Welcome to the press conference. We suddenly lost Erik, so let's give him time to reconnect. We will wait for a few seconds and see if he joins. With the best of luck, I'm now inside the audiocast, Lars.
Yes, Erik, you are. I told them that you had a problem with connecting.
Thanks so much. Good morning, everyone, and greetings from Augsburg, Germany. Thank you for taking the time to join this quickly arranged audiocast because we concluded a very important acquisition yesterday. This is a milestone in HANZA's history. We will walk you through this in a structured way where we start with a short strategy recap to put this deal into perspective. Then we will talk about this outstanding company, BMK. Lars will give you the transaction details and the financial impact, and then we will have a look at the future with a Q&A session. Please use that. Let's start then with a look at the strategy, our strategy that brought us to this point. If you are a product-only company, you are in the middle of this slide. You have developed, you are marketing, you're selling some kind of product.
Most likely, you outsource the manufacturing because you like to focus on the next generation of your product. You use so-called contract manufacturers. The challenge is that they come by technology. You will need one for the electronics, another one for the housing, a third one for the cable harnesses, and so forth. It means that you need several contract manufacturers. After globalization, they are most likely located in different places. HANZA was founded on a simple but very powerful idea that contract manufacturing works better when it's local and complete. What we have done is to collect different kinds of manufacturing technologies in HANZA. That's why we have our slogan, "All you need is one." What we like to do is to offer a better supply chain. We're not just selling manufacturing, but a better supply chain.
We can take the poor guy to the left of this picture and bring him into a much better solution in HANZA, where you will have the parts produced and the parts assembled. You'll have lower costs, less emissions, a much, much more robust supply chain, and high flexibility. What we do, we offer a better supply chain. How we do it is that we group together these factories in something we call manufacturing clusters. Our business model is different, but so is our expansion model. If you've been following us, you know that we build HANZA step by step by putting specific goals and milestones a few years ahead. Now we are into something called HANZA 2025, and this is important. We will talk about this today.
After we had created our five clusters in Europe, this phase was designed to balance the clusters of Europe to make sure also that we have a full capacity for complex assembly, which is important. I will come back to this. If you've been following us the last years, you've seen we have done this very structured. We have opened new facilities. We have acquired companies in Sweden, in Finland, in Baltics, in Central Europe. The final piece, Germany. That's why we are here today. Let's have a look now at this company, BMK. It's a fantastic company. It was founded in 1994 by three gentlemen, three entrepreneurs, Mr. Bauer, Mr. Müller, and Mr. Knoefele. You can see them down to the right.
This is also interesting because we have been traveling around discussing technologies, and we also had a chance to visit our main owner, Gerhard Engström, who started this company, Systemair, the great ventilation company. This is a picture where we are visiting the company. Let's call it, we had a study visit, completely on the pleasure account. Today, BMK is up to €300 million in sales and an operating margin of 7.3%. Lars will give you much more about this. In total, about 1,500 people. The main plant is in Augsburg. That's where we are right now. You see the picture up to the right. This is a super factory with 1,200 people. We also have a plant in the Czech Republic, a partly owned plant in Israel, and a sourcing office in China. You can see it on the map to the right. Why is this factory so?
I've probably seen more electronics manufacturing services companies than many others. Why is this so fantastic? Not to be too technical, if you are an electronics company, you either focus on high volumes, you are producing iPhones or something, then it's low mix and high volumes. Or you do, like most companies in Europe, you are trying to get more customers, so a bit more high mix, but more medium-low volume. This company can handle about any mix, any volume. The secret behind this is how you feed the machines, the so-called SMT lines. It's a logistics system. It takes too long to explain it here, but if you have time, come to Augsburg, and you will have a guided tour. That's one of the features. Another feature is the quality. If you have an electronics company, you're glad if you run down to maybe 200 or 100 PPMs.
