Hexagon AB (publ)

Good day and thank you for standing by. Welcome to the Hexagon Q2 Report 2026 webcast and conference call. At this time, all participants are in the 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.

Thank you, operator. Good morning, everyone, and thank you for joining us here at the second quarter result review. I'm, as said, Anders Svensson, President and CEO of Hexagon, and I'm also pleased to have Enrique Patriksson, our new CFO, with me here today on the call. Some of you might have met Enrique already at the Capital Markets Day or on our road shows, but this is his first quarterly conference call with us. So welcome, Enrique. Thank you. So I will move to the next slide to show the standard cautionary statements. And then after that, we move to the next slide to go through the agenda. So I will begin with Hexagon's performance in the second quarter. Enrique will then present the business review and financials in more detail. And I will at the end conclude the presentation and then open up for Q&A. So next slide. Let me then begin with an overview of our performance in the second quarter. And I will move into the highlight slide of the quarter. The second quarter was an excellent quarter for Hexagon. The momentum we saw at the start of the year continued and even increased in the second quarter. And we achieved our highest organic growth recorded in the last five years. And with a strong order intake, we still built backlog within all three of our business areas in the quarter. We delivered 12% organic growth with the growth across all three business areas. Our gross margin held stable around the 62% mark. despite a currency headwind and very strong hardware sales, so the mix was not positive. And we demonstrated strong operational leverage by improving EBIT AC to 24% in the quarter. Cash conversion was also fantastic at 149%. Alongside this stellar financial performance, we also were very active operationally. The separation of Octave completed our portfolio restructuring or refocusing on precision measurement and positioning technologies. We also launched our new hexagon with updated strategies and new mid-term targets at the capital markets day in April. As a reminder, these targets are for the group and organic growth of 46% between 2026 and 2030. EBIT AC margins of 24 to 26 percent and a cash conversion of 90 to 100 percent of EBIT AC. We also committed to reduce our scope one and two emissions by 70 percent to 2030 from the 2022 baseline and also reaching net zero by 2050. We also began building our portfolio for long-term profitable growth and with the acquisition of Waygate Technologies that we announced, we are expanding our offering into non-destructive testing. We completed the Bolton acquisitions of inertial sense and interest during the quarter. Our cost-restruction program is now almost complete and we are here quite a lot ahead of the initial schedule, so that's very positive. And last but not least, we are proud to be ranked by time as one of the world's most sustainable companies. So in summary, both financially strong and operationally active quarter. And let me take you through it now in a bit more details on the coming slides. So the first one here is the completion of the Octave separation. And I think this is an important milestone of the quarter, of course. Octave was separated from Hexagon effective the 22nd of May. and Octave began trading on Nasdaq Stockholm on the 25th May and was then listed on Nasdaq New York on the 28th. With Octave now separate as a listed company, Hexagon is a more simple and more focused business going forward. I want to wish Mattias and the Octave team every success as they begin their journey as an independent company. And with that, I will move into our organic growth on the next slide. And the organic growth in the quarter was very strong at 12% with growth in all of our business areas. Autonomous solutions led the way, growing a fantastic 20% in the quarter. Manufacturing intelligence also very strong at 13% growth. And in infrastructure and geospatial, we grew 4% in challenged market conditions. By end market, we saw strong growth in aerospace and defense. and in electronics both in consumer electronics and semiconductors but also in general manufacturing and this more than offset the weaker market conditions we could see in automotive especially in China in agriculture in the Americas and also construction within both China and Europe and this is a reminder of the benefit of having the diversification we do both in terms of geography but also industrial verticals You will also see some movement in our software and service revenue and also in the recurring revenues, and that relates primarily to the sale of the design and engineering business, but also to a strong hardware sales quarter. A strong hardware sales quarter, of course, takes down the recurring revenue numbers for the quarter, but it enables future sales of software and service solutions, of course. Positive was that the adoption of our new products like Maestro and TS20 is progressing very well. And that is an important support for our future growth, but also our future gross margin development. On the next slide, I will now move into how the organic growth was spread across our regions and industries. So in Americas led the growth with 19% growth with construction, general manufacturing, aerospace and defense, and mining all growing strongly. The only weak spot in America is basically agriculture, and it has been cyclically weak for quite some time now. In EMEA, the growth was 7%, but the markets were more mixed here, with outperformance driven by general manufacturing and aerospace