This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

MilDef Group AB (publ)
2/6/2025
a warm welcome this beautiful morning to the presentation about Mildev's fourth quarter 24 and full year of 24. So now please take it away Daniel Ljunggren and Vivica Jonsson and remember to help our audience understand where we are in the presentation by stating the number on the slide.
Thank you very much for that Olof and I also will take the opportunity to say warm welcome to all of you to this conf call of the fourth quarter from Mildev. I will jump directly into the highlights for the fourth quarter. We are very proud to announce that this is the strongest quarter in the middle of history. There is a lot of all times high in this report. Components like order intake, for example, exceeds 700 million for the first time in this company's history and sets the tone for the 2025. Also all time high when it comes to the net sales. Order backlog is record high as well, above 2 billion Swedish krona at the moment when we close 2024. And we also can see that we have a book-to-bill rate here on a rolling 12-month basis that is 1.5. So that also indicates that there will be some future growing potential for this company. So it's a quarter that is strong. And that is, of course, also very much up to the strong demand across our product portfolio that we see on our main geographic market, mainly the Nordics and the European market is really, really strong right now. So that is one really important puzzle piece is when it comes to what we see here in the order intake, for example, in the fourth quarter. Also, a big highlight for the Q4 was when we announced this acquisition of the German company, Rhoda, that really opened up the central Europe for future growth. I will talk a little bit more about Rhoda in the end, so let us save that for the end, so to say. also announced from our side in december what is that we with this background with this strong demand in the defense sector we have now taking a strategic decision to fully focus on defense we think that that will serve middle of best over time so that is something that we have addressed here in the fourth quarter and we think that defense ramp up is here to stay for many many years out so full focus on defense we think that will serve middle of best Also here in the fourth quarter, we can see that it's a continually stable development of the OPEX. We're adding on 5% more OPEX than comparable quarter, fourth quarter in 2023. But I think that is a low number compared to the growth and the order intake growth. All in all, I think that Millev is very well positioned for taking advantage of the opportunities that we now see that is offered by the Nordic and European defense ramp up. If we just dip a little bit deeper into the real numbers, we can see that net sales is 418 in the fourth quarter, increase of 18% compared to Q4 last year, and it's purely organic. And I said it's a record high number, and for the first time in this company's history, we exceed 400 million in net sales for one quarter. I think that the net sales growth and also the order intakes really confirms that we have a relevant offering and a high level of customer confidence. What really stands out here, I think, in the fourth quarter is the record high order intake increased by nearly 90%. So we have also announced a lot of important strategic contracts in the fourth quarter, and it's all around in the middle of the portfolio, both from hardware integration projects, and we also now in the fourth quarter see a breakthrough of the software order in Sweden. To continue here on slide two is that we look down to the adjusted EBITDA. We see an increase. We end fourth quarter 17% in EBITDA margin, and as I said, an OPEX of plus 5% compared to Q4 2023. This is something that we have worked really hard with within the company to increase the operational efficiency. But it's also showing that scalability of the company when a top line grows like we have in the fourth quarter, a quite high top line, it's really scale on the profit as well. Last bullets around the fourth quarter is the free cash flow. It's now the fifth quarter in row where we increase positive free cash flow. And that is very happy about and then also demonstrating the initiative that we have done around the operational efficiency and that this kind of initiative really are paying off. Final summary of the Q4 recap. So to say that we have been a very busy Q4 on slide three. For example, we see a couple of. things that we have announced in the fourth quarter. We started with a dismounted soldier lounge in October, the big trade show in the US called AUSA. And then after that, it continued with announcing a lot of important strategic orders from different customers. BOS Systems was a really great customer in the fourth quarter. And we also have this one CIS to the Swedish Navy. I think it has great potential for the future. And as we said, we announced this transformative acquisition of Rhoda Computer. And I will come back to that later before we close this presentation. We also, with a really high successful rate, did a direct share ratio and we raised 500 million Swedish kronor to be able to finance the acquisition of Rhoda. And in December, the final one here, we made a strategic announcement around really putting all the effort we can into the defence sector. And that is, of course, due to the strong demand we see in the defence sector. With that said, I will leave the word over to Viveka for some more long-term trends, financial-wise, and also a little bit deeper into the financial numbers. So, please, Viveka.