PPM is defective parts per million produced. This company is running 5 PPM. Also, we have a fantastic engineering department, logistics department, and prototype services, skilled in complex assembly, and this is important. We are running a project called LINX, so that is how we allocate capacity for the defense industry, really important to the assembly. Augsburg happens to be an area where there's also clusters, cluster defense companies. This was also important. The customer base, I cannot give you so much details. We have to do the closing first. It is solid, good German companies. There is no overlap with the customers we already have in Germany, and they don't have a concentration. The largest customer is well below 10%. Industrial German companies, I would say.
What we'll do is to consolidate, so combine the units we have in Germany with Augsburg, and we will also keep the other units of BMK into this group operationally for a period of time, and then we will integrate it to the rest of HANZA. Advanced technologies and solid customer relations, this brings us to the industrial logic, how BMK fits into HANZA. If, again, if you've been following us, you have seen the checklist we have up to the right, the acquisition parameters. First of all, of course, it must fit into our strategy. HANZA 2025, all about balancing the clusters. Of course, since Germany is the largest market, we like to have the largest presence in this place. It fits really well from a strategic perspective. We will have now also this complex assembly capacity for the LINX project. It's a unique company, as I said, culture.
When we buy a company, the HR due diligence is the most important. Now, I've known these gentlemen for many, many years. We have been following each other. I think I met them in 2018 the first time. We know each other, and I know the company. Still, having said that, of course, HR is the first to visit the company and go through the next tier of management, make sure that this company is aligned with our operational entrepreneurial mindset. It's a really good fit. It will not be an acquisition. It will be a merger of equals. Customer base, I talked about that, but the interesting part here is that there is a growth potential. We are glad to state that the contract manufacturers normally or always perform better inside HANZA than outside HANZA. Even a fantastic company like BMK will have some advantages.
We have seen it in the past. Probably remember Orbit One, where we increased the margin. We had Leden, where we increased the sales. This is the thing. If you buy this nice company, how can you make it better? We had to combine the best electronics manufacturing services (EMS) company of Europe with what I would say is the best concept of contract manufacturers. We can actually refine this company further. You would expect a really clear strategic fit between HANZA and this company, BMK. Now, this is how it looks. If you have a look at how HANZA 2025 looks in full, you see the map. As I said, those clusters have been expanded by buildings and acquisitions over the last years. Now, with BMK, we also have what we call customer gateways. It's not clusters.
It's not a group of factories, but single factories dedicated for a specific customer need. We have one in China. We have one in Abu Dhabi. Now we got a partly owned unit in Israel. Proud to say that we have a fantastic set of technologies. You see some examples below. With this acquisition, we will be the largest contract manufacturer in Europe, about 10 listed manufacturers in Europe, about SEK 10 billion in annual sales, 5,000 colleagues. Looking forward today, I will meet a number of new colleagues for the first time. That's about the hardware. Of course, a transaction of this size must also make financial sense. It does. To explain that, I leave the floor to Lars.
Thank you, Erik. I will start with going into the transaction, how it's structured, and also how we have valued and BMK. It's structured as a share swap, a share exchange. We based it on a relative valuation. In that valuation, we reflect that the company is on a similar profitability level and same leverage, but has a narrow scope. BMK as an EMS company and not a listed company. We have agreed on the value of BMK post-merger to be 27% of the combined group. That gives the three sellers 9% each. To reach 27%, we will issue 17 million HANZA shares, and they will be equally divided between the three founders. We have also, in the transaction, set the level of net interest-bearing debt in BMK to €50 million. That is approximately two times the EBITDA.
Looking into the transaction process and the coming lockup, this transaction is subject to approval on an extraordinary general meeting scheduled to November this year. The shareholders, FANA Invest, owned by Gerhard Engström, Francesco Franze, our Chairman of the Board, and CEO Erik Stenfors, have committed to support the transaction, and they represent 28% of the votes. We expect to get the regulatory approvals needed by the end of this year, meaning that we can close this deal around New Year. There's a lockup agreement. So 14.5 out of the received 17 million shares are locked up for a period of 36 months, and they are gradually released over that time. If any shares are sold, they are sold in blocks. They are committed to sell the shares in blocks if they sell. Impact.
