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Welcome to the CSG's Half Year 2026 Earnings Presentation. Today's presenters are Michal Strnad, CEO and Chairman of the Board; and Zdenek Jurak, CFO. Michal will begin with an update on the group's strategy delivery and the first half financial highlights. Zdenek will then walk through the performance in more detail. [Operator Instructions] Please take a moment to familiarize yourself with the disclaimer information at the start of the presentation deck.

I'll now hand over to Michal Strnad.

Good morning to all of you, and thank you for being with us. The first half was a period of delivery against the commitments we set out. We achieved a strong financial performance across the group. Before we come to the numbers, I want to highlight the strategic progress behind that performance.

Let me start with Land Systems, which doubled revenue year-on-year. Land Systems now represents 46% of our order backlog. We are scaling this business exactly as planned. That is changing the shape of the group. The share of revenue from Ukraine is down from 27% at year-end to 17%. Europe, excluding Ukraine, is now more than half of our business. The United Sates has become our second largest market, and we are making significant gains in Southeast Asia and the Middle East. We win that business through a reliable supply and capability at a competitive cost. The result is a better quality of earnings, more customers, longer programs and less than on any particular geography or end customer.

The market is moving our way. Customers want integrated systems that is exactly what CSG delivers. In [indiscernible], we own backbone, critical layers and the integration. The vehicle, the radars, the command and control system and the launchers, [indiscernible] and other sectors on top.

Trident, the layered air defense system we represented -- we presented in June, brings those capabilities together into one [ stem ] we can offer worldwide. The air defense contracts we won in Southeast Asia worth nearly $2.5 billion demonstrate the value of this approach.

Also, air defense and related capabilities, CSG became a strategic investor in North Vector Dynamics. This is the Canadian developer of [indiscernible], precision-guided missiles and country UAV systems. CSG will provide its industrial expertise and commercial network to help North Vector Dynamics production and gain access to global markets.

In armored vehicles, we have agreed a new joint venture with Turkish company, FNSS, protection of the armored vehicles, which includes our new [ carpet ] bank will be based at our own facilities in Slovakia. This extends the same integration strategy into a new platform for the group.

In the medium and large core ammunition, we are delivering on 2 priorities: expanding production and increasing vertical integration. Our annual production capacity increased to [ 850,000 ] [indiscernible] at the end of June. We remain firmly on track to reach about 1.1 million [ rounds ] by the end of 2027. At the same time, demand continues to shift towards long-range 155-millimeter ammunition. This market has a few European producers and offers stronger unit economics.

Our investment in securing critical components creates value across the portfolio, more so in long range where each round requires more critical inputs. By increasing vertical integration, we are taking greater control of the supply chain. This takes cost out of every round up on [indiscernible] margin expansion.

I am pleased to report that our German propellant plant, Greek explosive plant and Slovak bimodular charge facility are all on the schedule and on budget. Just this week, we also announced the acquisition of the Gnaschwitz industrial site in Germany. At this site, CSG will produce nitroglycerin as well as ammunition and components. This is yet another step towards self-sufficiency in energetic materials. It also enables us to sell to [indiscernible].

CSG is building an ever stronger presence in the United States, the world's largest defense market. Last month, we broke ground on the future artillery complex in Iowa designed to load 36,000 artillery shells each month. I am pleased by our success here. No European Defense Group has been trusted with a program of this kind on American soil.

Our small caliber businesses also won contracts valued at about $100 million with the FBI and other law enforcement agencies. These are important endorsements from different parts of the U.S. government.

In addition, the opening of the CSG Land Systems, North America brings our vehicle and artillery portfolio directly to the U.S. Army. Our new Washington office means U.S. executives are closer to our customers. Very little of this is reflected in today's revenue. We are very excited by the opportunity in the U.S. for CSG.

Finally, unmanned systems are taking a growing share of defense spending. CSG is building strong positions in the technologies behind them. Propulsion is one of the most demanding parts of long-range drones and missiles. We are one of only a few western suppliers of these engines. This summer, we announced a new production plant in Wisconsin that will serve U.S. and allied customers. The first engines will be produced this year, and the serial production begin in 2027.

CSG is also developing the digital systems that manage airspace. This includes radar detection and the software that coordinates drones alongside [indiscernible]. These moves gives as early positions in fast-growing markets, and we intend to grow with them. Our horizon does not stop there. We are actively exploring further opportunities in autonomy, artificial Intelligence and space, while our core businesses continue to strengthen, we are investing today in what will drive our next phase of the growth.

I want to turn briefly to our leadership. We have made major investments here. This significantly strengthened our team, recruiting senior executives from the world's leading defense companies. Benjamin Hudson joined CSG as the CEO of Land Systems and Group Chief Technology Officer. He came to us from Hanwha with earlier roles at Rheinmetall, BAE Systems and General Dynamics. David Jacobs is President CSG Defence North America, and is building out our new Washington, D.C. office. Jason Monahan leads our newly established Land Systems business in North America. Both bring deep experience of the U.S. defense market. They are joined by several other senior appointments across Excalibur, Tarta Export, Fiocchi and the group strategy. They come from companies, including Rheinmetall, KNDS, Leonardo and RWS. [ Hires ] help take us to the next level. They strengthen our team to execute on strategy. That includes scaling Land Systems growing in the United States and expanding across the nation.

Let's now turn to our half year financial highlights. The headline figures demonstrate a strong performance across all key metrics. [ Revenue ] was up 17% to EUR 3.3 billion. This was driven by strong momentum across our core Defence Systems business, which grew by 27%. Our main measure of profit, operating EBIT, increased by 13% to EUR 784 million. This gave a margin of [ 24.1% ]. This margin performance keeps us at the top of our European defense peer group.

Our total backlog and pipeline reached a record EUR 46 billion. This proved strong revenue visibility and evidences the long-term structural demand we see in the market. The group remains highly capital efficient. Net leverage at period end was 1.6x. Net leverage, therefore, remains within our long-term financial framework. We maintained strong cash conversion at 86%. CapEx intensity was 3.8%. As the year progresses, we will continue to invest significantly in production capacities and moderation to service demand.

Net working capital as a percentage of the revenue was 40%. This reflects our strong build of inventory to support a record order backlog. We remain confident in our full year guidance of below 20%, and expect the ratio to improve through year as [indiscernible] are completed and working capital is released. Zdenek will talk more about it later.

Looking at our revenue composition, Defence Systems drove close to [ 81% ] of the group revenue. This segment includes our medium and large caliber ammunition and Land Systems businesses. These made up 65% and 14% of store revenue, respectively. Our other business segment, Ammo+, contributed 19%. The chart also shows CSG diversification away from Ukraine, with the revenue share from NATO and other allied countries, excluding the Ukraine increase to 83% from 73% at the year-end.

Overall, it was an excellent set of results, thanks to this strong first half, we remain confident in our full year guidance.

Now I will pass to Zdenek, who will take you through our performance in more detail.

Thank you, Michal. I will start on Page 8 of our presentation. Growth in second quarter accelerated to EUR 1.7 billion according to our expectation. Looking also to the contribution of the second quarter to the full year, that is as well in line with our guidance from last quarter, meaning that first half of 2026 is approximately 43% of the guidance we provided for 2026, so similar to the last year.

Total revenue for first half of 2026 represents 17.2% year-on-year growth. At the same time, 90% of the Defence System [indiscernible] for the second quarter -- for the second half of the 2026 is already under contract, and further derisking the delivery. Profitability remains firm with margin at 24.1% and within [indiscernible] [ 25% ] guidance range. In addition, and highlighting here the Ammo+ margin, which is recovering according to our expectation in second quarter, coming to 8% from 4% during the quarter this year.

Finally, we continue to diversify growth across our platforms and geographies. Land Systems balance medium and large caliber ammo in terms of backlog contribution as you will see next slide. We continue to diversify the end market geography, resulting into decrease of Ukraine contribution from 27% as of the year end 2025 to 17%, including both direct and indirect sales, and even though the demand from Ukraine remains strong at the same time as we don't see any change from the last quarter.

On Page 9, we [ highlight ] the continued increase in our backlog and pipeline over first half of the year. It reflects strong intake in new orders across the period. Total backlog increased to EUR 17 billion in 2026, up from EUR 15 billion in December 2025. That means 15% year-to-date growth and represents 2.4x coverage ratio of our half year LTM revenue. To get [indiscernible] increased to EUR 29 billion, means EUR 46 billion of total opportunities as of the end of June 2026.

