Fjord Defence Group ASA (DFENS) Earnings Call Transcript & Summary

Welcome to the quarterly presentation for Fjord Defence Group ASA. It's a pleasure to hold this presentation. Q2 is according with the management expectation and in line with normally quarterly variation. Second quarter pro forma revenue from the Defense segment was NOK 245 million with an EBITDA of NOK 42.4 million. The order book we have now has reached approximately NOK 1.8 billion, including planned annual release customer volume. It's a strong order book that improves visibility and confidence for the next following quarters. As you may have seen, we closed the latest acquisition of PartnerTech yesterday, and we did close also Frydenbø Milpro, now renamed to Fjord Defence Marine at the 5th of June this year. As visibility has increased during the quarter, we remain confident in our previous communicated guiding for '26 and therefore, keep our guiding unchanged. We will provide guiding for 2027 when we do the third quarter presentation. Since we have got a new company, we presented what's now called Fjord Defence Marine in Q1 presentation. It's a short little presentation of PartnerTech. It's a leading Swedish manufacturer of strategic metal components for global OEMs with manufacturing route all the way back to 1917. PartnerTech has around 250 employees and is led by the group CEO, Magnus Blomgren. It's a niche supplier of high-precision components for weapon systems and large caliber ammunition, strategic supplier to both Saab and BAE Systems for more than 30 years. Profitability have accelerated with the growth from revenue of NOK 350 million in 2022 to NOK 620 million in 2025 with an EBIT margin growing from 7% to 16%. Based on the general growth in the defense in Europe and clear request from our largest customer for each of our 4 companies, we currently are investing a lot to build up the capacity for the expected growth. We will continue doing that also in the second half of this year and in a disciplined manner like we have done in the first half year. Fjord Defence have used the first year now to buy 4 quality companies to create a foundation for further profitable growth. Going forward, new acquisitions may be funded through retained earnings, increased debt capacity and consideration shares. We are less dependent on share issue to get the money. The buying phase we have been through now is not going to stop, but as far as we have come now, creates a foundation and we are to unlock future operational improvement in the building phase of buy and build. Based on expected growth in all 4 companies, we have a strong focus on the buy-and-build strategy, and we have a strong focus on the build side for these 4 companies. Developing internal capacity is highly attractive to shareholders and can, over time, evaluate the EBITDA to a higher level. And that is -- Øyvind come back to later when he does the financial numbers. Our portfolio companies have all a strong position in their respective defense niches. And given high market growth, we also retain our ambition to reach NOK 400 million to NOK 500 million EBITDA in 2029 based on the expected organic growth. New build new buy will, of course, increase the growth as well. As mentioned previously, we have a strong order book, and that remains us to unchange our target of NOK 1 billion in pro forma revenue and about NOK 190 million to NOK 230 million in pro forma EBITDA for the defense sector in the company. Supported by the order backlog and strong pipeline, we are expecting an accelerated growth in 2027 and beyond. Then I leave over to Øyvind to take care of the numbers.

Thank you, Jon Asbjørn. So the numbers we are considering here are solely the Defense segment, and that is done on a pro forma basis as if we own the companies from the 1st of January 2024. As can be seen here, there has been modest growth in Q2 -- from Q2 '25 to Q2 '26. And that is as expected with relatively flat development into 2026. But as we are awaiting accelerated growth into 2027, we have incurred more costs that can be see in the personnel and other operating cost is going up and thus depressing the result for the EBITDA for Q2 '26 compared to '25. But this is as a preparation for accelerated growth, as Jon Asbjørn also mentioned. The rightmost column here shows the last 12 months Q2 numbers for the pro forma, including PartnerTech and with a revenue of NOK 942 million and an EBITDA of NOK 188 million. And as we can see here, this is quite close to the full year forecast that was alluded to previously by Jon Asbjørn, and we maintain that. I would also like to add that pro forma revenue in the first half of the year is about NOK 460 million. And you saw previously the year-to-go order backlog of NOK 530 million. If you add them together, you get very close to the full year forecast, and we consider it with a minor uncovered revenue as a low-risk estimate and forecast for the year. Again, reiterating and illustrating the growth we have been doing. As we say, we have been through a very intensive buy period, increasing our turnover from NOK 85 million a year ago to almost -- or more than 10x that amount, including PartnerTech with NOK 942 million and NOK 188 million in EBITDA as we have shown. This growth is -- we are very satisfied with it. It gives us then the platform to build on. We are not stopping acquisitions, but now we have the platform for buying. So our operational focus will be to develop the left-hand side of this slide with revenues and profits as good as possible. That's the operational part of it. While on the right-hand side of the slide, it's more the financial side of it. We are -- in addition to -- or to enhance the development for the shareholders, we focus on the value per share, which is depicted here as cash earnings per share. We have calculated that as pro forma EBITDA less 7% interest charge on net interest-bearing debt post each of the transactions. And then you can see that this has increased from NOK 0.49 per share to NOK 1.14, which is 2.3x uplift. And we will continue to focus on shareholder value by using measures per share. And our target is that this value should increase more than the results in the business over time. There may be variations from quarter-to-quarter. We repeat that, but we take a long-term view on this, and then this is going to increase more than the results in the company. That's the aim. Finally, a few words on the balance sheet. As you can see, it has increased from a level of NOK 700 million to NOK 1.7 billion. That is reflecting the acquisition of Scanfiber and the acquisition of Fjord Defence Marine, which is included here. And also, if you look at the bank and cash in hand at end of the first half, that is NOK 480 million after a successful private placement of NOK 412 million second half of June. And that amount is then -- has been pending the transaction closing of PartnerTech, which took place yesterday. Also after this transaction, we have a very solid balance sheet with 77% equity ratio. The liquidity will be still good, and we have a moderate net interest-bearing debt to the EBITDA for the year estimated at about 2x that. So that's within the limit of 2.5 that was pointed at previously. So I would conclude with -- to say that we have financial robustness and flexibility. We have the capacity to continue to build defense -- Fjord Defence Group further. So thanks for that. Jon Asbjørn?

Yes. So if we are looking at the outlook as we see it now, unchanged 2026 target of NOK 1 billion in revenue and between NOK 190 million to NOK 230 million in pro forma EBITDA. Supported by this order backlog and strong pipeline, we expect growth in 2027 and beyond. As I said, we have a strong order book. We have -- at the moment, as both I told before and Øyvind, on preparing the 4 companies now that we have in our portfolio for the expected growth based on general growth and also from guidelines from our key customers in the different companies. So we are there. When it comes to the financial position, we have done a lot of private placements over the last year. We now have calculated that we have an internal capacity for new acquisition of about NOK 700 million through retained earnings, debt and consideration shares. We have done the calculation -- weighted calculation of how much we have given in consideration shares over the last year with all the 4 acquisitions. And it shows that we have -- normally we end up with about 40% given in consideration shares. So we will be focused on buying as well as building. And we know there is a lot of interesting companies coming up for sale over the next year. So we will be clearly active on that. But we want to also underline that building the companies now to prepare for the growth that everybody expects over the next 5 years is an important thing, and we have to do it, as we told before, we have to do it this year. So we're ready to take on the growth. And then again, guiding for 2027 will be a part of the Q3 report. So we are moving strong. We are growing the company. And last year, that was my first quarterly presentation in Q2, we announced NOK 85 million in expected pro forma revenue. Now we are expecting NOK 1 billion. So we have done quite a good start, and we will continue to grow the earnings per share for the shareholders. Thank you very much.