Thank you, Daniel, and good morning, everybody on the call. My favorite slide is as always to zoom out a little bit and have a look on our long-term growth in terms of sales. We're starting on 2015 and working our way up to 2024, which is why we're here today to talk about the 2024 results. 23% growth per year with an acceleration from our IPO in 2021 with 37% growth per year here on slide five. 2024, a little bit slower growth than we have seen in the years beforehand, but this is sales. We'll come back to orders, which is our future sales number. But turning from slide five to slide six, we will be talking about the full year of 2024. As I said, it was a bit slow in 24 on the sales side. It was primarily the first half of the year where we saw a dampened sales compared to 2023. Looking at the second half of the year, this was much stronger. And second half compared to second half 23, we are looking at 15% growth, which is more in line with what we will be looking forward to in 25. Order intake, 1.8 billion Swedish. We finished the year with a streak of large order in the Nordic countries, which Daniel went through just recently. And had I done the previous slide on growth order intake, we would be looking at 45% growth instead of 37% since the IPO on order intake. And almost 50% in the year. Profitability, EBIT-A. We continue to build for the future, of course. We are adding resources, competencies, employees. But we have managed to secure our profitability while building for the future. Our EBIT-A margin has developed from 12.2 to 12.5 on a whole year basis. And absolute development is about 7%. Finally, on this slide, I would like to highlight the importance of our free cash flow. which is almost 120 millions higher than we saw in the full year of 2023. This is, of course, both with underlying activities in our operational business, from a day-to-day activity or constant struggles, if you will, and as well as a consequence of our restructuring programme, where we have also handled some inventory positions in that. Turning to slide seven, we are looking at the order intake. And this is really a thrill to look at. We are on almost 50% growth on a rolling 12-month basis. 1.8 billion Swedish with a number of interesting and strategic orders in especially the second half of the year and also finalizing the year very strongly. This strong order position in 2024 gives us a strong backlog position when we will turn to slide 8 to see that on 55% growth. So here we are now exceeding 2 billion Swedish in what we have to deliver for the future. As I said, order intake is... very important for us to continue the momentum here and as daniel mentioned we have a book to bill ratio of around 1.5 which is clearly indicating a strong future in in the midlife universe the future is divided in a number of years on slide 9 2025 we are looking at some 1.1 billion already, and that position is around 37% higher than the same position last year for 2024. But we see also that we have longer contracts already now with deliveries for 2028 and going forward from that, which is indicating long strategic contracts and our customers' strong belief and confidence in the Mielef ability. We will move further on to slide 10, net sales we spoke about. This weaker development of the first half of the year is landing us on a mere 4% growth, which is of course below our long-term targets, but we are comforted well by the strong order intake and that ability to deliver sales for the coming years. Cross-margin-wise, we are developing according to plan. We are moving from a full year of 48.3 to 49 in 2024. The fourth quarter was a lighter margin due to the mix. We had a lot of delivery on framework. framework contracts that we have a little bit lower margin on, and sometimes the deliveries of those lump together in one quarter, and then we see a little bit lighter margin. And I've said that every time we spoke about this, that there will be ups and downs in the margin, but we are continuing around 50% as our target on our margin. And speaking of margins, we will turn to slide 11, or EBIT-A, have a pickup of around seven percent as i said 12.2 to 12.5 percentage it's not a massive development in terms of profitability normally we see a high net sales development we see a high ebit a development so the weaker development in in sales on the full year is indicating a somewhat slower ebta development however ebta has picked up more than the sales so we have seven percent here four on the next sales it's also interesting to to think about the operating expenses in relation to order intake given that we are growing as quickly as we are we need to build our capabilities for the future to be able to to deliver and to secure our promise to our customers And just for those doing the fun math of operational expenses in relation to sales, you should do it on relation to order intake as well. And then you will see that that number would have developed from 2023 of around 37% to 24 with around 26%. So things are happening and we're gearing for the future, but the scalable business model is here to stay. I will finalize the finance block on slide 12 with working capital and net debt. Working capital has in the fourth quarter and the full year of 2024 developed very well, and it's primarily the inventory position that we are seeing movements within. This is, as I've spoken about during the year, a consequence of our initiatives in our daily business with the modularization of different product groups. But it's also a consequence of the restructuring program where we are picking up our responsibility for some inventory in the handheld group and handling that within the framework of the restructuring program. We will be focusing on defense and security sector going forward, and we are streamlining also our inventory position to suit that ambition. Net debt, a dramatic development in the quarter, if you will, and you should be expecting a similar dramatic development in the other direction for the next quarter. We did a rights issue of shares in the fourth quarter. And the pursues of that are primarily due to be used in the closing of the acquisition of Rhoda, which we're expecting here in Q1. But currently they are held on our accounts, which is, of course, nice to see every morning on the bank. But we'd be even more nice to welcome the Rhoda acquisition into the Mille group. Daniel, I hand it back to you.
