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spk03: Thank you very much. Good morning, everybody. Welcome to this quarter two update from HMS. The agenda we have is quite standardized. I'll start with a short summary of our business since there are some newcomers on the call. Then introduction. I'll do a brief update and then Joakim will quickly move into what you're really here for, the financial results. And we end up with a Q&A. So just a brief view over quarter two, a quarter where there's quite many different things happening. We have been talking about destocking and this difficult market in how to predict really the market demand. We talk about a soft market, but we also talk about this new fairly large acquisition of red line control that is coming in with the first quarter here. So in total growth, plus 20%. Of course, this is driven by the B acquisition. But we see negative growth, organic growth without red line of minus 20. So the bad order situation is now showing us in quite weak revenue. Order intake, mixed picture. Of course, we see a total add from a red line. We also see a sequential growth from last quarter with 9%. But in total, it's a weak situation with a minus 22 organic growth. We talk a lot more in the financial numbers about our adjusted numbers, and Joakim will explain this more. So here, when we look at the adjusted number, we're moving in the right direction, and our EBIT margins are quite fair coming in with the large red line, but Joakim will move into this. And we see improvement of our cash flow. But before diving into the numbers, let me just make a very quick update of our business for the people who are new in the call. We talk about industrial ICT, information and communication technology. That's our business. We need to update this slide because we have more than 10 million devices connected through our Anybus brand. So we are very well connected in this industry. As we say here, millions of devices can't be wrong. So we have a very good position with the industrial market here. In addition, we have over half a million cloud connected machines through our E1 brand, but we also have a leading position. With Red Lion, we are now almost 1,200 employees around the world, around one-third in R&D, around one-third in sales and marketing, and that's where we wanted to be. The Swedish market is a small portion. We are with daughter companies in 18 countries, and the large market we have is U.S., Germany, Japan, and most of the industrialized world is our big market. Last year, $3 billion in revenue, EBITDA margin 25%. we have a good history of growth, CAGR of 20 percent per year last 10 years where the majority is organic and some part of that is through acquisitions through the years. We talk about our playing field where we work with industrial communication technology in mainly manufacturing, transportation and infrastructure as well as power and energy where the big portion of the business would be in the traditional manufacturing piece. Also red line coming in and opening some new areas especially in energy distribution oil and gas and some of this application in more harsh environment and we also have a business that is fairly small today in building automation that we see nice growth and a little bit different market and different business for us there two types of customers we have the makers that makes the machines the devices where we sell things to them that they build into their machines and their devices and then we have the users where we sell normally through system integrators to applications where the end customer is using the automation equipment. The go-to-market is on the left side, our device manufacturers, which is a quite big portion of our revenue, where we have direct go-to-market with our own sales force. We make design wins, and it's a very sticky business. We have the machine builders that we want to be part of every machine. In reality, we are more of the option list. If the machine needs this kind of function, we should be on their list as an approved supplier. And then end users and system integrators, where we see and need to have more connections to the end users to really understand the end user requirements. The acquisition of Red Lion does not have any device manufacturers. They focus on machine builders and system integrators. And for our strategy, we have six pillars. We talk about organic growth right now, quite weak. We talk about M&A, where we have a full plate with Red Lion, but we keep on looking for a new, smaller acquisition going forward as well. We have a people agenda where we talk about happy and high-performing employees. We work with our sustainability targets and the planet. And the last two years, we added also operational efficiency, where we use much more of AI tools and want to do things in a more efficient way. And we're also doing some changes in our go-to-market and learning from best practice in different countries to accelerate our sales excellence. Targets for 2025 coming up here for next year. For planet we talk about our science-based target where we are working to get our targets approved but we also talk about how we help our customers reducing their CO2 footprint where we have quite big effect. Last year we saved almost 1 million ton of CO2 for them and we want to triple that by 2030. We want to have happy employees and happy customers. We measure net promoter scores and we also promote quite quite much our ambition to get more female managers, where we are today, I think at 23, but the aim is to have over 30% female managers in the company, because we know that also attract more female engineers and female salespeople. Growth, we have an ambition to maintain a 25% EBIT margin. We work hard now with the big portion of Red Lion coming in with a slightly lower EBIT, so that's a challenge we have to make sure we can get back on 25%. And we have our long-term target for 2025 to be plus 3.14 pi billion, where we feel quite confident with this new acquisition. This feels almost an obsolete target. Short business update. North America, we had a hiccup last quarter. It's getting back. It's a good market. We have good orders, and we see good projects in North America coming up here. But Europe is slower. Germany is slower. a bit on the negative side and people are reluctant to always wait and see there. So the recovery that we felt should come here, the coming quarters, especially Europe, it will take a few quarters more. And China, which is a small market for us, I think 4% is developing well. And Japan, we see some signs of improvement but there we have a lot of the business where we have big impact on destocking and stocking so it's been difficult to really get our arms around the real demand on that on these calls we talked quite much the last years about 5g as a new technology we see this is coming up as a runner-up for special application especially in mobile application we have AGVs and robot applications where you need this new technology, but it will take more time before 5G becomes more of a general purpose standard. But we are seeing good progress now with our first release for the broad market, and it's quite interesting to follow. But as we said many years, it will take some time for this to really kick off. Joachim will talk more about Red Lion. We try to make it easy to understand in our reports. It's a nice company. Integration is following our plan. We see many opportunities to improve things. But of course, these are quite long processes. So we need a couple of quarters before we can explain to you really in numbers these synergies. And we had a restructuring program, especially in Europe, to do some changes. We talked about this. It's finalized and we're moving on from there. With that Joakim, we should continue.
