Hello, and welcome to Saab's Capital Markets Day 2023. I'm Merton Kaplan, Head of Investor Relations. I would like to, with innermost warmth, welcome you to here live to Saab's Space Arena, and also welcome you all online watching us. It's been a long time since we met like this and had a event like a CMD. It was way back in 2018, and a lot of things have changed. Saab is today a company with tremendous growth opportunities, and we would like to share you that story for you. We have an interesting agenda with great speakers, and I would like to just briefly go through that agenda. We have our Saab CEO, Micael Johansson here, and he will talk about our growth journey and how we capture the market.
We'll continue with, we'll continue with Erik, that we have invited here from our US operations, and he will talk about Saab's multi domestic growth strategy. We'll also have interesting fireside chat, moderated by Katarina, where we'll elaborate on the topics of capacity, supply chain, competence, how that is important in our growth. We'll have a coffee break. You'll have time to mingle with us, and also see our exhibition outside. We also have all of Saab's management here today with us, including heads of the BAs. Please take that opportunity to mingle and ask them questions as well.
The second session here after the coffee break, we'll meet, and we'll go through with Fredrik Hassel to listen to a bit about the lessons learned from the Ukraine. We'll continue the program with our Chief Strategy Officer, Christian Hedelin, who will talk about innovation and the importance to drive that for future capabilities at Saab. We'll have our CFO, Christian Luiga, go through a bit of more numbers with you and give you a financial update and talk about our new medium-term targets. We'll try to wrap the short day with a Q&A session for you and with some closing remarks. I would like to invite you all to lunch outside again at the Space Club. We'll continue the dialogue there. Some few marks on logistics.
We have a couple of emergency exits here that you might see if you track the green lights on my right. There's also one on the upper right side, and there's two more doors on the, on my left side. That is also good to know. Without any further ado, I would like to introduce the first presenter, Micael Johansson.
Good morning, everyone. Also from my side, most welcome to this Capital Market Day. It's been a while, as Merton said. I actually had a slight problem remembering exactly when, but I think it was in 2018. So many things have happened, including me taking over the role of CEO. It's a great opportunity for me to talk to you all about where I think we're heading in this context that we see around us. Let me start with the obvious, the obvious thing, a new reality. I mean, I didn't think I would live to see what's happening around us right now, of course. We have a tragic war in Europe.
We have a big wake-up call in many European countries, specifically, I think, when it comes to how important it is to have a resilient society and a threshold and being able to defend yourself. This is about democracy and our values in the Western world, of course. We have also a big shift in terms of political tensions between West and East. This is something that affects us as a defense industry dramatically, of course. I can remember now in the beginning of 2022 when we had a discussion about the taxonomy and whether we were a sustainable defense industry as a company and how we were supposed to be perceived and how we could attract capital and investments and relationships with banks.
We had some frictions in that debate, I think, at the beginning of 22, but then the tragic war in Ukraine happened, and then that sort of disappeared from the table completely. There's no question about that our motto to keep people and society safe has sort of a much bigger sort of attention now. It's not only us, of course, also all the other defense industries. Working for Saab, and I think for all our employees, has never felt more important in what we do every day. We have a macroeconomic situation, of course, with things to manage in terms of cost increases, inflation, of course, currency exposures, logistical sort of challenges, and also Supply chain issues that we have to work with, and we'll come back to that during the day.
Looking at us from an historic perspective first, I mean, I just like to say that I think we have a solid growth record. I mean, we have been growing slightly more than 6% average over the last 10 years in this market. I think the reason for that has been that we have all the time invested in our portfolio, embraced new technologies to make sure that we are relevant when it comes to new capabilities for our customers. We have also taken steps to make sure that our market focus is shifting and according to sort of where the businesses emerge, and I think we've done some steps also in consolidating our business, focusing on our core areas, and that has led to this growth going forward.
When it comes to where we are right now, I think with this new market reality, including a multi-domestic strategy, more internationalization, building Saab in different key markets, we see, of course, substantial growth opportunities. I think we showed that last year now with a good order intake of SEK 62 billion without actually having a huge sort of once-off, big contract supporting that. Of course, large contracts, medium-sized contracts, we had a few. It was a successful year, and we also grew in our sales, with, according to our outlook. You might think that sort of everything had changed because of Ukraine and the tragic war, but actually, as I said Friday, this is maybe in the last quarter last year, Q4, we saw specific contracts related to Ukraine happening.
I think we will see more to come when countries will have to replenish their stocks and also maybe go beyond that, updating that. We have an order backlog that is record high, SEK 128 billion, and that will, of course, support our growth journey going forward. We also have more market opportunities to capture going forward. We will never trade off when it comes to R&D. R&D is why we have grown, why we are relevant in the market. That will always be something that we will focus upon. I now think that we have a reasonable balance between how much we spend on development and research. That is, of course, a combination of our own money, but also customer-supported development and how much we have actually in production and support and maintenance.
That is a better position going forward than we've seen during a number of years, which is also why we feel more confident in delivering cash flow over time. Going back to Europe, how this market is changing, of course, we're basing our intelligence on open sources, but also of course, lots of customer interactions. There is a significant increase in defense spending. There's no question about that. We have seen our country taking decisions on going to 2%, all of the European countries are going in the same direction, actually beyond 2% of defense spending of GDP. I think I wouldn't be surprised if the next NATO summit will have to sort of create a new floor, hold maybe 3%. There are sort of discussions around that.
I don't think we have seen this, sort of the end of how much different countries will spend. Germany is, of course, an example of this, where they took a huge decision to change the whole sort of view of which role they will play, but also investing EUR 100 billion extra in improving their defense capabilities. So many things are happening within E.U., in Europe in terms of initiatives that will be incentives for us as defense industries to come together and do common projects, which is partly long term, European Defence Fund, new capabilities with new technologies, partly actually coming together to replenish stocks, like EDIRPA as an initiative. Then we have potentially the EDIB initiative, which is sort of midterm.
Everything is sort of supposed to create more of a sovereign capability in Europe and not having such a dependency on the U.S. I'm not for the sort of strategic autonomy closing Europe and not having a trans-Atlantic link or a link to the U.K. Absolutely not. It's not the sound balance today that we have U.S. supplying, provisioning us with the main portion of the defense equipment and systems that we see in Europe. More than 60% over the last four or five years is actually coming from the U.S. That is not a good situation looking into the future if we are looking at the new political tensions in the world, I think with the focus the U.S. have in the Southeast China region.
I think it will be necessary to have a stronger capability within Europe and EU going forward. I think many countries are agreeing upon that. We are putting a lot of focus now, supported of course, with the new direction of the Swedish government also that sort of EU is really important to us. As you see on this slide, I mean, the growth is substantial looking at the forecast after the war, the tragic war in Ukraine when that started. We, of course, will focus our part in Europe on our core areas. Specifically, I would say that sensor systems, airborne early warning, surface radar sensor systems, support weapons, of course, replenishing the stocks that have been depleted, to continue to support Ukraine, and lots of training is needed to go forward in Europe.
We have a great portfolio supporting this market. I will come back to our key markets a bit later on here when it comes to U.K., Germany, U.S., and Australia. A big thing is of course, also Sweden, and when we look at Sweden now, we're growing towards 2% and how quickly that can be done can be debated, but now they said that we'll reach that 2026. That means that we have over SEK 300 billion in defense spending from 23 to 25 now that we look at. A majority of that, around 60%, will be about acquisitions and procurement of, defense equipment. This is, of course, a market where we, where we have a big stake.
We had a 40% revenue 2022 in the Swedish market. That differs a bit sort of every year depending on what's happening. We, of course, have the view that we will grow in line with the Swedish defense spending growth going forward. Here we are in all parts of the value chain, so to say, research and development, production, support and maintenance, and being an integrated part of the Swedish defense capabilities. Obviously, this is no news to you, of course. We are involved in all of the branches, of course, in the armed forces, their domain, the naval domain, and the ground domain, the ground domain. There is a huge growth in Sweden as well, and this is not an easy thing to accomplish.
I think we are battling with sort of capacity growth, but also the defense forces are doing a lot of initiatives to cope with this. NATO is, of course, a huge decision to sort of after 200 years plus of not being non-aligned. That will mean I don't think we realize really yet what that will mean to us as an industry, to us as a country, involving ourselves in a way that we're not working with NATO anymore, but we're actually working within NATO. This is a big, big shift, and we already see that we are sort of an invitee. We are invited. We can participate in different forums now that we were not entitled to work with earlier. I just want to underline again that I can't see any negative effects of that.
I think this will create sort of a trust with Sweden as a country in a long-term defense capability perspective, but also a trust with us as an industry that we will be there long term. The competition cannot really use the arguments that we're not sort of a credible company because we're not part of an alliance. That will disappear. Of course, it will be huge competition, but NATO countries tend to buy stuff from NATO countries. It's a big opportunity to us, of course. We have again then, if we look at what I hope will happen, which is that the Nordic countries, specifically Sweden, will have to take a responsibility in our region, in the air defense of the, of the, of the region and the high north, of course, but also the Baltic Sea.
When we have fighter jets and submarines and airborne early warning equipment and sensor systems and advanced weapon systems to support that capability with, we haven't seen the capability targets yet, but they will emerge over time. We have a great position to take a piece of this, of course, going forward. We already have discussions with NSPA, the acquisition authority within NATO, on certain things like airborne early warning, GlobalEye, and so forth, which was not so easy before the fact that we were sort of trying to be ratified going into NATO. Also we have gaps that we have to work with long-range missile technology. We have drones capabilities, combat cloud capabilities, and we will come back to that today also. What initiatives are we actually doing in that area?
NATO is going to be a huge thing to now sort of absorb and work within to create new business for us. The foundation for our growth, of course, and our success is always to have sort of a clear strategy. It's not easy to summarize a strategy maybe in, in a slide. I think to us it has four important components, as you can see behind me. Focus on the core areas, which is fighters, underwater systems, command and control, sensor systems, and advanced weapon systems. That is hugely important to us. Also to continuously think about within these core areas, what future capabilities can we actually see in five, 10 years?
Today, already today, we'll give you a couple of examples later on. We have at least 50 future capability candidates and lots of initiatives when it comes to R&D to work with these areas. The strategic markets is important to us, to have some sort of focus, and this is not easy. We can't be everywhere. We're not the biggest company in the defense side in the world, so we have to sort of focus our efforts in different markets. Our strategic markets, key markets, those are, apart from Sweden of course, U.S., U.K., Australia, and Germany.
That's where we build complete operations, mini Saabs you can call it, not with a full width of our portfolio, but with the parts of our portfolio where we add value to those countries' defense capabilities, where we want to become an integrated part of their defense capabilities, same way as we are in Sweden. That is the strategy. Of course, we're nothing without our employees, and to attract talent and to retain our ex-excellent employees is a very, very important everyday work job that we do, to reward them in a proper way to have the purpose, the code of conduct in place that actually will have people love to work for us. That is incredibly important. Operational efficiency, I'll come back to that a bit later on.
Never give up on sort of ask yourselves every day what is the added value of this process and change it if necessary to become more and more efficient. Sort of being competitive in the market, it's hugely important that we have the right things ongoing in that. A couple of words on the core areas, first of all. I think they're quite a little bit different. I mean, when it comes to the underwater side, everyone thinks about submarines, and that is a major thing, of course. We have now, since 2014, built a fantastic capability in Sweden. We have a state-of-the-art shipyard, unique competence in this area. I can actually assure you that we're building the most sophisticated conventional submarines there is in the world today.
This is something we must make sure that this stays like that, and we develop that over time. We are completely dependent on Sweden. This is a security interest for Sweden. This is not something you just move to another country. This is something we have to work with emanating from Sweden. We can do partnerships, of course, we have to be strong in Sweden. We have a good portfolio today, and as you've seen, Saab Kockums is going absolutely in the right direction in terms of growth and profitability. This is because of we have the mix now with international contracts and Swedish contracts, surface contracts, and underwater contracts. Now we're doing well. Looking at the future, of course, priorities will be to deliver our submarines, both the upgraded ones, the Gotland-class submarines.
We're doing the third now, then we have the two A26s coming along in a few years. Then, of course, there will be continuous maintenance support on these underwater platforms. I still see an opportunity, even though it's not been clear in the Supreme Commander's advice to the government, that we should work hard to create an opportunity for more submarines in Sweden. Looking at NATO, looking at our capability targets in this region, it really makes sense to have submarine capability in the Baltic Sea because that is a threshold that is really difficult to manage from the other side, so to say. Then we have a few campaigns. We're working with the Netherlands campaign, as you know. We have a great partnership with Damen to support that.
Sweden and Netherlands coming together, sharing technology in this area can become a very strong thing. We will see now our offer being delivered in the middle of this year, and a down select being done by the Netherlands end of this year. The political decision to start the contract will come sort of during next year. That's the sort of schedule for that. Sweden is already talking about the next generation of submarines, so that is also important. Another area I'd like to mention in this context is the unmanned side of things, the autonomous systems that needs to complement the manned underwater systems going forward. We're working with those as well, of course, and we have contracts in the U.S. now, but we have some parts in Sweden.
