SAABF - Saab AB (publ) (SAABF) Q2 2023 Earnings Call Transcript
2023-07-20 09:26:04 ET
Saab AB (publ) (SAABF)
Q2 2023 Earnings Conference Call
July 20, 2023 4:00 AM ET
Company Participants
Merton Kaplan - Head-Investor Relations
Micael Johansson - Chief Executive Officer
Christian Luiga - Chief Financial Officer and Deputy Chief Executive Officer
Conference Call Participants
Sam Burgess - Citigroup
Bjorn Enarson - Danske Bank
Virginia Montorsi - Bank of America
Presentation
Merton Kaplan
Good morning and welcome. My name is Merton Kaplan, Head of Investor Relations at Saab. With me here in the studio I have Saab’s CEO Micael Johansson; and Saab’s CFO, Christian Luiga. As you know, this morning, we reported our Q2 reports and we will begin the presentation shortly to go through with the numbers the highlights in more detail.
We will also continue to open the floor for a Q&A session afterwards for viewers online as well as our analysts to start dial into the call and you’ll have more information on that after the presentation. I would also like to remind you that you can send in your questions to me during the presentation through the website link as we provided to you.
So, with those remarks, I would like to hand over to you, Micael to go through the presentation.
Micael Johansson
Thank you so much Merton and thank you for joining us this morning in the middle of the summer. So let me start this by going through a few highlights related to our second quarter. Of course, as we've said, the demand in the market is still high. So we have a good momentum in orders I think SEK14 billion plus in the quarter and even if that was a bit lower than the second quarter last year, one has to remember that last year we had the big mega deal order on the GlobalEye for Sweden.
So the medium-sized orders have continued to develop really well and half year is up 23% and amounts to SEK31 billion. So I think this will continue for a long time because many countries are rebuilding the capabilities which they haven't had for a number of years, spending more money on defense. It's tragic that it took a war to make many countries wake up and also of course continue to support Ukraine in winning the war is also one of the reasons that we see a strong demand in the market.
We have also a good sales development as you've seen, 22% organic growth in the quarter and 23% in the half year which is, of course, something we are proud of that have we managed to sort of grow now and increase capacity.
A few other highlights is of course the delivery of the SIGINT ship to Sweden and a very important capability of course to be able to listen with sophisticated sensors on a ship. It also shows how qualified we are when it comes to deliver complicated, sophisticated surface ships and they now take that soon into operation.
There is clear visibility on how attractive we are as a company now for other companies who work with us. An example of that is, of course, the rather new partnership with Boeing on what we call the ground launch small diameter bomb with a simple acronym on GLSDB, which I think have a great sort of promise into the future on demand side and that is a very important capability in many countries.
We have been selected in Germany to provide an EW solution for the German Eurofighter, an extremely important contract for us going forward and that will be done also in partnership with a company called Helsing, which is an expertise company in artificial intelligence. So we now start to involve artificial intelligence in the management data fusion also, in our EW solutions going forward.
It's all about building capacity, of course and making sure that we can support the defense forces around the world. The lead times must be short. The demand is high. We have to deliver and we do that really well right now. We have also opened up production now in the UK where we have started to manufacture the Giraffe 1X type of radar and potentially also we will manufacture the G4A the Giraffe 4A radars in the UK. So we have a sensor manufacturing capability in the UK.
A few comments on specific contracts done. I mentioned the numbers on orders and the international part of the order is 67% during the first half year on the international side and 33% on the Swedish side and we have a record high order backlog of SEK135 billion Swedish. And a few examples of contracts that we have signed is more Carl-Gustaf ammunition to Sweden and I pre-stated long-term view now Sweden has taken on the security of supply when it comes to ammunition. It’s little bit of a new trend that we also get sort of contracts that will give us a foundation for deliveries sort of beyond ‘25 when it comes to things like ammunition. I think that's really important and the good step for Sweden. We also are a part of the successful contracts for BAE Hägglunds on the CV90s of course, where we have important systems on that vehicle like sight and fire control systems and that was almost SEK1 billion in order intake.
