Welcome to HANZA webcast presentation. During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now, I will hand the conference over to the speakers, CEO Erik Stenfors and CFO Lars Åkerblom. Please go ahead.
Thank you, welcome to this special summer audiocast. We have arranged to present an important transaction for HANZA. This morning, we announced the acquisition of five factories in heavy mechanics and complex assembly, it will add competence capacity and about SEK 1.9 billion in annual sales. Today, we are joining you from Estonia, from Narva.
This is one of the five factory locations which is included in the transaction. Being here is quite symbolic. This city, Narva, has for long been the key location for HANZA's heavy mechanics and a very important part of our industrial platform. We made a presentation for you. Here's the agenda. I will start, and to explain the logic behind this transaction, I will start with a short recap of our strategy, HANZA 2028. Then we will walk through the acquisition.
I will next hand over to Lars, who will give you the transaction structure and the financial impact. Then we end with an outlook and, of course, a Q&A session. Please use that. Let me first remind you why we started HANZA. What kind of problem this company is designed to solve? You can see it on this slide. Traditional contract manufacturing often creates fragmented supply structure, and the customer, in the end, you see the customer in the middle here, they will end up with all these multiple suppliers, multiple interfaces, multiple handovers, and every interface adds complexity.
Complexity, that's more or less the enemy of everything that matters in contract manufacturing. There's cost, quality, lead time, responsibility. That's why we started HANZA, to remove complexity. How do we do this? Well, in two ways. First, we combine different manufacturing technologies within one company, but secondly, also, we design factories and flows around our customers' needs. We believe that the customer should not adapt to the contract manufacturer. It should be the other way around.
This is what allows us then to reduce interfaces and improve efficiency, make a much more clear responsibility, and from parts to modules. This is simply the HANZA model. It's simple to explain, but it's very powerful in execution. This is also one of the reasons why HANZA has become one of Europe's leading contract manufacturer in a relatively short time. We have birthday coming up August 6th, and this year we turn 18. In addition to this business model, there's another important factor behind our growth, and that is our execution model.
Since the start, we developed HANZA through clear strategic phases. They have always been based on customer demand. Now we have this phase, HANZA 2028. We launched it on a capital markets day in March this year. The focus now is to widen our manufacturing scope by strengthening selected technologies.
Of course, the principle remains the same. Customer demand. That is what will drive our technology roadmap. If we look at the technologies we have, we today have six main manufacturing technologies, as shown on this slide. We see increasing customer demands in almost every area. In, let's say, electronics and sheet metal mechanics, I would say that we already have a leading position. In heavy mechanics, however, this is our smallest technology area. It is also part where we see the greatest opportunities.
That comes, of course, because the industries needs manufacturing closer to the main markets, especially heavy mechanics with resilient supply chains and delivery accuracy. We see several industries working in this direction. Of course, it is particularly strong in defense. Also see mining, agriculture, material handling, off-road vehicles. The strategic logic is very clear. This is all about strengthening the area where we today have the smallest position, but also the fastest-growing customer need.
That brings it up to the acquisition we are announcing today. Let's move from the strategy to what we are acquiring and why the fit is so clear. Fortaco. Fortaco, I don't know if you know them. It is a contract manufacturer of vehicle cabins. They call it steel fabrication assemblies and engineering solutions. It is a company we know very well. We have had a dialogue with them for years.
This is very important. This is important. It is not making acquisitions that is our strategy. It is our strategy that leads to the acquisitions. We like to have this proactive dialogue for a long time to understand exactly how we can fit together. This is how we like to approach the acquisitions, not based on what happens to be for sale We find a clear strategic fit and we enter a transaction. This transaction is a carve-out from Fortaco. It is almost a surgical carve-out of a business that fits HANZA. You see to the right that we are acquiring then the steel fabrication, what we call heavy mechanics and assembly.
It means also that Fortaco will keep the cabin operations so they can focus on that. What we are acquiring is we are welcoming 1,300 new colleagues and adding, again, about EUR 170 million in annual sales. Look at this slide. This is fantastic. These are the factories we are buying, five of them, two in Finland, one in Estonia, and two in Poland.
What you can see here is that the acquired operation consists of factories in geographies where HANZA already has a presence. It means we are adding competence and capacity in areas where we have what we call manufacturing clusters. That is one of the reason why this acquisition is such a strong fit. You also see it is quite substantial. These are established sites, well working with, what would it be? 100,000 sq m in total we are adding to HANZA.
We had a chance to meet some of the customers, and they are giving a thumbs up for this. This is really a good deal from their perspective as well. Let's then move to. I think you have seen this if you've been following us, our acquisition parameters. If we try then to assess this transaction against them, we see that, as on the previous slide, the geography is perfect. We also see the technology. It's heavy mechanics, complex assembly again, in line with our clear customer demand.
