M&A Announcement

Mar 19, 2021

Press Release

This is Ekstember speaking, and thank you all for joining this presentation of the acquisition we announced this morning. We are quite eager to tell you more, so I think we turn directly to Page number 3. We have prepared the presentation in 7 slides. I will first repeat the strategy for this year. To put this deal in perspective, it's the roadmap 2021. Then we will go through the new company, SLP. And next, I hand over to Marc Orteblom, our CFO, to go through the transaction and the financial impact. We end the presentation with some conclusions, and then we move on to the Q and A session. So if you please turn to Page 4. As we stated in our full year report last month. 2020 was a quite tough year for some of our customers with lowered sales. The good news is that we expect the volumes to come back later this year. They are solid companies. But 2020 was also an interesting year because it also gave a full scale test of our operation where it our larger cluster turned out really well. We got some recognitions and awards because we were able to maintain high quality and good delivery accuracy during really changing volumes. And our main cluster in Sweden, which accounts for a third of our revenue. They had a quite dramatic drop of 12% in sales, but still We could post an operating margin well above 9%, which is outstanding. And we also saw that we had all time high in our cash flow last year over SEK 180,000,000. And in addition to this, this pandemic brought out in the open how fragile the global supply chains are. And this was actually fueling a trend we've seen a few years where the globalization is turning back to regionalization of manufacturing. So if you turn to Page 5. So in light of this, the way forward is Quite clear, we will further strengthen our clusters. This both and to be able to cope with changing volumes in all clusters, especially when the volumes comes back and sales is increasing, but also to accelerate the margin to bring up the good cluster margin to a group level. And we're doing this in 2 ways. We are investing in Estonia. We announced just before New Year's if that we will buy a new production plant, build a new production plant, 12,000 square meters. It will be ready in 1 year from now, and I really hope that the pandemic will be over and we will have a chance to meet in person and not only through this distance communication. Another way we strengthen our clusters is through acquisitions. Now there are a lot of companies of for sale. And we are quite careful when we look at these different single contract single technology contract manufacturers. They have to add customer value and they also have to fulfill our acquisition parameters. And that moves us to Page number 6, please, because we have here a perfect fit. This is the company SLP, Suwam and Leveclorfili. It's located in Eastern Finland in North Karelia. It's actually a mirror of Sweden. We have our operation in Western Sweden, close to Norwegian border and here we are in Eastern Finland, close to the Russian border. We do like to stay out of the big cities because, of course, the cost structures, the premises are Have a better price outside the big cities, but also people tend to be more loyal when you move out from big cities. This is a manufacturer of equipment and mechanics, and they are specialists in tanks, covers and hoods. Now if you do tanks, you have to be really skilled in welding because you cannot have any leakage. In your hoods and covers, you have to have 1st Klas painting. And this is actually then a competence which is not just added to Finland, but also to the whole Hafsa Group. So we have Customer value right there. They are running this in 7,000 square meters, really nice, well organized production plant in 2014, already tailor made then for lean production flow. And we are the owner of this building is the Johan Szu municipality. So we have a lease contract. The customers, they come from forestry, which is an interesting sector for us. We like to increase that. They come from mining. We already have a good been based. By this, we can then increase our complete offer and also as the machinery customers. The management deck is Haakol Lampula, on the picture to the right. Actually, we've been following this company for a couple of years. And what is really important is that they have the same culture as we have. We do believe in a careful HR due diligence. And it's really good that we're sharing the same core values. Why? Because we have decentralized organization. It's really important that different factories are responding to the same values. So let me turn to Page 7. And this is then the upgraded cluster in Finland. We have the operation in Iisalmi, where we are expert in machining. We have the unit in Heinevancy, a large one, 11,000 square meters, where we are We have different technologies. It's a multipurpose unit and also good for logistics. And then we have Johan Soh. And as you can see on the map, it's quite close. It's only 80 kilometers between