Teqnion AB, a Swedish industrial company, reported its Q1 2025 earnings, highlighting a strategic focus on acquisitions and operational improvements. Despite challenges with currency fluctuations and some struggling subsidiaries, the company is optimistic about achieving long-term growth. The stock price saw a modest increase of 2.19% following the announcement, reflecting investor confidence in its strategic direction. According to InvestingPro data, the stock has delivered impressive returns, with a 25.3% gain over the past year and a strong 19.57% increase year-to-date, trading at $14.54.
Key Takeaways
- Teqnion completed six acquisitions in Q1 2025, focusing on companies in niche industrial sectors.
- The company aims to double its earnings per share (EPS) over the next five years.
- International operations are outperforming Swedish businesses, showing higher margins.
- Teqnion’s stock increased by 2.19% post-announcement, indicating positive market sentiment.
Company Performance
Teqnion’s Q1 2025 results were influenced by currency fluctuations, with the strengthening of the Swedish krona impacting international operations. The company reported EPS of approximately 7.5 Swedish krona for 2023 and aims to reach 15 Swedish krona in the long term. Despite some subsidiaries experiencing losses, particularly in Sweden, Teqnion’s decentralized management model and focus on acquisitions are expected to drive future growth.
Financial Highlights
- EPS for 2023: 7.5 Swedish krona
- Target EPS: 15 Swedish krona
- Six acquisitions completed in Q1 2025
Outlook & Guidance
Teqnion has set ambitious goals, targeting five acquisitions per year and aiming for 10% growth through acquisitions. The company expects single-digit organic growth and plans to double its EPS over five years. Future guidance includes potential larger acquisitions to enhance its market position. Based on InvestingPro’s Fair Value analysis, the stock appears slightly undervalued, suggesting potential upside for investors aligned with the company’s growth strategy.
Executive Commentary
Johan, Co-Founder of Teqnion, emphasized the company’s growth strategy, stating, "We are constantly trying to evolve and scale the things that we are doing and try to do them better and bigger." He also highlighted the importance of thoughtful spending, saying, "It’s much more fun to see the money grow."
Risks and Challenges
- Currency fluctuations: The strengthening Swedish krona could continue to impact international operations.
- Subsidiary performance: Some subsidiaries are experiencing losses, which may affect overall profitability.
- Market uncertainties: Global economic conditions could influence market demand and competition.
Teqnion’s strategic focus on acquisitions and operational improvements positions it well for future growth, despite current challenges. The company’s commitment to expanding its geographical footprint and enhancing its competitive position is reflected in its positive market performance. For deeper insights into Teqnion’s financial health and growth prospects, investors can access comprehensive analysis and valuation metrics through InvestingPro’s detailed research reports, available as part of the platform’s coverage of over 1,400 stocks.
Full transcript - Teqnion AB (TEQ) Q1 2025:
Moderator/Host, Technion: Hi, everyone. Welcome to Technion twenty twenty five q ’1 q and a. Today, we have kept the tradition of issuing our quarterly report on the same day as our AGM, which is the reason why we do this q and a a little bit later in the day. We will, as always, alternate between the questions that we have received through our q and a email and the ones that you can ask us live, please use the q and a function in the Teams window, which you’ll see at the top. Before we jump into the q and a session, I would like to hand it over to you, Johan, to say a few words about the quarter.
Johan, Executive/Co-Founder, Technion: Hello, everyone, and welcome to this q and a. Today, we are broadcasting from TM Partners in Stockholm, our legal advisers here, where we’re, later today, gonna hold our AGM. The the quarter has been rather hectic with with a lot of acquisitions for us. We have had a pace where we acquired six new companies, and we are very happy to welcome our new colleagues into the group. This is a pace that you shouldn’t be accustomed to.
Please don’t extrapolate this speed going forward. We have had rather big backlog of acquisitions lined up for this first quarter from the previous years, talking to a lot of entrepreneurs and building relationships as we always do. We think that the pace that we communicate before with a handful of acquisitions per year is is something that we like and are comfortable with. And and over a period of time, we believe that’s the right pace for technical. The result in q one has been boosted quite a bit from FX effects.
The Swedish krona has been strengthened due to the very turbulent global situation that we have at the moment. And since we are operating more in an international level these days, these things tend to be bigger than they used to be, and it’s also something that probably gonna stay big or bigger in the future as we grow and and move more international. We have operated quite hard when it comes to improvement projects out in our subsidiaries with struggling companies within the group. And, happily, we start to see some effects in those improvement projects. So the results, some margins, and and the cash flow on on specific companies have been improved.
And and especially when it comes to the sequential comparison with with a very poor q four, we’re actually doing a little bit bit better, which is
Moderator/Host, Technion: I don’t know if I
Johan, Executive/Co-Founder, Technion: can say it’s it feels good. It’s still a lot of frustration when these with these things. This do take a lot a lot of time. It’s a very slow pace to to fix things that needs to be fixed, but we’re on it, and we’re working really hard to do this. And we are confident that we have the ability and skill set to do it.
