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Hello, and welcome to the HANZA audiocast teleconference Q2 2022. [Operator Instructions] And today, I'm pleased to present CEO, Erik Stenfors. Please begin the meeting.
Thank you. Good morning from Kista, outside Stockholm, and thank you for joining this audiocast in the middle of the summer. I'm Erik Stenfors, CEO of HANZA, and on the call, however, on another location, it's also our CFO, Lars Åkerblom. And we will together, present the Q2 report we released just this morning, report showing all-time high top line and also record EPS, earnings per share and report describing an important step we took on the service side through an acquisition in Germany and report that is predicting a strong performance going forward. So let's go through the details and move to Slide #2, please. The agenda. We will start with a brief introduction to our concept. This is important in order to understand this latest acquisition in Germany. Then we go through the recent highlights. Lars will talk about the financial development. Then we will have a look at the future. And if you have any questions, please keep them and use our Q&A session at the end. So we move to Page #3. What is HANZA? At bottom, we are a contract manufacturer. That means that we have no own products. The manufacturing we do is for our customers. And we see some examples down to the right. Proud to see and have some really good names in our customer portfolio also from different industries. However, HANZA is also much more than a contract manufacturer. And why? Because the customer value of a contract manufacturer is rather limited. We are producing a certain type of parts. It could be electronics, or mechanics, or cable harnesses according to specification. And our mission is to increase the value for our customers for the product-owned companies. And therefore, we have a wider concept. And if you look at the illustration inside the frame, and we start to the left, here you see the different areas of HANZA. First of all, we have our cluster concept, and we have grouped together different kind of manufacturing technologies, build industrial parts, which we then call manufacturing clusters. And in such cluster, you can both have parts manufacturing and parts assembly. Testing, logistics shipments to end customers, creating a one-stop shop for our customers, a number of advantages. Furthermore, we also have advisory services. We help our customers to streamline the supply chain, and that could be done for cost reasons, or flexibility reasons, or quality reasons but lately, there are new arguments. We saw the pandemic and the weakness of the global supply chain. And therefore, today, many product-owning companies would like to have a robust supply chain. And the last thing that happened was the horrible invasion of Ukraine. And that led a number of product-only companies to think having political-or-so dimension to the supply chain should we really have factories in certain areas in the world. And all this leads to the need to change the supply chain. We can analyze our customer supply chain. We can recommend streamlining, but we can also execute it. And that normally includes factory transfer, which is one of the specialties we have in HANZA. And then to the right, you see product development. We are also offering that. And again, we don't have our own products. So the development we do is to unload our customers' R&D department. We can develop complete products. We can do parts of products. One recent demand is due to the lack of components. It could be a waiting time for years to find your semiconductor and then you have to act, you have to redesign your electronics board, and that's one of the services we do. And this concept has led to a steady growth over a long period. If you look at the graph down to the left, probably industry-leading, we have had an average growth of 17% since we started the company. So you see the annual sales for the first 13 years we've been around. And it ends with SEK 2.5 billion in the last year, 2021. And in today's report, which Lars will also mention, we have already a run rate of SEK 3 billion. So the growth continues. And also, I have the pleasure of having about 2,100 colleagues at HANZA. So after this short introduction, we turn to Page #4 and talk about the recent highlights. We've been busy finalizing some programs. We have an expansion program called Roadmap 2021 in -- 2 years ago in 2020 in the midst of the pandemic. We concluded that the post pandemic, there will be an upturn in sales and also that this will also drive sales in our direction, decided to launch the largest expansion program we had so far. And according to this, we have bought factories. We have built our own factories. We opened a new assembly plant in Estonia in March this year. And we have invested over SEK 100 million in machinery and equipment. And this is an expansion program is still ongoing, but it's about to end. We still have some activities in the segment other markets. We are opening up new space for production in Poland, Czech Republic and China. It should be ready by the third quarter. And then we also have another project started already 2019. It was one of the goals we had for what we call phase #3 of HANZA to establish our company in Germany, build a cluster there. We started that in the autumn of 2019, and then just a few months later came the pandemic. We had to put a hold on that. But last time, the restrictions were lifted and we could restart that project. And we expect that to be ready by the end of this year. So that's also something we are working with. That's on the manufacturing side. But then also we have the service side, as mentioned. And then, also here, we see an increased demand. We have a department of 20 good engineers in Remscheid, helping our customers then with product development. But we were lucky to find a buy company in Münster, which is just closed by Remscheid, 10 additional engineers, expertise in both software, electronics and mechanics. And we see the manager on the picture to the right, the tall guy, that's Christoph Budelmann. He has a master's degree in science. Also, he's a technical doctor and a professor. And to -- on his left side from our look at his picture, is his wife Jeannine, who is then good in business development. Also, have an international background and in marketing. So a good addition for us, creating good capacity also in this area of services. Other than that, during the quarter, we have reported a strong order intake, and it's evenly distributed between different markets and different industries. And we also changed our company name. We were called the -- name the HANZA Holding for historical reason. We changed that to HANZA AB. There are many companies who have HANZA as a middle name, but there is only one HANZA AB and only one hanza.com. And with that, I leave the floor to Lars to talk about the financial development.
