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

Hello, and welcome, everyone, to Inission's Q2 2026 Earnings Call. My name is Henric Hintze. I'm an equity analyst at ABG Sundal Collier, covering Inission. I'm here to moderate today's call. We will start with a presentation by Fredrik Berghel, the CEO of Inission and then move on to a Q&A session. [Operator Instructions]. With that, I hand it over to you, Fredrik. Please go ahead.

Thank you very much, Henric, and good morning to everyone. Thank you for listening in. Welcome all to this Inission Q2 presentation. My name is Fredrik Berghel, I'm one of two co-founders and also one of two 2 principal owners of Inission, myself and Olle Hulteberg. We started this company 19 years ago, and we are still both active. I am the CEO of the company; and Olle is the Chairman. For new listeners, I would like to mention that these days or since a couple of years back, Inission is organized in 2 business areas: Inission EMS or Inission Classic and Inission Power formerly Enedo. We will go through the -- I will go through the financial performance. I will mentioned a few highlights for the quarter. I will also revert to our financial targets and comments where we are vis-a-vis those. And as Henric said, we will end this presentation with a Q&A session. All in all, we had a really good quarter. Reported sales increased 18.7% to SEK 635 million, where Selteka was contributing with SEK 61 million which gives an organic growth of 7.4%. A high level explanation of the Q2 result, net added value invoicing minus direct material increased to -- with SEK 66 million due to, of course, higher volume, but also better material share, SEK 53.5 million vis-a-vis SEK 56.3 million last year. Cost level with another factory and also running with higher volumes, cost level increased SEK 49 million, including personnel, other costs and also depreciation, gives an EBITDA of SEK 41 million, which is SEK 16.8 million higher than last year. This gives an EBITDA margin in the quarter to EUR 6.4 million, which is 1.9% higher than last year. We had a similar financial net, SEK 4.7 million compared to last year SEK 4.5 million, including currency profit of SEK 0.4 million. This all in all gives an earnings per share at SEK 1.3, which is then SEK 0.7 higher than last year or also more than doubled. Year-on-year, as the last picture shows, it's quite dramatic. If we look at quarters in sequence, then we can see that volumes have step-by-step increased and profitability have followed up with the increased volume. And all of these have happened gradually. Our best guess now for the future, judging from order intake and also talking with all of our customers is that this sort of new speed 210, 220 per month. So that is the speed we should be able to maintain during the second half of this year. So that then would indicate that we will end up in the higher higher end of our interval that we have given as a financial target of SEK 2.3 billion to SEK 2.5 billion. Also with the current cost structure, this indicates that we should be able to maintain the profit level that we have now. If we zoom out a bit and look a little bit more on the long-term development, we now have a last 12-month sales of SEK 2.5 billion, and we earned SEK 151 million EBITDA and those -- that performance is well in line with our target. I also think that this indicates that we can actually do even better with the profit margin if we can maintain this organic growth. I think also this graph really illustrates the EMS market in general, where it was really booming, '22 and '23 and then we have had a sort of a hangover, especially '24 but also '25. But I think now '26, we will be back on track and showing sort of underlying growth in the industry. If we look at the business areas in separate, all in all I think Inission did a really good quarter. Turnover, up 18.9% compared to last year, amounting to SEK 546 million. This gives an organic growth of 7.4% if we adjust for the Selteka contribution in the quarter. EBIT amounts to SEK 36.4 million vis-a-vis SEK 28.8 million last year. And this gives a margin of 6.7% versus 6.3%. This is, of course, slightly below our target of 7%, but for the first half year, we are at SEK 7.2 million and the volumes for the autumn look stable. So I think we should be able to maintain more EBITDA margin level above 7%. Going over to Inission Power, now name changed from Enedo. I will revert to that. They are shipping or we are shipping clearly higher volume compared to last quarter, 18%, ending up then with SEK 89 million in sales. And all of that is organic. And organic growth, we always know that, that is really helpful for our margin. So this higher volume -- we have the same gross margin. We have cost discipline. All of these have done that the profitability have improved dramatically. So the EBITDA for the quarter became SEK 3.8 million compared to minus SEK 4.7 million last year or measured as a margin 4.3%. Compared to last year, Inission Power are now a focused product company. And interestingly, Inission Tunis, which were their old factory now moved over to EMS the business area. They are also profitable. So I think this splitting between the product company and production has