and defense. Construction, which is a key market for us in EMEA, and especially for infrastructure and your spatial remain challenged. Markets in China were very healthy, with the exception of automotive, which remains tough, just as in the first quarter. Construction grew for the first time in some quarters for us, but this is from a low base following the stocking program that we had in the last 12 months. And the market outlook for construction in China remains subdued. The rest of Asia grew modestly with 10% growth in India being offset by some weakness in Southeast Asia and Australia Pacific. If we now move into the next slide, we will look at the gross margin developments. And we maintained a strong level of gross margin at 62%. And if you then exclude design and engineering business that we have sold, the gross margin was flat year-on-year at 62.3%. But the underlying movement was even stronger than this, because we had a 50 basis points negative currency impact. And as I mentioned, we saw strong hardware sales, with stencil sales increasing 17% in the quarter, which on average carries a slightly lower margin than, for example, software sales. So the mix was not contributing positively. However, this is, of course, a good platform for us, as I mentioned, grow our recurring revenue and software share over time as these sensors will then have pull through opportunities of software and service sales. Then I turn into the profitability slide. And before I get into the analysis, a reminder of the EBIT AC, which is our new profitability metric, which we launched at the Capital Markets Day in April. And EBIT AC is a conservative measure of profitability that basically expenses all R&D in the period. So it excludes the gap between amortization and capitalization in R&D expenses. In the second quarter EBIT AC improved materially of 330 basis points to 24.3% compared to 21% in the comparison period. And this excludes the D&E contribution in both periods. Around 100 basis points of that improvement came from currency tailwind. But more importantly, around 230 basis points came from operational drop through from the strong organic growth. And it was also supported by early benefits of the new operating model, the hexagon way, and around 14 million euro in the quarter savings from a cost restructuring program. and unless otherwise stated as we defined in the capital markets day we exclude robotics from this metric and the reason for that is of course that this market is in a very early stage and robotics needs to be able to focus on scaling and growth rather than a quarterly performance in the quarter the incurred cost for robotics was 10 million euro and it was fully in line with the guidance we gave at capital markets day of approximately 50 million for the full year. And I'll move over to a short update on robotics on the next slide. And the robotics business is making great progress within both partnering with other companies and also attracting great interest from customers for humidor factory trials. In the second quarter, we announced an expansion of the strategic partnership with Schaeffler which will result in deployment across Schefter's factory network in the coming years of at least 1,000 humanoids. We also announced a new pilot with the company Phil, where Aon will be working to achieve advanced manufacturing solutions for machine tending, machine inspection and other inspections, and material handling. And this brings the total number of public partnerships now to four, with additional pilots on the way. We continue to expect to reach commercialization by the end of this year. And we are excited about the potential of this business going forward. And as we previously communicated, we are evaluating partner arrangements, et cetera, if we believe that that would be the best way to realize the opportunity ahead. And before I hand over to Enrique, I will move to the next slide and give an M&A update for the quarter. So also in the second quarter, we remained very active on M&As. The most significant one was the announcement of Waygate Technologies, which will be acquired by our manufacturing intelligence business area, and it takes us into the non-destructive testing markets. And this is a significant acquisition for us, which will expand our serviceable market within MI significantly. And I have discussed this acquisition at various market-facing events already, So I won't go into too much details here today, apart from saying that we still anticipate completion within the second half of 2026, and most likely in the fourth quarter. Alongside this, we also completed two Bolton acquisitions. And the first one is the inertial sense, which was acquired by Autonomous Solutions. And the strength of our assured positioning, navigation and timing portfolio with tactical-grade GNSS and inertial systems technology, and hence expands our resilient positioning capabilities in GPS-challenged environments. And this has been a big growth area for us recently, and was so also in the second quarter. The second acquisition that we closed was ITREF. It was acquired by Infrastructure and Geospatial. It adds to our mapping capabilities with high performance airborne hyperspectral and thermal imaging sensors that operate across a wide spectrum of wavelengths. It is enabling precise material identification and also temperature analysis that the existing visible and near infrared modalities cannot deliver. We are excited about all these acquisitions and we want to welcome these teams into the HEXAGON team. And with that overview, Let me hand you over to Enrique, who will take you through the business review and the financials in more details.

