W5 Solutions AB (publ)

Hello and welcome to VFM Solutions half-year report 2024, an interview with CEO Evelina Hedskog. Welcome back, Evelina. Thank you, Hanna. If we look at the financial development, the figures for the first half of the year look challenging. What do you think about that?

We are of course not satisfied with the financial result this first half year, but I would at the same time underline that it is something we have been prepared for, that it could look like this. And it is largely due to a weak order entry during last year.

If we stop here at the order entry, what is behind that development?

It's not really that we have lost businesses, but rather that there have been delays in contract decisions in a number of large prospects that we are waiting for. And of course, when several of these events occur in parallel, then there are effects in the business, and that's what we see now.

And if we compare this quarter with Q2 2023, then the profitability has decreased. What is the reason for that?

This quarter last year was a bit of a record quarter, while we are now, as you say, dealing with a profitability problem and there are several reasons for that. As I mentioned last quarter, we have had too low an impact on our resources and that in itself is also an effect of a little too low order intake during last year. During the spring, we have focused on restructuring in the group. We are going to go into a business area structure during the fall and this has caused restructuring costs that we are now taking here in the second quarter and that has a negative effect on profitability. Finally, we have a number of projects, some completed and some still ongoing, where we have received increased costs, which has negatively affected profitability. We are actively working to get control of both our own costs and the costs of our suppliers. I have good expectations that we will be able to turn this trend soon.

But does this mean a change in the previously communicated financial goals?

Despite the fact that the results we see now do not completely meet expectations, we really see the light of the future. And that means that we choose to maintain our top competence in the company, even though we have had lower investment here during the spring. And in the same way, our financial goals We are still aiming for half a billion in revenue and 15% in EBITDA when we close in 2025.

And shortly after Q2 closed, you announced a large frame agreement regarding power units. Can you tell us more about that?

This is something that we are extremely happy about. It is about an agreement with a European defense agency a framework agreement of SEK 500 million over five years, with a guaranteed withdrawal in August of about SEK 100 million. So of course this is an agreement that is extremely important for us and our business, but it also feels like a turning point. Now we are starting to fill in the order book here, and I think that in addition to this order, there are good opportunities to increase the order book further during the second half of the year. It's very important that this is happening now.

Last quarter, we talked about your commitment to battery production. Can you tell us more about that?

Battery production is in progress and we have already secured a number of orders. Perhaps the most important is a framework agreement with the French Thalès. It is about battery production to one of their unmanned cargo costs. What we see is that there is a great demand for European-produced batteries for the defence sector. It is simply about supply security and the fact that there is a lot of focus on that. So this is an area where I think we will be able to do a lot of exciting business in the future.

And if we change the subject, there seems to be positive news on the export market. Is there anything you want to highlight there?

We have talked a lot about the fact that there is significantly more for WFM to do on the export market than we have done so far. And I think there are several examples now from the last period that things are happening when we focus on export. Among other things, we have a seven-year contract with a Latvian partner, and it's about live-fire products for the Latvian defense. So it's an introduction to that market, which is very exciting. We have also signed a cooperation agreement with the French Exail, and it's about them choosing us as a partner for flight simulators. So many exciting new things happening on the export market.

And finally today, what is the focus for the second half of 2024?

The absolute focus is to strengthen the order flow further and make sure that we get profitability in all of our projects. That is very, very clear. On September 1, we will start with the business area structure that I mentioned, and I think it will be very important for the entire corporation that we do that and that we can in this way increase cooperation and get more efficiency in our business. So it will be a very exciting autumn. I feel that we have laid the groundwork now to be able to continue to grow financially. So now we are taking a well-deserved vacation and then when we are back in August, it's just the gas at the bottom.

Thank you Evelina. Thank you so much Hanna. And thank you for listening today.