Okay, good morning, ladies and gentlemen, and a warm welcome to this investor call with MilDef Group, with a special focus on MilDef's reporting on the first quarter of 2025. As you know, time flies when you're having fun. This is MilDef's 17th Quarterly Report, shy of 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 Q&As 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.
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. Take it away.
Thank you very much, Olof, and good morning to all of you that are joining this Q1 conference call for MilDef. 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. 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 activities on the market. 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, where the majority of that was organic.
Number two, a very big milestone in the MilDef history that now that the Roda acquisition is successfully closed, that will put us in a really good expansion position in Europe going forward. 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 MilDef, 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. Also, of course, a very super important platform for continuing to grow MilDef and continue to grow the military defense sector and ramp up the European defense capabilities is, of course, the defense budgets.
I think that we have now, in the beginning of the year, seen increased defense budgets and also have seen a shift when it comes to the pace of the European defense ramp-up, and it is increasing. Also, a big highlight that I will bring with me from this third quarter is that our order backlog and order intake is supporting further growth. Order backlog increased 111% if we look year over year, of which 59% is from organic. We have a so-called book-to-bill ratio the last 12 months of 1.5, also indicating continued growth going forward. 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 that order backlog increased 52% year over year. Purely organic is 125 if we also add on the M&A part of it.
I think we have some comfort and evidence when we're saying that order backlog is supporting further growth. 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 the same quarter last year. 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 Roda acquisition for one month in the first quarter. 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. Of those 88%, 56% was organic and 32% was related to M&A. This was despite the lack of a major individual order in the quarter. That also indicated that there is a strong demand and underlying activities in the small and medium-sized orders. If we look at the operating profit in this case, adjusted EBITDA result ended up on SEK 15.7 million, 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 and operating profit, one of the most challenging quarters 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 50.5% in Q1. I think also that adjusted OPEX was good. I think that we have shown a good cost control in the company. 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 SEK 30 million. 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 SEK 75.2 million.
Of course, that is a big negative movement from the Q1 in 2024, but there is some explanation as well. Mainly the big driver behind this is the change of working capital. The biggest driver within that is that we had a high amount of the revenues that was delivered late in the Q1, which means that the payment is due in Q1. That, of course, is impacting the cash flow here in the Q1, but will come in a positive way in Q2. Hopefully, when we look at cash flow over a longer time 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 and messages 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. We have seen initiatives like Rearmed Europe or Resilient 2030, which is adding additional spending of EUR 800 billion. We have also, from the Swedish government, seen that they have now raised the defense spending target, and now the new one is on 3.5% of GDP by 2030. Recently, also, we saw an announcement from the Swedish government in this so-called Spring Budget 2025 that they are adding additional SEK 25 billion into defense procurement commitments. We also have something to look forward to when it comes to the NATO summit here in June 24, 2025, where we expect to see some kind of new and defined defense spend targets.
We have now, for many years, lived by the 2% of GDP within the NATO countries, but I think that we will see a new clear 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 MilDef level, we can see what's happened here in Q1. Of course, we talked about the very important milestone of completing the acquisition of Roda Computer. I will come back a little bit later on to Roda Computer and their performance in 2024 and how we see MilDef and Roda 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 platforms that is delivering by BAE Systems Hägglunds. Here in April, also, we have announced one single largest Westek contract.
Westek is a new subsidiary to us coming in through the Roda acquisition. They have won their largest contract so far in April. Yesterday, also, we announced that we received a contract from the Swedish procurement agency, FMV. We are at SEK 126 million. Still, I would say that the activities on the markets, the requests coming into MilDef, are quite at a high pace. By that said, I think we will go over for the financial summary. This is a financial summary that more zoom out MilDef'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 period 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 MilDef growth journey.
We've accelerated that in the last years. We see now in the white bar here that the last 12 months is up on SEK 1.3 billion. Even if 2023 and 2024 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 2024. Breakdown of the last 12 months' revenue, and we can see that it's the Nordics and Europe that is mainly driving the growth. It's in the Nordics and in Europe we will see going forward the highest growth rate as well when it comes to defense spending. It's also in that geographic area where MilDef has a well-positioned and well-known offering where we have a really good position.
