Saab AB (publ) (SAABB) Earnings Call Transcript & Summary

Good morning, and welcome to Saab Submarine Seminar. I'm Lars Tossman, Head of Business Area Kockums. Today, we are going to give you an insight in the Saab's submarine business. Saab, as many of you know, has a long history. Saab was created 1937, and the main purpose at that time was creating the capability to develop and produce fighter aircraft. Today, Saab have, by growing organically and by acquisition, become the company we are today with world-class products in all 3 domain: air, land and sea. But today, we are going to focus on the submarine side of Saab. It will not be a technical, detailed presentations. It will be a more overall insights of the journey we have done since 2014 when we bought Kockums back to where we are today and what -- in what field and products we are working with. The program looks like this. I'm going to give you an overview, and then I have the pleasure to welcome Rear Admiral Ewa Skoog-Haslum, Chief of the Royal Swedish Navy, on to the stage. And I'm honored that she had accepted our invitation. Thank you for that. We're also going to go to Karlskrona, where my Head of Production, Helena Lönegård, is going to show you how a modern shipyard looks like today. We're also going to get a market outlook by my Chief Marketing Officer, Lars Brännström. And finally, we will end up with a Q&A session, headed by Ann Wolgers, our Saab Press Officer. [Operator Instructions] So with that, let's kick off. As I said, Lars Tossman is my name. I was appointed to be Head of Kockums 1st of February this year. But I have a long history within Saab. I've been with Saab for more than 30 years. I have been working with the fighter aircraft, the civil aircraft, the missile part of Saab, where we, amongst other products, have the underwater torpedoes. I have also worked with the sensor side of Saab. Previous to this job, I was heading Saab's radar business in Gothenburg, where we have all the radar for all domains. And there, we also have one of Saab's absolutely flagship products, the GlobalEye, the world's most advanced airborne early warning aircraft on this planet. So I have a long history within Saab. But from 1st of February, I'm heading Kockums. It was fascinating to come to Kockums to see all the proud people there, the journey that has been taken on since 2014. But the history go much further back. Kockums have designed and produced 7 classes of submarines. We have produced 70 submarines over the years. So it's a long, proud history. And those submarines are today operating in Singapore, Australia, and of course, in Sweden. And I'm impressed, the journey that has been taking place here, where we have recreated the shipyard. We have invested heavily in the most modern technology to develop advanced submarines with model-based design, fully digital models and the shipyard that you're going to visit later on to see that. So we today have a world-class shipyard with full development capability. Impressive to see. And we have, of course, been evolutionary, developing the submarines over the years. And we constantly develop the technology, and we do that by using different method. We have something we call in Sweden the triple helix: that is the academia together with armed forces and together with industry. We are working on extremely low TRL levels to high TRL levels to bring in new technology but also using the different products we have in the underwater domain within Saab. We have, as mentioned before, we have torpedoes within Saab. We develop, produce torpedoes heavyweight. We just launched new lightweight torpedo, lightweight torpedo 47 to Sweden. We have sensors, passive/active sensors within Saab. We have command and control system. So we have different part of underwater products that constantly are developed by parts of Saab that we, of course, use in the submarine domain. So that's the way we keep -- so we are relevant and can always offer the most modern, the most advanced submarine in the world. Then the question is, what are you using a submarine to? A lot of people have an old-fashioned view of a submarine. They've probably seen a lot of these old war movies, where you see an old submarine shooting a torpedo and sinking a ship. So therefore, it's my pleasure to invite our Chief of Royal Swedish Navy, Rear Admiral Ewa Skoog-Haslum, on stage and give us an insight how is a modern submarine used. So please, welcome.

