Hexatronic Group AB (publ)

Thank you very much and welcome to this presentation of the Q4 2024 results. So you will be listening to myself, our CFO, Pernilla Lindén, and also our Deputy CEO, Martin Auerberg. And the agenda for the presentation. First, we will have a look at Sextatronic at a glance, some highlights from Q4, a financial overview, business overview, and then we have a summary and market outlook, and we end with a Q&A session. So first, Hexatronic at a glance. So when we look at the markets we operate in, they are driven by a low number of homes connected with the fiber optic networks, and that's in several of our growth markets. They have a low penetration. We also see that 5G deployments drive the need for more fiber optic networks. 5G is totally dependent on fiber networks. We also see that there is an increasing use of data intensive technologies, and that creates more need for fiber connectivity in companies and enterprises and large scale data centers. We also see a shift in the industry from copper-based solutions to fiber, and that's in harsh environments such as oil and gas, sensing, defense, oceanographic and subsea applications. And on top, when it comes to fiber solutions, we see also some significant government initiative to support fiber expansion that's primarily in rural areas. Sustainability, it's high on our agenda and we have listed three of our priority targets. We want to have climate neutral loan operations by 2030, 100% equal pay and minimum 40% gender equality among all employees. And we have gathered our sustainability activities in three areas, planet, people and ethics. And as most companies now, we work hard with the CSRD reporting that puts a lot of requirements on the company. Looking into fiber to the home, which is one part of our business, this is a graph we usually show. Not a lot has happened with this graph since our Q3 report. The U.S. figure is updated. There we have a new figure. So in the U.S., roughly 27% of all homes are connected with fiber. I think it was previously last year, 24%, so a small increase. And as you can see, our strategic growth market when it comes to fiber solutions, Germany, UK and US are still on a low level when it comes to connecting homes with fiber. On the right, you see some of the big subsidy programs, government initiatives, the biggest one being the US BEAD program, which is 42.5 billion, but you have them also in the UK and in Germany. So still a lot to do when it comes to fiber to the home. This is a new slide and it's based, we've got this CRU that is a firm doing a lot of analysis and reporting on the cable and fiber industry. They have looked into the US fiber demand in the US market and it's up to 2030 and we see that they expect the market to have an annual growth of roughly 10%. You also see the split, how they see it. The blue part is private funding. And on top of that, the gray one is the governmental funding. So what's interesting to see is the absolute majority is really private funding. That's what is the big driver for fiber demand in the US market. My own conclusion looking at it, I think when you look at the government funding, which for instance in 2025 and 2026 is 17% and 26% of the total demand, I think that will most probably be smoothed out over more years. But I think the takeaway is big private investments in fiber networks and on top of that governmental funding, but that's the lesser part. In total, then 2024, when we look at Hexatronic revenues of 7.6 billion, we had yearly growth over the last five years of 33%. And we ended last year with an EBITDA margin of 10.6%. And EBITDA level, we have had a 43% annual growth over the last five years. And we are roughly 2000 employees in the group. Then looking into some highlights of Q4. So when we look at Q4, we see it's a stable quarter. We had a strong cash flow. Net sales decreased by 2%, so a little bit more than 1.8 billion SEK. And we saw the decline primarily in harsh environment that had a record quartering Q4 last year. Fiber solution, back on growth, we had a 2% increase in sales revenue, and that's primarily due to higher sales in Europe, but also in the Pacific area. Harsh environment and data center, they were in line with Q3 revenue-wise. And sequentially, sales and earnings decreased compared to Q3. And that's partly due to the return of seasonality in fiber solutions. You might remember that we mentioned that in Q3 that we are back to seasonality effects in fiber solutions, meaning Q4 and Q1 market demand is a bit softer. EBITDA amounted to 182 million and a margin of 10% compared to same quarter last year, 9.1. But we had an adjusted EBITDA in Q4 last year of 10.7. You might recall that we took some restructuring costs in Q4 last year. Cash flow from operating activity is 286 million, and that corresponds to a cash conversion of 150%, a strong figure. The interest-bearing net debt excluding IFRS 16 reduced by roughly 14 million during the quarter, and our interest-bearing net debt amounted to close to 1.9 billion. The leverage ratio decreased from two to 1.9 during the quarter. And we have an order book that corresponds to roughly 2.5 months of sales. And