Inission AB (publ)

Hello everyone, my name is Ola Hulteberg and I am chairman of the board of Enition. As chairman, I have the honor to welcome everyone, shareholders and friends to this annual meeting. We are currently in the museum of Värmland Karlstad. and why did I say that that is because we are sending this as a webcast the first part of this annual meeting and as the tradition goes we will start by with the annual report and the quarterly report be presented by our CEO Fredrik Berger and After that, we will take a short break and we will have some bubbles here that will be served. And after that, we will take the formal annual meeting. And then we will close the webcast simultaneously. So that's it about today's agenda. And then I would like to hand over to our analyst and also the moderator for the presentation, Henrik Hinse. and he will introduce himself.

Yes, thank you very much. My name is Henrik Hintze. I'm an equity analyst at ABG Sunil Collier and among the companies I cover one of them is Ignition. So we will start by hearing a presentation from Fredrik and after that we will open up for questions so if you have any please type them in the chat and I'll make sure to read them when Fredrik is done. With that please go ahead Fredrik.

Thank you! My name is Fredrik Bergel. Please welcome to this annual presentation and also to our Q1 presentation. As Olle said, he is the chairman and I'm myself the CEO. We started this company together for 17 years and we are still both active and we are still both the main owner of this company. We would like to introduce or talk about 23 in short. Talk about also the Q1 that was presented this morning. And then a few words of what we are actually doing. A little bit about our acquisition strategy and growth strategy. Come back to our financial targets. And then we will end this session with Q&A led by Henrik then. With sales just below 2.2 billion last year and an EBITDA of 162 million or 7.4%. 2023 was the best year ever for Inision in sales and profitability. Worth mentioning here is that in 2023 we were selling quite a bit less material compared to 2022. So if you adjust for that, our growth was 19% and we had a good profitability and the improvement here in profitability, these 72 million EBITDA improvement. is really the beauty of organic growth. When the same houses, the same bosses, the same cars actually are, you push through more flow with the existing system. So this extra net added value is really dropping down. So we have really good effect of what we refer to as the fall through. If we measure the fall through from NAV, it's actually almost every second krona goes down on EBIT level. So that gave us this 7.4 margin. Some highlights then from 2023. All in all, we came from a situation, if you remember, with very poor availability of components, and that has improved during the year. So now when we ended 2023, these component issues were more or less over. We have also the part development project that we announced last year, still ongoing. And these lean consultants, they have moved from factory to factory, Munkfors, Lökjön, Stockholm, and now they are entering into our factory in Tallinn. Order taking was really strong one year ago and has actually softened during the year. So we saw a peak in order book in September, both in total value, but also as I measured it next coming three months, what to ship. And from there, we have had a decline. So we have a weaker order situation. We also see in the transaction market for acquisition an increased amount of companies available. We also see that prices are more attractive, if I put it like that. Yeah, send them some bullets, what we've been up to. We have invested in new machines in Malmö. We have merged two entities, our Malmö operation with our Borås operation. So they are now one company. Our engineering company in Västerås was separated from the production there and they started a new under new name. We launched them as Innovate, initial Innovate, being a pure engineering company. Enedo was delisted, and now we own 100% of Enedo. We also, just before summer last year, made a directed share issue, where some of our biggest shareholders took part in that. But we also got a handful of new institutional owners in that share issue. We got a new CFO just after summer, John Granlund. And also as business area manager for Enedo, we recruited Kalle Huttinen. We have started up our cooperation with South Pole regarding sustainability and our CSRD work. We have decided and signed a contract to make the factory in Malmö double the size. We got just before Christmas last year, we got the new CEO of our MD at the Stockholm operation. We also merged the two companies. We had two companies in Finland. It was so funny actually. In that quite huge country, both of those initial companies were in a small township called Loja, 45 minutes. north of Helsinki. But now they are one organization and they are also now co-located. We also held the 10th edition of Initial Innovation Award to students or just new baked students from KTH. They made a fantastic invention where they make a sound machine for function-variated people, so they can actually play music together. It was an almost heartbreaking story, the invention, but also us being able to help these young, enthusiastic ladies there. So over to the Q1. We had a good Q1 last year also. But this year, slightly higher turnover and also slightly higher profitability. So now we are with LTM figures just above 2.2 billion. And we have a rolling 12-month profit EBIT level on 170, which also is a new record for this group. Reported sales increased by 2.8% to 581 million. EBITDA reached 551 million SEIC, which is an improvement with 7.1 million. And here, the situation compared to last year is quite, sales is very similar, but we actually also this period sold less direct material where we have very little, almost zero add-on or value added. So all in all, we had 24 million more in net added value. And half of that, or put it like this, 10 of those were less material sales. Improves margin then. But then also our new company or our newest member in this group, Axe, they contributed with nine of those 24. And again, very little extra cost to run those 24 extra, meaning that we can actually improve the margin. So now on the EMS side, I will come back to that