Dear Shareholders,
Let me inform you about the financial results of Primoco UAV SE at the end of the 3Q 2024, update you about the last quarter and share with you the company’s plans for further development.
Primoco UAV SE’s sales reached CZK 444 million as of 30 September this year, an increase of 45% year-on-year. EBITDA for the first three quarters of this year reached nearly CZK 170 million, up 34% year-on-year.
We have been meeting our long-term EBITDA margin target of over 40% and other company performance indicators, such as free cash, are also growing significantly. As of 30 September, it amounted to nearly CZK 300 million, three times more than at the same period last year. We can therefore rely on our own funding to invest in the future development of the company, and we do not require use any bank loans or subsidies. The significant year-on-year increase in economic indicators, led by profit and revenue, is predominantly due to the growing international demand for our One 150 UAVs, integrated sensor equipment and all accessories, which together form a full-fledged and highly competitive unmanned platform for military and civilian use.
Since the beginning of this year, Primoco UAV has delivered 24 One 150 UAVs to customers. In total, Primoco UAV has signed new contracts for 26 UAVs this year. Negotiations for the delivery of hundreds more machines are at an advanced stage – given the complexity of the contracts involved and the fact that major customers often include public institutions of various countries (governments, security forces, armed forces, etc.), the length of time from entering negotiations with the customer to signing the contract is often difficult to predict.
In view of the above, it is possible that some of the contracts at an advanced stage of development may not be finally signed this year but will be completed in 2025. If this were to happen, the original plan for this year’s sales of around CZK 1 billion and EBITDA of over CZK 440 million might not be fully met. But that is only a timing difference; meaning that Primoco UAV will not lose those sales and profits. The projected economic indicators for 2025 would then be higher. The key takeaway is that Primoco UAV business opportunities are constantly growing, and we are seeing increasing customer interest in our solutions. The Primoco One 150 is already the best-selling European-made UAV in the medium-heavy UAV category and holds approximately 30% global market share in its class according to SIPRI.
In addition, we are gradually supplementing the revenue generated from sales of UAVs to customers with revenues generated from crew training and service contracts. Overall, while this is a relatively small contribution in terms of share of turnover, this segment of our business will become more important as the total number of Primoco UAVs in operation grows around the world. In the third quarter of 2024, for example, we signed a new service contract worth CZK 12 million with one of our first customers. Primoco UAV have been in service for this customer for more than 5 years without any problems and with proper maintenance and servicing they excel in reliability and durability.
Key Economic Indicators
(Preliminary IFRS, unaudited, consolidated, in thous. CZK)
30/9/2024 30/9/2023 Revenues 444,389 307,533 Cost -294,745 -180,747 Operating profit/loss 149,644 126,786 EBITDA 169,856 126,443 Profit before tax 164,205 123,350 Income tax 35,767 0 Profit after tax 128,438 123,350 Fixed assets 157,201 51,878 Current assets 361,155 334,249 Of which – inventory 55,471 130,619 Of which – bank accounts and cash 290,127 100,963 Of which – trade and other receivables 15,557 102,667 Total assets 518,356 386,127 Equity 471,430 237,856 Long-term and short-term liabilities 46,103 148,153 Provisions 823 118 Total liabilities 518,356 386,127
Preparation for the Construction of our New Production Plant
Two years ago, when it became clear that Primoco UAV’s vision was coming to fruition and we were able to build a dynamically growing business on a greenfield site, we started working intensively on a project for a new manufacturing, service and training centre. Unfortunately, the Czech Republic is one of the most difficult countries in the world in terms of construction management and permitting processes. If we did not start preparations to increase production capacity and build top-quality facilities sufficiently in advance, it could have happened that the necessary capacity would not have been available although we needed to replace the existing premises with new and bigger ones. So, in these circumstances, we started planning to increase our capacity early, rather than waiting for the number of new orders to reach our current production capacity. It is necessary to look far enough ahead and prepare for further growth in time.
Originally, we intended to concentrate all the elements of modern 21st century aerospace manufacturing on our airport premises. However, we encountered obstruction from the local council of Čížová, which demanded CZK 20 million just for agreeing to the investment plan without being willing to guarantee anything. Subsequent negotiations unfortunately did not bring an agreement, so with due care and responsibility to all shareholders, we turned our attention to the nearby industrial zone in the cadastre of town of Písek. Its representatives, unlike the council in Čížová, has agreed to our plans and approved the sale of the necessary land. The new production plant will therefore be located directly in Písek, and we will build a professional facility for flight operations on the land we now own in the area around the airport in Krašovice.
