Inission AB (publ)

Good morning and welcome everyone to today's earnings presentation by Initian. My name is Henrik Intsa, I'm an equity research analyst covering Initian, here to moderate today's Q&A. But before that, we'll start off with a presentation from CEO Fredrik Berghil. If at any point during the call you think of any questions, please type them in the chat and I'll read them out for Fredrik to answer after his presentation. With that, please go ahead, Fredrik.

Thank you very much, Henrik. Welcome to Nischen Q4 presentation. My name is Fredrik Bergel. I'm one of two co-founders and one of two principal owners of Nischen. Myself and Olle Hulteberg, we started this company for over 18 years ago and we are still both active. I am the CEO and Olle is the chairman of the company. Inision Group consists of Inision EMS, contract manufacturing of industrial electronics. Inedo, which is a company developing, marketing and selling power supplies. Both these businesses areas are operating with customized high-end and high-mix low-volume industrial electronics. I will go through the financial performance of the quarter, comment on the highlights of the quarter, and then also mention or go through our financial targets. And as Henrik said, we will end this with a Q&A. So please come in with your questions. Reported sales increased 23.7% to 657 million SEK. However, adjusted for Celteca 49 million, sales increased 77 million SEK or 14.5% organically. I think it's important to point out here that we, despite very high sales, still have a book-to-bill ratio at 1.1%, which indicates that this higher speed can be maintained. We are also really happy that Enedo are back in black, at least on EBITDA level for the quarter. To explain the numbers on a high level, our net added value turnover minus direct material net added value was 35.9 million SEK higher. If we adjust for Celteca with takeaway there now at 29, the material share was somewhat lower compared to last quarter, partly due to Celteca, which have a quite low material share. Cost level was 11.3 million higher. Axe adjusted for Celteca. We also have restructuring cost, mainly in Enedo during the quarter of 5 million. And we have also restructuring cost at Inisen EMS on 1.8. To me, this indicates now that we are down in cost level. So if we can keep this volume now, we have a cost structure that corresponds to our income level. All in all, this gives an EBITDA of 38.6 million SEK, which is 20.8 higher than last year. Celteca in the quarter contributed with 2.1 million. We have quite a high financial cost in the quarter, which makes the earning per share dropping 0.56, from 0.4 to minus 0.1. And this is explained by the acquisition of the last 49.9% of Zeltek that we made in the quarter. compared to the original acquisition analysis. Since AXA was performing better, the earn out made the company valuation coming out higher. So we have a financial impact here, financial cost of 20.9 million SEK in the quarter, which is non-recurring, of course, and it's also non-cash. This is quite in detail described in the press release 14th of November. The rest of the difference here in financial cost are currency that we had a small plus last quarter. Now we have a small minus. If we look at the interest cost itself, it comes out very, very close to last quarter. Year on year, as the last picture illustrates, shows that we are back on the growth track, which of course we are very happy for. If we look at the quarter in sequence, as this picture shows, it's even clearer that turnover and profit are recovering. So far, our cost cutting actions have been eaten up by restructuring costs. But from Q1 this year, we will have a clean situation. If volume stays now on this level, we have a good chance of even further recovering of our profitability during 2026. Clearly improved networking capital. We have stock coming down, receivables going up a little bit and payables going up. If we net all this up together with the profit, we have an extremely strong cash flow in the quarter. 101 million SEK compared to 70 million last year. This gives a lower debt and now with this improved EBITDA have taken down the net debt EBITDA ratio to 2.3 well below our targets. Also thanks to this strong cash flow the board of directors have decided to propose a dividend of 0.6 SEK per share to be proposed for the shareholder meetings that we have in early May. If we look at the full year numbers, sales increased with 56 million to 2.206 billion. But then, of course, Celteca and Axe. Celteca contributed six months and Axe contributed one month. And that sums up to 106 million. So organically, we have a small decrease. We decreased with 50 million or 2.3%. If we look at the explanation of the EBITDA result here, we had a really slow start for both business areas. And then we had also losses for the Enedo business area, the first three quarters, which brings down the EBITDA result to 111 million, which is then 14 million lower than last year. And then as explained earlier, the profit per share here or the profit after tax is clearly affected of this 20.9 million re-evaluation of Axe, the last 49.9% as I just mentioned. Looking at the year numbers and the long picture here, it certainly doesn't look like a recovery, but I think I proved my point with the previous pictures. Net sales coming out at 2.2 billion, EBITDA amounting to 111 million or 5% as a margin. And as I said last quarter, I think this picture really