Hanza AB (publ) (HANZA) Earnings Call Transcript

Welcome to Hanza Q3 Report 2026 presentation. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Erik Stenfors; and CFO, Lars Akerblom.

Thank you for joining us. This has been an important quarter for Hanza. We are seeing results of the work we have done to develop the group, both in profitability and the progress of our acquisitions. And together with Lars, I will take you through the quarter and explain the factors behind these developments. We start with a brief overview of the quarter. Then I'll describe how we are developing Hanza based on our customers' needs. Lars will take you through our financial performance. And then I'll return with our conclusions, outlook before we open up for questions. But let me then start with a few figures that I think are relevant to this quarter. First, profitability. We see that our adjusted EBITDA margin increased from 6.9% to 8.7%. We generated SEK 118 million in operating cash flow. And if we look at the last 12 months, it means that we are above SEK 1 billion in operating cash flow. I'm sure Lars will come back to this. Net debt to our adjusted EBITDA is down to 1.4%. MVC growth. Sales increased by 77%, including 7% organic growth, which is quite good for a vacation quarter. So Hanza become stronger and substantially larger this quarter. But also, and this is important, thanks to our organization and the structure we have put in place, we still move quickly, even though we have grown. And I will come back to this. This is important. And another thing -- also worth highlighting is that we develop our business based on our customers' needs, but it is our ability to execute that return this development into profitability. And I think BMK that we acquired in the beginning of this year is a very good example of this. So let me explain. So it was in the beginning, when we closed the deal that we announced already last year. We acquired Hanza BMK called now as a final step in what we call the Hanza 2025 strategy. And the reason we have seen from other parts of Hanza that the scale of our operation is crucial to our ability to take on larger manufacturing projects. And that's why we have been scaling up Hanza in 2025, and that's why we also invested in this larger manufacturing platform in Germany. Now Hanza BMK brought competence, capacity, very strong customer relations. But it's important that when acquisitions make Hanza. Hanza must also strengthen the acquisition? How do you do that? With such that this would rank as the leading EMS company in Europe, how can Hanza strengthen it. Well in 2 ways. Firstly, our concept. So it goes from being just normal EMS company to being part of Hanza's concept. Secondly, let's say a bit on the commerce side, where we've been working with pricing, with purchasing with efficiency. We have something we call the horizon where we have been a program that has been working in Hanza Group also in asset BK, and we can already see the results. So the adjusted EBITDA margin that TMK had from the beginning was 7.3%, increase of 7.5% in Q2, and then we are up to 9.2% in Q3 and this is, let's say, more in line with the margin that this great company should have. Another thing really interesting, we have done this integration faster than planned. We had allocated a special project for this supposed around all 2026. But already on October 1, we could transfer BMK from being into this integration project into our regular organization. This is the 3 months ahead of schedule. So great work from colleagues, both at the BMK and across the Hanza Group. And of course, this is 1 of the major highlights of Q3. But let's then move on and have a look at the market and our customer segments. We have a diversified customer portfolio. And if you've been following as you know, now we are sort them into 5 segments. We see that the market conditions they fluctuate between the segments. We have a strong demand in electrification driven by energy systems and data centers. Also, we have a very strong demand in defense security and also in the mining part of the heavy equipment. But also, we see softer development in forestry, construction, customers in the textile industry, warehouse applications. So this is up and down, and that's why it's so important to have a diversified customer portfolio. We have 1 advantage. We are not just selling contract manufacturing. We are selling a better supply chain, meaning that when demand goes down a bit it's even more important to work with Hanza find new solutions. So we can take some market shares even in the, let's say, softer segments. We had some constraints during the quarter. Some temporary capacity limitation