we see that as a normalized level is normally between two and three months. And the board proposed no dividend to be distributed. events during the quarter. On 1st of October we completed the acquisition of parts of the Icelandic company Endor and this acquisition that it broadens our offering in the data center market and we add new expertise to that team and it strengthens our customer base and presence in Iceland, Sweden and Germany. And then on October 15, we opened up our new duct plant in Ogden, Utah. They will manufacture HDP pipes for both telecom and power cables. And they are primarily serving customers in western part of the US. And it's our fourth duct plant in the US. And we start our production small scale and plan to build it out in line with it when the demand increases. And then on January 22nd, we announced that Rickard Fröberg will be the new president and CEO of Hexatronic, and he will succeed myself. And I announced my departure in September last year. Rickard will join 1st of March, so I leave today. So Martin Orberg, our deputy CEO, will be acting CEO until Rickard joins. We also announced recently on February the 4th that we will introduce new segment reporting and some small changes to the executive management team. And this is very much due to increased focus on the three business areas we have. And we also give more transparency than for the investor market. And a few words about the new segment reporting that it will start in Q1 2025, so this year. So our current focus areas will become three business areas, fiber solutions, harsh environment and data center. And we focus our growth strategy for the coming years on these areas. And as I said before, it will also contribute to more clarity and transparency. Changes to the executive management team, not a lot, and we have announced that what happened there. When we look at the three business areas in the executive management team, Fibre Solutions will be headed by Richard Fröberg, the incoming CEO, Harsh Environment by Jakob Skog, and Data Center by Martin Oberg. We will have a digital investor presentation on March 28 to present the business areas in more detail. And that will start at 1pm Central European time. So please, if you're interested, join that meeting. And then looking at our three growth areas, focus areas, when we look at Q4, 72% of revenues came out of fiber solutions, 15% from harsh environment and 13% from data center. coming back to the figures and looking over the last five years you can see the development of net sales so i mentioned already the 33 average growth and the ebitda development of 43 growth over the last five years yearly and then the earnings per share and as you have seen i mean we have had a decline an organic decline in 24 compared to 23 where The first half in 23 was very, very strong. It was record quarters. Now, I will hand over the voice and slides to our CFO, Pernilla Lindén.

Thank you, Henrik. So, we took the next sales of 1.8 billion SEK in Q4. That is an overall decline of 2%. Organically, we had a decline of 4%, which is primarily due to our focus area harsh environment having a record quarter last year. In Q4 2023, we delivered a large order to the defense industry. We had 1% acquisition driven growth from mConnect and our recent acquisition Endor within our data center business. Rest of Europe had a growth of 6%. Even if the market continues to be weak and under price pressure, we secured new business in Germany, UK and in Austria. Sales in North America decreased with 13%, primarily due to lower sales in Rochester Cable or harsh environment. APAC increased with 19%, mainly due to Australia and large order to Micronesia. Sweden decreased with 12% due to last year delivered a large submarine cable. Fiber Solutions overall had a growth of 2%, and that is mainly related to growth in rest of Europe and in APAC. Horsham Environment overall had a decrease of 20%, which is explained by the Rochester Record Quarter last year. And Data Center was growing with 1%, and that is related to the acquisitions. And we had 1% positive effect on exchange rates this quarter, mainly attributed to the US dollar. Our gross margin were at 41.4%, one percentage point above last year. And that is mainly related to higher manufacturing efficiency. If we are looking at our operating expenses, that is 28.2% of sales. It is increasing in percent compared to Q3, mainly due to increased freight cost and startup costs related to the Utah factory. In line with last year in absolute numbers overall. Depreciation has increased compared to last year due to the capacity investments that we have done over the last years. In percent of sales, it has increased with 0.4%. compared to last year. We had overall an EBITDA of 182 million SEK or 10%. And that is compared to 9.1% or as Henrik said, the adjusted EBITDA of 10.7%. And the difference from 9.1 to 10.7 last year is related to the one time cost linked to initiating or launch cost saving program. We had another quarter of solar operating cash flow. Cash flow from our operating activities before changes in working capital of 190 million. A positive effect from working capital of 95 million