Thank you very much, Vivica, for taking us through the numbers. I promised all of you in the beginning that I will come back to the acquisition of Rhoda and give you an update on the process of the acquisition of Rhoda. I would like to start on your right-hand side to just give you the recap of the acquisition rationalities. As we said when we announced the acquisition that Miloš will become a leading pan-European player within tactical and rugged IT. so we're going from being this strong nordic player to be a strong european leading player in our small niche also of course unlocking market access that to the duff region and other central european countries that is really interesting interesting markets really attractive markets markets where they have announced an increased defense spending so that is the market you want to be on We also see energy potential in cross-selling and purchasing. And finally, we think that there is a strong cultural fit between the companies. And we're also getting hold of a very experienced and senior management team and whole organization within Rhoda. Short around the process. We are, as you know, between signing and closing and we have done this regulatory filing for getting approvals in three different countries, Germany, France and UK. And that process is running according to plan. Happy New Year so that we can already announce now that two out of three are already approved. So UK and France have we already received an approval from. Also that we think is very positive here, that is that the authorities has really announced Miller from Rota together being a very important player. In building a stronger European defense, so that is why they are really looking into see what kind of commitments Miller from Rota can give to the end customer so that are where we are right now in that phase and we are estimating that this will be closed here in Q1. Best guess is somewhere around beginning of March or mid-March, something like that. But we will come back, of course, and tell you exactly when the closing process is over. Future outlook before we open up the floor for some questions. I will just start with this slide on page number 16. And this is not we're going to go deep into. It's just give you a flavor of what type of trends we see on the market. And this is hopefully no news for anyone, but has been announced. really increased defense spending in Mille's core markets, European and Nordic markets, and also in our home market, Sweden. So there is a very positive trend and we can see that there has been under investing in the defense for many, many years. And now they're trying to catch up and pick up and there will be a lot of business opportunities going forward. So this is just to set the scene for the final slide on page 17, which of course this sentiment of the markets give us a positive future outlook. And why is that? Number one is that we see this market activities and we see that they would expect to remain strong for many years to come. We think that this will be a 5, 10, maybe 15 years up ramping in defense spending. Also, a broader market trend is in Miller's favor, and that is that there is a great and significant need for modernization of the current tactical IT solution. So it's more and more defense spending, but it's also that they will spend it on things that are in Miller's sweet spot, and that is main driver behind future positive outlook. And on top of that, we also expect and anticipate that this increased defense spending will further boost demand because there will be increased defense spending going from 25 and forward and then just complementing the underlying trend. And the final piece here is the acquisition of Rhoda that really transformed Miele from a Nordic leading to a European leading player within tactical and rugged IT. So that is hopefully something we can see that OnePlus One when it comes to Miele from Rhoda will become corresponding to more than two. Hopefully, we can see a very strong and successful acquisition going forward. And that's all for us. I think it's time to open up the floor for the questions.
Absolutely. Thank you, Daniel. Thank you, Vivica. 20 minutes past the hour. We open up the Q&A session. Please state your questions in the chat or raise your hand. I think that Tom from Pareto is the first gentleman to fire off. Welcome, Tom.
Thanks, guys. Just a question on the order intake or the sort of unannounced order intake. Can you give us any more details on that? Is it from existing customers and the profitability level of the order intake here in Q4?
Mainly from the existing customers. And thank you for the question, Tom. Mainly from existing customers, quite much spread around in different customer and different geographic areas. mainly if there is something it's the nordics that would say it has had a very strong fourth quarter when it comes to the order intake the profitability i will not announce that in the order intake as we normally don't do that so but it was a strong underlying trend we had some really big announced orders but the underlying trend on some small orders was also really good in the fourth quarter
And can we expect that to continue on similar levels, maybe not as strong as Q4, but the sort of similar bump that we saw at the beginning of the year, can we expect an additional bump here in 25?
Good question. It's always tricky when it comes to quarterly numbers and quarterly order intake. There is a lumpiness in this kind of business. So it's hard to say exactly if ups and downs, but the underlying trend I would say is here. And I think that we, are now entering into some kind of new phase in the defense ramp up, where it's really starting to impact in the more minor players in the defense industry. The big players have seen this already for one, two years ago, but we now think that we are in this, what we have called before the third wave, where we can see the small defense industries is starting to getting uh impacted by the defense ramp up so that that could be something that can shift the landscape going forward in underlying small orders order intake so to say but i'm not really sure there will probably be some uh lumpiness going forward as well regarding order intake on a quarterly basis perfect thanks uh just a final one on delivery capacity are you expecting any further capex investments to meet the the demand here in 25. We are, but nothing big. We are totally, we are all the time adding on some kind of capabilities and resources, but there is no big plan Capex in 2025. We have already announced this new facility up in Stockholm and that is ongoing and should be ready to move in in autumn in 2025. But besides that, nothing that is really stands out. All right, perfect. Thanks.
Thank you, Tom, from Pareto. So we turn page and move to Erik Goldrang with SCB. Take it away, Erik.
Thank you. I have five questions. You stop me if that's too many. First one then on the gross margin, you say you had big deliveries within framework agreements that had a negative mix impact. Probably my memory is all fair, but I thought frameworks were good from a profitability perspective. So what exactly is it in the product mix that's negative?
