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Hello, everyone, and welcome. I'm Merton Kaplan, Head of Investor Relations at Saab. With me today, I have our CEO and President, Micael Johansson; and Saab's CFO, Christian Luiga. We're here today to present Saab's Q4 and full year results, and we'll have some slides for you. As usual, after the presentation, we will also have a session for questions for analysts and investors and also other stakeholders listening in on the webcast. I would also like to remind you that you'll be able to send us questions during the presentation, through the e-mail, but you'll also be able to dial in and ask your questions directly to us later. With those opening remarks, I would like to give the word to you, Micael.
Thank you so much, and thank you for joining us this morning for this presentation of the Q4 result 2020 and the full year presentation. I will jump right into giving some comments on our performance for the quarter and also for the full year. A year that I think we will remember in many different ways, all of us, and we look forward to better times, of course. Looking at our numbers, I'm really pleased to see how well we have performed in the marketplace. Our order intake has grown dramatically, both in Q4 and for the full year. And this is despite the restrictions in traveling and interacting with customers around the world. We have an international organization that has performed really well in growing our order intake, and that is growing the order intake internationally and also in Sweden. When it comes to sales, I think we have done well. The Q4 is really strong in sales. Dramatic growth on that side. And if we adjust our sales for the nonrecurring actions we took in Q3, we also have an underlying growth in our company, and that is really good for the future. And since the order intake is so good, we will, of course, have a great backlog now to work from, SEK 100 billion in backlog going forward, which is good for us. Margin-wise, we have done a good margin. It has been affected during the year by pandemic effects, of course. And that's why we took proactive actions in Q3 to mitigate things going forward. The underlying margin is, of course, also affected in ways of working and the supply chain. But I think it's a good margin, a 7.4% underlying margin and also in the quarter, 8.8%. I'm really also pleased with how we have been able to deliver on our milestones. Important customers have received their equipment and systems, and we have -- as I've told you before, we had a plan to turn around our cash flow, and we are strongly positive both in the quarter now and for the full year. And we have also now paid back all the tax relaxations that we used during the year, so this is clean from any support from the authorities. That is important going forward, of course, and we now look forward to continue to generate positive cash flow. Looking at the market. I think we see a very high activity level globally. In many countries, governments are spending more money on defense-related capabilities and securing their societies for different types of [ crisises ]. That's also true for Sweden. We have a new defense bill in Sweden and now that's going to be implemented. That represents a significant growth on the defense side. We have -- we are relevant in all domains, air, land and sea going forward, and we see quite a few prospects now that we are working with to increase our order intake on the Swedish side as well. We have things like sensors chain that needs replacement in Sweden. We have airborne early warning capability. We have upgrades on naval vessels that we are all working with this now during the next few years. So we have good prospects in Sweden as well. As I said, the order intake full year has increased more than 50% and landed on a level of SEK 42.3 billion, which is extremely good. It's up dramatically in international orders, but also in Sweden. And a few sort of examples of the order intake or contracts that we have secured during the year is an important one in Sweden, sensors and command and control system for an air defense systems to Sweden, which will be connected to the sensor chain going forward. We have a very strong growth in the ground combat segment in the Dynamics business area. And quite a few countries are now sort of shifting from the Mark 3 version to the Mark 4 on the Carl-Gustaf equipment, so we are growing dramatically on that side. We secured deployable health capability contract in Australia, which is significant to us: SEK 2.5 billion, roughly. And we eventually then -- we've talked about that many times, when is the next contract on the GlobalEye coming in. Very late in the year, we secured 2 additional systems with the existing customer for the GlobalEye system, which is extremely pleasing to see. And I'd like to give you some flavor on what we have in that type of capability because I think that is a very positive development, and I think it has great potential now going forward. So just a few words on the GlobalEye, what that represents. This is all about situation awareness. It's not connected to only the air force or an army or a navy. It's cross-domain information exchange we're talking about, so it's a joint capability from a defense force perspective. It has absolutely the latest sensor technology in that system. So the ranges and the accuracy you get from the sensors are fantastic. And we can monitor and surveil both air, land and sea at the same time. And we do lots of information fusion to give the users a great situation awareness picture. And everything can be linked to command and control centers on the ground or managed in the air, if you want that. The