Welcome to the HANZA Q2 report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing *25 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, and good morning. Thank you for joining us in the middle of summer. I'm Erik Stenfors, CEO of the company, and it will be my pleasure to walk you through HANZA's second quarter 2025 together with our excellent CFO, Lars Åkerblom. Every quarter tells a story, and this one is about moving fast forward in a slow market. As you might know, if you've been following us, HANZA is not a traditional contract manufacturer. Our model is different, and so is our speed of development. We have many activities going on right now, and in this presentation, we will focus on three main areas. Leden, the acquisition we did in March this year, where our swift integration now turned into a capacity expansion driven by strong customer demand. We will talk about LYNX. That's our defense-focused program, which is now accelerated by a targeted acquisition just last week. We will talk about the future. We see now that volumes are rising again. This is the first time since the downturn began. A lot of good information will come up today. We have the agenda structured the usual way. I will present the general development. Lars will talk about the sustainability and the financial review. We will have the Q&A session, and that's the point where all questions are warmly welcomed. Please use that. Let's start with Leden. This is a company that really has met our expectations. They have a very high technical expertise. They have a healthy corporate culture and should be, after our thorough HR due diligence. Just to recap, this is a contract manufacturer of mechanics. They are specializing in sheet metal mechanics, machining, and complex assembly. They have about 600 people, where 200 are in Estonia and 400 in Finland. Estimated sales this year, about SEK 1.1 billion. We started integration as soon as closing was done, then in March. It's going really well. We have split the organization. If we look to the right, what we do is that we take the four Leden units in Finland and bundle them together with our three existing units, creating a new Cluster Finland under the leadership of Jukka Haapalainen. Fantastic new leader we got with the acquisition. He used to be CEO of Leden, is now president of Cluster Finland. We took the unit in Estonia, in Tallinn, and grouped it together with the other units under the leadership of the also fantastic Liivar Kongi, who is our president of Cluster Baltics. It's been working well. The financial reporting works really well. No problem to put this report together. Rebranding, you see also the new signs on the building. What has been a challenge, though, is that we got with this acquisition a new customer base. We got, for instance, Eaton, it's the power management company. We got Danfoss, working with cooling and heating and motor drives. We got more of ABB, you know that company, electrification, automation. They are growing quickly, and that puts us in a bit of a dilemma. Should we grow with the companies we have, our customers we have, excellent dialogues with them, or should we focus then on streamlining operations? It's an easy call. Scale now, optimize later. What we have done is we have accepted the growth. If you check then, and Lars will probably come back to this in the numbers, if you check the sales for this quarter, it's for Leden above 15% more than this SEK 1.1 billion expected, and it's just the first quarter. We are working with extra shipments, we are working with overtime, we are working with production across several factories, downloading the margin, but the good part is only temporary. The beauty is when you integrate a factory, a company like Leden into HANZA, the capacity of HANZA and Leden, 1 + 1, becomes more than two. Already within this year, we will have a new capacity solution in place, and that will lead them to a very quick upturn in the profitability. That's about the Leden case. If you then look at LYNX, this was, let's say, a response to the new security situation in Europe, which was very clear when the new administration took office in the U.S. LYNX is about targeting the defense sector. We have a concept that works really well for that. We have electronics, mechanics, complex assembly in local places, exactly what is needed for the expansion of this sector. I think also we have good experience. Defense is not nothing new for us. We've been working for them for many, many years. I think also on a personal note that this is not just good for business, it's also good for Europe. It's about Europe. It's about democracy. I think every contract manufacturer should ship in some capacity for the defense industry right now. It is really important. On the other hand, we must, of course, safeguard capacity for other industries, for other customers. The talk on the street now is that defense is eating up all the capacity, what will be left for the other industries. That is why it was so important with this acquisition of Milectria. It brings expertise, it brings a new customer base, but it also brings a capacity platform where we can grow with this sector without having to lower the capacity for other industries. Now we are waiting for the approvals from the authorities. It is a standard process. We expect that to be ready by September. We have said at that point, we will have a little, not opening ceremony, but closing ceremony. When we close the deal in the headquarters in Finland and talk more about the new customer base, we cannot reveal so many details right now, and talk about this LYNX program, how that