Thank you very much for the invitation to be here and explore a little bit about how we are conducting our operations with submarines. Submarine and -- Sweden has more than 110-year long experience in building submarines. New designs are developed from previous ones, and existing boats are constantly updated and modified to increase safety, utility and to keep the technical development. Designing and manufacturing submarines is expensive, especially in small series, but operational value for Sweden to have a domestic submarine production has proven to outweigh the costs. Our submarines are optimized for our requirements and are, at the same time, easily modified to meet other and changing needs. In 1996, the Gotland class was launched with extraordinarily low signatures in many aspects, such as noise, target strength, magnetism, radar detection and heat, all in an effort to avoid detection. This was proven in San Diego during 2005, 2007 when Gotland participated in exercises and repeatedly remain undetected. Now after the midlife upgrade, the Gotland class is improved with some of the features that are designed for the Blekinge class, and the gap to the next generation is thereby narrowed. Some parts of the future are already present on the Gotland class, but even more will come within a few years with the Blekinge class. Multipurpose portal, modern optronic mast, improved IT security for cyber defense and new Stirling engine modules and an augmented sensor suite are some of the improvements, all to serve the purpose of defending Sweden and Swedish interests, our freedom and our right to live the way we choose. Submarines can be used to control a large area of water covertly with sensors that are passive and undetectable to a possible enemy. This can be used as a safeguard in peace time, act as a threshold of intense -- in times of tension and for denying the enemy in times of war. The submarine is immune to even the most adept forms of detection, carrying with it a highly potent weapons load, advanced sensors and other equipments. Modern submarines are also furbished with new technology, making them even more versatile. The modern conventional submarine may be on patrol for extended periods of time. The use of the Stirling AIP in Swedish submarines gives them the ability to stay submerged and silent for weeks. This fact, in making ASW, anti-submarine warfare, difficult, especially in the Baltic Sea with its thermal and saline layering, the stealth of submarines also allows them to operate at low political risk and with deniability. The size of Swedish submarines makes them ideal for the confined waters of this extreme littorals. They can naturally be used in blue waters, as has been proven in the past, but the design is optimized for coastal operations and defense of the territory. This is an area where bigger nuclear submarines have limited capabilities and consider it to be very risky to operate due to the confined waters and the risk of detection from possible sensors as well as the risk of losing an extremely costly asset. An opponent who suspects that he will encounter submarines will constantly have to consider this and include this in his risk assessment. This is, therefore, one of the major utilities -- this is one of the major utilities with submarines. The risk of facing submarine forces -- the risk of facing submarines forces the opponent to either accept extreme risk or to try and mitigate the potential threat by diverting substantial assets to try and counter the submarine threat. This is part of the equation that makes submarines cost-effective. The other part is the versatility of the modern submarine. Technical advances have allowed development of our tactics and a broader spectrum of missions. The added technology in the Blekinge-class submarines, for instance, with a flexible payload lock, proves this. The lock is a huge torpedo tube-shaped portal in the bow of the submarine. It is, amongst other things, intended for both operators and equipment as well as for the operation of larger, more capable unmanned underwater vehicles. This modularity is an important concept in Swedish submarine design. The added feature allows the submarine to be utilized in a number of capacities in between the covert gathering of intelligence through the use of its advanced sensors and the firing of torpedoes. This new possibility of deploying special operation forces or other payloads has effectively changed the previous way of using submarines as a warship, which either listens or fire torpedoes with few options in between. This, in combination with important advances made in other areas, will make the A26 as a fully integrated part in the overall maritime operations. The use of the submarine organic unmanned underwater vehicles can significantly enhance the military utility and the versatility of the submarine, if measures are taken to minimize the inherent risks and weaknesses. These vehicles can provide unique capabilities to a low cost with a low risk. Combining these capabilities with the ones already incorporated in the submarine design, such as deployment of special operation forces and equipment, stealth and modern sensors within a small conventional submarine, could have the potential to begin a new era in submarine warfare. Thank you.

