Teqnion AB reported its fourth-quarter 2024 earnings, revealing significant challenges despite a commitment to long-term growth. The company's stock fell sharply, with a 14.95% drop, closing at 176.6, as investors reacted to the mixed performance and strategic adjustments outlined in the earnings call. According to InvestingPro data, the company maintains a "GOOD" overall financial health score of 2.9, despite recent market volatility. The company has been focusing on restructuring and innovation, particularly in AI, but faces a challenging economic environment. InvestingPro analysis reveals six key insights about Teqnion's financial position, available to subscribers.
Key Takeaways
- Teqnion's Q4 2024 results were described as "truly bad," with rising leverage and reduced free cash flow conversion.
- The company is focusing on AI productivity tools across subsidiaries, with varied adoption rates.
- Operational restructuring includes merging contract manufacturers and appointing new CEOs.
- The stock price dropped 14.95%, reflecting investor concerns over financial results and market conditions.
- Teqnion aims for record acquisitions in 2025, targeting sectors with low macro dependency.
Company Performance
Teqnion's performance in Q4 2024 was mixed, with two-thirds of its portfolio performing well while the remaining third struggled. The company has been dealing with a weakening macroeconomic environment, which has affected pricing power and subsidiary performance. Despite these challenges, Teqnion is focusing on strengthening its position in the UK and Scandinavian markets through strategic acquisitions.
Financial Highlights
- Revenue and earnings figures were not extensively disclosed, but the company acknowledged financial struggles.
- Free cash flow conversion has decreased, and leverage has been on the rise.
- The company incurred restructuring costs, although specific figures were not provided.
Outlook & Guidance
Teqnion remains committed to its long-term financial targets, with a focus on achieving all-time high acquisitions in 2025. Based on InvestingPro Fair Value analysis, the stock currently appears undervalued, suggesting potential upside for investors who align with the company's long-term strategy. The company plans to improve the profitability of struggling subsidiaries and expects to meet or exceed its five-year financial goals, building on its strong five-year historical returns. Key areas of focus include sectors with low macro dependency and strong business models.
Executive Commentary
CEO Johan Steneh emphasized the importance of rebuilding trust through results, stating, "The only way to rebuild trust is to show results." Daniel, the Acquisition Team Lead, highlighted the company's strategic approach, saying, "We're not in the business of permanent losses."
Risks and Challenges
- Economic headwinds: The weakening macro environment poses a risk to pricing power and subsidiary performance.
- Restructuring costs: Ongoing restructuring may incur additional costs, affecting short-term profitability.
- Market volatility: The significant drop in stock price indicates investor concerns about financial stability and market conditions.
- Adoption of AI: Varied adoption rates of AI tools across subsidiaries could impact productivity and efficiency.
- Acquisition strategy: The focus on acquisitions in specific markets carries the risk of overextension or integration challenges.
Teqnion's Q4 2024 earnings call highlighted both challenges and strategic initiatives as the company navigates a complex economic landscape. While the immediate financial performance raised concerns, the company's return on equity of 13% and profitable operations over the last twelve months demonstrate resilience. The company's focus on innovation and targeted acquisitions signals a commitment to long-term growth, supported by its moderate debt levels and strong financial health metrics.
Full transcript - Teqnion AB (TEQ) Q4 2024:
Daniel, Acquisition Team Lead, Technion: Good morning, everyone. Welcome to the Technion twenty twenty four Q4 Q and A. It is with embarrassment and anger that we presented our twenty twenty four Q4 report this Saturday. The numbers are truly bad. They are not close to where we want them to be and expect them to be.
Due to results, I have full understanding that the questions that we have received are mostly revolving what are we doing about the situation and when will it look brighter again. I would have asked the same. We will therefore start the session by spending some more time discussing these two topics. Johan?
Johan Steneh, CEO, Technion: Yep. Thank you. The today is the 02/17/2025. My name is Johan Steneh. I'm the CEO of Technion.
I'm sitting here next to my friend and co worker, Daniel Chang, to try to answer your questions after the release of our year end report for 2024. To start things off, our business model can be simplified into three key areas. First, maybe our acquisition engine. Second, the larger part of our existing portfolio, companies that deliver strong results and solid returns. And third, the subsidiaries that are currently struggling and require improvement.
