Hexatronic Group Stock

Welcome to the Hexatronic Q2 2026 Report Presentation. [Operator Instructions]

Now I will hand the conference over to CEO, Rikard Froberg. Please go ahead.

Good morning, everyone, and welcome to the second quarter earnings call for Hexatronic. I'm Rikard Froberg, Group CEO. And with me, as usual, I have Martin Aberg, Deputy CEO and Head of Data Center Business Area; as well as our CFO, Pernilla Linden; and Patrik Johannesson, Head of Investor Relations.

And we have a strong quarter to present today. Net sales were SEK 2.2 billion which is 18% growth, of which 11% organic. And our adjusted EBITA was right on 10% margin, SEK 224 million, which is a 33% increase year-on-year. We will talk about adjusted EBITA in this presentation, but I just want to mention that there are no adjustments in the quarter. This is for consistency with previous quarters. So what you see is what you get.

Also, the strategic business shift continues, where we see that, in particular, the data center business continues to play an ever-increasing role at Hexatronic. As of now, Data Center and Harsh Environment business representing about 40% of net sales and about half of the adjusted EBITA. But also on a geographical note, there is a shift in the business that's going on.

The North American business is growing rapidly, and it now accounts for 44% of the total, and it was 34% a year ago. We saw, in particular, strong organic growth in the Data Center business, which grew at 27% organically and Fiber Solutions, which was 11% organic as it was the whole group.

And for Fiber Solutions, in particular, was very pleasing to see that we turned the corner, we saw a 56% improvement in the EBITA level year-on-year as well as the third consecutive quarter of sequentially improving EBITA.

Cash flow was strong at just over SEK 180 million with 84% cash conversion. And this is despite a seasonality where we're typically more busy in the summer half. So normally, there's a bit of building inventory and accounts receivable. But this has been a focus for the organization, and we're very pleased that we saw a strong cash flow also in this quarter. And because of that and some other factors, the net debt as well as the financial gearing was reduced in the quarter.

Looking at the quarterly results a little bit more in the perspective of recent quarters. On the left-hand side here, we have the net sales where we can see that the blue bars, it's rather constant. So for a number of quarters, it's been relatively flat. But now in the last quarter here, we do see a step up in that. But perhaps more importantly, if we look at the gray line here is where we take out the effect of acquisitions and also currency, this is underlying organic growth. And very clearly, over time, this trend has been improving.

There are some ups and downs in the quarters. This is -- at the end of the day, this is a project-based business. And we did talk about last quarter that we saw slow start to the year in January and February with an impact from the cold weather. But since then, we've seen a gradual and pretty significant ramping up of the business activity.

On the right-hand side, it is the adjusted EBITDA by quarter. And here, we can see very clearly that what started as a modest improvement sequentially in last quarter, now continues with a stronger sequential improvement, but also a quite strong year-on-year improvement compared with the Q2 of last year.

Some of the key events in the quarter, we completed the acquisition of JOWO in Germany. This is a defense-oriented harsh environment business that was completed on 1st of April, so we have a full quarter numbers in the results here today. Then in May, we raised some equity about SEK 600 million and roughly half or a little bit less than half of that was used to fund the second acquisition, which was Superior Fiber & Data Services in Texas. This is in the Data Center business area and was closed on June 1. So there's 1 month of numbers in this quarter.

Regrettably, Martin Aberg has announced his intention to leave Hexatronic after 12 years. And we are working on that succession planning, and we actually announced this morning an interim head of the Data Center business, Oscar Warme, it's in internal solution, and that will take effect on August 1.

We are -- last but certainly not least, we're very excited about announcing a strategic partnership with the Danish company, NKT. And associated with this partnership, there's also an investment in submarine cable production in our facility in Hudiksvall, Sweden, and let's take a little bit deeper look on that one.

As some of you may know, we have 1 production line in Hudiksvall, making the submarine cables already. It's an old line. It's large and strong and big and it's called the hulk, therefore. And we have talked for a while now about the growth in this strategic segment. It's not huge in terms of revenue today for Hexatronic but it is strategic, and it's also a high-margin business. And gradually, we have been squeezing more and more capacity out of that 1 production line. But now we're at the point where we need to invest in more capacity.

So with an additional line, it will be roughly the same size, but a faster line than the existing one. We will more than double the capacity from depending on a little bit on product mix and pricing. Today, our capacity is in the range of SEK 150 million to SEK 200 million. We will have capacity to serve over SEK 0.5 billion when this line is completed, which will be sometime during 2028. So it creates a strong growth on that platform and with the partnership that we're entering with NKT, we have a very good data loading for many years to come on this production line. And the line is also faster, as I mentioned, and therefore, we will get higher productivity in that production, which is important. But also, very importantly, we'll have 2 parallel lines. So we can now take 2 projects in parallel, which will give us more flexibility and shorter lead times and better service level to NKT and other customers.

We're not disclosing the exact CapEx amount here, but it is room in the previously communicated about 3% of CapEx to total sales, plus minus 1% that we have talked about previously for Fiber Solutions. We're running a bit lower today, but this is one driver that we will approach that 3% going forward.

I mentioned the diversification. And here on this page, we see that it continues. On the top, we see the group sales and data center and harsh environment business areas now account for about 40% of group sales, which is 5 percentage points higher than a year ago. And on the bottom, it's the adjusted EBITDA. And here, they account for about 50% of sales. So they are above average margins and also above average growth level. However, this is actually lower than it was a year ago, but the reason for that is the restoring of profitability in Fiber Solutions, which we will talk about in a second. So it's going the opposite way, but it's for a very good reason.

So diving in then to the business areas and starting with Fiber Solutions, which I consider to be the over performer in this quarter, we saw 11% organic growth. And we saw an EBITA margin of 9.1%, which was 56% absolute terms growth in EBITA over last year. And then sequentially, it was pretty much a doubling of the EBITA, but there's some seasonality here as well. Q2 should always be a bit stronger than Q1.

But clearly, things are moving in the right direction here. And we saw already a modest EBITA margin improvement in the first quarter. We talked about that, and that was largely driven by the cost reduction program that we launched 6 months ago. We see continued effect of those cost savings. But now in the second quarter on top of that, we also start to see the growth in the business. And that volume growth is really turning into operational leverage that's flowing through to the bottom line.

