MilDef Group AB (publ)

Please Daniel. Thank you Olof for that introduction and warm welcome to all of you that are here in the high peak summer period in Sweden joining this YouTube conf call for Milllöv. This is the areas we will try to cover today. We will have some highlights for the second quarter and post that we will have some more clarifications on the financial side and then we will have a summary and of course in the end a Q&A session. But let's start with slide number three then and look at the highlights for the second quarter. Q2 was a strong quarter when it comes to the delivery execution and with a high operating leverage indicating that our investments and efforts into increased delivery capacity has not really started to pay off. Net sales grew by 64% purely organic and operating profit EBITDA grew with almost 300%, which is, to me, a clear evidence of the operating leverage and the scalability in the business model that we have stated before. If we continue, we saw a good market momentum. We continue high demand across the entire middle of portfolio. The demand for advanced military IT solution is increasing. We have an offering that clearly meets the requirements set by the customers. The slightly lower order intake in the second quarter compared to the same quarter last year should be seen more as a reflection of the volatility between individual quarters. The gross margin was clearly improved here also in the second quarter. Total gross margin ended up on 51.9% and we can compare that to 46% in the same period last year. This was an increase that was driven by a profitable sales mix in the second quarter, more specifically driven by a higher share of sales that is related to software and solution in the second quarter. And those items is bearing in higher gross margin than our traditional hardware business. The gross margin level here we saw in Q2 cannot be taken for granted as a new normal. The gross margin will continue to vary across quarters depending on our products and customer sales mix. We also had, when we closed the Q2, we had a record high order backlog indicating good chances to continue our long-term net sales growth. The backlog by the end of Q2 was just above 4.2 billion second. By that is, we have grown the order backlog with 32%, the last 12 months. And this is despite that we have performed a top-line growth, net sales growth of 91% in the same 12 months. Also, of course, worth highlighting is the strategic framework. A very important milestone was that we secured this new seven-year strategic framework agreement with Swedish Defense Material Administration, also known as FMV. This agreement has a potential value of up to 1.5 billion SEK. And also when we signed the contract, there was a first call-up order was placed in connection with the signing. I think that this agreement will accelerate the implementation of Mildef Software, the so-called ONCIS, into the Swedish Armed Forces. ONCIS is today already used operational-wise in several other countries and also within the Swedish Navy. Our investments also into additional delivery capacity are still at a high level. At the same time that we are delivering growth and improved margins, we also invest to be able to meet the future long-term customer demands. The investments we have made so far mainly consist of onboarding more co-workers and increasing our production areas. The already announced expansion of our current site here in Helsingborg, the fortress, is progressing very well. We expect that new site to be operational not later than the autumn of 2027. and by that we will double our production capacity in Helsingborg. Also worth mentioning is that there are still some challenges in the supply chain for electronic components, both in terms of lead times and price levels. We of course continue to take proactive actions to secure access to the critical components. Mainly, this is done through a range of activities such as the inventory build-up of critical components, close collaboration with suppliers to ensure deliveries, and also frequent dialogue with our customers regarding the price absorption of the increased prices. And finally, of course, also worth mentioning, going back to the volatility in the order intake, post Q2 here, we received our largest order to date, an order value of plus 550 million SEK, an order that consists of hardware and that we estimate delivers during next year in 2027. And by that said, we will move over to slide number four, which contains the key figures for Q2. And if we take it from your left hand to start with, the net sales ended up on 630 million SEK. And that is a growth compared to Q2 2025 with 64%. And that growth is pure organic, and it's also an all time high number for individual Q2 And also next one lower down in the P&L the adjusted EBITDA of course 99.7 showing a growth of almost 300%. The adjusted EBITDA margin is 15.8 and we compare that to 16.5 and of course driven by higher sales but also by a strong gross margin. And I said gross margin was strong here 51.9 in total and on the OPEC side we think that is developed according to plan. increased OPEX with 27% excluding some non-recurring items and some unrealized FX losses in the second quarter. Order intake is dropping down a little bit. It's dropping by 17% if we compare to Q2 2025. This is decline, should not be seen as an underlying trend. It should more be seen as a reflection of the volatility we see in a defense sector between quarters. We also now, as you already know, announced this large order this week. So it could be a little bit variance from quarter to quarter. Book-to-bill ratio here in Q2 reached 1.2. And on a rolling 12-month basis, we have 1.4. And also finally the free cash flow 7.4 compared to 32.7 in Q2 2025. But I would like to zoom out here and look at the first six months because the cash flow on an individual quarterly basis could be a little bit up and down. But I think we have really improved the free cash flow the first six months improved by 208 million sex in absolute numbers. But of course, the free cash flow is impacted by the increased inventory level securing critical components for delivery in the upcoming quarters here. And by that said, I would like to leave the word over to Vivica Jonsson who will give you some more clarifications on the numbers in Q2 and long term.

