Welcome to the HANZA audiocast with teleconference Q1 2022. Throughout the call, all participants will be on a listen-only mode, and afterwards there will be a question and answer session. Today, I am pleased to present President and CEO Erik Stenfors and CFO Lars Åkerblom. Speakers, please go ahead with your meeting.
Thank you. Good morning. I wish you a warm welcome to this Q1 earnings call. I'm EriK Stenfors, the CEO of HANZA, and I work together with my colleague, Lars Åkerblom, our CFO, present the Q1 2022. A quarter which was stressful, no doubt, but also quite successful as we will see. We turn to page number two and the agenda. We'll start with a short introduction to HANZA, then we will walk through the highlights of this extraordinary quarter. Next, Lars will give the financial development, then we have an outlook look at the future. It's an outlook that looks quite good. Then if you have any questions, please save them and use our Q&A session at the end. We turn to page number three. A short introduction.
We are a contract manufacturer, but with a special concept. If you look at a traditional contract manufacturer, they will provide one technology and one part to a product, whereas we brought together several manufacturing technologies. We have built small industrial parks. You see illustration to the right. In such a park, we call it manufacturing clusters. We can produce both parts and do parts assembly. This gives a number of advantages for our customers. If we study the bar graph down to the left, this shows the annual sales amounts since we started the company. Here also we are different. Traditional contract manufacturers are closely connected to the general economy.
That means that, for instance, last decade after the financial crisis and Euro crisis, sales went down, and now in this decade when there is a strong demand, sales goes up. We've been able to show steady growth during the 13 years we've been active. Margin, since we lower the cost for our customers, the product owning companies, we can also keep a decent margin. We have presented that our mature clusters, they have a margin well above 10%, which is quite good in our industry. If you look at the customers, to the right, you see some examples. We are proud to have some well-known companies in our customer portfolio. But we don't aim at a specific sector. Rather, we have customers from different industries. I think this is HANZA in essence.
We have a solid concept, and that gives us this strong customer portfolio, which in turn then gives the steady growth. Let's turn to the quarter after this short introduction on page number four. Of course, the main event this quarter was the horrendous attack on Ukraine, and we are all devastated by the humanitarian catastrophe that has followed. We are supporting refugees in the areas where we have operations, and we have also made donations. From a business perspective, there's not been such a big impact. We neither have operations nor any customers in Russia or Ukraine. There are, of course, indirect consequences. We see that the material situation will be worse due to this invasion, and also there are new disruptions on the supply chain. This also gives us new opportunities.
We have helped some customers who ended up with a broken supply chain, but we're glad to help, of course, but above all, we would like this war to end. No major impact on our business. We turn to page five. Look at the market in the Q1 and the sales development. We have continued to bring in new customers. We have a customer from Norway named Auk, and they made a fully automatic plant grower, so you can in your house grow plants or vegetables or herbs. Quite interesting product. We also got a new product from our existing customer, Swisslog. We are producing 86,000 storage boxes for an automated warehouse. You see some other examples on this slide. Continued good new sales.
If we look at the existing customers and products, we see an increase of demand in all areas, and especially glad we are to see that we are back on track in Germany. If you've been following us, you know we had a downturn during the lockdown, and now we have an all-time high order book. We're also glad that we have a balanced customer portfolio. We have a principle that no customer should come up to 10% of our sales, and if you add the ten largest customers, they must be well below 50%. This is really important because it's very easy to go from profit to loss if you have a few dominating customers. Let me turn to page six. Stressful quarter, we are finalizing our expansion program in the midst of the pandemic.
By the end of 2020, we decided to make an expansion program to be ready post pandemic. We realized that there would be a new demand for our services and manufacturing after the pandemic. We started in our segment Main Markets. We call this program Roadmap 2021. We did a lot of work last year, invested over SEK 100 million in machinery. Now this year, we are into the Other Markets. We have a huge expansion program that we are finalizing. In Estonia, we opened a new factory in March, state-of-the-art building, 12,000 square meters for complex assembly next to our sheet metal factory. Really good. We also bought in Poland land and building that is adjacent to our existing factory.
