Earnings Call: H2 2023

Mar 26, 2024

Good. Hello. Thank you all for being here in such large numbers. This is the first time we have held a physical meeting since announcing the acquisition of iXblue, and it is a practice we are going to repeat from now on, at least for the presentation of annual results, because we see that it is generating a certain amount of interest, and I would like to thank you for attending. For this presentation, I will be joined by Loïc Le Berre and Thomas Buret, as well as according to needs, Fabien Napolitano. Fabien and Thomas, being members of the Exail executive board. First of all, a summary of the key points of the past financial year. A second half that saw an acceleration in activity, more sales, more orders taken, and very significant cash generation. With the benefit of hindsight, we can say that the acquisition of iXblue was a good deal and a major point of this presentation. The commercial activity in our Navigation & Maritime Robotics division was particularly intense. Summaries of our key sales figures for the year show extremely strong growth compared to the current scope. Over 70% for all aggregates and on a like-for-like basis, growth that was also significant. Before getting to the heart of the matter, I would like to give you an overview of our activities, which are summarized on this slide, which shows you the entire value chain of our operations. Starting on the left from the smallest components, such as fiber optics or demodulators, which we integrate in our gyroscopes. We also manufacture our accelerometers, which are included in our inertial units and other elements that are included in our sonar positioning systems, which in turn enable us to develop drones. And here we focused on naval and submarine applications for drones, which are themselves incorporated into drone systems that can carry out a number of missions. You know about mine clearance, de-mining, and you are all familiar with this, and other applications. In this thing, there is something new. We will make the most of this before we go into our news because we are going to present one of our new products, the DriX Ocean. Let us start the video. It is a new product that has just been presented at an international trade show last year. I will let you appreciate its features. It is a 16-meter vehicle twice as long as our previous vehicle, the DriX Surface, which is now well-known and sold all over the world. This one is transoceanic, meaning it has a range of 30 days and a capacity of 2,500 nautical miles to carry out a whole range of missions. What is interesting here is to realize that we are moving up a scale in products where what is interesting is that this vehicle no longer needs to be accompanied by a mothership. It can do its mission without the need for a ship to launch and recover it for a long time, and to accomplish new missions. It was interesting to focus on this new product. Now an update on 2023 activity. As I was saying, we now have 2 years hindsight since the acquisition of iXblue. I say this with all the more gratitude because iXblue managers at the time of the acquisitions are still here. The figures they presented to us were a little misleading because in the end, the actual figures are a little better. I will not blame them for that. As an illustration, the business plan on which we based our acquisition forecast just over EUR 110 million orders for Navigation applications in 2023. We actually took EUR 140 million in orders, given that these activities are particularly profitable. We are delighted, therefore, with these developments, which are extremely interesting and above all seem to continue in the future. We will go back to this later when I hand over to Thomas, who will focus on Navigation. If we now look at the year as a whole, EUR 324 million in order intake, up by 14% compared to a comparable scope in 2022, which we reconstituted with the main Navigation & Maritime Robotics segment being very dynamic, 24% dynamic growth with sales of EUR 244 million. Our Advanced Technologies segment, which ultimately feeds into this main segment with its components and technologies with an order intake of EUR 80 million with a particularly strong order intake in 2022 with a single order worth EUR 20 million. The outlook for this segment remains extremely interesting. If we focus on the main segment, there are two characteristics for the 2023 financial year. First of all, significant order worth EUR 100 million with an important factor. At the very end of the year, we finally won a major order for the United Arab Emirates for a robotized mine clearing system. An order that took a little time to come through because if you look closely at our 2023 press releases, we were expecting to be able to take it in at the beginning of the year. It took a little longer than expected. But once again, we triumphed over the international competition. Another point to note of these EUR 100 million orders is that EUR 63 million came from current customers. This is not exactly recurring business, but it is business on which we have fairly high visibility. DriX orders, which were at a very good level, EUR 10 million. We are in the process of opening up this new market for surface drones to carry out missions, either in the defense sector, but also in the civil sector for a total of EUR 100 million, which is quite satisfactory, even if I have to admit it is a little less than we had anticipated. The second feature of 2023's financial year is the extremely high level of commercial activity. This is the highest level of commercial activity intensity in the last 20 years. What we have been promising or predicting for several years is now coming true. The combination of a fairly favorable environment and also the deployment of new drone technologies makes it possible for our clients and customers to have a better understanding of the uses of these potential drones, for which ultimately the use of drone systems is less costly, more effective, less dangerous for personnel on missions that are carried out more efficiently. One important point is that we were shortlisted in an Australian tender, which I'd like to remind you is a major global tender, and in particular, the elimination of one of our competitors. I don't know if they're still our competitors, because if we beat them every time, what makes them still competitors in that case? In any case, they're still part of the landscape. We are finalists, a fact which is important because this simple shortlist qualification unlocked a number of other projects. We're seeing an acceleration in de-mining programs in