9. Dezember 2022

Balance letter to Primoco UAV shareholders.

Dear Shareholders,

The end of a year where we had hoped to return to normal life after Covid is fast approaching. Looking at the pandemic, the end has indeed happened. In other areas, however, from geopolitics to energy to economics, 2022 has brought a host of new events and challenges that have made their way into all our personal and professional lives.

For Primoco UAV SE, this year can be described as one of positive breakthroughs. Before the Christmas holidays, let me briefly summarize this year’s performance and give you an overview of the outlook for 2023. While in 2020 and 2021 the pandemic complicated the conclusion of new contracts and the delivery of aircraft, components and flight services to the whole world, 2022 finally allowed us to develop the full potential of Primoco UAVs and brought a breakthrough in the company’s performance.

We managed to turn the half-year EBITDA loss of CZK 14 million from the first half of last year into a profit of CZK 50 million this year. The company’s sales between January and June this year reached nearly CZK 103 million – eight times more than last year. The second half of the year brought even more customer interest than the first half. For the full year 2022, I expect the best financial results in the company’s history.

PeriodAircraft sold (pcs)Value of aircraft sold (mil. CZK)Aircraft delivered (pcs)Turnover (mil. CZK)EBITDA (mil. CZK)

Published information is preliminary, unaudited and unconsolidated in 2022.

A major factor in the strong interest in Primoco’s high-end UAVs is the decision by European states, in particular, to increase defence spending after the armed conflict in Ukraine erupted earlier this year. Those countries who have not yet fully realized the irreplaceable role of UAVs in equipping armies are now rapidly reassessing their positions, alongside other security forces for whom UAVs and their capabilities are important even in peacetime.

Primoco UAV does not only supply customers with One 150 UAVs, which are among the world’s best in their category due to their parameters and operating and acquisition costs. Our solutions are comprehensive and include aircraft equipment in the form of cameras, a number of sensors and other important technologies, control stations, crew training, spare parts and service.

Despite the company’s success abroad, including in neighbouring countries such as Slovakia and Germany, we did not receive any interest or manage to start discussions with the Ministry of Defence of the Czech Republic, or the head of the Ministry, Jana Černochová. The Czech Republic intends to buy three Israeli-made IAI Heron MK1 UAVs, which are uncertified but, due to their 28 year old design, do not meet the needs of modern armies. Because of their accident rate, these machines were grounded by the Israeli army this year, and other armies are already scrapping these UAVs and replacing them with more modern machines. Primoco UAV through its legal representative JUDr. Tomáš Sokol sent objections to the Ministry against the contracting authority’s public procurement procedure. It also reported the irregularities to the Office for the Protection of Competition. The aim of our approach is to initiate a rethink in the flawed procedure and help to equip the army with modern equipment and participate in the offset programme, which however is not supported by the ministry.

In addition to the successes that are being translated into turnover, 2022 has also brought other key events that will strengthen the company’s business and its long-term stability. We have been working on the European EASA LUC (Light Unmanned Certificate) for 18 months and this year we received it. An LUC is the highest approval that can be achieved under current European regulations and Primoco UAV is the first in the world to achieve this approval.

On 31 January 2022, before the outbreak of the conflict in Ukraine, we also closed our operations in Russia and sold 100% of our shares in our subsidiary there, AO PRIMOCO BPLA. The main reason for leaving the market, where we had been only been providing civil aerial work services, was the sanctions regime against the Russian Federation and the impossibility of obtaining a new export license required for the operation of our UAVs. In view of what happened in 2022, this decision proved to be very correct.

An equally important event in 2022 was the appointment of Colonel (retired) Ing. Vladan Ševčík to the Supervisory Board of the company. The Colonel, who has been working at Primoco UAV since 2020 as a quality manager, has become even more involved in the company’s operations this year. His professional qualities and managerial experience now contribute even more to the certification of the company and its UAVs in a multinational context, both in the civilian and military spheres.

The favourable results of Primoco UAV and the outlook for the company’s future were also reflected in the price of its shares traded on the START market of the Prague Stock Exchange this year. While key stock indices around the world are depreciating by tens of percent this year and a similar development has occurred in domestic stocks, Primoco UAV SE shares have appreciated by +33% since the beginning of the year. This helped investors not only to compensate for the possible decline of other components of their portfolio, but also to face the highest inflation rate in the last 30 years.

The success of 2022 represents both a great commitment to the future and a strong motivation for us at Primoco UAV to do everything we can to make next year even better. It is already certain that we will enter 2023 with several contracts for the delivery of 10 UAVs. Other new orders are currently under negotiation. The goal for next year is to sell equipment and services worth CZK 1 billion with an EBITDA margin of 40%.

In view of the company’s increasing growth dynamics and the future outlook for unmanned aviation, we intend to apply for a building permit for the construction of a new production hall next year. This will enable Primoco UAV to increase its production capacity to 250 aircraft per year. We already own the land for this investment in the campus of our airport at Písek-Krašovice. The total investment will amount to several millions of CZK, a significant part of which will go into the robotization and machinery of the modern factory.

Next year we also have to complete the process of obtaining military authorization in accordance with NATO STANAG 4703. Primoco UAV has already been authorised by the Department of Military Aviation Supervision of the Ministry of Defence of the Czech Republic as an approved manufacturing and development organisation under the European EMAR 21 standard. The STANAG 4703 certification has reached the final testing stage.

Looking beyond 2023 also fills me with optimism from a business perspective. It brings a vision of unmanned aviation as an area that will continue to grow in importance. Far from being a military issue, it will be used for a wide range of civilian applications. A growing trend will be, for example, outsourcing in the area of protection of land and maritime borders of states, security of key facilities or monitoring of strategic infrastructure. The army, police, firefighters and other key state forces will increasingly use UAVs to carry out their tasks.

From a technological point of view, the future of the UAV industry lies, for example, in the processing of information from UAVs through artificial intelligence. Humans are already the weakest link in this regard, hindering the efficient processing of the vast amount of data that UAVs can deliver at any given moment. Primoco UAV is beginning to make this vision a reality.

Although there are many challenges and a huge amount of work ahead for 2023 and beyond, I personally look forward to the further development of Primoco UAVs. I am proud to see the fulfilment of our vision to build a company completely from scratch, without subsidies or bank loans, that has become one of the world’s leaders in the expanding market for unmanned aerial vehicles.

Let me conclude this letter by thanking you for your trust. This is a gift that we really appreciate, for without it, the company could not succeed. I would like to wish you a Merry Christmas and a successful 2023, both professionally and personally.

Best regards,

Ladislav Semetkovský
Founder and Majority Shareholder

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