Welcome to the Hexatronic Q2 2024 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing pound key five 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 Henrik Larsson-Lyon. Please go ahead. Thank you, and welcome to this Q2 presentation. You will be listening to Pernilla Lindén, our CFO, and Martin Åberg, our Deputy CEO, and myself. So if we start to look at the agenda, we will go through Hexatronic at a glance, some Q2 highlights, the financial overview, the business overview, and then in the end, the summary and market outlook, and we finish up with a Q&A session. First, Hexatronic at a glance. So we operate in a fiber optic infrastructure market, and it's an expanding market, and some of the main drivers are it's a low number still of homes connected via fiber, and that's in most markets around the world. We also see the 5G deployments, that they drive the need for building out fiber optic networks. So 5G is totally dependent on fiber. We also see increasing use of data-intensive technologies that creates a growing need for fiber connectivity, companies and especially data centers. We also see a shift from copper-based solutions to fiber in harsh environment applications such as oil and gas, sensing, defense, and so on. On top of that, this is for fiber solutions. We see some significant government initiatives supporting long-term fiber expansions, and particularly in the U.S., U.K., and Germany, but most countries have this today. Then, a bit about sustainability becomes more and more important, and even more so with the implementation of CSRD. We have gathered our sustainability activities in three areas, so it's planet, ethics, and people. You also see our three of our priority targets in our 2030 roadmap. So it's climate neutral own operations, it's 100% equal pay, and also a minimum 40% gender equality among all employees. And this will also be more important from the business point of view, I would say. We see more customers requesting us to fulfill different sustainability topics. When we look at the market, this is also fiber solutions and in particular, fiber to the home. And this information is not new. We showed the same when we presented the Q1 report. And this graph shows the subscribers to fiber services versus the total number of homes in different countries. And you can see on the top that you have some quite big countries with still a very low penetration, like, Germany, U.K., Italy, also U.S. And then in the bottom, you see more mature countries, and for instance, Sweden is an example with 70% penetration when it comes to fiber. So it's still a lot to do in the fiber solutions market when it comes to fiber to the home. And on the right side, you see some of the government initiatives, and this is very much focused on rural areas with bad or no connectivity. And the biggest one is, of course, the BEAD program in the US, and we will come back on that. But UK and Germany, and as I said before, many countries have these initiatives to subsidize rural deployment of fiber. Good connectivity is a necessity in today's society. When we look at Hexatronic in total, you see that we have revenues after Q2 on rolling twelve-month basis of SEK 7.6 billion. We have had a yearly growth the last five years of sales in 34%. We have an EBITDA of SEK 0.9 billion, and that's also on rolling twelve months, and the rolling twelve months EBITDA margin on 11.3%, and we are roughly 2,000 employees in the group. We have three focus areas. So fiber solutions, that's the main part of the business today, 73% of total revenues, and this is in Q2. And then harsh environment represents 15%, so that's fiber solutions for harsh conditions. And then data center, which is 12% of revenues in Q2. Moving into some Q2 highlights. So, to summarize the Q2, we say we had continued to have a strong cash flow generation and modest recovery in fiber solutions. So we had a sequential net sales growth of 14%, and we ended with a bit more than SEK 2 billion of sales in Q2, and that was driven by a modest recovery in fiber solutions. And we continue to grow in the new focus areas, harsh environment and data center, with nice growth there. Versus Q2 last year, we had a negative growth of revenue of 10% and the negative organic growth of 18%, and that's primarily due to a softer market in fiber solutions. And Q2 last year was our record quarter in terms of sales and profitability, so it's a tough comparison. Harsh environment and data center grew 95% and 31% compared to Q2 last year, and that's a combination of organic and also M&A. EBITDA amounted to SEK 222 million, down from 405, the corresponding quarter last year, and the EBITDA margin amounted to 11%, and that's up from Q1, from 9.4 in Q1, but down from 17.9 in Q2 last year. Cash flow from operating activities of SEK 221 million, and that corresponds to a cash conversion of 115%. And interest-bearing net debt, excluding IFRS 16, we reduced that with SEK 100 million, compared to Q1, and we have now 1 or close to 2 billion in interest-bearing net debt. The leverage ratio increased from 1.7 to 1.9 during the quarter, and