Hexatronic Group AB (publ)

Good morning, everyone, and welcome to Hexatronic second quarter presentation for 2025. As always, we start with a very brief reminder of who we are. Hexatronic is today a global business supporting customers around the world with products and solutions needed for fiber connectivity and the ever growing communications needs. We sell products and solutions under the Hexatronic brand and a few other brands as well. And we manufacture in 18 production facilities across nine different countries. Our turnover is about $7.5 billion SEC annually, and the business is organized in three business areas, fiber solutions, harsh environment, and data centers. Moving on to look at the quarter that just closed. We had a sales decline of 6%, which was entirely explained by currency headwinds. This is mainly the SEC strengthening against our key selling currencies like US dollar and euro. Overall profitability also saw a year on year decline with a beta margin landing at 8.9% in the quarter. And it was the fiber solutions business that caused this profit decline. We saw a weaker than expected quarter in both Europe and particularly in North America. On the other hand, our data center business overperformed again with another record quarter of very strong growth and profitability. And the harsh environment business area also had very solid results. In fact, all time high with double digit organic growth. Our cash flow, which you may recall, was negative in the first quarter, turned positive, as expected, with a 74% cash conversion. This contributed to keeping our net debt leverage constant at a rather comfortable 1.9 times. So all in all, we were, of course, disappointed by the underperformance in Fibre Solutions, but we also take away a number of positives elsewhere in the business. Here are a few key events that were announced during the quarter. In April, we refinanced our bank debts, maintaining the key terms and conditions from our previous agreement. We were also very pleased to see our climate targets approved by SBTI, and we renewed a seven-year contract with one of our very long-standing customers, which is Corus in New Zealand. And then two recent events after the end of the quarter, as the performance of fiber solutions was weaker than expected, we issued a profit warning together with preliminary results about a week ago. And as response to this weakness, we have initiated a performance improvement program to address those challenges. Here is an overview of our portfolio with the three business areas, Fibre Solutions, Harsh Environment, and Data Center. Fibre Solutions is still the largest business, now about 65% of total sales, and the two other are roughly 17 to 18% each, slowly but steadily growing their share of total. However, if we look at the EBITDA, it's a different and pretty significant picture. Data Center was almost on par with Fiber Solutions in second quarter. If you add Harsh Environment, these two businesses are now generating well over 50% of Hexatronics profits in the quarter. And we can draw two conclusions from this. One is we want to see and we expect to see Harsh Environment and Data Center continue to grow their share. This is primarily where we are investing. This is where we see strong growth opportunities, especially the data center is a high growth asset life business that we see a lot of value creation from. Parts environment is also on a positive trajectory and we continue to invest in this business as well. And the second conclusion is that clearly fiber solution is underperforming. We are at 6.4 EBITDA in the quarter, which is not where we should be. So I consider this now a turnaround situation. We have invested quite heavily in this business over the last several years, and we are just not seeing satisfactory returns on those investments in the quarter. And that is, of course, the reason we have initiated a performance improvement program, which we will come back to. So if we move on and start by taking a little bit closer look at fiber solutions. We saw lower than expected demand in Europe and in particular in North America. In the US and Canada, we have a handful of key customers and for different reasons, most of them placed low orders in the quarter. In total, North America was down 23% year on year, which was a disappointment, especially since we're aiming to grow in this important market. Our conduit business in North America, so this is the Blue Diamond Industries, we actually saw good volumes but low pricing where year on year there's still a meaningful price decline. Profitability in fiber solutions then was hurt by the lower volumes, by price pressure, and also to an extent by the business mix as North America is traditionally overrepresented as a profit contributor. Going forward, here we expect the market in Europe to continue to be rather challenged during the remainder of the year. It's a market currently characterized by some overcapacity and competition for volume, and we know that other companies are also struggling here. In North America, the market outlook is better, and we're working very hard to broaden our business and customer base and get back to growth. And as mentioned, we have initiated a performance improvement program across fiber solutions. Based on where we are, there's a need to adjust our cost, but it's also about shifting resources to where we see growth opportunities and broaden our focus beyond the FTTH segment. And that actually leads me to the next slide. What we see here is an overview of the different product segments within Fibre Solutions. It's a slide that we have used before, but it's slightly updated. And there have been some questions about market share and whether we're losing market share, especially in the light of some data points and some peers that have a more positive view than our recent performance. And to answer that question, we really need to look a bit more granular at the business mix within Fibre Solutions. So on the upper left-hand side, this is the fiber to the home, or FTTH, last mile segment. This has traditionally been Hexatronic's focus area. It's where we have the majority of the business within fiber solutions. It served us well for a number of years. But it is, at least in Europe today, a market that is still a bit challenged. the growth in the market there is growth in the market it's really coming mostly from the upper right hand corner which is a transport and interconnect segment and this is more the backbone of of the fiber optic networks and there's there's pretty strong growth here driven primarily by the data set the rapid growth in data center and we are capturing the data center growth inside the data centers we're capturing that in our data center business area um the the connection between data centers and the infrastructure is within fiber solutions and this is an area where traditionally hexatronic has not had a very big position we have some business in places like scandinavia for example but here's an opportunity that we could tap more into this growth in the future that we're not really today in the middle on the upper side here is the conduits and pipes so again this is the blue diamond industry's business mostly and here we see actually strong volumes but we see rather rather low prices still in this business And then there are some smaller market segments on the bottom here. So we have the submarine cable business. It's more of a niche segment, very good growth prospects and healthy margins in this one. And same for wireless. And then we also have some smaller segments, instruments and tools to round out the portfolio. So I think for me, the conclusion is that the biggest markets are the top left and the top right. And we are at least currently stronger in the segment that doesn't really show the big growth today. There is growth in North America in the fiber to the home, but this is for us a smaller business than the one in Europe. So. Moving on then to the next slide and the next business area, which is harsh environment. Q2 was a good quarter for this business area. In fact, we saw all time high sales and EBITDA with organic growth of 10%. This was on the back of strong project delivery. And as a reminder, this is a largely project based business. Therefore, it's important to look at the longer term trends rather than just individual quarters. Nevertheless, we're very happy with the quarter performance and importantly, the trends here are favorable. We see strong investment into the defense and offshore energy markets, and we expect this to continue. As we have described before, we continue to focus on margin improving activities, including some CapEx investments in the Rochester cable business in the US. Next and last, but certainly not least, business area is data center. And once again, it's a star performer. And I will hand it over to Martin Oberg, our deputy CEO and also the leader of that business area.