market potential is really good, I think. We have already secured more than SEK 23 billion in contract values since '15. And we have a number of countries now that we are in dialogue with. And I think an important aspect of this is that we have combined now the GlobalEye with the Gripen aircraft in our offer to Finland. The GlobalEye gives the whole package. It will be a force multiplier in terms of actually using the fighter systems in a very efficient way. And we see that around the world that, we see demand for joint defense situation awareness, which is quite new. That this sort of capability, know what's going on at long distances is really important. This is not something we invented in the last 5 years. We worked with systems like this for 30-plus years. So it's been an incremental development, but we have absorbed new technology all the time. And us being an aircraft manufacturer, we have a great system integration capability, and we know sensor capability. All these components come together and generates this fantastic capability. So we have 5 sold now, and we have delivered 2 out of 3 aircrafts to one customer, and we are continuing imminently to deliver a third one. So this is going to be a great market for us and a great capability for us going forward. A few comments on each of our business areas. I would say that Aeronautics have an high activity in the marketplace. Several campaigns are ongoing. Of course, one really important one is Finland, which has now sent us a request for a best and final offer. That will be delivered to them in a few months. And I commented upon the package of being both the Gripens and also the GlobalEye. So we spent a lot of effort in the marketplace. We have some effects then on our margins because of spending on these campaigns. But I think we have also good performance in the programs that we are looking at in Aeronautics. So lots of activity in the Gripen programs. And we have also taken now steps and finalized our production plant in the U.S. when it comes to the training aircraft, T-7. So during the year, we will transfer our capabilities on the training aircraft from Linköping to West Lafayette in Indiana, and then we will start manufacturing these portions of the aft fuselage and a number of things in West Lafayette. Going forward for Aeronautics, I think we're looking at the future combat air system, our collaboration with the U.K. and now also Italy. This will go into a concept assessment phase in April. And in a couple of years, we will start building demonstrators. We have a clear focus on what we want to do with that, and it will be beneficial for the further development of the Gripen aircraft, of course. But it will also mean that we will be part of the future combat air system, which will be a systems-of-systems approach. I also want to say that the delivery of the Gripen to Brazil was a great achievement this year -- last year, 2020, and well received in Brazil. On the Dynamics side, we have a very favorable market situation. Most of the areas are growing dramatically. I did comment on the ground combat, which is absolutely fantastic growth as we see it right now. And we also had a contract from Germany on the RBS15 on the shipping side, which is really important to us. The business area is growing, generating good profits, and it's all about ramping up production, I would say, during the next phase of that business area. On the Surveillance side, we also have a very strong market position. Surveillance is the sort of the lead and the prime for the GlobalEye, of course. But also the technology and the sensor capability that we are working with Sweden and many other countries. And we had won a number of orders now during 2020 in combining sensor technology in command and control systems on the naval side and on the land side. We will continue to grow in U.S. and Australia. We've had great wins in both of these countries. I do see that since Surveillance is an international -- has an international footprint with capability both in South Africa, Germany, U.S. and Australia. We've seen different effects from the pandemic, depending on the lockdown situation during the year, and that has affected the margin somewhat during the year. Support and Services is doing really well. They are moving into creating support packages for our larger platforms now when we start deliveries, turning from development, industrialization into production and delivering. And that means that you need to sort of set up support capability for all these platforms. And the only negative side is, of course, that the support of the regional aircraft, the Saab 340s and the Saab 2000s that are still flying out there, is, of course, had a downturn due to the pandemic during the year. But good support business on the larger platforms. And I think you've seen that we are growing the firefighting capability, supporting Sweden with a great readiness in handling fires in different times of the year. Lastly, then, IPS is the business area that's been affected mostly by the civil aviation downturn and we have received sort of lots of lower volume messages from the large aircraft manufacturers during the year. And that you've seen and we've reported that earlier. And we have also in this quarter, we've taken a provision to handle that going forward. We have, however, kept our orders booking quite good during the year. And especially late in the year, we got a number of contracts on the air traffic management side, which is supporting the airports with command and control systems and digitalizing the airports. We have a strong focus on cost reductions, and we are taking mitigating actions then to manage the competence and the resources we have