A new production plant in Písek and a modern training centre on the premises of the company’s own airport Písek – Krašovice represent key projects for the future development of Primoco UAV. Both sites are only 1,000 meters apart, which will allow us to take advantage of significant synergies and to consolidate the activities that are currently spread across different locations in the Czech Republic.
In Q3 2024, we took a significant step forward in this project. We completed the purchase of land in the Písek industrial zone where our new production plant will be located. In total, the company already owns over 303,000 square metres of land in both locations, which it acquired at an average price of around CZK 400 per metre. The aggregate investment in all the plots amounts to CZK 125 million.
The second location, Písek – Krašovice Airport, has been owned by Primoco UAV since 2019. The decision to acquire our own airport was one of the most important milestones in the company’s ten-year history, as it provided a key base for our further development. Primoco UAV also has a dedicated airspace for testing UAVs, training new pilots or flying new aircraft. We are the only company of its kind in Europe with a similar in-house infrastructure, which is admired by customers, partners and competitors.
The total budget of the project is approximately CZK 750 million, part of which has already been invested, particularly in the purchase of land. We are now at the stage of completed land purchase, completed architectural study and advanced process analysis in production. At the same time, we are working on the construction documentation, after which we will apply for a building permit. In parallel, we are preparing a tender for the general contractor. The finalisation of the project and production capacity increase are estimated at 2027.
Certifications
In October 2024, Primoco UAV SE was pre-approved as the first of its kind in the world for unmanned operation according to the IOGP 696 standard of the International Association of Oil & Gas Producers. This association brings together all major oil and gas processors and producers from around the world. The standard sets out the technical and organisational requirements for the safe and sustainable operation of UAVs for the benefit of mining companies, for example for monitoring thousands of kilometres of pipelines (checking for possible leaks and leakages) or mining fields and platforms. This is an extremely demanding standard, under which no UAV operator in the world has yet been approved. Primoco UAV SE met the vast majority of the requirements and as a result received a pre-approval for six months. During these 6 months, it will put in place procedural adjustments for full compliance with the standard and conduct flight operations with final verification scheduled for the end of 2024. We will then receive permanent IOGP 696 certification, which will allow the company to offer our aircraft or aerial services to any oil and gas infrastructure operator worldwide.
The company also expects to complete the very demanding and important certification process according to STANAG 4703 (AEP-83B) as soon as December 2024. It is the top standard that ensures that the UAV will be acceptable for operation by national aviation authorities in all North Atlantic Treaty Organization member countries and other countries accepting NATO standards. Once the type certificate has been obtained, it will no longer be necessary to go through the demanding processes of permitting operation in each country separately. This will significantly accelerate the deployment of Primoco UAVs into service and the ability of customers to use them immediately for training and operational missions.
The NATO STANAG 4703 certification covers over 200 areas of tests. This includes, for example, airframe strength tests, material tests, endurance and functional tests of aggregates, comprehensive load modelling calculation reports, ground and flight performance tests as well as documentary tests.
Primoco UAV has built two flight prototypes for these tests as well as two airframes for strength testing. It also provided dozens of functional samples of various aggregates and hundreds of material samples. A test programme and methodology had to be developed for each area to be tested. Often this was the first time in the world that such an activity was carried out on a UAV. Based on the programme and methodology, the test was then carried out and evaluated according to the approved procedure.
After the completion of the tests, the vast majority of which, including the most demanding ones, have already been successfully completed by our One 150 UAV, the aircraft will be granted a type certificate. This document certifying the compliance of the UAV and its performance and features with the requirements of military regulations will give Primoco UAV a significant advantage over competitors in their class. Unlike other manufacturers, Primoco UAVs will be able to demonstrate compliance with the NATO standard thanks to a three-year certification process.
