Inission Capital Goods - Nordea

Inission SwedenCapital Goods

Commissioned Equity Research • 12 September 2019

KEY DATA

SwedenStock countryINISSB SSBloombergINISSb.STReuters

SEK 129.0 Share price (close)31%Free Float

EUR 0.06/SEK 0.64Market cap. (bn)www.inission.comWebsite

07 Nov 2019Next report date

PERFORMANCE

Sep16 Sep17 Sep18 Sep190

30

60

90

120

Inission

Sweden OMX Stockholm All-Share (Rebased)

Source: Thomson Reuters

VALUATION APPROACH

SEK136

SEK162

120 140 160 180

DC

F v

alua

tion

Source: Nordea estimates

ESTIMATE CHANGES

2021E2020E2019EYearn.a.n.a.n.a.Salesn.a.n.a.n.a.EBIT (adj)


Ready for ignition

We initiate coverage of industrial electronics supplier Inission with a DCF-based fair equity value range of SEK 136-162 per share, based on a WACC of 8.3-9.7%. We believe recent quarters have indicated that Inission is on track to restoring its EBIT margin to historical levels and beyond, up to ~8%, and we forecast a 2018-21 EBIT CAGR of 30%. We also expect the company to keep its focus on bolt-on acquisitions and being a consolidator in the highly fragmented market.

Inission at a glance Inission is an international supplier of industrial electronics. Its products and services are designed to cover the entire lifecycles of products. The company's strengths lie in its flexibility, its ability to adapt to customer needs, and its short lead times. With a diversified customer group where the largest customer only represents ~7% of revenue and where no single industry represents more than 25% of group sales, this should make the company fairly resilient. In addition, the organisation is decentralised and organised into units and subsidiaries that each have their own profit and loss responsibility. Overall, we view Inission as a results-focused organisation with a high focus on cost efficiency.

Strong earnings growthThe company has grown its EBIT from SEK 18m in 2015 to SEK 41m in 2018, corresponding to a CAGR of more than 30%. We estimate that Inission has good potential to continue this pace; we forecast a 2018-21 EBIT CAGR of 30%. This will be partly driven by continued solid organic growth, as Inission's customers have started to take back production from low-cost countries in order to be closer to the end-customer, but primarily as we estimate that the company will turn around the margin-dilutive acquisition of Onrox made at the end of 2016.

Trading in line with peers but with a NWC optionBased on our estimates, Inission is expected to deliver a 16% sales CAGR for 2018-21, which is twice as high as the peer group average of 8%, although Inission's sales growth is fuelled by acquisitions. Inission's margin is ~50 bp above the peer group average, which makes it one of the most profitable companies in the group. The company trades at ~11x 2019E EBIT and ~9x 2020E, corresponding to a slight discount for the current year and 2020E. Further, we find Inission's potential working capital release as an upside option to our estimates, which in a best case scenario could release cash corresponding to 20-30% of its market cap.

Nordea Markets - AnalystsCarl RagnerstamAnalyst

Christian HellmanDirector

SUMMARY TABLE - KEY FIGURES

2021E2020E2019E2018201720162015SEKm1,1461,1011,037740713526280Total revenue

104948349373123EBITDA (adj)89806941302418EBIT (adj)

7.8%7.2%6.7%5.5%4.2%4.6%6.4%EBIT (adj) margin12.7111.259.576.095.7815.3411.01EPS (adj)

13.0%17.5%57.1%5.5%-62.3%39.3%n.a.EPS (adj) growth2.502.001.501.510.003.000.00DPS (ord)0.60.60.70.60.50.40.2EV/Sales7.28.810.910.112.07.62.4EV/EBIT (adj)

10.111.513.58.17.52.81.5P/E (adj)2.53.24.22.12.20.90.2P/BV

1.9%1.6%1.2%3.1%0.0%7.1%0.0%Dividend yield (ord)10.8%9.5%9.4%-11.8%20.9%-40.9%-79.3%FCF Yield bef A&D, lease

137112417618713423Net debt0.10.81.53.65.14.31.0Net debt/EBITDA

23.6%20.7%17.5%10.7%9.4%11.5%13.1%ROIC after taxSource: Company data and Nordea estimates

Marketing material commissioned by Inission

Inission12 September 2019

Factors to consider when investing in InissionWe believe Inission is an interesting company heading in the right direction. We find the case interesting due to a few factors: 1) Inission is one of the leading industrial electronics suppliersin the Nordics; 2) the company has likely only just started its growth journey, organically and via acquisitions; 3) the company has historically (2015-18) managed to report a 30% EBIT CAGR and we expect a similar growth rate for 2018-21, driven by improved profitability within some of the newly acquired units; 4) we believe that the company has an experienced management team with both of the founders still operationally involved.

Inission at a glanceInission is an international supplier of industrial electronics. Its products and services are designed to cover the entire life cycle of products. The company's strength lies in its flexibility, its ability to adapt to customers' needs, and its short lead times. Its services can be broken down into five segments: Development, Sourcing, Logistics, Production and Lifecycle Guarantee. The company develops, tests and industrialises products for its customers. It also provides warehousing and repairs. At its core, however, Inission focuses on manufacturing – the company works at all stages of the electronic production process, including surface mounting, station-oriented semi-automatic mounting, wave soldering, final assembly and finishing.

Inission has ~100 main customers from a variety of industries. The company does not strongly depend on one specific industry, which is a positive risk aspect. Customers include ABB, Atlas Copco, Handicare, EcoGuard and others. Inission's single largest customer represents 7% of turnover and 27 key customers represent ~70% of revenues. The sales distribution between the different customer segments is shown below. The largest customer end-market segment is medtech, which represents 22% of sales, followed by measuring instruments, communication, and industrial applications, representing 19%, 16% and 16%, respectively.

INISSION: 2018 SALES SPLIT PER END-MARKET, %

Measuring Instruments

19% Medtech/Aid22%

Industrial applications

16%

Communications 16%

Security12%

Control and instrumentation

technology8%

Automotive4%

Environmental 3%

Source: Company data

INISSION: 2018 SALES SPLIT PER GEOGRAPHY, %

Sweden85%

Estonia 1%

Other EU 7%

Norway 6%

Australia 0%

USA 1%


Solid organic growth aheadAfter its most recent acquisition, we believe Inission is geographically well positioned to capture solid underlying market growth, driven by a new trend among its customers – reallocating production from low-cost countries in Asia back to the Nordics – to ensure high-precision delivery, shorter lead times, and surprisingly lower total manufacturing costs when taking logistics into account. We estimate Inission will reach 9% organic growth by the end of 2019 and 5% for 2020.

Marketing material commissioned by Inission 2


INISSION: NET SALES DEVELOPMENT, SEKm

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1,400

2017 2018 2019E 2020E 2021E

Source: Company data and Nordea estimates

INISSION: ORGANIC GROWTH PER DRIVER

-20%

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100%

2016 2017 2018 2019E 2020E 2021E

Volume FX Structural


Efficiency programme will drive 30% EBIT CAGRWe forecast a positive margin development for Inission going forward. For the legacy business, we estimate that the company has an EBIT margin above 8%. Past acquisitions have been margin dilutive, but we argue that Inission can gradually restore profitability within those units. We believe that one current focus area for the company is Norway – Noca, a Norwegian subsidiary within the Simpro Group, is burdening profitability. We estimate a group EBIT margin of 6.7% for 2019, which is a y/y increase of 114 bp. For 2020, we forecast a margin increase of 55 bp y/y to 7.2%. Overall, we expect a 30% EBIT CAGR for the period 2018-21.

INISSION: EBIT MARGIN ANNUALLY, %

0.0%

1.0%

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3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2017 2018 2019E 2020E 2021E


INISSION: EBIT AND EBIT GROWTH Y/Y, SEKm AND %

0%

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80%

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2017 2018 2019E 2020E 2021E

EBIT % change y/y


Strong M&A track record but constrained balance sheetIt is fairly clear that Inission intends to grow via acquisitions. Since 2015, the company has closed six acquisitions of different sizes, ranging from SEK 30m in sales to SEK ~300m. The majority of the acquisitions have been in Sweden, but Inission bought Simpro in Q4 2018, a Trondheim-based contract manufacturer focused on advanced industrial techniques for customers within the offshore, defence, and medtech industries – all areas where Inission would like to strengthen its footprint.

Working on the M&A agenda are Inission's two founders, Olle Hulteberg and Fredrik Berghel, who have a good knowledge of the market and an ambition to position Inission as a driver of industry consolidation. The Nordic EMS market has quite an interesting structure, with just a few companies representing a large share of total sales – the company estimates that 1% of companies account for 52% of total sales. At the same time, 97% of the total number of players represent ~35% of total sales, suggesting that the market is highly fragmented and thus providing a healthy number of targets for Inission.

Due to the fragmented nature of the Swedish market, we anticipate more mid-sized acquisitions there, with sales in the range of SEK 50-300m. The acquisition pipeline is solid, with ~50 companies on the list. Importantly, Inission believes healthy returns can be achieved without incorporating synergies into the calculation. Historically, however, Inission has extracted some synergies from consolidating production and IT systems.



The only negative short-term aspect of the company is its balance sheet – net indebtedness at the end of Q2 2019 was SEK 138m, corresponding to 2.0x EBITDA, which is rather stretched. We believe a capital injection would likely be most appropriate, as it would allow the company to strengthen its balance sheet and thus maintain its acquisition pace.

Experienced management with skin in the gameGroup management consists of six individuals, including the two founders of the company. The fact that the two founders are still operationally active within the company is a clear strength for a few reasons: 1) the founders have a clear vision of how the company will be transformed in the next few years and ensure continuity of that vision; 2) they put a lot of effort into creating an inclusive and results-focused corporate culture; 3) together, they represent ~70% of the capital and votes, which implies that they have skin in the game and a vested interest in the company's success.



ValuationWe have selected 20 different peers as a reference group for the purposes of valuation. We have mainly chosen EMS companies with operations that closely resemble those of Inission in terms of product offering and sales exposure, and that are affected by similar end-market drivers. We expect Inission to deliver significantly higher M&A-driven sales growth than peers for this year but forecast growth to be in line at ~6% for 2020 and 2021. On our estimates, Inission's EBIT margin is 50 bp above the group median, while the implied 2020E EV/EBIT of ~9x represents a slight discount to the peer group average. In our DCF valuation, we arrive at a fair equity value range of SEK 136-162 per share based on a WACC range of 8.3-9.7%.