in this area, especially connected to our structures in using that competence also on the military side. I do like to comment upon Combitech's strong performance. They have been able, despite the COVID-19, to grow their business during the year and also increased their margins, which is, to some extent, then compensating the downturn in the civilian markets. In the Kockums area, we are still, step-by-step, improving our efficiency. We have taken steps and you can see that on the margin that it is improving somewhat. We're still not sort of pleased with the margin. We're continuing that effort, of course. And we are in the middle of sort of the industrialization of the latest sophisticated submarines, the A26, but we have also been able to deliver the upgraded submarines, the Gotland-class submarines, during the year, which is a great achievement. And we have a couple of campaigns we're working. Sweden and Poland are discussing submarine opportunity in having Poland to use upgraded Södermanland class submarines going forward. And we're still pursuing the Dutch campaign, of course, on the submarine side. A few comments still, then, sort of more generally speaking about the COVID. I talked about it when I talked about the business areas, but mainly, the effects on Saab have been on the civil aviation side and the air traffic management side and the support for the regional aircrafts. We are continuing to work the supply chain because we have a very global supply chain. And we don't have the luxury of just sort of changing suppliers, especially not on the platforms that are flying, since that requires requalifications and certifications to make them flightworthy. And that is a long lead time to do that so we are working diligently to make sure that our supply chain is up and running. We become more and more capable on working that. And of course, we're taking much -- many more proactive actions to make sure that we have stuff in-house. But it has continuously affected somewhat the margin during 2020, but I'm still really pleased that we delivered a solid margin of underlying 7.4%. So we will continue this work diligently because this is not over yet. I hope that the vaccine will push through, so we can sort of open up and start traveling in an easy way, but it's still a difficult situation. But I think we've managed well so far. As I said, one of the most important parameters to me has been to turn around the cash flow, and that has always been the plan for the last year, the 2020 year. And we managed to do that to a very good level. So we have an operational cash flow for the year of SEK 2.8 billion. And that is, of course, due to our capability of delivering to our customers and receiving payments on those milestones. Now I'm very positive going forward now that this will continue, that we will continue to deliver positive cash flow. So we've had a couple of tough years now, but I think we are in a phase where we will see positive -- where we will see positive cash flow coming in. And this is a very good example and a performance parameter that is important to notice, I think. So the Board has also now, in connection to this, of course, and the financial stability that we have in the company, decided to propose for the Annual General Meeting to have a dividend of SEK 4.70 this year. And I think that is sort of resuming our path of giving dividend on a certain growing scale. So that's good. I look forward to that. But that will be decided during the Annual General Meeting. So looking forward, I think I view Saab's journey now as maybe 3 pillars. One is establishing our capabilities internationally more solid in certain countries, becoming, as I've said before, an integral part of the defense capability in certain countries. Having operations, products, IPR in countries, not to the expense of Sweden, of course. Sweden will always be the most important customer, and we will always have great capability here. But to grow Saab, we have to move operations and create operations outside Sweden in certain countries. And we are doing that as we speak. That has continued during 2020. The other portion is connected to efficiency, focus on our core areas, where we want to be world class, a world-class supplier. So we optimize our portfolio, and we work hard to sort of look at the ways of working to improve our margins as well, but it's also connected to our portfolio. This is a journey, however, where the balance has to be that we need to absorb new technologies. We need to invest in new technologies to be world-class over time. So when we reach -- and I reconfirm our long-term targets, when we reach a 10% margin level, that will be a sustainable level. And of course, we have a strong backlog now supporting our future growth. So our outlook now for 2021 is that we see now, with the measures we've taken during 2020 and the backlog that we have now, SEK 100 billion in-house that we will be able to grow in line with our long-term targets. We have -- with respect for the COVID situation, the pandemic, we think we have a stability now in our execution of things that we will continue to deliver solid margin in line with the adjusted EBIT margin for 2020, which is around 7.4%. And definitely, not most important, but very important is to continue to deliver positive cash flow, which I'm certain that we will. So this is our outlook for 2021. And then, of course, I again reconfirm our long-term targets, but that will be a balanced journey connected to our strategy of international expansion, our portfolio optimization and also, of course, working with new technologies over time, but we will get there, absolutely. So with that, I think I will hand over to my CFO, Christian Luiga.