Thank you, Erik, and then we switch over to Slide #5. And what I -- what we presented today is, as Erik mentioned, a record quarter regarding sales and earnings, and also a stable balance sheet and cash flow, and I will come back to that. But starting with the sales, we are up in quarter 2, 40% compared to last year. And if we adjust it for the acquisitions we have done and the currency, we have organic growth of 29%. And as also Erik mentioned, we are, on rolling 12 months, we have exceeded SEK 3 billion compared to last year's SEK 2.5 billion. And the earnings followed the increased sales. They were up as well. They are up by 42%, and we show an EBITA of SEK 57 million compared to SEK 40 million last year, and the margin of 6.5% compared to 6.4% the last year. And I can also comment that if we take the EBIT, we are on 6%, which also is our financial goal. And we can see that we are also, on rolling 12 months, we are on 6% margin EBIT-wise. And as Erik also mentioned, we did an acquisition of Budelmann. It's a rather small company. It will not have a major impact on HANZA's balance sheet or sales. We were consolidated starting from July from Q3. And the sales of this company is approximately SEK 15 million. And the purchase price -- an initial purchase price of SEK 8 million and possible additional earn-out of SEK 2 million. And by that, we move to Slide #6. And one of the really positive things in this Q2 report is the increased profitability in other markets. We have been saying for a few quarters now that we will see the margin to be more even between the other markets and main markets. And now we can see that the other markets has increased its profitability. But starting with the main market, it continues to be a strong organic growth. We have 26% and almost SEK 0.5 billion, SEK 485 million in sales and continuously a strong profitability. We have a margin of 7.6%. In this segment, we also have effect of the acquisition we did in Q4 last week -- last year in Germany that still hasn't reached the profitability that we expect in some of the projects that Erik mentioned earlier. If we exclude the effect of that company, we have a margin of 8.5%. And then coming to the other markets. Here, we see also really strong organic growth of 36%, if we adjust for currency and acquisitions and really good profitability of 5% to 6% compared to 5% last year, but we had a lower margin in Q1 due to the main activities for expansion that we have, especially in Estonia, with the new factory in [ Tartu. ] So we're coming from 1.3% in Q1, and we increased it to 5% to 6%. And we really do not see any reason for this to come back. We continuously believe that we will have a margin between the 2 markets that are more close to recover than it has been in quarter 1 and Q4 in last year. And we still carry cost for the expansion. As Erik mentioned, the activities we have in Poland, Czech Republic and China. Moving to Slide 7. We have a positive cash flow of SEK 30 million compared to SEK 19 million a year ago. If you look into the table to the right, you see a comparison to Q1 in 2022. And the net debt is increasing, mainly due to the organic growth and then the growth we have. But what is solid and good is that we keep the net debt compared to EBITDA on the same level. So we are on 2.6%. That's the same as the year ago. And of course, also the net debt is increasing due to the acquisitions that we have done. But the main reason for the net debt increasing is the situation with the shortage in material and components. We have a really strong EPS increase. It's a little bit over SEK 1 per share in Q2. And you take the rolling 12 months, we are on SEK 2.82 in EPS. And according to the decision on the AGM, we paid out dividends during Q2 of close to SEK 18 million. And by that, I'll leave over to you, Erik, and the outlook.
Thank you, Lars. And then we turn to Page #8 and the outlook. So if we look at the sales, we have seen a strong demand in all markets, and that will, of course, drive additional sales, and we had an excellent timing with our expansion program. So we have created possibility to handle these sales. And the limiting factor will still be the [indiscernible] expansion will still be the material shortages. If you look at earnings, we have presented at our audits and our original cluster in Sweden, is able to present a double-digit margin, which is industry leading. And the general formula is such that the larger portion we get, or mature clusters, the higher the group margin will be. And we see now in specific, this is a long process, of course, but we're seeing specific now that we are developing the factories in the segment other markets. So we are adding, I said, services to Poland, Czech Republic and China. And in Germany, then we are finalizing this setup and expect that to be ready by the end of the year. And by that, this cluster will also contribute very good earnings to the group. If we then look at a bit midterm and long term. So by that, we have actually achieved all the goals and the targets we have for this phase. So we build HANZA in phases. This was phase #3. And the number of goals go to the main market of NASDAQ into Germany, some financial goals. And when we have achieved these goals, it's time for phase #4 and the new expansion program, and we expect to release that in the beginning of next year. But in conclusion, we are confident that we will have a strong performance of HANZA both in the short and in long term. And with this summary, we open up for any questions. And turn to Page 9 also.