other countries and finally, awareness of the threats in the deep seabed and underwater infrastructures, which means that we're also seeing an acceleration in France, but also abroad, an accelerating need for deep sea underwater robotics. You know this slide, it's still alive and kicking. We are currently in discussion with some 10 navies, of which five at least are active. That's great. We're delighted. It's a bit complicated to manage because in fact, what we're trying to reproduce is neither more nor less than the success we had about 35 years ago when after winning projects for the Belgian-Dutch and French navies, we won almost the entire robotics and mine clearing market with products that have subsequently set the standard. I'd like to remind you that we won the Belgian and Dutch contracts a few years ago. Since then, we've won almost all the smaller tenders. The idea is nothing less than to reproduce this Grand Slam, and that's what's happening at the moment. That's why we decided to respond to absolutely every single tender. That's complicated because obviously we can't set ourselves up with staff as if we'd won every single tender. We had to do some trade-offs, and that means taking our best people, our best engineers, our best teams to respond to these RFPs. Sometimes we have to undress current programs to help us respond to calls for tender under the right conditions. When a new one comes out a little more quickly than we'd anticipated, we have to do a trade-off in our resources. It also has had an impact on the second half of the year, where profitability was a little disappointing compared to our expectations. I'd like to tell you this will continue at least for the first half of the year. We are fully committed to this choice because I believe that the next 10 years of the company are now at stake. We'll have an opportunity perhaps in the future to come back and answer your questions about which programs we're working on and how far we've got with them. Before that, I'd like to give you a brief summary of the second half of the year, which is quite interesting if we set aside growth in EBITDA, which we're not happy with, but we have significant sales growth, 17% and EBITDA growth, which is insufficient in our opinion. Growth in order intake and above all, a subject which is also very important is debt reduction or deleveraging. We had a very balanced financial year in 2023, but I'll let Loïc talk to you about this. He'll talk about the financial results for 2023. I'll give him the floor, but before that, I'd like to wish him a very happy birthday. You were careful not to tell me about that before. Well, hello everyone. This year we're not talking about major changes in the group scope, but you know the range of changes we had in 2022. I'd like to first of all, give you a quick overview of the financial structure that was put in place in 2022 when iXblue was acquired. Exail Technologies is the main shareholder of Exail Holding, and we have a partner, ICG. ICG contributed equity in the form of EUR 150 million preference shares and EUR 81 million capitalized interest bonds. These are therefore in fact quasi equity because their repayment is linked to ICG's exit. We raised EUR 185 million in debt with a syndicated loan of which there's still EUR 170 million outstanding at present. In the capital, we also welcomed managers in the first tranche, the directors of Exail in 2022, and the second tranche involving 34 managers of the group in 2023. Before I present the income statement, sorry, we're going to have to talk about accounting techniques. I hope I won't bore you too much, but there are two factors that are essential to understanding our 2023 accounts. Firstly, retrospective changes linked to the application IFRS 3. IFRS 3 is the standard relating to acquisitions. When a company is acquired, its assets and liabilities must be measured at a fair value rather than on its book value, which requires an amount of valuation work for which a period of 12 months is recommended by the standard. This work was therefore completed in 2023. It led to the identification, and this might surprise you, of no significant intangible assets relating to technology, but also to customer relationships worth a total of EUR 250 million. These EUR 250 million recognized as an asset was offset by a reduction in goodwill at EUR 126 million. Another consequence of identifying intangible assets is that they can be amortized, and we therefore posted an amortization charge of EUR 18 million for these intangible assets. The 2022 financial statements were amended retrospectively, as required by the standard to take account of these assets and amortization. The second major change relates to the application of IFRS 10 and concerns commitments to minority interests. The group has commitments to acquire minority interests in some of its subsidiaries. As a result of IFRS 10, these commitments are included in other liabilities on the balance sheet. Our previous practice was to reduce the group's equity by a corresponding amount. In reality, the preferred practice is the one that makes the most economic sense. That is to first reduce shareholder equity for the minority interest share and then reduce the group shareholders' equity. It's just a reclassification of liabilities, rather, between minority shareholders' equity and group shareholder equity. As this is significant, it has a retrospective impact of EUR 15 million in 2022 accounts, which will therefore increase the group's shareholder equity to the detriment of minority shareholders' equity. I hope I haven't lost everyone. Now to the group income statement. The IFRS compliant income statement includes iXblue only for 3 months, with sales of EUR 180 million, and this 2022 income statement was modified retrospectively to take account of the impacts I mentioned before. It includes, in particular, an amortization charge of intangible assets. We also drew up an income statement for 2022 on a like-for-like basis, and this like-for-like income statement includes iXblue, including for the 9 months prior to the acquisition. We have obviously restated and canceled any transactions that may have been reciprocal between iXblue over the 9 months and the rest of the group, and applied a number of normative treatments to ensure that the 2022 income statement, which is not under IFRS, can be compared with the 2023 income statement. These normative restatements relate to financial interest to simulate a financial charge in 2022, as if the acquisition had taken place on January 1 of that year, and also to integrate intangible amortization to be comparable