Hanza AB (publ)

Good morning, everyone. You are most welcome to this presentation of Hansa's third quarter 2024. A quite important quarter, not only because we are meeting the market expectation and showing a positive financial trend, but also this report marks the end of a nine-month action program we have been running. And I'm Erik Stenfors, the CEO and founder of Hansa, and I'll be glad to walk you through this presentation together with our excellent CFO, Lars Åkerblom. And the agenda will be in the standard format. We will start with have a look at the market development. Then we look at the operations. Lars will guide you and tell you the latest progress report from financials, and then we will draw some conclusions for the future. And as normal with the Q&A session, please use that for any questions you might have. But first of all, let's just take a minute and review the Hansa business model. Our goal is to make manufacturing easy. It can be quite complicated with outsourced manufacturing. You need several different contract manufacturers. They are normally doing one part of your product. What we have done is to group together different manufacturing technologies in what we call manufacturing clusters. In such a cluster, you can both have the part production and the part assembly. Still, there can be challenges. And one challenge is that if you have your existing manufacturing, it can be that it's deeply rooted. You need some help to replant it to find a new solution. And for that, we have something we call MIG. It's our advisory services. This is when we help our customers to restructure and optimize the supply chain. Then also we have product development. We don't have any products of our own. We are pure contract manufacturer. And why then do we have product development? Well, sometimes our customers, R&D department are completely saturated with all the work they have to do with the new products. We can help them by adding them some R&D services as well. And it can also be that we help them to make the manufacturing easy by advice how to develop a new product. So this is our business concept and it's been serving us well. We have created what we think is a really good customer base. And this is important and I will come back to this in just a minute. So if we move then to the market development. There has been a discussion about how the market has developed in Q3. We have seen some profit warnings. But it's not that there has been a downswing in the economy this quarter. It's rather that it was an expected upturn in the economy that did not materialize. In the beginning of the year, it was some optimism that it was an aggressive purchasing during 2023 and there will be some destocking in the beginning of this year. Second half of this year, we should be able to see an increase in demand. While we cannot rule out an upturn, still we said, and for those of you who have been following us, we stated this a couple of audio costs before, that we cannot rule out an upturn, but we cannot rely on it either. So we are preparing for a downturn which may last this year, maybe also next year. And if we then turn to Hansa and look at this quarter, how can you handle a downturn in the economy Then we have to move back to the customer base. It's really important to create a customer base. We had some questions regarding this, I think, a year ago. What will happen if the recession comes? And we stated that what we try to do in our customer base is to have different segments and different companies in different segments and also trying to avoid things which are more like trends, electrical vehicles and consumer products. and avoid things with a low money like automotive. A lot of the stay in areas which are more evergreen, like agriculture, mining, forestry, defense, and classical industry. And this has really served us well. And that's why we see an organic decline of 4% this quarter, but it could have been much worse. Actually, we are heading back to organic growth. And that is the challenge. Because in a downturn like this, How to gain market shares in this economy? That's the big question. If this downturn stays next year, there are different ways to do this. For Hansa, it's connected to the business model, and that's why it was so important to repeat this. We have created this MIG. So again, that's when we restructure our customer supply chain. The demand for MIG becomes stronger when the economy is weaker. And then we were glad in this quarter to announce two MIG contracts. One in August, one in September. One was that we are helping a German company to restructure the supply chain. It will end up in our Central Europe cluster. Second one was that we helped a Canadian company who was back sourcing, moving production back from China to Sweden. These two contracts together have volume annual sales volume of 50 million euro or more and if you look and large will come back to this if you look at our 12 months rolling sales it's about 4.6 billion meaning that this these contracts will add three four percent organic growth so this is the way this is how we plan to continue to grow even if the economy is slow working with having a good customer base and also adding new meet contracts. And we are confident that we will be able to announce more of these contracts in the future. If we then turn to operations, a rather tough year, a challenging start. We have just acquired OrbitOne in the beginning of this year. It was the largest acquisition to date. And of course, if you buy a large company, you have to have an integration period. It was also that Orbit One came with a margin that was about two points