will proceed over the coming year. You are much welcome to please join us, and we will send out invitations. What we can tell already now is that Milectria comes with one factory in Finland, two in Estonia, and one in Abu Dhabi. It brings our total staff up to 3,500 people, divided, as you can see on the map to the right. It brings a sales of about SEK 300 million annually, same case as with Leden, or better and worse, how to say it, but this area will expand even quicker than Leden. We do have a capacity platform. We are not afraid of this increase. We will be able to handle this thanks to the plan we have made in LYNX. More about this in Finland in September. This will then be kept as a special part, and that is also unusual. Instead of putting the different factories to the different clusters like we did, we will keep this as a special unit, as a special part of the LYNX project. More information to come within soon. With that, I leave the floor to Lars to talk about sustainability. Thank you, Erik. The sustainability work in Q2 was focusing on including Leden that we acquired in March into the figures. Now we have in the figures, you see to the right, Leden factories are included. We also started to work with the DMA, including Leden to prepare for the CSRD reporting by the end of this year and the beginning of next year to fulfill the requirements. We also worked with the annual employee survey, the feedback we get from our employees. We worked with that, changing where we can improve things based on the feedback we get from our employees. We also have quite an interesting project in Estonia, bringing in people from the open prisons working in our factories in both Tartu and Narva. The next step will be to also do this in Tallinn. We see on the figures that the injury frequency rates are stable at the level we have been for quite a while. We also see that the hazard waste is increasing a little bit due to the fact that we took down one painting line in Sievi, and that increased this temporarily. We also see that the energy use is increasing. That is due to the acquisition of Leden. Coming into the financials, we see a strong increase of the net sales, increasing with 24%. We also see an organic growth of 3%. We are a little bit above this SEK 1.5 billion in the quarter, at the same level as in Q1. Accumulated, including Leden, the full period of the first half year, we are a little bit above SEK 3 billion or SEK 3,051,000,000. As Erik mentioned, we see a change in the market. For the first time since the downturn in the economy, we see an increased receivable of orders and the volumes that will increase in respect to increase in the second half year. That is a major change in the operation right now. Earnings, the adjusted operating profit, which actually this quarter is the same as the operating profit, is SEK 106 million. Having a continuing increase of the margins, if you take the comparable units, we have 7.8% coming from 4.1% a year ago and 7.3% in Q1. Erik mentioned the challenges we have in the Leden factory, and that reduces the margin for the whole group. Leden is approximately on 4% in margin in Q1 compared to 7% in March. We expect Leden to increase the profitability. We also have arranged the transaction or the acquisition of Leden with an earnout that is depending on the profitability in Leden. If this lower margin continues, we also will have a release of the earnout in the balance sheet. Orbit One, that we acquired a little bit more than a year ago, at that time, being on 6% approximately in margin, are now on the same level as the rest of HANZA, if you exclude Leden. That 's really positive and shows good development of companies that we acquire, that we can rearrange some parts and increase the profitability quite fast after the acquisition. The earnings per share increased to SEK 1.13. For the first half year, it's SEK 2.23. Looking into the cash flow, we continue to have a strong cash flow. We saw that the cash flow peaked in Q4, but it continues to be strong also in the first half year. We have not seen the full effect of the work we do with the working capital in Leden. We expect to have a positive, continuously positive cash flow also when we are able to release some working capital in Leden. What you see on the graph to the right is actually when we acquire a company, we increase the net debt compared to the EBITDA, and then we are able to work it down. Both in Q2 2024 and in Q1 2025, you see that the net debt compared to the EBITDA is increasing a little bit. Regarding the net debt compared to the EBITDA, we are well below the 2.5% that we have as a financial target. With the acquisition of Milectria, we will increase that temporarily, but we expect the net debt compared to the EBITDA to continue to decrease. We have a solid balance sheet. We have equity-to-asset ratio that actually increased during Q2 despite the fact that we paid out dividends. We are on 35%. We have a solid balance sheet. We also decreased the net debt if you include the dividends approximately with SEK 100 million. Coming into the segments, we see, which I think is very positive, that other markets are at the higher level and closer to the level of the main markets. For you that have followed HANZA for quite a while, you've been hearing me and Erik saying that there shall be really no reason to have a lower margin in other markets compared to the main markets. It's more a matter of how mature the factories are and the programs that we call the ONYX programs, where they are and in what phase they are. Now we see the result of both the fact that the factories are more mature and