Total order intake ratio in first half of 2026 remains [indiscernible] 1.5x, similar to what we presented on our previous earnings call for Q1. Sizable and growing backlog gives us multiyear revenue visibility. Our active pipeline, combined with our demonstrated track or converting pipeline into firm contract drives our long-term growth momentum.

On Page 10, we are showing that the revenue growth is driven [ partly ] from strong momentum across our Defence Systems business. This reflects the sustained demand we are seeing, both within our core European and NATO markets as well as demand coming from increased -- and increasing from urban markets. Within our different systems, medium and large caliber ammo continues with a very high demand, but starts to be more balanced by the Land Systems at the same time. Group EBIT margin was [indiscernible] at 24.1% for the half year.

Within Defence Systems, we keep focusing on our vertical integration program and strategy, confirming our target we've set for it to be by end of this year by [indiscernible] 2027. For the time being and as of the June 2026, we achieved EBIT margin 29% for the Defence Systems segment.

What is also important is the recovery in Ammo+ margin through the record quarter to 8%, which means the same level as we achieved for the full year of 2025. At the same time, Ammo+ is still improving further on a U.S. market that is enabling us to rebuild volumes and improve pricing to mitigate majority of the impact from increased copper price and achieve better margins. By the way, the margin in second quarter has been [indiscernible] on EBIT.

At the group level, looking ahead to the remainder of the year, and as typical also for European defense peers, deliveries and revenue recognition are weighted towards second half of the year. Our strong execution to date means that we are well positioned for the second half of 2026. And at the same time, we've secured majority of critical components needed to fulfill the backlog for the remainder of this year. As a result, all full year 2026 and medium-term guidance is reaffirmed.

Let me now turn to performance and operational developments across our 2 core segments, Defence Systems and Ammo+. Starting with Defence Systems on Page 11, which made up about 81% of group revenue and which brings together our businesses in Land Systems, medium and large caliber and related technologies through aerospace and defense electronics and advanced systems. Execution remains our primary operational focus here. Order intake remained strong and continues to build. At the same time, we continue to effectively manage the supply chain lead times, including, for example, export licensing. All of that means that our backlog is converted this into deliverables and revenue.

Revenue was EUR 2.6 billion in the first half of 2026, 27% up year-on-year. Operating EBIT increased 22% in [indiscernible] to EUR 754 million and margin of 29%. Continuous work on efficiency and ongoing vertical integration supported the achieved results. At the time, split of revenue by geography continues to diversify, as we have already mentioned. We've seen continuous growing demand from both NATO members as well as from NATO-allied countries from Southeast Asia and Central particularly.

The revenue contribution from outside of Ukraine now stands at nearly 80%. In parallel, the strong growth of Lands System means that this subsegment is now [ 17% ] of the Defence System business. We continue in our strategy and plans increasing our own production capacity and focusing on automation, robotics and new production lines. These all underpin our sustained growth and ambitions to expand the margins.

On Page 12, I would like to focus a bit on our medium and large caliber ammo subsegment, which delivered another period of growth, up 20%. The business here delivered on 3 fronts. First, our vertical integration and projects are all on track. Second, we are looking at supply and critical components. And third, pricing is holding firm and strong demand as well.

Starting with vertical integration. Our new facilities and projects are progressing on schedule, and each one takes us further up to supply chain. In Greece, our Lavrio site is already producing 155-millimeter ammo. Base breed production starts this year and TNT production is [indiscernible] for the end 2027, as we already mentioned. Our German nitrocellulose facility remains on target for the end of 2027. And our propellant and joint venture with EURENCO in Slovakia should start the production by end of 2027 as well.

Extended or long range, as we may name it, is where it matters the most now. Demand is shifting [indiscernible], and we are ready for it and removing bottlenecks to address that. Energetics as well as the propellant bimodular charges and others which are setting the range of the medium and large caliber [ ammunition ] accounts for around 50% of production costs when talking about 155-millimeter long-range type. Producing such energetics ourselves is our goal within the vertical integration programs, and we are running it and it's expected to cut [indiscernible] cost by approximately half once fully run. This is the main driver behind our margin ambitions beyond the current level.

Our own production of artillery and tank ammunition for 2026 is expected to be around 850,000 pieces, supported by approximately another 400,000 pieces from the recommissioning. At the same time, 60% of 155-millimeter production should be long range as of the end of this year, which will have a positive mix impact on our financials. Our pricing demand and constraints on critical components continue to support the price levels. We see no meaningful pricing pressure in the current order book.

Land Systems subsegment on Page 13 is showing fast growing with revenue approximately doubled in the first half of the year to EUR 445 million. Operating EBIT margin at a healthy 17% remains weighted to the production phase. Land Systems now contribute approximately half of overall group backlog and pipeline. We also launched CSG Land Systems North America, opening up a significant new addressable for our products.

On Integrated Solutions, our vehicles are becoming the foundation for a growing range of advanced defense capabilities, air defense in particular, and complete our [ Tatra ] platform with radars, common control system and others is giving customers flexibility and complete mission-ready solutions.

Aerospace Defence Electronics stands on Page 14 is where we build -- where we are building for the next phase of the growth. Demand is evolving quickly, and we are expanding existing capacities and [indiscernible]. Contribution to the group revenue in first half of 2026 was EUR 58 million as a stand-alone business. But more important is strategically as a part of integrated solution, we [indiscernible].

Recently, CSG unveiled Trident, a new modular air defense system combining short, medium and long range, together with the ground-based command platforms, advanced electronics warfare integrations and protection against drones. This is only one of the examples how significant integral part defence electronics is into these one system products. We also launched MAESTRO, [indiscernible] remote air traffic control tower platform with AI, which should extend our dual use radar and air traffic management portfolio.

In Advanced Systems, we are building a leadership position in [indiscernible], which is one of the most demanding part of the long-range drones and missiles. Demand for CSG products from Middle East and Asia is a growing driver here. We also secured a strategic partnership with [indiscernible] armor for the development and supply of advanced propulsion systems for guided missiles and unmanned platforms.

In the U.S., we announced a new Wisconsin plant to serve U.S. customers with first engine produced this year and serial production from 2027, as Michal already mentioned in his speech. While we are confident about our core capabilities, we don't [indiscernible], we are looking further not only developing what we have, but also moving into the new fields. Autonomy, AI and space are the areas where we are actively exploring.

Ammo+ division on Page 15. For that, we can see 2 main positive developments in first half of 2026. The commercial market has turned, and our position in the U.S. government and law enforcement is getting stronger. Revenue was EUR 631 million for -- or 19% of the group revenue in the first half of this year, with EBIT EUR 51 million, but more important, with the EBIT margin improving to 8% back to the 2025 level.

On the commercial side, we have seen a steady recovery in both volumes and profitability since Q1 2026. Pricing firmed after increase, and this has helped us to offset some inflation pressure, particularly when talking about the copper as a critical constituent to produce small caliber. We also deliver on our strategy to increase defence business and law enforcement business there. We strengthened our relationship with intelligent agencies to approximately $100 million contract [indiscernible] and we reached an agreement with the U.S. Army to use patented peak alloy case technology across multiple cartridges and weapon systems.

On Page 16, it is worth spending some time and moment on working capital, it's shape through the year and what drives it. Net working capital at June stood at about EUR 2.9 billion, representing about [ 40% ] of LTM revenue. The build is deliberate. We are investing ahead of the production ramp-up to address the demand and growth. It follows exactly the pattern we described at Q1 and follows our expectations.

We are prestocking key long lead time components to secure our supply position ahead of accelerating our deliveries in second half of [ this year ]. This is mainly in medium and large caliber ammo through both direct purchases and advances given to the suppliers. Second reason is that first [indiscernible] advance payment received has been converted into delivered revenues. That represents a mechanical reduction and it rivers -- and it reverses to new advances in second half of the year. This seasonally has been accepted -- expected -- I'm sorry, expected, and mirrors year 2025 when a comparable first half build was followed by a material unwind during the second half of the year and [indiscernible] particularly.

Decrease of the net working capital by 20% to reach guided 20% net working capital level at year-end 2026 represents a number approximately [ EUR 1.5 ] [indiscernible] That is the amount which would be released as the cost of production and finally will be converted together with the margin into the revenue in second half of 2026. [indiscernible] reporting revenue to go to meet the year-end 2026 guidance, such 1.5 billion of net working capital to be released represents approximately 35% of the production costs.