And we have had the largest order ever for our unmanned Sabretooth autonomous underwater vehicle, which is about the new important area of monitoring a seabed infrastructure. This would become a very important area going forward. So, having on them underwater vehicles can actually take care of the situation awareness underwater looking at the infrastructure will be important.
A few contracts also in the Gripen development and support to Sweden both for the CD version, and EF version have also come into play and then we got a new contract on the Carl-Gustaf for Australia, roughly SEK400 million for the M4. So, examples of important contracts in essence, I would say that areas like dynamics business area and the surveillance business are still driving sort of the order intake in the marketplace and the demand for those type of things like support weapons and air defense systems that I called S70 and sensors like G1X and G4 is really strong.
A couple of comments on each business area then. Aeronautics is growing, absolutely quarter-on-quarter. If you look at last year on par when it comes to EBIT and I mean we have a situation where the, Gripen contracts are absolutely moving in the right direction, but we still a bit affected by that we are not really up and running in the full rate production when it comes to G7 and we still have a negative effect of the commercial aerostructure business, which is sort of pulling the EBIT level down a bit.
Very important milestones in the second quarter when it comes to inaugurating the Gripen E production line in Brazil. I think this is so important. Now we have a capability in Brazil for which is a design center, a flight test center and also final assembly and test capability for the Gripen E outside Sweden, which will be important for the Latin American market and also, of course, the next step in Brazil.
A very high-level delegation took place to inaugurate that and that is incredibly a important milestone. Also now, which is a good step on the training aircraft T-7 in the U.S. is that we've had Air Force flying the T-7 for the first time in the quarter. So now the test phase from the Air Force perspective takes place. And then we can continue to move forward to the important type certificates for deliveries to the Air Force and also deferred acquisitions of the production contracts.
And there are a number of campaigns we’re running of course on the Gripen side. Brazil second step of course, but also Colombia and the Philippines, the Hungary, and Czech Republic are part of our campaign countries for the Gripen. So lots of intensity in aeronautics.
Dynamics very strong growth, of course and across several business units, not only the support weapon side, but also, for example, training and simulation. Training is so important when we now have more people defending the NATO alliance and also boosting resilience in many countries. You have to have more people training on the equipment and we have excellent systems provide doing that delivering complete training centers, Jarnis[Ph] for example.
We have a very good profitability level within Dynamics. Little bit calibrated now in terms of the mix of things that we had last year were extremely favorable. We still are in a high profitability level and will be high in the future, as well. But it has lowered a bit from the last quarter. And this is about ramping capacity. I mean, we have invested. We're continuing to invest to double it and double it again including redundancy and as I mentioned in India and the US.
So extremely good development within Dynamics. And of course, record-high backlog of over SEK42 billion, almost in that area.
When it comes to Surveillance, very good development when it comes to growth and EBIT development and they are moving into the right level of the profitability now. We see very good interest and large interest in the globalized system from several countries and of course we are participating in the common acquisition within the NATO but also country-by-country or several countries taking an interest in the globalized system apart from Sweden and US so far.
As I mentioned, the EW solution and establishing EW capability on the Eurofighter in Germany will build capacity in Germany also, when it comes to our employees in Germany. And then we have deployed a very important sort of digital tower which you can actually set up for the software release campaigns or within the military forces to do air traffic control in a very flexible way. It’s sort of a remote tower but more deployable version of it that will be used in many instances.
Saab Kockums is developing fantastically in a mix of good aftermarket contracts and also good activity, in the bigger projects like A-26, and the surface ships. So that drives growth, almost 30%, 27% quarter-on-quarter quarter. And also that drives EBIT in a very good way improving the EBIT to a very good level over 100% growth within a quarter-to-quarter.
And there are a number of things happening in this area which all are very important. We are, of course, continuing the campaign when it comes to the Netherlands. And soon, I think the competitors are asked to hand in proposals and then the assessments will take place over the next year in The Netherlands. But also Sweden, Australia have now signed up. So we can use the submarine technology that we have in Sweden to support the life of pipe extension of the Collins class ships boats, submarines in Australia and that is a very good step.
