W5 Solutions AB (publ)

Hi and welcome and thank you for joining our presentation of the year-end report 2024. My name is Hanna and I will moderate this session today and with me I have our President and CEO Evelina Hedtskog.

Hello Hanna.

The following agenda for today, Evelina is going to give you a brief presentation about W5 solutions and thereafter comment on the financial performance of the Q4 quarter. After, we will then move on to a Q&A session where your questions will be addressed. So please feel free to submit your questions during the presentation. Okay, I think that's it. I'll hand over to you, Evelina. Thank you, Hanna.

Hello, everyone. Good morning. So who are we at W5 Solutions and what do we do? Well, at W5, we aim to become the leading global provider of sustainable defence technology. And the key word here is really sustainable. Our mission, what we do every day, is to deliver cutting edge solutions to empower own and allied forces. Cutting edge solutions to empower own and allied forces. That's what we do. And we do so through our three different business areas, training, integration and power. We are headquartered in Stockholm but with sites across Sweden and also in Norway and Finland. Right now we are a little bit below 200 employees in total and if we look at our client base it's a mix between government agencies and other defense industry. So more or less a 50-50 split between these two customer segments. As of last quarter, we have set quite ambitious financial growth targets for ourselves. We aim to reach a revenue of a billion SEK by the end of 2027, so in three years time, and at the same time have a profit margin of 10%. So this is what we're striving for at W5. So a bit of a closer look into the different business areas if we start with training. In training we have two product areas, live fire training, defense and security and live fire training for sports and hunting. And product wise, these are product areas where we have more or less any type of equipment that you would need for marksmanship training on a shooting range or more tactical shooting training out in the field. So a full range hardware portfolio for that, but also complementary software for recording and analysis of results. So both hardware and software connected to LiFi training. That's what we do within the training business area. Looking into business area integration, we also have two product areas starting with shelters. This is where we design and manufacture very sophisticated container solutions with ballistic protection, with protection against CBRN weapons, protection against electromagnetic pulse, and also shelters that are shielded in order to not emit any signals from inside. So very sophisticated products. And the second product area within integration is systems integration, where we do, of course, systems integration, but with products such as harnesses and intercom solutions as well. Third business area, power. If we start with batteries and chargers and gensets, these are two product areas where you can find these products also on the civilian market. But what we do is that we design and manufacture these type of products for the military context. So really addressing the very specific requirements that the military customer have. And last but not least, simulation. This is a product area where we manufacture simulators for tanks. We do flight simulators and everything in between. And our specialty is really the high fidelity hardware simulators. That's what we do within that product area. So this was a glimpse of the different offers that we have within the group. So moving over to the quarterly report, the year-end report, I should say, and some initial comments before we look into the figures. 2024 was really a year of transformation. We've done a lot in preparing for the future. We have a new structure, a new organizational structure in place from 1st of September, where we organize our seven subsidiaries into three business areas that you've just heard of. And from first quarter this year, we will be doing segment reporting for the business areas, but as of the year end report, it will still be for the full group. 2024 was a year without any acquisitions. The year before we had three of them. So important to think about when you look at these comparisons between 2023 and 2024 is that the last quarter of 2023 was the same operational scope as we had during last year. So quarter four in 2023 is directly comparable to 2024 in terms of operational scope. This is also the first report that we are delivering according to the IFRS accounting framework. And for those who wants to know all the details about that, you can find it in the written report. Okay, so looking at key figures then. Net sales for last year was more or less on par with earlier year and this is of course a bit of a disappointment since Proportional growth with the acquisitions made in 2023 would have, of course, we would have had higher expectations on net sales last year. And this is reflected in the EBIT margin as well. So net sales and EBIT margin, it's a consequence of the fact that we did not have the order intake needed to continue proportionally or grow during last year. On the bright side, we have won a lot of orders during last year, as much as almost half a billion SEC, which is double what we did the year before. And the order book is up at 310 million SEC, which is a 50% growth from earlier year. So we've taken the first steps to really start addressing both the net sales and the EBIT margin. That was not good enough. last year. A bit more in depth on the order intake side. One important key figure is the fact that book to bill was 1.2. And this is somewhat indicating a 20% organic growth, which I think is a very healthy number for our type of company. Growing faster would mean that we might jeopardize the quality of our deliveries that we would not be able to deliver on time. And these are really important factors in really keeping our customer promise. So I think 20% organic growth is really a good figure. And looking at how the order book is divided, the split is basically two thirds in 2025 and then the rest in 2026. So that's what we have in the books today. Moving on to revenue and margins then, starting with gross margin. The gross margin has been extremely stable. It's basically net sales minus direct costs in our projects. And of course, that mix is not changing dramatically over time. The full year, I think we have 57% gross margin on average compared to 58 last year. However, we did have a drop of gross margin during quarter four, and hopefully this should just be something that is not a trend, but that we can get to a stable right below 60% in the coming quarters. On the profit margin side, we've had a bit of a downward trend for quite some time. And again, this has been a lot due to the fact that net sales has not been as high as we needed in order to keep the margins up. Now we see the trend shifting. We see a much higher revenue and also the fact that finally the profit margin is pointing in the right direction. It's not nearly good enough yet, but it's definitely pointing in the right direction and this is a trend that we need to make sure that it continues. I also want to show you this diagram speaking of margins. What we see here is personnel expenses and other external expenses. And as I've said earlier, this has been a year of transformation. We have done a lot to make sure that we have a platform for future growth. We have established an entirely new corporate management team with different corporate functions to make sure that the business areas can be as efficient as possible in their operations. We have introduced a lot of tools into operations such as accounting, systems, CRM systems, HR systems. We have transferred to IFRS, as I mentioned. We have done our homework and have laid the foundation for CSRD reporting the coming year. So a lot of homework has been done and we have been able to do that without increasing our external expenses. So I think that's a really, really good message that we have that the cost control has been excellent during this time of transformation. So was on the personnel side. Again, it's quarter four in 2023 that is comparable in terms of operational scope. And if you look at the average personnel expenses over last year, it's more or less on par with quarter four the year before. So I think that we're demonstrating a very good cost control. And of course, that is positive when it comes to what we can do in terms of margins going forward. Last diagram of the day. This is the geographical split of revenues during 2024. As we can see, Sweden and the Nordic countries are our most important markets. Those who have listened to me before have heard that the export market is a low-hanging fruit and that we see a lot of business that we need to chase on the export market. and that is happening but fact is that sweden is also a growing market the nordics is a growing market for us as well so looking in the order book the split is more or less as we can see in this pie chart however if we glance at the crm system and our prospects It is a bit of a bigger spread and export countries like France and Germany are popping up with quite sizable prospects. So it will be interesting to see what happens in this pie chart over the next coming years. So just to summarize this presentation, I think the main message is that we are sticking to the plan that we have. We have created this platform for future growth where we can grow both organically and through acquisitions. The order book has increased and so has the prospect pipeline. So that's a very positive change compared to just a year back. During quarter four, we had record high invoicing and this has improved our cash flow significantly. Of course, very important in the projects that are now ongoing, the fact that we have good cash flow. And profitability is trending in the right direction. And I think that's also a very important message for the future. So that concludes my brief. And thank you very much for listening. And I'm looking forward to the questions.