lower than Hamsa. We were running about 8% operating margin. They had about 6%. So we also stated to the market that, of course, due to the size of Orbit One, it will download the group's margin. But we will handle this during 2024. And when we come back to 2025, we will be back on 8%. Then also we have a strategy called Hansa 2025. If you've been following us, you know that this is all about increasing the size of some of our manufacturing clusters. And therefore we opened a new factory in Estonia just before the summer you see the picture down to the right and we're about to open a new factory in Sweden by the end of the year and it will be some opening ceremony in the beginning of next year we'll make sure to have an invitation sent out so if you like please come and see this state of art factory in Värmland Sweden but all this means that there was a lot of of work going on in the beginning of the year. We also had one big MIG from the last year, this Mitsubishi, you might recall if you've been following us, where we removed 40 suppliers for Hansa. You see the forklifts up to the left. So these are the products we have moved into Estonia. And on top of all this then came the downturn, so the recession. And therefore, we had to launch a quite large activity plan running for three quarters. The first quarter was about the integration of the acquisition of Orbit One and also the Synergy program, making sure that we increase the margin. Secondly, we were working with a factor consolidation program where we consolidated both customers and technologies to some of our plans. We also initiated discussions with the union of closing to our units it's been successful these negotiations even though it's quite hard and in this quarter we made a program for the rest of the group because the first two programs Q1 and Q2 were mainly focusing on Sweden and Finland and then we had for the whole group so now if we go to the current situation it's been a really hard year it's been tough decisions we have also had substantial one times cost and Lars will come back to this. This also means successful. We see now that we are back on track and we can announce again that we will reach this margin of 8% next year. And then we are talking about the current load. So we are not including or expecting an upturn in economy, but at the current situation, we will still reach this 8%. And by that, I will give over to Lars and he will talk about sustainability, which is both about the environment and about the workplace. Please go ahead, Lars.

thank you eric um and as always we present the main activities within sustainability and also the main kpis as we see it and start with the kpis we have the most important KPI and that is work related injuries and we can see it's a little bit up in Q3 but still on a lower level compared to 2023 and the previous years and this is of course something that we would like to see being even lower but we are satisfied with the trend that we have and also the waste and the use of energy are on more or less the same levels as before. And other parts of sustainability, we have done the employee engagement survey that we do every year. And we are glad to see that we have still a positive trend and good results. And most important, we now look into what to do based on the feedback we get. And we also started the leadership training in Q4 that will continue for 2025 as well. We are preparing for CSRD, we are working with the double materiality analysis and we're also working with the Finnish consulting company GAIA to be able to see if we can how to account if possible for the science-based targets and the plan is to come back with new targets on sustainability early 2025. Financials as Eric mentioned we see a positive trend in the development in financials we are growing by 16% and if you adjust for currency and acquisitions it's a decrease organic downturn of four percent um and as i mentioned we can see other companies in the segments that are well above these these numbers in decrease and we have now rolling 12 months we are on 4.6 billion sex um Erik also mentioned that we have taken one time cost and it's due to what we see as the third and final part of the action program to right size the cost base in Hansa, but also taking some adjustments on the balance sheet and mainly connected with China. We have the strategy for China is to be a gateway and not a cluster like the other five clusters that we actively trying to reach 100 million euro in sales. And we see that more and more also based on the changes in the economy and the market situation that this is the right way forward. So we took a one-time cost of totally 33 million SEK, 25 of those will affect EBIT A and the margin. On the other hand, did a revaluation of the purchase price of orbit one and we see that there will be no additional purchase price so we released 33 million sec as a one-time income and adjusting for for these um one-time cost and one-time income we reached some 6.7 percent compared to 9.3 a year ago but maybe the most important is that we see a positive trend we come from 5.3 in q1 to 5.7 in q2 and now 6.7 and then you should bear in mind that july is the weakest month in in the year so adjusting for that effect it's even stronger than 6.7 And also we see that the programs we took, the one-time cost and the programs we initiated early in 2024, starting to have an impact. The one-time cost we took in Q3, did not affect the 6.7 margin so that that effect will come in early 2025. We also see that the full effect of the previous programs will also reach the full effect in early 2025. The finance net in line with last year