The growth momentum, as we have talked about before and flagged is coming from the North American market, where we have invested -- we have invested for several years in plant capacity, but we also, in the last year, invested quite a bit in our commercial footprint, sales and marketing resources, new products launched, et cetera. And this is continuing to show flat. So we see strong growth in the U.S. market, and it's both in the Fiber to the Home segment, which is still the majority of the business. But increasingly, we're also seeing strong growth in the Transport Network segment that we have talked about before.

And what's driving this is indirectly is actually the Data Center build-out with the almost explosive growth in Data Center builds in the U.S. market. We see that simply that data traffic is growing so quickly that the digital infrastructure needs to be upgraded on a pretty big scale. This drives sales in the middle mile and the long-haul segment, not only in the Fiber to the Home. We're not yet seeing that effect translating in Europe. Europe market is still quite challenged, and we expect that to continue in the short term. But we have a belief that over time, if Europe catches up on the data center growth that also we would see a similar effect here on the transport.

Moving on. Sustainability is an important strategic pillar for Hexatronic and we have made a very clear commitment to be climate neutral in our own facilities by 2030. In the quarter, we took 1 small but important step towards this by installing solar panels in our facility in Korea. So you see a picture of that here. And we expect to generate about 430-megawatt hours of fully renewable electricity for that facility going forward.

Next business area is Harsh Environment. And here, the net sales grew 9%. However, that was largely driven by the inclusion of JOWO acquisition. So organically, it was a 4% decline year-on-year. There was a sequential improvement over the first quarter. We continue to see strong performance for connectivity solutions, which is largely defense-oriented business.

However, the dynamic cables, we've seen slightly muted demand in the start of this year. There was, I would say, some level of improvement in the quarter versus the first quarter. And we have seen a modest pickup also on the order book here. But a little bit ironically, perhaps that with the turbulence in the Middle East and the oil price volatility, even though long term, clearly, a higher oil price is good for the customers here. In the short term, the uncertainty leads to a little bit of hesitation for some of the CapEx projects.

So that's what we have seen. We have an outlook that we think there will be a modest stabilization of this business also going forward, and we expect second half to be a little bit stronger than the first half.

Innovation, another one of our core strategic pillars. Here is an example from the Harsh Environment space. where we have launched a new jacketed wireline. A wireline is, basically, it's a long cable that is inserted into a drilling hole and it's used for sensing and measuring applications, either the cable itself or it's connected with some kind of measuring device at the end of the cable.

And although these wirelines are armored with steel wire, they have a certain lifetime and they tend to break. So the new product here, which is called VIRIDIS, it's -- it was launched in April, and it's a jacketed. So it's -- the secret sauce here is the proprietary polymer formulation and technology that we're quoting this cable with. It may not be rocket science, but it's a proprietary formulation, and we know that it increases lifetime by about 2x versus conventional cables.

And knowing that these are cables that are typically -- they're tailor-made, always made to specification and typically from SEK 1 million and upwards in price. It's a big piece of equipment on the drilling side. And if you can double the life line, even if it's a little bit more expensive, a very, very obvious customer value and the total cost of ownership argument. So we launched in April, and we're pleased to say already several customers have placed pilot orders or test orders, so they order 1 cable, and they're fully testing those cables now. And as soon as they reach what's considered the benchmark of 500 cycles, we expect repeat orders.

So for bigger Hexatronic this might not be a huge business, but certainly very promising for Rochester Cable and the Dynamic cable business.

Now we are moving on to the Data Center business area. I will hand over to Martin to walk us through yet another very strong quarter of growth.

Thank you, Rikard. Let us look at the development of our strong business area, the Data Center. And the strong growth continued in the quarter, including the acquisition of communications that we closed end of last year, and Superior Fiber and Data Services that we closed last month, sales growth to 56% in the quarter. And we are especially pleased with the strong organic sales growth of 27%. And as in the previous quarter, it is predominantly the U.S. market that drives this growth, even if we have growth in all regions.

Looking at the EBITA margin, we ended up at 15.5%. And as you can see from the graph, profitability has been in the range of 15% to 17% over the last 4 quarters, well in line with our financial targets for the Data Center business area.

Last year, we had a number of larger projects with higher margins that drove the profitability, which we also highlighted in the report as of last year. Going forward, we expect margins to be at similar levels as over the last 4 quarters. And as always, there will be variation between the quarters.

Moving over to the market outlook. Same message last few quarters. There is a general level high activity in the market. The market is expected to continue to be driven by the build-out of the very large data centers. And this is typically the hyperscale and the colocation segment of the market.

If we look at our business, we have a healthy mix with hyperscale and colocation segment, that is our largest customer group. And this is followed by the more local Data Centers which we often refer to as the enterprise data centers.

And going forward, there will be a continued strong focus on organic growth, but also our focus to continue our structure as search for specialty service businesses. We have a very interesting pipeline of potential targets and several ongoing dialogues. So Superior Fiber & Data Services was one of the targets of our list that we successfully closed last month.

Superior is a service business. It's based in Dallas. It's a short drive, no more than 5 minutes from our largest Data Center office we have in the U.S. And this was a typical Hexatronic acquisition in the sense that our U.S. colleagues have cooperated with them for many years and introduce the owner and the opportunity for a deeper collaboration to the M&A team.

In terms of financials, Superior's annual sales of approximately USD 40 million and at an EBITDA margin of 12% to 13%. And that's the overall Data Center business area, the company has strong cash conversion.

On the right-hand side of the slide, you see a slide that we presented last year, and this highlights our ambition to broaden our service offering and also the type of customer segments that we serve in the market. And both the acquisitions that I just talked about communications in, acquired end of last year and the more recent now Superior Fiber, 1st of June. Those companies service offering include audio/visual, wireless solutions, as well as security and access control, basically ticking all the boxes on the application or services side that we presented.

Looking at the customer segment side on the same slide, Superior has a very strong position towards a school and campus environment. And this is a customer segment that we previously identified as strategic. But prior to this acquisition, we did not have exposure to.

Looking at the transaction and purchase price. The fixed purchase price amounted to $29 million. And then there is a potential earn out of up to USD 3 million. In terms of transaction multiple, it is 5.8x to 6.4x EBITDA, and this depends on the performance of the business over the next few years. And since we acquired a U.S. tax corporation, the transaction could be structured as if it was an asset deal from a tax purposes, and this effectively reduces the valuation with roughly 0.4x.