between 2022 and 2023. Sales of EUR 323 million are up by 16% compared to EUR 278 million on a like-for-like basis. Obviously, as Raphael said, this is driven by the shipping division or the Navigation & Maritime Robotics division, but I will go back to this for each division. Current EBITDA at EUR 65 million is up in absolute terms. We have a slight contraction, as Raphael explained, in EBITDA margin of just over 20%. The operating profit, which in my opinion is the most representative indicator in the income statement of the business's performance, it is an alternative performance indicator, therefore, is above operating profit, amounted to EUR 40 million compared to EUR 37 million on a like-for-like scope last year and in the IFRS income statement in 2023. This operating profit is then impacted by a number of items that have no cash impact and arrives at an operating profit at EUR 7 million. These non-cash impacted items are essentially amortization of intangible assets recognized at fair value at the acquisition, EUR 18.3 million. Items relating to IFRS 2, i.e. share-based payments at iXblue. We have had for a long time free allocation plans and stock option plans valued in accordance with IFRS and which therefore generates an expense, as well as the plan which has been issued for managers since the acquisition and creation of Exail Holding. This is an expense of around EUR 8 million, and we also have a balance of acquisition costs for around EUR 800,000. We already had in the first half a loss of EUR 4.7 million linked to the group shares held by Exail Technologies. So at the end of 2022 Exail Technologies was still a shareholder with 3 million Prodways shares. Most of these shares were distributed to Exail shareholders last June. So the EUR 4.7 million loss represents a fall in the value of the shares between December 1, 2022, the date on which they were distributed. Today, Exail Technologies has only about 200,000 shares in Prodways Group. Under operating profit, we have significant financial costs with a cost of debt of EUR 25 million. This cost, it should be noted, includes interest on the ICG bonds, which are capitalized and therefore do not lead to a cash outflow. There's been a slight increase in this item due to the rise in interest rates. In 2022, the financial result also benefited from a financial income, linked to a fair value adjustment of an interest rate hedging instrument. Income or profit from discontinued operations amounted to EUR 31 million. This is a profit of EUR 31 million already posted in the first half of the year and relates to the removal from the scope of consolidation of the activities of the former Protection Systems and Engineering division, which was classified in 2022 in IFRS 5 accounts as a business held for sale. The disposal led to a gain of EUR 31 million, giving us a net profit of EUR 12 million for a group share, from 2016. If we look at each division, the largest being Navigation & Maritime Robotics, with sales of EUR 245 million. This is growth of 16% with a significant level, with an acceleration in the fourth quarter. Growth in this division was driven by defense-related applications, as Raphael said, in the field of maritime robotics, but also in navigation. Now, in particular, maritime applications, but also land applications, as we pointed out in this morning's press release, which announced a significant order. And in applications that are also linked to our new products, particularly those designed for underwater mapping such as DriX. The 22% EBIT margin is a little disappointing, but it should be noted that in navigation, which has the biggest dynamic in this division, margins are higher than the average margin because in the maritime robotics area, commercial activity that caused problems allocating resources and has rather squeezed the margin in. In the second division, the Advanced Technologies division, income amounted to EUR 85 million, in other words, growth of 19%. Growth in this division was driven to some extent by the increasing pace of production in photonics applications. The margin is 17%, which is below that of the Navigation & Maritime Robotics division. So there is potential for improvement that's quite significant. With a margin therefore of EUR 14 million, it should be noted that in this division, the AMR business that we launched a few years ago, but the development of which was much slower than expected, had been discontinued because it was weighing down on the margin without generating any business in the short or medium term. The sum of these two segments does not represent consolidated recurring EBITDA, the difference being due to reciprocal eliminations and to items concerning structural costs, and you'll find the details in the financial statements. Against this backdrop, debt fell to EUR 174 million. Here, I'm referring to debt excluding ICG because, in my opinion, ICG bonds are basically quasi-equity, and I'm not including them in this figure. This includes the balance of the syndicated loan, cash, and treasury shares held by Exail Technologies. So at EUR 174 million compared to EUR 184 million at the end of 2022, our leverage in relation to recurring EBITDA has fallen to below three at 2.7. This is a dynamic that I hope will continue with the same intensity over the coming half years. Obviously, as I said, cash generation, as I said in the first half-year results presentation, is obviously a priority. In the first half, we were heavily penalized by unfavorable seasonal factors with a deterioration in working capital requirements in the first half of EUR 31 million. That deterioration in working capital in the first half and its recovery in the second half is something we've always experienced at ECA, in the Marine Robotics Institute. At iXblue, we have more or the same seasonality. But for the last few years, the overall effect has been increased by invoicing milestones in the BNL contract. So the WCR change was zero in the year, which is very good performance. CapEx amounted to EUR 32 million, two-thirds of which concern research and development, which remains a significantly high level, even though it's down on the previous year. There was also a EUR 9 million positive change in cash flow linked to various factors, the two main ones being the EUR 30 million received on the sale of IPS and the EUR 24 million paid out in July 2023 for the acquisition of 5% of the Exail Holding company, which we talked about when we published our half-year results. There we go. We've talked a lot about navigation, so now Thomas is going to focus on the dynamics of this business. Hello everyone. The