MilDef Group AB (publ)

Ladies and gentlemen, a warm welcome to the investor call, the Q3 investor call with Mildef, with a special focus on the Mildef reporting on the third quarter of 2024. This call will be, as always, presented by our CEO and president, Mr. Daniel Ljunggren, and our CFO, Vivica Jonsson. We expect approximately max 45 minutes to be sufficient for the presentation and the Q&A. And I will try to keep our microphones muted. And if not, please help me to do so. And then we open up your mics or the chat for the following Q&A after the presentation. I will line up and moderate the questions that you will have. Also, for your information, we record this meeting. So, again, a warm welcome to the presentation of Mildef's third quarter of 2024. So, with no further ado, please take it away, Daniel Ljunggren and Vivica Jonsson.

Thank you very much for that, Olof, and good morning to everyone, and thank you for joining this call around Mildef Interim Report Q3 2024. I think we will directly jump into the highlight for the third quarter, First bullet is the new long-term profitability target that was adopted by the board of directors. We increased our long-term profitability target from at least 10% EBITDA to at least 15% EBITDA instead. And that is, of course, an ambitious target, but I also think it's a realistic target in the near future, so to say. Also, what we see on the market here, number two, the long-term demand drive, strong interest in Milov portfolio. We still have an urgent need to continue to support Ukraine in their conflict against Russia. There's still a big need to ramp up the defense capabilities in Europe. Europe has underinvested for many, many years in the defense industry, and there is now a rapid need to increase the defense capabilities. And that, in combination with Mildov, has a great position on the market, has led to a strong order intake in the third quarter, actually a record high order intake for Mildov in the third quarter. But I'm also happy to see that we have continued to improve the free cash flow, major improvement from Q3 last year, and it's now the fourth quarter in the row where we have improved the cash flow. Also a big event that was happening in the Q3 was that we have now signed a significant premise contract in Stockholm. Of course, aiming to expand the capacities we have mainly on the integration services side, where we now have four times higher capabilities when we move into the new premises. And also when we move out from the third quarter, we now have a record high order backlog to deliver upon. If we jump a little bit further into details around the financials number, we saw that the top net sales was increased by 10% if we compare to Q3 23. But the most, I think it's important and the most pleasure with the report here in Q3 was the order intake that was up 134% increase in Q3. A couple of large contract was won in Q3, put us in this record high order intake position. And the increase, of course, reflects the more active market, growing demand, and that Milov has a strong position on this growing market. If we look at the EBITDA, we can see that there has been an improvement. We have made in percentage 12.5% in Q3, and that is something that we can compare to 8.4% that we did the same quarter last year. We also see that the gross margin is stable on 50%, and we also can see that the OPEX is nearly flat if we compare to Q3 2023. Last but very important bullet is that we have major improvement of the free cash flow. It's now the fourth quarter in a row. We see increased positive free cash flow, and I think that this demonstrates the operational efficiency that we are putting high focus on, and I think this is a result of that. There has been a very hectic and intensive Q3 for Middle Left. There has been a lot of corporate news released, as I said, the news. where we foredouble the integration service premises capabilities up in Stockholm. Hopefully, we can move into that new facilities in autumn 2025. That's the plan. I also welcome Magnus Hagman, who will be the new vice president of Nordics. He will lead and management the business area Nordics. And as I said, the new target profitability that Vivike Jonsson will give you a little bit more flavor on later on. And we've also performed our first ever capital market day And it was a great event, and it was very high interest from the audience. And also, as you can see in the bottom row here, the business news was a couple of major important contracts that we won in the third quarter. And I also would like to highlight that this is different customer in different countries, puts Miller in a good position and not increasing the customer concentration. So it's different programs and different countries and different customer. I think that is important to add as well. A little bit of brief outlook on the middle of the universe, what to whom and how we sell, so to say. If we break down the top line, the revenues and see the geographic split of it, we can see that the last 12 months we have Nordics that stands for 59% of the net sales. We have Europe standing for 23% of the net sales. And we have North America standing for 15% of net sales. Slightly little bit more in the Nordics than we had one quarter ago. and slight less on Europe and North America. Customer segments, defense is still our core business, and defense is 80% of our net sales, but we also have the critical infrastructure that stands for around 20% of the net sales. And if we look at breakdown of the portfolio, we can still see that hardware is the lion part of our revenues, that is our legacy, and it stands for 70% of the net sales. Solution, where we see the service integrations, etc., stand for 25% of the sales, and we still have the software standing for roughly 5% of the net sales. And with that start, and presenting the highlights and the high-level numbers, I will leave the word over to our CFO, Vivica Jonsson, to give you some more details around the financial summary.