So we will build our capability related to submarines even further in Australia, going forward. And apart from the second ship delivery to Sweden, we also are going to deliver two ships of with the SIGINT capability to Poland and we've already together with the Remontowa shipyard have the Steel Cutting Ceremony and that project this is really moving well ahead as planned.
And I'm really proud to see that Combitech are continuing to grow in increasing the number of consultants of course, but also continuing to improve the margins. And we are setting up agreements which are important that did win a support contract – the technical support contact with Swedish Army with a potential value SEK1.2 billion which is more of a commitment like a normal project. And not only sort of a consultant contract by the hour.
And we also have a similar thing together with BAE Hägglunds helping them on the CV90 when it comes to Safety Management, Technical Project Management and some parts of the construction, which is extremely good contracts to have for Combitech. So this is nice to see.
On the sustainability side, there are a number of highlights that I want to mention. We, of course, we take a big responsibility to make sure that we can work with our suppliers to make - to find solutions to become more sustainable in how we go about things and we have host of supplier base and many new ideas have come up in that.
We also launched an innovation call within the organization and we have now down selected a number of initiatives connected to how we work with different things. How can simulate things, rather than actually testing things in a sort of realize, how we can work with energy efficiency with renewables rather than the normal sort of provision of energy.
And that that also extremely important measures going forward, because in essence, since we grow, we have higher production activity, but we also fly more in terms of testing our aircrafts. We have more flights with our five fighters aircrafts. So we have to boost our plan when it comes to the reduction plan. A lot to cope with the decrease in CO2 emission, which must be 4.2% per year to reach our targets. But that cannot sort of beyond the expense of growing the company.
So we have to do more to reduce our emissions. So quarter-on-quarter we did have actually an increase in emissions, but we are working hard to boost our impact plan going forward.
So, as I mentioned, we have now, because of better visibility and confidence of the half year updated our outlook for the growth perspectives. And now we say we will reach organic sales growth between 16% and 20%, which I think is very good and strong message. We keep our long-term sales growth targets. The compounded annual rate near yearly growth for 10%. We keep our EBIT growth that must be higher than the organic sales growth.
And of course, we keep our views on cash flow to have a good positive cash flow for 2023. So, we have now replaced the former target of around 15% with a sales growth that will be between 16% and 20%. That’s the basic message.
So, finally, looking forward with no big surprises, of course, we focus a lot on deliveries and reducing lead times to meet the customer demands in the market, which are extremely high and these things are needed as we speak. So, this is the focus right now to deliver and boost capacity in many areas. But of course, at the same time, capture the market opportunities including then of course, the NATO planning processes and what this going.
Because NATO are also expanding the defense capabilities in regions, but also capability wise. And of course, we have to be part of that. But then we continue to support all the European countries, specifically in their growth path, going forward. So, everything is about capacity build up and resource onboarding. And I'm happy to see them that we are, as I said, more than 2,000 new employees into the organization on top of skilled employees that we have since the last 18 months.
Managing supply chain and inflation, that's important. I need to underline that this strong backlog we have had sort of mitigations in terms of contract provisions in terms of index development and also currency fluctuations. So those are secure and will not, of course, affect us that much not at all, actually, when it comes to inflation and currency movements.
However, I mean, new contracts, we have to take this into account when we offer new things into the marketplace. And even if it looks a bit better when it comes to the stability, in the provision of materials and components and so forth in the supply chain, we have to be on our choice to read hard with that also going forward. We’ve done well so far and it looks a bit better in the marketplace, but I think we need to be on top of that going forward as well.
Now, we cannot only sort of do here and now and my view on that so much - must continue to be state-of-the-art in important areas going forward, because there will be new capabilities needed in the marketplace. Everything would be connected. So much information will have to be digested using AI. It is going to be implementing cloud technology in the defense forces.
There are going to be new capabilities in terms of sensors and so forth. And we are investing and have many good innovative projects in that direction, going forward. It’s going to be manned and teaming, autonomous systems in play. So, of course, we have to bring our best engineers also in working on that, which we are doing.
To do that in a efficient way, of course, we have to find like-minded partners that where we benefit win-win, both of us to do new things in the marketplace. So, the interest in working with Saab has increased dramatically over the last two years, I would say, and we need the benefits from that and take those opportunities.
