Saab AB (publ) ($SAABB)

Good morning, everyone, and welcome to the presentation for Saab's report for the first quarter of 2026. My name is Johan Andersson, responsible for the Investor Relations, and I will be the moderator here today. Here in Stockholm, I have our CEO, Micael Johansson; and our CFO, Anna Wijkander, Micael and Anna will present the report. And thereafter, we will have a Q&A session. [Operator Instructions] So with that, a warm welcome, and I'll hand over to you, Micael.

Thank you, Johan. And also from my side, most warm welcome to this quarter 1 report. Let's jump right into some highlights. I think we can conclude that we have started this year in a very strong way, substantial organic growth, 23.6% and also creating scale gives us a good profitability. Good cash flow and still very intensive in the market. The momentum is very high in the market. So we have many avenues and the order intake, as you see, is in par with the quarter 1 last year. So a strong quarter. A couple of sort of examples of important things that happen, and I will come back to deliveries and stuff like that. But the contract from Sweden on the counter U.S. system called [ Gut ] is very important. We have created an agnostic sort of very flexible counter U.S. system, and that I will get a little bit into that later very big event that happened this quarter is, of course, the delivery of the first Gripen E from the Brazilian facilities, the factories in [ Gavia ] for short, which got lots of interest from the Brazilian side and they are really proud of having this sovereign capability now in country. And it's good for us as well, having a hub, so we can ramp up the capacity, of course, in terms of Gripen deliveries. We also see that looking at the growth that our investments in production capacity comes into play. We have still a lot to do on that side, but we have now a couple of production lines that have opened in Sweden to support the Dynamics business specifically. And that's very important to us since we have a substantial backlog, as you know. And then, of course, the restructuring that we've done 1st of April of creating a new business area called Naval including our Naval Combat Systems together with the former Saab Kockums business is a very important step to establish a whole offer in the market when it comes to combat system integration, design capability of surface ships, but also creating the systems of systems capabilities, unmanned teaming on the Naval side. More specifically on the numbers, as I said, the order intake and the momentum is good. We increased the medium-sized orders with 28%, almost a book-to-bill of 1.95 and of course, a certain quarter, you can't sort of look at a specific sort of order intake volume since we have digital large contracts being negotiated, you never know when they actually will happen in which quarter, but this is good from a foundation perspective, small and medium-sized orders. And the growth was excellent organically, SEK 19.2 billion. growth in all business areas, double-digit numbers. And specifically, Surveillance had a very good quarter in terms of growth. Also, the EBIT growth is 32% SEK 1.9 billion in numbers. And that is, of course, an effect of the increased top line creating scale effects and giving us a 10% margin, which is excellent. And also a good quarter when it comes to the first quarter, looking at the cash flow -- operational cash flow of SEK 1 billion which is about, of course, deliveries and payments from the customers. And that is, of course, something that we always look into diligently that we -- and we've guided to a positive cash flow also going forward, of course. So that's where we are after the first quarter. And then I'll give you a few comments on each business area. And the growth in Aeronautics is, of course, much from the Gripen program, where we have lots of intensity and also deliveries ramping up. And then we had this fantastic event in Brazil now. So we have 2 factories that can actually deliver Gripen aircraft. And that will also, of course, be good relationship increase between Brazil and Sweden when it comes to further development of the Gripen E, which is the aircraft is incrementally possible to develop through software and so forth. It's not only about production. Then we have a couple of contracts on the T-7, the lot 3 and 4 of the T-7, which increased the backlog, of course, but we still have burden of the sort of the burden of not having the production ramping up quickly enough. And as I've said before, this will take a couple of years before we actually get to the right numbers, but many hundreds of aircraft are in play for this. And in the end, there will be probably a couple of thousand aircraft. So this will be a good program, but it's a bit of a fight to get this fantastic facility, delivering more aircraft out of the facility, but they are delivering now at least. And then, of course, we've launched the Gripen Colombian program, which is very important to us, which we did win them in December last year. Dynamics, excellent demand in the market, 1.2 book to bill. It's a good order intake and good growth as well and the mix of combat, ground combat orders and missile systems orders. But remember, Dynamics is support weapons, it's midsize, is training and simulation, is also camouflage nets, signature management, which is a good mix of things. So all the parts in Dynamics are doing really well. And deliveries are important. And here, we have the production facilities, a couple of them in Sweden, sort of now up and running in the Karlskoga area, which is really good to us. And also, I must say that the profitability is, of course, excellent in the quarter as well, which Anna will go into more detail about later. Surveillance, very strong