Heinevelsie and Johan Soh. And this means that we can bring out our checklists and tick all boxes when it comes to these acquisitions parameters, so geography, technology, customer base, culture and also finances. And to show that, I will now leave over to Lars Poppeglum, and we move to Page 8, please. Thank you, Erik. Can you confirm that people can hear me? We hear you. Yes, very good. So we did this Acquisition today and the valuation of the price of the 1 100 percent share of S and P is approximately SEK 3,000,000. On top of that, we also Purchase took over a shareholder loan of approximately SEK 15,000,000. So the and the sales of the company is approximately SEK 150 SEK 1,000,000 with an EBITDA of SEK 14,000,000. There is a Loan in the company of approximately SEK 22,000,000 and There's also this share on the loan that we acquired. So if we take the share what we are paying for the company and divide it For the shares, it includes the shareholder loan that gives And EBITDA multiple of 3.4 and the price per Enterprise value in relation with EBITDA of approximately 5. We paid the purchase price is paid with both cash today and also that we paid in cash flow for the loan. And there is a smaller part in additional purchase price. And we also paid with 1,800,000 shares in Handelsa. And these shares are within the lockup agreement. They cannot be transfer that's sold until 1 year from now in April 2022. And this issue Leads to approximately 5.5 percent dilution. And by that, Hansel will have 32,800,000 shares going forward. And then we move to H9. And we are from now and including S and P in the financials of Hansa. So by the end of the month of March, we will have the balance sheet and a smaller part of the other P and L in quarter 1 results and financials. The operational debt, as I said previously, is approximately SEK 200,000,000 And the turnover is SEK 150,000,000 with a quite solid and good Profit of EBITDA margin of 9.3 percent. We have estimated the integration costs to be SEK 6,000,000 And main part of that will be taken in quarter 1. Due to these Integration costs and then transaction costs, we say that the total contribution to the Hanse T and L, The earnings will be quite small in 2021. And that is, of course, that we are making money in the S and P, but we have this onetime cost. So in total, it gives a smaller contribution to the earnings. But when These are taking the onetime costs. We, of course, see that this will contribute to the earnings per share and the profitability in the Hanse Group. And then I'll leave over to Erik to summarize Thank you, Lars. And then we turn to Page Some conclusions. So year 2020 brought full scale stress test to Hansa, and we saw how well the larger clusters responded to this. And we had a good proof of concept. We also saw that we came out of this year with a good financial position. And we also see this global trend It strengthened the trend towards regional manufacturing, which is actually the core of our business concept. And based on this, it's quite easy to set the road map for this year to further strengthen clusters. And it means that This acquisition of SLP is not just an acquisition, it's actually an important delivery on our strategy. And therefore, we can this very good and sunny Friday welcome 100 more competent and experienced people to the Hansa Group. By that, we leave over to the Q and A session. Thank Our first Question comes from the line of Fredrik Nielsen from Redeye. Please go ahead. Hello. Fredrik Insohn from Redeye here. Following this acquisition, how Strong will the Finnish cluster be? Will it be on par with the Swedish one? Or do you need Additional acquisitions in Finland to achieve that. It will not have the same size as Sweden, but It will be operationally really well. I think we told in the year end report that We spent a lot of energy to fine tune the organization last year. So we do have strengthened the organization priorities acquisition in Finland. So we believe that this is there could be more acquisitions, of course, but we think this is the important one to then really strengthen Finland and make the future great. Okay. So in terms of margins, the Finnish Cluster should have a long term potential in line with the Swedish cluster, if I understand you correct. Lars, would you comment on this? Yes. I can comment. We have said several times that within the other markets, we have Different levels of profitability in the different sites and in the different clusters. And The overall goal is, of course, that every customer should have and meet the financial targeted financial goals we have within Johan Sainte. And by this acquisition, the goal is When we are taking this onetime cost, it's, of course, that we should meet and be able to have the Cluster of Finland to align with the financial goals that we have with Lonza. If that is within 6 months or a year or one Actually, that we will not be able to tell right now. But of course, we see ClusterFirmLab Must and shall be on the right level on percentage wise in earnings. Okay. And