Earnings Call: Q2 2021

Jul 27, 2021

Quarterly report

Thank you, operator. Good morning, everyone, and thank you for joining us in the middle of this summer. I'm Erik Denfors, the CEO of Hanse. And I will, together with our CFO, Lars Akerblom, present the Q2 2021. And also a reminder that this presentation is already available on our homepage, hansa.com. Now the Q2 is an interesting quarter for anyone who is following our company. The Q2 number shows How well we are progressing in our business model and the Q2 activities does quite a lot about the future. So let's go ahead and move to Page number 2. And a short market update. In the dialogues we have with our customers, so that's the product owning companies, we see some clear priorities now. There is a vivid discussion on how to streamline the supply chain, not only to lower the cost It's an increase of flexibility, but also to lower the exposure to supply chain disruptions. And that's, of course, driven by the experience from last year during the pandemic. There's also a refocus on sustainability, which is really good, something we like to work with. And so it's a lot of discussions how to make your manufacturing process more Sustainable and less impact negative impact on the environment. And also a hot topic, of course, is the shortage of Material and Components. Let's also put the light on the supply chain because we really like to have a short manufacturing process. So a short time between the arrival of the components and the delivery of the ready products. So if we move on to Hansa, we still are affected by some customer areas That was lower during the pandemic. We have customers selling equipment to stores, to breweries, to textile industry. We expect them to come back by the end of the year. But the good side is this trend driven by the priorities mentioned is We're headed towards local complete manufacturing, which is the core concept of Hunter. And this means also that we have seen a number of new Customers and Products this spring. And on top of that, Germany has now reopened, and this gives us a number of Also new opportunities. So all in all, we are quite optimistic about the sales development. And that's also why we have launched this year activity program. And then we move to Page number 3. We call it Roadmap 2021. In the previous presentations, we have Describe how our 6 manufacturing clusters has a different degree of maturity. And we are guided by long term perspective, so we're building them step by step. But in the light of this increased demand for our offer, we have decided to accelerate the development of our clusters. And of course, the different degrees of maturity gives different capacity and also different contribution to the Group margin, as Claus will come back to. So this year, we have decided to accelerate development. And in the Q1, We started building a new factory in Estonia. We see on the picture here the how it looks today. It will be opened by the beginning of next year. And we also made a strategic acquisition in Finland, a company that has been well integrated now and It's really supporting the Finnish cluster. Moving on to Q2. So in Sweden, we We launched a quite extensive investment program on the mechanics side, but we also opened a new coating area for electronics. So that is to protect components on circuit boards. And in China, we decided to move to new premises. So we will eventually have about 8,000 square meters. The factory location will take place this quarter, and we also did some new investments. So that's where we are right now. And before I move on to tell you a bit about the future, I will give the floor then to Lars, who will tell you about the financial development. And I think then Lars, we will move to the next page, Page number 4. Correct. Thank you, Erik. And I will guide you through the financials in In Alta Q2, we'll start with Page 4, CXS and the sales. And we see that net sales So that's grown. They are up 13% and amounts to SEK 634,000,000. Yes, we are selling mainly in euro. We have Negative effect on the currency, and that is approximately SEK 21,000,000. We have made an acquisition that has contributed to the sales, approximately SEK 40,000,000 and then we have also Rotterabajda is not part of the group anymore Since we moved that production to other production in Sweden and that is affecting negatively with Approximately SEK 10,000,000. If you adjust for those, we have a growth of approximately Can present. And as Erik said, we could have sold more. We are hurt by the shortage in components, And that has affected both the sales and also the result a little bit negative. We are now on a rolling 12 month sale of SEK 2,200,000,000. And as you can see that the first half year, it's SEK 1.2 billion. So we are on a higher level in sales for the first half year compared to the second half year last year. We have a strong Quarter from an earnings perspective, the EBITA amounted to SEK 40,400,000 and that is 6.4% in margin compared to last year or minus, but that Last quarter the quarter last year was affected by SEK 27.5 €1,000,000 in onetime costs for early decision to make actions In the middle of the COVID pandemic. And as I said, the material situation Has been strained and has affected the result negative a little bit. And we are now on the rolling 12 months Operating profit of a little bit over SEK 100,000,000. And the first half year, We are on SEK 63,000,000. So