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

Welcome to Hansa Q2 Report 2026 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 welcome to Hansa's Q2 2026 presentation. And thank you for joining us in the middle of summer. Well, every quarter tells its own story about the company and the story of Q2 is that Hanza is growing with quality, while we are taking the first steps in Hanza 2028. So in this presentation, Lars and I will look at Hanza [indiscernible] perspectives, how we are performing today and how we are building for tomorrow. Presentation will follow with a very simple sequence. I will begin with the progress report Q2 and then explain these first 2 steps in Hanza 2028 horizon and the Fortaco acquisition. Lars will then take us through sustainability and the financial development. I will return for conclusions and outlook. At any end, we open the line for your questions. But let's then begin with the numbers that best described this quarter. And when I say that Hanza is growing with quality, I mean to things. We have an organic growth 9% in the quarter. We have an improved margin, up from 7% last year to 9.3% for comparable units. We have a strong cash flow SEK 2,573 million in the quarter, almost SEK 700 million for the first half year. And this strong cash conversion is what strengthened our financial position. You see that the net debt versus our adjusted EBITDA is down to 1.4%. Our target is maximum 2.5. And we also see that the chart to the right, it shows our step-up in sales over the years. And you see also the net debt versus adjusted EBITDA to the right. It's clear that our growth has been delivered with financial discipline. That's something we are very proud of because growth without margin is not enough and margin cash is not enough in Q2. And previously, we have delivered on all 3. If we look at the market, I would say, rather even demand through our segments. In Electrification Energy Systems, we see stable sales, but also very long term -- good long-term demand. We opened a factory in the beginning of the year for CMC Energy, for instance. The faster security our smallest segment, but also the largest opportunities. And I will come back to this. We have new orders already secured and new orders is coming in. Heavy equipment, strong sales and very strong demand from different sectors, especially mining. Industrial and Professional Products also stable, and we have an increased order intake, which will move this segment in 2027. Industrial Machinery & Systems. This segment had lower sales, but it is a project-driven segment, normally fluctuates with customers' installation schedules. And we see on order intake that this suggests a recovery. It's not a trend. So the picture is rather the same between the segments. And overall, it indicates a continued healthy demand. Then we all heard about the situation in electronics, certain electronic components, mainly PCBAs and memory circuits has been tight availability. We have a very good central sourcing with an office in China working together with also strong local sourcing. They have been able to really manage the situation without any material impact on operations in Q2. The situation remains uncertain. So our mitigating work will continue during the second half of the year, but so far, so good. Let's now turn to B&K. I had the privilege of serving as interim Managing Director [indiscernible], during the spring. So I've been seeing the business at close range. I expect the technical level to be high, but I was wrong. It was even higher. So it's been a pleasure. But from a commercial standpoint, however, there is room for improvement. And we already began with some actions. We see that the company came in with a margin at 7.3%. We are already increasing that to 7.5% in Q2. And this is just the first step in the margin improvement, so we expect to continue. Also order intake increased compared to Q1 and B&K secured its first major defense security orders. This is important for the continued development. This is a new area for B&K and a huge area. So really good. An integration progressing well. We call it the Purple Rain when we put on our science and stickers, but -- it's working well, and it should be completed. Normally had 1 year for integration, and this will be completed during 2026. And we see the picture to write Marcus, who took over