And finally, Superior data and also the previous acquisition of Communication Zone, those both are very good examples of the company that we actively suffer our growth strategy.

So with that, I hand over to Pernilla to summarize the financials of the quarter.

Thank you, Martin. So overall, we had an axis of SEK 2.2 billion in Q2. That is an overall growth of 18%. Organically, we had a growth of 11% due to strong organic growth in our Data Center business, but also in the Fiber Solutions that fully offset the organic decline in Harsh Environment. We had an 8% acquisition-driven growth, and that is coming from Communication Zone within our Data Center business, JOWO Systemtechnik within our Harsh Environment business; and last but not least, our recent acquisition, Superior Fiber & Data Services within our Data Center business.

And we continue to have a 2% negative effect on exchange rate compared to last year. Adjusted gross margin at 38.7%, which is 1.4 percentage points lower than Q2 2025, and that is due to the mix between business units, and an exceptionally strong margin in data center during Q2 2025.

Adjusted operating costs were at 25.8% of net sales in the quarter compared to 27.6% in Q2 2025. But it is higher in absolute numbers. And that increase is mainly related to new acquisitions, but also, as Rickard said, small investments for future growth. Adjusted EBITA of SEK 224 million with an adjusted EBITA margin of 10% compared to 8.9% last year. The higher EBITA margin was primarily driven by Fiber Solutions through the performance improvement program launched in Q3 2025 and higher net sales in relation to the cost base, driven by higher volumes.

And earnings per share at 0.61% compared to 0.38% previous year. If we're looking at Fiber Solutions, we had a total sales of SEK 1.3 billion in the quarter, an overall growth of 9% organically, increase of 11% in the quarter. And the difference between of the the 2% is headwind of FX. Net sales in Europe decreased by 10%. It is a decline due to weaker demand in the FTTH market, primarily microduct and price pressure [indiscernible] by overcapacity in the industry. But in North America, net sales increased by 44% mainly due to increased activity in U.S., both due to ongoing FTTH build-out, but also because of an increased investment in transport networks, as Data Center building continues.

In the APAC region, net sales grew with 9% driven by all primary markets. An adjusted EBITA of SEK 122 million or 9.1% compared to 6.1% prior year. And the increase in absolute percentage is primarily driven by higher sales in relation to the cost base, driven by higher volume and by the performance improvement program. CapEx investments in the quarter, SEK 16 million or 1.2% of sales. That's mainly related to maintenance.

If we then take a look at Harsh Environment, total net sales for Harsh Environment of SEK 361 million, a growth of 9%, as primarily driven by the acquisition of JOWO Systemtechnik. Organically, we had a 4% decline. The strong performance in Connectivity Solutions could not fully offset the lower sales within our dynamic cable business. And we also saw a negative currency effect of approximately 2%.

And as previously communicated, the companies within Harsh Environment have an international customer base and a majority of revenues from large projects, which means that sales per geography can fluctuate between the quarters.

Adjusted EBITA at SEK 36 million and a margin at 10% compared to 12% previous year, a decline compared to previous year due to different product mix and timing of some projects. CapEx investments in the quarter, SEK 11 million or 2.9% of sales, and that is related to both capacity and maintenance investments.

A record quarter in total net sales for Data Center of SEK 538 million, an overall growth of SEK 56 million with an organic growth of SEK 27 million. Strong development, especially in the U.S., but I would also say that it's pleasing to see that overall, all operating units grew in the quarter.

Acquired growth of 32% came in from Communications Zone and also from Superior. Adjusted EBITA of SEK 83 million or 15.5%, 16% growth in absolute number but lower percentage compared to prior year. The decline in adjusted EBITA margin compared to last year was driven by continued investment into organic growth initiatives and exceptionally strong margin last year. And CapEx investment in the Data Center business is quite low, SEK 3 million or 0.7% of net sales.

Cash flow from operating activities before changes in working capital of SEK 214 million, a small negative effect from working capital of SEK 33 million in the quarter. That is mainly related to increased accounts receivable due to strong sales in the quarter and a small increase in inventory, which is partly offset by increased accounts payable. So cash flow from operating activities of SEK181 million, representing 84% cash conversion.

Maintenance and capacity investments of SEK 30 million, equivalent to 1.3% of sales. SEK 524 million is mainly attributed to the acquisition of JOWO and Superior, as well as a payment of earn-outs related to KNET and acquisition option related to Qubix.

SEK 408 million from financing activities, mainly explained by net proceeds from a new share issue of SEK 583 million. This was partly offset by amortization of lease liabilities of SEK 33 million, while borrowings of SEK 160 million and amortization of loans of SEK 302 million.

If we then go to next slide and look at our net debt. Net debt, which corresponds to net debt, excluding lease liabilities, amounted to SEK 1.5 billion at the end of the quarter which is a decrease of SEK 202 million compared to last quarter. Overall leverage at 1.7x compared to 2.2x at the end of Q1 2026, a reduction of 0.5x.

Leverage was negatively impacted by earn-out payments as earlier communicated and acquisitions of JOWO and Superior completed during the quarter. And that was offset by the share issue completed during the period, plus a positive effect from increased EBITDA.

At the end of Q2, we had SEK 694 million of cash and SEK 1.2 billion unutilized backup facilities, which gives us a liquidity of SEK 1.9 billion. And we have a solid financial position.

Okay. Thank you, Pernilla. So time to wrap things up here before we move on to Q&A. And if we summarize the quarter first, it was a strong quarter. Net sales of SEK 2.2 billion, double-digit organic growth as well as an EBITA improvement, both sequentially and year-over-year.

Fiber Solutions came back to organic growth driven primarily by the U.S. and also a strong EBITA margin improvement, both year-on-year and also for the second consecutive quarter sequentially.

Harsh Environment was slightly down in the quarter, but it was also a little bit better than the first quarter. So sequentially it was an improvement, and we do expect that slow gradual improvement continue. And then Data Center continued its string of strong growth, again, strong organic growth in the quarter and for the very first time, broke through the SEK 0.5 billion in the quarter in terms of net revenue.

And we do, as Pernilla just pointed out, we have a strong financial position to invest for growth, and that's acquisitive growth, but it's also increasingly organic growth that we are investing in. So if we take a little bit of a step back and not only about the quarter, but I've been here 16 months now. And we have been very busy in the last year or so on working on, I would say, mainly 2 things.