Peer groupOur selected reference group for valuation purposes consists of 20 different companies that are either indirectly or directly related to the EMS industry. We employ several screening criteria in selecting appropriate peers, searching for companies with comparable product offerings, the same position in the value chain (EMS/ODM), similar end-market growth drivers, similar geographical exposure, size and industry application exposure. While we acknowledge that not every company's operations match perfectly with those of Inission, we think that the peer group overall captures the characteristics of EMS contractors with similar features. We believe peer group multiples are very informative and give a relevant view for the subcontractor sector and for our company analysis.

Key peersWe argue that Scanfil, Kitron and Hanza are the key peers to Inission, as they possess very similar characteristics. More specifically, the key peers have comparable product offerings and similar positions in the value chain as EMS providers. Furthermore, they have comparable customer bases and Nordic exposure, and are affected by the same market growth drivers and have similar geographical sales exposure.

Scanfil Oyj is a Finland-based EMS contractor and systems supplier for the electronics industry and telecommunications industry. The company’s telecommunications products include equipment systems, network integration, and assembly and testing of telecommunications modules. Moreover, it provides supply chain management services, planning of production processes, product testing and logistics management. Its market cap is roughly EUR ~270m.

Kitron is a Norway-based EMS company. It provides electronics embedded in the customers' products, box-built electronic devices, and high-level assembly (HLA) of complex electromechanical products. It provides services to five segments: defence/aerospace, energy/telecoms, industry, medical equipment and offshore/marine. Its market cap is roughly NOK ~1.7bn.

Hanza is a Sweden-based company operating as an EMS company. It provides solutions in mechanics, electronics, cable harnesses and final assembly. It has multiple segments including Mechanics (further divided into the Light Mechanics division), Heavy Mechanics, and Electronics (further divided into Printed Circuit Board (PCB)), which also offers assembly and planning services. It also provides solutions such as automated optical inspection and testing. Its market cap is roughly SEK ~460m.



EMS PEER GROUP FINANCIALS, 2018-21E

2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E

Delta Electronics Inc 6,762 8,248 9,182 9,961 6% 20% 11% 8% 8% 8% 9% 9%Venture Corporation Ltd 2,230 2,374 2,456 2,554 -13% -1% 3% 4% 12% 12% 12% 12%IMI PLC 2,121 2,112 2,132 2,191 9% 1% 3% 3% 14% 13% 14% 14%Jabil Inc 19,049 22,554 23,705 24,151 16% 16% 4% 3% 3% 3% 4% 4%Vtech Holdings Ltd 1,729 1,927 1,980 2,072 2% 1% 5% 2% 11% 9% 9% 10%Micro-Star International Co Ltd 3,381 3,353 3,661 3,883 11% -2% 9% 6% 6% 6% 6% 7%Plexus Corp 2,475 2,776 2,956 3,203 14% 9% 6% 8% 5% 4% 5% 5%Accton Technology Corp 1,229 1,512 1,722 1,902 18% 28% 14% 10% 8% 10% 10% 11%Gigabyte Technology Co Ltd 1,738 1,733 1,923 2,031 2% -2% 11% 6% 4% 3% 4% 4%SIIX Corp 1,932 2,026 2,220 2,412 4% -2% 10% 9% 4% n.a. n.a. n.a.Fabrinet 1,174 1,394 1,485 1,654 -3% 15% 4% 11% 9% 9% 9% 9%Sercomm Corp 952 937 1,106 1,146 -14% -2% 18% 4% 3% 4% 4% 4%TT electronics PLC 478 530 554 576 19% 14% 5% 4% 8% 8% 9% 9%Pc Partner Group Ltd 1,016 843 1,024 1,166 7% -26% 21% 14% 5% 0% 2% 2%Valuetronics Holdings Ltd 295 321 305 312 25% -1% -6% 2% 8% 8% 7% 8%Cicor Technologies Ltd 220 236 249 263 14% 7% 5% 6% 6% 6% 7% 7%Kitron ASA 264 326 363 395 7% 26% 8% 9% 6% 6% 7% 7%Lacroix SA 468 476 498 530 6% 2% 5% 6% 3% 4% 4% 4%Hanza AB 178 192 213 233 29% 13% 11% 9% 4% 4% 4% 4%Scanfil Oyj 563 589 619 636 6% 4% 5% 3% 7% 6% 7% 7%

Peer group median 7.1% 3.1% 6.0% 6.0% 6.2% 6.2% 6.7% 6.9%Key peers average 14.4% 14.2% 8.0% 7.0% 5.7% 5.4% 5.8% 6.0%Inission (Nordea) 67 94 100 104 3.7% 40.2% 6.2% 4.0% 5.5% 6.7% 7.2% 7.8%diff.from median (pp) -3.4% 37.1% 0.3% -2.0% -0.7% 0.5% 0.5% 0.8%diff.from key peer avg. (pp) -10.7% 25.9% -1.8% -3.0% -0.2% 1.3% 1.4% 1.7%

Sales (EURm) Growth Ebit%

Source: Thomson Reuters and Nordea estimates

EMS PEER GROUP VALUATION, 2018-21E

2018 2019E 2020E 2021E 2018 2019E 2020E 2021E 2018 2019E 2020E 2021E

Delta Electronics Inc 18.6 16.0 15.9 14.0 17.4 18.1 15.0 12.9 2.9 2.5 2.4 2.2Venture Corporation Ltd 11.0 12.1 11.5 10.8 7.8 8.7 8.3 7.9 1.9 1.8 1.7 1.6IMI PLC 15.0 14.2 13.4 12.8 12.5 13.3 12.5 11.7 4.1 4.0 3.7 3.3Jabil Inc 22.6 10.6 9.3 8.2 9.8 8.2 7.7 7.2 2.5 2.8 2.6 2.2Vtech Holdings Ltd 15.4 15.0 12.3 11.5 12.8 12.5 9.8 8.9 3.7 3.4 3.6 3.5Micro-Star International Co Ltd 10.8 12.4 10.4 9.3 8.8 9.8 7.9 7.2 2.4 2.3 2.2 2.0Plexus Corp 20.6 18.7 15.8 13.8 14.8 14.5 12.9 11.8 2.4 2.3 2.0 1.8Accton Technology Corp 18.9 20.9 17.6 16.1 14.4 15.8 14.4 12.5 8.4 7.1 6.3 5.3Gigabyte Technology Co Ltd 10.1 16.2 12.0 11.8 6.7 13.2 8.5 8.3 1.3 1.3 1.3 1.2SIIX Corp 11.5 11.8 9.7 9.0 10.9 0.0 0.0 0.0 1.2 1.2 1.1 1.0Fabrinet 16.7 15.4 14.8 12.9 11.3 11.7 11.3 9.8 1.8 2.1 n.a. n.a.Sercomm Corp 19.8 17.3 13.9 14.4 13.4 13.0 9.9 10.6 2.7 2.6 2.3 2.2TT electronics PLC 25.1 14.1 12.6 11.4 11.2 12.6 11.3 10.6 2.0 0.8 0.8 0.8Pc Partner Group Ltd 2.6 0.0 6.7 5.6 4.0 69.9 10.2 6.9 0.7 0.6 0.6 0.5Valuetronics Holdings Ltd 12.5 8.4 8.5 7.9 8.6 3.5 3.0 2.8 1.3 1.3 1.2 1.1Cicor Technologies Ltd 11.9 14.6 10.8 9.0 9.2 10.8 8.7 7.5 1.7 1.6 1.4 1.4Kitron ASA 14.3 12.4 10.3 9.1 12.1 12.1 10.1 9.0 2.5 2.3 2.0 1.8Lacroix SA 10.4 6.8 5.7 5.0 7.6 7.4 6.1 5.7 0.7 0.7 0.6 0.6Hanza AB 18.7 12.0 9.5 7.9 12.5 10.3 8.6 7.3 0.9 1.1 1.0 0.9Scanfil Oyj 8.4 8.8 8.5 8.1 7.1 9.1 8.1 7.7 1.8 1.6 1.4 1.3

Group median 14.6 13.3 11.1 10.1 11.0 11.9 9.2 8.1 1.9 1.9 1.7 1.6Key peers average 13.8 11.1 9.4 8.4 10.6 10.5 8.9 8.0 1.8 1.6 1.5 1.3Inission (Nordea) 8.1 13.1 11.1 9.8 10.1 10.6 8.6 7.0 2.1 4.1 3.1 2.4diff.from median (%) -45% -2% 0% -2% -8% -11% -7% -14% 10% 109% 86% 56%diff.from key peer avg. (%) -41% 18% 18% 17% -4% 1% -4% -13% 22% 149% 111% 85%

P/E EV/EBIT P/B


Performance and valuation versus peersWe expect Inission to deliver a 16% sales CAGR for 2018-21, which is twice as high as the peer group average of 8%, even though Inission's sales growth is fuelled by acquisitions. In terms of margins, Inission is ~50 bp above the peer group median.



DCF and valuation assumptionsTo value Inission, we use a DCF (discounted cash flow) methodology and arrive at a valuation range implied by the bounds of a WACC of 8.3% and 9.7%, respectively. Based on the assumption that Inission will deliver in line with our forecasts, we arrive at a fair DCF-based equity value range of SEK 136-162 per share. In the terminal period, we model 2.5% growth. The assumptions behind our WACC and the cash flow components are outlined in the tables below.

DCF VALUE AND WACC COMPONENTS

DCF value Value Per share Value Per share

NPV FCFF 924 189 794 162(Net debt) -176 -36 -176 -36Market value of associates 0 0 0 0(Market value of minorities) 0 0 0 0Surplus values 0 0 0 0(Market value preference shares) 0 0 0 0Share based adjustments 0 0 0 0Other adjustments 0 0 0 0Time value 46 9 46 9DCF Value 794 162 664 136

WACC components

Risk-free interest rate 2.5% 2.5%Market risk premium 4.0% 4.0%Forward looking asset beta nm nmBeta debt 0.10 0.10Forward looking equity beta 1.70 2.20Cost of equity 9.3% 11.3%Cost of debt 8.0% 8.0%Tax-rate used in WACC 25% 25%Equity weight 70% 70%WACC 8.3% 9.7%

8.3% WACC 9.7% WACC


DCF ASSUMPTIONS

Averages and assumptions 2019-24 2025-29 2030-34 2035-39 2040-44 2045-49 Sust.