In the past, we have in these Q and A sessions primarily focused on the third category, the companies in need of improvement. Today, we will aim to provide a broader view and briefly cover all try to cover all three areas. Firstly, if we jump into the acquisition engine managed by Daniel.
Daniel, Acquisition Team Lead, Technion: Yes. So given that Tekton is young and small, naturally, acquisition is gonna be our biggest growth engine for the years to come. For the last few years, we have not acquired as many companies as we have wanted to. That will change this year. And quite a lot of things have changed with the team and process that makes us very confident that 2025 is going to be at an all time high when it comes to high quality acquisitions.
We have a new process in place where the acquisition team, that is us, have a larger mandate compared to earlier with freerines to actually acquire the high quality companies that we want to. We have also introduced some more specialization. I've been doing this now for four or five years, and I've learned a lot of things. And during this process, I will now be doing more of that in the earlier processes by myself and, but through that, free up U1 to fix our current struggling portfolio. There is, of course, a lot about reputation and network in the geographies where we have been acquiring.
And so the current pipeline, and especially looking at both the very near term pipeline and the longer pipeline have never looked as good. Words are cheap, so everything I can say is that put your trust into that what we're saying is true and keep a lookout for the number of acquisitions and the quality of them, you will be seeing more of those going forward.
Johan Steneh, CEO, Technion: Thank you. Yeah. Yeah. So moving on to to the next part of of what we do is that we have a strong performance group of companies within the portfolio. It's good for us at least to remember this that the majority of our portfolio is performing as we like.
But as I mentioned in the Q3 report this fall, only about two thirds of the group performed well in 2024. And that is, of course, not acceptable. We're consistently aiming for a situation where maybe 10% of the group is in need of help and right now there's too many struggling. The companies within the strong part of the group delivering good results and they have somehow successfully adapted to the changing economic landscape by managing their cost effectively and they have they have intensified their sales effort just to continuously generate new business even though that the climate is a little bit tougher. Looking at trends a little bit, we can see that our UK based companies are generally performing really well and also the companies that we have in the electrification and the defense sectors.
We have currently six subsidiaries operating directly within electrification and defence. In 2024, '4 of those six did their best year ever. And as of today, there's no indication that this positive trend will not continue. The UK acquisitions that have been made in the recent years, those companies tend to have higher margins and lower economic sensitivity. They give us better returns on capital and our ambition to continuously acquire more better companies seems to be working as planned and that's of course really positive because we're doing more of that.
And then if we come to the part that we spend or at least myself spend most of my time these days is struggling underperforming companies We have, as I just said, this is a too big part of our group today. And they have also faced the, of course, the economic headwinds and there we have not been able to rotate quickly enough towards a sustainable path. During the last quarter, we have taken important action to correct this as I also outlined in the report. We have merged two contract manufacturers into one place. We have significantly reduced staffing in three of the companies and we have during this period also appointed four new CEOs.
In addition, we have reviewed of course, we have reviewed costs and worked optimized production and sales processes. But in these cases, having the right person in the right position is always important. But in tough times as this, it's absolutely critical and there were we have done a lot there. We have an example on page eight in the report where we try to illustrate how a new CEO that was joining us last spring has a great business mindset and actively seeks out customers and increases incoming orders. And this has been done with over 100% since this person came on board.
Once again, this proves that action drives results. And, yeah, just to bear in mind in this particular case, this disorder intake is up really, really well. But it's the results are, of course, lagging. One important thing when it comes to this right now is that we're more hands on, and we're much more involved in the subsidiaries, the subsidiaries that needs attention. Our CEO, coach Joakan, who previously owned the house building factory has now stepped back in to run that site again to ensure the productivity and secure profits.
Just the initial impact seems really, really promising but the coming months will provide a more clear picture, of course. Regardless, this move is expected to save us millions over the course of the year. Me myself, I have also taken a more hands on role. I'm working closely with some subsidiaries to accelerate their turnaround moving forward. My focus will be even more defined ensuring that the right resources are working on the right type of improvements.
If there's one common challenge we face here is of course weak sales and sales must improve. The reasons why the decline in sales, we have the decline in sales vary some across the subsidiaries but each company has a clear and individual action plan on how to return to profitability. Some subsidiaries have already built a much larger pipeline during the quarter and quotation, like a pipeline of quotation time, I should say. And this is, of course, by pushing a much more active sales effort. It's a positive sign.
