Hanza AB (publ)

but the good part is only temporary. The beauty is when you integrate a company like Leden into Hamsa, the capacity of Hamsa and Leden, one plus one, becomes more than two. So already within this year, we will have a new capacity solution in place, and that will lead them to a very quick upturn in the profitability. So that's about the Leden case. If we then look at Lynx, This was, let's say, a response to the new security situation in Europe, which was very clear when the new administration took office in the US. Lynx is about targeting the defense sector. And we have a concept that works really well for that. We have electronics, mechanics, complex assembly in local places, exactly what is needed for the expansion of this sector. And I think also we have good experience. Defense is nothing new for us. We've been working for them for many, many years. But I think also on a personal note that this is not just good for business, it's also good for Europe. It's about Europe. It's about democracy. I think every contract manufacturer should ship in some capacity for the defense industry right now. It is really important. On the other hand, we must, of course, safeguard capacity for other industries, for other customers. The talk on the street now is that the fence is eating up all the capacity, what will be left for the other industries. And that's why it was so important with this acquisition of Melectrica. It brings expertise, it brings a new customer base, but it also brings a capacity platform where we can grow with this sector without having to lower the capacity for other industries. Now we are waiting for the approvals from the authorities. It's a standard process. We expect that to be ready by September. We have said at that point we will have a little, not opening ceremony, but closing ceremony when we close the deal in the headquarters in Finland and talk more about the new customer base. We cannot reveal so many details right now and talk about this Lynx project, how that will proceed over the coming year. And you are much welcome to please join us then. We will send out invitations. What we can tell already now is that Melekte comes with one factory in Finland, two in Estonia and one in Abu Dhabi. It brings our total staff up to 3,500 people, divided as you can see on the map to the right. It brings the sales of about 300 million SEK annually, same case as with Leden, or better and worse, how to say it, but this area will expand even quicker than Leden, but we do have a capacity platform. So we are not afraid of this increase. We will be able to handle this thanks to the plan we have made in Lynx. And again, more about this in Finland in September. And this will then be kept as a special part. And that is also unusual. Instead of putting the different factories to the different clusters like we did, we will keep this as a special unit, as a special part of the LYNX project. More information to come within soon. And with that, I leave the floor to Lars to talk about sustainability.

Thank you, Erik. And the sustainability work in Q2 was focusing on including leden that we acquired in March into the figures. So now we have in the figures you see to the right, leden factories are included. We also started to work with the DMA, including leden to prepare for disease RD reporting by the end of of this year and the beginning of next year to fulfill the requirements. We also worked with the annual employee survey, the feedback we get from our employees. We work with that, changing where we can improve things based on the feedback we get from our employees. And we also have quite interesting project in Estonia, bringing in people from the open prisons working in our factories in both Tartu and Narva. And next step will be to also do this in Tallinn. We see on the figures that the injury frequency rate are stable. at the level we have been for quite a while. And we also see that the hazard waste is increasing a little bit due to the fact that we took down one painting line in Seve and that increased this temporarily. We also see that the energy use is increasing. That is due to the acquisition of ledum. Coming into the financials, we see a strong increase of the net sales, increasing with 24%. And we also see an organic growth of 3%. And we are a little bit above this 1.5 billion SEC in the quarter. And same level as in Q1. So accumulated including leading the full period of the first half year, we are a little bit above 3 billion or 3 billion 51 million SEK. As Eric mentioned, we see a change in the market. We see that for the first time since the downturn in the economy, we see increased receivable of orders and the volumes that will increase in respect to increase in, in the second half year. So that's a major change in, in, uh, in the operation right now. Earnings, uh, the adjusted operating profit, which actually this quarter is the same as the operating profits is 106 million, uh, SEC. And, um, having, uh, uh, Continuing increase of the margins, if you take the comparable units, we have 7.8% coming from 4.1% a year ago and 7.3% in Q1. Erik mentioned the challenges we have in the Leaden factory and that reduces the margin for the whole group. Leaden is approximately on 4% in margin in Q1 compared to 7% in March. We expect Leaden to increase the profitability. We also have arranged the transaction or the acquisition of Leaden with an earn out that is depending on the profitability in Leaden. So if this lower margin continues, we also will have a release of the earn out in the balance sheet. Orbit one. that we acquired a little bit more than a year ago. At that time, being on 6% approximately in margin, are now on the same level as the rest of Hansa, if you exclude Leland. So that's really positive and show good development of companies that we acquired that we can rearrange some parts and increase the profitability quite fast after the acquisition. The earnings per share increased to one crown, 13 öre. And for the first half year, it's 223. Looking into the cash flow, we continue to have a strong cash flow. We saw that the cash flow peaked in Q4, but it continues to be strong also in the first half year. We have not seen the full effect of the work we do with the working capital in Leland, so we expect to have a continuously positive cash flow rate. also when we are able to release some working capital in leden. And what you see on the graph to the right is actually when we acquired company, we increased the net debt compared to the EBITDA and then we are able to work it down. So both in Q2-24 and in Q1-25, you see that the net debt compared to the EBTA is increasing a little bit. And we are, regarding the net debt compared to the EBTA, we are well below the 2.5 that we have as a financial target. We will, with the acquisition of Emuletica, increase that temporarily. But we expect the net debt compared to the EBITDA to continue to decrease. We have a solid balance sheet. We have equity to asset ratio that actually increased during Q2, despite the fact that we paid out dividends. And we are on 35%. So we have a solid balance sheet. We also decreased the net debt, if you include the dividends, approximately with 100 million SEK. Coming into the segments, we see, which I think is very positive, we see that other markets are at the higher level and closer to the level of the main markets. And for you that have followed HANSA for quite a while, been hearing me and Erik saying that there shall be really no reason to have a lower margin in other markets compared to the main markets. It's more a matter of how mature the factories are and the programs that we call the next programs, where they are in what phase they are. And now we see the result of both the fact that the factories are more mature and that we have done this on its program with restructuring. So we see an increased margin in other market compared to what we have seen previously. We see on organic growth in main markets, we see a slight decrease of organic growth in other markets. And we see the profitability that are in line with historical figures, except for the fact that other markets are increasing the profitability ownership and share we have the same main owner we have some some differences some some Financial institutions are increasing their shares, their ownership, and some are decreasing, but no major changes. We increased the number of shares in the beginning of the year when we acquired Liadom. We see that Erik continues to increase his owning and holds now 640,000 shares, corresponding to 1.4% of the ownership. And by that, I leave back to you, Erik, for a summary.

