MilDef Group AB (publ)

Okay, good morning ladies and gentlemen and a warm welcome to this investor call with Mildeff with a special focus on Mildeff's reporting on the first quarter of 2025. And as you know, time flies when you're having fun. So this is Mildeff's 17th quarterly report, shy four years of the IPO 2021. This call will be presented by CEO and President Daniel Ljunggren. We expect approximately 40 minutes to be sufficient for the meeting. And we end as always with the Q&A's to Daniel. At this time, I hope that all mics are muted. We will open up the mics for individual mics for the Q&A session and also please state your questions in the chat and I will moderate the lineup of questions. Also for your information, we record this meeting for later publication on our website. So now please take it away, Daniel Ljunggren. And remember to help our audience who listen in to state the number of each slide before you change them. So take it

away. Thank you very much, Julef and good morning to all of you that are joining this Q1 conf call for Mildeff. By that said, I think it's time to look into the highlights of the first quarter in 2025. If we take it from the top, number one, the positive trend continued in Q1 related to the order intake. So the demand continues to be strong across our product portfolio. I have said before that I think that we saw some kind of change in late summer in 2024 when it comes to the order intake and the activities on the market. And I think that that continued that positive trend within the Q1 as well with an order intake of 88% better than same quarter last year, with majority of that was organic. Number two, a very big milestone in Mildeff history that now that the road acquisition is successfully closed, that will put us in a really good expansion position in Europe going forward. And right now there is a very intensive integration phase ongoing. Late in 2024, we also announced that we will have a full focus on defense and security within Mildeff. And we also then announced that we will close down the handheld operations. That has been going according to plan. The project is delivering and will be closed here in Q2 2025. And also, of course, a very super important platform for continued to grow Mildeff and continue to grow the military defense sector and ramp up the European defense capabilities is of course the defense budgets. And I think that we have now in beginning of the year seen increased defense budget and also have seen a shift when it comes to the pace of the European defense ramp up and it's increasing. And also a big highlights that I will bring with me from this first quarter is that our order backlog and order intake is supporting further growth. Order backlog increased 111% if we look year over year, which 59% is from organic. We have a so-called book to bill rate you the last 12 months of 1.5, also indicating continued growth going forward. And also 2.1 of the rolling 12 month sales level is in the backlog expected deliveries within the same year within this year 2025 already. Order backlog increased 52% year over year purely organic is 125 if we also add on the M&A part of it. So I think we have some comfort and evidence when we're saying that order backlog supporting further growth. But let us also deep dive into the quarterly numbers and we can see that net sales ended up with a plus 46% increase compared to same quarter last year. And I will say that the positive trend that we've seen in the second half of 2024 was continued in the first quarter of 2025. If we break down those 46% of the increased net sales into organic and M&A, 18% was from organic and 28% from the M&A when we now added road acquisition for one month in the first quarter. So it was not for the full quarter. It was just for one month of the quarter. Also the order intake as I mentioned was probably the strongest part and data point in this Q1 report. Order intake increased by 88% and it's a new Q1 all time high. And of those 88%, 56% was organic and 32% was related to M&A. And this was dispute the lack of a major individual order in the quarter. That also indicating that there is a strong demand underlying activities in the small and medium sized orders. If we look at the operating profit in this case, the adjusted EBITDA result ended up on 15.7 million Swedish kronor. And that corresponds to an EBITDA margin of 4.6, also a clear improvement from Q1 last year. Q1 is normally in terms of result on operating profit one of the most challenging quarter during a year. But I think at least now we have put ourselves in a better position than last year. Gross margin if we look into that, also of course impacting the EBITDA result a lot was good. I think on the legacy business excluding the M&A was .5% in Q1. I think also that the adjusted OPEX was good. I think that we have shown a good cost control in the company. So if we adjust for the M&A related increase, if we adjust for the restructuring cost and also for the FX related losses here in Q1, we see that we are quite close to flat if we compare to Q1 in 2025. We had a significant negative impact here due to unrealized FX loss here in Q1, minus 30 million. So if we add back that to the operating profit, I think that the operating profit adjusted EBITDA was a quite big improvement from the same quarter last year. The final data point here is the free cash flow ended up with minus 75.2. Of course, that is a big negative movement from the Q1 in 2024, but there is some explanation as well. And mainly the big driver behind this is the change of networking capital. And the biggest driver within that is that we had a high amount of the revenues was delivered late in the Q1, which means that the payment is due in Q1. And that, of course, impacting the cash flow here in the Q1, but will come in a positive way in Q2. So hopefully when we look at cash flow over a longer time or period, we will see that we will come back to a positive free cash