Thank you, Rickard. So we closed a strong quarter with 35% organic sales growth. Actual sales in the quarter grew 38%. It was negatively impacted by currency, but fully compensated for by the carve out from ender that we closed end of last year. Sequentially, it was at a similar level as the previous quarter, which was a record quarter. We have high growth numbers across the business unit, but the service market in the US and Europe showed the highest growth in the quarter. In terms of EBITDA, it was a record quarter with 72 million SEK, or a margin of 20.8%. This is two to three percentage points higher than our expectations. And this was due to a few larger projects that came in at higher margin than expected. Moving over to the outlook. As presented during the investor update in March earlier this year, the data center market is expected to show strong growth throughout this decade. especially the cloud segment that according to independent market research is expected to grow at a sales CAGR of plus 15% from 2025 to 2029. Looking at the second half of this year, we expect continued strong growth year over year, keeping in mind that the first half is a stronger period than the second half of the year, and this is due to vacation periods in August and December. We continue to focus our M&A activities towards harsh environment and data center and have a very healthy pipeline, especially on the data center side. This is a slide from our investor update event where we talked about further diversifying our data center business, both in terms of applications and in terms of segments or end customer markets. Today, we're mainly strong in the cabling services in data centers. And this includes design, product management, installation, and day two services. But during the quarter, we have continued to broaden our indoor services by recruitment within adjacent service areas, such as audiovisual, wireless, and also security solutions. And security solutions is typically installation of CCTV cameras, access control, and video management systems. In terms of segments or end customer markets, we're also winning more businesses for all the different applications on the left hand side. And this is towards other markets than data centers. This being hospitals, schools, commercial buildings. Those customers require the same services as our data center customers and allow us to further diversify our customer base and market exposure. further diversification on applications and segments. And this is an important part of the data center business unit strategy, both organically and in our strategic acquisition pipeline. And with that, I hand over to Pernilla to summarize the financial of the quarter.

