Hexatronic Group AB (publ)

Welcome to the Hexatronic Q3 2025 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to CEO Reichard Froberg. Please go ahead.

Good morning, everyone, and very welcome to Hexatronic's third quarter presentation for 2025. I'm Rickard Fröberg, CEO of the Hexatronic Group, and with me today, I have Martin Åberg, Deputy CEO, and Pernilla Lindén, Group CFO. As always, we start with an overview and introduction to the company. Hexatronic today, it's a global business with about 7.5 billion SEC in turnover and roughly 2,000 employees. We are a connectivity business, providing our customers with solutions for a wide range of communication applications, and it's all centered around fiber optics. Our business is organized into three business areas, fiber solutions, harsh environment, and data center. The majority of our business today is in Europe. North America accounts for about 35%, and we have a smaller but growing presence in Asia Pacific. Now, going right to the highlights of the third quarter financials. And I would summarize this. Overall, the quarter was in line with expectations. We saw 1.9 billion SEC revenue, which was an organic growth of 2%, and adjusted EBITDA was 146 million SEC, corresponding to a margin of 7.7%. And our strategic shift towards high growth businesses continues with data center and harsh environment now generating more than one third of sales and over half of the profits. Our fiber solutions business area is still challenged by software market conditions in the FTTH or fiber to the home segment. This business area came in slightly below our expectation at 5.4% adjusted EBITDA margin. which reinforces why we're moving swiftly with the performance improvement program currently focused on reducing our costs. On the other hand, we saw better than expected performance, again, I should say, in data center. This business grew 39% organically and landed at almost 17% EBITDA margin. Also for the harsh environment business, it was a very solid quarter with 15% organic growth and some clear improvements in the Rochester cable unit, where we have been laser focused on operational efficiency. Last but not least, it was good to see that cash flow came in strong as we expected with 117% cash conversion, which allowed us to reduce our net debt and keep the leverage ratio around two times. A few key events that were announced in the quarter. First, as already mentioned, we launched step one of the performance improvement program for fiber solutions. This step includes some hard cost savings totaling around 110 million sec, mainly from rightsizing our organization and actually closing one duct factory in Netherlands. will be followed by additional and more long-term efficiency initiatives within sourcing plant productivity as well as investments for growth secondly we introduced financial targets by business area and i will come back to those in a minute and we were excited to roll out a major new product innovation in our viper east product this is an upgrade to the popular viper family of micro cables With Viper Ease, we are introducing actually new to the world technology, which allows a tangle-free and grease-free installation. May not sound like much, but it actually saves over 50% of preparation time for the installer. So this is a launch which is very much in line with our strategy to be leading in innovation, and particularly where it helps our customers improve their productivity and therefore their total costs. I'm also happy to share today that we have hired a strong investor relations leader. His name is Patrik Johannesson, and he will join us in January. Now, going to the financial targets then, and if I recap those, they were already communicated in September, and there was two sets of target here, the 2028 top line ambition and an EBITDA margin target. Both these targets are now set by business area and they replace our prior financial targets which were stated on group level. These new targets are now aligned with how we run the business and also with our segment reported which started earlier this year. And they do showcase that our business areas have slightly different prospects, both when it comes to growth and margin. We have a strong growth agenda for both harsh environment and data center. with an ambition to be 2028 of 2 billion SEC for harsh environment and 3 billion SEC for data center. And this would roughly double the size of these two businesses combined and make it about 50% of Hexatronic total sales. We also see that Harsh Environment and Data Center highly differentiate their offerings that we feel should be making 15% EBITDA margin over time. In fact, Data Center is currently slightly higher than that, while Harsh Environment still has some way to go. The fiber solution business has some segments with high differentiation, and I think Submarine Cable is a great example of this. But we also have primarily on the duct and pipe side of the business, a little bit lower level of differentiation. And therefore, we see that an EBITDA margin of 10% over the business cycle is more realistic. As noted, given the current trading, this is where we still have quite a bit of work to do to get back up to that level. And if you take one step back and think about where this takes the company in a few years' time, it's clear that the Hexatronic of 2028 and beyond will look quite different from the Hexatronic of the past. We will have almost half of the revenue from data center and harsh environment and probably more than half of the profits. This is a journey that we're on, which started some years ago, and we are now taking steps to accelerate it. Same format on this slide, but really zooming in on the actual performance in the quarter. And it illustrates quite clearly that diversification journey that I just mentioned and the direction of travel. We can see that Fibre Solutions is still 65% of the revenue. Harsh Environment has grown from 15% a year ago to 17% in this quarter. And Data Center has grown rapidly from 13% to 18% of total. But moving to the EBITDA, the shift becomes even more substantial. The two smaller business areas already today account for close to 60% of the EBITDA in the quarter. And of course, that is driven by their strong performance, but also obviously by the relatively lower margin of hybrid solutions in the quarter. But the bottom line here is that this trend towards diversification is good for the business, and it's something that we expect to see and that we want to see. Again, we expect the higher margin in data center and harsh environment to prevail. So even as we are very focused on improving the margins in fiber solutions, we expect longer term that the data center and harsh environment should contribute 50% of group profits, if not more. Now, moving on to take a closer look at the business areas, and we will start with Fibre Solutions. Sales in the quarter were down 14% year over year, and about half of that decline was simply FX translation, where our selling currencies have weakened against the Swedish krona. While we're down year on year, if we look sequentially, we see that sales have been flat now for about the last three quarters. Geographically, we saw declines in both Europe and North America. APEC was slightly down in SEC, but saw modest growth in local currency. The volume shortfall, particularly in micro-duck, is causing under-absorption in our factories and therefore some margin pressure, and this is why we have decided to close one of the duck facilities. Looking ahead, we expect the market situation to remain similar to today in the next one or two quarters. There's still some overcapacity in the market, and it will not go away immediately. But at least for the US market, we expect volume growth in 2026. And here is a look at our different product segments within Fibre Solutions and how they developed in the quarter. And we don't disclose the size of each, but here they're listed roughly in order of size. And in total, these categories represent about 80% or so of the sales in Fibre Solutions. So first is Microduct, where we have seen a clear decline in demand. This is driven by the market shift within FTTH from really building homes past which use a lot of micro ducts towards connecting customers to existing networks. This is a shift that we have talked about before and we see that trend continuing. Conduit, the second category, it's a little bit of a mixed bag. It's actually showing double digits volume growth that has significantly lower prices compared with a year ago. And then if you go down the list, the rest of the portfolio all shows green. Fiber optic cable in general and submarine cable in particular has a growing trend that we expect to continue. So the negative is of course that the micro duct and conduit segments are challenged and this is where we have some underutilized capacity today and obviously the focus of our performance improvement program to address. However, we also see that there's underlying growth in all the other categories. Now we're moving over to the harsh environment business and it was a really solid performance here in the quarter. Revenue organically up 15% and a beta margin came in at 11%, well in line with expectation. We were pleased to see that the dedicated work at Rochester Cable is starting to pay off. In the quarter, Rochester saw slight margin improvement sequentially over Q2 and a meaningful improvement over last year. So things are moving in the right direction. It will continue to take time, as we have said before, but definitely in the right direction. A slight watch out here is the U.S. government shutdown, which means a few of our customers are not able to place orders right now. This is more of a timing effect, and because of lead times, it could impact Q2 next year if it's not resolved soon. And I want to make the usual reminder here that this is a heavily project-based business. So we actually shouldn't put too much weight at individual quarters, but more at the overall trend. And that trend is positive. We see healthy market and stable demand primarily in offshore energy and defense. And with that, we will move on to data center, which saw again a very strong performance in the quarter. I will hand it over to Martin to tell us more about that.