that's primarily due to a lower profitability in Q2 this year versus Q2 last year. We have an order book end of Q2, corresponding to roughly 2.5 months of sales, and that we estimate is a normalized level for our business, back to where we were pre-pandemic. Significant events. We made an announcement of two new people into the executive management. It's Jakob Skog, who is Head of Focus Area Harsh Environment, and Pernilla Grennfelt, who joined us as Head of Investor Relations. At the AGM, there were some new... In May, there were some new board members elected, but also first re-elected Erik Selin, Helena Holmgren, and Jaakko Kivinen, and elected Magnus Nicolin, Diego Anderson, Linda Hernström, and Åsa Sundberg as new members to the board. Magnus Nicolin was elected Chairman of the Board. We also press released that we were selected by Novos Fiber as a strategic partner in the US for their fiber to the home build-out, and they are going to buy our complete end-to-end solution for fiber to the home, including training and field support. We expect that agreement that runs over a period of three years to generate roughly SEK 400 million in revenue. Looking a little bit back, we have a strong five-year track record of net sales and earnings. So I already mentioned it, sales the last five years, a yearly growth of, on average, of 34%, and EBITDA growth of 48% per year over the last five years, and earnings per share up 55%. Then we move into financial highlight, and I will hand over to Pernilla Lindén, our CFO. Thank you, Henrik. Good, so we had total sales of approximately SEK 2 billion in Q2. That was an overall decline of 10% or a decline of SEK 234 million compared to an exceptionally strong quarter last year. Quarter over quarter, we had a growth of 14%, which was attributed to a slight recovery in the fiber solutions business, plus a continued good development in our new focus area, harsh environment and data center. We had an organic decline of 18%, primarily attributed to fiber solutions in Germany, UK, and the US. The markets are negatively affected by higher financing costs and higher cost of inflation, but as well as price pressure. But we had a strong organic growth in our focus area, harsh environment and data center. The organic decline was partly offset by acquisition-driven growth of 7%, and that is coming from the Fibron Cable in the harsh environment, US Net in the data center area, and ATG that was acquired in 2023. Overall, our focus area, harsh environment, grew in total with 95% and data center with 31%, while fiber solution had a decline of 23%. We had very little exchange rate differences in the quarter. We had a gross margin of 42%, 1.5 percentage points above last quarter, but 2.1 percentage points lower than Q2 last year. The deviation compared to last year is mainly due to lower manufacturing utilization, price pressure in the fiber solutions, and some mix effect. If we're looking at our operating expenses, they are in line, line with last year, but increased in absolute numbers compared to Q1, mainly, mainly due to increased activities, within our manufacturing facilities. For Q2 2024, we had an operating expense of 27.6% of sales, compared to 27.5% previous Q1 reporting. Overall, an EBITDA of SEK 222 million or 11%. Compared to an exceptionally high Q2 last year of 17.9%. But EBITDA margin is up from 9.4% in Q1 to 11% in Q2. We had another quarter of strong, operational cash flow. Cash flow from operating activities before changes of working capital of SEK 193 million. We had a small positive effect of working capital of SEK 28 million. During the quarter, we have continued to optimize our inventory, resulting in a small increase during the quarter. Accounts payable has increased, which is explained by the higher activity in our factories. That increase is partly offset by increased accounts receivable due to higher sales compared to the first quarter in 2024. Total cash flow from operating activities amounted to SEK 221 million, corresponding to a cash conversion of 115% in the quarter. Total CapEx investments in Q2 of SEK 95 million, or 4.7% of sales. If we're looking at it from a rolling 12-month perspective, we have SEK 359 million, or also 4.7% of sales. The investment in the quarter is mainly driven by capacity investment in U.S. and investment in the new manufacturing facility in Ogden for duct manufacturing. Cash flow related to acquisitions amounted to SEK -51, and relates to payment of an additional purchase price linked to the acquisition of Fibron Cable and exercise of the acquisition option linked to Qubix. During the quarter, cash flow from the group financing activities amounted to SEK 212. We have amortized our long-term loan, as well as amortized on our revolving credit facility of an amount of SEK 242, and amortized our lease liability of SEK 33. We have a subscription of shares related to employee stock option program of SEK 63. Overall, we continue to have a strong cash conversion due to stabilized working capital. Interest bearing net debt, which corresponds to net debt, excluding lease liabilities, amounted