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

Hello, and welcome, everyone to this Q1 presentation. My name is Henric Hintze, an analyst at ABG who follows the company, and I'm here to help moderate the Q&A that will take place after Fred gives this presentation. [Operator Instructions] With that, please go ahead.

Thank you very much, Henric. Welcome to our annual meeting and our Q1 presentation. My name is Fredrik Berghel, and I am one of two founders and one of two principal owners of this company. Me and Olle Hultberg, we started this company 19 years ago, and we are still both active, myself as CEO and Hultberg as the chairman. Today, I would recap 2025 both what we have been up to very, very brief and also the financials 2025. I will go through today's published or late evening yesterday published Q1 report. I will also talk to you a little bit about what we are actually doing apart from the numbers. What are we up to both in initial EMS and initial Power. I will tell you a little bit about our acquisition strategy, something about our financial targets and then we round off with a Q&A together. So last year we had a challenging third half year. All in all we ended up having a total revenue of SEK 2.2 billion including Selteka, so it's a small growth there, but including Selteka and also, a little bit of AXXE, revenue of SEK 106 million. It was actually an organic decrease with SEK 50 million or 2.3%. The slow start of the year and also initial Power being loss, making last year brought down EBITDA result. If we go further down in the P&L our earnings per share was also affected as we have talked about, the high valuation of the AXXE acquisition when we finalized that in November which affected the result per production with the total result of about SEK 20 billion. So all in all as I said net sales SEK 2.2 billion and the EBITDA amounting to SEK 111 million which makes up 5% margin. Looking at this picture, I think I said it last quarter also it sort of illustrates the total market overheated margin '22 and '23. So all in all I think '25 both turnover and profit perhaps sort of are in line with the normal -- should have been in line with the normal growth. So if we extrapolate from preCOVID I don't think '25 necessarily was as bad as it looks like. So what have we been doing then during the year? We have greeted a new MD, welcoming Mattias Neumann. He has quite a bit of industrial experience, and he also directly comes from Kongsberg, previous Rolls-Royce. Kongsberg also happens to be one of our largest customers, so we are happy about that also last year we leveled we changed the listing at NASDAQ from first and also to the main market which was internally a huge project and now we came through this project in my meeting, being a more robust more sustainable and we have a lot of the formalities in place in a totally different way because the demands and requirements from the main list are quite different on a higher, totally higher level compared to [ first laws ]. We also have the integration of our Inission Tunis factory. We also moved in Boras from our old location into a brand new unit factory that was actually rebuilt totally for us, where we have set up a very good production flow. So unfortunately we don't have too much production there now, but from an appearance point of view this is what is normally saying this is our most beautiful factory if there is such a contest. We also made an acquisition last year. We acquired a super duper fine company in Lithuania called Selteka UAB, and they have a little bit different profile perhaps compared to our other northern European factories a little bit higher volume close to even consumer products running there with a very efficient flow setup with that factory. So we brought in new customers, but we have also brought in sort of the level of production where we perhaps want to be in all our factories. We've also welcomed a new managing director for our Tunis operation, Ali Biel extensive industrial background and have been in charge of quite large operations in Tunis. We also have applied and been approved as a member of SOFF. SOFF is an association for Swedish companies involved in defense and security industry. We think it's important in the days now with defense industry really booming because then we can be in their context together with these people and learn. We also in November acquired the last remaining 49.9% share of AXXE. As I said, AXXE doing quite well and the value of AXXE was high when we actually closed the deal there in November compared to our original analysis, meaning that we made book loss it's a little bit technical but we made a book loss there I just explained earlier So just showing a few nice pictures from last year being in [ Tullvaktsvagen ] in Stockholm. We had a delegation there in Tunis together with ambassador Captain Griffins. We did the same in Boras. And opening this had a very nice grand opening of our totally new premises there together with the customers, suppliers and board of directors. So that much about last year. And then we coming over to Q1 2026. So reported sales increased 37.4% to SEK 664 million, however adjusted for SEK 53 million the organic growth was 26.3%. And including in that quite high growth I want to explain that SEK 20 million of these was pure material sales to one of our biggest customer which perhaps we always want to say also manufacturing services included. But it's a risk thing also to hand over material that is not in use. Customer are required to take orders. We - that tiering sales also affected the EBITDA margin with 0.2%. So nothing dramatic but still if we're looking into the Q numbers here and a high level of explanation here these SEK 127 organic new million, we also have reduced cost from our cost cutting program in initial Power for marine contributed to the higher profit. We had similar material share actually compared to last year. So all in all this, this came out as 70 turnover minus direct material I call that net added value, come out SEK 70 million higher. But we also had costs SEK 41 million higher so that builds up the SEK 46.7million EBITDA, which is actually an improvement then from last year with SEK 26.7 million, which comes out 7% a margin and then also with low quite low financial cost. Last year we had high financial cost due to currency losses. This year we had some currency gains. So all in all there is a big difference there between the quarters when it comes to the financial cost. So all of that builds up to this SEK 1.5 per share. Just to explain a little bit about also we talk about that we are cutting cost and then you say SEK 40 million hiring cost here. How does that tie together then? And then one has to remember, out of these SEK 41mllion, SEK 35 million is coming from Selteka. So all in all, this extra SEK 35 million like for like costed us SEK 11 million to run meaning that we have quite a nice fall through there. So a lot of the extra revenue becoming net falling all the way down to 8 level. Also, cash flow I want to highlight we had good cash flow in the in the quarter SEK 43.6 6 million quite low increase of our net working capital SEK 15 million only, compared to the cash flow before change in net working capital SEK 58.6 million makes up these SEK 43 almost SEK 44 million which I think is good. So looking at year-over-year, it comes out quite dramatic. But if you look this by looking at