demand in the market across the whole portfolio. We have a pipeline of discussions on the GlobalEye with the different countries. And I think that has potential going forward and also, of course, the ramp-up on the sensors side. And I want to highlight specifically the Giraffe 1X, where we talked about that we actually manufacture these sensor systems on a bit of speculation rather than only on contracts, and that's good for us because we've been able to deliver a number of systems to the Middle East countries that needs to find and detect all the missiles and the drones coming in. over the territory. So that's good for us. And we will now aim for ramping up that production to over 300 a year. So that's a good sort of a volume business on the sensor side. And then, of course, this counter U.S. system that Sweden contracted us with is a big initial contract, an important one, which will I think that the area will develop into also not only being military applications, but also protecting critical infrastructure in the total defense perspective going forward. And as you can see, the growth in surveillance was excellent over 30%. And a couple of comments then. This is actually the counter U.S. system is a very modular system in terms of the vehicles, the sensors to come on and control and also then agnostic when it comes to which actually affected the use. But it is a sensor to shoot system which we put together in a very short time since we had the different products and components of it and integrated it to be operational extremely quickly. And that is the key. We can do this with existing things that we have to provide things that will make a change in the deterrence and the defense very quickly. And we continue then to adapt different type of factors going forward, either it's the 40-millimeter from [ both force ], from BIE [ both force ] or whether it's the track fire with a 30-millimeter cannon or whether it will be the [ NIM bricks ] going forward. So this is important to be flexible on the effector side, and it's proven very effective. When we come to Saab Kockums, which will be the last time I say Saab Kockums, because this now will be a new business area name Naval going forward, but this is the last quarter we reported like this. And they also had good growth. And we are, of course, in intensive discussions with Poland on the submarine program, and we hope to finalize that, of course, in the next quarter, but I can't promise exactly when, but it's intensive discussions and according to plan. Also on the Polish side, there was a new -- the next SIGINT ship was launched in January, a very important program to us, of course, and also good security politics collaboration thing between Sweden and Poland. And then we have now a more consolidated business area going forward, offering a combination of naval capabilities and also being able to do the combat system integration between all the components in the same area and offering that in a different way, which I think will be very good for the business going forward. Combitech is also doing really well. Good order momentum. And of course, it is the total defense perspective and how much we have to do in terms of creating better deterrents and processes in different parts of the Swedish society that drives growth, but also the military side and the contracts we get from the [ Defense Material Administration ]. So this is excellent performance growth of 16% with good profitability. And of course, it's all about getting sort of the competence and the skills in the organization growing, which has gone really well to grow this business. So I'm really pleased with this. On the sustainability side, a couple of important things happened, of course, during the quarter as well. We have done now compliance sustainability statement report in our year-end report and the annual report, I mean, for '25, completely in compliance with the requirement stand at [ CRST ] requirements. And that has all the details about the metrics, the targets and what have you, if you want to dive into that. And then we looked into a life cycle assessment when it comes to our Giraffe 1X because I mean, okay, we can have control over the scope 1 and 2, but Scope 3 is also very important to how you use the system. And we have concluded and we are in discussions with end users that if they do go from supporting the system from a diesel sort of fuel perspective or going to electrical power or a biofuel type of setup, you would sort of gain a lot when it comes to emissions, of course, and that is what we are pushing now. And this system can be connected to any normal 220-volt sort of outlet. So it's really flexible in that side. So we've done something that is prepared to do a big effect on sustainability if the end customers choose to use it that way. And then, of course, we're looking into how we -- when we get volumes in production like in Dynamics, of course, how we use the packaging and how we reuse materials for that and not sort of wasting that adds lots of savings on the emissions, but also cost, of course, for us. So we're changing that. If you look at the quarter sort of emission perspective, we had an increase due to more flight tests compared to the last quarter last year and we have more business travel also because of the intensity in the market, but it's also a period of cold temperatures. So looking at all the sites, of course, in the new sites comes into play, you get a slightly higher footprint but we are on the right track towards our targets. We are 36% down when it comes to the reference year 2020 when it comes to emissions towards our target. So we're doing well on that side. So with that, I will hand over to the details, and then I will walk you through a little bit more on the financial results.