However, closing these deals remains a challenge. There's still reluctant sea out there to make decisions. But once again, more activity creates more opportunities and we're going to make a lot of opportunities. We have acquired these companies throughout the years and we have acquired them because they can be operated profitably. So every company within the group is possible to run with a profit.
In this case, we haven't been able to do that. And just to be really clear, but if we pay if we fail to prove within a reasonable timeframe and with reasonable resources that we cannot
Daniel, Acquisition Team Lead, Technion: run it profitably, we will not hesitate to take necessary action. There are no sacred cows here. Our ambition is only and has always been to excel at capitalism and we must reshape our playing field to achieve the profits we want. We want profits. Yes.
So in short, regarding the three areas, we have a M and A part that is firing on all cylinders. We will see a cohort this year that is of higher quality and of a higher number than what we've seen ever. We have a profitable core that is two thirds. And of course, that's going to be bigger when we get more companies fixed and we have more companies coming into that group. And for the third part, which is too big, with the companies that are struggling, Johan is stepping in to help and fix the problem, and it's gonna be fixed.
With that said, as a very long introduction, we will go over to the actual Q and A. As always, we will alternate between the questions that have come into our qatechno.se and the live questions. All right. Let's start with live ones. We have Pedro Leon asking, which one off costs have you had during the quarter, relocation, restructuring expenses, etcetera?
Johan Steneh, CEO, Technion: We have, of course, had some restructuring costs during the last quarter of twenty twenty four. It's some of them are easy to calculate, but some are, of course, just effects of us doing big changes to subsidiaries which makes it which also makes a lot of turbulence within that organization. So we have not since it's a hard pinpoint a fixed number we have decided not to show that but of course it's some of our poor performance comes from us taking a lot of costs for restructuring. Yes.
Daniel, Acquisition Team Lead, Technion: Alexander is wondering, so we will see at least six acquisitions this year? Yes. Martin is wondering, Technon stated that underperforming companies will not be divested as it would be sending a wrong signal to the Technon family. Under what circumstances or performance criteria would you warrant divestment? And does management assure the subsidiaries do not become complacent due to their assurance that they will always remain in the group?
Johan Steneh, CEO, Technion: We have, we have a lot of confidence when it comes to turn things around but I mean it's also a responsibility for us and for the people working in companies that if we don't see that they have the ability to sustain then we of course have to do something with them. If it's to wind them down to very small entities and merge them into something different or if somehow we close them temporarily or permanently, we will make the right decision and we will make the decision necessary in order to get things back on track. There is of course just to emphasize that again, we have companies that are able to be run profitably and it's our job to make that happen. Yeah.
Daniel, Acquisition Team Lead, Technion: I think just to reiterate that, our intention is that we're forever owners of companies, which means that we're gonna do everything we can to make the cash flows go up over time. If for some reason the world changes or that we cannot make that happen, make no mistake, we're going to close them down. We're not in the business of permanent losses. AS is wondering, free cash flow conversion has been down this year and leverage has been rising. How do you expect to fund acquisitions this coming year?
Johan Steneh, CEO, Technion: First of all, the most our key efforts now are towards making us much more profitable and with the profit we also have within what we do a better free cash flow. There's also in built into the incentive programs for the subsidiary CEOs that they need to reach a good level of free cash flow compared to the results in order to get a bonus. So it's also incentivized. But of course, we track this very, very closely. And we work on that as well.
But the focus, main focus right now is to make the companies profitable.
Daniel, Acquisition Team Lead, Technion: Yes. We will not over leverage. We will acquire companies in a sustainable manner so that we can make more and more money over time. And as Johan said, the biggest funding source we will have is that we're going to make that money operationally internally. Matthias Reichardt is wondering, can you please speak more about your operating model?
What are the KPIs? When do you interfere with managers? How do you how do you change your hands off decentralized model going forward?
Johan Steneh, CEO, Technion: You you turned quiet. Does that mean that I can answer this?
Daniel, Acquisition Team Lead, Technion: You can
Johan Steneh, CEO, Technion: start. I can try. Our model consists of around 30 subsidiaries run individually by CEOs. We have CEO coaches in the head office that are there to support them and also track their performance. If we see trends that are turning the wrong way, it is the responsibility for the CEO coaches to step in and start asking why.
