Hexagon AB (publ)

Thank you and welcome everyone to this interim report earnings call for the second quarter of 2022. And if we turn to slide number four, overview of the second quarter, recorded sales increased by 20%, organic growth was 6%, and we saw continued strong business momentum, all divisions recorded growth. And we were still suffering from the strain component supply, which hampered growth by 6%. We're expecting a resolution of the supply chain pressures by the end of the year. In spite of that, we record a record gross margin at 65%. And our adjusted operating margin came in at 29.4%. Now, this is obviously a reminder, as always, on slide five, Q2 is the strong quarter. Q4 is our strongest quarter, and there is no reason to not expect this seasonality in profit over the quarters for 22 as well. We then move to slide six. This is an overview over the P&L statement, and invoice sales came in at $12.89 million before revenue adjustments related to acquisitions in the quarter. I would like to skip slide seven, which really is year-to-date, and move to cash flows. and there are really only two things to point out it's a very strong cash flow but as you can see taxes paid in the quarter were 42 million higher than last year and we also had a release in working capital but not as strong as this time last year cash conversion amounted to 88 percent slide nine working capital to sales the working capital to sales is at 6.1 percent for this quarter and we see a continuous positive trend in the working long-term working capital release market development if we go to slide 11 we see the same mix per geographic region where we've seen some significant changes. North America is now our largest region with 34% of sales. And we also see the impact from the war in Ukraine on the rest of EMEA, which has shrunk from 8% to 7% of sales. moving to slide 12 this is just an overview how the geographic regions pair where we see strong growth in asia excluding china south america also reporting strong double-digit growth north america western europe doing fine china is reporting one percent organic growth and then we see primarily the impact from the war in Eastern Europe, Middle East and Africa. This slide 13, the so-called arrow slide is for your reference and I am not going to comment it in any detail today. So I suggest we move to slide 14. Emilia, Western Europe, record seven percent organic growth we saw strong double-digit growth in nordics germany and the uk and we saw continuous strong demand for surveying and reality capture solutions in western europe solid growth in aerospace power and energy emea excluding western europe declined and The primary reason for that is the war between Russia and Ukraine, where we have seized sales to Russia. Eastern Europe and Middle East recorded strong organic growth in the border. We move to slide 15, America. North America saw 7% recorded organic growth. Solid growth across most industries. United States report 10% organic growth, while Canada reported weak growth due to delays in the imagery program. South America, solid double-digit organic growth. Strong growth in the Andean countries from mining, but we also saw agriculture power and energy growing. 35% organic growth from South America. Moving to Asia, slide 16, China recorded 1% organic growth. We saw good growth in general manufacturing and aerospace, but we also saw that the lockdown and availability issues in our infrastructure related business hampered the Chinese organic growth. South Korea, Japan, and India all record good growth in the quarter, and it's supported by solid demand for surveying and manufacturing solutions throughout the region. In Southeast Asia, Indonesia, Thailand, Vietnam saw strong double-digit growth as well. Moving to reporting segments, slide 18, geospatial enterprise solution reports 7% organic growth where geosystems report 8% organic growth and safety infrastructure and geospatial 1% organic growth. Autonomy and positioning came in at 6% organic growth and what's happening is that we see strong demand across all industries for geosystems. We do see growth for our dispatch solutions in safety and infrastructure, but we demand from defense. In autonomy and positioning, we see strong growth in both agriculture and recovery in our marine business. Sales came in at 650 million and EBIT at 206 million, which corresponds to an EBIT margin of 31.6%. We saw positive impact from volume growth and currency movements in this segment, but we continuously invest in new product launches and marketing. And this is also where we have most of the impact from the component delays that had an adverse effect on margins. Moving to industrial enterprise solutions, slide 19. Organic growth, 6%, where manufacturing intelligence reports 6% growth, mainly driven by strong demand in the Americas and solid business momentum in aerospace and general manufacturing across the world. Asset lifecycle intelligence, previously called PPM, reports 5% organic growth, And we see growth in design software from EPCs in the quarter. Asset information, cybersecurity solutions also grew. We report sales of $638 million and an EBIT of $178 million. And here we saw an improved EBIT margin of 1%. Slide 20, gross margin. Gross margin for the past 12 months is now at 65%. And if we move to slide 21, we see that EBIT margin is at 29%. M&A orders and product releases in the quarter. If we go to slide 23. We announced the ETQ acquisition and we consolidated