Thank you very much, Micael. And good morning, and I'm happy to be here, and I will go through the numbers after this excellent presentation from Micael. I start with the order intake, and I must say it was a fantastic year. The order backlog is now up at SEK 100 billion. It's up 7% compared to last year. And if we look why that is, it's order to -- book-to-bill ratio of 1.2 and SEK 42.3 billion in increased order. Orders increased both internationally, 52%, which is part of our strategic agenda and very important for us to create a more stable company overall, and also a better foundation for future growth. If we look at the orders that are in our backlog and are supposed to return into sales in the next year, we have increased that with 9%. And all these together is creating a good foundation for the future and something that I'm both proud and gives me comfort going forward into the next coming years. If we look at the financial summary then, the sales for the full year is flat. Sales was impacted by SEK 1.3 billion, primarily in quarter 3 adjustments related to COVID-19. Excluding these, the sales is 4% up. If we look at the difference between the civil and the defense side, the civil side was down 17% in revenue and the defense side was up 7% adjusted. Also, another signal on that we have a stable foundation in our core business. The income is impacted by these adjustments; is also impacted by somewhat higher R&D cost, partly driven by increased depreciation. And the EPS is down due to these onetime effects. And I will go back on the cash flow a little bit later on in the presentation. If we then focus in on quarter 3 and look at that, it was extremely good, and the sales was boosted from the contribution of GlobalEye. But we also had very good progress in most of the BAs, and I'll come back to that shortly. The operating margin, 6.1%, affected by a onetime effect provision in IPS. That is a effect of less orders in the civil side. And without that, it was 8.8%. We have increased our depreciation related to the GlobalEye program and that is not impacting, of course, the cash flow. It's the EBITDA that does, and that stands for around 0.8% on margin, if you calculate the backwards. And that's something we will bring with us into next year. So the net-on-net effect will be around SEK 300 million. And that is, of course, included when we have calculated our forecast. This is a busy picture that I hope is the last time I'll bring to this audience. It is a reflection of a complicated year where we have worked hard with many elements, succeeded to still deliver 7.4% underlying performance, that also affected by COVID. But already in quarter 3, most of these items were declared to you, and we have gone through them. I want to highlight especially one item, and it's the SEK 375 million provision we made in quarter 3. We said that that will be allocated out on the business areas, to the right business area in quarter 4. And we have done so. And the big-ticket items is Surveillance, SEK 166 million; it is on Support and Services, SEK 118 million; Dynamics, SEK 15 million; and then we have some corporate programs that we also have taken a hit on. So with that, we have then allocated and reversed those SEK 375 million. And we don't have to dwell on those going forward. But this has been provisions related to COVID-19 primarily and is a reflection of the tough times and the risk provision we feel is important to feel stable going forward. That doesn't mean we are past COVID-19. We, as many others, still see risk in the future. Other than that, on this list, is the SEK 315 million that we have taken in IPS on a loss contract provision related to our supply -- to our customers in the air manufacturing -- aircraft manufacturing sector that has decreased their orders dramatically in the end of the year. This is a provision that is noncash going forward because of the drivers for this cost we already cashed out on before year-end. If we then go into the different business areas, this picture is positive in many aspects. We can see Aeronautics, where we have an increase, slight increase, which is a slow step-up in the programs ongoing. In Dynamics, we have a fantastic development in ground combat, but we also have a positive development, less but positive, in Barracuda and in our training systems. Surveillance is really boosted by a good radar year, both GlobalEye, but also a lot of other programs and orders in the radar side. Support and Services, extremely stable with a positive note and on top of that boosted by GlobalEye. IPS stands out as the negative, and we know it has been hurting most from the civil side. So meanwhile, we have a positive growth in Combitech, our consulting business. We have a negative development in most areas, including traffic management. And in traffic management, we didn't expect it to be negative, but we were expecting to get some orders early in the year. They were delayed but we did get them in the end of the year. So we now have passed that risk zone of getting back to growth in traffic management. And it came primarily through some great orders like prison systems in Australia and air traffic management in Hong Kong. If we look at the profitability performance then in the different business areas, we can see that Aeronautics is down, and it is hampered by COVID-19. It is hampered by many large campaigns ongoing right now, and we are still in a ramp-up phase, both in the Gripen program and in T-7. Dynamics performing well. And here, we outperformed last year on ground combat, but also on Barracuda and in the training system side. Surveillance has been hit, both from slightly increased the -- of the depreciation that I talked about, amortization of before. But also on some of our units in some of our countries outside Sweden that has been more affected by COVID-19. Support and Services, extremely stable and is boosted a bit on the GlobalEye. IPS dramatically down, as I said, the civil side. And that is even though Combitech is improving its margin year-on-year and doing really good in their