Hanza AB (publ) (HANZA) Earnings Call Transcript & Summary

Welcome to HANZA Q4 report 2025 presentation. [Operator Instructions]. Now I will hand the conference over to the speakers CEO, Erik Stenfors; and CFO, Lars Akerblom. Please go ahead.

Thank you. Good morning, and thank you for joining us. Today, we are hosting this audiocast from unny Arjang in Sweden, where we will later this afternoon, open a new factory, another important step forward for our group. But first, of course, we will present the year-end report '25. And this is a report that shows record results that we've been able to execute our HANZA 2025 strategy according to plan and also that we now enter the next phase, HANZA 2028 on a stronger position, even stronger than we originally anticipated. But let's begin then with our business model. It remains unchanged and it's increasingly relevant. Our model is to create these manufacturing clusters. It means that we are not just offering manufacturing, but we're also offering our customers, the product owning companies to consolidate their suppliers. This gives a number of advantages, of course, cost-wise, but also quality and deliver accuracy. And we also see now in this world, which is clearly marked by the geopolitical uncertainty that there is a need for supply chain restructuring, and that's where our model have proven really strong. And the business model is one thing, but execution is the aim of the game. We have a very clear execution plan. We do it phase by phase. And since start, we have developed in these phases you see on this slide. Each phase has had a clear operational and financial target. And the idea is when we enter the next phase, we should do it on a certain higher level. That's the goal of a phase. '25 was all about balance and scale and building this robust European platform. And we will soon then launch HANZA 2028, which will be next step on our journey. So if you then look at the agenda, we will run the normal disposition. So we will have the progress report. Lars Akerblom, our CFO, will talk about ESG and financial development. We will have some outlook. And of course, the Q&A session, please use it for any questions you like. Progress reports, the highlights of '25 actually. And so this was a year -- another year of structured execution. One year ago, we also -- when we launched -- in Q4 '24, we're also sitting here opening a factory in Tocksfors, it's about 20 kilometers from Arjang. And that has been really important, a new assembly building. And then in March, we completed our Leden acquisition, that's a company with units in Finland and Estonia. It also led to an increase in sales. When we buy companies, not only can we find cost synergies but many times also sales synergies, and that was the case with this acquisition that led to a bit unexpected increase in sales and also a strain on the profitability, which we reported last year. But it was good. This acquisition came with a number of nice factories. We see one a brand-new sheet metal factory in Oulainen, a fantastic unit. And then in March, we launched our defense program, LYNX, supporting the defense industry while safeguarding then the capacity for our other customers. And as a part of that, we also acquired a company called Milectria, signed the deal in July and waited for the approvals from the authorities, and were able to close the deal in October. So a big part of '25 has been about establishing this dedicated defense platform. Moving on in the year. So just a couple of weeks after closing Milectria, we did a truly great acquisition. We bought a company called BMK. It's -- I would rank this as one of the -- or maybe the best EMS company in Europe. We've been chasing them for many years. And finally, we could agree. It's a company with a main unit in Augsburg. You see in the picture up to the right, the sales is about SEK 3.3 billion. And normally, when you have an EMS company that size, it's scattered over many different kind of factories. In this case, it was a main unit, which really give advantages. In November, then we had to respond to this increased demand that I mentioned and so we added a new factory of 10,000 square meters in Oulainen. So next to the one you saw in the previous picture. December, we were done with a factory that we're going to inaugurate this afternoon, the official opening today. January, we were able to close the deal with BMK, got all the approvals in time. And also, we got a very nice recognition. We were awarded Supplier of the Year by 3M among more than 6,000 other suppliers, a really good -- nice proof of our operational reliability. I was then allowed to go to Minnesota to receive this award, and it's not because of me, but the fantastic people we have in HANZA but really good validation of our execution quality. And with that, I will leave the floor to you, Lars, to talk about ESG.