One, is a turnaround of Fiber Solutions, and we're now clearly seeing things moving in the right direction for Fiber Solutions. And the other big strategic initiative has been to grow and boost the Harsh Environment and Data Center business so that we have a better diversification and balance in our portfolio. And I think we're seeing also the effect of that now with those businesses at 40% of net sales and 50% of the profitability. So there's a lot of things that are moving in the right direction. We are proud of that. We're proud of the results this week -- this quarter.

But we also know that there's a lot more work to be done. So -- we're not resting on any laurels. And we hope that there is more to come in terms of performance.

And on that note, just a few words of guidance on how we see the outlook going forward. Starting with Fiber Solutions, we do expect continued organic growth in the U.S. We've been clearly seeing this for a while now, and we expect that to continue in the short- to mid-term However, equally, we expect a lower activity level in the European market to remain in the short term. We have, I think, a speculation or an expectation maybe that at some point, the transport network growth that we see in the U.S. should also translate over in Europe at something similar, but we're not seeing any signs of that as of today.

The submarine cable order book is strong for 2026. And the majority of the revenue will be in the second half. We previously said third quarter. What we see now is that some -- timing of some orders have been moved a little bit. So we think it will be more spread between Q3 and Q4.

And all-in-all, if we look at all the puts and takes for Fiber Solutions, as of today, we expect that the third quarter will be rather similar to the second quarter.

For Data Center, strong market, strong order book, and strong outlook. So organic growth to expect to continue there. And in terms of the margin, we have seen that margin, sort of, converging towards the 15% longer-term financial targets that we have issued. And for the last 4 quarters, it's been relatively stable in that range or slightly above. And we also don't see that would change materially going forward.

Harsh Environment, there's overall robust activity. The defense sector is seeing strong demand, the temporary effect of some government shutdowns that we saw Q1 and Q2 is now behind us. However, as mentioned, a little bit softer demand from the oil and gas industry. So all-in-all, we expect a modest margin improvement in the second half compared to the first half of 2026.

And overall, we continue to prioritize Data Center and Harsh Environment for M&A activity where we have room to continue to do acquisitions. And we're also taking an opportunistic view on Fiber Solutions. I think we're now earn the right to grow in Fiber Solutions. And if something comes up, we will take a look at that, but it's not where the focus is today. It would be more of an opportunistic approach.

So with that, that summarizes the presentation for today, and I think we can move over to the Q&A.

[Operator Instructions] The next question comes from Max Bacco from SEB.

Only two this time. So I will have to prioritize perhaps on the Harsh Environment segment. I mean, you have a target of 15% EBITA margin in 2028. How should we think about the trajectory here in perhaps say it's 2027 and going into 2028 as well given the current development? Any comments on that?

Do you want to take that, Pernilla? I will start and then Pernilla can correct me. I mean, as we've been pretty clear before, most of the companies in this business area, also the new ones are in that range. We have 1 company, which is a larger one in the group that's lower. They didn't have a good start to the year. Things are improving a bit right now. We still feel quite strongly that this is a type of business that should make 15% longer term. We haven't really proven it to date, but we have a a modestly improving trend right now. And I -- we also have -- we have activities and plans in place to get us towards that target. And I don't want to be more specific than that.

Okay. Understood. And then turning to the Fiber Solutions segment, which, of course, the growth in North America, very impressive. Perhaps a few questions in one. But first, you mentioned that Fiber Solution was the over-performer here in the quarter. The question then, should we interpret that the asset was perhaps a bit too strong here in the quarter?

And then also, if you could have some comments on the capacity utilization in North America, given the very strong growth. And also how you serve the U.S. market in terms of middle mile and long-haul solutions given that you previously have been very focused on the Fiber to the Home segment?

All right. A couple of questions. Starting with utilization. I mean, we have seen volume growth in the U.S. market for a while. Also last year, last year, it was offset with price declines year-on-year. That's now behind us, so the volume growth translates into revenue growth as well. And in fact, for most of the DUC, because of the resin price increases going forward, there might be some help on the pricing side. We've talked about that.

How we serve the market is, we sell directly and we sell through distribution. We are working to expand our distribution. We think there's room and we have expanded the distribution. There's definitely room for us to do -- continue to sell direct to some customers, but also get a broader reach through an expanded distribution network. And what particularly when it comes to the middle mile, we have launched some -- a product line, you may recall Max called Viper core. This is a type of product that is directly aimed at that middle mile with a high fiber count and it's looking pretty promising.

Okay. Understood. And just circling back to the question on capacity utilization. As you stated, you have seen volume growth, both in 2025, but also now as well, of course. So the question being, do you have much more room to grow within existing factory? Okay. Okay. Understood.

We don't -- as you know, we don't disclose utilization numbers, but we have ample opportunity to grow. And I think also now I remember, you asked this an exceptional quarter -- as you know, I mean, this is a project business. So we always say don't look too much on a single quarter, look more at the trends. I think we talked about the first quarter being a little bit soft, and there was some weather impact on that. And now that's catching up. You probably should look at the half in total. I don't think there's anything exceptional in the quarter, but you always have a little bit of these swings.

But like we also said, as of today, it looks like the third quarter will be similar to the second quarter.

The next question comes from Adrian Gilani from ABG Sundal Collier.

Yes. I'll use my two questions to just clarify some things about your outlook comments. First of all, on Fiber Solutions, as you said, you're guiding for similar results in Q3 as in Q2. And as we know from before, you're expected to have significantly higher subsea cable deliveries in Q3. So I guess, I'm interpreting this as you are sort of guiding down Fiber to the Home sequentially a bit. Is this a fair interpretation? And if so, what is sort of driving that sequential decline?

Yes, I understand the question. I think fair or not, I think you're perhaps reading a little bit too much into it. I mean, we're 10 days into the quarter. So there's a number of factors here, right? You've got product mix, you've got geographical mix, you've got pricing, you've got volume. And it's very complicated if we start dissecting all these different levers.

Clearly, if there's a big book of submarine cable in 1 quarter that can have an impact. But as I also mentioned, we now see that more spread out over the half, not only in third quarter. And as of today, when we look everything taken together, we think that the third quarter will be roughly similar to the second quarter. I don't think you should interpret that as there's an underlying softness there. There will always be some pluses and some minuses. And overall, we don't see that the pluses or the minuses will be in a strong majority, so to speak.