I think we will probably see that Nordic and Europe will be the main driver behind MilDef growth going forward. If we look at the order intake, if we start from the left, that's the order intake that we now can see that is very close to SEK 2 billion. It really has picked 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 of the book-to-bill ratio development, we're still around 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.
You can see in the pie chart there how it is divided into what should be delivered in 2025 and 2026 and 2027 and also beyond 2027. 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. The little bit darker bar is how it looks today when we close Q1 in 2025. That can indicate that it is a clearly higher order backlog for deliveries within this year in 2025. It is 125% more than it was one year ago. There is some M&A in that, of course. I think even organic is a strong development of the order backlog.
We can also see in year two and year three and after year three that we have increased the 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 isolated, we saw that the legacy business of MilDef was delivering 50.5% gross margin, which I think is strong. The gross margin underlying continues to be strong, was ending up in total of 48%. It was a little bit negatively impacted by the acquisition of Roda. That is something that will slightly come down a couple of percentage points when we now fully integrate Roda into the MilDef consolidated numbers. However, we continue to pick up with EBITDA.
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%. 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 debt through EBITDA. If we look at working capital, there was an expected increase in working capital due to the acquisition, of course, when we're now adding all the working capital from Roda at once, but we are spreading out their net sales over the upcoming three, four quarters here. Of course, there will be a major increase in working capital. When we look at this, excluding the Roda acquisition, we see that it's around 32%, something like that.
Quite similar to what we have seen in the past quarter. We have been able to come down a little bit here since starting of 2024. Let's see. I think that this will, of course, start to go down again below 40% and be able to reach 30% maybe in the end of 2025. The net debt to EBITDA, of course, will also impact here through the acquisition of Roda. When we now have added all the credit facilities in MilDef, we see that 2.6 is the current number. This is also something that will go down during 2025 when we're adding on the EBITDA that is coming from the acquisition as well. So far, we are just over the target of 2.5%, but we know that we can be there on a temporary time period. 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 successfully closed the acquisition of the Roda Computer GmbH, a German company. 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%, and they showed a good profitability in 2024, 7% EBITDA. I think if we look at the purchase price of the company, we're down somewhere around six times EBITDA on their performance in 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 initiatives to make this happen. It is a very intensive time in this integration project right now.
This finally, when MilDef and Roda is coming together, sets the start of building a MilDef with a really increased footprint in Europe. We are trying 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. 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 see that Germany is really picking up and will close towards this 3.5% of the GDP.
In total, in Nordic and Central Europe and North Europe, we will see this increased defense spending going forward. 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 be happened quicker and quicker. Still, also, I want to give you this picture in the differentiated defense procurement. We are still in these different ways where we saw that wave one was about operational effect. It's about getting the ammunition, the fuel, the drones up and running.
We also saw after a couple of 12 to 18 months, something like that, that they're starting to place in order at the big platform providers. In the second wave, and after that, we see the three wave where MilDef is coming in, where the MilDef 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 MilDef comes into play. We still think that we're quite early in this European defense ramp-up, and we think that it's starting us in the beginning for a company like MilDef, 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. That is something new where we can't really rely on the U.S. For a European defense company like MilDef, I think we will have a strong situation, a strong market in the upcoming 10 years. We have also seen more and more that now are really focusing on digitalization and data-driven defense systems. That is something we see in the dialogue with the customer. We also see it in different media and news that this is something that will be very important for the future defense capabilities.
That is something that really will impact MilDef as well because that is where the sweet spot for MilDef is around the digitalization of the army. As number three said, a very important platform for this is, of course, that we continue to grow in the European defense budget. What I have seen in the last couple of months is 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. Also, as I said, the order backlog really supporting the further near-term growth. There is a lot of deliveries and commitments already in 2025 we have. There will be a lot of things to deliver and commitments that need to be sorted out here in near term.
