Hexagon AB (publ)

Ladies and gentlemen, hello and welcome to the Hexagon Q1 Report 2022. Throughout the call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present Ola Roland. Please go ahead with your meetings.

Thank you very much. Good morning, good afternoon, and good evening, everyone, and welcome to this interim report presentation for the first quarter of And I suggest that we skip slides and go straight to slide four, overview for the first quarter of 2022. Sales increased by 19%, out of which 10% were organic, and currency added another 4%. We had very strong currency tailwind from primarily the Chinese renminbi and the US dollar. M&A, which we call structure, added another 5%. It is still a very challenging supply chain situation and the lack of silicon wafers in our supply chain hampered organic growth by 6% in the quarter. However, all divisions improved their results and despite seeing negative impacts from the war in Ukraine and all supply constraints that we've mentioned previously. We took the decision to freeze all business operations in Russia. We have sales, we have service and technical engineering in Russia, but we do not have production. That has impacted organic growth by minus 1% in the quarter. And for those of you who remember, Russia is 2% of group sales, which means that with a complete shutdown, the annualized impact will be minus 2% from this action. We record an EBIT of $335 million in the quarter, and that is an increase of 24%. And the adjusted operating margin was 28.8%, and our gross margin increased by almost 8% to 65.1%. Slide 5 is just a reminder that the first quarter is our seasonally weakest quarter, followed by Q3, and then Q2 and Q4 are stronger quarters. Slide 6, an overview of the P&L statement that we've just presented, and I'm not going to go into any details. You have it for your reference. Cash flow on the other way, I think it's fair to comment on. Cash flow from operations before changes in working capital is very strong and is actually increasing by 26% in the quarter. With the current strange situation we do have in supplies, we have to build up working capital, especially in the hardware-related businesses. So we built up 84 million in working capital. Otherwise, as I said, very strong cash conversion and cash flow. And on slide 8, you can still see that we are way below historic levels on working capital to save, 6.6%. Market development, slide 10. If we look at the sales mix, there are some shifts worthwhile commenting on. North America has a very strong demand situation, and North America is now 33% of Hexagon sales. We see a similar situation in South America that has expanded its share from 3% to 4%. On the other hand, we do have a strong demand situation in Western Europe, but not as strong as North and South America, why Western Europe is 28% of sales. In the rest of EMEA, we see this 1% stemming from the conflict between Ukraine and Russia. China is keeping its share at 15%, and Asia-Pacific. reduced by 1%. So in summary on slide 8, we have green arrows, i.e. growth, above 8% organic growth in most regions, North America, Western Europe, China, South America. We do have growth in Eastern Europe, Middle Eastern Africa, and Asia, ex-China, but it's not as strong. So it's a very, very strong demand situation for almost all industrial segments for Hexagon in the first quarter. And slide 12, the so-called arrow slide, is for your reference to study. And I suggest we move to slide 13 and discuss EMEA. Western Europe record 10% organic growth in the quarter, and the powerhouse in the quarter was Germany, where we saw very strong double-digit growth from primarily manufacturing industries such as auto and aero, but also infrastructure investments where geosystems exist. is benefited, but we also have strong orders for PPM in the quarter from the chemical industry in Germany. So recovery in aerospace, strong demand in automotive, manufacturing, but also power and energy markets. Excluding Western Europe, Russia declined by 32%, and that roughly represents the month of March for us. And it's all, of course, connected to the sanctions that were imposed by the European Union and the United States. Middle East and Africa, on the other hand, record strong growth, and we see increased activity for power and energy in Middle East and mining in Africa. Moving to America, slide 14. North America record 12% organic growth. Canada recorded strong single-digit growth on the back of its raw materials economy, i.e. mining and oil and gas. In the U.S., we see a broad-based growth that pass over all business divisions and segments. So a very, very strong demand situation in the United States. In South America, it's the continuous expansion in the Brazilian economy driven by activities such as mining, agriculture, and oil and gas. But we also see the Andean countries where in this quarter Chile was strong thanks to a large mining order in the quarter. Slide 15, moving to Asia. China record 11% organic growth in the quarter. It's driven by strong growth in general manufacturing and aerospace, automotive-related, EV-related activities. We had slightly weaker electronics market and demand in the first quarter, but that Only natural since Q1 is not a strong electronics quarter for China. China's growth was hampered by availability issues on the geosystem side, where we simply couldn't deliver orders to construction and infrastructure projects. And we also had a challenging oil and gas market in the first quarter. Japan and India record strong growth. India, broad-based recovery for all businesses and strong demand across the board. South Korea, on the other hand, had a somewhat weaker quarter where we saw weakness in power and energy in the quarter. Reporting segment. Slide 17, we start with geospatial enterprise solutions. Organic growth, 10%. Geosystems was bang on, 10%. Geosystems was the business division that suffered the most from lack of electronic components in the quarter. Safety infrastructure and geospatial, 4% organic growth. fueled by very strong growth in infrastructure, construction, and utilities, where we got a large order in the quarter from a telco. Autonomy and positioning, 21% organic growth, and all end markets were very strong for autonomy and positioning in the quarter. Agriculture, aerospace, and defense. Sales amount to 583 million with