And if they can't get a good answer, then we need to monitor it more closely and see what actions are taken. So it's more of an action based coaching when we see things are not going in the right direction. And if the subsidiary CEO is not able to produce a great action plan then we will help them to develop one of those and then make sure that they follow them. If that's not possible, of course, maybe that's the wrong person for the job. So it's, that's a little bit on a very rough level on how we operate.
In this case, we have not been good enough in that and that has been addressed over the last year in our reports and in my letters, this is what we now have improved and that we're working much closer with these KPI. We're monitoring these KPIs that are necessary for the individual subsidiaries to excel and we are making sure that every action is taken within each subsidiary in order to get them back on track. Just to remind you that the majority of the companies are doing this exceptionally well and are performing exceptionally well. We have a few, too many but still a few that that needs more attention from us. And us coming out of this will have built a much better base for us going forward as well.
I mean, this is a tough and sad lesson, but it's something that we will come out stronger from.
Daniel, Acquisition Team Lead, Technion: Yeah. The base model is that we want to be decentralized. That doesn't mean that we should be sloppy and not step in when it's needed. So exactly as you once said, I mean, it's basically maybe a four step process. Companies that are performing as they should, CEOs that are performing as they should, they have rather free reins to continue to do good things and just become a little bit better each year.
So that's category one. If that doesn't happen, we will ask the companies for a business plan or an action plan of how to make things better and see if they deliver on it if we like the action plan. If we don't think the action plan is good, we make the action plan for the CEOs and ensure that they will run with it. And if they don't, we find someone that will do it for us. It sounds harsh.
I think that we've been a little bit too patient, to use a nice word, during 2024. As Johan wrote in the letter, I think we exchanged four CEOs in Q4 twenty twenty four. I would be surprised if that journey is ended. Moving on to the next question. Martin, through email, have wondered, could you provide an update on the current acquisition pipeline?
Which sectors or regions are prioritized for the next three years? I can take that. So
Johan Steneh, CEO, Technion: That must be yours.
Daniel, Acquisition Team Lead, Technion: So region, we're focusing on basically two regions. Focus number one right now is The UK. It has been good hunting ground for us. We've learned a lot and we want to continue that momentum with activities that we are starting today but also following up on activities that we've kept for years where we expect results to happen in the near term. The second priority is Sweden or Scandinavia.
We have things that we're working on and where we believe we'll be closing something also this year. Sector wise, we are rather sector agnostic. We're looking for companies that are not as dependent on macro, and we're looking for companies that have uncorrelated risk with the rest of the companies so that we can build a more robust group because we never want to be in this current situation again. But we're not looking at one specific sector, but rather companies that are great in diverse industrial sectors. Investor through email is wondering how can you escalate M and A?
You said that you can increase the number of transactions with the current team. How many acquisitions can you do without hiring someone else? It's difficult to put a number, but I promised all time high. So we're going to deliver on that. And that's not because we're going to go out and buy companies starting from today, but it's a momentum that we've built up.
I feel that we and I have learned a lot of the process, the new process, some things that are easy to put on paper, some things that are more of soft character. But the results are gonna show themselves this year. And I guess as with everything, we have been not good enough in a lot of areas. But I really don't believe that we'll find someone that can outwork us. That, that is also a promise.
Johan Steneh, CEO, Technion: And maybe just to underline a little bit once more that I mean the philosophy regarding what we're looking for when it comes to acquisition and how, rigorously we investigate both the company that we're about to acquire and the people working there. It's the same, it's just that we, changed the way we work a little bit and maybe not a little bit, but we changed it in a way. So it and it's been a process. And as Daniel said, we have a very good pipeline that has been worked on for quite some time.
Daniel, Acquisition Team Lead, Technion: Yeah. Yes. Another question from the same person. You have warned that is you have to warn the CEOs to start push selling more. Why weren't they already doing that given that they have bonuses?
Isn't it better if they have Techno shares? Have you changed many of them for those reasons? Do the current ones look better? Just a few questions in one.
Johan Steneh, CEO, Technion: Yeah. Unfortunately, the world is not always that simple that you just pay more and get a better result. It also comes down to personality and having the right right person in the right place. We changed during the year when it comes to how what type of people we hire, we focus much more of the business mindset of those individuals and they should have a clear view on how to make money. Maybe we have not been as good as we wanted previously but since last year we have much higher focus on this.
Maybe I didn't answer the question but let's move on.