yes thank you very much evelina and now it's time for us to move on to the q a session uh i've been looking through here and i can see that we have a lot of great questions in front of us and so um the first question that we got is if you can share any more details about the recently secured orders during q4

Well, we had one big shelter order that we announced right before Christmas, about 80 million SEK. So of course, that was a great Christmas present for us to have. So shelters and the integration business area is doing really well in terms of both order intake and the interest for the products and solutions that we have there. Looking at power, I think we also announced a contract for battery development and we've talked about this over the last year, the fact that we have started battery production is really exciting because there's huge demand for security of supply in that area and there's a lot of interest and the contracts are they keep on coming. So I think that's also worth highlighting. On the training side, there were no big announcements during quarter four, but there's a lot of bread and butter business coming in there. If I should mention something, One interesting contract is that the software that we originally developed for the civilian, the sports and hunting market has now moved into the military side. So we are now on contract for development of this software in order to use it for a military customer. And that really shows the strength of having a really broad portfolio and making sure that we cross sell between the different customer segments.

Thank you. And moving on to the next question here. When do you expect to see an improvement of the profit margins? Well, hopefully every quarter.

That would be great. No, but as I tried to describe in the presentation, I think that a lot of pieces of the puzzles are in place here. We have the organization which should create synergies, operative synergies within sort of the internal operations. We are building an order book that makes sure that we can have a high turnover. we have good cost control when it comes to overhead. The cycles are quite long in this line of business, but I think that we're taking the right measures in order to eventually be able to show a much better profit than we do today.

Okay, thank you. And we have undergone a major transformation during 2024. What are the next steps in our journey going forward?

To start with, it's really to realize the synergies that we see in this new organizational structure and make sure that we become more efficient. That's one thing. But we are now also ready to start looking into acquisitions again. The financial targets that we have set, the one billion second turnover, But at the end of 2027, that will not happen only organically. So there will be acquisitions needed in order to reach that target. So I would say that really from first of January or from coming back from Christmas break, we really set our mind to ramping up the M&A agenda again.

Interesting. And another question here is, let me see, Q4 is typically the strongest quarter for order intake in our sector. Are you satisfied with the 171 million we secured?

It's good enough, I think, but I'm not satisfied. No, I'm not. I think we could have done better. I've said this before. I mean, there are a number of big prospects that we are really fighting to win and it's still looking good, but they haven't realized yet. And so I was probably hoping that we would have more of that in quarter four actually but I mean it means that they're they're still out there for us to chase but yes it would be nice with a bit more in quarter four but I think that we we're still in a good position for for the coming year yes

And looking into our business areas, here's a question. Is there any specific business area where you are seeing increased demand? And are there segments you plan to focus more on?