You see on the graph to the right HANZA's growth over the years and also what it will mean when we include BMK in the figures for May 2020. As Erik mentioned, the combined group will reach approximately SEK 10 billion in sales. BMK is today operating on approximately a margin of 7.3%. The acquisition is expected to increase the earnings per share. The balance sheet will, of course, be affected, but since it is a share swap, it will continue to have a strong equity-to-asset ratio. As I said previously, we are taking on a company with a net debt of approximately the same level as HANZA has, around 2. That means that, combining these companies, we should have approximately the same level of net debt, well below the target of 2.5 times that we have as a financial goal, target.
We expect the combined company to have strong cash and cash flow. You that have followed HANZA know that we've been able to do acquisition. After the acquisition, the merger, to free up working capital and get quite strong cash flows from the companies that we acquire. We also expect BMK to increase the margins. Also here, we have a history of being able to increase the margin in the companies that we acquire. Within a year, we have seen historically that Orbit One, for example, has increased the profitability and are at the level of the HANZA Group. We also have a financial update, starting with the sales. We are coming back to what we said in the Q2 report that we see that from our existing customers are increasing by the end of this year. By that, we see a good organic growth in Q4.
We are expecting to reach Proforma, adding Leden for the full year 2025, and Milectria for the full year 2025. We expect to reach SEK 7.6 billion in sales for 2025. BMK is expected to reach SEK 3.3 billion in sales in 2025. That leads to that Proforma will go in with a sales level of SEK 10 billion for the full year 2025, including all the companies that we have acquired. The margin, Leden that we acquired in March, they, as we have said before, faces capacity challenges due to the growth that they have. This has affected the margin. We are today running Leden at approximately 3%. We expect that level to continue during 2025, but increase from start of next year. At that time, we reach the level of the rest of the HANZA Group, which is 8%.
Again, we can compare this to the acquisition of Orbit One that a downturn in profitability or a lower profitability initially in HANZA. Then over time, we have increased the profitability. Today, they are on the same profitability level as the rest of HANZA. We have a good plan on how to also get Leden up to the level we want to be on. We also had in the Leden acquisition a claw in the agreement with the earnout. We estimated the earnout for 2025 at EUR 5 million. Today, we see that we will release that in the Q3. That will then be accounted for as an extraordinary income. We expect BMK to be on 3% in margin for the full year 2025 and Leden to be on 8% in 2026. By that, I leave it back to you, Erik, to summarize the deal.
Thank you, Lars. Let's try to make a short summary. First of all, this acquisition then completes the strategy we set out three years ago. It gives us the right structure for continued profitable growth. You might recall that three years ago, we were a SEK 3.5 billion company. Now we have added SEK 3 billion. About SEK 1 billion is organic and SEK 2 billion are by acquisitions. A little bit more of the acquisitions than organic growth. Normally, 50/50, but it's been a recession. We like it to be 50/50 on our growth. We also have now BMK, the fantastic company located in Augsburg, Germany, and that's about 70 kilometers northwest of Munich. If you are not familiar with Augsburg, a very nice city. We have added a very interesting, diversified customer base, which I'm sure will continue to grow in our hands. Also, LINX program, very important.
This is important to allocate capacity to the defense industry, still safeguarding capacity for other customers. This deal will help us with that. We have our proven integration model, so we are sure that we will see more synergies both in sales but also in margin and cash flow. If we look for the future, as Lars said, we will probably do the closing at year end. In combination with that, we will call for Capital Market Day to present the next step. We have to remember we have not stopped HANZA. We have just started. It will be a next step, HANZA 2028. We will launch that directly after closing on the CMT. I hope you will all join that. With that, I think it's time to open up for any 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 Oliver Usitello from Axii Sperana. Please go ahead.
