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Welcome to the HANZA Q2 presentation for 2023. [Operator Instructions] Now I will hand the conference over to CEO and President, Erik Stenfors; and CFO, Lars Åkerblom. Please go ahead.
Thank you, and good morning. This is Erik Stenfors speaking, CEO of HANZA, and I wish you a very warm welcome to this presentation of HANZA's Second Quarter 2023. And the short version, HANZA is doing really well. Today, we presented another all-time high quarter. We see solid growth. We see an operating margin, which is up to 8.6%. And what was important, we have a strong cash flow of SEK 86 million. And furthermore, we closed a very important deal with Mitsubishi. This is a deal that shows the strength of HANZA's business concept and also the potential moving forward, and we keep our strong outlook. And I trust that this presentation will provide a deeper understanding why we remain positive about the future. So let's start and have a look at the agenda. We have structured this the normal way in 3 parts. That is I will start with a business update and my dear colleague, Lars Åkerblom, HANZA CFO will talk about the financial performance and also an update on the sustainability work. Next, we have short summary and a look at the future. And at the end, we have our Q&A session. And Lars and I will be really happy to answer any of your questions. So second quarter, it was another step towards the next milestone of HANZA, HANZA 2025. Data is up. Demand stayed strong. And the reason is, firstly, that we have a very good customer base. We have customers from different segments such as energy, defense, forestry, mining, medtech. And also that we're able to take new contracts, both with existing and new customers. And this is an important aspect, HANZA offers manufacturing in a new way, which differs from traditional contract manufacturers, and that also creates a significantly larger market. And I will come back to this on the next page. Also, we had our annual customer survey and pleased to see a very good response rate and very good feedback. This dialogue is really fundamental for the development of HANZA. We have no own products. So we need to develop HANZA in line with the demand of our customers. If we look at operations, as the sales increase, we need to increase capacity, and this is always something that affects profitability. But we have the advantage of our cluster concept. We have a modular expansion model. You can look at the picture to the right. Here, we see Estonia. We started with the sheet matter factory, and then we added an assembly hall. And right now, we are expanding the sheet metal factory with 3,700 square meters. It will be ready by the end of this year. And furthermore, we have also bought some additional land so we can continue this modular expansion. And these programs are ongoing now in both the Baltics and also Central Europe and China. And in main markets, we were really glad to be able to acquire the lease production facility we have in Töcksfors, 11,000 square meters. And we also bought land 28,000 square meters. And this is, of course, good for future expansion. And at HANZA it's not only manufacturing, we also have our service side, and we have our R&D department in Munster Germany. Also there, we have an ongoing expansion of the building, and I hope that we can have an opening ceremony somewhere this autumn. So that's how we cope with the solid increase of sales. And then if we have a look at the deal with Mitsubishi Logisnext. This is a deal we made in the beginning of July. Mitsubishi Logisnext Europe related family, they are a provider of logistics solutions and they had a range of old forklift. And this is a large deal. We estimate the order value to be well above SEK 100 million per year. And if you haven't look at our turnover, this represents several percent of the annual sales. But more than being just a large deal, it's also an important deal because, again, it shows the strength of our business model. We work with optimizing our customer supply chain to make a better manufacturing solution, not only manufacturing but also manufacturing solutions. And in this case, we would gather the parts production, the parts assembly, testing logistics, everything in our manufacturing cluster in Estonia. Now this will be good for Mitsubishi. It will lower their manufacturing costs, it will increase their flexibility, easy to bury the demand and also make more robust manufacturing solutions. So it will increase the delivery accuracy. And of course, it's also a very good deal for HANZA. And it is an example of a deal that only HANZA can offer. And last but certainly not least, it's also good for the environment. By making these kind of solutions, complete the regional manufacturing solutions, it will also reduce number of transports. And this, of course, is good for environment as it will reduce the emission of CO2. And on that topic, I will leave the floor to Lars, who will continue to talk about our sustainability work.
Thank you, Erik. Just making sure that you hear me loud and clear, Erik.
Yes, you are loud and clear.