Thank you so much. I hope you had a much deeper insight in how powerful tool a submarine is in defending a country. It's fascinating to hear from an operational perspective what role a submarine plays. And with that, I'm going to give you a quick update on programs that we are working with currently. We are -- apart from submarine, the below-surface, we also work with product above-surface. We use the same competencies to work with both. And of course, that's good that we can offer the market both ships of different kinds and submarines. But also, it's from an operational -- company operation perspective, we can have a better balance with having both. From time to time, it's more of surface ships contracts that we have and other big contracts in the submarine side. And that varies over time. So it's very good to have that balance all the time. But we also work with both, of course, offer new vessels that we design and produce, and we also have the enhanced capability. Platforms last for 20, 30, 40 years. It's important from an end user perspective to being able to always have them modern with the latest technology. The new sensor technology, as you all know, moves fast. So we offer our customers that we can then increase the capability by upgrading constantly or whenever they choose to. So those are the fields we are in. And the programs we are currently working on is on the above surface. We are, for the time being, now developing, producing signal intelligence ships for Sweden. We are producing and delivering Combat Boat 90. We are just finalizing the upgrade of the Gävle-class corvettes, a major upgrade of those that will keep them modern for a very long time to come. And below surface, we are also just finishing upgrading the Gotland class, as we heard Chief Navy said that the capability we bring into the Gotland class, the pressure hull that are a bit 20-plus years old. But with the upgrade, major upgrade, where we are using some of the technology that we take from the -- have developed from the Blekinge class, the A26 submarines, is now introduced into the Gotland-class submarines. That made the Gotland-class submarines one of the world's most modern conventional submarine operating today. And of course, we are working on the Blekinge class, the A26 submarine. A contract that we got 2015, it's a bit longer submarine. That means that you can operate it on a longer -- being out a longer time. You can be in any water. You can be all over the world with it. And also, as you heard our Chief Navy mentioned, we bring in a lot of new technology. It was mentioned the multi-mission portal where you can release and retrieve special forces, for instance, but also different kinds of manned or unmanned equipment. It's a unique solution we have done with this submarine that we are first in the world. But also mentioned the optronic masts and all the capability and advantage that gives from that perspective. But it also gives us the flexibility to optimize how we design the interior within the submarine so we can be even more efficient. The crew could be even more efficient because that gives us another design flexibility with that technical solution. So that's just a small part of the new technology we bring into this submarine. It's been a long journey since 2014 to be able to rebuild this capability. As I said, the submarine are now ramping up in production. So therefore, I would like to welcome my Head of Production, Helena Lönegård, here up on the stage. And I would like Helena to take us to Karlskrona to show us what a modern shipyard looks like today. But before you do that, how many people do we have helping us?

In Karlskrona, we are around 800 proud shipbuilders. And in all, total, we are around 1,000 people with the other BAs included. We have both production, of course, but also development. But most of the engineering power, we have in Malmö. And there, we have another 600 employees.

Thank you, Helena. Please take us to Karlskrona.

Yes. Let's go to Karlskrona. [Presentation]

Thank you, Helena. Fantastic to see. It makes my heart warm. You said we are almost -- the makeover is almost completed. What remains to be done then?

The reshape of the shipyard will be finalized during this year. We have some installation left in our hull hall, and that will give us reduced energy consumption, better work environment, and we will support the quality assurance in a better way.

Thank you so much, Helena. Thank you.

Thank you.

It's -- I hope you realize this is more or less a space shuttle that is used under the water. It's extremely advanced technology that is used, and it's not more than a handful companies and nations around the world that have this capability to develop and produce these advanced products. So it's fantastic. So with that, let's move on to have a market outlook and see what -- how does the market out there look like and maybe dig deeper into some of the campaigns. So with that, I would like to welcome up to stage Lars Brännström, my Chief Marketing Officer, that's going to give us an insight on the export market. Welcome, Lars.