I think we will see more of that coming going ahead. We have also initiatives in Australia, of course, trying to be part again of the extension of the Collins Class submarines in Australia. We are really looking forward now to see what the defense review in Australia in March will say in terms of how quickly will they be getting nuclear-powered submarines into Australia and in what way that will create opportunities for us for gap fillers and life of type extension of the submarines in Australia. Based on Swedish capability, but of course with international business as a possibility. Fighter systems is a little bit of the same. We need a strong Swedish support to continuously be state-of-the-art in this area, and we are.
We've done this now for 80 years plus, and it would be a complete disaster, of course, to go in any direction than just to continue to make sure that we're strong in this area. I need to underline. The efficiency of what we do in this country and how we do it is incredible. The discussions we've seen in media and in Salem, First of all, it's premature. We're going to have the deliveries of the Gripen E/F beyond 2050. It will be upgraded all the time. It has the architecture to be upgraded with software and create new functionality over time. It's a fantastic system, and it's cost efficient. It's 30% less costly to buy a Gripen than any other aircraft.
It is at least 50% more efficient to support over the lifetime. The life cycle cost we're looking at for a Gripen system, if you compare, for example, with Norway, I mean, they've now said that they will have to spend SEK 350 billion, roughly, over the life cycle for 52 F-35s. The same cost for 60 Gripen E is roughly SEK 100 billion. We are not having a less comprehensive or sophisticated or less performance-rich system. This is a great system. This is something that we should value in our society. It also has a great spin-off effect into many other industries and in our society, high tech. This program will just continue.
Of course, we will put all the efforts we can and continue to sell this system on the export market. And believe me, we have campaigns going. This is not something we give up. We still see a great opportunity in the marketplace for Gripen E and C/D version. We should sort of then take care to think about when U.S. with State Department is our competitor, we must make sure that this is not sort of a given, a security politics type of decision, but rather is based on the products before we go into a campaign like that. We have to be selective in where we go.
The Supreme Commander have said that he will start the process now with a decision at latest at 2030 where to go beyond the Gripen E/F, and that we support of course. The main strategy for us, the main conclusion of that must be that we continue to be the OEM and have the systems integration capability to sell fighters. The next area is command and control. We're turning into 3 areas which are a little bit different because here we can be as international as we as possible, so to say. We can move these things, set up operations in the U.S. and Australia, which we've done. We are sort of selected as being the supplier on all the surface ships in Australia, for example.
Here it's about moving more and more into new technology, cloud technology, more connectivity. This is the glue in what we do in systems integration. It's not only a platform thing, it's actually also in between platforms. We're doing great things here as we speak. We're really strong on the naval side here, but we also have systems on in the air domain, of course, and in the land domain. In the future, everything will be connected. Surveillance is extremely strong in this area when it comes to airborne early warning in the surface domain, both the naval and land domain. Market leader when it comes to sensor technology, I would say when it comes to radars.
It's just to use this capability now to leverage on what we do in selected markets like U.S., U.K., Germany, and Australia, to try to get into and move technology into these countries, which is, Erik would talk about that, how well we've done that in the U.S. This is a sort of a bridge into our internationalization. We have a great capability here, and we are also a key player in electronic warfare. I think I don't know of any electronic warfare capability that is stronger than the capabilities we have, specifically on the Gripen side, but also in other domain. This is a sensitive area. This is not something so that you just give away to other countries.
This is something you have to have control over, and that's why we set up shop in all these countries. Last but not least, advanced weapon systems. Of course, advanced weapon systems, we are a market leader when it comes to ground combat, and the highest priority for me going forward is to stay as the market leader. To invest in new type of munitions for the Carl- Gustaf, for example, and 84, keeping that sort of an EMLO , keeping that at state-of-the-art all the time is a really important priority to me. Now, we also have a strong position in missiles, but in selected niches, which we need to develop, of course, over time.
Here I see more of a partnership sort of strategy going forward on the missile side while we're going to continue to work with specifically now, it's about capacity increases. How do we create more capacity to deliver more to the market? How do we create redundancy, maybe not doing everything in Sweden? That is what we are investing in right now. The board and corporate management have taken decisions in that direction. We are working really hard on these issues as we speak. An example of redundancy is to embed this capability on the ground combat side in the U.S. and in India. To have manufacturing capability and design capability in these countries.
We are a program of record when it comes to Carl-Gustaf and AT4 in the U.S., you know, the India strategy is of course to make in India, make sure that they have control of it and, okay, we can own that company to a large extent. I think they've approved now up to 74% or 76% ownership. There's a possibility to grow in India by sort of doing technology transfer and setting up a factory in India, which we're doing as we speak. Everyone is asking, I'm not going to go through this slide, I promise. I just want to sort of give a flavor of that. In these core areas that I've talked about, we continuously fill them up with good programs.
This represents probably like 50% of our backlog right now, what we have in our core areas. As you see behind me, it's the Gripen C/Ds, the Gripen E/Fs, the T-7As, it's A26 and underwater capability in the U.S., and as examples, GlobalEye to Sweden and UAE, and we have NLAW to the U.K., and we have RBS15 missiles and so forth. The good thing with this is that we continuously see a growth perspective in all these areas, but we also have a good balance now. The mix between being in a sort of deep development phase and having production capability up and running and support and maintenance.
I see a much better balance now looking at our, looking at our core areas and the programs we have here than a few years ago when we were very much sort of having a center of gravity when it comes to development. This is a sound balance, and I think we will see that over the next coming years now it will continue this way. We have a lot of work to do. The problem, not the problem, but the challenge corporate management of Saab has today is to make sure that the best brains can be used to think about the future. Not only delivering from our order backlog of SEK 128 billion, which is super important, but it can't be just here and now, it must also be what's needed over time.
I think we've seen a few things in Ukraine connected to this. I think we've seen how quickly they have absorbed sort of connecting legacy type of equipment with modern technology. I think we can learn from that. How quickly they actually take decisions by being connected, how quickly they can do new things using drones, for example. It's about, as I said, I think it will be about connectivity going forward. This will not. Platforms will be needed, of course, but you don't, you're not sure where your functional capability will actually be. It will be more of a cloud-connected capability. You're not sure that you have your software all the time in your own platform.
You're not sure how you deliver either a kill chain, capability and how that works in the system, and how you also work with, protecting yourselves. That will be many more platforms interacting and software sort of dispersed on many platforms going forward. This will entail connectivity, of course, not the standardized links that we see today, like Link 16, Link 11, Link 22, much more broadband and much more accessible. It will entail working with huge data, sort of lots of information using AI, and it will be a lot about cybersecurity to make sure you can protect yourself and do things also in that space. You have to work not only in the domains we are used to, but also in the space domain.
We have a lot of initiatives going in this area, and Christian Hedelin, Head of Strategy, will talk to you a little bit more in detail about this later on. We will continue to invest in this with our own money, but the trade-off will always be to grow, increase our profitability, but at the same time, have the strength to invest in new technology, as you see at this slide. A couple of words on the multi-domestic approach. I mean, it's no surprise that I've mentioned that already, the different countries where we set up shop.
If you look at these countries, how they grow, legacy-wise, and what I see going into the future, as I've said, I mean, in Sweden, we will continue to be the main supplier and grow the Swedish defense spending on acquisitions, and we will work with all the core areas with Sweden. I look forward to sort of see more fight jets in Sweden. I will never give up on trying to convince them about more underwater capability. They've just recently acquired a GlobalEye, which is excellent, but there is more to do in this area, specifically if you look at the Nordic context and how we want to work with the other countries to cover the whole region with airborne early warning will be the huge thing.
Then we have the whole sensor chain that needs to be implemented in our country, which has just started. So there are huge opportunities going forward. Then of course, ground combat and missile technology is also incredibly important because also Sweden have now donated, quite a lot of equipment on the missile and support weapon side that we have to work with. U.S. is a lot about radars and sensors and, underwater technology, unmanned. We are, as I said, program of record on the ground combat side, which we need to keep sort of that position. Then, of course, we have the franchise program T7 taking off, more and more into production. We just started the production in West Lafayette. There is much more to do there.
U.K., the focus is also on the radar side and the seabed warfare operations. We have a capability called SEA in the U.K., which we now complement with defense technology from Sweden with the U.K. customer. We intend to set up shop to actually be able to manufacture, apart from EMLO, also sensor platforms in the U.K. Germany, we're really strong on the command and control side. We have big naval contracts. We're establishing operations as we speak there. Also then we have in a strong position when it comes to electronic warfare, specifically in the air domain. There are interesting decisions coming in a short time on where Eurofighter is going on that.
Australia, we are a main supplier of all naval surface ships when it comes to the command and control and combat management systems. We are expanding that also to other areas as we speak, and we need to get back into the underwater business. We have huge possibilities in these countries going forward. These are complete operations. We invest, we build IPR, we develop, we manufacture, and we support. The sustainability area was, as I said in the beginning, something that was really sort of getting attention in the beginning of 2022. This is important to us. This is what we work with every day.
we have taken the approach then that, of course, the foundation of the sustainability in my head, that we have resilient societies, safe societies, peace, so we can actually work with all the other things that are so important to us, that environment, diversity and inclusion, anti-corruption. All of that is in play every day in our business. The way we have divided it is in three pillars, as you can see. Then we have a lot of initiatives within these areas, and it's all connected to the UN Development Goals. There is a strategy in there, this area. We have just recently now been approved by the Science Based Targets initiative on our targets. We are going to reduce our emissions with 42%, 2030 and be net zero 2050.
For Scope three, we are going in that direction. 25% reduction in Scope three, 2030. On the supply chain side, actually more than that, 50%, 2030. You realize that we may not know everything our customers do with our equipment, so it's not so easy to go in depth into Scope three. The parts that we can affect, we work with diligently, and that has now gotten approval by SBTi. I just want to say the last, the last couple of parts of our strategy, this is hugely important. As I said, you've seen that we recruited more than 1,000 people net into Saab last year. I think we will see more coming in this year.
It is a battle to find them, but it's also as important to have all the things in place, when it comes to retaining people, to have the right experience working for the company, the right reward structure, of course, the purpose, have the continuous learning perspective and being able to develop yourselves in the company is as important as at attracting people, of course. That we do, every day. I think this is part of capacity increases. It's not only about duplicating production lines and infrastructure, you also need good people coming into the company. We're doing well in this area, I must say.
The last part, not so, not less important than anything else, and you can talk a long time on this, but I'm looking at how much time I have to sort of summarize it in a proper way. I'd like to comment a couple of parts of this. Every manager in our company has a responsibility to look at the processes you're responsible for in terms of value flow and what is added value to what you do every day and improve every day. It's lots about digitalization, doing things in a more automated way. That is a lot of effort going into that, both in our sort of ways of working, but also affecting our products. The software part, the software factory, is something which will be discriminating us when it comes to efficiency from others going forward.
Here is about using open source, of course, in a proper way, cleaning it up, making it, making that anonymous in how you work with it, having a good common software platform structure, and doing more in software instead of hardware. That is creating efficiency. I just want to comment that. Of course, all the things we're doing on the supply chain side, making sure that we, unfortunately a bit, we build a little bit more inventory in working capital, but we also in depth understands our, in-depth work with our supply chain, not only sort of the suppliers working with us, but also their supply chains to make sure that we understand where the bottlenecks are, where can we create redundancy, where can we do insourcing, and this is a huge effort.
So far we have done well and we're well prepared for the growth for the future. Those are a couple of comments on operational efficiency. Final slide from my side. You've seen this morning that we have now published a press release saying that we look at the next 5 years, what we wish we call medium term, now looking at the market development, our position, and what market shares we can get and what we have in the backlog, we think we can be more specific on that we will grow more than we've said before over this period, around 10% compounded annual growth. We will continuously work with growing our profitability more, of course. EBIT is incredibly important to us.
We will grow that more than the sales growth, but all the time making the trade-off again, having the strength to invest and embrace new technology, to create new capabilities for the customer in 5, 3, 5, 10 years time. Looking at what I try to say about our sort of core areas and the programs we have in our core areas, we have a much better balance now in terms of payment schedules and where we are in terms of reduction instead of development. We look at the proper cash conversion over time of more than 70% compared to accumulated EBIT over the next five years. That is a little bit more specific than we've said before, just positive cash flow.
We are confident now that we generate cash all the time, looking at what we see in the marketplace, how we have the balance within our core areas, and also how we penetrate the market and the new capabilities. Those are our new targets, and that was then replaces the sort of 5% growth over a business cycle and the 10% EBIT in over a business cycle. This is now a better way of managing targets in the company, of course. Of course, we will guide as we did Friday on the yearly side as well. That's my final slide for now, I'm two minutes over time.
I hope that made sense to you and that you have a bit more sort of feeling for where we're heading. I'll come back and answer questions, of course, later on today. Thank you.