journey to the better. Kockums, Micael already talked about, so I will leave that for later. We had a positive cash flow. We talked about positive cash flow throughout the year. It came out on the operational cash flow of SEK 2.8 billion. And then the free cash flow was SEK 1 billion more, primarily coming from the Vricon sales in the middle of summer last year. And the big driver here is the change in working capital. And that change in working capital is exactly what Micael said: it comes from program execution. We are delivering on our milestones. And when we deliver on our milestones and delivering our projects, we get paid by our customers. And that has been a main driver for this shift, and this is something we see going forward. If we look at the investments, they are pretty much the same level as last year. And of these, internally funded R&D is SEK 2.5 billion. We invest around SEK 7.5 billion in R&D in this company. And SEK 5 billion is paid by customers and SEK 2.5 billion is paid by ourselves and SEK 1.4 billion is capitalized of this. And that number is pretty much flat year-on-year. Going forward, we have delivered SEK 2.8 billion this year. We are giving a guidance that it will be positive next year. And it will be based -- this is really based on our expectations on the deliveries and execution that we have both in the pipeline and ongoing things. So we will not go into exact how much at this time, and you have to live with that, unfortunately. Net debt. Our balance sheet, we have strengthened it during the year. We have a reported net debt-to-EBITDA of 1.5. If we would assume next year's guidance on EBITDA, 7 point -- around 7.4%, it will be adjusted to 1. The net debt is minus SEK 4.3 billion, and that is SEK 3 billion better than last year. And that SEK 3 billion doesn't come from the pension or the leasing liability side; they are pretty much flat. It comes from an improved net cash and other borrowings side, which has improved then SEK 3 billion. Important to note that we still have revolving credit facilities of SEK 10 billion, where 4 of them do not mature until 2023. So we feel we have a solid financial position and safety net going forward. And we still see that there is risk in COVID-19. We have not, different from anyone else, passed that. But we feel much more stable today in giving a guidance. And based on the good order backlog we have and the performance we are at right now, we think that the organic growth will be in line with the long-term target of 5%. The EBIT margin will be in line with our adjusted EBIT margin of 7.4%. That implies that the absolute EBIT should grow in the year and a positive cash flow for the year. With that, I think we -- I end and open up for some questions.
I can take the -- go to the next slide. Yes, so I'm looking at the clock, and we have some time here to, as usual, take your questions, both from your -- from our sell side, but also from our analysts and any other who wants to send us their questions through e-mail that you can find on the webcast link. [Operator Instructions] So moderator, are you ready to open up the floor?
[Operator Instructions] And our first question comes from the line of Björn Enarson of Danske Bank.
I have a question on your outlook. The -- if you can give some flavor on IPS in 2021, so we maybe can ringfence the issues that are holding back an expected margin expansion in the year? So if you can give some color on the magnitude of the expected loss for that unit? Or any other color on the different BAs would be appreciated.
Well, I can start. And as you know, we don't guide specifically on the business areas. But connected to IPS, of course, we're taking mitigating actions to be more flexible to fluctuations on the civilian aircraft side. One thing being that we are allocating resources from structures into the aeronautics side, working on the training aircraft and on the Gripen production team instead of sort of staying in a restructure. So that's one mitigating action. So we will improve, but I'm not going to quantify how much. And we've seen us, as Christian was saying, that the orders are starting to come in on the air traffic management side and on the civil security side. So I think we will see an improvement there as well. And Combitech is doing really well. So an improvement, yes, but I'm not going to quantify how much. But I can assure you we're taking all the actions I think we need to take to be able to sort of mitigate the situation we've seen in 2020.
Is there something else holding back margin expansion then? I mean if you are growing and you have a strong backlog and strong outlook for growth and you see an improving situation for IPS, so it's something else that's holding back your margin expansion, I guess?
No. But it's also, of course, connected to some respect for that we may not have seen all the effects on the civilian side, but also the supply chain side is something we're working. And we can manage some disruptions with that solid level, but I really hope that we will not have any surprises on the supply chain for the larger platforms because we have important deliveries during this year, 2021. So this is a sort of an assessment we made between the civilian side and the defense side, and we've done measures now. So we are more solid going forward, but there's still some respect for the COVID situation and what the pandemic can do to us if we have a complete lockdown. So it's sort of a combined assessment. I can't say it more than that.
Our next question comes from the line of David Barker of Bank of America.
I've got a follow-up on the margins. You've clearly reiterated your ambition to get to 10% over the midterm. But in 2021, we're talking about 7.4%, so quite a big step-up you're anticipating. Can you talk about your time line, the expectation of getting to 10%? Is that a 3-year story? Is that a 5-year story? And do we need to see any further restructuring or major cost savings to kind of bridge that gap? Or can you do all of this just through volume recovery and recovery and things like IPS?