Thank you, Micael, and good morning from my side as well. It is clear that we have started the year with a strong first quarter, and I will soon go into the details of the financials. But before doing that, I think it's good to look at some trend and what we have achieved so far. So over the recent years, we have achieved strong sales growth, and that is supported by our leading offering and the trust from our customers. And consistent with our profitable growth strategy, we have scaled our operations, we have expanded our capacity, and we have continued to deliver on our customer commitments. On top of this, we also have a healthy backlog that -- and we are continuously working on efficiency, which will support our performance going forward. So looking at how the trend has developed after this first quarter 2026, we have now delivered an organic sales CAGR of 24% so far in our medium-term target period. And important to note here is that we have had double-digit sales growth in all our business areas. We have also continued to deliver profitable growth and that has shown that we are driving our operating cost leverage and our EBIT growth is more than our sales growth. So it's now 33% for this period. And to note here, it's also important to say that we have increased our spendings in R&D to be able to be relevant, to have future capabilities in our portfolio. So with that, we are progressing well towards our medium-term targets. With that then, now let's take a closer look at the quarter. The EBIT increased by 32%, largely driven by the sales growth and leverage on operating expenses. We can see that marketing expenses are flat compared to last year, and the administrative expenses are slightly lower and we continue to ramp up the R&D efforts as planned. So all in all, we have an operating margin of 10% compared to 9.2% last year. Aeronautics. Here, we had good sales growth of around 15%. However, we can see that the margins decline, and that is due to somewhat increased R&D amortization and we also have a negative currency effect impacting. Also, as Micael said, the T-7 program has still challenged with profitability and ramp-up, but we have good order intake here in the quarter, but that is impacting the EBIT margin negative in Aeronautics. In Dynamics, we continue to expand capacity and to deliver on our backlog, and we have a favorable mix this quarter, together with the sales growth and that drives the EBIT growth to 38% growth this quarter and an EBIT margin of 17.5%. As always, when we talk about Dynamics, it's important to remember that the EBIT margin varies between the quarter depending on mix and what the deliveries we have. Surveillance also had a very strong quarter with good progress across all business. And one good example of that where we had a particularly good performance was in the Surface Sensor area with several deliveries. So overall sales grew by 32% and the EBIT growth 52%, and that is driven by the mix and also the leverage in operating costs. And Kockums also growing. But here, we can see an impact of the high activities that we have in the marketing area with the campaigns ongoing, for instance, in Poland. So here, the marketing cost has increased compared year-over-year. So that is why we have a small decline in EBIT this quarter. Not visible here in the slide, but worth mentioning is also Combitech that has also a good development and high activity through their increased number of consultants and they have an operating margin of 11.3% this quarter. And also within Corporate, we have improvements compared to last year in our small Skeldar business and also in the minority portfolio, which improves the margin in Corporate. As you already know, we have established a new business area from 1st of April, the business area Naval. The purpose is to consolidate and to strengthen our total naval offerings to deliver greater value to our customers. And from the second quarter, Q2, we will report financially in this new structure. And you find more details on our website, and you can also find the restated financials to facilitate your comparison. The key change is that we have moved or transferred the business unit Naval Combat Systems from Surveillance into the business area Naval. It's largely a system integration business driven by projects and historically, they have had around SEK 6 billion per year in