Hexagon AB (publ)

Good day and thank you for standing by. Welcome to the Hexagon Q1 Report 2026 webcast and conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Anders Svensson, President and CEO of Hexagon. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to Hexagon's first quarter 2026 conference call. First, I will direct you to the standard cautionary statement, and then we turn into the next slide. Before I begin, a reminder that the upcoming potential spin-off of Octave, we are now presenting Octave as discontinued operations. We have provided this first bridge here for you to understand the performance of continuing Hexagon, Octave, and taking them both together, meaning the former Hexagon Group. Looking at the headline numbers for the first quarter, Hexagon Continuing Operations delivered a revenue of €964 million, with an organic growth of 8%. EBIT was 251 million euros, giving us an operating margin of 26%. Octave generated 327 million euros in revenues. Organic growth was 1%, and EBIT won of 83 million euros, delivering an operating margin of 25%. At the former group level, including Octave, revenues were 1.29 billion euros, organic growth of six percent and an operating margin of 26 percent during the quarter we also completed the sale of our design and engineering business on the 23rd of february and the business was deconsolidated as of that date today unless i mention otherwise i will discuss hexagon the continuing operations excluding octave and with dne deconsolidated as of the 23rd of February. Mattias will cover the Octave business separately after Norbert. So turning to the agenda for today on the next slide. So I will start with taking you through Hexagon's performance in the first quarter and then dive into our business area performance. Norbert Hanke, our interim CFO, will then take you through the Hexagon financial performance. He will then hand over to Mattias Denberg, CEO of Octave, who will then cover the Octave performance in the quarter. We will then, of course, have time for your questions at the end of the presentation. So next slide. Starting with the first quarter performance then for Hexagon on the highlights of the quarter slide. The first quarter of 26 was a strong start of the year and also a busy one for us at Hexagon. We delivered 8% organic growth with a gross margin of 63%, an operating margin of 26% and cash conversion at 77%. Alongside this strong financial performance, we continue to take decisive portfolio actions to sharpen Hexagon's focus on the core precision measurement and positioning opportunities. We completed a design and engineering business sale to Cadence for approximately 2.7 billion euros in cash and stock. And here in April, in the second quarter, we announced the agreement to acquire Waygate Technologies from Baker Hughes for approximately $1.45 billion. And this is then expanding manufacturing intelligence into the very attractive area of non-destructive testing. And I will cover this more in detail on the next slide. Mattias and Octave team held Investor Day in New York on March 26, with the spin-off expected to become effective on May the 22nd. We also continue to build the new Hexagon executive team. René Rädler has been announced as the chief people officer on the 1st of April, and Enrique Patriksson, who will join us as chief financial officer the 24th of april meaning tomorrow and i wish enrique welcome to hexagon and both of them welcome to the executive team and i'm happy to have you on board finally a humanoid robot aeon is making excellent progress in the past quarter aeon successfully completed a pilot at bmw and will be deployed in production at the leipzig facility It is a significant milestone in demonstrating the real-world industrial capabilities of Aon. In parallel to this, our pilot at Scheffler has resulted in an agreement to deploy up to 1,000 Aons in the next seven years. This is a big step that we communicated here in April as well. Then we expect commercialization of Aon by the end of 2026. So a very active quarter of delivery. Let me now give you the overview of the Waygate acquisition. So next slide. Buying Waygate is a natural next step for us at Hexagon. As a market leader in the non-destructive testing, they fit very well into our portfolio focus on precision measurement and positioning technologies. They're completing the measurement chain from surface to the interior of components. The computer tomography hardware combined with our volume graphic software creates a unique value position for customers. And the business also brings exposure to maintenance, repair, and operation markets with recurring utilization-driven demand, which boosts our exposure to the growing aerospace market. Vegat has a portfolio of assets with different growth and margin profiles. This brings a meaningful opportunity for us to create value. RBI is already growing very well at good and healthy margins of about 30% EBIT. Radiography is a strong business where we can leverage our manufacturing and sales footprint to really drive synergies across the business and leverage shareholder value. The ultrasonic testing and imaging solutions are also very good assets, but here we will assess the position of those assets. They are either challenge but not by not being market leaders or they have a not a perfect strategic fit for us so we will look at these assets from from different perspectives and we will try to then either through acquisitions make them into market leaders or we will have also the possibility to go through strategic reviews or do turnarounds of these assets Now turning to our organic growth performance in more detail for the quarter on the next slide. So we delivered a strong organic growth of 8% in the first quarter, and that's a significant acceleration from the prior year. This was primarily driven by autonomous solutions, which grew 13%, manufacturing intelligence, which grew 9%. Both businesses benefited from growth in aerospace and defense. EOSystems grew 2% while completing the channel destocking program that I talked to you about in the fourth quarter report. Excluding this impact, the underlying growth would have been 4% for EOSystems, which gives us the confidence in that the momentum is again building within EOSystems. Recurring revenues grew 6%, driven by continued momentum in construction software subscriptions and also GNSS correction services. You can see the rolling trend month figures in the chart on the right. For the full transparency, excluding the impact of our design and