Ladies and gentlemen, a very warm welcome to this special investor call with MilDef, with a very special focus on MilDef's acquisition of the German company Roda Computer GmbH. This call will be presented by our CEO and President Daniel Ljunggren and CFO Viveca Johnsson. We expect approximately 30-40 minutes to be sufficient for the presentation and the following Q&A. A friendly reminder is to please help me keep your mics muted until we get into the Q&A for stating questions. You can open up your mics in the Q&A, or you can write your questions, even better, in the chat or raise your hand, and I will moderate the lineup of beautiful and intelligent questions. Also, for your information, we record this meeting. And again, a very warm welcome to the presentation about the acquisition of Roda Computer GmbH.
So, with no further ado, please take it away, Daniel Ljunggren and Viveca Johnsson.
Thank you very much for that, Olof, and good morning to everyone, and thank you for joining this call today. We are here at this extra investor call today due to the quite exciting news we think that we announced yesterday that MilDef will acquire the German company Roda Computer GmbH, as Olof mentioned, and we are now an acquisition that is really expansion, MilDef's strategic and important journey on the defense market in Europe. So, stay tuned here. We will deep dive into Roda, but I will just give you all some brief overview of MilDef universe before we deep dive into Roda Computer GmbH and the target around that. MilDef was founded in 1997. We did an IPO in 2021. We are today excluding the Roda acquisition, more than 300 employees in nine countries. Core markets where we do business is the Nordics, selected EU, and NATO countries.
We find our customers within defense, government, and critical infrastructure. Mainly, like, the lion's share of the revenue is coming from the defense sector. Product portfolio, what we are offering the customer is our hardware, software, and services. History matters, we say, and we will just give you a brief overview of the acquisition history of MilDef so far. Started off in 2011 with a small acquisition of Terralogic Ltd in 2011, and up till our IPO, we did two additional acquisitions, but we have really increased the pace of the M&A agenda after the IPO, and that was one of the big why for MilDef to enter the stock market. This was to get hold of and be able to raise capital for doing strategic and very good fit acquisitions that fit MilDef very well, so to say, and this is now our fifth acquisition since the IPO.
It's also by far the largest one. It's a transformative acquisition and a large acquisition, as I said. Here is what we have done since the IPO. We acquired a Norwegian company called Sysint in 2021, and 2021 also added on Defcon, a Swedish company that is today MilDef Sweden. 2022 was the Handheld acquisition, and this year a small acquisition in the UK that added some extra edge on the display portfolio into our global portfolio. Now we are taking on the acquisition of Roda, and the acquisition of Roda is more of a market presence acquisition. It's more about getting the sales force, the German sales forces down there, the network in Central Europe, their existing framework agreements, and building a stronger MilDef with the capabilities within Roda.
So it's more of getting into a very attractive market that we see in Central Europe, in the DACH region, especially in Germany. So this acquisition is less about product portfolio and more about sales channels, existing framework agreements, and long-term customer relationships. That said, I would like to give you Roda at a glance, so to say. The company was founded in 1987, so it has more years actually than MilDef has operated. They are today around 115 employees totally in Roda. They have two production facilities, and they have an HQ in Lichtenau, which is southwest of Germany. They have a subsidiary in the U.K., Westek Technology, and a small subsidiary in France, Roda SAS. 2023, their financial highlights, they did EUR 71 million in revenues, EUR 11.5 million in adjusted EBITDA, and roughly around EBITDA margin around 16%.
What they are offering to the customer is quite what we are doing as well. So this acquisition, also, we say, is right in the middle of core business. We have known Roda for many, many years, more than 25 years. We have worked closely together with them when we have a long-term relationship, so we also know that this is a good culture fit between the companies. Today, they have the exclusive rights of selling the MilDef Crete Inc. products on Central European markets. So on selected offering there, you can see that the mobile segment, the notebooks, tablets, and handhelds are a main driver for Roda's top line, but they also have some own products on the display side, and they also have been acting as a partner for MilDef Network Solutions, service and network products and power suppliers that are developed and manufactured by MilDef.
To give you a little glance of how Roda looks from a top-level perspective and breaking down their revenues, you can see starting that if we break it down by geographic area, you can see that the footprint in Europe is the main lion's share of the revenues. It's Germany, Switzerland, Austria, the DACH region, and some other countries in Central Europe as well. It's mainly where they're having their net sales. Also, the pie chart there around the non-defense and defense, this is a pure defense company, and I really like that as well. This is right into the core of MilDef, what we have been doing for more than 25 years. So it's a really good fit. We stick really tight into the core business of defense, and that is something that we have seen as very beneficial for this acquisition.