sales. And since 2024, they have in average, had an operating margin of 6%. When you look into the details, you will notice that there are 2 quarters in 2025 with significantly lower margins in this business unit. And this is due to the nature of this business. We have -- this is a project mix depending on how the margins is every quarter and also that we had some margin adjustments in a few projects within Naval Combat Systems. But looking ahead, this is a business with future growth, and we see potential for profitability over time. But more details are shown in our home page. Next slide is the income statement for the quarter. And the organic growth was 23.6% reported was 21.4%. Same here this quarter as last quarter, the currency impacting us negatively with 2% points on the sales growth. Gross income is increasing, but margin is flat, and that is due to mix. But if we look at the business areas, we can see that they are improving year-over-year in gross margin. Let's then -- I talked about the EBIT that has improved, but let's then turn to the financial net. Here, we have a difference since last year because we are now increased the application of hedge accounting to also include derivatives that hedge currency in the tender portfolio. So from now on, you will see currency gains and losses from the tender portfolio in the other comprehensive income and not in the financial net. So with that, we will have less fluctuation in the financial net going forward. Important to note here is that we have not changed our hedging principles. It's just that we have changed the application of how we use hedge accounting. Finally, we have growth in our EPS, driven by the EBIT growth and also the net income is growing this quarter. Turning into cash flow. We had a strong cash flow from operation of SEK 2.8 billion this quarter. Main contribution came from Surveillance and Dynamics and the largest reason for that is several customer payments, but a bit offset by inventory buildup, and that is also what's impacting the change in working capital. The investments increased compared to last year, which is totally according to our plan, and they were up from SEK 1.6 billion to SEK 2 billion this year. And we now have an operational cash flow of SEK 1 billion after this quarter. The free cash flow is impacted by higher tax -- we have higher supplementary tax related to income taxes paid for 2025. So that's the main reason why that is negative SEK 1.3 billion and the free cash flow slightly negative of minus SEK 300 million. All in all, we have an improvement also return on capital employed, driven by our improved profitability, but also on our improved capital turnover. So it's now above 16%. And the cash conversion is 53% after this quarter, so progressing well towards our medium-term target to have a cash conversion above 60%. The net liquidity position and balance sheet is still strong. We have a net liquidity of SEK 4 billion, almost unchanged since last quarter. Cash and liquid investments amounted to SEK 18.1 billion. And in addition, we have an unutilized revolving credit facility of SEK 6 billion. Let's turn to the future and our order backlog. Over time, we have built a solid order backlog, which is currently SEK 274 billion. And this, of course, position us for a good position for long-term growth. Compared to last year, we are in a better position and have strengthened the backlog for all years ahead. In particular, for the remaining 9 months here, the backlog has increased 28% compared to where we were last year. And for the next year, it has increased by 56% compared to last year. Also to note in the backlog is that we have a good balance between our business areas. Aeronautics has now increased their shares. So they are around 30% and then its Dynamics and surveillance, which add up to most of the backlog and the international orders is around 72% of this backlog. So all in all, this underpins a good position to support for future growth going forward. And then finally, before ending my presentation, let's just remind us about our medium-term target. We are going to deliver around 22% sales CAGR for the period '23 to '27. We will have an EBIT growth that is higher than organic sales growth and the cash conversion of more than 60% during this period. So thank you very much. And with that, I hand over to you, Johan, to open up the Q&A.