Good morning, guys. Hope you can hear me well. First of all, congrats to an exciting acquisition. My first question was regarding this co-owned plant in Israel. How do you think this will fit into the HANZA picture, and perhaps especially regarding the current political tension in the area?
Good morning, Oliver. Erik speaking. Yes, this is something that came with the deal. It's a partly owned unit. We haven't really investigated that for the HANZA 2028 strategy yet, but we will announce it when we have that strategy. It's a unit not working with anything defense-related. It's a really nice unit with really good skilled people. It's a fantastic unit. I understand the question given the geopolitics of today. The future for that, like all the rest of the units of HANZA, will be presented by the end of the year.
Fair enough. Regarding the sales in the area, I suppose we can assume that Germany accounts for the great majority. What about sales for the Israel plant? How could you guide us in any way?
I think no, Lars. We haven't given the split.
My last question was if you could put.
Oliver, you saw the size of the number of people, so maybe you can use some metrics to estimate that.
Yeah, for sure. I assume that. My last question was, I mean, what made you go through with this acquisition? I mean, for current investors, this gives quite a substantial dilution. How would you justify it?
It gives quite a limited dilution, compared to the value add of this company as being, if I put on the hat as a shareholder, I'm really happy about this deal. This is a fantastic unit, and that they accepted this low % of the whole HANZA. We're talking about a company of SEK 3.3 billion. It's just because we have this good relation. The most important thing for the seller is that somebody will take care about their baby to make sure it can be something more. They were fearing it would be bought by another electronics company. If an electronics company buys another electronics company, comes consolidation sooner or later, something bad will happen. To be honest, they were also fearing that it will be a buyer from somewhere outside Europe. Being a Scandinavian company with a concept, they have been following us for many years.
They really state that they think that we are the only company with a clear plan. I think that was the reason why it was such a low dilution and such a good value-creating acquisition. This will be remembered in the future as one of the big milestones, actually.
I see. Fair enough. Thank you so much, Erik and Lars, and best of luck going forward.
Thank you.
Thank you.
Thank you.
The next question comes from Vincent Norman from Dineso Capital. Please go ahead.
Hello, everyone. I have a couple of questions.
We hardly hear you.
Sorry?
Vincent, you are very.
Sorry, can you speak up?
Can you come closer to the microphone or something? You are.
Yeah, yeah. Can you hear me?
Vaguely, but okay.
Okay. I have a couple of questions. The first one is about your cluster, HANZA cluster concept, and the strategic fit of this acquisition within your German cluster because you already had electronics in Germany. I was wondering how is it fitting in your cluster concept, this electronic acquisition, since we, one, would have maybe expected more a sheet metal or a mechanics acquisition? If you could explain how you will pursue the cluster concept in Germany.
So for us, and now we maybe go into detail, what is important for us is to have local complete manufacturing. We'd like to be present in different areas, mainly with complex assembly close to the customers. We have a number of technologies. For us, this is not an electronics company. It's a new tool in our toolbox. It's something completely different with the other units we have in HANZA, to start with. Secondly, to have this huge capacity expansion possibility in Germany is really important. We are now located in a place where there is a good spare area for different reasons, so we can increase complex assembly, and also talking about this LINX program. For us, it was a new technology almost to get this Augsburg unit into HANZA and the possibility to finally have the size in Germany we need in order to take on new orders.
Was that a fair answer, Vincent?
Yeah. Okay. Very clear. Now about the LINX program in defense, how does it fit, this acquisition, within this program? If you could elaborate a bit on the opportunities you see. Are they already serving defense or not, and what's the opportunity you see for German defense industry?