Thank you, Martin. As Rick had said, we had a total net sales of 1.9 billion SEK for Q2 with an overall decline of 6%. On the other hand, organically, we had a decline of 1%, and that is explained by the weakened and expected performance in fiber solutions, partly offset by the record quarter for both harsh environment and data center. And we had 1% acquisition-driven growth from a recent acquisition indoor within our data center business. And we had 6% negative effect on exchange rate for the quarter, primarily attributed to weaker US dollar, Aussie dollar, New Zealand dollar and Korean won. If we're looking at our gross margin, our gross margin decreased to 40.1% compared to 42% in Q2 2024. And the reason for that is the weaker than expected performance due to lower demand in our FTTH equipment and price pressure within our fiber solution business. And the weaker demand was noted in both North America and Europe. And as well as our low capacity utilization and fixed cost coverage in our factories within fiber solutions. Operating costs were 27.6% of net sales in the quarter, which was in line with Q2 2024. And the reduced operating cost in absolute numbers is mainly related to lower freight costs explained by decline in net sales within fiber solutions and lower costs for long-term incentive programs. Overall we had an EBITDA of 169 million SEK or 8.9% compared to Q2 last year of 11%. Net financial items of minus 31 million that is mainly related to interest expense and tax rate amounted to 30.3% in the quarter compared to 33.1%. prior year. The lower tax rate is explained by higher portion of deductible interest expenses and earnings per share for the quarter at 0.38 compared to 0.44 last year. So if we look at fiber solutions, our total fiber solutions had a sales of 1.2 billion SEK in Q1 with an overall decline of 16%. as I said before, due to the weaker demand of FDTH equipment and price pressure. Organically, it was a decline of 9%. Europe declined with 12%, and that is mainly related to lower performance in Germany, Sweden and UK, but also in Finland. Note that Finland had a record quarter last year, so it was still a good performance in Finland. North America declined with 23%, and that is mainly related to Canada, with a slowdown in the FDT build-out of FDTH, but also our US business, where some of our customers have placed lower orders. As Rick had said, the conduit business in North America saw good volumes, but very low pricing, where year over year is still a meaningful price decline. And APAC finally declined with 8%, but increased with local currency. Positive development both in Australia and New Zealand. We had an EBITDA of 138 million SEK. It's a decline with 40%. Profitability was hurt by the lower volumes, low capacity utilization and continued price pressure, but also by the business mix as North America is traditionally a higher price and margin market. We had depreciation of 59 million SEK or 4.8% of sales. And depreciation in percent of sales has increased by 0.6% compared to last year. And that is mainly due to that we had lower sales. But low capex investments in the quarter, 16 million or 1.3% of sales, which is mainly related to maintenance. So if we go over to our harsh environment business, overall, we had a sales growth of 4% in the quarter. but with an organic growth of 10%. And that is driven by our defense business and the energy sector. And as we previously communicate, the companies within Horsham environment have an international customer base and a majority of revenues from larger projects, which means that sales per geography can fluctuate between quarters. We had an EBITDA of 40 million SEK and margin in lime in prior year at 12%. Sequentially increased profitability and some positive effects from improved production efficiency in Rochester Cable. CAPEX investments in the quarter of 9.3 million or 2.8% of sales. And that is mainly related to production and efficiency improvements in Rochester Cable. If you then look at data center, total net sales for data center at 344 million SEK with an overall growth of 38%, organically a growth of 35%. It's a strong development in all units, but especially the service business in Europe and North America. And contribution from the acquired businesses is in line with our expectations. We had a strong EBITDA margin of 20.8%, although two to three percentage points higher than expected due to a couple of larger products with strong margin. COPEX investments is light in the data center business for us. So we had COPEX investments of 3.7 million or 1.1% of sales. Cash flow from the operating activities before changes in working capital of 176 million SEK. Overall a negative effect of working capital of 45 million SEK. Account receivable has increased with 35 million during the quarter mainly due to higher sales and customer mix offset by increased accounts payable. inventory has increased with 62 million mainly due to the lower sales within our fiber solution business but overall cash flow from operating activities of 131 million and a positive 74 percent cash conversion total capex investments in the quarter of 30 million or 1.6 percent of sales and that is mainly maintenance investment overall Interest bearing net debt, which corresponds to net debt excluding LIES liabilities amounted to 1.8 billion SEK at the end of the quarter, which is a decrease of 121 million compared to last year. And that is mainly due to repayment of loans of 32 million and a positive FX effect of 70 million. And that was partly offset by decreased rolling 12 EBITDA leading to an interest bearing net debt in relation to pro forma EBITDA on a rolling 12 basis, which is a key ratio that reflects our existing bank covenant. And that is stable compared to the last quarter at 1.9 times. At the end of Q2, we had 518 million SEK cash and an unutilized backup facility of 1.1 billion, which gives a liquidity of approximately 1.6 billion SEIC. And we have a continued solid financial position.