So ladies and gentlemen, well, first of all, in times of these when travel is somewhat challenging, I am glad that Saab took a strategic decision a number of years ago to establish market areas and more of local operations. This has meant that Saab, in these days, we are present in some 35 countries over the world. And that, in combination with how we have developed our digital platforms, we are able to maintain a close customer dialogue. The purpose of my presentation today is to give an insight in what the submarine market for conventional submarines look like. And I will also, short and brief, talk a bit about what we are doing in the publicly known campaigns. First, our position. The work that we have been doing and the capability that we have built over the past years, together with the products that we develop, put us in a strong position with great opportunities. Linking back to what the Chief of Swedish Navy said in the excellent presentation, a modern, capable, conventional submarine is a high-value asset and a true force multiplier. We have in Sweden, not least, together with the Swedish Defence Materiel Administration, with academia, and we -- of course, with the Swedish Navy, been able to develop submarines for more than 100 years, with the most important development, of course, going on in the past few years. We have been living with a demanding customer. They are demanding because of the demanding environment that they operate in. And this, together with our thinking edge and our determination, has put us in a very strong position. The submarine market -- finally, the conventional submarine market. There are today about 300 different submarines operated over the globe. They range from somewhere between 1,000, 1,500 tonnes up to 4,000 tonnes. And these are segments where the products that we have in the portfolio today, ranging from the pelagic up to the extended range submarines, fit very well. And we recognize that about 2/3 of the submarines, i.e., 200 of those, are more than 20 years old. That mean that they will be subject to either replacement or upgrade in the coming years. If we look at the geographic spread or where those submarines are located, we can see that there are some markets that are truly interesting to us. And in particular, of course, Europe, very important to us, but also Asia, South America and -- well, North America. There are, apart from the replacement and the upgrades, a lot of unstability in the world today, which has also led us to recognize that navies that do not have submarine capability today are talking to us about gaining submarine capability. And of course, very interesting. I will say a few words, as I said, about some of the campaigns that we are working in. And first of all, well-known, the Walrus replacement program in Netherlands. Netherlands, a nation that has a real strong submarine heritage, where we are active since a number of years ago, together with our partner, Damen, who is also a proud shipbuilder, they are in Netherlands, but they are also active on the global market and with global operations. We are very proud to be 1 of the 3 down selected remaining contenders in this. And the product offer that we have together with Damen, we think, will fit the Navy very well. We are offering a product that is a spin-off from the A19 and the A26. It is yet larger in size and with some added capabilities to make sure that it will really fit the customer requirements. In the project, Saab will lead the design. We will, of course, work with Damen in the design work, and we will both make sure that we make use of the different investments that we have made. That means that we will produce in Sweden, in Karlskrona. We will also produce in Netherlands, and we will assemble in Netherlands. We also have the capability to offer more of local content through working with Dutch industries. The next I would like to mention is Poland. Also very interesting, and I must say that we are very proud that Poland selected Sweden to supply submarines, to sustain the submarine capability in Poland. This is a government-to-government program, which means that Saab is today actively working with the Swedish authorities to ensure that we can supply products that will fit the requirement of the Polish Navy and their expectations. It's also easy to recognize that we share a common interest in the Baltic Sea, and we also share the experience between our nations to operate in the Baltic Sea with submarines. The submarines that we are offering, they are of the Södermanland class. They are developed and produced by Kockums. Make no mistakes, these are short [ knives ] already as it is. They are air-independent propulsion submarines. They will be given added capabilities. They will be given new functionality that we can base on what Saab have in the naval portfolio, and also, of course, with the experience of what we have done in the Gotland midlife upgrade program. So to summarize this, the geopolitical development calls for ways of securing free and open seas. And again, referring back to the Chief of the Swedish Navy, submarines are unique and important valuable assets to achieve that. So what can I say? Get yours now. With that said, thank you, and over to Lars.

Thank you, Lars. Good overview on how the world out there, export market, look like. And with this, I hope you have got an insight of how our journey has looked from 2014, when we acquired back the Kockums facility, and what we have done, what we have achieved, and that we have now again have a world-class capability here in Sweden that could provide the Swedish Navy, but all navies around the world, with the most modern solutions. And also that you have a much greater insight what a submarine is used for and how powerful that tool is. So this then concludes this part of the seminar. And then we move over to the Q&A session. And I would like to welcome up Ann Wolgers, Saab's Press Officer. Welcome, Ann.