[Operator Instructions] Our first question comes from the line of Fredrik Nilsson from Redeye.
It's Fredrik Nilsson from Redeye here. Can you hear me?
Yes, we hear you.
Nice. I want to start with the margin in other markets. It increased quite significantly compared to the first quarter. However, you mentioned that you still have some projects ongoing. So I mean, what should we expect going forward? Could there still be quarters when we see a drop due to these projects? Or have the bulk of projects been completed?
Would you like to go first on that, Lars? Or should I?
Go ahead, Erik.
Yes. So the ongoing projects were mainly a factor in the first quarter when we opened a new factory in Estonia. That's why the margin was so low in the first quarter. And the second quarter is more back to normal. And we expect, of course, there can be hiccups and we have a situation in China, but it shouldn't be any dramatic change. But what we see now in the second quarter that we are back on track in other markets after a short downturn in the first quarter. So the answer would be that it should just continue to be slightly better.
Okay. Also -- I mean you have a quite broad exposure in terms of different sectors, and you mentioned that you see a strong demand. I mean, could you elaborate a bit on some of your most important sectors. What do you see? What message do you get from your customers?
What's interesting is that we hear the same message from all areas from med tech, from energy, from defense, all have a good -- we have a good order intake. What we think about the future is, of course, that some areas will grow faster than others, depends, for instance, we expect that to grow and also energy recycling. It's hard to name a specific area. Where we are now, all areas are growing evenly, and we see no special segment that stands out.
Okay. And you had a strong organic growth. Could you tell us a bit about the mix of price and volume in that organic growth?
I'll leave that to you, Lars.
As you know, Fredrik, we are not disclosing that. But what we have said, and it goes for this quarter as well, is approximately the same size of the price increase, and so.
Okay. So if you just get it right, about 50-50 or what can you say?
Yes, about, 50-50.
Okay. Okay. One last question from me. The margin in main markets declined slightly compared to the first quarter. I mean, it could be seasonal effects or whatever. But what -- how is the integration of buyers growing so far?
I can answer that. It's going really well and according to plan. It should be ready by the end of the year as planned. And during this process, of course, it's downloading the margin, but it's fluctuations due to that between the quarters, but it is important what Lars mentioned that if you exclude buyers, you see a good upturn in the margin in segment to main markets.
And we have one more question from the line of Niklas Elmhammer from Carlsquare.
Yes. Some follow-up question. I mean you said there were some pricing effects also in this quarter, of course. What is your view going forward? When do you expect these pricing effects to taper out eventually or -- and towards the end of the year? Or what is your view?
Wish I could answer that. So what we have seen are signs that the commodity market will be better. And of course, the price is a function of demand as supply. But it's really hard to tell, at least this year, we expect it to continue. Maybe next year, we'll see a change.
Okay. And can you give some sense of the impact from new contracts on growth -- on organic growth?
We see new contracts constantly, and we don't give the split. But I think that what we're seeing is a combination, a fair combination between new contracts and old customers growing and old customers adding the new orders to us, new products and expanding the scope. So I would say it's these 3 areas and rather the same distribution.
Okay. And regarding new business, do you see -- I mean given the constraints in supply chains and manufacturing capacity, do you see any impact positive or negative on terms when you negotiate new contracts compared to old customers, so to speak?
And sorry, I didn't really get that.
Yes, I was wondering if you see -- given the constraints we have seen in manufacturing capacity in recent -- so generally speaking, do you see any effect on -- an impact on the terms when you get new contracts? Are you getting better terms? Or is it hard to say?
I think that whoever has capacity is king right now. There is such a demand. And our market is infinite as we are not targeting a certain commodity, we can get orders from all technologies. What we are seeing is that, first of all, we're again glad that we did this capacity increase. We have something to negotiate with the customers. But we also see with this order intake, we need to continue to increase our capacity. And that is a very important message to our customers. They know that they can rely on that we will have capacity also moving forward. They have seen how we have developed HANZA. And I think that is the strength and something our customers would like to hear. And that's also why they are focusing on HANZA and even moving manufacturing from other manufacturers to us.
And as there are no questions, I'll hand it back to the speakers.
Okay. Thank you. And as there are no further questions, we will now end the call. Thanks very much for participating, and I hope you will continue to follow HANZA. Bye-bye.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.