AVTECH Sweden : Q3 Interim Report English

CEO COMMENT

Together with our customers, we continue to make a difference to the environment with every flight. With AVTECH services, airlines have the tools to save about 0.5 – 2.5% of emissions by flying optimal altitudes with maximum help from prevailing winds. Simultaneously, they avoid dangerous or unpleasant turbulence. More airlines are expected to discover that this is an important environmental measure with immediate results that they can implement right now.

The third quarter was once again our best ever with increased sales (+31%),

net income (+39%) and cash flow (+65%) compared to the same period in 2022. Volotea, which already uses ClearPath, signed a new agreement for Aventus during the quarter, after testing the wind uplink service with good results. During the period, we are finally seeing the effects of the new agreements signed so far. Each additional agreement now has a strong positive impact on earnings, and we have more new processes with customers and ongoing tests than ever before. Although the processes always take some time, we expect several of them to lead to new agreements in the near future and over the next six months.

Today, we have just under 1500 aircraft that commercially use our services and account for today’s revenue. Every new contract is normally prompted by a successful test and although our services are easy to get started with, it often takes some time to fit this test activity into the airlines’ planning. Several airlines comprising a total of about 300 aircraft have now carried out tests and while we are working on the continuation of these, a number of other airlines comprising about 350 aircraft have begun or will soon begin testing. In addition, we have almost 900 aircraft signed up for tests next year. After this year’s conferences, we are in conversation with more interested airlines than ever. We expect more customers to decide on tests next year and that a significant proportion of these will lead to new revenues.

It was with great sadness that we received the shocking news during the quarter that AVTECH’s esteemed Chairman of the Board, Bo Redeborn, had suddenly and unexpectedly passed away after a short period of illness. With his extensive industry experience and commitment, Bo has strongly contributed to AVTECH’s current positive situation. He leaves an emptiness behind him and is greatly missed by AVTECH’s board, management and employees. The Board of Directors has appointed Ingvar Zöögling, former lawyer and member of AVTECH’s Board of Directors since 2008, as acting Chairman of the Board.

Despite some uncertainty about how a recession will affect demand for travel in 2023, air travel and airlines have boomed during the quarter. A pent-up demand after the pandemic, higher jet fuel prices and a focus on sustainability are increasing the demand for our optimization services Aventus and ClearPath, which reduce costs for airlines. As AVTECH’s current order portfolio largely consists of both fixed-price contracts and contracts with longer durations, we are only affected to a small extent by a recession.

With increasing sales, net income is now growing quarter by quarter for the rest of 2023 and 2024. The third quarter was our best ever and thanks to the agreements signed so far, the fourth quarter has the potential to be even better. Thank you for your interest in AVTECH.

David Rytter

CEO, AVTECH Sweden AB (publ)

• Sales for the third quarter increased by 31% compared to the same period in 2022 thanks to new agreements and a continued strong dollar.
• 
  Net earnings increased by 39% compared to the same period in 2022.
• 
  Cash flow increased by 65% compared to the same period in 2022.

EVENTS DURING THE THIRD QUARTER

• 
  On July 12, it was announced that Volaris has chosen to continue with AVTECH’s ClearPath and Aventus flight optimization services after a
  successful three-month evaluation period during the second quarter. This is in accordance with the already communicated three-year agreement that started at the end
  of March 2023, and which has an expected total value in the range of MSEK 8 to 14, depending on the number of aircraft and USD exchange rate.
• On July 13, a press release was released ahead of time with a number of key figures for the second quarter, prior to the publication of the full interim report. These figures showed, among other things, that sales, cash flow and earnings continued to increase.
• 
  On August 23, it was announced that AVTECH and Volotea Airlines have entered into a 2- year agreement for AVTECH’s Aventus wind uplink service, with a start date of August 5, 2023, and an expected total value in the range of MSEK 1.1 to 1.9 depending on fleet size and EUR exchange rate development.
• 
  On August 1, it was announced with great sadness that AVTECH’s much appreciated Chairman of the Board, Bo Redeborn, has passed away suddenly and unexpectedly after a short period of illness. With his unique ability to listen in and act, Bo has successfully led AVTECH’s development during a very intense period. With his diverse experience and his large network of contacts, he has strongly contributed to AVTECH now having a very solid foundation for future growth and profitability. Bo will be greatly missed by AVTECH’s board and management, and our thoughts are with his family.
• 
  On August 21, the Board announced that Ingvar Zöögling had been appointed acting Chairman of the Board. Ingvar, who has been on AVTECH’s board since 2008, is a former lawyer and ran a law practice in Stockholm for almost 35 years.
• 
  On September 12-13, AVTECH participated in the MRO & Flight Ops IT, Americas trade conference in Miami, Florida, which is visited mainly by airlines from
  North, Central and South America. During the conference, AVTECH presented together with Volaris fuel saving manager, Luis Fernandez, who shared their positive results and experiences with ClearPath and Aventus. A satisfied customer who is willing to tell other airlines about how our