Okay. Good morning, everyone. Thanks for coming. I'm Erik Smith. I run the operational country in the United States for Saab. You heard Micael talk about our multi-domestic strategy and how that ties to our global growth initiatives. I'm gonna talk to you a little bit about why being multi-domestic is important and how we do it around the globe using the United States as an example. You know that we've established our operational countries in the U.S., the U.K., Australia, and Germany, the four most dynamic and largest aerospace and defense markets in the free world. These are some of the most dynamic markets out there. Our customers are making decisions every day, changing the way that they buy things, changing the capabilities that they employ, their requirements, their funding streams.
In order to stay close to these customers and influence in the way that we need to, we need to be local in these markets. We've made this strategic decision to build local capability, as Micael said, through operational, full operational capabilities in these countries. It will also allow us to gain access to markets that we couldn't otherwise access if we didn't have a local footprint. Many of these customers have significant funding streams that are classified or otherwise unavailable unless you have access at a footprint in the local market. Further, these markets are characterized by long-term programs that sometimes carry on over decades.
To keep those programs sold and to keep them fresh, we need to have the political support that we can gain by being local and creating economic value in the local markets through job creation and capital investments and those kind of things. The R&D budgets in these markets are substantial, but it's R&D that is influenced heavily by the specific problems that these customers are trying to solve. In order to really understand how the customers are trying to direct their R&D spend and develop their products, we need to be local and have a direct tie to the problems that they're going through every day. These are also markets that are characterized by what I would say is aggressive export support.
They're governments that heavily support the A&D industry in their access to global markets. By developing products and capabilities in partnership with these customers, we're able to leverage that political support and those regimes to gain access to markets that otherwise wouldn't be available to us. These are also some of the largest defense budgets in the world. That money can be used to develop not just develop Saab's organic portfolio, but also to develop new capabilities in country in partnership with these nations. It's a way in which we can not only use these nations' money to help and missions to help further advance our products, but also to develop organic capabilities right locally, based on the mission needs of these customers.
In all these cases across our multi-domestic operations, this is, it is, I'll say a strategic imperative for us to be local, to gain the kind of leverage and realize the kind of potential that Saab's portfolio has around the globe. I'll start and talk a little about the U.S. business itself. This journey really started for Saab in 2012. It acquired Sensis Corporation in 2011, end of 2011, and that was really the platform to start building a U.S. organization. Since then we've put about $3.3 billion of value into the company over that period of time. We do about $410 million of revenue a year at the Saab level.
$300 million of that is organically executed in the U.S. operations. That's a really important dynamic for people to understand because the delta between those two numbers is actually the market that is addressable if you didn't have a local U.S. footprint. The rest of it is all cleared classified programs that are done with U.S. citizens, in this case, working classified programs for across the DoD and the Federal Aviation Administration. We currently have about 760 employees. That number's growing every day, operating across nine locations. It's a highly dynamic U.S. organization. I'll tell you, we've opened two of these facilities just this year, and we'll continue to see that grow as we build out the business in the four verticals in which we operate.
I think the easiest way to give you a feel for what's going on in the U.S. is to let you watch a video that we've put together that kind of tries to give you a sense of where we are in the development of the U.S. operating company. With that, I'll turn it over and we'll watch a quick video.
You may think you know Saab, but in America, we just might surprise you. In the U.S., we are Saab's multi-domestic growth strategy in action. We're creating meaningful impact, and we've only just begun. Our people anchor our success and deliver on Saab's promises. In Indiana, we're building Saab's part of the T-7A, the next-generation pilot training system for the U.S. Air Force. Production was recently transferred there from Sweden. Recognizing America's armed forces needed better live training, we developed the force on force next platform. Our contract with the U.S. Marine Corps has propelled us to more than triple the size of our workforce in Florida and California. In New York, our surface-based digital radar portfolio continues to expand and dominate across Saab select markets. Saab factories in Syracuse are full of G/ATOR and naval radar systems for the U.S. Navy and Marine Corps.
Our air traffic engineers are building surface safety solutions for the Federal Aviation Administration. In Rhode Island, a facility is opening for our newest division, Autonomous and Undersea Systems, which recently secured its first major contract for EMAT, a next-generation anti-submarine warfare training target for the U.S. Navy. While our expertise is unmatched in many arenas, we also know when to expand our capability through partnerships. Working with Action Manufacturing, we're delivering ground combat production capability for the AT4 to American soil in Pennsylvania. This didn't happen in a vacuum. Building upon our Swedish heritage, we've created a unique value proposition, leveraging foreign investment, creating U.S. jobs, and delivering unprecedented value. At Saab, we're growing our impact and our portfolio. We're a critical part of the U.S. industrial base. We're expanding our U.S. footprint. We are successfully executing Saab's multi-domestic strategy. We are just getting started.
Hopefully, that gave you a feel for the exciting build-out that's going on in the United States. I've watched that video probably five times now, and I get more excited every time I watch it. It's great. It's great to be a part of. I wanna walk you through just a few examples, a little deeper dive on a few cases where to illustrate the kind of strategy and the multi-domestic strategy in action in the United States. I'll start with surface-based radars. This is the business that we started in 2012 with the acquisition of Sensis Corporation. At that time, the surface radar business was doing about $20 million in revenue a year.
Last year, we did about $200 million in revenue, so the growth continues to be substantial over time. At this point, we've sold over 100 radar systems into the U.S. Navy, doing three different missions across six different classes of U.S. Navy ships. This is based on the Saab legacy Sea Giraffe radar, adapted by the cleared U.S. workforce to different missions for the U.S. Navy. We are the biggest subcontractor Northrop Grumman on the G/ATOR program, one of the most advanced ground-based tactical radars in the world, and one of the top three suppliers to the FAA for surface safety sensors and solutions.
Everything from, at every major airport, the sensors that are on the airport surface separating metal all the way up to the glass that the air traffic controllers are using to operate the airfields. This is a full-scale capability based out of Syracuse, New York. Full life cycle from development and from R&D and development to whole life cycle support 24/7, 365 around the world. If I look at another example, maybe a little bit different, AT4, one of Saab's flagship programs, we've actually sold over 700,000 of these systems into the U.S. market over the last couple of decades. As you can imagine, right now, the demand for AT4 is as high as it's ever been.
The capacity at a global scale needs to be expanded. We're doing that in partnership with Action Manufacturing, as we mentioned in the video, in Pennsylvania. That will allow us to increase our footprint and increase our value add in the United States and therefore, increase our influence, but it will also keep this program sold in the U.S. land forces for many years to come.
Another more recent example and in a completely different way of entering a new market, this is a case where Autonomous and Undersea Systems, it was about two years ago, I went to the company and I said, "I need two and a half million dollars to go acquire a bunch of talent, subject matter expertise in underwater systems and go explore this market and see where we can build a business." Less than 18 months later, that team has been able to put over $200 million of backlog into this into the U.S. organization, leveraging Saab's global brand in underwater systems and the technical expertise specific to the U.S. market that we were able to go out and hire.
This business is, yes, about EMATT and the UUVs and the ASW training market, but it's also captured, a number of advanced R&D contracts and artificial intelligence and machine learning algorithm development, for the Navy and for the Defense Advanced Research Projects Agency. Again, building on a diverse portfolio, leveraging the platform and the footprint that the Surveillance and surface radar business has given us, it allows us to scale these operations in a way that is very efficient and can bring the most value to Saab.
My last chart, if I could leave you with anything, is that, while I've used the U.S. examples as the U.S. as an example of our multi-domestic growth strategy, the thing I would leave you with is the formula doesn't change depending on which country you're talking about. Whether we talk about Australia, the U.S., U.K., or Germany, our formula for multi-domestic growth is proven and it works in all of those, in all of those countries. We start with a very focused look at target markets. It is very much a case that we're not going after every market. We're trying to stay in specific niches that are outside of the core focus areas of the big A&D primes.
These are areas where we think we can make inroads without sort of upsetting the strategic balance of the big primes. We look for areas where we have a strong global brand. I would point to underwater as and radars as a great example of that. Ground combat, we talked about. When we find a niche market where we also have a niche local market where we also have a strong global brand, then we look at what is the state of the technology in that market, in the local country today. We're looking for markets that have an old or immature capability where we can bring state-of-the-art technology, either organically developed or from the Saab portfolio, to provide that unique value proposition that we talked about in the video.
Once we have our target markets, we then worry about our market entry strategies. We look at that from four perspectives. When I talk about strategic partnerships, I talk about T-7A and AT4 and the Action Manufacturing Company partnership. Mergers and acquisitions, you see what we can do with what we've done with the surface radar business. When I talk about technology transfer as a market entry strategy, I look at our live training business down in Orlando. It's a case where we've taken the global product. We sold it into the U.S. market. The economic value that we create with that product is based on supporting and deploying that product and those assets around the country. In the case of targeted talent acquisition is just what we've done in the underwater business. We just talked about.
This is where we're gonna go out, and we're gonna acquire specific subject matter expertise in a given domain, and then we're gonna give that in an entrepreneurial way, give those people the ability to go out and help us build a business. The strategies and how we enter these markets is the same, how we evaluate that regardless of which country we talk about. Is the future position. At the end of the day, all of our operational countries are in various states of development, but we're looking for a balanced portfolio of production and development programs, where we can have a broad geographic footprint embedded with our customers every day.
If we can do that, we can get access to our locally to locally supported R&D and to help to build out our product portfolio. Ultimately, as those products mature and become embedded with our customers, we can have access to their export markets and the support that they give us around the world as we look to unlock some of those global markets, you know, through the FMS process in the U.S. or otherwise in these other countries. Look, the formula is working. We've been able to generate a significant amount of success in the U.S. market and as well as Australia, the U.K., and Germany. We'll continue to do that as we move forward. With that, thank you.
Excellent. Let's get started. We used to have all the time in the world, but no money. Now it's the opposite. That is roughly what Göran Mårtensson, Head of the Defense Materiel Administration, FMV, said at Folk och Försvar conference earlier this year. The demand for Saab's products is rising rapidly. At the same time, when it comes to increasing productivity, several challenges arise. As you know, post-pandemic supply chain disruptions are likely to continue in some form. The demand and competition for raw materials is substantial. At the same time, the same is true for personnel. Recruiting but also retaining the right staff is a true challenge for several sectors. These are the central questions that we will address in this session, themed Capacity, Competence and Supply Chain. I will also invite you, the audience, to pose some questions here.
If you don't have time to pose all the questions that you have in mind, there will be a final Q&A session at the end of today's program. I will start with asking some questions myself, and I will start with you, Göran.
Göran .
Göran , of course. I knew that. As head of the business area Dynamics, you're the first line of Saab that is experiencing this increase in demand. Do you have the capacity to meet this increase?
If you look at this, we have been under quite strong growth last five years, actually. We have been so successful on the market, so the growth has already taken off, meaning that, during that period, we have been able to have a more constant production, produce more of the same, and increase our capacity. Meaning that, we know quite well now where are the bottlenecks, meaning that we have adjusted all the time now to the new world that we see. Is it easy? No, it's not. It's a fight every day to grow, but we have managed quite well. Up to the terrible invasion that happened 24th of February, we then quite quickly realized that much of our products were then donated into Ukraine.
We also then saw that they work. They work even better than we have promised, meaning that most likely then we will see an increased demand, both in replenish what they have donated, but also that our products works better than then. What we did then is to go into our production and see, yes, where are our bottlenecks? Where should we invest in order to increase our capacity? As Micael said, yes, we have a forward-leaning also board and management team. I got the opportunity to invest quite much already before last summer, when we saw that this will come. We are on the way now building up new facilities, invest in equipment to produce, building warehouse in order to take care of what we see in front of us. Will this happen directly? No.
It will take some time. I'm pushed by Micael, how quickly could this go? We're doing our best, but it will take a couple of years to, again, increase what we are working with.
At the same time, this must be a rather difficult balance. I mean, how do you make sure that you increase the capacity enough and not the reverse, that you sort of don't overdo it?
If you look at our business, we are working with around 40 countries, 50 countries every year. We know quite well what the underlying demand is. On top of that now, we put what we see will most likely come. We have a very close cooperation with our customers. How will this play out? Is it easy to scale up quickly? No, it is not. I mean, we see all the time that the capacity in the Western world are not enough. We will fix this together with our customers. If we see the customers, we are working with them as well. If they see needs, we invest together to build up capacity because there is a war going on now.
I want to turn to you, Christian, quickly. One of the main challenges, and I addressed this in the beginning, but, are the supply chain disruptions when it comes to increasing productivity. How does Saab work with these supply chain related challenges?
It's a good question and we are still paranoid in Saab. We hear now in the market that things are easing up, that's the biggest mistake you can do to start to believe that things will be better right now, especially with the growth we have in front of us. When it comes to the supply chain in general, we see the same issues that we had before. I've said also I think we actually were lucky that we had COVID. It made a big smash on the company, both financially, but also it took out some of our capabilities for a short time. It actually taught us to bring in new ways of working.
