Welcome to the HANZA Q2 presentation for 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to CEO and President, Erik Stenfors, and CFO, Lars Åkerblom. Please go ahead.
Thank you. Good morning. This is Erik Stenfors speaking, CEO of HANZA, I wish you a very warm welcome to this presentation of HANZA's Q2 2023. The short version, HANZA is doing really well. Today, we presented another all-time high quarter. We see a solid growth. We see an operating margin, which is up to 8.6%. Always important, we have a strong cash flow, SEK 86 million.
Furthermore, we closed a very important deal with Mitsubishi. This is a deal that shows the strength of HANZA's business concept and also the potential moving forward. We keep our strong outlook. I trust that this presentation will provide a deeper understanding of why we remain positive about the future. Let's start and have a look at the agenda.
We have structured this the normal way in three parts. That is, I will start with a business update, then my dear colleague, Lars Åkerblom, HANZA CFO, will talk about the financial performance and also an update on the sustainability work. Next, we have a short summary and a look at the future, and at the end, we have our Q&A session, and Lars and I will be really happy to answer any of your questions.
Q2 , it was another step towards the next milestone of HANZA 2025. Sales is up, demand stays strong, and the reason is, firstly, that we have a very good customer base. We have customers from different segments, such as, energy, defense, forestry, mining, medtech, but also that we're able to take new contracts, both with existing and new customers.
This is an important aspect, HANZA offers manufacturing in a new way, which differs them from traditional contract manufacturers, and that also creates a significantly larger market. I will come back to this on the next page. Also, we had our annual customer survey, and pleased to see a very good response rate and very good feedback. This dialogue is really fundamental for the development of HANZA.
We have no own product, so we need to develop HANZA in line with the demand of our customers. If you look at operations, as sales increase, we need to increase capacity, and this is always something that affects profitability, but we have an advantage of our cluster concept. We have a modular expansion model. You can look at the picture to the right. Here we see Estonia.
We started with a sheet metal factory, then we added an assembly hall, right now we are expanding the sheet metal factory with 3,700 sq meters. It will be ready by the end of this year. Furthermore, we have also bought some additional land, so we can continue this module expansion. These programs are ongoing now in both the Baltics and also Central Europe and China.
In main markets, we were really glad to be able to acquire the least production facility we have in Töcksfors, 11,000 square meters, we also bought land, 28,000 square meters, this is, of course, good for future expansion. HANZA is not only manufacturing. We also have our service side, we have our R&D department in Münster, Germany.
There, we have an ongoing expansion of the building. I hope that we can have an opening ceremony somewhere this autumn. That's how we cope with the solid increase of sales. If we have a look at the deal with Mitsubishi Logisnext. This is a deal we made in the beginning of July. Mitsubishi Logisnext Europe, abbreviated MLE, they are a provider of logistic solutions. They have a range of own forklifts.
This is a large deal. We estimate the order value to be well above SEK 100 million per year. If you then look at our turnover, this represents several % of the annual sales. More than being just a large deal, it's also an important deal because, again, it shows the strength of our business model.
We work with optimizing our customer supply chain to make a better manufacturing solution, not only selling manufacturing, but also manufacturing solutions. In this case, we will gather the parts production, the parts assembly, testing, logistics, everything in our manufacturing cluster in Estonia. Now, this will be good for Mitsubishi.
It will lower their manufacturing costs, it will increase the flexibility, easier to vary the demand, and also make it more robust manufacturing solutions, so it will increase the delivery accuracy. Of course, it's also a very good deal for HANZA, and it is an example of a deal that only HANZA can offer.
Last but certainly not least, it's also good for the environment. By making these kind of solutions, complete and regional manufacturing solutions, we also reduce number of transports. This, of course, is good for the environment as it reduces the emission of CO2. On that topic, I will leave the floor to Lars, who will continue to talk about our sustainability work.
Thank you, Erik. Just making sure that you hear me loud and clear, Erik?
Yes, you are loud and clear.
Sustainability is important, and we work in HANZA with three main areas. It's environmental, environment and climate, it's security and ethics, and employees. This quarter, we have joined the UN Global Compact, and by that, we undertake to follow the 10 principles of human rights, working in condition, environment, and anti-corruption that they set up.