Thank you, Daniel. Let's take this to a more rolling 12 and long-term view and starting on slide six, we're going to do that from the top left on order intake, which is now on 3.7 billion Swedish, getting closer to four. And at this point we're on the 50% growth, which is of course happy to see that, but it's also great to see that our backlog continues to grow and the book to bill ratio is on 1.4. We'll get a bit deeper into that on the next slides here. Net sales is continuing to develop strongly. And as Daniel mentioned, it's been strong during the second quarter and rolling 12, we are looking at north of 90%. And to deliver that 90% sales growth, we have added around 18% of employees. So we were at the end of June on 550,000 three souls in the middle of the universe, delivering these strong growth numbers and also increased profitability, which I will get back to in a couple of slides. If you allow me to zoom out even further on a five-year basis here, we have since 22, a CAGR of 41% on order intake, 38% on order backlog, which is, of course, strengthening the thesis that there is a good growth momentum in this company. even if the second quarter was slightly softer due to quarterly volatility. We'll continue on slide seven, the order intake growth journey, rolling 12, as I said, 3.7. The growth accelerated with the acquisition in 2025 by Roda Computers and has now also continued. As Daniel said, in the second quarter, we had 64% growth and that is all organic. The book-to-bill ratio is coming down slightly compared to the full year 2024-2025, which is primarily driven by the fact that our delivery pace is increasing. We have built out capacity, as we have spoken about previously, and that is now showing in the net sales figures of the second quarter. We'll move on to the backlog and talk a bit more about what there still is to deliver here on slide eight. So for 2026, this current year, there is another 1.6 billion Swedish in the backlog. This is then before the order that was announced earlier this week, so that is coming in Q3. You will have to wait patiently for that report. Moving on to 27, there is another 1.6, and if I'm looking at the graph on your right-hand side, that is a substantial improvement to this position compared to the year before, so where we were in 2025 at the same time. So strong development here in the existing year and especially in the coming two years after this one, compared then again to where we were last year. There is a slight decline in the beyond 2028, the year three numbers, and that is primarily due to that we had last year more of these 10-year delivery contract that is now getting closer to delivery. So that doesn't concern us in a significant way. We focus here on year one, year two, year three, where we're also seeing that this, where the customer would like their deliveries. We will turn to slide nine to dive into the net sales and gross margin development a little bit more. We have the 91% growth on a rolling 12 basis. This we discussed already. So let's focus on the gross margin where we are on 45.9% rolling 12 at the end of Q2 2026. This is a growth again after the acquisition of Rhoda Computers. We saw that the gross margin declined given that their business model was a bit different from the other parts of the group. We are now seeing that all parts of the Mielev Group are strengthening their position But what is especially boosting this here in Q2 is the sales mix, where we see more software and more solution and integration sales in the isolated quarter, but also in the first six months they were growing well, but especially true for the second quarter of 2026.

On slide 10, you will follow our EBIT-A.