flow. Market update we have seen since the beginning of this year clearly signals a message from the leading European political people. And this is something that we want to just highlight here and now. This is, of course, due to the global uncertainty that is driving the long term defense need. But we have seen initiative like Rearmed Europe or Resilient 2030, which is adding additional spending of 800 billion euro. We have also from the Swedish government seen that they have now raised the defensement target. And now it's the new one is on 3.5 of GDP by 2030. And recently also we saw an announcement from the Swedish government in this so-called spring budget 2025 that they are adding additional 25 billion Swedish krona into defense procurement commitments. And we also have something to look forward when it comes to the NATO summit here in June 24, 25, where we expect to see some kind of new and defined defense spend targets. We have now for many years lived by the 2 percent of GDP within the NATO countries. But I think that we will see a nuclear and higher target of that in the summer here in 2025. If we go down to the news instead and take it down to the Mildaff level, we can see what's happened here in Q1. Of course, we talked about the very important milestone of completing the acquisition of Rota Computer. I will come back a little bit later on to Rota Computer and their performance in 2024 and how we see Mildaff and Rota together going forward. One order was announced in the first quarter. It was a clavister order, which in the end will end up in the CV90 platform that is delivering by BOA Hegglunds. But here in April also we have announced two, one single largest Westec contract. Westec is a new subsidiary to us coming into the Rota acquisition. They have won their largest contract so far in April. And yesterday also we announced that we have received a contract from the Swedish procurement agency FMV. We are at 126 million kronor. So still, I would say that the activities on the market, the requests coming into Mildaff is quite at a high pace. By that said, I think we will go over for the financial summary. And this is a financial summary that more zoom out, Mildaff's financial performance in time. I think it's better to look at from a performance financial development. It's better to look over a longer time or probably than just a quarter because of the high volatility in the defense industry. We start with the top line of revenues and we can see this is, as we say, the middle of growth journey. We accelerated that in the last years. We see now in the white bar here that the last 12 months is up on 1.3 billion Swedish. So it's imminent. 23 and 24 was quite similar. We're now starting to take up the pace again in the top line growth. And that is, of course, related to the strong order intake in the second half of 24. Breakdown of the last 12 months revenue. We can see that it's the Nordics and the Europe that is mainly driving the growth. And it's in the Nordics and in the Europe we are we'll see going forward that the highest growth rate as well when it comes to the defense spending. And it's also in that geographic area where Milleleuf has a well positioned and well known offering where we have a really good position. So I think we will probably see that Nordic and Europe will be the main driver behind Milleleuf growth going forward. If we look at the order intake, if we start from the last, that's the order intake that we now can see that is very close to 2 billion Swedish krona. So it's really has picking up in the last four or five years indicating that this will continue to be able to grow the revenue side of this business. We still, if we look to the right side, the book to bill rate development, we still run 1.5 and that indicates a clear growth going forward. The backlog duration, as I said, there is a backlog that's supporting further growth of this company. And you can see in the pie chart there how it's divided into what should be delivering 25 and 26 and 27 and also beyond 27. But I want you to put your eyes on the right side of this slide and look into that chart instead where the light green, so to say, is where we were in Q1 2024 and how the backlog looked then. And a little bit darker bar is how it looks today when we close Q1 in 2025. And that can indicate that that is a clearly higher order backlog for deliveries within this year in 2025. It's 125 percent more than it was one year ago. I mean, there is some M&A in that, of course, I think it's even organic. It's a strong development of the order backlog. And we can also see in year two and year three and also year three that we have increased order backlog showing that there will be a further growth of the company. If we look into the gross margin development, we know that there will be a negative impact from the acquisition of RODA. If we look at Q1 insulated, we saw that the legacy business of Mildef were delivering 50.5 percent gross margin, which I think is strong. So the gross margin underlying continues to be strong. Was ending up in total of 48 percent. So it was a little bit negative impacted by the acquisition of RODA. And that is something that we will slightly will come down a couple of percentage points when we now fully integrate RODA into the middle of consolidated numbers. However, we continue to pick up with ABT and we are now closing the Q1 where we have a rolling 12 months, which is on an all time high level. The improvements the last 12 months is 45 percent. So I think we continue to show that there is a scalability and that we'll be able to scale up when it comes to the margins as well. Working capital and net depth through EBD. If we look at networking capital, there was an expected increase in networking capital due to the acquisition. We're now adding all the networking capital from RODA at once, but we are spreading out their net sales over the upcoming three, four quarters here. So of course, there will be