that we have done this ONYX program with restructuring. We see an increased margin in other markets compared to what we have seen previously. We see an organic growth in main markets. We see a slight decrease of organic growth in other markets. We see profitability that is in line with historical figures, except for the fact that other markets are increasing the profitability. Ownership and share, we have the same main owner. We have some differences. Some financial institutions are increasing their shares, their ownership, and some are decreasing, but no major changes. We increased the number of shares in the beginning of the year when we acquired Leden. Erik continues to increase his owning and holds now 640,000 shares, corresponding to 1.4% of the ownership. By that, I leave it back to you, Erik, for a summary. Unless you'd like to comment on this slide. Sorry. Yes, the Milectria acquisition, and it's 100% of the shares in the contract manufacturing part of Milectria. We also acquired the factories, the real estates, where the operations are run. The purchase price is set to EUR 16.4 million, and it's based on an EBITDA multiple of 4.9% on a cash and debt-free basis. This will be a cash deal, so there are no HANZA shares involved in this acquisition. Similar to what we did in Orbit One and in the Leden case, we have an earnout, and the earnout can be a maximum of EUR 18 million based on the revenue in 2025 to 2027. To reach the full earnout, the sales in the company need to be more than doubled during this period. As Erik mentioned, we are waiting for government approvals that we cannot really steer, but we expect them to be ready in September. We also expect this to, from the start, have a positive impact on both sales, operating margin, and maybe most important, the earnings per share. Now, Erik, now you can do the summary. Thank you, Lars. Today, my family is also buying shares. I see on your list, Lars, that I need to get up to 2% in order to be on the top 10 list. The key takeaway of today's presentation, this quarter, this last year, and maybe the key takeaway of how we work is that we keep moving, even putting on some extra speed when the economy stands still. By doing that, we create a strong position for the future. We talked about the Leden acquisition, how we're now increasing capacity. We talked about the LYNX program, which will run for up to a year and embrace this in Milectria before we then integrate it into our clusters next year. As I said in the beginning, we have many other activities going on. In February this year, we opened a new factory in Töcksfors, Sweden. It's now in full swing, a lot of work behind that. We decided also to expand our building in Årjäng, mechanics in Sweden, because of a strong demand from the energy sector. In Poland, we have the streamlining project. We talked about this in earlier reports, going really well and also contributing to the margin in other markets that Lars talked about. We see still a slow market in Germany. Of course, sad for the volumes, but still, we feel that this is bringing new opportunities. We really like to increase our presence in Germany. If we look ahead, clear signs that the downturn that started early in 2024 is now reversing. That was also our initial expectation. In the beginning of 2024, it was said that it could be a destocking exercise and demand would pick up already the second half of 2024. We didn't believe in this. This was a normal downturn of the demand that we lost for a couple of years. It is well in line with our plan. Of course, we work with HANZA 2028. It's in the final phase. We were in this quarter talking to a number of customers. We have a very close dialogue. We would like to, of course, develop HANZA according to the demand and the strategy of our customers. We will call for a capital market day at the end of this year where we tell you about this next important step of HANZA. With that, we can now open up for any questions. If you wish to ask a question, please dial #25 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. Next question comes from Anders Åkerblom from Nordea. Please go ahead. Good morning, Lars and Erik. Thank you for the presentation and taking my questions. Firstly, I would like to ask a bit on profitability in the Other Markets division. I mean, obviously, you reported a very healthy margin uplift. Could you just walk us through this in a bit more detail, particularly as you didn't see any positive organic sales growth in the quarter in the division? Would you start, Lars, or should I? I'll start. Hello, Anders. As I said, we have been working since the downturn a year ago, a little bit more than a year ago, with this ONYX restructuring program, adjusting the cost base to the sales volume. It's not driven by growth of sales. It's driven by higher efficiency and lower cost and the switch in the customer base, etc. That's the main driver of the increased profitability in other markets. I get that and appreciate the answer, but I mean, just looking sequentially, it's like some 240 basis points uplift. It seems like, I mean, have these effects come through just now in the quarter? Is there a positive impact from Leden here, given the lower margin profile in other markets? How should we think going forward? I mean, is this a, do you think that it's reasonable to extrapolate this margin to some extent, or will we see a partial reversal? Anything on that would be really appreciated. I can also add, before you say something more, Lars, that we have also stated that the profitability is not a question of where the cluster is located, like Lars said, but rather how