As I've said -- I mean, I can start answering your question. Thank you for that question. I think what we need to do is to increase our footprint internationally to sort of secure programs in a few selected markets. We need to continue to work with our portfolio to drive efficiency and cost. But we also need to be on our toes when it comes to absorbing potentially disruptive technologies or new technologies and have strength to invest in that. That come -- that when you combine all of these 3, it's a journey. And I'm not going to talk about a number of years or sort of a time period as such. But I'm certain, with that combination of activities, we will go and meet our long-term targets, definitely. So I'm reconfirming those, and we will guide you more and more going forward on how this journey looks like, of course. But I'm confident that combining these 3 will create a sustainable situation on a higher-margin situation.
And just to add there, I mean, we don't see a big, major restructuring coming very shortly, but this company has created a platform, both from the customer and order side and from the international presence, but also in the activities we are doing on the mitigating activities and improving efficiency. And that is both from selling out maybe smaller parts or reshuffling that and creating a better opportunity for operational excellence. And that is also something that doesn't happen overnight, but it's a journey we have now a grip of and give us confidence, like Micael said, that we are on that journey now.
Just a very -- just a quick follow-up, if I may? You've referenced increasing your footprint internationally. And typically, that's done through winning international contracts. Any talk about how you envisage increasing your footprint? Do you need to raise CapEx? Is this going to be done with contracts over the midterm?
So a combination, of course, of organic growth in countries where we have presence and where we have been successful, but it can include M&As as well, of course. So it's nonorganic and organic. And normally, it is connected to where you have sort of a customer footprint as well, and there are potential contracts coming in. And we have pinpointed a number of countries so far and not sort of surprisingly being U.S., U.K. and Australia, but there are also runner ups to that. And I think we have a couple of countries in Europe where we have great potential and good presence already, which can grow dramatically to us. So this is what we're talking about in terms of creating a larger footprint and larger presence in these countries, sort of complete operation.
Our next question comes from the line of Douglas Lindahl of Kepler Cheuvreux.
Hopefully you can hear me. I will not dwell on the margin question again. But you reported a pretty solid -- or very solid order intake here in the quarter. Can you comment a bit more specifically on your expectation for 2021? What big upcoming orders do you see potentially? You mentioned Finland; any other big things you see in the horizon, for 2021?
Well, I mean, it's difficult to talk about sort of predictability when it comes to these mega deals. I mean you've asked me many times, where is this new contract on the GlobalEye? And I've been persistent in saying that it's coming, it's coming, we're negotiating, and it took us more than a year to finalize it. So it is difficult to predict mega deals. What I can see is that we have quite a few initiatives and campaigns out there that can happen to us. But what's important is that we have a stable, small order situation, I think it was SEK 13 billion something roughly during 2020. And we do not, based on the activity out there, see that that changes over time. And we have an increased level of sort of midsized orders now when we start getting traction on command and control systems and sensors and the ground combat framework contracts are delivering for us. So those foundations are important. So I'm positive on the order intake also for this year, 2021, and that could be sort of upgraded with, of course, a mega deal if that happens. But I won't predict exactly when that can happen. As you know, that's political decisions, and it's complicated campaigns. But I'm really pleased to see the activity out there. So we can grow this company through more order intake, definitely.
And just coming back on small versus large orders, what would that mean in terms of profitability mix, would you say?
Well, I think the foundation of smaller orders, combined with the midsized orders up to sort of SEK 3 billion is very essential to us since it's normally a bit shorter lead times on them for delivery, from contract to delivery. And normally, good margins. So that foundation exists and is growing, supports our margin growth towards our long-term target.
And by good, you mean above group average or...
Good is supporting our long-term target, yes.
Okay. If -- one final question, if I may? Just on Dynamics, typically you have a pretty solid -- or very strong Q4 from a margin standpoint. This year was not really the case. Was this all due to COVID or anything else there that we should have in consideration?
I think you should focus more on the quarter-by-quarter growth than the comparison with last year. So we had...
Okay. But Q4, typically, there's significant amount of deliveries from what I can remember, and that is a big margin driver. Just...
Yes. And this year we are building a bigger foundation overall. So the base is bigger, and we're growing quarter-over-quarter more. It's becoming more that kind of business than the cyclical business that we have seen before in Dynamics.
