Inission AB (publ)

All right, hello and welcome everyone to this Q1 presentation by Inition. My name is Henrik Inse and I'm an equity analyst covering the company here to moderate the Q&A session after the presentation. But to begin with, I'll hand over the word to Fredrik Berghel, CEO of the company, to deliver the presentation. If you think of any questions for Fredrik during the presentation, please go ahead and type them in the Q&A chat, and I'll read them out after the presentation. Please go ahead, Fredrik.

Thank you very much, Henrik, and welcome to the initial annual meeting and our Q1 presentation. My name is Fredrik Berger. I started this company together with Olle, soon to be 18 years ago, and we are still both active. I am the CEO of the company and Olle is the chairman. Today, we would like to present the highlights, financial and also a presentation of what we have been up to during 2024. We will go through the same thing really for QWAB 2025. financials and also a verbal description of what we have been up to. Then we will present what we are doing. I almost recognize all the faces here. So you have heard me saying most of these things before, but still. We will also talk about Enedo, our acquisition and growth strategy. And then finally, our financial parts. And then at the end, Henrik will assist up with the Q&A session. So Both here in Karlstad and on the web. Please think of questions during the presentations. Okay, looking at the results for 2024. We had a turnover of 2.15 billion. And there was a drop in organic sales with 126. 191 million SEK, which gave an organic gross profit drop of 15 million. And the comparatively small gross profit drop is due to significantly better material share compared to last year. We also had higher costs. Remembering we added a factory into the ignition program end of January last year, which without an higher cost level. Still though, if we sum this up, the AXA contribution and the AXA EBITDA as a group, we came down 37 million on the EBITDA, which results in a margin, EBITDA margin of 5.8%. And then profit per share became 3.36, which is 1.26 lower compared to last year. If we zoom out a little bit, it's a sales of 2.15 billion. We are running slightly slower than 2023 and the year will be quite a bit less. But still thinking of the home year, this is the second best year in absolute money, both for turnover and for profit in the English history. And then the result decline here, if you put it really simple, we had one factor of extra cost, but due to the slower market, we actually had a low supply. So that is really on the high level of the explanation. So much about the financial debt. Then, what happened during last year? The main bullets. I just talked about Axe, a Norwegian company situated in Halden that came into the group end of January last week. We also, about a year ago, announced our ambition to move to Nasdaq main market. I will revert to that. We also, about one year ago, hired Mattias Larsson as the business area manager for business area initial EMS. Mattias had a previous history all the way back in Moonforce. Welcome. Long time ago. And then he had some other decisions. Originally, Mattias came from the Saab organization. But then also, between... Inisen Munkfors, he came back here. He was at a company called Rainpower just now, then also Anbach in Sunde. And we are very happy to have Mattias back in the family. Initian South invested substantially in new SMT capacity, surface mounting machines. We also, at the peak situation, we also launched new capacity for about 2 million euro in our Estonian factory. Sort of end last year, but really being into production early last year. We also decided to move, I will revert to that also, but we also decided to move the Eniato Tunis factory to the Enision EMS organ system. We hired Elisabeth Nilsson. As our MD for Innovate, Elisabeth has learned history as a Kinsey consultant and she has also worked for Volkswagen, a central organization in Germany. Initial Innovate is our engineering company that have their base in Västerås. We also reinforced our organization with the chief digital officer, Charlotte Jansson. She has some history working for Ericsson, H&M Group, and also Epidemic Sound. We also, for the business area in Edo, hired a new financial manager, Tommy Akapkatke, which has a history in Nordic and Patria, as well as Dana Group. We also rebuild, remade, enlarged the factory in Malmö with about 50%. So towards the end of last year, we actually had a big celebration and the grand opening of the factory there. So we invited our customer, our suppliers, and of course, co-workers from across the organization to celebrate this. It's not so often that they actually open a new factory. partly Owen, but still we made a happening out of this, which we were very pleased on. So much about 2024. Now, moving into Tier 1.25, more recent history. Reported sales decreased with almost 17% to 484 million Swedish kronor. If we also consider the AXE contribution in January, that is not included in the organic sales, The organic growth or organic decline is 19%. So quite a bit of headwind here in our sales situation. So looking at the result of 20 million Swedish kronor in EBITDA result, it is very much volume driven, having 111 lower sales organically. But also, we also had a very much lower materially share. So what I refer to the net added value was only 25 million lower. then cost wise, I have talked about the whole last year and I will keep on talking about cost reduction. We have to break the shrinking cost and we have done that now. So if we add us back for the extra access cost January 5 million ish, we are a year over year, we are square cost. And if you also take order just for the extra cost that our list shapes have been. So we are about annualized about 10 million lower cost level year over year. And then if you also think about that, we