Sustainability is important. And we work in HANZA with 3 main areas. It's environmental -- environment and climate, it's security and ethics and employees. And this quarter, we have Joined the UN Global contract. And by that, we undertake to follow the 10 principles of human rights working in human condition, environment and anticorruption that they set up. We have also implemented the supplier relationship management systems. That is, of course, important for the environment as well since the big part of the impact HANZA has is due to what we buy from the suppliers. And we are prioritizing and working with the employer branding to attract and motivate new employees and to retain confidence within the existing employees of HANZA. And you can see also that some of the KPIs that we have in the Annual Report, Sustainability Report, we also follow up quarterly. And you can see that the waste and the energy use is reduced in 2023 compared to 2021 and 2022. The injuries related to the working hours is on the same level, it has increased slightly. Then moving into the financials. And as Erik said, it's a strong quarter. We are continuously to grow. We have a 21% growth having SEK 1.068 million, and that is adjusted for acquisitions and currency of 13% organic growth. Last year in quarter 2, we had the invoicing of energy and some material with low or no margin. So the underlying organic growth is actually a little bit higher than the 13%. And we are now reaching SEK 4 billion in rolling 12 compared to SEK 3.5 billion in the full year 2022. And a year ago, we had the rolling 12 months of SEK 3 billion. So we are increasing sales by SEK 1 billion compared to 12 months ago. And we have increased the earnings. We had a significant growth increase of the EBITDA with 61%, and we reached SEK 92 million compared to SEK 57 million a year ago.
And as Erik mentioned, we are on 8.6% compared to 6.4%. And rolling 12, we have reached a little bit over 7% in margin. And we are able to get the profitability all the way down to the last row. So the EPS is increasing by 50% and reach SEK 1.51 and for the first half year, we are on SEK 3 in earnings per share. Looking into the segments, we have really strong growth in main market, this organic growth of 19% and also extremely high profitability. We have a margin of about 11% compared to 7.6% a year ago. And it's -- when we compare it to the last year's quarter, we shall remember that a year ago, we were in the integration phase of the acquisition we did in 2021 in Germany. And at that time, that company was operating at 0 margin. In segment other markets, we have growth, it's 5% just for acquisitions and currency. We have increased profitability. We are about compared to 5.5% a year ago. In other markets, the expansion programs we have in Poland, Czech Republic and China still have a negative impact on both sales and margins. We also in other markets have some shortage in material that also affected the sales and the margin. Balance sheet and the KPIs. We have a strong cash flow, we reached 86%. And actually, the rolling 12 months cash flow is SEK 277 million, which is strong if we know that we, at the same time, have increased the SEK 1 billion in turnover. And we also have material shortage situation that we need to handle. The net debt is decreasing. It's down to 1.5x the EBITDA. It actually increased a little bit from the first quarter but that is due to the fact that we did the acquisition of the real estate in cluster Sweden, as Erik mentioned. So if we adjust for that acquisition, we actually lowered the net debt in Q2. We paid out dividends of SEK 0.75 per share corresponding to SEK 29 million. Management increased their shareholding in HANZA by 291,000 shares and the management today holds 855 shares corresponding to a little bit over 2% of the rolling in HANZA. And AGM decided on the long-term share saving program for 13 of the top management in HANZA Group. And we are glad to announce that we had a really good participation in that savings program with 97%, close to 100% of the available shares versus prior before. And this is a program where the employees invest and then based on the outcome of the program, it can be additional shares to the management. We can also update you on the financial target that we decided in Q4 last year. And we can see that we are on rolling 12 of SEK 4 billion and the financial goal is SEK 5 billion in 2025. We should have an operating margin of 8%. And in Q2, we were above that. We were on 8.6% and rolling 12, we are a little bit over 7%, 7.2%. We are above the financial goal for equity ratio. We are in 37%, and we are below the goal. We have reached the goal for the net debt, we are in 1.5, and the goal is 2.5x EBITDA. And we paid out dividends close to the financial goals. By that, I leave over to Erik on the summary and outlook.
