Inission AB (publ)

to Ignition's Q3 presentation. My name is Henrik Hintze, and I'm an analyst at ABG following the company here to help moderate this call. We will start with a presentation by CEO Fredrik Berghel, and then we'll move on to a Q&A session. So throughout the call, feel free to type your questions in the chat, and I'll read them out for Fredrik later on. With that, please go ahead, Fredrik.

Thank you very much Henrik. Ladies and gentlemen, welcome to Inition Q3 presentation. My name is Fredrik Bergel. I am one of two co-founders and one of two principal owners of Inition. Myself and Olle Hulteberg, we started this company 18 years ago and we are still both active. I am the CEO and Olle Hade, chairman of the company. Inetion Group consists of two business areas, Inetion EMS, contract manufacturing of industrial electronics, and Inedo, which is a company developing, marketing, and selling power supplies. Both these business areas are operating with customized, high-end, high-mix, low-volume industrial electronics. Today, I will present our Q3 financials performance. I will go through some highlights from the quarter. I will also comment on our financial targets. And at the end there, as Henrik said, we will have a Q&A session. So, to the market and to the numbers for Q3. Reported sales increased 13.5% to 531 million SEK. Adjusted for Celteca acquisition, the organic growth was 4.1%. High-level explanation of the Q3 result. Net added value came out 30 million higher, of which Celteca contributes with 28. Higher volume, slightly higher material share, 54.5 compared to 53.5 last year. We also have a cost level significantly higher, 26.8 million SEK, but the most of that comes from Celteca with 21.1. Depreciations 0.9 million SEK higher, of which Celteca also contributes with 1.4. This gives an EBITDA of 29 million SEK, which is 2 million better compared to last year. But if we adjust back for Celteca, it's 2 million lower. If we have a look there on the cost side, if we take out Celteca and if we adjust for 3% inflation, our cost level year on year is sort of flat out, 167 to 167. We are, as you well aware of, uh doing a restructuring program especially on the enedo business area and we have restructuring cost in the period uh we also have extra cost for ip projects so if you add those together it's about six million that we have extras here i will revert further to the explanation per business area we with lower financial net of four million sick including a currency loss of 2.3 million SEK. This gives an earning per share of 0.7 krona, which is 10 öre better than last year. Year on year, as the last picture shows, we are back on the growth tracks, which we are very happy for. If we look at the quarters in sequence, as this picture shows, it shows even clearer that sales and profit are recovering. I'm as sure as anyone can be that we have passed the lowest point now and that we are increasing in revenue and in profit. So far, a lot of our cost cutting actions have been eaten up by restructuring cost as I just mentioned. Q4 will also be in this way, but then Q1 next year, it will be clean and then we see the full effect from the cost cut and we will have no restructuring cost. So hopefully the recovery will improve even further in 2026. Looking at the big picture, we are almost 100 persons less employed self-adjusted compared to last year, so it must show up in cost. If we look at the LTM numbers here, it certainly doesn't look like recovery, but I think I've proven my point with the two previous pictures. Net sales, LTM, is close to 2.1 billion SEK and EBITDA for 12 rolling months amounts to 19 million SEK or 4.3 as a margin. If we take a few, half a minute or so to zoom out, if you look at this picture, it clearly shows overheated market 22 and 23. For ignition we also had, if you remember, a really good first quarter 24, so that is a little bit ignition specific. So it illustrates the development of the market. If you look at the long-term trend, I would say that if we reach our targets now for this year, meaning that we will have between 2.1 and 2.2 billion SEC in sales and 105, 110 EBITDA. If you look at the long-term trend there, I think it aligns quite well. 2025 will align quite well with the long-term trend. So looking at the financials per business area, initial EMS did a good quarter. All in all, a really good quarter. Turnover much higher, even adjusted for Celteca, which contributed with 44 million SEK. So compared to last year, 405 over 355. And then Celteca adjusted. It gives an organic growth with 13.9%. We have higher salary cost in the period. That comes back to that we actually run, we took away a backlog that we have in our initial South company. A very interesting customer, Falcom, that at last had started to order big volumes. And now we have fallen behind. We are catching back those volumes. So we were running the South factory more or less full speed in July. We also have some different differences in the salary, vacation, debt booking, which comes out a little bit. But year to date, I think it's all correct. Perhaps it was a little bit too low salaries in second quarter then. So EBITDA amounting to 34.6 million compared to 25.3 last year, which gives 7.7% as a margin compared to 6.3, which is clearly over our target of 7%. volumes for the