If we take the customer split, you can see that it's almost 50/50 between business and government and business to business. They have some really beneficial framework agreements that they are selling to the German MOD, Bundeswehr, but they also have a quite big portion selling directly to some defense industry companies. You know, you have the big platform providers down in Germany, Rheinmetall is, for example, one of those examples. And the contract setup in the end there, you can see that framework agreement is a little bit more than 50% of the revenues is sold by existing framework agreement, and the rest is outside, is mainly to the industry then. But it's also about the flesh and blood and people. Like MilDef, it's the people who are doing it. It's the people who are the main assets. So I took a picture here on the Roda management team.
This is the Roda management team that has operated this Roda company for many years, very experienced team, so to say. And this team will be the same team going forward. The sellers, one of the founders, for example, is acting as more or less the senior advisor to the company the last year. So we will stick with the same management team. The managing director functions, as you see in this picture, will continue, and I see it is a very motivated Roda management team, and they're really looking forward to being a part of MilDef and continue the journey within MilDef umbrella. The strategic rationale, what we see behind this, is absolutely crystal clear when it comes to moving MilDef from being very strong in the Nordic area to become more of a strong European player within our technical IT niche, so to say. Also, unlocking market access.
We have today some territorial breakdowns between us. They have unlocked some markets, and now we will get full access to the DACH region and other continental European countries as well. And those countries are heavily investing in defense right now. So I would say it's a perfect timing to get in and have this Central European footprint. We also see synergies, of course, of cross-selling and also purchasing because we have MilDef Crete Inc. in Taiwan, who will be an even bigger supplier for the total together, MilDef and Roda. But we also see good opportunities there to maybe get better prices and volume discounts, etc., and things like that. But when it comes to the synergies, we have also said it's very important for us to make an acquisition that is a good deal for MilDef here and now as it stands.
So we're not here to sell a lot of hopes and dreams and future synergies. We hope that there is, and we think that there is, but we think that we have done a good negotiation here and really got this to a good multiplier as well, and that's very important for us as well. We will, the last bullet, also have a very experienced and senior team in place in Germany, and we know, since we have worked and have a long relationship with Roda, we know that this also will be a strong cultural fit between the companies. A slide showing if we do the combination together, how should that look on the 2023 year's number? We will see that, as I said, this is a quite large acquisition, transformative acquisition. On top line level, we are not doubling, but quite close to that.
We are moving from SEK 1.1 to almost 2 billion . That's a quite big portion we are taking on here on top line. Profitability-wise, an EBITDA and EBITDA margin is quite similar to where we are, slightly better than MilDef. I would say that Roda is more of a little bit different character as a company, slightly more as a reseller. It's not fair to say that they are a pure reseller because no one is in this industry. It's still a lot of knowledge and customized and project-based sales, so to say, but they don't have the heavily R&D spending that MilDef has. That is probably what's the difference between the two companies. They operate with a little bit lower gross margin, but also less OpEx as well because they don't have the full R&D spending.
Main geographic footprint, of course, today, MilDef, more than 50% of the revenues from MilDef is coming from the Nordic market. It's our home market. It's our strongest market. By this acquisition, we also can see that we are really adding on the Central Europe. MilDef today, prior to this acquisition, has a footprint in Europe, but now we really have a significant footprint in Europe and become a strong European player. Employee-wise, we will move from 340-something to almost starting to reaching 500 employees. So we added more than 120 colleagues yesterday. I was just going to give you some flavor on what we see on the German market, and I said it has been a very attractive market. Why do we think that? The Germans have, for many, many years, for a reason, underinvested and underspent on the defense.
They are really now said that they need to catch up, and they have said that they will go up to 2% GDP and even beyond. The German economy is quite big. In absolute number, we are talking about a lot of business opportunities in the upcoming 5 to 10 years on the European German market. I know that there is some tricky situation with the German government right now, but I think they will sort that out. The long-term picture is that they absolutely need to ramp up their defense spending and increase their defense capabilities. If you look at the pie charts on the right side, you can see that MilDef today. Europe is 20% of our total sales. If we do this move, we will be around 50% will come from Europe, excluding the Nordics.