But once again, it’s it’s a slow process. I think that with that, we can maybe move into the q and a, which is the main reason why we’re here. Yeah. We’ll be trying to be quick on some of the questions, Justin,
Moderator/Host, Technion: in order to get through as many as possible, and then we might be dive a little bit more in some of them. So the first live question we have comes from Nicholas Jayhalt, who’s wondering, would Techno ever consider investing in the public market if extraordinary opportunities arose, like a 02/2008 type crash, for example?
Johan, Executive/Co-Founder, Technion: We are You’re the investor guy. No. I think that we we never say never to anything, but we’re we’re we’re not thinking in those terms, and we have never been interested in doing that because we we have had so much opportunity on the unlisted market, and we still have the valuation there that is far superior to the listed market.
Moderator/Host, Technion: Yeah. We can, in extraordinary situations, maybe do something that is more extraordinary, but it the bar will be very high compared to what we think that we compared to what we’re doing right now. We got the email from Georgie through email saying, congratulations with the stream of acquisitions With the five companies from 2025, this was before the sixth acquisition, you are adding 10.7% of sales. Taking into account the work Johan is doing in the weak subsidiaries, what ambition do you have for the year regarding organic and inorganic growth, and what margin recovery could be expected?
Johan, Executive/Co-Founder, Technion: Maybe just to to underline that it’s not only me work working with improvement projects. We’re we’re we’re a good team of of people doing that and also the subs and the people within or the or coworkers within the subsidiaries themselves are doing a tremendous job to improving our figures. When it comes to to how we see on a theoretical level how we should grow going forward, we we have said before, I think, and at least we thought about it that maybe 10% from of the growth will be from acquisitions and, like, single digit percentages in organic growth in over time in in a whatever that is, a normal market. So that would give us the 15% of annual growth that we are aiming for.
Moderator/Host, Technion: Yeah. And and maybe just to clarify another thing is that when we report the sales numbers for the companies that we acquire, we always do it as an average of the last three years. And so when you look at those numbers, that doesn’t mean that it’s the pro form a number or it’s the last year revenue number. It’s the average of the last three years. And most likely, the companies we’re acquiring are also growing, which means that the historical numbers are a little bit lower than current ones, just as a FYI.
We got a question here in the live chat. Krakow Goyal is wondering, the acquisitions made in 2025 appear to have a EBITDA margin of over 20%. Are there any one offs driving that figure, or is the 20% margin sustainable? I think the quick answer is that, yes, we do believe that they are sustainable without promising anything, of course. If you look at, I believe, our q three report, we do show what the margin is for our international companies compared to the Swedish companies.
And the positive thing on that slide is that the international companies are actually having EBIT margins north of 20%, and all of those are, of course, acquired during the last three, four years. And the bad news is that the Swedish ones have much lower margins, but we are constantly looking at companies that are better than our average, which means higher margins on a sustainable level. It’s a second part quest two part question from Prakul. The second part is basically, excluding acquisitions, the same store EBITDA margin is approximately 7%, which is lower than our stated targets. Why is that?
Was it entirely due to the minus 3% organic growth? And I think I mean, declining growth or declining revenue is, of course, not helping this. The the main problem or main challenge that we have in the companies that are not at the level we want is that they are really not performing as far as we want them to. We have, as we pointed out, a few companies, especially in Sweden, where they are struggling and where they are have been losing money for some time. We do see underlying progress in that group of companies.
We see Johan pointed out in his letter, for example, that one of our house building companies, the bigger of the two, actually is running at a profit right now after putting in who was actually the original entrepreneur of that company and showing that the right person can actually do wonders. But, obviously, we don’t want to have companies that where you actually need the best person in order to just barely make money. I don’t know if that’s any kind of answer. I mean, the same store beta market is just too low mainly due to that we have companies losing money.
Johan, Executive/Co-Founder, Technion: I think that’s worth pointing out that that we have plenty of companies in Sweden that have really healthy margins. We have a few, unfortunately, where where we’re losing money, which drags the the overall margins down, of course, and that’s where we put in most of our efforts now to to stop that bleeding, of course.
Moderator/Host, Technion: Yep. Through email, we got a question that reads, dear Daniel, a u one, wiser older heads might suggest that you should buy a business that an idiot could run. I’m simplifying the letter a little bit. What is your thought on that? And do you have any businesses in the group that even this idiots can run?
Could you give any examples?
Johan, Executive/Co-Founder, Technion: I think I think that we tried to explain a little bit around this before. We when we look for for potential acquisitions, we look for companies that we, me and Daniel, understand how they earn money. And that is a little bit saying that an idiot could run it. We since we are working in many different industrial segments with variety of products and and customer offers, we we tend to look at the business model. If we understand that one, if it’s simple enough to to realize how a normal manager could run that company, we believe that it’s also something that we can acquire.