later, but now on the EMS side, we have an EBIT of almost 10%, which we are pretty proud of. Then some highlights for the quarter. We had a strong cash flow, the way I see it, reported minus 19.5, but we repaid this tax deferral with 82. So the net really is plus 62. And that is stopped coming down. If you look at the balance sheet, then it looks like it's increasing, but that is the Axie effect. We have also in the report, of course, listed up so you can separate the Axie effect from this. The acquisition AXA, we are very, very proud of that. And it actually compliment us in Norway in a very good way. We also during the quarter announced that we have the plan and the ambition to move to the main market. We have appointed a new business area manager, so I will get rid of a portion of my job and we will hand that over to Mattias Larsson, former MD of our Munkfors operation. And we also then obviously have a new manager there. His name is Krister Nykom. Good experience from our industry, both working for our typical customer, which is Saab, but also for an interesting half and half competitor of ours, Symptronics. So we think that is a very good solution. I was in Tallinn a couple of weeks ago celebrating Ignition being 15 years in Tallinn. In Sweden we hardly get any notice at all, but in Tallinn there will be TVs broadcasting, there will be Estonian corresponding to Dagens Industri, and quite a bit of fuss there. Quite funny. If we look at the business areas, as I said, the EBITDA margin now for the contract manufacturing part of our operation almost reached 10%. And we are extremely proud of that. So we have a good performance as we had last year. And mainly we see the effect of our workforce, our co-workers actually producing more Natidad it more net added value with almost the same cost level, which gives this profitability improvement. We have a little bit different situation on Enedo. Here we have a drop in sales, so we have less NAV or added value, but they have been able to compensate that with reducing cost. So they come out Even slightly better, even though they do lower in revenue, they come out slightly better in profit. Not a big difference, but a little bit. So that was the reports and figures. Then I would like to talk a little bit more about what we're doing. What is this business all about? And then, as I say always, when I have these presentations today, Initian Group consists of old Initian, Initian EMS, contract manufacturing of industrial electronics. And then we have Enedo, which is an OEM company. They own their own products and they are into the power supply business, meaning converting currency from very often from currency in the socket 220 voltage down to lower voltage and very often also a direct current. First, Before I go into the business areas, I want to mention a few words about also what we're working on quite a bit. And that is our values. We believe in a value-driven company quite a bit. So we have even with our board done value exercises to really start from the top. And then we do that all the way to all employees. So we are continuously working with actually building in the value in every day. And I think... We take Moonquartz for example, they have the daily steering program there. Each and every day and each and every team, they say to themselves, did we do anything today that was against the values? And then there are some examples and then the opposite. Did we do anything that was really following our values? And I think if you can get to that point, then we have come far. We also spend quite a bit of time and energy on our sustainability work. There is a new EU directive called CSRD. We have the ambition to be compliant with that directive during the year. I can tell you this is massive. So we are engaging our own personnel, of course, but in able to do this, we are also recruiting or taking the advantages of hiring in experts, of course, because this is complicated and it's totally new for everyone, even the big corporations, even for them, it's new. Then, to what we are doing. Initian EMS then. We are, as I said, contract manufacturer of industrial electronics. That is our core. We have nine factories organized in six producing companies. And then we have the engineering company called Innovate. As you can see from this picture, we believe in proximity. We want to be close to our customer. We could easily bang these factories together and move them to Poland, and maybe we should earn something short-sighted. But we have a strong belief in being here and being close to our customer. If you look at the sales split, this is where the invoices are sent. The products that we produce in our factory, those are sent out all over the world. And we also have the majority of our production is ready-made product of various kinds. And that is important because we have learned and we did that early. As I said, we started this company 17 years ago and early we understood the more we do for our customer, the more pleased they are when we do the inquiries and the more chance that we are earning good money on them. So it's important. We have a history and initial history is really an acquisition story. We have kept on acquiring companies, nothing dramatic, but we have been like buying one thing per year and have been doing so the last 17 years. And then we have, as I said, we have co-located and we have co-organized. So we don't have that many companies, but this has been the journey. We see upon ourselves as a total supplier, meaning that we have our own resources all the way from the development to the aftermarket. Of course, the core here is manufacturing. Ninety-nine to five percent of what we are doing or our invoice value would be manufacturing. fantastic customer portfolio where we have 37 key accounts, huge international mega companies that we are helping to produce their industrial electronics. We are not super dependent on one single account. ABB is our biggest customer and they are about 10%, but then we are selling to seven different ABB companies from four of our different factories. So we don't really regard that as a risk in that aspect. We also see interesting growth here in these segments, a lot of interesting business in defense. For sad reasons, of course, we have electrification as a big driver and we also have communication here as a really