Hexagon AB (publ)

Hello and welcome to Hexagon Q1 report for 2021. Throughout this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. I am now pleased to present Ola Rollén, CEO. Please go ahead with your meeting.

Thank you very much. Welcome, everyone, to this first quarter interim report of 2021. And if we turn to slide number overview of the first quarter in 21. Recorded sales increased by 10%. Organic growth, however, increased by 11%. And to the right, you have the sales bridge where you can see that organic growth, 11. Currency, minus 5, primarily U.S. dollar and Chinese renminbi. And then structure, i.e. acquisitions, contributed with plus 4%. All in all, we record 978 million in the quarter in sales. And we also record 258 million in EBIT. And that is an increase of 34% compared to the first quarter of 2020. The adjusted operating margin was 26.4%, and the gross margin was 64.4% in the quarter. We now go to slide five. This is just for you to remember that the first quarter is typically the weakest quarter in our seasonal pattern, where Q3 is also weak, and the two strongest quarters are Q2 and Q4. Slide six, the P&L statement. Net sales, 977.9 million euro, 11% organic growth. Our EBITDA amounted to 367 million or corresponding to an EBITDA margin of 37.5%. EBIT, 258 million, an EBIT margin of 26.4%. And the earnings per share amounted to 0.54 euro, an increase of 32%. Slide seven, cash flow. Extraordinary cash flow for EBIT. first quarter, cash conversion of 107% in the quarter. And as you can see, strong improvement across the board before taxes, after working capital, and after investments. If we move to slide eight, we can also see how the working capital to sales ratio is evolving very favorably. So it was 4.9% of net sales in the first quarter. And we booked a lot of deferred revenue from software contracts in the first quarter, which helped this ratio. Market development, if we go to slide 10, we have an overview of the sales mix across the regions of the world. And we still have the pattern that we have roughly one-third in the three major trading regions of the world. Four percent decline in North America, but a six percent increase in China. We move to slide 11. It's an overview how the regions traded where China indeed was very strong with 73% organic growth. But we saw good growth in Eastern Europe, Middle Eastern Africa, and in South America. Western Europe returned to growth. North America, on the back of strong comps in the first quarter of 2020, we saw a decline. We also saw a decline in Asia, excluding China. Slide 12 is an overview per business segment and geographic region, and it's for your own review at a later date. But if we move to slide 13, EMEA market trend, Western Europe saw 7% organic growth. We saw demand, strong demand in UK and Italy, primarily in Western Europe. Solid demand in surveying infrastructure construction segments, sequential improvements in the manufacturing power and energy segments, but still a bit to go in manufacturing areas such as aerospace. and automotive in Central Europe. Russia and Eastern Europe recorded strong double digit growth in the quarter. If we look at America, slide 14, North America record minus 1% organic growth. Strong growth in surveying infrastructure and construction, but weakness in aerospace and power and energy. And one has to remember that America's in Q1 of 2020 was unharmed by the pandemic and grew by 6% in the first quarter of last year. South America, strong single-digit organic growth. We saw strong development in both agriculture, public safety, and power and energy that came back. Moving on to Asia, slide 15, China recorded amazing 73% organic growth. Yes, it was a significant decline this time last year, which makes it easier. But even compared to 2019, we see good growth in China. And it's a strong broad-based recovery in all our industrial segments. Moving to South Korea, Southeast in Asia and Australia, they all record solid growth as well in the quarter. But we saw weak demand in the manufacturing sector in Japan and the power of energy sector in India in the quarter. Reporting segments, if we move to geospatial enterprise solutions, slide 17, we record 13% organic growth. Geosystems, fantastic 22% organic growth, supported by both strong demand from traditional segments such as surveying and construction, but also new solutions. SI minus 2% organic growth, we saw weakness in defense, but it was offset by continuous growth in public safety. Autonomy and positioning minus 2%, negatively impacted by order delays in our defense markets and weak automotive demand in the quarters. Sales amount to 503 million, and EBIT margin is a record 28.6%, compared to 22.6% this time last year. Industrial enterprise solutions. Organic growth, 8%. MI recovered strongly in the quarter, recorded 12% organic growth. And it was driven by the acceleration in demand in China from both automotive and electronics and general manufacturing. Weak demand in the aerospace segment continued. PPM minus 4% organic decline. And it's a challenging oil and gas market that drives the decline in the quarter. We saw solid growth in AEC and