Sales growth, CAGR 3.84% 3.0% 3.0% 3.0% 3.0% 2.5% 6.3% 7.3% 8.3% 9.3% 10.3%EBIT-margin, excluding associa 7.6% 8.0% 8.5% 8.0% 6.0% 2.4% +2.0pp 345.5 246.0 206.2 176.1 152.5Capex/depreciation, x 1.2 1.00 1.00 1.00 1.00 1.00 EBIT marg +1.0pp 262.6 217.0 183.9 158.4 138.1Capex/sales 1.5% 1.0% 1.0% 1.0% 1.0% 1.0% change 223.2 188.0 161.6 140.7 123.7NWC/sales 21.7% 20.0% 20.0% 20.0% 20.0% 20.0% -1.0pp 183.7 159.0 139.3 123.0 109.3FCFF, CAGR 30.6% 5.5% 4.4% 1.6% -3.7% -19.3% 2.5% -2.0pp 144.2 130.0 117.0 105.3 94.9

6.3% 7.3% 8.3% 9.3% 10.3%+2.0pp 255.1 210.5 178.1 153.2 133.3

Sales gr. +1.0pp 238.0 198.6 169.4 146.6 128.3change 223.2 188.0 161.6 140.7 123.7

-1.0pp 210.2 178.7 154.6 135.4 119.5-2.0pp 198.8 170.4 148.4 130.6 115.8

-2.0pp -1.0pp +1.0pp +2.0pp+2.0pp 183.0 193.8 206.2 220.5 236.9

EBIT marg +1.0pp 165.7 174.2 183.9 194.9 207.5change 148.4 154.6 161.6 169.4 178.1

-1.0pp 131.1 135.0 139.3 143.8 148.8-2.0pp 113.8 115.4 117.0 118.3 119.4

WACC

WACC

Sales growth change

34%

20%

17%

13%

8%3%

6%

2019-24 2025-29 2030-34 2035-39 2040-44 2045-49 Sust.

94%




Risk factorsBelow, we list the main risk factors that we find relevant for Inission. The purpose of this is notto provide a comprehensive picture of all of the risks that the company may face, but instead to highlight those that we find most relevant. The risks are divided into two categories: macroeconomic risks and company-specific risks.

Macroeconomic risksGeneral economy and specifically the Nordic region’s economyInission is to some extent exposed to the general economy and that of Sweden in particular. However, we do not believe that an economic downturn in the region would lead to significant delays in orders from its customers, because the end-markets for the components are global. So, Inission’s customers may be concentrated to the Nordics, but they sell the products in all continents.

Currency exposureInission is affected by currency risks. Historically, changes in currency rates have had the most significant impact on material prices, which are crucial for profitability. Inission's contracts usually stretch over a longer period, which increases the risk of currency changes. Inission tries to mitigate these risks by writing contracts with customers in the same currency as that in which it buys components, and through hedging.

Company-specific risksOwnershipInission has a decentralised structure. The operational part of the business is run by corporate officials and management, and the company's strategy is developed by management. If key personnel were to leave, there would be a short-term risk of negative growth.

CompetitionThe company operates in a highly competitive industry. It faces intense competition from other EMS companies in all segments in which it operates. Additionally, it needs to take into account the competitive pressure from original equipment manufacturers. Inission’s competitive edge is its fast, flexible and reliable service with the aim of covering a product's whole life cycle.

Customer concentrationInission's largest customer constitutes 7% of its revenues and the company deals with around 100 customers on a regular basis. We therefore see limited risk in the customer base.

However, the largest threat to Inission is when its customers lose their own competitive edge – Inission performs well if its customers are performing well in their own segments.

Manufacturing riskInission's manufacturing process needs to produce quality products efficiently. The first-pass yield industry median for electronics manufacturing services is approximately 94%. Inission faces the risk that if this metric were to drop, it would diminish its margins and affect overall profit.

Acquisition strategyWe believe Inission will continue to make acquisitions in the future. The company’s future sales and profit growth is therefore to some extent dependent on management’s ability to source and complete new deals. Furthermore, there is risk involved in integrating new businesses and the fact that Inission could potentially overpay.



Company overviewInission is an international supplier of tailored production and logistics services for companies that make industrial electronics products. Inission develops, tests, repairs, warehouses and industrialises these products, operating mainly in the medical, communications and industrial sectors. Despite a couple of years with strong growth momentum, the company is still rather small, with about 450 employees. It has eight facilities, five of which are in Sweden.

Supplier of industrial electronicsInission is an international supplier of industrial electronics. Its products and services are designed to cover the entire life cycles of products. The strengths of the company lie in its flexibility, its ability to adapt to customer needs, and its short lead times. The services can be broken down into five segments: Development, Sourcing, Production, Logistics, and Lifecycle Guarantee. The company develops, tests and industrialises products for its customers, in combination with along with warehousing and repairing them. But the core of what Inission does is manufacturing, and the company works with all stages of the production process, which includes surface mount, station-oriented semi-automatic mount, wave soldering, test, and finishing.

INISSION'S LOCATIONS


Company historyEDC acquired FABEC in 2009 and formed a group; it was later rebranded as Inission

FABEC and EDC were two well-functioning manufacturers in the electronics manufacturing services industry during the late 1980s and early 1990s. The two companies enjoyed great success in the early 2000s, with combined sales of SEK 500 million. The companies were hit by the financial crisis in 2007 and EDC changed owners. In 2009, FABEC was acquired by EDC and formed a group. This group developed into a more competitive total-supplier of services within EMS and management, and rebranded itself as Inission in 2011.

Went public in 2015 Inission then acquired Triab Electronics in 2011, Mikromakarna in 2012, and became the largest shareholder of Incap Oyj in 2013. Through the ownership of Incap, the company gained access to a large production facility in India, which enabled it to expand its offerings. In 2015, as a natural result of organic growth and successful acquisitions, Inission went public on Nasdaq First North in Stockholm.

Additional acquisitions, doubling turnover

After that, the company continued to expand by way of acquisitions: Montronic AB in Sweden in 2015, and SKEAB Elektronik AB in early 2016. By expanding its customer base and geographical presence, Inission gained sales momentum in the new markets. In mid-2016, Inission bought the Onrox Group, its largest purchases to date. Net sales



doubled and strengthened Inission's presence in the Swedish market by enabling the company to create capable production units in Gothenburg and the Öresund region.

During the next few of years, Inission focused on creating co-locations and accumulating skills and resources in key areas in order to further strengthen its capabilities in all of Sweden's metropolitan areas.

Inission Triab and Inission Skeab became Inission Stockholm; Inission Malmö emerged from the merger of Inission Montronic and Onrox Malmö; and Inission Gothenburg and Onrox Borås formed Inission Borås. At the end of 2017, Inission had six factories, five of them in Sweden (Stockholm, Malmö, Borås, Pajala and Munkfors) and one in Estonia (Tallinn).

Change in management In 2017, company owners Fredrik Berghel and Olle Hulteberg left their operational positions, turning over management to new CEO Björn Lifvergren. Berghel and Hulteberg stayed on, though, so they could focus on continued growth through acquisitions.

First Norwegian subsidiary acquired in 2018

With the aim of further increasing its presence in the Nordics, Inission acquired Norway's Simpro Holding AS at the end of 2018. Simpro was one of the five largest contract manufacturers of electronics in Norway and has contributed a great deal to Inission's objective of becoming one of the five largest electronics manufacturers in the Nordic region.

Strategy Objective for 2020 to double production and halved lead times

Inission's mission is to have the most satisfied customers. The company has clearly stated that its objective by 2020 is to double production and halve lead times – all with the same amount of personnel as it had in 2015. This would be accomplished with its business system, Inspirit. Inspirit is based on Lean.

Inission's vision is "to be the best total supplier in the industry for customers and their customers. We aim to lead development in the industry and be a role model in Lean Production. Furthermore, we aim to ensure our employees develop and enjoy their work."

The company's strategy implies:

Decentralised structureInission is decentralised and organised by units and subsidiaries that each have total profit and loss responsibilities. In addition, the company strives to have a slim central overhead function in order to be cost efficient. Each subsidiary is led by one manager who is responsible for the P&L, balance sheet, general development, and leadership. It is worth mentioning that large synergies are created with common IT functions, sales coordination, procurement etc.

Work by its defined valuesThe company's culture is built on core values that have been developed over a long time. The values have been generated from within, ie the employees themselves come up with them through workshops and educational programmes; the goal is to be able to sense the core values through everything Inission does.

Showcase and offer uniquely good performanceInission is constantly mapping out goals and objectives to follow, in order to achieve better performance.

Grow organically through competitive advantage and efficiencyInission continuously seeks new customer contracts as it is the ultimate confirmation of good products and services, as well as that the company is maintaining a competitive edge.

Grow through acquisitionsInission takes part in the consolidation of the industry and intends to make a mark in that process. Inission does this either through acquisitions of other manufacturers or by acquiring and improving customers' outsourced operations.



Business segmentsThe offerings of the company can be broken down to five services:

Development SourcingProductionLogisticsProduction Lifecycle Guarantee

DevelopmentInission focuses on finding the best balance between lead times and costs. Each unit is tested and controlled to make sure it works as intended. During the development phase, the product is also being industrialised. Inission also handles so-called transfer projects; these are projects which are already in serial production with the aim of identifying potential improvements and efficiencies. This means that Inission takes over an already up and running production either from the customer (in-sourced) or a competitor.

Inission's strategy is that it does not consolidate its manufacturing footprint, which has turned out to be a clear selling point towards its customers, mainly due to a short time to customer etc.

Sourcing With great experience in this process, Inission has the relevant resources and capabilities to secure a flow of components without disruptions. Inission incorporates the sourcing of components into other services offered by the company, so that it becomes a part of the whole process and not exclusive to production and development.

ProductionInission deals with all aspects of the manufacturing process for industrial electronics. The company has put a great emphasis on building a standardised and traceable system in order to facilitate an easy troubleshooting process.

LogisticsInission handles distribution directly to the end-customer and is able to reduce lead times through its integrated distribution system. The customers are also able to build up a stock of products ready to be used when needed.

Lifecycle guaranteeInission can handle every process from initial sketch until the product is replaced

Inission's offerings are suited to cover a product's entire life cycle. Everything from the initialsketch until the product is replaced can be managed by Inission. This is what Inission calls a lifecycle guarantee. Inission is always looking for potential improvements and replacements, and to make sure that everything is working as expected.

Customer baseInission has a diverse customer base within a wide range of industries that offer good underlying growth potential and serve customers in several crucial roles in society. Its main customer segments are:

Medtech/AidEnvironmentalIndustrial ApplicationsControl and Instrumentation TechnologyMeasuring InstrumentsAutomotiveSecurityCommunications

Inission has around 100 main customers from varying industries. The company is not significantly dependent on one specific industry which is in a risk aspect positive.



Customers include ABB, Atlas Copco, Handicare, EcoGuard and others. Inission's single largest customer represents 7% of turnover and 27 key customers represent ~70% of revenues. The sales distribution between the different customer segments is examined below. The largest customer end-market segment is Medtech, which represents 22% of sales, followed by Communication, Measuring Instruments and Industrial Applications, representing 16% and 19%, respectively.