spk05: All right. Thank you, Staffan. Let me dig into the financial results. And as you might have seen, this is from a CFO perspective, an interesting report, a lot of things going on. We also have the integration of Reliant coming in. We present the report also a preliminary purchase price allocation, which is giving a lot of amortization on the excess values. And I just wanted, before we go into the numbers, just wanted to explain a little bit what we have been doing. So we have always been reported EBIT as our main metric for measuring profitability. We will also have our targets and been trying to keep that as a clean, clean number to just show reported EBIT and work with that. I think with the acquisition of Reliant and the the pretty big amortization of the excess values, we've decided to make a change and to also report adjusted EBIT. And the reason we choose to go with adjusted EBIT is that we still want to take responsibility for the amortization of the balanced R&D cost that we do have as normally the biggest investment in the business. And that's why we don't go with EBITDA. So we're still going to work with EBIT. We have the adjusted EBIT, and we also will have the adjusted earnings per share that we'll have a look at as a consequence. Just wanted to make a note of that. And then, as you saw also, we made a take a new grip on the report, trying to make it easy to understand HMS with and without Red Lion, and then we'll see what happens for next year. But for now, this is how we'll report it. Let's start then to have a look at order intake, which is also a bit Difficult to analyze in a sense. I think we have all in all, we see 769 million, which is a growth of 9% reported, which is maybe not so interesting since we had the acquisition coming in with a lot and in 253 million to that. So the organic decline compared to Q2 2023 was minus 22%. What is interesting though, is that sequentially we are up 9% organic. So we see a continued improvement from Q4 to Q1 to Q1 to Q2. We might have hoped for a little bit more than 9% improvement. It's still in the right direction. And as we do talk about in the report as well, we see that this recovery has been slightly dried out in time. So we're still convinced that we will see a good future. We think that Q3 will be better than Q2. And then we think that Q4 will be the quarter where it really starts to release. That's what we're hearing in discussions with our customers, looking at inventory that they carry. We also had about 100 million impact from destocking. I'll show you that graph in a second. And before I wanted to mention that, let's just talk a minute on Red Lion. Staffa mentioned that our business in the US that had a bit of a bump in Q1 was now back and showing good growth. uh on the order side and on the red line side we we had a little bit of a slow quarter and we hope that this is just going to be a bump and um there was a period of a couple of weeks where we were a bit lower than we should and maybe we are putting too much effort into the integration i'll talk to talk to that in a second as well um really happy to have that good progress on integration but we also need to keep track on the on the ongoing business This graph I think most of you have seen now for a couple of quarters. We've been doing it since Q1 2021, trying to show what's the underlying market really, the dark blue, and then the boost effect, the lighter blue, and then the green, which is the destocking. And here you see that the underlying market is pretty much as it's been the last couple of quarters, 625 is what we estimate. We had about 100 million in destocking, primarily in continental Europe and Japan. and we actually expect this to be the last quarter where this is significant. Let's see what Q3 brings, but we think that will be a significantly lower number, and it might also be that we will stop with this graph going forward. Let's see how the future plays out, but this is really something that we think will have passed now, which is good, and then we can just be looking at the underlying demand and understand how the market is developing based on that. I also included this comparison where we restate Q2 2023 in compare with the normalized Q2 2022. And we see here that we had a decline of about 10% in the market. With that said, remember that Q2 2022 was actually the strongest quarter that we have reported in terms of underlying demand. So for sure, the market is not as strong as it was a year ago, but it's not as dramatic as if you look on the reported numbers. This is, and just to say, this one on the previous slide is of course excluding Red Lion, so the organic HMS business. Going over to sales, 845 million, keeping up fairly well. We have 20% plus reported given the integration of Red Lion organic minus 20%, and this is But we still have tough comps here throughout the year of 2023. We know that. And the organic growth will probably take a few quarters more until we can see growth in that. We expected Book2Build to maybe be quite close to one. It was 0.92. I believe that this might be the last quarter where we've had Book2Build less than one. That should be more than one going forward. And Redline helped with about one third of the business. I was really