Okay. That's very helpful. And then the second one is on Data Center margins. When you say that margins are going to be similar to the past 4 quarters going forward. Is this for the coming couple of quarters? Because as we know, H2 or second half margins tend to be lower than first half. So is this sort of an annualized margin guidance, so to say? Or is it for the coming couple of quarters, specifically?

I think generally, as Rickard said, I mean, I think we were trending towards the long-term financial targets. There will be variation between quarters. And it's a bit early to say exactly where it will be the quarter, again [indiscernible] of 10 days into the quarter.

The next question comes from Jacob Edler from Danske Bank.

The first question is on Fiber Solutions. And in Q1, you were talking a bit more about the potential negative timing effect on the gross margin related to the price increases we've seen on resin and fiber. Given that you're not as explicit in your commentary regarding this now, should we kind of interpret it as that your view on the timing effect has improved? Or is it more kind of related to the mix from the submarine cable orders? How should we view that?

Yes. So again, going back to my earlier there's pluses and minuses. This is one of the minuses potentially. I we're not overly concerned about it. It might be a small minus. But again, that's something that we would then expect to be offset elsewhere.

I think in general, we're seeing that the price increases that need to happen are happening. And always here and there, there are some customer contracts that there is some time delay. But again, overall, all things taken together, we see that the third quarter would be expected to be roughly in line with Q2.

Okay. And is that in terms of top line and EBITA? Or what do you mean when you say yes, in line with Q2?

Yes. Yes. Sorry.

Yes. Okay. Great. So my second question, I guess, is on Data Centers then. I mean here in Q2 and in H1, we've seen that North America has been the primary driver of the data center growth, should we expect North America to continue to lead the way here in H2? And can we expect positive growth for Europe as well? Are there positive growth to be seen in Europe as well or mainly North America driven?

It will be quite similar in the sense that, I mean, we expect U.S. to continue to drive, but it has been positive in Europe as well, and we expect that.

Yes. So you expect positive there as well.

The next question comes from Fredrik Nilsson from Redeye.

I want to start with the investments in sales and marketing in Fiber Solutions in North America. And as you mentioned, it has gained a few new customers. So could you perhaps elaborate a bit on those initiatives? What are you doing? And looking ahead, what does the pipeline look like for new customers in Fiber Solutions in North America?

Yes. We have a pipeline, of course. I'd rather not be too explicit about that because you never know who's listening to that, but we have a promising pipeline. In terms of what the investment looks like, it is manpower. We've hired and expanded the team, mainly on the sales side. We're putting a little bit more emphasis also on branding and marketing to really establish Hexatronic as a credible a major player in the market, but it's sales resources. It's a big country. And you need to have some key account resource. You need to have some people who are dedicated and focused on the channel or the distribution, and then you need to have a regional organization that can visit and find customers in all the corners of what's a rather large country.

Okay. And regarding Data Center, you continue to grow well above your expected long-term levels. Could you help us understand the growth rate in the different segments? Is it basically hyperscalers driving all of the overperformance or is it somewhat more even?

I don't think it's a bit broad, but the larger customers, the hyperscalers and the cloud broader -- cloud segment has the highest growth.

Okay. I see. That's all for me.

Fredrik, actually you asked about investments, not only in the North American and U.S. market. We're also investing a bit in Fiber Solutions in emerging markets, and we're seeing some good traction there as well. There are many markets particularly in Asia but also Middle East and potentially other parts of the world where there are opportunities. So we're putting some focus and some investment into also putting commercial resources to go after those opportunities.

[Operator Instructions] The next question comes from Max Bacco from SEB.

Two more from my side. Two quite short ones, if that's okay. So going back to the Data center segment and what you said in connection with the Q1 report, you pointed to slightly better profitability here in Q2 versus Q1. And in Q1, you did 18%. Of course, since then, you acquired Superior, which came in with dilutive margins. So of course, that changed the picture somewhat. But was that the entire explanation why the margin was down here sequentially? Or was it something else to it that could be worth highlighting?

I mean, between quarters, it's always a mixed question. I mean, which type of products and customers that are growing. So it's also a mix there, I would say.

And as you know, we don't have a crystal ball. We don't know exactly where we're going to the guidance is given earlier. In this case, we thought it would be a little bit higher. But then on the other hand, the growth came in stronger than we thought. So I think in absolute numbers, we're pretty close to what was the expectation.

Okay. Understood. And then also a question on price. I listened to you this morning, like in an interview where you said that the price increases from your side had very slim impact in this quarter Q2, but perhaps slightly more going ahead. Is it possible to quantify on a group level, how much price might support organic growth ahead?

No, I don't think we should go into that in total. As we had said, we have a situation where we are pushing out price increases. At the same time, we also have resin in for example, that is increasing. So let's look at it then from a profitability standpoint, and we will manage that.

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.

Thank you for that. So we have received a few written questions as well, so we will go through them. So the first question is what is Hexatronic value proposition to customer and its competitive positioning when it comes to middle mile and long-haul fiber cables for Data Center deployment in the U.S. market?

So I think, Mark, that our value proposition is rather unchanged. We are providing everything that a customer needs to build a fiber optic network, and that hasn't really changed. I think there's a nuance in the change that as this becomes a perhaps more important or equally important is the Fiber to the Home or the last mile, we have refocused a bit. So we have upgraded our product offering in the middle mile and long haul, and we've launched some new products. You can find them on our website under primarily, but the fundamental value proposition and one that does distinguish us from most of our competitors is that we provide everything.

We're not only a cable manufacturer, only a duct manufacturer, only a connectivity provider, we have the whole suite of products that you need to build a fiber optic network, whether long haul or last mile.

Thank you for that, Rikard. The next question is, when I look at the Superior Fiber & Data Service acquisition, the main business activity seems to be connected to schools and local government buildings to the Internet. What, if anything, does this have to do with the boom in AI data centers?

If we look at the U.S. tools, there are major investments into the IT infrastructure. So very similar installation work. It's like your own IT campus, mainly Data Center infrastructure that they're building. So it's very similar in terms of school, as what we're doing in the other and it provides a good diversification in terms of customer base or similar type of work.

Thank you for that Martin. We'll take the next question. EBITA margin in data centers fell to 15% from 21% despite sales being 6% higher than last year. What explains this negative operating leverage? You say that it was a result of greater investments, but depreciation at a group level was flat year-over-year.

