Welcome to today's presentation of W5 Solutions Q2 Results 2026. I'm joined here in the studio by our CEO, Evelina Hedskog, who will give you a brief presentation of W5 Solutions, followed by highlights and financial developments during the quarter. At the end, we will conclude with a Q&A session. Please submit your questions at any time during the presentation, and we will answer them one by one. With that, the floor is yours, Evelina.
Thank you, Hannah. Good morning, everyone, and welcome to this presentation. I'll start a little bit, like Hannah said, with W5, who we are and what we do. We are a Nordic defense company delivering mission-critical solutions that strengthen military operational capability. That's who we are and what we do. Right now, operations spread across the Nordics. Additional sites in Finland since the last quarter, and we call Sweden, Norway, and Finland our home markets, whilst the export market is primarily focusing on Western Europe. Right now, around 270 employees in the group and looking at the customer base, it's a mix between defense agencies and industry primes. We are listed on Nasdaq First North since 2021. One group, one W5, offering multiple capabilities. We do this through our three different business areas: Integration, Training, and Power.
In Integration, what we have there is an offering of deployable defense infrastructure and systems integration. In Training, we find advanced live-fire training systems, and in Power, we have reliable power solutions and simulator hardware. That's the offering throughout the group. To give a little bit more flavor to this, we can say that we have two main business models in W5. The first one is project-based contracts that very often are related to customized solutions with smaller series. We have more of an off-the-shelf type of contract. We have standardized solutions and larger series. Within each of our three business areas, there's a mix between the project-based and the off-the-shelf business model. On a general level, you can say that Integration and Power definitely have more of the project-based, whilst in Training, there's a majority of the off-the-shelf contracts.
That gives you a little bit more info around how we operate. The financial targets that we have and that we're striving towards are the same as they've been for the last two years. We say that by the end of next year, we want to have net sales amounting up to SEK 1 billion and an EBIT margin of 10%. The journey how to get there is a combination of acquired and organic growth. I think it's fair to say that today the numbers that we will show, we can see that we are doing both. With regards to the EBIT margin, still have some way to go. All in all, taking steps towards these two financial goals that we have. Some highlights, important events that happened during this last quarter then.
To kick off, I think the absolutely most important thing to talk about is the fact that we have closed the acquisition of KT- Shelter. What does this mean to us? It means that we enhance our portfolio with deployable shelters for critical defense assets, primarily on the air side, but also more in general terms. It strengthens our footprint in Finland, as we saw on the map at the beginning of the presentation, and this gives cross-selling opportunities for the entire group. The acquisition was closed on the 25th of May, so during June, we have KT- Shelter numbers in the books, and they now belong in the business area Integration. When we look at Integration numbers today, KT Shelter numbers are included there. This closing was, of course, one of the absolute biggest events during the second quarter.
We have also communicated a press release with this contract that we see in this slide. It's business area Power securing an order of SEK 46 million towards the Swedish Defence Materiel Administration. This contract is a bit different from what we would normally do in business area Power. This is a contract for fixed power installations in a training facility, and we are acting as prime with a subcontractor helping us to deliver this scope. The scope is done for project management, system safety, and a complete 400 Hz power supply system for this training center. Very exciting contract and something we will see if we see more of in the future. Last but not least, the third thing I want to highlight from the second quarter is the very important framework agreement that we have now signed with the Swedish Armed Forces.
Residing in business area Training, the scope for this framework agreement is focusing on service support and equipment for training, but also for simulation systems. It is also partly connected to the Power business area. The term of this agreement is initially three years, but with an additional six years that can be added. When the Swedish customer estimates the value of the nine-year term, they say this is probably around SEK 700 million. So far, it's a framework agreement. So far, it's what we sometimes call a hunting license. This is a framework that will help us in our sales process. This is a framework that will help the customer in their procurement and facilitate call-off orders from W5. This is a contract vehicle that we hope to be using a lot now in the future. Okay.
Moving on to numbers, both for the quarter and year- to- date. Looking at the overall picture for the group, it's definitely a bit of a mixed bag this quarter. If we start with the left column and the order intake, we can conclude that, yes, we had this SEK 46 million contract for business area Power, but apart from that, there has been a lot of medium and small orders coming in. The total order intake amounts to SEK 234 million in the period. Yes, the arrow is pointing down because last year it was an exceptionally good order intake right before vacation. I think we feel confident with the fact that SEK 234 million in order intake this quarter, it is a solid order intake, and we feel confident in the demand from the market.