to SEK 2 billion at the end of the quarter, which is reduced with approximately SEK 100 million compared to last quarter. Interest bearing net debt in relation to pro forma EBITDA on a rolling twelve-month basis, a key ratio that reflects our existing bank covenant, has increased from 1.7 to 1.9 during the quarter. The reduction of interest bearing net debt could not cover for the lower profitability in the second quarter compared to Q2 in 2023. Including IFRS 16, it corresponds to an increase from 2 to 2.2 in the quarter. At the end of Q4, we had SEK 650 million cash and an unutilized backup facility of SEK 1.2 billion, which gives a liquidity of SEK 1.8 billion. We have a continued solid financial position. Thank you very much, Pernilla. Then we move into the business overview, and we'll start by looking at the performance in the three different business areas. So if we start with Fiber Solutions, we saw a moderate recovery in Q2, but still with a soft demand in the market. And you can see that in the quarter, we reduced sales 23% versus Q2 last year, which was, again, a record quarter. And year to date, we are down 28% in revenues. Talking about the business development of us, we saw the decline primarily driven by higher financing costs and also inflation. We continued to see price pressure in most markets we operate in. And as I said before, the Q2 last year was a record quarter, so it's a tough comparison. When we look at the market development for Fiber Solutions, it's again the higher cost of capital, inflation, and also high inventory levels that have led to a softer market for Fiber Solutions, and that's, I would say, in all markets we operate. We have seen some signs that inventory levels has started to normalize in the market, and we expect governmental subsidies to have an increased impact on the market going forward. And that, together with the combination of normalizing inventory levels, we expect to result in a gradual recovery in the of the market demand in the later part of this year. When we talk about harsh environment, we capitalize on strong trends within defense and energy, and you see in Q2, we were up 95%, and year to date, up 172%. The growth here is primarily driven by the acquisitions of Rochester Cable and Fibron Cable, and they are active in dynamic hybrid cables for applications, mainly in energy and defense. Looking at the market for harsh environment, we expect a strong demand in defense and energy market, and we expect that to remain for a long time, over several years. We also see expansion of existing sea-based infrastructure and great interest in renewable offshore energy production. Finally, data center. We saw an organic growth driven by hyperscale build outs, and you see the figures. We are up in the quarter 31% and year to date, 36%. Business development, net sales growth attributed to both organic and to the acquisition of US Net in the US. We see a strong growth in the product and service business in both our main geographical markets, the US and Europe. And regarding the market development, the accelerating implementation of AI requires significant processing power, and that is really driving the expansion of data centers globally. Then moving into geographies. So first, we talk about Europe, excluding Sweden, and that represents 45% of total revenues of the group. And, we saw a sales decline in Europe, and that was partly mitigated by the expansion in new focus areas, and then, I mean, harsh environment and data center. Regarding the business development in Europe, excluding Sweden, the sales decline compared to corresponding period last year, that's due to the softer development of the fiber solutions market, and it was primarily in Germany and the UK. And as we mentioned before, a record strong quarter last year. Sequentially, we had a growth of 17%. We saw a continued solid performance within harsh environment, and that's primarily driven by Fibron Cables, and the data center activity continued to develop well. Looking at the market development, again, for fiber solutions, the higher cost of capital, inflation, and inventory levels has led to softer market for fiber solutions in primarily Germany and UK. But we also see signs that inventory levels have started to normalize in the market. And both the new focus areas continues to show strong demand, underpinned by defense and energy markets, accelerating implementation of AI. So strong market drivers there. Then if we look at North America, that represents 37% of our total revenue. We saw continued initiatives to position our company in long-term growth in North America. I'll come back on that. We saw a decline of 9%, and that's mainly due to decrease of sales of duct, and that's Blue Diamond Industries in the US. And that was partly mitigated by the acquisition-driven growth from harsh environment and FTTH system sales in Canada. Our FTTH system sales in Hexatronic US, slightly behind Q2 last year, but we had a record high Q2 last year for HxUS. We continued the investments in the new factory in Ogden, Utah, for Blue Diamond Industries, and that's to