Unless you'd like to comment on this slide. Sorry.

Yes, the Melektica acquisition. And it's 100% of the shares in... the construction manufacturing part of Melektrika. We also acquired the factories, the real estates where the operations is run. The purchase price is set to 16.4 million euros and it's based on EBITDA multiple or 4.9 of cash and debt-free basis. And this will be a cash deal. So there are no Hansa shares involved in this acquisition. And similar to what we did in orbit and in leading case, we have an earn out. And the earn out can be maximum 18 million euros based on the revenue. in 2025 to 2027 but in in to reach the full earn out the sales in the company needs to be more than doubled during this period as eric mentioned we are waiting for government approvals that we cannot really steer, but we expect them to be ready in September. And we also expect this to, from the start, have a positive impact on both sales, operating margin, and maybe most important, the earnings per share. Now, Erik, now you can do the summary.

Thank you, Lars. And today my family is also buying shares. I see on your list, Lars, that I need to get up to 2% in order to be on the top 10 list. Okay. The key takeaway of today's presentation, this quarter, this last year, and maybe the key takeaway how we work is that we keep moving, even putting on some extra speed when the economy stands still. And by doing that, we create a strong position for the future. We talked about the Leden acquisition, how we now increase in capacity. We talked about the Lynx program, which will go on for up to a year and embrace this in Elektrica before we then integrate it into our clusters next year. But as I said in the beginning, we have many other activities going on. In February this year, we opened a new factory in Töxfors, Sweden. It's now in full swing, a lot of work behind that. We decided also to expand our building in Årjäng mechanics in Sweden because of a strong demand from the energy sector. In Poland, we have the streamlining project. We talked about this in earlier reports, going really well and also contributing to the margin in other markets that Lars talked about. We see still a slow market in Germany. Of course, sad for the volumes, but still we feel that this is bringing new opportunities. We really like to increase our presence in Germany. Then if you look ahead. Clear signs that the downturn that started early 24 is now reversing. That was also our initial expectation. In the beginning of 24, it was said that it could be a destocking exercise and demand would pick up already second half of 24. We didn't believe in this. This was a normal downturn of the demand that will last for a couple of years. But it's well in line with our plan. And then, of course, we work with Hansa 2028. It's on the final phase. We were in this quarter talking to a number of customers. We have a very close dialogue. We would like to, of course, develop Hansa according to the demand and the strategy of our customers. We will call for a capital market day at the end of this year where we will tell you about this next important step of Hansa. And with that, we can now open up for any questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad. To enter the queue, if you wish to withdraw your question, please dial pound key 6 on your telephone keypad. Next question comes from Anders Akerblom from Nordia. Please go ahead.

Good morning, Lars and Erik. Thank you for the presentation and taking my questions. So firstly, I would like to ask a bit on profitability in the other markets division. I mean, obviously, you reported a very healthy margin uplift. Could you just walk us through this in a bit more detail, particularly as you didn't see any positive organic sales growth in the quarter in the division?