So I think it will be a good balance between the different geographic areas. I also want to address the bullet number three you see here that on the German market, we have some of the biggest global platform providers in the world. So we also think that with German sales forces, we can have this account to grow and grow them even bigger. Having the network and the presence on the German market, we think that those kind of accounts will be able to grow even with a higher pace than we are doing today. Some summary of the acquisitions. We have, of course, now entering into a binding agreement to acquire Roda. The seller are the former CEO and founder, Martin Bitsch, and Wortmann AG, a German company, and MilDef Crete Inc.
We have considered the deal is EUR 70 million in cash and 1.4 million in MilDef shares on a cash and debt-free basis. That corresponds to roughly 8x EBITDA. That's what I mean. I think we have got a good deal here. The negotiations have been hard, but it was very important for us to get a low multiple and buy the company on good multiples here and now. The acquisition is expected to, of course, have a positive impact on our EPS, and we'll have it quite directly after the acquisition is closed. The acquisition is expected to be closed here in Q1 in 2025. There will be some regulatory approvals that are needed. In our business, for example, you need the foreign direct investment regulations. So we need to seek an approval for the German government, the French government, and the U.K. government.
But that's quite normal in our industry because we're in the defense sector. So we hope that that could be somewhere around two months before we can get to the closing point, but somewhere in Q1 next year, hopefully we can close it. We have also estimated the integration cost, and we see that there's roughly around SEK 5 to 10 million over the upcoming three years here. And the financing part, of course, we need to finance this quite large acquisition. And as I said, in cash, it's EUR 70 million . There's also an earnout of EUR 4 million probably coming up quite quickly here in the beginning of next year. And also, we have used our own shares with 1.4 million shares. To be able to finance this, we have committed to taking up a new term loan with our bank, SEB, on EUR 45 million .
As some of you have already maybe seen in our news flow, we closed a directed rights issue yesterday and taking on SEK 500 million. So there will not be this cost-driven bridge to equity. That directed rights issue is already done, and now we don't need the bridge to equity facility. Of course, we have looked into the net debt situation and see where MilDef would end up post this acquisition. And we can see that we are below our target of 2.5. When we ended Q3, standing as it is today, it was 1.4. And the acquisition will not make us over 2.5 in the net debt to EBITDA. And by that said, I think we will move over to Q&A phase. And I hope you're keen to learn more about Roda Computer GmbH and MilDef and Roda together.
So thank you, Daniel, for that crisp and short presentation. The first question, I say again, please state your questions in the chat or do like Tom at Pareto. He raised his hand. So please go ahead, use your voice and state your question, Tom.
Thank you. Can you give us any sort of indication on the 2024 expected sales and margins for Roda?
We can say like this, Tom. We haven't given up the numbers anywhere else, so we will not have a clear picture of it. So we will stick with the 2023. But what we can say is that they continue to grow the business, and 2023 is not a peak year. So they will continue to grow the business. That's what we can say here and now when it comes to the 2024 numbers. And I understand that all of you are keen to understand.
But we'll hopefully come in in the Q1 when we release our report where we can add on how it looked from an order backlog perspective and things like that.
All right. But compared to 2022, they grew, what, 40% to 50% in 2023, right?
Yeah, exactly. They had a big jump there. And my take is that this ramping up of military spending has gone quicker on German markets. They have felt that ramping up quicker than MilDef because I think in the Nordics, in Sweden, it has taken longer time until it really impacted the defense industry. So they made a quite big jump in 2023, and we will think that that is the new level for Roda.
All right. And on the sort of consolidation and costs here, are you expecting to consolidate R&D moving forward, or are you going to keep the two entities separate?
That is a question that needs to be evaluated now when we can come on board and really starting to work deeper together. The Roda R&D spending is quite low in numbers. So I don't think it will be really major questions. But of course, we will try to see if there are some synergies around that.
And production facilities will remain separate?
They will remain separately, and we're trying to see over that landscape exactly how we can be the most efficient company we can be. But here and now, the two production facilities will remain as it is.
Right. And just a final one on the U.K. market. You said Roda had a main acquisition in the U.K. as well. Can you give us some more detail on that?
It's a company they call Westek Technology Ltd.
It's a company that are doing slightly the same products that MilDef are doing. They are exporting quite much outside the U.K., and we are now in the phase of starting to learn them a little bit more and understand their business and their customer, trying to see exactly how that should fit. But I think you should also keep in mind that Westek in this transaction is a very tiny piece. So the main target here for us has been the German entity and the German business, and that is more than 95% of the total Roda business.