We have also implemented a supplier relationship management system. That is, of course, important for the environment as well, since the big part of the impact HANZA has is due to what we buy from the suppliers. We are prioritizing and working with the employer branding to attract and motivate new employees to retain competence within the existing employees of HANZA.
You can see also that some of the KPIs that we have in the annual report, sustainability report, we also follow up quarterly, and you can see that the waste and the energy use is reduced in 2023 compared to 2021 and 2022. The injuries related to working hours is on the same level. It has increased slightly. Moving into the financials, and as Erik said, it's a strong quarter, and we are continuously to grow. We have 21% growth, adding to SEK 1,068 million, and that is adjusted for acquisitions and currency, a 13% organic growth.
Last year, in Q2 , we had the invoicing of energy and some material with low or no margin, the underlying organic growth is actually a little bit higher than the 13%. We are now reaching SEK 4 billion in rolling 12, compared to SEK 3.5 billion in the full year 2022, a year ago, we had a rolling 12 months of SEK 3 billion.
We are increasing sales by SEK 1 billion in, compared to 12 months ago. We have increased the earnings. We have a significant growth increase of the EBITDA, with 61%, we reached SEK 92 million compared to SEK 57 million a year ago. As Erik mentioned, we are on 8.6% compared to 6.4%.
Rolling 12, we have reached a little bit over 7% in pro margin. We are able to get the profitability all the way down to the last row, the EPS is increasing by 50% and reach SEK 1.51. For the first half year, we are on SEK 3 in earnings per share. Looking into the segments, we have a really strong growth in main market. It's organic growth of 19%, and also extremely high profitability. We have a margin of above 11% compared to 7%, 7.6% a year ago.
It's, when we compare to last year's quarter, we shall remember that a year ago, we were in the integration phase of the acquisition we did in 2021 in Germany. At that time, that company was operating at the zero margin. In segment other markets, we have a growth, it's 5%, just for acquisitions and currency. We have increased the profitability.
We are about 6% compared to 5.5% a year ago. The expansion programs we have in Poland, Czech Republic, and China still have a negative impact on both sales and margin. We also in other markets, have some shortage in material that also affected the sales and the margin. Balance sheet and the KPIs. We have a strong cash flow.
We reached 86%, and actually the rolling 12 months cash flow is SEK 277 million, which is strong if we know that we at the same time have increased SEK 1 billion in turnover, and we also have a material shortage situation that we need to handle. The net debt is decreasing. It's down to 1.5 times the EBITDA.
It actually increased a little bit from the first quarter, but that is due to the fact that we did the acquisition of the real estate in Cluster Sweden, as Erik mentioned. If we adjust for that acquisition, we actually lowered the net debt in Q2. We paid out dividends of SEK 0.75 per share, corresponding to SEK 29 million.
Management increased their shareholding in HANZA by 291,000 shares, and the management today holds 855 shares, corresponding to a little bit over 2% of the whole holding in HANZA. The AGM decided on the long-term share saving program for 13 the top management in HANZA group.
We're glad to announce that we had a really good participation in that savings program with 97%, close to 100% of the available shares were subscribed for. This is a program where the employees invest, then based on the outcome of the program, it can be additional shares to the management.
We can also update you on the financial target that we decided on in Q4 last year. We can see that we are on rolling 12 on SEK 4 billion, the financial goal is SEK 5 billion in 2025. We should have an operating margin of 8%. In the Q2, we were above that. We were on 8.6%. Rolling 12, we are a little bit over 7%, 7.2%.
We are above the financial goal for equity ratio. We are on 37%, we are below the goal. We have reached the goal for the net debt. We are on 1.5, the goal is 2.5 times the EBITDA. We paid out dividends close to the financial goals. By that, I leave over to Eric and the summary and outlook.
Thank you, Lars. You may notice that Financial Hearings has a new feature. We can now change the image ourselves, so we no longer need to refer to which image we are talking about. Anyway, now we are on page number 9. The summary of this presentation and an outlook. Lars mentioned our sales target. It is to pass SEK 5 billion in just a couple of years, in 2025.
We have a very strong customer base. We have a very strong concept, so we stay convinced that we will achieve this goal. Earnings-wise, Lars also mentioned that we are above the target we have in main markets, but below in other markets. There is a scale advantage of HANZA's business concept. When we reach around SEK 1 billion in annual sales in a cluster, we have a positive margin impact.