Thank you, Lars. And you may notice that financial hearings has a new feature, we can now change the image ourselves, we don't no longer need to refer to which image we are talking about. But anyway, now we are on Page #9. The summary of this presentation and an outlook, Lars mentioned our sales target, it is to pass SEK 5 billion in just a couple of years in 2025. We have a very strong customer base. We have a very strong concept. So we stay convinced that we will achieve this goal. Earnings wise, Lars also mentioned that we are above the target we have in main markets, but below in other markets. Now there is a scale advantage of HANZA's business concept. When we reached around SEK 1 billion in annual sales in the cluster, we have a positive margin impact. And now we are building on all our clusters and that makes us also convinced that we will be on the right side of 8% also after adding this SEK 1 billion in sales from current rolling 12. Long-term acquisition, important part of our concept. We don't buy companies to become bigger, but to become better. Better, meaning that we can go to our customers, look them in the eyes and say that we bought this company and guess what, HANZA is a bit better now for your manufacturing, could be new manufacturing technologies, it can be capacity like the acquisition we did in [ Monchengladbach ] And this will continue. It can also be part of this phase, HANZA 2025. And if we look at a bit longer term, we have been clear on that HANZA 2025 is about building the existing clusters and also clear that after we have done that, once we have reached our financial targets, we will do geographic expansion, launch a new cluster. Where? Well, that is the dialogue with our customers. We don't have our own opinion. It must be driven by the demand of our customers, how we would expand. But you can expect geographical expansion after we have reached the financial targets. And this concludes our presentation, and now we are open for any questions.
[Operator Instructions] The next question comes from Fredrik Nilsson from Redeye.
Erik and Lars, I want to start with the component shortage. I mean how come you suffer from it in other markets, but not in main markets? I mean main markets is also growing faster organically in this quarter? And also what kind of components are hard to find?
Erik speaking. It's an easy answer to that, it's customer specific. So when we say that the component situation is getting better, that means that a large portion of our customers now receive the components, but we still have depending on what kind of product it is, we still have a long lead time on some products. And it so happens that this quarter, we could not handle some of the deliveries in other markets due to component shortages. I cannot go into details what kind of components we're talking about and what products, but it affected the main -- the other markets this quarter.
Okay, I see. And also, could you elaborate a bit on the margin in main markets and the progress in the German cluster? Is the current level sustainable? Or were there anything specific in this quarter?
I don't really know, we have nothing specific in this quarter. It's a function of, as we said, it's a size function. We have a very good cluster model where when we reach a certain size, we can make full utilization of our customer value and when we increase customer value, we can also increase our margin. So I would say there is nothing specific in this. It's a good quarter simply. And we have not said that we're going to run 11% on the group, but we have said that the mature clusters should be able to run double digits. And we have half of the house with mature clusters office still under construction, and then we need some slack for activities on a group level. That's why we have the goal of 8% on the group. But nothing specific in this quarter.
Okay. Regarding the purchase in Töcksfors, do you have any immediate plans to develop that? Or is it more of a long-term purchase?
We are always developing our clusters. And right now, we are -- we have just bought the building and the land. So we are preparing the land. Now we are doing some groundworks. We have not said when we will expand this. But of course, that's in the cards when we acquire land, like the one we show in the presentation, sooner or later, we will use it. But it's a very good insurance for the future to buy land. It helps us.
The next question comes from Niklas Elmhammer from Carlsquare.
I was -- a question about the order situation. Some of your peers are reporting lower book-to-bill as orders are now faced with shorter lead time. How about you? Are you seeing something similar?
The short answer is no, and we understand that this is a main topic. And I think that the reason is that we have a very good customer base. We all know a situation in the defense industry, and we said also that we had a customer in the defense industry that more than doubled the order backlog. And we also saw the reports from [indiscernible], the mining sector is doing really well. We have strong demand in forestry and agriculture, energy, a very strong sector. So it's more -- in the customer base we have, we have a solid demand.
Okay. And also coming back to main market and the sort of sustainability here. Should we interpret this as the probability is now even between the different clusters in main markets? Is there still room to improve in some areas?
I give that to you, Lars.
Yes, there is room for improvement, especially in other markets. We are developing other markets. We now, as we said earlier in this call that when we reached SEK 1 billion, the size of SEK 1 billion, we see increased profitability due to size and not all of the clusters in other markets are in that size. And we also are developing some of the clusters with expansions. And as I said earlier, we see that, that has an impact on sales and profitability. So -- and we have said many times that we really do not see any difference in the profitability long term between other markets and main markets. So there is a potential to increase the profitability, especially in other markets.