Okay. Thank you, Pernilla. And if we move on to the summary, so as a summary again of the quarter performance, sales were lower by 6% and pretty much all of that was FX driven. beta declined in the quarter and landed at the margin of 8.9 percent of sales and this was entirely driven by one of our three business areas fiber solutions the other two business areas both saw record results in the quarter but not enough to make up for the shortfall in fiber solutions which is the largest of the three cash flow was strong generating 131 million sec at 74 cash conversion rate and our net debt leverage was unchanged so moving on to the outlook if we start with fiber solutions the market expectation here is a little different by geography. Europe, we do expect to remain quite subdued and we do not see a significant improvement in this market in 2025. The US market is showing growth and also the new tax bill, the one big beautiful bill provides for additional incentives to build infrastructure. So it's early to see, but it should be a positive. We are aiming here for recovery in this market, but we also know that we're still quite dependent on a few larger customers and their build plans. And in Canada, our main customer there expects to continue the year on a low project level. For Hexatronics specifically, we expect the EBITDA margins in Q3 to be in line with Q2 for fiber solutions. We have initiated a performance improvement program but do not expect it to have any material impact in Q3. Data center, good growth expected to continue with the usual H1 versus first half seasonality. And for harsh environment, the third quarter sales are expected to be in line with last year. We saw strong organic growth in this quarter, but as noted, there's a bit of volatility each quarter that this is a very much project-based business. And then finally, we are still focused on executing our M&A pipeline, which is robust and quite exciting. It is focused on data center and harsh environment. And we do maintain the ambition here to close one or a few deals before the end of the year. Last slide, then, before we move on to... Q&A. So we are planning an investor update on September 11. There will be virtual presentations similar to the update that we held in late March when we introduced the business areas and the segment reporting. We will present here an updated strategy and status for all three business areas. And we will also provide details of the performance improvement program in fiber solutions. And this will be two parts. So it's obviously cost and productivity improvements, but it's also investments and strategies for growth in that business. And we will also at this point, we will introduce financial targets per business area. So with that, I think we conclude the presentation part and move on to the Q&A.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. Please limit your questions to a maximum of two. If you have additional questions, feel free to rejoin the queue. Jacob Edler, your line is now unmuted. Please go ahead.

Yeah, thank you so much for taking my questions. I just have a first one on the sequential development in fiber solutions here in Q2. It was 1% negative organic growth in Q1 and now, you know, minus 9%, you know, despite, I would say, you know, peak seasonality here. Maybe just some more colors specifically, you know, why did we not see the EU seasonality pick up? And also, secondly, North America very weak. Can we get some more color, maybe per region volumes versus price? What was the main issue on these two regions?

Yeah, thank you, Jakob. I think that the main surprise here really was North America. This was where we have seen for on the longer perspective we've seen growth in that market that we were expecting that to continue and it didn't like i said that there are really two factors here one is on the conduit and pipe side of things where volumes are actually strong it's just that prices are lower and particularly when we look at it on a year-on-year basis that has an impact but then for the legacy hexatronic US and Canada business, we've seen that there are a number of larger customers who place lower orders and have slowed down their build rates in the quarter.

Okay, great. And then maybe getting to BDI then on the conduit side. I mean, we've seen, as you said, the price pressure for some time. I'm just wondering, you know, more long-term, you know, we've seen some changes to BEAD and other public stimulus programs here recently. We know that you have a large competitor in the US being Duraline. How concerned are you about the mid, long term price pressure aspect here in BDI specifically?