ETQ for the first time in Q2. ETQ is a leading provider of SAS-based so-called QMS, Quality Management Software and EHS, Environment, Health and Safety Software and Compliance Management Software. It's going to be consolidated into our Manufacturing Intelligence Division and was consolidated as of April the 1st. Now, by 24, we saw a lot of new products being launched at Hexagon Live in June. We unraveled the new BLK360, which is an ultra-fast 360 laser scanner, dramatically improving reality capture with its speed portability and ease of use. We also launched Leica Pegasus, which is the mobile mapping solution, and also Chiroptera 5, which is the bathymetric lidar, which we, among other applications, use for our project in the Bahamas to save the seaweed beds. Slide 25, we also announced the acquisition of Innovatia Accelerator Inc., which also is the SaaS-based digitalization solution that transform operations and modernize fieldwork in manufacturing and process industries. Slide 26, we also realized the full potential of smart, sustainable manufacturing with the launch of our new platform, Nexus. Nexus is a new open platform for smart manufacturing solutions. It's designed to connect siloed engineering and unlock manufacturing innovation. And we're going to see a lot of development in Nexus in the years to come. Slide 27, JCB, the British manufacturer of construction and agriculture tractors, they have decided to integrate smart advanced precision agriculture technology featuring our GNSS smart antenna receiver and our TerraStar correction services. Slide 28 is an interesting project where we worked with Ford, and we created a Ford Transit by wire R&D platform, which uses Hexagon's autonomous software stack to create a fully autonomous delivery system. RAISE 3D, slide 29, is a Netherlands-based pioneer that is using our mobile mapping solutions to create 3D environments all across the country of Netherlands. Slide 30, we saw continued demand for Hexagon's on-call suite. This quarter we delivered on-call to Panama. the city of San Miguelito, and also to the canton of St. Gallen in Switzerland. We also started a collaboration with Exona Space Systems. This is an aerospace startup developing precision navigation and timing systems in low Earth orbit, so-called NEO. And they will use our PMT solutions. PMT stands for positioning, navigation, and timing in their new constellation. Slide 32, we also present a new solution for cloud processing of ground penetrating radar data. This is used for location of utilities, underground utilities. And it's a company called AI Maps that is creating a new SaaS-based solution to document underground utilities and basically raising productivity when you improve or maintain underground utilities. And they are using our ground penetrating radars. and our HXDR software platform to create their service. Advances in measurement while harnessing the energy of the sun. Two-word engineering company in Spain specializing in solar energy. Now, they have improved their quality inspection effectiveness of their solar panels by using Hexagon Absolute Tracker ATS600. And on slide 34, we had several industrial design and workplace safety wins in East Asia. Toyo Engineering Corporation of China bought Smart 3D, and Hanwha Total Energy Petrochemical in Korea is standardizing on Hexagon's information management solutions to support workplace safety and operational sustainability. Slide 35, digital transformation across the asset lifecycle in America. We got several orders in the quarter from the Americas in digital transformation of large industrial assets. And with that, we concluded orders and releases in the quarter. And let's talk a bit about our organization. We announced on the 27th of June that I will step down, and as of year end, I will be replaced by Paolo Gugermini to be appointed the new president and CEO of Hexagon. We'll see if it's the 31st of December or the 1st of January. MSAD, our principal shareholder, has, together with the nomination committee, the intention to propose me as new chairman of the board at the AGM of 2023. Gunn-Nilsson will step down as CEO for Hexagon at the same time. Furthermore, on slide 38, we also announced that Joshua Weiss will replace Paolo as president for our manufacturing intelligence division, and also that Michael Richter will assume a new senior role as president for our off-road autonomy portfolio, overseeing our autonomy and positioning division, our mining division and our agriculture division. And in connection to that, effective October 2022, Maria Lundström, currently head of sustainability and investor relations, will succeed Michael Richter as president of autonomy and positioning. And with that, I think we have reached our Q&A session. So with that, I'd like to conclude this presentation. And if there are any questions, we are open for answering those. Thank you.

Thank you. If you do wish to ask a question, please press 0 and 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 0 and 2 to cancel. The first question we've received is from Katinka de Cucca, JP Morgan. Your line is now open. Please go ahead.

Hi, Onaf. Thanks for taking my question. A few from you, please. First of all, can you comment on the visibility you have into the second half and 2023? given the challenging macro backdrop. Obviously, you've mentioned six points of headwinds from supply chain challenges, both in Q1 and Q2, so that must provide some additional visibility, right?