expand our addressable market for ducts to include the western part of the US. We expect that the plant will be ready for production here in Q3 this year. Market development, again, is the higher cost of capital inflation and high inventory levels that has led to a softer US market, and this is primarily for duct and FTTH. And the same here, we see signs that inventory levels in the market is normalizing. We expect to see a small effect of the BEAD program in the later part of this year. Currently, there are 17 states that are now fully BEAD approved, and that means they get their funding from the federal government. Looking into Sweden, that represents 9% of total revenue. We saw a softer FTTH market that impacted the sales negatively. We had a decrease of 6%, and that's primarily driven by fiber to the home market. And it's the same effect here on the market, the higher cost of capital and inflation that affects the Swedish market. If we then move into APAC, and that represents 9% of our total revenue, we had a strong performance in APAC, driven by primarily FTTH projects. We had a growth of 17%, and that is primarily explained by delivery of a couple of FTTH projects in the Pacific area. And, the same effect here on the market development is the cost of capital and inflation that has led to a softer market for FTTH operators. So then moving to a summary and a market outlook. To summarize what we have just talked about, we had a 6% sequential net sales growth of 14% and with revenues of a little bit more than SEK 2 billion, and that was driven by a modest recovery in fiber solutions and continued growth in the new focus areas, harsh environments and data center. We saw a continued price pressure in fiber solutions, and we expect that to remain during 2024. We signed a new contract with Novos Fiber on for our FTTH system, the complete solution in the US, and that's worth around SEK 400 million over three years. Cash flow from operating activities of SEK 221 million, corresponding to a cash conversion of 115%. Profitability improved in Q2 compared with the previous quarter. EBITDA margin of 11% in Q2, compared to 9.4% in Q1. We continue to maintain a strong financial position with a leverage ratio of 1.9 at the end of June. Looking at the market outlook, so we expect a strong market within harsh environment and data center for 2024, and for several years to come. As we talked about before, it's fueled by investments in defense, energy, and AI. In fiber solutions, we expect the market to remain weak in the third quarter, and then gradually increase in demand towards the end of this year. As I just talked about, the normalizing of inventory levels and the BEAD program in the US are factors that are expected to contribute to a gradual market recovery. And we expect the market to show some seasonal variations, and that means lower activity in the market in Q4 and Q1. And this is what we saw before the pandemic period, that was very normal then, that we had the seasonality effect on our revenues. So that was our presentation, and now we have some time for questions and answers. 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. The next question comes from Max Bacco from SEB. Please go ahead. Yes, good morning. This is Max Bacco from SEB. As said, a few questions from my side. First, well done in the quarter, given the circumstances. So perhaps if we could talk a bit about the outlook. I mean, it's the same as it was in Q1, although this time you highlight the seasonal variations, stating that Q4 is a slower quarter. But trying to understand what is the net impact from improved underlying market activity in Q4, but the slower seasonality, how should we interpret that? If you could perhaps provide some clarity. You mean the effect in Q2, Max, or? No, in Q4. I mean, your guidance or your market outlook with improved market activity in Q4? Uh, yeah. but at the same time, slower seasonality. Yeah. I mean, we don't guide on our own performance. No. What we say is that we see, we expect the market to gradually improve in the end of the year. Mm-hmm. But at the same time, we believe we are back with the seasonality effect. And, if you look at Q4, it's more or less only two and a half months, Yeah ... of business, and very few customers want to have big inventories in the end of the year. Mm. That's, that's what we can say. Okay. So when you say that you expect the market to improve at the end of the year, that's adjusted then for the seasonality, basically? No, I mean, what we say is, we believe the market will show some higher demand in the later part of the year, but- Despite the seasonality? On top of that, I would say we probably see some seasonality effect of the market, as I just described. Okay, understood. When we look at the seasonality historically, if we look between 2017 and 2019, so before the pandemic, I mean, if we look at the top line, of course, a bit impacted by the timing and acquisitions and so on, but Q3 compared to Q2 on average has been 2% lower on sales, whereas Q4 actually has been 1% higher on sales compared to Q3. What is the magnitude