due to the fact that volumes went up above forecast. So that was mainly in the energy systems. And we also have some shortages of electronic components. I think we are all aware of the semiconductor situation where AI and data center is eating up a lot of components. We have been able to navigate through this. We have a great central sourcing team working together with equally great local sourcing teams, close to customer suppliers, being able to manage this. We have seen delays in our Defense and Security segment, but it's not so much it will be visible on the group level. But something to keep the eye on. This is something that will remain uncertain, the component situation. We have also seen a strong order intake in BMK an organic growth. But of course, that is not visible in our figures because we didn't own BMK a year ago. But if we look at it, we see that we have a great order intake there as well, but not reported into our figures. So what's the conclusion? Well, although the market conditions fluctuate, we see really good opportunities for continued organic growth, and I will come back to this in a special statement at the end of this presentation. Now if you look move from customer segments or technology segments, we see something really interesting here, and I will move to the next slide. One of our key features is that we combine several manufacturing technologies into this, what we call manufacturing cluster. So 1 cluster per country with different technologies. That's how we don't just offer contract manufacturing, but also help our customers to simplify their supply chains. And now our smallest technology area has been heavy mechanics. What is heavy mechanics. Well, larger, heavier mechanical parts and steel structures, very often combined with the large complex assembly. And we see from the previous slides, across several customer segments, so in particular, defense security, but also in heavy equipment, a growing customer demand for heavy mechanics. And for, let's say, obvious reasons, customers want to have this capacity close to the market. And that's why we decided to strengthen this technology area, heavy mechanics as a part of strategy Hanza 2028, which is all about looking at the different technologies, making them wider and maybe also adding technologies. So that's the background for the deal we made in July in Q3 where we did this deal with Fortaco. And I think that this slide gives you also, let's say, practical illustration, what we mean by heavy mechanics. You see components such as large frames and steel structures. This requires specialist manufacturing equipment and I would say, considerable industrial expertise. We did a carve-out deal with Fortaco. We're not buying the whole company. Fortaco is a contract manufacturer. They will keep its vehicle cabin business and focus on that. whereas we then buy the fabrication and the complex assembly. So it's 5 factories we are acquiring, signed this contract in July, we've been waiting for approvals. And now all the required external approvals are received, and we expect to close this transaction on November 2. So next Sunday, I will be out traveling and start to meet the people in the new factories. Really looking forward to welcome these new colleagues to Hanza. So this is why we are doing this deal, and that's also something that I'll come back to is putting us in a really good position for the organic growth moving forward. But as we continue to grow, we also need to have an organization that can support this expansion. And that's why we decided to split causing to 3 parts, basically. We don't want to become slower. We don't want to become more bureaucratic. So we have organized Hanington 3 regions. Each region with 2 manufacturing clusters. Two other regions also have something important gateway. This is a single factory designed to, let's say, meet a specific customer need. And also, as we have reported, we are winding down our manufacturing operations in China, but we will keep our sourcing offers. And the idea by the bit is very, very simple. We want the responsibility of our customers, operations and performance to be close to the business. We are a decentralized company. This allows the local management to make decisions quickly. And this is, I think, very important for us to preserve the entrepreneurial approach we have in Hanza. The figures you see on this slide is the plan starts following the Ford acquisition. So it's post Portico. And then from the first quarter of '27, our financial reporting will also follow these 3 regions, and Lars will come back to that. But -- with that, I will hand it over to you, Lars, to take you through the financial performance.