If we have a solid history, healthy margins, stable earnings, and low business risk within that niche, then then I think it’s something we look at. And and over time, of course, I think that we have acquired companies that fulfill more of these criteria. It also means that we have been able to look at companies that fulfill more of these criteria, have higher higher points in these criteria due to the fact that we have more money to buy companies for. We when we started out back in 02/2006, we were only capitalized, but with our own operational cash flow. We we had no money other than the the money that we earned within the operating businesses, and that’s how we learned and how we grew and how we maintained the focus on always having a positive cash flow because that’s our bloodstream.
That’s what we need. We need the the positive free cash flow from our subsidiaries in order to maintain the acquisition pace and the growing pace that we want to achieve. That means that we need to understand and have the business model that we acquire and also that we believe that these business models will will be sustainable over time and that we, together with our coworkers, will be able to handle them even if they are on a down turn period due to other factors or macro things, turbulences. Yeah.
Moderator/Host, Technion: Maybe just to add to that. For us, when we look at companies, the litmus test, could an idiot run this or alternative to that question, is a big portion of, is this a quality company or not? And, I mean, it’s it’s on a scale that we always try to find better and better companies. Every now and then, we run into a company that makes a lot of money, but we’re basically, even though it looks like a company, it’s one person, usually the entrepreneur that runs the show, and and where we know that profits would be halved or just evaporated without this one person, those are companies that, on paper, look good, but we absolutely do not acquire. Whereas if we think that John Trick and Neur can step out and there are people in place, systems in place, processes in place that things would just continue to run, theoretically at least, without that main person, that is something that is much more attractive to us.
Another live question here comes from Kolapan Pillai. Sorry for pronunciation. I know Dan talked about this before, but it would be good to know. At what point would you consider divesting low performing companies? For example, if you see no trend line improvement, two quarters, one year, or later, or will we strive to make them better no matter what?
Johan, Executive/Co-Founder, Technion: Let’s start. I can start. Yeah.
Moderator/Host, Technion: I can start because I ended up last time. So we the the most important thing, maybe as a takeaway from this call, is just to iterate reiterate that Technion, we we do the best for the shareholders over the long term, and that means that we need to grow our earnings per share. Means that we need to increase our cash flow or returns on capital over time. And it won’t happen sequentially quarter over quarter all the time, but over time, we have a preference of not selling companies. We have a preference of owning the companies that we have acquired forever, but it’s not the religion, and it’s not a high standing thing.
Just want to say that as a statement. It is a little bit difficult to say exactly the time frame because it, of course, depends on the data and what it’s telling us. Some of the companies that we have in our group, we do believe that we have done changes and have continued to do changes that will be reflected financially, in the quarters and years to come, we might be hopefully right about that, or we might be wrong. Hopefully not. But in the cases where we see absolutely no progression, even though we’ve used, you know, the full arsenal of our toolbox, then we are obviously not the right owners of that business.
And being good stewards of your money and being managers of, basically, your company, we feel that it’s our fiduciary duty to look at the other alternatives, which might include selling that to someone that actually can take care of it in a better way and for us to for us to off offload losses. But, I mean, it’s not we’re not gonna bleed forever. I said in the last call, and I I can reiterate that. I mean, for us sitting in this room, if we don’t see a good trajectory, on these companies, we’re gonna suggest doing other things before this year has ended. But given that we’re in industries where there is a lot of, momentum in different directions and also that, there are changes, even though the changes have would push the button, the financials, of that won’t show sometimes until, you know, three, six, nine months later.
We just need to have a little bit patience to see what the actual effects are. You want have something?
Johan, Executive/Co-Founder, Technion: That was a lot of words, and I like those. I refrain from saying them.
Moderator/Host, Technion: Alright. We got the email from customers. Hi, Daniels. Thanks for trust stars you showed in the PR. Also great news in the housing factory, and it’s great to see UK contributing more and more to our revenues.
Some questions for the day. What’s behind the decrease in return of equity? Quick answer. Our profits have gone down whilst the equity base have not. We’ll fix the profit, and thereby return on equity will return to levels that we feel is acceptable, and it is not right now.
Another question is regarding the scrapping of inventory and write down on equipments. Can you elaborate, please?
Johan, Executive/Co-Founder, Technion: We have done some restructuring in some of the subsidiaries, and and with those projects, we also had some of those write downs. Yeah.
Moderator/Host, Technion: Yeah. plans on hedging or currency? Same those question from same person. My our overall opinion regarding hedging is that over long periods of time, hedging is a cost. It absolutely smoothens the quarters.
However, because we’re not in it in the quarters, basic economic theory says that hedging is a cost, not profit over longer periods. So that is our overall view of it. Our subsidiaries, they are free to choose what they want. Most of them choose, to have a floating exchange rate. Sometimes they’re a little bit, let’s call it, lucky.