This is also shown in the grown order backlog, where we also have some contributions from KT-Shelter. Looking at the order book, we are now up to SEK 865 million . Moving on to net sales. The arrow is definitely pointing up. We have a growth, compared to last year, same period, of 105%. Yes, acquired growth from KT-Shelter, but it is actually 66% of this that is organic growth. Regardless of acquisitions, we are really showing that we can grow our production capacity this quarter. On the negative side, the EBIT margin is not what it should be. There are two main contributors to this. The first one is the fact that we have some transactions-related one-off costs, that amount to a little bit more than SEK 17 million in this quarter.
If we adjust the numbers by that, we end up with an EBIT margin of -3%. That should be compared to the -7% last year. In that sense, we have a progress. That said, we are also struggling with the direct costs. Direct raw material costs in the deliveries this quarter that are hampering the gross margin and also giving a negative effect on the EBIT margin. These are the two major contributors to the fact that the EBIT margin is not what it should be in quarter two. Operating cash flow. The entire working capital is something that we are keeping a close eye on now with the very intense growth that we find ourselves in, and we are happy to report that we had a positive operating cash flow of SEK 41 million this quarter. Moving on, looking at the historical development.
Every time we look at this slide, we talk about the seasonal variations. I think it is fair to say that we see them this year as well. Again, remember that we also have transactions-related one-off costs reflecting in the negative EBIT margin here. In terms of net sales, we see the same pattern as we normally do. A little bit more about our three different business areas and operating segments. Starting with order intake and order backlog. I said earlier that we had exceptionally good order intake this quarter last year. We still think that we have a solid and stable order intake this year. As you can see, none of the business areas have the same order intake in quarter two as they did in the corresponding period in 2025.
Even so, both Integration and Power have increased their order backlog, whilst Training are not reaching the same numbers as last year. Please keep in mind, order to deliver is a much shorter cycle in Training, so we can see fluctuations over time to a larger extent here when it comes to order backlog. Again, the framework agreement signed with the Swedish Armed Forces before the summer, that is really a tool to work with now in order to build backlog and order intake for Training in the coming months. Moving on to net sales and EBIT per business area. Starting with Integration, here we can see numbers including KT-Shelter. For Integration and also for Training and Power, these numbers include the corporate costs and also the extra SEK 17.3 million that we see connected to the acquisition of KT-Shelter.
Numbers here are hampered across the line because of transaction costs. That said, let us look a little bit at the different aspects then, of what we see in front of us. In Integration, here we have more than a doubled net sales. The absolute majority contributor to that is KT-Shelter. If we look at the profitability, it's lower than last year, again, some transaction costs. We do have a positive contribution from KT-Shelter for the net profit. We have, again, the gross margin problem with two high direct costs that we see in Integration. There are some plus and some minuses that gives us this result in the quarter. Definitely lower gross margin than normal for a business area Integration, which is then reflected on bottom line.
Moving on to Training, here we see a very healthy development in organic growth, again, big downside in the profitability. Again, it's the direct costs that is hampering the result. Moving on to Power, I think this is amazing proof of the fact that we can scale up productions. We have more than 100% organic growth in Power this quarter compared to last year. Even though we have some transaction costs that the Power absorbs, they are moving in the right direction when it comes to profitability. We have seen this over the last quarters now, that Power is still not contributing to profitability, they are moving in the right direction. I think that's something to keep an eye on going forward. We've now talked about the quarter two, this slide is really just summarizing year-to-date.
The first quarter was, for those of you who remember, it was a net zero result. I think the aspects of profitability within the business areas that we have talked about, it is more or less applicable to the entire first half of 2026. Again, looking at net sales for the group amounting to SEK 357 million, it's a big step up from last year, same period. Looking at the EBIT then, we're now in SEK -24 million, for the full first half of 2026, we have SEK 18.5 million there related to transaction costs. Also in absolute numbers, we are doing better than last year if we adjust for the transaction costs. Again, we are not nearly close to the 10% EBIT that we are striving for, more work needs to be done. To summarize then, what are the key takeaways from this quarter?
To start with, I think that it's fair to say that we have a continued strong market demand, this is reflected both in the order intake and in the order backlog. We have a record high net sales. We grow 105%. Remember that 66% of this is organic growth in the quarter, that's quite amazing. The downside is that we have profitability challenges. We've seen it before, we haven't really seen it before connected to the gross margin. A lot of work needs to be put into this now to understand what we can do to make sure this is not a trend that is continuing in the future. Priorities, of course, cost control and efficiency improvements, mainly connected to gross margin.