positive. is that the E1 business is doing much better. It's coming back, and we actually see a smaller gap on the installed devices and the sold devices, which is good, meaning that the destocking is getting lower. And then we have a record quarter, actually, for Intesis, which is really good. It's been a bit of a different cyclicality for Intesis. We didn't see as much of a buildup. on orders through 21, 22, and it's just been ticking on very well throughout the whole period. Very nice business we have here in the building automation space. So I think in terms of net sales and goes for orders as well, it's really down to Anybus and Exat where we do struggle a little bit and where we need to get those big customers back to ordering, which we think they will do throughout the rest of the year, and especially in Q4. So all in all, the market is still in a hesitant mode. We hope that that will sort itself out with more calm around the macro situation and the fact that the destocking is wearing out. I put together one slide on Red Lion just to give you some also historic quarterly data to understand what's going on. And I think the sales development is here we do fairly well. We had the reason why the beginning of 2023 was really good was this big boost in demand that was delivered out during that period. The order intake boost you don't see because that was before 2023. And again, I think the point where we're not super happy is that we didn't see continued recovery on the order side. We believe that we've been putting too much effort on integration. We're really happy with that progress. The main thing that we are working on, the main value add that we see is the cross-selling. So we've been doing a lot of joint customer visits and distributor visits in the US, which is the biggest market. In APAC, we've been integrating the sales organizations completely. Of course, some tweaks to be done to get that to work perfectly, but that's live as of now. And in Europe, we also do a lot of joint efforts trying to use the HMS infrastructure for line access. I think this has been a high focus now for the first quarter with relying in our ownership. And I think we also need to balance that with having good focus on getting the big wins in the markets where we were lacking a little bit on the other side here in Q2. And just having a look at the backlog, I think I've changed this graph slightly now. You see we have 713 million of backlog, which I think is a kind of normal level. 115 of those is within Red Lion. And since we rely on businesses almost exclusively to distributors, which keep their own inventory, that backlog will always be quite small. So I think what you see here is kind of normal levels in terms of if you compare to sales. So I think this is something that you'll continue to see levels of this, maybe 80% of sales going forward as well. The sales per region graph, this is completely changed now to what we normally see. We have a pretty good balance between the US and Europe, 42% in Europe, 44% in Europe, and then APAC being 14%. Again, I think this is what we can expect going forward with two sort of equally large markets in the US and Europe for the HMS part. Then going into Yeah, maybe what we have most to explain, trying to understand the results, because there's a lot of things going on in the quarter, and I have a separate slide to try to explain that. So what we're looking at now is the adjusted EBIT, 172 million, 20.4% margin, which I think is an okay margin given the low top line at this point. I think this is a quarter where we knew it would be tough on the top line side. And hopefully we can improve from here. And then the profitability should work with us as well. So we have really, I think what's a good point first, maybe gross margins of 61.9. Here we see already some improvements on the red line gross margins. We see also okay margins on the HMS side, 63.9, which was an improvement from Q1, given that the volumes are fairly low. So I think we're happy with that development that we can still perform these margins with this low volume. I think that's good to see. On the OPEX side, we've been doing a pretty tough effort to try to keep that in chess, given that the sales are a bit lower. So we're reporting now 423 million in OPEX, which is an organic decline by 21%. Of course, a pretty big Big decline there. Majority of that is not personnel, even if we have taken out some costs in Q2. I'll talk to that in a second. I think we're trying to hold back on limited traveling, really trying to hold back on use of consultants, all types of consultants we're trying to hold back on. And I think our organization has really done a good job in listening to the instructions and trying to be careful with the cost. And this is a result of that that we see. We do have 69 million that are affecting comparability. And I want to talk you through that to make you understand what's going on. It's really two things that we have here. We have first the Reliant acquisition, where we have amortization of excess values of 24 million that is impacting. This is solely related to the Reliant amortization of 24 million. Then we have a few million more in amortization of excess values from previous acquisitions. It's