our newly acquired cybersecurity segment, as well as asset information management. Sales amounted to $475 million, and EBIT equaled an EBIT margin of 25%, up almost 4% over Q1 of 2020. Slide 19 is just our 12-month rolling gross margin trend. For the quarter, we did 64% gross margin. Slide 20, our EBIT margin was 26% in the quarter and for the 12 months. If you back out the currency impact, we would have reached 27% EBIT margin already to one. M&A orders and product releases. If we start on slide 22, we are forming a strategic alliance with Boston Dynamics, and we're now using their robot called Spot. using our sensors in combination with this robot. So, it's an autonomous reality capture robot. It will help reduce time cost and increase safety when working in potentially dangerous structures or hazardous areas. And this is the first configuration in a series of new robotics product solutions that we will launch in 2021. Slide 23, we launched the Leica City Mapper for low-altitude data capture. If we think about complex weather and congested flight areas, if you can fly at a lower altitude, you can still capture 3D data about cityscapes without really interfering with flight paths or bad weather. Slide 24, we've already gotten orders for this new mapper. It's two companies. It's Blue Sky in the UK, and it's Psychomedia in the Netherlands. Slide 25, modernizing public safety with Hexagon Oncall. We got two new orders for Oncall, one from the city of Milwaukee, and one from Lee County in Florida. Slide 26, we have now got confirmation that we're going to fly at least 14 U.S. states this year and update the mapping data for those 14 states. This corresponds to 2,300,000 square kilometers of flown area. Slide 27, keeping the lights on in the Amazon. I thought the Amazon was pitch black at night. We got two orders, and this is from two utilities in the state in Brazil, where they choose our outage management system as well as our mobile workforce management solution to help them restore power quickly when an outage happens. Slide 28, this is a somewhat morbid application. It's multi-body dynamics software in forensic investigations. If you have a fatal disaster in the construction industry, you need to study what impact and what happens to the human body when you have a free fall. And you can use our software for that as well. And that is what the University of Perugia in Italy is doing. Slide 29, we streamline the innovative development at Hyundai. Hyundai needed to more quickly and accurately design and develop multiple products for uses in electric vehicle drive trains. And they decided to opt for Hexagon's design and engineering software that will enable the company to optimize designs earlier in the development process of these components. Slide 30, we also launch a new reverse engineering solution called Recreate. And reverse engineering is when something already exists and you want to blueprint a CAD drawing of this already existing object. We've already sold this application to Heisen Motors, which will reverse engineer trucks for the fitment of their hydrogen fuel cell technology. Moving on to slide 31, InSphere automated shop floor inspection for aerospace is a Bristol based UK company. And it's a driving force behind robot based inspection in the aerospace industry. And they choose our metrology solutions to create their systems. Slide 32, we've launched a cloud-based version of our very popular metrology software, PCDemis. It's in combination with Hexagon SFX asset management, and it now exists as a mobile app, which makes PCDemis more accessible on the shop floor, for example, and also easier to use. Slide 33, driving digital transformation at Numa Ligar refinery in India. The refinery choose to use our Hexagon SDX suite of software to support their digital transformation of their refinery operations. Slide 34, this is just an example how we bring technologies together after we've acquired a company. We did the acquisition of PaaS Global in Q4, and now we have the first integration with the Hexagon product, which is our J5 shift operations management. Finally, slide 35, Hexagon also launched a new subsidiary called Our Evolution, which is a new business venture focused on reinventing how industry addresses complex environmental challenges. We will use Hexagon's technology to accelerate the transition to a sustainable economy And it's going to be a profit-driven venture where we will invest in green tech projects in combination with hexagon technologies. And with that, we've come to the summary for this quarter. If we go to the summary page, 11% organic growth, continuous strong development in geosystems, acceleration in MIs, Strong recovery in China, 73% organic growth. So all in all, it's a record Q1 on sales, EBIT, and cash flow. Solid continuous cash conversion. And we remain confident in our continued growth trajectory. And with that, operator, I am ready to start the Q&A session.

Thank you. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad now. So that is 01 to register for a question. We have a question from the line of Magnus Krube from UBS. Please go ahead. Your line is open.