4C Group AB (publ)

Hello and a warm welcome to this earnings call for 4C Strategies Q4 report. My name is Jonathan Jersow and I will guide you through this webinar. With me today I have Jonas Jonsson, our CEO, and also joining us later on in the Q&A session is Anders Nogen, our CFO. I will now open the chat function for your questions that will be moderated throughout the session. At the outset here, Jonas, let's look a little bit into the activities that we've been delivering during 2024. Thank you, Jonathan.

And good morning, everyone. Good morning from Stockholm. Yes, so a little bit of a recap about what have 4C been doing, what have we been up to lately? Well, if you look at the year 2024, I think it's obvious to everyone that there is a continued build-up of military readiness around Europe and in the NATO and allied countries. 4C have been continuously supporting this through our external defence platform, which has been used to deliver over 100 exercises conducted in 2024. And the training outcome of this has been significantly enhanced by the ability to do this in a more efficient way. And if you just continue to look at numbers, we know that over 100,000 troops have been taking part of these exercises in terms of achieving an increased readiness for our NATO customers and the allied countries as well. So quite a busy year. We've had people supporting exercises across the globe, and we are continuing to support those countries and organizations and look forward to doing that in 2025 as well. If we look at the other side of our domain spectra when it comes to our resilience operations, there is a... continued increased demand as well when it comes to individual organizations and corporations to be able to do their piece when it comes to not only protecting their own brand and their own operations but also being part of this bigger ecosystem. So we see that the requirements that are coming at organizations are coming both from a shareholder perspective but also when it comes to increased legislation. And this is where our expert services, but it's also where our resilience platform comes in to support these organizations in building that resilience readiness from a risk management perspective, continuity management perspective, but also being able to handle incidents and crisis as they occur. So a very busy year last year. a strong end during Q4 and looking forward to how we will be able to continue to support this. And on the right hand side of the slide you can see a number of examples when it comes to supporting global organizations like the Shell oil industry to be better at delivering exercises when it comes to oil spill response. We've worked with media outlets like The Guardian when it comes to crisis management and incident management exercises. And as I mentioned, supported some of the largest exercises in the world when it comes to building military readiness. So a lot going on and a lot to look forward to in 2025 as well.

In your overview, Jonas, you were speaking a lot about the defense sector and how important it is for 4C and also what we're delivering to NATO and allied forces. I think it would be very good for this forum also to describe slightly more what our product actually does. So could you give us an overview of the Exynos defense?

Yes, I will do my very best to do this briefly. I think it's important to try and give a little bit of insight into, we call our defense product Exxonol. And I've tried to explain it in a way to say that it's like the ERP for training and exercising within Allied and NATO armed forces. So basically what we deliver is a software platform that sits at the heart of training and exercise management, that helps to enhance and deliver more efficient training through increased visibility of training readiness. What does that mean? Well, basically what it means is that using a software system to track training as it goes through the different progressions inside an armed forces, you get the visibility of where you are, you know what you think you know, but you know it through an enhanced data collection process. So basically what we do is we help gather all that information to allow decision makers, commanders, senior stakeholders to know that this is where we are, this is our state of our readiness. We deliver an enhanced resource management. So what does that mean? Well, basically it means that you can focus your resources in the area that they do the most good so that you can utilize the resources that you have available to deliver the training that you need to deliver to be able to achieve the outcomes that you need to achieve at the point when you need them. So looking at how do we actually use our resources in the most efficient way to deliver the readiness that is requested from government and decision makers. And then finally, when you look at the training area today, the military training domain, there's a lot of different data systems. So what Exxonol does and what Forsey delivers is a system that sits on top of the other training systems which are available to gather all that information about how are we actually performing and to try and give commanders a better view of what you are actually doing in the training area at the point of need when they actually need it. So to be able to say halfway through an exercise, this is what we've achieved, this is where we're good, this is where we need to refocus resources to move forward to be able to achieve the goals that we set out to achieve at the start of the exercise. So basically by integrating this Exonaut software platform into the military training area, We give an increased visibility of what is the actual readiness. We give enhanced resource management, which means that you are able to use the resources in the best possible way. And we integrate all the other data systems that are available within the training area to be able to assess training in the most efficient way possible. So all in all, an increased readiness when you need it, but also an increased visibility of knowing what you actually think you know. So that's a very high level overview of what ExxonMobil and 4C delivers in the armed forces space. And we do see a continued increased interest from both the NATO as an organization, the countries and the customers that we've been working with for a long time, but also increasing across Europe when it comes to additional nations who are now ramping up their exercising and their readiness buildup. So quite a lot going on in this area as well.