one question regarding the impact from COVID on SLP. I mean, considering the industry exposure, it's reasonable to assume that there may have been a negative impact. Can you elaborate There has been an impact, yes, of course. So sales the sales we are Talking about now is, of course, lower than it was pre pandemic. Okay. So we expect also the telecom volumes back to this company. Actually, we part of India was quite hurt by the COVID-nineteen, they had a bit better for a strong lockdown in Sweden, but we expect also volumes to come back a bit to this company. Okay. That's interesting. That's all from me. Thanks. And the next question comes from the line of Johan Hogberg from Axios Parniner. Please go ahead. Hello. Johan Hogberg, Axios Parniner here. What kind of synergies can we expect from this acquisition? So Erik here, from the sales part, of course, if you are Single technology manufacturer as SLP, now you can go to your customers and say that now even better. Previously, we were just offering 1 technology in 1 factory. Now they're offering all technologies and they're also part of a global footprint. So of course, in our experience, customers respond really good to that. And secondly, we see also when it comes to sales, Backsourcing trends, we see customers coming back, been in Asia, come back to Finland. So I think that this setup will help us to the place where this moving manufacturing can land. Cost side, of course, Lars can comment on this. We work with shared service centers and other ways of collecting costs. Yes. Okay. I can comment also on the Of course, we can utilize and we've been historically quite good in managed working capital. So Without giving any promises, we will, of course, work with the working capital and try to release some cash flow from the balance sheet. And as I said, we can integrate and utilize the resources in admin and financial employees, etcetera, in a better way when we have the cluster in Finland. Okay. One final question. Year end, you had about SEK 121,000,000 in cash. Why did you choose to partly finance with new shares? I think if you look at the acquisition price, so We paid SEK 33,000,000 for the shares and they make an EBITDA of SEK 14,000,000. Part of making such a deal is, of course, that the sellers also believe very much in Hansel and Hansel Development and the plans we have together. So I think that that's a way to make a good deal for both parties. Okay. Thank you. We have one more question from the line of Erik Kessel from ABG. Please go ahead. Erik, if your line is on mute, can you please unmute yourself? Hello? Can you hear me? Can you hear me now? Okay, perfect. Hi, good morning and congratulations on the solid acquisition. So with IFRS 16 and the kind of leasing you mentioned for the facility, I find it somewhat hard to truly interpret the EBITDA margin. Is it possible to give some clarity on the EBIT level as well? You are totally correct. SOP is reporting according to Finnish GAAP, and we need to adjust it to IFRS. If you compare in the next GAAP, the difference between EBITDA and the EBIT, It is a minor difference. So the EBIT level It's, I would say, 2% to 3% lower and the EBITDA margin. Okay. Perfect. And do they own their own machinery? Or is that leased as well in some way? Sorry, I didn't hear you. Are the machinery leased within the facility? Or do they own that? The main part of the machinery is owned, so but there are some smaller Leasing agreement for machining as well. Okay, perfect. So I guess there aren't much investment needs kind of we won't see above normal CapEx to sort of invest in this facility plan. That's a future question. We will continue to invest Like we invest in every site and in every cluster depending on how the sales growth and the customer base. Okay. But there is no urgent investment needs in this facility, I suppose? No, I can comment this So there is no urgent need then. And as I think it was earlier in the presentation, we have already invested about SEK 10,000,000 in Mr. Daniel Perla with New Machinery. So Yes. And then again, with good sales, more investments can come. Yes, of course. So how long do you think it would take before you reach a level of integration and kind of full synergies between the businesses here in Finland? Within this year. Okay, perfect. And then on the I think you mentioned cash additional purchase price. Could you provide any clarity on the sort of earn out structure and the terms for performance, if there are any? Lars, can you share something about that? No, we can I think we can comment in the way that we are It will not affect our work with being able to consolidate the finished cluster and integrate Okay? Thank you very much, guys. That's all for me. And as there are no further questions, I'll hand it back to the speakers for closing remarks. And let me just thank you for dialing in. It's a really good day for us in Hansa and good to show So we deliver on our strategy, and we hope to be able to bring out more news later on, and then we can speak again. Thank you so much.