mature it is, how well organized it is. We have a special concept where we really have to create the cluster. It takes some time, but it's really efficient when it's in place. In Poland, it was all about this acquisition of Orbit One that initiated the right size. We could do the things we like to do. We could have specialized factories and all that. We were running about 6.5% something before the recession, and now we are up to 7.5%. It's nothing dramatic. It should be above 8% like main markets. Lars, would you like also to comment more on this? Yeah, I can comment on you ask about if Leden is contributing. Yes, as we have said in this call, the main challenge in Leden is in Finland. Leden has the most negative impact on the group in main markets and not in other markets. As Erik said, Poland is the main difference, Orbit One coming in in other markets at lower margin, increasing the margin. More or less all different, all the clusters in other markets are increasing profitability, but not dramatically. It's in line with our expectations. Okay. No, that makes sense and kind of negates my next question, which was going to be why margins were down so much in main markets sequentially on the healthy organic growth. Mainly as Leden Finland is the most sort of challenged short term in terms of elevated costs, if I understand you correctly. Yeah, it's really not that dramatic either. You have a big factory move into a large factory and you start up, and before you get full efficiency and are able to get the profitability on the level where it should be, combined with high demand of sales, it's not unusual that that takes additional cost in order to keep the customer happy. Makes sense. Asking on recent acquisitions, given in part that, obviously, you're buying these companies on rolling earnings, how do you sort of ensure that even in a more challenging market when profitability is a bit more constrained, that this is value creative? Particularly then with regards to integrating these companies in an efficient and good manner and raising profitability, could you talk anything about your expectations for, not in the least, Leden in terms of when the profitability uplifts could be expected to be realized? I can maybe start there, Lars. I think that in general, if you look at, for instance, Orbit, we acquired a year ago. This is a sunshine story, a company that has, in maximum count, 6% margin, goes down quickly when the volumes go down, has not gone up again, and now it has the same margin as HANZA. What I think is when we buy a company, of course, we choose them carefully. We are looking for competence, how to expand our offer to the customer. The input is silver, but the output is gold. When we then talk about Leden. I guess I maybe mean. I understand it, but if you then look at Leden, there are different challenges in different ways. Orbit was lower volumes. In Leden, we have the opposite story that we have increasing volumes. In any way, our concept helps. It restructures, and you see, you were pointing out that we had a decrease organically in other markets. Still, we were increasing the margin. Of course, sales growth helps to increase the margin, but we can also increase the margin when the volume is down. I expect, to answer your question about Leden, that we should have a quick rise of the profitability when the capacity exercise combining Leden with the rest of the group is done. Now, we were just in the integration phase, so we had to quickly start with the capacity expansion program also, but we are quite used to that. That will be within this year, and that's why we can also restate our financial goals for this year. Not to restate, reiterate your financial targets for the year, right? Just say the 5%. Reiterate is a better word, yeah. You see that. I thought I missed something. Yeah, the old HANZA is then increasing margin by 0.5% per quarter, and then you have Leden on top of that. It's not complicated mathematics. No, no. Just one final question, if I may, on the recent acquisition of Milectria. I just noted that looking at revenue per employee, it was about SEK 1 million, quite a bit below the average in your most recent acquisitions, which is around, say, SEK 1.5 million. Could you specify a bit what drives this? I mean, if it's only more manual processes and if you expect room for efficiency improvements in this operation, and possibly then also the costs associated with potentially pursuing efficiency measures, if there are any, to begin with. We will not go into any details regarding this acquisition, but yes, it's more labor-intensive. You cannot really calculate the number of people. You have some customers where we have fully automized production with almost no people involved, and then we have a lot of manual labor depending on volumes, depending on target area, and so forth. Again, we will give you much more details when we have closed. Is there automation opportunities? I think that in the military sector, we don't run into high volumes so often, which makes it more specific every case. We do have a plan how to increase capacity, which we will come back to in September. Okay. Sounds good. Thank you very much for taking my questions. Thank you. Next question comes from Forbes Goldman with Pareto Securities. Please go ahead. Yes. Morning, Lars, Erik. First question here is on demand. You mentioned that some of your customers are seeing higher demand towards the end of the year. Could you perhaps specify if this is broad-based or specific sectors? I think that is the news because we have always had sectors growing, even though in this lower economy. We saw