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Good morning, and welcome to the Q4 2022 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Erik Stenfors, CEO; and Lars Åkerblom, CFO. Please go ahead.
Thank you. I wish you a warm welcome to this presentation of HANZA's year-end report 2022, a report that shows all-time high, both on the top line and the bottom line of the P&L.
And I'm Erik Stenfors, the CEO of HANZA. And I will make this presentation together with my colleague, Lars Åkerblom, our CFO. So let's have a look at the agenda, and then we turn to Page #2. First, it will be my pleasure to walk you through the highlights for the last year. Then Lars will give you the financial side of the year. Next we will share our view of the future and we will end as always with a Q&A session. We turn to Page 3. So we have experienced high growth and it's due to a number of reasons. First of all, we have a very solid customer base and then they are increasing the order volumes and also awarding us new contracts. Secondly, we get new customers constantly. We have published some of them in '22. We'll most likely publish more in 2023. And on top of that, we have a very favorable macro trend. So we see this back sourcing that volumes are coming back from Asia to Europe, which really fits our concept. Now high growth also calls for a rapid expansion of the capacity. And here, we see some of these things to our concept. First of all, we have a decentralized organization. That means that we can execute different expansion programs in parallel. But secondly, due to our cluster concept, it's possible for us to expand our facilities in modules. So areas where we already have the infrastructure in place, we can add a new facility and add some new colleagues and equipment in a very cost-efficient way and that's what we have been doing in 2022. It explains a lot of the activities. So we opened a new assembly hall in Tartu, we opened new facilities in Poland, Czech Republic, China. In total, we expanded our facilities with about 20,000 square meters. And that's really important in order to handle the growth. And then other expansion, in the last year, we are not only unique by offering this complete manufacturing solution concept. We also have a service side, which is quite important. We are offering to streamline our customers' supply chain. We have an advisory part. And we also have a product development part. And in the middle of last year, we acquired a company Budelmann Elektronik; a product development company. And that added to our existing R&D part. Now we have 30 engineers and that also marks the start on this very important area to expand that. And if you have some time, please visit our homepage. We have now renamed to HANZA Tech Solutions, and it will be a very important part of our future. So HANZA is about manufacturing and services. And then by the end of last year, we made a directed share issue; Lars will give you the details. But just the overall perspective, we did this partly because it give us a flying start to HANZA 2025, which is our new strategy. We were able to make investments of SEK 100 million by the end of last year. But partially also, we like to have an owner base, which is corresponding to our -- geographically to our customer base. And we were happy to see that the major part of this share issue was subscribed by investors in Germany. And we also got the investors from Finland and Norway. That was really important. And on top of that, we have Gerald Engstrom; our main owner, also was part of the strategy issue after approval on an extra general meeting. And we believe it's great to see them, how we are able to attract long-term and professional owners. So a short summary of the last year, then we turn to Page #4. 2022 was also milestone. HANZA has had probably one of the most solid growth histories, since we are turning 15 in August this year. And since we started the company, we have had a stunning annual growth of 19%. And we are convinced that this is due to how we have built HANZA in clear steps with defined goals. The long-term perspective, and if we look then to the left back in history to 2018 when we launched the year-end report for '17, we then announced a number of operational goals and we also put some new financial goals. And then in 2022, we concluded that we have reached all the operational goals. And we have also actually exceeded the financial goals and it's time for the next step, HANZA 2025. Now we can grow HANZA in 3 directions. We can grow by technologies. That's what we did between '14 and '17. We can grow by geography. And that's what we did between '18 and 2022. We added a new cluster in Germany. But we can also grow through capacity. And we see now it's clear that we have this strong position and it's possible for us to get huge new orders. And therefore the Board of Directors decided that the next step will be about capacity. So now we have launched HANZA 2025 and we will grow with capacity. And of course, we have set new financial goals for this journey. And now I'd like to pass you over to my colleague, Lars, who will talk more about this and also Page #5.
Thank you, Erik. And as you said, Page #5 and in connection with the Q3 report, the Board decided on new financial target. And on the page, you see the previous targets and the updated targets and to the right, the change. So the new financial target for sales is to reach SEK 5 billion in 2025, and that is an increase from the previous target.