And for those of you who have followed us more than two quarters, you have heard me say this maybe 15 times already, but if we have a good top line, we normally also have a strong profitability. And this is again true. So 219% growth on a rolling 12 basis in terms of profitability. We do have in the isolated quarter in our OPEX a one-off effects of a redundancy payment on a programme where we are now truly focusing on our defence offering and removing the bits that were more focused on other parts. This is, as I said, a one-off cost, non-recurring, and we don't expect anything more to come, but that is also included in this. EBIT A number. OPEX is also impacted by adverse FX effects during the first quarter, sorry, the second quarter and the first six months, which is also driving into this. Even if the growth on profitability is fantastic, we are also growing our OPEX to support further growth going forward. And we're doing that in a much lesser scale than we're doing the top line as you will see in these numbers. We'll turn to slide 11 for a look on the balance sheet side of things. I said last quarter that some 25-26% of net sales, sorry, of working capital in relation to net sales is not the new normal. And I still believe that this is on a lower level and it can be expected to increase a couple of percentage points. and we have a strong other networking capital with our accounts payable, accounts receivable in this quarter, but we also see an inventory build up, which is also impacting our free cash flow in the isolated quarter here. Looking at the cash flow, free cash flow for rolling 12, we are talking about 175 million Swedish, so I think we are in a good phase there, even if the isolated quarter is heavily impacted here by the inventory build-up to secure deliveries for the second half of 2026. On our right-hand side, net debt in relation to EBITDA, 1.0, nice and round number, and also a sign of a strong balance sheet. Our sales footprint. Rolling 12 numbers, we are seeing some, let's call it 45% each in Nordics and Europe. They are comparable sizes now, and we have just shy of 10% over in North America. So even growth geographically and a strong growth development, especially in Nordics and Europe. Tanja, do you want to summarize this?

Thank you, Vivica, for giving some more clarification on the numbers. And before we move over to the Q&A session, a short summary from my side. We saw in the Q2 a very strong organic sales, 64%, and I also saw a strong movement in the operating profit, almost 300%, indicating this operating leverage and scalability that we have now stated and talked about for a while. continue to see good market momentum. We continue to see it across the entire portfolio. It's not just our traditional hardware. We also see it on the solution side, integration side, software side with a new framework agreement with F&V. So high demand across the entire portfolio. 4.2 billion in the order backlog when we closed Q2 indicating that we have a backlog supporting the long-term growth so we are continue to invest in our increased delivery capacity and we have done that for a while as well we have never been on this high level of investments into increased production capacity and I think we are having a really good progress right now at the moment and we can see that in the in the figures here for the first six months as well that we have increased the level of production capacity and then we have taking it to the to the new level and by that said I'm not going to guarantee that we will never have a production capacity issues again because that depends on the strong demand, a strong order intake and we'll continue to all the time build out our capacity and hopefully we now have a new level that will work for a time going forward here. On that, we will open up the floor. We will see if we have some questions.

I may ask you to go one slide further, Daniel. We are now concluding the presentation segment of the call. We're heading into the Q&A session. We have a lineup of questions from three analysts. If you don't wish to state a verbal question, you can write it in the chat and I will moderate it. Otherwise, raise your hand, function, and I will line you up. So now we're going into SEBS Jakob Marken. And I have opened your microphone, allowed it to be open. So I think that you can open it yourself. I think you've done so. Take it away, Jakob.

Yes, perfect. Thank you for taking my question. So a couple of questions from my side. Firstly, on the recent FMV framework. So firstly, if you can help us try to understand how you see deliveries going under the framework time? And also, as you mentioned, the software part that was partly delivered here in Q2. Is the software part done in this framework, you think, or do you expect more softwares going forward?

Hi, Jakob, and thank you very much for your question. Try to give you some flavor on the deliveries over this seven years contract. It's hard for us because we don't have the full picture of when the orders and deliveries will be. But I know that the need from the customer is here and now. So that would probably indicate at least that we will see here in the upcoming one to three year the lion part of things coming in. I'm not... I don't think that they should wait until year 5, 6 and 7. I think we will continue to work already now, and we will see the most part, I guess, on the first half of this seven-year contract. Software-wise, that was your second question, we have some software revenues now in the Q2 numbers boosting the gross margin, but we will continue to see software revenues related to maintenance, and other things related to the software there going forward as well. So absolutely, there will be more software-related revenues during this seven-year contract.