Then comes culture. Those of you who have been following HANZA know that this is very important to us. We look with decentralized companies, with experienced people, strong local management, good corporate culture. This is really important for us. Actually, if you think about it, we get questions about integration. The most important work for successful integration takes place before the acquisition. Our HR manager is normally first on site making sure that it will work together. Here we see a culture fit, which is then extremely important for making the integration smooth after closing.
Customer base, I touched on this. We have already talked to some customers. They are happy about the deal. The base is diversified. I understand you would like to hear more names, but we cannot reveal that until closing. I can tell you this much, it's a very diversified customer base. It's limited overlap and clear sales opportunities. No leading customer. It's also important because we don't have our own products, so for contract manufacturer, the customer base is crucial. It's not just about revenue, it's about future opportunities. Financial profile.
It's an established profitability, solid growth, and that means that we see clear value creation potential. Taking it together, this is why we see the transaction as a fantastic fit and a major step towards the HANZA 2028. With this transaction also, we reach a new scale. This is just pro forma. It's not how it's going to be at closing. It's if we just added the businesses today, you will see would be about SEK 12 billion in revenue and 6,300 people. You also might know that we are running another program, Horizon, and this is also important if you're following us.
Horizon, that is streamlining our manufacturing platform, so to make it more efficient. This acquisition is about making the platform even more complete. These are the two things we are running now in HANZA 2028 to give it a strong operational start. Now we have talked a lot about the strategy and the rationale. Next point is equally important, the transaction structure and the financial impact. I will then hand over to you, Lars, to take us through this.
Thank you, Erik. This acquisition is, as Erik mentioned, it's acquisition of five factories from Fortaco. It's a combination of empty legal entities and asset deal, a carve-out of existing Fortaco factories. As Erik mentioned also, the Fortaco's off-road vehicle cabin will remain within Fortaco and will be separated between signing and closing. We are adding approximately 1,300 employees into HANZA, with approximately EUR 170 million or SEK 1.9 billion . We are getting stronger in heavy mechanics, in this machining of heavy equipment, welding, advanced assembly.
The customer base is, if you have followed us, what we have seen, the type of indices that has been growing the last year or so, defense, mining, agriculture, et c, and off-road vehicles, which will be sort of an added-on market for us. It is a strategic fit. We see the demand in Europe for this type of technology is growing and is strong, and we expect it to continue to grow and be strong. We are adding capacity to meet this demand within the HANZA cluster geographies.
We see this as an important step in the roadmap in achieving the financial goals and the strategy that we defined as HANZA 2028. The initial payment will be based on an enterprise value of EUR 144 million , debt-free company, and normalized working capital. It's approximately eight times an adjusted EBITA for the rolling 12 months ended May 26. There is an additional purchase price of maximum EUR 56 million . It is based on organic growth on the sales development on the existing customer base that we acquire.
It will be payable in the beginning of 2027 based on the financial year 2026, one year later in the beginning of 2028 for the financial year 2027. The total amount that HANZA can pay for this acquisition is EUR 200 million, adding the EUR 56 million to the initial EUR 144 million. It is a cash deal. We are using existing funds and additional loans to do this acquisition. There is no financial condition in the agreement. We expect closing to be somewhere during Q4 this year, it's subject to normal customer regulations, approvals, competition, et c, but also approval from some of Fortaco's financing stakeholders or partners.
To summarize the financial impact, you can see to the right, HANZA's Q1 figures and an approximate figure of the net sales adding from this acquisition, the carve-out part of Fortaco adding SEK 475 from the [SEK 2.6 billion] leading to net sales pro forma of a little bit over SEK 3 billion . Annual level rolling SEK 12, a little bit close to SEK 12.5 billion . We expect this acquisition to this part of HANZA to add approximately 9% in EBITA.
Following the closing, we of course intend to integrate the operation into the group cluster model and provide resources to continue the capacity growth and customer development, the things that we normally do when we do acquisition to reach the long-term strength and capacity of this company combined within the HANZA business model. We expect this initial 9% to increase over time.
We see sales synergies, cost synergies, as I said before, improved capacity in the heavy mechanics part, where we was the smallest technology within HANZA. The financial impact, again, this is not an equity financing, not for the initial payment and neither for the additional purchase price. However, we still believe that we will be able to keep the net debt according to EBITDA lower than 2.5x , which is the target for HANZA.
We expect the equity to asset ratio to still be well above this 30%, that also is a financial target of HANZA. This is a major step and an important step for us to reach the financial goals of HANZA 2028, which is to reach the net sales of SEK 14 billion, with a margin of at least 9%. Continue to have a solidity equity to asset ratio above 30% and a net debt that is below 2.5x The EBITDA. With that, I leave it back to you, Erik, for the summary.