next few slides are here to show you some of the features of the navigation business, which is one of the major contributors to Exail's success. The first feature is that it's a very high-tech activity. The navigation business consists of producing inertial units, boxes that you can see here, which maintain position information for the vehicle on which they are mounted. They maintain the position information via extremely precise internal sensors that measure the vehicle's movement in real-time. One of the characteristics of this activity, of this application, is that it requires extremely precise sensors because the sensors measure movement in real-time and the movement is integrated to maintain the position information. Engineers will tell you that this means that the sensor has to be extremely accurate because any error in the sensors will accumulate over time. So it's a metrology application. So it's very important in this application to completely master sensor technology, and within Exail, we've integrated these technologies over time. We're very well-known for one of our sensor technologies, the fiber optic gyroscope, and we've also integrated our own accelerometer sensors in the last 15 years. From an engineer's point of view, it's a challenge because it means a lot of investment, a lot of effort to manufacture these very precise sensors. It's also a major advantage because once you've managed to meet this challenge, you create a competitive advantage, or many, in fact, and a real barrier to entry for your competitors. Finally, these units, these inertial units, are there to provide position information completely independently of your environment. One of the major revolutions in the navigation market in the early 2000s was GPS. You've all got GPS in your iPhone, in your cars. That's GPS. It's a satellite-dependent system that gets you position information. The problem is that you are dependent on satellites, and an inertial unit is there to give you this position information, which is vital for a wide variety of applications, but completely independently of your environment. So in the end, an inertial measurement system addresses a wide range of applications, as you can see here, and all the applications are ultimately critical. From deep sea exploration to extraplanetary missions, Earth observation missions, Ariane launches, class 1 ships, in other words, frigates and submarines. The second feature of this application is its great diversity and diversification of its markets. Another feature is that it is a relatively large market. You will see that we are very proud to be close to EUR 150 million in sales, but ultimately, the size of the market is close to EUR 4 billion. So there is still a lot of potential for improving sales in navigation. It is a market that is itself growing. There are two fundamental underpinnings to the growth of the navigation market. These are, on the one hand, as mankind, humanity expands its horizons and seeks new applications further afield. We have talked about the deep sea, but we are talking about depths where we have not gone before. So to date, we have talked about extraplanetary missions. The application of urban tunnels is increasingly widespread, and so on. So there are more and more applications that require reliable position information. What is more, it is becoming less and less acceptable to depend on satellite information for critical applications, in particular, land defense applications. We will go back to this later. This market is growing. So it is an important market, a growing market, and ultimately a market that will enable us to generate growth for Exail, both by taking advantage of established positions on our markets. We have markets where we have very good market share. We have an 80% market share in autonomous underwater drones. We have a very good market share in defense navigation. We also have a very good share of the maritime works market, so that, for example, wind power and so on, we can take advantage of these wonderful favorable winds on the market. Also we are increasingly addressing new markets where basically we are facing major industries and defense contractors who do not have our agility or our technological destiny. That makes it possible for us to gain market share and be more competitive with these major defense contractors. Finally, the third pillar is to be able to move faster in new markets than the others, and you have certainly heard of new space. Typically, these are high-volume satellite constellations. We have also developed a plant faster than the others, that is dedicated to new space applications, that is driving growth in this business. Now, if we look at 2023, it was a good year with fine growth, and basically what you can see are some of the successes we achieved in 2023, and you can see a sound illustration of diversification, ultimately, in our applications. We have been selected the most strategic applications possible to equip submarines for tier 1 navies. We have taken full advantage of the deployment of offshore wind farms, which, as you have no doubt heard about, are expanding, and we are increasingly selected to equip satellite constellations. We are maintaining our position in underwater drones. We have also been selected by key accounts. I talked to you about tunnels and also about all kinds of land-based military equipment. Finally, it is that diversification that is driving growth in navigation with a sound year in 2023. So that is the picture over the last five years. And in fact, since the creation of navigation, Fabi and I have been lucky enough to have enjoyed a fine trajectory in recent years. We've had high growth rates. We're basically on good average growth of 20%, just under 20%, over the last 5 years on this application with, above all, extremely solid fundamentals, because we are constantly developing our competitive advantage, which is why we can defend some very healthy margins. So that was the past. Now, the future for Exail, in terms of navigation, ultimately, is to concentrate on larger volume markets. Ultimately, for 20 years, we've been developing technology to improve performance. What you can see here is the old generation of our units. In the first 20 years of the company, it took us 20 years to get to this kind of product, which has the best performance on the market, and which has driven growth in the business. Then 5 years ago, we decided to change our technological investment focus and focus on miniaturization. There, the aim is now to achieve the best performance to bulk ratio on the market so that we can move into new