INISSION'S CUSTOMER BREAKDOWN

Medtech/Aid22%

Communications16%

Security12%

Automotive4%

Measuring Instruments

19%

Control and Instrumentation

Technology8%

Industrial Applications

16%

Environmental3%


FinancialsThrough a combination of organic growth and acquisitions, Inission has more than doubled its sales in three years. While operating profit has increased to EBIT SEK 40 million, margins have taken a hit and were down to 5.5% in 2018, compared to 6.4% in 2015. The margin drop is mainly a function of margin dilutive acquisitions, which Inission is gradually working with in order to perform in line with the group.

INISSION: NET SALES, SEKm

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INISSION: EBIT AND EBIT MARGIN, SEKm AND %

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Executive managementInission has a management team and a board of directors each consisting of six members.

Fredrik Berghel is the group CEO and has been at the company since 2011. He is also the CEO and chairman of the board at FBM Consulting AB. He previously worked as a consultant at Xmentor.

Björn Lifvergren is the company CEO and deals with the operational part of the company. He is a previous manager at Atlas Copco and VP at SECO Tools.

EXECUTIVE MANAGEMENT

Fredrik Berghel Björn Lifvergren Olle Hulteberg Stefan Westberg Peter Lindegren Thomas ÅströmPosition Position Position Position Position PositionGroup CEO Company CEO CMO CFO CPO CLOBackground Background Background Background Background BackgroundConsultant at Xmentor, CEO at Robust Ståldörrar AB.

Manager at Atlas Copco, VP production at SECO Tools.

Consultant at Xmentor and Rolls-Royce Marine.

CFO at RZ ZamPart, accountant at PwC.

Sales manager at BAE Systems.

Lean coach and lean cordinator at Scania.

Education Education Education Education Education EducationMSc Engineering MSc Engineering MSc Engineering MSc Business &

EconomicsCertified upper secondary school engineer

MSc Engineering

No. of shares No. of shares No. of shares No. of shares No. of shares No. of shares1,751,004 23,000 1,750,996 1,500 0 0


Board of directorsFredrik Berghel is the chairman of the board and has been on the board since 2011.

Our overall impression is that Inission possesses the relevant experience in its executive management and board of directors needed to drive its development.

BOARD OF DIRECTORS

Fredrik Berghel Hans Linnarson Olle Hulteberg Karin Skoglund Mattias Hultheimer Lars AtteforsPosition Position Position Position Position PositionChairman Board member Board member Board member Board member Board memberBackground Background Background Background Background BackgroundConsultant at Xmentor, CEO at Robust Ståldörrar AB.

CEO at Husqvarna. Consultant at Xmentor and Rolls-Royce Marine.

CEO/CFO at ScanMining, CFO at CCI Valve Technology.

Group CEO at EFFSO, founder at Spendency.

Partner at SIBS AB, board member Nordisk Massivtre AS, Westmatic AB.

Education Education Education Education Education EducationMSc Engineering Engineering MSc EngineeringNo. of shares No. of shares No. of shares No. of shares No. of shares No. of shares1,751,004 630 1,750,996 1,600 15,040 11,600


ShareholdersThe three largest shareholders are FBM Consulting AB, IFF Konsult AB, and Wingefors Industri AB. FBM Consulting AB is managed by Fredrik Berghel, while IFF Konsult AB is managed by Olle Hulteberg. Wingefors Industri AB is run by Lars Wingefors, an entrepreneur and the largest shareholder in gaming company THQ Nordic. The three largest shareholders control ~93% of the votes and ~82% of the capital.

As mentioned, both Berghel and Hulteberg are part of Inission's management. We believe that having two out of the three largest shareholders working operatively with the company is positive.



SHAREHOLDERS AS OF SEPTEMBER 2019

Shareholder Number of A shares Number of B shares Value SEKm % of capital % of votes CountryOlle Hulteberg 320,000 1,430,996 224.1 36% 38% SwedenFredrik Berghel 180,004 1,431,000 206.2 33% 27% SwedenLars Wingefors 160,000 320,000 61.4 10% 16% SwedenBj;rn Eriksson 0 146,135 18.7 3% 1% SwedenAlma Bareisyte 140,000 0 17.9 3% 12% SwedenAvanza 0 87,796 11.2 2% 1% SwedenThomas Uhl 0 55,000 7 1% 0% SwedenAntti Manninen 0 44,000 5.6 1% 0% FinlandZeroman Oy 0 37,435 4.8 1% 0% FinlandNordnet 0 30,294 3.9 1% 0% Sweden




Market overview: The subcontractor sectorThe electronics manufacturing service (EMS) market is larger than USD 300bn and is expected, according to IDC, to grow at a 2018-25E CAGR of 6.5%. Some of the main growth drivers include product innovation, technological advancement and outsourcing ratios. In general, the market is fragmented and characterised by both margin and price pressure since EMS companies do not have intellectual property rights for the products they manufacture. By nature, the EMS industry is cyclical and correlated with economic activity. However, the development of an individual EMS provider such as Inission is a function of the key drivers that its customers face. We think that Inission's well-diversified pool of customers makes it more resilient to economic downturns. Additionally, we think that Inission's local footprint serves as a competitive advantage in an environment of intensified nearshoring, as it can significantly shorten time-to customer (TTC) and respond flexibly to changing customer needs.

The respective roles of OEMs and EMS providersIn the electronic devices market, an original equipment manufacturer (OEM) designs, produces and distributes its own devices. Inission is not an OEM company since it does not design its own branded products, nor does it possess the intellectual property rights for the components it produces. Rather, Inission is an electronics manufacturing service (EMS) provider because it provides services for ODMs (original design manufacturers) within manufacturing, design, supply chain management, configure-to-order and outbound logistics.

Not all OEMs are well geared to manufacture their own products, leaving an opportunity for EMS providers

The EMS industry targets OEMs where it is not in the OEM's best interest to manufacture the devices it designs and sells, or where the OEM lacks the best competence. Additionally, EMS providers have unique selling points such as attractive pricing, higher quality and flexible business models. In some cases, OEMs simply prefer to outsource their manufacturing to better geared EMS companies so that the OEM can focus on its core business.

One well-known example relates to the operations of Apple. Apple may have superior design capabilities, but subcontractors within the EMS industry are more knowledgeable about the manufacturing processes, which can improve product quality and reduce the pricing figures to some degree.

OEMs usually make fewer products for a longer time and at a higher speed than subcontractors

In general, OEM companies manufacture fewer products but for a longer time and at a higher speed than EMS companies. Without their own products, EMS companies require more flexibility in their production lines, often making them run slower. An EMS company also has more ramp-ups, taking the total utilisation ratio slightly lower than for OEMs. Moreover, EMS companies produce devices for a large pool of customers, implying a need for a much broader and global supply chain model.

EMS POSITIONING LANDSCAPE

Source: Kitron

THE RELATIONSHIP BETWEEN THE OEM AND EMS COMPANIES

Source: Flextronics



The EMS market has gone from heavily consolidated to fragmentedThere are more than 2,000 companies providing EMS services

In the period following the IT crisis, the EMS market was very concentrated and was dominated by a handful of global companies. In 2005, the six largest companies at that time (Foxconn, Flex, Sanmina, Solectron, Celestica and Jabil) accounted for two thirds of the entire market. Today, the market has become significantly more fragmented with more than 2,000 companies providing EMS services. In Europe alone, there are more than 1,300 EMS companies, according to Reed Electronics Research. However, the consolidation trend has regained some pace. In general, the industry is considered mature and largely globalised. Typically, EMS companies do not have intellectual property rights for the products they produce, which puts pressure on margins and prices.

In general, smaller EMS companies are well geared to specialise in high-mix and low-volume production, as opposed to bigger EMS players which in many cases serve a few key, often large, clients with a small range of products. Within such a context, Inission belongs more to the smaller EMS contractor group with a range of well-tailored solutions to a pool of Nordic clients. Yet it has an ambitious goal to become one of the fifth largest EMS companies in the Nordics in terms of revenue, along with becoming one of the top five most profitable EMS contractors in the Nordics.

The EMS industry is strongly correlated with the economic cycleThe demand for electronic manufacturing is cyclical

The demand for electronic manufacturing is closely linked to economic activity. The EMS industry is an industry group that is especially volatile in nature and that typically is highly sensitive to economic downturns and upswings. The consumer electronics industry is largely built on the production of non-essential goods, so a severe downturn in economic activity can have a significant negative effect.

The trends of the subcontractor's customers play a crucial role

However, it is important to note that an individual EMS subcontractor is affected to quite a large degree by the key drivers of the industries in which its customers operate. This implies that the cyclicality of an individual EMS contractor can differ from that of another contractor if it has a different set of customers. For instance, the industrial solutions segment is typically less volatile than the consumer electronics side.

Inission's diversified portfolio of customers suggests resilience to economic downturns

Inission has a well-diversified portfolio of ~100 customers that operate in different industries, which makes Inission less susceptible to economic swings. This means that Inission may be more resilient to economic downturns compared to some of its competitors. Inission is also able to adjust the balance between different customers during periods of volatile demand. In 2018, the single largest customer accounted for about ~7% of sales and about 30 customers accounted for two thirds of turnover. In addition, the company does not manufacture consumer goods, as they tend to be more cyclical with short products lifecycles. Inission does not work with telecom or high-volume automotive customers, which also limits the risk.

Financial booms and busts are reflected in EMS market activityThe EMS industry was small up until 2000

The EMS industry was small in size from the mid-1990s up until 2000, when the market boomed due to the telecom and IT upswing. More specifically, the market growth exceeded 50% y/y in 2000. Following this period of strong growth, the EMS market shrunk and reached a trough in 2002 in conjunction with the downturn in the IT industry. Following the IT downturn, many subcontractors moved production sites from Europe to low-cost countries such as China and Mexico. At the time (15 years ago), China offered about 90% lower labour costs but the product quality in low-cost countries was lower.

The financial crisis negatively impacted the EMS industry

The financial crisis of 2008 had a significant impact on EMS companies' activity. Some companies filed for bankruptcy, while other market participants were forced to restructure and significantly scale down their operations. EDC, which was one of the companies that was involved in the initiative to form Inission, experienced a challenging period in the second half of the 2000s. In 2007, EDC had new owners. Following an investment in more efficient processes, EDC recovered its market position in 2008. After the financial crisis, the subcontractor industry provided many potential buyout targets for private equity firms, with several EMS companies having attractive valuations and long-term growth potential. This was further supported by interest rates at record lows, which allowed private equity companies to participate in strongly leveraged deal structures.



The EMS market is expected to grow rapidly

Going forward, the EMS industry is expected to exhibit strong growth. Market researchers forecast a 2018-25 CAGR of 6.5%, and IDC forecasts total revenue for the industry to reach USD 325bn by the end of 2019. Industry experts also expect an intensification of nearshoring, a practice which refers to the migration back from production in low-cost countries to local production. Local production can provide significantly shortened TTC, increased flexibility and proximity to customers. Another argument for local production has been the reduction in cost differences.