Sometimes they’re more unlucky in that regard. We do have a little bit of hedging in some companies because some of the CEOs likes to have smooth smooth months or quarters, but, of course, bearing that insurance costs, basically. But we don’t plan to do it on a group level. Alright. Let’s go back to the line questions.
We have a question from actually, actually, can’t say his name. What key traits do you look for in companies before acquiring them?
Johan, Executive/Co-Founder, Technion: I think we covered that a little bit. First of all, they should have financial stability and good earnings. When we see that, we we look at the company we look at companies that sell to other companies. We look at companies that promote or sell physical products, and, hopefully, they are in a rather narrow industrial niche where they can dictate the terms for that specific market. And they’re not in it there to just to sell and and because they can lower the prices.
They are there to sell because they can, add something to that physical product if it comes to knowledge or knowledge about the application, knowledge about the relay regulation around that project or the application of that product. So the customer will keep coming back and and build a a long term relationship with this supplier, which is our company, and hopefully grow together towards the future. So something that is stable, maybe at first glance, little bit boring or a little bit odd, but it’s necessary to run this society forward. And, hopefully, it will be relevant in ten years and twenty years to come as well. Yeah.
Moderator/Host, Technion: I think just to add to that, we are in the game of capitalism. So what what we try to do is that we acquire companies that are somehow safe bets, quote unquote. So what we look for before, basically, everything that you want to because it’s it’s a given, is that we look at the financials. We look at the financials to see if they is this a company that has gonna be accretive to our EPS? Is this a company that has return on equity that is sustainable and higher than our average?
Is it a company that have profit margins that have been sustainable and higher than our average? We look at the growth over time. Is that sustainable and, hopefully, higher than our average? And we look at the key financial metrics, and only when the all of those key things are in place do we look at any other thing. Before that, quite often, I I don’t even know what this company is doing, and then we’ll get the soft things.
Galindio, through email, have six questions. Hello, guys. I can imagine backlog has been affected by several factors, including currency effects and less companies working with long backlogs. Can you elaborate on why it is down year on year? Yes.
We can. Yes. Currency effect do have it it has sound effect. The Swedish krona have appreciated. So, obviously, other currency backlogs is worth, give or take, 10% less.
However, that is maybe not what I really want to state here. So the backlog, I think we look at backlogs per company when we look at our subsidiaries. We don’t look at it too much on a aggregated level, and the reason being that there’s a handful of companies that actually account for roughly half of the actual backlog. And, unfortunately, that half, of the backlog is also very low margin ones. So Dustin mentioned a few names.
We have the contract manufacturers where that typically have very long backlogs. We also have one of the housing companies that have had really long backlogs. And so so when we when you look at the aggregated backlog, if that goes up or not, that might give an indication of, let’s call it, the overall macro climate given that we’re in different niches, and these one are the ones that are most cyclical. However, some of our best performing companies actually have no or low backlog all the time. So when you follow it as we do on a subsidiary level from, one month to another or quarter to quarter, that gives a good picture.
Whilst on the aggregated level, it gets clouded by, unfortunately, a few companies that, account for a lot with but with revenue that doesn’t bring profit at the moment. Good answer. Yeah. And how many sales do we have in The USA affected directly by tariffs? You know?
Low single digit close to rounding error.
Johan, Executive/Co-Founder, Technion: Correct. I think I think we we just discussed this for a few few weeks ago, and and we are around I think we’re below 5% of the total revenue trading with The US. That’s unfortunate because we have a lot of plans doing more over there. That is, of course, been a little bit postponed just to see what’s what’s going on, But it’s a very little effect. The big effect for us in in this in this situation is the same as for everyone else, of course, that the the world is waiting and and just postponing any decision when it comes to investments or or purchases because you don’t know what’s going on next week.
So that is, of course, frustrating. But but direct trading with The US is very limited up until today.
Moderator/Host, Technion: Yeah. The little sales that we do have, those companies are, in my opinion, maybe the ones that are strongest when it comes to pricing power. And the customer’s gonna eat that extra whatever percentage is gonna be added on it. Which companies are planning to sale close? Are you already in conversation regarding a possible sale?
We can’t disclose that at the moment. Really boring answer. Margins in contract manufacturers have been very thin over time. How do you expect the relocation to affect margins going forward?
Johan, Executive/Co-Founder, Technion: I think the margins are are very tough to improve in those type of companies, at least in in up until the levels where we are getting used to when it comes to new acquisitions and new companies into the group. Of course, you can you can do really, really well with a contract manufacturer and still be on what we considered normal on a very low level, which means that over time, I don’t think that we with contract manufacturers will reach the levels that we will reach in other segments of industry. No.
Moderator/Host, Technion: Fine. I have taken I’ve seen many bankruptcies in some cyclical companies in Sweden. Are you noticing less competition in some of the cyclical markets? I think it’s it’s difficult to quantify because different companies are in different niches. I think, as a very high level comment, I do feel that the number of competitors are a little bit lower.