Thank you, Lars Tossman. I would like to especially thank the Rear Admiral, Ewa Skoog-Haslum, for joining us today. We're very honored. We have received a lot of questions from our website. We have viewers from all over the world, ranging from Australia to Poland, Germany, and of course, a big crowd in Sweden. So now the first question that has come in, I will direct to the Rear Admiral, Ewa Skoog-Haslum. And the question is, last week, Sweden stepped up its military readiness. And the Armed Forces said it was due to increased military activities in the region. Now can you give us some more information on this operation that you conducted? And which parts of the Armed Forces were involved in that operation?

Of course, it was an operation for the whole Armed Forces. And the Navy, the whole Navy, with both warships, naval assets and the marines, were engaged in this operation. And I must say that for the Navy, it's not that very big issue because we normally have a very high readiness. So this time, we went at sea with a little bit more assets and a little bit more of the marine soldiers on Gotland. So this was a sea surveillance operation, as normally we do every day, 20 hours per day.

And the Navy, did you cooperate with the other branches in the Armed Forces?

Yes, of course. So we both had cooperation together with the whole Armed Forces and organizations in Sweden, of course. And of course, also the other countries, as we always have.

Thank you. So now the next question -- actually, there are several questions touching the same subject. And I want to direct this one to Lars Tossman. So now what is the status of the A26?

A26 is a huge, of course, development program, a contract that we got 2015. It has been intense development phase of developing and designing the submarine. And we are now in a transfer from designing, developing into ramping up the production. And therefore, we saw the site in Karlskrona where we are just right now ramping up the production. So that's where we are in the program.

You entered into a new phase, a production phase.

Yes. And it's a sort of transition move from more intense development to more intense production.

Thank you, Lars Tossman. Well, the questions, they keep on pouring in. The next question, I received from France from the bulletin. And this is a question for both Lars Tossman, and I would say, Lars Brännström. What are the next steps in the Walrus class replacement program? What work has been done in the bid progress? And when do you expect a decision? Lars?

Yes, absolutely. Well, we are working together, of course, with our partner in Netherlands in the process, and we are soon to enter into a dialogue phase. I will not comment on the exact dates of which activities that will take place. But it's going forward, and it's going well.

Yes. And Saab was down selected last December, right?

Yes.

Together with...

TKMS and Naval Group.

That's right.

And to add to that, a procurement of such -- such a huge procurement like a submarine program is -- it takes some time. And of course, the situation with the pandemia has also had an impact on the time schedule, I would say. But it's -- we are working hard. And hopefully, it gets going.

It gets going. Good news. Now, Helena Lönegård, I have some questions from a Swedish viewer to you. In the film, we saw that now, as the transformation of the shipyard into a very modern shipyard is completed, what is your focus for the upcoming years, for the years to come, let's say, the nearest 5 years?

Yes. Now we are in a heavy production phase. So of course, it will be quality and delivery that will be focus areas, but also continuous improvement with all the new equipments that we have and processes.

Interesting to hear. I will continue with the questions here. Now here's a question for the Rear Admiral Ewa Skoog-Haslum. Now the HMS Gotland is returned back into service after her midlife upgrade in Saab shipyard in Karlskrona. Can you give us some feedback? Are you happy? Is your crew happy?

Of course. I must admit, I must be honest to say that we were quite frustrated over the delays. But now when we have -- it has returned back to the Navy, operational-wise, we are more than happy. We can say that this is a stepping stone. We are achieving so much benefits that we can actually explore into the A26 as well. So this is a kind of paradigm shift we have now actually received. And we were not expected it to be that good, I must say. So we are more than happy, yes.

How many submarines is there in the Gotland class?

There are 2 that will be now upgraded -- have the midlife upgrade, Gotland and Uppland.

Right. Gotland and Uppland, thank you. Getting back to you there, Lars Tossman. Enhancing capabilities during these midlife upgrades on existing vessels, that is an important part of Saab's business. But how big is that market worldwide?