In Czech Republic, we are expanding our building, and we also have new premises in China. A lot of activities going on internally. At the same time, externally, we have had some challenges. Of course, the material situation, I think we've been quite good in this. Overall, we have even helped some colleagues. We have a large electronics company and contract manufacturer in Germany that we helped with some material. Having said that, of course, the material puts a lid on our expansion. COVID continues to play trick. We were down 20%-30% in some of our factories due to stock shortages in capacity, due to stock shortages connected to COVID-19. In the light of this, we are really pleased that we were able to do all-time high deliveries this quarter.
That was really, really good. We kept the high quality, which is the trademark of HANZA. Also a good note, we finalized the integration of the two acquisitions we did last year. It was a smooth process, and it should be. We spend a lot of time, and this is your actual recommendation. If you buy a company, you normally do legal due diligence, you do financial due diligence, but we also do an extensive HR due diligence. This really helps because if you do that, if you see that the company cultures are similar, then you will have a smooth ride and an easy integration. Then there was a study from the Royal Institute of Technology.
They were describing how local manufacturing is helping the environment, lowering the CO2 emissions, and they used HANZA in our cluster strategy as an example. It's available on our homepage. Really good study. Our business model helps the environment and to reduce number of transports. Of course, in addition to that, we also work with the traditional activities, lowering emission, lowering consumption. For instance, the new building in Estonia, we have solar panels that gives us 25% of the energy. Now we are really looking forward to hear about the financial development, and therefore, we turn to page number 7, and I leave the floor over to Lars Åkerblom.
Thank you, Erik. I will present very solid and good development of HANZA in quarter one. As Erik has mentioned, we have strong sales and good order intake, a high order backlog. The material shortage and the absence due to COVID has limited sales, so the sales could have been even higher without those two components. We also see that what we call the Roadmap 2021 with the investment, as Erik said, of SEK 100 million in machinery, but also in factories has an impact on the Other markets. I will come back to that. I will also present solid and good balance sheets that are improving according to net debt, et cetera.
We start with the sales, and they are up 45% year-over-year. If we adjust for acquisitions and currency, it's a growth of 26%. That is due to good new sales both from new customers and also from existing customers. We also have a part where the material prices have increased. That of course helps the sales a little bit as well. We are now on a rolling twelve months of SEK 2.8 billion. If you take quarter one, we are well above SEK 3 billion in net sales. The earnings are up.
We reached a little bit over SEK 40 million in EBITA, and that is 5% margin. Rolling twelve months, we can see that we have continued to increase the profitability. A year ago, we were below SEK 30 million in rolling twelve months, and now we are at SEK 162 million corresponding to 5.8%, very close to the financial target of 6% that we have within HANZA. Move to page 8 and look into the different segments. What we can see, and Erik already mentioned that, is that the segment Main Markets where we are more mature and earlier in finalizing Roadmap 2021, we have a very good both growth and profitability.
We have adjusted for currency, 27% increase of sales with a 7.8% margin. Looking at Other markets, in this quarter, we have done a lot of things connected with the Roadmap 2021. The biggest part of that is, of course, the move and opening of a new factory and move of production from one factory facility in Tartu to another. We have also in the Other markets a solid growth of 24% adjusted for currency, but a lower margin and of 1.3. We said in last quarter after the full year report that this is temporary.
and our confidence is that when we are now finalizing Roadmap 2021, we will see an increase of the margin in other markets, and coming closer to what we have in the main market. By that, we move to page eight, looking into the cash flow and the balance sheet. We have a positive cash flow from operation in this quarter. It is not as strong as we want it to be, but it's heavily dependent on both the growth and also the fact that we need to have and continue to have quite big stock safety stock in order to be able to deliver.