Thank you very much Anna and Micael. So let's open up and start the Q&A session. And please, operator, do we have any questions over the telephone conference?

[Operator Instructions] The first question comes from the line of Yassin Moktadir, UBS.

Firstly, can I start with Aeronautics. So you cited several ongoing Gripen campaigns. Could you talk us through those and your confidence around winning potential orders there? And then within surveillance on GlobalEye, you also mentioned some discussions that you're having -- and have been seeing kind of increasing press releases or articles around E-3 replacement? Is there any further development there too?

Okay. Thank you for that question. On the Gripen side, of course, I mentioned we're still in discussions with Canada, which is, of course, about the decision on sovereignty in the Canadian industry and how we would do a tech transfer and setting up a hub and all that, but it would also mean sort of a potential contract with Canada. Hard to say exactly when that sort of decision will be taken. It's a valuation ongoing, as you know, and it's probably on Prime Minister level to sort of go either way, so it's hard to predict. But it's intensive, we have discussions all the time with them. . Then, of course, since we had the President Zelensky in Sweden last year, agreeing with [ Christos ] that they will go for the Gripen. We are in discussions with Ukraine to move that forward. Those are 2 potential big ones, of course, but to say exactly sort of confidence level and exactly when that can happen is difficult, of course. It's always political but we're moving ahead on those 2. There is an interest from Portugal and some other sort of earlier campaigns. But -- so there is an interest. We have a ramp-up of capacity ongoing. We're going to deliver more aircraft, many more to both Sweden and Brazil and then Colombia and Thailand. So lots of intensity in that area. On the GlobalEye side, you know that France contracted us last year. There is an option for another 2 in that contract that we're discussing. And of course, we are -- we have given information to NATO connected to the [ IFSC ] program. Let's see what happens there. That's an opportunity, of course. And then there is an interest from Germany, from Poland. So the are -- there's a pipeline of opportunities in different stages, of course. But I must -- I would say it's a big interest for both platforms right now.

Thank you, Yassin. Please, operator, do we have the next question?

The next question comes from the line of Bjorn Enarson, Danske Bank.

Thank you. Can you hear me?

Yes, absolutely.

Loud and clear.

Sorry for this. But first of all, on -- you touched upon corporate and other items there. I mean you have a solid result overall, but I'd like to argue that a quite big deviation was within Corporate. Can you talk a little bit about that and how we should think about that going forward? And also Dynamics had a good quarter in terms of deliveries, obviously, good for profitability. Can you talk a little bit about how the profile dynamics looks for the year?

Do you want me to start with the Corporate question? I mean in Corporate, there, we have different costs that can vary between quarters. We have some periodization impact. Cost that comes here is -- could also be a shareholding program, which, of course, nothing that we can predict where the share price is going. And then also costs for IT and security, that has more coming up later during the year that we had last year. So I think when you look into the corporate, a good rule of thumb could be to look at the level where we were last year.

For the full year.

For the full year, yes.

Okay. On the dynamic side, I mean, they have a huge backlog, of course. And it's a good sign that they have now good deliveries and investment, as I said, in capacity is coming into play, which is really important to us. There is a good foundation for deliveries going forward. But I would sort of I've said before that they will grow, but we'll not guide on that level, so to say, on the business area level. And we've said that sort of mid-double-digit numbers is still depending on the mix of things within Dynamics. Which contracts, the mix of missiles, support weapons, training and signature management that defines sort of a couple of percentage up and down in each quarter, so to say. But we had a good mix this quarter, but they should be really profitable, which they are. So that's as much as I can say. Better and better foundation for deliveries though on volume side.

And one last question. On the order that you touched upon received in early April, UAS, super interesting. Can you talk a little bit about the market potential number of units or countries or anything you touched upon, but it has a good export potential.

I think counter UAS, if you're having sort of efficient and cost-efficient systems, especially on the effective side and that you can actually be a bit agile when it comes to which one you use, you will have a good market opportunity. Everyone is asking for this kind of systems. So I think there will be a good potential. I don't want to go into numbers, but it's, of course, an export potential. But also in the total defense perspective, we have the house systems protecting critical infrastructure. And that is more of a governance problem, I would say, because it's not that the defense forces can protect every critical infrastructure in a country, it's more about how the country is structured. So there will be quick sort of, I would say, more expedited contracts in certain countries doing that, and it will be a bit store because of regulations in other countries but extremely good potential on this system. We have a very cost-efficient sensor, an excellent command and control, a low footprint. And now we have different versions of [ sectors ], and I look forward to when [ Nimbrics ] come into play because that will be an important reasonably long-range capability with good cost level. So there's more to do here and good potential, absolutely. Sorry, go ahead, if you had...

No, it was just a quick one. When if and when the public saying on when this is going to be operational in Sweden? Quick ramp-up? Or is it...

Yes. I mean a version of it is already operational from the airforce perspective, the deliveries on this one will be in the next year time frame, roughly.

Thank you very much, Bjorn. And let's take 2 questions from the web interface here. One was on -- from an order intake and growth side, do you see any challenges in the market, anything that hampers you when you look at market demand?