engineering business, software and services accounts for 44% of sales for the remaining hexagon, corresponding to recurring revenues of around 28%. The new product adoption is also progressing very well, especially if you look at our Laser Tracker, ATS 800, and also our new robotics total station, TS 20. And this is, of course, supporting the growth trajectory across our businesses. Turning now to the development by region and industry in the quarter. So on the next slide. Here you have a snapshot of the development. And I start with the geography. The Americas was the strongest region, delivering a 15% organic growth. with a positive performance across all of our business areas. North America was especially strong, while South America was weaker. EMEA recorded 4% organic growth with broad-based contributions across the portfolio. China reported a decline of 4%. Performance in manufacturing intelligence was very solid, but the wider China business was impacted by the weaker year systems business, and also by the completion of the destocking actions taken within year systems in China. Without the destocking initiative of roughly 8 million in the quarter, there was actually also single-digit growth in China as a whole. The rest of Asia delivered 7% organic growth, solid performance, reflected the good momentum in several of our key markets in this region, and especially a strong India. By industry, if we look at it like that, construction remains our largest vertical, and we recorded a strong growth in Americas, but also good growth in Western Europe. General manufacturing, the second largest vertical, showed broad-based strengths across all the regions. Aerospace and defense continued to perform strongly, while mining was more mixed, with uncertainty impacting the demand in South America. We also had some pulling of deliveries from the first quarter into the fourth quarter last year, and that had some negative impact for the first quarter. Automotive remained under pressure, particularly in the EMEA, but we also saw signs of weakness in China. Electronics was very strong in the quarter, and this is primarily done in China and the rest of Asia. That's where a strong majority of our exposure is, and it was very strong growth. Agriculture, while only being 2% of our sales, still remains weak globally. I now turn into profitability on the next slide, and I start with the gross margin. And I want to say first that the design and engineering that normally operates with strong margins had a challenge start to the year. So while it was very strong in the first quarter of 2025, which is the reference period, it performed quite badly during the six, seven weeks that it was within our business before it was sold on the 23rd of February. There's a lot of reasons for that. But if we exclude the impact of design and engineering in both periods, both in the first quarter of 26 and the first quarter of 25, the gross margin was 62%, and in the comparison period, 62.6%. So it's 60 bps down year on year. Gross margin was, however, stronger in this quarter than in the last two quarters, quarter four and quarter three of 2025. And you will also be able to see this in the appendix slide attached to this presentation. The ramp-up of new product sales continued to support cross-margin. But this was offset by a full quarter of tariff impact. And in the comparison period, there was very little tariff impact. And we also had input cost inflation and also on freight. And this is driven then by the Middle East conflict primarily. If you look at the currency for the quarter, that also created a significant headwind. Going forward, we will mitigate these pressures through pricing and also freight surcharges, etc. And actions are already taken at the end of the quarter. But the full impact of this, given our delivery times, should be seen in the third quarter. Turning now to operating earnings. During the first quarter, we delivered an operating margin of 26.1%. versus 25.9% in 2025. Importantly, excluding also here the full impact of design and engineering business in both periods, the operating margin grew 80 basis points versus the previous year. And this, I would say, is a meaningful improvement, driven by the organic growth performance and benefiting from our restructuring program that we communicated in the second quarter reports. some of the contributions also a gain from a sale of a building within the quarter of about eight million euros offsetting a good performance was like as mentioned a weak design and engineering performance and tariffs and cost inflation we also saw the strong currency headwind on ebit and that corresponded to a negative 60 basis point performance Year-on-year reduction in capitalization to amortization gap which we have talked about before had an impact of 70 basis point negative. A key driver for the margin improvement was the cost reduction program. We benefited here about 10 millions during the quarter and the program remains on track for a total saving within Hexagon at 74 million at the end of the year. also had generally good cost control despite the growth and that also of course supported the performance now turning to the business area performance i start with manufacturing intelligence mi delivered a revenue of 433 million euros and an organic growth of nine percent we also had a very strong order intake in the quarter which is positive for the coming two or three quarters If I start with the geography, the Americas was the strongest region, but we also saw growth in EMEA and Asia. By industry, aerospace and defense continued to perform very strong, and the automotive business remained under pressure, particularly in the European markets, but as I mentioned, also in China. Operating margins came in at 23.7%, down from 24.6% in the first quarter of last year, And this reflects the impacts of currency headwinds and tariffs and the weak D&E performance in this year, which more than offset the positive operating leverage from higher volumes. Again, if we eliminate D&E, as we have divested this part from both periods, the operating margin improved from 23.1% to 23.6%, so 50 bps up. Looking ahead, had an agreement to acquire vega technologies and this is a transformative step for manufacturing intelligence and it expands as i mentioned into the adjacent non-destructive testing market and positions us to offer customers a truly end-to-end precision measurement solution from the surface to the interior and through the life cycle of products and as i mentioned earlier we did divest

