that we have the support business for the majority of the helicopters that Sweden is using in the defense forces, which is really excellent to us. Also internationally, of course, we have been successful with the important contracts on the Training and Simulation side, which is a growing business, I'm going to come back to that a bit later, both in the Netherlands, but also in the U. S.
And there are several Specs that we're working on the training and simulation side. Dynamics also on the ground combat side have been successful in the U. S. With another contract within the framework contract that we have framework agreement that we have with the U. S.
And we have new also sensor contracts, both in the U. S. On the radar side, but also an electronic warfare contract to upgrade the German to Naimda aircraft. So it's been a really successful quarter in terms of business. Few snapshots then from the different business areas.
When it comes to Aeronautics, As I said, the Finland thing I want to highlight, it's a major campaign and we're doing everything we can now to become successful in that campaign. Important delivery is, of course, the first aft fuselage of The T7A training aircraft has been delivered to Boeing. So that's now being sort of integrated with Boeing's parts of that aircraft in St. Louis. And we are transferring now our capability from Linkoping to West Lafayette, Indiana to start production Late this year in West Lafayette, and the factory is up and running, and we have recruited personnel.
So that's a very Positive development in that project. Margins on Aeronautics side have been affected by the adjustments we made due to the Pandemic in Q3 2020. And that is something that we, of course, are working with to improve, but I think we took The right actions to mitigate any effects of the pandemics going forward already in Q3 last year. On the Dynamics side, It's been a great quarter. I think it's a record high quarter in terms of sales volume, lots of activities in the marketplace, but also the output from Dynamics have been excellent.
They have grown more than 50% compared to the same quarter last year. And as I've mentioned, the Important contracts on the ground combat side, which is growing dramatically, and we need to boost production going forward to cope with everything we need to do. And I see a trend of improved training and simulation contracts in the marketplace, of course. And in these numbers then also on the margin side, we have Absorb some of the costs associated with closing down the Camouflage Net factory in the U. S, in the Barracuda business unit.
If we then move to surveillance. As I said, important contracts in the marketplace, both in Germany and the U. S, and we are growing in the U. S, A very successful market to us going forward. Then I think we have seen extremely good Performance in the GlobalEye program, which has led to the new payments during the quarter, Generating excellent cash flow.
And but here, we also have a margin effect from That we now start to amortize on the development effort that we've made during the years on the margin in Surveillance and Support and Services. And when it comes to sub cockums, we are improving step by step our Activity and efficiency in the organization. So the margin is improving every quarter now. And we I must say that we have one of the world's most modern shipyards in Kalskrona today. So it's a really high efficiency Plays in terms of doing contracts on both the surface and the submarine side, and it's going in the right direction.
But of course, as I've said before, We need support from the Swedish government to continue this journey on this important area with submarines and surface vessels. Last but not least, then Support and Services and IPS, Very important contract on the support of the Helicopter 15 because then we have synergy effects on what we do with other helicopter variants in Sweden. We also got an important contract on deployable maintenance capability for aircrafts in Bulgaria. We have good developments in Support and Services on the Support side definitely, and the EBITDA margin has Proved compared to the same quarter last year. But also here, we have, as I said, amortizations affecting the margin connected to the GlobalEye.
When it comes to Industrial Products and Services, I think it's really good to see how Combotech is developing, growing 11% roughly quarter to quarter. If you look at Combotech and also Having around 9% in margin and driving IPS, I would say, but we still have the weak civil aviation market. And as I talked about in the beginning, I don't think that will change over it will take a few years before we see an improvement In that area. And meanwhile, of course, we consolidate and we reduce costs to stay in business. So that's a few snapshots on industrial on all the business areas.
And if I may then Make a little bit of a sort of a case presentation on a certain area. I would like this time to talk a little bit more about Training and Simulation. We have a unique capability when it comes to training and simulation In a combination between live training, scalable training from sort of an individual soldier to the brigade level All training. We have products and equipments, which is really creating high realism In terms of simulation, so you get extremely good data to do analytics of your training. So it's not Just sort of a laser type of training, which gives you sort of To opportunistic way of looking at how you performed, you actually take into account ballistic simulation and everything like that.
