Hexatronic Group AB (publ)

Good morning everyone and welcome to this Q4 earnings call from a cold and wintry Stockholm. I'm Rikke Fröberg, CEO of Hexatronic and I have with me as usual Martin Åberg, our Deputy CEO and Pernilla Lindén, Group CFO. Also with us today for the first time is Patrik Johansson, our brand new Head of Investor Relations. If I summarize the quarter in one sentence, I think I would say we are delivering on the plan that we have laid out. Our net sales were 1.8 billion SEC for an organic growth of 10% in the quarter. And this also meant we swung back to 3% organic growth for the full year. Adjusted EBITDA of 133 million SEC or 7.2% margin. And we also see that the important strategic shift that we have been talking about for a while now is continuing. Our fast growing data center and harsh environment businesses now account for over 50% of group adjusted profits. Fiber Solutions, which we know operates in a challenging market environment, saw an organic sales decline of 1% and adjusted a beta margin of 5.2%. Here we're executing and actually expanding the performance improvement program we launched a few months ago, and we will come back with some more details on this. Data Center saw another outstanding quarter with 62% organic growth and, again, strong margins. We also saw strong momentum for a harsh environment business area with 15% organic growth and an EBITDA margin that was meaningfully improved over last year. Cash flow was an absolute highlight. You know probably that Pernilla and I have been talking about this as an area of focus and improvement, and we were very pleased to see that the efforts are paying off with an operating cash flow of almost 350 million SEK. And in fact, this allowed us to lower our adjusted net debt ratio to 1.9, despite making an acquisition in the quarter. And a look at the key events in the quarter. So number one, the performance improvement program launched in September has been rather focused on our European footprint because of the headwinds in that market. We have now also decided to make some adjustments to our American operations and are downsizing one of our factories there to better match the current demand levels. Number two, we're very excited to welcome Communication Zone to the Hexatronic Group as the latest addition to our data center business area. And thirdly, we had some large shipments of submarine cable in the quarter. As you are probably aware, we see this as an interesting and attractive segment that we want to grow in. And then finally, after the end of the quarter, we have made some changes to the leadership structure within Fibre Solutions. Now, the diversification journey that we're on continues. I think you've heard this and probably seen this slide a number of times now. It's an overview of the new business areas and segment reporting that we launched in 2025. And it's reassuring that every time we update this, we see an increased importance of the two fast-growing businesses, harsh environment and data centers. That only a year or two ago were quite small, but today in the fourth quarter accounted for almost 40% of our sales and 60% of adjusted profits. And while fiber solutions continues obviously to be very important for us, Hexatronic today is so much more. Now moving into the business areas and starting with fiber solutions. It was a quarter in line with expectations. We do not see any significant change, nor better nor worse, in the market conditions. There's continued softness in the fiber to the whole market, which impacts our micro duct volumes. However, as we've also talked about, there are offsetting growth opportunities. And as noted in this quarter, we saw unusually high shipments of submarine cable to the tune of about 50 million sec higher than in Q3. And this submarine cable, this is a business that it often has this type of lumpiness with big orders in one quarter. But I would also say the general and the longer term outlook here is quite favorable. but there might be some ups and downs in the quarters. You can also see that currency has become a significant headwind to our top line with almost 10 percentage point impact in the quarter here for fiber solutions. It's not unique to fiber solutions. There's a similar impact on the other business areas. And I think also it's not unique to Hexatronic, but it's an important factor mostly on the top line. And it also means while the Minus 10% top line here year on year for the quarter looks quite drastic. The underlying organic number is minus 1% or relatively flat. Adjusted EBITDA was on a similar level to the third quarter, which was expected. As we know, fourth quarter and first quarter have lower volumes, which obviously impacts EBITDA. But also here, there was a bit of help from those submarine shipments in the quarter. performance improvement program. We are on track and expect to largely complete the activities of the cost savings during quarter one. In fact, we expanded the program. So it also now includes the downsizing of the site in Clinton in South Carolina where we simply had more capacity than needed. So in essence, We're cutting the size and capacity of the site to give us a better utilization and indirect cost coverage. The outlook, I think, is consistent with what we have said before. We expect the European market to remain rather subdued during 2026. But we also expect the North American business gradually coming back to growth. This is partly affected by the BEAT program, which we now see gaining momentum and will start to have some market impact as of the second half, is what we are estimating at this point. We also note there was a recent European Commission issue of the Digital Networks Act, which, among other things, called for a switch out date for copper for all member states. This would obviously be positive for fiber build-out rate, but it's not immediate. It's more of a long-term supporter. Seasonality is expected to show, to follow the historical pattern with lower activity in the fourth and the first quarter, and possibly some additional impact in first quarter if this unusually cold weather pattern remains, particularly in North America. And while there is softness in fiber to the home, there are, as noted, growth opportunities in the overall fiber infrastructure, notably transport network and submarine cable. We see geopolitical trends as well as data center build out as driving these areas. And the cost savings of the performance improvement program are now with the expansion expected at about 120 million SEC. and still essentially full run rate by the end of the first quarter. Moving over to harsh environment. And here we're very pleased with the performance in the quarter. It's the second consecutive quarter of 15% organic growth. And again, it is ROV and defense spending driving the demand. We saw an adjusted EBITDA margin of 11.4%. This was significantly higher than the same quarter last year, but I think that was a rather weak comparable. So as I've said before, we should also here look more at the long-term trend, and it is favorable, with a fully adjusted EBITDA margin increase of about one percentage point. So things are slowly but steadily moving in the right direction on the margin. We have a lot of work still to do. But we also have quite a bit of runway if we get it right, as this is a highly differentiated business. And as always, it is also a project-based business, so individual quarters will show some variability, and we should look more at the year-on-year trends. Outlook longer term is favorable, and we continue to work on productivity and profitability measures, particularly in Rochester Cable. And we also, in this business area, have still an ambition to make acquisitions, particularly within connectivity. And with that, we're moving over to the data center, which had another stellar performance. And I will hand it over here to Martin Åberg to talk more about that.