And the profitability as well increase, which shall reach a minimum 8% EBITA compared to EBIT of 6% in the previous financial goals. The capital structure, we have 30% of equity to asset ratio and that is unchanged. And we also added a debt ratio, where we should have the net debt towards EBITDA of a maximum 2.5x. And the dividend policy is unchanged of approximately 30% of the profit after tax and dividends. And I will come back to where we are in the position -- in Q4 regarding the debt ratio and the dividend. Then we can move to Page 6. And the Q4 that we released today, and as Erik mentioned, we are proud that we, for the first time, reached SEK 1 billion in one quarter, and that is due to the really high organic growth of 29% in Q4. And if we compare that to what we had in Q3, it was 26%. So we see that the organic growth is increasing. And we also reached the highest profit -- operating profit in the quarter so far of 33%, which led also to the highest EPS in the quarter so far of SEK 1.1 per share. We see really strong organic growth in both markets, main markets and other markets. In main markets, we have 38% organic growth and that is compared to Q3 of 20%. So we have increased the sales in main markets. Now we still see the most mature and the original cluster in Sweden is about 10% in operating market. Other markets, has increased by 40% organically. And here, we see the main driver of the increased profitability of the group is that the main other markets has increased the profitability 3x to reach 24%. That was SEK 4 million in EBITDA. When we compare the figures to last year, we had a onetime income last year from an insurance of SEK 6 million. So the figures that I compared in the main market is adjusted to that. And even with this high sales and the higher profitability, we still are lacking some components and we have this shortage in components. So without that we could have reached the higher sales and higher profitability. And we also have some costs that we are not fully forwarding to the customers, both material, but also electricity and that has impact on the margin. Then we can go to Page 7 and looking into the full year. And generally speaking, we can say that the combination of increased profitability, a strong cash flow and the new share issue has led HANZA to a new level, a much higher and stronger financial position compared to previous. And the sales has increased a lot, actually over SEK 1 billion compared to last year, and we reached SEK 3.5 billion compared to SEK 2.5 billion a year ago. And we have a really strong organic growth. And again, the organic growth is actually increasing during the year. And we have an all-time high profit, reached SEK 212 million compared to SEK 143 million in 2021. But with the normal situation on the material shortage, we could have reached even higher sales than those. Now we move to Page 8, looking at the KPI as I promised, we can see that we have decreased the net debt quite a lot. We are -- the relation between net debt and EBITDA is below 2x and 1.9x compared to almost 3x a year ago. And that is not only due to the share issue, but also the fact that we have a positive cash flow. We have had a positive cash flow all the quarters in 2022, despite the fact that we are growing a lot and also the need of increased inventory due to material shortage. So that is really good. And we also see that we've been able to pass on the profitability and the sales, increased sales down to the last row. So the earnings per share has increased a lot in the year of SEK 3.35. And the Board of Directors also proposed an increased dividend. In last year it was SEK 0.50 and now it's SEK 0.75 per share that we proposed for the Annual General Meeting. Then we can move to Page 9 and the share issue that Erik mentioned, it was in total 3.5 million shares. And we brought in SEK 147 million before transaction cost and the transaction costs were on 3%. It was, as Erik said, the main takers on the share issue was institutional owners mainly in Germany, Finland, Norway and Sweden. And our main shareholder, Gerald Engstrom accounted with 250 shares and for him to participate, we needed to have an extraordinary general meeting approving this share issue. And this -- the reason for this was to broaden the shareholder base, but also to give us a possibility to start up the expansion plans. So we have already started to increase our capacity in Sweden, Estonia, and Central Europe. And in the end of last year, we started up the machinery investments of approximately SEK 100 million. And we were able to buy a building in Tartu that we previously were leasing. And by that, I'll leave back to you, Erik, on the outlook.
Thank you, Lars. And I'd like to conclude with a look at the future on Page 10. So HANZA is in a very favorable position right now. We have the order books at all-time high. We have a solid customer base, which is not really connected to the consumer market, which makes us feel that we will have increased volumes even if there is a downturn in the economy. We have customers from the energy sector, mining companies, security products, reverse vending machines, which are more connected to government decisions.
And on top of that, we received new contracts and have this positive macro trend is back sourcing where we see the new volumes coming from Asia. But it takes 2 to tango and sales is not everything. We need also to have capacity. And therefore I'm so glad that we could have this flying start for HANZA 2025 with the investments that Lars mentioned, the SEK 100 million that we started already by the end of last year. And it can also be possible acquisitions. As I said earlier, this phase is about capacity. And we are clear that we'll only buy companies to add some things to our customer base. We should be able to look our customers in the face and say, we bought this company, and this is good news for you. And in this, the situation could be capacity acquisitions. And we will also -- I also like to highlight again that we are expanding also our service side, which is a really good aid for our customers. It helps them to grow. And if our customers grow, we will also grow. And then we actually lift the lid on the next milestone already when we launched HANZA 2025. So while we were stating that this step is about the capacity expansion, we also said that next step will likely be geographical expansion. So that's something we are preparing also in parallel to be ready in 2025. And now I cannot give you any hints on what it will be. But in summary, we can conclude that HANZA will have another successful year, 2023. And by that, I think we will end this presentation. And we are now very happy to take on any questions and we can move to Page #11.