And we can have several different types of Setups in terms of complete training centers, many different types of weapons, but also using Vehicles and larger sort of equipments within the brigade to train the whole capability of the brigade. It's a growing business, definitely. We have today, I think, 22 sites where we train, and we have 700 people involved in this. And we see more and more need for training larger forces. I think we have been through a period in time where we have seen sort of lots of international missions, Sort of smaller forces doing specific missions, anti terrorism and things like that.
But now many nations are back into Having sort of a defense forces training battalion level and brigade level, which means that this market is growing, especially in Europe. We are definitely a dominating player in Europe, and we have probably 25% of the market in the U. S. And to combine live training, which is really realistic with virtual training is the key going forward. And now also looking at AI technology and how you can work with analytics and all the data you collect from the training We'll also mean a lot to the different forces.
We also work with interoperability. We have more than cut 40 customers. We have defined A standard, so we can have international forces working together, training together. And that is becoming the standard. So 16 nations have joined our standards, so they can now work together in different type of trainings.
And we can move our training capability around the world following the forces because we have a large installed base in many places in the world. And this, of course, is not only an equipment market. It's a service market and a support market as well. So it's a lot of Aftermarket opportunities when you have this in place. We're running a whole training camp in Germany with 300 of our own employees, And that is being sort of the future of what we do.
So as I've said, recent large contracts is Connected to the Netherlands. It's a 10 year commitment. It's a SEK 1,400,000,000 contract, including equipment and support. We have the U. S.
Marine Corps force on force contract with a potential of roughly the same level in Swedish Krausz, where we're taking SEK 500,000,000 roughly into the books right now. So I see Training and Simulation growing Substantially now, and they have grown almost 40% during this year. So it's a very Important area to Saab going forward and is, of course, connected to lots of the equipments that we also supply to different forces Around in the world for the armies. So that was a little bit of a deep dive into training and simulation, a positive development to say the least. And then looking at WayForward.
We have now launched July 1 a new organization Going from 6 business areas to 4. And we do that, of course, to improve productivity, efficiency. That removes internal interfaces. The business areas gets full responsibility for the different businesses From first idea to sort of through the life cycle, through the support cycle, and they can optimize the business prospects accordingly And also internally work more efficiently with less handovers in the organizations, and that will drive synergies, of course. But it will also be clear to the customer side because it will be clear connections between our core areas and the organization.
So the customer will see The same Saab independently where they are in the life cycle. Then we established an operational excellence function as well on corporate level. Gerdota Bjorklunden has now taken on the position in Group Management. And that function will be the driving force To work with best practices across Saab, to work with alignments of things, and I'm thinking specifically about supply chain, procurements, IT spending, quality, but also development and production. Of course, Saab is not the same all over the place.
You don't develop Karl Gustaf, the same way you develop a fighter aircraft, but there are so many things that we can sort of line and do in a more Efficient way, and this will be an important thing going forward now to increase the efficiency. Then we have a part of our strategy is, Of course, to establish ourselves in key markets, and that's going in the right direction. I mentioned U. S. Several times during this presentation, and that is absolutely growing now.
We have an excellent traction on the future combat air system connected to the UK, which will implicate that we will have People on the ground working in the UK within the aeronautics area going forward. And Australia is a country where we have established ourselves Substantially on the Combat Management Systems side, but also are growing around that going forward. And I think Germany will become a very important country going forward to us as well since we have so many parts related to both electronic warfare, Training and also missile capability in Germany. And then increased focus on sustainability. I I must underline sustainability is something that we've been working on for a long time.
It's not a new thing that we've invented. But in this report now, We are moving into trying to describe what kind of initiatives we have in that area. So I'm going to spend a minute on that as well before I hand over to our CFO. So First of all, the foundation of Saab's sustainability commitment is, of course, connected to Helping countries secure the safety of the society and people and securing their borders. And we provide in professional way systems and solutions to help them do that.