So more sustainable high margins then?
Exactly.
Our next question comes from the line of Agnieszka Vilela of Nordea.
So your cash flow in 2020 was strong, not least in the last quarter. Could you just give us some kind of building blocks, how we should think about the cash flow in 2021? I appreciate the fact that you don't want to provide us with a number, but how should we think about change in working capital specifically? And also, what kind of investment level in total do you want to run this company in 2021 and in coming years?
Well, we -- thank you for the question, Agnieszka. So we already guided you on profitability, so you have that piece. And on the investments, we don't see any dramatic increases in our investment levels in this company. I don't want to guide exactly because we keep the freedom of flexibility as a technology company to decide day by day what we need to do, to actually be the company we are, but it's not going to be any dramatic changes in that element. So then the rest is our programs that will deliver like this year.
And of course, the programs that we did manage to contract now during 2020 will have a positive effect in terms of milestones already 2021.
Yes.
Yes. So we could expect some working capital releases because of that?
Yes, it -- if you look at the profile, to be positive, you probably need to have a positive on working capital. That's exactly your conclusion. If that's your conclusion, then it's probably right.
All right. And then just a follow-up also on capitalization of the R&D cost. Will you be running that on a similar level? And also, your thinking about amortization because my impression is that amortizations of R&D is the one factor which is kind of burdening the margin development in 2021. So should we expect about SEK 0.5 billion level for amortizations in 2021 in the coming -- and in the coming years?
Well, I tried to clarify that it's up around SEK 300 million in amortization, which is equal to the quarter 4 impact. It's going to be -- if you put it on 2020 year sales, it's going to be 0.8% margin impact. And that is an impact of previous investments in R&D and not future investments. And we don't see we're going to increase future investments at this point. So the cash flow effect will be -- you put net-net positive from that if you put it that way because we already cashed out that increased depreciation. And on -- I don't want to go into how much we capitalize and we put in the income statement, but I can say the trend is that we are putting more in the income statement and less capitalized over time, slightly; that direction rather than the other one.
Our next question comes from the line of Erik Golrang of SEB.
I actually will go back to the margin topic. And I'm just trying to get a better sense because it's obviously very difficult from the outside here. I mean your guidance now for '21 of 7.4%, I guess it's about where the margin was 10 years ago. And you talk about the road map to 10%, which is execution on the backlog, productivity, efficiency. It's all very much what we've been told for a number of years. So if you take a bit of perspective, what is it that consistently is more challenging compared to expectations? Is it that the cost for innovation and new technology? Or is it more of a pricing factor in contracts? What's the factor that seems to surprise negatively here over time in the margin equation?
That's a good question. I mean I think one important part of this to reach a sustainable level is connected to our portfolio. Over time, you -- we assess and we dive into how can we develop certain portfolio segments of Saab and can we or should we harvest them and close them down? Should we divest it or should we invest in it? I think to expedite that discussion and to optimize -- that's why I call optimization of our portfolio and focusing on our core areas -- will be a decisive thing to have sort of a reasonable journey time-wise to our 10%. Then, of course, you have large development contracts, and you turn them into production. We're not really there yet. We haven't ramped up production. We're a bit careful about sort of what the industrialization and the transition into production will mean to us. But the potential when you get into production margin-wise and get into a more balanced situation is sort of better, I would say, than the last few years, when we've seen a peak peak, I would say, on top of each other, large programs in complicated development phases. So those 2 things will move us in the right direction, I will say. And the difference from before is, as I said, the focus on the portfolio being sort of more core focused and also that we move into this production phase on many programs. Technology innovation, we will always be a heavy investor in that area. That's sort of the long-term credibility and -- for Saab going forward being world-class. But I'm not seeing a dramatic shift in that area. The other 2 are more important to us. And then, of course, not to be too much focused on certain countries; being more international, as I've said, more contracts with higher margins, easy to say, coming in will help us as well. But not all components, like I talked about now, have been in play earlier, I think.
Not to dwell on the same thing again, but COVID has also then put a sort of hiccup in the journey now.
No, of course, we've said that several times, but one sort of -- we can't come back to COVID all the time. But in our assessment and our carefulness going forward, of course we have respect. But we're not -- this is not over yet. And we have a very international organization.
Our next question comes from the line of Sash Tusa of Agency Partners.