Would you start, Lars, or should I?

Hello, Anders. It is, as I said, we have been working since the downturn a year ago, a little bit more than a year ago, with this Onyx program, restructuring, adjusting the cost base to the volume, the sales volume. So it's not driven by... growth of sales it's it's driven by higher efficiency and and lower cost and the switch in in the customer base etc so that's the main driver of the increased profitability in in other markets but and i i i get that and appreciate the answer but i mean just looking sequentially it's a

like some 240 basis points uplift. So it seems like, I mean, have these effects come through just now in the quarter? Is there a positive impact from Leaden here, given the lower margin profile in other markets? Or just how should we think going forward? I mean, is this a, do you think that it's reasonable to extrapolate this margin to some extent, or will we see a partial reversal? Just anything on that would be really appreciated.

I can also add, before you say something more Lars, that we have also stated that the profitability is not a question of where the cluster is located, like Lars said, but rather how mature it is, how well organized it is. We have a special concept where we really have to create the cluster. It takes some time, but it's really efficient when it's in place. And in Poland, it was all about this acquisition of OrbitOne that initiated the right size. We could do the things we like to do. We could have specialized factories and all that. So we were running about 6.5% something before the recession. And now we are up to 7.5%. It's nothing dramatic. It should be above 8% like main markets. Lars, would you like also to comment more on this?

I can comment on... You asked about if Leden is contributing. And yes, as we have said in this call, the main challenge in Leden is in Finland. So Leden has the most negative impact on the group in main markets and not in other markets. And as Eric said, Poland is the main difference, orbit one, coming in other markets at lower margin, increasing the margin. And then more or less all the clusters in other markets are increasing profitability, but not dramatically. It's in line with our expectations.

Okay, that makes sense and kind of negates my next question, which was going to be why margins were down so much in main markets, sequentially on the healthy organic growth. So mainly as Lea than Finland is the most sort of challenged short term in terms of elevated costs, if I understand you correctly.

Yeah, and it's really not that dramatic either. You have a big factory move into a large factory and you start up and before you get full efficiency and are able to get the profitability on the level where it should be, combined with high demand of sales, it's not unusual that that takes additional cost in order to keep the customer happy.

Makes sense. And asking on recent acquisitions, I mean, given an import that, I mean, obviously you're buying these companies on rolling earnings, How do you sort of ensure that even in a more challenging market when profitability is a bit more constrained that this is value creative and I mean particularly then with regards to integrating these companies in an efficient and good manner and raising profitability. Could you talk anything about your expectations for Not in the least, Lea, in terms of when the profitability uplifts could be expected to be realized.

I can maybe start there, Lars. I think that in general, if you look at, for instance, Orbit, we acquired a year ago, this is a sunshine story, a company that has a maximum count to 6% margin, goes down quickly when the volumes go down, has not gone up again, and now it has the same margin as Hamza. So what I think is when we buy a company that Of course, we choose them carefully. We are looking for competence, how to expand our offer to the customer. So the input is silver, but the output is gold. And then we then talk about... I guess I may be mean. I understand that. But if you then look at Leaden, so there are different challenges in different ways. So Orbit was lower volumes. In Leaden, we have the opposite story that we have increasing volumes. So in any way, our concept helps. It restructures. And you see, you were pointing out that we had a decrease organically in other markets. Still, we're increasing the margin. So, of course, sale growth helps to increase the margin, but we can also increase the margin when the volume is down. So I expect to answer your question about Leiden that we should have a quick rise of the profitability when the capacity exercise combining leden with the rest of the group is done now we were just in the integration phase so we had to quickly start with the capacity expansion program also but we are quite used to that so that will be within this year and that's why we can also restate our financial goals for this year

Not restate, reiterate your financial targets for the year, right?

Just so I understand. Reiterate is a better word, yeah.

Yeah.

Yeah. But you see, the old answer is then increasing margin by half a percent unit per quarter, and then you have a little on top of that. It's not complicated mathematics.

No. And just one final question, if I may, on the recent acquisition of Melectria. I just noted that kind of looking at revenue per employee, it was about one million, quite a bit below the average in your most recent acquisitions, which is around, say, one and a half million. Could you specify a bit what drives this? I mean, if it's only kind of more manual processes and if you expect, you know, room for efficiency improvements in this operation and possibly then also kind of the costs associated with potentially pursuing efficiency measures, if there are any to begin with.

So we will not go into any details regarding this acquisition, but yes, it's more labor intensive. And you cannot really calculate number of people. You have some customers where we have fully-automized production with almost no people involved. And then we have a lot of manual labor, depending on volume, depending on target area and so forth. But again, we will give you much more details when we have closed.

Is there automation opportunities?