Taking into consideration fact, first, majority of that is medium and large caliber ammo, and majority of that will be long-range production, where the components and energetics are approximately 50% of the production costs. And second, that we expect other advanced payments from the customers in second half of this year are coming. I'm confident to confirm our guidance of net working capital level to be below 20% of the revenue at the end of this year.

On Page 17 and on the next slide, we are giving more clarity to the drivers. We have broken the working capital build into 5 components. Across the demand. Second, Land Systems, share of backlog and pipeline, addressing the longer program cycle, more demand to working capital levels. Third is Land Systems delivery in second half of 2026, which is also a bit more demanded on the net working capital. Four, long-range mix. And fifth, our own production share in the medium and large caliber ammunition for the plans for 2026. Land Systems delivery, long range mix and our own production confirms my previous comment about cash to be released from the net working capital and our confidence about this.

On Page 18, our cash flow and CapEx funding strategy. Operating EBITDA less CapEx was EUR 740 million in the first half of 2026, up EUR 54 million or about [ 8% ] year-on-year. That's a strong underlying cash result. Free cash flow reflects 2 things: first, EUR 1.2 billion deployed into the working capital to address the ramp-up; and second, higher tax payments, which are weighted into the first half of the year, particularly in second quarter, are not linear, but rather a one-off for only second quarter.

CapEx was just below 4% of revenue, with cash conversion at 80%. This reflects pace of investments so far in capacity expansion and automation as we've guided. Free cash flow is expected to be according to the guidance by year-end 2026, mostly through release of the net working capital. At the same time, we expect the CapEx intensity to end up at expected level of 8.5% of the revenue as of the year-end.

Connecting cash flow to the debt position and capital allocation on Page 19. Here, I would like to highlight steps we have taken to optimize our financing profile. Last month, we announced a refinancing of certain senior facilities. That reduces our cost of debt by approximately 125 to 150 bps per annum, and extended the maturity profile to 6 year without impact on leverage position. It also includes new sizable commitment -- committed RCF, and this gives us a flexibility in financing net working capital versus free cash to be used for the investments and CapEx. Net leverage, 1.6x, is according to expectation, copying the same trajectory as in the year 2025, and we expect to reach our year-end leverage target of below 1.3x as guided.

To summarize the key takeaways on the Page 20. First, I would like to highlight that the revenue momentum is strong with a record backlog in Defence Systems. Second, we are winning in our core markets and diversifying beyond them, both in geography and by products, and that gives better quality of earnings. Third, we are scaled [indiscernible] large caliber ammo capacity successfully, and our vertical integration projects are on track. Four, Land Systems is growing strongly, and it's providing -- it can deliver in demand integrated programs, just not a vehicle. Fifth, in Ammo+, U.S. market has recovered, and we are investing to make sure capacities achieve the demand. And finally, strong moves into high-growth, air defense and counter UAS market. We are very active in these areas today, and we intend to increase our role there.

And that brings me to the Page #21, where I would like to reaffirm the guidance as we've provided at the IPO, for the revenue to reach EUR 7.4 billion to EUR 7.6 billion as of the 2026, with the operating EBIT margin range between 24% to 25%. CapEx intensity, 8.5% of the revenues. Net working capital, as already mentioned, below 20% of the revenue, and the net leverage below 1.3x. All the midterm guidance is also reaffirm that we will be growing mid-teens organic CAGR with the margin to be up 26% to 28% [indiscernible], with the CapEx intensity, 4% to 5% in the midterm.

And then brings us to the end of our presentation, and we are now happy to answer whatever questions you may have.

[Operator Instructions] We will now take the first question from the line of Ross Law from Morgan Stanley.

Two questions, if I may. The first is on your M/L ammo division. You continue to invest in vertical integration here most recently with the nitroglycerine site. How close are you now to being fully vertically integrated within the subsegment? What more needs to be done?

And the second question is on the Ammo+ segment. We saw a very strong recovery in margin in the second quarter. How sustainable is this? And how should we think about the Ammo+ margin for the full year?

Yes. So I will start with the medium and large caliber ammo. Overall, we are more or less done. We have invested into all the necessary strategical components. So as we said by the end of 2027, we will have all the strategic ones under one roof so we will not be missing any of the strategic component, including propellants, different times [indiscernible] and the nitroglycerine and other components, which are needed for the short range and mainly long-range ammunition.

And on the Ammo+ margin, let me answer that. How sustainable is that in the second -- in the second quarter, as I mentioned, the margin reached 11% [ unit ], and we feel this is the sustainable level, and it should even improve slightly throughout the year. I was mentioning on the last earnings call that we expect this year, the EBIT margin to reach a double digit, which we can reaffirm now. This is the trajectory we can see. The demand is there, and we don't see any signals that it should be otherwise.

We will now take the next question from the line of Chloe Lemarie from Jefferies.

I will start with a follow-up on Ross' question on the nitroglycerine site acquisition actually. Does that create new cost-saving opportunities from user perspective from vertical integration of triple base propellant? Or is it more so that you secure your production needs going forward?

And the second one, I wanted to ask about the own production indication on your medium, large ammunition slide. I just wanted to understand why H1 went down to 500,000 versus the end of 2025 or if it's really the half year production? Why wouldn't you be able to read

[Audio Gap]

Answering to your question. The first part is -- the answer is both. So it should first increase our vertical integration as such and secure our supply. And the second, it's a [indiscernible] part of our vertical integration strategy in terms of the cost savings and the ramping up of the margin. So it should be both.

And the second one, 500,000, I'm not sure where this is coming from. It's a production, but the capacities are 850 as we stated at Q1, and it is expected to reach [ 840,000 ] pieces our own production this year, as I mentioned. So the capacities are elsewhere, 500 is now currently being our own production, roughly plus/minus.

We will now take the next question from the line of Sebastian Growe from BNP Paribas.

[ Three ] overall. And the first one would be on Land Systems. So you mentioned that Land Systems already contributes half to the group order backlog. And now we have also launched CSG Land Systems in North America business. So my question is if you could comment on the opportunity that you see there and which programs are you targeting? And how should we think about product certification, et cetera. And we can start there and [indiscernible].

Yes. So I will maybe comment the opportunities. So -- as you know, U.S. defense market is the biggest defense market in the world. We can see that the next year budget should be around 1.3, $1.3 trillion. So we would like to definitely be here.

Coming back to your question in terms of the Land Systems, we don't need any special certification. Our products are [ NATO-certified ]. What we need is the localization on which we are working on through the partnership or through the possible acquisitions. We are currently running more than 3 programs in the Land Systems which are worth of billions of U.S. dollars. I think that that's all what we can say now because we are obviously in some kind of confidential mode there.

Okay. That is helpful. And the other question is just a quick follow-up to the comments that you made before then also along the M/L ammo business. So it's actually 2 quick ones. The first is on the latest announced acquisition, if you could also help us with the agreed purchase price.

And then secondly, and I don't want to [ confuse ] you, but quarter-on-quarter, it seems that the M/L ammo business margin was a little down from 32, I think, in the first quarter to now 30 or so in the second quarter. Is there anything to call out in terms of mix, et cetera? I think you raised the overall target for the large -- or long-range part for the full year. I was just curious to hear the exact sort of developments in quarter 2.

Medium large caliber ammo margins are 31%, so it's pretty much stable, above 30. Two is that -- and that's also one thing why we are confirming our guidance for the revenue. Two is that the longer range, together with the Land Systems is somewhat longer. So in terms of transferring from production to revenue may be a little bit longer than it gives to -- so the swing of the margin by 1%, we see as a technicality rather than whatever else behind it material.

On the purchase price?

The prices are stable. We don't see any price pressure, as I mentioned, on the -- on our backlog.

I mean for the assets acquired in Germany, the other one?

For the Gnaschwitz?

Exactly, yes.

I don't know if we can disclose...

It's been several dozen millions of euro.

Okay. And very lastly if I may, just quickly on M&A, I think you had a bit of a commentary made on the strategy on the last conference call. In the meantime, apparently, we have seen some developments around KNDS, and I was just curious if you might be willing to share what and how it might have impacted your discussions here?

We cannot comment it at this stage, but it's the same like we still monitor the situation, but there are no let's say, current concrete actions.

We will now take the next question from the line of Atinc Ozkan from Wood & Co.

I have 3 actually. The first one is regarding Ukraine, Evidently, the share in -- of Ukraine in your revenues has been declining. Given that now country has access to EUR 90 billion of funding from EU, do you think there will be a reversal in these trends? That's the first one.