D&E on the 23rd of February.

If I move then into Geosystems slide, revenue was 349 million euros with an organic growth of 2%. And even if great to see a return to growth here, I should note again that if we disregard the China destocking program, which now has ended, the actual underlying growth of Geosystems was around 4%. which is a more accurate read of the demand environment within the business. Biography, America was the strongest, EMEA was broadly flat, and we saw solid performance in the Western Europe, offsetting the weakness we saw in Middle East. In Asia, China reflected in destocking that I mentioned, but India performed very well. By end markets, construction, software and services delivered double-digit growth, very good to see, we are seeing also the contribution of the ts20 total station operating margins were 26.9 compared to the 27.4 in the prior year the decline primarily reflects currency headwinds which were partially offset by strong cost discipline and favorable product mix turning now to our superstar of the quarter autonomous solutions on the next slide Revenue was 176 million euros and organic growth of 13%. By industry, aerospace and defense continued to be a major growth driver with very strong demand. Mining was more mixed in the quarter. Customers remained cautious with capital expenditure, which also softened the demand for equipment investments. But our mining and safety business remained resilient during the quarter. Agriculture, as I mentioned, is subdued globally. We are not worried about the mining business in the mid-term. There is a lot of activity, but as I said, a bit of hesitation with the high oil prices for capital investments. Biography, both America and EMEA delivered strong double-digit growth, and APAC declined. Within the product portfolio, demand for anti-jamming solutions and GNSS correction services was particularly strong in the quarter, benefiting from the growing need for secure and reliable positioning in defense, but also in critical infrastructure applications like aerospace. Operating margins expanded to 34.1%, up from 31.6% in the prior year, 250 basis points improvement is strong, and that's driven primarily by the strong operating leverage on the higher volumes, and also a favorable product mix. Of course, also here, partially offset by currency headwinds and tariffs. That concludes my overview of the business area performance, and now we'll now hand over to Norbert, who will take you through the Hexagon Continuing Operations financials.