Thank you, Erik. And starting with the ESG and the main activities that we have done in 2025. And of course, mainly focus on the CSRD reporting that we will do for the first time including an audit for those figures now for 2025. Also to integrate the acquired companies, Leden, Milectria and starting up with BMK now to involve in the ESG. And then not only on the climate, but also on all the other aspects on ESG, making sure that we have the same follow-up and ways of working with the acquired companies as we have within sort of the old HANZA. We are also focusing on cybersecurity, of course, very important, especially when we are entering into the defense sector and with the LYNX project that Erik talked about. You see the KPIs on the right. The accidents or incidents are on a stable level going down a little bit. The waste -- increase in waste, hazard waste and energy is mainly due to -- in the hazard waste that we closed down a factory and had a onetime effect on the energy is due to Leden acquisition, which the type of technology they have production, they have a higher use of energy. Looking into the figures. As Erik said, we have a really strong quarter that we are reporting now in a strong 2025. And I'd like to start with sort of the overview of where HANZA is right now and the development. We are right now on SEK 1.8 billion in sales. If you take that times 4, you're a little bit above SEK 7 billion in sales, and we reached a 9% margin in Q4. If we look from the pro forma figures that we also had as a financial target, including the companies that we acquired during 2025, we are above SEK 6.5 billion and with an 8.3% margin. And I'd also like to highlight what you see up to the right, the development of the profitability within what we call old HANZA, excluding the acquired companies. And we see the downturn in the beginning, we bought Orbit One had a little bit lower margin in the beginning, and then we were able to increase the profitability. We also had an effect on the economy in 2023. So we're really proud and now to see that we reached close to 10% in the old HANZA without the acquisitions. And by that, we can conclude that we fulfilled all the financial goals that we set for HANZA 2025. And we go into the HANZA 2026 with a really strong profitability and strong company. More details. Looking into sales, we grew by 40%. And organically, we grew by 10% in the fourth quarter. And again, as I said, the sales in 2025 were SEK 6 billion, an increase of 24% and organic growth of 3%. And the earnings, 9%, comparable units close to 10%. So quite rapid and strong increase of profitability. Financial net, a little bit higher cost compared to last year, and that is, of course, due to that we have a higher interest-bearing debt. Earnings per share increased to SEK 1.65. And for the year, we reached SEK 5.38 in profitability or earnings per share. Looking into the cash flow and -- we continue to have a strong cash flow. And what you see in the graph to the right, you can see that we have an effect when we do acquisitions. We are able to -- we've been able to increase or improve the working capital. And a year ago in Q4, we saw the effect of the Orbit One acquisition and now we see an effect on the Leden acquisition. CapEx has continued to be on a lower level compared to a couple of years ago. If we continue to have this strong organic growth, we will, of course, need to continue to invest and maybe increase the CapEx a little bit. We decreased the net debt if we take away the effect of the acquired companies, and we are on a quite good level if we compare the net debt towards the EBITDA, we are on 1.9. We have set the financial target to not be above 2.5. So we are well below that target. And the Board of Directors, they propose a higher dividend. They proposed SEK 1.50 per share. And one comment there is that in based on today's number of shares, that will be approximately SEK 94 million in dividends, but the owners of [ BMKO ] that owns 27% of HANZA today, they have an obligation to pay back the dividends as a shareholder contribution. So the net dividend will then be SEK 69 million, which is approximately 28% of the net result in HANZA. And our dividend policy is to pay out dividends of approximately 30% of the net result. So we are on that level that we have in the policy. Looking into the different segments, we have main markets, which is approximately on the same level in organic growth. The growth is due to acquisitions. Here, we have one customer in Germany that compared to the quarter 4 last year have decreased a lot in sales. So if we exclude that customer and that effect, we actually have an organic growth as well in the main markets. We reached 7.1% and for comparable units, 7.8%. And then we go into the other markets. And here, we see a really strong organic growth and quite substantial increase of profitability. And if we go back to what we said in Q2 and Q3, we said that we saw an increased order intake and expected to see on an organic growth in Q4. And this is what we see right now. And the sectors that we've been choosing to focus on energy, defense and those kind of sectors are growing. We also have a minor effect that we sold some components that we had in stock that increased the sales. But a strong quarter both -- in both markets, but especially then in Other Markets. And by that -- also the ownership structure. And the biggest change in January is, of course, that the 3 owners of BMK received their shares and are now on the list of the biggest shareholders. And I also like to highlight the fact that both Erik, the CEO, and other top management have shares in HANZA, 1% of Erik and in total 1.5% of the owner belongs to the top management. And now I leave back to you, Erik, for the summary.

Thank you, Lars. And let's have a quick summary then. First of all, we have now created this European platform that we were aiming for. You see it illustrated to the left. HANZA is about manufacturing in Europe for Europe. We also -- so we have 5 clusters you see on the map here in Europe, but we also have some stand-alone units. We call them gateways. These are specific factories for specific customer needs, but the clusters are located then in Europe. So about 5,000 people in total. And now our original ambition for this phase was to enter HANZA 2028 at the SEK 6.5 billion level, but we see now that we enter at approximately SEK 10 billion, including BMK, which is then over our own expectation. And we have done this keeping the -- Lars explained this that we have our financial discipline intact, really important to do this quick growth with a strong cash flow and a good -- strong balance sheet. We also see that the structural trends, they are supporting our direction and the LYNX program, which is important not only for HANZA, but it's really important to support the defense and security situation is going really well. We started that in the Nordic countries, and now we are expanding that in Germany. So on the March 10, we will have our Capital Markets Day, and then we will outline how HANZA 2028 will accelerate profitable growth from this new level. And I hope that you will be able to attend then. And with that, we are ready to take your questions.