Okay, perfect. That's very helpful. And on the software part, I mean, you did 31 million in sales here in the quarter. You did 16 million last year, and you also did 16 million in Q1 this year. So is it fair to assume that this 15 million extra is FME related, or how should we think about that? Just to get the feeling, you know, how boosted the gross margin is.

I would say that the extra part is related to the FME framework agreement.

Okay, so the sort of 15 million or 16 million that you have been doing for the QR and also last year, is that a level where you expect the underlying sort of software demand to be?

I think that is kind of tricky to say. And we will, of course, try to add on more customers and things like that on the software side. So it's not going to be just FMV that is included in this software revenues. We already today cover a couple of the Nordic countries and some other NATO countries as well with the software there. So it's a different development from different customers.

Okay. Thank you. And just on the OPEC side, as you mentioned, the 12 million related to Norway and part of it is not defense related. Is there any other places in the organizations that you see a potential or where you want to do similar actions so that we should expect a similar cost in the other quarter or in the other part of the business?

Not at the moment. Today, I think that was the final puzzle piece that was not related to defense, more related to other critical society infrastructure. So that was the final piece that didn't really fit the puzzle in the pure defense company.

Okay, perfect. And why didn't you adjust if you see it as a one-off here in the quarter?

Because we deemed it small enough to be taken into the running business, and this was not a large restructuring program. We thought that was the most straightforward way to handle it.

Okay, yeah, fair enough, fair enough. And last question from my side. On the backlog, as you touched upon a bit, Vivica, on the orders beyond 2028, it's down a bit year on year, but it's also down quite a bit quarter on quarter, about 50 million here. So just if you can help us understand what happened quarter over quarter.

I'm not sure actually, to be honest, but there is probably something that has been pulled back into 2028 in the quarter since it's it's a decline. I would assume that is what has happened, where there have been no cancellations. So that is my only outstanding explanation point that it must have been pulled closer. It's not such a large number that I have deep dived into it, to be honest.

Okay, perfect. Thank you. That's all from my side.

Well, thank you so much, Jakob. Mark, I'm from SEB. We go to Danske Bank, and Daniel Lindqvist, I believe I have opened up your mic, and I see that you just opened yours. Welcome to State of Question, Daniel.

Perfect, thank you so much. So, just, can you hear me?

Absolutely.

Yeah, great. So, just Jakob touched upon several of my questions, but Just moving on then, I mean, I am one of those living with the model that is in transition from no longer getting the RODA numbers. So could you give us some guidance on the development in the core business versus the RODA just to help with this mitigation for the future? It seems like the normal pattern of ramp up of volumes along the year in RODA was not in place this year. So perhaps Q1 was a stronger quarter than Q2, and we should expect this to ramp up going ahead. So what can you say about that division?

Thank you, Daniel. And hi, Daniel. Thank you for your question. As you mentioned, we have now started to not isolated reporting the RODA numbers. They are included. They have now been with the group for more than 12 months. We think it was a good idea to to not exclude them, especially in the numbers. What we have done at least is showing the geographic top line net sales in the different quarter. And you can find Germany there as well. You can follow some of the development in Germany, even if that is not 100% RODA, they are also settling into other countries. Without mentioning too much of the numbers, I think we continue to see a good development of the RODA acquisition, good integration with the RODA, and hopefully there will be a couple of really strong growth opportunities on the German market.

Okay, perfect. Thank you. And then just on the cost side again, are there any other costs in this? Is this a recruitment quarter that has recruitment costs as well?

Yes, there is recruitment cost and as you know, Daniel, who have followed us for a long time, we are not a heavy Capex company. When we invest in our growth abilities, it's in the OPEC side, it's in people and in the facilities that has been announced which has extended slightly and will extend further given the press release that went out on the extensions in Helsingborg but yes absolutely that's recruitment cost and of course additional salaries that has gone into to that more the latter than the first yeah okay cool and then just a technical issue then so the the one of course they are

They are then seen in the admin or are they divided through the cost items?

They are divided through the cost items depending on where the person were allocated previously.