been really successful. Volumes for autumn looks promising. So we should even be able to do more second half of the year compared to first half of the year at Inission Power. If we have a look at the main items for the quarter, we name changed Enedo to Inission Power during the quarter, mainly for the reason for showing to the surroundings that we are 1 company, and we work together. Also from a branding perspective, it is, of course, a lot cheaper to maintain 1 brand, Inission. And it has been well received at Enedo, old Enedo or now Inission power customer. They feel that now sort of manifest that in Enedo or Inission Power are no now belong to this bigger group creates stability, creates trust. So I think it was a smart move. We have also bought back -- or not bought back. We have acquired the minority stake of the former founder and owner of of Simpro in Norway. When we acquired that company, Olav Sigurd, he wanted to be -- he wanted to keep a stake in this company. And the Norwegian company has been really growing over these years. But now we have agreed on buying those shares back SEK 4 million, SEK 5 million, partly. Half of that we pay with the Inission shares and half of that we pay in cash. Also, Inission Lokken, they have started up Enedo very interesting cooperation with with a collaborative robot company, flexible, collaborative robot company. And they -- we will work together now in a real factory environment. And we will benefit from having the last newest technology there, and they will benefit from actually having not a love environment, but a real factory environment. We are also really happy to announce. We have announced during the quarter that we have the first -- no, not the first, but we have added 1 because our factory now in June, it's mainly Inission power factory. But now we have brought in the first substantial contract there, starting small, but we have all the possibilities to grow that further. It's a Danish customer within the energy sector. So we are really pleased that we see the first small steps of converting Inission Tunis to a like, yes, you can call it a normal EMS factory. As a base for the -- our financial targets, I'd like to show the historical performance, where we have outperformed the market in growth either way you measure, we have been growing quite rapidly. And our EBITDA has been 5-ish, stable 5-ish except for 2021 when we consolidated in Enedo Power was fully consolidated. After now the second turnaround of Inission Power, we are back on 6-ish EBITDA margin. Even though Inission Power is still diluting margin for us. Looking at EMS alone, extremely stable. If we have a good year, we earn a little bit more. If we have a bad year as 2024, for example, we earn, yes, yes, slightly less. And now we are on the running 12 months and we are in 7% in EBITDA margin. And from this base, we really think we step by step, I will revert to that. But we really step things step by step that we will be able to improve from that level. Mentioning our target for this year or what we think is going to happen, I already have said this SEK 2.3 million to SEK 2.5 million thinking from where we are, LTM at SEK 2.5 million already, we think we will end up in the higher end of that region -- profitability. We also think we should target EMS above or around SEK 7 million. And so far, Inission Power has shown that they can earn more than SEK 2 million. So we think we are well on track there. We also have an order book now for the autumn that we feel confident with. So given our LTM at 6.1% and H1 at 6.6%, we feel confident that we should reach the margin target. When it comes to our capital structure, we are now at SEK 2.1 billion net debt over EBITDA. I feel also confident with that. When it comes to the more midterm 3, 4 years down the road, we really want and we really have the ambition to close the gap from our 7 -- or 6, 7 to the best-in-class that is actually double digit. But we are reaching for 9 and Then, of course, Inission Power have to step up. And that is a longer journey, but they have shown now that they are able to do that journey. And for -- on Inission EMS portion, we should also be able with our strategic thinking here now actually turning over to more organic growth. In the quarter, we had 7% organic growth and 13 acquired. If we look at the LTM numbers, we have 13% organic growth and 10% acquired growth. So we -- so far, we have stuck to the new strategy by slowing down the acquisition speed and focusing over to organic growth. And then also, we are, of course, helped by the mega trends. You have heard me talking about that before, but we have the near shoring. We have the regionalization work that formerly were sent Far East they are now staying in Europe, and they are even staying in the northern part of Europe where we are active. We have the automization, robotization, megatrend, digitalization, also Internet of Things is still there, proceeding. And then, of course, electrification, which is a driver of electronics big time. We are also now for sad reasons really, we have a booming defense sector where we have growing contracts, and we also have ambitions to improve there even further. So that was all from me. Have we got any questions? Henric?