That's what also Göran is talking about in how to actually excel more now. One thing we have done is to actually cooperate more between the business areas. We were not that good doing that before. In electronics, semiconductors, in raw material, we work cross-border more today than we did before. Secondly, like Micael said, we work not only with our suppliers, we work in trying to figure out, we can trust you as a supplier, but we don't trust your suppliers, let's go there and figure out how you're working with them to see the whole value chain. We are so dependent, there's so long time before the first delivery of a raw material until it ends up in Göran 's warehouse, we need to work very early in that chain.
We work, of course, with also incentives, both with our customers but also with our suppliers. Can we change something in the business model and how we take risk? That could be that we take risk ourselves. We do that. We built up inventory, especially in Dynamics last year. We built up actually 20% increase in inventory and over SEK 2 billion, and most of it was in Dynamics, part of it in Surveillance. That's a way for us to take risk. We also try to work with now with the customer. I think it will be imperative to work much closer to the customer and the suppliers. How can we take risk together in this growing market?
With what you said, Göran Mårtensson said, how do we together figure out now when we don't have time, but we have money, how to deliver on this?
One other key challenge touches on personnel, and we have heard this being mentioned a bit earlier today. Lena, I wanna ask you have experienced high growth in personnel during the past year, and the ambition remains high. How will you manage to keep this growth and continue?
We just keep on going. We are focusing a lot on recruiting. We have doubled, almost tripled our recruiting capacity. We have an own search facility now working our own, going with passive candidates using our own brands. We have a lot of different campaigns in social media. We are looking at wide spot where we see we can find capacity. For example, you, Göran , started a hub in Karlstad.
Yeah
C lose to your Karlskoga facilities. That's one way to do it. Of course, we go for accelerate our recruitment in Australia and U.S. and U.K. and Germany as well. Not, it's not, as said so many times, it's not only about recruitment, it's also about retaining people, so important. We work with excellent people experience in all aspects, try to do whatever we can do, offering competence development. We are reviewing our reward structure. We have launched a new leadership framework. We are refreshing our facilities. We are looking over our IT tools, so we do a lot.
The demand for staff is substantial, not only at Saab, but in the entire defense sector, including amongst actors such as the Armed Forces and the Defense Materiel Administration. How do you compete with these types of actors?
Actually, our strategy is not so much to compete with them. Rather join forces to bring in more people to this segment. That is more the strategy.
I think, I mean, the purpose that we now work with, keeping people and society safe, helps us a lot, and that is the same as our defense forces and FM we have. I mean, this will bring in more people into our sector. I think we could work together, and we are already doing that.
When it comes to bringing in people that are all currently outside the defense sector, I'm sure that you're looking in those areas as well. We have seen large transformations of the tech sector recently. Actors such as Klarna, Google, and Spotify have all announced significant layoffs. Isn't this an opportunity for you?
Yes, it is. We have recruited some people here in the Stockholm area from these companies. Of course, we compete with our purpose now. We said it's nothing new to us working at Saab, keeping people and society safe, but it's a strong one, and more and more people understand that, so that's a benefit for us. Also, we can offer great competence development. We have actually invested a lot.
We have an own digital university where we curate different learning journeys with aligned now with our future technology areas. Also, I think now when, I mean, with the high inflation and many people have high interest rates on their apartment and their private loans, I notice that actually having a stable and a company with structure, that's kind of the new black, and we benefit from that now.
We hear about all these investments. I'm looking at you now, Christian. When it comes to recruiting and expanding the workforce, surely this must have an impact on costs and cash flows. Can you tell us a bit about your thoughts here?
That is absolutely true. Of course you can't grow if you don't invest. This is a new mindset, and this is very important. If I put it from the first point of angle you need to think about, when you invest something, either it's in people or if it is in machinery and tools, you actually both put a financial investment into action, but you also put a lot of people into action. You spend a lot of people building that production plan. If you don't do that in the right time and the right sort of purpose, and you do it in the wrong timing, you will actually have wasted people and time that we don't have right now.
First of all, just not thinking about the money, we are really careful of what investment you take in what order, what people we bring in what order. If we bring in the wrong people, we won't meet this strategy. That's the first thing, and that helps us quite a lot to prioritize. Secondly, as you say, we need to retain and be competitive, number one. If we're not competitive, that will not work. Secondly, we need to manage our EBIT and our profitability, because only as a strong company we can invest in R&D. Finally, and that also goes for our balance sheet and how we use our money. We have a new mindset, and we have a new way of working to prioritize these investments and the recruitments to secure.
That is something that is shifting, and we're working hard with right now. Pointing out something very important in the shift now.
I want to give the audience and our guests an opportunity to pose some questions too. I believe we have microphones here. Yes. Right there in the back. Please just raise your hand if you have a question. We have one here.
Anton, up here.
Thanks, guys. Sam Burgess from Citi here. Just a question for Christian. Coming back to kind of supply chains, and inventory. In a, I guess, more, or less interconnected world, maybe a more volatile world going forward, do you think higher levels of inventory is gonna be the kind of new status quo? Or as the economy stabilizes, and supply chains normalize, do you see that sort of unwinding and maybe going back to lower levels in the midterm?
I think a first take at this is that trade will be important, and you can't do everything in each country in the world. That will not work. We will have as a mindset to try to work with our main suppliers, and maybe they will change to be closer to us or more in our operational countries that we talked about before, but to secure that we have a good supply base within our footprint to work with. Maybe those relationships will have to increase and become more partnerships strengthened than just being a normal supply and buyer relationship. Where if we can't do that, we have done that over the last two years, we have moved things in sourcing as well. That's not sort of...
We don't seek that as the first alternative in the journey. We don't seek to invest our own, in our own capacity if we don't feel we can find a solution with another partner. We have so much to think about anyway to deliver new capabilities and products for the future.
Thank you. That's very helpful.
Mm-hmm.
If you just permit me one more, if that's okay. Just coming back to recruitment and retention. Have you seen, particularly on, among a younger demographic, with the conflict in Ukraine, obviously gives a very tangible sense of purpose, and for what Saab does and the products it manufactures. Have you seen changing perceptions, and maybe recruitment becoming easier among that younger demographic? Lena?
Yes. Yes, we have. I mean, the purpose means something else to people right now. We benefit from that. I see the more applicants to the jobs and bigger interest.
Perfect. Thanks very much.
Even in non-engineers, we see that. I have more applicants for finance positions today than I had one and a half year ago.
I think we have two more questions here in the front. Three. Excellent. Please.
I'll go first. Thank you. Erik Golrang, SEB. We have a question for Göran to follow up on your comments there about capacity expansion. Wanna put some numbers on that? I mean, how much are you expanding your capacity? Is this a gradual development? 'Cause I'm guessing Dynamics will probably grow faster than the group average over the next couple of years. Are there step changes in capacity coming into place that could limit growth over a certain period, or were you able to plan this early enough to make sure that it's a relatively smooth ramp?
To do a ramp up, there is a balance act that you have to have with your own investment in the capacity, the supply chain, and also the people. Yes, there are steps when you build a new facility. There are steps where we could see you increase. As I said, we did a started quite large investment last summer, and that will take a couple of years until they are fully up and running. There I could see a step when that comes. On the way, we could, of course, squeeze in more into already existing capacity, and that is what we are doing. If you secure the flow as we are working with, that is the key also to increase capacity over time.
That has what we have done the last five years, and we will see that also for the coming years. I could see when we are ready with the next investment, that of course will give us an extra possibility to grow.
Okay.
I'll help you a little bit more because I know what you're looking for. Göran has an investment frame of around maybe SEK 700 -SEK 900 million over the next three to four years to do this capacity shift on top of what we had before. Exactly how that timing is, it depends on how fast we do it, and that's coming back to the storyline that Göran had on how we do that and build this. If it becomes a little bit less, depends also on how we can use companies like Action Manufacturing, or if it becomes a little bit more, depends on if we actually invest and help Action Manufacturing and take more margin from that or the other way around.
It's actually a balancing act every month in meetings where we discuss these kind of investments.
Thank you.
Björn Enarson, Danske Bank. Also a follow-up on capacity expansion in Dynamics. Is this primarily ground combat or is it only ground combat that you are expanding capacity?
It is primarily now in ground combat.
Are there some bottlenecks elsewhere within Dynamics?
There are bottlenecks to come everywhere when you, when you do this. That's quite interesting to see. I could take some examples. I was out of parking lots in some places. I mean, lots of things happens when you grow like this. When we see, for example, that we could, yes, we could sit two or three in rooms because we don't have enough facilities, then the parking lots were ... Yes, the things happens when you grow that quickly that we have done. We are taking it all the time. Of course, if we get other opportunities in other areas, we will work with them as well. I could really see that we have managed that in a quite good way the last five years to grow.
We have a fantastic people working in Saab to support us. They are so proud that they are doing whatever it takes to fulfill our obligations to our customers.
If you could compare capacity, 25 versus five years ago, I mean, then we are talking about more than doubling, I guess.
You said 25?
Yes.
Compared to five years ago? Yes.
Last question to Christian on, you have highlighted the writing of contracts, to drive profitability. Can you shed some more lights on that, how the actual contract writing has or is about to help you with profitability?
Well, profitability, I mean, the contract handling with a customer is always also a competitive question, depends on what kind of dialogue you're in. What we try to do in a situation like this is to work with our customers to figure out how we create stability both for them and for us. That maybe gives less profit opportunity in certain space of the contract, but it gives you more stability and less risk in the other part. That comes to the volatility in supply, in pricing, inflation, et cetera. What we have today is a lot of index clauses. They are not perfect, but they are taking care of the majority of the problem. They also are back-to-back to our suppliers.
Here I think that both from a net working capital point of view and also from a profitability point of view, we work towards more, we call it with our customers, interest, non-interest, cost, contracts, where we have a more back-to-back flow and more even flow of the cash flow going through the system. That means also that we have it closer to our EBIT over time, which gives more predictability. Secondly, also we work constantly with this risk issue, where it is a battle for our customer and ourselves to figure out how to move that in the right order, through the contract.
It doesn't answer your question if we're gonna be more profitable, but we will be more profitable, and I'll come back to that in my presentation, through both scale but also more efficiency and contract management. The better we can be in contract management with our customers, the better we will also be able to not lose money on a contract we already agreed on a higher profit with our customer, for example.
I saw some questions in the back there.
Sash Tusa from Agency Partners. I just wondered if I think it's probably one for Göran, if you could just talk about how the nature of some of your supply contracts might be changing. Some of the probably some of your competitors are going to propellants companies now and offering to buy capacity out 5 or even 10 years, which seems and may well reflect the current up cycle, but seems a very big financial risk or commitment for them to be making. Are you prepared to make that sort of long-term contractual agreement with some of your key suppliers, or can existing framework supply contracts actually give you sufficient upside?
We have done that already, I'll take two example, explosives and carbon fiber. That is something that Göran will need a lot of, and we haven't gotten all the orders that we foresee in that area. We're quite sure we will use that material. We have taken contracts, you could put it partly at risk to secure that we have a lot of capacity going forward. Otherwise, those machines that we now install will stand still, probably. That is one area where we do that. I think with suppliers also is to...
I mean, first it is to identify what risk we believe they have in delivering to us, and then we can discuss if we want to invest in them or if they can invest themselves on how to do this collectively. It's not a single bulletproof solution for all suppliers because they're so different. I don't know if, Göran, if you wanna add something into this context.
We're looking at the products that I produce and other parts of Saab produce. They are qualified with certain suppliers, meaning that it's not even for competitors so easy to change. We sit in long relations with our suppliers, we have a very open discussion around the forecast, and we have also long agreements with our suppliers in order just to do what you say, for them also to invest in the growth that we have seen. I foresee that we have all possibilities to fulfill what we say. If some really big things happens, of course we will also invest to secure our supply chain. We have a very good relation and working very closely with our suppliers.
I want to follow up on that question, namely how you work together with your partners in order to address this.
Yeah. I usually say this business that we do is not to be number three. You have to be number one. You have to have the best products, meaning that I'm always looking to be number one. And if I'm not able to be number one, then I partner with someone where we really could take this to create a product that are number one. We are working with the big primes in Europe. We are working with other primes in U.S. in order for us to bring the number one product to the customer. And we have experienced actually that, we Swiss are quite good in cooperation. It's maybe into our mentality that we are quite good in this. We get a lot in these cooperations.
I think we have a possibility there as well to increase and actually work harder with our partners.
You all seem rather confident. I mean, the challenges we addressed in the beginning, they're quite substantial ones, yet you seem rather confident that you will manage this situation and increase the productivity. Where does this confidence come from, Christian?
Well, we are confident, but we are, as I said, paranoid, we are actually discussing this. I think, as I said, COVID was a good starting point for this. We started to talk about how do we really fix this and how do we make this work with all the problems now out there. We had a big financial hit to our quarter three results in 2020 that made us come into sort of this crisis mode and start to talk about this. We have just continued then from that into this growth scenario, which is also a type of positive crisis, how do we then handle this then together?