Now I think we see increased demand across the business areas, across the product areas. Of course they are not size wise, they're not exactly one third each and this would be more visible in quarter one when we do the segment reporting. But I think the key message is that it's increased demand everywhere. We have seen an influx on RFPs everywhere. So I think we should be able to grow across the line really.

Good. And you talked about it before, but the training segment had a few announced orders in 2024. Do you think this indicates a lower demand and is there a need for new product development?

I think actually within the live fire training product areas, both defense and security and sports and hunting, we have a very mature product portfolio that we have yet to see the real potential of. And there's quite a large number of big procurements now, one which is publicly announced in finland where we are competing and then there are a number of other big programs as well and of course this is a huge opportunity for us to leverage on the fact that we have a mature portfolio with really really high quality products And we're doing everything we can to get into new markets. Today on the defense and security side, we are very strong in Sweden. If we could find one or two more countries to get a foothold and get the volumes in these type of Liferay training targets, that would be excellent. So there's a lot of potential and to go back to do we need to do any product development, I would say that

there's a lot to do with the products that we have in place today yeah thank you and uh speaking about volumes uh what scalability do you see in the business uh if sales were to grow 500 million in 2025 what margin should investors anticipate

It's always about the mix. I mean, we have a broad portfolio with seven product areas and they all have their own business models, I guess. And every now and then you can find these contracts where you have large volumes. But for us, it's also important to make sure that we can do profitable business from also smaller projects or smaller series of deliveries. So it's difficult to say, I mean, what can you expect? It's very clear where we're aiming. We're aiming at 10% EBIT and I think that's a healthy goal to have. But again, it can definitely vary between contracts in terms of how big serious deliveries there is within a contract for a certain product.

We have a few more questions. Here I have one. Evelina mentioned export to Germany and France. Is this connected to existing partnerships or newly established contacts that could lead to new partnerships?

That's a good question. It's a mix actually. We have some long-standing relations with, for example, KNDS in Germany or Thales in France, but there are also a lot of other players. I think the common denominator is probably that it's B2B business that we see when we move into a new export market. In those countries it's easier to win business like that than going into the business to government sales directly. So yeah, it's exciting and it's a mix and there's a lot of business out there to chase for us.

Definitely. And you talked about our acquisition agenda, the restart of it. The question is, what kind of targets are you looking at? Is there any specific product area? If you just... can mention it briefly.

I think the most important thing is that we are looking at the targets that have a sort of a defense customer today. Since the The common denominator within our portfolio today is that we can leverage the fact that we're in defense, but we might have some sort of different markets within defense that we have for the different product areas. And when we start doing cross selling, this really has a positive effect. So it needs to be companies with a defense customer today. That's one thing. Otherwise, it's also size wise. I mean, if you look at our targets and they look at what's a possible organic growth, And how many acquisitions can you make in a year and still sort of keep the efficiency in your operations? I would say that we're also looking at companies maybe sized around 100 million second turnover. I think that would make sense for us. We're looking at targets in the Nordics primarily. We think it adds something to us sort of a solution provider to have a strong Nordic footprint. So that's the market that we're looking. So yes, there are some aspects, but actually product wise, we have not said if it should be complimentary or sort of additional products. I think that's something we need to evaluate in each and every case.

Yes. Well, the questions are really ticking in here, so I'll add two more before we need to... Okay, you talk a bit more about potential... No, sorry, I already said that one. Can you tell us anything about the domestic live fire market still in negative territory on growth or have comps rolled over? Should we expect growth in the live fire in 2025?

Yeah, no, as I said, I think we have a strong footprint in Sweden. And yes, we had earlier framework agreements for the Swedish customer FMV that has now come to an end. But there is still demand also in the Swedish market. So it's... there's definitely business to continue to chase here. But then again, the potential on the export market is huge. I mentioned Finland, for example. So now training is very exciting. Again, I think it's also connected to the armed forces now in Europe ramping up and increased basic training for soldiers and sailors. And I mean, that has an effect on buying more equipment for your shooting ranges and for live fire training. So no, I think we have an exciting year ahead of us.

Definitely. And then as a wrap up the final question, it's how does sales towards business to business partners internationally impact margins?

live fire primarily a lot of focus on live firing yeah a lot of everyone it's a product that is easy to understand so i think that's also um well actually live fire uh is probably the area where it's less business to business and very often business to government uh contracts for Not always, but quite often, especially on the defense and security side then. But in general, how business to business compared to business to government deals affect margins. There is really no clear difference. I can't say that one or the other is better in terms of margins. It's always about that specific program and what role we play in it, if we're prime, if we're sub, etc. So unfortunately, no easy conclusions when it comes to margins and the type of customer.

Thank you very much, Evelina. So I think we're running out of time and that was the last question for today. Thank you for participating. If you have any questions, feel free to reach out to us and we will answer them. And we wish you a great day and take care. Thank you very much.