We are usually very small niches. It’s not actually affecting us one to one, but, yes, there are fewer competitors. However, there’s another effect to it. The ones that are still there are struggling, and some of them have reduced prices, lower than what we want to go. So net on net, I’m not sure if, bankruptcies are helping us.
I don’t think it’s hurting us either, but no big effect. Last question from Galileo. How much effect did you have in transaction in USD that you mentioned in the report?
Johan, Executive/Co-Founder, Technion: Got it. It. Okay. Yeah.
Moderator/Host, Technion: You wanna take that?
Johan, Executive/Co-Founder, Technion: Well, it’s we we have had, for us, a rather big trader who who we bought some equipment or or products in The US and sold in Swedish. It was an effect that when we bought the dollars, they were more expensive. And when we sold in dollars, they were cheap. So it’s Less expensive. Less expensive.
Less sorry. Less expensive, which meant that we lost quite a chunk of money because the the the business from the beginning was a rather low margin business. So that was that was a little bit painful, of course. So
Moderator/Host, Technion: next live question, one from one from Morten. You’ve completed six acquisitions acquisitions already this year. Are there additional deals currently in the pipeline? Yes. There are.
But it we always have additional deals in the pipeline, some further away and some closer. And as you once said before, we throughout the years or or at least since 2020 or something like that, we’ve said that we want to acquire roughly five companies a year. And Sometimes we’ve been lower as I think one year, did fine. This year will be more. But over time, I think you should keep roughly five in your head.
Johan, Executive/Co-Founder, Technion: Do you agree with this? At the moment, we are we are tuned in roughly five acquisitions per year. We as as you know, we’re we’re gonna do more this year, but spread over a few years. I think going forward, let’s say five years for now or so, we might acquire more. I think we’d be in that position, and we’re probably gonna buy a little bit bigger companies because we will be in a situation where that will be possible for us.
So it’s as we always thought of ourselves that we are constantly trying to evolve and and scale the things that we are doing and try to do them better and bigger. So it will be saying we are still aiming for a handful of acquisitions per year, but maybe in in five years from now, we will say something different. And and, hopefully, that will be a bigger number and and also bigger acquisitions.
Moderator/Host, Technion: Yeah. I think it goes back a little bit to our financial targets where we say that we’re gonna at least double our EPS over a five year period. And then, of course, you can break that down. And as we answered before, in a normal year, whatever that means, we’re gonna do at least 10% on the, acquisition part of things and then roughly 5% or so, on the organic growth. And that can come through buying more or buying bigger or a combination of those.
And I think that that has changed a lot. I mean, only through the four, five years I’ve been here, I know that before I came buying something that made roughly 5,000,000 Swedish krona, that was seen as rather big because that would be 10% of the earning at the time. Now we don’t look at things that make five. We look at things that make at least 10, give or take, Swedish krona, and that will probably change over time slowly year by year. Email question from Shane Smith.
Three parts. One, can you explain the release note in note four in the annual report? It was a 7,800,000.0 reclassification. Does this indicate acquisitions post 2021 have underperformed expectations?
Johan, Executive/Co-Founder, Technion: You wanna start, please? Yeah. Absolutely.
Moderator/Host, Technion: So what what we usually do is that according to the accounting rules where you should be conservative and where we, of course, have very happy and optimistic vendors of businesses, entrepreneurs that believe that they’re gonna take over the world. Not really. But so we have forecasts from the entrepreneurs. And given that we’re new to the business, it’s difficult to come in and say, you’re wrong. Because, one, we don’t know.
Two, that’s a great way of destroying the relationship. So we have a earn out mechanism for all acquisitions where if they make so much money that they have in their forecast, then, they get a lot of earn out, and we get a lot of profit. And then the earn out is built in a way that, it the lower the profit, the lower the earn out, and, both get a little bit sadder, of course. But the thing is, of course, it it’s more art than science to guess on a single point on these curves to say, you know, what is the actual belief, that the profit is gonna be and thereby the earnout’s gonna be, going forward. And given that, we need to be conservative according to the accounting rules, we rather reserve a little bit too much than the opposite.
So I would say that the group for the last five years or so have performed roughly in line with our acquisition with our own forecast, maybe not always according to the entrepreneurs’ forecasts.
Johan, Executive/Co-Founder, Technion: And also maybe it’s worth mentioning that that the are not mechanistic or constructed in a way. So if we don’t reach the very very high entrepreneurial goal or the forecast, we still have the same valuation. So the the amount will will be we we will still have our money back within the five year period even though that they don’t get the maximum or not.
Moderator/Host, Technion: Yeah. Shane is then wondering. I’m surprised at how small some of the recent acquisitions have been. Other well regarded serial acquirers have commented that small acquisition are riskier. Succession planning, customer concentration, fragility of operations, etcetera.