Yes. So I will start off with a couple of questions on my own and give people a bit of time to type their questions in the chat, and then I'll move on to those. So First of all, I would just like to ask on the guidance, which you leave unchanged, but at the same time, you flagged that the run rate in H2 should be 210, 220 per month, which when I look at it, would put you above the top of your guidance range. So how come you don't raise the guidance here?

Prudence to be really confident. We also think that -- what we are stating now is that we will read and feel confident with that looking at our book. And then to -- then we also have to remember that we have Nordic factories. So July in my world is a half month. So if you correct for that, I think 2.5 is very close. But we also know that we have a good book. So the chances of overshooting this goal is good, put it like that.

Okay. Very good. I just quickly wanted to ask about the data bridge that you press released earlier this month. Will there be any costs associated with that in H2 that we should look out for?

No. This was very unfortunate, and it was -- yes, it is a sad story. I can talk long about it, but we actually had our security consultants in Italy to improve the system. And while doing that, the door was open for a short -- really, really short time and someone sort of linked in Italy and got information in our finished service. And all of this is to be very clear and I think our press release also states that. It's all Inission Power, Enedo for information. And we have been working with this during the summer, contacting because it's personal data. So we have contacted all of our employees, of course, easy but former employees, more difficult. But from an operational point of view, we were down hours. So we didn't lose anything when it comes to operational still though, our personnel data ending up at dark net. That is a loss. And that is -- it shouldn't happen. It shouldn't really happen. When it comes to what we learn now after summer, however, and that is really what triggered the press release that is also a for Enedo shareholder data have been leaked -- so that's -- and we can't get hold of these people. So that is why we did this announcement. Yes, those that are reading the pain getting the news and if they have had in Enedo or order shares, they will be aware, but it stays on that level, yes. No. So there is no cost associated with this, no.

Okay. Very good. Then it would be interesting if you could talk a bit about the situation with PCB lead times and the general component short situation that you're seeing. You mentioned in the report that it affected the phasing of sales within the quarter a bit. But what should we sort of expect in H2 because of this?

Difficult question really because so far, we have longer lead times on some items and that, of course, we can place orders on 6 or 9 months and then sort of we need it, and we think we're going to need it then. It's easier than compared to if we come on a year -- 12 months or even an 18-month plan. So it becomes more difficult on the component side. On the PCB side, we have had deliveries not coming. That is better now, but the situation is constrained. So we are, of course, trying and that you can see that also from our inventory. Our factories are trying to protect their deliveries by actually bringing home more than they are actually needing. But that is also a very difficult game since a typical bill of material in our industry is 100 rows. And it's difficult to know what you're going to miss since lead times are long. But we are -- so far, we are quite optimistic, even though we are really aware of that things can change to the works quickly. So that is how we play this.

Okay. And you flagged in the report that there was quite a bit of inventory buildup ahead of the autumn in the quarter. Was any of that or how much of that maybe is the right question related to these shortages.

Partly, the buildup of inventory is that we have an order book building up. So we have good deliveries coming up during the autumn. And we have brought home material for that. And then you could argue, yes, but you brought it home too early, yes. But -- so that is part of that. But then also the other thing, the share of that, difficult to judge because we we have a decentralized organization, and they are sitting the factory by factory and looking at this. And it's really -- and it's -- yes, -- it could be mentioned that most of this inventory buildup is for our Norwegian factory in Lokken,and they are really connected to Kongsberg and Kongsberg have actually after summon now, they have long in the horizon. So they are back now where we were during the last component crisis. So they are giving us orders now for 18 months. So that is part of the psychological atmosphere. They are afraid. They are pushing and pressing bring home material. And I think perhaps that's also why we see -- more than half of these extras, you will find there and a lot of that is Kongsberg related because these people are afraid of not getting their deliveries because in that industry, it's Kongsberg is absolutely booming. I visited them during the spring here and they have the have like 3 years order book. It's a ridiculous situation. So it's more a matter for them now how to how to ramp up production in their whole supply chain where we are only, of course, one small part.

All right. Let's move on to some questions from the audience then. So first question here, are you -- is your target ahead focused more on increasing the EBIT margin or on growing with acquisitions? And what do you think your EBITDA level would be today if you did not acquire businesses?

Good question. No, as I just said in the presentation, we have the idea of shifting over. We will keep on growing by acquisition, but we will do that slower, and we try to do that with the acquisitions also with higher quality. So I think -- or if we have decent organic growth, 5%, 10% or if we have -- let's play with the idea that we have 10% sort of consistent organic growth. For us to move in the EMS portion here now from 7% to 9%, I think that would be -- it would be difficult to not do that if I put out my she a little bit. It's because if the system is growing, the difficult part for all industry, but also for us is, of course, when you have this up and down and especially if you are shrinking a lot and you have to downsize because you still have the square meters there, you still have your investments there. And we also have all of our coworkers that are skilled and loyal to us, and we want to protect them also. Then we are a subcontractor. So of course, if volumes go down, we are adapting our cost and we do that because that is part of the game, but we don't do that lightly either. So -- so the answer on the question would actually be, yes, we would absolutely have 2%, 3%, perhaps even 4% higher EBIT margin if we totally stopped acquisition and just focused on EBIT. But we think everything, road always have 2 ditches, one to the left and one to the right. And we -- it's a balanced game. And we have decided to shift over, but not totally because we think and we are proud of our growth journey with the actual profitability level that we have had. And yes, if you take Enedo insission Power out of the picture, as I showed you, I think we are proud of what we have achieved, even though we know that our colleagues -- some of our colleagues, I would say, because not all, some of our colleagues are doing even better.

All right. Next question. Are you working on any defense contracts that may lead to higher volume in the near future? And if so, what sort of impact could they have?