Yeah, I think that in the military sector, we don't run into high volumes so often, which makes it more specific every case. But we do have a plan how to increase capacity, which we will come back to in September.

Okay, sounds good. Thank you very much for taking my questions.

Thank you.

Next question comes from Forbes Goldman from Pareto Securities. Please go ahead.

Yes, morning, Lars, Erik. Right, first question here is on demand. And you mentioned that some of your customers are seeing higher demand towards the end of the year. Could you perhaps specify if this is broad-based or specific sectors?

I think that is the news because we have always had sectors growing, even though in this lower economy. So we saw energy and and defense security growing. But now we see more in general. So and I think if you've been looking we cannot give details on our customers but if you've been looking at the reports you see some upturns in the mining sector you see some upturns in in automation companies so there is some areas which are moving now different areas which is really really good got it um and the second one on cash flow

has been quite solid year to date. You previously mentioned that maintenance CapEx will, well, CapEx needs will not be that high this year, considering you recently acquired Lidum, and also now with the latest acquisition of Meletria. I'm wondering how we should think about CapEx needs going forward into next year? From my point of view, it looks like it should be fairly low levels next year as well.

I can answer on that one. It's not only the fact that Leden had a high standard and new machines and no major needs of investments. It's also that we, in the old Hansa, so to say, invested quite a lot previous years. And we've been saying that the CapEx level will go down. And what you see in both Q1 and Q2 now is that the investment level, if you exclude acquisitions and also if you exclude factories is a lot lower, and we expect that to continue. We will, of course, not stop investing. There will be investments in replacing machines, et cetera. And if we see that the volumes are increasing again, then you will see an increase of investment in the future, of course. is with the 300 million SEC compared to the little bit, six and a half billion or so in Hansa, it's not a major part. So you will not see in a major impact on that acquisition for investments. And also that business is not that heavy in investment needs either.

Great. And finally, perhaps just on operating cash flow now, we should think about this going forward. Do you have a specific cash conversion target that you're aiming for?

No, we have not set that. What we have is the net debt compared to the EBITDA. That shall be... under two and a half times. And as you see, we are on 2.1. It will increase a little bit when we do the acquisition of Milletria. So that's the only financial goal we have related to the nut debt.

All right. Thank you.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. Next question comes from Jakob Soderblom from Carnegie Investment Bank. Please go ahead.

Yes, good morning, Eric and Lars. Can you hear me?

Yes, good morning.

Oh, perfect. Two short questions that are following up on my end here. I was wondering if you could talk a bit about sales activities during the quarter. And if you compare it, I'm guessing then, have you seen some green sprouts across your different sectors and so on? But how can you talk about anything? You haven't released any real new MIG. There has been a lot of other focus during the first half of the year. But just if you could talk something about if you have any view around how demand and changed across the quarter starting from April kind of a bit of a hesitation I'm guessing with everything going on with trade policies and so on but what are you seeing now you have entered the summer months and it can give some color on this so

I think this was mentioned, it was mentioned in the report that first of all, if we look at the Lynx program, this has been really successful. And we are saying that already this autumn, we will be able to launch new deals. So that has been a really successful program. It's something that really fits the market, our concepts. In general, sales is good. a number of new discussions. And that's also the challenging part that we cannot reveal so much until the deal is done and maybe also old suppliers are excluded. But I can promise you, you will hear some news about the new sales during the autumn.

Excellent. Yes, the final one, I'm guessing a question on inventory development have been by natural reasons coming down quite a bit if you look at multiple of the sales. Do you have any type of target view around this? Do you expect to come back like pre-COVID levels? I mean, it's a bit of a different supply chain situation now than it was a couple of years back. But what can we expect from it? So it's a drop down below 20% compared to sales, or how do you view this going forward from here?

As you said, Jakob, we are quarter by quarter or so decreasing the stock levels compared to sales. And what we are focusing on is actually the total working capital because it also has an impact on type of products and product mix and customer mix. But we have not set externally any sort of target figures on the working capital level compared to sales. We have said previously that we aimed to come back to pre-COVID levels, but we have not set any sort of target on that one.

On that then, if you let me on. Yeah.

yes to add on that no sorry continue okay thank you so uh to add on that um one of the challenges is if you're a product owning company that you have all these different suppliers and the material is flowing back and forth and and it's all about throughput time at the time before between you bought the component and you have the ready product and there we have a beauty of the scale so the larger and more integrated our clusters become the throughput time also becomes shorter So here we also have advantage both for ourselves and for our customers, which brings down the inventory.

Yeah, that makes sense. I think that was all for me. I just want to wish you a happy summer now.

Yeah, you too. Thank you for calling.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, then I'd like to thank you again for your time and your attention today, and hope that you will keep following us. There's much more to come. Thank you, and bye for now.