Finally, maybe the one that is really a key takeaway from Q1 is that we now have finally been able to welcome Roda into the MilDef world. Now we are accelerating this, aiming for becoming a leading European player within this military IT equipment and solution. I think we have all the right puzzle pieces to do that now. It has just come together as MilDef and Roda and really make sure that we can grow our market share in Northern and in Europe. That was the final slide. I think that we will open up the floor and see if there are any questions from the audience.
Absolutely. Thank you, Daniel Ljunggren, CEO and President of MilDef Group. This is Daniel's 17th presentation of a quarterly report for MilDef after the IPO shy four years ago. Also a humble clarification.
The Roda EBITDA margin in 2024 was 17%. 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. Maybe we have—let's go for a second. Your mic. Yep. Give us a second. Sorry for the delay, Tom. Now your mic should be open.
No worries. Thank you. Yeah. First question, actually, on the Roda margin here, 17%. Is that sustainable over time, or is it just a rapid increase in volumes driving higher margins here in 2024? What's your view on that?
Thank you very much, Tom, for your question. I think it's sustainable. I think it's showing the scalability within Roda's business model.
I think they are even more scalable than MilDef if we look at the legacy MilDef due to their character and how they operate with a higher degree of reselling activity, so to say. Absolutely, I think it's sustainable, but it's very much depending on the top line.
Perfect. Thank you. Just looking at the quarter here, the first month of Roda being consolidated into the books, how was the momentum throughout Q1 for Roda? I mean, January, February, compared to March. Was there any difference here? Because it was a SEK 66 million contribution from March alone, right? That's correct.
Of course, when we look at this type of business and you all know the volatility in the defense industry and the volatility in MilDef, 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 have not disclosed January and February, and we will not give you more information around that. From Q2 and forward, we will have the full consolidation of Roda, and hopefully that picture will clear. Roda will also have a quarterly volatility going forward. Yeah.
All right. Thanks. Just a 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 where we have seen more activities related to small and medium-sized orders. That underlying activities and demand, I think, has been strong here now for two, three quarters in a row, so to say. When it comes to the geographic part of it, I would say that it is mainly the Nordics and Europe that is the big driver right now around order intake. It is related to those geographic areas.
All right. Perfect. Thank you. That is all from me.
Thank you, Tom.
Thank you, Tom at Pareto Securities, for tracking MilDef and doing so for quite a while now. Thank you. We go to Daniel Lindkvist. I have opened your mic, or maybe you have to do it yourself.
Daniel Lindkvist with Danske Bank, who has tracked MilDef for many years. Thank you for the initiation report last week. Go ahead with your questions.
Thank you so much. Just continuing on the Roda subject, the gross margin in Q1 was some close to 36%, according to counting backwards. Is that level sustainable, or what can you say about that? That will affect the scalability significantly for the future.
Hello, Daniel, and thank you for the question. Roda gross margin has been around 30% in the past, historically. We saw a quite improvement in 2024, around 32%, something like that. As you said, also continued to improve here in Q1.
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. I think that also the weaknesses of the U.S. dollar have also an impact on Roda and will be a main driver for their increased gross margin because they purchase a lot in U.S. dollars and sell in euros. That could be one important puzzle piece to explain the increased gross margin here and now.
Okay. Perfect. With the working capital, before this report, we only had the numbers from 2023. It seems like there's been a substantial improvement in the working capital profile. Is that the correct observation?
Yes, I would say that. It is something that we work hard with, both with the legacy MilDef part of the business and also the acquired companies to really make sure that we are coming down in working capital. I think that we will see when we are 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. Just for the book-to-bill in Roda, we were at some 0.9 there at the end of the year. Was there something extraordinary with 2024, or is it just fluctuating between the quarters?
I think it is the fluctuation that will play out a little bit here. Nothing unusual in what we have heard and seen in the numbers or in the data.
It is the volatility, I would say, is the answer around that.
Okay. I mean, just finally, on the currency effect, that seems to be the thing with this report hitting in different lines. 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 OpEx, actually. We do not really have the full view of exactly the breakdown on every row, so to say. It is clearly impacting at least the operating profitability due to impacting OpEx quite much. It is SEK 30 million that is normally not there on the OpEx side. This is something related to some open cash positions and account payables or accounts receivables we had at the end of the quarter.
