Inission AB (publ) (INISSB) Earnings Call Transcript & Summary

Dear all, thank you for looking at this short video, we are sorry for the short comings yesterday, when we had our AGM and made this presentation live for the audience in the hall there. The idea was, of course, that you should also be able to participate, but we have technical issues. Therefore, we do this recording the day after. I am Fredrik Berghel, and I am the CEO of Inission. I will present to you our annual figures and also our Q1 figures. And I'm really proud to present the best year ever in Inission history, 2022. And I'm also proud to present as the quarter profit-wise first quarter of 2023. Myself and [ Ole ]. we started this company 15 years ago, and we are still active. My co-business partner, Ole started this in [indiscernible], and we are still active in the company. Ole as Chairman of the company and myself as CEO. When we talk about Inission now, we mean Inission Group and in Inission consists then of the old Inission EMS contract manufacturing. And since quarter 3 last year Inission Group also consists of Enedo. Enedo is an OEM company with their own product, their own IPRs. So they are developing manufacturing, marketing and selling their own products. So for today then, 2022 in short, numbers and what have happened. Likewise, for Q1 this year. And then I will repeat our financial targets that we presented at our Capital Market Day mid-January. 2022 was a fantastic year when it comes to turnover and when it came to profit. And if you look at this graph, we have had a very strong growth historically. And of course, now adding on 3 quarters of Enedo 2021 and now 4 quarters of Enedo 2022, the growth was really high, measured that way. We have also, as you see on this picture, recalculated the numbers. So '21 and '22 are IFRS compatible numbers. But I think also we have been growing very fast over the years, but we have also, except for '21 then had decent profitability, not according to our expectations and our targets, but we have had decent profitability over the years, about 5% EBITDA. If you just look at hard numbers then, our turnover was SEK 1.9 billion, which was an improvement or an increase with 50%. Our EBITDA was SEK 91 million, which was an increase with SEK 109 million since last year was a loss then. Same way, of course, with the EBITA margin. There also, we have a higher increase than the margin itself for the very same reason. So then what happened last year? In January, we announced the acquisition of MLB Electronics in Lohja. It's quite fascinating actually that we [ little ] Inission. We only have two sites in Finland, quite a big country, but we have both sites in a quite small township there called Lohja. So that is, of course, a total coincidence, but still. MLB has developed in our group in a really, really good way. And now we are looking into -- or we are planning that they will be -- they may join forces with our own, and they will be co-located with old initial Lohja. So that is happening right now. And for you that remember, we had started last year with a quite challenging component situation. Shortage in the market that has been driving our stock levels very high. It has made it very difficult for planning purposes, and we have also had quite -- built up quite a backlog due to this challenging situation. And then a little bit later in March, we had actually roof collapse. We wrote about that. And 1 year later, you almost forget about these things, but that affected the output from our Lohja factory quite a bit. There was a lot of extra cost and a lot of energy going into repairing this, repairing everything back. And now we are almost there. We have moved back and we have installed the machines again. But this has taken quite some energy from that part of our organization. We have, during the year, co-organized. So 8 of our 10 factories has become 4 companies. And that we have done because we have the idea of creating larger business units. We think that will be -- that will enable -- that will be one in building a higher stable EBITA margin or profit level. We're also taking the steps towards a more central organization and especially within sales and sourcing. Our business area in [ Innovate ] was launched in the spring last year, where we have actually made a unit by itself or a business area of our development resourcing. We are breaking out them and following them separately. It's not a big operation so far, but by putting them in a known group like that, it will be very focused for these people. We have also, during July last year, increased the ownership of Enedo from 50 to 80 by a share swap with the main Enedo owners below us in the shareholder list. So we explained that then that Inission and Enedo together would be a good combination, and they accepted our offer. Rough numbers, 11 Enedo shares for 1 Inission shares. So then doing that, that all for a public tender offer. We had to offer all the shareholders the same offer that we have made -- the deal we have made with these main shareholders. We run that process during September, which resulted in another 15-plus percentage. So as we speak now, we have 96% of the shares and votes in Enedo. Towards the end of the year, we had our annual Entrepreneur and Innovation Award, call it Inission Innovation Award. We have been doing that for 9 years now and a Gothenburg-based Internet of Things company, Brina was the proud winner of that award. So to the Q1 numbers. Here, I have put them together to give a picture of our last 12 months result. So we are -- we have now a record EBITDA of SEK 114 million for the last 12 months, and we have also a record turnover last 12 months, exceeding now a little bit of a hallmark, SEK 2 billion, which we are very proud of, of course. Sales then in the quarter, SEK 565, which was Greece with 29%. The really bulk of that is organic growth since a very small portion is acquired growth, MLB in January. We made an EBITDA result of SEK 45 million, Greece with SEK 24 million. And the group combined now have an EBITDA margin in first quarter of 7.9 percentage, which is quite a high increase there with 3.1 percentage. And so what have happened