rest of the quarter looks stable. So this together with further cost decrease should improve EBITDA even further. So if EMF did really well, Eneado is of course a sad story. We are shipping much lower volume Q3 compared to last year, 82 million compared to 115. That is 29 percent down And of course, anyone understands that it's difficult to sort of catch up with the shrinking in a situation like that. Compared to last quarter Q2, however, it's slightly up, 7 million higher or 9%. Gross margin a little bit lower. This together with the volume drops, drop gives a net added value decrease of 15 million. Costs are coming down. We have a cost saving of 7 million. However, of course, not enough. But then we also have the restructuring cost included here, which I talked about earlier of 3.7 million. We will also take a restructuring cost during Q4 about this magnitude, 3, 3.5 million SEK. From Q4, the factory in Tunis will be included in the EMS profit reporting. For Enedo volumes, however, look improving to the future. Q4 looks good, still lower than last year, but we are constantly building our order book here. Book to build have actually been both year to date and in the third quarter, 1.3. So we are on a, from a low level, also on an improvement track with Enedo. So we are glad to report that our latest family member, Celteca, have performed really well in the quarter. So I just report some numbers from last presentation. We acquired 100% of UAB Celteca last June, which is a company that had a turnover last year of 16 million euro. Earning on EBITDA level, 8.9%. The plant and the factory is located in Kaunas, Lithuania, with 260 employees. And we really think that we have an interesting acquisition here. Very complementary and very interesting customer base, stable financial history, complementary geography in Northern Europe, which means for us a new market partly, A good size of the company. It's 16 million euro, but they have very little material share because one of the bigger customers is providing material. So if you count that back, it corresponds more to a 300 million operation. Strong and very efficient lean culture and very efficient production. We also sympathize a lot with the management culture and values in the company. We are also, as I have said, I'm very happy that the seller took a big portion, 25% of the value in Ignition shares. So Arunas have become one of the biggest shareholders in Ignition Group in this way. So some other highlights for the quarter. Now the factory in Tunis is also formally owned directly under Ignition AB, and that also means, as I said, we will report in the operations in the segment, in the EMS segment from next quarter, Q4. We have also appointed Ali Blell as the new MD for the Tunis factory. Ali has a very relevant production and management background. He has been operational responsible for quite big operations. So we really hope Ali will be a good contribution there. So, to our financial targets, and as a background to our financial targets, I would like to show this picture, our long-term performance. Since we became listed or public in 2015, we have been growing in average 25%, 15% measured to 24%. And we have, as you can see on this picture, been like a five-ish company, EBITDA. Then we have this severe drop, counting in the Eneedo losses, 21, and then the turnaround of Eneedo, and now we are sort of back on the five-ish track here. So two weeks ago, we sent out the PM, the board of director decided to revise the targets somewhat. It's no drama, but somewhat for 2025. compared to what it was earlier. So we have taken down the revenue from 2 to between 2.1 and 2.2 billion. And we think now, so close to the end of the year, we think it's going to divide between the business segment here as 1.82 billion for initial EMS and 330 million for Enedo. We took down also the EBITDA target here. Now we're talking about reported numbers, no adjustments in this. So we think EBITDA will come out close to or very around 5%. And the split there, the EMS, not follow the track 7 over 7 compared to the old target, but we revised them, the OEM or the INEADO target, quite a bit as you can see. They will not be able to do black numbers this year, unfortunately. The other targets are unchanged, meaning that we target for a net debt EBITDA ratio of 2.5, having now including I want to say also 2.9 and where the of course the Celteca acquisition is included and then we are if we count back on Proforma Celteca we are a little bit lower 2.8 equity ratio 30 same same and also we want to be a company that pays out dividend of course if the financial situation allows for that So over to our long-term targets, or not, sorry, mid-term targets, and there are no changes. And we really think with organic growth, 10%, and we top up with acquisitions, 5%, meaning that we will have a total growth over the years of 15%. If we can stabilize around there, Organic growth is extremely helpful, of course, for the profitability. And then moving now from our five-ish up to this nine, having in mind that we are doing the strategic changes that we are doing, we think that should be really doable. From capital structure, equity ratio point and dividend, mid-term targets are the same as the short-term targets. So over then to you, Henrik. Have we got any questions for today?