[Operator Instructions] The first question comes from Anders Roslund from Pareto Securities.
Impressive result. I have just 2 questions. First, the growth scenario for this year. The fourth quarter has been relatively strong in -- for many industrials. But we expect that the growth will taper off this year due to a very tough comparison periods. But what will be left then for you, the structural growth above market growth? Do you have any idea of this 30%, almost 30%, what is sort of underlying market growth and what is your own structural growth? That's my first question. I take one question at a time.
Okay. Thank you, Anders. So Erik Stenfors speaking, I can say that you can do little bit of calculation and say that we are confident that we will be on our sales goal in 2025. So SEK 5 billion, then it will be a growth of between 12%, 13% per year to reach that. And it means also that we feel confident that we will continue to grow. We have not seen the downside. And again, I think that's also partly that we are not related to the hires, which are a bit mild now. How it comes to compared for the previous figures, I can only talk in absolute numbers and the goal is still to reach SEK 5 billion in 2025 and that we will do. If that's an answer to your question?
Yes. No, no. That's excellent. Then if we go to the margin development, you've had some problems in Germany ramping up production. How are you in that regard?
I would not say we had problem or contrary, we were quite successful. We acquired a company 1 year ago for capacity reasons, a company that was hurt by the pandemic. And we've been -- had a 1-year plan to restructure this into our cluster. It's been very successful. And we said that we will turn that company from losses to profit during that year. And we also said that we accomplished that.
So from Q4, we are on plus, and we expect that to continue. Our margin is the function on how much sure our clusters are, how much we have been working with them. And the first that was in Sweden, that the one we talked about double-digit margin. And then it goes all the scale. But every cluster is moving upwards in margin. So I think we are successful in all clusters, and that's also why we can state, we'll reach 8% in 2 years.
Then I would like just to see on the capacity issue, will you have any restraints of reaching the 12%, 13% per year? Or is that within your expectations when it comes to capacity.
That's an important thing. We always talk about sales and I think we are quite confident about that. We should talk about capacity. And that's why it was so important to have this flying start of our strategy because we need to have some stat as it or to bringing new customers. And by this share issue and our already strong performance with a positive cash flow, we had possibility to really grow capacity in early stage, let's say. So I think that we are well in time. I think even as we will have been able to increase the capacity more quickly than we expected from the beginning. So I don't see any constraints on the capacity side.
Not even if you -- short term, will have a capacity demand or sales increases in the same ratios as you just almost 30%. If you end -- if you continue with that for a couple of quarters, would that be possible?
Yes. And this is the duty with one of the duties with our cluster concept that we can add molecules. So we have all the structure, infrastructure ready. We have the management. We have everything. We add the module, some more space, some more colleagues, some more machines. And that increases capacity quite a lot, even though it can be done in a short period of time. And I think it's also worth mentioning that we were able to grow with SEK 1 billion in 2022 and we increased number of colleagues with just about 100 people. So it's also about automization and robotization. And that's also something we're working hard on and also helping us to increase capacity.
Yes. And then a final question regarding future geographies. Have you any plans to move out to new market segments in your HANZA '25 scenario?
We give you a very, very precise answer. No comments.
The next question comes from Niklas Elmhammer from Carlsquare.
Yes, thank you for the presentation. Impressive growth. Is it possible to give us an indication of effects of increased materials and energy costs on organic growth? And also, do you expect to see continued high effects from this inflation on sales and cash flow in the near term?
And I'll turn that to Lars.
Yes, it's not a major part of the increase at all. It's a few percentage, that is the increased material and the forwarding of cost of electricity. And also, we're starting now to be comparing a period stack that also had increased costs for material, maybe not energy so much, but a few percentage of -- in the growth.
Okay. And some questions on the expansion initiatives, if I may. You of course have done a lot of expansion already. At the same time, there has been some redundancy in Germany, I believe. So how do you stand in terms of people capacity, do you plan to continue to hire in the near term?
Yes, we are hiring. And I think that we also have had some success becoming a larger company. For us, it's important also to attract young people. And we know that they would like to have a possibility to do international career and have opportunities to travel. And I have a picture of the industry as something that is old and noisy. But thanks to the size and thanks to also look at our facilities. We have been really successful in recruiting people. And we are also having these programs that can travel between the sites and we can also -- we had a good sales manager in store, which were promoted then to Cluster President in China, took his family and moved there.
So I think that it was much more difficult in the beginning of HANZA, where we were not a known company, and we had to fight to get people in. But now it's a bit opposite that people are looking for opportunities in HANZA.