Daniel, Acquisition Team Lead, Technion: Yeah. We got a live question from Prakal, who is wondering what was the total cash acquired from acquisitions this year and what was the total consideration paid relating to acquisitions from previous years and what was the total cash paid and total consideration for acquisitions in this year. So we actually don't disclose more numbers when it comes to that, than the disclosures that we have. We'll have a annual report coming up, where there will be some more information about that.
Johan Steneh, CEO, Technion: Thanks think it's scheduled for the March 22
Daniel, Acquisition Team Lead, Technion: yeah however I guess what is interesting to know is that as a cohort or cohorts looking at the last four or five years when looking at what we've actually paid, what we think we're going to pay in total, and what we've actually gotten in cash flow from the companies, you know that we've been nagging about it. We have a valuation model where we want to get our money back in roughly five years. And so far for the total group, we've gotten our money back faster than the five years, not by a lot, but some. So the valuation model on a total seems to be working. We're paying what we should for the group.
Some of them, we've been a little bit lucky. So the payback time have been much faster than the five years and for a couple, a bit slower. But as a group, it has been adhering to our investment philosophy of getting the money back in roughly five years. Martin is wondering what is expected timeline for the decline in company's return to profitability?
Johan Steneh, CEO, Technion: It varies a lot. And we, unfortunately, it's impossible and wouldn't be honest of us to give a specific date or or a timeline there. We we're working as as hard as we can. We see improvements since we've been doing it for a while. And and I'm confident that we will get back on track.
But when that is, we will come back to that.
Daniel, Acquisition Team Lead, Technion: I just want to emphasize that, even though it's difficult to know exactly, the timing, We're doing everything that we can on an individual company basis in order to make that as fast as possible. In the event, if we get into a situation where we feel it's not going fast enough or in the direction that we want to, I mean, 2025 is going to be a year where that company like that will not make it to '26.
Johan Steneh, CEO, Technion: You're very harsh today.
Daniel, Acquisition Team Lead, Technion: I'm very harsh today. Okay. Lamar is wondering, I appreciate the transparency and high standards at Technion. While Technion's recent acquisition appear to be aligning well with the company's vision and standards, some of the early acquisitions have struggled and weighing on overall performance. As you've mentioned, addressing these lagging subsidiaries is a key focus point.
Has the management team ever considered divesting from companies that failed to meet expectations? If so, what would the actual factors be to take those actions?
Johan Steneh, CEO, Technion: I think we covered that topic already, so maybe we just move on.
Daniel, Acquisition Team Lead, Technion: We have a question from, Georgi, who is wondering, what is the target ROE and ROIC expected in around five years? That's just a few questions. Maybe we can start with that one. So we absolutely have our internal targets when it comes to ROE and ROIC. It is also kind of possible to back that number out by looking at our three financial targets.
So when we acquire a company, for example, we try to get our money back in roughly five years. And overall, we borrow half of the money and use half of our own cash. So that gives you more or less that answer. When we look at capital allocation internally, the benchmark and the gold standard is, of course, that we know what we can do with the cash through acquisitions. So if a company wants to buy a new laser cutter or whatever, that is the benchmark that we are trying to adhere to as strongly as possible, which puts a floor on where we think that ROIC and ROE should be over time.
But because we don't have that as a financial target, I don't think it's a good idea to talk about that number. What percentage of subsidiaries have little pricing power without fear of losing customers? How much of the business might have the structure lose to remain part of the business with pricing power? I think it's a difficult question to answer. Not because I don't want to because but it's because, the concept of pricing power, of course, is not binary.
It's somehow a long scale. We have a few companies that have very little pricing power. And especially if we talk about the house building companies in a macro environment like this, where there is too much supply still and not enough demand, the pricing power is not existent. We just have to take whatever price there is in the market. And then you have the other extreme where we know and we have seen where companies can basically do almost what they want with price and nothing happens with demand because they're absolutely unique in their solution.
So I mean, not to make this answer very long, but we when we look at companies that we acquire, I mean, pricing power is a key factor. It's difficult to I mean, we can't aim that every company is in a situation where they can push whatever price. But we absolutely want to acquire companies where we believe that there is untapped pricing power and where we believe that they are able to sell more even through raising prices. And I think the ones that are struggling right now are I mean, pricing power is a rather good indicator of if they are if the companies have a good competitive advantage or not. So maybe that gives some kind of clue of how to think about it.