[Operator Instructions] The next question comes from Anders Akerblom from Nordea.

Firstly, I'd like to ask a bit on organic growth in the respective segments. So in Main Markets, you stated that it was mainly due to one customer behind the somewhat slower organic growth. And then in Other Markets, you mentioned the component price impact. Could you quantify that and what it mainly related to?

I can start, Erik. The impact on the one customer in Germany wouldn't mean that we would have the same organic growth in Main Markets as we have in Other Markets. And also the component that you mentioned does not have the impact -- big impact. The major impact on the organic growth is order intake, new customers and existing customers that are increasing the volumes. That's the main driver for the organic growth in Other Markets.

I can also add to this, Anders, thank you for calling in. So for us, it's also a bit complicated that we are also transferring orders between the clusters in a certain way according to the customers' expectation. And we have seen that we need to further explain this, and that's why I'm writing in the CEO letter that on the Capital Market Days, we will increase our financial presentation a bit, so you will get more information how this works internally because we understand it can be a bit confusing. But I think that the main thing is in this report, the top line growth.

Yes. No, makes sense. I'd also like to ask a bit about -- on that theme. I mean you alluded to it, but just to have it clear and transparent, the sort of margin development between the 2 segments, quite diverging, obviously. I mean, the strong performance in other markets, simply operating leverage or something else here that we should consider to a greater extent, such as the sort of component comment you made or something like that?

It's connected to this, and we will really go through this on our Capital Market Day to explain more how this works. We need to give you more information package. But what we see and what I think is important is the increase of the -- Lars mentioned that the comparable units that we have been growing then from when it was down to 5% in Q1 last year to 8% in Q3, and then we saw up to 9.9%. And that's a combination, of course, of our programs increasing the margin and the organic growth. So there are 2 components here driving the margin in the fourth quarter. We would have increased the growth even if it was flat sales, but these 2 things combined makes the good margin in the fourth quarter.

Yes. Makes sense. Final question from my end, if I may. On defense, could you give any update with regards to how large share of group sales is from the defense industry now?

A very clear answer, no. Please come on our Capital Markets Day. But of course this is also a request we get many times about the customer segment. We will do something about it. That's also what I'm indicating in the report. So you will get more information on the 10th of March in just 2 weeks.

The next question comes from Thomas Blikstad from Pareto Securities.

Just to clarify Anders' question on the margin. Is it correct understanding that there is no sort of extraordinary effect that is boosting the other market margin in the quarter?

That's correct. And as you see, we always take both positive and negative onetime costs. We disclose them and take them off the adjusted EBITDA that we report. So no onetime effects on the margin.

Okay. Perfect. And this is sort of a margin level that you target going forward. There's no unusually high mix effects or a normalization to expect going forward?

I mean we are not giving any forecast. What we also say in the report is that don't sort of focus too much on the different segments. It can be up one quarter and maybe a little bit down the next quarter. It's the most important is to view the HANZA overall margin. We have deliveries within the segments that has an impact of the -- both sales and margin in one quarter. So I think the most important message is that we see quite strong organic growth in HANZA overall, and we see a margin -- better margin in HANZA as well.

I can also make a comment on that. And that's the effect that Lars talked about with Orbit One that we acquired and that was exactly at the same time as the recession in the beginning of '24. So it downloaded the whole group's margin, and then we came back to 9.9%. Now we've done this large acquisition of BMK, and we said that they're running a bit above 7%. So that will also have an impact on the group, but we are also sure that we will be able to raise that margin quite substantially. And that's what we're going to talk about also on the financial targets that we will present on our Capital Market Day, the 10th of March.

And just lastly, if you could give some more color on the main growth drivers this quarter, customer segments? And yes, that would be very helpful.

And back to the previous question. And unfortunately, we're not able to do this right now. But we can only talk in general stating that, of course, defense is an important part, energy is an important part, and there are other parts as well. But stay with us and do visit our Capital Market Day, then we will talk much more about our different segments and customers.

The next question comes from Oliver Uusitalo from Aktiespararna.

First of all, of course, I'm interested in hearing your comments on the margin development and the outlook for the organic growth, but I guess we will come back to that during the Capital Markets Day. So, I guess, my first question will be regarding -- you've done some heavy lifting, especially in Poland over the last year. Are you through with this restructuring program currently? Are you happy with the current sort of planned setup that you have?

