Hello, and welcome to the HANZA Audiocast for Teleconference Q2 2022. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present Chief Executive Officer Erik Stenfors. Please begin the meeting.
Thank you. Good morning from Kista outside Stockholm, and thank you for joining this audiocast in the middle of the summer. I'm Erik Stenfors, Chief Executive Officer HANZA, and on the call, however, on another location, it's also our Chief Financial Officer, Lars Åkerblom. We will together present the Q2 report we released just this morning. Report showing all-time high top line and also the record EPS, earnings per share, and the report describing an important step we took on the service side through an acquisition in Germany, and the report that is predicting a strong performance going forward. Let's go through the details and move to slide number two, please. The agenda. We will start with a brief introduction to our concept. This is important in order to understand this, latest acquisition in Germany. Then we go through the recent highlights. Lars will talk about the financial development.
We will have a look at the future. If you have any questions, please keep them and use our Q&A session at the end. We move to page number three. What is HANZA? At bottom, we are a contract manufacturer. That means that we have no own products. The manufacturing we do is for our customers, and we see some examples down to the right. Proud to see and have some really good names in our customer portfolio, also from different industries. However, HANZA is also much more than a contract manufacturer. Why? Because the customer value of a contract manufacturer is rather limited. You're producing a certain type of parts. It could be electronics or mechanics or cable harnesses according to specification. Our mission is to increase the value for our customers, for the product owning companies.
Therefore, we have a wider concept. If you look at the illustration inside the frame and you start to the left, here you see the different areas of HANZA. First of all, we have our cluster concepts. When you have grouped together different kind of manufacturing technologies, built industrial parts, which we then call manufacturing clusters. In such a cluster, you can both have parts manufacturing and parts assembly, testing, logistic shipments to end customer, creating a one-stop shop for our customers, a number of advantages. Furthermore, we also have advisory services. We help our customers to streamline the supply chain, and that could be done for cost reasons or flexibility reasons or quality reasons. Lately, there are new arguments.
We saw the pandemic and the weaknesses of the global supply chain, and therefore, today, many, product owning companies would like to have a robust supply chain. The last thing that happened was the horrible invasion of Ukraine. That led a number of, product owning companies to think, having a political also dimension to the supply chain, should we really have factories in certain areas, in the world? All this leads to the need to change your supply chain. We can analyze our customer supply chain, we can recommend streamlining, but we can also execute this. That normally includes factory transfer, which is one of the specialties we have in HANZA. Then to the right, you see product development. We are also offering that.
Again, we don't have our own products, so the development we do is to unload our customers' R&D departments. We can develop complete products. We can do parts or products. One recent demand is due to the lack of components. It could be a waiting time for years to find your semiconductor, and then you have to act, you have to redesign your electronics board, and that's one of the services we do. This concept has led to a steady growth over a long period. If you look at the graph down to the left, probably industry leading, we have had an average growth of 17% since we started the company. Here you see the annual sales for the first 13 years we've been around. It ends with SEK 2.5 billion in the last year, 2021.
In today's report, which Lars Åkerblom will also mention, we have already a run rate of SEK 3 billion. The growth continues. I have the pleasure of having about 2,100 colleagues at HANZA. After this short introduction, we turn to page number four and talk about the recent highlights. We've been busy finalizing some programs. We have an expansion program called Roadmap 2021. Two years ago, in 2020, in the midst of the pandemic, we concluded that the post-pandemic there will be an upturn in sales, and also that this will also drive sales in our direction. Decided to launch the largest expansion program we had so far. According to this, we have bought factories, we have built our own factories.
We opened a new assembly plant in Estonia in March this year, and we have invested over SEK 100 million in machinery and equipment. This is an expansion program still ongoing, but it's about to end. We still have some activities in the segment other markets. We are opening up new space for production in Poland, Czech Republic, and China. It should be ready by the third quarter. We also have another project started already in 2019. It was one of the goals we had for what we call phase III of HANZA, to establish our company in Germany, build a cluster there. Started that in autumn of 2019, and just a few months later, came the pandemic. We had to put a hold on that.
Last summer, the restrictions were lifted, and we could restart that project. We expect that to be ready by the end of this year. That's also something we are working with. That's on the manufacturing side. We have the service side, as mentioned. Also here we've seen increased demand. We have a department of 20 good engineers in Remscheid, helping our customers then with product development. We were lucky to find a buyer company in Münster, which is just close by Remscheid, 10 additional engineers, expertise in both software, electronics, and mechanics. We see the manager on the picture to the right, the tall guy, that's Christoph Guldenmann. He has a master's degree in science, also is a technical doctor and a professor.