I think long term this will balance out. If you follow Orbia, you know that Duraline have been going through some tough times as well. It looks from the outside like they turned a little bit of a corner last quarter and Clearly, there are volumes are increasing in the market, but we're still at a point where those volumes are absorbing existing capacity, I would say. But once that balances out, then I think that will have a positive impact on the pricing as well.

Great. And then maybe my second last question. On the guidance in Fibre Solution, you've said similar margins in Q3 versus what you reported. What does that mean for Q4? Because typically you have a bit, you know, disfavorable seasonality there. And how much should we expect could be offset by the improvement program you're announcing in September? Should we be a bit cautious on Q4 margins as well?

So the seasonality effect we expect to be similar as before. We're not giving guidance at this point on Q4. We're giving guidance on Q3. And then obviously we have the update in September where we can provide more color and more updates.

Okay, great, great. last question is this coming down to data centers obviously a very strong performance here both in q1 and q2 what i've noted though is that maybe even more in q1 but endor seems to have had a quite strong you know development has it been related to any you know project final project settlements that are you know not returning and can we get any indications on what type of margins we've seen on these you know orders that you've been talking about

Sure. Generally, Ender has performed stronger than our expectations so far. It's been a good integration. And our ambition is that we should also sell more of our offering through them. But as you rightly put it, it's a lower margin business than the rest of the data center business. I would say it's a sub 10% EBITDA business on the Ender side. So it's mainly contributing on the sales in the first half of the year.

Okay, great. Perfect. Thank you so much for your answers.

Thank you.

Max Baco, your line is now unmuted. Please go ahead.

Thank you, and good morning, Rick and Martin and Pernilla. Perhaps the first question, returning to the first question of Jacob, on the customers in North America, both in Canada and U.S., that placed lower orders here in the quarter. And you mentioned during the presentation, Rick, that it was for a number of different reasons, but perhaps if you could... Could mention a few of those reasons. What are the customers saying? Why are they slowing down?

Yeah, so it's in one case, it's trouble with getting the right permits for the build out. At least that's what they're saying, telling us. There was another customer that was a bit overstocked, so they had purchased too much in the prior quarters. and then there's one customer that is going through they have recently done a major acquisition and they have come up on their financial leverage so they're very focused on cash flow right now to they need to deliver and therefore they're slowing down their build out Hope that answers your questions, Max. Those were some examples for three of the main ones.

Max Baco, your line is now unmuted. Please go ahead.

Max, are you there?

The next question comes from Adrian Galani from ABG Sundal Collier. Please go ahead.

Adrian?

Hi, I'm your moderator today. And I will do a little bit of refreshing. So wait a little and we will get back to the phone questions shortly.

Let's come back to Max as well and see if that answered his question or whether he had additional follow up questions, please.

Adrian Galani, your line is now unmuted. Please go ahead. The next question comes from Frederick Nielsen from Red Eye. Please go ahead.

Thank you. There might be an issue at my point, but I haven't heard anything in the last few minutes. I guess it might be the same for the other participants by the phone.

Yeah, it seems that we have some technical issue. We weren't able to get back to Max and we were not able to get a question from Adrian. Did you, Fredrik, did you hear my response to Max's question?

No, I did not. Oh. But I can hear you now.

Okay. So if you didn't hear it, I think most people didn't hear it. So let's repeat the answer then. So Max asked about some specific examples of why we've seen some of the main customers in North America place lower orders. And I responded that in one case, it was as simple as they had overpurchased a bit in prior quarters. So they ended up with... with an overstock situation and had to slow down for that. And in one other example, at least what we're hearing from the customers, that they are struggling with getting the permitting on time for their builds, and that's held them back in the Western U.S. business. And a third example was a customer that has gone through a major acquisition or merger, and they're in a situation now where they have taken on financial leverage, which they are very focused on reducing their financial leverage. So cash flow is an immediate priority, and therefore they have slowed down on their capex and build out for this season. Did that come across, Frederik?

uh yeah yeah it did to me at least yeah okay thank you and did you have a question also yeah yeah thanks um i'm interested in some kind of update for your long-term outlook for fiber to the home i mean in the last few years you've been quite optimistic about the long term despite some short-term hiccups So it would be interesting to hear, are you less optimistic about that going forward? Is that the right interpretation or what's your outlook there?