Thank you, Anders. It's a pleasure to be here today on my first Hexagon results call, and even more so to discuss this very strong set of results. A couple of reflections here to start. I've spent the past few months going around to some of our major sites and meeting the teams responsible for delivering this impressive second quarter performance. And I've been really impressed by the talent, dedication, and expertise throughout Hexagon. And I feel excited about what has been achieved in the quarter, but also what we can do in the future. So now let's look at the results more in detail. This page, titled Revenue and Profitability Year-over-Year Bridge, really captures the performance and the story of the quarter really well. Starting with NetSafe Bridge at the top, We added some 40 million euros to our top line to reach 1.05 billion euros. However, structure and the divestment of the D&E business accounted for a reduction of about 70 million. So in reality, we grew our top line by about 110 million, including a 1% of FX. So that equates to about 12% organic growth in the quarter. More importantly, our EBITAC, our new profitability metric, increase organically by almost double the rate of the growth of our organic top line growth. So that's a recurring theme when you look at our results and look at our various business areas. The operational leverage is great, especially when you get this type of growth. In the quarter, we had a bit of help of FX or rather the negative impact we had last year was not repeated this year. So now let's turn into the business areas. Starting with manufacturing intelligence, which grew at an outstanding 13% and generated a strong improvement in margins. Growth was driven mainly by the stationary and portable metrology divisions, particularly within aerospace and defense, general manufacturing and electronics. Automotive remained structurally weak, particularly in China and EMEA. Growth was across geographies, but remained strongest in the Americas, and China grew by high single-digit rates. Importantly, order intake also grew at the high level and growing our backlog. Profitability, if you excluded the vested design and engineering business, margins improved by about 380 basis points, which is a very good progress. This was driven by the strong organic growth and some currency benefits. Now moving to infrastructure and geospatial, the business area formerly known as geosystems. This was another good performance, with solid growth despite our exposure to EMEA construction markets, which remained challenging. By division, the growth was strongest in construction software and services, in geomatics, in radar monitoring, and in machine control. The Americas grew strongly, and China grew from a low base as restocking came through, while EMEA remained challenging. Our new TS20 total station continued to sell very well, and that supported the growth in Indiomatics. In terms of margins, the improvement reflects the higher volumes, a more favorable product mix, cost control, and some help of currencies here as well. So another business area with great operational leverage. And then last but not least, autonomous solutions, which once again delivered a stellar growth and margin performance. This was driven by a significant increase in our positioning divisions, which benefited from continuous strong demand in aerospace and defense, and more than offset the weaker conditions we see in agriculture and marine. Both the Americas and EMEA delivered strong double-digit growth, with Asia being weaker. In terms of products, growth was led by our anti-jamming solutions, our high-precision GNSS, and our correction services. Backlog continued also to grow here. margins expanded on the back of those strong volumes, though that was partly offset by currency. Now, let me mention a couple of things in our income statement and highlight a few things. EBIT1 moved in line with our EBITAC, but that was somewhat obscured by a reduction in the capitalization amortization gap of about 125 basis points. However, if you exclude the D&E business, from last year, the delta is about 170 basis points. Our adjusted EPS was about 7.8 euro cents a share, lower than the 9.2 reported. And this was due to the gain of the cadence shares that we sold in the quarter, and that was about 71.5 million euros, which resulted in a positive financial net in the quarter. So you have to remove about 71.5 million euros to land into our normalize net financial items in the quarter. Now on the restructuring program, we continue to make excellent progress. We targeted a savings of 74 million euros as we announced at the capital market day, and we have now reached a run rate of 73 and a half. So we are essentially at the full run rate. In the second quarter alone, the program delivered 14 million euros of cost savings. We now expect the program to complete by the end of the third quarter, which is ahead of our original schedule. Importantly, we are retaining these savings as demonstrated by the profitability improvement. This is thanks to the early benefits of our new operating model, the Hexagon Way, which is improving the operational discipline. And that discipline is demonstrated in the results with great leadership in divisions showing hunger to deliver on enhanced shareholder value. Finally, from me on cash flow and net debt, cash generation in the quarter was very strong, as Anders mentioned, with cash conversion at around 149%. That's the operating cash flow pre-tax of 364 million compared to our EBITDC, including robotic costs of about 245. As you can see from the waterfall, the driver here, it was a strong contribution from working capital. particularly driven by strong efforts in both accounts payable as well as in collections. In addition to the strong cash flow, the net debt bridge below here has a few highlights I want to draw your attention to. The Q2 impact from the cadence share sales can be seen in the financial assets and you can see the octave transactions coming through on the line referred to as other. Those two together contributed with a bit more than 800 million, and then we had dividends of about 381 million in the quarter. The increase in cash generation and the additional proceeds from the cadence shares helped to drive a material improvement in our net debt, which took our leverage down to 0.3x during the quarter, way below our target level of 2.5 times. Even if we add the already announced Waygate acquisition, we retain a substantial firepower going forward. So in summary, for the quarter, one, fantastic growth, that secondly, had true operational leverage on our EBITAC, and that thirdly, converted into cash. And with that, I will hand over to Anders for some concluding remarks.