That is the foundation of sustainability and peace and safety to me. Then, of course, as a company, we also work with and any other company, we work with many other aspects of Sustainability. We have selected to work with mainly 5 goals of the UN Sustainability Development Goals, Where we think we can contribute most to different societies and also help reduce Emissions going forward, for example, in the environmental area. So when we talk about The environmental area, I think, as an example, of course, that is about how we act as a company ourselves, So how efficient we are in terms of greenhouse gas emissions in our own operations, Which we, of course, do since we have used in our facilities, we are using solar panels in South Africa. We are Using Renewable Energies in different parts of the organization, we are looking a lot on how we travel and so forth.
And we have our targets set On those areas as well. So just for information, we set the target late 2017, early 2018 to reduce our emissions with 33% And up until 2030 and now when we look at that, we are roughly at plus 40%. And I know that is much related, of course, to the pandemic and reduced traveling and all that. And I will continue during the Coming quarters to show more specific KPIs on how we are developing in many of these selected areas that we're working with When it comes to gender initiatives, when it comes to anti corruption, when it comes to The education and research and when it comes to environment, so we will take this further going forward in our reports, so you see How we work with this. So this is the first step to visualize that.
One interesting example, like I just want to mention as an example of a Product that is also connected to helping societies in reducing emissions is this. It's called the CI Sabertooth. It's an autonomous underwater vehicle that can do many things, data collection, Surveillance, working with support of different underwater structures. And it's completely zero emission since we used waves to power and charge this vehicle. So he can do missions for a long time.
He's now in doing tests in the U. S. To support different type of applications and sort of the alternative to do all these things would be to have a number of surface vessels on To go to these areas and to do the same type of emissions, which would require a lot of fuel and emissions, of Of course, doing it in a different way. Here, you can put sort of a product in place that will be self charging using the sea itself and the waves To do what you have to do when it comes to data collections and research or surveillance in the defense applications area. And this is only as An example having this kind of system has a huge impact on how much you reduce your emissions on to compare to doing the same things with other things.
So this is just one example of what we do in the area of Helping customers to do things in a different way going forward in terms of what we do for our products. But I can assure you that sustainability is an integrated part Integral part of our operations and strategy every day going forward. So that was a quick summary of the quarter and a couple of deep dives. So now we'll get into the hard facts, and I will hand over to our CFO, Christian Lourieger.
Thank you, Mikael, and thank you for listening in today. I think We are delivering a strong report, a strong report also giving a strong confirmation of our journey And our strategy execution, meaning we are growing. We are a growth company. We are slowly stepping up our EBIT margin, and that also includes more and more the efficiency and productivity gain, which will be part of our natural daily work. And finally, that we have a positive cash flow in the company, which will vary year from year but will be a positive Future.
So this is a confirmation of that, that I think is really fun to present today. And if we look at the order backlog, Michael mentioned a lot of good orders we have in this quarter, and we have a 7% increase in our order intake in the quarter and 12% on the half year. It is a Order backlog that increases also year on year and 70% of that backlog is outside Sweden, which shows that we are Growing our foundation of this company outside Sweden. Meanwhile, we are also growing in Sweden. The current year backlog, which is a very important and interesting metric, is SEK 17,300,000,000, Up 11% last year.
And if you combine that with our 15% growth for the first half year, it gives A good foundation for our increase in outlook that we have done from 5% to around 10% for the year. A quick glance of the quarter 2 and the summary of that. We see that we have a 15% sales growth that moves directly also into gross income. So we grow our gross income Equally to our sales, as always, in a broad company like Saab, you have some pluses and minuses. And one of the minuses is in the quarter, The SEK 60,000,000 cost that we had for closure of Barracuda in the U.
S. Barracuda is still there and has its Production in Sweden nowadays, but we felt that the U. S. Prospects were too small to continue there with profitability, and therefore, we had to close that down. And on the positive side, on the other hand, we had quite large negatives already in quarter 2 last year on the civil aircraft side.