Thank you, Rickard. The fourth quarter for the data center business era came in strong on both sales and profitability. our businesses performed well which resulted in an organic sales growth of 62 percent in the quarter and it is mainly the service businesses that contributed to the sales growth and geographically it was a strong development in both the European market as well as in the North American market we saw an EBITDA margin of 15.3 percent and this compares to 12.7 percent last year And it was a strong end of the year with installation activities that continued throughout the December month. Moving over to the market outlook that remains strong. The market is expected to be driven by the hyperscalers that continues to report high capex and also very ambitious plans moving forward. If we look at our business mix, the cloud segment is our main customer segment accounting for roughly 40% of sales but we also have a strong presence in the data center enterprise market, as well as towards other adjacent segments, which is also outside the data center market. Looking at the long-term trend, we expect our addressable market to grow at approximately 10% per year. For our data center activities 2025, the organic sales growth was exceptional. It was at 37%. And going forward, we expect a sales growth will be more in line with our addressable market. The growth strategy remains with an ambitious M&A agenda and also an ambition to continue to broaden our service offering. End of November last year we acquired Communications Zone as Rikard said, which is an installation and service company that is based in Chicago. The company was acquired from the two founders and they will remain in the business and continue to develop our US data center activities together with the existing data center team we have in the US market. And the acquisition is in line with our M&A strategy, which is to grow our data center activities in the US market, specifically to expand our service business, which I will come back to on the next slide. But let us first start with some transaction highlights. The enterprise value was just over 20 million US plus a potential earn up of approximately three and a half million US dollars. And this translates to an EBITDA multiple of six times if the full earn up is achieved. Transaction was structured as a share deal, but in the US when you acquire an S corporation, it can be structured as an asset field for tax purposes. And this gives us substantial tax benefits. So the net present value of those tax benefits amounted to close to 3 million US dollar, which brings the effective multiple downtime maximum of 5.3 times if the full earner is achieved. If we then move over to the strategic rationale, the acquisition gives us a strong presence in the Midwest region and that covers states like Illinois and Chicago, Illinois and Ohio actually. Most of the business is in the Midwest region, but it also strengthened our position through a few national accounts. This provides an interesting growth opportunity for us going forward. Additionally, we also broaden our services for this acquisition. And then over to the financial impact of the acquisition. Performant, it increases our sales with 13%. Margins, if we would have owned communications during 2025 would have increased from 17.9 to 18.3%. And lastly, the acquisition was financed with cash and existing debit facilities. And moving over to the strategic rationale of the acquisition. Below is what we presented a year ago when we introduced the three business areas. The outspoken ambition was to broaden our service offering by acquisitions. The background to that is that our existing customers, they have several adjacent service and installation needs, like installation of audio-visual solutions, indoor solutions, and also security solutions, like cameras and card readers. And looking at the offering of communications, they provide all of these services today. Additionally, they also make those services towards other segments, and this provides an important segment diversification, even though communications' main segment is the data center market. All in all, it's an acquisition that very well met or meet our growth strategy. And with that, I would like to hand over to Pernilla to summarize financials for the quarter.