SEK. Our accounts receivable has been reduced during the quarter, but we have also reduced our inventory, which has been partly offset by increase of accounts payable. The total cash flow from operating activities amounted to 286 million SEK corresponding to a cash conversion of 150% in the quarter. Total CAPEX investment in Q4 of 85 million SEK or 4.7% of sales. Year to date to 308 million SEK or the full year of 2024, which corresponds to 4.3% of sales. The investments in the quarter are mainly driven by capacity investments in US and the investments in new manufacturing facility in Utah for duct manufacturing. And we've said it before, but after two investment heavy years in 2022 and 2023, and after completing the investment program in the duct factory in Utah, We believe that we will be able to grow for several years without extensive investments in fiber solutions. And as earlier communicated, we estimate our investments on what will amount to approximately 3-4% of sales yearly, of which approximately 1-2% are expected to be maintenance investments. 35 million SEK is related to business acquisitions. Group financing activities amounted to 220, mainly amortization of loans and RCF utilization. Overall, we continue to have a solid cash conversion. Interest bearing net debt, which corresponds to net debt excluding lease liabilities amounted to approximately 1.9 billion SEK at the end of the quarter, which is reduced with 42 million SEK compared to last quarter. And interest-bearing net debt in relation to perform IBTA over a rolling 12-month basis, a key ratio that reflects our existing bank covenant, has decreased from 2 to 1.9 during the quarter. Including IFRS 16, it corresponds to a decrease from 2.3 to 2.2. At the end of Q4, we had 633 million SEK of cash and an unutilized backup facility of approximately 1.3 billion SEK, which gives a liquidity of approximately 1.9 billion SEK. We continue to have a solid financial position.

Thank you very much, Pernilla. So now we will move into a more business overview. and we'll start with an overall picture showing the development in our focus areas so we'll start with five the solutions as we have already said we are we return to growth and that was mainly due to higher sales in europe and apac and pacific more specifically You have the 2% growth in the quarter, but you also see the development year over year. So it's a sharp decline of 17% 2024 versus 2023. In the US, sales were in line with the Q4 last year. And as we mentioned before, we started up the production small scale in the Utah plot. And now we cover all of the US when it comes to duct supply, which was in line with our strategy. When we look at the market development, it's clear that digitalization is driving demand for more stable and secure fiber optic infrastructure. And that's all over the world, I would say. We also see that the lower interest rates and now normalized inventory levels and lower cost of capital, they are expected to improve market conditions gradually and demand should increase. But we also mentioned that we are back to seasonality in fiber solutions, meaning Q4 and Q1 market demand is softer. And we have these governmental initiatives that will have a positive impact on the market over the coming years. When we look at harsh environments, there we are capitalizing on the trends, especially in defense and energy. Quarter over quarter, we had a decline of 20%. That's, as Pernilla mentioned, primarily due to a large defense order we delivered in the U.S. lost in Q4 2023. We have a 51% growth full year 2024 versus full year 2023, a lot driven by acquisitions. We had continued stable development regarding sales in line with previous quarters, Q3, Q4, very similar. If we look at the market, we continue to see a strong demand in defense and also energy markets, and we expect that to remain for several years to come. What we deliver in this market is highly specialized products. We have long-term customer relations, very experienced team, and the market is growing. We also expect more expansion of the existing sea-based infrastructure, and especially when it comes to renewable offshore energy production. When it comes to data center, it's very much AI that is driving the expansion of the data center market. If you look at the figures, we had a 1% increase Q4 versus Q4 last year, and year over year, a 19% growth of revenues. The 1% growth in the quarter was driven by the small acquisitions we did in October in the UK. And that's part of Endor that we acquired. And we have successfully implemented that into our ideas business in the UK. When it comes to the market, AI, as we mentioned before, is the big driver, Internet of Things and cloud computing. This requires a lot of bandwidth and a lot of investments in data centers. And we should say also that we see that the expansion of data center that also links into fiber solutions where it drives more investment in fiber optic links, middle mile and long, long distant network networks. Q4 is seasonal, a little bit weaker quarter for data center, and that's due to the holiday period. Then if we look into the geographies, and here we talk about the total