And Through the work we did last year on the cost side, we have less impact of that in this year on the gross income. So those are 2 typical swings coming through in this quarter. On the EBITDA side, the EBIT side and the EBITDA side, we are growing. EBITDA is growing with 19% And EBIT with 10%. And as we have talked about already 2 quarters ago and last quarter, we have an increased amortization of the development Cost we have had in GlobalEye for many years that we started to now amortize on this year, and it's SEK 129,000,000 in this quarter year on year comparison.
On the net income, it doesn't come through, the 10% growth in EBIT to the net income, and that is primarily on The currency side, and we had quite big swings in currencies in quarter 2 last year. And if you look at the financial net For the last four quarters, it's been around SEK 66,000,000 negative, and it is SEK 66,000,000 negative in this quarter. But in quarter 2 last year, It was actually SEK 20,000,000 plus. So that is the swing, and that is currency effects. Those currency effects have already moved through the cash flow, So it's nothing to worry about on future cash flow from those items.
If we then look at the Half year instead, similar just perspective, we are also growing organic sales with 15%. Gross income is a bit weaker. We have the same elements that we talked about on the previous slide, but I just want to also emphasize what Mikael said before. Aeronautics is down in margin, and it is based on the impact we have from the quarter The project estimate adjustment we did in quarter 3 quite substantial and also that we are in a ramp up phase in the T7 Production. And when those both the Gripen and the T7 is moving into To high production volumes, we will see improvement on the margin in Aeronautics.
Still, EBITDA is growing In percent and EBIT, 8%. And here, you can see that the currency effects are much smaller on the difference between EBIT and net income. It was really a quarter to 2020 item. Sales is up 15%, really good and strong. It is high activities in many of our Projects and in high delivery pace.
Aeronautics has a high activity level in Gripen, EF, both to Sweden and Brazil. Dynamics is doing an all time high. It's always fun to report something that is all time high, and then this time, it's Dynamics, 52% growth. The growth in Training and Simulation is above 30% in the quarter and Above a 37% in the half year. So it's really also good.
It's not only combat systems with the Cargo 7 AT Force. It is a very good growth also in IPS, and it comes from Combiotech And also traffic management that starts to move from lower levels. They had a tough year last year, but they are moving positively now in this quarter, which is also giving some comfort for their journey going forward. On the trend over time, taking a quick glance at that, it is Very good to look at one of these pictures once in a while, and this is from 2017. We can see that the rolling 12 month sales is growing with 3% compared to previous quarters.
On a quarter over quarter basis, it's 3%. If we do the same math over a year, this quarter 2 over quarter 2 last year's rolling 12 months, we are growing 11%, In line with this year's forecast for the year. And if we then step back and look at The average growth since 2017, which this graph is showing from, we have a 6% growth, which is in line with our long term target of around 5%. So we are a growth company, and we are delivering on that Growth in line with what we are saying. The other part of this is the EBITDA trend, which is then the result without the Depreciation and amortization.
And here, we can clearly see that we had a severe hit in quarter Last year in 2020, it went down. And we're now slowly moving up again close to the 2019 level That we were at before then the pandemic hit Saab and many other companies. So we are slowly taking clear steps towards a better profitability. And in this, of course, It is a lot of efficiency and productivity work, as Michael mentioned. And we have a new OpEx function that is in place.
It's a new muscle, and that is there to support and drive the efficiency internally, Better ways of working and also making sure we have good execution. It will be in the areas of Procurement, supply chain quality, IT, development and production. It is To drive the cost efficiency, scale and synergies, keeping the lights on the improvements and making sure We measure our progress. So it's going to be a very important part of group management's work going forward, and I feel very happy for that change in this company. Taking a brief look at the EBIT and the margins per business area, I've already mentioned Aeronautics, and it is the impact of the adjustment last year in the Gripen program and also The T7 ramp up.