Thank you, Martin. So, total we had a net sales of 1.8 billion in Q4. That was an overall growth of 1%. Organically, we had a growth of 10% and growth was driven by strong performance in both harsh environment and data center, while the fiber solutions organically had a decline of 1%. We had 1% acquisition driven growth from our recent acquisition from communication zone within our data center business. And as Rick had said, we have a negative effect on exchange rate to this quarter of 9%. It's more or less more currencies that has weakened compared to the SIC. We had an adjusted gross margin at 37.5% compared to 41.4 prior year. And gross margin that was decreased due to continued softness in the FDTH market price pressure and the typical seasonality, as well as the low capacity utilization and fixed cost coverage within factories within fiber solutions. As well as a small mix effect between our business areas. Adjusted EBITDA of 133 million SEK or an EBITDA margin of 7.2% compared to 10% last year. And the margin was negatively impacted by price pressure and lower sales in the FTTH business within our private solutions business, resulting in a reduced capacity utilization within our factories, which was then partly offset by strong development within our data center harsh environment. Overall, an EBITDA of 37 million SEK or 2%. And that was affected by one time costs of 97 million SEK. 28 million SEK related to the performance improvement program launched in September, mainly related to Fiber Solutions Europe. And 67 million SEK related to the extended performance improvement program for North America of 67 million. Net financial items of minus 35 million, that is mainly related to interest. And tax rate is mainly affected by non-recurring items related to the performance improvement program. So the performance improvement program that we launched in September was focused on European footprint because of the market headwinds in the markets. The implementation of the plan is well underway, and for the fourth quarter we added 28 million as one-time cost, totalling to 230 million, which is in line with earlier communicated one-time costs. Savings of this part is 110 million SEK for the full year, and a full run rate impact is expected to be achieved in Q1 2026, and that is also according to plan. The cash one-time costs is related to severance, facility costs, transition costs and legal costs. Non-cash items is mainly related to write-down and tangible assets and inventory. As Rickard said, we have now also decided to expand the performance improvement program and make some adjustments to our American operations. The one-time cost for this part is planned to be 67 million and is related to a write-down of fixed assets and a cost for downsize of the operations. 9 million of the 67 is related to cash. And the yearly saving is estimated to be 10 million SEB. So overall, the EMEA and North American Performance Improvement Program will give 120 million in savings and will have full run rate by end year. Q1 2026 and a cash payback in total of 1.1 years. If we then look at fiber solutions, so total net sales for fiber solutions of 1.2 billion SEK in Q4 with an overall decline of 10%, but organic decline of 1%. Decline due to weaker demand of FTTH equipment and price pressure. Major shortfall is within our Microduct business, and that is partly offset by a large submarine cable delivery in the quarter. Europe declined with 11%. That was related to mainly Germany and UK, and that was partly offset by Sweden due to the large submarine cable delivery. North America declined with 60%. That is mainly related to Canada, with the slowdown in the build-out of FTTH. But the conduit business in North America saw good volume growth, but low pricing, where year over year, there is still a meaningful price decline. APAC had a growth of 11% due to increased product deliveries. We had an adjusted EBITDA of $61 million or 5.2%. And profitability was hurt by the lower sales volumes, mainly within micro ducts, and then consequently low capacity utilization, and then the continued price pressure. And during the quarter, we had low CapEx investments in the quarter of 10 million or 0.9% of sales, which is mainly related to maintenance. If we look at our harsh environment business, we had a total net sales for harsh environment of 310 million SEK or a growth of 5%, of which organic growth of 15%. Growth is mainly driven by the defense and energy sector. And as previously communicated, the companies within harsh environment have an international customer base and a majority of revenues from larger projects. which means that sales per geography can fluctuate between quarters. Adjusted EBITDA at 35 million SEG and a margin of 11.4. We continue to see positive effects from the improved production efficiency in Rochester cable. COPEX investments in the quarter of 15 million or 4.8% of sales mainly related to production and efficiency improvements in Rochester cable. Data center. Total net sales for data center of 369 million SEK in Q4, with an overall growth of 59% and organic growth of 62%. Strong development for all units, especially the service business in Europe and North America, and acquired growth from a recent acquisition communication. Solid EBITDA margin of 15.3%. and CAPEX investment in the quarter of 2.2 million or 0.6% of sales. Cash flow from operating activities before changes in working capital of 148 million SEK. Positive effects on working capital of 200 million in the quarter. 144 is related to inventory, where we have actively worked to reduce the levels for a period of time. 94 million SEK is related to efficient accounts receivable collection, partly offset by decreased accounts payable. Cash flow from operating activities of 349 million SEK or 235%. Overall, capex investments of 27 million or 1.5% of sales. 164 million is related to the acquisition of communication zone and group financing activities related to amortization and lease liabilities. Net debt, which corresponds to net tax excluding lease liabilities, amounted to 1.6 billion SEK at the end of the quarter, which is a decrease of 124 million SEK compared to last quarter, due to positive cash flow and positive FX effect of 27 million SEK, partly of partly offset by a rolling 12 adjusted EBITDA, leading to a net debt in relation to pro forma adjusted EBITDA on a rolling 12-month basis of 1.9 during the quarter. Given the strong operational cash flow in the quarter, we were able to reduce our interest-bearing net debt. However, looking forward, we know that working capital has a seasonality effect which might elevate the leverage ranges somewhat during the next couple of quarters. On top of that, we have an earn-out connected to prior acquisitions that will be paid out in Q2 2026, which will further increase the net debt. After that, we expect the leverage to come down. At the end of Q4, we had 661 million of cash, And 1.1 of unutilized backup facilities, which gives us a liquidity of 1.8 billion. So we have a continued solid financial position.