Thank you, Erik. And as you see, Hanza is growing rapidly. We are close to double the size compared to a year ago or 81% in organic growth. And -- what we say in this report is that we significantly improved profitability both for comparable and acquired units. And I think that's really important to sort of split the profitability that Hanza are showing in Q3 between the sort of old Hansa comparable units and the acquired units. And what we can see is that a year ago, we had an operating margin of 8%, including the then quite newly acquired Leedom, including Leedom we were on 6.9 million then what we can see now is that we have increased those parts of Hanza excluding then the acquired Menecia B&K up to 8.3%. So the comparable units, let's call it, the old Hanza to increasing the margin. And then we have the acquired companies that temporarily decreased the margin Hanza that are now showing just 9 months or 3 quarters into the period, increased growth. We see Hanza growing from 7% that we said when we acquired them that they were on that level to 7.3%, 7.5%, and now in Q3, SEK 9.2 million. So I think that we can, by this show that we are able to integrate bigger companies and turn them into the Hanza model and increase profitability. We are -- as Erik said, we are entering into Fortaco, hopefully on a week from now. What we have said about a Fortaco is that they are on this level already and it shall contribute. So we shall not see this decrease in margin when we include Fortaco into the Hanza, -- they will be on 9% or hopefully above 9% in EBITDA margin. Looking into the levers down -- we see that we have an organic growth of 7% or 77% in total figures. Quarter 3 is normally the weakest quarter in -- from a seasonal perspective, we do not see that Hanza BMK in Hanza BMK, we do not see the sort of seasonal effect in Q3. We -- as I said, we show an adjusted margin of 8.7%. We have some onetime items. We have revalued the earn-out on Melero, -- that was a positive effect of SEK 30 million, and we had transaction costs for to deal with Fortaco was SEK 12 million in this quarter. And also the MDO that we did in Finland for 2 sites had an additional SEK 8 million cost. And then we had some custom cost that we treated as a onetime cost of SEK 4 million. We see an increase of the EPS and this is -- to remind you that we have increased the number of shares quite significantly with the acquisition of B&K despite the fact that we have lot more shares now. We see an increase of 53% to 190 in the quarter and an increase of 68% in accumulated in 2026 to 581 also see regarding the sales, as Ek mentioned, that we have a minor effect on the short show components. On the total level, it's not anything significant at all. So -- but we have a little bit effect of that. Looking into markets. And as Erik said, we will, from Q1 in 2027, we will go over to the regional organization report according to the new organization that we are moving into during 2026. We see an organic growth in main markets of 8%. That's also what we have accumulated for 2026. And with an EBITA margin adjusted of 9.5%. So -- and that accumulated for 2026, we have 8.7 -- in other markets, we also see organic growth of 8%. It's a little bit stronger in the year of 18% and adjusted EBITA margin of 7.5% on accumulated 6%. So a good quarter -- and when we look at the quarters and when we look into the different markets, we should bear in mind that it is seasonal, it can vary between the quarters a little bit up and down. And that's what we see in mainly the other markets in 2026. Coming into the cash flow and the balance sheet. We have a strong cash flow. Jake mentioned over SEK 1 billion in the last 12 months, over SEK 800 million in 2026. We have net debt adjusted EBITDA on 1.4. So well below the financial target or what you can call it 2.5 million and we have a strong balance sheet, 45% in equity to asset ratio. And with the acquisition of Fortaco, it's going to be well above this 30% that is our financial target and we have a good cash position over SEK 700 million in cash. And this financial position mainly coming from -- or coming from the positive cash flow we have had and the stronger result, but also the fact that we did the acquisition of BMK with fully shares makes us possible for us to do a cash deal with Fortaco. So no dilution with the acquisition of Fortaco, but still after the Fortaco deal, as I mentioned, be approximately at 2x the EBITDA net debt. So that gives us the possibility if we would like to continue to do acquisition even without dilution. ESG sustainability, we have updated the BMA in order to report the sustainability report in spring next year. It's positive to see that the higher rental performance, we have lower energy use and less hazard waste, partly coming from the fact that we have the Hanza BMK within the group, but also on the work we do on a daily basis to work with sustainability. And we also are glad to see that the safety, we are reducing the inure frequency. And we are continuing to work with the integration of Hanza BMK into the sustainability work -- and by that, I leave back to you, Erik.