I wouldn't be confident if I didn't feel that we had this better cooperation internally and we work actively, and we turn around things, and we think about them again. We change our mind. We go for one solution one day, and then we realize we should do something else tomorrow. In a sense, more agile in that thinking. In the same time, as we have a very stable operation, I mean, this extremely, as Göran says, certified stable operation, but on top of that, we can think outside the box more and more on how to do things. We have challenges every day. We have challenges on semiconductors.
We have challenges with suppliers and transportations. We have challenges with some of the production setups that we're doing that becomes a bit delayed, but then we work together to work that around. If we're one month later, could we do something else in between? That comes back to Göran's point. It's a super glue internally with the people at Saab. They stand there and say, "What can we do together to help to actually fix this in the best way to the customer together?" I think. That's what makes us confident in this, but we do have challenges. Surveillance will invest, Göran will invest, and that will come first. Depending on how we get major orders in Kockums and Aeronautics, we may have to see that as well going forward. Göran?
Yeah, I mean, how do we solve this? I mean, we are quite open and transparent internally in the company. We are not hiding away that this is tough for us. I mean, if we get out the power out of organization, It makes a difference for us involving all people in this, what we really do. Yes, if I could empower more people in my organization to work with this, we have a better chance of doing this. We have got a lot of good people.
This naturally connects to your area, Lena. We have heard about the importance of people and the personnel. How do you feel going ahead?
Yeah, no doubt about that. It's difficult, it's not easy, but I'm confident in my area that I'm confident with the actions we are taking, I'm confident with the focus we have on this issue, and I'm also confident that we are able to be agile and also adjust.
Mm-hmm.
It's a race. It's a race.
I'm very happy about the final tone here, us touching upon confidence going forward. Believe it or not, we are three minutes ahead of schedule. Anyway, I think I'm gonna wrap up there because I'm very happy with this ending. I want to remind you, the audience, our guests, that there will be more possibilities to ask questions at the end of today's program. Now we will take a quick break for coffee. The exit is down here, so you have to walk down the stairs and take the exit to the coffee here. I'll see you again in 22 minutes. 22 and a half.
Hello, and welcome back to the second part of this half-day CMD. We're gonna have in this session continued in good interesting topics. I want to actually start with the first one, which is about Ukraine, and how does that work in in in terms of a geopolitical context and Saab context. We'll continue to speak more about the innovation and our future initiatives followed by the financial presentations that comes after. Vera with us for another Q&A session that I hope to be interesting. The first speaker now, I will introduce Fredrik Hassel from Saab.
Thank you, Merton. Thank you for being here. I have been asked to make a short presentation about the lessons learned from the war in Ukraine and of course, some of the impacts that this have on the new strategic environment that we live in. First of all, I would like to say that warfighting is about determination. It's about individual determination, and it's about collective determination. But that is not enough. Leadership also matters, and how you embrace determination on the people that are there to support the war. What we can see on this war is two totally different strategies to actually achieve that kind of determination. What of those two that will actually succeed in this war? We don't know yet. We have to be frank with that.
What we do know is that the battle so far have not been going according to plans of the Moscow regime. What we can see here is a snapshot of the losses in manpower and equipment that Russia have had. This is numbers from the Ukrainian side, you have to see them in. You have to always doubt numbers when it comes to war. If you see the magnitude, if you just recognize half of them, it's massive. That will have an impact for some time on the Russian ability to actually fight wars. I would say that this is probably. I'll take the next picture and go into the update of the war and the war situation, and say that this is probably a time where the war moves into a crossroads.
The summer or the early autumn will determine the continuation of the war. The reason why I say this is that the Ukrainians now are massing up manpower and equipment, handed over, donated from the West, to actually be able to go on the offensive again. After Kherson, after Kharkiv, they will be able to go on the offensive again. The outcome of that offensive will most probably have a big impact on the continuation of the war. We could either have a new dynamic, a new dynamic created by that offensive, or if they don't succeed, we are probably moving into stalemate, the kind of stalemate that we had after Marne in 1914 or in the Korean War, where we still have the frontiers frozen after the stalemate that occurred in that war.
That will bring the next steps into the war. As I said, war fighting is a thing of determination. For the Ukrainians, it's both the determination of themselves, but also the support that they have from the West. Göra n touched upon this and, for Saab, I can just underpin that those products that have been donated from countries to Ukraine that have been produced by Saab have been produced with the purpose of giving the Swedish Armed Forces an operational advantage over Russia on the battlefield. As it seems, they have overperformed also with the Ukrainians in the war so far. What we can also see is that when they discuss no new systems coming up to the next Ramstein meeting, they are discussing fighters.
Gripen is one of the fighters mentioned, not because there are so many of them, but because they are tailor-made to actually step up and take on the Russian aggression in the air. That was what they are designed for. They are not only an aircraft, it's an air fighting system that you put in if that would happen. This is, of course, a political decision. It just underpins that what we have been doing for so many years in Sweden with the Swedish industrial base is that we have designed systems to actually create that operational advantage towards Russia and the Russian systems. It's looks like it works fairly well. As I said, war fighting is about determination and leadership, it don't stop there.
If Ukrainians would have fought the war themselves, they would have been out of ammunition, equipment long time ago. If you are to fight a war against an industrial nation, you need to be able to fight an industrial war. That we somehow forgot in Europe over the 30 years since the end of the Cold War. That is a new relearning that we need to understand and fully embrace. This was also underpinned by the SACEUR, the Supreme Allied Commander, Europe, the head of the NATO forces in Europe when he was visited Sweden this year in January. You need to have an industrial base. Our defense minister have also underpinned that you need to have the industry incorporated with the armed forces. You win battle with your armed forces.
You win war with the determination of families and people in your country and with industrial capabilities. Industrial capability matters if you want to win wars. These are the major lessons learned or relearned lessons from the war so far. Our CEO, Micael Johansson, touched upon the NATO process. The NATO process have been swift so far with some obstacles. I do believe that there are so many strategic underlying importances so that these political movements that we have seen in especially with Turkey, but also with Hungary, I think they will be handled fairly soon. There are so much at stake, not only for Sweden and Finland, but for the whole NATO and for the NATO members.
This is the underlying momentum that I think will eventually make this process end in a fairly good manner. The geopolitical situation in Europe have shifted over the time since the Cold War, and I would like to touch upon that as well, because to set what's happening in the perspective. During the Cold War, we had the conflict, the epicenter of the conflict in the Fulda Gap between Germany, East Germany and West Germany. There was the epicenter of the coming World War III. After the end of the Cold War, this epicenter moved to the Baltic State, to the Baltic Sea region, and it's still there.
What we can see if due to the fact that it's not going so well for the Russians on the ground, and that they have their most important asset still available in the Murmansk region with the Northern Fleet. That will be the strategic epicenter. If we do our job together with our coming NATO allies in the Baltic Sea and over the Baltic states, then we for some time will have the new epicenter in the High North. We need to prepare to handle that as well. If you look at Russia or the Soviet Union during these three stages, you can say that during the Cold War, Russia was a superpower. After the Cold War, Russia was a regional power with weapons of mass destruction.
Russia is now after the war, moving into position where there is a rogue state with weapons of mass destruction. That is not a pleasant neighbor to have beside you. What do this mean for Sweden, the Swedish defense planning? First of all, Sweden will be planning in cooperation or integrated in NATO. If you look at the map, you will soon understand that Sweden will be the hub for all kind of military operations in the area. You have to have access to Swedish territory or Swedish capabilities to be able to fight a war on the northern flank. You need the infrastructure, then you need the facilities. Gothenburg will, in this case, be the same as Lviv is for Ukraine today.
The problem for Gothenburg is it's sea outside, and for Lviv, to the west, they have the whole of Poland. This will create new demands on how to protect, block, reinforce, and support our NATO allies. Having bearing in mind that Sweden will be the focal point for those kind of operations. I have not touched upon very much on the situation in Sweden and the war in Ukraine, this will of course, also spill over to the great power conflict in the world, the one between China and the U.S.. I will end my presentation with this picture saying that a weak Russia is not bad for China. The bad performance by Russia on the battlefield has weakening Russia, and that have made it possible for other states to reorient themselves.
I think we can see small signs of that from the former Soviet states of Asia, where, for example, Kazakhstan is getting security promises from Beijing now. On the other hand, I saw that today that President Lukashenko went out and said that he think that the organization, the Collective Security Treaty Organization that was developed after the fall of the Soviet Union should now join in and support Russia in their war effort. We'll see if he will get Kazakhstan to support the war in Ukraine. I don't think so. I rather think that we will see those countries moving towards and orienting themselves towards Beijing because they're the power. There you can find the power.
Russia is, due to the lack of its victories on the battlefield, but also due to the sanctions that we in the West are imposing on them, are pushed in the arms of Beijing. On the other hand, Beijing is rather the reluctant to hug the Putin regime with his bloody hands. On the one hand. On the other hand, China cannot accept Russia imploding, and that is the balance that they have to walk and also to handle in their competition with the United States. Thank you for listening.
Thank you, Fredrik, for those insights. Interesting and a bit scary. My name is Christian Hedelin. I'm heading strategy for Saab Group. One of my main tasks is to ensure that we as a company invest the right time, money, and expertise building future competitive products for our customers. As Micael said on this picture, within the focus we have on concentrating our research and development efforts into our core areas, given the increased demand that we see today from our customers in our traditional product lines, our existing product lines, it's equally important now that we put enough attention to building rapid concept design that allow us to meet the future and to support our customers meeting that future. We have a quite strong re-track record on innovation.
I would almost say that innovation and rapid concept design is part of Saab's DNA. You see some examples on this picture. Our relatively small size as a defense and security company has pushed us and challenged us into actually becoming innovative when it comes to systems design, lead time reduction-Cost and performance efficiency. I would say that that has created a culture within Saab that is very open to external technology supply. We don't have that much not invented here in our culture, and that allows us to actually leverage fast and rapidly moving technology development inside and outside our sector. Some examples of this you have, and you have heard about before. One example is T7, how we together with Boeing in U.S. developed from blueprint to first flight that system within less than 3 years.
Other examples on this picture is how we have developed a completely new fighter system with the Gripen E/F line, as well as the GlobalEye, the world's leading airborne early warning and surveillance and control platform in 4.5 year and 2.5 year respectively. At record pace and record time. For those of you who will go to Gothenburg tomorrow, you will see a lot of other things within our sensor area, I will not go too much into those areas. One thing I want to highlight is on the right-hand side, the G1X, the advanced X-band radar, where we have managed to significantly reduce cost, size, but keeping military performance on such a platform. You will hear more about that for those of you who go to Gothenburg tomorrow.
I would also like to highlight the partnership we had a couple of years back with Maxar Technologies, who you see doing the geo mapping from space, where we together with the image processing expertise we have within Saab has created the world-leading geospatial intelligence company called Vricon, which is now a part of Maxar corporation. Those are just a couple of examples. We're on a good trajectory, but this is not enough. We need to do more. This is a backdrop to why. We see a future battle space emerging, where new technology advances within cloud, connectivity, computational power, space, and cyber will play a fundamental role if you want to be competitive and build a defense capability against future potential antagonists.
An important insight we have is that this will not only be new equipment, this needs to be enhancement of existing systems. We have seen successful such development in what Ukraine has done with small drone-based systems, for instance, where they have taken the targeting loops from perhaps hours into minutes by actually adopting small commercial drones to support artillery and anti-tank weapon. There is also an understanding in this picture that we will have far more autonomous systems, both for scale, cost, and persistence. These are some of the areas that we are really looking into. What can we do as a company to invest further into creating such capabilities together with our customers at higher pace than we do today?
You heard Micael this morning mentioning that we are investing more money into research and development. We will earmark at least SEK 1 billion or grow our internal research and development budget from existing budgets today with at least SEK 1 billion more over the coming five years. We will target a selected number of future capability areas. Since we cannot be in all areas, the strategy that we apply to become competitive in this area is to leverage from the strong position we have in our core areas. The underwater system, the fighter system, the command and control sensor and advanced weapon system. We will fuel a lot of more research and development in close collaboration with partners and customers in the areas of autonomy, both in the naval domain as well as in the air domain.
This is not only autonomy from unmanned platform, but also tactical autonomy on how you create better decision support, because that is also a vital part of being competitive with the platform. We will also, and are also investing a lot of time, expertise, and money into future command and control systems, leveraging from the technology that is being developed in the cloud industry and connectivity. Distributed sensor systems where you can have a full sensor chain of bistatic and multistatic sensors to create a much more superior situational awareness. Integrating the cyber and the space domain into existing platforms and systems. Finally then developing new and next generation missile platforms together with partners. As I said, we don't do this alone.
I think what we have shown before in the partnership, for instance, when we built T-7A with Boeing, will be a continuation on how we look upon developing these future capabilities. We are also applying what we internally call design space exploration, and that is about designing simulated models and concepts that could be improved and iterated if not thousands, millions of times to find the absolute best possible design before we start building things that cost a lot of money and takes a bit longer time. As Micael Johansson said, we have more than 50+ such candidates which we are maturing with customers and partners today. I have two examples on two of these.