have quite a bit of an inflation situation. So we have definitely taken down the cost in the group, but not enough. All in all, then, this results in an Evita market of 4.5%, which is very much lower than compared to last year. Still, Q1 24 was peak level in initial history for a quarter. When it comes to cash flow, we had a decent Q1 cash flow with 34 million Swedish kronor. and driven by improved half-working catch situations. So looking year on year, it looks dramatic. This picture shows the sequence. And here, if you have a little bit good will, you can see that the profit fall hopefully have sort of stabilized now and hopefully we can turn it the other way around. So this is a lot less drastic, I would say. But we will need further cost reduction. And we have a program taking down costs in Italy and in the Tunis quite a bit. We also have a cost reduction program going on in the South. And the result of those, we really want to see now in Q2, the effect of those. But on top of that, we're also adding another cost reduction program. that will start now and then they will be in full effect. Yeah, but then Q3, Q4 are the latest. Because we have to realize if we run on this lower top line, low net added value, then we simply have to adopt the cost to that level so that we reach our, we should be able to reach our profit margin target even on this lower contribution level. So if we see this LTM, last 12, now heard figures, we are around E, just above 2 billion Swedish kronor. And we have an EBITDA LTM of 93 million Swedish kronor, which then is 4.5% as a margin. So, what have we been doing to Juana at the fire? First of all, we had hired a new plant manager or company manager in Nischenbunkfors, Mattias Neumann. He has a background. We have leading positions at Rolls-Royce, which is, by the way, one of our major customers. We also, since Rolls-Royce Kristine Hahn became Kongsberg. Kongsberg, they acquired the role of Rolls-Royce Marine Division. So his most recent posting was working for Kongsberg in Singapore. And Kongsberg now have actually taken over the position as our most important customer since we are selling to Kongsberg both in Sweden and in Norway. So that is one big project that we've been running. We also had worked the whole last year really and also very intensified this first quarter. We have been working with the Nasdaq leveling, going to Nasdaq main market. So we had a big celebration there just a couple of weeks ago. Fantastic. Nicolette and John ringing in the bell there. We had the board around and the group management. So it was really a blast, really. But the important thing is We are doing this to create a better, stable and more secure company following the NAFTA Canadian market routes when it comes to regulations, finance and book. IT security. So there's a number of things that we have improved with the company being able to comply with these rules. And of course, this becomes a quality step for Indonesia, meaning that we can attract also international investors better. Hopefully, we get better visibility so that we will have a better trade in our stock, in our share, better trade, we get a smaller or major spread, less volatility and improve the trade so that the being public really gets, so we get the benefit that was originally meant. And one of those was to use our share as a currency when we do mergers and acquisitions. And yeah, so far it has started reasonably well. We have increased the number of shares traded per day from 10 plus to about 30,000 per day. So these first eight trading days have been quite good. Secondly, we have worked and finalized another big project that we also worked with almost during the full last year and intensify now. And that is actually moving our Enel to Tunis factory into the initial EMS organization, making the the Tunis factory EMS provided. And that has two major things there really. And one is Inedo will become a focused product company. I will revert and talk to Inedo later. So they will be more focused, having only the products, the marketing and the sales to look after. And for Emission EMS, this will widen the offering to the market. meaning that I can actually set higher volumes for a little bit lower cost pairs in series. So we have already now made quite a few RFQs. We had a few customer visits and we already actually have the first win there. Not much in money, but still we have a prototype win. So we hopefully will already during this year ramp up some EMF production together, of course, with the Eneodo production. So Eneodo is now the only and the biggest car there. So here in the picture, you see our management team in Tunis and also a picture from outside. So if we look into the financial performance of the business areas, it is quite a bit. I would say that still, initial EMS, if they are running slower, we had quite a push out from two big accounts in Norway and also one big account in Sweden, meaning that we have pushed about 50 million out of this quarter, which of course affected the top line quite a bit. We also have sales contraction due to the fact that we have receivables in US dollar and the Swedish krona being a lot stronger, that has taken down the sales for currency purposes. In this situation, I think anyhow, having this EBITDA margin of 5.7%, it's not good, but it's decent, I would say. So as I said earlier, now having cost reduction program for Eniedo mostly, but we will also move down into the Emission EMS organization to reduce cost. Business area in Edo, they had an organic sales drop of 30%. That is really dramatic. And that is for the same reasons, really, that we have talked about last year. We have still destocking going on in major accounts. They still have too much on their shelves at the moment. We have cut down on cost, but as you can see from the numbers here, we're selling for 83 million and we're actually losing three. So this is really