here again, we have a stronger first half year twenty twenty one compared to the last the second half year in 2020. If we move to Slide 5, We see the 2 different segments. We divide the company into the main markets And other markets, main markets there where we have production and customer in the same geographical area. And again, we see growth. We have 11% increase of sales in the main markets. We also here have a currency effect, approximately SEK 9,000,000. And we have a really strong margin. We are close to 8% in EBITDA margin. We are comparing To last year, and that is affected with the onetime cost of approximately SEK 10,000,000. We also see a really strong profitability in other markets. We see also Quite strong sales increase. In other markets, we are up 17%. Here, we have also have a currency effect of SEK 12,000,000. And this is, I think, very positive. We have, for a long time, worked with the development of other markets, and we see In many consecutive quarters that we have increased both sales and profitability in the other markets. And that, of course, is the key to reach the financial goal of 6% in the group total. And in the other markets, we are reaching a margin of 5%. And Both segments are affected by the component shortages, so it could have We've given stronger results in the 2 segments. We move on to Slide 6, Looking into the balance sheet and the KPIs, and we have an equity The ratio of approximately 32%, that is affected by both the dividends that we paid out With SEK 10,000,000 in this quarter and also negative affected by the currency exchange rate. And we have also made an acquisition that affects the equity situation. We have a net debt that is Increasing a little bit in the quarter, and that is mainly driven by the Building of the factory in Estonia, but also the need of increasing the stock Due to the shortage in components and a little bit delayed sales, as we have mentioned a couple of times now, That has affected both the net debt and the cash flow from operations. Cash flow is still positive. But if you compare it to last year, we have a real big change in the working capital that has a negative effect this quarter SEK 36,000,000 compared to positive effect of SEK 10,000,000. This we expect to come back when the component situation is getting better. We have a strong earnings per share. We reached SEK 73.73 in the quarter. And one sec for the first half year. And that is Partly, mainly due to the increased profitability, but also the fact that we are able to keep the financial cost at the same level at the growth of the company. And now, Erik, I'll leave over To you for looking ahead. Thank you, Lars. And then we turn to Page number 7. And I think that the Q2 numbers, it shows a very solid quarter and a progress according to plans, not being a surprise for Those have been following Hansa. What's interesting is the market development where we see that we have this very strong position and we have Sales coming in our direction due to different trends and the opening of the German market and returning volumes. And all this calls for increased capacity, and that's why we're running this program Roadmap 2021. And we have done a number of activities, as I showed previously, and we will do more activities in our clusters. And we are also open for further strategic acquisitions. We are constantly analyzing different opportunities. Now we are not running for buy and build strategy. So we're not buying companies in order to become a larger company, but we are buying company in order to be a better company. So still the guiding star is the customer value. But having said that, I think there are a number of companies which are Of interest for us and it could come more acquisitions. Also very important, we have created a good culture in Hanse. And now we see that we will expand, Hansa, with new colleagues. We have fantastic colleagues Lars and I today. We will have more colleagues, both through possible acquisitions and through recruitment. And then it's really important to keep the company culture. So we have a good and competent HR function in Alta. And they will It will be a very important focus area moving forward. And by that, we have reached the end of the presentation. And now we open for any questions. Thank Our first question comes from the line of Erik Kassel of ABG Sanddul Collier. Please go ahead. Your line is now open. Hello, everyone. So first off, I assume that It's in Germany where it's dragging down the margins in key markets. So do you expect recovering volumes to be enough to sort of Lift the margin all the way to 10% operating margin. You mentioned 70% of hands ahead this quarter, if that's even possible. I think I can start answering and maybe Lars will continue. So speaking and good morning, Erik. Good to hear you. I think that we have been clear that our model makes it possible for double digit margin in our clusters. We are not going to give any forecast if and when that happens, but now we see that the majority of handset is running that. On top of that, we have the clusters under construction, which is downloading the margin and that is actually our business model that we will continue to grow and be able to develop handsets and still maintain a good margin after the cost of the new constructions. I wouldn't give a forecast to Germany more than saying that it was a quite profitable unit and As we displayed when we come to Germany, then it's