growing segment. So then to Eneado. Eneado is very different compared to Venison in that sense that they own their own products. They are an OEM company and they provide customized and high end power supply for industrial applications. And to be in their business, they are also running those in comparatively short series. And in difference to Inision, EMS, Inedo is more like, it's not global, but they have a global approach. They are spread out over the world and they have also sales representatives in big portion of the world. Here you see their sales split, so they are much more of a global company compared to the original Initial EMS. Ineodo consists mainly, they started off, I should put it like that, they started off telecom, Nokia related back in the days, they have a long history, 75 you see there. understood that telecom electronics in this part of the world perhaps was not so doable. So they have shifted over. They have divested the telecom business and they have spent their money on acquiring an Italian company called Roal. And then a few years later, a Finnish company called Paonet. So that is very much the enedo for today. However, this has been a sad story. The shareholders have paid for this year after year. We think now, being around three years here, that we have actually turned it around, starting to stabilize it. And we think from where we are now, earning five-ish EBITDA, that we have a good platform to grow from there. And long-term, we really have the thinking that product company should earn more than a contract manufacturer. They have a very interesting customer portfolio, and an Enedo customer would be very much like an Inision customer. And that's why we like them. They will be very ancient in that sense, very, very similar. And all Inision customers, they will use power supply. And a lot of Enedo customers, they actually use CMS services. also in Edo themselves are using EMS services. Last year they were buying some from initial EMS, but also from external EMS. So we have the potential there actually to insource quite a bit of production. Last year they bought for 13 millions. We are, as I said earlier, we are very much an ecosystem story. And we think over the years that we have been quite good at this. We have established good processes to find companies, to evaluate them, and to, when we have a deal, really do a thorough DD process. And that we very often do totally ourselves. And when we do that, we also find this improvement list. So when we take over the company, we have a ready list of things that we know that would improve the company. In the initial portion of the initial group, we want to expand further down in Europe. Northern Germany is our main thinking, but Denmark is still a wide spot also. We would like to have something in Denmark, maybe Northern Finland, but then we want to go further down geographic expansion. We will hold our horses when it comes to Inedo acquisitions for now. We think they will have to be a little bit more stable, a little bit more profitable and also more stable cash flow. And then we will start the acquisition journey also with the Inedo portion of our group. As I said, we have a good process of doing this. I think our last acquisition, I presented this last quarter, so I will not talk too much, but Axe there in Halden is an excellent example. Well managed, good culture, nice customer portfolio. You can acquire a company like that for decent multiples and we have very little overlap with our own Norway operation. So now we cover the southern part of Norway in a really good way. There are affinities. There are obvious affinities, of course, when we acquire another EMS company. But we make sure that we find those and we try really to exploit them. But we never put them in there in order to defend the price. So we always think of the affinities as add-on. All acquisitions we do should live on their own merits. We see ourselves as an investment company when we do that. There are also various analysts talking about the growth in the industry. From six to eight percent is very common. This is an example from one analyst's house that is talking about seven percent growth in the coming years. And there are strong drivers here. Electronics is in all more or less all products these days. We have a shift from from being the cheapest, buying the cheapest to the near sourcing. We also have electrification as a really strong driver here. A lot of those old things that was forced and driven by other means are today controlled and driven by electricity. Yes, rounding off here a little bit, talking about our financial targets for 2024. We think we will reach about 2.4 billion in turnover, and we have the ambition to get 7% EBIT. Coming from the history, we think EMS will be a little bit higher than Enedo. We also have the capital structure ambition not to have higher gearing or net interest bearing debt EBDR ratio than 2.5. But today we are at 1.8 even off. So we have just done this acquisition. Still we have a reasonable gearing here. Equity ratio on higher than 30%, and we want to pay dividends. This year, we are a little bit cautious, but further on, we save our money now for the future. Later on, we have the ambition, if the situation allows for it, to actually hand out 30% of our earning after tax. Mid-term, we have higher ambitions and I think we are almost there now, especially with the EMF portion. The growth factor here, I don't know how to measure to get lower growth than this. We have been growing double this speed. We have to hold back not growing too fast, especially if we run away and buy things. So we are not worried about that profitability. We don't have the history of doing nine plus over the years, but we will get there. And you have heard me talking about a lot of these factors now that we believe will help us, larger business units. We are putting more resources to centralized activities within sales, within sourcing, and we are shifting towards organic growth rather than acquisition driven growth. We think that will improve profitability. And then again, these drivers that I just mentioned, near sourcing, digitalization, optimization, electrification. All of those require industrial electronics and they require power supplies. So we think we are in a good industry. With that said, then I leave over to questions and see if