So, I think that in short was, how I view the second. And with that, I will hand over to Christian Luiga, my Deputy CEO and CFO.
Christian Luiga
Thank you, Michael, and good morning, everyone. As Michael said, this is a strong quarter. But I like also to say that it’s pretty much in line with what we expected from the company. So we expected the first half there would be having a high growth than the second half. We have said that we continuously should improve our EBIT margin and that the cash flow should be positive for the year.
But it could be sluggish between the quarters depending on how we are paid and need to pay and build up inventory. So that is really reflected in this quarter, as well.
And starting out, then with the order and the strong order momentum we have, I think it's with the SEK14 billion now in the quarter, we still grow, we grow - we started the year at SEK128 billion and in the backlog, and then we increased it in quarter one and now we increased it again in quarter two to SEK135 billion. Like I said it is a record high. So every quarter now we have been doing a record high for a long time.
But what is it then behind this? And I think the important thing is to see that first we have them during the last year filled up the first bars in this picture in year one and year two and increasing sort of the order to sales that is in the coming few years. And now in this quarter, which is very positive is that we are filling up the bar called off the year for four years - four years ahead and beyond.
And that is also a very important step change. So, we don't only fill up the next year, but we fill up over time. And we do it actually with orders that typically would not come in that range. It is more Dynamics orders coming in also now of the year four and they were typically before always year one and year two order and that is going to give us more stability for that business over time.
Another interesting fact, except what's on this page is that, over the last years, if you go back one or two years, not only we did we have a much lower backlog, we also had a much more heavy aeronautics backlog. And today our backlog, as you could see in the previous pictures that Michael showed, we have around SEK40 billion both in Surveillance, Dynamics and Aeronautics.
So they actually stand 30% percent each. And just two years ago, Aeronautics were closer to 50% of our backlog. And that is a great stability statement for what we look ahead on sales. So, we have a much broader and stable backlog, but we also have a bigger backlog. So that is still very promising messages for how to keep a lower risk in our delivery going forward.
If we look at the quarter two, I'm not going to spend so much time on this. I will actually spend a little bit more on the half year, because I think we shouldn't be measured that much on a quarter. We are a long term company and you have to look more than a quarter to understand what we're doing. But the quarter was very similar to quarter one. We had a growth of 23%. It was a little bit higher in quarter one.
And we have a increase in EBITDA margin and we have an increase in EBIT bit margin that both comes from scale and also from gross margin improvement. And then, notable on this page is that we had a few items affecting comparability and they were two. We had a property divestment and then we had a write-down of minority portfolio again and they were the minority portfolio write-down was around SEK24 million. So, those two together gives us a small boost of SEK34 million, which is around 0.2 percentage of the EBIT margin.
And then the other thing, which you remember from last year, we had a heavy impact on our financial net from the revaluation of the unrealized bonds that we have placed some more money and we have a very strong balance sheet. And that was a negative 106 last year on the quarter and now it's starting to turn back and it's a plus 22. So that net of course impacts in both quarters non-cash impact, but it’s coming back now the loss we had to take before and making our EPS more normalized.
Then looking at the half year, which I think is more interesting than, we have started out with a 24% growth and it’s 23% organic growth. And it is a healthy balance where we have all business areas are growing. This has led to a 1.1% increase in EBIT margin. Of that 1.1%, 0.6% comes from gross margin improvement. That gross margin improvement is not only that Surveillance and Kockums are driving up their gross margins, it’s also from the volume increase relative wise from Dynamics and Surveillance becoming bigger part of this group.
And this is what we have talked about also at our Capital Markets Day. The other part then below that is, 0.3 is actually the scale effects from the growth on OpEx. We are growing OpEx less than we are growing sales and we get the scale effects. Meanwhile, we actually do have a pretty stable development of R&D cost in this period.
And then finally, we have a small part that is then related to the items affecting comparability and that makes up the 1.1%. So that's just to give you a flavor of how you should think about what is driving this EBIT margin growth. And here again on the half year, we have a big difference in financial net that when you look at it first time, you say what is happening here, but it is really the SEK209 million that we had to take in the loss last year is now at SEK26 million plus in this half year. And that makes out the biggest difference between the years.