Dynamics is improving its result from volume. We can see here that the margin per se It's flat, SEK 13.9 to SEK 14, but the volume brings up the EBIT in absolute numbers. However, We should remember SEK 60,000,000 is in here as a negative from the closure of our production plant in the U. S. For Barracuda.
On surveillance, it is flat. We did have an effect on surveillance Of SEK 25,000,000 pretty much in from the South Africa measurements we did to rightsize the organization. And the GlobalEye amortization is impacting both surveillance and support and services. And this is, of course, also a positive to the group numbers and very positive to see to make Sure, we have a better balance to see the IPS changes. Combotech is growing.
It's growing 11% in sales and have 8.7% in margin. Traffic management has improved from a negative to a positive. That said, Also, the civil aviation part that we have in IPS like Aerostructures have improved. But Without Combotech, the rest of IPS would still be negative, but better than last year. So we are Taking measures, we took a lot of measures in previous year and they are giving a result.
Cash flow is improving. We can see on the left side this year's first half year and on the right side last year Comparison. And we can see the big differences in the second bar no, I'm sorry, I was thinking about another slide, so I'll correct myself. So we see here the operational cash flow for this year on the left side, and let me stick to that. And there, we see an increase of SEK 1,800,000,000.
That was last year negative SEK 200,000,000, which is that we have a swing in changing working capital of SEK 2,000,000,000. That is Really, the large milestone payments on our bigger programs that has a difference from this year to last year and also Has an impact that we have the majority of the large milestone payments coming in, in the first half year compared to the second half year. We reiterate our guidance for the year, which is a positive cash flow, but We did have a somewhat stronger first half year, meaning we will have a weaker 2, even maybe slightly negative second half Of the cash flow for the year. But in all in all, a positive cash flow also in this year. And we will not give a clearer guidance on cash flow at this point.
We have a strong balance sheet. We had a strong balance sheet already leaving 2020, and We continue to have that. We have a net debt to EBITDA below 0.5% and adjusted at 0.32 And we continue then to have a positive cash flow going forward, and that includes also pension liabilities that are fully covered by the pension fund. Finally, the outlook for 2021. We have Upgraded our sales growth from being around our long term target of 5% to be around 10%.
We have an EBIT margin of 7.4% as a guidance, which is the same that was the adjusted EBIT margin for last year. This is including The effects we have of SEK 60,000,000 SEK 25,000,000 of the rightsizing is nothing we take out when we have this outlook. And we reiterate the positive cash flow. And finally, I just want to give you the notice and remind you that this is The last time we present Support and Services and IPS, and we will now report 4 business areas and Combi Tech on the side for next quarter. And Maarten and his team will send out the recalculated pro form a numbers Before the next quarter results, so you have them to put in your spreadsheets and make the analysis, and we'll make sure you have the full support to understand those Before we get into that presentation, thank you.
Thank you very much, Christian, and thank you, Michael, for explaining the quarter very clearly. So now we're going to open up for Q and A session, for our participants online on the teleconference as well as some A couple of questions that we received from the website. So I'm going to hand over it to our moderator to open up the floor.
Thank Our first question is from Douglas Lindahl of Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, hello, gentlemen. Thanks for taking my questions. First question is on the new sales outlook. Have you changed your view on sort of intra orders within the year? Should they come in at Silver levels that we've seen previously or how should we think about that?
That's my first question.
Maybe I'll pick that Michael, no, we have I mean, we have given we started the year with giving a outlook For this year of 5% growth, and it is, of course, based on quite stable Projects and programs that we have, but they can also vary, and we can be faster sometimes with our customers and move faster. We moved a little bit faster on part of it. And then we also have had a very good order to sales equation into this year. So we have upgrades from 5% to 10% based on that.
Okay. And on Dynamics, And obviously, very impressive growth here in the quarter. And you highlight that some additional costs have been absorbed by Dynamics. So I guess underlying margins were close to 16% rather than 14%. Is this sort of the margin level we should expect from this Business over the short term given what you know now in the backlog and given the order intake in the quarter.