Thank you, Lars. Let's then take this slide and summarize the key messages and what it means for HANZA going forward. First of all, the acquisition is fully aligned with the customer-driven technology roadmap described earlier, and it will accelerate this strategy phase, HANZA 2028. It will strengthen our heavy mechanics and complex assembly and will add these high-quality factories with the experienced teams and management with a very strong operational track record.
Customer base. The acquired operations brings this diversified customer base. We see limited overlap, clear cross-selling opportunities. It's important because this gives us both new customer relationships, but also new opportunities with existing customers from HANZA. A very disciplined carve-out. It gave us a platform for expansion, and that's also very important. This is a starting point for further capacity expansion in this technology area. Financially, the transaction really creates long-term value.
Lars walked you through this, supporting revenue growth, margin development, cash flow. You have seen that with the acquisitions or after the acquisitions, there is normally a wave of cash flow due to some activities we do with the working capital. Also we can do this deal while maintaining our strong financial position, and that's very important, of course. Closing expected in Q4, I would even say in the beginning of Q4. With that, we are ready to take your 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 Anton Ingves from Nordea. Please go ahead.
Yes. Hi, Erik and Lars. Thanks for taking my questions. Starting off a bit on the cross-selling opportunities that you alluded to here, Erik, can you put a bit more flavor on this?
Yeah. If you come from a traditional contract manufacturer, then you're used to just buying one technology, and then you go into the scope of HANZA, then you realize that there are much more opportunities. What is sales? Sales is about what you can offer and relations. There is a good relationship, a strong relationship between the customers following the acquisition and the people inside these factories, meaning that from their perspective, it will be Fortaco now even better.
Whatever was good before stays, but now there are new opportunities. We have seen this from the previous acquisitions, and we talked about this on previous [Audicasts] for instance, in Finland after the acquisition of Leden, we saw that the customers were booming, increasing orders, and same thing in BMK. If you remember this electronics factory we were buying half a year ago.
I've been there personally meeting many customers, they are really happy about the new concept. I really think that we are right in time with this because everybody's talking about reducing the number of suppliers. Here comes the offer from a trusted partner. The foot is in the door. We can open it with our concept. Was that a fair answer to your question?
Yeah. Sounds at least like quite some good opportunities. The capacity in the acquired factories, how is that looking or the utilization as of now? Is there any need of investments to go further here, or is there still a lot of capacity to grow?
That's a very good question, and thank you so much for asking that. That is the thing. We need to expand all the time to cope with the demand, with the organic growth, it means that we need a way to do that. Now, if we just put down the HANZA flag in the middle of nowhere, building a factory, we have a challenge. We can build a factory, no problem. We can install the machines, we don't have the people. We don't have the experience. We don't have the competence. When we do this kind of acquisition, it's really important to get the crew on board, the people who know the work.
You can expand. This is excuse me, exactly what we've done in the previous clusters we have. You've probably seen how we've been expanding in Sweden. We opened a new facility and a new one again, easily because we have the people structure. Same thing in Finland. You probably saw that after the Leden, we added a huge new building in Oulainen just next to it because we have the structure, the same thing in Estonia and previous places.
What we plan now for the future is that we have a point of a region, it's much easier now to expand from that point than starting in the middle of nowhere. It's really good that we get a grip both in Finland and Poland, for Estonia, it's just a few 100 m between the factories here, so we expect it also to be easier. We can share some investments and increase capacity in a smarter way. You talk about utilization, I cannot give you details, I can tell you that we will increase capacity we will do it fast.
On the margins here, maybe a question for Lars as well. When I looked at it, to my understanding, they're running a bit above 10% as of now, and I understand the effect with the carve-out and the increase in overhead once it's included in your organization. The drop-down to 9% once integrated here, can you elaborate a bit more and give some more flavor on that?
Yes. As I said in the call, HANZA will, as we always do, we will integrate the operation that require into the HANZA business model, the cluster model, and we are working with the long-term perspective, adding possibilities to cross-sell. Most important is not the single entity or cluster profitability. It is the HANZA overall profitability that is the most important. We also are buying a carve-out part of Fortaco, which means that we will need some additional top management also to run this operation. What we have built this acquisition on is a calculation that this part will add approximately 9% in margin as a starting point, and then we expect this to increase over time when we have integrated it into the HANZA business model and with cross-selling, et c.
That's also a very good question.
Okay.
I'd just like to add to this that we, as I was stating in my previous answer, that, of course, we are reloading now for a capacity expansion, so it cost a bit to expand also.
Yep. It should be seen more as a growth opportunity here, the margin perhaps decline to start off with. That's right. One final one from me, if I may. The integration phase, as you said, it's expected to close in the beginning of Q4 this year. I know it's hard for you maybe now to share the details of the integration process, but do you expect this to start off straight away, or will this be a gradual process as in BMK, or how should we view this?
