W5 Solutions AB (publ) ($W5)

Hi, and welcome to W5 Solutions presentation of the Q1 results 2026. My name is Hannah, and I'm the Director of Investor Relations and Communications here at W5. I'm joined by our CEO, Evelina Hedskog. Welcome, Evelina.

Thank you, Hannah.

Evelina will give you a brief introduction of W5, followed by key highlights and financial development during the quarter. At the end, we will conclude with a Q&A moderated by me, and the chat is now open. So if you have any questions during the presentation, please feel free to submit your questions at any time. With that, I think we're ready to start, and the floor is yours, Evelina.

Thank you, Hannah. Good morning. Welcome, everyone. As Hannah said, I will start this by giving a brief introduction to W5, who we are and what we do and then dig a little bit deeper into quarter 1 and what we've managed so far during 2026. So at W5, our mission, what we do every day is to deliver cutting-edge solutions to empower own and allied forces. And our vision is to become the leading global provider of sustainable defence technology. And what is really sustainable defence technology to us then? Well, we use 4 pillars to describe what we mean by sustainable defence technology. So number one, we are defending democracy. Our products and services should help support the defence of free, open and democratic societies. Number two, responsible by design. Our products are engineered for long life and resource efficiency. Number three, people and partners. We strive for safe, inclusive workplaces and responsible value chains. And number four, we are guided by standards and regulations, and we always make sure to have certified compliance across every delivery. So this is really what we mean when we talk about sustainable defence technology. W5, we are a Nordic company with operation sites in Sweden, Finland and Norway. As an organization, we are divided into 3 business areas: integration, training and power, and we will look a bit more into what they do in the coming slides. Right now, right below 250 employees throughout the group. And looking at our customer base, it's a mix between defence agencies and other industry customers, primarily OEMs, and these are based in the Nordics and wider Europe. A while back, we communicated financial targets, and they are easy to remember. It's one turnover target. We want to have a net sales of SEK 1 billion by the end of 2027. And at the same time, we should have a profitability of 10%. The strategy to get to these numbers is to have a mix between organic and acquired growth. Looking at the organic growth, we say that we should be able to at least have a 20% increase per year, and that won't take us all the way to SEK 1 billion. So also, we need to have additional acquisitions along the way. And that is actually something that we have managed this quarter. So we will talk a little bit more about that later as well. But these are the targets, and this is what we're aiming for in our daily work. So I said that we are 3 business areas, and that is the case. And together, they comprise 7 product areas. When W5 was founded in 2018, it was a merger between 3 companies. So already from the start, we had quite a broad portfolio. And since then, a number of acquisitions has been made. So that is really why we have this constitution of 7 product areas today. So what are they then? Well, looking at business area integration, we have 2 product areas. First, we have systems integration, where we do system integration services, but also have a range of products connected to this. We have product area shelters, and these are really shelters that enables a military deployable infrastructure. If we look at the business characteristics for business area integration, it's a lot of project-based and tailorized contracts, starting off from sort of a modular base, but then always specified to the specific customer needs. And many times, we talk small to medium-sized series when it comes to the contracts in this business area. Business area Training, also 2 product areas here. We have live-fire training for defence and security and the equivalent for sports and hunting. And in this portfolio, we have any type of product or type of target equipment that you would need on your shooting range and also for more tactical training in the field environment. So 2 product areas that are also actually customer segments to us. And the business characteristics for this business area is a bit different from the other 2. Here, we have more off-the-shelf characteristics for the products. We also have scalability in a different way than for other product areas. So we can have shorter lead times. There is also quite a big revenue from both software and service offering tied to the products in this business area. And the third one is power, business area power. And here, we have 3 product areas, starting with gensets, which is basically power supply, both as a generic gensets for the military customer, but also more tailorized solutions for a specific system. We have battery chargers and also since some years back, battery manufacturing. And here, we are talking about products that meet all the environmental requirements that the military customer have. And product area simulation, the last one, this is an area where we are experts in the hardware for simulation. So hardware simulators is what we do here. Business characteristics for business area Power is very close to what we see in integration. It's a lot of project-based and tailorized contracts. It's long development cycles, and this is -- can also be seen in the order backlog. And it -- these are long development cycles and also quite long delivery cycles. Maybe somewhat different from integration, we do have recurring revenues here from the service offering, and this is mainly connected to simulation. So slightly different characteristics for the 3 different business areas. Okay. So that was the very quick run-through of what we do at W5. And I will now take some key highlights from the first quarter of the year and talk a little bit more about that. And I will start with the acquisition of KT Shelter. So this is a fantastic Finnish company that we have now signed the SPA with. We are awaiting FDI approval from Finnish government, and we are expecting this hopefully during this quarter now. Difficult to say because it's a government decision. So all we can do is wait. But as soon as that is in place, we will close the acquisition and start to fully integrate KT Shelter into W5. And organizationally, they will belong in business area integration. So why did we find this acquisition extra interesting? Well, to start with, it's the product as such. And the product for KT Shelter is a range of deployable hangars, and they are really cutting-edge technology, really the best that the customer can ask for, and this goes very well in line with the rest of our product portfolio. So number one is that they have a really, really good and competitive product. I think second most important reason for acquiring KT Shelter is the Finnish footprint. They are a well-established Finnish company. They have