as Managing Director from first of June. And I with -- some reget have returned to the much quieter role as being only Group CEO. 4 steps of a Hanza 2028, we launched this strategic phase at the Capital Markets Day in March this year. And if we look back, every phase is about working on the customer demand in the previous basis at 2025, we strengthened the capacity of our manufacturing clusters. In Hanza 2028, we are strengthening the manufacturing technologies. And then we have the 2 first steps Horizon. It's a program where we are meeting our manufacturing platform more efficient. And within an acquisition last week for Paco. There's a special order cost, you can watch for more details here. I'll just give you a brief overview. But these are 2 complementary steps, and let me then begin with Horizon. And to understand Horizon, it's important to understand our industrial logic, our main focus is manufacturing in Europe for Europe. This is where we build our manufacturing clusters. And outside Europe, we have selected factories. We call them gateways, serving specific customer needs. Horizon is then designed to make our manufacturing platform more efficient and easier to manage. That's important for the other steps to strengthen the technologies. In Finland, we have 2 smaller units in Nevada and CV. We have been concentrating some of the orders and machinery to our largest units in line and you see it on this picture, it was 23,000 square meters in this building, and we just bought an adjacent building of 10,000 square meters more. So this is a large unit and the remaining Finnish operation in balance will now be transferred through a management buyout. Gateway China, manufacturing will be discontinued by the end of '26. So this is a smaller unit, 60 people. Of course, we've been working together with our customers and develop manufacturing solutions, so they can continue to produce. And of course, also very important, we are committed to supporting our people in China. The growth has made to do some changes also in Central Europe. We had a cluster, we are now separating this into 2 clusters. Poland and Czech. This is in line with the Hanza model. We would like to have 1 cluster per country, several advantages, same language and culture, sangholidays, same label law. So this is the idea. Now we are in a stage where we can finally do this. The measures in China and Finland will reduce our sales with approximately EUR 15 million sales matter, but profitability and cash flow matters more, and we see that the result of this will be better capacity utilization and hence, improved profitability. So this is the first step. The second step, the Fortaco acquisition. We signed a deal on the 15th of July to acquire 5 selected factories from Fortaco, it's a carve-out. The background, heavy mechanics. It's our smallest technology area. And at the same time, we see a very clear long-term demand, particularly within defense, but also mining, agriculture, forestry, material handling of vehicles. And that -- this is important that making acquisitions is not our strategy. It's our strategy that leads to these carefully selected acquisitions. We always begin with the customer needs. So that's why we do this deal. And I think that this map illustrates the industrial logic clearly. We see the factories in Finland, Estonia and Poland. Together, 5 of them represent about 1,300 people, substantial manufacturing capacity, and we are talking about established sites with experienced local management. So 5 factories, 3 countries and 1 industrial logic. And that all of these factors are located in geographies where we already have a presence, it means that they're not just adding 5 dots on the map, we are connecting these 5 sites to an existing industrial system, and that's the strength of our cluster model. That's what creates synergies. Furthermore, this acquisition, so this is a carve-out, they will still keep cabin business. They are doing cabins, and we are carving out the heavy mechanics and complex assembly. But we will also get a strong new customer base. It's a very limited overlap to our existing customers. And we all know that new customers it's not just that revenue, it's tomorrow's opportunity. So we do expect sales synergy on this new customer base. And with that, I will hand over to you, Lars, for sustainability and financial development.