Go ahead, Norbert. Thanks, Anders. I will take you now through the Q1 performance. Anders stated otherwise, the slides and my comments will relate to continuing operations, so it will exclude OCTAVE. Turning to the next slide, please. Let us begin with the Q1 2026 income statement, taking the sales bridge first. Revenue use were 964 million euros with reported growth essentially flat year over year. currency had a negative impact of 6%, and there was a 1% negative structural effect from the sale of D&E, resulting in organic growth of 8%. Gross earnings were 606 million euros with a gross margin of 62.9%, compared with 64.4% in Q1 last year. The 150 basis points decline reflects currency headwinds, terrible impacts, and cost inflation that Anders discussed earlier. As he also mentioned, excluding the full impact of D&E, the decline would reduce to 60 basis points. EBIT 1 was 251 million euros with an operating margins of 26.1%, up 20 basis points year on year, or up 80 basis points excluding D&E. This improvement was supported by the cost restructuring program and organic growth in the quarter, partially offset by a reduction in the R&D gap of 70 basis points and currency. Earnings before taxes grew 4% to 224 million euros, supported by the operating improvements. Earnings per share were 6.7 euro cents, up 3%. Next slide, please. Now, moving to the bridge. As discussed, net sales were essentially flat on a reported basis with organic growth of 8% offset by currency headwinds and the structural impact from D&E. On operating earnings, EBITBON increased to €251 million from €249 million last year. The improvement was driven by the cost restructuring program and the net gain of the sale of a facility, supporting organic performance in the quarter. Currency represented a meaningful headwind with a 35% drop through, primarily reflecting the weaker dollar. On the margin bridge, we expanded 20 basis points to 26.1%. Both organic and structural effects were accretive, while currency diluted margins by around 60 basis points. Next slide, please. Turning now to the restructuring program. We are targeting 74 million euros of annualized savings with the full run rate expected by the end of 2026. In Q1, we delivered 10 million euros of incremental savings, bringing the annualized run rate to 51 million euros. We are therefore well on track and progressing towards our targets. As shown on the chart, we expect continued ramp up through 2026. reaching the full 74 million euro runaway by year end. This program continues to be a meaningful contributor, and we remain confident in the delivery. Next slide, please. Turning to cash flow, where we continue to demonstrate strong operational discipline, adjusted EBITDA, was 351 million euros, up 3% year on year, reflecting organic growth and benefits from the restructuring program, partly offset by currency headwinds. Capital expenditure amounted to 76 million euros, down 38% versus the prior year, partly driven by proceeds from the sale of a building following our footprint rationalization This resulted in cash flow post investment of 250 million euros up 16% year on year. Working capital was an outflow of 56 million euros reflecting the normal seasonal pattern in Q1 as we see activity ramping up through the quarters. As a result, Operating cash flow before tax and interest was 194 million euros. This translates into a cash conversion of 77%, a significant improvement from 60% in Q1 last year. After taxes of 46 million euros and net interest of 24 million euros, cash flow before non-recurring items was 124 million euros, up 84% year on year. Next slide, please. This slide shows working capital to sales on the new Hexagon base, providing a view of the underlying trend. On this base, Q1 performance is in line with normal seasonal patterns. Net working capital was an outflow of 56 million euros, compared to 68 million euros in the prior year. The rolling 12 months working capital to sales ratio improved to 11.9%, trending down versus last year. So to conclude, we delivered organic growth of 8% with stable margin despite significant currency admins and gross margin pressure on tariffs and input cost inflation. Cash conversion improved to 77%, and the restructuring program continues to deliver with 10 million euros of savings in the quarter and an annualized run rate of 51 million euros. Looking ahead, currency is expected to remain a headwind, and we remain focused on execution. I will now hand over to Matthias. Next slide, please.