Yes, we do. I'll start off with some questions from the chat. If anyone else listening in has a question, feel free to type it in the chat now. So first question. You have previously talked about a medium term goal of achieving an EBIT margin of around 9%. What would be required to get there? I assume a better market and higher volumes, but in terms of your own performance and company structuring, what would be needed to reach a 90% EBIT margin, given that historically you've been lower than that?

Obviously, the turnaround of an E&E, we have to be successful there. And now we have been shrinking in Edo, so we have placed the cost level that should match the income there. So that is, of course, number one, number one. And now in Edo, when the EMS business area is growing and we are also making acquisitions there, the Edo portion of the company shrinks, fades away almost. But still, we will, of course, look into also structural alternatives for Eneado. One of these days, we will not continue the Eneado struggle forever, of course. We will look into alliances and other possibilities. Either do something offensive, go forward, or give it up. So we are, the board and the management, are looking into structural alternatives for Eneado. So that is number one. If we look at the EMS segment by itself, I think there are, it doesn't look so, sounds perhaps so dramatic to go from 7.9, but it is, of course, quite a bit of a journey. And there, I think there are those items that we have talked about, you know, and the most important there that is organic growth. If we can, and we have focused over and focused on investing time, energy and money in organic growth, because that is extremely helpful for the possibility to make a little bit better market. But then apart from that, there are all these classic things. EMS is a tight and tough industry. You have to be smart and good. I normally, when I talk internally about this, we have these 12 wheels that you have to adjust. And it's a matter of having the right amount of people, the right amount of square meters, We do the smart investments, continuously improve, of course, efficiency in the factories. And you have to be constantly maneuvering here. And then, of course, also in the environment when prices are changing on the material, we also have to be extremely alert since we are buying material on behalf of our customer. We have to be extremely alert and actually moving those extras further to the customer. Yeah. In short, I could talk the rest of the day, of course, about this, but that is an extremely condensed version of why we think, if we take the initial EMS alone, we should be able to move from this 7 to 9, and that this is not rocket science, but it's hard work, yes.

All right and I mean sort of following up on this there was also a question if you could specify a bit more what any other needs to do to reach positive margins and also what your long-term hopes are for the two segments margins?

We have been on a declining journey and that is as good as it is with increasing the volume, as bad and as difficult as it is when you decrease the volume. So, of course, stabilize the volumes and also to start to increase there. But now, first, what you have to do, and also that is an internal thing I always talk to my managers about, we can't have the time against us. We have to create a situation where we don't have time as an enemy. We have done it once for Enedo and then the market fell even further and now we have done it again. So now we have created a situation where income and cost match so that the management and all our co-workers actually can focus the energy of actually doing these improvement items. And they have, as when I talk to Enedo customers, the products are good. and extremely appreciated. It's a matter of finding more similar customers that really appreciate this good and smart technology that we actually have invented. And then being a product owner, looking at it generally, a product owner that have good products and are rightly placed in the market should, of course, be able to earn more than a contract manufacturer. That is our logic. But it has been a tough journey and we will keep on struggling and do these changes that is needed, absolutely. But then also, as I said earlier, we are looking into structural alternatives here for the whole business segment. So, shall we add something to get the scale of economy? Shall we divest? Shall we look into the segments, the sub-segments of it? And there we have clear ideas of that. Perhaps this segment is even more cost-pressed. We pay that out, we take the cash flow and we fade it out and we focus I think focus is a good word here when it comes to how to improve Enedo, because they have been too wide. Now what we talk about in the board and with the management is focus. We have to do less for less various type of customer and be more focused. I think that we will have the clue there.

All right. And when do you envision Enedo contributing to overall EBIT?

Uh, I, uh, our, my, my, uh, absolute ambition and our absolute ambition is of course, they will not, they will not be losing money next year. Absolutely not. But when, when will they pass? If the question is, will, when will they pass EMS business airing profitability? Um, four or five years ahead, four or five years ahead, because that is the long term.

That is the long term. I think the question was about when, when it will be break even.

Yeah, that is next year. Absolutely. Absolutely. And then also one doesn't have to forget that we have done this factory shift that I have talked about. And Enead have contributed with an extremely nice, highly efficient factory in the low-cost region, where now we have moved it over to the EMS segments. And now we are putting quite a bit of energy in scouting that type of customer and we scout in our in our own customer list because we have customers that are running higher volumes that we sometimes lose out or they ask other colleagues of ours in the industry to run those volumes when they get a little bit more cost pressed those are perfect to be moved and into our Tunis factory so we see also and quite a bit of an opportunity there

And just to be super clear here, when you say next year, I think you wrote in the report that you hope already in Q1 that it will be breakeven, is that correct?

Absolutely, already in Q1, absolutely.

Okay, and just if you could just repeat the one of costs that you mentioned in Eneado, what exactly were those for and how much was there?

As I said, we have been shrinking the factory quite a bit in Tunis. It's close to 100 co-workers that have gone home. So we have been shrinking the cost in Tunis quite a bit. And also Finland. a little bit, but in Italy we have been going there. We have taken down the amount of coworkers with 19 people from 55 to 36. So the organization has been right-sized. But that, of course, that comes with a When we decrease in companies, countries like Italy, it comes with a retainment package. You can't, like in Sweden, just work and then you go home. You have to pay like a retainment package there. So it comes with cost. And all in all, we talk about 600,000, 700,000 euro. And we have taken half of that when it comes to the Italian operation. 3.7, to be very precise, 3.7 of those are in Q3 now. But it's extra that we don't get any. Well, of course, we have to take care of our coworkers when they have to go home and try to do something else. So that is their cushion, so to say. But of course, in this situation, when you have very little money and you're even on the minus, these three or almost four million, in the scheme here, that makes a big difference, of course. So that going off the table from Q1 forward will make a big difference. together with volumes coming back because we see now we have a break-even case here 2.6, 2.7 million euro per month for the Enedo and we have the award book there now and we see perhaps more of a three-ish going forward here. So if we can run over this 2.6, 2.7 then we have certainly a break-even case.

