4C Group AB

Q3 presentation from 4C Strategies. My name is Jonas Johnson. I'm the CEO here at 4C and I'm joined here today by Veronica Wallin.

Good morning, everyone.

And we are going to guide you through this morning's presentation after we release the figures in the Q3 report this morning. So we will jump into the presentation. Whilst we go through the presentation, it will take us about 20 minutes or so. Today we are opening the question session in the chat. So if you have any questions, please write those as we go through and we will come to a Q&A session at the end of the presentation. So if we just look at Q3 as a whole, we can see that it's a continued transition quarter for us here at 4C. We've been working hard with how we continue to evolve the company, focus in more on defense, streamline our software development and reprioritize our efforts. And I think we've come a long way and we've made good progress on that. We have signed a number of key extension to some of our core customers around the world from Canada, through the UK, here in the Nordic markets, and also extending our long term relationship with our customers in Australia. which is really important in terms of solidifying our base for the future, but also goes to show that the customers where we are engaged with them from a long time and where we're working together, they continue to see the added value of using our products in the ramp up that is now ongoing. As I mentioned, we are continuing the transition, which we announced back in the last year. We're currently seeing that the OPEX level are at the right level. That doesn't necessarily mean that all of our investments are in the right place. So we are continuing that work to make sure that we are focusing our efforts as best we can. But if you look at OPEX at the levels it is right now, that's sort of We're expecting it to continue. Good progress on that during the quarter. Also, I mentioned it briefly already, but very strong progress when it comes to how we build our software and how we're working with our customers to enhance the way that we can deliver our products out to the end users. All in all, if you look at the third quarter, we had a bit of a slowdown in the US and North America. So not the progress that we were pushing for and expecting there as part of the end of their budget year. But at the same time, some key core extensions in the rest of the world, which I will come back to as well. So. Jumping into the numbers a bit more in detail. So as you would have seen, top line at 67.3, a slight reduction compared to last year. Q3 is not our strongest quarter in the year and it varies quite a lot depending on what happens in North America as we have a significant slowdown over the summer periods here in Europe. We see we have a negative EBIT of 6.1, which is an improvement compared to last year, but obviously still below what we're targeting. I mentioned OPEX. Our cost base is down approximately 13 million or reduced by 13 million compared to the same quarter last year, which is obviously a very positive improvement. Move, given that we continue to deliver and we haven't really reduced our ambition levels anywhere. So we've done optimizations and and reduced and refocused cost. You can see on the bottom right hand corner as well the way and Veronica will come back to this as well a little bit later. The way we changed in terms of how we build and deliver our software to our customers results in lower capitalization and higher amortization at the same time. This is a positive from a Slightly longer term perspective in terms of how we see the visibility in the company and how we run things. Obviously, it has a short term impact on the P&L and also then looking at that in correlation with what we announced during the first quarter of the year, which is Due to the fact that we've changed how we build and deliver software, we're also looking at how we recognize revenue from our software, which is also impacted or continues to impact our quarters from a comparison perspective in the short term. But we are building a stronger, more solid base for the future. And looking at that as a positive, albeit it does have impacts on the short term. And we'll come back to the numbers in more detail during Veronica's presentation a little bit later, and obviously also going into the cash flow and the developments in that area. If we look at the sort of the more of the business side of what's actually happened during the quarter. So as I mentioned, we had a slower quarter than we were expecting in defense, but we did have some strong proof points from our existing customers. We had defense net sales of 47 million. which is approximately 70% of the group sales. We did have good extensions and expansions with our current customers up in Canada. They have also now, as one of our first customers, started to implement the use of AI within the actual use in the software. And I'll come back to that at the back end of the presentation a little bit. I mentioned also we had the core contract extended for another three years in Australia, delivering to the combat training center down in Australia and enhancing their readiness. A customer we've been working with for a really long time and obviously a positive that they continue to put their trust in our ability to deliver the software that they need to enhance their ways of working. We have expanded contracts in exercise planning within NATO, a growing area where we see quite a lot in the pipeline and are expecting more