during Q1 this year, that is very much closer in mind, of course. In January, we held a Capital Market Day. So -- and you can find it on our web page. We have an hour to spare, I could recommend and really are interested in Inission and what we are doing. In Enedo-Inission Group, I really recommend to spend an hour there. It's worth it. It's almost even a little bit entertaining even though I'm a big part of that myself, I can say that. Component situation is still troublesome, but getting better and better, say that. So now our output is more controlled now by capacity rather than the component situation. Still disturbing, totally different from 1 year ago. And we foresee that this will ease up during the year. So our idea is that when we leave 2023, we will not talk about component shortages. We have upgraded our Malmö site with new SMT machines and also upgraded the old machines there, new software and so forth. We have also worked not only this quarter, but already last year to move from K3 accounting principle to IFRS. But that was, of course, launched when we presented our Q4 and annual numbers, 1st of March when we presented our annual numbers and the numbers that was all back calculated to IFRS standard as I showed on the initial picture. We had a very successful customer supplier and partner conference called Involved in Stockholm, 20th of April. Quite a big success where big customer and also other very important guest speakers held speaks. We had roundtable discussions, and we worked together with suppliers, customers and other partners, almost a full day there. At the end of the day, we brought in some pizza and beer also. We had a fantastic time with our main stakeholders in that sense. We have also since last week now started up a liquidity provider together with ABD. So our numbers then splitted by business area. You can see that the Inission portion of this is doing quite well, even reaching in the quarter here, reaching an EBITDA margin of 8.9%, which is quite high to be Inission. Absolutely not world-class in any sense, but to be up, it's very good. Also, Enedo is performing when it comes to profit level. Really good. Remembering that they are on an improvement path that is quite steep. We also have good -- both Enedo and Inission had very good growth in the quarter. So we are -- we have started this year in a very good way, I would say. So then referring then back to the Capital Market Day that we held in January, I would like to repeat those financial targets that we put up for ourselves. And that is for this year, short-term financial targets. This year, we would reach SEK 2 billion. As you saw on the other picture there, we are already LTM on that level. And the balance there, 1.5 EMS, 1.5 OEM is also about there. Profit level, there, we have a little bit to go, but that is also not too far off if you take last 12 months. We think that we are quite confident in reaching those short-term financial goals. Also when it comes to the debt level and the equity ratio here is component situation easing out the way we foresee and we are running in this speed, utilizing our machines and what we are doing, we foresee that we will be able to decrease the net debt over EBITDA so that we will go towards the end of the year to 2.5, that is our target. And also the equity ratio will come above 30% towards the end of the year. Then long term, then there, of course, we had set the goals a little bit tougher when it comes to growth, we have always been growing, as I showed on the first picture, a lot faster than this, double the speed of this. So we are not afraid of that target as such. What the difference the historical initial then would be that we are switching. Our focus now is really to switch towards organic growth rather than acquired growth. So -- and also the acquisitions that we do that we are disciplined and buy companies that will be either contributing to the margin or at least not diluting the margin. Historically, we have had a history of buying decent company and had the idea to improve them. And that would be okay also for the future, but we will try to find a higher performing company and maybe then pay a little bit more in order to reach this next target we have here, the EBITDA of 9%. And here, we also foresee that Inission as such, EMS Inission will be doing quite good and then also that we will have a recovery on the portion. How will this happen then apart from growing slower and also acquiring better companies? I have talked about a few things already. We are going towards larger business units. That's one important thing. We are also going towards more centralized sourcing, as I talked about, centralized sales, easy language drawing from synergies being a group in that sense. We also spend quite a bit of time and energy on process development. We have this development project where we have engaged probably the best lean consultants that you can find in Scandinavia to help us factory-by-factory to improve our processes. Then also, we invest back in machines, optimization equipment and also invest back in our personnel's competence. So we try to put back a lot of money in this also to improve the efficiency and the means to be able to be profitable. Then last but not least, we have a new situation, a new situation in our industry. We started 15 years ago. There was always more or less all EMS companies, they were undersold. And over the years, some have gone bankrupt, some has been acquired. So the industry is less fragmented now, but also the underlying structure and the growth and the need for our services has increased due to that electronics has become more and more in the industry, but also production coming home from Far East. So demand vis-a-vis versus capacity. There is a balance in the market now that has not been there before. And we see that clearly on our colleagues in the industry. They are able to earn money and they don't give projects away. They don't sell their services for free and just to bring in contribution money that we suffered from 10 years ago or even 5 years ago, but that has changed in the last 1.5 to 1 year. So we look upon this with quite optimistic eyes. Thank you for listening.