Interim report April June 2024 Teqnion AB

Interim report Q2: April - June 2024

Short form report TEQ 2024 Q2

Teqnion continues to grind on in weaker markets. EPS landed on 2,01 sek for the quarter and is down 1% compared to last year. Profit after tax ended at 34,5 Msek (+5%), while net sales got to 399,7 Msek (+4%). Organically, net sales decreased by 6%. These are numbers we are not happy with. We need to improve, and we will. After the end of the quarter, we welcomed Avelair to the family! We look forward to a long and exciting journey with David and his team in Rougham, UK.

• Johan Steene, CEO and founder

Teqnion AB (publ) • Evenemangsgatan 31 • 169 79 Solna • www.teqnion.se

Events during the quarter

• Daniel Zhang appointed Deputy CEO and continues to hang on to the CXO title.

Events after the quarter

• Avelair Limited was acquired.

About Teqnion

Teqnion AB is an industrial group that acquires stable niche companies with good cash flows to develop and own with an eternal horizon. The subsidiaries are managed decentralized with support from the parent company. We operate in a vast spectrum of industries with leading products, which gives us good resistance to economic fluctuations as well as solid industrial know-how. For us, it is central to focus on profitability and long-term sustainable business relationships.

The company's shares, TEQ is listed on

Nasdaq First North Growth Market.

2

COMMENTS FROM THE CEO

Johan's thoughts

Hi Teqniåns,

Now I'm sitting at the kitchen table, taking a break from mowing the lawn and family duties to try and summarize the past quarter. The sun is shining on the Stockholm archipelago and the beach down by the sea is filled with holidaymakers. I find it hard to enjoy the peace here in the country cabin when there's so much to tackle out in the real world. The world of Teqnion. That's where the adventure lies. It's a bit like Shrek; he believes he would prefer to be left alone in his peaceful swamp but is forced out on adventures to set things right, discovering that out there in the wide world among princesses, villains, and dragons, the most fantastic adventures happen and the strongest friendships are formed. That's where life is. I don't really know if I'm Shrek or Donkey in that story. The brave ogre who relentlessly drives the action forward or the somewhat scared donkey who loyally trots alongside, overly enthusiastic and constantly asking what's going on... "Are we there yet?". No donkey, I tell myself, not even close, we're at the beginning, we're going far, far away…

Our corporate group has continued to struggle through the spring under similar conditions we've faced over the past year. Generally lower pace in most industrial sectors, except for electrification and defense which continue to deliver. Unfortunately, we have aimed but failed to produce efficiently enough in our house-building factories, which is costly as they've already has sold a few projects at low margins. The two housing companies have been reorganized and are now jointly run under one management in order to put our resources to the best use.

We must be ready to seize opportunities when the construction market turns up without investing more in this highly cyclical part of our business. The companies in the group must each stand on their own, be robust no matter the business cycle to collectively form an even more resilient conglomerate. Now that we have also expanded outside Sweden, we gain an additional layer of economic armor as we operate in more markets and currencies.

Teqnion refined acquisitions

The acquisitions we've made over the past few years are of companies that are less sensitive to economic fluctuations. We look for small, customer-oriented companies with their own brands operating in niche industrial sectors, preferably with complex regulations and standards to meet. These firms value their deep customer relationships and the importance of always striving to deliver genuine customer value. The companies we acquire should be able to return our investment in free cash flow within five years. We are constantly looking for new gems. The acquisition hunt is a fun adventure. Daniel is tireless in his search for new opportunities, like an ogre on a quest for a princess, and I get to trot alongside like a donkey, offering cheerful encouragement and irritating questions.

The latest gem that we proudly now can add to the House of Teqnion is Avelair, the leading UK designer of rotary screw air compressors. In a time where things changes quickly, we focus even more on things that do not change.

As long as AI don't alter the laws of physics, the world will need suppliers of bespoke air compressors in order to move material in the physical world. We're really looking forward to work with Avelair's CEO David and his team in Rougham.

Ogre or donkey, that's the question….

COMMENTS FROM THE CEO

CEO letter anniversary…

Five years ago, in the summer of 2019 I wrote my first CEO letter. It was, to put it mildly, written in a rather dull tone as we were unable to deliver on the forecasts we had provided at the time of listing. I had received well-intentioned advice not to give forecasts but hadn't listened. Additionally, I had stubbornly insisted, like a donkey (or an ogre), that we should only report the regulatory minimum of twice a year. Because of this we had to wait six months for communication until the next report could clarify that we were moving in the right direction. Sometimes it's not just good to be stubborn. Fortunately, it's possible to learn from mistakes and turn bad decisions into something better. This on the other hand is something we are truly stubborn about. Always trying to get better. So now there are no forecasts other than the goal to at least double EPS every five years and we report quarterly so you can keep track of our progress.

On the journey up to today, we have managed to cultivate a small TEQ-command with many more fairy-tale creature skills than those of Shrek and Donkey. Now, we have a vast span of experiences and the combined strength of Shrek's quirky diverse group of friends, all the way from Puss in Boots to the Gingerbread Man. A TEQ- command that can challenge, generate ideas, and passionately support in the building of the company. Together, we are venturing far, far away. We learn, adapt, and improve. Simple models, understandable processes, and fun thinking fill our journey. We aim beyond the horizon, to places we cannot yet see.

Run far, be nice!

Johan Steene

VD och grundare

Teqnion our subsidiaries

Teqnion AB (publ) • Evenemangsgatan 31 • 169 79 Solna • www.teqnion.se

Instagram

LinkedIn

Слава Україні!