Yes. And also good to hear about new business with Mitsubishi for other markets. But in the shorter term, do you expect further negative impact on growth from, on one hand, these expansions and on the other hand, you have lower effects from direct invoicing of materials and so on?
I mean on a month base, on a quarter base, when you switch gear, you would momentarily have a lack of acceleration. And when we do installation of our welding robots or when there is a component shortage [indiscernible] somewhere in some factory. But in general, and HANZA as a group with the sites we have, we will always continue to grow. So we don't see that as a challenge. And as you pointed out, this is a very, very large order we got for other markets, and it's up in full volume in 1 year. So that we really had healthy, the speed of other markets also.
The next question comes from Anders Roslund from Pareto Securities.
Yes. I had just one question regarding the growth scenario here. Organic growth is down to 13%, but the main market is growing 19% and other markets, 5%. And you mentioned the supply chain issues. I guess that is part of the supply chain issues, how sustainable is that? Could it recover here in the second half of the year? Or how should we look upon it?
I don't know if you'd like to elaborate on that, Lars.
As Erik said, the material shortage is, over time, getting better and better. We still have the shortage of material. In Q2, it is also, as Erik said, it is connected with specific material for certain customers in other markets. So we still see the trend that it's getting better. It's not as good as it was a couple of years ago. But if things are not getting worse. It should not be sustainable. We should be able to grow and not be burdened by material shortage going forward. But that's we need to see how the material shortage situation is developing.
Yes. Because if I look at it from a market perspective, there shouldn't be any difference in growth in main and other markets. I mean, where you produce is one thing and the overall market. It seems that in the main market, you have the same organic growth as in the first quarter, while in the other market, it fell dramatically. So I assume then that what I'm coming to is that the end market is still not -- is still doing relatively well. It's more that you weren't able to produce as much as you had hoped?
Yes, that's a good observation. And we don't really see sales as the big challenge, but capacity. And that means that we need to increase the capacity all the time. As you saw in the presentation, we are now making probably large expansion in entirety with this 3,700 square meters. And every time we do an expansion, there will be some impact on the deliveries. And on top of that, we had the shortages and an important product. But there is some quarter-to-quarter. It's no trend. We should have -- it's a very good observation. The clusters is one thing, the market is another thing and the market is strong. So when we have a hiccup in somewhere, it's just because that we are expanding capacity or there's something else happening in that quarter. But if you look at this maybe on a yearly basis.
Okay. And then you talk about that you're expanding specifically in other markets, and that's taking down margins. And I guess that will continue for the rest of the year that you have sort of a cost for expanding the capacity?
Yes. And we saw, for instance, in China, there was a complete restart when the COVID was -- these regulations were finally removed in the beginning of this year. And now we have a strong trend in 2 directions that some customers, everybody would like to produce locally. And if you're selling for China, you like to be in China, if you are selling in Europe, you would like to be in Europe. So we are helping customers to transfer. And that's a huge thing that also takes costs. It will take some time before we see the full potential of China. Same thing in Central Europe, which is one of the last year, we're developing heavily right now. A lot of installation and equipments and yes, provide, takes down the speed.
And then finally, a question regarding the cash flow. It's improving. And yes, what should we expect this improvement to continue for the rest of the year or?
Would you like to comment on that, Lars?
Well, without giving any forecast, what you can see going back in time is that we had to increase the working capital quite a lot half a year, a year ago and that we have been able to solve in 2023. We are increasing working capital as a fact when we are growing in sales. But on top of that, you do not need to increase the working capital more so then it depends on the development of the material shortage situation. If that is better and ease up then we expect to be able to lower the working capital.
Just to comment also, you might have seen that the stock went up from Q1 to Q2. So this cash flow is not driven by lowering your stock because we're still expanding. But there will be a time where we can get rid of some excess material that we bought because of the component situation and the stock will stabilize and will also drive cash flow.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Okay. Thank you so much for attending this presentation. I hope it gave you some additional understanding of HANZA and we will now end this audiocast, and I wish you all a great day. Thank you.