applications, diversifying further, continue to democratize navigation performance, but also at a higher volume. As you can see, the market size is quite substantial, and that's what we needed to do to continue to grow at the rate you've seen. As you can see here, alongside this big inertial unit is this new generation of inertial units. As you can see, it uses the same design principle. It's just simply addressing new markets, in particular, new space constellations. As you know, new space constellations involve delivering smaller satellites than before, but in much larger quantities. To do that, you need a product that's slightly different from what we're able to produce to date. This is a fine illustration of that. There are also many other applications, such as aerial drones. Obviously, because you equip aerial drones, you have to work hard on the size and weight as this affects the range of the drone. Then another very fine piece of good news, which is valid for this year that we announced this morning. It's a major deal. In fact, a historic deal for us. By far, the biggest in our history with a European player. It's really a strategic defense contract to deliver 1,000 units starting in January 2025. Finally, it's the democratization of inertial navigation in land-based terrestrial operations. As I said, one of the underpinning factors of the navigation market is the fact that dependence on GPS is becoming less and less accepted. Operations in Ukraine have clearly shown that GPS information is now systematically scrambled in all theaters of operation, including urban theaters. So all armies are going to get this kind of solution, but they're looking for a player that can meet needs in terms of performance and competitiveness. This is a great success story that will lead to others on the land-based military market. We are a dual player in that kind of performance. We do as much civil as military work, and we can also do this for other high-volume applications. We're aiming to achieve this in the short term in navigation. A French actor? It's a European actor, not a French one. These units are not consumables. One of the major areas of recognition, in fact, we do premium products. We're a bit like Apple in terms of market position. People are prepared to pay premium for unfailing support, service, and reliability. We're looking at 15-year lifespans rather than consumables. You have to realize that a small unit, even the smallest, is the cost of a car in these quantities. I suggest we keep the questions to the end. I'll answer that first question. We've already talked a bit about the outlook. We're going to continue in the last three slides. First of all, we're in an extremely buoyant environment. International tension on the one hand, and increasing budgets, expenditure on the other, mean that for defense applications, we are being quite helped and driven by our customers. Our customers who, as I was saying, are also realizing the advantage of using drones instead of vehicles or ships or submarines with trained crews that cost a lot more, by the way. We're starting to see large-scale use of underwater drones and surface drones. Here are a few examples for the U.S. Navy. The French Military Programming Act, as I also said, is also concerned with the use of deep-sea applications for drones. The Royal Navy, the Ministry of Defence, is also planning very substantial investment in unmanned vehicles, therefore, a very favorable situation. It was interesting to listen to Thomas, who reminded you, and I will continue to remind you that Exail is not just a yellow submarine system provider. We also make equipment, and in particular, navigation systems. It's very important because Thomas didn't mention this, we should be aware of this. These have very high margins in these products, and we're delighted to see their sales grow. Even so, we are still very busy with our de-mining clearance programs. It's very intensive. We can talk about that. The Australian program, which is a call for tenders for both de-mining and military survey, in other words, surveillance of more or less deep underwater infrastructures. I can't remember the size of the contract, but we talked about EUR 700 million, EUR 100 million, which is comparable to the Belgian program in terms of scale, as we've communicated. As far as we know, the plan is still for an operational launch, in other words, a T-zero, a kickoff meeting in the autumn, which in our view, requires the candidate or the preferred bidder to be selected well in advance. That's what we can say at this stage. You could try to ask me other questions, but it'll probably be the answer I'll give you. What's a little new compared to the previous presentations we made is that there are other programs that are accelerating and materializing. Other programs that cost more than EUR 1 million. They're worth more than EUR 100 million. Don't necessarily associate countries with the amounts, but the small map that we are used to seeing is confirmed. Countries currently active include Romania, Indonesia, Australia, France, countries in the Middle East. I would like to make a brief comment on the UAE contract, which is a sizable one, nearly EUR 30 million, which does not equate to the potential of the Emirati Navy. In other words, it is legitimate to hope that this navy will equip itself with other systems. These are small onboard systems launched either from land or from ships of opportunity, but larger systems can also be anticipated. Clearly, winning this first contract was a strategic move, both in terms of the amount involved and also for the additional orders it might lead to. Which is why it was a fierce battle that took us a little more time, a bit more energy, and a little bit more money, but we are happy to have won it. This trend is there, and little by little, our position on the market is starting to spread. I was talking about our selection for the Australian contract. We can see on a daily basis abroad, and I hope also perhaps in France, that our solutions are the best. We are the only company in the world to have all the drones and equipment you need to offer a comprehensive solution for drone systems. We have navigation systems, and we have talked quite a lot about the technological advantage and performance of our systems. New applications we are developing mean that we can be fairly confident about the future. The major order we announced this morning also helps to give us visibility. Very large orders in the past where I do not know if there were many orders for more than 100 units, but in any case, orders for a thousand we have never had until