The second question is regarding U.S. market opportunity. As you know, there is the [indiscernible] modernization program where some of your competitors such as [indiscernible] are already pitching the prototype testing has already started. Do you think is it too late for you? Or do you see yourself as still lucky given your expertise in mobile [ hosters ]? That's the second question.

And the third one is given the recent trend in affordable mass and containerized missile tender in U.S. and your Wisconsin plant investments, can you give us an updated guesstimate about future revenue contribution from Propulsion Systems under your Advanced Systems division?

Okay. So let's start from the last question regarding the turbo jet engines and then I will address the Ukraine and NTC.

Well, the strategy with the turbo jet engines following what we've presented already during our previous earnings calls. So the Wisconsin one should be an integral part of the overall capacities and backlog and pipe [indiscernible]. So if you are asking me what should be the contribution that should be in the midterm, several hundreds millions of euro equivalent coming from that.

What is important to say that this Wisconsin facility will mainly supply to the U.S. producers of unmanned solutions and missiles because of the localization and because of being closer to the customer.

If it is okay, I will go to the next one. So MTC, mobile tactical canon, just for your information, we are in -- we are in our system, our complete [indiscernible], and we are there also as a chassis supplier to the -- our competitor. So we have basically much higher probability that we will get at least the part of the business, if not the whole mobile tactical canon then at least the chassis, which we can possibly supply as a chassis pro either to our competitors.

Is that -- Sorry, does that mean you'll be producing Tatra in U.S.?

There is such a probability, yes.

Regarding Ukraine, look, we can see some significant movements in Ukraine and now there are the new tenders coming out. We are in these tenders. So if we will be successful, if we win some of those, obviously, the possibility that we will get additional revenues from the Ukraine, it's true, but I don't think so that it will increase overall percentage of the group revenue.

I can confirm that because it looks like -- from Ukraine is still continuing and even increasing. So the point is that we are diversifying and increasing elsewhere than Ukraine, particularly for the Land Systems, but not only. So it will stay valuable and decreasing in a time.

If I may ask just one final one, given that in Turkish, I'm really curious about the JV with FNSS. When do you think you'll be starting producing the medium tank?

Like the production has already started. So we are preparing the facility. We are preparing all the lines steps, which needs to be done, but the production itself should start in Q1 next year.

We will now take the next question from the line of Pavel Ryska from J&T Banka.

First, congratulations on the very strong set of results that you posted. I have a couple of questions. The first one, yet one more about Ukraine. Recently, there have been statements by senior military officials in Ukraine that the intensity of fight along the front line has diminished this year and that the war has changed in nature. So do you see this affecting the demand for your M/L products that are supplied to Ukraine? That's the first question.

And the second question, you just spoke with [indiscernible] about the Karpat tank. Is there any concrete order that you have obtained for this product?

First of all, for the Karpat tank, we have not received any order yet. We are in the negotiations with several European customers, and that's why we have created such a JV in order to serve to the NATO European customers, but there is no any signed and funded order yet.

Regarding the Ukraine, we don't see any change, we see demand still the same, still the strong. What we can see is the shift from the short-range ammunition to long-range ammunition mainly because of the longer distance of the kill zone, yes.

I see. And maybe one last question. The facility in Wisconsin where you are going to start the production of the propulsions, I didn't understand from your recent announcement, whether there is already a factory or a facility that you have or if it is being developed at the moment if you are starting with that?

Rather the building, that is already the -- we are installing now all the machinery, all the testing benches, some of the -- basically necessary machinery to be able to produce propulsion systems there.

So in a nutshell, the [indiscernible] exist, we are just bringing the technology.

We will now take the next question from the line of George Mcwhirter from Berenberg.

I've got 2, please. Firstly, on Ammo+. You highlighted that 70% of expected H2 revenue for the group is under contract, with 30% still to be booked. Can you just comment on what the revenue under contract is in Ammo+ in H2? And is that in line, above or below where you normally are at this point in the year?

And the second question is on material cost inflation in the business, and you talked a little bit about copper in Ammo+, can you comment on how you expect material cost to trend in H2 versus Q2 across the relevant materials?

Okay. Let me start with the coverage of the second half revenues. You can see 70-30 split, but that's for the total group. So 90% as you can see also in the -- within the comments, 90% of Defence Systems revenues is already under the contracts. And the remainder is mostly the U.S. civilian market, which is [indiscernible]. If I'm not mistaken, approximately 500 million is a backlog coming from the Ammo+. So that's the number you were asking for.

Second one, the copper price, the copper price has been mitigated through -- already 2 price increases we've done on the U.S. market. Since we are the biggest there, we are pretty much [indiscernible] maker as well as the vast majority of the volume makers. So all the competitors followed logically because they are facing the same. So through the 2 increases of price, we mitigated almost fully the impact from the copper price. If there is any additional increase on the copper price, which is not expected from the analysis we can see for the year-end, we may be considering an additional increase of the price. The demand is not changing. So we feel confident about this.

We will now take the next question from the line of Petr Bartek from Erste Group.

I would like to ask about the share of long-range ammunition in the large ammunition segment we expect by -- for this year. And could you provide an estimate, what do you expect in the midterm, where the share could grow? And also, what is the margin and long range ammunition [indiscernible] standard? Is it the same or slightly higher? And what would be the midterm impact if it grows further?

And my second question would be regarding the new factory which you are planning for Gnaschwitz in Germany. If you can provide any details regarding timing, the expected cost savings, et cetera?

Okay, starting from the first. So the split between long range and standard range. Going forward, we would like to reach a minimum split 70-30 [indiscernible] range. That's the minimum. That's what we currently see as a split of demand. So this is why I am confidently saying that.

The second was the margin. Margin is better within the long range.

[indiscernible] coming to your third question, we expect the improvement of the margins throughout the vertical integration. I was mentioning during the presentation that approximately 50% of cost of production is driven by the components and the Energetics, whereby our nitrocellulose, nitroglycerine and bimodular charges production and all of it is the production of the energetics, which are the highest cost there. So saving 50% of that should significantly increase the margin.

Coming and connecting this to the guidance, 26% to 28% in the midterm. There is a product. So we will be significantly increasing the margin in medium and large caliber ammunition. But as you can see in the Land Systems, we are currently at the 17% of the EBIT margin, which is then diluting that. So throughout the product mix, we will be increasing the margin, significantly in medium large ammo, more moderate in the -- on the group level because of the product mix.

And timing for the factory in Germany, if you can -- is that something in line with Greece and...

The nitroglycerine, yes, the nitroglycerine is expected by end of 2027 full production.

We will now take the next question from the line of David Perry from JPMorgan.

Yes. I hope you are all well. A few questions, please. First 2 around M/L ammo. Can you just talk a little bit about the order pipeline discussions you're having with customers and any contracts that we should keep an eye out for?

Secondly, I think at the Q1 call, the slide said you expected 50% of 155 to be long range this year. Now you're saying 60%. I'm not sure if that's production or sales. But given the huge price difference, just wondering why you haven't raised the sales guidance given that mix shift?

The third one is just on the engines and the -- that you're developing for drones and missiles, and you talk about, Michal, targeting several hundred million of sales, which was about, I think, also what you said at the IPO. I'm just wondering why it's not much, much higher than that? Because it seems to me the demand would be almost infinite. Is there a production ramp issue? Or am I misunderstanding the potential? I think you signed a deal with Ukraine at your factory. So if you just talk to that?

Yes. So I will start with the last question regarding the turbo jet engines. There is much higher demand. The issue is basically a ramp-up of the capacities and also the certification of the new platform. Because every time you are basically -- you would like to be used by the new element or the new missiles system or systems, you need to be certified, which should take some time. So that's the one thing. The issue is the ramp-up of the top posties. We can sell much, much more, but we basically -- we do our best in order to serve our customers. I believe if you that there is additional future potential of growth on which we are working heavily.

Regarding medium and large caliber, [indiscernible] address?

Yes. David, we are talking 60% of our own production versus 50% of the revenue. So we need to count also the recommissioning going on top of that as a part of revenue for this year just preparation.

You were asking also why we are not increasing our guidance. I was mentioning that during the call -- this is because [indiscernible] of the long range and the Land Systems is slightly longer lead time. So meaning transforming the production to revenues in the second half since we are increasing our own production of the long range plus the Land Systems may be postponed to the year 2027. We planned that carefully during the IPO and during our guidance, and we are pretty much that. Therefore, I was reaffirming for this year the guidance, and I feel really confident about that.