of the seasonality that you expect this year? Yeah. Is it possible to quantify that? Yeah. No, and I, I think you have to deduct the acquisition part of it. Yeah, okay. So we have seen more than a 1% effect in seasonality, I would say. Mm-hmm. Yeah. Mm, understood. Then on Europe, I mean, quite nice, quite nice uptick sequentially in sales, up 17% compared to Q1. Was that only due to, I mean, the two new focus areas, but... or did you also see some improvement in Germany and UK in the fiber solution side of business? I mean, clearly, Fibron is a big contributor to that in Q2. Mm. But I would say we didn't see a large uptick in fiber solutions business in Germany and, and UK. Still, still quite soft. Then we have some markets that have developed well. I think we are pretty satisfied with the development in, in Sweden, given the market conditions. Right. and also Finland. Yeah. Okay, understood. Two more questions. Max, could we- Yes ... say like, if, that you get one more question- Yeah, yeah, yeah ... and then we should, and then you have to come back. Absolutely. Yeah. Yeah. So, I think we have discussed this before, but it looks more likely that Trump will take over at the White House in the U.S. ... I mean, what's your view on the potential impact from that on the BEAD program? Do you see any risk to it, that we might have a change of president in the U.S.? Yeah, and we have talked about this before, and, you know, when we investigate this, I would say the, the BEAD program was part of the IIJA, Infrastructure Investment and Jobs Act. That was a bipartisan bill. So I mean, the Democrats and Republicans agreed on it. It was written into law. And, now 17 states are fully BEAD approved, meaning that the money is distributed to the states. So I think it will be very difficult to stop or reverse this. Okay. Yeah. Understood. That was the final question from my side. Thank you very much for taking the time. Thank you. The next question comes from Adrian Gilani, from ABG Sundal Collier. Please go ahead. Yes, hello. A few questions from my end as well. First of all, the margin after raw material costs, it was up quite significantly compared to last quarter, and perhaps there are some mix effects in that, but it would also indicate that the pricing situation on fiber has become a bit better. So would you agree with that, or would you say there's still just as much or even more price pressure in the market? I think we have seen the same, more or less, globally, more or less, the same price pressure in Q2 as in Q1. A little bit more price pressure on the duct side in the U.S., but overall, no improvement. Okay, that's clear. And then also with the Utah factory now being mostly completed, does that mean we are also sort of seeing the full effect on the cost base from that plant already in the Q2 numbers? Or will the cost base have to grow a bit from here based on the Utah factory ramping up? I mean, we have a cost effect. We have some people already employed there, but when we start production, of course, we will have more operating costs in the Utah plant. We will start up the plant with a limited production, a gradual ramp-up, depending on the market demand and how successful we are in winning new customers in the West. But for sure, we will have more OpEx, so to say, when we start up, when it comes closer to the starting up of the plant. Okay, understood. And then for my final one, a bit of a detail-oriented question. In the first half of the year, you had a tax rate above 30% of pre-tax profit, both in Q1 and Q2. So I guess any color on why that has been so much higher than historical levels, and if that's something you expect to reverse in the second half of the year? So the reason for that is that we have interest that is not deductible. That's the reasoning for it. And to change that structure will take a little bit longer time, so it won't change in the second part of the year. Okay. So should we assume, sort of 30+% for how long? For a few more years, or? I can't give you any outlook on that one. We are working on it to reduce it, but that means that we need to change the setup. Okay. In that case, that was all for me, so thank you. Thank you. The next question comes from Jakob Edler, from Danske Bank. Please go ahead. Hi, thanks for taking my questions. I think most of mine have already been answered, but one follow-up, just on the price pressure there in Blue Diamond Industries. Did you say that it got worse in Q2 relative to Q1? And how do you think we should expect it to kind of, you know, progress here during the year? Should we expect pretty similar levels in terms of price pressure? Yeah, I think so. We believe that we saw an increased price pressure in the duct business in the U.S.