Thank you, Daniel, and good morning, everyone on the call. As always, we'd like to start with zooming out the picture about 10 years and showing you the long-term growth that Mildef is capable of. And as you can clearly see, there is an escalation the closer we get to present date, with 57% since the company went on the stock exchange with the IPO in 2021. Coming a little bit more into present date, the rolling 12 numbers of a strong order intake. Daniel mentioned the 134% in the isolated quarter as an order intake increase. Rolling 12, it's 34. Still a very good numbers. Of course, made up of a string of larger orders and strategically important ones. But we also see a good drive in the base business as such. Millef is well positioned in an active market and that is boding well for the future and it's proving with good order intake growth. Coming over to the sales side, a bit softer start of 2024 is giving a bleak 2% sales increase as a rolling 12 number. We had 10% in the isolated a quarter three and we must remember that 2023 we established ourselves on a completely new level historically of the sales number and we're keeping up with that pace and given the strong order intake in in q3 and also on rolling 12 basis i think we have a good future to look forward to also in this number The right-hand part of this slide is showing the gross margin development. It's always one of my favorite topics, especially given the solid performance of it. And we are talking about moving towards the 50%. You saw in the isolated third quarter here, 50%, and the rolling 12 is 49.4 now for the second quarter in a row. We don't see these drop downs in the isolated quarters since about two years, a bit more, which is something that I'm very happy about that we can show you a solid and stable development. We are keeping our target of around 50% in short to medium term here on rolling 12. with strong order intake comes a good order backlog unless you manage to deliver everything at once with the lead times in our industry that's not possible so we have an order backlog at an all-time high just north of 1.6 billion swedish so as i said i think the sales number will have itself a boost based on what we have in the books and when will that happen one might wonder and this slide is an indication of that i want to stress again that this is our outlook as per the 30th of september that can change based on a number of reasons and a customer request is the most usual ones that make this change We are about 60 million more for the coming year than we were in 2023 for 2024 at the same time. What I'm very happy to say is that we have during the third quarter here strengthened the 2025 deliveries with about 250 million. So that's always something. And we have a fourth quarter in front of us to further strengthen that position. Daniel mentioned, I would say a little bit more about our new long-term profitability target, and I will. We have changed from our previous target of EBITDA of at least 10% over time to an EBITDA margin of at least 15% over time. It's ambitious, but we feel it's realistic and achievable. We're happy from the management side to accept the challenge from the board of directors, and we believe to be able to deliver on this. It better reflects our operational performance as well, and we think it's a good sign of the financial maturity of the company that we want to talk about EBITDA now, where we are carrying our operational depreciations of material assets in our operating margin without breaking that out. Speaking of EBITDA, we look at the rolling 12 of our EBITDA development. It's following roughly along the lines of the sales development. That was 2%. Here we see 3%. I believe in the third quarter we showed that even though we had only, if you will, 10% increase of sales, we still strengthened our profitability quite well, which is showing an increased cost awareness and it's showing that we are able to increase our profitability despite not having the full boost from a larger sales numbers although in a scalable business model it's very helpful for the profitability with a good sales number Finally, for the financial part, another favorite topic of mine, and I'm sure of yours as well, our working capital. We had during Q2 a quite unfavorable development, which is now eased during Q3, and we are back around these 33%. We have communicated a medium-term target of around 25% working capital in relation to sales. I would say that's in the longer range of medium, but I see the 30 as more of a short-term medium. Now I'm making up my own grades of the time, but just to give you an indication of the timeline there, it takes time in our industry. We are very happy about the cash flow, our free cash flow in the quarter. It's indicating that we are working on a lot of efficiency measures that are starting to pay off, and we believe that it will come to the working capital graph soon as well. Net debt in relation to EBITDA as a final point here. I mean, it's not so dramatic to talk about. We are down to 1.4. We haven't changed our capital structure, rather boosted our profitability. And with that, Daniel, the boosted profitability, I will hand it back to you.