So from Q1, we should count on costs being almost 4 million lower than, is that correct? Or is this only the cost for the reductions? So how much will the ongoing cost be?

The ongoing savings is 1.1 million starting, but this shrinking we started in April, 1.1 million euro. That is what we talk about. That is how much Italian costs have come down. That is these 19 people.

And maybe I misheard you, but at the beginning of the call, did you say something about IT costs as well?

Yes, we are. That is minor in the situation, but still, that is on the EMS leg. We are investing money in actually connecting our CRM system with ERP. So that is not a standalone. We want to have that. So all the data, all the orders, all the invoicing, everything that saves people and also the management should see in real time to connect the CRM. So we are spending energy and money on that. And that is also like an investment. But that is also, we don't put that up there. I'm mentioning it, but that is cost of doing business, of course. But it comes extra, a little bit extra now, because we will not We will not connect Monitor with Salesforce next quarter also. So we are matching. But how much was that? Yeah, all in all, because also the mother company also have an IT project that is 2.3, I think, totally. Extras. Extras. Yeah. But if you run a company, you need IT systems and yeah.

Yeah, we just got a question from the chat now. What are the total one-off costs this year, including the listing change and the split between the listing change and restructuring costs?

I don't have all the numbers, but if we take big numbers, we are on extras, about 20 million CINCH. And now I'm also counting in this Q4 extras, what is rest there. So 20 for the total year, about 20. And yeah, half-half if you make it simple, half-half, about 10. But then also, you know, we have external extras for the list changing. But then being on the Nasdaq main market also requires more from our IT securities program. So that comes up as extras there. We have to follow CSRD requirements so that we pay, and those we don't count in that money. That is more like we are on a different level. So that is also a little bit more costly, but those are not included in that money. But that is also part of growing the company, and it comes a little bit in steps like that. But 20-ish, that is my answer to the question, and half of.

Yes, and follow up on that question also, what was it you were expecting in Q4 for one of costs?

Three and a half. That is what is left in Italy. Yeah.

Okay. And speaking of... Any update on how customer interest for your Tunis factory is developing?

We have had a handful of visits. We have produced equally amount of quotations because we don't quote. If they don't spend the time and energy coming visiting us, we wouldn't quote. So that's all where we are. And then we have quite a few leads, though. 10, 15. We have a long list of, I think, 20, 30 names in our customer catalog that should be interested. But out of that, we have a short list of perhaps 15 companies that we work a little bit more focused on to make them understand that they should utilize our units factory. And we will get there. We will get there. But we have long lead times in our industry. from the first discussion until we actually have volume production. If it's a new customer and a new project, we talk years. So we have to be patient also. We have to be patient also.

And on your latest acquisition, Celltech, how has the integration been going there?

We have a very, as you know, very decentralized structure. But we have started to work together with them, especially when it comes to, of course, reporting. That is the next week so that they follow our schemes and we follow them up. So we put in our monthly financial review and budgeting process. All of that is right away. But now we are also making a plan out of the, I think I've told the story, but when we do the due diligence, we make, we parallel with that work, we make this list of things that we want to look into and improve. And now we have taken that list and converted that to an onboarding program. And the obvious and first things that we look into that and where we have also started, that is sourcing, because normally we have the same suppliers. Sentica is a little bit different, though, since they, as I said earlier, their customer is providing quite a bit of material. So they have less material share. If an EMS company in that part of the world should have 70-75% material share, that would be typical. And they are more likely 40 companies. So the synergy in sourcing is less than the customer provides material. But then we also have integration in the other direction. They are extremely efficient in production, so we are sending initial EMS people there to study because they do good things. Next, what we are looking into is some of the equipment they have. It's a little bit on the older side, so now we are discussing the investment program and of course we are cooperating so that we use our knowledge and our contacts and almost our price list when it comes to investments. It's a whole scheme of activities.

Yeah and did Celtica contribute with Would you say a normal margin in the quarter or anything special?

They are quite defensive people there in Lithuania. But even on the EMS scheme, they were above average. They were above average. They contributed, as I said, with 4 million EBIT. And they had 44.2, I think, in turnover. So higher than average. But that is one quarter. You have to see it over time.

Yes.

But it's always good with a nice start, isn't it? Fun like that. Good start.

It sure is. All right. I think those were all the questions from this time. So with that, Fredrik, I leave it to you to say some final words.

Thank you, everyone that has listened in. That was all from me today. Have a nice day and take care. Bye.