Hexatronic Group AB (publ)

Thank you and welcome to this Q2 presentation. You will be listening to Pernilla Lindén, our CFO, and Martin Auerberg, our deputy CEO, and myself. So if we start to look at the agenda, we will go through Hexatronic at a glance, some Q2 highlights, the financial overview, the business overview, and then in the end, the summary and market outlook. And we finish up with a Q&A session. First, Hexatlantic at a glance. So we operate in a fiber optic infrastructure market and it's an expanding market. And some of the main drivers are it's a low number still of homes connected via fiber. And that's in most markets around the world. We also see the 5G deployments that they drive the need for building out fiber optic networks. So 5G is totally dependent on fiber. And we also see increasing use of data intensive technologies that creates a growing need for fiber connectivity companies and especially data centers. And we also see a shift from copper bait solutions to fiber in harsh environment applications, such as oil and gas, sensing defense and so on. And on top of that, and this is for fiber solutions, we see some significant government initiatives supporting long-term fiber expansions and Particularly in the US, UK and Germany, but most countries have this today. Then a bit about sustainability becomes more and more important and even more so with the implementation of CSRD. And we have gathered our sustainability activities in three areas. So it's planet, ethics and people. And you also see three of our priority targets in our 2030 roadmap. So it's climate neutral owned operations, it's 100% equal pay, and also a minimum 40% gender equality among all employees. And this will also be more important from the business point of view, I would say. We see more customers requesting us to fulfill different sustainability topics. When we look at the market, this is also fiber solutions and in particular fiber to the home. And this information is not new, which showed the same when we presented the Q1 report. And this graph shows the subscribers to fiber services versus the total number of homes in different countries. And you can see on the top that you have some quite big countries with still a very low penetration, like Germany, UK, Italy also, US. And then in the bottom, you see more mature countries. And for instance, Sweden is an example with 70% penetration when it comes to fiber. So it's still a lot to do in the fiber solutions market when it comes to fiber to them. And on the right side, you see some of the government initiatives and this is very much focused on rural areas with bad or no connectivity and the biggest one is of course the bead program in the us and we will come back on that but uk and germany and as i said before many countries have these initiatives to subsidize rural deployment of fiber good connectivity is a necessity in today's society When we look at Hexatronic in total, you see that we have revenues of the Q2 on rolling 12-month basis of 7.6 billion. We have had yearly growth the last five years of sales of 34%. We have an EBITDA of 0.9 billion SEK, and that's also on rolling 12-month. And the rolling 12-month EBITDA margin on 11.3%. And we are roughly 2,000 employees in the group. We have three focus areas. So fiber solutions, that's the main part of the business today, 73% of total revenues, and this is in Q2. And then harsh environment represents 15%. So that's fiber solutions for harsh conditions. And then data center, which is 12% of revenues in Q2. moving into some q2 highlights so to summarize the q2 we say we had a continue to have a strong cash flow generation and modest recovery in fiber solutions so we had a sequential net sales growth of 14 and we ended with a bit more than 2 billion of sales in q2 and that was driven by a modest recovery in fiber solutions And we continue to grow in the new focus areas, harsh environment and data center with nice growth there. Versus Q2 last year, we had a negative growth of revenue of 10% and the negative organic growth of 18%. And that's primarily due to a softer market in fiber solutions. And Q2 last year was our record quarter in terms of sales and profitability. So tough comparison. Harsch Environment and Data Center grew 95% and 31% compared to Q2 last year. And that's a combination of organic and also M&A. And EBITDA amounted to 222 million SEK, down from 405, the corresponding quarter last year. And the EBITDA margin amounted to 11%, and that's up from Q1, 9.4 in Q1. but down from 17.9 in Q2 last year. Cash flow from operating activities of 221 million SEK, and that corresponds to cash conversion of 115%. And interest bearing net debt excluding IFRS 16, we reduced that with 100 million SEK compared to Q1. And we have now one point or close to 2 billion SEK in interest-bearing net debt. The leverage ratio increased from 1.7 to 1.9 during the quarter, and that's primarily due to a lower profitability in Q2 this year versus Q2 last year. And we have an order book end of Q2 corresponding to roughly 2.5 months of sales, and that we estimate is a normalized level for our business, back to where we were pre-pandemic. Significant events. So we made an announcement of two new people into the executive management. So it's Jakob Skog, who is head of focus area Harsh Environment, and Pernilla Grämfelt, who joined us as head of investor relations. At the AGM, there were some new, in May, there were some new board members elected, but also first re-elected, Erik Selin, Helena Holmgren and Jaco Kivenen. and elected Magnus Nicola, Diego Andersen, Linda Hernström and Åsa Sundberg as new members to the board. And Magnus Nicola was elected chairman of the board. And we also press released that we were selected by Novus Fiber as a strategic partner in the US for their Fiber to the Home build out. And they are going to buy our complete end-to-end solution for Fiber to the Home, including training and field support. And we expect that agreement that runs over a period of three years to generate roughly 400 million SEK in revenue. Looking a little bit back, we have a strong five-year track record of net sales and earnings. So I already mentioned it, sales the last five years, yearly growth on average of 34%, and EBITDA growth of 48% per year over the last five years. and earnings per share up 55%. Then we move into financial highlights, and I will hand over to Pernilla Lindén, our CFO.