Thank you very much, Norbert. Take a look at the first quarter results for Octave. What you're seeing in the numbers this quarter, it's not just a transition to recurring revenue. It truly reflects the early impact of connecting workflows across the asset lifecycle, which is where the real value in this business sits. Recurring revenue grew 6% organically compared to the prior year, with SaaS revenue continuing to grow at a strong double-digit rate. Reported organic total revenue grew 2%, whereas reported revenue is down year over year, driven by currency impacts and the disposal of the federal services business that we did last year. If you look at monthly project-driven subscription license revenue, that was roughly flat with the prior year period, while perpetual licenses and professional services revenue declined, reflecting deliberate shift we are doing towards subscription-based models the ebit for the first quarter reflects the lower perpetual license contribution together with lower levels of r d capitalization and higher related amortization excluding these factors underlying profitability was in line with the prior year period as disciplined cost savings offset incremental public company costs Cash conversion was a healthy 118% in quarter. Next slide, please. If we look at our workflow environment in Q1, the trends were consistent with our expectations. In design, perpetual license sales declined while monthly subscription licenses continued their sequential improvement. Build delivered strong double-digit growth driven by SaaS adoption in construction and project controls. Operate also saw strong revenue growth across quality management, APM, and EAM. And in the protect area, recurring revenue continued to grow, offset by lower perpetual licenses and services revenue. Our advantage, however, is not in a single product. It is in how these workflows connect. Intelligence created in design, build, operate, and protect becomes more valuable when it is shared across the lifecycle. Next slide, please. To the left here, you can see the monthly subscription licenses. We saw a step down as earlier discussed in the activity level in early 2025. However, since then, we've seen sequential improvement, and that positive trend continued in Q1. And we do expect year-over-year comparisons to get easier as we move through 2026. In the middle chart, you can see that excluding this short-term volatility from project-driven licenses, the underlying trend is in fact strong. Recurring revenue continues to grow at a high single-digit rate, reflecting healthy underlying momentum across the portfolio. And on the right, you can see that our quarterly perpetual licenses continue to decline in line with expectations as we shift towards recurring revenue models. We do expect this shift from perpetual to continue to pressure total revenue growth for the remainder of this year. Next slide. If we turn towards some of the information we shared at Octave's first investor day in March, and if you haven't watched it yet you can access the videos and presentations at the investor investors page at octave.com one of the key takeaways that we discussed there was that we expect to accelerate organic recurring revenue growth to 10 plus percent over the medium term approximately two-thirds of that arr growth is expected to come from our existing customer base what underpins this is That expansion within our installed base is driven by the multi-workflow adoption, where we see a clear step up in ARR as customers move beyond the single workflow. We expect the remaining third of growth to come from new customers as we invest in growth areas and expand the partner channel to broaden our coverage across geographies as well as customer segments.

Next slide, please.

Turning to customer highlights in the quarter, we had a number of important wins, both for new logos as well as expansion. And I think these wins really reinforced several of the strategic themes we outlined at our investor day in March. If we start with new logos, we added the Visa Cash App Racing Bulls for enterprise asset management to handle their logistics and operations in their S1 business through a multi-year SAS contract. We signed both BNSF Railroad and Spokane 911 on multi-year SAS deals for our on-call dispatch platform. We also landed a leading US-based LLM developer on a design subscription for their facilities infrastructure. And these wins demonstrate two things that we emphasize at our investor day. the diversity of our addressable market across mission-critical industries, and our ability to land new customers on recurring SaaS-based contracts as we accelerate the shift toward recurring revenue. On the expansion side, I want to highlight two deals that could not have happened a year ago, frankly, from an organizational perspective as these businesses then sat in separate hexagon divisions. The first a global motion and control leader. An existing design customer expanded into operate through a four year strategic agreement, adding both or EAM and ETQ solutions across their global manufacturing operations. The other one was Kimberly Clark. Who? Signed a deal that consolidates over 700 of their systems onto our platform in a five year spanning design and operate. And I think this is a great illustration of how our opportunity for ARR per customer expansion, where customers adopting three or more workflows consistently reach seven-figure ARR levels. And while the 86% of our customer base is still on a single workflow, and that is the expansion runway embedded in this business, We also expanded with a leading European chemical producer, displacing a competitor for critical communications across their production plants. This customer now runs on Octave across all four workflow environments, design, build, operate, and protect, validating both our platform strategy as well as the value customers see in consolidating onto our solutions. And lastly, we cross-sold our build solutions into a long-standing design customer with a major copper mine operator, extending our relationship to include project controls. So to me, what these examples really show is that once we land in one workflow, expansion into adjacent workflows is not theoretical. It is happening, and it materially increases our ARR. So in summary, The Q1 customer activity validates our strategy. We're winning new logos on SaaS, expanding within our base across the workflows, and displacing competitors where our integrated lifecycle approach gives us a clear right to win. And this is what differentiates us. We are not competing as a point solution. We are competing as a lifecycle partner for mission-critical assets where failure is not an option.