And please remind me what was your first question about the...

Yes, the last question is just -- I haven't seen any sort of big orders for ammo from new customers. I just wondered what the pipeline was like? And if you could just talk about any discussions you're having and potential big contracts that might be on the horizon?

Look, there are many contracts in the pipeline under the negotiations. You could see that just a few weeks ago, [indiscernible] joined the procurement of medium and large labor ammo with Slovakia. So that is this like a [ EUR 58 billion ] framework agreement, which is kind of like a European platform which other countries can join. So [ Khorasia ] or a joint, it is signed, and that are more than whatever -- like more than [ 8 ] customers from Europe, which are currently under the contract negotiation, either directly or they will join this Slovakian framework agreement. And I think that soon you will see a few announcements about the large caliber ammo.

It's pretty much, David, copying the pace as it has been, for example, last year. So the first quarter, first 4, 5 months, we are announcing the new deals, the coaches are there. The orders are coming. Then there is a production period, I would call it. And then in the second half, there will be others, and it's a normal course of our business, as I can see it.

[Operator Instructions] We will now take our next question from Sriram Krishnan from Deutsche Bank.

I just have a couple of quick questions, if I may. The first one is actually on the recommissioning part of the M/L ammo business. So pretty helpful that you provided that 30 percentage of FY '26 revenues on M/L ammo could be from recommissioning. Just wondering how should we think beyond that? I mean, how quickly is the recommissioning revenues winding down? Should we expect this to wind down entirely by 2028, for instance? That's the first question.

And the second one, can provide us an update on where we stand on the NATO certification for your small caliber business?

Okay. I can just comment on certification for the small caliber business is from 80%, 85% done. It means that 85% of the portfolio is certified because you have those types of small caliber and also 80%, 85% is done. Some of the models or the types are missing, but it will be well in the weeks.

And in terms of the differentiation between the revenues coming from the own production versus recommissioning, it's pretty much the same. You have to consider if you are recommissioning long range, but the lead time is almost the same.

Okay?

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Thank you.

Hello, and welcome to the CSG Q1 2026 Trading Update Conference Call. Today's presentation will conclude with a Q&A session. [Operator Instructions] Please be advised that today's conference is being recorded.

I will now hand you over to Peter Russell, CSG head of Investor Relations, to open today's conference. Please go ahead, sir.

Good morning, everyone. It's a pleasure to welcome you to the call on our Q1 update. Today's speakers are Michal Strnad, Chief Executive Officer and Chairman of the Board; and Zdenek Jurak, CFO.

Michal will start with an overview of how CSG is currently positioned in the market, followed by the company's Q1 financial highlights. Zdenek will then provide a more detailed review of our quarterly performance. After the prepared remarks, we'll open the line for questions.

We ask that you take a moment to review the disclosures on Slide 2, which outline important information regarding forward-looking statements and the use of non-IFRS measures.

And with that, I'll hand over to Michal.

Good morning to all of you, and thank you for joining us today. I will turn to our Q1 update shortly. Before that, I want to remind everyone of the strength of the CSG businesses, our model, our strategy and how we execute.

In our core Defence Systems businesses, CSG enjoys scale and expertise in ammunition production. Our production network is a core asset. We [indiscernible] production and assembly facilities across Slovakia, Spain, Serbia, Greece and India. This network is robust and growing. We have a clear goal to scale our own production of large caliber ammunition. We are delivering ahead of plan, capacity on an annual basis was more than 100,000 rounds at the end of Q1.

We are well on the way to 1.1 million rounds in the medium term. We are also seeing a mix [indiscernible] awards extended range ammunition. In 2026, we expect this to account for more than 50% of artillery ammunition sales. Zdenek will speak about production in more detail shortly.

Vertical integration and in-house production are central to our strategy. We are bringing more of the supply chain in-house, propellants, components and subsystems. Take, for example, the build of Bi-modular charges, artillery plant in Slovakia or our new joint venture in Greece were 155-millimeter production is already underway. And more recently, the acquisition of a stake in Hirtenberger Defense Systems to expand our capacity and product portfolio. Every one of these moves reduce input costs and strengthens our control over quality and delivery. This is how a serious defense manufacturer builds long-term competitive advantages.

CSG is trusted supplier to NATO government. We have been winning contracts for years, and we continue to do so. Our credentials have been extensively vetted. This includes by the U.S. government, which confirms CSG as a trusted owner of U.S. defense assets. This trust was recognized with USD 635 million contract to design and build the future artillery complex in Iowa for the U.S. Army.

We are the only European defense group, ever trusted with a project of this nature in the U.S. The pace and quality of CSG's recent deal activity reflects the group's status as a Partner of Choice in defense. In 2026, CSG has won significant businesses across in both Europe and international markets.

Recent contract work includes large caliber ammunition, armored vehicles and Air Defense Systems. Land Systems now represents 48% of our backlog up from 40% at the year-end. Our revenue is also increasingly diversified. Ukraine represented 21% of group revenue in Q1, down from 27% in 2025. We are delivering through a broader customer mix. This includes USD 2.5 billion air defense systems contract win in Southeast Asia. We are also leading this new technology.

In Advanced Systems, we are scaling up production of turbojet engines for long-range UAVs, a market we are strongly positioned to serve. Our customer base, our contract pipeline, our regulatory track record and our Euronext listed status all reflects a company that meets the highest standards of integrity and compliance.

Finally, I want to be clear about the minority shareholder position in CSG Land Systems. As has been widely reported an approximately 10% minority stake is held by a former executive. Any potential liability in connection with this matter sits outside of the CSG Group and eventually will be between me personally and the minority holder. There is no liability at the CSG level whatsoever.

CSG will not have any obligation to make payment or issue new equity, which would be connected to this case. There is no cash flow leakage and 100% of cash flows remain assigned to CSG regardless nor have any special rights being assigned at the group level to the minority holder under any scenario.

Now let's turn to the results. The headline figures demonstrate a strong performance across all key metrics. We delivered a revenue of EUR 1.5 billion, driven by strong momentum across our core Defense Systems businesses. This represents underlying year-on-year growth of 13.8%. Our main measure of profit, operating EBIT was EUR 372 million. This resulted in a margin of 24.1%. This margin performance keeps us at the top of our European Defense peer group.

Our total backlog and pipeline under negotiation reached a record EUR 44 billion. This provides exceptional revenue visibility and evidences the long-term structural demand we see in the market. The group remains highly capital efficient. Net leverage at the period end was 1.3x. We maintained strong cash conversion at 92%. CapEx intensity was 2%. We have remained disciplined in our capital allocation.

As the year progresses, we will continue to invest significantly in production capacity expansion and modernization to serve demand. Net working capital as a percentage of revenue was 31.7%. This reflects our strong build of inventory to support a record order backlog. We remain confident in our full year guidance of below 20% and expect the revenue to improve through the year as deliveries are completed and working capital is released.

Looking at our revenue composition, Defense Systems drove close to 50% of the group revenue. This segment includes our medium and large ammunition and land system businesses. These made up 68% and 11% of total revenue, respectively.

Our other businesses segment, Ammo+ contributed 19%. Overall, this was a very pleasing set of results. Thanks to the strong start to the year, we remain confident in our full year guidance.

Now I'll pass you over to Zdenek, who will take you through our market positioning and performance in more detail.

Thank you, Michal. Welcome, everybody, also from my side. Hello, and thank you for participating on this call. Jumping straight after the key highlights to the Page #7 and going to the more in deep for the backlog and the pipeline.

Order backlog increased again compared to December 2025 to EUR 17 billion and pipeline increased at the same time to EUR 27 billion, as Michal mentioned. Overall, meaning EUR 44 billion of total backlog in the pipeline as of the first quarter 2026.

Increase of the backlog is driven mainly by Land Systems, but keeping a continuous strong demand for medium and large caliber ammunition. Pipeline increased to EUR 27 billion at the same time, including also first EUR 1 billion coming from the Slovakian framework EUR 58 billion contract. More from that contract is expected to come also in the coming periods. Similar to revenue, Land System is balancing going forward, the medium and large caliber ammunition despite the really continued strong and demand throughout the medium and large caliber ammunition subsegment.

On the Page #8, we are explaining our group performance bridge, where the contribution of the revenue as of the first quarter 2026 to expected year-end 2026 total revenues is expected to be approximately at the same level as last year, which means approximately 20% and that is even with the weak contribution of the Ammo+ subsegment in the first quarter of 2026.