bad. Our LFDM numbers here is getting close to zero. So we are now shrinking fast in Italy and in Greece. So, yeah, let's just... generally talk about our operations. Our business area today is Inision EMS, contract, manufacturing, industrial electronics. That is what we do. And then we have business area in the OEM. They are providing power supplies. Different to Inision EMS, they are a product company. So they develop their own products, marketing and selling their own products. Venturally, we are working with our values. Long, long, long time ago when we started this company and especially when we launched Initial as a brand, we had a wide discussion within the company. The company was a lot smaller at that time. How do we want to be perceived? How against our customer supplier internally? And then we... talk to more or less all people employed at Delta. And these four value words derived from those discussions. And we'll keep on working with this all the way from our board of directors to all new MLGs. We have education programs. We have... Propaganda, but we also, I think when it comes to the best, that is when we have the daily Pulse meeting in the factory in the morning there, boys and girls saying to each other, what did you do yesterday that was really in line with our values? Did you do anything that was against the values? Somebody have small chitchat there. If we can get that through the organization, I think it's really driving a strong force. We keep on working with our sustainability and here we have really clean production and we are close to our 2025 target of having a net zero, scope one, scope two, when it comes to carbon dioxide. We will perhaps not get close, absolutely down to zero, but then we'll be compensated. So when we sum up this year, we will get there. The main thing that we work on now when it comes to sustainability is to comply with these EU CFRD directive. And that is quite a lot of work there. It's quite a lot of viral proceed, but still we will work to be able to comply to that during this year. That is our target. So over then to business area emission EMS, we are the leading supplier of manufacturing services, mostly for electronics, but also for metal fabrication, sheet metal production. And we also have our own design capabilities. We have a small engineering office in Vestros. We are very much a Scandinavian company. As you see, the sales split. Even though the sales here is mostly Sweden, Norway, Finland, the products that we produce, they will be spread out all over the world. We also think box bill is really important, meaning that we provide to our customer every day product. We learned early in this soon to be 18 year initial lines that the more we do for our customer the more pleased they are when they do the customer survey and also the more we do for our customer the better chance is that we have a good margin. The more value we provide the more there is to share for. It's not more complicated than that. So Inition is very much an acquisition story. We have since we started with 2007 added to the group about a company per year and we have kept on going like this. And I will refer to acquisition strategy, but that is also our ambition for the future to keep on growing also with acquisitions. We call ourselves a toted supplier in that meaning that we provide all the services in a product's lifecycle. And if you look up at the web pages, all our competitors claim that they do the same, but we actually have our own development engineers. We provide both new and old customers extensively with prototypes, helping them industrialize the products. And then, of course, manufacturing is the core of what we are doing. Maybe 90-95% is manufacturing. We have fantastic customer portfolio, where industry is the wildest segment here, but also the biggest. All in all, 37 key accounts built up about 60% of our revenue here. And the largest key account, as I said, is Kongsberg. And there is about 10% of what they are doing for initial EMS. There are some of these, especially defense, that is for sad reasons, had a strong growth. We don't have this type of customer that says, our safe manager says, that safe bag yet. But we have some starting points there. But on the next level, on TU2 suppliers, the suppliers that supply the dogs, there we had some business. And this segment is really, really growing now. Also, the location and communication segment have strong growth. Over to Eneldo in brief. As I said, Eneldo is a product company in difference to Initianelis. They own their own IPRs. Big difference in business model in that sense. And they also, like Initian, they provide customized high-end products. So a big share of any of the products is actually customized product that is tailor-made for that specific customer. Also, Enedo has a fantastic customer portfolio. But here you see also a total difference compared to EMS. That is that they are more of a global company. They have the most customers in the EU and in the US. So 30% of what we are doing in Eniro is going to the US, US customers, I would say, because some of the products are actually sent to their factories in Asia. And a lot of this is power supply, and then we have the little drivers and the smallest, and that is mainly the Finnish part of the company, is DC sisters. Enel has a background in telecom industry in Finland, Nokia related. Then they realized back in the history that it was not really possible to produce that type of sort of high volume products in this part of the world. So they divested the telecom business and they acquired an Italian company, Podroal. And then a few years later, a Finnish company called Powernet. And that is really the days of Enel today. Segment split, you see the lightning, the display, industry and optimization. And here, the Inir customer portfolio is somewhat more concentrated compared to initial units. But the list of