Yes, thank you for that Fredrik. So if anyone in the audience has a question, please type it in the chat and I'll make sure to read it out loud. But while you are typing, I will start with some questions of my own. so first of all you said that the margin in the quarter was quite good I think you said I would actually say that it was surprisingly good even if I may say so so I'm just wondering if you could dig into that a bit more what and especially the margin in the ignition segment what enabled you to increase the margin year on year while most of your peers saw decreasing margins in the quarter?

Yeah, I think we have a stable, cost-cautious organization. We have been growing rapidly. Grows have sort of flattened out, but we have managed to also that cost is flattening out. And as I said, we have a better better net added value with 24 million. And ten of those are material. So that is actually we have produced more net added value into the products that we produce for our customers with only four million then increased cost. And then on top of that, I think it's also really good. But then we are carrying Axe here also. Of those 24, Axe is contributing nine, but Axe is also costing nine. So Axe, if you see further down in the P&L, if you take depreciations and interest, Axe is actually costing us a million here. So having that said, it's perhaps even better. Uh, so much about the contract manufacturing about, uh, in Edo, they have lower sales, lower, lower net added value, but they have managed actually to, to shrinking costs. So, so saving back there. So, and, and, and actually maintaining the margin and maintaining the profitability from last year. So yeah, on a high level, that would be my explanation.

And you maintain your full year target of 7%, but in the first quarter you made almost 9%. How should we think about that?

uh yeah we are coming from somewhere and and those that have been around and read our quarterly reports you know we are not super duper stable we are going up and down a little bit so so we we see this as as a yeah maybe a safe target but also it has been seen over longer time long longer time and then i think we will we will maybe add a percentage per year and then then we will reach those nine ten where i think looking at the industry, looking at our competitors, maybe you can't expect to be really much higher than those nine, 10-ish. Yeah.

Yeah. All right. You also commented on the order trend in the report. You said that it improved compared to the last quarter. Could you maybe describe a bit more how the situation has evolved with customers over the past few months?

Yeah, we, as a lot of our colleagues in the industry, our customer is ordering less. So that is a fact. But also on top of that, we have the effect of shorter lead times. Shorter lead times on components, much shorter. It could be years before, you know, and then you really have to have a long horizon when you order. But also in our part of the value adder, contract manufacturing, our queues are gone. So we also have shorter lead time. So our customer all of a sudden, not all of a sudden, but they realize that they will have their normal deliveries one month, two months, three months. So they don't need to order on. We had customers that ordered on 18 month horizon. They don't need to do that. So they have stopped that. So the order book as such. become shorter. But they also realize that they have built stock during these days with a very long lead time. So we have a number of customers that is clearly destocking. One of the major Eniedo customers, which is a really nice account, they were sold, a national instrument, were sold to Emerson. And Emerson comes in there and they see material all over the place and they are just sending out the demand to national instruments, start to destocking. And so they will buy very little the whole of this first half year. So that is a combination here of those things, you know, destocking and weaker demand. So but we yeah, here's where the paradox is, because when we talk to these same people, that is not putting orders. They are very optimistic. They see a bright future. They have this project and those customers, and they have a lot of interesting things going on. Please put orders. But then they are cautious because they don't really have to, and they can wait. But sooner or later, the order taking has to pick up. And it has already passed bottom, as you said. We have seen clear improvement of order taking the last few months. Yes.

All right, very good. So your long term target is to grow 10% organically and 5% through M&A. Obviously, this year, the organic part may be a bit more difficult considering the market situation. But on the other hand, you sounded quite optimistic on the M&A market, wrote that you have interesting processes going on there. You've already, with the acquisition of AXA, kind of fulfilled the 5% for the year. But what does that mean for the potential of additional acquisitions this year?