Similar contribution, meaning 20% of the total yearly revenues is also expected to be in the second quarter and the higher is to come in the second half of the year. Operating EBIT margin consistent with the year-end 2025 at 24.1% level despite a weaker Q1 in Ammo+ and driven mainly by the Defense Systems business.

Ammo+ margin expected to recover as the market is recovering in the U.S. and the Q1 margins in that subsegment has been driven mainly by the uncertainty around the tariffs in January and then pretty much driven by our investments, which we made in February and March to address the rapid market recovery, trend and investments to get back to 24/7 production due to high demand, especially after the conflict in Iran started.

On the Page #9, we are deep diving into the Defense Systems division. Strong order intake from NATO members and diversification to Southeast Asia are the key highlights here. Together with keeping superior margins on the market, both on medium and large caliber ammunition as well as on the Land Systems side. All the projects for vertical integration are running according to plans and even better if we slip straight to the next slide, where I will show you our progress in terms of our production capacities, as has been also mentioned by Michal during the first part of this presentation.

So on Page #10. Starting this page with the details about the medium and large caliber ammunition subsegment performance where we've recorded a 22% year-on-year growth of revenue and keeping margin above 30%. Our 13 production sites have been further developed and we have introduced an increase of our own production capacities through our efficiency programs and investments into automation. All of that ends up in the incapacities of our own production, so meaning excluding any recommissioning, amounting to more than 800,000 of the artillery and tank ammunition as of the end of Q1 2026.

For more details you can find on the bottom right side, where we are expressing the capacities and the guidance where we should end up by end of 2028, as we've provided during the IPO process.

Further capacity expansion projects are running and total expected capacities in 2026, excluding recommissioning again should allow us to produce more than 850,000 rounds of artillery and tank ammunition in 2026. At the same time, approximately 50% of the revenue from artillery ammunition should be coming from a long-range type of this ammunition. How we want to achieve the capacities to finally reach the mentioned own production of 850,000 rounds in 2026, is shown on the next slide, #11.

Slovakia, Serbia, Greece, Spain and India. Those are the currently running projects. Next to nitrocellulose, which is mentioned under the #4 on the right side of the slide, and which is running well and according to the plan. We want to be ready for the further expansion for long-range ammunition production for which the Bi-modular charges are one of the critical components. Therefore, we started projects, which you can see as the #1 and which has been also mentioned by Michal, in Slovakia called ZVS Strazske.

Setting up this joint venture in Slovakia, where the Bi-modular charges will be produced in cooperation with EURENCO and for which German project will source the nitrocellulose is one of our key projects we are currently running. Other projects for expansion of our own production are focusing mainly to automation, modernization of the capacities and keeping the scale production next to the vertical integration.

On the next slide, I would like to a little bit deep dive more into the capacities as such. So Page #12, I would like to show you how we operate and where we have the capacities in Slovakia. Through the 3 facilities in 3 different locations, we obtaining around 500,000 rounds of our own annual production capacity of artillery and tank ammunition, which still -- with still potential and our plans to be increased.

Next to that, and to obtain and mentioned 800,000 rounds per year of our own capacity, we have 200,000 in Greece and 100,000 in Spain as of Q1 2026. Both Greece and Spain are planned to further increase the capacities for our own production, especially of artillery and tank ammo as well as the capacities which should be developed in India, which has been also mentioned throughout the projects we are running on the [indiscernible] business.

On the next slide, moving to medium -- moving from medium and large caliber ammunition to the Land Systems. Year-on-year significant increase of revenue [indiscernible] trend for our Land System subdivision with operating EBIT margin at the level of 15%.

Steps which we have done recently, like partnership with PGS [ Orava ] are giving us additional capacity and space for expansion, particularly in our existing facilities. EUR 20 billion of total backlog and pipeline for Land Systems gives us also a visibility, uncertainty over the revenue and margin longer periods.

On the next page, #14, Defense Electronics and Advanced Systems subdivisions now presented together, [ air defense ] products and R&D programs which are currently running are very close and we use both subdivision to scale the new operations in turbojet engines and air defense products, applications and software for the subsegment.

4% EBIT margin is a starting point, mostly for turbojet engines where the production just started back in 2025. And now it's further developing to the planned capacities and margins in term as we provided in the guidance. As you can see on the bottom right side, backlog and pipeline for turbojet engines are copying the introduced production and capacities according to the plans and according to our guidance, where we stated that approximately mid-hundreds of millions euros should be coming in the midterm as a contribution to the group revenues.

Defense Electronics, as a prime contractor for [ $2.5 billion air defense ] systems, expecting to grow according to guidance, which we provided as well.

On the Page #15, coming back to the several times mentioned Ammo+ division. Market started to recover in second half of February. Now we can see a very high demand where we were compared. And when we were comparing March 2026 to March 2025, we can see more than 50% increase of the orders in that particular month. We have invested in Q1 to increase and address that production back to 24/7 operational, and we expect that the Ammo+ subsegment revenue, both revenue and the margin according to internally approved budgets for 2026. That should be coming back in terms of margin to the double-digit area.

Supporting the business [indiscernible] and strategy to move to defense in this subsegment more, we can confirm that the NATO certification of the U.S. products in Europe is going according to the plan, expected to be done in -- at the end of the second half and start of the quarter, we should be able to be participating in the tenders in European NATO members.

At the same time, the Kinetic Group as a producer on the U.S. market won a significant contract in the U.S. worth more [indiscernible] USD 100 million with a key U.S. law enforcement. All the steps we've made should bring us back to the double-digit margins by end of [indiscernible] as I mentioned, supported also by the 2 plant price increases during this year to address mainly the price increase of the -- one of the critical components, which is copper. Since we are the market leader [indiscernible] in a market maker, we feel very confident that the market will bsorb the price increase without any impact to the current demand.

On Page #16, I would like to walk you through the net working capital. Net working capital swing is mainly driven by the own production capacity increase and the Land System. To ensure enough critical components and market [indiscernible] we have invested into net working capital through either direct buy or safety stock or through the advanced payments given to source the capacities and to secure those for our -- within our suppliers, mainly in terms of the propellant explosives before we are fully vertically integrated, but also, for example, for the critical components in terms of the Land Systems applications.

Comparing to last year, the total amount of investment into net working capital is lower and I'm confident, according to production plans, which we can see that we will end up below 20% level of the net working capital to revenue as of year-end 2026 according to the guidance.

Moving to Page 17, where we are presenting a cash flow which is very much connected to the net working capital as well. As you can see in terms of the operating cash flow, we grew almost by EUR 0.5 billion year-on-year despite a hard working capital requirements. Through the release of the cash from net working capital which is expected by end of 2026, we are confident to meet the guidance in terms of the cash generation in 2026. At the same time and connected to our capital structure we will be working further to optimize the cost of our capital structure in 2026.

CapEx spendings are expected to be covered from a free cash flow in 2026, supported by the strong cash flow position on the balance sheet. You may see the CapEx intensity relatively lower than expected and guided at the [indiscernible] starting point. Procurement lead times, construction milestones, and the commission schedules, mean the majority of spend will crystallize in the second half of 2026.

To summarize, all of the confidence about the free cash flow is supported not only by the strong performance and the visibility on the cash flow, but also by a very comfortable strong cash on balance sheet which we are presented on Page 18.

Coming to debt. The actual capital structure from cash position on the balance sheet as mentioned, just on the previous page, net leverage lower than 1.3x is also expected for the year-end 2026 according to the guidance. We are, at the same time, continuously working on the optimization of the capital structure, focusing mainly to have optimal [indiscernible] the loans and the bonds moving to the investment-grade structure and further optimize the cost of the debt.

On Page #19, I would like to summarize what you've just heard and what we were walking you through the presentation and highlight the key messages to be taken away.

First one will be strong revenue and record backlog and the pipeline underpinned [indiscernible] EBIT margin. Diversification not only to the new geographies, but also more balanced production of medium and large caliber ammunition and the Land Systems expected to be also in going forward and a subsequent period.

Successful increase of medium and large caliber owned production capacities, which shift from standard to long-range type. Vertical integration projects running according to plans. And last but not least [indiscernible] production in highly growth air defense and UAVs market.

Last page is page #20, where we would like to reaffirm our guidance for 2026 and mid-term. The only change now you can see is the expected leverage to be below 1.3x. And openly saying here that this is with a buffer. And within the expected cash flow of -- confidence about the cash flow going forward and excluding any M&A, it should be even closer to the 1x rather than below 1.3x.