a major increase in networking capital. When we look at this excluding the RODA acquisition, we see that it's around 32 percent, something like that. So quite similar to what we have seen in the past quarter. We have been able to come down a little bit here since since the starting of 2024. So let's see, I think that this will of course starting to go down again below 40 percent and be able to reach 30 percent maybe in the end of 2025. The net depth through ABT of course will also impact here through the acquisition of RODA. When we now have added all on all the credit facilities in Midlife, we see that 2.6 is the current number. And this is also something that will go down during 25 when we're adding on the EBD data that is coming from the acquisition as well. But so far we are just just over the target of 2.5 percent, but we know that we can be there on a temporary time of period. But now we will see that come down again. Now I will just give you some status of the acquisition of RODA. You maybe already have picked this up, but on March 6 this year we closed successfully closed the acquisition of the RODA computer, a German company, so that is now consolidated from March 6 in this year. RODA continued to show good development in 2024. They grow their top line with 16 percent and they showed a good profitability in 2024, 7 percent EBD. So I think if we look at the purchase price of the company, we're down somewhere around six times EBD on their performance on 2024, which I think is a really good value based acquisition. The integration project is now ongoing with full force and focusing on the commercial synergies. There is a lot of activities going on and initiative to make this happen. So it's a very intensive time in this integration project right now. And this finally, when Mille from RODA is coming together, sets the start of building a mill with a really increased footprint in Europe. And we tried to do that very rapidly. We think that with RODA's help, that is something that we really can do. Future outlook. This is some picture we have shown before as well. And this is just to set the scene and the tone and the context that we are living in right now, that we are seeing a lot of increased military spending going forward. And of course, also very important for us now to look at what is the signals from Germany, what are the signals from Central Europe when we have RODA in the group as well. We did that. Germany is really picking up and will close towards this 3.5 percent of the GDP. But in total, in Nordic and Central Europe and North Europe, we will see this increase the fund spending going forward. And that is the same context and same picture that we have seen now for a while. Maybe since the year started, we can see that the ambition in the speed has gone up a little bit. If we listen to the procurement agencies, they are really clear about the message now that things need to happen quicker and quicker. But still also, I want to give you this picture in the differentiated defense procurement. We are still in this different waves where we saw that way one was about operational effect. It's about getting the ammunition, the fuel, the drones up and running. But we also saw after a couple of 12 to 18 months, something like that, that they're starting to placing order at the big platform providers. And in the second wave, and after that, we see the three wave where Milif is coming in, where the Milif content is starting to get relevant, where this kind of platform needs to have some kind of equipment, intelligence equipment, IT equipment installed into them. That is where Milif company into play. So we still think that we're quite early in this defense, European defense ramp up. And we think that it's starting us in the beginning for a company like Milif. And we will continue to see high activities on the market for quite many years out from now. Near and long term objectives. This is just a summary. But as I said, the market expects to remain strong for more than 10 years, I guess. Now we have also in this year realized that Europe needs to build their own strong defense capabilities. And that is something new where we can't really rely on US. So for a European defense company like Milif, I think we will have a strong situation and strong markets in the upcoming 10 years. We have also seen more and more that now are really focusing on digitalization and data driven defense system. That is something we see in the dialogue with a customer. We also see it in different media and news. That this is something that will be very important for the future defense capabilities. And that is something that really will impact Milif as well, because that is where the sweet spot for Milif is around the digitalization of the army. But as number three said, a very important platform for this is, of course, that it will continue to grow in the European defense body. And what I have seen in the last couple of months is that just adding on more and more money into the system. And that will be something that will give an effect in the long run for the defense industry within Europe. And also, as I said, the order backlog really supporting further near term growth. There is a lot of deliveries and commitments already in 2025 we have. So there will be a lot of things to deliver and commitment that needs to be sort out here in near term. And finally, maybe the one that is really a key takeaway from Q1 that we now have finally have been able to welcome RODA into the middle of the world. And now we are accelerating this aiming for becoming a leading European player within this military IT equipment and solution. And I think we have all the right puzzle pieces to do that now. So it's yes, come together as Milif and RODA and really make sure that we can grow our market share in Northern and in Europe. And that was the final slide. So I think that we will open up the floor and see if there is any questions from the audience.

