4C Group AB (publ)

Good morning and welcome to 4C Strategies financial result announcement call for the first quarter. I'm Jonathan Juruso, the director of group sales and marketing here at 4C and I will facilitate today's session. Our aim for the presentation is to cover both our recent financial performance and give you some future outlooks and strategic priorities. But at the outset, let me first introduce today's speaker. First up, we have our recently appointed CEO with us, Jonas Johnson. Also with us is Anders Nogen, our CFO, who will join the Q&A session. And I will now open the possibilities to write questions in the closed chat. We will address these during the Q&A session. So let's get to it. Jonas, before starting off with an executive summary, looking at the quarter from the market and an operational perspective, could you please do a brief introduction of yourself?

Of course I can. Thank you, Jonathan. And good morning, everyone. It's great to be here. My name is Jonas Jonsson. And as mentioned, I am the recently appointed CEO of 4C Strategies. Really excited about that. So who am I? Well, I've been with 4C for a little over 10 years now. I've worked in a number of different positions, starting off in delivery, working my way through different sales roles. I've built our in-house legal team. And more recently, I've held a position as managing director of 4C International, leading our global expansion. In addition to that, I'm a reserve officer in the Royal Swedish Navy. I have an education in law from Lund University here in Sweden, and I live in London together with my wife and our daughter. I think when I look at my journey through 4C, I can see that all the different roles I've had have always been very closely linked to our software and to our customers. And that, in combination with my military background, in addition to the fact that I've been living and working most of my professional life abroad, I think gives me a very good tool set and puts me in a good position to be able to lead 4C strategies on the journey that we are on and in the next phase of that journey. So I'm really excited about that and I'm really excited about what's to come. So that's who I am. Now let's focus on Q1. And again, good morning and thank you everyone for joining. So in terms of an executive summary, so for the first quarter of 2024, 4C Strategies as a group had a net sales of 75.7 million SEK. We had a negative result of 21%. This is obviously not a result that we are super proud of or even very happy with, but it is a result that we were to a degree expecting and that we had seen coming. So we were prepared for it. It is a result that is heavily skewed due to delayed sales processes in the North American segment. On the other hand, if we look at our other two segments, we see that we have had a positive growth in the Nordics and a very positive growth in the international segment. And I will come back to these in more detail. When we look at this in terms of a historical context and where we sit, we can see that the quarterly volatility that we've been speaking of remains very much a live factor. We can see that. So we had a very strong Q4 last year. We now had a little bit of a drop in Q1. And we can see that with these big defense contracts, we are expecting the quarterly volatility to remain. But on the other hand, we are also expecting it to lessen in impact as the business grows. And especially as our corporate segment continues to grow into the future. So we are expecting continued quarterly volatility in the short and medium term. But as I said, we are expecting it to lessen as the business grows. So going into a little bit more detail then, we start here in the Nordics in our home market. We had a strong start to the year, a solid growth of 8%. We have delivered on a number of key deals and key contracts that we've had in the public and in the defense segment close of last year who are now coming to fruition. We've also signed no less than 50 new customers in the public and in the corporate sectors, which is really a promising start to what normally is quite a slow quarter here in the Nordics because it's also the start of the financial year. So a positive outlook in the Nordics, an okay start to the year. Shifting focus then to North America. As mentioned in the report, and as you can see in the numbers, we are heavily affected by the fact that for the majority of Q1, there was no US defense budget in place. That was the same situation as we had in Q4 and in parts of Q3. This delays the sales processes. And it is very difficult to sign new contracts and get new business in this segment, in this sector, when there is no defence budget. So what have we been doing during Q1? Well, we've been working very hard with our newly established, re-established North American leadership team, with our new external US board of directors. Both of these efforts and these teams are putting us in a good position to now look forward with the North American business and to be able to push ahead with these delayed sales process. In addition to that, we start to see a good traction when it comes to our corporate space in North America. We announced last year that we've opened an additional company. We've sent people across from our Nordics team to our North American team to help with that initial go to market strategy in North America and to break into this very, very significant market, which is the corporate market in the US and in Canada. We can see that we've had an okay start to that. It is a long journey. It is an area that is challenging to break into, but given the level of interest we've seen in our market outreach during Q1, the events and the trade shows that we've attended, we can see that there is a significant interest and we're also expecting further continued growth in the short and medium term in this segment. When we're looking at international, international has come to a very strong start of the year. We've seen significant growth in the defence space in all our geographies. We've sold new contracts and we've renewed contracts in both the United Kingdom and Europe together with NATO. We've developed our position in Australia even further. And we can see also increased activity and development in the corporate space, something that is very, very promising for the future, at least in the short and medium terms. So we can see that international, as I mentioned, has gone off to a good start to the year, significant growth compared to previous quarters in Q1 23. And we see now that the global upswing in military training initiatives is increasing the activities when it comes to exercising and when it comes to building readiness and when it comes to tracking the activities that you're doing across your armed forces, not only buying ammunition and body armor and helmets, but actually investing in how to use these things and operationalizing your strategies in the growth in the defense spending. So a good start to the year in international. a positive outlook towards the future and we're optimistic towards what's coming for the remainder of the year.