illustrates our long-term performance and growth here. And then you can clearly see the overheated market, generally the overheated market 22 and 23. And then we have destocking and our customer had too much on the shelves 24 and the first half of 25. So... I think this is a good picture illustrating that. Then it also illustrates initial specific situation where we actually were eating, we're taking a high amount of inedible losses 2021 and now also 2025 here. But looking at the long trend, EBITDA level, looking at the growth here. I think if we extrapolate numbers from pre-COVID, you can see that 2025 was quite okay. Looking at the business areas separately. All in all, I think the EMS portion performed decent considering the quite slow start. And then now we have had a strong increase in the last both Q3 and also now Q4. Here in Q4, we have an organic growth of 19% for the quarter. For the margin here has been affected of the very unbalanced first half year and second half year. But I'm thinking with this higher speed and if we also have a better balance in loading over the year, that we should have good chances of improving the margins further. Looking at the comparing with our midterm target, we are only 2.4% away compared to the last two years now, ending up at 6.6 EBITDA margin. In Edo of course different situation also this quarter we are shipping lower volume compared to last year but we are very much closer now it's only six million below or six percent as explained earlier we have taken down cost level both in Tunis and also in Italy at the Enedo side and now we are in balance so it has been offset also for the last time now in this quarter by 5 million in restructuring cost but still even having that included we have 3.5 better EBITDA in this quarter compared to last year If we put these five back, we will be at an EBITDA level of 6.2 or 6.7%, which happens to be very close to the EMS or the same as the EMS result. From this quarter on, there will be no extras for restructuring. And if volume stays here, also Enedo will be able to produce decent margins forward. And then some main items from the quarter. We have applied and the board of SOF have accepted our application being a member of the SOF. And that is an association for companies within safety and defense. We have, as I have said now, acquired the last outstanding 49.9% of the Axie shares. And this has hit us with this financial impact that I've talked about. And then, of course, what is better? Acquiring a company that goes better than you think and then you have to pay a little bit more or that it goes worse than you think and you have to pay less. One can be philosophic about that, but still we are very happy about the Axel performance so far. We have also employed a new managing director for our company, Inis & Syd, Torkel Skoglösa. He has a background from Häxpool and Nolato, and his latest was from Bona in Downing, Skåne. And he has a very relevant industrial background from a similar industry as ours, same setup here. So we are really happy that we have Torkel on board. Over to our financial targets. The board of directors for Inison have decided the financial targets for 2026. Sales for the full year to be between 2.3 and 2.5 billion SEK compared to last year of 2206. Also EBITDA margin. is expected to be above 6% to be compared with the actual for 2025 of 5.0%. We also want our net debt over EBITDA to be between 1.0 and 2.5%. Looking at our mid-term targets. Thinking about our historical performance. We have always had good growth. And now we have... We are talking about having 50% annual growth. That is our target. And the dividing here, 10% organic and 5% by acquisition. Actually then compared to history, slowing down acquisition speed and focus on organic growth. EBITDA, EBITDA, we think... We over time should be able to be among the best in class. So nine is our target there. And there, of course, if we are home with our growth in volume, we have more to prove when it comes to profitability. Historically, five-ish has been our standard. Our strategy have, however, brought the EMS portion of the business up to even eight, 2023, and as shown here now, seven-ish the last two years. Inedo, we have turned around twice now under our ownership, but now Inedo is a smaller, more focused company, and they should be able also to produce decent markets. But all in all here, we think we are in a good industry and we think our shifting from acquired growth to organic growth will be helpful for our profitability. We also think that we that the mega trends that I have talked about many times, they are still super duper valid. We see this regionalization and nearshoring. We also see that robotization, automatization, digitalization, and now also Internet of Things with machines talking to other machines. And this will be even more driven by AI. and then not the least we have electrification here as a strong driver that are a driver for electronics. So just to sum this up a few takeaways before the Q&A session. We had a really strong sales in the quarter, increase of 24%. The last of the restructuring cost has been taken in the quarter, 6.8 million. Order taking follow positive trend and comes out at 1.1. We have a very strong cash flow at 101.6 million. we have also the board of directors have decided to propose a dividend of 0.66 per share to be decided by the shareholders in our meeting in may so that was all from me do we have any questions henrik