That is bringing us to the end of our presentation. Thank you very much for your attention, and we are happy to answer any of the questions you may have.

[Operator Instructions] We will now take the first question from the line of Sebastian Growe from BNP Paribas.

I have 3, if I may. The first one is on the minorities. I can, sort of, understand that you cannot disclose the status quo with regard to single minority owners in the various subsidiaries. However, I was hoping for greater clarification with regard to the absolute P&L impact that is related to those minorities. So after you recalled, EUR 180 million of minorities in fiscal '25 on the P&L, can you give us an indication what you deem appropriate in the year '26? And would it be fair to assume that this line item is then going to move in tandem with the operating profit growth of CSG in the years thereafter? That's the first question. I have 2 more.

Yes. I can address this question, and thanks for this. Well, if we come back to the 2025 results and if you do the pro forma, the minorities according to the new structure set up within the IPO would be approximately EUR 120 million. I expect for 2026, the net of the minorities should end up in a P&L around EUR 150 million going forward. That is coming mostly from the joint ventures we have established, particularly in Slovakia and Greece. So going forward, this is expected to be -- it's not anything new, and this is according to our plan as we have done.

That is helpful. And then the next one is on working capital. In the bridge, it looks as if the former receivable of EUR 275 million that was related to the group structure optimization, but this has been cashed in. So can you just confirm that in quarter 1, the cash flow benefited from the cash received in that very amount i.e., the EUR 275 million?

Yes, I can confirm. In Q1, this EUR 275 million mentioned in the prospectus for IPO coming from the carve-out of the non-core defense business has been fully settled in cash.

Okay. Perfect. And then the last one on the operations on Ammo+. You mentioned the return to a double-digit margin in the coming months. Following the uptick that you have seen in demand since February and the mentioned price action that you have taken, what is the expectation for the '26 revenues in the segment? So might it be turn out to be flat year-on-year? And when you point to that double-digit margin, am I right to assume that this is after PPA amortization margin? And can you remind us of the PPAs that you would plan for in the year '26?

Yes, this is after the PPA. The PPA adjustment has been done only in 2025. Now it's continuing to be according to IFRS. So whatever you can see on the balance sheet or on the subsegment coming from that. So there will be no adjustment simply set in 2026. And the expectation is to come back to the years, which has been before 2025. So I would assume that the recovery depends on what the price of the copper will be pretty much, but it is [indiscernible] back in double-digit, which would be giving us somewhat more than EUR 1.25 billion of revenue coming from that.

We will now take the next question from the line of Chloe Lemarie from Jefferies.

Yes. I have 2, if I may. The first one is on the performance in Large ammunition. Within the 22% growth in Q1, could you maybe share how much was driven by own production and how recommissioning evolved year-on-year in revenues? And just the second one is a clarification from the question you just answered from Sebastian. In terms of the settlement in cash on the EUR 275 million, can you confirm that this is included in your free cash flow number? Or does that fall below the line in the cash flow statement?

Coming to the first question, vast majority of the production [indiscernible] growth is from our own production. We expect also that the vast majority of the revenue in 2026 will be coming from our own production of the medium and large caliber ammunition.

Second point, in the cash flow, it has been rather reflected in the change of the net working capital than the cash coming from any settlement. It's a normal settlement of the receivable and payable between that. So it is [indiscernible] reflected in the free cash flow calculation.

We will now take the next question from the line of Michael Raab from Kepler Cheuvreux.

I'd like to get back to the frequently debated issue of the minorities. Just to get a confirmation on that, is there any liability related to any other minority you intend to buy out on the balance sheet of CSG?

No.

For you to confirm that perhaps, isn't? Okay. So you said no, that's good.

And then just to confirm that I got something right. For the minority stake in the P&L, my understanding is based on what you said, that you initially expected the minority stake to amount to EUR 120 million in the P&L, but you now rather calculate it's going to be EUR 150 million roundabout simply because the idea to buy out those minorities hasn't been realized yet, right? So the minorities are sitting here, so basically change in your plan? Or is that wrong?

No, no, no. I would like to correct you a little bit, if I may. No, no, no, I'm sorry, EUR 120 million would have been pro forma after all the minorities, which went out pre-IPO would be out as of the end of 2025. Now it is expected since we are growing and since also business with our joint ventures is growing, we expect EUR 150 million in the P&L for2026.

Okay. So the increase in the expected amount is not related to the fact...

Not at all.

Are there still some minorities in there that you failed buying out as opposed to your original plans?

No. No.

We will now take the next question from the line of Pavel Ryska from J&T Banka.

First of all, congratulations on the very solid set of results in the first quarter. I have two questions. The first one regards the recovery on the Ammo+ level. I would like to ask about more color where the recovery is coming from. Is it from the commercial market? Or is it related to the war with Iran, so that military is basically demanding more of small caliber ammunition?

It's basically both. First one, as I mentioned, we increased and we are continuing to deliver one of the key over EUR 1 billion contract for small caliber in defense. Second, we signed and won the contract with the law enforcement in the U.S. And third, yes, obviously, the commercial market is recovering very much as well because of the uncertainty in the U.S. coming mostly from the Iran conflict.

That's very helpful. And my second question regards Tatra. There seems to be pretty high demand for your Tatra chassis across the market. And there have been media reports that there are some disagreements with the minority shareholder in Tatra over capacity expansion, CapEx, et cetera. Is this resolved? Or do you expect like a smooth increase in capacity of Tatra in the coming years?

Okay. I will start to address that question. There is no impact whatsoever. We continue to cooperate with Tatra. Tatra is our JV. So it's operational as it should be. About the minority agreement I can refer to Michal's comment, but the business and the growth and the capacities are according to the plan that are growing according to the guidance and according to the expectations.

We will now take the next question from the line of Sriram Krishnan from Deutsche Bank.

I've got a couple of questions, if I may, please. The first one is actually on the recommissioning part of your Ammo business. Would it be possible for you to give a bit more color on the outlook, especially in terms of visibility which you have in this business? Especially we hear news that the Czech ammunition initiative for 2026 is still not fully funded. So any color around the outlook in that part of the business would be pretty helpful.

The second one is a bit on the Hungary part. So under the new administration, we hear that some of the existing defense projects, including the funds coming from SAFE funds are being reviewed. Is there any risk or any of CSG's projects running the way?

Addressing the recommissioning expectations and the capacity, as I said, the vast majority of the production is expected to be from our own production. If you look at the guidance and if you look at the the composition of the medium and large caliber ammunition, you may expect approximately or more than 400,000 rounds this year coming from commissioning when comparing to more than 850,000 coming from our own production.

So this is where we stay now under the current backlog and pipeline and the production we can see. There is no whatsoever concern about any struggling with the sourcing in terms of the recommissioning and it's not connected to Czech Ammunition Initiative, we have the demand coming from all the NATO members. Clearly, as you can see, it's not the -- not the only business we are running.

And in terms of the Hungary we are confident in the industrial logic and the legal basis of the deal. And I think it's not time to speculate at this point further because we have not received any information or signal.

We will now take the next question from the line of David Perry from JPMorgan.

Yes. My congrats as well on the good numbers. A few questions, please. Can I just -- one just small clarification. I think you've guided very clearly just on the last question on the owned production, I think you said 850,000. So just to be clear, does that include medium caliber or is that just a large caliber?

It's just a tank and artillary, so it's just a large.

Okay. Any color at all on medium caliber?

Well, median caliber is expected to be delivered in several hundred thousand of pieces. I don't have the exact number in front of me, but it's roughly about 200,000 or so approximately.

And -- But that's increasing, is it ?

It is by '28, in terms of the medium, our plan is to exceed 400,000 pieces per year.

Yes, coming back to the Page #9, if I'm not mistake, 10, sorry, Page #10, bottom right side, where we are expressing where we should end up by end of 2028 in terms of the capacities.

Okay. Okay. So I missed that. And then, you've given us -- but I don't think you've given this to us before, but you mentioned the Ammo -- M&L Ammo margin being 32%. Was there anything unusual in Q1? Or is that the kind of margin we should think about for the year?

Well, you should think about this also going forward. We were we were providing an information to the IPO process that we are slightly above after months of the relevant subsegments of our peers, which is pretty much exactly what we were talking about during the process and during the presentations. So I believe going forward, visually around this area, starting with the 3.

Okay. Great. And then the last one was just your comment on leverage that it could be onetime. Does that include expected outflows for M&A this year? Or is that just on an organic basis?