Dynamics is a business area with a A few sort of different parts in it. As you know, I mean, ground combat and training and simulation should be High margin businesses, exactly on what level, depending on the mix of contracts in different countries, of course, but by high margins. And then you have Also other business units like the missiles who are in another phase of development. So the mix between missiles and the other 2 and then you have the Barracuda that is now consolidated into the Swedish operations. And that is also high margin business if you have lots of things to do in production.
But generally speaking, we should Always see high margins from Dynamics and it's an export oriented business, which also should be bringing high margins. But I don't want to sort of guide on a Certain margin, but definitely a sort of a highly contributing margin to our long term target.
Are you happy with that, Douglas?
Yes. But I would always yes, I'm as happy as I can. Yes.
Keep the questions to 2 or 3, please, So we can move on to the next analyst to get back to us.
Maybe just a final one then.
Yes, please.
Maarten Kaplan. On you talked quite a lot about the U. S. Market potential. I'm just curious to understand What sort of growth you expect or what sort of portion of the sales and the order backlog do you think that the U.
S. Market could represent in, let's say, 5 to 10 years? And Obviously, T7A is important here. So maybe try and exclude that and look at the sort of the underlying profitability in the U. S, if that's possible.
Well, to say sort of a growth number for the U. S. Market is maybe not something We should go into, but I mean, if you look at the long term programs that we have on the sensor side, Those will continue to grow based on lots that we get from sort of the different production lots, So I mean from Gator, for example, is such a one that will continuously grow the business. So there are definitely an ambitious growth Sort of objective for the U. S.
Market. And the T7 will, with the franchise type of program that is For decades, be sort of a driver for high volume in the U. S. So it will represent A much higher volume consolidated going forward in the next 5 to 10 years than what we see today. And then we have important sort of crossroad programs that if we are successful that would mean a lot to us.
There are Programs ongoing in the U. S, competitive programs of individual assault munitions, for example, that is now being Competed and if we would be successful that with the ground combat systems we have, that could also add to that volume. And then we are continuously searching new niches. So U. S.
Will become more and more important to us in terms of growing this company definitely, And it is a huge market, but I don't want to say sort of a certain number. But of course, we have internal objectives, and I can assure you that they are quite aggressive.
Okay. Thank you, Mikael. Thank you, Christian. That's my question.
Thank you.
Thank you. Our next question is from Agnieszka Filena of Nordea. Please go ahead. Okay.
I will stick to 2 questions. Just Could you remind us what's the rationale behind separating the CombiTech business? Why do we put it aside?
Well, it's been put aside a bit earlier also, but I want to sort of highlight The importance of the business by sort of elevating it to corporate level, if you put it that way, It's a highly important business to us when it comes to competencies that we attract into CombiTech. Competence is working with other industries in Sweden mainly and also into our organization. So it's sort of It's a resource and competence flow in and out of the organization that makes CompeDek really, really important to us. And they are very much forward leading in the areas of cyber and digitalization and digital transformation. And So and I think that to be sort of separate them and to look upon them separately to give them the best Prerequisites to work on the same sort of level as with other sort of consultants industries In Sweden, it's important and to make sure that we don't embed it and overload them with things that are sort of Not related to CombiTech.
So make them as efficient as possible and give them the best sort of prerequisites to work in the marketplace and really use CombiTech as being a forward leaning competence body to us within Saab. And they're doing really well now. So that's generally speaking what we're talking about. It's not about sort of it's actually to highlight how important they are to us.
All right. So that would be a core for Saab in the future?
Yes. I see them. Absolutely, it's a core of Saab.
Okay. And then a general question. You raised your sales guidance for the year, but you stick to your EBIT margin guidance And a flavor on that, why don't you go for higher margin guidance as well for this year?