And we are keeping within the tax rate that we also announced around the Capital Markets Day of 21% to 22% and you can see that we follow that.
All in all, we are 93% up in our EPS, which is of course, very positive. If we look at the sales development, we are continuing to improve then our rolling 12 month sales. And this is, of course, part of our growth journey. We have been growing 10% over the last three years. If you look on a CAGR point of view and we have said that between 2022 and 2027, which will grow 10% as well, in a CAGR amount.
So, that is actually showing that we are around 10% growth company. We've proven it and we are going to prove it also going forward. What I think is interesting in this picture is the SEK47 billion. We are now up to SEK47 billion when it comes to rolling 12 months. And that is an 18% increase compared to 12 months ago rolling 12 month number.
If we look at the sales per business area, we see that which I think is then supporting my statement on the income statement. We see that Dynamics and Surveillance, if you look at the absolute bar, they are the ones driving the sales growth in numbers. I also talked about in quarter one where we had no growth and there are not big step that they would come back with some growth this year.
They will be much lower than the other business areas, but they will have grow also this year and the quarter two we see that they have taken that step into to growth for the year. Encouraging to see also, as Michael said, that Kockums is growing. It's a lot of off the market and a lot of production right now. But I also have mentioned that the 40% is difficult to handle over time for Kockums because it is a small shipyard, but it is a very excellent shipyard. But they are having a little bit lower growth than this quarter as a result of that.
EBIT and EBIT margin, I mean, here we can see something for the quarter where surveillance is actually, the locomotive this quarter. Last quarter Dynamics was the locomotive, now surveillance is the locomotive for driving the EBITDA, 44% percent growth that we have in the Group. And, if you look at the half year, Dynamics would be positive, as well.
So I think this is a supportive picture to how this group is developing and we are then taking the steps upwards steadily on the EBITDA and the EBIT margin as we go. R&D increases as I said, and they increased to 19%. Not exactly as much as the sales growth, but we are or lifting it up and they are of course more even over the year than the sales growth will be.
Cash flow. Cash flow, I actually think, Michael presented in a way - very good way. In quarter one, we had a lot of prepayments and then in the second quarter we had less prepayments, but we also had had to pay suppliers for what we then were ordered and got prepaid for and that has even out. On top of that, we also have a working capital that is quite flat actually year-on-year.
So, the story line here is that the prepayments, the new contracts, they compensate them for the increased inventory we have in general and the more payments we have to suppliers and that makes a very small number as you see 0.1 for the half year. Then we have an increase in our investments and the increase in tangible assets by itself is about - just about SEK400 million.
And this is what we have talked about. We will be trying to be more front and heavy on our investments and we will have to invest for high capacity over the coming years and the SEK400 million increase really comes from Surveillance and Dynamics. They come from production and facility build up and they come from IT Investments that we do to improve further our security in our IT systems, but also handle the growth that we have and the future demands from our customer. So that is really the cash flow story.
So how does this sum up in our balance sheet? We remain on a positive net cash position. We have a strong balance sheet and we have also a good equity asset ratio. So we have a very solid position which we think is good going forward, both when we are going to have to handle our growth, but also that we look on M&A very disciplined and carefully, but we look at doing future M&As to support our strategy in becoming excellent within our core areas.
Finally, the outlook, Michael has explained that we now have increased the organic sales growth from around 15% to 16% to 20% and that uplift is then reported today. But the other two parts are not affected. Operating income growth, of course, that needs to be higher than 16% to 20%, compared to before higher than 15% for the year and that's something we believe in and reiterate and then we're going to have a positive cash flow for the year.
So with that, I hand back to you Merton.
Merton Kaplan
Thank you very much, Christian. So we are - we have about - we have a bit more than 20 minutes and we're about to open the floor for a Q&A session. And before I hand back to our moderator, I would like to remind you that you should – or recommend you to ask two questions at a time. So everyone gets a chance to ask their questions over this 20 minutes. I can already see that we have a few on the line.
So I'll give the word to you moderator.