the quarters in sequence then you can all see here that both revenue and profit is sort of built up gradually. And from our best knowledge from what we have now from order intake and also when we are talking with our customer we think this indicates that we should be able to run on this invoicing speed or sales speed. Also, with the current cost structure, we are a strong believer of that we should be able to maintain this profit level given that the sales speed can be there altogether. So then looking at LTM numbers now SEK 2.35 billion which is quite a step up from 2025 then, also the earnings quite a bit decent step up under SEK 138 million actually as some colleagues said in the in the in the industry when we are doing so well now in sales I actually had hopes for even better sort of gearing on this extra volume. But still, so some news from the quarter. We have a new MD in what we call Inission SYD, meaning [Foreign Language]. And it's so funny. He actually owns a lot of [ scooters ], but that is another story. He has industrial experience from Trelleborg and Sandvik and especially interesting is his experience from Nolato. And Nolato as a contract manufacturer but in the plastic industry. So we think he is a good fit to take care of Inission SYD. Initial Power we have name changed, Enedo to Power. They received a very interesting cabinet order for cabinet based DC battery charging system to a European defense customer as we have announced a little bit of breakthrough there and in my thinking going from a component PSU and LED driver supplier I think maybe the future for initial Power will be exactly these like this steering over more to be a systems provider where we can actually engineer out totally unique solutions for each and every customer. Then we are not really competing with the huge giants that are in this Power supply industry, these big tiny ones because from cost point of view it will we will not be able to compete with them. But if we scale it down and if we do customer unique projects hopefully this could be the future for the company. We have also a new managing director in our talent operation, Kaarel Viik. He's coming from his -- he's got industrial experience. [indiscernible] He comes from [ Hansa ] mechanics in Power. Yes to current trading looking at the business areas separately. And then starting with business area emission EMS, very good sales compared to last year's but then we also those of you that were here last year remember that we had quite a bit of push out last year had some PCB problems in Norway we had some customer that actually delayed their orders. So we were starting last week last year quite slow. So we have good comparison numbers but still we have a good sales there and the EBITDA recovery for these improved sales and then as I said earlier the beta margin could have been even a little bit higher than this 7.5 with 3 percentage units not having this material sales. And then we had some extra costs for covering for a backlog that we had created especially in Inission. So we at Inission, have good hopes for the future there. Looking into what we now then call initial Power 50 seconds OEM. They also shipped quite a bit higher volumes compared to last year 15% higher. And there we had the cost cutting program and it's clearly seen now this higher contribution together with the cost cutting program we are back in black there and also for initial Power, given our order taken order taking and the cost structure we feel quite confident that we should be able to maintain this then I had to put in this slide never done it before. But since we have been doing so well the last year I wanted to show the share price development and then I know here in the audience there are shareholders that has been with us since we started and then this is 660% increase from where we started compared to 1x then 30 that actually has performed 73% during the same time. So that was all about the numbers that was all about things that we have been up to 2025 and Q1 this year. Then over to what are we actually doing then some explanation of our what we are up to for today. As explained our company is divided into business areas. We have initial classic someone calls it and then we have initially, Power. And I will explain what these two business areas are doing a little bit more in detail. But first the company history and mission as a company is very much acquisition story. Me and Olle have been since 19 years been adding on companies to this structure, roughly one per year. And yes, it's quite often you overestimate what you can do in short term, but you also often underestimate what you can do in long terms. And think perhaps this is a little bit like that. We are both -- me and Olle are both strong believers in the damaging company, and we are constantly pushing out this message to our continuously educating all the way from our board of directors to the to the operators in our factories. These common values that is that is really for the all of the ignition employees. And I think really one good example when this comes to it best that is when we have daily steering meetings early in the morning in the factory and these things are talked about sustainability of course extremely important. However, maybe sustainability and what we think about sustainability because we have been working that the long time, where we have lined up the sustainability goals together with our business goals. Big portion of that type of work last year was spent on EU compliance [ CSRD ]. So that was last year but also in the beginning of this year. So now we are we have this sustainability report according to that directive. So in EMS, we are a leading supplier of manufacturing services for almost within electronics but we also have resources for ship fabrication and design. As for today we are about 1,200 employees and the business area is organized in 10 companies with 12 factories. We do everything from product development. We have own engineering resources for that. Industrialization building prototype for our customer and then of course manufacturing and manufacturing is the big bulk in these dots here. 90 per 95% of the revenue would be actually manufacturing services. We look at the face split per geography, this picture has been looking a little bit different. Sweden has been almost half. So Sweden has been shrinking in the new group and Norway, Finland somewhere in between, but since the whole group has been increasing so Finland has been comparatively the same the same size there. So I think we're all shifting over and our Norwegians plants or Norwegian companies. They are doing quite well looking at the segments we can also see the movements there since last year these that this '25 numbers compares to compared to 24 numbers and as you all know defense is increasing very rapidly around us and we don't have any of those customer where the end product explodes. We don't do that but we do a lot of other defense-related things. And as you can see here we have been going from a small number seven up to 12% defense. We also have a what I would say fantastic customer portfolio, 37 key accounts building up 72% of our revenue and then we don't have a big dependence. We have our largest customer here is actually 9% and there it used to be AB but has passed AB now as our largest customer. We also do a lot of box build important to know box built is an enabler for us to