Absolutely. Thank you, Daniel Ljunggren, CEO and president of Mildeff Group. This is Daniel's 17th presentation of a quarterly report for Mildeff after the IPO shy four years ago and also a humble clarification. The RODA EBITDA margin in 2024 was 17 percent. So that is correctly stated. The floor is getting busy. The first question is from Tom at Pareto Securities. I guess you want to state it by

voice, Tom. Go ahead. Or maybe we have. Let's go for a second. Your mic. Give us a second. Sorry

for the delay, Tom. Now your mic should be open.

No worries. Thank you. Yes. First question, actually, on the RODA margin here, 17 percent. Is that sustainable over time or is it just a rapid increase in volumes driving higher margins here in 24? What's your view on that?

Thank you very much, Tom, for a question. I think it's sustainable. I think it's showing the scalability within the RODA business model. I think they are even more scalable than Mildeff if we look at the legacy Mildeff due to their character and how they operate with a higher degree of reselling activities. Absolutely, I think it's sustainable, but it's very much depending on the top line.

Perfect. Thank you. And just looking at the quarter here, the first month of RODA being consolidated into the books, how is the momentum throughout Q1 for RODA? I mean, January, February compared to March. Was there any difference here because it was a 66 million contribution from March alone, right?

That's correct. And of course, when we look at this type of business and you all know the volatility in the defense industry and the volatility in Mildeff, one month for RODA is quite tricky because the volatility is high, of course, when you just break out one month and consolidate that. We haven't disclosed January and February and we will not give you more information around that. But from Q2 and forward, we will have the full consolidation of the RODA and hopefully that picture will clear. But RODA will also have a quarterly volatility going forward.

All right, thanks. And just the final one on the order intake and unannounced orders that came in very strong here. Can you give us any details on what type of orders they are, what domain or country?

I think that first of all, I would like to say that we have now seen a couple of quarters in a row, but we have seen more activities related to small and medium sized orders. So that underlying activities and demand, I think, has been strong here now for two or three quarters in a row, so to say. When it comes to the geographic part of it, I would say that it's mainly the Nordic and Europe that is the big driver right now around the order intake. So it's related to those geographic areas.

All right, perfect. Thank you. That's all for me. Thank you, Tom.