Question-And-Answer Session
Operator
[Operator Instructions] The first question is from Sam Burgess of Citi. Please go ahead.
Sam Burgess
Hey, good morning guys. Sam Burgess from Citi here. Few questions if I may. Firstly, you mentioned Sweden's possible admission to NATO. Do you think this now meets the likelihood of NATO selecting globalized ratification replacement more likely? And if you just could give any other color around whether this would make you more eligible for kind of sensitive contracts within the alliance.
And then the second question, maybe for Christian on the corporate costs, excluding the items obviously affecting comparability. Can you just give us a little bit more granularity and what the key costs are right now and whether we might expect any of these to moderate in the second half? Thank you.
Micael Johansson
Thank you for those questions. I'll start by trying to sort of give a little bit more flavor on the NATO ratification. And, and, of course, when it looks, when it comes to, when we became an invitee as a country, we also as an industry Saab saw that we were invited to many more NATO forums to discuss the need of new NATO capabilities and how to boost capacity and what have you and seeing a little bit more about the overall defense planning.
However, as I said, it's not the same thing being compatible and we sell into many NATO countries today. They use our systems. They are compatible within the NATO structure. So it's not about that really relating and being compatible to NATO, but being NATO is of course a different thing. You alluded to it, it comes to can we then be part of all the supporting capability development in the command and control area.
The sensitive areas like EW, which we haven't been able to access before all the NSPA acquisitions of course comes into play. And of course, I mean, if we are not part of NATO, I think I'll see if there's a real uphill to be able to provide a very important capability like Airborne Early Warning and control being inside the alliance is of course, makes that more a level playing field, I would say.
But we still have to be very competitive. So it's hard to quantify exactly what it means. But I think it's a very positive step and as I've said many times, I mean, you can't sort of point to Sweden or the Swedish industry to be a non-reliable long-term because we're not part of an alliance. This will mean that we're committed to the alliance long-term and that includes the industry.
So of course, still being competitive, we have better chances to support growth to make the capabilities. That's how I would sort of phrase it.
Christian Luiga
And on the corporate costs, Sam, good, well spotted and something, I should probably have commented on the quarter. If you extract the sort of items comp affecting comparability of the corporate cost, we were at the SEK150 million in quarter one and SEK120 million aroundish in quarter two. And quarter two is actually impacted of timing of course.
So we - you should think more about being closer to the quarter one than the quarter two number when you are thinking for the rest of the year.
Sam Burgess
Great. Thank you guys.
Operator
The next question is from Bjorn Enarson of Danske Bank. Please go ahead.
Bjorn Enarson
Okay. Thank you. I have a question on Surveillance, which had a super strong quarter. Obviously, and I guess we've talked about this for quite many years that Surveillance or it should be a - definitely a contributor to the Group EBIT margins. Are there anything you would like to add here in terms of the profitability situation on Surveillance? Are they on the roadmap towards their more normal and higher profitability level or are there anything extraordinary that is quite strong in this quarter? Thank you.
Christian Luiga
I can start by saying that I think absolutely, they are in - on a both growing and improving profitability and we don't guide on business area level, but I can do more. That's my view. And this is not sort of something extraordinary that has happened, of course, looking at Surveillance for this quarter. So, I think they're on the right track. It means that we are doing better in the sensor side.
We're doing better on the command and control side and then the whole of Surveillance actually moves in the right direction.
Bjorn Enarson
I can follow-up to that.
Micael Johansson
I can just reiterate what we mentioned at the Capital Markets Day I mean we have said that both Surveillance and Dynamics should be two business areas that should be about 10% margin. And we said also that we expect that Surveillance will show that they are starting that journey already in 2023 and then you would be able to see that.
And then, of course, just to not get sort of to triggered on a certain number like in our other business areas. And this is why I said it's very hard to look at a specific quarter. It will improve in Surveillance this year. But a quarter one and a quarter two and a quarter three and a quarter four could go up and down a little bit in between. Meanwhile, it does that we should have an improvement over the year.
Bjorn Enarson
Good. Thank you. And just if you can give a short comment on where we are, you are on your two globalized contracts right now. I mean, you have come quite a long way, but maybe some details there and the Swedish contracts is brand-new and how that will ramp et cetera. Thank you.