I've got a question about Kockums, and it's essentially whether you can get to your 10% margin target while still owning Kockums in more or less its current shape, i.e., a fairly small backlog of submarines and not a big skyline of either new submarines or surface warships in the next 5 years or so. Is Kockums one of the businesses that you would look to divest to get to the 10% margin target?
Thank you. It's a good question. First of all, no, there are no plans to divest Saab Kockums. There is sort of a -- we need to get to a situation in Saab Kockums where we perform more efficiently. We're on that journey. We see a good trend in the programs. So we do perform better and better. But again, in this part of Saab, you also have to have a combination of different types of contracts, not sort of 1 or 2 large megadeals contracts with complicated developments. You need the support contracts, you need the upgrade contracts on the surface side, you need international contracts. It would be great if Sweden and Poland would agree on a contract which could support Saab Kockums. It's hard to say how complicated it will be specifically in Saab Kockums to reach to 10%. It's a journey. It's a more complicated journey. We have more to do to have the mix of things in Saab Kockums than in other areas, I would say. So right now, they have to be compensated somewhat by higher margins in other business areas.
Our next question comes from the line of Björn Enarson of Danske Bank.
Just a short question on the production phase and the ramp-up. If you can give some details on when expect to ramp-up in a bigger way for the mega projects?
I think you're alluding to sort of the ramp-up on the Gripen side. And there will be more deliveries this year, 4 aircraft to Brazil this year and a few to Sweden, but the ramp-up is not sort of huge this year. It will be, as we've said before, a couple of years ahead when we reach sort of a higher level of rates in the production of those aircrafts. The GlobalEye, or you can't call that maybe sort of high rate production, but it's good margin projects with -- and we performed extremely well on that side. Dynamics and the ground combat side, that's sort of the opposite. We need to sort of boost the production capability to manage lead times and to take more contracts. So we are a little bit more limited there. But we are working that heavily, and we want to create redundancy on where we can manufacture as well. So it's different in different areas. But sort of that's examples of how we view things going forward.
Our next question comes from the line of Mikael Laséen of Carnegie.
You expect 5% growth in 2021. And I was wondering if you could talk about the development per business area and by region, maybe, if you can give some flavor on that? If something is significantly better or a bit below?
Well, I think we have potential to continue to grow based on a record high order intake in the U.S., if you look at that. We are growing in Europe as well. We got good contracts from both Germany and France, this year in Europe. I think framework contracts in quite a few countries now supports Dynamics growth, definitely. And we just need to sort of ramp up our production and create revenue and margin on that, that's for sure. And now we start sort of really manufacturing sensor systems, where we've invested heavily earlier, and that will go to Sweden, but also to other countries. So I would say it is a little bit like we've seen in 2020. We are growing both in internationally; Europe, U.S., Australia has grown dramatically, and of course, the Middle East in terms of UAE, must be sort of underlined as well, that is an important country to us with the GlobalEyes. And Sweden and the defense bill will, of course, give us more opportunities to increase our overall revenue in Sweden based on the expansion of spending in Sweden, and we are relevant in all areas. What they want is sensor technology, a bigger army, that's also connected to Surveillance and Dynamics. And they will continue to fly the C/D version of the Gripen, which will give us more business and continuing supporting and upgrading that version of the aircraft at the same time as they take delivery of the Gripen E. So I was all over the place now. I understand that. But there are regions and all business areas have great opportunities.
But I think to that point, I mean, it is really encouraging to see how we grow in so many places. And that gives us the challenge to -- as we said, we started that work already to improve our efficiency in how we work, and that element comes well, but also creates a huge stability to the company, spreading out the risks in many places.
Okay. Great. Got it. So quite broad-based then, I guess. And just one follow-up here on the...
Can you make it very short, Mikael, because we're running out of time here, please.
Yes. Of course. In which segments should we expect that increase to manage, is it Surveillance and corporate?
Can you say that again, sorry?
The amortization of capitalized R&D, as you said, in 2021.
It's in Support and Services -- Support and Services, and Surveillance. And you can see it in the notes on amortization, depreciation, actually in the quarter report. You will see on those 2 units, you have an increase in quarter 4.
Perfect. Thank you very much. We're running out of time. So I want to thank you both, Micael and Christian, for a really good presentation and for your good questions. Hope to see you the next quarter.
Thanks for all the good questions. And a big thanks to all our employees for 2020. They have done a fantastic job supporting our continuous operations. Thanks.
Thank you very much.