Thank you, Jonas, for that overview. And if I look at the financial results with a revenue decline and a negative EBIT margin, that's not in line with our targets. Could you share your thoughts on these results? Is there anything you would like to add aside of what you just presented in your executive summary?

Yes, no, thank you. And I think importantly, as I emphasized, the fact that we have two out of our three segments doing well or really well is something that shows that our business model and our strategy is still very much valid. I would have been significantly more concerned if we were at an equal distribution across these three areas rather than the situation that we have right now. We know the analysis behind why we are struggling or why we have struggled to close deals and progress in North America. We know that that is now changing. We know that we're in a stronger position as a company when it comes to where we are, when it comes to our products, our technical transformation and the opportunities for the future. So I think when looking at Q1, Q1 is always a difficult quarter for forces strategies because it's the start of the financial year and it takes a while to get going. So I think As I said, not a quarter that we're significantly proud of or really happy with, but one that we were expecting to come in, in or around where it came in. And I think we're now in a position to move forward in a better way than we potentially ever have in the past.

Thank you. And I think that's a perfect segue also to look slightly more forward to the future. And we as a company has, of course, previously communicated our views on the market and the broader trends that we face. But I think a lot of us would be very interested to hear your assessment of those trends going forward.

No, thank you. And I mentioned it briefly, and I think, you know, as we have a large portion of our sales and our revenue coming from the defence market, we have a really important component in the corporate and public space. But if we start in the defence space a little bit and you look at us as a sort of a defence tech company, if you will, we've had questions historically as to why our business hasn't taken off necessarily at the same pace as other defence companies over the last year, year and a half, two years. And I think what we're seeing now is that the defense spending is catching up with the idea and the concept that they are now also looking at training and exercising. Previously, they've been focused on buying things and buying ammunition and so on and so forth, right? But now we're seeing an increased interest in all of the NATO and allied countries around Europe and wider abroad, looking at how are we actually going to use all these things that we're now expanding in and that we're training more people than we ever had before. How are we going to do that in a structured way? How are we going to make sure that all the money that we're investing, we're actually getting the results in a measurable way that we can use to determine our readiness? So I think that is happening now on the defense side of the house, which is obviously crucially important to us as a company. In addition to that, I think we can see that with a more stable inflation situation in Europe and in our core markets, together with a slightly more positive outlook when it comes to interest rates and capital markets and so on, we see that the corporate interest is coming back up in terms of willingness to invest and in terms of willingness to move forward. We know that the requirements and the interest is inherently there post-COVID when there was a lot of eyes being opened in terms of business continuity, in terms of risk, in terms of crisis management and how you handle those and the fact that you can't no longer do that just with pen and paper or WhatsApp chats. So I think that the combination of those two, obviously together with the unfortunate situation that we are still in a very unstable world, is something that is generating a requirement and a demand for the services and the products that we are delivering to the market. So I think that's an overview on the sort of the global trends as I see them at the moment. Thank you very much.

And if we take one step back and look how these trends affect Q2, is there anything you can say about that?

Well, Q2 is obviously already upon us, and we are working very hard now in execution mode. As I mentioned, in the North American space, we know that the defense budget for the United States was approved back in March. We also know, obviously, that we're not the only ones trying to get deals through the process in the U.S. at the moment. So there is a process for that. We can see that it's progressing well. We've got a very positive outlook towards Q2. we can see that the investments and the initiatives that we've done for market outreach and for brand awareness during, well, during 2023 and also during Q1 is starting to bear fruit. So without going into too much detail, I would say that we've got a very positive outlook. And for me, as a new CEO coming in, I'm very optimistic about our opportunities for Q2, Q3 and Q4 of 2024.