now by any stretch. Finally, maritime survey applications, sometimes civil, sometimes defense, are also developing. You have seen the launch of DriX Ocean. There, another category change, a classic DriX, which is 7-8 meters long, and it has a range of a few days and is launched from a ship. We are talking about a vehicle that costs between EUR 1.5 million and EUR 3 million, depending on the equipment. Now, you can see the DriX Ocean is no longer in the same category. We have not sold it yet. It was presented for the first time a few days ago. It also illustrates the major ambitions we have in this area of maritime survey. If I had to sum up the situation for 2024, we are forecasting double-digit growth with one particular factor, the Belgian-Dutch contract on which we have been working for several years should generate stable sales in 2024 compared to 2023. That is the normal consequence of the contract, which means that for part of the revenue, we cannot expect growth. Other activities are growing strongly. So all in all, we remain confident of double-digit growth. Any disruptions that we were talking about caused by the commercial or business intensity, we believe should last for at least in the first half of the year, or should continue, given that as soon as we win it, if we are lucky enough to win a significant tender, we will be able to book extra quick sales against the cost of responding to tenders. We can assume that one-time extra cost will stop as soon as we win, if we win a major contract. In terms of order entry, in fact, we think it is now. It is 2024. Now, there are always surprises or delays. As you know, Hervé Guillou, former head of Naval Group, now works with us, and he told me that the contract that France won for Dutch submarines a week ago, he submitted the first offer in 2015. In these businesses, there are sometimes surprises, but we can feel there is something happening now. There are therefore multiple tenders worth over EUR 100 million, which means that we can look at 2024 and perhaps thereafter with a great deal of peace of mind. Thank you very much. We will be happy to answer any questions you may have. Hello, Thomas Renaud, Gilbert Dupont. My first question is about your production capacity for small inertial units. Will the contract announced this morning lead you to invest more to meet this demand? How will this contract be sequenced? Will the thousand be in 2025 or will it be spread over several years? I will hand over to Fabien Napolitano. Yes, speaking generally, over the last few years, we have significantly increased our production capacity for navigation units. As what Thomas presented, we have more than doubled our capacity. Because of this contract and because of many other contracts, we think we will have to at least double our production capacity again very quickly. We have already a lot of investment in this direction. In 2023, we invested heavily in recruitment and production tools in Photonics because we are vertically integrated, and that was the first stage of the rocket, and today, we are making the same kind of investment in navigation. The objective is basically to double our capacity. In relation to the EUR 32 million CapEx in 2023, what can we expect in 2024? We should not expect strong growth. As Fabien was saying, EUR 9 million excluding R&D, included production tools for Photonics. We should expect a roughly equivalent level in 2024, but no more. R&D is capitalized, when it meets the criteria. Not all of the EUR 32 million R&D is capitalized. I think we should be at around EUR 50 million in R&D expenditure total. I will tell you that right away. We are at EUR 48.7 million in research and development, and EUR 21 million are capitalized for 2023. In fact, these research and development costs are financed by customer projects, by research tax credits, which represent a significant amount at EUR 17 million, and sometimes by subsidies. Hello, Nicolas Mental for Zampa. I had a question about navigation again. Are you expecting other tenders in land defense in Europe? Are there other armies wanting to equip? Yes. More in Europe, in fact. We can answer yes, in Europe, with the same kind of calls for tender that are currently maturing and could be issued in 2024. If you could give us an indication of the actual price of these mini units. You talked about a car, EUR 20,000. When you asked the question, I saw Hugo nodding his head, or rather shaking his head, so I cannot really tell you. For business reasons, we cannot tell you. Another question. You mentioned the aerial drones with inertial units. Is this in response to requests concerning Ukraine and the fact that many drones are either jammed there or not at all for applications relating to the Ukrainian theater of operations. However, the fact that tactical drones are being increasingly used for surveillance operations is a change in the market, and these drones need this kind of unit. Thank you. Eric Blaine, Finance Connect. You were talking about price, but you gave the price of the DriX at EUR 1.5 million or EUR 2 million. The other, you didn't tell us. Ocean. The ocean is big, so it's expensive. Is it 10 times more expensive? In order of magnitude, about five times more. It's starting to be a genuine investment. The real advantage for the customer is he no longer needs to buy a ship and finance a crew or pay the fuel. We didn't mention that here, but the other advantage of using land-based drones of this type is that the TCO2 impact is 100 times lower than the equivalent mission carried out by a ship with a crew. So it's green entirely. I have a few slightly financial questions. Your WCR adjustment is significant. I'd like to understand it works. Do you have significant customer advance payments? How did you do this in the first half of the year? First of all, there's a very strong mobilization by the teams to ensure that invoicing was done on time, that there were effective reminders. The essential factor is that in the biggest contracts, particularly in Marine Robotics and in the Belgian-Dutch contract, we have invoicing that isn't linear at all. It's relating to the achievement of technical milestones that are set out in the contract. So there can be several months without any milestone leading to a recognition, and that means that we spend without invoicing until a significant milestone is achieved. We're very disturbed by this invoicing method because firstly, it's stressful, and secondly, it's costly as we have an increase in WCR for six to nine months before we can invoice sums of several tens of millions, and it generates the use of credit facilities. Negotiations