On his left side from our look at this picture is his wife, Janine, who is then good in business development, also have an international background, and in marketing. Good addition for us, creating a good capacity also in this area of services. Other than that, during the quarter, we have reported a strong order intake, and it's evenly distributed between different markets and different industries. We also changed our company name. We were called named HANZA Holding for historical reason. We changed that to HANZA AB. There are many companies that have HANZA as a middle name, but there's only one HANZA AB and only one hanza.com. With that, I leave the floor to Lars to talk about the financial development.
Thank you, Erik. We switch over to slide number five. What we presented today is, as Erik mentioned, a record quarter regarding sales and earnings and also a stable balance sheet and cash flow, and I will come back to that. Starting with the sales, we are up in quarter two 40%, compared to last year. If we adjust it for the acquisitions we have done and the currency, we have an organic growth of 29%. As Erik also mentioned, we are on rolling twelve months. We have exceeded SEK 3 billion compared to last year's SEK 2.5 billion. The earnings follow the increased sales. They are up as well. They're up by 42%.
We show an EBITA of SEK 57 million compared to SEK 40 million last year, and a margin of 6.5% compared to 6.4% last year. We can also comment that if we take the EBIT, we are on 6%, which also is our financial goal. We can say that we are also on rolling twelve months, we are on 6% margin EBITDA. As Erik also mentioned, we did an acquisition of Budelmann. It's a rather small company. It will not have a major impact on HANZA's balance sheet or sales. We were consolidated starting from July, from Q3.
The sales of this company is approximately SEK 15 million , and the purchase price, an initial purchase price of SEK 8 million and possible additional earn-out of SEK 2 million . By that, we move to slide number six. One of the really positive things in this Q2 report is the increased profitability in other markets. We have been saying for few quarters now that we will see the margin to be more even between the other markets and main markets. Now we can see that other markets has increased its profitability. Starting with the main markets, it continues to be a strong organic growth. We have 26% and almost to half a billion SEK, 485 million SEK in sales. Continuously, a strong profitability.
We have a margin of 7.6%. In this segment, we also have an effect of the acquisition we did in Q4 last year in Germany. That still hasn't reached the profitability that we expect, and it's one of the projects that Erik mentioned earlier. If we exclude the effect of that company, we have a margin of 8.5%. Then coming to the other markets. Here we see also really strong organic growth of 36% if we adjust for currency and acquisitions, and really good profitability of 5%-6% compared to 5% last year. We had a lower margin in Q1 due to the main activities for expansion that we have, especially in Estonia with the new s-factory in Tartu.
We're coming from 1.3% in Q1, and we increased it to 5.6%, and we really do not see any reason for this to come back. We continuously believe that we will have a margin between the two markets that are more close to each other than it has been in quarter one and Q4 last year. We still carry cost for this expansion. As Erik mentioned, the activities we have in Poland, Czech Republic, and China. Moving to slide seven. We have a positive cash flow of SEK 30 million compared to SEK 19 million a year ago. If you look into the table to the right, you see a comparison to Q1 in 2022.
The net debt is increasing, mainly due to the organic growth and the growth we have. What is solid and good is that we keep the net debt compared to EBITDA on the same level, so we are on 2.6x. That's the same as a year ago. Of course, also the net debt is increasing due to the acquisitions that we have done. The main reason for the net debt increasing is the situation with the shortage in material and components. We have a really strong EPS increase. It's a little bit over SEK 1 per share in Q2. If you take the rolling twelve months, we are on 2.82 in EPS.
According to the decision on the AGM, we paid out dividends during Q2 of close to SEK 18 million. With that, I'll hand over to you, Erik, and outlook.
Thank you, Lars, and then we turn to page number eight, and the outlook. If we look at the sales, we have seen a strong demand in all markets, and that will of course drive additional sales, and we had excellent timing with our expansion program, so we have created possibility to handle these sales. The limiting factor will still be the lead time on our expansion. It will still be the material shortages. If you look at earnings, we have presented that our oldest and our original cluster in Sweden is able to present a double-digit margin, which is industry-leading. The general formula is such that the larger portion we get on mature clusters, the higher the group margin will be.
We see now increasingly specific, this is a long process of course, but we're seeing specifics now that we are developing the factories in the segment other markets. We are adding a set of services to Poland, Czech Republic, and China. In Germany then we are finalizing this setup, and we expect that to be ready by the end of the year. By that, this cluster will also contribute with the good earnings to the group. If we then look at the mid-term and long-term, so by that, we have actually achieved all the goals and the targets we had for this phase. We've been HANZA in phases. This was phase number three, and a number of goals go to the main market of Nasdaq, into Germany, some financial goals.