Next slide, please.

So if we turn to our Investor Day outlook, in the nearer term, 2026 is a transition year as we become an independent public company. We're targeting 3% to 4% total revenue growth on the back of 6% to 8% ARR growth. With adjusted operating margins stepping down modestly as we absorb roughly 100 basis points of public company cost and up to 100 basis points from revenue model shift net of savings. We do expect revenue growth to be second half weighted, reflecting both the recovery in monthly subscriptions and the typical back half seasonality of enterprise software bookings. For the second quarter on a US GAAP basis, we expect organic recurring revenue growth of 6%, so similar to Q1, and we expect organic total revenue growth to be slattish year over year due to the declines in perpetual licenses that we have discussed. On a reported basis, which will reflect, again, the disposal of the federal services business, we expect second quarter total reported revenue to be down approximately 4% over the prior year.

Next slide, please.

Our medium-term ambitions remain as we laid out in March. ARR growth of 10 plus percent and total organic revenue growth of 68. Over time, of course, these growth rates will converge as recurring revenue becomes a larger and larger part of total revenue. We also expect free cash flow margins to expand from today's level of roughly 20% to 23 to 24% of the median term. Next slide. So I'd like to close by reiterating why we believe Octave is a compelling investment. We operate in a large and growing market. It's 28 billion today, reaching 40 billion by 2029. We have a deeply embedded sticky installed customer base with 97% gross retention and significant room to expand. Our recurring revenue base of 1.1 billion continues to grow as a share of the mix. AI amplifies the value of three decades of domain data and context that is very hard for anyone to replicate. We are leaders in our product categories as recognized by basically all the major industry analyst firms. We operate in mission-critical environments where failure is not an option. And if customers connect workflows across the lifecycle, value compounds and expansion becomes more predictable. That is the foundation for sustainable growth and profitability as we scale as an independent company. So final slide, please. So, as a reminder on the key dates for the separation, the Hexagon AGM vote is tomorrow, April 24, and assuming approval, the record date and effective date for the distribution is May 22, with Octave SDRs expected to begin trading on Nasdaq Stockholm on May 26, and the Class B shares on Nasdaq New York on May 28. So, with that, thank you very much, and I'll hand back to you, Anders.

Thank you, Mattias. Let me jump forward directly into the Q1 summary slide. So, Hexagon delivered a strong financial performance. Our cost-restruction program is clearly on track and delivering. On the portfolio side, we completed the sale of our design and engineering business to Cadence, and we also announced here in April an acquisition of Waygate Technologies. As we've heard, the octave spin is remaining on track. And all these actions are then sharpening Hexagon's future focus on the core positioning, measurement technologies, positioning technology, and autonomy opportunities. Our full executive team is now in place, as I mentioned, with Enrique and René. And looking ahead, we have a solid foundation entering into the second quarter. We had a strong order intake within manufacturing intelligence. And with the closure of the year systems destocking program, we provided a clean base for growth in year systems going forward. We remain, of course, attentive to the macroeconomic situation, particularly to the tariffs, currency dynamics, and also what's happening in the Middle East situation. We all have a very confidence on the momentum of our different businesses going forward. And as we have just heard from Mattias, Octave generated another very strong quarter of SaaS growth, contributing to recurring revenue growth in the mid single digits. Before I move forward, I want to take this opportunity to thank you, Norbert Hanke, who has been an excellent interim CFO, covering from the gap in August 2025, when David Mills was stepping down. now handing over to Enrique Patriksson. Norbert will remain as an executive vice president at Hexagon leading our ventures operations and also strategic projects and I'm very much looking forward to continue working with you Norbert in that capacity. Before we move to the Q&A I would like to draw your attention to an upcoming event on the next slide We will be hosting our Capital Markets Day in April. That's April 30. That's next week, Thursday, in London. And this will include strategy updates from each of our business areas. And also importantly, we will present the new updated financial targets for Hexagon, reflecting the new portfolio composition that I have spoken about today. So, of course, I encourage all of you to join us in London or follow the event via the webcast. And details and registration are available on our investor relations websites. So with that, we are now happy to open up for questions. And in the room, we have Mattias Stenberg, Norbert Hanke, Ben Maslin, and myself. So please go ahead, operator.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now go to your first question. And your first question today comes from the line of Alice Jennings from Barclays. Please go ahead.