Thank you, Lars. Let me then finish by putting the results into context of this strategy step of Hanza we have on '28. We have grown rapidly -- we are showing improved profitability, and we have a strong financial position. And we see BMK. This is an example of our ability to develop acquired business and then integrate them efficiently. And this is important because an acquisition is only the beginning. The real value is created after we come together. Now with Fortaco, we are taking the next step broadening our manufacturing capabilities in heavy mechanics and complex assembly. So it's a way to -- in our strategy to meet the customer needs. And with the market position and the manufacturing capacity, we will have then, including Fortaco, we now state we have a potential to reach this Hanza 2028 sales target, SEK 14 billion without further acquisitions. It doesn't mean that we change our financial targets. Still, it remains unchanged. We are going to measure the sales in 2018, including possible more acquisition. And we don't say that we have stopped doing acquisitions either. This is just guidance to show that we see a really strong potential organic growth in the coming years. And with that, Lars and I are ready to take your questions.

[Operator Instructions] The next question comes from Anton Ingves from Nordea.

Erik and Lars here. So starting off with BMK in the margin at very impressive head of work that has been done so far here. Is this sort of the run rate level that we can expect going forward?

Would you like me to start?

You can start.

I think this is a more normal level for such a great company. That's where you should be. So it's nothing strange behind this just that we have then some standard activities in the beginning, and it was maybe faster than even we anticipated, but now we are on a margin which is -- should be a normal amount, I would say. Is that a fair answer? .

Yes, yes, definitely. You also -- you mentioned that you see organic growth and a solid organic order intake here. Are you able to quantify this a bit more? .

No. But I can say so much that if you have been following us, you saw that, let's say, when we move back a year or 2 in time, we acquired a company called Leedom-- we had a good sales synergy, a lot of orders coming in. We state that we see the same thing now in BK, and we are likely to have the same situation also with the Fortaco acquisition. That's part of the explanation why we look quite positive on the organic growth moving forward. .

Okay. Sounds promising. And just staying a bit on the here as well. On the defense order you announced here in Q2 in BMK has this started to be delivered here in Q3? Or is this starting more towards 2027.

We don't see a substantial impact in invoicing. So there is a time between the order and the invoicing obviously. And we cannot go into more details more than we have stated that we see not just one, but several possibilities for defense in Germany, but it's not a substantial part of the sales in this quarter. .

Okay. That's clear. And sort of on the outlook within the Defense segment, especially for BMK are you seeing sort of any signs that the first order you took maybe sort of a trigger for additional orders ahead there?

I think we had a good combination with the original part of Hanza coming well recommended from the defense companies in Sweden, South and Pulte in Finland, combined with the company in Germany, it has a very good reputation. This combination, I think, is a strong sales pitch and there's a huge need, obviously. So I don't know, Lars, would you like to give more color to this.

No. What we see is continues a strong activity in the defense market. And I think many other companies also talk about a little bit delay compared to the expectation maybe a year ago, but the demand is still strong and the activities we have towards the DTN sector is looking very promising. .

Yes, you can say that the demand is increasing, but not as much as the output and the reason is not on the manufacturing side, it's that some of our customers have a quite extensive maybe a slow process to get from the idea to the product. But it will most likely be a catch-up effect.

Okay. Perfect. Very clear. And 1 final here from me. You mentioned some constraints due to capacity limitation mainly towards the sort of energy systems. How much do you expect this to continue into the coming quarters? Or was this mainly a Q3 problem? .

Well, you have to ask our customers. So what happened was that we got volumes above forecast during the summer, and we are catching up. We have a good situation to enhance our concept makes it easy to scale up than traditional contract manufacturing. But having said that, we still need some time to do that. So we -- our best guess is that we are on track in Q4, and it could happen that our customers would increase volumes again and then bets are all so at this position, I think we are catching up with the capacity. .

The next question comes from Thomas Blikstad from Pareto Securities.

Eric and lars congratulates on another strong set of results. Firstly, just a follow-up on the on the capacity constraints, could you try to quantify the compound impact on top line in Q3 from that and the component shortages?

Well, we haven't published any figures. I don't know if large is brave and I, I would say it's not a material impact, but it's some impact. How would you state this.

In the same way, for your analysts, Thomas, I wouldn't sort of have any impact on -- based on Q3 sales or profitability you shouldn't adjust anything based on this lower sales due to component stage. .

That's fair enough. And just quickly, it might be a stupid question, but both segments reported 8% organic growth. Why is the group figure 7%? Is there a divested finished unit that's sitting here? Or how should I think about it?

Good question, Thomas. If it is, that you just round up the figures or so I need to -- but you have internal sales and also decreasing the total sales a little better. I don't have a clear answer on that one, but I will look into it.