Another live question is, as permanent owners, you must think on the sustainability of the business models for the long term. How many of the subsidiaries might not be around in twenty years due to disruption, out of fashion other reasons
Johan Steneh, CEO, Technion: mhmm I wouldn't dare to answer it but I can answer it in this way. When we look at potential acquisitions, we think decades ahead. And we look for businesses that, sell crucial components for society that we believe will be around for a long period of time. Yeah, I think I stopped there.
Daniel, Acquisition Team Lead, Technion: Yeah. Martin is wondering or writing, I appreciate your responses. My main concern is not just the numbers but the lack of transparency. The last Q and A gave no sign of the severity and no profit warning was issued. That makes it hard to trust forward looking statement notes.
Do you understand this concern and how do you plan to rebuild trust?
Johan Steneh, CEO, Technion: I think the only way to rebuild trust is to show results And, I'm confident we're gonna do that. So I I I just think words are not necessary in this stage. It's just action and and showing proof of what we what we've been addressing today.
Daniel, Acquisition Team Lead, Technion: Yes. We have financial targets that are on a five year basis. We absolutely believe that we're going to meet those targets and exceed those targets. And I mean, five years is in situations like this, on days like this, it feels like five years is forever. And we're not hiding behind the fact that we're long term.
But that is the financial targets that we have. And if we get into a situation where we don't believe in them anymore, which we are not, in that case, we would issue a profit warning. Carl is wondering, thank you for the update. When do you think the extra focus on struggling one third will start to show in improved numbers for these companies? I
Johan Steneh, CEO, Technion: think we covered that answer.
Daniel, Acquisition Team Lead, Technion: Yes. Louis Evans, with the weakening performance in '24, are you experiencing increased tension between the parent organization and any subsidiaries? Has Technion become a less fun place to work over '24?
Johan Steneh, CEO, Technion: What a question. Yeah, of course. There's, there's more friction since we have been more actively out with the subsidiaries and putting demands of the people that are giving the responsibility to run them well. And if they are not run well, of course, there will be friction. And that is not fun, but it's necessary and it's part of our job.
We still are very proud of our group and our team and our culture and that is fun. And it's fun because we're in this for the long run and we're gonna succeed.
Daniel, Acquisition Team Lead, Technion: Yes. This is probably something I'm gonna regret saying later. But I mean, for us, working at Technion, of course, it's more fun when the results are better and better because we like winning. In a situation where it's down, we lose sleep. We it's not as fun.
It doesn't matter that, that we know it's gonna be better. It it is less fun. And we also want people that feel the same in our subsidiaries. We want CEOs that feel the pain because their company is doing less good. And we want CEOs that lose some sleep if they are performing bad.
That's the only way of making companies better. Not having that ownership is not okay in, while sitting in a position like that.
Johan Steneh, CEO, Technion: I don't think you're gonna regret saying that. Continue.
Daniel, Acquisition Team Lead, Technion: Georgi is writing, I use ChatGPT, NotebookLM, and DeepSeek on a daily basis. I use output from each to feed the others to analyze documents, with quality and very little time philosophy. What's Technos thinking on AI's productivity gains tools to increase sales investment, just not lose market? It's a very broad question. Maybe we can start by answering that.
We personally use that quite a lot and more and more. We try to figure out I try to figure out new ways of using different types of AI to save time to get productivity gains in our daily lives. And that absolutely have yielded a lot of results. I do not believe that we would I would be able to do the amount of work I'm doing now without some of these tools, to be frank. Not only productivity, but obviously regarding the quality and the insights that I can get through the different AI tools.
On a subsidiary level, it is very dependent on which company it is. I'm not saying that it's more difficult to implement in some, but it's more driven by who is the CEO and who's running in the company. Some people have the aptitude of learn these things and like these things. And for those, I do feel that we have some productivity gains. And just to give an example, when it comes to marketing and and creating different types of ads and writings, of course, you can save loads of money and time through doing that.
We have other CEOs that are actually very, very good at what they're doing, b2b sales, keeping costs low, etcetera, but have very little interest and aptitude for, let's call it AI, but maybe the broader IT. In those cases, we don't push that. If it's working, if they're running the company well, we keep the decentralized model. Wanna add something?
Johan Steneh, CEO, Technion: Was Okay. A lot of words about that, but generally speaking, what we do within the subsidiary group is of course that we try to share good examples and learn from each other. And this is also one of those topics that we see good results from someone using these tools, then others get interested and inspired and start using them as well. So that's how we improve a lot of things within the group.