Minority Shareholder Letters
During October 2024, the members of the Board of Directors and Supervisory Board of Primoco UAV received letters from minority shareholders Gabriel Fülöpp and Plath Corporation GmbH with several questions. As Primoco UAV SE has consistently ensured that all shareholders, irrespective of the number of shares held, have access to information on the same terms and at the same time, I have included some of the information requested in the preceding sections of this letter, and I answer the remainder of the questions below:
Relationships with Related Parties
One of the questions concerned Primoco Investments s.r.o., which is listed as a related party in the Annual Report of Primoco UAV SE. The connection here is that I, Ladislav Semetkovský, am the sole shareholder and controlling person of Primoco Investments s.r.o., while I am also the majority shareholder and Chairman of the Board of Directors of Primoco UAV SE. This relation remains valid, as does the information, quite transparently stated in the Annual Report, that Primoco Investments s.r.o. did not carry out any activity in 2023 and that there were no contractual relationships between the company and Primoco UAV SE in 2023.
However, in August 2024, Primoco UAV SE entered into a lease agreement with Primoco Investments s.r.o. for a Piper M600 turboprop aircraft. The value of the contract is CZK 300,000 per month and Primoco UAV is actively using this service. As the company continues to grow and its business activities are global, it is becoming more and more common to find ourselves in a collision between two important negotiations in different parts of Europe. Without a highly flexible air service (regular scheduled flights are out of the question and chartering a classic private jet does not make economic sense), it would not be possible to meet all the obligations of Primoco UAV and thus take advantage of the many business opportunities offered to the company.
The leased Piper M600 aircraft is also used by Primoco UAV SE for research and development purposes – lessors of similar aircraft usually do not allow anything to be installed on/into their machines, whereas it is necessary for our company’s needs – owning our own aircraft solves this contradiction and allows our machines to be well adapted to important capabilities for use on the modern battlefield. This includes research into remote control of unmanned aircraft from a manned aircraft at a safe distance and real-time information reception. These capabilities can be crucial in the modern battlefield environment of signal jamming and enemy aircraft movement. Primoco UAV is already implementing this concept in collaboration with Airbus Defence and Helsing AI.
In order not to exceedingly burden Primoco UAV SE’s balance sheet with the purchase and operation of its own aircraft, I decided to purchase the Piper M600 aircraft into my personal ownership through my own company Primoco Investments s.r.o. I also use the machine for private flights and rent them to third parties.
Board of Directors, Supervisory Board and Audit Committee
Another question was directed at the functioning of the Board of Directors. Primoco UAV SE is a normally managed company. The Board of Directors meets regularly, its members attend meetings (of which there are, of course, minutes) and all members of the Board of Directors and the Supervisory Board have an overview of what is happening in the company. Primoco UAV SE is definitely not a one-man company, although I founded the company and as its representative, I try to be active in the media – always for the benefit of the company and its shareholders.
Purchase of Land, Real Estate vs. Potential Lease
Primoco UAV SE has long held the view that key elements for its business and development must be owned. Because the company develops and manufactures its own components for the UAV, it is also able to certify it. If we had the parts developed and supplied by external companies, the demanding certification process would be unfeasible. Similarly, the company owns, for example, cars, machinery and airport. Under this philosophy, the company wants to build a modern facility on its own land not only for production and service, but also for pilot training and air traffic control. Some of these capacities cannot be rented. In fact, there is no professional training centre for unmanned aviation and air traffic control in Europe today with adequate equipment. In this respect, we will be unique in the continent.
Staff Costs
The company now employs 56 staff, including external staff related to the certification of aircraft to NATO standards. All employers in the Czech Republic are now facing rising personnel costs. People’s real wages in the Czech Republic have fallen sharply and by leaps and bounds in the wake of the inflationary wave, so the pressure to offset this shock is gradually increasing. In addition, Primoco UAV is dynamically growing as a whole and developing in this environment. This entails the need to increase the number of employees, which further increases personnel costs as a whole. Moreover, the Czech Republic has one of the lowest unemployment rates in the EU. Companies that fail to retain employees (and salary is one of the main motivators) subsequently incur financial costs in terms of time and money in finding, recruiting and training new employees.
In summary, Primoco UAV SE treats all costs prudently and with due care, including personnel costs. The average wage of a qualified production worker in our company (with the production plant in Prague, where labour is the most expensive) is CZK 53,000 gross per month.