As Erik also mentioned, we have been able to deliver with high delivery accuracy in quarter one, which is also, of course, a big reason for the good result. We can see that the working capital needed to be increased by SEK 38 million compared to quarter one 2021, where we had a positive cash flow from working capital of similar amount. The net debt has increased since end of 2021. If you compare it to the EBITDA and also compare it to the sales, it's actually decreased. We are now running at 2.7 times EBITDA and net debt, and in the end of 2021, we were on 2.9. Logically, when you have increased the result, EPS is also growing.
We have an EPS in Q1 of 0.54 SEK per share, and the rolling 12-month EPS is 2.53 SEK. Next year we have the AGM, and the board has proposed a dividend of half a krona per share to be decided on the AGM. By that, Erik, I hand back to you and the outlook.
Thank you, Lars. Let me move to page number 10 and a look at the future. As reported, we see a strong order intake from all our customer markets. Therefore, we forecast a continued strong growth and strong sales. Earnings already now in Q2, the new factory in Estonia is up and running. In Q3, we will have the new expansion areas in Poland, Czech Republic, and China up and running. That's also why Lars indicated that we will see an upturn in the margin of the Other markets. In addition, as you recall, we bought a company by the end of last year in order to get some new competence and capacity. It was a company, Beyers, running on a zero margin.
We are working this year to load it, meaning that we expect it to turn into profit by the end of the year that will support on the Main Markets. Long term, we have built our site in phases. We have now to launch phase number four. It was supposed to be launched this year. Due to the pandemic, it's delayed one year, and we're also revising it a bit because of the war. But what we can see, and that's really clear, the trend towards regional complete manufacturing is increasing. In conclusion, we will continue to see profitable growth and the outlook is positive both if you look at the short term or the long term perspective. By that, we turn to page 11 and open up for any questions.
Thank you, sir. Ladies and gentlemen, if you wish to ask a question, you may press zero one on your telephone keypad. Zero one on your telephone keypad. First question is from Mr. Adrian Gilani from ABG. Please go ahead.
Just a few questions on my end. I'd like to start off in other markets regarding the expansion program. Just asking when you write in the report that earnings are expected to normalize in other markets during the year, just to clarify, does that mean we're going back normalized to 2021 levels or is it perhaps reaching the group target of 6% margin?
I don't know, Lars, if you'd like to comment first on that?
Yes, I can comment on that. I will not give you any specific figures, but what we said during 2021 was also that Other markets had an impact due to the fact that they are not as mature as the Main markets, but also that we had the expansion program were also in 2021. When we say that we will increase the margins, we really don't see any reason for Other markets to differ from the Main market. That is not the promise that the Other markets will reach the double digit profitability. In the long term, we see really no reason for Other markets to differ from the Main market.
Okay. Once the new premises.
Odell, I think you got the lead that it will be probably better.
Once the premises are open in other markets and they're up and running, will it also require some time to sort of ramp up capacity utilization? Or is the order book now strong enough that you can sort of open them with a fairly high utilization rate immediately?
The second alternative apply, we are ahead with sales now. It's booming, so we need the capacity will be utilized immediately.
Okay. Also is it possible to quantify the added cost from the expansion program in other markets and sort of roughly where the margin would be if we excluded for these costs?
I would say no. What would you say, Lars?
No, we haven't disclosed that, and it's actually not easy to measure as well. No, we cannot answer that one.
Okay.
We had an old building, an existing building in Poland, in Estonia, for instance, that we emptied and then moved to this new building. There are a number of things which has improved here. We see that it's close to the sheet metal, mechanically. There are a number of things which improve the margin. On the other hand, we have some extra cost. We don't quantify it in OTC, but it's a combination of removing extra costs from this quarter and having a higher efficiency moving on.
Okay. Just a final question from my side on the cash flow. Obviously, you had some buildup in working capital here, you say that this is to an extent a strategic choice to hold more inventory, which we understand. Should we assume a reversal effect sometime later in the year, or are you planning on sort of holding these types of inventory levels for the entire year here?