Hi, good morning. Thank you for taking my question. I've got a couple. So the first one is just on, I guess, the outlook for Q2. So you've expressed some confidence, but then also recognized a bit of uncertainty. So could you perhaps outline where in the business, like which divisions you have the most visibility or also the most uncertainty? So thinking about divisions, but then also the industries. And then I just have a question on the Waygate acquisition. So I understand that we're expecting to see some revenue synergies from cross-selling, but how long after the deal is closed can we expect to start seeing some of these synergies, and how meaningful could these be? Thanks.

All right. Thanks, Alice. So I can start a bit, and Norbert, you can maybe contribute as well. So if you look at the different businesses and the outlook for Q2, of course, we don't give forecasts on the future. But we have a very strong order intake in our manufacturing intelligence business. And that will, of course, benefit us in the coming quarters. And as I mentioned within the year systems area, we have completed the destocking initiative. So we don't start every quarter with a negative sort of 8, 10 million. That is already sort of... cleaned and we have now a clear base to move forward from and after that the underlying growth has now turned positive within the air systems and we expect that to continue also going forward. In the autonomous solutions we have a very strong demand in different sectors like aerospace and defense etc and we don't see any signs of that changing and we don't see any signs of the the weak business of agriculture improving dramatically either so many of the businesses are expected to remain in a similar level mining perhaps not growing very much in the second quarter because that's related to what we are what i said in the presentation but more in the midterm we don't see any risk for a mining business as the activities is still very strong If you look at electronics, for example, we expect that to continue to be a strong business for us also going forward. Automotive will be challenged in Europe. I think also we have seen now some negative growth for us in automotive in China, and that might remain. But given also the high oil prices, you might come back to more electric cars, and that would also benefit our automotive sales in China. have to wait and see what happens within that business general manufacturing is a strong business across across the all the different businesses basically and we we expect that to continue on similar levels so I think that's a summary what we can say about the outlook if I then should comment on the way gate acquisition so of course there is a process here that we need to go through until we have actually closed this acquisition And then there is an integration of the acquisition. And we will start seeing benefits, I think, quite quickly of the synergies because we have similar exposure to customers. We will also complement our offering and we will go to market with the same people across the different geographies. So I think you will see synergies coming quite quickly after the integration of the business into manufacturing intelligence.

Great, thank you very much. Thank you, Anders.

Thank you. Your next question comes from the line of Daniel Joerberg from Handelsbanken. Please go ahead.

Thank you, operator, and good day, gentlemen, and congrats to a nice growth profile here. I was wondering, Anders, if you could, you mentioned some pulls from Q1 into Q4, still strong organic growth, 8%. My question is do you experience any pre-bias of some reason and how much of the organic growth was a result of this if so and also if so would it impact you negatively later on? Thanks.

Thanks Daniel. The pull-in from Q1 to Q4, which I referenced, was primarily within deliveries in mining. And I wouldn't say that that has a significant impact for the performance in the first half year here in 2026. Of course, the first part of the quarter was a bit weaker within mining, of course, due to that. But not any permanent effects in any way. Pre-buys we actually don't see. across the different businesses to any extent that we can recognize that this is a typical pre-buy. So we don't see that as a future negative impact for us either.

Super. Thanks for clarity. May I ask you another question on on way gate obviously early days but you mentioned that you will do a strategic review of imaging solution and ultrasonic testing so my question is can you already start to plan for this right now and or do you need to wait you know the full consolidation and then see what and plan later on or more or less can you do a theoretically divestment or something at the same time as you do the transaction later 2026? A little bit hypothetical question perhaps.