Thank you, Erik. Starting with sustainability and the main activities in Q2. I'm glad to be able to present this slide with PMK included. So now we only have melectria outside these KPIs. There are no major changes in the KPIs. I'm glad to see that accident incident reporting is going down. Otherwise, we're working with DMA, updating that for the coming CSR report, and we also are preparing for the annual employee survey that we do on a yearly basis. And of course, we include the acquired companies as well. We have compliance requirements adding to the operation, and we work with adopting to the new compliance requirements with internal processes also including the newly acquired companies. Looking into the financials. We see a stable company, a stable group reporting Q2 on a clear way towards the financial targets for 2028. We see a sales growth of 70%. We have an organic growth of 9% and slightly or lower than the 20% we had in Q1, but it is a little bit seasonal, but still a strong organic growth. Erik talked about the shortage of components. We do not see more than a minor effect on the sales in Q2. So the 9% inorganic growth is not depending on increased prices on components. We have an operating margin for the comparable units of 9.3% compared to 7% a year ago. As Erik mentioned, we have B&K on 7.5%, a couple of percentage points or up 2 percentage points higher than in Q1 and in line with what they had in 2025. And here, we expect the margin to continue to increase quarter-by-quarter. We have, as effect on the Horizon project and enable -- in order to increase the profitability over time, we have taken onetime costs. We have reduced employees, mainly in B&K, and we have decided to wind down the operations in China and also done an MBO or decided on an MBO in Finland. And this will, as Erik also mentioned, we approximately 160 employees that will be reduced within the group and approximately SEK 160 million in sales that will be reduced. These actions are done in the end of the year. And this leads to that the group's adjusted operational margin is on a stable level of 8.5%, 7% a year ago. And when we see the comparable units of 9.3%, when we compare it to the 9.7% in Q1, I'd like to remind you that [indiscernible] is now part of the comparable units. For the full quarter, it was only 1 month or 3 in Q1. So that's 1 of the reasons for the slightly reduction in profitability margin for comparable units. Erik spoke about the cash conversion and financial discipline. And we can, this quarter also report a strong balance sheet and a strong cash flow SEK 273 million in operational cash flow. Net debt compared to EBITDA on SEK 1.4 million and quite good cash position of SEK 773 million. And equity to assets ratio, which is also a strong 45%. And this is important, and we have said this many times that having a strong balance sheet gives us the possibility to continue to invest to expand and also what we announced last week, 2 acquisitions like the Fortaco carve-out deal and without increasing the number of shares, we can do this with our own financial resources and new credits. Looking into the segments. And we see the segments, main markets and other markets, they are fluctuating depending on the type of products the customer what customers are increasing and decreasing, but we also see strong stable development of both these segments. And remember that we will adjust the reporting into the new organization of regions starting from the beginning of 2027. We have main markets being more or less on the same sales -- net sales level as in Q1 and a stable margin on 8.5% and for comparable units, really strong margin of 9.7% segment. Other markets, slightly down from Q1, but still on a stable margin, 8.5% and for comparable units, 8.9%. Looking into the acquisition that we announced last week. -- of the selected factories from Fortaco. We will pay initially on enterprise value of EUR 144 million. We -- it's a net debt free with normalized working capital, this EUR 144 million. And that is approximately 8x the rolling 12 months EBITDA that we pay on the initial consideration. There is an additional purchase price capped at EUR 56 million. So the total payment for this acquisition is EUR 200 million, and it's based on organic growth in sales in 2026 and 2027. So we will pay in 2 tranches at the beginning of 2027 and the beginning of 2028. Both the initial payment and the earn-out will be paid with existing funds and the credit facilities. There are no financial conditions and the closing is expected to be, I would guess, early in Q4. And it's subject to normal regulatory approvals and also approval from certain Fortaco financial stakeholders. And this is how Q or first half year would look if we make a pro forma and include the Fortaco factories, we would increase from SEK 5.2 billion to approximately SEK 6.2 billion. So a quite big company and well on the way to the SEK 14 billion that we have as a financial target for Hanza 2028. The Fortaco factories, we expect to have to start deliver on approximately 9% on EBITDA margin. We expect this to have a positive contribution on the EPS from the beginning from the acquisition. And we will integrate this as we normally do into the Hanza cluster model and expect to increase margin, not only in the acquired companies, but also in total Hanza. And effect on the Hanza balance sheet and cash flow, we expect the net debt to continue to be below our financial target of 2.5x EBITDA. We expect the equity to asset ratio to still be above our financial target of 30%. And just to remind you, the Hanza 2028 targets, net sales of SEK 14 billion and EBITDA margin of at least 9% and equity asset ratio of 30% and again, net debt-to-EBITDA of maximum 2.5% result. Looking into the share shareholding structure, no major changes from end of Q1, what we have seen in Q2 is that both Erik, the Chairman, Francesco Francia and the Board [indiscernible] have increased their holding in Q2. And by that, I leave back to you, Erik.