Okay, I think it's time for me to sum things up. Again, in the quarter, we showed that we are delivering on the plan. Organic growth was 10% and adjusted EBITDA margin 7.2% in line with expectations. We see continued market challenges in fiber solutions where our performance improvement program is on track and expanded. Data center had another impressive quarter with phenomenal growth and also harsh environment, strong growth and margin compared to last year. Cash flow was excellent, allowing us to reduce the net debt and slightly reduce our leverage. That was the quarter. If we move on then to talk a little bit about the full year as we're wrapping up on 2025, let's take a look at that and also how we're trending towards the targets that we set earlier this year. And as you know, these targets, we decided to set them by business area. So starting with Fibre Solutions, Of course, we know that's been a tough year, but we are taking resolute actions to adjust the cost base and also pivot the business towards growth beyond fiber to the home. The main headwind here has been microdug volumes, but we see interesting growth opportunities in other product areas like submarine cables. We know we have more work to do for sure, but we have confidence in our plan to turn things around, and we will start to see real effect of the cost savings in coming quarters. For horse environment, the full year, we had a very respectable organic growth of 11%. Still a ways to go to the 2 billion SEC revenue target, but with double-digit organic growth and an ambition for acquisitions, I think we're on our way. Adjusted EBITDA margin improved by almost one percentage point. And it all came from the improvements in Rochester Cable, where we have been very focused on operational efficiency. And last, but certainly not least, Data Center has continued to overdeliver with the latest acquisition of communication zone. We're now at a run rate of about 1.5 billion sec, well on track to the growth we're targeting, and with margins that are actually exceeding the target. So all in all, 2025 has been an intense year with challenges as well as successes. We feel that we have a credible plan and now it's all about continuing to deliver on that plan. I hope you will join us on that journey in 2026 and beyond. Thank you. I think we open with that for questions.

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. The next question comes from Max Baco from Seb. Please go ahead.

Thank you, and hello, Rickard, Martin, and Pernilla. Well done in the quarter. So two questions from my side then, perhaps starting with the data center segment. I mean, you were very clear during the presentation that you expect continued growth momentum during 2026, although more in line with perhaps the underlying market growth. But looking at the profitability, I think you came in just shy of 18% looking at full year 2025, which is, as you said, above your target of 15%. So looking at 2026, when you say continued growth momentum, is that also relevant for earnings? Or do you see perhaps that profitability will come down from the very high level seen in 2025?

Thank you, Max. So as you rightly mentioned, I mean, 2025 was a very strong year and we expect a more normalized sales growth for 2026. In terms of earnings, I mean, we are in a very good position. We acquired a company that has a similar profitability level, but we're also taking on some investments in the organization. So we don't guide on the profitability, but we're not saying that we will see that we have a further margin expansion. We keep to what we have guided before, long term that we would be at 15%, but a strong outlook for 2016.