provide more services to the customer. And then just a couple of customer examples. Talon defense customer they are doing communication equipment and ear detection equipment. Extremely, extremely high demands and reliability and of course extreme rough environment for this electronics. We also have an industrial customer Epiroc old Atlas. They're making equipment for mines. Same goes here. Having an industrial company's requirement on efficiency and OD is extremely important but also the environment for this electronics in a line of course also they're quite extreme. So coming over to initial Power in difference to initial EMS which is contract manufacturing services initial Power is a product company. They have their own products their own IBR OEM company. So they are designing their own products and the history is telecom related back in Finland in the days they have shifted over from telecom being two figures competition being the scale is totally different acquiring a company in Italy called [indiscernible], and then later acquiring similar type of industrial Power supply company in Finland called Powernet and out of these two companies they created in EU and what we now have transferred the name to Power. If initial EMS is quite a Nordic company initial Power is much more a multinational company having a lot of EU customer. US, we have big our biggest customer for both in Power Italy and emission. Power Finland have their biggest customer in US. And here you also see the split on product level 65% of what they're doing is Power supply and then we do this DC system that I just talked about and it's shrinking but still important and big portion of what we're doing is LED drivers and out of these three LED drivers is really where the competition is looking at the segment here quite stable since last year there are not so much movements really and then just Couple of examples. they do these for us customers. These enormous video screens or lens screens. We do numerous of power supply units are needed to power up this type of big video screens. And here of course, reliability. You don't want to this because if one of our Power supplies goes down, it comes out as a black dot there. And that is that just common. So reliability is extremely important for that customer. In Finland we do more system sales and here we do for trains. This we do battery charging DC systems, more trains, so even if the train get loses the currency from the top it should be able to communicate. It should be able to be light there. These sort of backup that is what they typically provide for train installations. So that was initial Power and then a few words about our acquisition strategy. We normally buy customers we have this idea about geography but what we really buy is when we acquire a company that is customers. So that is when we do our due diligence as it's called that is to really to try to understand if we like the customers because it's everything is going to be judged at the end of the day by the customer if we have successful and good customer we will ourselves have a good journey of course financial stability financial potential. And then also not the least of course management culture, how are these people performing. And normally that is not an issue because most of the companies that we come through there are they're driven by the donor or the family. So normally it's really down to earth people that we meet there. So it's very seldom that we find something find some something strange. Talking about the two business areas here we are so far only focusing our acquisition on the EMS side. We will hopefully later on start also on initial Power but that will be for later. In our acquisition model we also have this idea of when we do the due diligence that we also identify improvement things and then when the acquisition is done we can start implement these improvements sort of from day one more or less. As I said earlier, our latest acquisition was this company in [indiscernible] last year about 16 million euro turnover, making 8%, 9% EBITDA with 230 employees and yes, really nice company. Normally, there are [ CDs ], they shouldn't be over dramaticized but there we can we can do better together on sourcing we almost always implement quite directly our IT platform we financial structure we put together we also of course implement our KPI structures and things like that. And then we tried cross sales cross setting and here we clearly already have handful of quotations from Finland from this from Sed I talked about because they are they are competitive in price we are positive to this industry growth is there underlying growth is clearly higher than GDP growth so it's a good market to be in all in all. And there are these mega trends that's driving this electronic being an enabler for a lot of our industrial customers. We have this shift from near sourcing. We have the robotization and automization. We have machines talking to other machines and all of this is driving the need for industrial electronics. So the last portion here now in my presentation that is our financial goals targets and to explain before I go into that I want to explain what we have been doing in the history and here you can see that we have been growing since we became public 2015 we have been growing quite rapidly. And we have been reasonably stable in our earnings if we exclude emission Power. You see earnings is even more stable. I mean we are doing 7% a good year eight and a bad year five or six but extremely stable even when we are producing a lot we don't do that much more and we produce less we don't lose out that very much more either so quite stable and here and with that as a base. We have the target for this to actually have a sales between SEK 2.3 and SEK 2.5 million and as I said earlier there talking about our order book and the start of the year sort of indicates perhaps the higher end of this interval 2.3 2.5 closer to 2.5 then also the margin we have a idea of or our target is that margin should be above about 6%. And then EMS portion is more profitable compared to in Power. We also have a captive structure target debt if it not be below one. Maybe you could say so should you have a floor there. Yes, it's smart. We shouldn't have we shouldn't be over consolidated. That hasn't been our problem historically though. But now we have introduced a floor which I think is indicates a good thing. Then we should be below 2.5. our covenant with the bank is three but being able to borrow money from the bank. We should be below 2.5 otherwise we have no room to play with that. We also have this dividend policy that we want to distribute our shareholders 30% of the of the earnings after tax. Long-term targets growth 15% growth means that we will double our size in five years which we actually historically never have failed with. We have sort of always been running faster than that. So one portion of that is going to lift our earnings that is actually that we're going to slow down. So one of portion of the strategy we're going to slow down the efficient speed. So acquire high quality little bit less. So out of these 15 grows 10% organically and 5% with acquisition that is the certainly big for the future. And then also the other items that I talked about here mega trends will help us with the market. And then -- and it was lucky that I was down there because that was my last picture. I guess, we're done.