Thank you, Henrik.

Good. So we had a total sales of approximately 2 billion SEK in Q2. There was an overall decline of 10% or a decline of 234 million SEK compared to an exceptionally strong quarter last year. Quarter over quarter, we had a growth of 14%, which was attributed to a slight recovery in the fiber solutions business, plus a continued good development in a new focus area, harsh environment and data center. We had an organic decline of 18%. primarily attributed to fiber solutions in Germany, UK and the US. The markets are negatively affected by higher financing costs and higher costs of inflation, but as well as price pressure. But we had a strong organic growth in our focus area, harsh environment and data center. The organic decline was partly offset by acquisition-driven growth of 7%, And that is coming from the Fibron cable in the harsh environment, USNet in the data center area, and ATG that was acquired in 2023. Overall, our focus area harsh environment grew in total with 95% and data center with 31%, whilst fiber solution had a decline of 23%. We had very little exchange rate differences in the quarter. We had a gross margin of 42%. 1.5 percentage points above last quarter, but 2.1 percentage points lower than Q2 last year. The deviation compared to last year is mainly due to lower manufacturing utilization, price pressure in the fiber solutions, and some mix effect. If we're looking at our operating expenses, they are in line with last year, but increased in absolute numbers compared to Q1. mainly due to increased activities within our manufacturing facilities. For Q2 2024, we had an operating expense of 27.6% of sales compared to 27.5% previous Q1 reporting. Overall, an EBITDA of 222 million SEK or 11%. Compared to an exceptionally high Q2 last year of 17.9%. But EBITDA margin is up from 9.4% in Q1 to 11% in Q2. We had another quarter of strong operational cash flow. Cash flow from operating activities before changes of working capital of 193 million SEK. We had a small positive effect of working capital of 28 million SEK. During the quarter, we have continued to optimize our inventory, resulting in a small increase during the quarter. Accounts payable has increased, which is explained by the higher activity in our factories. That increase is partly offset by increased accounts receivable due to higher sales compared to the first quarter in 2024. Total cash flow from operating activities amounted to 221 million SEK, corresponding to a cash conversion of 115% in the quarter. Total CAPEX investments in Q2 of 95 million, or 4.7% of sales. If we're looking at it from a rolling 12 perspective, we have 359 million SEK or also 4.7% of sales. The investments in the quarter is mainly driven by capacity investment in US and investment in the new manufacturing facility in Ogden for duct manufacturing. Cash flow related to acquisitions amounted to 51 minus 51 and relates to payment of an additional purchase price linked to the acquisition of Fibron cable and exercise of the acquisition option linked to Cubix. During the quarter, cash flow from the group finance activities amounted to 212. We have amortized our long-term loan as well as amortized on our revolving credit facility of an amount of 242 and amortized our lease liability of 33. And we have a subscription of shares related to employee stock option program of 63. Overall, we continue to have a strong cash conversion due to stabilized working capital. Interest-bearing net debt, which corresponds to net debt excluding lease liabilities amounted to 2 billion SEK at the end of the quarter. which is reduced with approximately 100 million SEK compared to last quarter. Interest-bearing net debt in relation to pro forma EBITDA on a rolling 12-month basis, a key ratio that reflects our existing bank covenant, has increased from 1.7 to 1.9 during the quarter. The reduction of interest-bearing net debt could not cover for the lower profitability in the second quarter compared to Q2 in 2023. Including IFRS 16, it corresponds to an increase from 2 to 2.2 in the quarter. At the end of Q4, we had 650 million SEK cash and an unutilized backup facility of 1.2 billion SEK, which gives a liquidity of 1.8 billion SEK. We have a continued solid financial position.