One is leveraging the leading position and offering we have within the anti-tank system but to apply new technologies both on connectivity and sensors and drone-based designators to allow those systems to reach beyond line of sight with targeting loops down to the second with precision and accuracy from a laser designator. That system will be very flexible as well given that you can use that drone-based component also for a better situational awareness and not only for anti-tank system but also for artillery guidance, for instance. We have a lot of exciting, unique technologies, like GPS-denied operation because when these systems become plenty, of course you will have your red side trying to disturb them.
We have plenty of research and technology and know-how on actually how to maneuver this without having any type of global positioning system telling you where you are. There are other means of doing that through geospatial intelligence as one example. Another area is how we are evolving our world leading CI component and also the unmanned underwater components that you saw on the exhibition outside the product called AUV62. The first breakthrough, I think, which was in Eric's picture is in my view a real milestone where we actually now have a customer commitment with US Navy on the anti-submarine warfare practice targets. Also there are plenty of new things in this space. We have the platforms, we are building them today to be autonomously operated.
We have a manned platform, A26, the submarine system, which actually has an auxiliary hatch, as you see on the upper left hand corner here, that allows for such systems to be deployed and operated. They will not only be operated through a manned submarine, they can also be persistent, self-aware and autonomously operating to monitor critical infrastructure like gas pipelines, which has been very evident where that you need to do, as well as all the internet cables and the power cables that connect the different continents. This is also an area where we are having expertise and are investing more time and money to create totally new capable solutions for this important topic.
With that, I would like just to end with these two things and like to end by I look forward seeing you in the coming year or two when we have matured this into real products, to follow up and present all the exciting stuff that we are looking at that I can't have time to go through today. Thanks a lot for your attention and see you out there.
Thank you very much for being here today, it's been great to listen to my colleagues. We should remember that everything we do every day ends up in our financials. It's not the opposite. That's why it's so important to listen to what we're doing and what it means, because that's also the dynamic that comes through in our financials. With that, I'm gonna give you a 25 minutes now on how I look at the financials and a bit more details into some of them. I want to start with this picture because this is what we talked about and it comes back to our growth story. With this picture, I want to tell you two things. We have a strong backlog today, as you have heard, and it's strong in all business areas.
All business area has a strong backlog to sales when we start now going into 2023. Secondly, we had a great year of orders in 2022 and quarter four was really good. That didn't come in to be delivered long, long way forward. It came in to be delivered in the next three years. Those two elements gives us a good prospect for growth going forward. Taking us into the different business area a bit and talk about them. Aeronautics have had a bit of struggle on their financial performance when it comes to EBIT the recent years. There's two main or three main reasons for that.
One is the COVID, which was evident, and in 2020 we had a big hit from that. Secondly, we are building up a future strong business case in the U.S. around T-7A that will deliver a good business case over time. Thirdly, we are challenged by commercial aviation when it comes to our aerostructure business that is still negative on the EBIT, and it will take time, but it will come out of our income statement as well. Those are clearly drivers also for future profitability. Another thing is future Gripen programs, and it is also how we scale up in our production in Gripen. In Aeronautics, we do continue and will work as we mature in the programs also with our efficiency, and that is something that the teams work very heavily with going forward.
Driving cash flow, will this be performance improvement that I talk about in the EBIT? We also have to remember, as Micael said before, and I'll come back to that later on, we have invested heavily in the Gripen and T-7A programs in our balance sheet. Now when we depreciate that, it will have an impact on EBIT, but not on cash flow. It will have the opposite effect. We will have a good cash flow pushback from that change. Dynamics. Strong order backlog. It is really a good starting point. It's a little bit too much to talk about after we heard so much about it today, but it is a strong order backlog. It is a strong demand out there, and we also have strong products in all areas, underwater missiles in anti-tank weapon, et cetera.
Here we have had an exceptional year in 2022. Margins were a bit higher than we usually see, and it was a very favorable mix. Growth will be there for EBIT anyway going forward. That is coming from bigger growth in sales, of course, scale effects, but also from our production facilities that will be better utilized. We have an R&D investment that we will take here, and that will go the other way around. We will have an impact negatively also coming in here from innovation in these future systems. All in all, it is a quite a national income statement to cash flow profile. As I said before, a lot of the in-inventory build that we have done so far has been in Dynamics.
I don't foresee that that growth path on inventory will follow the sales path going forward. We have built up a good base now for that. Here, as we said, we have an increase in production capacity that will also hit cash flow over the next coming years. Surveillance is our biggest business area. that's one of the reasons, but not only the reason, why we think it was worth for you to come and see that tomorrow in Gothenburg. it is an area where we are very strong in airborne early warning with our GlobalEye, but also on the naval side, we heard from Eric in the U.S., and we also strong in electronic warfare. we heard about Micael talking about Germany and opportunities there. This is an area that is getting more and more important.
The importance of the surveillance and intelligence out there is not disappearing, it's increasing. We have a good position going forward. Here we are working very good through our operational countries and growing. They are actually very important for our growth story in Surveillance. That's why it's big, and maybe you have not seen that as visible before. That was why it was so important for Erik to be here to explain how it works today. Scale effects from this and how these operational countries help us to grow will be important for our EBIT growth, and that EBIT growth will help us also on the cash flow. Surveillance has a relatively balanced networking capital to sales development. Here we work with projects where we can actually manage our payment terms quite well with our cost inflow.
We see that. Investments in capacity will come, not as heavily and maybe as fast as in Dynamics, but they will be. For example, how do we build production capacity in U.K. if we want to expand? That will be an example of where we look at investments. Kockums. I use a famous wording, probably the best submarine wharf in the world. It is something that we work with for many years to build up to be something very strong. We have a very good mix today, and that is part of the journey that has been hard work of fixing the basic and how we produce the infrastructure for that and make sure it's a good working environment. Now also we have a good mix between foreign and Swedish customer projects.
We also have a good mix between foreign and the submarine and the surface ship products. Here it is quite a lot of milestone payments connected to the big projects, and they also work quite well with how we have to pay our suppliers. We see some higher investments in capacity to be, but it's not gonna be that much if we don't get bigger projects. We have a scale effect now that we can utilize for what we see. If we get bigger stuff going forward, and we talked about some major programs we're looking at, there probably will be investments coming with that. Combitech, our very strong consulting firm that we use also to bring competence between Saab and Combitech, but also to support external customers.
It has been a couple of years where we have struggled a bit. We now have getting things in order. We have brought up the utilization, and we also work with employing more people. There's no secret to this other than any other consulting company. You have to work with cost, you have to work with utilization, and you have to work with your business model, and that's what we're doing. We are increasing also our share of deliveries then to engagement projects instead of just only resource consulting. That is the formula also that we will go forward, and that is actually giving us comfort now that we are meeting better numbers in this quarter four and also going forward. A bit on our profitability improvement journey.
This is something that we shouldn't miss and is very important for us. We talked about sales growth. We have now put something in place on cash, how we should think about cash. How should we look at profitability? I talked a bit about the drivers in each business area. Consolidated on a group, how should we summarize this? Well, there's three elements that we work with in our model in how we drive the company. Just let me repeat again, we are super determined to make sure that we improve our profitability going forward. That is important to be strong in making sure we can actually act and deliver on future investments in R&D. It's also something that you need to be good towards your shareholders, of course.
That is a journey we are on right now. Scale is gonna be important. Scale comes from Gripen programs. Talked about T-7A moving into production will come up and help us. Those kind of scalability effects will help us. We saw part of that scalability effect in Dynamics last year, and the more we can utilize our infrastructure, the more we can work through the operational countries, we will get these scale effects into play. They will be important part of our profitability journey. That's why growth is so important also for Saab being such a small company today. Secondly, we work, and Micael said every team, everyone in this company needs to think about how you can be better tomorrow, and that's something we do every day. Here we work with cost efficiency program.
We don't have massive programs that we should take down 2,000 people. We actually need more people. We need to utilize those people in a better way, and we need to work smarter in becoming more efficient. That's something we're working with in programs in each business area. Supply chain, how to be smarter, improve our project execution. That is a key that we can do something about together with our customers sometimes, but very much ourselves. If we sign a contract and make 9% margin on that, but if we fail on that project execution, we sit there with 7%. Of course, project execution is extremely important for us, how we drive that internally and be smart in delivering on these executions.
That comes back also then to contract management, to be not unfair, but to be smart ahead on how we make something that works for us and the customer. Portfolio management, that includes, of course, returning back to profit in business like the civil aviation we have in Aeronautics. It includes also selling off non-profitable business or other business that we should not work with to get the right focus. We also need to work more with partnerships that we have out there and also with M&A. That's the improvement model. A bit details to make sure that all of you also can follow the cash flow and the profitability below our operational numbers as we talk a lot about operational income, and we talk about operational cash flow.
How does it look when it comes to the tax part? Well, first of all, I just want to remind us that net income last year, it has increased over the years, but we had an impact of our SEK 12 billion that we have invested in short-term investments with the interest that was actually increasing, the value of those in our books were falling, but as long as we don't sell them, it will be reversed over the next course of 12-18 months. The effective tax rate, we haven't talked about this before, but we actually tell you now that we believe it's gonna be 21%-23% over this period. Why it's gonna be a bit higher than it has been before is because the operational country's profitability will come into play more.
How much will we pay out of this then in our cash flow? Well, 90%-110%. Around the number of the tax rate you see in the income statement, you will also see in the cash flow coming out. We haven't changed, even though we have changed some of our long-term targets. Our policy for dividend remains, 20%-40% of net income. Last year or this year, actually, now for the AGM, the board will propose to the AGM a SEK 5.30 payout, which is 32% of the net income, just to give you that reflection. Investments we talked about. How will that develop over this five-year period? This is to illustrate you with actually some numbers on the side, that it will increase over these five years.
We will also grow, of course. We need to invest to grow. The increase will depend both on how much we partner and get suppliers to work with this and how fast we actually can invest and how fast we get new orders. Some range between SEK 2.1 -SEK 2.5 billion is where we're gonna be. A SEK 400 million increase, it could be at maximum. We try to be driving this fast in Dynamics, as Göran said, but with the sort of control. It will be front-loaded if we can decide, so we can get up the growth as fast as possible. It will be driven by production lines and IT and facilities. That's no secret, I guess.
Cash flow and net working capital has been important and is in focus. We have come from a period of negative cash flow. It is important to understand where you have not only your earnings, but is it result in cash? I usually tell people in the company, and they will laugh about this because I say that you want to have your payslip just as a piece of paper, or do you want also to have the cash in your bank account? Make sure you also get paid for what you do and not only have it in the income statement. This is of course true for you as well, looking at us as an EBIT, or will we also bring cash to the table?
That we can invest in future growth, or we can actually share with our shareholders. That's the whole thing. We have now had three years with good cash flow, and we working with that, stabilizing that, and getting new momentum into how we work with our operational cash flow. EBITDA growth is important going forward, and we will scale up in several programs, as I talked about, to bring more cash flow to the table. We do aim for more even payment terms with our customer. It gives stability in how we actually measure our performance. It gives us better way of handling our suppliers. It gives us a better way also to handle our liquidity over time, and it gives us lower cost of funding.
We have many reasons to make sure we have an even cash flow from our customers. We have to remember our customers are a little bit different. We work with a concept calling net interest neutrality sort of into the contract. We should not penalize each other. There's no reason for that. A government customer doesn't want to pay us for interest costs because they fund cheaper, and we don't need it interest faster if we don't need to. We try to find an even platform for that. That actually gives a quite interesting dynamic on the accounts receivable side. It doesn't happen so much dynamic to that one when you grow. Inventory. We have increased 20% last year. We increased over SEK 2 billion.
That is a pattern that if bad comes to worse, we will continue that, but we feel that we have a good starting point for that growth going forward as well. Finally, if we of course have to, we will also keep the accounts payable, move on the same direction as we do it with our customers. A quite balanced development of net working capital to sales over time. Then we will have decreased capitalized R&D with Gripen and T-7A. It is maturing products now going into operation. Finally, the investments will increase, which I talked about in the last slide. With that said, I move on to the next page.
Our financial position is strong, and it is one could say it's very strong, but we think it's important now going into this phase. Not only the macroeconomic situation makes it comfortable to be flexible, to know that you have money when you need it, but we will have investments. We will have also partnerships that may become very interesting that we want to invest in, but we're also looking at M&A. We are actively looking at M&A. It is a difficult market to do M&A in. You need to be having the strategic fit. Very important to have a good strategic fit. The thing we did in the U.S. was not coming just by buying anything.
It has strategic fit back to what we had as core competence and what we can build on into that market, as Erik talked about. Secondly, it needs to meet one of our criteria on market access technology or capacity increase. Finally, there could be security issues that you need to also handle between two countries doing these deals. It is in the core markets that we're looking for this. Could be outside also, primarily in the core markets we're looking for M&A. Just to be very clear on cash conversion, because this is a new term and every firm has a different way of expressing cash conversion, I just wanna make sure that it's not misunderstood. When we talk about the cash conversion for Saab, we talk about the guidance of above 70%.