No, it's excluding M&A. If we just simply do the math, we would be probably closer to the 1x, but I'm more prudent in this case on keeping some space and openly saying that.

We will now take the next question from the line of Atinc Ozkan from Wood & Co.

I hope you can hear me clearly. Atinc from Wood & Company. I have 3 questions. The first one is regarding your recent joint venture with ASELSAN, when should we expect that to be active? Rheinmetall is experiencing a significant surge in short-range air defense revenues. And I think with Iran war, that market will get even hotter. So what are your expectations from a revenue generation perspective for this joint venture? That's my first question.

The second one is same question for your new JV in Azerbaijan. I think you are expecting a couple of hundred million euros, but can you provide some more granularity, when we should expect that to start happening?

And the third one is, last week, I visited a SAHA Expo Defense Fair. You guys were present there, but I also had the chance to speak to your subcontractor, [ ARG ] Defense. I do remember you had a EUR 2 billion subcontract with them in 2024. Is this relationship still intact?

Yes. So I will start from the back. Regarding ARG, Turkey, it was the framework contract for different kind of component. So it was not, let's say, used all of the to talent, but the contract is still active and as per the need, we give them or order-by-order for the concrete components if we need.

Regarding Azerbaijan...

I will take the Azerbaijan. Azerbaijan, we are developing together with the Ministry of Defense there, the air system solution -- it's now being tested. If that is tested and going well, we expect approximately first 100 pieces of this air defense applications coming as an order for next 3 years, roughly around [indiscernible] million.

That's the one part. And other part is that we have also set up the JV for the maintenance and the modernization of the platforms. That's what we have announced a few weeks ago. It's already operational. A few first, I would say, Lands platform are already in. So the work has started, and we expect first revenues this year.

In terms of the Aselsan, we are currently forming the, I would say, industrial -- industrial base and the scope of work of this air defense systems. We expect first orders to come this year and the first revenues next year.

Can you elaborate on potential, let's say, size of those orders? Is it going to be small initially? Because I think counter drone is getting more important for everyone, including Gulf countries, not only Europe.

Yes, you are right. Look, our expectations is that in the next year, our revenues, it will be several hundreds of millions of euro.

We will now take the next question from the line of Sebastian Growe from BNP Paribas.

From the U.S. artillery factory, so you mentioned the $635 million contract to build that plant in Iowa. Can you remind us of the strategic opportunity that you see in that market, both in artillery but also in regards to medium calibers? And how should one think of the cadence here? So would you first need to complete that very artillery plant before you might be eligible to seek other opportunities? If you can just kind of walk us through the potential in the U.S. in particular?

Look, we believe a lot in our expansion in the U.S. market. It's the biggest defense market in the world. This project for the Artillery Complex in Iowa is in the construction phase. So everything is as per the plan. On the top of it, we are discussing with U.S. Army and with U.S. government several other significant potential contracts, not only in medium and large caliber ammo, but also in the Land Systems. It means tactical vehicles and other artillery systems.

Can you also give us a certain time line? Or is this kind of really up in the air, as and when you might then also be successful in winning any contracts? Or is it relatively visible that something will come up?

Some of them should be execute as of Q3 this year and other Q4 this year. So until end of this year, we should have a clear visibility if we are going to execute such contracts.

We will now take the next question from the line of Chloe Lemarie from Jefferies.

I have a couple on M&A, actually. So on the comments on M&A and the leverage target, should we read into this that your limit for firepower this year would be to go up to 1.5x net debt-to-EBITDA? Or is it just a rough indication of what you could dedicate to M&A this year?

The second one is on the discussions around taking a potential stake into KNDS. Could you maybe share if you had discussion with the existing shareholders? Or is it something very preliminary at this stage?

Okay. I will answer the first question, and I will leave to Michal, the second part. First question about the M&A and M&A is not counted in the net leverage, and I don't count with that. The goal is to be still at investment-grade position. That's the first goal we are mentioning. So I will be keeping very much at that position, irrespective of the M&A. M&A is simply not counted into that calculation and the guidance.

And in terms of the KNDS, we are here to talk about our strong quarterly performance, and it would not be appreciate to comment on media speculation. That being said, we have an active M&A program and we evaluate suitable options. Our priority is the transactions which reinforce our value chain or strengthen our long-term competitive positioning. And potentially KNDS is definitely on the list.

We will now take the next question from the line of David Perry from JPMorgan.

I just thought I'd ask one more as well. Michal, there's lots and lots in the newspapers about some changes in the battlefield and the greater use of drones as opposed to ammunition. So perhaps it would be helpful for investors just to have a bit of comfort. Can you talk about the pipeline of order campaigns for ammunition? What are the -- sort of which countries are you in active talks with? Are they framework agreements? Are they single agreements? Just anything we should be looking out for or could expect in terms of M&L Ammo order intake would be helpful.

Medium and large caliber ammo, we see still a very strong demand with negotiations with more than 10 countries in Europe for the concrete orders or for the framework of contracts because we still can see and it will continue like this that the stockpiles are empty and the NATO European need to replace or refill their stock. So we feel very confident, and I am sure that you will hear soon about a few new contracts for the European countries. Some of them will be directly and some of them will be through this EUR 58 billion framework contract with Slovakia.

Okay. Addressing David -- yes, addressing your point about the order intake. I can only comment and guide you so that you have a better visibility over that. I can tell you that book-to-bill as of Q1 2026 in first quarter has been more than 1.5x.

So that was for the group, Zdenek, the 1.5x?

Yes, the 1.5x for the group.

We will now take the next question from the line of Sebastian Growe from BNP Paribas.

Apologies for another follow-up. But when flipping through the slides, I couldn't find related minorities impact on the P&L in the first quarter. Could you just be so kind to give us a number. That's all.

Yes, I don't have it in front of me if we haven't guided it. So let me follow up and I will send this separately.

Thank you. There are no further questions at this time on the phone. I would like to hand over to Peter Russell for any webcast questions. My bad -- there is one more question on the phone. And it's from the line of Pavel Ryska from J&T Banka.

More general ones. The first one, what immediate implications or future implications do you see for your business coming from this new conflict in the Middle East, which is now taking longer than first anticipated. And second, Germany is now proving to be the biggest spender and has the biggest rise in defense spending coming up in the next years. Where do you see your potential to supply weapons or other systems to Germany, either directly or indirectly through another contractor?

Yes. So in terms of the Middle East conflict, we see the significant inquiries for -- mainly for the ammunition and the air defense systems coming in, we can see the big movement in terms of the increase sales of [indiscernible] Middle Eastern countries. So that's the trend.

What we definitely see, we have further added -- signed a few contracts for the countries in order to support their armies. That's the one. In terms of Germany, we definitely see that the German defense budget and the German Army is pushing. It will be one of the biggest defense budget in Europe. We are already in Germany through our [indiscernible] nitrocellulose facility plant. We are running there also some production of some another products from the portfolio, mainly connected to the ammunition components and the ammunition itself. And you are right that we have other strategic plans in terms of the Germany, which we don't like to disclose now, but I'm sure that you will hear soon.

Pleasure. If I may, just one comment coming back to the minority question. I have the exact number in front of me. Thanks for [indiscernible] we will be showing this going forward. The minority now in P&L is EUR 32.5 million. So exactly according to the guidance I was provided about EUR 150 million for this year plan. I hope it ends up with the person who was asking.

I would now like to hand over to Peter Russell for webcast questions.

Thank you. Most of the questions have not been addressed in the conversation. Just a few additional points for clarity. Couple of questions from Petra Bartak from Erste Bank. The first is, were there any one-off non-recurring OpEx in Q1 or any other financial costs that were one-off in nature?

And the second question concerns M&L Ammo, just a follow-up to some of the conversation already. How should we think about conversion about M&L Ammo pipeline into backlog over the course of the next few quarters? And what type of growth expectations should we consider?

Okay. So coming to the first question about the non-recurring or one-offs that are not material at all. So the answer would be no. There are none. No significant one-offs. And second point, the conversion. As I was guided, the book-to-bill in the first quarter has been 1.5x with respect to the group level for medium and large ammunition pipeline. Going back, I has been answering in a sense that I expect that 20% approximate of the revenues contribution Q1 to the expected year-end 2026 will be also -- is also expected for the second quarter. So you may expect book-to-bill ratio to be approximately at the same level.

That's great. Thank you very much, Zdenek. I think for now, that's all the time that we have for questions. We look forward to continuing the discussion in our scheduled calls, and those will start very shortly. So we thank you for your time back to the operator.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.