Daniel, Acquisition Team Lead, Technion: Yeah. Akash is saying, Hi, guys. Not sure Sorry, I'm sure you will get through this difficult period and come out stronger. Yes. Regarding the new credit facility, how is it better than what we had before?
Johan Steneh, CEO, Technion: How is it better? Yeah. It's more flexible, it's a little bit larger and the interest rates are lower. Yeah. Yeah,
Daniel, Acquisition Team Lead, Technion: it's a good combination. Yeah. Maestro is wondering, how come everyone in management are not in Simcenter got a PDMR inside a person?
Johan Steneh, CEO, Technion: It's because that our interpretation of that regulatory writing is that only people that are can influence the long term strategic decisions of the company should be a PDMR and in Technion we have three people there today. It's me and Daniel, I'm the CEO so I have the executive power to make all these decisions. In some cases, it can be Daniel when it comes to talking to you today, for example, or if I shouldn't be here, he would be sitting here talking by himself. So he's he's in our information policy. He's responsible for taking that role when I'm not available.
And then we added, Jonathan Alexandersson since around Christmas since he's not also a part in the acquisition team. So all three of us need to agree on an acquisition and so he has a veto in those topics which makes him a potential, not a potential so he's also a PDMR in that sense that he can actually make a decision that would prevent an acquisition. So those are the rules regarding these issues and maybe we can clear that up going forward on the webpage and in the reports and just show that in a more clear way. But I mean we're an office with nine people not all of those nine people are have the power to make strategic decisions within the group and that's why not all of them are on the PDMR list.
Daniel, Acquisition Team Lead, Technion: Yeah and I also just want to stress it's this is not something that we have made up it is consistent with FE, Financespecimen or Swedish SEC. So it is the rules that we are following. Who from the acquisition team is based in The UK, Jorda is wondering? I think if you ask my partner, Linnea, she would say me. But none of us are actually based in The UK.
I think Johan, I, even Patrick, who's not part of the acquisition team, we are in UK every second week for a few days, give or take. I think that number is going to change in The UK direction. Yeah, I think that was the answer.
Johan Steneh, CEO, Technion: Do we have some more on the old question list?
Daniel, Acquisition Team Lead, Technion: Mufasa is wondering, regarding the underperformance subsidiary CEOs, were they always below standard or did you only find out their lack of quality during this downturn?
Johan Steneh, CEO, Technion: When you have a strong headwind in the economy, of course, you will see what type of personalities function in those climates or not. And it's I think there can be a really long answer to that question and it's debatable, of course, but you will see it's easier to see poor performance or the lack of the right personality when the times are rough.
Daniel, Acquisition Team Lead, Technion: Yeah. A follow-up question on that is, were the CEOs in the position before we acquired the companies or were there hires from the outside?
Johan Steneh, CEO, Technion: The the the new CEOs have replaced CEOs that were not in the companies when we acquired them.
Daniel, Acquisition Team Lead, Technion: Yeah.
Johan Steneh, CEO, Technion: Sorry for my English.
Daniel, Acquisition Team Lead, Technion: All right. Janne, email. Why return on investment capital is not part of the financial targets for Technion? Net debt divided by EBITDA, EBITDA percentage EPS growth are all good metrics, but I feel compound a key component like ROIC is crucial as well as assessing if value is greater or not.
Johan Steneh, CEO, Technion: You covered that already, right?
Daniel, Acquisition Team Lead, Technion: Yeah. Could you please consider how to clearly communicate how Techno's ability to acquire new businesses have developed over the years? It was briefly mentioned in the q four report, but more focus would be appreciated if as it's one of the key questions in the investment case for Technion.
Johan Steneh, CEO, Technion: I think well, before 2021, it was more or less me. After 2021, it's been me and Daniel together. And the approach has been that he has been very very proactive in contacting potential acquisitions and then he dragged me along to sit down and meet the potential sellers. I've been very much involved just next to him. It's been good for him and it's been good for me and it's been good for the acquisitions.
But of course now since we are all more confident with each other and with our abilities, it would be stupid to continue to allocate resources in that way. So now Daniel is doing more of that initial work when it comes to acquisition acquisitions by himself and just involves me later on in the process when we get to more like a face to face or a real life meeting with the potential vendor. So it freed up time for me doing other things and it freed up and it's accelerated Daniel's acquisition work because he doesn't have to wait for my schedule to do all these things that he's doing.