adding a few million on top on that side. Then we have transaction integration cost of 50 million. We had the final cost for the transaction for insurance and the last lawyer fees and so on. It was paid in a quarter and then also some integration costs we have for continued integration work. And then as you might remember, we communicated just in the beginning of the quarter that we're entering into this restructuring program that has been finalized. We've taken out 44 positions in total, 22 of them in the headquarters in Sweden. And the impact from the program would be a saving of 41 million full-year effects, whereof 23 million will impact 2024. And of course, some of that impact comes into Q2 as well, one of the reasons why we could have a lower cost in Q2. Then the bill for this program totaled 27 million in restructuring costs that we take in full in Q2. So I think all in all, this was slightly lower than we communicated in the release. So I think good to see that we are within that space. And I think we're all happy with that. This program has been going fairly well. about equal parts on early Reliance synergies, the restructuring within Alibas, and then some fine tuning of the organization primarily in Europe on the cost side. Moving on to the earnings per share, here we have looking also at the adjusted earnings per share. So we have restated this, and we have 2.12 SEC in adjusted earnings per share. due to all these excess values, amortization and restructuring costs and so on. What's a bit new for us is to have significant interest costs. We have a net financials of 61 million, where the main part is interest costs, which is 43 million out of that, of the acquisition of Reliant. Of course, that's a number that will come down with amortization of the debt and Also, we believe that the interest rates will be coming down. Of course, not in our hands, but that should be coming down the interest costs and such. We paid a dividend of 4.4 sec per share after the AGM that was held at the end of April. Then let's have a look at the cash flow as well. And I think this was a bit of a positive for us. We're starting to see small inventory reductions. As communicated before, we see the majority of inventory reductions in the second half of the year. But we started to see this trend downwards a little bit already in Q2, which was good, at least to see that we are not building more inventory and building working capital. So a small working capital release and quite solid cash flows otherwise to 152 million. And yeah, the best for a couple of quarters. And then to end off with a bit of a dramatic slide looking at second quarter on the net debt, almost 2.8 billion in net debt. We've been looking at net debt in relation to adjusted EBITDA, and here we have reported 3.05. We've also made an adjustment for net debt pre-IFRS 16. As you see, we report separately the 255 million there in the light blue. and that in relation to adjusted EBITDA as well, which is 2.58. I think this is maybe a more relevant metric. At least when we look at ourselves, looking at how highly levered the company is. So a little bit higher than we had expected due to the performance in Q1 and Q2. That has not been where we hoped it would be a half year ago. But I think, as we said, the return or the recovery is expected to come in the second half of the year instead. And then we hope that the result will follow that. Also wanted to mention, I think you've all seen that we made a directed issue that generated 1.39 billion SEK in capital to repay a bridge financing of the acquisition. And we now have increased the number of shares by about three and a half million to just above 50 million shares in total in the company. That was all we had on the financial update. Staffan, do you want to have a few summarizing words before we let in Q&A?
spk03: Well, I think we can. There are two things we really want to focus on. We really want to make sure that we understand the numbers. It's kind of complex with Red Lion and all these things. But inside the organization, we have a big focus on what we call Win, grow, keep. We see that the market is weaker, but our commercial organization put a lot of effort now to win new customers, win new projects. We work with some existing customers, how can we grow them, but also making sure that now after COVID, we can be out and meeting existing customers to make sure we keep them. And what we see in our week order is not that our customer is leaving us for a competitor. So it's important also that we are out and talking to these customers. Even if they see a weak market, we need to make sure that we stay and keep them. And secondly, Red Lion, we're quite excited about Red Lion. As I said before, it will take a couple of quarters before we see this in numbers. But the more we learn, the more excitement we get around this because we see a lot of common things in the cross-selling, in future product development and supply chain and things like that. So we're really happy about this. But unfortunately, we have a situation in the market that is quite weak at the moment. So we need to focus on the things we actually can have an impact on. And we do a quite good job there. So with that, should we move into Q&A?
