Inission AB (publ)

Good morning everyone and welcome to Inition's Q3 earnings call. My name is Alvin Barnevik and I'm an equity analyst at ABG Sundal Collier covering Inition and today I have with me CEO Fredrik Berghel who will present the Q3 results and this will be followed by a Q&A session where you can ask questions by writing them in the chat. So without further ado I'll hand over the word to you Fredrik.

Thank you very much, Albin, and welcome everyone listening in to our presentation. My name is Fredrik Berghel. I am one of two co-founders and one of two principal owners of Inition. Myself and Olle Hulteberg, we started this company 19 years ago and we are still both active. Olle as the chairman of the company and myself as the CEO. Inition these days is organized into Business Areas, Ignition EMS and Ignition Power. Today we will present our financial performance in the quarter. I will talk about some highlights during the quarter and I will also comment our financial targets. And as Albin said, we will end this session with a Q&A. So please type in your questions and we will do our utmost to answer those. Yes, reported sales increased 17.8% to 626 million Swedish krona. And since there are no acquired growth, it is all organic. If we try to make a high level explanation of this result, net added value, total sales minus direct material, I refer to as net added value, was 25 million higher compared to last year. and that is explained by higher volume 19 million SEK and then you would have expected a higher net added value but we also have higher material share 57.2 compared to 54.5 And this higher material share is partly due to product mix. We are selling more electronics out of our Finnish company, for example, and we are selling a lot more with own material or own purchased material in our Cellteca operation. And this, and so that is part of the explanation. Another part of the explanation is that we have rapidly increasing prices on material, on raw material, on components and everything. and of course we transfer that to our customer but there is a time lag there so we have not fully been able to compensate ourselves for that. Cost level only 5 million higher compared to last year and there are small increases for personnel and other costs and also a little bit more depreciations. This gives an EBITDA of 49 million SEK which is 20 million higher compared to last year. The EBITDA margin for the quarter amounted to 7.8%, which is then 2.4% higher, percentage points higher than last year. And I usually refer to the beauty of organic growth out of those 25 higher in net added value, 20 is dropping down all to EBITDA. Then also we lower financial net 3.9 million SEK compared to 5.6 including a currency profit of 1.7 million that gives an earning per share of 1.4 SEK which is double then compared to last year. Looking at the quarters in sequence we can see that the improved Improvement in sales and profit comes gradually. And with a year to date sales of 1.925 billion and our order book for the last quarter, this points at the full year sales of in between 2.6 and 2.7 billion. And with our current cost structure, this also indicates that we should be able to maintain this profit level. I think here is also it is important to explain our poor cash flow minus 3.7 million which is partly due to that we are growing this rapidly of course but it's also due to the fact that the industry is facing supply chain difficulties especially PCBs and also memory components which means that lead times goes up and we are are out there in the factories. They are trying to protect our future orders by buying in more material. If we are zooming out here now and look at the development for a longer time span, we can see with the last 12 months close to 2.6 billion and 175 million SEK in EBITDA. Initial performance is well in line with our targets. I also think this indicates that we can do even better if we are able to maintain organic growth. I also usually say that this graph illustrates the industry where you can clearly see the over sales in 22, 23 due to the component shortages at that time. And now perhaps we are running and so on. We will see about that. And then you see the hangover years 2024-2025. But if you sort of even out with these ups and downs here, the industry is good and we have a long term growth, underlying growth in our industry, which is, of course, very helpful. If we look at the performance per business area, initial EMS have done excellent third quarter. turnover up 13.7 percent compared to last year with 511 million SEK compared to 449 and it's all organic EBITDA amounting to 40.1 compared to 34.6 which gives a EBITDA margin of 7.8 percent and this is well above our target for the business area of seven Order intake was also especially strong in the quarter partly due to that some of our bigger customer accounts they placed orders they increased the order horizon from 12 to 18 months so that is part of that but I think also we have also a strong order book build up apart from that measuring actually next 12 months we can see a substantial increase also if we are looking in the closer horizon. Looking at initial power, we are shipping 40% higher volume compared to last year. 115 million all organic growth. This higher volume and also with very good cost discipline have improved the profitability dramatically. EBITDA for the quarter became 8.5 million, compared to minus 4.7 last year which is 7.4 percentage and personally I'm really glad that Initian Power now are performing profitability margin wise on the same level or similar level at least as Initian EMS. Initian Power are now a focused product company, asset line focused product company in compared to the history when they also had the factory. Looking ahead there, volumes for Q4 looks promising, so we should be able to finish the year in a good way for Initian Power. Then over to some highlights in the quarter. We have a very nice order win in Celcica. where we want a business in drone communication where the customer has a focus on defense applications in Europe and US. And we expect the order value for next year to be between 5 and 6 million euro. We have got new orders from NoFence, our Norwegian customer. which is in the industry of virtual fencing, and that is for the Swedish market. Sweden has now approved this way of controlling the animal in the ground. Initien Lökken and Initien Halden has merged into one legal entity, and we have created there Initien Norway. We celebrated this actually this week, Wednesday, 4th of November, with customers, suppliers and partners down in Halden and had a launch day, we