Micael Johansson
Well, on the UAE side, we will - we are now sort of doing the flight evaluation on the fourth system which will be and the fifth system is sort of moving into that later this year. So they would be delivered now next year to UAE, which is good. The Swedish program is doing really well and they will come after that of course, and deliver it. So, we are doing really well in that project.
Bjorn Enarson
Thank you.
Operator
The next question is from Virginia Montorsi of Bank of America Merrill Lynch. Please go ahead.
Virginia Montorsi
Hi. Good morning and thanks for taking my question. Just a quick one for me. If I think about the 10% CAGR that you've got as a guide for the next five years, more or less, how should I think about phasing, meaning, 2024 versus the remaining part of the time? Anything specific we should keep in mind, over the medium-term. Thank you.
Micael Johansson
Well, I think we are confident as we said before that we will do compounded, annual growth of 10%. Then we will have to come back guiding year-by-year going forward and as we've seen this year, the confidence in how our planning exactly looks like when it comes to things like material supply, which is needed to make the mine stones in the project and why that’s increasing the growth and also specific deliveries.
It takes a while into a year before you realize that we are confident and actually delivering things on certain points in time that will actually make us reach those growth targets. We will have to do the same thing next year again. Look at that year specifically. I'm not sort of ready to comment exactly on which year will give what over the next 4, 5 years. But we are confident on the guiding we've done.
We will have to come back to that sort of every year I would say. I don't know whether if you want to add something?
Christian Luiga
No, I would even dare to say it’s more likely that you have a sliding curve than we have a bathtub. So, that's just to guide you. I mean, and that's that sort of part of also when we start now higher. We already started and guided 16% to 20% this year and we have - and that's part of the 10% journey of course. So then it must be going down in some way. And then, it's probably - it's no problem. There we will have a sliding curve then will have a bathtub.
Virginia Montorsi
Okay, thank you very much. Very clear.
Merton Kaplan
Thank you, Virginia. May, I also pop in here because we have a few questions from our viewers. And one of our analysts have just sent me some questions. And I think I'm going to read the question to both of you and you can decide. So we mentioned previously back in the Capital Markets Day about M&A being an optionality in our growth.
So could you give us some color on the pipeline potential size of deals? And your views on the valuation of those types of companies given the defense environment we are in right now? And a follow-up on that is, how do we see on our non-core assets going forward?
Micael Johansson
Well, I think one, it’s important to have a strong balance sheet definitely a great liquidity position absolutely. But definitely right, the portion of the growth ambition that we have includes M&A opportunities. I'm not going to talk about sizes or exactly when, but of course, we have a pipeline when it comes to important countries like UK, the US and also look at, maybe Germany.
But sort of really sort of key markets to us where we build capability, which I called mini sobs. That's where we are looking and it's all about opportunities and evaluation. But I can't say more than that right now on that side. That's what how it is.
Merton Kaplan
Non-core assets and, a question was here on the follow-up? For instance, our civil business side of the business and there are structural units being non-core or core? How do we?
Micael Johansson
We continue continuously to monitor sort of how we optimize our portfolio. Definitely. We still have a few cost crossroad decisions to make. And we hope to do that in a diligent way. So we get the best out of it. So we are doing both looking at acquisitions, but also how do we move forward and optimizing the portfolio. I can’t say what and when. You have seen the maritime traffic management being divested now and that was sort of the key things we are looking at that might be coming some more. But but we'll come back to that when it happens.
Merton Kaplan
Thank you. Moderator, do we have more questions on the line?
Operator
Mr. Kaplan, at the moment we don't have any other participants register for questions.
Merton Kaplan
Thank you. Then I think everything was super clear this quarter.
Christian Luiga
Yes. I hope it was.
Micael Johansson
Happy summer. Yeah, thank you so much and have a great summer if you're in this part of the world and also if you are in another part of the world, of course. Looking forward to see you again next quarter. Thank you.
Merton Kaplan
Thank you.
Operator
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Saab AB (publ) (SAABF) Q2 2023 Earnings Call Transcript