spk07: If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Joachim Gunnell from DNB Markets.
spk01: please go ahead thank you for that and good morning so uh we've talked about this topic obviously for for the past couple of quarters but can you say just anything with the with regards to to what you see in terms of outlook here uh in relation to some of your largest customers have been as i read it slightly more cautious in their view of how 2024 will unfold. So can you help us just understand how you balance your own view with regards to perhaps that, and if you can ultimately say anything with regards to nuance shifts where we are today versus Q2?
spk03: Maybe I can start there. If we look on both our customers, but also related markets like semiconductors and others, I think in the beginning of the year, a lot of companies talked about second half would be quite good. Now, I think a lot of our customers are saying, it will be better, but we'll not see a big improvement already in quarter three, maybe in the end of the year. But now our customers talk more about 2025 as coming back to growth in 2025. So I think most of our customers are talking about some kind of delay of maybe two quarters out from their previous outlooks. So I think that's a quite clear message from customers there.
spk01: Perfect. And with regards to Reliance, can you just say anything? You touched upon this already, Stefan, but what stands out from a positive standpoint to date? And also, if there are any points that have proven more challenging than what you have expected thus far when it comes to integration?
spk03: If I start, Joachim, I think what's really positive is that the more we learn about the team and about their capabilities, we see a lot of good quality people there. We see a lot of opportunities to do things together. There's been a positive mood between the two teams, I think, which is very good. So there's no holding back and people try to make sure that everything is just as it was. There's a big movement of doing changing, embracing the change we're suggesting here. But we take it quite also easy and doing quick changes. We need to learn the team. And right now we talk about there are things we don't know that we don't know yet. So we need to be a little bit careful on this. And as Joakim said, we also feel that some of the projects we're doing is taking time from the regular sales when these kind of common things with customers. So I think we need to have a balance of how quick we do it and how much we can focus on the current targets. But in general, also customers have been positive. you know, always nervous. They have common distributors and channels and there'll be a lot of fighting. Actually, it's been very positive that people see the benefit both from HMS point of view but also customer point of view. So, I think that's been all positive. I think when we... discover some of their supply chain. This is both good and bad. We see a lot of opportunity to improve, but the manufacturing side have too low first pass yield and too low of this quality target we're having. So there we need, as expected more or less, to do more investments than They have done so I think that's a side of the business have been a bit under invested But that was something we saw in the due diligence. We were surprised about it But it will require some investments and some extra work there to make sure they come up to to the HMS standards there Joachim anything additional you would like to point out?
spk05: I think you captured it very well Stefan. Thank you.
spk01: All right Thank you. That sounds encouraging Can you say anything with regards to if all assets of Red Lion needs to be a part of that company going forward, or are there certain parts of the product portfolio which not necessarily must be a part of future estimates going forward?
spk03: I think for the lion part, the lion part of Red Lion is a good fit for our product. But there are some pockets of products where we say maybe this is something that doesn't really fit fully to us. So we are looking into all the some smaller part that should be divested or changed or something like that. But I think the focus is really on the big common things and do the most things there. But maybe in 2025, there will be some areas where we say, OK, now we learn more about this. It's time to leave this behind and focus on the big things.
spk01: Perfect. That was all for me. Thank you for the granular reporting here with Red Lion as well. And have a great summer.
spk05: Thank you. You too. Thank you.
spk07: The next question comes from Gustav Bernablad from Nordea. Please go ahead.
spk04: Yes, good morning. It's Gustav here from Nordea. Just to start off here, I mean, is it possible to get any more color on sort of what customers specifically you have seen coming back sort of in North America? And also if we return it to Europe as well, what sort of end markets is surprising to the negative, given your commentary?
spk03: If I start there, I think Joakim already said something like this, that where we see a faster bounce back is the remote access Evo business to machine builders. We see a quite good pickup there. And also the building automation business goes really well. But both these two, the building automation is quite small. The challenges we have is really on this embedded component side with especially Anybus and partly ICSAT, where we've seen that most customers are reducing their inventory. but they also have a weaker market, so it will take some more time until we get fully back there. So I would say that that kind of Anybus and Ixtap business is the weakness at the moment. The other part is going quite okay.
spk04: That's perfect. Is it possible to say sort of what end markets are?
spk05: I think what's difficult there, Gustav, is that we have on the Anybus, I think we sell to more or less all end markets, so we don't have that full transparency on exactly what's driving I think it's been pretty common over the range. Nothing that sticks out that we have reacted to that we discussed in general.