It's a cumulative number for this five-year period we have guided on, and it's the operational cash flow we have, and it's divided by the operating income. Why did we pick this number and this ratio and not something else? Well, for us, it actually links both to what we have given as a short-term guidance to the market, and we guide on operational cash flow, and we guide on operating income. Secondly, it fits very well with our internal operating steering. For me, it's very important that we have that synchronization, so we talk the same language all over. We are a very transparent company, and we need to work through the company, both from the external point of view down to the last group manager.
That is the two main reasons why we go with this ratio. To make sure you understand, you will be able to have these slides afterwards. You will see how you calculate that downwards and what you take out of EBITDA to get to the operational cash flow, and EBIT, you know all about already. As you see, we have had over 70% over the last three years. The guidance now or the target for these five years is to give you sort of a platform and give you a floor on where we feel that we have a stable cash flow for this period. Just reiterating back to our outlook for 2003.
We have said now on Friday, we came out and increased our growth to 15%. We had 5% this year. We set 15% now for the coming year. Around 15% growth is on the backdrop of our strong order backlog and the demand in the market. It's more in the backlog than it's in the demand in the market. We are quite fully booked to be putting it in a hotel perspective. We are doing now a capacity increase and moving into more of that. We can do more, of course, but you typically don't sign a deal in the middle of summer and deliver it before year-end on these complex systems. Operating income should continue to grow.
We have said, which is very important, wanna have a sustainable, stable growth in our profitability. We don't wanna have a quick fix. We don't wanna do something that disturbs our investment in future capabilities. We don't wanna have something that disturbs the growth for this company going forward. It needs to be a growth, and it needs to be sustainable. That's something we work very hard with. That's where we start when we work with the businesses, then we see what can we do more to create more EBIT to more profit based on the growth on top of that. Then we also see have we balanced in the right and investments in R&D to make sure we meet the future capability need that we aim for.
That's how we work, and that's very important to understand how our logic work internally. The cash flow, you can see, we said 70% as a floor for this five-year period as a target, but we haven't guided on anything for 2023. The clear answer is that we're not really sure. We know it's gonna be positive, but there's a lot of things that can fluctuate in a year where you have 50% growth, there's so many things happening out there. We are very clear that it's gonna be positive. We are very clear that we can have a 70%, target for these five years, but we don't wanna give you a guidance at this time at least on what it can be for this year.
Finally, my last slide, and just repeating Micael's also last slide on what was coming out this morning as a press release and introducing medium-term targets instead of long-term targets. We had two long-term targets before. It was a business cycle with 5% growth, and it was a business cycle with EBIT to be 10%. That is something we have heard and talked about many years now. So why do we cut these off, and why do we move into these? Well, one of the main reasons is that there's so many things happening. Micael showed growth of the Swedish defense system, the growth of the European defense system, and there's so many things happening now in the next five years, so that should be our prime focus area.
We actually don't know any one of us, I think, out here, what's gonna happen really after that until we see how these five years pan out. We know exactly what's gonna happen in these five years from sort of a prospect point of view. Taking that into account, we think it's more natural to then talk to you and talk to ourselves about how do we handle these next five years, and then come back to something else. We don't, we don't lose our ambition to be a strong company over time. That comes from both making sure we have a good growth and a good stable market position during this five-year period, but also our innovation into future technology.
As I said also before, if we don't become profitable and are profitable, we will not be a strong company either in five- years' time. They all come together. We see now that the best target we can give ourselves is a 10% growth for these five years. That is coming from our strong order backlog that we saw is also pushing the next three years.
We are well positioned, that you heard from my colleagues today, and we are in a growing market. We will continue to drive our EBIT up and it will grow higher. The growth in the EBIT will be higher than the growth in sales. That is coming from scale, efficiency, and our portfolio management. We have an idea how to meet that target. Cash flow, as I've already elaborated on, we feel that we can continue to then be positive during this period, adding more cash to the company and to the shareholders value over this period, at least 70% of that EBIT. With that, my main messages that I try to get through to you is that we have a strong order backlog, and we have that in all business areas.
We are gonna drive earnings during this five-year period. We have higher investments. We should remember that we have there to handle the capacity uplift, and we have a strong balance sheet starting this journey. Then we have now given you new medium term guidance. With that, I like to invite up, I think... Or no? Do I invite up or? Yeah. Okay. I just do what everyone tells me. We're gonna have our Q&A.
Please, all the speakers that will participate in the Q&A.
I work closely with my CFO. It's not that we do this every day.
I could pick today.
Looks a bit awkward.
Don't interpret too much to the-
Exactly.
Proceeding here. Excellent. This is actually the entire session is dedicated to questions from our guests. I already see a couple of hands up in the air. Excellent. We're starting back there. Please introduce yourself.
Thank you. It's Sash Tusa from Agency Partners. I'd like to ask a question about development cycles. Unfortunately, I was at the last capital market day, and I've just been looking at my notes from it four and a half years ago. At that time, you talked very clearly about the importance of reducing development cycles, and you highlighted the reduced development cycle time of Gripen E/F compared to Gripen C/D, and so forth. When I look at the four major projects that were your focus at that stage, Gripen for Sweden and Brazil, GlobalEye, and A26 submarines and T-7A. Only two of those in four and a half years have actually made it to production deliveries. Clearly, some of that is not your fault.
Some of that is customer funding. Some of that is that development doesn't necessarily include the whole testing process. For an external observer, it's quite hard to put our fingers on where this reduced cycle time really and sustainably has come through. I wonder if you could help us with that. Also give us some sort of more concrete examples of... And, you know, significant examples of where the development cycle times, you know, have come down and will stay down.
It's a very good question, it's a really important one to sort of have focus on lead times for different phases of development and enter into the marketplace with products. I mean, you touched upon a few reasons why you haven't seen all of them sort of penetrating the market yet. If you take T7, for example, that is a record time sort of development of flying platforms that gave us all the test data to win the contract in the U.S. Sort of unheard of doing that within three years' time. We didn't actually take any sort of platform legacy or something from the Gripen or from something within Boeing. We did that from a white sheet of paper.
Comes the U.S. customer process in play, and they are extremely rigorous in terms of how they do things. I think Erik can sort of underline that and support that.
Erik is next to you.
You're here.
Yes, I am.
I do work closely with my management. This is not going well. But seriously, I mean, they go through an engineering manufacturing development phase, They do that in a very specific way when they pass milestones like Milestone C, You go through sort of a type certificate thing, You get the LRIP type of phase, A full rate production phase. You know this. Quickly to a certain point, It becomes a customer-driven process.
Makes it looks longer before we actually get up into a higher production rate. When it comes to the Gripen, the basic development is actually very quick, but then the architecture is built in a way that you will see extremely speedy upgrade of this platform because of the architecture. There is no competition on how quickly we can build software functionality on that platform going forward. The basic development was still quick, but then you will see this happening over time. There's also a sort of a connection to how quickly our customers want to take this aircraft in and have the capacity to take that aircraft into operation, both in Brazil and in Sweden.
Sweden fly the Char-Charlie Delta version, and they need to have sort of the pilots, the test environments to do what they have to do, even though we have the aircraft now ready for them, so to say. Sometimes, of course, we also, obviously, we run into trouble, problems, I mean technical problems or programmatic problems or what have you. We take a bit longer. It's not sort of all on the customer side or all on the process side. The way we work with digital twins, model-based systems engineering, representing what we do in many areas now because it's so complex in a digitalized way, is speeding up the development process. What can I say?
There's so many avenues on this that you can sort of go through, but we're putting a lot of effort in speeding up our development process as we speak, I must say. There are good examples of how quickly we do things. I mean, also in Göran's area, we have done things like Ground-Launched Small Diameter Bombs that was announced just recently, also a program together with Boeing. That is an incredibly quick sort of idea to concept, to demonstration, to market penetration.
And, and-
Short answer.
You could see that these demonstrations we most likely see more of in the future, that we together with customers build and demonstrate, and then we then could then easier say what is we should deliver in the future. I think we will see more of that, going forward.
Anything to add?
I'd just say, you know, in the U.S., the bureaucracy is such that, in the case of T-7s, a perfect example. We, yes, we built those jets, flying prior to even a contract award. Once you win the contract, the Air Force still has to take the jet through the entire acquisition cycle and create the artifacts that are required by the Air Force's process. While the development was done at a very impressive and efficient way, the Air Force, you still have to go through the acquisition process and generate the artifacts that only the Air Force program can generate.
Developments, the way the development cycles look to an outside observer may be skewed a little bit by the fact that a lot of this is just going through, in the case of T-7, going through the DoD 5000 infrastructure.
Any further points to add on this question? No. Second one, please.
Yes. Björn, Danske Bank. A question on next generation fighter and looking at this, former or maybe future, cooperation with the U.K.. I mean, a couple of years ago, we had this big presentation with the head of defenses and head of air forces and Wallenberg and BAE Systems and everyone were there. Then we have heard not much then Sweden has been left behind or what is happening there. Is there a possibility to get back into that cooperation or are there other cooperation that are possible, or what's your view on next generation? Thanks.
Well, I think, what we saw in 2019 when this sort of agreement, MoU, was signed between Sweden and U.K., I think, was a program where an incremental development would be done together by two countries. Then I think what happened was that U.K., they have an urgent need to find a way of replacing the Eurofighter, and they don't really have an OEM capability in country. Even though BAE Systems is a great company, they lost that little bit over time. To create a business case for them to invest a lot of money together with other partners became quickly more important than what was anticipated by Sweden, I think. We, we are in a phase where we are starting to deliver the Gripen E/F, the most modern fighter system there is.
We don't have that urgent timing need to sort of decide on the next generation fighter system now, which was the case for the U.K. and to some extent Italy. They needed a partner with strong finances and a good technology base, Japan came in. If you're not sort of on this train investing from a country perspective, you're left behind. That happened, actually. Now Sweden is looking at this crossroad program or whatever you call it, to sort of do a proper analysis of what's happening beyond the Gripen E/F. We're talking beyond 2050. That will be worked out during the next few years in terms of concept studies, demonstrators and what have you. Sweden will take a decision at the latest 2030 for what to do next.
That might be avenues here. We continue to do as much as we can on our own. We do it in partnership with other countries and industries, or, which I find extremely unlikely, we go and buy something.
Timing was the problem here, I think. Right now, we're not really part of that program, correctly. Do I, as an industry, see that we couldn't sort of take a role in that somehow since we have the capability that we have? We could, absolutely. We have the other opportunity, of course, which is the SCAF, the German-French, Spanish initiative. We're not part of that. It's never been really discussed between Sweden and France and Germany. Been discussed, never been part of it in the same way. Could also be an opportunity going forward. It could be on different levels. Either countries join hands, but that will be years, or we as an industry take a role on certain levels in this program.
As an industry, we talk to potential partners to join, but maybe not on the highest level. That needs support of Sweden. Sweden is going to take their time now to decide what to do after the Gripen E/F. As I said, I find it unlikely that we wouldn't sort of do everything we can to continue to have this fantastic OEM capability. OEM being a system integrator, having that capacity in country going forward. We've done this in an incredibly efficient way compared to many other countries. Why would we give that up? We should nurture that. We should value that. It has a fantastic effect on the society as a whole as well.
Clear. Thank you.
Thank you. We have a question here in the front.
Thank you, Erik Golrang, SEB, I'm turning to you now, Christian. Firstly on the profit development, sales growth 10% and an EBIT above that's all good. I'm trying to understand a bit more of the composition of that EBIT growth. If you think about the divisions, you talked about Dynamics having extraordinarily good mix last year, then I guess quite a bit of that incremental investment's coming through in Dynamics as well. If you think about the divisional margins in 2027 compared to 2022, does that hinge on actually the others improving whereas Dynamics is more or less standing still or even being slightly lower?
Well, what we said is, I mean, which I show in my slides, is that all business areas should have an EBIT improvement. I think that you're correct that at least Aeronautics and Surveillance will have a very good profitability improvement as well. Kockums is a more difficult animal from that point of view with larger projects, but it is up at 8%. We have said that it should get closer to 10%, but it's gonna be hard to be a high profit margin division because that's the nature of that business. That's what I will give you.
Okay, thank you. Then on the second question is on the balance sheet. Your starting point now is, if I'm not wrong, about the strongest net cash position you've had in quite some time at least. With at least 70% cash conversion and 20%-40% payout, I would assume that implies you continue to strengthen the balance sheet.
Mm-hmm.
Up to which point are you doing that? At which point is the balance sheet too strong? I.e., when would we start to expect 100% of free cash flow being shifted out to shareholders?
Well, the only thing I mean, to answer that, I can say that's a dialogue we have at the board all the time. Of course, then in the end, the dialogue needs to be between the board and the shareholder on if something should go back to the shareholders. At this point, we think it's a good starting point for the reasons I said. Looking forward on investments, macroeconomic situation, getting funding, if things go south suddenly, we all believe it's gonna be better, but it's still unstable out there. Then we actually have a lot of M&A activities that we're looking at. Before we know how to tackle that and if we can tackle that, we don't have any other views. Let's see what happens over the next two years.