services over the next year. Volaris conducted a test period from April to July where they used ClearPath and Aventus services on just over 66,500 flights. In summary, they concluded that they could trust ClearPath’s fuel savings

calculation. They found that more than half of their flights could be optimized by ClearPath and that the theoretical savings potential for these flights was an average of 63kg per flight. At the same time, they found that during the measurement period, they realized an average of

about 16.7kg per flight with the utilization rate they could see in the pilots (just over 36%). The utilization rate is then expected to improve over time as the pilots become accustomed to and learn to use the system optimally. Through a separate analysis of actual flight altitudes, Volaris was also able to demonstrate an average saving of about 15 kg/flight, which independently verifies the above results. This results in an annual saving of approximately 3150 tons of aviation fuel, which corresponds to an annual reduction of approximately 9950 tons of carbon dioxide emissions.

• 
  On September 28, an Extraordinary General Meeting was held in AVTECH where it was decided that the number of Board members shall be three (3) ordinary and one (1) deputy. Christina Zetterlund was elected as deputy member for the period until the end of the next Annual General Meeting.
• 
  On September 28 anAVTECH presentationwas conducted for investors at Redeye Investor Forum Online.
• In September, the work began on a Flight Speed Optimizer add-on to ClearPath with the aim of being able to test the service on a larger scale in customer operation later in the autumn. The flight computer in today’s modern aircraft continuously calculates the speed of the aircraft during the flight depending on the prevailing wind, temperature and aircraft weight. Thanks to limited weather input and on-board computational resource, this results in a speed profile that is often not optimal. The
  intended balance between fuel cost and
  flight time for the entire flight is not achieved. By taking into account the entire high-resolution
  weather profile, ClearPath can calculate optimal speeds in each segment of the flight to achieve a cost-optimal speed profile that saves
  time and fuel for the airline. This results in a flight speed profile that is fully optimized in accordance with the weather along the flight.

• Test periods and analysis of results after completed tests can often take longer than expected. Work has continued during the period to develop a new Service Dashboard analysis tool that will soon be able to speed up this currently manual process. AVTECH’s dashboard is developed to automatically and over time report data, statistics, and results from our various services. Our customers will be able to easily follow up the value that the services deliver and can also review the input, weather, and results for each individual flight. As these analyses are currently made manually, the dashboard also brings a reduced workload on our technical resources. At the same time, our customers get the opportunity to follow up the results of our services continuously from day one. We believe that this will be an integrated analysis part of our systems that in the long run will both speed up sales and test processes and contributes to a continued customer satisfaction.

EVENTS AFTER THE PERIOD

• 
  On October 18-19, AVTECH participated in MRO & Flight Ops IT, APAC exhibition in Bangkok, Thailand. This exhibition is frequented by airlines
  from all over Asia. Again, a presentation was conducted together with Volaris fuel saving manager, Luis Fernandez, who shared his positive results and experiences with ClearPath and Aventus. This participation was the starting point for reaching Asian airlines and the interest in our solutions was unexpectedly high. After the exhibition, the work to follow-up will now continue with more than twenty airlines in the region.
• Below is a list of the planned continued information and marketing activities this year:

1. 
   Investment presentation atRedeye Technology Day, Stockholm, November 22

THIRD QUARTER 2023

Net sales

The group’s net sales for the third quarter amounted to MSEK 7.5 (5.7), derived mainly from the Aventus NowCast™ and ClearPath services. Depreciation amounted to MSEK -1.1(-0.9) of which MSEK -1.1(-0.9) were related to depreciation on capitalized development work expenses, etc. Cash flow from operating activities was MSEK +2.8 (+1.7).

Investments

During the three-month period, investments in inventory were made with MSEK 0.0 (0.0). Expenses for development work of MSEK 1.0 (0.9) have been capitalized.

STAFF

The average number of employees during the period was 10 (9). At the end of the period, the number of employees were 10 (9). In addition to the employed staff, the company also engaged consultants mainly for technical development and sales related work.

FINANCIAL POSITION

Cash and cash equivalents

The group’s cash and cash equivalents at the end of the period amounted to MSEK 21.0 (at year- end 14.6), which corresponds to SEK 0.37 (at year-end 0.26) per share. At the end of the quarter, the group had no overdraft facilities.

Equity and equity ratio

Equity at the end of the period amounted to MSEK 37.8 (at year-end 31.2) or SEK 0.67 (at year-end 0.55) per share. The group’s equity to assets ratio was by the end of the period 92.9 percent (at year-end 92.7).