Okay, perfect. Thank you for that overview, Jonas. But now let's look into the actual numbers for Q4. First, an executive summary, of course, but then deep diving into our different business segments. Yes, of course.

So looking then at Q4, so a strong quarter in itself. We came... We came to a good end of the year. We delivered 113 million Swedish in net sales with an EBIT margin of 23%. So a strong Q4. You can see that the full year results at 344 million with a negative result of 2% is not necessarily exactly where we wanted it to be. But given how we progressed throughout the year, I think the key focus areas here is looking at Q3 and Q4 and a strong recovery at the end of the year. We did sign key deals in the UK, US, and with our NATO defense customers. I'll come back to that in a little bit more detail. And we worked really hard during Q4 to continue to focus on our optimized operations. We continued to decrease our OPEX. And we invested even more into AI innovation and integrating AI into our solutions. So a lot of effort going into that during Q4. If we look at a little bit more when it comes to the different segments on a rolling 12-month basis, we can see that we have a growing EMEA. We have a yet again growing North American business, which is obviously key critical, and I've been talking about that over the last couple of quarters. We've got a stable delivery within our expert services and a slightly smaller APAC than previous quarter, which is also according to what we were forecasting. So all in all, when you look at this slide, you can see that the trends are pointing upwards and that we're continuing to build from Q3 into Q4 and looking forward. So if I go into a little bit more detail and we start here in Europe in the EMEA. So at the back end of the year, we signed a couple of really critical deals. We signed a long-term expansion with our customers in the British Army, taking us up towards the end of the 2020s and also solidifying our position as a key delivery within the land domain for one of our longest term customers. We also expanded our contracts directly towards NATO, which is key critical when it comes to continue to deliver to that organisation, but also showcasing our capabilities to the wider NATO countries. If you look into the resilience sector here in Europe, we are making progress when it comes to reaching our customers with our more packaged solutions. And we see an uptick both here in Sweden and also in the UK when it comes to continuity management, incident management, working with both corporations and government organizations. So a positive end to the year, I would say. And as I've mentioned as well in the report, we do see an increasing interest when it comes to the Swedish public sector for how government organizations, municipalities and the regions can use software to do their part of of the national build-up when it comes to an increased total defence and an increased readiness here in Sweden. If we move towards APAC, as I mentioned, APAC ended the year according to plan. We signed additional extensions with our defence customers in Australia. We have ongoing deliveries which are really, really important to one of the largest military exercises both in the region but also in the world called Talisman Sabre. where the U.S. and Australia are jointly leading an exercise of around 20 nations and somewhere above 50,000 participating troops. That is being planned, delivered, and will be evaluated through Exxonol, and that also gives us the opportunity to showcase the capabilities forward. So those deliveries during Q4 when we were working together with our customers are so, so important as we move forward. And I think if we look at APAC as a region and as a foresee sort of journey for the last couple of years, we can see that since we established 2022, we established in 2022, we are already both cash and revenue positive on that sort of expansion plan. So I would say APAC is progressing well, and we're looking forward to continuing that journey during this year. Shifting then to North America, there's been a lot of focus on North America since I took this role, and that continues. We had good progress during Q4 as well, with additional deals signed in what we call the COTS market, so our standardized software products. We have a number of ongoing deliveries in terms of the deals and the opportunities that we signed in Q3. I mentioned one of them in the report as well, which is together with the US Armed Forces Joint Modernization Command. And I talk about that because, again, it is an opportunity for us and for our deliveries together with our customers to showcase the capabilities that our system delivers and that our product delivers to an organization like the Joint Modernization Command and all the other parts of the US Armed Forces that go through training within that command. So really positive progress. Lots still to do, but a market that's showing its true potential. In the resilience market in the US and North America, it's still in the early stages. It's a big market to break into. We have continued to sign deals throughout Q4, but we've also really, really focused on building our market presence and making making the market aware that 4C Strategies resilience products exist in the North American domain, both within the continuity management, but also within risk and incidents. So a lot going on there as well. Finally, if we look at our global expert services, we did a strong recovery during the fourth quarter and also during the third quarter. So H2 looking very good in terms of taking back some lost ground from earlier in the year. We've built a really strong pipeline when it comes to securing orders for 2025. So going into the year, we've got a good position. And as I mentioned as well within the EMEA, the growing interest for our core market offering, the thing that 4C Strategies have been delivering within this market space for so long, is now becoming a core capability requirement for so many different organisations and corporations looking at how do we strengthen our readiness, how do we strengthen our resilience. so that we're actually ready and prepared to act when something happens, both within our own specific domain, but also in the society at large. So a lot of exciting things in expert services, and I think we'll be able to share more exciting news from that area as we move forward.