So in the same quarter last year, we commented on a number of larger products with high margins. And explained, there was 2 to 3 percentage points higher than above margins for that quarter. So that explains most of it. And then adding to that, we have made investments in the organization for further growth to really harvest from these wage growth opportunities. So investing in all parts of the organization.

Thank you for that, Martin. Next question, following operational improvements and rationalization in several production facilities what initiatives are still ongoing? And do you expect them to yield material improvements to operating margin and cash flow going forward?

Yes. So the big ones were the performance improvement program. And the first step that we launched last year, where we closed one facility and moved volumes and also restructured the commercial business a bit in Fiber Solutions. From here on, it's more of daily and incremental work on things like lean manufacturing, scrap reductions is a big one. There are some purchasing initiatives that we have. I do expect these 2 yield improvements. We have said that they are -- for example, they are part of closing the gap towards the 10% EBITA margin in Fiber Solutions, and we were at 9% now in this quarter.

So I think we are getting both volume leverage but also some productivity improvements, but it's more of a daily grind than big one-off moves that we do. And I think they are also -- they're already incorporated in the guidance and the targets that we have set.

Thank you for that Rikard. And we have a final question. You are delivering a very strong organic growth of 11% in Fiber Solutions, particularly driven by the U.S. market. Is this performance primarily driven by customer restocking? Or are you seeing a genuine sustained increase in underlying demand and new field projects?

It's not restocking. It's -- there's growth in the market, and there's new customers that we are onboarding. There's always an element of customer mix here. We saw last year that some of our larger customers had at a lower activity level and they now have a higher activity level. So there's an element of that. But there's no restocking that I'm seeing.

Thank you for that, Rikard. And we don't have any more written questions. So I want to take the opportunity to thank everyone for joining this webcast, and I hope to see you again for the next quarter.

Welcome to the Hexatronic Q1 2026 Report Presentation. [Operator Instructions]

Now I will hand the conference over to CEO, Rikard Froberg. Please go ahead.

Good morning, everyone, and very welcome to this Hexatronic's Earnings Call for the first quarter of 2026. I'm Rika Froberg, Group CEO. I have with me today: Pernilla Linden, our CFO; Martin Aberg, Deputy CEO and Head of Data Center Business Area; and Patrik Johannesson, Head of Investor Relations.

Before we dive into the presentations, just commenting on this beautiful picture that we have here. It's an aerial footage of our flagship site in Hudiksvall, about 3 hours north from Stockholm, where we are today. And you see in the background, you can see the factory. And in the foreground, there's a ship that has docked here, and it's clearly loading submarine cable from the factory. And these are big cables and the only way that you can really transport them is from -- is via ship.

So with that said, let's dive into the numbers and the presentation for the quarter, which was in line with expectations overall. We had revenue of SEK 1.7 billion, which was an organic decrease of 2%. And this decrease was entirely driven by Fiber Solutions in Europe, whereas most other areas saw organic growth.

Adjusted EBITA at SEK 146 million or 8.6% margin, which is sequentially slightly higher than the last couple of quarters. And we see that the strategic shift in our mix continues with Data Center and Harsh Environment now contributing over 60% of adjusted EBITA. And for the first time, the Data Center business in this quarter was the biggest profit contributor to the group.

For Fiber Solutions, we saw a soft quarter revenue-wise, where market conditions in Europe continued to be weak. However, the cost reductions are now coming through and adjusted EBITA margin strengthened somewhat over the last 2 quarters.

Data Center continued strong margins and growth and Harsh Environment again saw good organic growth, but a margin that in the quarter was impacted by some unfavorable product mix. Operating cash flow was modestly positive, which is consistent with our typical seasonality and our net debt saw a slight increase as expected.

Significant events in this quarter. We finished the first phase of our performance improvement program, the phase that was announced already in September of last year. And we made an acquisition in Harsh Environment or rather the acquisition was announced in the quarter, but it was actually closed as of April 1. So it's not included -- JOWO, that is not included in the numbers of the quarter. And we made some leadership changes in Fiber Solutions. So we now have a clear regional commercial structure as well as created global teams for product management and supply chain.

This slide, you've probably seen it if you follow us, we use it consistently because it's an important one. It clearly shows the ongoing transformation of Hexatronic. So we take Fiber Solutions, which was essentially all of Hexatronic a few years ago, and it still continues to be the largest business area in revenue, now accounting in this quarter for 58% of sales and 39% of adjusted EBITA.

Harsh Environment continues to grow and has increased a couple of percentage points to about 17% of sales and including the JOWO on pro forma basis would be roughly 20% of total. And the biggest change is Data Center that's increased to 25% of sales and 46% of our adjusted EBITA. And that, again, makes Data Center for the first time now our biggest profit contributor in absolute terms.

And this shift is important. Of course, it's partially driven by the challenges that we've seen in Fiber Solutions, but the bigger factor is the growth of the smaller business areas that now make up 44% of net sales pro forma. So they're starting to become very meaningful and changing the makeup of Hexatronic as a company. And this gives us increased diversification, but also, I would say, an improved portfolio mix as Harsh Environment, the Data Center have higher margins and higher growth. And as a reminder, we have set a target that these 2 business areas are to account for at least half the business by 2028. So you can see here that it's a target that we feel we are well on track to accomplish.

Diving in then to the different business areas one by one and starting with Fiber Solutions. The sales number, as noted, was weak in the quarter. And again, it really is market conditions in Europe that are challenging. And in this case, we also saw that unusually cold weather in the beginning of the year was an added headwind. Consequently, we had a January that was very slow, some pickup in February and a rather strong March. So there was a positive ramp within the quarter, and we see that continuing with what looks to be a pretty solid April.

If Europe was soft, the U.S., on the other hand, was a positive. And we have now for some time, we have set an expectation, I think, that sometime during 2026 that we will see momentum gradually pick up. And we actually saw that clearly in the quarter. And already in Q1, our organic U.S. sales were growing nicely with a positive trend also exiting the quarter. You don't see that in the North America number, which is an effect of one major customer in Canada that had very low sales in the quarter. But for the U.S., we are now back to growth, which is very encouraging.

It was also encouraging to see that despite a revenue drop year-on-year, the adjusted EBITA margin improved sequentially, and there are 2 main drivers for this. So one is business mix. There was some impact where the APAC business, which is typically higher margin for us, had a strong quarter, but it also shows that the cost reduction program is effective. In fact, we're ahead of plan here, meaning that we saw most of the savings from the initial SEK 110 million on an annual basis. We saw most of that already into this quarter a little earlier than expected.