I would say no, not really, I see the demand is still high there. And I mean, it's a bit of different sort of investment sort of paces or speed in different countries, depending on where you are. I think the region where we are in Germany, Poland, Baltic states, Nordics, U.K. is moving a bit quicker maybe than other countries, but still good demand in the broader perspective. What is really important, of course, is again, as I've said many times, you have to work diligently with your supply chain at depth, not only sort of the Tier 1s. You have to look into, okay, how resilient are you in the depth of the supply chain. When you come down to component level, material level, how do you make sure you have this in stock or they have it in stock to be able to deliver. And this is something we work really diligently upon to make sure that we have protection. It's not sort of here and now really because we have quite a lot in inventory in stock. But over time, I mean, we have to create more resilience and that's the same thing for all the defense industries and broader than that, actually, when it comes to dependency on China, when it comes to raw material and looking at the data centers and the memory components that now are in huge demand to build up these things, of course, that makes it important to be on your toes and secure deliveries early.

Yes, absolutely. Another question we have is that Anna described that you have grown with 24% now CAGR during the period. Are you investing enough to really support that growth or getting capacity out there in, so to say, in a decent way. What's your opinion there?

I think we are. I think we will continue to invest that much I can say. I mean, we invest on the level of SEK 8 billion to SEK 10 billion a year in increasing capacity, and that continues now and we will adapt that, of course, to when we have everything in place, which we don't have yet. We have facilities in U.S. coming into play this year and in India next year. And we will continue to invest, as we've shown already in the first quarter to make sure that we can handle our backlog, but also the demand in the market. So we are forward-leaning.

Absolutely. Thank you very much. Please, operator, do we have the next question from the telephone conference.

The next question from the phone comes from the line of Henric Hintze, ABG.

This is Henric at ABG. So first of all, I just wanted to ask on the Aeronautics margin here. So it was down year-on-year. And I think even if you exclude the increased R&D amortization, it was still down a bit. At the same time, you're saying that Gripen is ramping while T-7A start-up costs are still impacting negatively. So I'm just wondering how we should think about that margin development. there given those things?

From a generic perspective, I would say that -- I've always said that sort of without the underabsorption and the start-up things we have on the T-7 and the mix of other things. This business has the potential to have sort of high single-digit numbers on the EBIT side. So that's what we're aiming for in the end. Now we had higher amortizations. We had the effects of the T-7. And then we had currency effects at the same time. Nothing sort of major happened elsewhere in the organization, they are ramping up and they are growing. So -- but that's sort of the trend view one should have going forward. So that's what we are aiming for, and we will get there.

Just to add on, on the currency, we had in the quarter comparing quarter Q1 2025, we have a positive currency impact. And this quarter we had a negative. So the effect is double, so to say, bigger.

Okay. So it's mainly the currency impact.

Yes.

Yes. And then now that you mentioned you usually say high single-digit EBIT margin for Aeronautics. Does the move of the Naval Combat System business unit in any way, alter what you have previously said about the margin potentials in Surveillance and Kockums?

Well, we don't really guide on margins like that. But if you look at the mix of the business, of course, that changes a bit. Now the Naval Combat System, which you can actually dig into a bit, has the potential to be higher than the average 6% that we've shown in the slides here over time. It depends a lot on sort of the project setup and whether you have a sort of a couple of problematic projects, which we've had, and we have taken actions now to secure for the future that we don't get into more problems. So it has potential. If you look at what can be done from a business perspective, having both sort of manned platform and unmanned capability in the naval domain connected to a combat management system, that is an offer that has potential to increase the margins going further. And since literally just pure fact is, of course, that if you remove sort of the Naval Combat System business from Surveillance, you automatically get a little bit of a higher margin. Since we've said that it had 6% average since 2024. So that's sort of the effects that we've seen so far. But the business will tell what the Naval business area will go when it comes to margins going forward but it has potential. That's what -- that's why we've done it as well to do more comprehensive business with combat system integration involved.

Okay. Very good. Maybe one final one from me, just on Peru because there's been some news in the past couple of days here about the U.S. saying that Peru has decided to go with the F-16. Have you heard anything concrete from Peru?

I've looked at media the last sort of 24 hours. And if it's true that they have selected F-16, of course, we have to respect that. We still think we have a better cost efficient, better offer, but it's up to Peru to decide which one they want. We're looking into details, of course, to find out more, but I don't know more than that right now.