business of Exatonic. So Europe, excluding Sweden, that was last year 45% of our total revenues. We see that we returned to growth in fiber solutions. Sales increased in total 6% in the fourth quarter, and that was driven by higher sales in fiber solutions, but also in harsh environment. During the quarter, we successfully secured new businesses in Germany, Austria, and the UK. And we have a continued solid performance within harsh environment, and that's mainly fiber on cables. Data center was slightly behind last year, but that's due to timing of project deliveries. The market development for Europe, excluding Sweden, we saw in the quarters stabilization of the markets when it comes to fiber solution. We still see a weak demand and the price pressure that we started to see last year is still there. But both new focus areas, harsh environment and data center, they show strong demand, and that's very much due to defense and energy markets. and also the implementation of AI. If we look at North America, representing 37% of our total revenues, we had lower sales in Q4, and that was due to strong comparable figures in especially harsh environments. Sales decreased 13%. And as we mentioned before, it's primarily due to Rochester in 2023, Q4 delivering a large defense order. FTTH sales in the US or North America, slightly behind last year, and it's primarily due to Canada. We had a timing of deliveries and it was related to a large customer working on inventory reduction in the end of the year. Our duct sales for Blue Diamond Industries in line with last year, we saw higher volumes, but lower pricing. And then, as we mentioned before, the new Ogden plant opened and we had the last capex investment regarding that in Q4 and production started small scales. Looking at the market development, we see signs of improved market conditions for fiber solutions in the US. And we expect the BEAD program to come into effect for us in the second half of this year, of 2025. Sweden, 8% of our total revenue. We saw a 12% decrease in Q4 compared to Q4 last year. But Q4 in 2023, there we had the delivery of a large submarine cable project. If we exclude that, we had a good growth of our fiber solutions business in Sweden. And here we see the market is now driven a lot by investments in fiber optic backbone networks and also investments for 5G upgrading towers for 5G. And we also see several government initiatives to subsidize the build out and improvement of fiber optic infrastructure in Sweden. And that includes also submarine cables in the Baltic Sea. finally then apec we had a strong performance it's nine percent of our total revenue sales increased 19 and that was driven by a large order we had in micronesia but also higher sales in australia in general when it comes to market development we saw this saw a stabilization and here the same driver digitalization is driving the demand for fiber optic infrastructure Then finally, a summary and market outlook. So a summary, I will just repeat what we have said a couple of times. We had a stable ending of 2024. Net sales decreased by 2% in Q4, and that was primarily due to this large order in harsh environment in Q4 last year. The EBITDA margin of 10% that was up from 9.1% in Q4 2023. But then when we look at the adjusted EBITDA margin in 2023, it was 10.7%. Internal efficiency improvements and good cost control. I have offset higher freight costs and the startup costs related to the new facility in Ogden. cash flow from operating activities of 286 million, and that corresponds to the cash conversion of 150%, strong financial position with a leverage of 1.9 at the end of December, and order book at approximately 2.5 months of sales, which is a normalized level for us. We have an interesting pipeline of potential acquisition, and that's then primarily in data center and in harsh environment. And finally, Rickard Fröberg is appointed the new CEO, succeeding me, who leave Hexatronic after 10 years. Market outlook then. And we say we are cautiously optimistic about the 2025 Fiber Solutions market. We see signs of increased activity in several markets. We see that the price pressure that we saw in 2024, it will likely remain until really market demand picks up bigger. There is some uncertainty due to geopolitical factors. If the US administration decide to implement tariffs against Europe, for instance, our exposure is very limited. And the very big majority of what we sell in the US is actually produced in the US. So we see very limited risk here. We see the return to seasonal variations in fiber solution. And that means that we expect a softer market demand in for instance now Q1 2025. And the BEAD program in the US, we expect to see that reaching the market in the second half of this year. In the long term, we see underlying structural trends that support the continued expansion of fiber optic infrastructure globally. And we see a strong market for our new focus areas, harsh environment and data center. And we expect that to remain for many years to come. And that's mainly driven by investments in defense, energy and AI. So that was the end of the presentation, and we will very soon head over into Q&A.