Yeah, we are constantly scouting. We are looking at new alternatives. We scout ourselves and we, with a new organization that I tried to describe a little bit swift, but anyhow, we have now introduced a situation where we will have to business area manager Calle for Enedo and Mattias for Initian EMS. So there will be more time for me and the central staff here to actually work on acquisitions. So we are enforcing the organization. So that will be on the improvement side, but also we are approached by brokers, but also directly by companies that are interested in in either divesting or selling a portion of their business. It's a reasonably good activity level out there. That is our judgment.

All right, finally from me on the main market listing process that you started, could you just tell us how far have you gotten with that and do you foresee any additional costs associated with this process? Yeah, please repeat. All right, the main market listing process that you announced.

Yeah, it will cost money, of course, but we are normal initial way, you know, we are mean and small now. We are very cost-cautious. We have made a contract with a process advisor for a reasonable amount of money. We also have decided upon with this listing auditor. Our cost budget is 6-7 million. That is our cost budget for the project.

All right, thanks for that. A question from the audience as well, if you could just comment on how Inedo has managed to cut costs and reach the profitability level that it's gotten to now.

Yeah, they are using, they are not rehiring persons that is quitting. So that is one portion of it. They are also using in the Finnish portion of Enedo, they are using a short week in, I don't know the English term for it, but in Swedish it's called permitering. So we are running short week to save back. So, and then also our also on the material side, we are able to save back. So cost level for components is also coming down, which is also helping out the situation. But it's not, it's no drama there really, you know, because it's 5% down in sales. So it's not like we have shut down factories or restructuring. It's nothing like that. It's more like being cautious, not add on. Someone goes out, don't put in instead. And it's from that level.

All right. Unless there are any more questions from the audience, I think that concludes the Q&A session. Do you have anyone in the room?

Yeah, we have two questions here. I will repeat the questions for the yes, and then I translate.

The question here is from the risk list.

The suggestion from the audience or from the person that is asking is It should be interesting to know what would be the mitigation of those risks. And components, if we just take the worst example on component risk, China attacks Taiwan. There are no mitigation, so sorry. If someone blows up Taiwan, it will be a horror story. But I think we will have bigger problems if that happens than worry about our operation. But otherwise, when it comes to components, we have strategies for those. And they are, of course, multisourcing, have safety stock and things like that. What would we do? When it comes to key personnel, we try to. I'm not saying that we are perfect, but we are really trying that each and every important position should have a deputy. That there is a second person that can stand in quite fast. Third was... Currency. Currency, we are hedging. So we are buying dollar or euro. If we see, we are measuring the flow. So if we see that we have too much or too little, we are hedging that. And we have a currency strategy. So we are hedging up to 60% of the difference in flow. So that we do together with our bank to cover for that.

Thank you.

Working capital is not being worked last year.

The lower, finishing lower than the record capital position will be significantly.

I think we are reasonably good at receivables. I think we are perhaps a little bit too small to be among the best when it comes to payables, because the bigger ones are clearly better than us. So what we are spending our time and energy on, that is stock. And we have came down in stock, clearly. And that is partly, of course, due to the availability situation is totally new. So we have decreased stock. If you look on peer, note will be the worst. And then you will find the niche, and then you will find better and better and better, and then you will find the hands at the bottom there. But they are very much also a sheet steel metal company, so maybe they are not totally comparable. So we are close to peer 28, 29 ish percent stock over turnover. So we are not bad, but we are not good. So what should we do to be better? And here we have, of course, that is how we order things, order pattern. But it's also about planning. So we have an experiment going on now where we are trying to use a totally different planning optimization program, AI sort of, you know, that will really help us to do planning and re-planning much faster and also much, much less time consuming. So we will test that now in the Norwegian operation. And if that flies and works well, yeah, then we hopefully have a better and more efficient way of doing that. Meaning that they should be able to come down in stock. But I think again, there will be improvements, but it's not like that we can half it or anything like that. In the best days, we could have 15. Our best factories work when we have good component availability on 15 and now being on 29. So of course, over time, this could be, we could actually do with half of our stock if we are really, really efficient. Yes. Then I think we are out of questions here. Henrik, are you still with us? All right.

Well, yes, I am. That's all the questions from my side and the online audience as well. So with that, I leave the word to you for final remarks, Fredrik.

Then we thank you all for coming here on the web and also physically here in Karlstad. Nice seeing you. And then we close this session. And then you are invited to have a drink and some snacks here. Thank you very much.