spk04: Okay, perfect. And then maybe in regards to working capital and inventory buildup. I mean, we have seen the inventory buildup for quite a while now. And I mean, I think you commented quite positively in regards to Q1 during the end of the quarter that you saw. the inventory returning there. But we only saw 18 million in working capital released now in Q2. Are you still having a lot of inflow of inventory or how should we interpret this?
spk05: I think that's the challenge to why it's not possible to make it faster since we do still have some inflow when we have really long order lead times. So that's still working in a negative direction. way and we need to try to work with that and that's why I'm saying that we will see a better reduction in the second half of the year since that will wear off and then we can more quicker get down the inventory to the relevant levels so that's the main challenge.
spk04: Yeah okay perfect but are there any risks for an inventory write-down or is that
spk05: If you don't see that, this is standard components. I think, of course, as a CFO, I'm not happy that we're consuming my cash flow. But it's really standard components, and it's a pretty good usage of those. I think we'll have a bit more, a longer period than what we would like, but we'll use it up. I'm not too worried about that.
spk04: Perfect. And then maybe just some last here on Red Lion. Just to clarify, maybe you have talked about this before, but are there any seasonality in the Red Lion, for example, the margin or so? Because, I mean, you have, for example, a stronger Q3 and so forth. So just are there anything to look out for there?
spk05: Not necessarily. Not what we've seen. I think it will given the the the sort of boost orders and normalization of that i think we expect to see gradual improvement throughout the year and for the time being but if you were to look over a 10-year period of time i can't really say that what i've learned at least so far and that we see in a big seasonality yeah okay perfect and then maybe just the last one i mean you comment sort of of taking initial synergies here right away and then
spk04: think in regards to the acquisition you talked about synergies that could be sort of extracted one to three years out maybe but is it possible have you got a better view on what you can extract and what sort of is a longer term fair margin for this business?
spk05: Maybe should I start Stefan? Yes please. I think what we said is, and the main thing, I want to reiterate this because I think this is important. This has never been a cost synergy case, right? We see from a sales point of view that there is a good match between the offers and we get the presence in North America that we really wanted to strengthen. So I think the main synergies will come from cross-selling and That's what we've been working a lot on already in the first quarter. And that's what I also said, maybe we need to balance this a little bit to make sure that we get the orders we should get in the quarter and rely and not spend all the time working together with HMS guys and see what we can do in a year or two from now. I think the sales synergies will take some time before that becomes material. We still have some customers that have been trying some Some distributors have been interested in the different offerings, so I think that's good. But we also need to get the infrastructure in place. I think that's what we're working with to get the backbone in place, common ERP systems, so we can have a joint flow of orders and goods. And that will take another year to get that in place. And then I hope we can start to see the real sales synergies. And we didn't put a number to that. It will be millions of dollars. We can't say exactly how much yet. So we need to get back on that. I think Staffan also said this is a bit of a long game. This is not a quick turnaround and fix. We need to make this right and build a good company for the future. I think you need to allow a year or two before we start to see that. On the cost side, obviously, there are some things to do as well. We did some... We have some dual managers that we corrected for directly in the first quarter. And I think from now on, let's see what we can do. There are some tweaks here and there, but that will not be super material, the savings we can do. And I think that was never the intention. That would be my sense. Stefan, do you want to add something to that?
spk03: I think we can categorize this in three different waves of initiatives. First, now we focus a lot on the cross-selling and these commercial things. And I think this is something we probably see effects of in a couple of quarters in revenue and cross-selling. The second wave is much more in this operational things with our ERP system, with investments in their manufacturing sites and these things. And I think that's probably a year out before seeing some big synergies there. And the third wave is much more this product technology and where we see elements of using the same technology and cross-technology usage. And that's probably a couple of years out before we see that synergy. So there's different waves and different timelines for when we can collect the synergies.
spk05: Yes, I forgot to mention one thing. Maybe there's a fourth on the supply chain and in operations to make those investments, get the yield up, the stuff I talked about, the low yield, and with that, grow the gross margins. Of course, it will come with some capex to get there, but I think that's something we're determined to do and working on to get it fixed as soon as possible. And then I think you also asked, Erik, if there was... What was the long-term potential of Red Lion? I think the target for HMS is 25% on the adjusted EBIT and I think that's where we would like to be for the group. So it should move in that direction.