All right. Perfect. Thanks. I'll get back in line.
Thank you.
Thank you so much, Tom. From Pareto, next in line is Gustav von Sivers from Calgus. Please go ahead, Gustav.
Hi, and congratulations on the great acquisition.
The gross margin, you said, were low, and also you mentioned that you're a bit of a reseller. Do you have any ideas or looked into selling your products instead of them, which I guess then would have a higher gross margin? That's the question.
Exactly. Thank you very much, Gustav. Exactly. That is absolutely one of our big synergies we can see going forward that we can sell our type of products with quite high margin and high technical height in. You need a little bit different sales mind instead of being a pure reseller. So we think that we can address that, and we think that we can increase the share of MilDef product in the German market going forward.
So that is one of the big rationalities behind this to get access with their sales network, their network in total in the German market, and their existing framework agreement, and starting to see if we can push for more high-margin MilDef products.
And you don't talk anything about cost synergies, so that's nothing you've been thinking about. Yeah.
We don't think that there's a major play here. There can be some cost synergies, but we don't think that that will be the main play going forward. And that is also why we have been very important for us to get a good deal here and now. We're buying this on eight times EBITDA. So we are not coming here with a lot of synergies that needs to be released because we're going to be a good deal, but we will look into if there is something more.
But I think cost synergies will be quite small in the total deal.
Okay. Thank you.
Thank you so much, Gustav von Sivers, Calgus. Thank you for that. Next question comes from Johan, and you can see it in the chat also, Daniel. But it sounds like, how does the seasonal sales pattern look for Roda Computer? Are there seasonal effects? Is the sales distribution between quarters more even than for MilDef?
I would say more even. I'm probably addressing that MilDef is quite Q4 heavy, and we have a lot of our sales coming in the Q4 . Roda has not a similar pattern as we have. By that said also that the Roda working in the defense industry also has a volatility quarter- by- quarter. So it could be that some individual Q4, for example, has been very high.
But I would say that it's not a clear seasonal pattern that we see in MilDef. So it will hopefully help us also to be more even in the different quarters.
Okay. Thanks for that question, Johan. Next question goes to Carl Norén. Please state your question.
Yes. Hello. I came in a little bit later to the call. But my question is regarding that you only comment on the 2023 numbers. I was wondering if that was a specifically strong year, and do you expect top line to grow here in 2024 versus 2023 for Roda? That's my first question.
Exactly. Thank you very much for that, Carl. 2023 was a big jump for them. I know that they were struggling as well with the component shortage in 2021 and 2022, similar like MilDef did.
As I also said, I think that the German market has more taken care of the quick ramp-up of defense spending. When we see going forward from the 2023 numbers, we think absolutely that they will continue to grow. I will not give you exactly the numbers of the pace that we think that they will grow on. The management team in Roda has, of course, also done their best guess and estimation, and we have looked into trying to make the best confirmation of that as we can. But we think that this will be a growing market, and we think that Roda is in a good position to continue to grow their business.
That's good. Just a question also on the margin. I mean, they're doing quite a good margin for being a reseller, I guess, of 13%.
So, just comment a little bit on the historical performance in terms of margins. Would also be interesting in what one should expect here going forward.
Yes, absolutely, Carl. So you can see the gross margin, as we talked about earlier, is lower than MilDef, and that is due to that they are acting more as a reseller. But that also means that they can operate with much, much lower OpEx, and that is creating the profitability and higher profitability than MilDef has. And we don't see any big need, etc., for adding on more OpEx on Roda Computer. I think they are dressed exactly as they should be, and they can take on more. But they don't need that kind of big OpEx to be able to deliver the revenues that they are doing. So that is a little bit different from MilDef. We are different strategies.
We are working more with creating high value from our own IP. And Roda has been working more with selling third-party products and increasing their customer relationship on the German market. So it's quite different there, exactly how we have been working as a company.
Okay. But 13% should be pretty much quite normalized over time for Roda.
I think so, if we just see it going on like this. And we also talked about we will try to add on as much of higher margin MilDef products into that top line as well. And hopefully, that could give a big impact on gross margin going forward.
Yeah, that's great. Thank you for taking the questions, and good luck with the acquisition.
Thank you, Carl.
Thank you, Carl, for that question. I repeat again, please state your questions in the chat.
I see no more questions at this time or raise your hand. And if I miss any raised hand, which I hopefully do not, you can just shout out. Otherwise, I think we are getting closer to the final approach to land this. And there was somebody who wanted to say something. Yeah?