We have, last week, we had a launch in Finland of another acquisition tailor-made for the defense industry. We've been working with this since March. I think it's both very good business and also very important for Europe. It's about our democracy. We have had an extremely good response on this. We have many customers on the way in. How does it fit? When you work with the defense industry, what is very important is, of course, the quality. I mentioned earlier that we have this 5 PPM company, and that's exactly what the defense would like to have. They cannot have any defects in this area. Also, Germany is the largest defense market in Europe. The potential is there. The challenge we have is that we outsource the manufacturing to Asia. We are lacking manufacturing capacity. That's what the defense industry needs.
When we raise the hand and say that we will have capacity, we got a number of requests. By this acquisition, we will have a fantastic opportunity to grow in Germany with the LINX program.
Okay. Very clear. I have two more questions, if I may. The first one is about the auto exposure of this company, of BMK. If you could, give us a rough estimate.
Sorry, I didn't get that. What exposure?
Automotive, oh yeah.
The automotive exposure.
Automotive. Okay. Sorry. No, it's very low. We tend to not move into certain areas. We have said rather the areas we are avoiding than the areas we are seeking, and that's certain telecom and automotive going in large volume. It's interesting because, as you know, there has been a recession. We are in a recession, especially in Germany. Therefore, it was important in our discussion that we saw that now we see an upturn in the economy. That has been really, really important. If you note, many companies exposed to automotive have had real challenges. Here is a factory still standing. We did not have to fire people, so we have a lot of capacity. Now we see the upturn in the economy, so we think the timing is simply perfect to do this deal. Okay. Maybe last question is about profitability.
If you could elaborate a bit on the historical profitability of this company. This year, you are guiding on 7.3%. What was the historical profitability? If you could elaborate a bit on the synergies you see. Do you expect this company to reach 8% quickly or even more? What's your view?
Lars, what can we say?
What we can say is that, as Erik mentioned, we have known this company for many, many years. It's a company that has always been profitable. We haven't disclosed the exact figures, and as I said, we expect them to increase the profitability. We're running today on 7.3%. Integration, we expect that to be higher. If it is from the beginning of 2026 or if it takes a couple of months, that's to be seen. We have seen that we are able to increase the profitability in the companies that we acquire.
You would then say that 7.3% was a fairly high point for them. I mean, it was not historically a 5% or 6% EBIT margin company. It was already, let's say, above 7%.
7.3 was high compared to previous figures. I said that we have not disclosed the historical figures.
We can maybe just add that, of course, also BMK has seen a downturn in the economy. They have also been affected with lower sales, so historically, they should have had a larger or higher margin than this, of course. It's not the best of climate right now. On the other hand, we see now the upturn in the economy.
Okay. Thank you. Thank you, gentlemen, for all your answers.
Thank you.
Thank you.
The next question comes from Forbes Goldman from Pareto Securities. Please go ahead.
Good morning. Congrats on a super interesting acquisition. One question, coming back to the margin that you previously just discussed. The 7.3% EBIT margin looks a bit higher than what HANZA is reporting this year, which on the other hand also is a bit diluted by M&A. All things equal, do you think this acquisition will be accretive or dilutive to HANZA's margin next year?
I would say the other way around. I think that's what Lars Åkerblom has stated also, that there is a bit of delay when we bring in a new company to get it to our margin of 8%. We saw that with Leden, and we will see this with BMK as well. The rest of HANZA is doing the 8%. I would not say that. I would say the other way around. We must make sure that we get all units up in 8% if I understood your question correctly.
Yes, just a clarification on that because, when you talk about HANZA, you're talking about the EBITDA, EBITDA margin. BMK appears to report over 7% EBIT, which I assume is even higher on EBITDA.
Forbes, the technical question, but the difference between EBIT and EBITDA in BMK is none.
Okay, that's very good to know. Thanks.
Yes.
All right. Perfect. On the trading update, which also sounds very confident and positive, can you say a bit what you're seeing in terms of demand? Is the higher guidance based on some of the acquisitions, or is it mainly the customer forecast that is driving this?