We also saw some rapid developments when it comes to input costs. Resin prices and fiber prices are both going up. The drivers are different, where resin is really related to oil price and what's happening in Iran and the Middle East. Whereas for fiber, the main driver is really the root cause here is the booming demand for hyperscalers, which means that supply -- it's a supply and demand thing where supply is getting increasingly tight. And we're responding, of course, with price increases, and we are confident that these costs will be fully passed on.

We also see competitors raising prices. However, there might be a temporary underabsorption on the way up. We have -- of course, we have existing contracts and already placed orders that we need to honor. But in totality, we're pretty confident that the cost will be fully passed on, on an absolute basis.

Overall, in terms of market demand going forward, we expect the Europe headwinds to persist, no worse, no better at this point, while the U.S. momentum for growth continues or even strengthens. So in summary, a lot happening in Fiber Solutions, some challenges and increased, I would say, volatility, but also really encouraging to see the expected improvement in the important U.S. market is materializing and also an adjusted EBITA margin that after 5 sequential quarters of decline is now moving in the right direction.

Moving over to Harsh Environment then. Here, the organic sales were strong, 9% growth following the trend from prior quarters. EBITA margin was hampered a bit by unfavorable product mix, and it's mostly defense orders in our U.S. business, where as we have flagged, there's now an impact from the U.S. government shutdown that we saw late last year. This product mix was affecting dynamic cables, whereas the Connectivity segment and the Sensing segments were both performing strongly.

And I think we've said this almost every quarter, but this is a pronounced project business. It's not unusual to have some swings between the quarters, and we need to look at, I think, the full year or the longer-term trends. Still, I think it's fair to say that for this quarter, we're pleased with the top line, but not necessarily with the margin.

And on the outlook, we do see the effects from the government shutdown also spilling into Q2, but not beyond that. Longer term, we're bullish about this space. It's of course, difficult to really predict what will happen geopolitically and the macro outcomes at this point, but fundamentally though, our 2 largest customer segments, which are defense and oil markets, if anything, we expect to be positively affected. For example, there's a lot of optimism about Venezuela becoming a potential market. Still early days, and we're not seeing any orders, but quite a lot of optimism among some of our customers there.

And then JOWO Systemtechnik, and we are absolutely delighted about this acquisition. It's a company with about 100 employees in Northern Germany. And the core business is connectors that you see on the picture here and connector assemblies, and they're sold mainly to defense applications. We see this business as a proven market leader, attractive prospects, both long term and short term. And in particular, it supports our strategy to grow into leading player in connectivity solutions. And we see opportunities to expand this business.

Today, they're very strong in Germany and I would say, Central Europe, but we see that through the broader reach of Hexatronic, we can expand across Europe and potentially worldwide. And with this deal, Harsh Environment business will be approaching SEK 1.5 billion against our stated SEK 2 billion target for 2028. So it's an important step towards that ambition. Therefore, we feel good about this one. The business trend and the momentum is strong, and the deal has a good value too.

And I will now hand over to Martin to give a bit more color on the specific deal and the terms.

Thank you, Rika. So let us have a look at the transaction structure and the purchase price. The acquisition was structured as a share deal, where we acquired 100% of the shares in the business. At closing, which occurred after the end of the quarter on April 1, the fixed purchase price of EUR 11.8 million was paid. And in addition to the fixed purchase price, there is an earnout that is capped at EUR 7.6 million, depending on the future performance of the business, and it is structured in a way that is self-funded from the cash flows from JOWO. The potential earnout is based on the average EBITDA over the next 5 years and will be paid out in the second quarter in 2031.

If we then zoom in on the transaction multiples, the fixed purchase price represents an EV/EBITDA multiple of 4.6x and this is based on the 2025 profitability. Adding the earn-out to the EV/EBITDA multiple, it can increase from 4.6x to a maximum of 7.6x the '25 EBITDA. In order to reduce the valuation risk, we have based the earn-out on a long period of 5 years. It is also based on the average of the accumulated profitability over the full period to avoid the risk of paying an earn-out if a single year have an abnormal profitability level. And finally, in order to achieve the full earn-out, the company has to achieve a strong increase in profitability from where we are today.

If we then move over to the development of our Data Center business area for the first quarter. The first quarter was another record quarter in terms of sales and profitability. And we are pleased with the strong organic sales growth of 20%. Geographically, it was especially a strong U.S. market that drew the strong sales growth.

Looking at the adjusted EBITDA -- or EBITA, it ended up at SEK 73 million in the quarter, which is a record. And the adjusted margin is higher or in line with the last 2 quarters, but it is 2 percentage points below the corresponding quarter last year. And there are 2 main reasons that we would like to highlight behind the slightly lower margin. The first is that our organic initiatives to expand our service offering is loss-making, but we expect that to be breakeven level within the next 3 to 6 months. And the second reason is strengthening of our organization to be able to continue to grow, and that's not only this year, but for several years to come.

Looking at the second quarter, we expect a slightly higher profitability than we had here in the first quarter. And then moving over to our market outlook. Same message as we had last quarter, and that is generally a very high activity in the market. The market is expected to be driven by the hyperscalers or the wider Cloud segment. And if we look at our business mix, the Cloud segment remains the largest segment, followed by the Data Center Enterprise segment. Approximately 30% of our sales is towards customers with similar and high requirements, and this is also a focus of our growth journey in order to have a balanced and resilient business mix.

If we look at our M&A, we are very active and have a strong pipeline with targets in different phases. And finally, to summarize the quarter, our focus is to continue to strengthen our offering and to grow the business organically and by acquisitions.

And with that, I hand over to Pernilla to summarize the financials for the quarter.

Thank you, Martin. So overall, we had net sales of SEK 1.7 billion in the quarter with an overall decline of 10%. Organically, we had a decline of 2%. The strong performance -- the strong organic growth in Data Center and Harsh Environment was not able to fully offset the organic decline in the Fiber Solutions, mainly coming from the EMEA region. We had 2% acquisition-driven growth from our recent acquisition, Communication Zone within our Data Center business. And our most recent acquisition, JOWO will be, as Martin said, consolidated in Harsh Environment from the 1st of April in 2026.