Perfect. Thank you. And on a slightly more technical note, I know that incremental for our sales and our progress is a lot of clearance processes that we are going through across the globe. Is there something you can say about that?

Well, these are sensitive processes and sensitive situations that you're in, but you are right. They are instrumental to being able to operate in the markets where we operate. And I can say that we've made positive steps both in North America in the defense space, but also in Australia in the United Kingdom and retaining here in Sweden, the ability to be able to engage with government customers on all levels and on all security classifications, something that takes time to achieve, something that puts very strict requirements on us as a company. And to be able to progress and get those stamps of approval and operate in that space is crucial and something that we've taken major steps forward on during the last three to six months. So we're very proud of that, very happy with that, and it opens up significant opportunities.

Thank you. But let's shift focus a bit here. And I know that many of us would be interested to hear your view on the company, the key priorities for pushing us forward. And I know also that you prepared a short presentation on this. So could we turn to that, please?

No, of course. Thank you. And I mean, it's an interesting opportunity and an interesting position, obviously, to come in as a new CEO into a company that you've been working in for 10 years or more, in my case. You know the company from the inside and out. You know the pain points. You know your view on the situation and so on. And as I said initially, I'm really excited to be in this position and to be able to lead 4C Strategies on the next phase of our journey. And coming from my previous role as Managing Director of International, what I look for is obviously how do we leverage the success stories from the different parts of the organization? How do we merge those together to build a one joint up organization across the globe with our offices in Australia, North America, Central Europe, Sweden, Finland, and in the United Kingdom? and merge all of those together and find the synergies to build optimization. So that's my first key focus area is to look at all of those things and bring it all together. Secondly, and we mentioned it historically in the past as well, we have been going through our technical transformation process in terms of rebuilding the back end of our platform, taking our excellent products from our from our legacy processes and histories, systems and databases into a new future-proof environment and a new future-proof technology. We're going to take additional steps on that. We are going to invest in a number of key additions to our team to be able to do that. and to continue to push that forward. So I'm really looking forward to be able to leverage the global transformation in technology that is going on right now, as well in AI, in machine learning, and how not only to implement that in our customer products, but also implement that in how we work as an organization. And again, previously mentioned efficiencies and synergies. and continuing our journey to a full fledged technology and product company. And then finally, how do we work with all of these things to go through our strategic realisation and to operationalise our strategy that we've established and to take that forward? Well, we need to increase our sales teams, we need to increase our go-to-market strategies and we need to continue to invest in coming closer to the customer, increasing our brand awareness across the globe increasing our outreach to these core, very large, addressable corporate market that is out there and that is interested in the products that we are selling. So the third and critically important focus area is to make sure that we have the right salespeople in the right place and the right go-to-market strategies to be able to push forward our products to the customers and to the global customer base that is out there. So all in all, three quite large focus areas, but you'll see progress on those in the next coming quarters, and I look forward to continuing to report back in these forums and in other areas areas about how we're progressing in these areas.

Okay, so with those key focus areas, we are concluding this part of the webinar. I want to thank you for your attention and ask our CFO Anders Nogren to take my place on the stage. Thank you.

Okay, so we can see that we've got a number of questions coming in. We will cover off some of them, as many as we can. So initially then I'll start with one here. Considering the change of CEO, could you elaborate about potential changes in the company strategy and if there are any intentions for a strategic review? Okay, so I think that I'll take that one. I mean, as I mentioned, we have a number of key focus areas that I have that I will focus on during the first sort of three, six, 12 months of this period. We are not necessarily seeing any major shift in our overarching strategy. We still think our strategy stands. And given the situation the world is in, we can see, as I mentioned, that our offering is very much valid. We are, of course, looking very actively at synergies and at optimization and whatever actions we can take to get our products closer to the market and out to our customers in an as good and as quick way as possible. But in terms of strategy, in terms of long term growth plans, those still remain. We are obviously seeing that our North American endeavors needs to improve and needs to take off further but with that I believe that the strategy as it's been laid out still stands so I think we're not expecting any major changes there but of course we are looking at how to optimize and how to work with everything that we've got and also to see the ROI coming in on our strategic investments which we have been conducting since we went through the IPO in 2020. Okay, so next question. Cash flow. You had a high burn rate of cash in 2023 and now also in Q1, the cash flow was negative. What is your view on the high burn rate and what should we expect going forward? I think, Anders, that one's for you.