Market experts forecast that the driving factors of the global EMS market include the rapid rise in demand for consumer smart electronic devices globally, strategic partnerships among the OEMs and EMS providers as well as technological advancement and increased usage of electronic components in industries such as medical devices and telecommunications. Furthermore, increased focus on customisation and tailor-made solutions implies more batches, shorter series and more complexity. Additionally, nearshoring and increased product requirements will fuel growth, which puts Inission in a good position with its strong local footprint and tailored solutions.

EMS INDUSTRY 1994-2019E

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EMS Market Forecast, USD bn (IDC)

Source: IDC and Nordea Estimates

EMS MARKET GROWTH INCLUDING FORECASTS

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EMS market growth %

Source: IDC and Nordea estimates

The total device market amounts to USD ~500bnThe combined revenue of EMS and ODM players exceeds USD 500bn and is set to grow further. Several market researchers estimate an implied CAGR of ~5-6% up until 2025E. Historical data suggests that the EMS market has been representing a stable average share of about ~65% of total EMS and ODM revenue. In Europe, the EMS market has been following a similar growth pattern and is expected to grow at 2019-21 CAGR of ~2.9% according to IDC.

OEMs and EMS providers are moving closer

There is a widespread outsourcing trend among OEMs that are moving their production, design and development processes to EMS companies. Historically, a typical large technology company usually produced at least part of its products in its own factories. Thanks to the development of new technologies, companies are able to design their products without the need to have their own production facilities, or even the intention to launch their own plants. This type of business model has integrated OEMs and the EMS market further through strategic partnerships. Also, vertical integration has been a recipe for success for some of the EMS providers. We do not think that Inission is likely to undertake vertical integration due to limited financial resources, but neither do we think it is needed given the profile of the company.



COMBINED EMS AND ODM MARKET SIZE, USDbn

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EUROPEAN EMS MARKET BY INDUSTRY CATEGORY, EURbn

5.81.32.43.8

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Energy/Telecoms Defence/Aerospace Medical Devices Industry Other

Source: Kitron

Development of an EMS depends on the development of its customersThe development of an individual subcontractor is a function of its customers

In addition to examining the future growth prospects of the EMS industry on aggregate, it is important to map the underlying key trends of an individual EMS provider's customers. The reason is that the development of an individual EMS such as Inission is a function of the development of the key drivers that its customers face. Inission has a well-diversified customer base, with a balanced mix of customers. Industry applications (16%), measurement devices (19%), medtech (22%) and communications (16%) make up the largest group of customers. The chart below summarises the key market trends that are likely to affect these set of industries going forward.

EMS INDUSTRY DRIVERS

Source: Company data and Nordea



Other key EMS market factorsWe highlight some core USPs that companies in the subcontracting sector can employ in order to differentiate themselves from the competition. In general, there are no leaders that focus on all USPs. Below we briefly investigate the strengths in the context of Inission's business model.

QualityA majority of companies within the subcontracting business assert that they are leading providers of quality. The differences in quality can be tracked by investigating a company's internal processes and cost structure. However, given the different end-customer segments, not all customers demand the best quality for all of their products.

When producing a longer product series or manufacturing new products, quality-related problems can be substantial. Besides causing delays and extra work, they can also affect the brand's reputation. For this reason, many subcontractors usually put considerable effort into quality assurance. Process control plans, documentation, staff training, integrated failure detection and industry-known quality certifications represent some of the ways to assure brand owners of production quality. Inission has a strong track record and significant experience in quality control and certificates, which is reflected in its practice of offering customers' a life-cycle warranty. The company has no severe incidents on its record and boasts a strong history of satisfied customers. We also think that the partnership model and comprehensive approach that Inission employs is well appreciated by its customers and can lead to strong quality.

Shorter TTC (time-to-customer) and TTM (time-to-market)The increased degree of globalisation and increased competition among both OEMs and EMS providers has made it increasingly important to focus on shorter lead and delivery times. The goal for several customers is to have a new product out on the market more quickly than anyone else, which makes a short TTM crucial. Being the first to customers, who in turn can be the first to the market, entails strong first-mover advantages that can increase a company's value. In the electronics sector, for instance, brand owners usually want their products on the market quickly and EMS companies able to deliver this speed will have a competitive edge. As customers are requiring shorter TTC, there has been a migration pattern from production in low-cost countries back to local production where the customers of subcontractors operate. This nearshoring trend is likely to drive business going forward.

In the electronics sector, EMS companies are important in accelerating and shortening the overall TTM. Having a skilled subcontractor at one's disposal can largely improve efficiency, allowing fast and successful introduction of new products to the market. Additionally, well-planned schedules are important as they can help companies to use their resources more efficiently, thereby reducing costs.

We think that Inission is well positioned to achieve short TTC and TTM for its customers

We think that Inission is well positioned to achieve short TTC and TTM for its customers given its strong Nordic footprint and proximity to its customers. Moreover, it has strong relationships with its customers and aims to optimise the whole service chain of the customer, including lead times. However, it must be noted that speed is more important in some sectors than others. For example, consumer electronics tend to value speed more than the industrial solution sector.

Pricing as a strengthA range of subcontractors produce low-price devices compared to their competitors. It is also important to note that a lower price does not always translate into lower quality. A subcontractor can have a very suitable production unit with low-cost workforce, cheap energy and cheap transportation costs. Local raw material prices can also make a large difference to total production costs. Subcontractors have often increased the level of automation to reduce costs, so that prices can be attractive.

Migration from low-cost countries to local markets has been increasing in recent years as the relative cost advantage associated with producing in low-cost countries has been reduced due to shorter TTC and increased flexibility when producing locally. We think that Inission is in several instances able to offer good-value products with comparatively low prices.



Industry knowhowA subcontractor needs to showcase its competence, which usually requires deep knowledge of the respective industries in which its current and potential customers operate. Inission has many years of experience and its industrial knowledge makes it an attractive option for Nordic customers. We think that Inission's competencies coupled with its customer portfolio represent key strengths.

Tailor-made devices and small product runsSome of the largest global subcontractors are not able to make smaller products run economically. The flexibility to tailor product runs differs between different subcontractors.

We think that Inission is flexible in its production needs and is able to make smaller product runs without too much impact on margins or utilisation levels. Subcontracting is a volume business where economies of scale work well, which is why large global players have tried to specialise in long product runs instead.



Historical financialsOver the past couple of years, Inission has continued to diversify its geographical presence, primarily via acquisitions. Nevertheless, Sweden still represents a majority of its revenues. Since 2012, the company has managed to grow its top line at a CAGR of 24%, reaching SEK 740m in 2018. The underlying market demand has been solid during this period, providing good organic growth momentum. In addition, the company made five acquisitions of varying sizes during 2015-19, fuelling the growth.

GROUP SALES SPLIT BY GEOGRAPHY, %

Sweden85%

Estonia 1%

Other EU 7%

Norway 6%

Australia 0%

USA 1%


Although Inission has diversified its geographical presence, primarily via acquisitions, over the past couple of years, Sweden still represents ~85% of its revenues. The second largest market is Norway, at just 6%, where Inission closed the Simpro acquisition in 2018. Regions outside of the Nordics only represent a fraction of sales.

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Since 2012, the company has managed to grow its top line at a CAGR of 24%, reaching SEK 740m in 2018. The underlying market demand has been solid during this period, providing good organic growth momentum. In addition, the company made five acquisitions of varying sizes during 2015-18, fuelling the growth.



ESTIMATED GROUP ORGANIC GROWTH

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By estimating the growth split between the different parameters – organic, FX and acquisitions – we can clearly see that the majority of the sales growth comes from acquisitions. We estimate that organic growth, however, has been ~5% on average. In 2017 the company grew by ~13% organically, followed by slightly negative growth in 2018 due to tough comparisons. We have seen improvements already in 2019, as Inission grew by 3% in Q1 and a staggering 14% in Q2. This is partly because Inission has won new contracts, such as the WTS Positioning deal, by pushing down customer costs due to short lead times, a high degree of flexibility and efficient manufacturing.

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The most important reason for the company's sales growth historically has been acquisitions. In 2016, the sales contribution from acquisitions was ~80%, driven by Montronic in Sösdala (added in H2 2015 with sales of SEK 30m), SKEAB (added in 2016 with sales of SEK 40m) and the platform acquisition of Onrox (with sales of SEK ~300m). Because Onrox was so large, no add-ons were made in 2017. In 2018, however, the company bought Speed Production and Simpro Holding, with annual sales of SEK 50m and SEK 190m, respectively. So far in 2019, Inission has acquired Sweco Electronics in Västerås; we find this to be an interesting move since Sweco Electronics consists of both a production division and a design and development division, something that Inission's customers have been asking for more and more. In addition, with Inission moving up in the value chain, we expect it to be margin-accretive.



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Since 2012, the average group EBIT margin has been 5.4%. Inission reached peak margins in 2013 (just above 8%) and experienced a challenging period in 2014-17 when the result was burdened by FX headwinds as a majority of the sourcing was done in foreign FX. In addition, the acquisition of Onrox was heavily margin-dilutive but has gradually improved since. In 2018, the company managed to report 140 bp y/y margin expansion, fuelled by solid cost control, which is in line with the Inspirit 2020 target.

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Looking at the quarterly margin, we have seen a strong sequential development since H2 2016. In Q2 2019, the EBIT margin reached 6.8%, the best level since 2016.

INISSION BALANCE SHEET, SEKm

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Looking at the asset side of Inission's balance sheet, the company has a relatively small portion of goodwill despite its high M&A pace. This is partly due to the company's strategy of buying attractively valued companies at book value. Current assets are the largest item on the balance sheet, where inventory and accounts receivables are SEK ~250m and SEK 200m, respectively. On the equity and liabilities side, however, we note that an owners' contribution was made in order not to breach the equity ratio covenant.

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Inission's indebtedness has gradually increased in accordance with the recently closed acquisitions; at the end of Q2 2019, net interest-bearing debt amounted to SEK 138m. This corresponds to 2.0x trailing 12-month EBITDA, which is a significant decrease since the peak levels in 2017 of >3.0x.

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Accounts payables Inventory as % of sales

Accounts receivables as % of sales Accounts payables as % of sales


Another thing that stands out on Inission's balance sheet is its net working capital situation. As shown above, the company has inventory/sales of >30%, accounts receivables/sales of 25%, and accounts payable/sales of 15%, which clearly shows significant room for improvement.