Growing the way we do, capital tie-up is a big enemy and we are working very diligently on the working capital and making sure that we keep an eye on this. We need to continue that focus. Again, it has been there during the spring. I think we see positive effects of it, but it needs to be very closely watched. Last but not least, getting KT-Shelter fully integrated into the group. We are taking good steps already, but this fall will be all about having them fully integrated into the W5 group. I think that summarizes our second quarter and year- to- date. Thank you. I think, yeah, Hannah.
Yes, it is time for Q&A.
Yes.
The fun part. Well, I have looked into the chat, we got a couple of questions to go through. The first question is, like you said, this first quarter, Shelters is included. It is the first quarter for us. How should we think about the business dynamics in terms of order backlog duration, lead times from order to delivery, and working capital?
Yes. Even though it is quite substantial operations and net sales, they are I would say that they are leaning towards the off-the-shelf business model rather than the project-based. Fairly quick turnarounds from order to delivery. Again, even though it is large contracts, they have a tendency of being able to turn them around quite quickly. That also means that the backlog that they are bringing into our backlog now is there, but it needs to grow over time.
More like business area Training?
Yeah, a little bit.
A little, yeah.
I would say they're somewhere in between.
Some, yeah
in the business model. Yeah.
Thank you very much. Next question. Do you still expect to secure additional orders for delivery in 2026, or is the order backlog for this year's deliveries largely complete?
It depends a little bit on what part of the portfolio that the customer is interested in, but there's definitely room to both win and deliver more business this year. That is something that will have full focus during the third quarter, of course. We definitely see there's opportunities to win even more business and being able to deliver in 2026. Yeah.
Do you have the capacity to deliver SEK 1 billion in revenue considering current production facilities, workforce, supply base, and other operational resources?
Looking at where we are now.
Yeah.
Yeah.
If we talk only about getting things shipped, I think we have really proven now in this last quarter that we have the ability to ramp up production and being able to do that in a good way. Will it be enough all the way up to SEK 1 billion? Of course, we need to monitor this over time and so on, but 2027 is not that far away now. Of course some adjustments must be made. Again, what we see now with this increased organic growth, again, fully utilizing the workforce that we have, the facilities that we have and so on, I think that's a really good sign.
Shifting focus back to, as you presented earlier in the presentation, you talked about the lower gross profit margin. The question is: How should we think about the lower gross profit margin? What were the main drivers? Is it product mix, higher component prices, increased production cost, or the mix of contracts? Could you elaborate a bit more?
Can I say all of the above?
Yeah.
Yeah. This is really serious because up until, well, quite recently at least, we've had a very stable gross margin. This is a new thing that this fluctuates the way it has done over the last quarters. Yes, it is a mix of different things. We definitely see increased raw material prices as I think, well, more or less everyone does. That's part of it. There is some aspects connected to specific project that are delivered in this quarter, and so on. It's a mix and in one sense, it's good that it's really easy to zoom in on what we need to focus on in order to get the profitability in the future quarters. At the same time, of course, since there are so many aspects to it, there is also a lot of things that needs to be adjusted.
The focus is clear. We know what we need to do, fortunately for us, there is the strong market demand. We have the order book. There is business going forward, we just really need to make sure that we can get the profit levels up here.
Mm-hmm. Thank you very much. Well, it's coming in questions here. Next question. Have you seen any effects on cross-selling in KT-Shelter so far?
I can't say that we've had any clear contracts connected to that yet. Collaboration and exchanging contacts and inviting each other for different customer meetings and so on, that I think happened already before closing. I'm very confident that it's an extremely good cultural match between KT-Shelter and, well, W5 before KT-Shelter .
Communication is easy and to me, that's the number one step towards making cross-selling happen. I'm confident that we will see this in the future.
Going back to the framework agreement with the FMV of SEK 700 million. How does this framework agreement compare? What does it look like compared to historical agreements with FMV?
Well, it is a follow-on contract. This framework agreement is a result of the fact that we have been the single supplier of, for example, live fire training, or not single, but a very important supplier of live fire training towards the Swedish Armed Forces for many, many years.
This is to be able for the customer to continue that relationship with us and making sure that they can upgrade the systems that they have and so on. It is fair to say that it's a continuation of what we've done before, and it's a result of the fact that we have delivered successfully in earlier framework agreements. Of course, there are some adjustments to it. I think it's fair to say that it reflects the increased demand that the customer have now, and I think it has some flexibility to it that is really good and so on. Again, this is a framework. It makes it easier for us to sell, it makes it easier for the customer to procure, terms and conditions are in place, et cetera. We still need to make the sell for the contract, as always.