Yeah, I would agree with you. I think we are here first making sure that we do the acquisition before we do anything else and close the acquisition. Then I didn't say that we will divest these businesses. I would say that we will evaluate them to see if we can make them into a market leading position number one or number two within those businesses as well. That could be with complementary acquisitions. We would also evaluate if we can do a turnaround of the business to improve the performance and create shareholder value. And then we don't exclude to do strategic reviews of businesses, which we don't exclude for any of our businesses, actually. We're always evaluating our portfolio.

Perfect. That's clear. I will get back in queue. Thank you, and good luck in queue, too. Thanks, Daniel.

Thank you. Your next question for today comes from the line of Johan Eliasson from SB1 Markets. Please go ahead.

Good morning Anders and team. Just two questions from my side. Starting on the cash conversion, obviously a good improvement 77% in this quarter and 60% I guess on some sort of comparable basis a year ago. I think your target has historically been 80 to 90% cash conversion but considering Octavia is bringing all the SaaS and the subscription prepayments with it. I guess one should assume that this 80-90% target will be more difficult to achieve going forward or how do you see it?

Yeah, Johan, I will take it here for the time being. Yeah, I would agree. 77 was a good performance, as we said, as well, from our point of view. But, say, we will have this CMD next Thursday, and I think you will hear quite a bit from Enrique as well going forward what will be the target and how to achieve this. And I think I would then say wait until Thursday. Hopefully you are there.

I am. Okay. Just trying. Then another question. A question on the robotics. You mentioned the Scheffler 1000 robots coming seven years or so. Are those on commercial terms or can you sort of indicate what sort of price tags you are targeting for your type of robotics. I remember when you showed us them in September, I think it was, you know, there was a wide range of assumptions on what price tags robots could fetch from the consumer side to the professional industrial use. Do you have any indications here and are you sort of satisfied with the returns for your clients, obviously, but with the returns for you as well in the deals you seem to have struck right now?

Yeah, Johan, I think we're not going out with any numbers, as you can see from the release. So we are very happy with this deal. I think the key thing for us here, it proves that this solution with Aon is commercially viable and implementable in an industrial application. And we could also see that with the BMW announcements. We are happy with the outcome for our customer here, and we're also happy with the situation for ourselves in the deal. But we don't comment on anything else regarding the deal.

Okay.

Thank you very much. Thank you.

Thank you. We will now take our final question for today. And the final question comes from the line of Mikael Lassin from D&B Carnegie. Please go ahead.

Thanks for taking my question. I have a question for Mathias about Octave and specifically how we should think about the capitalized doctor development costs going from eight to four percent over the medium term. My question is about the total or indeed, how should we think about stats in 2026 and going forward?

Yeah, no, thanks, Michael. I think I'll pass to you, Ben, for the detail. But, I mean, it is correct that we are, you know, stepping down capitalization. But I'll let you take it, Ben. Yeah, hey, Michael.

As we said at the analyst day, there's no plans at the moment to change the gross level of R&D expenditure, which has been about 18% to 19% of revenues the last few years. I think there are areas where, as we implement AI, we could get savings, but the priority at the moment is to reinvest in the product and drive growth. That was the message from a few weeks ago. Obviously, we're moving the product development more and more towards SaaS. where you have continuous development cycles, and it doesn't really make sense under the accounting standards to capitalize. So this will be gradual at first. And we'll go from 8% of capitalized software development costs in 2025. It will come down this year. And then we think by in the medium term, it will come down to about 4%, as we said a few weeks ago.

Okay, so the cash effect from the R&D activities will essentially then develop in line with sales?

Yeah, I think that's probably the best guide at this point, yeah.

Okay, can I also follow up with a quick question on the stock-based compensation? That part is expected to go from 1% to 4%. Will you have a step up now when you have... separated and listed, or will that be a gradual process, how does it work?

It'll be a gradual process as the new program gets approved and kicks in, and it layers and stacks up kind of year over year. So I would say it's fairly linear between the one and the four.

Okay. Thank you so much. Thanks.

Thank you. There are no further questions. I will now hand the call back to Anders for closing remarks.

Thank you very much and thank you everyone for participating and engaging with questions. Looking forward to seeing you all then on the next Thursday in London and we wish you all a great day from here.

Bye. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.