NWC PARAMETERS, DAYS

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2013 2014 2015 2016 2017 2018

DSI DSO DPO


NWC AND NWC/SALES, SEKm AND %

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350

2013 2014 2015 2016 2017 2018

NWC NWC/Sales


The NWC/sales ratio as of 2018 was ~40%, which is high in a historical context. When examining the NWC parameters, we have seen headwinds from both inventory as well as receivables. For instance, the number of days in inventory has increased from 139 to 194. Similarly, the receivable days has increased from 72 to 86. Note that the increase is partly due to the Simpro acquisition.

INVENTORY/SALES, PEER COMPARISON, %

0%

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30%

Inission Note Hanza Scanfil Kitron

Inventory/sales Average


ACCOUNTS PAYABLE, PEER COMPARISON, %

0%

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15%

20%

25%


Accounts payables/Sales Average


ACCOUNTS RECEIVABLE/SALES, PEER COMPARISON, %

0%

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Accounts receivables/sales Average


NWC/SALES, PEER COMPARISON, %

0%

5%

10%

15%

20%

25%

30%

35%

40%


NWC/Sales Average


As mentioned earlier, when comparing Inission's NWC/sales of ~40% with its sector colleagues, the company is clearly underperforming by ~15 pp on average. We believe there is a good chance that Inission will release working capital in the coming years (see estimates section of this report).



INISSION FREE CASH FLOW AND FCF BEFORE ACQUISITIONS, SEKm

-60-50-40-30-20-10

01020304050

2012 2013 2014 2015 2016 2017 2018

FCF FCF bef acquisitions


INISSION CASH CONVERSION, %

-150%

-100%

-50%

0%

50%

100%

150%

2012 2013 2014 2015 2016 2017 2018


Free cash flow adjusted for acquisitions has been positive in a majority of the reported years despite soft earnings growth in 2015-17, as well as working capital headwinds. One should note that the free cash flow in 2017 was burdened by SEK 60m from Incap (adjusted for in our free cash flow before acquisitions).



EstimatesWe estimate that Inission will be able to grow net sales at a CAGR of 16% during 2018-21, driven by a combination of organic growth and acquisitions. So far during this period, the company has closed three acquisitions adding SEK ~275m to sales. In terms of organic growth, we expect mid-single-digit growth in the coming years, which is slightly above underlying market growth. As for earnings, we estimate that due to the efficiency measures within the newly acquired businesses, the company should be able to report a group EBIT margin of 6.7% for 2019, which is a y/y increase of 114 bp, and a 30% EBIT CAGR for 2018-21E. Most interesting of all is net working capital on which the company is clearly underperforming its peers; if it were to perform in line with peers, it could release SEK ~110-150m, equal to 20-30% of its market cap.

16% sales CAGR ahead – fuelled by organic growth and acquisitionsINISSION: NET SALES ESTIMATES, SEKm

0

200

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1,400

2017 2018 2019E 2020E 2021E


INISSION: SALES GROWTH BY DRIVER, %

-10%-5%0%5%

10%15%20%25%30%35%40%45%

2017 2018 2019E 2020E 2021E

Volume FX Structural


We estimate a sales CAGR of 16% for 2018-21, partly fuelled by acquisitions

We estimate that Inission is set for continued solid organic growth, driven by a combination of solid underlying market growth and market share gains. We estimate a sales CAGR of 16% for 2018-21, partly fuelled by the acquisitions of Speed Production, Simpro Holding and Sweco Electronic, which have together added SEK ~275m to sales. For 2019, we estimate organic growth of 9%, while for 2020 we anticipate a slightly lower growth rate of 5%, which should still be slightly above the market. We are certain that the market will show solid growth going forward, as more and more companies are reallocating their production from China to the Nordics in order to be close to end-customers, to shorten lead times, provide a higher degree of flexibility and actually in some cases lower the total costs for customers. Even though we find the organic growth opportunities exciting, we believe acquisitions are likely to be a more interesting growth driver in the coming years, which we examine below.

M&A in focus but balance sheet temporarily constrained It is fairly clear that Inission intends to grow via acquisitions. Since 2015, the company has closed six acquisitions of different sizes, ranging from SEK 30m in sales to SEK ~300m. The majority of acquisitions have been in Sweden, but in Q4 2018 Inission bought Simpro, a Trondheim-based contract manufacturer focused on advanced industrial techniques with customers within the offshore, defence and medtech industries – all areas in which Inission would like to strengthen its footprint.

Good knowledge of the market and an ambition to position Inission as a driver of industry consolidation

Working on the M&A agenda are Inission's two founders, Olle Hulteberg and Fredrik Berghel, who have a good knowledge of the market and an ambition to position Inission as a driver of industry consolidation. The Nordic EMS market has quite an interesting structure with just a few companies representing a large share of total sales – the company estimates that 1% of companies account for 52% of total sales. At the same time, 97% of the total number of players represent ~35% of total sales, which indicates that the market is highly fragmented, providing a healthy number of targets for Inission.



Due to the fragmented nature of the Swedish market, we anticipate more mid-sized acquisitions there with sales in the range of SEK 50-300m. The acquisition pipeline is solid with ~50 companies on the list, and one important factor is that Inission believes healthy returns can be achieved without any synergies being incorporated into the calculation. Historically, though, the company has been able to extract a certain amount of synergies from consolidating both production and IT systems.

The only negative short-term aspect of the company is its balance sheet – net indebtedness at the end of Q2 2019 was SEK 138m, corresponding to 2.0x EBITDA, which is rather stretched. We believe a capital injection would be appropriate, as it would allow the company to strengthen its balance sheet in order to maintain its acquisition pace.

Strong margin development aheadEBIT MARGIN DEVELOPMENT, %

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2017 2018 2019E 2020E 2021E


EBIT AND Y/Y GROWTH, SEKm AND %

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2017 2018 2019E 2020E 2021E

EBIT % change y/y


Past acquisitions have been margin dilutive, but we expect Inission to be able to restore profitability within those units gradually

We forecast a positive margin development for Inission going forward. For the legacy business, we estimate that the company has an EBIT margin above 8%. Past acquisitions have been margin dilutive, but we expect Inission to be able to restore profitability within those units gradually. We believe that one focus area for the company today is Norway, where for instance Noca, a subsidiary within the Simpro Group, is burdening profitability. We estimate a group EBIT margin of 6.7% for 2019, which is a y/y increase of 114 bp. For 2020, we forecast a margin increase of 55 bp y/y to 7.2%. All in all, we expect a 30% EBIT CAGR for the period 2018-21.

Net financial items and taxHistorically, Inission's tax rate has averaged 23%. Due to an 80% sales exposure to Sweden, where the corporate tax rate has been and will be lowered from 22% in 2018 to 21.4% in 2019 and to 20.6% after year-end 2020, we forecast an average tax rate of 24% for 2020.

Regarding net financials, we expect the interest rate to remain relatively high due to the low equity ratio, which has led to owners' contributions from the two largest shareholders at a 6% rate. On the positive side, the owners' contribution suggests that they are dedicated and supportive of an active M&A agenda.

Capex Historically, capex/sales has averaged 0.7%, although there was a slight increase in 2017 and 2018 when the ratio was 1.3% and 1.5%, respectively. In 2018, Inission made some major investments in order to improve production processes and delivery precision. For instance, it invested in a new production line in Tallinn, which increased its capacity for circuit boards. Going forward, we estimate a capex to sales ratio of 1.5% if Inission is to be able to maintain its current growth rate.



NWCIf Inission were to perform in line with its peers, it could potentially reduce its NWC/sales by 15-20 pp, implying a NWC reduction of SEK 110-150m, equal to 20-30% of its market cap

One interesting aspect of Inission is its balance sheet, and in particular its working capital situation. At the end of 2018, the company had net working capital to sales of 42%, which was well above (>15 pp) the average for its listed peers. We estimate that the company has a lot of work to do on this front, either by working with internal resources or requesting help from external partners. In terms of accounts payable, the company is some ten days behind its key peers, which is fairly poor, especially given Inission's size – it should be able to push the number of days closer to peers. In terms of receivables, we expect the company to start using factoring in order to bring the ratio closer to peers. On inventory, the company is by far the worst performer in the peer group. For instance, in total we estimate that roughly 40 customers represent 70% of Inission's net sales, indicating that the company has a long tail given that the total number of customers is >130. By limiting the number of customers, Inission could thereby reduce its inventory significantly. If Inission were to perform in line with its peers, it could potentially reduce its NWC/sales by 15-20 pp, implying a NWC reduction of SEK 110-150m, equal to 20-30% of its market cap.

Net debt/EBITDAWe estimate that Inission will have net debt/EBITDA of 1.5x at year-end 2019 and 0.8x at year-end 2020, mainly driven by improved margins fuelling cash flow but also due to a slight working capital release. Our net debt to EBITDA estimates imply that without any capital injection the company will not be able to make any significant acquisitions until around 2020.



Sustainability Inission’s annual reports do not provide comprehensive coverage in terms of the Global Reporting Initiative, Carbon Disclosure Project, Global eSustainability Initiative materiality analysis, or the UN Global Impact. The company did increase its focus on ESG issues in its 2018 annual report, however, which we recognise as a positive development.

EMS is not an energy-intensive industryManufacturing electronic devices does not require extensive energy and does not emit much carbon dioxide or other pollutants. Inission can therefore fulfil ordinary environmental sustainability criteria relatively easily. Globally, however, several subcontractors face some ESG pressure on labour issues. Several global subcontractor companies have been under the radar, especially concerning employee rights. Even though there is pressure to keep salaries low, incidents usually relate more to working conditions and disagreements with local labour unions, rather than salaries.

Low-cost model does not usually bring higher ESG rankingsFor many companies, ESG simply means putting a picture of green grass in the annual report. We look far beyond that in our sector and company analyses. Most products in the electronics industry are price-driven, leading to low-cost manufacturing processes. Unfortunately, such a business model does not usually increase sustainability in the total value chain. Also, not all electronics are essential to our society, so natural resources are sometimes used for less necessary items.

For Inission, sustainability entails being aware of and managing its ecological footprint and also looking out for its people. From these aspects, the company is doing a fine job. We do not expect Inission to take broader responsibility for the global sustainability of electronic devices, as this would require an ethical commitment to avoid the unnecessary use of raw materials for products that are not sustainable.

A short product lifecycle is one of the concernsA short product lifecycle is one of the main concerns in the electronics industry. Numerous devices are used for only a relatively short period of time, occasionally not at all. Consumer electronics is not Inission's main sector, however, so its products are not the least sustainable, in our opinion. In the industrial sector, electronic devices (lifts, mobile network stations, etc) are used for a much longer period of time.