We* have launched a site with

some merch:

https://teq-shop.fourthwall.com/

* "We" in this case means that Andrew and Justin, friends of Teqnion built it for free. Licensing agreement gives them 50% of profits for running the store.

Stand firm. Be brave. Keep it simple.

Profit before taxes, Msek

compared to last year. We are still

57

36 36

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

R12

Net sales, Msek

0,1

This is extremely

painful for us. We are doing everything we can to stop the bleeding and ensure to acquire future companies that are more robust.

-13,2

Acquired 2019

Home builders:

Acquired 2019

Acquired 2018

• TEQ management were not close enough to local management.
• To much changes at once broke operations and lost us customers.
• Badly planned moving of facilities led to unnecessary cost and disruption of operations.
• We acquired companies that closely follows the economic fluctuation of home builders with too little pricing power and uniqueness.
• House market in Sweden died after inflation rampage and interest hikes over a year ago.

• Closer Teqnion coaching with clear activity plan and follow up, set up together with local management.
• New CEO and local management installed.
• ERP implementation planned during H2 to ensure better operations.
• No more acquisitions of company with limited competitive advantage.
• Reduced manpower and costs to a minimum.
• Increased no-cost sales activities.
• We will ensure to not scale up when market turns and maintain pricing discipline.

Teqnion is always in movement. We always start from people and relationship building when targeting profitable business in well- defined industry niches. The mission is to invest our money today so that we have even more money tomorrow. It is a simple goal that is easy to measure. We keep to what we understand and what is tangible. We don't try to predict how the world will change - we are not smart enough for that. We focus on what will not change including human behavior. We acquire good and specialized companies that are driven by grounded coworkers. During the journey we try to have fun and develop our methods and strengthen our team. If we run astray (which we will continue to do), roll up our sleeves , learn something and continue moving forward.

Our sustainability plan is that Teqnion always should grow. Sustainability for us means that we of course need to take care of the environment and our globe's finite resources at the same time that we shall grow our profits over time. With good profits we can make the right decisions and continuously strengthen our relations with colleagues, customers and suppliers. Teqnion shall always continuously create value for the society so that we can capture part of that value. No mater in which direction and intensity the macro winds are blowing, we move forward.

Teqnion wants to go far. We are only in the beginning of our journey. It is therefore that we guard our culture ferociously. Our leadership team is ridiculously loyal to the company. We are a small team with experience, winner instinct and a never say die attitude.

SURVIVAL ABOVE ANYTHING ELSE. ALWAYS.

As individuals we are always prepared that anything can go south at any moment. This means that we never take risks that we cannot afford to lose. Even if the upside potential in Excel shows an off-the chart RoIC, we would rather sell mission critical inverter driven VSD rotary screw air compressors that excites our customers than trying our luck on a leveraged bet on "Milei miracle".*

We ensure that we can always be part of the game, no matter the times. In essence: we will never put us in a debt situation that would hinder us from being in the driver's seat.

CREATE VALUE AND CAPTURE VALUE

In order for Teqnion and our subsidiaries to have a clear right of existence we need to create value for our customers and their customers. By loving sales and always focus on customer value we can translate the move of physical products to sales with good margins. By always focusing on customer value creation, a symbiosis is created between us, customers, suppliers and the society where value is created and shared. That is sustainability. Our simple way of measuring our right to exist is our operating margin. Why would we exist if no one wants to pay for our products, services and solutions? We never want to grow for the sake of growing. We only like our topline to go up if it is driven by profit expansion. Teqnion is the anti thesis of Silicon Valley's hyper growth philosophy and our mantra is "if they come - we build". The focus on profitability motivates us to really focus on each krona in expense. As the old Swedish saying goes: "varje sparad krona är en tjänad krona".

CREATE SHAREHOLDER VALUE.

When we have stability and earn good money, which is a state we do what we can to always be in - then we focus wholeheartedly on growing the earnings per share, which is the measure that over time most clearly drives the share price.

In practice, in means that we acquire further profitable industrial product companies with great people, low business risk and wonderful cash flow - at a fair price. The last piece in important. To acquire wonderful business can be both value creating or value destructive, depending entirely on the size of the money pile you give up. We focus on the long-term and leans on the compounding effect of our capital by effectively allocating your capital - we are stewards of it.

We don't work with forecasts or annual targets because we never want to be in a situation we will be forced to make a deal for the sake of making a deal - that creates shortermism. We prefer a time horizon of 5 years in which we want to have doubled our earnings per share. Our ambition is higher and our true time horizon is much longer. We have just left the staring line. Our journey will be long since we're going far, far away...

This page has been written with the hope to clarify what we prioritize for Teqnion. We invite all on the same wavelength along for our grand adventure.

/TEQ-command

FINANCIAL OVERVIEW

Follow-up of financial targets

3. SHAREHOLDER VALUE

To never risk permanent loss of capital and ensure that we can grow sustainable we believe that we need a financial stability as a basis for everything that we do. This goal should always be in place.

Financial target 1: Net debt / EBITDA < 2,5

<2,5

1,2

1,0

0,70,7

We always work grittily with our profitability. Focus is to always strive for projects and acquisitions that will help us raise the bar.

Financial target 2: EBITA margin > 9%

11,5% 11,0% 11,6% 10,9%

9,3%

> 9%

When target 1. and 2. are in place we put our whole soul into creating long-term shareholder value through increasing the earnings per share. This is primarily achieved through acquiring new niche companies at good valuations.

Financial target 3: > Double EPS every five years*

7,54

6,846,59

4,95

2,73

EPS doubled

• The red line shows the level of EPS needed per year to double the EPS compared to 5 years ago.