are therefore underway on this contract to try and smooth out these invoicing milestones in the future. In terms of the principal, you have a customer advance payment, I imagine. In practically all of our contracts, we have one of those. You have a neutral capital working requirement or negative. Oh, you're negative. It depends on the contract. It depends on how the milestone was negotiated. It depends on the pace of spending in relation to the billing milestones. There's no single truth in this. Contracts generally start with a deposit, with a favorable WCR, which will then gradually deteriorate as the work progresses until we get to invoicing milestones. There's no consolidating factoring. There have been on occasion, but they were not significant. I have to say that I'm rediscovering this because I was very familiar with the ECA Group and so on. Here I'm discovering who you are now again. I'd like if you had ICG, I didn't quite understand how it worked. What's more, you bought a 5% stake in Exail Holding. If you could explain in simple words and a few figures, for example, with the amounts, that would be very useful for me and perhaps for the others as well. Simple things, I can do that. For the ICG assembly and for current capital structure, you can basically assume that we have roughly 100% of the economic interests. With that said, we have to give ICG a return on the EUR 230 million that they entrusted to us to make the acquisition. The idea was to make a non-dilutive acquisition for Exail Technologies shareholders, and we have to ensure a return of between 12% and 14%. It's capitalized, and these increase over time. Exactly. You have 100% at that point. We have 100% less the share of the economic interest generated by the EUR 230 million with its interest at 12% or 14% capitalized. Why are you buying 5% of Exail Holding? That's something else. During the preparations, there was also the founding shareholder of iXblue that had retained 5% of the capital, and we agreed that he would be ready to sell it to us, and we were prepared to buy it. As a result, we are the sole shareholders alongside ICG. You have 100% of Exail Holding. No. Legally, it's incorrect to say that because ICG has invested both in bonds and in preference shares. The EUR 230 million include bonds and preference shares, EUR 80 million in bonds, EUR 150 million in preferential right shares. That's it. Again, at 12%. Shares with preferential shares, preferential rights, or is there share in the profits? Now, as we have an appointment with ICG that aims to give them liquidity, an appointment that could start in four years or could last up to seven or eight years. Beyond that return, there may be a small top up if ever the capital gain were extraordinary, but no conversion into shares, no. Okay. We can consider that you have 100% and that you have EUR 230 million in capitalized debt. That is increasing significantly every year. It's economically correct, but from an accounting and legal point of view, it's more questionable. I got the economics part. Thank you. Or in sum, if we manage to create more than 13% in value each year, it was a good idea to choose that transaction, given that with the leverage effect, growth of 8% to 9% should be enough to achieve this objective, and our ambitions are far greater than that. Is that reviewable? It's hard from the figure, but in a way, it was decided before the rate increase, so it was discussed in March 2022. In the end, it equates to conditions that are acceptable for quasi-equity. Just perhaps on the 2024 sequencing, if I've understood correctly, we should expect a low point in EBITDA and cash generation in H1 before a recovery in the second half. Is that what we should keep in mind for the year? Yeah, you should expect the same seasonality as in 2023. You were talking about a major sales effort that impacted your margin. You mentioned in a slide a figure of EUR 4 million. Is that a rough idea, or is it more significant? No, the EUR 4 million are the cost of responding to the calls for tender, for example, demonstrations. It's not all of it? No, not everything. To give some very concrete example on how that disrupts things, we have a number of drones, prototypes, or first series in production for Belgium. We have another customer who says, "Your thing is good, but I'd like to see it work. So I'd like you to develop another system." We'll take from one of our available prototypes and demonstrate it. People developing for Belgium will be pretty unhappy that they would be able to continue their development for a while. We tried not to do that at the expense of our Belgian customer, but that's the kind of disruption, as you can imagine, can incur, and which is not just the cost of responding to a call for tenders. You imagine the cost of traveling to the other side of the planet, a vehicle plus a team. You can imagine that these responses for tenders, for example, in Australia, the specifications were 6,500 pages long, and we put our best engineers to work on this. Just on your products in general, we asked earlier about inertial power units, inertial units. Is there any maintenance on these or none at all on the various kinds of products you have? For the inertial unit, we can say no, but for other systems or products, yes. We consider that a vehicle or an underwater vehicle or DriX can generate about 10% of its value in maintenance each year. There are also induced orders, and a good example is Belgium, where the initial order was for EUR 136 million. We're now at more than EUR 500 million in additional orders or amendments. We have yet to receive orders for consumable vehicles because to carry out the mission, small underwater vehicles with explosive charges are launched to destroy the object. The Belgian and Dutch customers have yet to order them. We're talking about hundreds of units. You could ask me, these vehicles cost between EUR 50,000 and EUR 100,000 each. There are therefore induced orders and recurring orders, because between the time we win this tender, we won it in 2019, and the last delivery, which may take place in 2028 or 2029, there will very likely be some obsolete components, batteries to change, new versions of software, better performing sensors. So there will be maintenance, recurring maintenance, indeed. If I've understood correctly, you're well-supported by the entire rearmament, defense environment, and so on. If I had to give a figure for the group, what percentage of sales is exposed to the military environment? I don't have a sales figure for 2023, but it shouldn't be very different from 2022, which was 50/50. Okay. That's