I think that we stated that in the Q2 report, that we see a good order intake for the end of this year, which should mean that we see a very good organic growth by the end of this year. It takes some time from the orders to go into invoicing, of course. The answer is it's existing customers. We see the old customer base of HANZA. We've been really lucky. I think that we were the one with the lowest impact of the recession, and we already showed organic growth in Q2. I think we were ahead of the rest of the industry. I think that the customer base is the key. This is the old customer base giving a really good organic growth for us.
In addition, we also stated that Leden, inside this acquisition we did in March this year, Leden inside HANZA will also grow quicker than it did stand alone, basically because there is a new, larger company. The customers tend to trust that based on the previous relation with Leden, based on the performance of HANZA, they increase orders. What we mainly stated is that we have a good growth in the existing customer base of HANZA.
Perfect. All right. I leave it there. Thank you.
Yep.
The next question comes from Lucas Mattsson from Inderes. Please go ahead.
Hello, guys. Good morning. I hope you can hear me loud and clear.
Yes.
Yeah, I was wondering, how do you see the cultural risks, and how were they assessed?
You mean integration-wise?
Yeah. Yeah.
Now, as I said, I've been following and admiring this company for years. I met a lot of people inside the organization. They have also been visiting us. I think it's a full match. We are both the same mindset with this decentralization and how we believe a company should be run. Of course, it's a huge integration. Normally, when you buy a company this size, you will have a number of factories. Now we have one super factory in Augsburg. It also makes it a bit easier than if you have to run around. We have Czech in Israel and a small sourcing office in China. The bulk is in Germany. I would give this a very, very positive forecast.
All right. Maybe you mentioned this before, but what kind of potential synergies do you see and where do they come from?
That's the thing, how to improve such a big and beautiful company. First of all, the sales model and our concept. We see cross-sales where we then can add technologies to existing customers, what we call all you need is one. Of course, also upsales when we can streamline the customer's supply chain, what we call MIG. On the sales side, we see really good synergies. On the cost side, there is a number of activities. Lars has a handbook how to handle this, and it's always been working. I will not give any details, probably the secret sauce. I expect both the margin to go up and, most importantly, the cash flow to be extremely strong.
Interesting. Lastly, perhaps, could you give us any hints on the strategic direction for the coming period as well?
No.
Okay, all right.
I hope you will join our Capital Market Day.
Yeah, I will for sure.
It will be interesting.
All right, guys. Thank you very much.
Thank you.
The next question comes from Anders Åkerblom from Nordea. Please go ahead.
Hi. Good morning. I hope you can hear me well. This is Jakob from Nordea calling in for Anders. My first question is, could you please elaborate a bit on the customer portfolio? Is there any overlap to your exposure, and where do you see the greatest opportunities for expansion? If you could precise the defense share in BMK, that would be appreciated.
Oh, a lot of questions. First of all, I cannot give you the names of the customer base until closing, but it is a very well-balanced customer base, which is important. It is the airbag through the recession and the engine when the economy is strong. There is no dominant customer. All of them are well below 10%, which is our limit. We also see that there is a low exposure, as I said, to automotive, which I think is important. A well-balanced customer base. Sorry, what was more questions you said?
If you could just, precise the defense share, that would be appreciated.
Yeah, very, very low. They have not been working with that. Like many other companies in Germany, the defense share is very low. That's also where we see the biggest potential because the recipe we have is really well fit with the defense industry. We expect defense industry to be a large part of the operation in Germany, whereas today, almost zero.
Okay. One more question, if I may ask. Looking into the 2025 performance, you state that earnings level of slightly above 7% for 2025. Could you share anything in terms of what your view was of a normalized profitability for BMK?
Lars, what would you say on that?
I don't know. What we're saying is that we expect the 7.3% in operating margin to increase. That's what we have said.
Okay, thank you very much.
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. I hand the conference back to the speakers for any closing comments.
Okay. Thank you all for your interest, and thank you for all the questions. It is goodbye from us. We will now go out and meet all our new colleagues. I wish you a great day and hope to see you soon. Thank you.