What gives you confidence that Techno is able to properly manage so many disparate small businesses? I think this goes back a little bit to what we said before. I’m the the well regarded, serial acquirers, no matter if you call them Lifeco, Lloyd Jones, in the trade, I’ll take, or whatever. When they were smaller, they bought smaller things. And even today, some of them are actually buying companies of the size that we’re acquiring.
But, of course, the average that they’re buying is bigger. We will most likely also go down that route, and we’re have been going down that route. The companies that we’re acquiring today are on average much bigger compared to three years ago, and those were bigger compared to once three years ago. We we actually do not believe. Actually, we we don’t know the other companies, but Johan and I don’t have a belief that we are, you know, way better at handling really small companies compared to other CLR acquirers.
We I mean, we wouldn’t be here unless we thought we were a little bit better at least, but it’s not business strategy that we’re gonna buy only small ones forever. It’s that we want to buy the ones that are small enough so that we don’t risk the hole, but big enough to make an impact and finding that fine line that will change and go up for every year that goes is what we’re doing. Last question from Shane. Do you charge any fees to your subsidiaries? Is there any reason the subsidiary p and l understays to profitability?
Johan, Executive/Co-Founder, Technion: We charge our subsidiaries a management fee for the services that we perform for them. And yeah. Yeah.
Moderator/Host, Technion: I have another question from Martin. What should investors focus on when it comes to earnings growth per share? In 2023, EPS was around 7.5 Swedish krona. Should we be thinking in terms of long term goal of 15 Swedish krona EPS by the end of twenty eighth? Yes.
But this is also the reason why we have it it’s I know it’s a rather unusual method, but we don’t have one long term goal, until, for example, 2030 and then make up a new one. We we want to keep the financial targets that we have for as long as humanly possible, which means that there’s basically a new five year, target every year or actually every quarter, and that is what we’re aiming for for. Email question from Jaime. On culture and leadership from HQ, given Techno’s decentralized model where subsidiaries have high degree of autonomy, I’m curious, what role does the team at HQ play in shaping the overall culture of the group? How do you lead by example and set the tone so that values like long term thinking, accountability, and humility are consistently reinforced across all the companies?
Johan, Executive/Co-Founder, Technion: Think I think we just live as we learn, aren’t we? Or at least we try to. Yeah. And then it it gives a tone to the entire group. We gather all the CEOs a couple times per year to to share information, to share the culture, and and to get to know each other and maybe share a few beers as well.
We also try to emphasize these things as often as possible and in in in all the forms that we communicate with with our colleagues. When it comes to to loving to make money, of course, to to handle the I mean, we we have the the company’s money to to to grow. That that’s our task, and and and that’s that’s the game we we set out to play, and we want to be the best at it, which means that we need to be very, very thoughtful of what we spend those money on. It’s much more fun to see the money grow than to spend it on a fancy car or or a business class ticket when you fly somewhere. We we try to compete in in living cheap and and making as much profit as possible and and use that capital to to acquire more companies and grow the capital base as as we move along.
That’s that’s the game we’re in, and that’s the game that me and Daniel and the rest of the management team is living, and that’s the drive we have. And, of course, we hope that reflects to as many of our coworkers as possible. But but just meeting, talking, and and showing by by example, of course, affects the overall culture within the group.
Moderator/Host, Technion: Yeah. The next question there, same person. On entering unfamiliar industrial niches, Technion has deep roots in the industrial sector, but it also has a space full of highly specialized niches. If you come across a company in a niche where you have little existing knowledge or operational experience, how would you evaluate opportunity? What are the nonnegotiables you look for to gain conviction despite the knowledge gap?
Johan, Executive/Co-Founder, Technion: I I think you said some really good things about that previous case. You can say it again. Yeah. Why why not just repeating? Absolutely.
Moderator/Host, Technion: And and I think one thing just to tweak the question a little bit. It’s just how do you evaluate something where you have little existing knowledge or operational experience? When we get into situations where we feel like that, we actually just walk away. We don’t try to squeeze in things that we don’t understand because we look at very many companies a year, and we meet with a lot of work, and we’re happy with acquiring roughly five companies a year that are really, really good. So when those uncertainties are there of course, there are always uncertainties, but when they are high, we just go away.
But when it comes to the nonnegotiables, I mean, the financials historically, I mean, historical robustness when it comes to growth, when it comes to profit margin, when it comes to return on capital and having on organizations and where knowledge is spread out and important is spread out, and also when it comes to customers and suppliers. Those are things that are super important for us.
Johan, Executive/Co-Founder, Technion: Yeah. Just because I put some things down here before that that maybe I can squeeze in. So so when it comes to the framework or or what we’re looking for or that we walk away from is that we walk away from turnaround cases. We walk away from start ups. We walk away from typical contract manufacturers because we see that this is not what we should spend time and build and money on.
Yeah. That was just so so I kept the team there.