You're correct. If everything is the same, we will have an even stronger balance sheet in five years' time.
I have to sneak in a question before I take my last third one to follow up on the M&A, because obviously when we think about potential acquisitions from here, what are the financial looks like? Clearly, good assets in defense come at a different price tag today than they did only a year ago. I mean, what would a typical financial setup be for an acquisition?
There's no number on that. I can tell you we're looking at. I have four different companies in my head right now that we're looking at. They have different financial, different positions, and they could be carve out or not, where we can do something differently with it and therefore maybe pay less than our own multiple to something that actually can strengthen us quite a lot on the technology side, where we have to probably pay a little bit more than our own multiple. Therefore, it is not sort of a, this is the multiple it has to be, and therefore we're gonna buy it. That's not gonna be there in this case.
Would they be earnings accretive from start?
Typically, yes. Yes.
Okay. Going back to the final question, on when we look at the portfolio. I appreciate all the divisional colors on every division expecting to grow EBIT, but if I had to venture a guess, I say very few investors in the stock today have bought it because of Aeronautics, simply because of the history. Why would they be wrong? Without betting on a specific new order for Gripen, why would simply sort of profitability, cash flow b e different. Why should we perhaps buy Saab because of Aeronautics and not Dynamics, which is probably what many are doing today?
Well, Aeronautics, and what we do in that area is of course the core of Saab, and Saab wouldn't be the same company without that. That's not a good reason, of course, if you don't perform. I do think we've been through a time now where we have taken the next step for a fantastic new system, which has been a few rough years, both when it comes to development and how you industrialize it, and you change the architecture of the whole system. I don't think. I won't try to sort of explain how, what kind of a step that is to have an architecture, that architecture in the system that we have today. It will be a software-defined system going forward to a much larger extent.
You need a platform, of course, you need the weapons, of course. I'm not saying that. You need the sensors. The way you can act and connect with the system going forward and upgrade it's, it's fantastic. We're through a huge development phase to a large extent. I think the balance between upgrades and software and production now is one reason to see profits growing and revenue growing going forward. I still think we have a good position in the market. It's just that we have to be more, a bit more selective. We have a strong customer in Brazil that is saying all the time that we need another batch of these.
I'm sure we'll see more fighter aircrafts of the latest version coming into play in Sweden as well. We have Hungary that, I think will have the ambition to come in and be a sort of a partner in the E program as well. We actually have a couple of other customers that also can do a seamless transition into the E version of the aircraft. I definitely haven't given up on Czech Republic. I mean, they will have to continue to fly the Gripen for a long time, and they will also be offered a very cost-efficient way of a seamless transition into the EF version. Having a base like that is still a good position in the market.
On top of that comes the whole incremental development steps that we can sort of leverage upon having this architecture out there. I think I have a very positive view on how Aeronautics now can develop going forward. On top of that, of course, as been said many times, the T-7A program is a program that will go into a phase where we, first of all, will have to deliver 346 aircraft, and then the forecast of how many will be needed out there is a couple of thousand. Compare that to how many fighters we sell. The T-7A is not the same thing, but it's an extremely important franchise program to us. There will be derivatives of that aircraft as well.
There are many positive things that will happen in the Aeronautics field as well going forward. I am really looking forward to the next 5, 10 years. There is a reason to invest in Saab also because of the Aeronautics business, definitely.
Just to add then on the civil aviation we talked about earlier as well, I mean, there is another maybe two years of struggle, but that should also loosen up.
I hope you see us better than we see you. Yeah.
Clearly, Europe isn't the only area in the world with geopolitical kind of tensions rising at the moment. You're expanding capacity in India. Is there any other kind of Asian markets you see opportunity you're interested in?
You're talking about India?
Obviously you are expanding capacity in India.
Yeah. Yeah.
Are there any other markets in Asia that you see opportunity and are interested in?
I mean, we talked about our key strategic markets, so we will grow there, of course. India is specific in the terms of that they are extremely Buy Make in India, so you have to be, you have to have sort of local capability in India. There are a couple of countries also in Asia that I find very important to us, sort of apart from Australia, which is not, is not maybe Asia, but. I think we need to think about how do we work more diligently with South Korea? Can we do more in the Philippines? Can we come back and take a bigger position in Thailand? In that area, I think we have something to do, of course.
We have not given up Asian countries, even though we'll have to focus, we will focus a lot about sort of making sure that we capture market potential prospects in Europe going forward. To build capacity, our own local things. We will focus a lot on U.S., U.K., Australia, and Europe, specifically Germany, to set up shop, so to say. India is a specific example where we have to do the same, but in very selective niches. Everyone is asking about, okay, will they do another fighter acquisition programs, and how will that look like in India? I think that's an interesting avenue.
Last time, it was sort of a no-go case when they asked us to build a new Linköping in India, but give up the control of that and the governance of that to sort of an industry player that haven't been involved in defense industry before. That's a risk sort of picture that we will never go into. Now I think we can do that because we can actually control it with a partner in India if they now take the decision to issue the acceptance of necessity decision from political side. The whole process will start. It's a big acquisition. We will try to work that with the right business model if it is issued like that going forward.
I can't think of another country which is sort of, we must sort of, go into that market and build our own capability. I think we have it covered in a rather good way. It will shift a little bit over time, but I can't find another one right now.
Thank you.
Do we have any other questions from the floor currently? Again, the gentleman in the back.
Yeah. Hi, Mikael Laséen, Carnegie. I have a question on the growth target that you presented, a 10% CAGR. So looking at Sweden, it's 40% of your revenue, and you expect to maintain the market share in Sweden. The defense budget until 2027, we know that it looks like it sort of it can support a substantial part of your revenue growth until 2025-2027. So I'm curious if you can sort of elaborate on the international possibilities, and what the core countries can add to the 10% target.
I think they can add a lot. I mean, I think looking at this, as I tried to say earlier, I mean, looking at the European defense market is growing substantially. I mean, as we see it right now. It's taking a while, though. That's why there is sort of a, okay, this period, it will happen a lot. As I've talked about before, it's taking a bit longer from political decisions through defense planning processes, through acquisition processes, and then before we have the contracts. That's frustrating, and I think we agree with sort of the director generals of acquisition authorities that that is a problem. It will come, so to say. We have to get our act together to work more quickly to get sort of things rolling.
I think Germany is a country where we can do much more. It's also of importance because I think in our region now joining NATO, countries like Germany, Poland, the Baltic States, Finland, will be important countries to us, and defense forces will work together, and that will add business to us, of course. There are a few other countries in E.U., of course, where we have good businesses as well. Europe is a fantastically important market to us. In U.K. as well, where we will build factories to actually manufacture radar systems in the U.K., and we will work with Seaeye to penetrate the market of seabed warfare operations that Christian talked about. Europe will add a lot. U.S. is...
I mean, that's more about sort of capturing a little bit more of that incredibly big defense budget of $714 billion or something.
It's over 800, yeah.
Over 800 now, okay. Since last week. It's a huge market. As Erik was explaining, we move into new niches where we don't step on too many toes, that could be a great success to us. That is not just to follow the growth of the budget, it's more to capture pieces of the market. Moving technology from Sweden or elsewhere into the U.S. and building, adapting our technology to new capabilities, or starting from the U.S., we have many avenues there. Then there are a few selected countries in Asia, and then we have Australia, of course, as a market where we grow continuously. We're approaching 1,000 employees now. We have a great relationship with our customer. Lots in the naval business, but also starting to see traction in other areas.
It's not only Sweden adding to our growth perspective, definitely not. The international perspective is incredibly important to us.
Thank you. Can I just ask another question on the top line sort of performance or potential ahead? You have several programs in the backlog, large programs in the backlog, your visibility must be really good, how they will develop and how you will recognize revenue. Can you talk to us about how those will develop over time and if they will sort of grow sort of well below 10% or above, or how we should sort of look at that?
As I tried to show in that slide that was really busy earlier on the major project program slide, is sort of roughly 50% of our backlog. Many of them are moving into a good phase of sort of upgrades rather than big developments and then production that would sort of add to a potential increase in profitability. Of course, support will also do that. There will be new ones coming into these core areas, which is more development-oriented, but the balance is much better. Also on that side of our backlog, we have a better possibility to increase our profitability in this phase going forward, I would say. That's what I can say.
It will be roughly 50% of our backlog going forward, unless we are extremely successful in a certain campaign somewhere, and all of a sudden, that portion will be a little bit bigger of a backlog. You can never sort of predict that exactly, and we're not basing our growth and profitability growth on huge digital sort of campaigns that we must win. That's not the way we have sort of looked up on the forecast. That comes on top of things going forward.
Did that answer your question or?
Yes. Thank you.
Mm-hmm.
Sounds like you're confident in the 10%.
That's why we have it as a target.
Yes.
Sorry.
Okay. I believe that we are running out of time for this part.
We have one last or? It's always good to say one last question.
It's always good to say 1 last. If it's a short question, we have one last question and answer-
You mean a short answer?
Within one minute. Both.
It's Sash Tusa again from Agency Partners. I hope this is a short answer anyway. Just on your capital deployment or actually why you're going to keep a strong balance sheet. I'm surprised that you think that the banking market or the financial market has become more hostile in the last year, 18 months, given that a year ago we had the stupidity of the E.U. taxonomy.
Mm
W hich is limiting your access to capital, and now it seems to be the reverse. Do you just not trust the financial markets to come up with the goods when you need them anymore? Is that a sort of a complete change in your views, or is there something more granular that worries you?
No, no, I, it's actually not that worrying. That doesn't worry me. We have had actually. We have some of them in here today. We have had strong banks, and we have had the Swedish EKN and SEK that has helped us and supported us all along. You see, we can't see anything here. That I think is there in one way. The instability in the overall macro environment and situation, that's what I don't wanna, I mean, there is a risk that we will have higher interest or we will have difficulties in credit markets in general rather than it will be specifically towards defense. That's more what I'm talking about.
I would say a sign would be if countries in E.U. would come together and say that the European Investment Bank also can be supporting capability growth on the defense side in E..U. That has not happened yet.
Mm.
That is still out there. They have a dual use kind of sort of vague, investment policy, but that would be a very good sign of, sort of a stable support going forward.
Yeah. I think we're all only halfway through.
Mm.
All right. It is time to.
Mm
A ll of our speakers. Micael, you will remain on stage for a few closing mark. Thank you to all our speakers today.
Thank you.
I will start, despite a couple of chairs on the stage. First of all, thank you so much for coming here today and sharing this capital market day with us. I think, some of you took notes from the last one and been enlightening us about what we actually said then. It was a long time ago. I think I hope you've gotten some sort of good insights in how we see the future of the company and that we are on a growth journey together.
I just want to thank all my fantastic employees also that every day commits to delivering to our customers and during difficult times during the pandemic, but also now during a growth phase, puts a lot of effort in supporting our growth of the company. That's so important to us. I hope we have given you a good view of why we're going to grow going forward, and also that that is very much connected to our market focus and our key markets that we discussed today and the multi-domestic approach that we have that is serving us well. We have so many opportunities in all these countries, not only in Sweden, of course, even though that is an important country to us also.
We're doing well also when it comes to building capacity in terms of resources, competent people in the company and also in when it comes to infrastructure and the supply chain issues. This is, as Christian said, we have to be paranoid about this every day to actually make it happen, because this is not a walk in the park. This is a fight every day. Meanwhile, it's actually one of the most important things on the agenda of the corporate management in this company is to make sure that we deliver, of course, from the backlog, and we continue to capture market opportunities, but we have to think about the future also. That's why we had a portion of this day associated with what initiatives are we looking into.
It will be manned, unmanned teaming. It will be connected systems. It will be huge crunching of information using AI, with all the technologies that we are not developing, but we have to embrace them and adapt them to make them and convert them into capabilities. To put lots of effort into that is in the backbone of this company, even though we have a lot to do. These are opportunities, these are challenges, of course, but mainly a fantastic possibility to grow the company. Independently, which I really hope that the tragic war in Ukraine will have a stop somehow, I don't know how. I think the wake-up call that we've seen in so many countries will continue.
I can't see the countries will not put effort into having a resilient society and a threshold for bad things happening going forward in all aspects, looking at the total defense perspective. We will continue to work all the things that we described to you today. We've given new targets. It will be about scale, efficiency, of course, and also creating new fantastic things. We will continue to generate cash into the company. I feel that the risk situation for this company is now limited, and we have a good foundation for good growth and doing good, great things going forward. Thank you today, for today and for all your questions. It was great to have a capital market day again, and I hope, and I will...
I can promise it won't take five years again, absolutely, until the next time. We will end this session with a short film, and then we invite you, of course, to lunch. I think it's the same way this way out to a mingling lunch. Let's continue the discussion behind stage, so to say. Thank you so much.