energy and defense security growing. Now we see more in general. I think if you've been looking, we cannot give details on our customers, but if you've been looking at the reports, you see some upturns in the mining sector. You see some upturns in automation companies. There are some areas which are moving now, different areas, which is really, really good. Got it. The second one on cash flow has been quite solid year to date. You previously mentioned that maintenance CapEx needs will not be that high this year considering you recently acquired Leden. Also, now with the latest acquisition of Milectria, wondering how we should think about CapEx needs going forward into next year. From my point of view, it looks like it should be fairly low levels next year as well. I can answer on that one. It's not only the fact that Leden had a high standard and new machines and no major needs of investment. It's also that we, in the old HANZA, so to say, invested quite a lot previous years. We've been saying that the CapEx level will go down. What you see in both Q1 and Q2 now is that the investment level, if you exclude the acquisitions and also if you exclude factories, is a lot lower. We expect that to continue. We will, of course, not stop investing. There will be investments in replacing machines, etc. If we see that the volumes are increasing again, you will see an increase of investment in the future, of course. Milectria is with the SEK 300 million compared to the little bit SEK 6.5 billion or so in HANZA. It's not a major part. You will not see a major impact on that acquisition for investments. Also, that business is not that heavy in investment needs either. Great. Finally, perhaps just on operating cash flow now, we should think about this going forward. Do you have a specific cash conversion target that you're aiming for? No, we have not set that. What we have is the net debt compared to the EBITDA that shall be under 2.5 x. As you see, we are on 2.1x. It will increase a little bit when we do the acquisition of Milectria. That's the only financial goal we have related to the net debt. All right, thank you. Thank you. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. Next question comes from Jacob Söderblom from Carnegie Investment Bank. Please go ahead. Yes. Good morning, Erik and Lars. Can you hear me? Yes, good morning. Perfect. Yeah, two short questions and a follow up on my end here. I was wondering if you could talk a bit about sales activities during the quarter. If you compare it, I'm guessing then I have seen some green sprouts across your different sectors and so on. How can you talk about anything? You haven't released any real new MIG. There has been a lot of other focus during the first half of the year. If you could talk something about if you have any view around how demand then has changed across the quarter. It started from April, kind of a bit of a hesitation, I'm guessing, with everything going on with trade policies and so on. What are you seeing now? You have entered the summer months, and it can give some color on this. I think this was mentioned. It was mentioned in the report that, first of all, if we look at the LYNX program, this has been really successful. We are saying that already this autumn, we will be able to launch some new deals. That has been a really successful program. It's something that really fits the market, our concept. In general, sales is good. We have had a number of new discussions, and that's also the challenging part that we cannot reveal so much until the deal is done and maybe also old suppliers are excluded. I can promise you, you will hear some news about the new sales during the autumn. Excellent. Yes. Final one, I'm guessing another question on inventory development. We have been, by natural reasons, coming down quite a bit if you look at multiple of the sales. Do you have any type of target view around this? Do you expect to come back like pre-COVID levels? I mean, it's a bit of a different supply chain situation now than it was a couple of years back. What can we expect from you? Is it supposed to drop down below 20% compared to sales, or how do you view this going forward from here? As you said, Jacob, we are quarter by quarter or so decreasing the stock levels compared to sales. What we are focusing on is actually the total working capital because it also has an impact on type of products and product mix and customer mix. We have not set externally any sort of target figures on the working capital level compared to sales. We have said previously that we aim to come back to pre-COVID levels, but we have not set any sort of target on that one. [Crosstalk]. Do you feel that you are? Yes, to add on that. No, I'm sorry. Continue. Thank you, sir. To add on that, one of the challenges is if you're a product-owning company, that you have all these different suppliers and the materials flowing back and forth. It's all about throughput time, the time between you bought a component and you have the ready product. There we have a beauty of the scale. The larger and more integrated our clusters become, the throughput time also becomes shorter. Here we also have advantage both for ourselves and for our customers, which brings down the inventory. Yeah, that makes sense. I think that was all for me. I just want to wish you a happy summer now. Yeah, you too. Thank you for calling. There are no more questions at this time. I hand the conference back to the speakers for any closing comments. Thank you again for your time and your attention today and hope that you will keep following us. There is much more to come. Thank you and bye for now.