minus 27 million and In all this led to 0.88 in earnings per share compared to 121 a year ago. We have quite low tax due to the fact that part of the one-time cost are not affecting or not taxable. Looking into the segments, we see that the main markets have a organic decrease of 8%, still on a very good margin of 8.9%. And we also here see a positive trend coming from 7.2% in Q2. For comparable units, we see that we have 9.8% compared to, or 9.8% compared to 8.9%. So we still see that Orbit 1 as Eric mentioned, was on lower margin when we acquired it. And even though it is increasing, it still takes down the profitability level in both Hansa in total and main markets and other markets. And coming into other markets, we see an increase. We see an organic growth of 3%. And it's mainly... The reason is mainly this MLE project, MIG project that Erik mentioned that now we are in full swing. We announced it a year ago and we said it's going to take a year until we are up in full scale. And now we are since the summer in full scale. So that has a positive effect on the sales in other market. in other markets we also see positive trend in over the the last three quarters we reached an operating margin of 4.4 percent and for comparable units we are a little bit higher on 4.6 percent eric also mentioned the mig project in poland and that has a negative effect on the on the profitability But like MLE project, we see that we take the cost initially and then we get the positive effect when the MIG project is up and running in full scale. Cash flow continue to be strong. We are quite satisfied with the fact that we have a positive cash flow in 114 million and the main reason is that we've been successful in decreasing the working capital we have an effect of working capital change of 38 million sec compared to actually minus 82 a year ago CAPEX is reduced and we still see that the big part of the CAPEX is connected with buildings or machines that we will fill the factory in. And if you look into 2023 and 2024, you saw on the pictures in the previous slides that the main part of the CAPEX is connected with new factories and right now we do not have any new project with new factories and we see that the capex will decrease in 2025. the Positive cash flow also led to that the net debt decreased with close to 70 million in Q3. We are on a higher level in net debt, but due to the acquisition on Orbit 1. But as you see in the second bullet that we are decreasing the net debt compared to the EBITDA. And that is very important in order for us to be able to continue to invest in MIG projects and also acquisitions. And we have a quite solid balance sheet. We have an equity to asset ratio of 39% and a net debt to equity ratio of 0.6. And they are the same as a year ago. We had some changes in the ownership, not major ones, but the main owner, Ferna, bought shares during Q2 and increased their owning from 21.5% into close to 23%. And we are also glad to see that Första och Tredje AP-fonden are increasing their ownership and together they are now close to 6% of the owning in Hansa. And also Erik bought some shares during Q3 and is now owning 1.4% of Hansa shares. And by that, I leave over to you, Erik, for a summary.

Thank you, Lars. So let's try to draw some conclusions for the future. First of all, based on this large activity plan we have done, Q1, Q2, and Q3, we see that Hansa is back on track with the Hansa 2025 strategy. meaning that, first of all, we will reach the operating margin next year of 8%, but also that we can fully focus on this strategy forward. We have stated earlier on that we like to grow. Lars was also touching on this, trying to reach a size of maybe 100 million euro per cluster. We see that we are a bit too small in Finland. We see also that we like to be larger in Germany. We are a fairly large in Germany, but it's a huge market. And therefore in our strategy is included expansion on the current clusters. And that's why we have stated that we have a sales goal of 6.5 billion for next year. How will you grow? You can grow with building factories like we have done in Estonia and Sweden. We can grow with larger MIG projects and we can also grow with acquisitions. But it's still the plan to grow within 25 in these areas. And Speaking of acquisitions, it's important to remember that we are not buying companies in order to be larger, but to be better in the sense that we will be able to go to our customers and state we did this acquisition. Now we have increased our offer to you a bit. And it means also we receive maybe two, three offers per month, but we are quite careful. If we are going to proceed and do an acquisition, it has to be as successful as Orbit 1, both providing operational synergies and contributing to our financial targets. That's really important. But on the other hand, there are such targets existing. So it could be through acquisition that we continue to build Hansa. If you look a bit at the long term, It's unchanged. First of all, we have to achieve the goal, Hansa 2025, operational and financially. Then we will continue to expand. We have said it will be a geographical expansion. have a copy paste model so we will be glad to launch another cluster in line with the need of our customers because we have no own opinion where to be in the world it's completely driven by the markets and we have a close cooperation with our largest customers trying to see how we will expand hansa in the best way for for their production and of course when we then launch the next strategy call it Hansa 2028, they become new operational and financial targets. And by that, we leave the floor for questions.