I think this is one of those questions that we will come back in September and, um, and address, uh, Frederick. I think, um, right now we will share what we have shared that in the, in the short to medium term, we continue to see growth in that market in the U S in particular, uh, and rather flat in Europe.

Okay. I see. And also you touched upon it for the duct business but the revised bead program to me it seemed to be a lot less in favor of fiber because of the very low requirements. What's your view on that? How will that change the demand for fiber?

in general although you have a limited exposure to the bead fiber deal in general yeah i think your guess is as good as ours and anyone's even even talking to the experts uh they have quite different views on this so it remains to be seen I think if you listened carefully to what's coming from the administration and read between the lines, there was for a while a strong push towards alternative technologies. Whether or not that was related to certain individuals linked to the satellite industry, I don't know. But it seems to be a little bit different to lately. There's there. Bid seems to be landing somewhere in the middle that it's technology neutral. But there is a there's a concept of prioritized build outs and at least the industry, some industry interpretation of that is that that will need to go to fiber and that there's a strong case of that will go to fiber. So the experts that I've talked to expect that there will be slightly more of of fixed wireless and satellite, but that there will still be a chunk of fiber into that program. But interestingly, also very recently was the one big beautiful bill announcement, and it's still early days, but the tax incentives to build out and to be able to immediately depreciate and deduct capex for fiber build out there looks to us like it's it could be a pretty big deal and it's something that could perhaps perhaps more than bead boost investment into fiber build out great thank you i'll get back in line thank you frederick see if we can get back next question comes from adrian galani from abg sundal collier please go ahead

Yes, hi. I missed a couple questions as the call cut out for me, so I apologize if any of these are repeats. But on the outlook statement for fiber solutions, you mention unchanged conditions in Europe, and then you simply write that you're working to increase sales in the U.S. Should we read that as you expecting sales will be higher in the U.S. in coming quarters or not? Because the wording on that is a bit uncertain, I would say.

I think that's a fair observation, Adrian. We are working hard to that. We are hopeful that it will happen. But to be honest, I would have thought the same for the second quarter. So we're a bit cautious on that outlook.

Okay. So your expectation is that these specific customers are keeping their sort of cautious view on fiber rollouts?

Some of them will.

Okay, understood. And then for the second one on the performance improvement program, I'm sort of struggling to understand whether it is a cost-cutting program or not, since on the one hand you mentioned cost reductions as part of it, but then you also say it includes investing in new growth areas, which I mean would cost money on the other hand. Are you able to say that the net effect of this is a lower cost base or do the new investments cancel out the cost reduction?

No, the net effect will be lower costs, but we will take some cost savings and redeploy. I mean, it's a case of I don't know how to translate, so I would say in Swedish, gasa och bromsa at the same time. So accelerate and brake at the same time. And that's always a fine balance, but for sure it will not be a zero-sum game.

Okay, understood. And perhaps a final one on harsh environment. I know you've been clear that it's a bit of a lumpy business and you shouldn't necessarily look quarter over quarter, but If you expect flat sales year-on-year that would imply quite a big drop from the Q2 level. So is that just explained by timing of orders in the specific quarter or is there an underlying component of for slowdown in that as well.

No, it's exactly the timing, right? So we're happy with this quarter, but we also want to be transparent that there is a lumpiness here and it was probably a little bit favorable in this quarter. And if it's unfavorable next quarter, then we shouldn't panic about that. The underlying trend here is good. It's solid. The market is there. And as you know, there's a lot of investment going into defense industry right now. So that certainly is a driver. as well as offshore energy.

Okay, understood. I guess that's all from me. Thank you. Thank you.

The next question comes from Stefan Ward from Pareto Securities. Please go ahead.