There has been a quite unexpected and quick drop in U.S. dollar and euro against Swedish Krona. 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 OPEX related to that. I do not have actually the full breakdown on each row as you are asking for the top line and the sales cost, etc.
Okay. We just settled for the financial net then, the effect on that. Was rather substantial as well.
That was also substantial, absolutely. That is both. It is 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. 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 Lindkvist with Danske Bank, the fourth bank to track MilDef on a regular basis. The first bank to track MilDef on a regular basis was SEB Markets. And Erik Golrang, I hope that your mic is 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 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 flattish for Roda year on year? What would you expect for Roda for the rest of the year in terms of growth?
Thank you, Erik, for the question. Expectation for Roda, I would say, is that they continue to grow without putting any exact numbers on that. 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 underinvested for many years. Roda, with being a significant player on that market, I think that we will continue to see double-digit growth target, at least in 2025. We saw in 2024 this 16% growth of top line.
Even if they were a little bit down in order intake for the full year in 2024, I think that there are a lot of things and activities on the German market that will play out well for Roda in 2025.
Thank you. You mentioned, I think, flat underlying OPEX, which is quite impressive given your growth rates. Can you break that down a bit? I would assume there is some hiring, some salary inflation, none of that going on. What do you expect for OPEX ex-acquisitions here for the remainder of the year in terms of growth rates?
Thank you. Yes, it is quite nearly flat if you adjust for the FX and also for the acquisition that is coming in there. I would say that we are also working hard with rebalancing some costs.
We also have, as we said, we have the handheld closing down on that, also give us some reduce of some costs, etc. We are working from both sides. I think for the full 2025 year, we will need to add OpEx in terms of 5%-10% in total, I would something like that. Because I am saying this strong order intake and the revenue growth will put us in a situation where it is needed to add on capabilities as well. We have started already in Q1 to add some extra capabilities that we will see later on coming into the OpEx. Still, we work really hard. We are trying to balance the OpEx. We are trying to have a good cost control. Hopefully, that can pay off in the end. Thank you. A final question.
Your best assessment of where your market share in Sweden sits at the moment?
Yeah, that's a really good question, Erik. I want to answer, of course, because we don't really have the full data and full picture over the total market, so to say. It could be very volatile if you look at which time of period you're looking at. I think that we have a really strong position in Sweden when it comes to the niche of military-IT equipment. Exactly market share, I'm not going to give you a number there, but at least a high market share.
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 Olofsson. It's from Daniel.
Are there any one-off 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 SG&A?
Okay. 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 SEK 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. It is coming the other way around. It is some reversed OPEX in the numbers. We have adjusted for those. It is SEK 2.6 million.
Okay. Like I mentioned, there are four banks tracking MilDef on a regular basis. One of them is Carnegie with Hugo Ljungqvist.
Your mic is open.
Hi. Thank you for taking my question. And 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, Hugo Ljungqvist. 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. We will see their quarterly contribution going forward. There is nothing that is a one-off cost or something like that in the sales expenses.
Perfect. Thank you.
Thank you, Hugo Olofsson at Carnegie. It's 37 minutes past the hour. I think we have no more stated questions in the chat and no more raised hands.
Before I end the call, it's time for Daniel to make a little summary of it all after all your answered questions. Take it away, Daniel.
Thank you very much, Olof Engvall . And thank you all of you for joining this call and your interest in the MilDef journey. I hope that we will come back to you in Q2. Also, until that, you will have a great summer and a great spring here. Take care and see you in the upcoming Q2 conference call. Have a great day. Thank you.
I want to say thank you for following the Q1 investor call with MilDef. 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 MilDef voyage. Have a fine spring, by the way.
Next time we meet in this forum is July 18th when MilDef delivers our Q2 report for 2025. Like I said in the opening, time flies when you're having fun. We will meet again in a heartbeat. Stay safe. Take care. See you later.