Hanza AB (publ)

Welcome to Hansa Q3 Report 2025 presentation. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Eric Stenfers and CFO Lars Akerblom. Please go ahead.

Good morning. A warm welcome to Hansa's third quarter presentation. This is a quarter in which we enter the final... I'm Erik Steafors, the CEO of the company. I will do this presentation with our CFO Lars Åkerbrom. We are in different places today. I'm in Germany, Lars is in Sweden, but I trust we will be able to calibrate our efforts. Follow our usual path. progress, sustainability, financial delivery, and what comes next. And as you know, we truly value your questions, so please use the Q&A session at the end. Let's then start with the progress across our manufacturing clusters. In Sweden, We opened a factory in the beginning of the year in February in Töksfors. And now we are expanding another factory in Årjäng, so that's 20 kilometers from Töksfors. 1000 square meter that will be re-aggregate in the beginning of next year. In Finland and Estonia we are working with the leading units. They are now integrated. We do see that sales is increasing, which is very positive, but it has also put some constraints on our capacity, as we have reported earlier. Still believe that this will be handled by the end of the year. And it was great to see the attention we got at the subcontracting fair in Tampere in September. You see the picture to the right. On a group level, we are working with the Lynx program. So this is our program for the defense industry. We announced an order to manufacture drones the other week. So initial value about 40 million SEK and the target value is 300 million SEK. We also coordinate our activities with the Estonian government down to the right. I had the privilege to meet him a couple of times. They are building a defense park close to Pärnu where we have our factories. But the most important milestones, of course, that we closed the deal with Melektria on October 1st and with BMK on October 15th, two weeks later. I will go through this in the coming slides. But in summary, we see a strong finish then to Hansa 2025. So that's the strategy we announced almost exactly three years ago. I think it was in November 8, 2022, and the idea was to create five well-balanced manufacturing clusters in Europe. Let's now move on then and put this Melektria deal into context. I think we all walk... I woke up in the beginning of this year and realized it was not a good idea for Europe to outsource the defense to the US and the manufacturing to Asia. We need local defense and we need local manufacturing and as a response to this we started this LYNX program in March this year with the aim then to allocate some capacity for the defense industry. This fits Hansa well as our offer is a combination of mechanics, electronics, cable harnesses, complex assembly So it's a good match with the need for the defense industry. And that's why we, a few months later, signed the deal to acquire Melectica. It's a company's contract manufacturing for electrical systems for the defense industry. They have sites in Finland, two in Estonia. We see one on the picture here and one in Abu Dhabi. And this then gives us this platform which we need to increase with the defense industry. It's important that we keep the capacity, of course, for other customers. So that's why we have been in this platform. And maybe curiosity, we see to the right, we were having an opening ceremony when we finalized the deal. We had Mr. Pasecki, a well-known military expert in Sweden. for that opening ceremony in Finland. And his great grandfather was actually the president of Finland. So we were having this close to the Pasikivi breach. But to summarize, we launched LendLynx in March and we equipped it with this manufacturing platform, Melekkia, and all within seven months. I think this is a very rapid execution in this market where demand clearly exceeds capacity. Now let's turn to the landmark acquisition we announced a few weeks ago, which is the of the Hausa 2025 puzzle, as we will show later in this presentation. I would rank this as Europe's most powerful provider of electronic manufacturing services. They have a leading flexibility. They have a leading quality. If you like contract manufacturing, you will love VMK. So just to give you one feature, if you have a contract manufacturer of EMS in this range, around 3.5 billion SEC in the United States, typically you would have, let's say, 10 factories. Here we have one master plan. It's outside Munich, then 70,000 square meters, 1,200 people. And therefore, this is both a large... but also a rather simple deal, as it mainly involves one main factory. But let's have a closer look at this. Founded in 1994, they had their 30th anniversary last year. It's in the main site, 80 kilometers northwest of Munich in Augsburg. Sales about 300 million euro, a margin of 7.3. 1,500 people were then traded in Augsburg. It's also a very nice factory in the Czech Republic. In Israel, it's partly owned and a sourcing office in China that by chance is just one hour drive from our operations in China. So they are in Shenzhou, we are in Suzhou. A good fit for our strategy. It completes then the 25 strategy I will show on the next slide. It's a fantastic company with this leading quality, not to be too technical, but if you have an EMS company, you measure a number of defect units per million units produced. And if you have a good company, you run down to maybe 200 or 100 PPMs. This company is around 5 PPM. Also very good flexibility. You can run half a million euro, 20 million euro volumes in this same factory without a challenge. Also very good customer base and almost no overlap from Hamza. This is good. Speaking about clusters around Augsburg, there is this defense clusters you might know, defense companies of Germany. So we see that there are new links opportunities within range and we will work with this also in Germany. Most importantly, the culture. I've known these people who owns the company for many years now. I know that the culture was good. But having said that, of course, we send in our HR manager to check and do HR due diligence before we do any deal. She was... really happy about the people we see. Some of them keep good people down. So therefore we went ahead and signed this deal and it's supposed to be then closed by the end of the year after the standard approvals from the authorities. And this means that we come to an end to the Hansa 2025 strategy. If we visualize how we will look after closing, you see it on this map. And it's great. You see the balance in Sweden, 700 people. Finland, 700. Baltics, 1,200. Central Europe, 700. And Germany, 1,400. Perfect balance. We are exactly where we would like to be right now. And we also have three gateways. So there are single units, not clusters. One in China, one in Abu Dhabi, and this partly owned unit in Israel, by the way, also a really nice factory. So that's where we are right now. With that, I will leave the floor to you, Lars, and talk about sustainability.