Thank you, Tom, at Pareto Securities for tracking Mildeff and doing so for quite a while now. Thank you. We go to Daniel Lindqvist. I have opened your mic, or maybe you have to do it yourself. Daniel Lindqvist with Danske Bank, who has tracked Mildeff for many years. And thank you for the initiation report last week. Go ahead with your questions.

Thank you so much. So just continuing on the RODA subject, the gross margin in Q1 was some close to 46 percent, according to counting backwards. Is that level sustainable? What can you say about that? Because that would affect the scalability significantly for the future.

Hello, Daniel. Thank you for the question. RODA gross margin has been around 30 percent in the past historically. We saw a quite improvement in 2024, around 32 percent, something like that. And as you said, also continue to improve here in Q1. But I think it's too early to take any too drastic decisions around exactly how this will be in the future, because it could also be some volatility in the gross margin for a short period of time. It could be the customer mix or the product mix, depending on things like that. But I think that also that the weaknesses of the US dollar has also an impact on RODA and will be a main driver for their increased gross margin, because they purchase a lot in US dollars and selling euros. That could be one important puzzle piece to explain the increased gross margin here and now.

OK, perfect. And then with the working capital, before this report, we only had the numbers from 2023. But it seems like there's been a substantial improvement in the working capital profile. Is that the correct observation?

Yes, I would say that. So it's something that we work hard with, both with the legacy middle of part of the business and also the acquired companies to really make sure that we are coming down in net worth. And I think that we will see when we're coming forward here now, adding on the net sales, the full net sales for the acquisition also that we can come down a little bit from what we have seen in 2024.

Cool. And then just for the book to bill in RODA, we were at some 0.9 there at the end of the year. So should we, was there something extraordinary with 2024 or is it just fluctuating between the quarters? I

think it's a fluctuation that will play out a little bit here. Nothing unusually what we have heard and seen in the numbers or in the data. So it's the volatility, I would say, is the answer around that.

OK, and then just finally on the currency effect. I mean, that seems to be the thing with this report hitting in different lines. So if we could just take it from the top and downwards, the effect on sales, gross margin, SG&A, accounts receivable and financial net. Would that be possible?

I think that we can stick to the OPEC. Exactly. We don't really have the full view of exactly the breakdown of every rose, I'd say, but it's clearly impacting at least the operating profit due to impacting OPEC quite much. It's 30 million Swedish krona that is normally not there in the OPEC side. This is something related to some open cash positions and account payables or account receivables we had at the end of the quarter. And there has been quite unexpected and quick drop in US dollar and euro against Swedish krona. And that is the effect that we have seen here in Q1. That is something that will not continue to be the case in the upcoming quarters here. If we, for example, expected that the currencies are the exact same as they were at the end of Q1, we will see no extra OPEC related to that. But I don't have actually the full breakdown on each rose as you're asking for the top line and sales costs, etc.

Okay. We just settled for the financial net then, the effect on that was rather substantial as well.

That was also substantial, absolutely. So that is both. And it's also currency

related.

Also currency related, but also that we have increased interest, of course, now when we have one month when we have the credit facility in place for the acquisition of RODA. But also, as you mentioned, there is a quite high negative impact from the currency.

Okay, perfect. Thank you so much. I'll get back in line. Thank

you,

Daniel. Thank you, Daniel Lindqvist with Danske Bank, the poor bank to track Mildeff on a regular basis. The first bank to track Mildeff on a regular basis was SEB. And Erik Goldrang, I hope that you're mic is still open. Welcome. Please state your questions.

Thank you. I need to start with one on RODA as well and then two others. First one on the RODA. You touched upon the sales progression here. You talked about the last year's order intake. Is it fair to assume that growth in Q1 is about fletish for RODA year on year? And what would you expect for RODA for the rest of the year in terms of growth?

Thank you, Erik, for the question. The expectation for RODA, I would say, is that they continue to grow without putting any exact numbers on that. But we also have seen here in this presentation that the German defense budgets are really going up and they are really in a big need for they have under invested for many years. And RODA, with it being a significant player on that market, I think that we will continue to see double-digit growth target at least in 25. We saw in 2040 16% growth of top line. So even if they were a little bit down in order intake for the full year in 24, I think that there is a lot of things and activities on the German market that will play out well for RODA in 2025.