Thank you very much, Henric. We got another detailed question here in -- from the web chat, and it's about Skeldar. You wrote about that you had good growth in Skeldar and that also you had an improved result from that part. What is Skeldar actually?

Skeldar is a rotary midsized -- not a midsized helicopter but it's a rotary midsize drone, you would say, that can do surveillance or yes, it can actually carry factories as well. And it has had sort of an uplift in terms of contract because it's needed in Ukraine. So it's been part of the packages from Sweden donations to Ukraine. So that was it is. It's a rotary drone, but a little bit bigger size and it's often used in the naval domain from ships to the surveillance and even actually checking what kind of fuel in the commercial market, ships are using because it can sort of what you call it smell the fuel type of that. So it has potential application-wise.

Okay. Good. Thank you. Thanks for the clarification. Operator, do we have any more questions on the telephone?

The next question comes from the line of Tom Guinchard, Pareto Securities.

A question on the, let's say, new Surveillance division without Naval Combat systems. So in terms of mix and margin here on the Giraffe program, you said the 1X is ramping to 300 a year. How much could that contribute to margins? Because my guess is that the smaller systems have tend to have higher margins than the, say, the [ 4As ] is that a correct assumption? Or how should we look at the sort of mix moving forward?

It's very good to have sort of volume on that side. You're absolutely right. It does have good margins, and it is really cost efficient also from the customer side in terms of how capable that sensor is, and that's why the demand is so high. However, it's not -- as I'm trying to allude in the most expensive sensors. So if you look at the portfolio of Surveillance, of course, the GlobalEye business and a more long-range type of sensor capability is, of course, creating high -- sort of high volumes in terms of revenue, but the more sort of G1Xs that we get out of the house and sell. Of course, that helps the margin. No question about it, but how that will balance sort of the other part of the portfolio is a little bit hard to say right now. When you get big contracts on the GlobalEye, that will be dominating also good margins, but maybe not as good as the G1Xs, but it helps that much I can say.

And in terms of R&D here, are you looking at radar systems that are even more long range? Or are you sticking with the sort of existing platforms and building on them?

Well, I mean, we're not in the line of sort of those super big long-range systems, but we do systems up until sort of 500 kilometers on the land-based side, same on the naval side. And then we have the whole portfolio to the G1X, which is 150 to 200 kilometers in terms of range. But -- so that's where we are. And we are investing, of course, in fighter sensor capability, which is important to us. And then add the versions of unmanned capability when it comes to Airborne Early Warning. So there's lots happening on the sensor side, for sure, but that's sort of where the R&D is going. And the other big portion of the R&D is, of course, autonomous systems in all domains, when it comes to the air domain, land domain and -- but especially now the air domain and the naval domain. And using AI is another big thing in terms of R&D right now to give you a flavor of where R&D is going.

Thank you very much, Tom. Operator, do we have any final questions in the telephone conference?

The last question comes from the line of Afonso Osorio from Barclays.

Micael, you had -- I think you mentioned before that you expect positive cash flow going forward there on the annual figures? Or would you expect positive cash flow from a quarterly basis this year as well? Just a little checking on that. And then on the T-7 program, I appreciate it's still quite difficult to see the phasing of this in the coming quarters. What is the current run rate on the profit loss from these contracts? And then just one final one quick on the Middle East situation. When do you probably see this incremental demand falling through your numbers? Is it going to be mostly from 2027? Or do you expect something extra in 2026 as well?

Well, on the T-7, I mean, you can look at last year, roughly SEK 100 million a quarter sort of on average and under-absorption, that will improve when we get more platforms out of the facility, of course, so that's roughly the run rate that, if I remember correctly. Then the Middle East is -- we have some sort of business in the Middle East. It's sort of Airborne Early Warning. It's some come under control, but -- and then sensors. And there is substantial demand on the sensing side right now and how much that -- where that would go, some deliveries is happening as we speak, and then there will be more deliveries coming. we've already delivered from demand and delivered within 2 weeks. So that's why it's important to manufacture sort of G1Xs on speculation rather than on contract. The first one was...