Thank you, Rickard. We closed another strong quarter, as Rickard said, with 39% organic sales growth. We saw strong performance across our businesses in the quarter. Over the last few years, we have focused on growing our service business, which continues to be the main growth driver, and this is both in Europe and in the US market. If we look at it sequentially, we are slightly down from the second quarter. The second half of the year is always slower, and especially days in December. In terms of EDTA, margin increased 2.3 percentage points to 16.9%. And the margin expansion we see in the quarter, and that has actually been throughout the year, is fully attributed to scale, with OPEX as a percentage of sales decreasing compared to the previous year. The gross margin is slightly down compared to previous year. If we move over to Outlook and starting with market, we have the same view as we communicated last quarter. We have continued strong demand. And this is especially among the larger players in the hyperscale and collocation segments or the cloud segment. But we also expect continued solid demand from the other market segments where we're active. We will continue to broaden our service offering. Earlier this year, we strengthened our US organization within installation of security systems, artificial solutions, and also wireless networks for indoor environments. We have also recently expanded in our investor update in September. Acquisitions will continue to be a strong focus going forward, and this is important to achieve our 2028 sales target. And finally, we'll continue to see the seasonal pattern where we have a slower second half, and especially the fourth quarter due to the fewer working days, as just mentioned. So this is a slide that we presented at our investor update in March, early this year. Looking at the sales breakdown from data center business area, we have a balanced business that we're actively working on to diversify even further. And in terms of our capital allocation service is, as we mentioned before, is the key focus. So this will continue to grow at a higher rate than our product sales. both organically and from acquisitions. Today, it's almost a 50-50 split between the service and the product sales, but the balance will then slowly shift towards more services. If we move on to look at customer sales breakdown, we have a very healthy sales split. Roughly 40% of our sales is towards the cloud segment, and this is the main growth segment, as just mentioned. When we look at independent marketing, over at least the next five years. And the remaining 60% of the sales in the business area is quite evenly split between enterprise data centers and other end markets. And this market is growing at mid single digits. And we have a strong focus to continue to grow this 60% of our business. It is lower growth rates in that segment, but it's very diversified and a very stable customer base. And then finally, on customer concentration, where we have our 10 top customers accounted for roughly half of our sales. And focus here is, of course, to continue to broaden and diversify our customer base. So all in all, the focus is, of course, to leverage on the strong market group that we have in the data center space, but equally important to continue to diversify the business in terms of offering and customer segments as well as the customer base. And with that, I hand over to Pernilla for the financial overview.