Well, I think to one should have some respect. I mean, you know what we did in Q3 2020 In terms of doing a number of actions to mitigate the effects of the pandemic and the supply chain activities that we have worked been working with since then, They've been successful, but I still think we should be careful about saying that everything is over and there are no restrictions and everyone is back in So we're still working with that. So I think we should be a bit careful. So we still need to work with the supply chain. And to get back to that level that we were The adjusted level 2020, I think, is really reasonable.
And then, of course, that level is also connected Due to some sort of nonrecurring costs that we've mentioned in South Africa, retrenchments in South Africa and closing down a factory in the U. S. And we have higher sort of amortizations connected mainly to the GlobalEye this year. So I think it's a reasonable level To work on. And of course, we are on a journey to improve our margins.
But I think that's all in all with the project mix That we see and all the initiatives that we are taking to mitigate the effects of the pandemic, I think this is a really reasonable level to aim for.
Great. Thank you.
Thank you. Moderator, maybe I should break in here. We have a couple of questions from the web as well, so we might put them through. We have a question from Michael LaSien at Carnegie, and he's actually just a follow-up on Agnieszka's question on amortization. So he's wondering when will you start to amortize capitalized development that We're currently working on Gripen.
And can we explain what will trigger the amortization to start?
Well, in all these projects, it's the when you're done sort of and start to use it and then have a confirmation with your customer if It is one of those projects. And that is to come in the coming couple of years, I would say, on the Gripen side. And it may be there's different parts of that development cost, and it may come in and do 2 different steps. So it may I'm not going to be To clear on that because I don't want to go and talk about when we will finalize that phase with our customer, But it will be within the next couple of years.
Thank you. And we also have a question from Benjamin from Bank of America, and he has a question on the long term target. So what he says here is, does this strong Growth that we have achieved in 2021 and will achieve this year for the full year performance, will that have any implications for the long term margin long term organic sales growth target of 5%.
Do we have a comment on that? I think depending on how we manage the growth In these key markets that we've been talking about, our international strategy and how quickly that's been done. When we see the effect of that, We will take another look at it, but we're not there yet, I would say. We still keep to the long term target of growing 5% over business cycle per year. So but of course, we have growth ambitions within Saab, and that's going to be done through sort of establishing ourselves in the key markets, U.
S, U. K, Australia, Germany and countries like that having complete operations in this country and really attracting contracts and R and D money in these countries. When we take off and we are in on a good sort of on a good journey and on the right track, but we will take a look at it when we see the effects of that later on.
We look forward to that. So should we try the line again, moderator?
Thank you. Our next question is from Sascha Tusha of Agency Partners London. Please go ahead.
Thank you very much indeed. Good morning. I've got a follow-up question about T7. And just the degree to which your comments about there being very high ramp up costs This quarter, whether that is going to persist, you think, through at least this year and into next year, given the overall delays to the program? I mean, There's a bit of a lack of clarity as to your the degree to which you actually share risk on T7.
It doesn't look as if you do from this quarter. But Would it be reasonable to expect that the ramp up costs will sustain for some time simply because the program now may not move into Higher rate production until the end of next year or even 2023.
We I mean, I just want to underline that We are not sort of looking at any new time schedule for the T7 in the way we work Together with Boeing on this. And there's been discussions with the U. S. Air Force, as you know, and we will aim for Meeting this original schedule and actually meeting a potential milestone C in late 2022 rather than what's being communicated Later in 2023. So we still run full speed ahead and haven't changed our direction at all in terms of what schedule We tried to meet.
I think exactly how the ramp up costs should be looked up, whether that is Stretched now in time, I don't see it that way based on the agreements we have. And this is not sort of a risk sharing contract. We have Responsibility and liability for our own parts delivered into being built in West Lafayette and then being integrated with Boeing parts in St. Louis. So If we move forward and do our parts of that and we together meet sort of the schedule towards the U.
S. Air Force, there is no change to the program. So I don't see sort of a different view of when we ramp up things or not. We still have the ambition to start sort of activity low, Low sort of low rate of production very late this year and continuing next year. So we are full speed ahead according to the original schedule.