I can go first. I can say that.
Yeah.
Sorry, Lars. I was thinking that we had a forecast at the beginning of the year, but then there came this horrible inflation, and that put some new strains on other materials. I think that it's really difficult to say right now. When you look at the electronics component side, they are talking about that it will be lasting for 2 years, this special situation. We have some specific materials. I would expect, but my guess is as good as anyone's. I would expect it to remain at least 1 year more.
Okay. I think that was all my questions. Thanks for answering them.
Thank you, Adrian Gilani.
Okay. Thank you, sir. Next question is from Mr. Fredrik Nilsson from Redeye.
Hi. I want to ask regarding the strong organic growth in the quarter. Was it mainly due to strong market conditions, or do you also see positive effects from increased back sourcing following the pandemic already?
I would say it's a combination of all. Good morning, Fredrik. Good to have you on this call. We see that existing customers are increasing the volume. We see that we have a good new sales. On top of that, there is this trend of relocating manufacturing, which adds to the new sales. I would say that it has to be a combination when we deal with this quickly also.
Regarding Other markets, should we expect you to turn focus to profitability in next year? However, considering the strong demand, I mean, I could also assume that you are going to expand further in capacity. Could you elaborate a bit on that? How much capacity do you have right now compared to what's reasonable to assume for next year? I mean, it's a tough question, of course, but if you can give us some discussion about that.
Yeah, we try to, of course, we do this what we call phases. We try to plan for three to four years in a row. This phase was very strange because of first the pandemic and then the war. We built this company on the assumption of logic that it's logical to have your manufacturing complete and close to the market. It's lower cost and it's higher flexibility and it's less impact on the environment. But then you have also now the political dimension where we see that, for instance, China is a bit affected by Russia, and people from strategic reason or political reason would like to transfer manufacturing. To answer your question, it's.
What we have done now with this, production number one was to make sure that we would have capacity for the remainder of this phase number three, which should be at least one more year then. Having said that, we do see that the influx is so big now, it could be that we need some new capacity activities already this year. Then again, it's a question whether the war will end tomorrow or if it will stay for two years. It's hard to give an answer. You asked about the profitability, it will be a focus on that.
I think that what we have stated also very clearly is that we would like to have a solid margin stating that we will keep 6% in upturns and downturns, which we can do in our concept. It's harder for traditional contract manufacturers. When we have reached that point, then we're also ready for the next phase and for new financial goals.
You mentioned that you need additional capacity in Germany in the report. What kind of customers are driving the demand? Should we expect possibly a slight negative impact on margins during the investment phase?
Germany is a huge market. It's the largest economy in Europe. I cannot give you specifics, but it's like we wrote, we have an all-time high in the order intake and what is the limiting factor right now is the components. We are also solving that, and then the next thing is the capacity. Yes, we bought the company Beyers in order to get more capacity. Fantastic company that had a challenge and has some free capacity. This, we expect to load this company this year, and they will turn profitable.
My interpretation of what you wrote in the report was that you might need even more capacities in Germany. Is that right, or was you talking about the capacity in Beyers?
Not for our original plan for phase three, then again, things can change. Sorry to give you this, politician answer, but the reality is turning quickly now and it's turning in our favor, we need to see what kind of measures we need to do now in order to stay on top. We do have capacity for a substantial growth. You see now from this quarter that even though we were standing on one leg, we were able to have sales well above SEK 800 million. It means that there is still some free capacity.
Okay. That was all from me. Thank you very much.
Thank you, sir. Next question is from Mr. Niklas Elmhammer from Carlsquare. Please go ahead. Oh, he just disconnected. Ladies and gentlemen, if you wish to ask a question, it's zero one on your telephone keypad. We have no other questions.
Okay, then. I thank you so much for joining this telecast, and I hope there'll be a possibility to see you next week when we have the AGM. Thank you so much, and bye for now.
Ladies and gentlemen, this concludes the conference call. Thank you for your participation. You may now disconnect.