spk04: Yeah, perfect. That's very clear. That was all for me. Thank you very much. Thank you.
spk07: The next question comes from Erik Larsson from SEB. Please go ahead.
spk00: Thank you and good morning. And also thank you for all the details in the report and the presentation here. So I have a question first off on the gross margin, which looks pretty good, both in HMS organically despite the lower volume and also Red Lion, which seems to be a bit higher than you have previously indicated. My question is, are there any specific items here and do you expect any major changes from these levels going forward?
spk05: I don't think so. I think what we put forward here is it's been moving in the right direction from Q1, both for HMS and for the Reliant business. So we're happy to see that. And I think we should be able to, I think this makes sense, the levels that we show here in Q2. Okay, great.
spk03: Sorry, maybe also mention that what we said here that we have a little bit disappointment in the Anybus and ICSA business, but E1 and building automation goes well. This area that goes well is also a little bit of the higher gross margin areas compared to the others. So we're not happy with the weak revenue, but it's the higher margin part that goes better. So that is also helping on the gross margin.
spk00: Okay, great. That makes sense. And then on the second question on off-picks, you talked about it last quarter and also now that you have some specific costs you're trying to hold back and you continue to report to good cost control here. So I'm just curious in terms of getting, I guess, marketing and traveling costs back, is that a thing essentially when demand is back or do you expect that to come back already sort of the coming one or two quarters?
spk05: Yeah, I think it's probably in that range of period. I think what we're trying to do is, of course, now report 20.4% EBIT. We know that the 25% target will be almost impossible to reach this year, but we want to keep it at a decent level. So we're trying to balance cost, of course, not to hold back stupid initiatives or things that would benefit the business a lot. We're not trying to hold that back, but at the same time, we need to be a bit cost-cautious. So I think it's fair to say that. I didn't talk about it so much now. I talked about it in Q1, that we will probably see higher OPEX than what we've had now in Q2, Q1 and Q2 for the coming quarters, maybe with exceptions of Q3 due to vacation period. But otherwise, we'll see the OPEX coming up a little bit since we're going to do more of these initiatives. I think that's something we need to do for the long term, but we also need to balance it with the current demand.
spk00: All right, perfect. That's all from me. Thank you.
spk05: Thank you. Thank you.
spk07: The next question comes from Simon Grenath from ABG. Please go ahead.
spk02: Thank you. Hi, Staffan and Joachim. Thank you for the presentation and good morning. So it sounds like reliances are slightly depressed currently due to integration work in part, but do you regard current levels as relatively representative for the coming quarters in 2024? Or is it so that the company should benefit from the recovery in the North American market, which is looking comparably more encouraging than in other regions? It sounds reasonable that the integration work is impacting sales, but Does this mean that you lose some short-term sales or rather that it's a pent-up demand for H2? Sorry for a long question.
spk05: I think you almost answered it as well. I agree with the statement. I think we believe it will improve throughout the year, both with the North American market continuing to be strong and with a better focus on the existing business within Reliance. I think we are Yeah, of course, we would have hoped, maybe not so much as sales, but the order intake, we would have hoped that that would continue in trending in the right way in Q2. So we hope that that was just a bit of a bump on the road. I think the team is quite happy with what they're doing. So I think we should see an improvement throughout the rest of the year. That's what we expect to see.
spk02: Very good, thank you. And we have not discussed price changes for some while. Is there anything you would like to highlight here about the current status? I'm curious to hear if you're looking to make any price hikes either for HMS or for Red Lion, or on the other side, whether there have been any price reduction in wake of the currently weaker market.
spk03: Maybe I'll start with that. I think during normal circumstances, we do annual price updates I mean, then we talk about small percentages or that is normally done at the new year end year of timing. So I think it's up now to start that discussion with our commercial teams and our product teams. So it's too early to tell. But I think normally in our industry, there's some kind of inflation compensation of a few percentage. But we need to come back to that a bit later, I think.
spk02: Thank you. That's all for me.
spk03: Thank you.
spk07: There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
spk03: Thank you very much. Thanks for attending this Q2 call. We will keep on fighting to grow the business and affect the things we can affect at the moment. As I said, win, grow, keep. That's our focus. And we'll be back in a quarter with more updates. And until then, me and Joachim would like to wish you all a very nice summer. Hope you get some vacation and let's be back after Q3. Thank you.
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