The recycling of devices would offer a better recovery rate for important raw materials. In the consumer electronics sector, end-users still hold the key role in how material recovery can be arranged. On the industrial side, the material recovery rate is slightly better. Inission cannot affect how end-products are recycled at the end of a product’s lifecycle, which is true for practically all subcontractors in all sectors. Inission, however, does provide services that cover a product's entire lifecycle, eg finding the spare parts necessary to prevent disruptions in production. We argue that some consumer products should include sustainability labelling that would let end-consumers decide what type of devices they are willing to use, as is already the case in many other sectors. For industrial applications, however, sustainability labelling might be less effective. One should note that Inission is more or less solely a manufacturer of industrial electronics, where the products have longer cycles compared with consumer electronics.

Inission has ISO standards for its operations but this does not solve the bigger problem on the primary raw material side. Currently, there are two ISO standards available: ISO 14001 on Environmental Management Systems, and ISO 50001 on Energy Management. All of Inission's plants are certified ISO 14001-compliant.

Transparency is the key to better ESG performance We believe transparency is the most important sustainability issue for Inission. If a company is fair and open, this usually helps prevent major problems from occurring. We understand, however, that some of the information related to sustainability issues would reveal competitive advantages and is thus kept confidential.



We still believe that Inission should proactively report more about its operations in terms of ESG issues, going beyond what is required by regulation. Increased transparency reduces risk and allows a higher valuation of the company. Hopefully, adopting a tighter sustainability strategy should not restrict the customer base, but actually improve new business opportunities and further reduce risks.



Detailed estimatesINISSION: INTERIM DETAILED ESTIMATES, SEKm

Group Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19E Q4 19ENet sales 172 176 155 237 243 278 226 290Cost of goods sold -101 -114 -91 -148 -159 -177 -142 -187

Other external costs -13 -13 -9 -20 -19 -14 -12 -17Personnel costs -44 -45 -37 -58 -60 -69 -56 -73Other operating costs 0 0 0 -4 0 0 -5 5EBITDA 10 12 10 18 20 23 17 24Depreciation -1 -2 -2 -3 -3 -4 -3 -4EBITA 8 10 8 15 16 19 14 20Amortisation 0 0 0 0 0 0 0 0EBIT 8 10 8 15 16 19 14 20Financial income and expenses -1 -1 -1 -1 -2 -2 -2 -2PTP 7 10 7 13 15 17 12 18Tax -2 -2 -2 -2 -4 -4 -3 -4Net profit 6 8 5 12 11 13 9 14

Basic EPS, SEK 1.2 1.6 1.0 2.4 2.2 2.6 1.9 2.9Diluted EPS, SEK 1.2 1.6 1.0 2.4 2.2 2.6 1.9 2.8

Nr of shares at the period end bef dil 4.8 4.8 4.9 4.9 4.9 4.9 4.9 4.9Nr of shares at the period end after dil 4.9 4.9 4.9 4.9 4.9 4.9 4.9 4.9

EBITDA margin 5.8% 6.7% 6.2% 7.4% 8.1% 8.1% 7.4% 8.2%EBITA margin 4.9% 5.8% 5.1% 6.1% 6.8% 6.8% 6.1% 6.9%EBIT margin 4.9% 5.8% 5.1% 6.1% 6.8% 6.8% 6.1% 6.9%


INISSION: ANNUAL DETAILED ESTIMATES, SEKm

Group 2014 2015 2016 2017 2018 2019E 2020E 2021ENet sales 250 280 526 713 740 1,037 1,101 1,146Cost of goods sold -142 -155 -317 -460 -453 -664 -704 -731

Other external costs -21 -25 -53 -50 -55 -63 -67 -69Personnel costs -72 -79 -133 -177 -185 -257 -272 -282Other operating costs -1 1 8 -3 -4 0 7 13EBITDA 17 23 31 37 49 83 94 104Depreciation -5 -5 -7 -7 -8 -14 -14 -15EBITA 12 18 24 30 41 69 80 89Amortisation 0 0 0 0 0 0 0 0EBIT 12 18 24 30 41 69 80 89Financial income and expenses -1 -1 -2 -3 -4 -7 -7 -7PTP 11 17 23 26 37 63 73 83Tax -3 -5 -4 -3 -7 -15 -18 -20Net profit 8 13 19 23 30 47 56 63

Basic EPS, SEK n.a 11.0 15.4 5.9 6.2 9.6 11.3 12.8Diluted EPS, SEK n.a 11.0 15.3 5.8 6.1 9.5 11.3 12.7

Nr of shares at the period end bef dil 0.0 1.2 1.2 3.9 4.8 4.9 4.9 4.9Nr of shares at the period end after dil 0.0 1.2 1.2 4.0 4.9 4.9 4.9 4.9

EBITDA margin 6.7% 8.2% 5.9% 5.2% 6.6% 8.0% 8.5% 9.1%EBITA margin 4.7% 6.4% 4.6% 4.2% 5.5% 6.7% 7.2% 7.8%EBIT margin 4.7% 6.4% 4.6% 4.2% 5.5% 6.7% 7.2% 7.8%




Reported numbers and forecastsINCOME STATEMENT

2021E2020E2019E20182017201620152014201320122011SEKm1,1461,1011,037740713526280250249204n.a.Net revenue4.0%6.2%40.2%3.7%35.6%87.7%12.2%0.3%21.7%n.a.n.a.Revenue growth

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX1049483493731231726100EBITDA-15-14-14-8-7-7-5-5-5-20Depreciation and impairments PPE

00000000000of which leased assets89806941302418122190EBITA

00000000000Amortisation and impairments8980694130241812219n.a.EBIT

00000000000of which associates00000000000Associates excluded from EBIT

-7-7-7-4-3-2-1-1-100Net financials00000000000of which lease interest00000000000Changes in value, net

83736337262317112090Pre-tax profit-20-18-15-7-3-4-5-3-610Reported taxes63564730231913814100Net profit from continued operations

00000000000Discontinued operations00000000000Minority interests

63564730231913814100Net profit to equity12.7111.259.576.095.7815.3411.01n.a.n.a.n.a.n.a.EPS2.502.001.501.510.003.000.000.000.000.000.00DPS2.502.001.501.510.003.000.000.000.000.000.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary

Profit margin in percent9.1%8.5%8.0%6.6%5.2%5.9%8.2%6.7%10.4%5.1%n.a.EBITDA7.8%7.2%6.7%5.5%4.2%4.6%6.4%4.7%8.4%4.3%n.a.EBITA7.8%7.2%6.7%5.5%4.2%4.6%6.4%4.7%8.4%4.3%n.a.EBIT

Adjusted earnings1049483493731231726100EBITDA (adj)89806941302418122190EBITA (adj)89806941302418122190EBIT (adj)

12.7111.259.576.095.7815.3411.01n.a.n.a.n.a.n.a.EPS (adj)

Adjusted profit margins in percent9.1%8.5%8.0%6.6%5.2%5.9%8.2%6.7%10.4%5.1%n.a.EBITDA (adj)7.8%7.2%6.7%5.5%4.2%4.6%6.4%4.7%8.4%4.3%n.a.EBITA (adj)7.8%7.2%6.7%5.5%4.2%4.6%6.4%4.7%8.4%4.3%n.a.EBIT (adj)

Performance metricsCAGR last 5 years

16.8%31.5%32.9%24.3%28.4%n.a.n.a.n.a.n.a.n.a.n.a.Net revenue27.2%32.5%37.8%13.5%28.7%n.m.n.m.n.m.n.m.n.m.n.m.EBITDA29.6%34.7%42.4%14.5%27.9%n.a.n.a.n.a.n.a.n.a.n.a.EBIT-3.7%0.4%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EPS-3.6%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.DPS

Average last 5 years6.5%5.9%5.5%5.0%5.2%5.5%n.a.n.a.n.a.n.a.n.a.Average EBIT margin7.7%7.1%6.8%6.2%6.6%7.1%n.a.n.a.n.a.n.a.n.a.Average EBITDA margin

VALUATION RATIOS - ADJUSTED EARNINGS

2021E2020E2019E20182017201620152014201320122011SEKm10.111.513.58.17.52.81.5n.a.n.a.n.a.n.a.P/E (adj)

6.27.59.18.59.65.91.9n.a.n.a.n.a.n.a.EV/EBITDA (adj)7.28.810.910.112.07.62.4n.a.n.a.n.a.n.a.EV/EBITA (adj)7.28.810.910.112.07.62.4n.a.n.a.n.a.n.a.EV/EBIT (adj)

VALUATION RATIOS - REPORTED EARNINGS

2021E2020E2019E20182017201620152014201320122011SEKm10.111.513.58.17.52.81.5n.a.n.a.n.a.n.a.P/E0.560.640.730.560.500.350.15n.a.n.a.n.a.n.a.EV/Sales

6.27.59.18.59.65.91.9n.a.n.a.n.a.n.a.EV/EBITDA7.28.810.910.112.07.62.4n.a.n.a.n.a.n.a.EV/EBITA7.28.810.910.112.07.62.4n.a.n.a.n.a.n.a.EV/EBIT

1.9%1.6%1.2%3.1%0.0%7.1%0.0%n.a.n.a.n.a.n.a.Dividend yield (ord.)10.8%9.5%9.4%-11.8%7.1%-70.9%-79.3%n.a.n.a.n.a.n.a.FCF yield10.8%9.5%9.4%-11.8%20.9%-40.9%-79.3%n.a.n.a.n.a.n.a.FCF Yield bef A&D, lease adj19.7%17.8%15.7%24.9%0.0%19.6%0.0%n.a.n.a.n.a.n.a.Payout ratio




BALANCE SHEET

2021E2020E2019E20182017201620152014201320122011SEKm9999792991200Intangible assets00000000000of which R&D22222000000of which other intangibles7777592991200of which goodwill

4340383615633400Tangible assets00000000000of which leased assets000060000000Shares associates00000000000Interest bearing assets00050001300Deferred tax assets00000000000Other non-IB non-current assets00010021302500Other non-current assets

52504751821653434400Total non-current assets29228629024116516462475100Inventory22922021817412413153444900Accounts receivable

00000000000Short-term leased assets17171616111243300Other current assets

163105520312177800Cash and bank70262857643130331913710211200Total current assetsn.a.n.a.n.a.n.a.n.a.n.a.n.a.0000Assets held for sale75467862348238633419014515600Total assets

252199151111795989605500Shareholders equity00000000000Of which preferred stocks00000000000Of which equity part of hybrid debt00000000000Minority interest

252199151111795989605500Total Equity00000000000Deferred tax

333333332632131300Long term interest bearing debt00000000000Pension provisions

161616167765500Other long-term provisions00000000000Other long-term liabilities00000000000Non-current lease debt00000000000Convertible debt