Thank you, Lars, and let me conclude by bringing the different parts together. In Q2, we delivered 9% organic growth, 9.3% operating margin in comparable units and SEK 273 million in cash flow from operations. [indiscernible] improve this margin, and we see an increased order intake, also secured important First Defense and Security orders. Horizon will improve efficiency in our manufacturing platform and Fortaco acquisition will strengthen the technologies. And if there are 3 things to remember from today, and I think it was interesting, what Lars pointed out that we will still have a strong financial situation after this large acquisition. So it's really good. So if there are 3 things to remember. I would say that we are growing with the quality, that creates financial freedom, and we're using that freedom to put Hanza 2028 into action. And with that, we are happy to take your questions.

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

Starting off maybe on the defense orders here and the sort of first major order in BMK. Are you able to sort of quantify this a bit more and maybe elaborate a bit more of your expectations here in this segment for 2027?

The challenge we have is that everything is secured. The only thing we can say is that we have from a well-known defense company, a new defense company for Hanza. So we are working with, of course, with [indiscernible] but new defense company, a substantial order and an interest for more orders. I wish I could tell you more. It has to be revealed by the segments -- our customer segments later on. Sorry about that.

That's fair. But it seems to be quite a good opportunity then. And sort of on the defense order intake in remaining of Hanza, you still see a sort of pick up here for stronger -- even stronger deliveries in '27?

Yes, yes. Of course, Defense is here to stay for sad reasons, but still, and what the need is, of course, mechanics of this Fortaco acquisition is really something that comes really well and also having [indiscernible] the important area for the defense industry. So we expect orders to increase and we have already very good relations with the companies, as I said, in Scandinavia, and now we are moving on in Germany, so we expect this to grow.

Okay. Perfect. That's clear. And on the Horizon program, obviously, taking some measures here with closing of the sites in China and the factories or the management buyout in Finland. I understand you cannot give sort of an exact answer here. But are you planning any further actions going forward in this program.

Yes. Of course, that's something we cannot reveal. But I would say that we have done the major steps. For us, it's important now that we're able to focus investments, resources capacity to larger units and also take on larger customer orders coming in. So it's a very important step this horizon. But we have done a lot of actions already and also things which are not on the dimension that we should report in Q2. I wouldn't expect any more large activities.

Okay. That's very clear. And on the CapEx side, I know you had some SEK 100 million here in tangible CapEx during the quarter, quite a big pickup compared to last year. What is this mainly related to? And what do you expect here for the full year '26?

We did an acquisition of strategic factory in Finland, [indiscernible] factory, and that was the main activity in Q2. And the CapEx goes a little bit up and down between the quarters. But on a longer perspective, we do not see any increased need of CapEx. It will be on the same level as we have seen before, and of course, increasing when we have an organic growth. We also see that the acquisition of the Fortaco factories will actually decrease the need of CapEx going forward since we will have buying companies with -- that are well invested.

Okay. Perfect. And sort of on the demand here during the quarter, obviously, strong organic growth there. But did you see any change in momentum during the quarter? And sort of related to that, the momentum here heading into Q3?

No, no. So we have a good momentum. The only thing I said was regarding this industrial machinery and systems where it fluctuates between the quarter. Other than that, we have a strong demand. So we're in a good position. And that's also right. So it coming back to your previous question that we had a strong cash conversion because it makes it possible for us to increase capacity either through acquisitions or through expanding our current facility like Lars pointed out [indiscernible].

The next question comes from Marcus Dibelius from DNB. Carnegie.

Congrats on the good report. A few questions from my side, please. Coming back to the shortages with electric components, could you give some more color on this? Would you say that it's more of a problem now versus sort of the beginning of the quarter and maybe going into is this more BK type of problem. If you could shed some there.

Yes. So first of all, just like to state, this is an area for electronic components. That's a shortage area. And more directly to these specific areas. We have been able to navigate through the second quarter without any material impact on operations also in B&K. So, so far, so good. We have a really good sourcing team, both centrally and [indiscernible]. The uncertainty remains. So we need to continue with this work. But we haven't had any major impact. And I think that in this kind of outages is always in the beginning, it's hardest, then you find ways to work and find alternatives and so forth. So I cannot promise anything, but we have been really good on working with this so far.

Very good. And are there any other types of short shifts that you've noticed?