Hexagon AB (publ)

Thank you, and welcome everyone to this Q2 interim report 2021. And if we move to slide number four, we can have an overview of the second quarter of 2021. We record sales of 20% and organic growth is 20% as well, and as you can see, From the bridge on the right-hand side of this slide, structure and currency was 4 and minus 4% respectively, and total sales amounts to 1,076,000,000 euro. It is actually our strongest quarter ever with sales, earnings, margins, and cash flow at an all-time high. We saw very strong demand. in geosystems and autonomy and positioning. Solid recovery in MI, recording 31, 18, and 24% organic growth, respectively. Safety and infrastructure had tough comps, a very strong quarter in Q2 of 2020, but grew by 2% organic growth. PPNM was the only division that still declined in the quarter, minus 4% organically, and we saw weak demand from primarily the oil and gas market. We do expect, though, PPNM to return to growth in the second half of 2021. Now, if we turn to earnings, our adjusted operating earnings amounted to $301 billion. compared to 226.5 million a year earlier. And that is an increase of 33%. Our operating margin was for the first time 28%. Now, if we move to slide five, this is just a reminder of the seasonality in our profit and earnings where Q1 is the weakest, Q3 second weakest, Q2 and Q4 are typically strong quarters. Slide six, an overview of the P&L statement. Net sales amounted to 1,076,000,000, which is 20% recorded as well as organic growth. And EBIT 1 came in at 28%, as we've just stated, which is 33% better than the corresponding period last year. Slide 7 is for your reference. That is the first half of 2021. And if we turn to slide 8, cash flow was very strong in the quarter as well. And highlights to point out is that we had a positive change in working capital in spite of a 20% organic growth. Cash conversion was 113% and operating cash flow grew by 15%. Slide nine, just to show the reduction in working capital over a longer period of time. We can see that historically, we were around 20% of sales in working capital. And in the second quarter, we report 3.9% working capital to sales. Market development, if we move to slide 11, looking at the geographic mix for the group in the second quarter. We can see that China is returning to its historic 16% share of total sales. And we see an improvement in Western Europe and a reduction in the mix from Asia-Pac. Slide 12, also for your reference, all geographic regions grow above 8% in the quarter, thus all the green arrows. And slide 13 is an overview of the various segments that we serve and geographic markets. Slide 14, diving into a bit Western Europe record 25% organic growth. All major markets in Western Europe grew double-digit. Strong demand in surveying infrastructure and construction, and we also saw compared to Q1 a broad-based recovery in our manufacturing industries that we serve. Eastern Europe, Russia, Middle East, and Africa all record strong double-digit organic growth in the quarter. Moving to Americas in the second quarter, similar pattern to Europe, 14% organic growth in North America, broad-based recovery, surveying infrastructure construction, and manufacturing. The only segment that showed weakness was power and energy and defense in the quarter. South America, strong double-digit organic growth, where we saw very strong organic growth from our Brazilian market. Moving on to slide 16, Asia. China recorded 25% organic growth. compared to a fairly normal quarter in 2020. We saw strong demand in all segments, manufacturing, infrastructure, construction, and electronics. Australia and India record strong growth. supported by recovery in both manufacturing infrastructure and construction in both markets. Eastern Asia, i.e. South Korea and Japan, remained weak in the quarter. Reporting segments, moving to geospatial enterprise solutions on slide 18. Geospatial reports An organic growth of 24%, where the shining star in the quarter is Geosystems, with 31% organic growth. SI, as mentioned before, 2% organic growth, tough comparison numbers from the second quarter of 2020, but solid growth in public safety. Autonomy and positioning, 18% organic growth, and it was the agricultural business that fueled this growth. Sales for the segment amount to 560 million, and EBIT is 176, which corresponds to an operating margin of 31.5%. Moving to industrial enterprise solutions on slide 19, organic growth amount to 16%, where MI4, a broad-based recovery in both Europe and North America, and continuous strong growth in China and for its software business. PPNM minus 4% organic decline. and that was mostly driven by decline in our oil and gas business. On the other hand, PPNM saw solid growth in operations and maintenance solutions and its AEC portfolio. Sales amounted to 515 million. and EBIT 130 million corresponding to an EBIT margin of 25.2%. Slide 20, our growth margin was at all-time high on a 12-month rolling basis. It's now 64%, and it's slightly higher in the second quarter. Moving on to our EBIT margin, our operating margin is now 27%, which is the lower end of our target for 21. But in the quarter, we recorded 28% EBIT. And if you back out FX impact, it would have been at 29%. So a very strong margin. Moving on to the acquisition of Infos EAM business, just a reminder on slide 23 that on July the 6th, Hexagon announced an agreement to acquire Infos Global EAM, which stands for Enterprise Asset Management business, for approximately 2.75 billion US dollars. We will also form a broader strategic relationship with both Infor and Koch Industries, the owner of Infor. Typical profile or the profile of the acquired businesses CAGR in our fast revenue is roughly 35% over the past three years. Total revenue is expected to land at 184 million for fiscal 21. cash conversion of 110% and an adjusted EBIT of 40%. Now, on slide 24, we talk about why we do this. It is to continue to drive the digital transformation across our customer base. EAM will be combined