Moderator/Host, Technion: Absolutely. And and maybe adding that to that, we have a lot of respect for that in different countries. For example, there are different cultures and different leg legislations, and we learn new things all the time. That is also why we’re focusing on the current markets that we have. So we we try to find as many, let’s call it, ground interactions as possible in order to remove some of those at least.
On selling a subsidiary, the third question here, let’s say someone approached you with a very attractive offer to acquire one of Techno subsidiaries. What would go through your mind in evaluating what to sell? Are the guiding principles of thresholds that we keep the healthy way financial gain against the long term vision of building a permanent group of companies? So this does happen not very often, but we get approached every now and then for when come different people want to buy certain companies. Very unsurprisingly, they always want to not pay a lot for our best companies.
I mean, a lot is relative, but there are absolutely offers every now and then in, let’s call it, a mid teens multiple on on EBIT on some of our better companies. And that is absolutely not interesting for us because we do believe that we can use that cash flow and help those companies grow and acquire other companies that would be worth much more than those multiples. And so the question that more is close to our heart and especially now is, of course, what would happen if we cannot fix the companies that we have in our group. And the answer is, of course, that we’re not in the game of having, you know, permanent consistent losses with some of the companies forever. If we do believe that we cannot fix it, then we’ll need to find a better home for someone that actually can to this thing that they can
Johan, Executive/Co-Founder, Technion: fix it.
Moderator/Host, Technion: Wanna add something on that?
Johan, Executive/Co-Founder, Technion: Yeah. Maybe. But I don’t I don’t know. I mean, it’s also we I think we touched on the subject as well that that some of the fundamentals for some of the subsidiaries will never reach the average I’m taking on today, and and and we’ll be even further away in a few years because we are moving the threshold all the time. So maybe we will, in the future, find a better home for a subsidiary that someone else see bigger potential with than we do.
So that’s also might be a reason why we should let go of something because we can use that energy and and and cash better somewhere else. But but, like, we we said it, and I think it’s worth mentioning again that that one of our rules is that we never sell a company. We buy them to hold them forever, but that doesn’t stand above the rule of doing what’s best for for the for the company and for the shareholders when it comes to generate generate earnings and and return on on equity. So this is the the most important rule is is to win in the game of capitalism, not to keep a company forever if if we see that it can do better somewhere else. Yeah.
Moderator/Host, Technion: We got the email from Valentin. Hello, Daniel. It’s four part question. The first question is regarding Jonathan, our CCO. You mentioned that Jonathan has a veto right on acquisition.
He joined fairly recently. Can we know something more about his background? So
Johan, Executive/Co-Founder, Technion: He’s a he’s a he’s a very nice guy from in in Western Sweden. He’s been an auditor for for PVC for seven years. Yeah. Economist by trade, and, yeah, he’s he he makes us smile, and he’s very smart.
Moderator/Host, Technion: Very interested in investing. So he he he does all of the financial stuff, not all, but he’s in charge of the financial stuff at Technion. He’s also very interested in investing and and wants to be part of the acquisition process. So we have an investment committee, which is Johan, Jonathan, and I. And in order for us to acquire something, we need to have a % votes for, which is three votes.
And Jonathan is usually when when we look at companies, Jonathan is more involved in the side that has to do with accounting and trying to help us understand those pieces better. But, obviously, we’re a very small team, so everyone is interested in looking at different aspects.
Johan, Executive/Co-Founder, Technion: Yeah. Second part of that quest
Moderator/Host, Technion: from the same person, Sweden versus international exposure. With the geographical footprint expanding, could you share a rough breakdown of sales earnings between Swedish and non Swedish businesses? Based on recent acquisitions, it seems like international operations might now represent a substantial share.
Johan, Executive/Co-Founder, Technion: Yes. That’s correct. I think I think you you mentioned to me that we are approximately at the same level of earnings Yeah. But but the margins in the international businesses are much higher, so the sales are are less lower much lower. Yeah.
But maybe we stay with that. Yep.
Moderator/Host, Technion: Philosophy of not selling companies, I think we touched up on that. Name origin just out of curiosity. What’s the story behind the name Technion?
Johan, Executive/Co-Founder, Technion: Sorry to tell you that it’s not a very fun story. We were just fun trying to find we’re playing with words and putting them together to find something with a with a web page that was free. And we came up with something with technology and unification and playing with words. It ended up with the taking on spelling with the q. Yep.
Moderator/Host, Technion: Which is great when you try to help people in a hotel how to spell it. Yeah.
Johan, Executive/Co-Founder, Technion: I never regretted it.
Moderator/Host, Technion: I have a live question here. It’s from Baratlov Hell. Great job, guys, as always. I have a few, but all related questions. Do you put a techno culture person in each and every company, kind of like a chairman to follow the monthly report and offer them guidance of best practices.