Excellent, right. [Operator Instructions]. But we'll have a think about that. So you still have this [indiscernible] out in this quarter versus the demand level we can expect?

No, I would say of quarter directly a bit over the month. If there's something to add there, maybe vision is slightly stronger still and has been the last two quarters. No, we have been a reasonably stable Q3, Q4 1.1-i-sh and we are still there Q1. Yes. Oh, quite stable. Yes. Very good.

And I want to talk sales growth. You mentioned in the report three areas that were maybe driving a bit more than others, mentioned the balance of course, data centers [indiscernible], could you maybe walk us through your exposure to these sectors and how much of your growth is explored by the high demand you're seeing in these areas.

Yes, I presented this customer PowerPoint here, and they are doing well they are a little bit project oriented and they have been doing in high speeds task. We have had quite a bit of deliveries to Falcon all the way from last half year last -- the second half last year but also starting this year. So that is but we also have other defense customers that we have hopes for the future Kongsberg, not the least. We are doing some business with KDA, the defense division within Kongsberg but so far more little bit of triangles. In [indiscernible], we have a decent business there. But also now we have done try out orders from Holland. And so there we have hopes to deliver more to Kongsberg within defense. When it comes to this really special computers, we have two in very interesting customers in Finland. Both actually delivering to this quantum computers that. That industries also have growth there and one of our [indiscernible]. I just said it earlier one that used to be our biggest customer [ AUB ], they are sitting in the perfect storm there when it comes to these data centers they provide a lot of infrastructure to that and [ AUB ] is our second biggest customer.