their customers, again, it's a very interesting possibility there for also initial EMS to do business with those customers. So a lot of those is also using EMS services. And the other way around, all initial EMS customers, they use Power Supply in their application. So that's where the connection between initial and initial cost goes. So a few words about our acquisition strategy. As I said, we have been acquiring a company per year. And the most important, what we look for when we do this, KUVs, is the customer. manufacturing capacity, and these things that can always be fixed. The key here is the customer, really. But then, of course, management culture, financial potential, and then geographic bias. We think of proximity as an important thing within Initiat, meaning that we want to build out our geography. So we are more or less done in Sweden. Norway, we perhaps want to have something more in Finland. And then Denmark, and then we see Germany as the next possible place to be. We will also, in due course, start to do acquisitions within the Enedo business area. But that will be when we have stabilized the financial meaning, decent profitability, decent cash flow that we will work on. Since we have been doing this for the last 30, 18 years, we think we have become quite good at doing executions. So we have an intensification process, we call it. And we actually lay the ground for the intensification process during the DV. So when we make the analysis of the company, we parallel write down the things that we want to improve, things ethical. target company or things that we see that they'll do really good that we can use back ourselves. And normally this is no easy win there. It's a tedious project that takes a few years actually to develop the profitability. As I said earlier, Axel, a little bit more than one year ago, we acquired those and they are excellent example of the companies that we look for. Øystein here on the picture, he is one of the founders and he's also MD and he is driving this company in a really good entrepreneurship way. Yeah, normally there are quite a bit of synergies between when we take in a new ELS company, but we never use these synergies to just define the products. Some of the items we implement quite fast. It could be financial reporting. It could be the sourcing that everyone in our business have the same component supplier, this worldwide component distributors. So that we use this thing so that will be easy to include then in our program. Cockcake PR, follow up and so forth. We are in a headwind situation now. We dropped organically sales last year, initial EMS 7-ish percent. We have a tough quarter now, but the underlying growth in this industry is really good. And it's driven by the number of mega threats. And these mega threats, they have been there for quite a while, and they have been reinforced, first by the COVID, and then also by this tragic war in Ukraine. And meaning that electrification, for example, when the Russian gas costs too expensive or even banned, electricity also for heat down in Europe, which we already know here in Scandinavia, it's a good trick. The regionalization is another mega achievement that has also been pushed forward by this really big happening in the work. But then, of course, automation, communication, internet of things, machines talking to machines. There is a lot of things that is actually driving the need for and the use for industrial electronics, which is beneficial for, of course, both Eneado and for engineers. Yes, before I jump into our financial targets, I want to show you the history here. We became a public company 10th of June 2015, and since then we have been growing in average cover 25%. So we have been growing reasonably fast. We have had an EBITDA during this time, five-ish, I normally say, but you can see it balanced a little bit. The dip here, 2021, is when we consolidated in the INEADO numbers. That was quite ugly. So coming from this history, we have put forward the financial targets for 2025. So the board of directors have decided these targets to be 2.2 billion Swedish kronor. We target to reach an EBITDA level of 6%. We have a target of having our net debt over EBITDA to be 2.5 or less. Here, the covenant with our bank is a little bit higher. So there's a hedging between our target and the bank covenant. We also want to exceed 30% in equity ratio. And we like to pay dividend. There is a balance, of course, whether the money should stay in the company or go back to the shareholders. But our policy says up to 30% of the tax. And this year we are glad to announce, of course, that we will reach above that. So every share corresponds to one krona in dividend. Mid-term, we have higher targets. We want to grow 15% annually. And if you compare to that historical 25, meaning we would slow down in growth speed. And we want to also to wade over from acquisition-driven growth to organic growth. Because organic growth is really the key factor. to increase the profitability. To increase, to grow organically is extremely hell and focal when it comes to profitability. So that is how we see it. And then we have a set of other things that we also really want to, that we're working on long term so that we should be able to reach 9% if, and that should be looked at three, four, five years down the road. regarding capital structure and equity ratio they are the same short term and also mid term as well as our dividend ambition so that was all from me Henrik do we have any questions?

All right. Very good, Fredrik. I think I'll start us off with some questions on my own and let everyone else gather their thoughts for a few minutes. So first of all, You wrote in the report that deliveries of three high volume products have been moved forward in time. Should we interpret this as a temporary headwind for sales in Q1 or will this keep affecting sales negatively in the coming quarters?