a strong customer base with the Finnish defence agencies. And this is something that we want to build on. We want to open up the Finnish market to a larger extent for the rest of our portfolio. And we do think that we can help in marketing and selling KT Shelter products to our existing customer base. So this is really a great opportunity for cross-selling. And last but not least, this is also a company that has shown that they can grow and they can grow profitably. And of course, they will be a great contribution to W5 on our journey to meet our financial targets. So that is, in short, a little bit about this acquisition. And as I said, we hope to close it very soon. Something else that happened during the quarter was 2 large contracts that we have communicated, and I just want to talk a little bit more about them. The first one is main battle tank simulator where German KNDS is our customer, but it's the Swedish Armed Forces that will be the end user for this system. It's an order value of SEK 126 million, so it's substantial. And development and production will happen throughout this year and also in '27 and '28. So this is a great way for us to build order book beyond this year. What to say about this? Well, KNDS is an important Tier 1 customer, but we see it more as a partnership. This is the third big order that we get from them within the last 12 months. So I think it's fair to say that we are probably a good supplier to them, and we hope to continue to be so. So this is strategically, it's really, really important to make sure that we do our utmost in this program and make sure that we have a long-term commitment, both with KNDS, but also towards our end customer here, the Swedish Armed Forces. So a really great contract to have in place. The second big contract that we communicated this quarter was shelters and the customer is Kongsberg Defence and Aerospace. And this is the first contract that we place with them. So of course, such a large contract and also first time with one of the bigger OEMs in the Nordics, this is strategically important to us. It is a large series, probably the largest that we've had in our shelter production so far. So it will be interesting to follow this contract going forward. Deliveries are planned for both this and next year. But yes, so slightly different from the simulator contract, but strategically important to us. So that was the happenings I wanted to mention from the first quarter and now a little bit about the numbers then. So looking at the overall numbers for this first quarter, the arrows are all pointing in the right directions, which is a conclusion we're very happy with. We have a record high order intake year-on-year. And of course, this then strengthens our order book and the book-to-bill is above 3. So of course, pointing in the direction that we will continue to grow. Net sales is up by about 50%. And I think this reflects the fact that we are now more rapidly being able to convert order book to top line. And margin-wise, maybe not where we want to be. I mean, we're happy to be able to give black numbers, but I think that we should be able to do better than this, but we are definitely impacted by the operational ramp-up that we are now in. So that has an effect on the margin this quarter. Looking at net sales and profitability over time, we can conclude that the normal seasonal characteristics are still valid. We have, at least compared to quarter 4, a bit weaker quarter 1 in terms of turnover and also profitability. So we shall see if the seasonal changes continue to be what they have been so far and normally is in this industry. Looking at our 3 business areas, our operating segments, order intake and order backlog, we can conclude that year-on-year, we are developing in the right direction when it comes to order book for all 3 business areas, which is great because we want that visibility. If you look at the absolute numbers here, you can tell that Power has the largest backlog, closely followed by integration. And then we have much smaller numbers in training. And this has to do, again, with the business characteristics that I talked about earlier, where we have more an off-the-shelf product in training. But I think key message here is that we are building order book in all 3 areas. Looking at sales and profitability, Integration continues to deliver profitable business. Percentage-wise, we can tell that this ramp-up is maybe hurting a bit, but we are still doing a nice profit margin in integration during this first quarter. Training, probably where overheads are hitting the most. So very important going forward to make sure that this is not a continued trend. But for those of you who looked into our quarter 4 numbers knows that this can differ a bit between the periods. So of course, something we need to keep an eye on. But I think the key takeaway here is that we've managed to grow significantly in training compared to last year. And Power also taking steps in the right direction, an increase in sales and I would say, an improvement in profitability. But Power needs to be able to grow even more on top line, I think, in order to reach the profitability that we want to see. So there is definitely room for improvement, but there is also a lot of good takeaways from these numbers. So to summarize then, we have a continued strong demand. The order book is growing, which is probably the #1 most important thing to us. We are increasing sales. So the conversion of the order book is speeding up, and we are also in the ramp-up of production right now that is probably steeper than it has been so far on the W5 journey. And very important to note also. I mean, we worked throughout last year very dedicated to find the next acquisition for W5, and we are extremely pleased with signing this SPA with KT Shelter. So that also marks a big milestone, I think, in our work going forward. Priorities ahead, what's top of mind right now? Well, something that hasn't really been mentioned in the numbers in this presentation. But if you study the quarterly report, you will see that we really need to focus on working capital, and we need to make sure that we can support this ramp-up in the best possible way. So a lot of focus needs to be put on that. As always, we need to ensure high level of delivery precision and quality. That is our trademark. That is what our customers expect. Without that, there will be no more order backlog going forward. So I think always, always remember that it is -- our customers demand a lot of us, and we need to meet their expectations. And then last bullet here to close the acquisition and onboard KT Shelter because, of course, this is really a dream acquisition for us. But now it's really up to us to bring them into the W5 family and make the best of it. And as I talked about earlier, cross-selling is really, I think, the #1 synergy that we can find. It has always already started a little bit behind the scenes, but this is something that we want to push a lot now during the rest of the year when we really onboard KT Shelter into the organization. So yes, I think that was it. Thank you. Yes. So now it's time for the Q&A session.