Thank you, Erik, and I will start with informing a little bit about our sustainability work. I will come into the financial figures and also come back to the acquisition of EMK and the impact that we'll have and how it will be closed. Starting with the sustainability, we are preparing for the sustainability report for 2025, which will be according to CSRD. So we are working with the double materiality assessment, we are working with the greenhouse gas reporting to be able to provide a sustainability report in the beginning of next year. You can see to the right the energy use is slightly up compared to previous years and that is due to the acquisition of leden with more heavy sheet metal mechanic work that requires more energy. We're also glad to see that we have a slight decrease in the lost time injury frequency rate on a stable level. And we also As always, once a year do an employee survey and see that we are improving parts and the parts that we are not improving. We have a plan on how to work with to be able to develop that the coming years. Looking into the financials, it's a stable quarter. It is in line with the previous quarters with the positive development of the profitability. We have an organic growth of 2%. We have a growth of 27%, of course, due to the acquisition of Liadom. Q3 is the weakest quarter due to the vacation period. So both from a sales and profitability perspective, it is normally a quarter. We see to the right the development during the the Hansa 2025 phase of the development of Hansa. So you can see the increase of sales during that period. and we have increased approximately 2.2 billion sec on a yearly basis in in sales and or three million sec three billion second in increased and 2.2 is from acquisition and approximately 1 billion comes from organic growth um we are running the old Hansa, so to say, the comparable units on 8%. And remember, that is also our financial goal for Hansa 2025. We have a development that is positive. We are on 8% and in Q2 we were on 7.8% and a year ago we were 6.7%. So we are continuing the positive development on the underlying profitability in Hansa. We have informed you earlier that we have delivery challenges due to rapid growth in Leaden. So the leden part of Hansa is decreasing the profitability within the Hansa group and that also leads to that we in this quarter released the earn out of 5 million euros, 53 million SEK over the P&L with the positive one-time cost But we expect improvement in Liadom when we are back and have capacity early in 2026. And the profitability development is due to higher gross margin. We see an increase of approximately 4% in gross margin in Q3 this year compared to Q3 a year ago. We have more or less unchanged financial debt. We have a tax rate only on 8.5% due to that the release of the earn out is not taxable. And that leads to that we have an earnings per share of 1.69 SEC for Q3 and 3.73 for the full nine month period. Cashflow. And again, Q3 is normally weak from a cash flow perspective and the fact that we are seeing an increase of volumes in Q4 leads to that we need to increase the working capital in Q3 to be ready to be able to deliver in Q4. We have several times said that we did quite a few investments in 2024 and 2023. And now we see a decrease of the investments. You can see to the table to the right that we are decreasing the investment, the capex in 2025. We decreased the net debt with 69 million SEK down to 1.67 billion. And what is really positive is that we have a net debt towards EBITDA of 1.8. And you can see on the table to the right that we increased it in Q1 2025 when we did acquisition of Ledon. And then we, over time, decreased the net debt towards EBITDA and that's the way we work with acquiring companies and be able to release working capital and with the positive cash flow have a stronger balance sheet and equity to ratio is 36% increased 2% since the end of Q2. Looking into the segments, what we see as a general comment is that the other markets are, over time, quarter by quarter, coming closer to the profitability of the main markets. For comparable units, we have in main markets reached 8.4%. The part in Finland, in Åland, which has the capacity issues, is decreasing the profitability within main markets. Also, Germany, the low market in Germany is also affecting both sales and the profitability in main markets. Other markets, as I said, is increasing profitability and reach for comparable units. 7.6%, which is quite a lot higher compared to where other markets were a couple of years ago. Coming back to the BMK acquisition, and we had a separate call for the acquisition, but I anyhow come back to how the deal is structured. It is a share exchange based on relative valuation. And the owners of BMK, they will get 9% each. They are three persons, so that leads to 27% of the combined company. They will get the share changed. We have called for an extraordinary general meeting on November 21st, when we expect to get the approval to do this deal. and shareholders of 28% have expressed that they will support the transaction. Part of the deal is that BMK will not have an interest-bearing debt exceeding 50 million euros. And we also have started and expect to get the regulatory approvals before year end and be able to close the deal around new year. The financial impact, you can see to the graph to the right that it will of course have a major impact on the size of Hansa. We expect to go into 2026 with the size above 10 billion SEK. BMK is today running at 7.3% in EBIT A. We expect that to increase in 2026. And we expect this acquisition to increase the earnings per share And the net debt towards the EBITDA, we expect to be on the same level as today since BMK is having a net debt which is in line with the net debt towards EBITDA that Hansa has that I previously said was 1.8. And also since it is a share swap, the equity to asset ratio will continue to be on the same level of even higher, so well above the financial target of 30%. We expect the new group to continue to have and generate strong cash flow. And we also, in discussions with the banks, are expecting to be able to lower the interest rate margin post closing. And by that, I leave back to you, Erik, for a conclusion of this quarter.