That we promise a positive cash flow every quarter? Is it more than a year?

The guidance we have is as sort of cash conversion higher than 60% over the period of '23 to '27 there are always fluctuations between quarters when it comes to cash flow depending on the payment milestones lies and how our investments comes into play. So I can't sort of -- I can't give you any specifics on each quarter. But I can conclude that despite substantial investments this quarter, we had a good operational cash flow, which is excellent which means that we get payments from our customers as well continuously. And it's important to develop that way, either sort of advanced payments to finance initial things in programs or dense milestones in the contracts that doesn't mean that we have to be sort of acting as a bank towards the customer. And we're moving in that direction. So cash flow positive is important and more than 60% over the period.

Perfect. Operator, I think we have a final question. Is it from Morgan Stanley or do you have anyone left in the queue?

Marie-Ange Riggio from Morgan Stanley.

I have 2 actually. The first one is on Aeronautics. Can you just describe your production ramp-up of the Gripen because I think like you have quite a target internally to go to 2030 aircraft in the Q4. So maybe just can you remind us what is your current position rate? And where are you in this journey to increase the rate? The second question is a [ train ] because we have seen increasing compounds -- increasing conversation about the SEK 90 billion loan for train from Europe recently. So what will imply for Saab as a whole for the whole portfolio? And probably have you seen any progress in our discussion with them about the [indiscernible] contract and can be SEK 90 billion loan be a sale of funding for at least a first batch?

Well, when it comes to Ukraine, you're right. I mean I'm positively -- positive news on that sort of the funds will be released, of course, the SEK 90 billion. And from that SEK 60 billion is supposed to be used for military investments. And I assume it's not up the industry to create the funding structure of a deal on the fighter aircraft, but some of that money must be used, of course, for the fighter acquisition and then it has to be supported from other countries like Sweden and others that want to support Ukraine with fighter capability going forward. So that's moving in the right direction now. But we don't sort of wait for that in terms of the discussions with the end user on the fighter discussion. We are, of course, working on the proposal and the negotiations as we speak on how to, over a period of time, get fighter capability to Ukraine as quickly as possible, which means that we are also looking into investments for that sort of ramp up that, that would mean if they go for in the end over many years, of course, of 150 aircraft that would mean that we have to sort of ramp up for deliveries on that from '28-'29 going forward. So that's what we're doing as well. The first one, once again?

First one was our -- the target capacity for Gripen, as we have said...

So let's say, we are at roughly 15% a year now. And then we have now started to deliver from Brazil hub and then we are looking at depending on the contracts that we get to be sort of somewhere between 20% to 30% and more likely to the higher end of that span. So that's how I see it, and that is as quickly as possible. But I would say sort of to be around 20% in a year's time, it's quite possible over a couple of years time a little bit higher than that. So that's sort of the time frame a bit generically speaking.

Thank you very much. And I think we also have -- did we have a final question also, operator? Many final questions here today. They're popping in.

But that's fine.

The final question is from Daniel Djurberg, Handelsbanken.

Sorry if this question has been asked already, I had to jump into another call for a minute and ask some questions there as well. But the improvement seen in Corporate and other primarily related to the UMS Skeldar operations and by operating income from minority portfolio. Is that sustainable? Or was it onetime items more or less or how to think?

I can answer. We had that question earlier, but I can answer it again of course -- no worries at all. No, I -- what we think is when you look at Corporate, one good level to look at is the level that we had last year for the full year as rule of thumb. In Corporate, we have several costs that are depending on prioritization and costs that come later in different quarters. So and its costly related to IT security. We're also building up our digitalization unit and also costs related to the share matching plan and shareholder program that we have. So different types of costs in corporate and changes over the quarter -- varies over the quarter, I would say.

Okay. Operator, do we have any further questions or?

We have no more questions at this time.

Okay. So I think with that, we thank you, everyone, very much for listening into our presentation of the first quarter of 2026. We will be on the road now. First, in Stockholm, then we are going to Copenhagen. You can meet us also at the [ Eurosatory ] Show in Paris later and then we will also be in Frankfurt and then we will have the Q2 report in July. So thank you very much for listening in, and have a nice day. Thank you.