I'm sure we do. Please, everyone listening in, go ahead and type your questions in the chat. While we wait for that, I'll ask some questions of my own. So first of all, I thought we could maybe dig a bit deeper into Eniado here. So in the quarter, you achieved an adjusted margin of 6.7% EBITDA. And you say there will be no more restructuring costs going forward. So is that sort of a reasonable level to expect in coming quarters in the near term? What do you say to that?

If volumes stay there, absolutely. I don't think we will go from minus to plus 6.7. So we don't have the target setting there as shown. We are thinking we should be, for the full year, we should be above 2%. That is what we target for. That is how we have set it up. But under these circumstances, it's... clearly shows that also this business area can produce decent margins, as I said. But then also it was a good quarter and then we have the restructuring cost and things are happening. So we have lower expectations on the business area because they are still on an improving journey. So we have to be a little bit humble there also. Yes.

Okay. And maybe on the medium-term financial targets as well, no big changes there. But I was just wondering, if we assume for a second that you achieve the 15% annual sales growth that you target, 10% organic, 5% from M&A, how long do you think it would take for you in that scenario to get to a 9% beta margin? Okay.

It has been shown earlier. And as I started to say, I've only been doing this for the last 18 years. So I have a little bit of experience. If we are growing, it's extremely helpful. Organical growth is extremely helpful for the market. So in that combination, two, three years would be my assumption. We should actually reach there soon. And having a group of company, I mean, Initium EMS is organized in 12 factories and 10 companies and some of them are doing double digit already. So it's not that we don't know how to do it. It's a matter of everybody, all the companies is doing it. And then you will perhaps always have some slower performer and some better. Very much due to loading. Our company Initian Seed, they have performed very poorly over a few years. But now when we see that that factory are loaded, And as we write in the report, we have had coming customers there for many, many years in the defense area. And now when they are loading up our factory in a good way, even to the extent that we came behind a little bit, you know, we're not even able to produce as fast as they wanted to. Then it is like turning a hand. Then they also initially see this earning good money. So two, three years would be the short answer.

All right. Moving on to some questions from the chat. Any news on the strategic options for Enedo that you talked about previously?

No. I think we have to communicate those extremely carefully. But we are the management of Enedo together with the Enedo board and also Enison board are looking through our strategic options. And when we have decided where to go, we will of course communicate that extremely carefully. But the main track is is our business plan all our daughter companies and our business areas are doing business plan and that is actually to they sold the factory now they are a focused product company product development marketing and selling their products and in a smaller scale but also much more lean and much more focused And having a turnover of 300-400 million SEK and earning this year a few percentages EBITDA and then grow back to, or grow up to where they should be, nine as the long-term target is, or medium-term target is. That is our base plan. But we should, since the history has been as it's been, we have carefully looked through strategic options, but not anything decided yet. Apart from actually doing exactly what we are doing. And that is the main track. Very good.

Also, were there any write-downs of inventory impacting the Q4 numbers as there has been in some previous years?

Nothing substantial, no. And we do that every month. We have a system that every month we are looking through the list and material is not moving. If it's not been moving, it's our customer's material. We should sell it back to the customer. And if we, for various reasons, if we don't manage that, Then we write it off and that we do continuously. So we don't have any extraordinary. We always have small writes off here and there in the factories, but not any particular, no.

Okay. Approximately what EBIT margin is Axe generating at this point?

I think we don't communicate that. I'm sorry. And that is easy for me to say. And because I don't know the number even, but they are above average. They are above average to be, say something at least, you know, but I should be careful. But they are doing very well and Axe have the background here. I said we decided to acquire Axe the last portion earlier than planned. We had a three-year earn-out plan with Axe and they were doing well. The management, together with the main owner. The previous main owner was also the managing director of the company. They felt they wanted to be a part, a real part of the Ignition family earlier. Because they saw at our ERP system and the difference compared to their own. To be to marketing and sales in Norway, them being together, they saw a lot of opportunities there. So it was actually... A request more or less from the management that we should do this earlier. And then looking at their trajectory also when it comes to the valuation of the company. Okay, we paid a little bit more than anticipated from start, but that's because they performed also very much better. And we think they will keep on performing better. So closing the deal now, I think the seller made a good deal, but I also think we at Initial made a good deal at this level. And if we look at the average price that we paid for the company, because we paid not too much for the first half, now paying a little bit more for the second half, all in all, I think that was an excellent example of how we can actually acquire medium-sized EMS company and build out our group.

Very good. Another question from the chat here. Encouraging to see Eneado delivering improved profitability. Are you considering any more acquisitions of OEM companies or will you avoid such acquisitions going forward?

Back to your question about strategic alternatives. If we really make it black and white here, you should say one end we looked into actually can we acquire something to make this sizable. That would be one track. And the other side, or if we call it the black track, just sell it. Those are the two extremes here. And then we have evaluated all the options in between. Not all the options, but some scenarios in between. and there are the power supply industry are not as fragmented as the EMS industry but it's fragmented and our original plan was absolutely if we have solid ground under our feet at Enedo If we are growing, earning money, positive cash flow, of course, we will go out there and look for add-on acquisitions. That was our original plan. And this is still our base case. Yes. And it could be interesting. It could be really interesting.