Yes. That is we we do that for all companies, and that is the minimum level of guidance that we’re doing. But then, of
Johan, Executive/Co-Founder, Technion: course, for all companies, there are also other interactions for both through formal channels through the chairman, but also more informal ones depending on if they like to speak more with Johan or me or someone else. And, also, a lot of interactions with the with the financial and accounting team on on the headquarters. So Maria, Malia, and Jonathan is also interacting with with all the subsidiaries continuously to make sure that we have the right quality in reporting and the accounts out of the subsidiaries.
Moderator/Host, Technion: Yeah. What kind of guidance do we give is the second part of that question. It depends on which company it is. Depending on how well the COO and the management team have been running the company and for how long they’ve been doing that, then they get longer and longer leashes. And if it’s someone new, and that doesn’t have a background of running this company, then we are there to guide them much closer.
I think that one of the lessons learned is that maybe, we have been giving a little bit too much leads to some of the newer CEOs, which is, something that we’re been amending lately and monitoring more closely. But when it comes to what kind of guidance, I mean, for the longest lease people, it’s really about the long term targets and, going through the budgets and talking to the really high strategic things. Should we start selling more in The US or not? Whilst for new CEOs and in companies that we feel it’s a turnaround, then, basically, it could be a situation where we have someone there as almost like a co CEO, not really, but really part of the operational decisions.
Johan, Executive/Co-Founder, Technion: So it tends to be a human thing that when you step in to a new place, you want to put your color on it, and we don’t allow that not to start. First, you have to prove yourself that you’re worthy of this very, very good opportunity that you have to take over someone’s life’s work and and drive that towards the future. When you’ve proven that you’re able to do that, maybe then you can add a little bit of color, but not from day one.
Moderator/Host, Technion: Yeah. Do you think in time, tech will have synergies within businesses operationally? Yes is the quick answer. We’ll not really look for synergies. But, I mean, in the beginning, when we had two companies, they were very far from each other.
But for every dot we put on the canvas, it’s only natural that some of them will be closer to each other. So we have a few, let’s call them, couples where there are more operational synergies because they sell to similar markets or they source from similar suppliers where we do believe that they, because they both want it, can help each other out and get operational synergies. We are running out of time, but I want to bring up one more question because I think it’s kinda fine. So we have Bob from LMK Capital. He’s saying, of the cohorts two and three that are struggling, one portion of them are homebuilders, Two are currently contract manufacturers.
What do the others do? I think Bob is referring to that. In the last call, I said for simplicity that we could divide all of our companies into four cohorts of five years depending on when we acquired them, the first five years, the second five years, the third, etcetera. The cohorts two and three that are struggling the most, the biggest losses do come from the homebuilders and contract manufacturers. But in that group, there’s also a few companies that are they provide products to, let’s call it, the general heavy industry, mostly in Sweden.
And that has also been
Johan, Executive/Co-Founder, Technion: tough times for them. And it continues to be. So so even though that we’re making a lot of improvements, it’s also we we experienced a lot of headwind just from the economic situation in in this country. Yeah.
Moderator/Host, Technion: And last question from the same person. While clearly incorrect, what was the thinking on buying the homebuilders at the time given the company had been through the financial crisis?
Johan, Executive/Co-Founder, Technion: Oh, it’s a short answer. We lack of time. Okay. Now it’s it’s it’s false on me, and I was confident that the people that had built the company and and was running the company was able to run it in good times and in bad. They had a very strong case supporting that, they were not operational when when we went into a tough market for for the house builders a couple years ago here in Sweden.
And now we put one of them back, and he he made it profitable rather rather quickly. Yeah. Formal bank money. But so it’s maybe it’s not a it’s not a good answer to that question. But it it maybe it’s just emphasized that we shouldn’t buy companies where you need a specific, very skilled, more like a magician to run it.
It’s more like a a normal manager should be able to run the companies that we have within the group. And in this case, you need to be really good at this in order to run it in a poor economic situation, which we are in now. It’s it’s hard to do it in in good to to make really good profits is not that hard in a company like that when when everyone is buying a new house. But still, you need to have very hard control of every aspect of a of a big factory like that. It’s a lot of people.
It’s a lot of material, and it’s rather complex projects. And if you don’t have it in, you you won’t be able to manage it in in tough times. And and that maybe was a little bit proven now that we put Hakan back into the factory and and he made it effective and and profitable again even in this very rough environment. So I don’t know. I I underestimated the the skill set and and, I don’t know, drive needed within within a normal manager in order to operate a company like that.
Yeah.
Moderator/Host, Technion: We are unfortunately out of time. So with that, we conclude this q and a. Unless you wanna say something to end.
Johan, Executive/Co-Founder, Technion: I wanna say that thank you so much for for showing interest and listening to our our answers. We’re very grateful for you sending questions to us. It makes us think about what we’re doing and how we can improve. Please rest assured that we’re working really, really hard to get back to to numbers that we can be proud of again. That’s we we we’re gonna be there.
We’re gonna be there as soon as possible.
Moderator/Host, Technion: Great. Thank you, everybody, and have a great Wednesday. Goodbye. Bye bye.
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