Thank you, Lars. So let's end this presentation with some conclusions and look towards the future. As I said, we are entering the final phase of 2025 and we have created a really balanced manufacturing platform, as you saw on the slide previously. If you look at the So three years ago, we were running a 3.2 billion SEC company in November 22. And then if you look at the graph, you saw that we put our first goal on becoming a 5 billion SEC company. And then in the beginning of 2024, we, like many others in our industry, increased the target due to a strong 23. So we said the 6.5 billion SEC. And now we see we're entering 26 as a 10 billion SEC. SEC companies, so also being the largest listed contract manufacturer in Europe. That's fantastic. We've also shown during this period that we can create healthy margins also with the acquisitions we make. So the companies we buy becomes stronger inside ANSA than outside. And as Lars mentioned also, we are ending this three years period with very strong financial positions due to then the strong cash flows along the way. And if we look then to the future, the near future, Lars also said that we have a strong order intake, so the organic growth will increase as of Q4. And then we are into the next phase. We have now a very solid foundation. the next step we said that we're going to have a capital market day as soon as we have got the authority approval closing of the bmk deal and then we really look forward to present our new plan to you including our new targets for 28. and by that i think we are ready to take your questions

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

Yes, good morning. Thank you for taking my questions. Firstly, I wanted to ask Eric and Lars on Lea Dan, I mean it continues to weigh somewhat on profitability. Could you elaborate and discuss a bit more on your expectations for when this should be resolved apart from just beginning of 2026 and particularly what main points you need to address in order to improve profitability here?

I can start and of course customers first so we need to make sure that we do deliveries on time where we use a lot of different capacity with overtime and splitting manufacturing over several units etc not the best setup but the main thing is that we're increasing the capacity of the main building in O-line and is going really well so we should be able to fulfill all the customers need by the end of this year as stated and that's of course gives a large upturn in profitability meanwhile then we get some kind of conversation from this additional purchase summers as Lars stated would you like to add something on that Lars?

No I think it's quite clear and that was also the reason or why we also have we knew when we did the acquisition of Leaden that they were just moving into a new factory and there was some uncertainty on how long that would take in order to get back into good margin.