So do you see a similar pace of hiring in the near term Or?
We always balancing between people and optimization. And we see also that we have the salary issue that there is a salary discussion for the first time in many years, we have to see how that is ending. That is also affecting how much we will work with automization in different clusters.
But in total, thanks to our expansion model and that's why I brought that number of people versus the sales increase. We are able to bring up capacity quickly with new equipment, but not so many people due to the cluster structure, that's really important.
And also on the topic of expansion. You raised some capital last year to increase capacity. And you're announcing now were also some plans SEK 100 million in machine investments. Could you elaborate a little bit on these steps? And should we expect CapEx to be at these levels going forward.
Would you take that question, Lars?
Yes, I can take it. It is true that we have a need of investment in order to meet the expansion. And we have invested in the new sheet metal factory or the sheet metal factory that we previously were leasing. It doesn't have a major impact on the balance sheet, but we also need to invest in machines.
But if you compare it to the organic growth and the growth, it's not like we are increasing the CapEx as a percentage of the sales and the profitability. And we are Also, as Erik mentioned, we are moving part of the cost in the P&L from personnel into depreciation, but it will not, given the size of the company, it will not have a major impact on the KPIs or CapEx over the -- in the future, as I see it.
And this SEK 100 million investment, where are you investing, you're planning to invest?
So we are investing in our -- all our clusters and trying to follow our customers. But I don't think we have given the specifics of that, but it all clusters.
And just maybe one final question here. On the one leg of your 2025 strategy is to expand the product development and advisory services. So should we expect this to become significantly larger in terms of staff and revenue?
I think what you could see is that we will bring in some customers through that channel. So if we could help a customer to reshape the supply chain that might just end up with a lot of manufacturing and HANZA is still a very, very good deal for the customer. So we don't expect it to be a lot of people working on this. We have a few people working on this. But the outcome can be quite substantial, where we really lower the cost for our customers at the same time getting a quick growth in HANZA.
[Operator Instructions] The next question comes from Fredrik Nilsson from Redeye.
I want to start with the strong growth in the quarter. Could you give us some approximate number regarding the split between pricing effect and the volumes?
Thank you, and Lars, maybe you want to answer this.
Yes. The main part, the majority is sort of real organic growth on volumes, the material side and the fact that we are forwarding some costs its only 1% to 2% of the growth.
But I suppose that there are maybe at least some price effect that is not related to forwarded material and energy costs. I mean, for machinery and maybe some salary inflation and so on, if there is such an effect as well?
I mean you have a cost increase in inflation every time. And those figures, we haven't announced or given out. But I would say that even -- the majority is volumes. So the other part is a smaller part.
And I want to stick to the material energy passthrough of costs. Could you give us some approximation about the effects on the EBIT margin?
Not in figures, saying that it's affected with a certain points of percent, but it has an effect. And when you compare the margins between the quarters, it hasn't an effect. And in that sense that the margin has been decreased in Q4 compared to a year ago, due to those price effects and the fact that we are forwarding material and energy. But we don't -- we haven't given out any exact figures.
And you see a strong demand going forward. And I mean, could you tell us a little bit about, in your view, I mean, how much is due to a strong demand in general terms? And how much is due to back sourcing and manufacturing moving to your factories rather than the whole market expanding, if you see what I mean?
I can say that, again, we haven't, like a politician, I'm not giving you the numbers. But a big portion is, of course, our strong customer base, where we have customers increasing the volumes almost all of them.
And on top of that, we have the new customers. I mean we've grown rapidly that is, in turn, a function of the back sourcing. So when the customer decided that they would like their manufacturing in Sweden, and then they transfer and then it is a rather quick growth compared to if you have a new customer, you do prototypes, pre-series and then up the volumes, there is more transfer. So it's quicker. But unfortunately, no stat there, but the combination is what makes our strong growth.
And could you tell us something about the component shortage? I mean how much approximately are we talking about? And what kind of components are there still a shortage of because, in your view, it seems to be easing up a bit at least.
Yes, that's an interesting question, Fredrik. We are over the hill, I would say. We are going down, but still on a high level. So we see also that this is some areas or components still for some customers, it's really hard to find where that is much better situation in other areas. I wouldn't say a general improvement, but it's more specific improvements for some customer areas. But our belief, it will be better this year. Of course, that will also have a positive impact on the cash flow.
This concludes the question-and-answer session. I would now like to turn the conference back over to the management for any closing remarks.
Okay. Thank you so much for listening to this conference call. I hope you will continue to follow us and then we have a chance to meet at the next report. Thank you so much, and bye.
Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Good bye.