Yeah, Olof, it's Gernot Röthig Chelverton here. Just a quick question on Roda. Can you give us a feel for the length of order book at Roda?
We will not do the order backlog here and now. That will be announced when we're adding on the order book after closing into the MilDef account. So unfortunately, I will not give you the order backlog number here and now for Roda GmbH.
Thanks for the question, Gernot, With Chelverton, thanks for taking part of our journey. I have a question in the chat from Antti Kansanen.
How big part of Roda revenues are such that MilDef has matching products to replace with own products? Good question.
Thank you very much for the question. It's quite a low number when it comes to what kind of products Roda is selling that we could replace with our own. So hopefully, we can complement their sales when they are selling, that they continue to sell the products that they are selling today, but also complement that with products from the MilDef core portfolio, so to say.
Thank you for that question. I see a raised hand from Tom. Did you raise it again, Tom? So please go ahead.
Thanks. Yeah, just wondering if we can have sort of similar visibility in Roda's sales pipeline as you guys have with the CV90, for example. Is there anything we can start tracking now that they're part of your team?
Thank you, Tom. I think that if you look deeper into the defense industry in Germany, if you look deeper into the digitalization project that is ongoing there, and also adding on the big platform providers and how they are doing and what kind of orders they are and the order backlog they are having, I think that will set the tone, so to say, for the market condition that Roda is operating in right now.
Sounds good, and can you give us any details on the balance sheet and cash flows of Roda?
I can do a quite high-level description of that, and also, when we're talking about the balance sheet, there has been no debt at all. And they're also working with a smaller balance sheet due to this more type of reseller character.
So they are working with a quite slim balance sheet and also operating with quite good cash flow due to the operations that they're doing. So I would say that I think that both balance sheet and cash flow-wise also will be a positive impact on MilDef.
Perfect. Thanks.
Thank you again, Tom. We are well north of 60 participants in this meeting, which is lovely. I see many big owners, and not only big owners, but small owners, valuable owners. And I see some very knowledgeable analysts on the call as well. And here he is. I was going to say another one after Tom. Hugo Lisjö, please go ahead from Carnegie. Muted, Hugo. You need to unmute.
Sorry, do you hear me? Correct. Do you hear me now? Perfect. To be honest, the multiple seems low. What's the catch?
That's a really good question.
Of course, the multiples are low. As I said, we have been very keen to making this a good acquisition based on as it is today. But I also think that you need to take in consideration the long-term relationship. There is a founder of Roda that wants MilDef to be the buyer. We have had an exclusive process with Roda. He wants someone to take care of what he has created, his legacy, and the staff that he has a good relationship with. So I think that also contributes to what you're calling a low multiple.
Okay, that seems fine. Thank you.
Thank you. I'm muted, Olof. I see that you're speaking and saying something to the audience.
Sometimes it's good to mute me, Daniel. You know that. We're 33 minutes past the hour. I see no more hands in the air. I see no more chat questions.
So maybe we are at the final stage of this Q&A and this presentation, this very special day. So if you want to summarize and wrap up a little bit, Daniel, and then I'll close the show.
Yes, give you the last final thank you all for calling in, and thank you for your interest in MilDef and your questions around this Roda acquisition. Now we will start the hard work, first closing the deal. That will take a couple of weeks, and then the hard work that working together, that one plus one will be more than two in this case. So take care. We will be in touch.
And of course, Daniel, since I asked them to finalize their questions, we have another question from Melker Hörstedt, and that's the final question, and then we'll close the show. Will MilDef products distribute through Roda?
Will they be rebranded as Roda, or will they remain MilDef branded?
It's a really good question, and that is one of these questions that we have said that needs to be sorted out post-signing. So that is something that we will now deep dive into. When we now have the signing in place, we also can go deeper into the two organizations and talk and discuss how this brand should be going forward. And we have kept this information on a very tight little group to be able to avoid leakage, for example. So now we can start this process. And so I don't have the final answer today exactly around the branding, but we will deep dive into that now when we have access to more people within the both organizations.
Thank you, everyone, for that Q&A session. Many, many good questions. This has been recorded.
We will also publish this on the MilDef Investor Relations website as soon as possible. So thank you for following today's special investor call. This will be all for now, but I'm sure we will revert to the topic many times in meetings to come. Reach out anytime for more information about the MilDef journey. Have a fine day. Stay safe.