Okay, perfect. And then just the last one from my side, I had expected that you would tie up even more working capital in this quarter. Foster Sound Deliverance just pushed into the other side of the quarter and we should expect the tie up to end up in Q3 instead. Or how should we view it?

The tie-up in inventory was more towards the latter part of Q2, which is giving us a beneficial net of AP and AR, which will not persist once we pay the AP related to the inventory build-up, of course. It's always our ambition to not tie up cash in inventory for too long. But sometimes in this strong growth phase that we are facing, We must do that. So I understand your logic that we should have tied up more, but right now we're trying to balance it the best we can to secure our free cash flow and to secure our abilities to continue to grow on our own dime, so to say. But I wouldn't expect, since it was the end of Q2 that we tied it up, so then your logic kind of holds together, I would say.

Okay, perfect. That's all from my side. Thanks.

Thank you, Daniel. Thank you, Daniel Lindqvist with Danske Bank. We now go to Mats Brinkman from Berenberg. Please take it away and open your mic, Mats. I see that it's still closed, muted, so there we go. Welcome, Mats.

Thank you. I hope you can hear me. Just a few from my side. Good. I hope you can hear me. I mean, obviously the cross-marting was very, very strong. It's already been discussed in this call. I mean, let's just put things into perspective, right? I know software was very strong, but it's still very small numbers. Like to me, the biggest standout is sort of the increase in the services business or the share of sales that the services business delivered. And I know a lot of people, including myself, are wondering how we should think out throughout the year, but I guess you help us first of all, in that gross margin number, just to dissect the sort of, you know, proprietary motive hardware, how that did during the quarter and whether you've made strides on selling more of that, but also secondly, just how we should think about the facing of service revenues throughout the year. Cause I guess, you know, Very strong quarter in Q2, strong Q1, but obviously you also want some additional orders earlier in the year, and I think, I guess that's what's starting to come through. Just if you could give us an idea of the facing of that throughout the year, and then a second quick question on the 12 million in Norway. Maybe this is a silly question, but I just want to understand the run rate of the savings of this, assuming that it is a saving and you're not essentially using that to invest further in another piece of that business. But is it essentially fair to think about the 12 million as split out evenly throughout the year? And then I have another one, but we can do that after.

Right. Do you want to start with Margin, and then I'll take the Norway?

Yes, we can do that. Hi, Mads, and thank you very much for your question. Of course, Margin-wise, I would say it's an answer with two phases. We have mentioned that it has been extra boosted by the software sales here in the end of Q2. But I will also say on the other side of this answer is that we are now seeing more and more improvements in the sales mix. And what we have compared to the last years, we are now, as we said already in Q1, we are increasing the contracts that we are getting from the system and solutions business. The software, even if it's small numbers, it continues to grow. So this quarter is maybe a normal hike. But the underlying trend in the gross margin is on the right trend due to the demand that we see from our entire portfolio. It's moving more shares that is not coming from just our hardware so to say. So it's a combination of, maybe this was a too high gross margin in Q2 when we cannot guarantee that that would be the new normal, but the underlying trend is supporting a continued improvement of the gross margin. Hopefully that can give you some clarification on the gross margin. Vivica, should you give us some kind of clarification on the one-off cost here in Q2?

Just to finalize your words on the margin, Encouraged to have a look on the notes in the quarterly report, where you can see the split between revenue categories and where you will also find how the solution integration business have grown the most out of our three categories. And that is motivating some of the transition in the margin. In terms of...

Exactly, that was my point. Sorry. Yeah.

No, perfect. In terms of Norway, The savings are not huge. There will be some immaterial levels of sales that goes away. It has been a rather low margin business. So the savings will also be modest, if I say it like that. In these 12 millions, you also have some redundancy pay. So it's not just one month, just so you think about that. But I would say that both the sales loss from this activity and the savings are insignificant, and I wouldn't switch to the next gears in terms of analyzing that.