less true for the order book, for the backlog, which is far more weighted towards defense, and I'm still expecting in the years to come for defense to increase, even though the civil sector is growing a lot as well. Of the five discussions underway, are you expecting any answers in 2024? What kind of pipeline are we talking about in terms of sales for all of these five advanced discussions? We're hoping for answers in 2024. When, I don't know. Could be next week, it could be nothing at all in 2024. But in any case, it's possible to have some answers or more decisions in 2024. That would be quasi-irreversible. As for an order of magnitude, we're not far from EUR 1 billion. EUR 500 million on one of bids in progress, and EUR 500 million on the other four? Well, there are other ways of getting to that figure, but yeah. Again, still the same offer on the table? Yeah, it's quite similar. There are different combinations of current existing products. Okay, thank you. Hello, Pierre Chang from Top Field Finance. Thank you. Pierre Chang from Top Field Finance. When you announced the acquisition of iXblue, you gave an outlook for 2025, 2026. You said that you aim to achieve sales of EUR 500 million with an EBITDA margin of over 25% by 2025, 2026. I understand things are speeding up and so on. Despite all these calls for tender that you've had to manage at the same time, the difficulty and complexity of the exercise, are these ambitions still on track? Because if we look at your 2024 guidance and project it a little, you'll have to deliver on that. Can you confirm this guidance today, or do you feel comfortable with these ambitions that you mentioned before? Thank you. That's the good thing about the slightly mixed outlook that we're giving you today, which is that we think it confirms our medium-term outlook, including 2025, 2026, with a slight tendency towards 2026. After that, are we comfortable with that? I don't think it would be reasonable to be comfortable to say that in the space of 3 years, we're going to have to more than double EBITDA. We're mobilized. We don't think there's any reason today to call this guidance into question. Yes. More specific question to indicate a potential margin in the Advanced Technologies side. What kind of scale can we imagine? Thank you. For the second question, we don't think there's any reason for the Advanced Technologies segment shouldn't reach the same level of profitability as the main segment, and the improvement will come mainly from stopping less profitable or loss-making activities. We talked about our decision to stop autonomous logistics vehicles. The improvement will come more from that, given that the photonics business, for example, is particularly profitable, as is onboard equipment. We think there is an improvement in this business. Secondly, to answer your second question, it's quite systematic for states to demand from us absolute confidentiality, or governments do so. To give you an anecdote, when we won the Belgian tender, it came out in the newspapers before we received official notification. These situations are rather difficult, tricky, and the fact that we're shortlisted for Australia, we were able to communicate it simply by commenting on a rumor that came out in the media. We have extremely strict NDAs that we must abide by. If we were a finalist in Australia, that may be the case today, but I wouldn't be able to tell you. Hello. I am Matteo for TP ICAP. I'm here for Julian. He had a question about reclassifying the goodwill. He was wondering whether it was going to be amortized over 12 years. We have identified intangible assets for customer relationship technologies. In technology, there are different assets. There are different amortization schedules for each asset. So in the next few years, the level of amortization will be stable and then will decrease depending on the amortization schedule of certain assets from the fourth or fifth year onwards, I believe. We have assets that can be depreciated over 5 to 20 years, depending on the nature of the assets. It has absolutely no tax impact, only in IFRS accounts statements. From a tax point of view, there are two tax integrations within the group. One at the level of Exail Technologies, where we can no longer really integrate any operational activity today, and one at the level of Exail Holding with all of its French subsidiaries. Exail Holding generated tax losses last year when the structure was set up and incurs financial costs that are fully deductible, which means that from a tax point, we have a fairly low tax charge for 2023, and it will be the same thing in the years to come. It will be the same in the years to come with a level of financial charges that will match our operating results. You shouldn't expect a normative tax charge very quickly. That will even last quite a while because you've had a tax loss to carry forward. Yes, we've had a tax loss carryover for 2022 that relates to the acquisition costs and financial charges only. You de capitalized R&D, which is deductible, and you've also got the research tax credit. Now, R&D is capitalized in IFRS accounts, but not necessarily in the company accounts of the various entities, so it doesn't necessarily generate an immediate taxation. Hello, Sophie Normand, BPAM. I was wondering if all or part of these tenders were won, which I hope for you. We talked about production capacity, but what about the people involved? What would happen? Well, obviously, there's a challenge. We're talking about rare skills and the need to know the knowledge and the markets and applications. But we do have a certain visibility and a knowledge of growth trajectories. We have plans to strengthen or bolster our skills over several years. Also the challenges associated with responding to tenders, which are organized at the same time. We know how to deal with the growth trajectories we're aiming for. In the end, our growth rates are relatively high but sustainable over time. In addition, the fact that we've won four of the last five tenders in this field means that we're starting to set up production lines for objects that are fairly similar. Therefore, the more successful we are, the more we'll be able to set up basically the production lines that will make it possible for us to respond more easily to customer requests, which becomes a competitive edge because availability or up times is one of our customers' evaluation criteria. Okay. Well, perhaps one last question. Well, if all that is clear, I'd like to thank you, and I'll see you when we publish our Q1 sales figures at the end of April. Thank you. Have a good day.