Great. Thanks for that summary, Jonas. And before I will open up the floor for questions and thank you for those already now in the chat. I would like us to look back on your priorities that you set out for 2024 and how we as a company have delivered on those. And I think also it would be interesting for our audience to hear some of your visions for 2025.

Yes. Of course, thank you. So looking back on the year, on the last 12 months or so, from my perspective as I came into this role, I set out a number of key focus areas of how we were going to transform and enhance 4C strategies moving forward. These three areas focus on exceptional customer service and enhance product delivery, drive and optimize the organization and continue to drive our technical innovation, both through a transformation with AI, but also in key additions to our team. So we've been working really hard over the last year to try and achieve this, to try and sort of not necessarily turn around because I think we were already heading in a good direction, but to do some course corrections in terms of enhancement, both on our operations, but also how we reach our customers. When we look at this, I would say that if we look at focus on exceptional customer service and enhanced product delivery, we put a lot of effort into our product packaging and to tightening our own organization when it comes to how we build our software, how we set out our product strategy and how we take it to market. We've focused a lot on our customers and working really closely together with our customers and through that we've achieved exceptionally low customer churn. If we look at the second area in terms of drive and optimize the organization, we have conducted organizational optimization. We have lowered our operational expenditures. We have streamlined our operations and I think we built a strong 4C for the future. I'm not necessarily 100% certain that we achieved the objectives that we set out for 2024 in terms of all the deliveries and especially not closing the year out on a negative result was not my intent and my objective. So that's why we put that one as an amber. We've still got some work to do there and we're continuing to push ahead. And then if we look at the third area when it comes to continuing our technical innovation and transformation through AI and adding key additions to our team. Well, it's taken a long time and there's a lot of effort that's gone into it. During Q4, we had the opportunity to showcase our in-house developed AI capabilities that we've incorporated into our product and showing that to our defense customer has led to a very, very high interest. And we've also secured additional resources that I'll be telling you about in the very near future when it comes to enhancing our technical offer for the future. So I would say that that one's green. More to share as we move forward. But we've made some really, really exciting progress. So a lot of hard work going into 2024. And as I mentioned in the report as well, you want to do everything. You want to change everything. And you want to see the effects straight away. But some things take time. And in a lot of areas, we've made really, really good progress. So if we then look at 2025 and beyond, well, what we are focusing and what I'm focusing for CSN organization and the team and myself on is to, within the defense space, really to continue to strengthen our position. We have a very strong defense. position when it comes to training readiness. And we want to continue to build on that and making sure that we focus our efforts in being the go-to, the purpose brand when it comes to delivering training readiness and delivering efficient exercises. If we look in the resilience space, we are working really hard and we're going to continue to work really hard to expand our market share within our software product area. We're going to continue to push our expert services offering in the resilience domain to be a name brand that everybody thinks about when you think about resilience and when you think about how to build a stronger organization. And then finally, we are going to continue to work really hard to continuously improve our operations, keep track of our operational expenditures. We're going to increase our own performance. We're going to manage and develop our teams. And we are obviously aiming a lot and focusing a lot at retaking our ground when it comes to delivering that long-term profitability. So making sure that our operations are streamlined and enhanced, making sure that we're focusing in on the right areas, and making sure that we give our employees and our team the opportunities to really flourish and to build a 4C dream team for the future. So three core areas when it comes to defense, resilience and really building 4C stronger for the future. So a lot of work still remains and a lot of effort is going to go into 2025. I'm looking forward to it and I know the team is as well. So that's where we are as of today and looking forward to taking your questions. So Jonathan.