When we achieve these goals, it's time for phase number four and a new expansion program, and we expect to release that in the beginning of next year. In conclusion, we are confident that we will have a strong performance of HANZA both in the short and in the long term. With this summary, we open up for any questions.
Thank you. If you wish-
We turn to page nine also.
If you do wish to ask a question, please press zero one on your telephone keypad now. Our first question comes from the line of Fredrik Nilsson from Redeye. Please go ahead.
Hi. It's Fredrik Nilsson from Redeye here. Can you hear me?
Yes.
Yes, we hear you.
Nice. I want to start with the margin in other markets. It increased quite significantly compared to the first quarter. However, you mentioned that you still have some projects ongoing. I mean, what should we expect going forward? Could there still be quarters when we see a drop due to these projects, or have the bulk of projects been completed?
Would you like to go first on that, Lars Åkerblom, or should I?
Go ahead, Erik.
Yeah. The ongoing projects were mainly a factor in the first quarter when we opened a new factory in Estonia. That's why the margin was so low in the first quarter. The second quarter is more back to normal, and we expect, of course, there can be hiccups, and we have situation in China, but it shouldn't be any dramatic change. What we see now in second quarter that we are back on track in the other markets after a short downturn in the first quarter. The answer would be that it should just continue to be slightly better.
Okay. Also, I mean, you have a quite broad exposure in terms of different sectors, and you mentioned that you see a strong demand. I mean, could you elaborate a bit on some of your most important sectors? What do you see? What message do you get from your customers?
What's interesting is that we hear the same message from all areas, so from med tech, from energy, from defense, we have a good order intake. What we think about the future is, of course, that some areas will grow faster than others. Defense, for instance, we expect that to grow, and also energy, recycling. It's hard to name a specific area. Where we are now, all areas are growing evenly, and we see no special segment that stands out.
Okay. You had a strong organic growth. Could you tell us a bit about the mix of price and volume in that organic growth?
I'll leave that to you, Lars.
As you know, Fredrik, we are not disclosing that, but what we have said, and it goes with it for this quarter as well, is it's approximately the same size of the price increase and so.
Okay. Just to get it right, about 50-50, or what did you say?
Yeah. About 50/50.
Okay. One last question from me. The margin in main markets declined slightly compared to the first quarter. I mean, it could be seasonal effects or whatever, but how is the integration of Budelmann's going so far?
I can answer that. It's going really well and according to plan. Should be ready by the end of the year as planned. During this process, of course, it's diluting the margin. There are fluctuations due to that between the quarters, but what I think is important is what Lars mentioned, that if you exclude buyers, you see a good upturn in the margin in segment main markets.
Okay, thanks. That's all, from me.
Thank you, Fredrik.
We have one more question from the line of Niklas Elmhammer from Carlsquare. Please go ahead.
Yes. Hello, good morning, and thank you. Some follow-up question. You said there was some pricing effects also in this quarter, of course. What is the view, your view, going forward? When do you expect these pricing effects to taper off eventually or and towards the end of the year? What is your view?
Wish I could answer that. What we have seen are signs that the commodity market will be better, and of course, the price is a function of demand and supply. It's really hard to tell. At least this year we expect it to continue. Maybe next year we'll see a change.
Okay, thank you. Could you give some sense of the impact from new contracts on growth, on organic growth?
We receive new contracts constantly, and we don't give the splits, but I think that what we're seeing is a combination, a fair combination between new contracts and old customers growing and old customers adding the new orders to us, new products and expanding the scope. I would say it's these three areas and rather the same distribution.
Okay. Regarding new business, do you see, given the constraints in supply chains and manufacturing capacity, do you see any impact, positive or negative, on terms when you negotiate new contracts compared to old customers, so to speak?
Sorry, I didn't really get that.
Yeah. I was wondering if you see, given the constraints we are seeing in manufacturing capacity in recent, generally speaking, do you see any effect on an impact on the terms when you get new contracts? Are you getting better terms or is it hard to say?
I think that whoever has capacity is king right now. There is such a demand. Our market is infinite, as we are not targeting a certain commodity. We can get orders from all technologies. What we are seeing is that, first of all, we're again glad that we did this capacity increase, so we have something to negotiate with the customers. We also see with this order intake, we need to continue to increase our capacity, and that is a very important message to our customers. They know that they can rely on that we will have capacity also moving forward. They've seen how we have developed HANZA, and I think that is a strength and something our customers would like to hear. That's also why they are focusing on HANZA and even moving manufacturing from other manufacturers to us.
Okay, great. Thank you. That's all for me right now. Thank you.
As there are no further questions, I'll hand it back to the speakers.
Okay, thank you. As there are no further questions, we will now end the call. Thanks so much for participating, and I hope you will continue to follow HANZA. Bye-bye.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.