Here's another question on this framework agreement that we talked about. If you're feeling confident with the margins in the framework?
Definitely in the specified products that we have, and there are mechanisms to make sure that these are catered for over time and so on with the indices, et cetera. Yes, we are confident in that. Again, like I said, the agreement has some flexibility to it, so we don't really know exactly what contracts that will be attributed to this framework agreement.
The questions are really coming in here. Now we're shifting focus a bit.
I thought people were on summer leave. We've never had this many questions.
Yeah, I know.
Okay.
It's very nice.
Keep on going.
Yeah.
We have some time.
What is the outlook for more M&A-
Oh, more M&A?
going forward? Yeah.
I think it's fair to say that the KT-Shelter has, during their first month in W5, really proved that this was the right move to make to acquire them. Of course, we need to make sure that the group is starting to deliver profitable margins, et cetera. As of right now, that's the main focus. Of course, we're not closing the door to acquisitions going forward. For the next couple of months, that's not the highest item on the agenda.
The focus is now to integrate KT-Shelter , but the M&A is still active.
Yeah, absolutely. We're not closing the door to future acquisitions, absolutely not. Of course, right now, it's obvious what we need to focus on for the shorter future here.
Sure. Another question about the export market. How are you doing there?
How are we doing?
What is the progress?
Yes. Our home markets, they are so busy buying from us, so we don't really have time to spend on the export market. No. Well, percentage-wise-
I think export outside our home markets is more or less what it had been historically. The short answer is that there's still huge potential on the export market. That said, when there's still business to win in your home markets, maybe that takes priority. It's sometimes easier for many aspects. Of course, in the growth going forward, we will probably need to put more emphasis on export as well.
Yeah.
Yeah.
We have a couple of minutes left. Moving back to our segments. Let me see. Despite revenue growth of more than 100% in Power, EBIT remains negative. At which level do you expect Power to reach breakeven?
Very good question. Over time, where we've had the top-line problem in Power and too high indirect fixed costs, I think we still see that. It's also a matter of the project mix in what we deliver. We've had some really long-term, heavy development projects in Power that we now have seen the end of. I think that the progress that we've seen now over the last quarter is, yes, it's still negative, but it is moving in the right direction. That should continue to happen. I feel quite confident with the Power, again, moving in the right direction and winning business in a way that, well, it's really amazing to see how they outperform themselves in that regard. Yeah. They're monitored closely, but again, we see the right trends in Power.
Let's stay here for a bit talking about the operating segments. It's another question about Training. Profitability in Training looked to be hit the hardest in the quarter. Do you expect this margin to get back to normal in the coming quarters?
Yeah. What is normal? Because it's been big fluctuations in Training. I think it's fair to say that this was a very difficult quarter for Training. How much was isolated to this quarter, I can't really say, but this is not the new normal, that's for sure. Again, we need to really understand what has affected this and what we should do to mitigate it in the future.
Last questions, I see the time is up now as well. It's back to profitability. Profitability was weak in Q2. Have you experienced any similar challenges around costs historically?
No. This is
Something new.
Yeah. I've been saying for a very long time that we don't have a profitability problem. We have a top-line problem, and that's not true anymore. It's a new flavor of why we're not profitable. It's fair to say that it has shifted from too high indirect costs to too high direct costs. That also means that we need to look at, okay, what's the actions that we need to take? It's not the same problem as earlier, but it reflects in the same way in a profitability that is not sufficient.
Yeah, the time is running out now. Evelina, to conclude today's presentation, what is your final remarks?
Yeah. Again, there are some really positive things and there are some really heavy things that we need to address in this quarter and this first half of the year. I'm very pleased with the fact that we see the continued market demand, that order intake, also the bread and butter is really coming in, that we're growing the order book, and that gives us visibility and the opportunity to plan ahead in a way that we haven't really been able to do earlier. That's all really good. I think it's also super important to recognize the fact that we are being able to scale up production in the way that we do. That's really good to see as well. Again, profitability, we can't go on like this. It's obvious. Actions need to be taken. That's what we have to focus on now.
Yeah, a mix, I would say.
A mix, yeah.
The key takeaway is that we know what we need to address.
Thank you for your summary. Thank you for joining today. Thanks to you guys, joining and listening in. If you feel that your questions haven't been addressed, you're more than welcome to reach out to us using our email at ir@w5solutions.com. We hope to see you next time when we release our Q3 report on November the 5th. With that, take care, and thank you very much.