Thank you, Evelina. I can see that we have a couple of questions to dig through. So I'll start right away with the first question. Starting off with KT Shelter. How should we think about the business from a business model perspective? Is it more similar to the integration business or closer to training in terms of lead times and project execution?

I would probably say that it's a little bit in between. It has a lot of similarities with integration in terms of maybe sometimes tailorized solution and individual aspects to each contract. However, it is a modular sort of foundation to the product and the production is more of a sort of final assembly rather than production from scratch. So with a well-functioning supply chain that is in place, ramp-up of production and hence final assembly can actually happen quite fast. So it is somewhere in between, I would say, between training and integration business model-wise.

Yes, a combination.

Yes.

Yes. Thank you. Moving on. As we saw, Q1 showed a very strong order intake. How should we think about the development going forward? Was this mainly driven by a few larger orders? Or do you continue to see strong momentum into the rest of 2026?

Yes. I mean we looked at 2 orders here that were obviously significant and that was the main chunk of the order intake, but we also had a lot of small and medium-sized orders that drove this SEK 400 million plus order intake this quarter. I mean this is not anything we can expect every quarter. That said, we have a very strong pipeline going forward and order intake can vary from quarter-to-quarter. But overall, it is an increased demand, and there are a lot of opportunities for us to work on.

Interesting. Next question. Looking at the backlog, it looks supportive for continued growth. How should we think about the cost base and investments needed to support that growth?

I mean it is costly to grow, and we see it in the numbers for this quarter. So it is something we need to monitor and we need to make smart choices and really, really try to make sure that it's not affecting our operations too much. That said, I also think that, I mean, now a lot of contracts are coming in that are sort of larger serious deliveries throughout. I mean, in many of the product areas, this is happening. So there is also a lot of efficiency gains to win from this ramp-up. So it's also -- it's not just negative the ramp-up in terms of, okay, you build a on cost. There is also efficiency to be won in this. So we need to focus on both and yes, really try to work with it to find the best possible way of delivering on these contracts and get great margins.

It's a balance between positive and negative, as you say. Okay. Moving on further, looking at the business area segments on how they perform. I got a couple of questions here. To start off with the training segment. The order backlog appears somewhat softer. Could you talk a bit about how you view the development in that business area compared to the others?