been a downturn. We expect it to come back and that should, of course, lead to increased margin. And on top of that, we see, as I stated before, a number of new opportunities in Germany. Germany is a huge market. It's larger than all the Nordic countries together. So We expect good development there. Lars, would you like to add something on that? No. Just commenting that you are correct in that Germany is part of the main market that is with the lowest profitability and taking that profit Margin bound to the main market, that's correct. Okay. Thanks very much guys. So I assume that it is textile customer. I think you said it's still production was on level with Q2 2020 for that customer. But do you have any indications for production ramp up in that case? So we this is a slow moing sector with also, I think, really good forecast. So they have Been able to forecast the downturn and I think they are the same accurate with upturn. So The frontline is shops like H and M and this and then it matures into the machine makers. But I think that we have a solid forecast, of course, subject to force majeure. But otherwise, I think we can see quite well how it will and move on the coming year. Okay. Thank you. And then you mentioned that this Sure, this has had a negative effect on results this quarter. I think Lars said they had a small effect. But anyway, is it possible to quantify that in any way? And also if you have a feel for the potential impact in the Q3 as well. I would say that when I talk to the customers, they are quite satisfied. Everybody knows about this situation. And I think that I only hear positive words that we are doing good in a hard market. I wouldn't be able to quantify it only to say that we have higher orders than we can deliver and it's not due to capacity, it's due to materials and this is expected to continue. But I wouldn't be able to quantify it into some numbers unfortunately. I can add, if you can look into the P and L, we've got Some briefing there. You can see on the sales and then you have the change in Work in progress in this quarter, plus SEK 41,000,000 and the last same quarter last year was minus SEK 15,000,000. So there you give some numbers on the effect on the sales. And of course, that is also due to the increase of the sales in total. But that gives you a little bit greeting of the size. Okay. Thank you. Very helpful. And then the last one for me. Could you perhaps Help us understand the current price cost dynamics on margins at the moment. And in other words, how much cost increases are you seeing in terms of Raw Materials and Components and how much have you increased prices? And is there a potential effect on margins as well? Would you try to comment on that, Lars? I think that no, we will not quantify that. But it's I think you can say that like this, that it doesn't change the fact that we have an organic growth in Hanse. So the 10% that we are growing is now due to the price increases. But there are also two sides of this. And one is the price increase and the other is the shortage where you don't get Trying to find components. So there are 2 parts of this shortage program. Okay. But no effect on the margins as a result of these cost increases? A little bit, but not big ones. Normally, what we do is that we are just forwarding the increase of the material To the customer, and that leads to higher sales and in theory lower margins since That is not part of our contribution, but it's not in Q2. It's not very, Very much. And that's it changed the picture of the development of Hansel. Okay. Thank you very much. Thank you. 1 on your telephone keypad. Our next question comes from the line of Fredrik Nielsen of Redeye. Please go ahead. Your line is now open. Hi, everyone. Looking at the actual figures you reported today, they came in quite a Above the preliminary figures, was it a strong end of the quarter? I think that it's been strong all over the quarter and continues to be strong. It's just you cannot really predict exactly the amount of deliveries. So we forecasted higher than and we came in higher than. I think it was quite accurate. Okay. I see. I see. So, yeah, the margin is obviously increasing in both of your divisions. But Could you tell us a bit about the other markets? I mean, prior to 2020, you were quite optimistic then the pandemic came. And I mean, if you're happy with its performance now and what's the potential going forward in that division. And so the other markets you're talking about? Yes, exactly, yes. So it could be interesting also that there was some impact on the fundamentals on the Q2 in Central Europe, which is part of the other markets. So that also impacted a bit. Other than that, we did the restart of our unit in Narbeh, which we described, also part of the other markets, which has been quite costly, but also quite successful. It's a huge demand for that unit. So I wouldn't say that we are satisfied, but I think it's according to plan. We know that we have some units which are lowering the margin, but We are aware of it and we also know that the situation is getting better. Okay, thanks. That's all from me. Thank you. We currently have no further audio questions. I will hand back to the speakers for any further remarks. Okay. Thank you. So I'd like to thank you all for taking the time again to Join us and I think we will leave it at that. And I wish you a good continued summer and hope that we will talk soon. Bye for now.