things to come in during the fourth quarter as well. It is an exciting opportunity to continue to build with NATO. We've had a strong relationship with them for a long time, but it has been enhanced, I would say, by Sweden joining NATO as well. So we're seeing more positives coming out of that. in addition to working with it from the UK. And we have extended some of our really long-term running contracts outside of the ones that we've announced earlier this year in the United Kingdom as well, supporting some of their higher levels of training and also building some bridging contracts on some programs which are due to be extended and expanded during next year. So even though it's a slower quarter than we were expecting in defense, there's a lot of positives that have happened. And also, we've spent a significant amount of time continuing to expand on our pipeline and build opportunities for the future and working with our customers predominantly here in Europe in terms of moving the opportunities forward. If we look at the North American market and predominantly then the US, We had challenges in terms of converting the sales efforts, which we were hoping for as part of the end of their budget year. Funds were reallocated out from training and into more of the operational field in the US. What we have done is we've solidified our base there in terms of delivering on our core programs, as you would have seen in press releases after the end of the quarter as well. We're now in a position where we have a strong base to build from in the US. So we're going to focus on delivering within those programs, retaining our position in the market and also continuing to inform about what we offer and where we are. and to work on the existing pipeline, but to use really the position that we've built, which is a strong position for the next 12 months, to make sure that we can be both revenue and cash positive out of the US in a significantly more positive way than we have been if we look at the last 12 months, for example. AB Group AB Group AB Group AB Group We will see what the fallout comes from that in terms of continuing resolutions or budgets or how the US government is focusing their efforts as we move forward. Final point when it comes to defense, the European defense market is still growing in a really exciting way and we have been working that for a long time as I'm sure you're all aware in terms of positioning ourselves and using our accreditations, frameworks and and connections together with our customers to really inform them that when they now get to the point of actually trying to convert all these investments, which I have done over the past few years into actual capability, we're here to help. And we are seeing a significantly increased demand and are expecting a lot of conversions to happen over the next quarter and into early next year. Moving on from defense then into the resilience and expert services side of the house. As you're aware from last year, we are working resilience right now in a way that we are looking after our core customers. We are retaining that base. We improved profitability and increased net sales compared to last year. And we're still on track to make sure that resilience is a cash flow positive contributor into 4C compared to where it was a year ago when it was more of an investment. So we have done that transition. We're working closely together with the teams in resilience and in our engineering teams to make sure that we continue to enhance the way we deliver the software and looking after our existing customers. On the expert services side of the house, we had a strong quarter, albeit the third quarter, given that a lot of our efforts are focused here in the Nordics. The third quarter is traditionally weaker than the other quarters, but despite that, we had a strong quarter with good growth. And we delivered a broad range of services, which is also the reason why I think we see such an uptake in expert services and a continued growth and are expecting that continued growth. So we are delivering support from the financial sector with customers, as I mentioned here on like Euroclear, all the way across to assisting municipalities in their ways of dealing with major events, such as school shootings and other tragic incidents that may happen in the municipalities. So working with a broad range of services, all tied into the same sort of sector and area. And we are seeing a continued expanding interest also in the terms of the total defense services and a lot of organizations coming into the realization that they need to work more actively with these questions and how they are going to be a part of a more integrated total defense concept within the society. So we're working that actively in Sweden right now. We are expecting it to continue to grow into our other markets in the Nordics and in the UK and obviously treating the growth in expert service as something really positive and it continues to give us that stable foundation over some of the fluctuations that we can see in other parts of the business. All in all, a lot of positive things during the quarter, even though they may not have trickled all the way through. But a lot of positive building blocks that are coming into place. And we're looking forward into the next quarters to continue to build on all of these three areas. So I'll come back to a little bit more of a future outlook at the back end, but I'll hand over to Veronica first for a bit of more details into the financials and the KPIs.