I think that, first of all, we have built a decentralized organization with a manufacturing cluster that makes it easier to acquire and integrate operations. We know that the integration in Germany is proceeding well according to plan. This acquisition involves Finland, Estonia, Poland, regions where we already have presence and where integration can take place through existing clusters. I would expect it to be as smooth as the BMK, which was a large one, and there we were always a bit ahead of the schedule all the time. I wish I could give you a date, but normally we say one year, but so far we've always been faster than that.
Anton, just to add, you probably seen our press release today about splitting the two cluster in Central Europe into cluster Poland and Czech Republic, and also adding Poland within the region North. That's how we will present and the segments starting from Q1 2027.
Yeah. That's really good that you bring it up. Sorry. I'd like to expand on that because that is really important. We have had a cluster Central Europe with Czech Republic and Poland, as Lars is stating now, we split it up in two clusters. We like to have one cluster per country because it's the same language, same culture, same legal system. This is really also an advantage, a spinoff of this acquisition that we get the size so we can actually make this cluster into two clusters, and that also makes it easier for the integration.
Perfect. Very clear. Thanks a lot for taking my questions here. That's all for me.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Oliver Uusitalo from Aktiespararna . Please go ahead.
Good morning, guys. Thank you for taking my questions. I have just a few. I think I'd like to start off how this will potentially, of course, affect your integration with BMK that you said, Erik, is apparently running very smooth. How can you ensure that this acquisition does not interfere with the integration process that you're doing with the BMK currently?
Yeah, that's a fair question. I had the honor, as you might know, to be the acting managing director of BMK during the spring. I fired myself and went back to being just CEO. It was good to see this with a close vision. The integration is working so well because of the people we have in these countries. We have already people in Germany, we have already people in Finland, Estonia, and Poland. The trick is the decentralization and making it not just one big integration with some bottleneck trying to do this, but doing it locally.
Germany is a separate part, it will not be affected by this, whereas then this work will be ongoing in Finland, Estonia, Poland, where they have already good experience of integration. This is not the first acquisition in Finland or Estonia or Poland. There are teams who knows what to do, and they're working in parallel, not in sequence. That's why I'm quite positive that this will be a smooth integration.
Right. Fair enough. In terms of customer concentration, you mentioned that the customer base of Fortaco is quite well-balanced. I'd like to know, could you specify how much that comes from the defense sector?
Oh. I wish I could, but I can't. I'm not allowed to reveal anything regarding the customer base until closing, but I can just tell you there's different segments and different customers from different segments, and they are well-known, really great companies we really would like to bring in as customers to HANZA. We will be very proud to announce them when the closing is done.
Yeah, for sure. Will this affect the customer concentration for the entire HANZA group? I guess that you will still be within your financial targets, so to say, in terms of customer concentration, that is.
Yeah. For sure. That's been a very important rule from the beginning, not to have one customer being 10% and the 10 largest being below 50%. Yeah, we are just getting more diversified, and that's also why we have this other program, Horizon, to make sure that we bring up some larger platforms and some larger customers. There's no risk for a concentration after this deal, no.
All right. Perhaps you already answered this, previously there has been sort of a worry among your customers within the more general industry due to the growth within the defense sector. How does this acquisition affect that?
If you look at the defense sector, they need a lot of mechanics. Of course, that is one of the reasons for this acquisition. If you're running heavy mechanics, you like to have it locally. Without giving you more specifics, of course, defense companies are happy about this. Maybe you saw also that we got an award being the best supplier of Saab, for instance. We have a good relation with the same thing again, we have a good relation with the defense companies, Patria and Rheinmetall and more.
With this addition, we become even a more stronger supplier for them. In that area, deliveries is very important. We also have this LYNX program, which is directed towards the defense industry to make sure that we will safeguard capacity for other customers. That will also apply for the future. We will have special platforms, special units for the defense to make sure that we can reach all the demands on that production, still being able to give capacity for other sectors.
All right. Great. Thank you. I think my last question would be regarding the growth prospects here. Can you point us in any direction?
The growth prospects? What do you mean by that?
I mean.
You would like me to give a forecast?
Yeah. Of course. Also if you could spend a minute on the historical growth rate, for example, for Fortaco, what can we expect there?
Can we talk about this next Tuesday?
Yeah. Of course.
When we release our report, then we have some more information about the different segments and easier for me to comment on that.
Yeah. For sure. I think that's it from my end. See you next Thursday, then.
Thank you, Oliver.
Thank you so much.
There are no more questions at this time. I hand the conference back to the speakers for any closing comments.
Yes, thank you. It's a lovely summer day here in Estonia, and we are about to meet some of our coming colleagues now, so it will be a great afternoon. Thanks so much for joining today. To summarize, this is a major step towards our HANZA 2028 strategy, and we look forward to speaking with you again next week when we present our interim report for the second quarter. Thank you so much, and see you then.