Hello. I'd like to ask you a couple of questions on your investment plans. It looks like CapEx has come down quite a bit. how should we think about the capex level going forward and what will you prioritize between if if there's no growth you you seem to see not that much growth opportunity ahead is would it be more more reasonable for you to to amortize the debts rather than invest if we can't see any growth

So let me answer on the priorities and the strategy, and then I trust Pernilla will comment on the numbers. Where we see capping. So we have, as you know, Stefan, we've invested quite heavily for a few years in capacity in fiber solutions. So we're well invested there. We have plenty of capacity. There could be segments and this would be segments adjacent, but sort of outside of the fiber to the home where we would still invest for capacity and growth. As an example, we see the submarine cable business as a business that is growing and where we have a certain fixed capacity. But largely the big lump of investment in fiber solutions, I think, is behind us. For harsh environments, we continue to invest. Some of this investment is for growth, some of it is simply to bring Rochester up to standards. So it's a combination of necessary maintenance investment and some that will improve productivity and growth. And then the data center business we know is rather capital light. So we don't foresee big investment. We don't need big investment in CapEx in that business. So where this all leads us, Farnilla?

Now, what we have already communicated is overall approximately three to four percent. the total company where where horse environment is more like three to five percent fiber solutions two to three uh and data center one to two and overall then one to two percent is maintenance that was what we communicated i've communicated earlier as well

And on your question, sorry, just because you asked about paying down on the debt from the cash flow. Of course, in the short term, that's an option. I think the more exciting option here is to continue on the acquisition. We do see a big opportunity particularly in data center to create value from the combination of organic and acquisitive growth there and the targets are out there the the valuations are reasonable uh so this is an area where we certainly would like to further accelerate i have a couple of follow on them on the capex ideas the the figures you mentioned to me are those to be

characterised as maintenance levels, or are there any growth initiatives in those CAPEX levels?

Yes, as I said, one to 2% is probably maintenance out of that. And there are specific areas like Rikard was saying, if there's something outside the FDTH business, we could do that. But this is also then over a medium term, our guidance. We are lower at this point overall.

Okay, then a follow-up on the Russia. I think it's been going on for quite a long time, these efficiency improvements in that business. Shouldn't you be able to improve that efficiency more rapidly? acquisition when was it concluded? It was in mid 2023 or something if I'm not mistaken.

Yeah, so as we as we also earlier communicated, this has definitely taken longer time than we expected. And that has to do with that it was heavily under invested overall Rochester cable when it comes to maintenance. And Stephen, one of the reasons for taking longer time is basically that it takes more or less one year when we have ordered a new machine for maintenance or updates before we get that. So it has taken us longer time than we initially thought, for sure.

I would also like some color on Richard's comment on not losing market share, because all the signals that I see is that there is volume growth, especially in the North American market. and the guidance from sector peers looks also to me at least more aggressive than what you are describing. So how can you not lose market share you lose revenues of 23% in the North American business.

Well, what I can say quite confidently is we're not losing, we haven't lost customers, we haven't lost accounts, right? But maybe I didn't do a good job of presenting, but you're right, Stefan, there's growth in the market and the bulk of that growth really is in that backbone segment that the high fiber count and the data center interconnect business. This really is driving the market right now. And it turns up in some of our peers in their numbers that have and they have much heavier exposure in that into that business. We were not big in that business, particularly in North America.

Okay, thanks. Any comments on the things that we got from AT&T following this bill that was passed a couple of weeks ago? They raised their fiber rollout ambitions. It looks like they're increasing activity in the market. Is there any way that you can sort of participate in their fiber expansion plans, or how do you view that development?

never say never but today we are not really present with the tier one uh builders uh we have had uh right or wrong we've had a strategy for a while to focus on the tier two and tier three uh the alt nets uh but i think you're right the tier one uh networks are expanding and they have reacted positively to this tax incentives. Again, I would expect if it's positive for AT&T, it should be similarly positive also for our customers, but it's a little bit early for us to see the effects of that.

Can you also give an update on volumes and price for especially Germany and UK and the European would be helpful also, please.

I think Germany is the market that is toughest in Europe price-wise, at least of our main markets. Volumes are okay, but pricing is quite challenging. The UK is a little bit better. Also in the UK, we have a couple of key customers that have slowed down their build out. I think one of them we may have disclosed previously who is a customer. I'm looking around the table here now. No, okay. So we're not we're not disclosing that. But there's again, pretty specifically for a couple of customers are slowing down their build out. And also, as we have talked about before, what we're seeing particularly in the UK is a shift from focusing on homes past to homes connected.

And you cannot participate in the Homes Connected? No, we do.

We do, but the SEC or dollar or pound sterling per home is lower for the home connected than for a home passed.