363636367010738152400Shareholder debt00000000000Hybrid debt

8585858510414644224300Total non-current liabilities00000000000Short-term provisions

172165166107607530221700Accounts payable00000000000Current lease debt

13712111472494725293200Other current liabilities107107107107947212900Short term interest bearing debt41739438728620313057625800Total current liabilities

00000000n.a.00Liabilities for assets held for sale75467862348238633419014515600Total liabilities and equity

Balance sheet and debt metrics137112417618713423223900Net debt

00000000000of which lease debt22923724425219118564455500Working capital281286291303273200117889900Invested capital337284236196183204133839800Capital employed

27.8%31.7%36.1%31.6%33.4%25.1%17.0%13.7%52.2%n.m.n.m.ROE23.6%20.7%17.5%10.7%9.4%11.5%13.1%9.5%31.4%n.m.n.m.ROIC26.4%28.0%29.4%20.9%16.3%11.9%13.5%14.3%21.2%n.m.n.a.ROCE

0.10.81.53.65.14.31.01.31.50.0n.m.Net debt/EBITDAn.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.a.Interest coverage

33.4%29.4%24.2%23.1%20.5%17.6%46.7%41.8%35.4%n.m.n.m.Equity ratio5.1%35.8%82.2%158.8%237.0%228.1%26.0%36.3%69.8%n.m.n.m.Net gearing




CASH FLOW STATEMENT

2021E2020E2019E20182017201620152014201320122011SEKm1049483493731231726100EBITDA (adj) for associates-20-18-15-1-5-3-2-4-300Paid taxes

-7-7-700000000Net financials00090110500Change in provisions006-602110-3-2900Change in other LT non-IB00000000000Cash flow to/from associates00000000000Dividends paid to minorities000-10-2-35-12521-100Other adj to reconcile to cash flow

78706741311519142100Funds from operations (FFO)8781-10-35-2913-400Change in NWC

8577754121-19-10271700Cash flow from operations (CFO)-17-17-16-7014-1-5-26-100Capital expenditure686060-2836-21-1611600Free cash flow before A&D

000038-1203200Proceeds from sale of assets0000-61-30-3-1400Acquisitions

686060-2812-36-162500Free cash flow686060-2836-21-1611600Free cash flow bef A&D, lease adj

-10-7-700-50-3-3-200Dividends paid000200190000Equity issues / buybacks000-57636731-20900Net change in debt00013-235-100000Other financing adjustments00066-607-1120-400Other non-cash adjustments

585352-3-9-610-1800Change in cash

Cash flow metricsn.m.n.m.n.m.n.m.n.m.19.6%n.m.n.m.22.3%0.0%n.m.Capex/D&A

1.5%1.5%1.5%9.4%-2.0%0.3%1.9%10.4%0.5%0.0%n.a.Capex/Sales

Key information12912912949444217n.a.n.a.n.a.n.a.Share price year end (/current)6326326322391705120n.a.n.a.n.a.n.a.Market cap.64470375641535718543n.a.n.a.n.a.n.a.Enterprise value4.94.94.94.83.91.21.20.00.00.00.0Diluted no. of shares, year-end (m)




Disclaimer and legal disclosuresOrigin of the reportThis publication or report originates from: Nordea Bank Abp, including its branches Nordea Danmark, Filial af Nordea Bank Abp, Finland, Nordea Bank Abp, filial i Norge and Nordea Bank Abp, filial i Sverige (together "Nordea") acting through their unit Nordea Markets.

Nordea Bank Abp is supervised by the European Central Bank and the Finnish Financial Supervisory Authority and the branches are supervised by the European Central Bank and the Finnish Financial Supervisory Authority and the Financial Supervisory Authorities in their respective countries.

Content of reportThis report has been prepared solely by Nordea Markets.

Opinions or suggestions from Nordea Markets credit and equity research may deviate from one another or from opinions presented by other departments in Nordea. This may typically be the result of differing time horizons, methodologies, contexts or other factors.

The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision

Opinions or ratings are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation and the time horizon. Key assumptions of forecasts or ratings in research cited or reproduced appear in the research material from the named sources. The date of publication appears from the research material cited or reproduced. Opinions and estimates may be updated in subsequent versions of the report, provided that the relevant company/issuer is treated anew in such later versions of the report.

Validity of the reportAll opinions and estimates in this report are, regardless of source, given in good faith, and may only be valid as of the stated date of this report and are subject to changewithout notice.

No individual investment or tax adviceThe report is intended only to provide general and preliminary information to investors and shall not be construed as the basis for any investment decision. This report has been prepared by Nordea Markets as general information for private use of investors to whom the report has been distributed, but it is not intended as a personal recommendation of particular financial instruments or strategies and thus it does not provide individually tailored investment advice, and does not take into account the individual investor's particular financial situation, existing holdings or liabilities, investment knowledge and experience, investment objective and horizon or risk profile and preferences. The investor must particularly ensure the suitability of an investment as regards his/her financial and fiscal situation and investment objectives. The investor bears the risk of losses in connection with an investment.

Before acting on any information in this report, it is recommendable to consult (without being limited to) one's financial, legal, tax, accounting, or regulatory advisor in any relevant jurisdiction.

The information contained in this report does not constitute advice on the tax consequences of making any particular investment decision. Each investor shall make his/her own appraisal of the tax and other financial merits of his/her investment.

SourcesThis report may be based on or contain information, such as opinions, estimates and valuations which emanate from: Nordea Markets' analysts or representatives, publicly available information, information from other units of Nordea, or other named sources.

To the extent this publication or report is based on or contain information emanating from other sources ("Other Sources") than Nordea Markets ("External Information"), Nordea Markets has deemed the Other Sources to be reliable but neither Nordea, others associated or affiliated with Nordea nor any other person, do guarantee the accuracy, adequacy or completeness of the External Information.

Limitation of liabilityNordea or other associated and affiliated companies assume no liability as regards to any investment, divestment or retention decision taken by the investor on the basis of this report. In no event will Nordea or other associated and affiliated companies be liable for direct, indirect or incidental, special or consequential damages (regardless ofwhether being considered as foreseeable or not) resulting from the information in this report.

Risk informationThe risk of investing in certain financial instruments, including those mentioned in this report , is generally high, as their market value is exposed to a lot of different factors such as the operational and financial conditions of the relevant company, growth prospects, change in interest rates, the economic and political environment, foreign exchange rates, shifts in market sentiments etc. Where an investment or security is denominated in a different currency to the investor's currency of reference, changes in rates of exchange may have an adverse effect on the value, price or income of or from that investment to the investor. Past performance is not a guide to future performance. Estimates of future performance are based on assumptions that may not be realized. When investing in individual shares, the investor may lose all or part of the investments.

Conflicts of interestReaders of this document should note that Nordea Markets has received remuneration from the company mentioned in this document for the production of the report. The remuneration is not dependent on the content of the report.

Nordea, affiliates or staff in Nordea, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the report.

To limit possible conflicts of interest and counter the abuse of inside knowledge, the analysts of Nordea Markets are subject to internal rules on sound ethical conduct, the management of inside information, handling of unpublished research material, contact with other units of Nordea and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. The object of the internal rules is for example to ensure that no analyst will abuse or cause others to abuse confidential information. It is the policy of Nordea Markets that no link exists between revenues from capital markets activities and individual analyst remuneration. Nordea and the branches are members of national stockbrokers' associations in each of the countries in which Nordea has head offices. Internal rules have been developed in accordance with recommendations issued by the stockbrokers associations. This material has been prepared following the Nordea Conflict of Interest Policy, which may be viewed at www.nordea.com/mifid.

Distribution restrictionsThe securities referred to in this report may not be eligible for sale in some jurisdictions. This report is not intended for, and must not be distributed to private customers in the UK or the US. This research report is intended only for, and may be distributed only to, accredited investors, expert investors or institutional investors in Singapore who maycontact Nordea Bank, Singapore Branch of 138 Market Street, #09-01 CapitaGreen, Singapore 048946.

This report may be distributed by Nordea Bank Luxembourg S.A., 562 rue de Neudorf, L-2015 Luxembourg which is subject to the supervision of the Commission de Surveillance du Secteur Financier.

This publication or report may be distributed by Nordea Bank Abp Singapore Branch, which is subject to the supervision of the European Central Bank, the Finnish Financial Supervisory Authority and the Monetary Authority of Singapore.

This publication or report may be distributed in the UK to institutional investors by Nordea Bank Abp London Branch of 6th Floor, 5 Aldermanbury Square, London, EC2V 7AZ, which is under supervision of the European Central Bank, Finanssivalvonta (Financial Supervisory Authority) in Finland and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority in the United Kingdom. Details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation Authority are available from us on request.

This report may not be mechanically duplicated, photocopied or otherwise reproduced, in full or in part, under applicable copyright laws.



Analyst ShareholdingNordea Markets analysts do not hold shares in the companies that they cover.No holdings or other affiliations by analysts or associates.

Market-making obligations and other significant financial interestNordea Markets has no market-making obligations in Inission.

Fair value sensitivityWe calculate our fair values by weighting DCF, DDM, SOTP, asset-based and other standard valuation methods. When applicable, we set a 12-month target price by applying an appropriate premium/discount and/or other relevant adjustment to our fair value to reflect the share price potential we see within the coming 12 months. Our fair values are sensitive to changes in valuation assumptions, of which growth, margins, tax rates, working capital ratios, investment-to-sales ratios and cost of capital are typically the most sensitive. It should be noted that our fair values would change by a disproportionate factor if changes are made to any or all valuation assumptions, owing to the non-linear nature of the standard valuation models applied (mentioned above). As a consequence of the standard valuation models we apply, changes of 1-2 percentage points in any single valuation assumption can change the derived fair value by as much as 30% or more. Dividend payouts are included in the target price. All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Investment banking transactionsIn view of Nordea’s position in its markets readers should assume that the bank may currently or may in the coming three months and beyond be providing or seeking to provide confidential investment banking services to the company/companies

Marketing MaterialThis research report should be considered marketing material, as it has been commissioned and paid for by the subject company, and has not been prepared in accordance with the regulations designed to promote the independence of investment research and it is not subject to any legal prohibition on dealing ahead of the dissemination of the report. However, Nordea Markets analysts are according to internal policies not allowed to hold shares in the companies/sectors that they cover.

Where applicable, recommendation changes are available at: https://research.nordea.com/compliance#equity-changes.

Issuer Review

This report has not been reviewed by the Issuer prior to publication.

Completion Date

12 Sep 2019, 07:12 CET

Nordea Bank Abp Nordea Bank Abp, filial i Sverige Nordea Danmark, Filial af Nordea Nordea Bank Abp, filial i NorgeBank Abp, Finland

Nordea Markets Division,Research




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