Thank you. Then you mentioned, I think, flat underlying OPEC, which is quite impressive given your growth rates. Can you break that down a bit? I would assume there's some hiring, some salary inflation, none of that going on. And then what do you expect for OPEC's acquisitions here for the remainder of the year in terms of growth rates?

Thank you, Erik. Yes, it's quite nearly flat if you're just for the effects and also for the acquisition that's coming in there. I would say that we're also working hard with rebalancing some costs. We also have, as we said, we have the handle closing down on that, also give us some reduce of some cost, etc. So we're working from both sides, but I think for the full 2025 year, we will need to add OPEC in terms of 5 to 10% in total. Something like that, because they need strong order intake and the revenue growth will put us in a situation where it's needed to add on capabilities as well. And we have started already in Q1 to add some extra capabilities that we will see later on coming into the OPEC. But still, we work really hard with trying to balance the OPEC. We're trying to have a good cost control and hopefully that can pay off in the end.

Thank you. Then the final question, your best assessment of where your market share in Sweden sits at the moment?

Yeah, that's a really good question, Erik. And so I want to answer, of course, because we don't really have the full data and full picture over the total markets, I'd say. And it could be very volatile if you look at which time of period you're looking at. But I think that we have a really strong position in Sweden when it comes to the niche of military-ite equipment. Exactly market share. I'm not going to give you a number there, but at least a high market share. But have we passed sort of 50%? I think that I would dare to say that we are more than 50%, yes.

Thank

you. Thank you, too. I have a question in the chat before we go to Hugo Liesjö. It's from Daniel. Are there any one-offs costs for handheld in the quarter? How much delta should we expect in Q2 when the shutdown part of handheld is fully out of numbers? Are there any one-off costs for handheld in the quarter? How much should we expect as G&A?

OK, thank you, Daniel. There is no one-off cost for handheld in the quarter. There is a little bit on the reversed OPEX. There is 2.6 million where we have added in as an adjustment item. That is related to that we have sold some of our handheld products that was treated as obsolete at year end here. So it's coming the other way around. It's some reversed OPEX in the numbers. But we have adjusted for those. So it's 2.6 million.

OK, and like I mentioned, there are four banks tracking mill death on a regular basis. And one of them is Carnegie with Hugo Liesjö. Your mic is open.

Hi. Thank you for taking my question. Actually, I only have one question and that's regarding the selling expenses that rose significantly in Q1. Were there any specific one-off effects in this one or should this be seen as the new run rate?

Hello, Håkan. Thank you very much for the question. I think you should see in the instance a new run rate. Now, of course, also remembering that we are only adding one month of RODA into this one. So we will see their quarterly contribution going forward. But there is nothing that is a one-off cost or something like that in the sales expenses.

Perfect.

Thank

you. Thank you, Hugo Liesjö at Carnegie. It's 37 minutes past the hour. And I think we have no more stated questions in the chat and no more raised hands. So it's before I end the call, it's time for Daniel to make a little summary of it all after all your answered questions. So take it away, Daniel.

Thank you very much, Julef. And thank you all of you for joining this call and your interest in the middle of journey. I hope that we will come back to you in Q2. And also until that, you will have a great summer and a great spring here. So take care and see you in the upcoming Q2 conference call. Have a great day.

Thank you. I just want to say thank you for following the Q1 investor call with Mildev. That's all for now. Don't be strangers. Stay in touch. Follow us on LinkedIn or just reach out and we'll help you understand the Mildev voyage. Have a fine spring, by the way. Next time we meet in this forum is July 18th when Mildev delivers our Q2 report for 2025. And like I said in the opening, time flies when you're having fun. So we'll meet again in a heartbeat. Stay safe. Take care. See you later.