But you still see, do you see for Hexatonic, do you see growth opportunities in these two sort of key markets for Europe or? Do you think that penetration rates will stay at the current levels?

Well, the penetration rates will go up. I think the question is, will the number of additional homes passed and homes connected per year increase or not? It's very hard to say. In the short to medium term, we have a view that this is a rather mature market.

Okay, thank you.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Jacob Edler from Danske Bank. Please go ahead.

Hi again. I just had one follow up. I appreciate the picture you had on the fiber solutions portfolio, so to speak. I don't know if you're able to do it at this point, but maybe it could be a pointer to September if you could provide some percentages of how much of the business actually is within last mile, conduit and pipes, Yeah, it's that right into interconnecting networks. If we just could get some color on that and maybe also specifically for EU and the US, that would be nice to get an update on those percentages at some point.

Yeah, point taken, Jakob. If you saw we had indicated Hexatronic, whether it was high or low or medium, we hear that it would be It would be requested that we would give some specific numbers. I think we'll have to think about that if we want to expose that or not.

Okay, cool. Maybe our last question while I have you on the line. We just talked about the volume and price in the EU with Stefan, but can you just give some color on volume and price for the US? Can you say anything on how much the price pressure actually is within BDI right now or something, some more color.

Yeah, so it's a little bit different picture between the different businesses that the two main ones being BDI and Hexatronic US. Hexatronic US Pricing is fine, I would say. Here it's more a matter of getting back the volumes. For PDI, volumes are fine, but prices are quite low. And again, we're not seeing market prices deteriorating on a month-to-month or quarter-to-quarter level, but here we are comparing with last year, and clearly prices have settled on a lower level than they were a year ago.

Yeah, okay. But when you say volumes are fine in BDI, do you mean up year over year?

Yes. Or how should I? Yes.

Yeah, okay, cool. So taking out some FX, there's some pretty hefty price pressure, right? Sure, I'm over there, 23% decline. And then adjusting for FX, there's some notable price pressure year over year, right?

Yes.

Yeah, cool. Okay, thank you so much.

There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Okay, so let's move over then to some of the written questions that we've got. The first question is, can you describe the offering in data center? How much is product versus service? And who are your main competitors in this segment? How big can your data center segment become over the next 18 to 24 months? Martin?

Sure. So if we start with our offering, on the product side, we have Connectivity solutions that be fiber optical assemblies and network products, patch panels, ODFs and similar. We also have containment and that is really passive airflow management. designed to reduce energy and lastly we have local area networks cables and that is really cabling for data video and transmission typically for commercial buildings and campuses so this product offering we have that's predominantly serving enterprise and collocation markets today On the services side, we have ICT services, and I briefly touched upon that before, design installation, and mostly for hybrid scales, but we offer that also for location and enterprise customers. If we look at the split, plus 50% today is on the services side, and that is where we see the main growth going forward. and really looking at the competition side of it on your question is that on the services side really fragmented so it's ideal to be a part of that consolidation and that's why we also have a very interesting pipeline of potential candidates for acquisitions both in Europe and in the US And on your question, how big data center can be over the next 18 to 24 months, we will, in September, we'll discuss part of this when we get back to the also providing financial targets per business units. We'll come back on that question.

Okay, let's continue with one more question within the data center business. Data center consume a lot of electricity. Can you see any problems with this for the continued expansion?

that's a it's a correct observation uh and in certain parts of the market like the uk we see that and the certain regions in the us but basically what we see we don't see any real issues in terms of expansion it's more that new regions are addressed like the nordics second interest and also change and also in the geographies in in north america so so still very interesting area still to continue on this expansion

And then another question here. With fiber solutions well below 10% margin, it looks unrealistic for the company to reach its EBITDA margin target of 15 to 17%. Can you please help how we should think about the medium to longer term margin potential for hexatonic?

Yeah, so again, this is something that we will come back to in September when we will introduce financial targets by business area. As you observed here, Stefan, the different Business areas today have different margins and different dynamics as well. So we actually think that longer term, it's more relevant to look at it specific for business area than necessarily a hexatronic average. So we will come back and clarify and provide guidance and details on that in September. Okay. Looks like we are done with the questions. Thank you everyone for calling in and hope to see you again on September 11. Thank you.