Okay, understood. And then the second question relating to the harsh environment segment. You mentioned in connection with the Q3 report that depending on the length of the government lockdowns in the US, you might have some impact on water intake and then on sales from Q2 2026. Do you have any update on that?

We have seen Some impact of that, Max. Also, as I mentioned, the cold weather in the US has had some impact in January, but we still have, there's still a couple of months to go in the quarters. I think it's too early to say whether it will impact the quarter or not.

Okay, but for Q2 specifically, 2026, do you foresee any impact extending to q2 as well from the government lockdown or is it more a q1 thing i think it's more a q1 thing okay okay understood uh okay that was all from me at the moment i'll jump back thank you thank you max the next question comes from frederick nielsen from red eye please go ahead

thank you hi rickard martin and panilla i want to start with with the working capital you had a solid performance here in the quarter and i noticed that you mentioned seasonality but if we're looking at underlying seasonal adjusted numbers do you see potential to improve the working capital relative to sales further and i will take a first step and then i will hand over to pernilla for more color but

There's always opportunities to further improve and we're not stopping here, but I think we have done all the lower hanging fruit and we've done the, you know, it gets progressively more difficult from here. And then, yes, there is a bit of seasonality as well. We want to make sure that we are ready for an expected seasonal ramp up when you get to the summer half.

I think you have covered it all. Normally we build some stock for managing the fiber solutions higher sales in Q3 and Q4 and that you can expect also this year.

Okay, great. And regarding the expected improvement in fiber solutions in the U.S., Does that include the duct and conduit that's unrelated to your fiber to the home offering, if you understand what I mean?

No, can you clarify that?

I mean, you sell to companies building power lines, for example.

In the conduit business, we have some utility business, but it's a minority of that business and it's not a major impact. I will say, if we look at the conduit business overall, we continue to see volume growth. But as Pernilla mentioned, year over year, it's price decline that is squeezing there.

Okay, so you're mainly talking about the fiber to the home then, I guess, in that expectations of improvements?

Well, that is, yes. The B program is focused on fiber to the home, and this is where we see a robust market that we expect we will start seeing some growth gradually over the year.

Great. Thanks. That's all for me.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.

So we have one written question here. So one, taking a step back, what makes you categorize sales in data center versus fiber solution and harsh environment into data centers? Sorry, data center, fiber solution. Have there been any classification in sales between fiber solutions and harsh environment into data centers? And then three, top line has been performing very strongly in data centers with organic growth of 62%. Should we expect a similar organic growth rate in 2026?

Okay, so the background why we categorize this into data centers, fiber solutions, harsh environment. That is basically how we are organized today in the business. So mirroring that. in terms of classification in sales between fiber solutions and harsh environment into data center. That has not been anything, basically. And top line in performing very strongly in data centers, organic growth of 62% in Q4. Should we expect similar organic growth rate in 26? For the full year, we had 37% organic sales growth. And as we said before, I mean, we expect it to be more towards addressable market that we see. So around 10% is addressable market, long term.

And on the question on how we classify, it's mostly by the customer that we classify, not by the product. And as always, there's no change to the classification. But of course, there are some customers that might be slightly present in both. So especially when we sell through distribution, I think it's largely by customer segment.

So apart from BEAD, are there other drivers of the expected return to growth in cyber solution North America?

We want to take market share of course. We talked about some of our main customers for different reasons placing much lower orders in 2025. That was one of the reasons why We had a soft year in North America, and we see now at least one of them is beginning to ramp up their build-out rate again.

Two questions on the fiber solutions. What positive impact was realized in Q4 from the cost saving program and should we expect a revenue decline quarter on quarter in Q1 given the large submarine cable sale in Q4?

So let me address them this way. We don't disclose the cost savings in the quarter. It was It was rather insignificant. There was some, but it was rather insignificant in Q4. It will start to be significant in Q1, but it will not be the full amount in Q1. It will be full run rates as of the end of Q1. And then revenue decline. I think we expect a similar seasonality. in Q1 and Q4 is what we're typically seeing. And then I did talk about the lumpiness character of the submarine cable business. And in Q4, it was about 50 million higher than what we will expect for the submarine business in Q3 or Q1. Okay. I think that was the questions. Thank you everyone for listening in and thank you for your interest and for your questions. Have a good day.