Daniel, Acquisition Team Lead, Technion: Yeah. And I think once again going back to the question like, how can you trust that? I think that this is our description, explanation of what has happened and where we are now. But results are going to speak stronger than words. Smith email.
If I invest a significant part of my savings in techno today and lock it up for the next twenty years, I'm trying to get an idea of what I should expect when I turn 60 and open the locked drawer. Any color is appreciated.
Johan Steneh, CEO, Technion: It will hope it my intention is that it will be better than our financial target.
Daniel, Acquisition Team Lead, Technion: Yeah. I think financial, that's the easy answer. I think to put some kind of color on that, I mean, you know how other serial acquirers that have succeeded over time and are more mature and how that looks. And that is some kind of path that we, of course, get inspiration from while not trying to do any copycatting. I do think when it comes to geography right now, we're basically in two geographies.
In a few years, we might be in more, very strategically thought about to build a better, stronger, more robust group. And then it will be more of the same but better. That's the intention. All right. We have more questions here on the live.
Akash is wondering how are subsidiary managers incentivized?
Johan Steneh, CEO, Technion: They have a bonus system which is a percentage of the profit increase each year.
Daniel, Acquisition Team Lead, Technion: Yeah. I should maybe also add that we have changed the bonus structure a little bit in order to tighten the incentives a little bit. So it is exactly as what you once said, but there's also a change so that if the theoretical bonus was negative, I. E. The results are lower, that's a negative bonus that you will be carrying forward, and netted against future plus bonuses.
So it's upside and downside.
Johan Steneh, CEO, Technion: And you need to generate a type of a good enough free cash flow in order to get the full bonus as well.
Daniel, Acquisition Team Lead, Technion: So that's
Johan Steneh, CEO, Technion: also incentivized as mentioned before.
Daniel, Acquisition Team Lead, Technion: Maybe one more change that we can add for flavor is that if you get a high bonus, you will be forced to use part of that to actually buy shares on the open market that you will need to keep to create even more incentive alignment. Speaking of that, Martin is wondering, Johan and Daniel, do you plan to buy more Tekna shares to increase your skin in the game?
Johan Steneh, CEO, Technion: I don't know what to say about that actually. I feel it's, it's rough to say. I would love to. I would love to. That's I think I stopped there.
Yeah.
Daniel, Acquisition Team Lead, Technion: Maybe the last question from Frederick Liersalvesen. You state that the relative outperformance of the new company is due to better acquisitions the last four years. How can you be sure that is the reason and not the weakness in Technion model becomes apparent after some years of ownership? I think one way of looking at it is that if we look at the companies that we have in our company and if we would divide that up into maybe four different cohorts, we've been around for, let's say, eighteen years. But if we make cohorts of four or five years, the strongest performances are, yes, it's the ones that we've acquired lately, the newest cohort, but that doesn't prove anything as you're saying.
But equally strong, is actually also our first cohort. So the companies that have been with us the longest, just absolute weakest cohorts are, I would say, in number three and parts of number two. But, so if the thesis that we destroy all companies over time, then cohort one and two would be much weaker, and that is not the case. A lot of those companies are actually at all time highs. I think that gives a little bit of feeling that we believe that we actually don't destroy companies over time.
But we need to improve the ones that are struggling.
Johan Steneh, CEO, Technion: Maybe it's time for us to wrap things up, right? Yes. We're at 09:00. Just to summarize a little bit how we started out today, We were presenting our three key areas, our acquisition engine. It's performing very well.
Our acquisition team has been reorganised and made more efficient, which will lead to more and continuously better acquisitions. We expect an all time high when it comes to acquisition this year. Then it comes to our profitable core of the group. It's a diversified group of subsidiaries and they continue to deliver solid results. And we are confident in this part of the business and remain aware to ensure that it's continued strength.
New acquisitions will fall into this category as we acquire them. And then we have the third section, the struggling subsidiaries, where we have already taken significant corrective actions and are committed to restoring profitability. If further measures are needed, we will take them. We thank you very much for your participation here today and your engagement. Thank you for all the questions.
And we will, of course, continue to fight to get back on where we want to be. And we are confident that we are going to succeed with that.
Daniel, Acquisition Team Lead, Technion: Thank you very much.
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