Thank you, Jonas. And we will, of course, report back on the progress on this focus areas in upcoming earnings calls. With that said, this ends this part of our webinar on earnings call. And I will now welcome Anders Nogen, our CFO, to take the stage and we will go through all the questions. Thank you.

Yes. Welcome, Anders. Thank you, everyone. All right. So a couple of questions then to round off this morning's call and this morning's information. Let's start with one for you, Anders, I think. So let's see what we've got here. Costs landed at 76 million SEC in Q4. Is this the level we should expect from the coming quarters?

It's correct. 76 million in Q4. And I would say that we are seeing the effects now from the optimization that we have done during especially H2 during 2024. Given this and that I expect that these effects will continue in 2025, I don't expect to exceed the Q4 levels in the next coming quarters, I would say. We will remain disciplined with what we invest in. So just to repeat, I don't expect us to exceed Q4 levels coming quarters.

Yeah. No, and I agree with that. And we're obviously, as we've said earlier, and as we've alluded to in these calls and other places, is that we're working hard to look at how we run our organization and where we spend our money and how we continue to invest in the right areas and make sure that we get the most out of our ongoing investments. So, yeah, we're pleased with the way it's progressing and looking forward to continuing to track it. Right. Here's one. Yeah, one for the actual the current quarter. Let's see what we've got. The contract that was press released beginning of the year. Can you say something about what impact this will have on the current quarter IEQ1? Right. Okay. So I assume that this is related to the press release that we did a little over a week ago. Obviously, a very exciting contract. We can't talk too much about it, but I think it's a relevant comment and question in the way that we The initial contracted value of that contract is about 90 million SEK. So that is a contract that runs over a four year period as part of that delivery as well. We're hoping that we will continue to expand it with the customer. But what we've contracted now is an ongoing delivery with multiple components where we will be building a solution together with partners for the end customer. So a really, really exciting project. I wouldn't necessarily expect the full similar impact on previous quarters as we've had with some large contracts. So that's important to remember. But we will be obviously working really hard to progress this contract over the next coming quarters and to deliver a great product as part of that, but also to take with us what we are building into our wider product portfolio. So yes, and then we've got a question around the cash situation, which I think a lot of people are interested in. So we'll take that one. Can you give some comment about cash and cash position? What can we expect moving forward? So I'll pass that one to you Anders.

Yes, of course, cash conversion is an area that we are focusing on. We've been fairly successful in Q4, as you can see in our report. It will remain key focus for the coming quarters as well. and need to increase the sales, need to keep our eyes on the cash conversion and the contract assets where we have fairly good visibility. You can see in the report that the contract assets has increased The contract assets consist of primarily defense customers where we have good visibility when they are converted, but we will remain focused on the cash and ensuring that we have a good cash conversion throughout 2025, I would say.

Right. So with that, I think we will conclude today's call. I look forward to talking to a lot of you individually as well. And I hope that you continue to follow the 4C journey as we progress throughout the year. I see that the team is already working really hard to continue to progress 4C along our journey. So really excited about what's to come. And I know that all of 4C is geared up and ready to go for 2025. So Looking forward to that, and thank you, everyone, for joining this morning's call, and I hope you continue to follow the journey.