Okay yeah thank you that makes sense and following up on then just your comments there on order bookings developing positively in the quarter. I mean, organic growth was slightly lower than what it was in Q2, but positively, you shared there, order bookings are improving. Could you quantify this a bit for us, sort of, and what the reasonable expectation towards the year end should be here?

I can talk in general and let's see if Lars can give you any figures. I guess not. But so we are not out of the recession. We see some industry that is moving strongly now, like, of course, defense and energy, but also mining, forestry and industry. And this is giving us an upturn in the order intake. And in addition to this, we have been securing the future by taking new customers and new orders and they are also kicking in at the same time so that's why we are really positive about the future. Any numbers Lars?

No of course I cannot tell you the numbers what we can say is that we also during the quarter had a positive trend in Q3 with a strong organic growth in the end of the quarter compared to July.

Okay, that's good. Thank you. And just a final question, sort of more high level. I mean, based on your recent acquisitions, not just Melectra, but also on BMK and what you stated there about kind of defense having not been a prioritized end market for them previously. I mean, two, three years out, what do you think defense could realistically account for as a share of Hansa's total sales?

Again, you're asking about numbers that we cannot provide. But clearly this is the strongest up 21 industry we have seen. The demand is huge. The need is huge. What the missing link is capacity. There is a challenge that we don't have this capacity. As I said, we outsourced our manufacturing to Asia. Now we are in need of local complete manufacturing, which we are offering. But I will pass the question to Lars. Do you have any numbers for that?

You are passing all the questions to me that you know that I cannot answer. Anders, you said Melektria, I fully understand you. Melektria had quite a big part into defense already at the acquisition. What is important is that we are providing to all the other customers capacity, so the capacity needed for defense should not sort of move out to capacity from the existing customer that is also growing right now.

That makes sense. And I appreciate that it's hard to quantify all the questions. And just to be clear, when I said defense volumes having been a fairly low share, that was BMK, not Melektra, of course. Okay. Okay, good. Well, thank you very much for that. I'll get back in line. Thank you, Erik and Lars.

Thank you so much.

The next question comes from Oliver Usitillo from Akshi Sperana. Please go ahead.

Good morning, guys. Hope you can hear me well. First of all, regarding the growth outlook here. Of course, the defense being a driver of volume going into 2026. And as BMK has quite a low part of the revenue coming from defense, how should we view growth during 2026 for BMK? Can you guide us in Anyway, that will be very helpful.

I think that the BMK is a very good tool for the defense industry because they are not just world class electronics producer. They are also world class in complex assembly. So they do complete products. I think the knowledge we have from the defense companies in the Nordics. companies like solvent patria could be applied um together with the strong knowledge of the manufacturing competence in this defense cluster area and the need again is huge so of course we're already in contact with some companies cannot give you any numbers but we see that the fit is is really really good exactly Was that some guidance for you, Oliver?

Well, perhaps. The other question I had was regarding the low defect rate of 5 ppm. Can you explain how have they been able to be reaching these low levels? I mean, is it safe to assume that it's anyway linked to the fact that they had this one huge plant or how should we think about this?

Well, I think it's almost in the water of Bavaria. Here is the place where they have built the automotive industry and then you run large volumes every cent counts so you have to do it perfectly so it's really the the main challenge to to run this automotive industry and that's of course created a lot of special competence in this area now um bmk has not been focusing on automotive but of course they have a lot of the competence for the area and that's also a good match for the defense industry of course if you do military products, you must have extremely high quality. So that's also one thing which is really good when we now move into the defense industry in southern Germany.

Okay, fair enough. And being this efficient, do you think that there is any untapped margin potential here in the long run?

Yes.

Can you elaborate?

You want a longer answer? Well, I think that every company we bought, as I said previously, has been better inside Hamsa. We have a good combination of companies. We see that Lenin gave us mechanics, Melektra gave us defense capacity, BMK gives us world-class electronics. Together, we're not only as bigger, we are better. So that's why I can also yes on that. We do expect the margin to be better inside Hansa than before.

Yeah. Fair enough. Thank you so much, Erik and Lars.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, so thank you so much for being with us this morning, and we really look forward to meeting you when we launch Hansa 2028. Bye for now.