Fair enough. Maybe just a quick follow up. So obviously on the order intake, you started off Q3 very strongly with the big order to an unnamed NATO country. So very, very positive. If we just exclude that, I know it's very early in the quarter. But is there anything you can tell us? I mean, is momentum sort of continuing based on what you would have expected? Or is there anything positive or negative to call out? And then just lastly, I mean, I know it's limited what you can say, but the balance sheet continues to obviously be in a very tough position. I know network capital might be a bit too low compared to sales. I mean, that's fair you flag that. But I mean, yeah, what are you going to do with the cash? I mean, are we going to see some kind of transaction this year or will you be in a position where later in the year you can either do a higher divvy or special dividend or potentially buy back your own stock? Thank you.

Thank you much. When it comes to the order intake, I would say, and we have mentioned this in the call before here, that still a good momentum on the market still. a high demand for advanced military IT solutions. So we feel quite comfortable with the demand going forward here, also supported by, of course, by this large order that was announced this year. So I will not put any more absolute numbers around that one, but continue to see a high demand. And that is why we also continue to invest in increased delivery capacity. I think the next question was around what should we do with the money. Of course, we still have the M&A radar on. We are looking to see if there could be some potential targets that could be a really good fit with Mildef. Let's see when and where that transaction will happen. But of course, as you mentioned, now we have a balance sheet that is in good health. in a good place to make a move if we want to. So now let's see what happens here in the upcoming second half of this year or next year. Understood, thank you.

Thank you.

Thank you, Mats Brinkman with Berenberg. We segue further on on the international arena with Kanto Fitzgerald and Finn Kemper. You have opened your mic. Please welcome, Finn.

Thanks, Olof, and congratulations to a fantastic quarter again. My question would be, you flagged continued electronic component pressure in the quarter, and now with DRAM Nan, spot price is moving materially higher as we all know. How are you thinking about inventories now moving into the second half of the year and then second part of this is to what extent can you pass through pricing contractually versus like absorbing it just in the gross margins over the coming quarters?

Hi Finn, thank you very much for your question. As we have talked about this component issues and problems around that, I think we have shown the first six months here that when it comes to the price absorbing of the increased prices around that, we have been able to move a lot of this forward to the end customer, so to say. I'm not super worried about the second half in 2026 when it comes to the critical components. I think we have secured a lot already and that's in the inventory. I'm more worried about if this continues long term, if we look into 2027 and also if we're going to see increased volumes. There could be a bottleneck there when it comes to getting hold of the critical components or that we get very long lead times. I think price-wise, we have shown that the pricing power is at our side, and that we can price absorb a lot through the customer, so to say. Sounds good. Thank you.

Thank you.

Thanks.

Thank you, Finn, for traveling along with Mildef. Now we have one more analyst's questions coming up. It's Hugo Liesjö with D&B Carnegie. Please take it away, Hugo.

Thank you for taking my question. And actually, I only have one question because all the other questions are already asked. So could you tell us something more about the order intake within Q2? Were there any other larger orders that did not surpass the 250 million threshold? Or how? Yeah, could you share something about it? Was it only bread and butter orders? Or were it? Did you also see some larger orders?

Thank you very much for the question. Order intake wise in Q2, I would say there is more or less the bread and butter business to existing customers on existing markets. No one that we haven't announced that was passing the threshold that we have for regulatory press releases. So back to your expression there, more bread and butter business in Q2. Okay, thank you very much. Thank you.

Thank you, Hugo. And thank you, everyone. This has been a very well populated quarterly call. 50 lovely guests in the meeting in the middle of the summer. So thank you. And many, many analysts traveling along. So thank you for the many good questions I see. No other questions in the chat and we are 40 minutes past the hour. So I think that we are on the final approach of this flight. So I guess this concludes the Q&A session of the Q2 conference. Thanks for joining in and for your contribution and also Please put in your calendar the next exciting date. The Q3 report is up next on October the 22nd, as seen on the screen below. But now, with no further ado, please, Daniel, to wrap up and close the meeting.

Thank you very much for taking your time to listen in to this Q2, and hopefully You all will have a great summer and we hopefully will see you again October 2022 when we release the Q3 report. So thank you very much and have a great day, all of you. Bye bye.

Thank you.

Thank you.