And maybe specifically on any other now, Power growth 99 still type growth [indiscernible] more now over 3% given all of this would you say that there's room for additional sales of expiration throughout the year and should that enable further market from this level.

Yes, think it like since -- we come in 2021 at first as half owner and then a couple of years later as the main owner and now 100% owner. This has been a surviving building. You know, we have been cutting cost to make sure that their income in line with the or expenses in line with the incomes and but now we really think that we have stabilized the situation and now we have focused o over from this identifying activities to actually more strategic long-term out of all the products initial covering, where we focus systems that is the board of the company's conclusion we should go into the system we let the drivers we let go. PSQs, we have really good products but perhaps, we shouldn't overdo that either. We should steer over that. And we have a fantastic set of customers. And a lot what you see now coming back that is actually same customer base coming out of this post COVID or whatever we know that better economy. So now it's a matter for initial cloud to find new customer to actually start new growth with totally new customers. That we really need. And we are positioned like so we should be able to do that perhaps not this year because sales cycles in the industry is very, very long but now we can start to actually pinpoint things that works slow very good moving on to some questions from the chat then what would you say are the most important drivers for getting closer to the 9% markets that I have for the longer term.

What do you think are the main drivers for getting any closer to the 9% market growth for the long term?

The best thing is organic growth organic growth when we grow organically that is fantastic for earnings because we have what I talked about earlier we have this fall down. That is that is always happening. So that is the strongest thing and then all I'm normally referring to what you have to do in this industry because we have companies doing five, we have been companies doing double digits and it's a matter of adjusting the 12 wheels long-lasting. So when you are in -- when you are in a stable position, you can tune these wheels, and then we should be able to do this nice, but then also you have to have a respect for the history. We haven't been there yet. Also as a group, so then we had a one of the directors, one of our big colleagues in the industry said yes, but you always have to realize that some [indiscernible] falling out of the pattern. And what? You know, everybody's doing well, and we shouldn't have this problem but -- so we all we have to live the lowest level that is one portion of the company so but then I really again said you know we have to be. We have to be more disciplined and more careful about acquisitions. We should do AXXE, and we should do Selteka. We shouldn't perhaps do so much in because that maybe it's not more difficult than myself and my board of directors are more disciplined to make it extremely high.

All right. And the 2% margin targets that we have for this year or [indiscernible] most target [ 7%, 40%, 2% ] for that implies that probably we the rest of the year. Then Q1 here was behind that.

We invented this early this year and of course, we want to have our financial targets or our ambitions we want to be-- we want them to be bottom, you know? We don't want them to see that perhaps that is something we achieved we should be it should be interpretated as lowest where it should be that is really our ambition, so they have all the chances in the world to do that, too. Absolutely.

So on a group level, considering the strong start to the year here in Q1. Would it be fair to say that the guys for the year, might be on the conservative end?

It should yes -- that is how I judge it also. But we start there and then we set them and then we improve the target or the goals for next year. That is how we think about it.

And you wrote a bit in the report about the Tunis factory and how you're trying to attract new customers to the production there. Can you tell us a bit more about how it's going?

Yes, it's we don't have any substantial business there yet, but we have actually two deals now. We have one second try order and now we have one another also try out orders. If we can if we are successful with these try out orders, we should be able to ramp up the business. But again, as I said earlier here, it's long term. You know, the lead time in this industry are known. So from the first call goal until we have a decent business ongoing two years. So we have to have patience. And we have to work steadily. But there are there are opportunities that we are already coding. We have customers and customer visits going there. And we have that as a rule, you know? We don't make a profit. They don't bother about going to choose and look at our factory because the factory standard there is same as anywhere in Europe, so it's -- we have a fantastic, nice looking factory with good potential so they have to go there to show that they are interested and then they're hooked, so we will get there.

All right. Do we have any questions in the room? You all seem perfectly satisfied with presentation? Very good. All right, in that case I think there are no questions on the chat line. So I think I'll hand it back over to you for final remarks.

Okay, Henric. Thank you. And thank you all in the audience here that has listened and also all that we have on the web. And that [indiscernible] now. Thank you very much.