- Yeah. We expect that to remain during the year. I think we need to see, you know, a clear uptick in market demand before we can see some easing of that. So our expectation is that it continues throughout the year. Perfect. And then just a question on the harsh environments, obviously, a strong performance, but it's up 15% sequentially on top of the 95% growth year-over-year. Is there any, you know, seasonality or any bigger projects that you booked in this quarter that we, for instance, won't see in Q3 and Q4, that we should be aware of? So, I mean, you're right. I mean, what we see is this both on the harsh environment, strong organic sales and strong- Yeah - M&A-driven sales. But the... You should expect some fluctuations over between the quarters. Year over year- Yeah ... less so, but you should- Yeah Expect it to be a bit, a bit volatile quarter-over-quarter. Perfect. And then I maybe just have a last question from my side. The Utah plant is now coming to its end here in Q3. Should we expect CapEx to come down a bit in Q3 and Q4, maybe more closer to the Q1 level? It was a bit higher in Q2 relative to Q1. Is that a fair assessment, or how should it be said regarding CapEx? ...... So we will still see CapEx investments for Utah in both Q3 and maybe also running over a little bit in Q4. Okay, perfect. I think that was all my questions. Thank you so much. Thank you. The next question comes from Stefan Wård from Pareto Securities. Please go ahead. Oh, I'd like to continue a little bit on the market situation, and if you could help us differentiate between volume and price when you have this sort of quite cautious outlook. I can give sort of my view on this. I think that it looks like the market is actually improving quite significantly during the second quarter compared to the start of the year, but that is mostly on sales orders and so sort of on volume while price is still a headwind. And I find support for that argument from your takes, where you write that you have increased your capacity in your production facilities. Is that the correct picture, or would you disagree with that? No, but we have a better utilization of our plants in Q2 versus Q1. And I think you should remember also that we have been in a process of taking down our inventories. We have now reached the level where we have taken the major part of that inventory reduction, and that means also that we are increasing our production. So that's a positive effect. Your question was more also on price. Yeah, I would say we continue to see a price pressure as we saw in Q1. I mentioned before, more price pressure on the duct business in the U.S. in Q2 versus Q1. And I would say we also started to see the seasonality effect, that Q1 is a little bit weaker, and then construction work starts and takes off more in Q2. I would say that, that's a summary of the situation. Okay, to follow up on that, would you—what was your view on inventory levels at your clients' side? Have they come down enough, so if they are building out or rolling out new, new networks, are they doing that from new orders, or is it from inventory? What's your view on, on the inventory level? I would say in general with our customers, and you might remember that we have not seen inventory levels as such a big problem as many of our competitors have reported. But I would say with our clients, inventory levels are pretty much normalized. That's what we have seen in Q2. So normal inventory level, continued price pressure, and gradually improving volumes. Would that be correct? In the later part of the year, yeah. Okay, yeah, that's all for me. Thanks. Thank you. The next question comes from Fredrik Nilsson from Redeye. Please go ahead. Thank you. Hi, one question from me. Considering that the plant in Utah will be complete in the next quarter, could you elaborate a bit on your view for duct in the western part of the U.S. in particular? I mean, it's a significant market that we have not been able to supply previously, so, and there are less competitors there. The main one, I would say, is Dura-Line. That is clearly present there. So it will be interesting to see the development there, and we have a number of customers already that are national and that have showed great interest in our western plant. Then, as I mentioned, we will start that up gradually, initially in a small scale, training people and so on, and hopefully then increase production when we see the demand picking up. Okay. But the overall picture regarding your view of the market is the same for all of the U.S. Is that correct? Yeah, I would say so. Okay. Thank you very much. That's all from me. Thank you. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments. So, we have one question, and the question is: How much of the growth in harsh environment was organically driven in the quarter and year to date? And the same question on the data center segment. So if we look at those two segments, starting with the harsh environment, we had a year-over-year growth of 95%, roughly, and most of that was attributed to M&A driven growth, from, from Fibron, but also organic growth. Looking on the data center side, it was roughly 31%, and that was more evenly distributed, between the organic and M&A-driven growth. Good. Thank you very much, Martin. We don't have any more questions? Then I think we take and wrap up this conference call. Thank you very much for showing interest, good questions, and we wish you a very nice summer. Thank you.