Now we are building on all our clusters, and that makes us also convinced that we will be on the right side of 8% also after adding this SEK 1 billion in sales from current rolling twelve. Long term, acquisition, important part of our concept. We don't buy companies to become bigger, but to become better.
Better meaning that we can go to our customers, look them in the eyes, and say that we bought this company, and guess what? HANZA is a bit better now for your manufacturing. Could be new manufacturing technologies, it can be capacity, like the acquisition we did mentioned Mönchengladbach. This will continue. It can also be part of this phase, HANZA 2025.
If we look at a bit longer term, we have been clear on that HANZA 2025 is about building the existing clusters, and also clear that after we have done that, once we have reached our financial targets, we will do a geogr aphic expansion, launch a new cluster. Where? Well, that is the dialogue with our customers.
We don't have our own opinion. It must be driven by the demand of our customers, how we would expand. You can expect geographical expansion after we have reached the financial targets. This concludes our presentation, and now we are open for any questions.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Fredrik Nilsson from Redeye. Please go ahead.
Thank you. Hi, Erik and Lars. I want to start with the component shortage. I mean, how come you suffer from it in other markets, but not in main markets? I mean, main markets is also growing faster organically in this quarter. What kind of components are hard to find?
Good morning, Eric speaking. It's an easy answer to that. It's customer specific. What, when we say that the component situation is getting better, that means that a large portion of our customers now receive the components, but we still have, depending on what kind of product it is, we still have a long lead time on some products.
It so happens that this quarter, we could not handle some of the deliveries in other markets due to component shortages. I cannot go into details what kind of components we're talking about and what products, but it affected the other markets this quarter.
Okay, I see. Also, could you elaborate a bit on the margin in main markets and the progress in the German cluster? If the current level sustainable, or were there anything specific in this quarter?
I don't think, no, we have nothing specific in this quarter. It's a function of, as we said, the, it's a size function. We have a very good cluster model where when we reach a certain size, we can make good utilization of our customer value, and when we increase customer value, we can also increase our margin. I would say there is nothing specific in this.
It's a good quarter, simply. We have not said that we're going to around 11% on the group, but we have said that the mature cluster should be able to run double digits. We have half of the answer with mature clusters office still under contract construction. We need some slack for activities on a group level. That's why we have the goal of 8% on the group, but nothing specific in this quarter.
Okay. Regarding the purchase in Töcksfors, do you have any immediate plans to develop that, or is it more of a long-term purchase?
We are always developing our clusters. Right now we have just bought the building and the land. We are preparing the land now. We are doing some groundworks. We have not said when we will expand this. Of course, that's in the cards. When we acquire land, like the one that we shown in the presentation, Estonia, sooner or later we will use it. It's a very good insurance for the future, to buy land. It helps us.
Okay. That's all from me. Thank you very much.
The next question comes from Niklas Elmhammer, from Carlsquare. Please go ahead.
Good morning, and thank you. I was, you know, requesting about the order situation. Some of your peers are reporting lower book-to-bill as orders are now faced with shorter lead times. How about you? Are you seeing something similar?
The short answer is no. We understand that this is a main topic. I think that the reason is that we have a very good customer base. We all know the situation in the defense industry, and we said also that we had a customer in the defense industry that more than doubled the order backlog. We also saw the reports from Sandvik. Last week, the mining sector is doing really well. We have a strong demand in forestry and agriculture, energy, a very strong sector, so it's more in the customer base we have, we have a solid demand.
Okay. Also coming back to main market and the sort of sustainability here. Should we interpret this as the profitability is now even between the different clusters in main markets? Is there still room to improve in some areas?
I can leave that to you, Lars.
Yes, there is room for improvement, especially in other markets. We are developing other markets. We know, as we said earlier in this call, that when we reach 1 billion SEK, the size of 1 billion SEK, we see a, increased profitability due to size, and not all of the clusters in other markets are in that size.
We also are developing some of the clusters with expansion. As I said earlier, we see that has an impact on sales and profitability. We have said many times that we really do not see any difference in the profitability long term between other markets and main markets. There is a potential to increase the profitability, especially in other markets.