with both geosystems, PPNM, m-i-n-s-i so we will have solutions for industrial facilities for manufacturing for infrastructure as well as buildings and we believe a gradual synergy opportunity that will grow from obviously zero this year to 100 million in revenue by 2026. Talking about M&A, other M&A orders and product releases in the second quarter, if we start at slide 26, we acquired a company called CADLM, which is a pioneer in computer-aided engineering, so-called CAE, combined with artificial intelligence and machine learning. to revolutionize the impact of simulation in product development processes and life cycles in discrete manufacturing. Slide 27, we launched Hexagon Connect, which is a new SAS-based software workspace for citywide collaboration between agencies. Could be public safety agencies, transportation, utilities, and other related organization. And we already have good traction for this new suite of software products from SI. Another product we launched on slide 28 is Hexagon Mass Transit. It's a new geospatial transportation infrastructure management system for monitoring of assets. and optimizing field operations using 3D, AI, and mobile capabilities. Slide 29, we launched the Absolute Scanner AS1. It's a product from our MI division. This is a seven-axis system that has cutting edge blue laser technology. And it's going to be used to deliver high productivity, non-contact 3D measurement in discrete manufacturing. Slide 30, enabling aerospace manufacturers to reduce blisk inspection times. Blisk inspection is a sort of bottleneck in the next generation aero engines for commercial airliners. And we launched a solution where we can reduce the Blisk inspection time by as much as 50%, improving the quality and the output for the next generation Arrow engines. Slide 31, we have worked with an OEM around a new card for ADAS. which stands for Advanced Driver Assistance System. The card is called PIN 222A, and it's got significant functionality in advanced driving assistance systems, and we are now ready with a price point that would support mass deployment of this GNSS system in auto applications. Slide 32, talking about autonomous cars. This is a project which will develop automated driving systems, so-called ADS, for rural applications. It's been fairly advanced development, driving autonomously on proper roads with road lines and so on. But one of the problems have been dirt roads, snowed roads, or rural roads. And this project is all about developing automated driving systems for rural roads. Slide 33. This is another technology that will enable automation. It's Gadget 410 MS. which will be deployed both in commercial and defense marine applications. The uniqueness about this product is that it will combat intentional or unintentional interference with a ship's navigation system. And this is a problem that is becoming more and more frequent, both for commercial and defense-related naval activities. Slide 34, continued momentum for the newly launched hexagonal on-call that was launched last year. We got two good orders in the quarter, one from IMCOM, which is the U.S. Army Installation Management Command, and also an order from North Wales Police in United Kingdom for this dispatch system. Slide 35, we expand public safety efforts in Manaus, which is a large city in the midst of Amazonas. They are building on our computer-aided dispatch system, and they will also deploy Smart Advisor, which is an AI-guided insight system that we developed last year. that works in real time and helps for better informed decisions during day-to-day dispatch operations. Slide 36, rock science and hexagon continue to strengthen relations in applications primarily in mines for rock slides. This will also close the loop between radar monitoring and slope stability monitoring, modeling. And this could be very helpful in the ever-increasing problem with landslides around the world. Slide 37, the Hexagon Content Program is signing a five-year partnership with Ecopia. which is a leading provider of HD vector maps. And they use AI to convert high-resolution images of the Earth. And Ecopia will use our content program over the next five years. Slide 38, helping building a bridge between architecture, civil engineering, construction, and computer science. We've entered into a partnership with ETH in Zurich and Design++. And the idea is to develop augmented design in the field for architecture, engineering, and construction. Slide 39, we've also landed an order with ZF Windpower. that will use our durability and structure software to analyze stress and how you optimize gear loading and reduce transmission errors in wind turbines. And that was it. And we also would like to announce that we will host a capital markets day. We're on slide 41. The capital markets day will take place on the 30th of September, and we will present various growth opportunities and trends and our key strategic focus areas for the future. The event will be held in person if conditions permit, which we certainly hope for. Otherwise, we will have a virtual event, but we will announce that later on. It all, as you know, depends on the COVID situation at the time. Finally, if we summarize on slide 43, it's our strongest quarter ever. Record sales, operating earnings, and margins. Continued solid cash conversion of 113%. And in July, post the end of the quarter, we signed an agreement to acquire Inforce EAM business. And with that, operator, I am ready to answer questions and start the Q&A session.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Magnus Gruber of UBS. Please go ahead. Your line is open.

Hi, hello. Magnus here with UBS. I guess first, congratulations. It's in order. Another very solid print. Maybe... Jumping on the GS margins first, obviously the volumes and savings helped you a lot in the quarter, but you also call out the mix there. Could you help us a bit to quantify the mixed contribution margins year over year there, if that's possible, and to what extent that's sustainable?