So I don't have a new view of Sort of new costs associated with the program.
Just to add to my quick comments, it's not just a quarter 2 Aiten, I said it was a half year impact. So it's actually something we have had for the 1st 6 months, which is during this EMD phase.
Okay. Thank you.
Thank you. Our next question is from Jon Enarson of Danske Bank. Please go ahead.
Yes. Thank you. I have also a question on P7. And if
you could
shed some light on When you expected to get to have more
Sorry, Dion. We hear you. A little bit bad. Could you rephrase the question? Yes.
Thank you. Yes.
I just had a question on T7. And if you Can you give us some indication on when in time you expect to reach some kind of steady state in terms of revenues for
Well, I think one should have the view that we move into What they call low rate initial production, sort of more stable low rate in 2023. And then that in a couple of years' time, we'll move into full rate production and increasing the volume then beyond that. So towards 2024, 2025, we should be up in sort of the pace that is connected to the Now existing framework contract of roughly 400 aircrafts with the U. S. Air Force.
And what would that level be roughly?
I don't have that number In my head, unfortunately, maybe I should, but I don't have that number in my head right now what the yearly rate in terms of revenue will be when we are Fully up and running. We have to come back to that.
Okay. And last question is on Gripen. Have you changed your view on long term EBIT profitability?
Related to?
At the Gripen program, given that we are seeing EBIT being under pressure for a few reasons.
But as you know, I mean, we made an adjustment in the Q3 2020, and that has now is the margin that we're living with, And of course, going forward, day by day and every quarter and so forth. And of course, we have absolutely the ambition to increase That again, but until we have sort of stability in that, we will have this margin that was the result of the adjustment that we did in And that we did in quarter 3. No changes since then, absolutely not.
Then you have these are for the programs, of course. And for Aeronautics in total, You have the more volume you get, the more will you cover campaigns and other indirect costs that we have in that business area. So the margin on the business area may Increase faster than the program or they will do it both?
By the way, is it possible to reach long term profitability target with aeronautics or Aeronautics running below group average?
We don't guide, as you know, on business area level or that. But of course, as Christian is saying, volume is incredibly important. So High production rate will be really important, and we've seen that earlier on the CD version of the Kraft that where we are in production with reasonable production rates, we're generating good margins. So it's all dependent On the volume in the organization of production of Gripen aircrafts. So generically saying, if The volume is high.
Then yes, it will support the margin the long term margin that we have in the company, Absolutely. But it's all dependent on volume, I would say.
Thank you. Thank you,
Thank you.
Thank you. We have another question here. I'll phrase it to you, Mikael and Christian from Ivan here saying good morning. So we're reporting a growth in our orders and the backlog of 7%, and he's wondering how big portion of this percentage increase is allocated to foreign countries. So where does the growth in orders really come from?
I think it's roughly fifty-fifty. I think
54% of the orders are coming in from outside Sweden, but that means also that we have a growth both And outside Sweden in this quarter. And it of course, it will vary. And this is not a representative Number because if you look at our backlog, we have 70% of the backlog outside Sweden and 30% in Sweden. And in a single quarter in a company like Saab, it can actually be quite distorting. So you need to look a little bit on the longer term.
And for the year, I would say that the outside Sweden orders will improve in percentage.
Yes, definitely. I mean, also with the strategy that we have in the key markets that we've been discussing, Of course, that will lead to sort of a bigger portion of order intake coming from countries outside Sweden. Even though we're not sort of doing that to the Spence of Sweden, we still have a very important role to fill in terms of the defense bill and the growth of the defense in Sweden, definitely. But all in all, In that sort of balance, still, Saab will be a company generating contracts to a large portion outside Sweden going forward. Thank you.
So moderator, if we don't have more questions on the line, I would like to Thank you, everybody, for listening in and asking questions. And thank you, Mikael, and thank you, Christian. Looking forward to The next quarter.
Thank you so much, and we wish you all a wonderful summer. Thank you.
Thank you.