Yeah, and also good to hear about new business with Mitsubishi for other markets. In the shorter term, do you expect further negative impact on growth from, on one hand, these expansions, and on the other hand, you have lower effects from direct invoicing of materials and so on?
I mean, you, on a month base, on a quarter base, when you switch gear, you will momentarily have a lack of acceleration. When we do installation of our welding robots or when there is a component shortage, there is a stop somewhere in some factory. In general, in HANZA as a group, with the size we have, we will always continue to grow.
We don't see that as a challenge, and, as you pointed out, this is a very, very large order we got for other markets, and it's up in total volume in one year, so that will really had helped the speed of other markets also.
Okay, great. Thanks. Thanks for the answers. I'm done.
Thank you.
The next question comes from Anders Roslund from Pareto Securities. Please go ahead.
Yes, good morning. I had just 1 question regarding the growth scenario here. Organic growth is down to 13%, but main market is growing 19 and other markets 5%. You mentioned those supply chain issues. I guess that part of the supply chain issues, how sustainable is that? Could it recover here in the second half of the year, or how should we look upon it?
I don't know if you'd like to elaborate on that, Lars.
As Erik said, the material shortage is over time getting better and better. We still have a shortage of material. In Q2, it is also, as Erik said, it is connected with the specific material for certain customers in other markets. We still see the trend that it's getting better. It's not as good as it was a couple of years ago, but if things are not getting worse, it should not be sustainable. We should be able to grow and not be burdened by material shortage going forward. We need to see how the material shortage situation is developing.
Because if I look it from a market perspective, there shouldn't be any difference in growth in main and other markets. I mean, where you produce is one thing, and the overall market, it seems that in the main market, you have the same organic growth as in the first quarter, while in the other market, it's fell dramatically. I assume then that what I'm coming to, that the end market is still doing relatively well. It's more that you weren't able to produce as much as you'd hoped, or?
Yeah, that's a good observation, and we don't really see sales as the big challenge, but capacity, and that means that we need to increase the capacity all the time. As you saw in the presentation, we are now making a rather large expansion in entirety with this 3,700 square meters.
Every time we do an expansion, there will be some impact on the deliveries, and on top of that, we had the shortages in important product. This is from quarter to quarter, it's no trend. We should have, like you say, it's a very good observation. The clusters is one thing, the market is another thing, and the market is strong. When we have a hiccup in somewhere, it's just because that we are expanding capacity or there's something else happening in that quarter. If you look at this maybe on a yearly basis.
You talk about that you're expanding specifically in other markets, and that's taking down margins, and I guess that will continue for the rest of the year, that you have sort of a cost for expanding the capacity.
Yes, we saw, for instance, in China, there was a complete restart when COVID was, these regulations were finally removed in the beginning of this year, now we have a strong trend in two directions that everybody would like to produce locally. If you're selling for China, you'd like to be in China.
If you're selling for Europe, you'd like to be in Europe. We are helping customers to transfer, and that's a huge thing that also takes costs. It will take some time before we see the full potential of China. Same thing in Central Europe, which is one of the catalogs we are developing heavily right now. A lot of installation and equipments and yep, provide takes down the speed.
Finally, I have a question regarding the cash flow. It's improving and, yeah, what's what should we expect this improvement to continue for the rest of the year, or?
Would you like to comment on that, Lars?
Well, without giving any forecast, what you can see, going back in time is that we had to increase the working capital quite a lot, half a year, a year ago, and that we have been able to solve in 2023. We are increasing working capital as a fact when we are growing in sales. On top of that.
We do not need to increase the working capital more. It depends on the development of the material shortage situation. If that is better and ease up, we expect to be able to lower the working capital.
Excellent. Okay,
You might have seen also, as a comment also, you might have seen that the stock went up from Q1 to Q2.
Yeah
If, this cash flow is not driven by lowering the stock because we're still expanding, but there will be a time where we can get rid of some excess material that we bought because of the component situation, then the stock will stabilize and will also drive cash flow.
Okay, good. Yeah, that was all questions for me. Thanks.
As a reminder, if you wish to ask a question, please dial star 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 so much for attending this presentation. I hope it gave you some additional understanding of HANZA. We will now end this audio cast. I wish you all a great day. Thank you.