an EBIT of 106. So this corresponds to an operating margin expansion of 0.5%. And it could have been greater had we been able to deliver on the top line for Geosystems, which is our most profitable division within Geospatial. Moving on to industrial enterprise solutions, also reporting an organic growth of 10%, where MI is recording 13% organic growth. And we do see strong demand across all key industries for MI, all regions, but also for our software solution. PPM reports 2% organic growth, and it's Growth stemming from our design and asset information management software and also continuous recovery in both EMEA and the Americas. The business is reporting $581 million in sales with an EBIT of $166 million. which corresponds to an EBIT margin of 28.5%, which is almost 2% better than this time last year. Slide 19, our gross margin is now at 65%, both for the quarter but for 12 months rolling as well, which is 1% better than this time last year. Our operating margin is at 29%, which also is 1% better than this time last year on slide 20. If we then talk about M&A orders and product releases, then we move to slide 22. In the quarter, we acquired Minnow Ware. which is an Australian-based company specializing in eliminating manual and labor-intensive unproductive processes in underground mines. And Minoware is going to be reported into Hexagon's mining division. Slide 23, we got an order for 3D-printed prefabricated homes from a US-based startup called Mighty Buildings. And they are using our design and engineering simulation solutions and software to perfect the design and material choice, as well as mechanical processes, before they start making these homes. Slide 24, optimizing legacy train components for additive manufacturing. This is a collaboration between Hexagon and Deutsche Bahn, where they use our generative design software to optimize conventional freight car component designs and prepare them for additive manufacturing. Slide 25, the European Southern Observatory, ESO. They have traditionally used something they called DLT, which stands for Very Large Telescope. They've now decided to move towards ELT, which stands for an Extremely Large Telescope. And this telescope has a 39-meter main mirror, and it's going to be based in Chile where the VLT currently is and they have chosen us for developing a specialized measurement system for this application. Slide 26. For those of you that watch Drive to Survive on Netflix, I'm happy to tell you that we sponsor Red Bull Racing. And you can find our logo next to the helmet of the driver when they're driving. And we are actually supporting most teams in the Formula One circuit. But to my mind... Oracle Red Bull Racing is the only one displaying our logo. Slide 27. H2U is a very interesting project where they create renewables. energy production like wind and solar panels in Australia to convert the electricity into hydrogen and then ship the hydrogen to Asia. And we are involved in this project. It's a huge project. The land mass that they use to build up these solar plants is enormous. But we are involved in creating operational digital twins, aligning standards and processes to produce hydrogen. And this is a business for the future, obviously. Slide 28, Hexagon Enable Fluxes to Fulfill Their Carbon-Neutral Journey. And it's a Belgium-based energy infrastructure group that has committed itself to become CO2-neutral. And they use our SDX software platform to do asset lifecycle information management, AIMs. and to make sure that they improve their processes so that they can reduce and finally eliminate CO2 emissions. Slide 29, Hexagon to help Daiyu to enable autonomous vehicles in China. Our partner Daiyu is going to bring high accuracy GNSS correction services in China. through our network called TerraStar. And this is so-called PPP, which stands for precise point positioning, where you have signals from ground-based towers combined with satellite-based positioning signals from GNSS networks. and this is going to support ADAS, i.e. Advanced Driver Assistance Systems, throughout China. Slide 30, providing real-time visualization and analysis for NATO. NCIA stands for NATO Communications and Informations Agency, and we've signed a contract where they are going to standardize and use our Lucian Lightspeed technology, to upgrade their simulation systems. Slide 31, we are heavily involved in the rebuild of public transportation in Singapore. The Singapore Land Transit Authority that is in charge of the subway system and rail system they've chose the Hexagonal On-Call Dispatch for its public safety portfolio to speed up response times. Finally, slide 32. We transform how professionals measure with total station. This is not the one-off. This is a long-term trend for our Leica total stations and rovers that we try to automate workflows as much as possible. And in this case, we launched the so-called autopole. That is the prism that you can tilt but still get unique target identifications. Slide 33, we launched BLK2Fly and BLKArc last quarter. But we've already received multiple awards for these two new products. And we're quite happy with that. Slide 34, we've been to Pompeii this quarter and scanned Pompeii using both BLK2Fly and BLKArc. And the whole idea with this project is to capture Pompeii in 3D and preserve it and maybe simulate what it actually looked like in 79 AD. Slide 35, we've signed a contract with Sephora to 3D model all their retail outlets. hundreds of stores because they're going to remodel them and refresh the concept. Slide 36, the first EAM win in China. So we use our Chinese organization to introduce EAM products. And that first order was booked with the Chengshu Coal Mining Machinery Group company. China. Finally I want to make some PR for Hexagon Live for the first time since 2019. We're going to host Hexagon Live again in Las Vegas on the 20th through the 23rd of June and don't miss this opportunity to to see all these technologies that I've just described in action. And if you want to participate, please contact our investor relations at ir.com, at hexagon.com. With that, we've concluded the presentation and we're ready to try to answer any questions there might be.

Thank you, ladies and gentlemen. If you wish to ask a question, please press 01 on your telephone keypad. First question from Magnus Kubler from UBS. Sir, please go ahead.