RELATED PARTY TRANSACTIONS

Ide Design AB, a company owned 100% by Christer Fehrling, invoiced SEK 112,500 during the period, primarily for management services.

Redeborn Consulting AB, a company owned 100% by Bo Redeborn, invoiced SEK 37,500 during the period for management and marketing services.

PARENT COMPANY

AVTECH Sweden AB (publ) reported net earnings for the three-month period of MSEK 3.1 (2.2). The parent company’s equity at the end of the period amounted to MSEK 37.8 (at year-end MSEK 31.2). Cash and cash equivalents amounted to MSEK 21.0 (at year-end 14.6). During the period, investments in inventory were made by MSEK 0.0 (0.0).

SIGNIFICANT RISKS AND UNCERTAINTY FACTORS

The company’s operations are affected by risks that can affect earnings or the financial position to varying degrees. When assessing the development, it is important to consider relevant risk factors and uncertainties in addition to the opportunities for earnings growth. All of these cannot be described in this section but should be evaluated together with other information in this interim report and a general external assessment. In their operations, the Group and the Parent Company are exposed to risks of both an operational and financial nature, which the company itself can partly influence. A process is ongoing to identify and manage these risks. The market for Avtech group products is characterized by long sales times. The Group operates in a market with great potential

but with complicated sales processes. AVTECH conducts operational activities, whereby the risks in the company are not limited to liquidity risk.

The Covid-19 pandemic, with the introduction of travel restrictions, has had a negative impact on the aviation industry, including AVTECH, in recent years. The restrictions have today been lifted in connection with getting the infection under control. AVTECH has weathered the crisis well and as the pandemic subsided in 2022 and travel restrictions have been lifted, our airline customers have once again been able to resume their traffic. At present, our customers fly unusually much thanks to a pent-up travel need. AVTECH is following developments and is ready to react on effects of new COVID-19 outbreaks. The introduction of new restrictions could lead to a reduction in demand for air travel and thus cost-saving programs, reprioritization, and a reduction in staffing.

The war in Ukraine affects the world situation in many areas. In addition to changing travel patterns, the outside world’s restrictions on Russia have had a negative impact on the world economy as well as on the travel industry, which is sensitive to economic cycles. An uncertain security situation in Europe and the world could have a negative impact on AVTECH’s future opportunities, operating income and cash flow. AVTECH has so far not been negatively affected but continues to follow developments closely.

The energy crisis, inflation and recession can also lead to a reduced demand for air travel. At the same time, increased energy and fuel prices lead to an increased demand for AVTECH’s services that save fuel and costs for airlines. A future low fuel price, on the other hand, may temporarily reduce airlines’ willingness to invest in fuel-saving solutions.

There is also long-term concern and uncertainty in the aviation industry regarding what effects global warming and a transition to fossil-free will lead to in aviation. AVTECH’s services reduce the climate impact of each individual flight and thus contribute to such a transition.

AVTECH is exposed to currency risks over time through the sale of services in a global market, for example when selling in USD in North America and EUR in Europe. AVTECH does not currently use any currency hedging methods. A negative change in the exchange rate for foreign currencies may therefore impact the Company’s earnings and financial position.

For a complete account of identified risks and the company’s work on managing these, refer to pages 11 – 13 and page 40 of the new share issue prospectus 2013, the sections “Risk factors” and “Legal issues and supplementary information”. The prospectus is available through AVTECH’s website www.avtech.aero.

PROSPECTS

The Board of Directors has a positive view of the company’s business areas now that flying is increasing after the pandemic and when the oil price is high. The market shows clear signs of a growing interest in efficient IT solutions that support airlines’ increasing need to save fuel, become more environmentally responsible and increase passenger comfort during the flight. This is interpreted by the Board as positive signals for AVTECH’s abilities to attract new customers. The increased customer interest shows AVTECH’s acceptance as a competent developer and supplier of robust and practically applicable IT tools.

Today, AVTECH’s sales consist largely of revenue from one product, Aventus. Looking ahead we see a great interest and potential in our portfolio of newly developed products ClearPath, ProFlight and SIGMA. More customers and more products for current customers.

UPCOMING INFORMATION EVENTS

Kista, October 27th, 2023, AVTECH Sweden AB (publ). This report has not been reviewed by the auditors.

Financial reports and documents can be found at www.avtech.aero/report.

AVTECH Sweden AB (publ), corporate identity number 556568-3108, has its registered office in Stockholm. Address: Färögatan 33, 164 51 Kista, Sweden. www.avtech.aero

The company’s B-share(short-term AVT B) is traded on the NASDAQ First North Growth Market since February 2012. The company’s A-share is not traded on any marketplace. Certified Adviser is Redeye AB.