today's conference call with the management of Colt was held in the spirit of expectations of acceleration of the financial performance in the second half of this year, satisfaction with the recently completed acquisition of the Swiss ammunition manufacturer swissAA Holding or significant fulfillment of the contract with the Czech army.

This year is marked by a strengthening of our position in the armed forces segment. This has already been confirmed by the sales or revenues for 2Q 2023, when the previously announced supply of weapons and ammunition to Ukraine, realized through the signed contract with the Canadian government, started. According to the words of the company's CEO Jan Drahota, a significant part of this government contract was implemented in this year's 2Q, and its fulfillment should occur in 3Q 2023.

In addition, Colt is reporting additional orders to the armed forces for the remainder of this year, namely the conclusion of a contract with the Danish government (management described this contract as significant, but did not specify the volume, given the arrangements with Danish officials, it cannot comment) or the continuation of deliveries to the Swedish army. In this context, management mentioned the important role of its subsidiary Colt Canada as one of the important implementers of these military contracts. Even today, it is clear how strategic the acquisition of the US Colt (and its Canadian division) was in 2021. Thanks to this, Colt CZ has significantly strengthened its position in the profitable segment of the armed forces. Today, Jan Drahota confirmed this year's goal of having sales split between the civilian and armed forces segments in a 50:50 ratio (previously, the company also achieved a ratio of around 20:80 in favour of the civilian segment).

The development of military orders so far this year is also largely offset by the weaker US civilian market. The first half of this year shows a decline. However, Colt's management expects it to stabilise or improve in the second half of the year. After last year's decline of around 24% in this market, management expects a maximum single-digit decline for the whole of this year. Colt itself is responding to the current situation in the US civilian market by streamlining its distribution channels there, introducing new products and marketing activities. This, too, should help to drive overall sales in the remaining quarters of this year. Colt today refined this year's revenue guidance to a range of 16,000 to 16,400 million. CZK 16227mn (which is in line with our current forecast of CZK 16227mn) indicates 3Q or 4Q revenues near CZK 4500mn. CZK 4,500 - 5,000 million, respectively. CZK.

The new acquisition of Swiss ammunition manufacturer swissAA Holding is also included in the above-mentioned revenue development. Management is satisfied with this acquisition, which was completed in the middle of this year. swissAA Holding operates three production plants (two in Switzerland and one in Hungary). Management sees the Hungarian plant in particular as a prospect for further expansion. Thus, from today's conference call, we sense that the management of Colt perceives the potential for further development of the acquired company, perceives the potential for increasing production capacity and sales volumes.

We view the acquisition of swissAA Holding positively. Ammunition production is a promising field, especially after the conflict in Ukraine, and in our opinion it will fit well into the business model of the entire Colt group, and last but not least, it may be complementary to the emerging joint venture with the Hungarian government, which aims to produce weapons for the Hungarian armed forces. According to the current debt development (quarter-on-quarter increase from 1.3x to 1.7x EBITDA only), we believe that this acquisition was made on reasonable terms. Colt's management indicates annual sales of swissAA Holding at around CHF 35-40mn (approx. CZK 900-1,000mn), and EBITDA profit close to CHF 10mn (approx. CZK 250mn).

I don't invest in the arms industry. I find it too government-oriented, and that doesn't sit well with me. I mean, it couldn't work without the government, but whatever...

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