The management of Primoco UAV SE, including myself, has a salary set based on the approval of the General Meeting. In my case it is CZK 200 thousand a month. Nothing is unusual in the business. Moreover, I manage a company with a multi-billion market capitalization, traded on the Prague Stock Exchange and with a global reach, which is not the case for many other CEOs. In addition, our Sales Department receives bonuses for successfully negotiated contracts, which is also common in the industry. These fees are part of the employment contracts with our subsidiary Primoco UAV Defence s.r.o. and are only paid after each transaction is completed and the purchase price is paid in full.
Audit
The company has been audited since its foundation. The Audit Committee and the AGM approved a new auditor this year – Grant Thornton. In addition, the company uses the services of the consulting company Ernst & Young in the area of IFRS reporting. We use the SAP Business One information system, which we implemented in 2019, to manage the entire company. In 2023, we produced transfer pricing documentation in excess of our statutory obligations. This document has been approved by the Directorate of the Financial Office for the Capital City of Prague.
Medium-term Plans and Co-operation
In addition to the construction of new production, training, service and control capabilities, which I have described in more detail on the previous pages of this letter, we plan to expand our existing operations in the defence (as a reconnaissance UAV) and civil segments (calibration of airport systems) in 2025 and 2026. For the time being, I cannot describe these plans in detail in order to maintain a competitive advantage. I can reveal, however, that they are also related to the certification processes we are going through, which I have also described above. We estimate the medium-term delivery potential to these areas to be in the lower hundreds of drones per year beyond the segments in which we already operate.
In addition to the collaboration with Airbus Defence, Primoco UAV SE is working on a strategic partnership with one of the other major companies in the industry. Meanwhile, our co-operation with Airbus Defence is gaining momentum both in the field of aircraft sales and in the development of new technologies – especially in the field of artificial intelligence. We are also co-operate with Helsing, a German company that focuses on AI. On the other hand, we have terminated our partnership with Plath GmbH.
The development of our UAVs and their capabilities is taking place on a number of other levels in addition to testing elements of artificial intelligence. Among other things, we are preparing a new generation of extremely reliable, economical and powerful Primoco Engines. We are also expanding the range of sensors and thus the possibilities of using UAVs in military and civilian missions.
A very advanced project in the area of securing the strategic infrastructure of the state involves developing a solution in co-operation with T-Mobile to cover areas affected by natural disasters with a mobile signal using UAVs. For example, in the case of the September floods in the Moravian-Silesian and Olomouc regions, it turned out that mobile signal outages fundamentally complicated the co-oordination of rescue work, evacuations of people and the subsequent distribution of necessary aid. A portable base transceiver station (BTS) can be installed in our UAVs to re-transmit cellular signals. Thanks to the One 150 exceptional endurance (up to 15 hours in the air without refuelling), the mobile signal can be reliably provided until the ground BTS stations are repaired.
Moreover, 2025 will be marked by continued digitalization at Primoco UAV SE. The transformation from a small company originally listed on the Prague Stock Exchange’s Start Market to a large company whose securities are traded on the main Prime Market, and which has further dynamic growth ahead of it, requires complete electronic documentation and digitization according to both aerospace and military standards.
Conclusion
Dear Shareholders, Primoco UAV SE, with its transition to the Prime Market of the Prague Stock Exchange this year, has finally completed the early period of its development and has become not only one of the world leaders in the field of unmanned aerial vehicles, but also a major player on the Czech stock and business market. Within ten years since the establishment of the company with a single idea, this has been an extraordinary achievement. Without your trust it would have been impossible to achieve such success, and I would like to thank you for investing your money, time and often emotions in Primoco UAV.
Nevertheless, no success comes without pain. The growth of Primoco UAV brings a huge responsibility but opens a global potential. The revenues and profits we are aiming for in the medium term are estimated at billions of Czech crowns. Our trading partners include the governments of the most economically powerful countries on the planet. In such an environment the pressure naturally builds up – from competitors, customers, suppliers and minority shareholders. However, we do not see it as a threat, but as a motivation to be even bigger and better. All the employees at Primoco UAV, led by the management, are ready for the future challenges, have the best competences and prerequisites to achieve it, and are committed to pulling together and directing the team for success, which of course includes you, the Shareholders.
Kind regards and my best wishes for pleasant autumn days,
Ladislav Semetkovský
Chairman of the Board of Directors
Majority Shareholder
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