called it. Very, very nice. Henrik Widerstad has taken the position as MD of Venetian Syd. Henrik has really relevant experience from Tetra Pak, which is one of Syd's biggest customers by coincidence. He has also worked for POCA Inc. Most recently Henrik held a senior position at Ecoline. We have started and we have made an MOU with a Ukrainian company called Devdroid. And Devdroid are developing and producing UDVs, meaning unmanned ground vehicle for defense. And we have, together with our Norwegian daughter company, a chance or a possibility here really to help out DevDroid. What they want to do is to be able to produce outside of Ukraine. So together with the Norwegian sponsorship money, we are able to set up this. It is an early stage, but still really interesting. We have also, just outside the quarter here, we acquired, we signed an agreement to acquire DDT, Bavaria Digital Technik, down in Germany, close to the Austrian border in Fronten. We signed that 15th of October and we had the closing Monday this week. So now it's all set. The purchase price for BDT was 5.3 million, which corresponds to an EV value, enterprise value, 5.8 times average EBDA for the average EBDA of 23 to 25. We will finance this acquisition by acquisition loan from our bank. In 2025, BDT generated revenue about 20 million, and reported an EBDA of 1.25 million. The acquisition expects to contribute to the growth. The sales for VDT in 2026 will be about 70 million and that is also the expectation for next year. The company has about 100 employees and they are operating from company-owned premises in Fronten. It's a little bit different acquisition compared to the other ones we have done during the year because we have acquired it from a bankruptcy administrator. So the mother of BDT has gone into default, also the biggest customer and a former sister company went into bankruptcy, which actually pulled down the mother. So this is a little bit Weird circumstances, I think we were able to make quite a good acquisition here with good value for money. But then, of course, losing the biggest customer, drop in revenue, partly this revenue dropped, of course, already, not of course, but it dropped already this year. So this big customer had shrunk to really small customer for 26. and we are expecting perhaps some rest production during 27. And that is also really an opportunity now because we have cleared the balance sheet from all the assets related to this. And we have also the purchase prices also accordingly to this. So we think we have a good opportunity here. And we're especially glad of actually entering the German market, which has been a target for many years. Just a picture from our launch day. This is Erik and Vegard presenting Ignition for our customers and partners there. This is me and Erik meeting the owners and the management of DevDroid. We went to Lviv, Ukraine a few weeks ago and it's really fascinating to see these young people How fast they are expanding this company and how they solve problem and how they just simply move forward. They are in a dramatic situation, but there are a lot of energy there and there are a lot of fighting spirit and the way they operate this company. From typical Swedish slow moving organizations, it's refreshing to see what you can do if you have to put it like that. Yes, coming over to our financial targets. I like to show this picture to explain where we are coming from. And we have been growing fast between 15 and 25. Annual average growth has been 23%. Year-to-date growth for Ignition is 24% in 2026. and our EBITDA has been there stable about five-ish except for 2021 where we consolidated the losses for Enedo at that time. Now we have turned around Enedo two times really and we all have reached about seven-ish margins now and initial power still though diluting profit margin. Looking at EMS alone, it looks a lot more stable even though growth comes down a little bit. And for Ignition EMS alone, year-to-date EBITDA margin is 7.4%. Then, 21st of October, board of directors for Ignition decided to revise the financial target for 2026, changing the sales, the revenue target. to be between 2.6 and 2.7 billion compared to the old target 2.3 to 2.5. Given our last 12 months at 2.582 and our order book, we expect the sales to be in the middle of this new target. We have an EBITDA margin that shall be above 6% and Looking where we are and also then, also given our order book, we think we should be well fit to reach well above that target. We also have a net interesting bearing debt over EBITDA target to be between 1 and 2.5 and we are currently running at 2.0 and we also have a dividend policy to to have a dividend of 30% of profit after tax. So, thinking of our historical performance, we have been growing much faster compared to these targets we are setting up, the mid-term targets. but we have a fighting with our EBITDA and now we are there sevenish and the trick is to moving it from sevenish to nine that is really what is what the trick is about the few coming years and I have strong confidence that we will manage that and one important thing is to shift to less acquisitions and higher Less acquisition and higher share of organic growth. And if we look at this year, we are now in the quarter, we have 18% organic growth and zero acquired. Year to date, we have 15% organic growth and nine acquired. If we look at the average acquired growth the last three years, we are at seven point something. So we've actually followed the new strategy, if I put it like that. We also have the mega trends that you have heard me talked about many times. We have nearshoring, we have automation and robotization, we have internet of things, electrification is a big driver. We also have, it's not a mega trend, I really hope, but we, for sad reasons, we have a booming defense sector that use up a lot of electronic. We also have AI driven expansion of data centers now. If that is a mega trend or not, it has to be It has to be proven, but now they are expanding so fast and that also creates a lot of use of electronics. So that was enough from me. Do we have any questions, Albin?

Not as of yet, so I would like to remind everyone that you can ask questions for the chat function here and perhaps meanwhile I can start off with some questions. So regarding the strong order momentum that we saw here in the quarter up 62% year over year, you note that some of the larger customers placed orders with longer lead times And how much of the Q4 intake would you say is due to these sort of pre-buying rather than perhaps incremental demand? And perhaps how much of the backlog is scheduled for delivery in 2027?