Yes, so first, good morning, everyone. So during 2023, we made significant investments into the organization. um and due to the challenges we have faced in the us where much of the expected revenue has not materialized our cash flow and our liquidity position have been impacted both year in 2023 and now also in the first quarter of 24. as jonas mentioned earlier we are putting a lot of focus on us right now and we expect the situation to improve during this year something that will support a better cash cash development And going forward, I expect to see this during H2 2024. Okay.

So we have one here about the international segment, which we'll look at then. During 2023 and now in Q1, the international segment is delivering strong. What are your projections of growth for international? Well, I mean, as I said earlier, we're very proud and happy with the progress and the current trajectory of international. It's growing rapidly in all geographies. we're seeing an increased pipeline continuing with a reasonably stable inflow of opportunities. And there are a number of movements in the defense space for 2024, which is very interesting. And I mean, as I said earlier, we have been have been waiting for the uptick in defense, so to speak, when the defense procurements are shifting focus from buying ammunition and helmets and tanks to actually buying the systems to deliver exercises and training within those organizations. So from an international perspective, we believe that we will continue to grow and And we're really optimistic about how that outlook is. At the same time, we are aware, of course, that the global situation, the uncertainties in the world are something that can impact us. And as I mentioned, we're looking very carefully at the quarterly volatility and the impact that the significant defense contracts that we're working towards could have on each individual quarter. Overall, we're expecting a continued growth for international. The business is stable. But as I said, there are a number of different factors that can impact this in the short term. Right. Looking at another question here then, we have some additional questions here. Operating costs have increased with 15% for Q1 year-on-year with the majority in personnel costs. Considering the lower earnings and top line in the latest quarters, will there be any cost reductions in the near future to increase earnings and cash flow? Anders, do you want to start?

I can start. As earlier communicated, I would say we do not foresee any investments into our administration and support functions. The focus for us is now to ensure that investments are made into the right areas, for example, the sales organization. And also that we are seeing return of investments on previous investments, I would say. So in summary, I expect a stable cost base, but we will, of course, continuously evaluate the cost base going forward.

Yeah, no, thanks. And just to add to that, I mean, as we said, we're not seeing any significant changes in strategy, but we are looking very closely at our cost. Costs are going up across the world when it comes to selling and when it comes to meeting our customers. So that's something that we're tracking. But most importantly, we're focusing very hard on how do we ensure that we get the most out of our investments and that we continue to build with the resources that we have. right let's see here we have another question uh congratulating me on the ceo position thank you for that uh in a previous presentation you mentioned that 4c only works in the preparation stage and not in the execution stage but it might change could you please elaborate on this further well i believe what you're referring to is is our business with within the defense segment um And thank you for the question. And one area, I think it's really, and we're gonna continue working really hard with this. And I will be focusing on it as the new CEO as well, in terms of making sure that we inform as much as possible about our business, about what 4C does and how we do that. So when it comes to our training and exercise customers, when it comes to, which is predominantly in the defense space, we are working in the preparation stage, i.e. we are helping organizations to prepare for events that are to come. In the other leg of our business, in our resilience domain, we're very much in the operational space, helping organizations to act when something happens and helping them prepare to be able to act, but also in the execution phase of that. In terms of where we are in our product offering, we're always looking to innovate that and we're always looking to expand our product portfolio into the right areas. I think in terms of the execution phase in the armed forces customers, probably not in the near term. We're not looking towards pivoting towards becoming a simulation company or anything like that. But we're obviously working together with our customers to help them collect data, assess that data, and to show the outcomes of that data collection, regardless of where they are in their cycles. So... So how do we do that? Well, it depends on those individual customers, but we are very much working actively in the execution phase with our resilience customers. Right. We've also got some quite detailed questions coming in around both our US, but also in terms of how we communicate around our new contracts. We will continuously communicate about release contracts and when we sign them. We will try to do that as actively as we can within reason. And in terms of details about specific customers in specific countries, we're a bit hesitant to comment on that outside of our sort of formal communication. So we won't go into any further details on that. Right. And I think in terms of... That's where we are. I would like to thank everybody who's joined in and listening. I think we had an all time high interest, which is really good. We're really happy to see that interest and we're hoping to obviously engage a lot more with a lot of you in the coming days and to share more information about where 4C is, about my views on how we're moving forward. So again, thank you for your attention and and stay tuned in both our LinkedIn and social media channels and about further announcements about how we continue to build this company and where 4C is going in the future. So thank you everyone very much for your attention. Thank you, Anders. Thank you, Jonathan. And I hope to see you all very soon.