Most frameworks are with a very good margin and it depends on which framework we're talking about and what products are to be delivered on and to what country, what customer and so on. This was a little bit older framework agreements that we have had in our books for some time. And it was the end of one of them. And this was with a little slight lower margin due to the high volumes of them. But you are correct that normally framework agreements are with a good margin. So it's an unfortunate mix that two of them went out with a large bulk in Q4.
Okay, thank you. Then if you can... Appreciate the update on Roda and the timeline there, but can you say anything about their operational development towards the end of last year, particularly when it comes to demand and order intake?
Thank you, Erik, for the question. I will not go deep into exact numbers, but what I hear and expect from Roda is that they will continue to see a high demand on the markets, still continue to grow the business. So that is the update we have around 2024 for Roda. they are a little bit slower than we are to really getting the numbers and the year-end process done so to say but we have a slightly ballpark figure where they're ending up and we see that they continue to be on a strong demand a strong journey okay then in terms of the backlog
um the duration of that and how that plays into the timing of sales growth in in 25 25 is it should we think of the year as sort of evenly distributed in terms of year-over-year growth progression or is it more of a back-end loaded year if you have to guess a bit if i had to guess and if i had to to give that information since we normally don't but there is nothing that is deviating
materially from previous years in the timing. Of course, we are hoping to, the larger we get, having a more even stream over the year and not have these very large deliveries towards the end of the year, also to protect our organization from operational overload. So that's an ambition that we are working with, but we don't see any major deviations from previous years patterns.
Okay. Then on costs, you highlighted quite a bit lower OPEX growth compared to what we've seen. Do we need to recalibrate this a bit? Is 10% underlying OPEX growth too high of a figure now, or what should we expect?
I think you should be thinking about it in terms of absolute numbers is probably a decent and probably a slight increase. But in relation to sales, it will scale quite nicely during 2025.
Very good. And then the final question, which I guess is a follow up to the previous one on investment needs. You said no big investments. I think total capex to sales was about 1.7 percent last year. Is that a fair figure for 25 as well or will it come down because of a bigger top line?
The top-line development will of course drive it down, but as Daniel mentioned, we are adding this new facility in the Stockholm area, which will come into play towards the end of the year. So that is coming in in absolute numbers.
Very good. Thank you. That's it. Thank you, Erik.
Thank you so much, Erik. I see no raised hand at present time, and I see no questions in the chat. But if I just had long for a little while, I can just say that it's not only an all-time high in many of the numbers that Vivica and Daniel presents, it's also an all-time high in numbers of participants in this meeting. So thank you very much, ladies and gentlemen, for joining the Mildew journey and for being, in many cases, co-owners of the Mildew troop. So Damian Kemp raised his hand. You're welcome to state your question.
Good morning and thank you for the invite to the meeting. The rotor acquisition gives an indication of where Mildef sees itself heading. Are there more acquisitions in the pipeline? Is there more of an effort to, if not acquisitions, then are you looking at strategic tie-ups? How do you expect to develop what you've seen as your company's future? Thank you for your time.
Thank you very much, Damon, for that question. And I think that the M&A activities is always on Mille's radar and sometimes it's closer and sometimes it's more far away to close anything. We're always looking for finding one to two, maybe strategic, really good fits when it comes to the acquisition. And we think that Roda now will be a really good fit here in 2025. But we will continue to look after potential targets that we think really can benefit to the MILDEF journey. So we need to come back and say when we really have something crispy on the table, but the radar is always out there and we're looking for fine acquisition that we think can be strange in MILDEF offering or new geographic markets.
Thank you, Damian. That any more questions, Damien, or you're happy with there?
OK, I'm sorry, sorry. Thank you. That was a great answer. Thank you. Thank you.
Thank you Damian, thank you everyone for participating in this call and I do the same thing again so maybe there is another question or Daniel will soon summarize and say goodbye and you know as always you can follow the Mildev journey in many channels LinkedIn today you can see a long interview with Daniel Ljunggren our CEO and president on Dagens Industri you see a long interview seven minutes with many cool comments and you will also be able to follow an even longer interview with Carnegie on video today, published by Carnegie today. So there are ample opportunities to follow the MILDEF journey. And if no more questions are being stated, we thank you for your participation. We hope that you keep in touch. Don't be a stranger. Stay in touch. Follow us on the MANET channel. So have a beautiful day wherever you are. In Stockholm, the sun is shining.
it's a fantastic day so we hope your day shines on you take it away daniel thank you very much and finally closing is just thank you all for being part of the middle of journey and have an interest in the middle of journey and stay tuned we will talk about malef again when we come up with a q1 here in april take care everyone have a great day thank you very much