I think I talked a little bit about it in the presentation that the visibility is not the same in training compared to the other segments, and that has to do with the business model being more of an off-the-shelf product. That is generalizing a bit too much, but it does have a characteristic of much quicker turnover from contract to delivery. And I mean, looking at the backlog for quarter 1 last year, it was like half of what it is now for training and still they managed to have a great 2025. So things can change very rapidly with that business model. So I think it will always be more difficult to build backlog for a segment that has that type of characteristics.

It's the characteristics of the training segment of the business.

Yes.

And moving on to the Power segment. The question is, why is the margin low? And do you expect better margins in Q2, Q3 going forward?

I always expect. I think we need to -- we still need to have a better like I said, order book conversion 5 times now, but that is really the case now. We have a super strong order book in the group, but especially in Power. And we are ramping up. There is a lot of work put into being able to deliver all these orders. So I think we can expect even better than the backlog conversion and hence, a higher top line going forward, and that will have impact on the profitability in a positive way because power is our biggest business area in terms of headcount, for example. So they do have a lot of costs that they need to cover and they need to have the turnover to support it.

Thank you. And moving on to the -- it's another question, the cash flow side. How should we think about the payment timing in some of the newly signed projects that you talked about, particularly those involving development work?

I can't comment on the individual contracts, but it is always a very important part of negotiations for us is to always, always strive for cash neutral or even cash positive payment plans. It is tricky with prepayment in defence that rarely happens. But always trying to have milestones as early as possible in development projects to make sure that we're not tying too much capital. So I would say, I mean, price is one thing, but also payment milestones is one very important aspect of a contract for us. So yes, so to answer the question, we're always doing everything we can to have payment milestones as early as possible really.

Sounds good. Next question. I think we have a couple of minutes left here. Looking at the gross margin, the gross margin was strong in Q2. Was this influenced by a specific product mix? Or is this a level that can be maintained going forward?

Gross margin in Q1?

Q1. Yes. Do we expect that we can maintain this level going forward?

Yes. When it comes to gross margin as in percentage of direct costs in our deliveries, I think definitely, we should be able to keep in line on what we're doing now, and it is in line with what we had throughout last year as well. So many other things have fluctuated, I think, but the gross margin is something that we're quite good at keeping stable over time. And yes, and also something that where we might should expect too much difference going forward either.

Yes. Next question. Are there further acquisitions required to reach your 2027 targets? You talked about it before. So that's the first question. The second question is, what does the acquisition pipeline look like? And is this the near-term focus more on the integration of KT Shelter rather than new acquisition? What are priorities now?

No, it's really interesting questions. If we start with the first one, is this enough to reach our targets? Well, if you do the math, if we say that we should have at least 20% organic growth and then you have a pro forma with KT Shelter's numbers from last year, we won't reach all the way to SEK 1 billion, but almost I think we'll end up around somewhere above SEK 900 million. So -- but maybe it is possible. And then what is happening now? Well, now the focus is really for -- to integrate KT Shelter and make sure that we really make the best of this in all ways. And what happens after that, it will be interesting to see. I think this acquisition shows that we are an attractive buyer in this market, having such a great company as KT Shelter wanting to join us on their continued growth journey is great. And -- yes, so I don't see why we would continue that. But right here and now, it's definitely about making sure that we onboard KT Shelter.

Thank you, Evelina. I see that the time is running out, so we need to wrap up. And I'd like to ask a last question to summarize this, if there are any closing remarks or key messages that you'd like the listeners to take away from today's report.

I think -- I mean, it's always great to get questions and really interesting to understand what people are wanting to know more about when it comes to W5. But maybe bottom line is the fact that we are -- I mean, we have our financial targets, SEK 1 billion, 10% in EBIT. And I think that we also this quarter show that we are taking steps definitely in the right direction. Maybe more on the turnover than the profitability side right now, but regardless steps in the right direction in both aspects. So I think that's the main message from this quarter.

Thank you very much for joining today. And thank you all for listening in and your participation via the questions. We look forward to see you again when we release our report on 5th August after the summer. And if you have any questions, any further questions, please feel free to reach out to [email protected], and we'll be glad to help you further. With that, we wish you a great day, and take care.