HANZA is not -- yes, yes, HANZA is not and will never be ready, but we are satisfied. We have done -- or not we, but the fantastic management in that area has done a fantastic job. So we are really happy with that. Also saying that we'll never be ready. So now with the BMK acquisition, we've got another really nice unit in Czech Republic, which needs to be integrated then in the Central Europe cluster. So there's always something new to do. But so far, the work we did both in Finland, Estonia and Poland has been really, really good.

All right. And in terms of integration of both Leden and Milectria, are you through with this currently?

I would say that when it comes to Leden, we are done, and that was -- [indiscernible] was the acquisition of the second building in Oulainen. When it comes to Milectria, we are still running this as a certain project because it's a bit technical, but in order to have a good offer for the defense industry, we keep these units separately as a platform for that growth. And we will do that for time this year. But by the end of the year, that will be integrated in the rest of the group. But that's on purpose that we keep it as a special vehicle for the defense industry.

And previously, we have seen that Leden is falling a bit behind on the margins. What are the situation in Q4?

We said in the Q3 report and that still is the message that Leden is improving margin, and we expect Leden to be on the same level as the other sites in HANZA from 2026. So in Q4, you have the impact on the profitability due to Leden, but it's continuing and progressing as we planned.

All right. Do you think that you might be able to reach the like legacy HANZA margin level for Leden during 2026? Or I mean, at what point in time do you think you might be able to reach this 8% or 9% or whatever?

We have said during 2025 that this move of the factory and the increased level of orders from customers taking care of that led to a decrease in profitability, and we took the decision to sort of take that cost in order to be able to deliver and satisfy the customer. We also said that this is during 2025 from 2026 we expect that effect to go away, and we shall be back on normal figures. If that is 8% or 9%, I will not comment.

All right. Fair enough. And I think my last question. Previously, I think we've discussed that Milectria are running on a bit higher margin than the legacy HANZA. Can we assume that Milectria are running on a double-digit margin? Do you think that's a fair assumption?

You're always trying to make us do forecasts, Oliver, but we cannot do that, but we can say that the defense industry normally has a much stronger margin than the rest of the industry. And that's why it's so important also because the defense industry becomes the one that's pushing away other customers. That's why it's so important because they're paying better to keep them as a separate part of HANZA, not jeopardizing the rest of our customer group, which is also really important. But it's true, it's a higher margin, but you will not get any figures from that.

The next question comes from Anders Akerblom from Nordea.

Just a final one from my end now that everyone is done. I wanted to ask earlier about BMK. Could you -- I know you don't like to do forecast, but in terms of sort of the run rate profitability of BMK, if -- what's your expectation of your ability to scale up volumes in BMK? And what would be the sort of potential timing of that? And could you share anything in terms of sort of the incremental margin contribution from that?

By large thinking of an answer, not giving a forecast, I can give you some general picture on this. And I spent a lot of time now in Germany, and it's fantastic. It's really good engineers. And I spend a lot of time with the customers of BMK, and they have really received this in a good way. We see like we normally do, a push from the customers because they see that there are some advantages, of course, BMK being part of HANZA. That's the sales synergy that we also talked about in Leden. So that's one thing. And of course, increased sales normally gives a better margin. Secondly, we do have -- even though this is a very, very big company, we do have some synergies on the electronics and the purchasing side. So that should also help to do that. But in general, what we always do is that we make sure that we get it up to our standard margin on 8%, and then we go for our long-term financial target, which you will hear in 2 weeks from now. Lars would add on this?

No. I mean you spend a lot of time there. I spend a lot of time there, and we are satisfied with the acquisition and what we have seen so far. So yes, it's going to work well, I think.

Maybe also mention, Lars, that what you were talking about before that the reporting system and all that is really progressing in this and all our acquisitions.

I talked about the ESG reporting or the financial reporting, but both are, of course, important and a major part of the integration to get that up and working, and we expect to be able to present the opening balance and purchase price allocation, et cetera, in Q1.

I think also, Lars, that the auditors give you -- our auditors gave you some compliments the other day about how fast and how good you implement this in the financial reporting system.

Yes, yes. They are satisfied with the work we do and how we integrate the acquired companies into the financial reporting. And that is, of course, important to understand and get an understanding of the acquired companies and make sure we have internal control and control over the financial figures that they report and then we report out to the market.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Okay. Thank you. And as there are no further questions, we will now move forward with the inauguration of our new factory here in Arjang. But the remark, we have arranged a tour of the sites here in Varmland. And for those who are interested in visiting our cluster, we will have this guided tour on May 7. And you can register by sending an e-mail to [email protected]. So that's [email protected]. Tour on May 7, and it is quite worth taking the time. It's a very nice cluster, and we are opening again a very nice factory today. So thank you so much for your attention, and I wish you a good day.