Yeah. All right. Another question here asking the revenue target of 2.3 to 2.5 billion seems a little bit cautious. If we add the acquisitions and just a few percent organic growth, it should be quite easy to reach the upper end or even above that. What do you think of that?

Yeah, I think we have discussions. I'm very optimistic and I'm looking forward and I want to have stretched targets and we have internal stretched targets, but then also giving out targets to the market. We think we should be really careful and we should really achieve those. So I agree with you. To set the turnover target there, if nothing extreme happens, that should be really doable. And that is the whole idea with the targets we put out here. They should be really doable. Absolutely. I agree with that.

Very good. And maybe the same question on the margin then. You say a margin above 6%. Should we see that as a lower limit or where you sort of expect to end up?

To put it simple there also, we have higher internal ambitions, absolutely. So for us to do 6%, if we have that turnover presented, it should be very careful, but it's almost a no-brainer. But if things go right, it should be better. But this should be seen as the base. But then, of course, being humble, we have... We have not been able to do the base earlier years. We said six and we ended up at five. Now we had a very difficult start last year when it comes to volume. Again, it all comes back to volume. And then what will happen with The world around us, these insecure things that is happening all the while. But there is also a lot of signs. It's not only me in this room reading the pink paper. I'm quite confident that the economy will move towards the better for our customer and their customer. And there are a lot of these indications. We are quite optimistic.

All right. Very good. Those were all the questions in the chat for now. If anyone has a final question, please type it in now. And while we wait for that, maybe another question on any of those. So a lot of the drop in sales was due to customers reducing inventory, if I remember correctly. Book2Build has now been very strong in Eneado. Has this been those customers coming back mainly or something else driving the strong Book2Build in Eneado?

No, that is correct. On the Eneado side, we have a much smaller customer base. Top ten customer there is really building up the main portion of what they are doing. And even top three, four is extremely important. And there you will find companies as Ductronics, an American company. You will find National Instruments. And those two are the really, really big ones. And they had these structured things, especially National Instruments, early 25. But we actually visited them a few weeks ago, myself and Kalle and some other Enedo representatives. And they... National Instruments, they are also really optimistic and their shelves have the right level of inventory now. So they are now buying at the same pace as they are shipping their own instruments. So they're buying power supplies from us that goes into their instruments and out. So now we are selling what they are selling. So we have a good situation there and they are also optimistic.

Right. Some more questions from the chat here. Which activities are underway to increase participation in the defense industry from your side?

We have quite a few leads among existing customers. Kongsberg, not the least. Kongsberg is Ignition's biggest customer. And we have been selling to Kongsberg Marine and we have been selling to this other division, Discovery. But we have also started now with some test orders and we have a small business to KDA as they're called, Kongsberg Defence and Aerospace. And we have all the chances. And it's a slow industry. I've heard some of my colleagues complaining that they put a lot of orders, but they don't call off so much because they are growing so fast. They have problems actually growing as fast as their needs are and since all of this is physical it's not really scalable in IT you know you have to have houses you have to have machines you have to have materials all of this the ramp up in this real world is slower than a lot of people anticipated and we also experience that so that is what we are doing we are really looking into that and then we have new customers that we are also trying to to be close to then and starting to make business but and I think I talked about our also one of our biggest customer now in initial seed biggest on initial level and absolutely the biggest for initial seed danish company doing defense equipment nothing that You can hurt other people with it. It's communication. It's a communication equipment. And we have been working with these since they were a startup in 2016, you know, step by step by step. And they have... They want to... The sky is the limit for these people. But now they start to move. Now they get substantial orders to the US Army and so forth. And then we're sitting there and shipping. Even to the extent that this goes too fast for them now. Another example here, what we are doing, being a member of SOF, we think we can be there. And in that association, we can get closer to... other companies that also want to be sub-supplier to the defense sector and help them because we perhaps will not be in the first tier one here. We will be tier two or even tier three suppliers.

All right. One more question here. Is the book to build that you report including or excluding acquisitions?

No, it's all in all. All in all. Yes. I guess. And since we computed over total sales, so it's Axe orders and Celtica orders. Absolutely. Yeah, I guess. And we are not, of course, counting Proforma here. It's only when we have been owning them. So it's very clean.

Yeah, I guess the question might be if you sort of include the order book that you acquire in the order intake figure.

No, no, no. It's incoming orders in the period. Absolutely.

Very good. That's all then for today. So I hand it over to you, Fredrik, for final remarks.

Yes, thank you to all of you that have been listening in. I think we did, as I've said a couple of times now, a quite good quarter and we are optimistic about the future, even though we have, of course, to be humble and play the ball where it lies. We are now in a world that is changing fast and we have customer experience exactly the same here. But we are optimistic and thank you for listening in.