We continue to have a negative effect of exchange rate in this quarter. It's actually minus 9%. And this is more or less all currencies that have weakened compared to the SEK. Adjusted gross margin at 41.3%, which is a similar level compared to prior year. As Rikard said, our initial performance improvement program is finalized within Q1 as earlier communicated. And we have implemented these savings a little bit earlier than expected, meaning that we saw most of the savings within the quarter.

Adjusted operating costs were 29.5% of net sales in the quarter compared to 28.5%, but lower in absolute numbers. Adjusted EBITA of SEK 146 million with an adjusted EBITA margin of 8.6% compared to 9.8% last year. And the EBITA margin compared to last year was negatively impacted by the lower sales in Fiber Solutions compared to the same period of last year as well as some price pressure and unfavorable product mix in Harsh Environment. But noted that the EBITA percent is up from Q4 2025 from 7.2% to 8.6%.

Net financial items of minus SEK 14 million is mainly related to net interest expenses of SEK 28 million, a positive effect of SEK 14 million in other financial items, which is related to revaluation of additional purchase price and acquisition options attributed to both currency effects and changed assumptions. The effective tax rate decreased by roughly 15% points due to the recognition of a deferred tax asset related to nondeductible interest expenses from prior years, supported by available deferred tax liabilities in the same jurisdiction.

If we then take a look at Fiber Solutions, total net sales for Fiber Solutions of SEK 1 billion with an overall decline of 20% organically, a decline with 11%. A decline due to weaker demand in the FTTH equipment, primarily micro duct and price pressure overall in the industry. And that is mainly related to the European organization, meaning Europe declined with 30% due to the weak performance across our primary markets and also that the lack of material submarine cable revenue within the quarter.

North America declined by 18%. But we had -- we are pleased to see that we had organic growth in our U.S. market, but that was not able to offset the decline in Canada and also the negative FX effect. And the growth in U.S. is mainly related to the FTTH business. APAC grew with 28%, driven by all primary markets and were related to some larger projects.

The Fiber Solutions business also then, of course, were affected -- positively affected by the performance improvement program that was finalized during Q1, resulting in adjusted EBITA of SEK 61 million or 6.2%. Profitability was hurt by the lower sales volumes, mainly within byproducts and continued price pressure, partly offset by the implementation of the performance improvement program. Sequentially, we are on the same level and margin increased by roughly 1 percentage point. We had no CapEx investment in the quarter, SEK 9 million or 0.9% of sales, which is mainly related to maintenance.

Harsh Environment. So total net sales for Harsh Environment of SEK 283 million, a decline of 1%, but an organic growth with 9%. Growth driven by dynamic cables and connectivity solutions overall. And as previously communicated, the companies within Harsh Environment have an international customer base and the majority of revenue comes from larger projects, which means that sales and margin can fluctuate between the quarters. Adjusted EBITA at SEK 24 million and margin of 8.5% due to an unfavorable product mix driven by timing of projects and the U.S. government shutdown in 2025. CapEx investments in the quarter of SEK 10 million or 3.6% of sales, mainly related to production and efficiency improvements in our U.S. manufacturing plant.

As Martin said, a record quarter in Data Center with total sales of SEK 434 million with an overall growth of 20%; organic growth of 20% and the acquired growth of 8% from Communication Zone that was acquired in November. That was offset by the 9% negative FX effect. Adjusted EBITA margin of 16.8%, 2 percentage points lower than prior year, mainly due to organic investment to grow and broaden our service offer. CapEx investment in the quarter of SEK 3 million or 0.7% of net sales.

Cash flow from operating activities before changes in working capital of SEK 112 million, negative effect from working capital of SEK 83 million in the quarter. That is mainly related to increased accounts receivable due to a strong end of the quarter, partly offset by the increased accounts payable. Cash flow from operating activities of SEK 29 million, representing 26% cash conversion. And overall, then when it comes to investments, we had maintenance CapEx investment of SEK 22 million, equivalent to 1.3% of sales.

Net debt, which corresponds to net debt, excluding lease liabilities, amounted to SEK 1.7 billion at the end of the quarter, which is an increase of SEK 90 million compared to last quarter. And that is due to the strengthening of the U.S. dollar, just the revaluation and investment in our operations, plus a decreased rolling 12 adjusted EBITDA, leading to a net debt in relation to pro forma adjusted EBITDA on a rolling 12-month basis of 2.2x during the quarter.

Looking forward, we have an earnout connected to a prior acquisition that will be paid out in Q2 2026, which will increase leverage by roughly 0.2%, all else equal. After that, we expect the leverage to come down operationally. At the end of Q1, we had SEK 603 million of cash and SEK 1.1 billion of unutilized backup facilities, which gives us a liquidity of SEK 1.7 billion. So we have a continued solid financial position.

Okay. If I summarize the key takeaways from the quarter. Net sales were down 2% organically, and this decline was entirely caused by the headwinds in Fiber Solutions in Europe. But we turned the corner to reclaim organic growth in the important U.S. market and now with a sequentially improving margin.

Data Center was now the largest profit contributor and again saw strong organic growth and margins. Harsh Environment delivered solid organic growth, and we saw a temporary margin decline here. So all in all, the ongoing transformation of Hexatronic continues with Harsh Environment and Data Center continuously increasing in importance, and they now account for about 44% of sales after the JOWO acquisition. And we have a solid financial position with discipline in both cost controls and M&A.

Finally, a few words on the outlook and starting with Fiber Solutions. We do expect the headwinds in Europe to persist at, I would say, roughly the same level as today, no better, no worse is what we're seeing in the market, but offset by growth in North America. Macro environment is impacting raw material costs, and we are countering with price increases, timing is still to be seen, and therefore, there could be some temporary risk or pressure to margins. If so, we expect that this would be primarily in Q3. So we would come back with an update after the second quarter where we have more clarity.

Also noting here that the submarine business is looking very strong with an order book that is largely full for 2026 and starting to get pretty full for 2027 as well. We're almost at the point where its capacity is the bottleneck more than anything. Timing of shipments is important, they were low in the first quarter. We see a little bit more shipments, but not major in Q2. And the big peak this year will be in the third quarter where we have some large shipments scheduled of submarine cable. And as noted, we saw most of the cost savings already in the first quarter. So we expect these to remain, of course, but not a major step-up in coming quarters.

For Data Center, I think it's a pretty simple story really, continued strength in this business. Demand is good. Order book is good, and we do expect a modest margin increase in Q2. For Harsh Environment, the longer-term outlook is positive. The market is robust, particularly in defense. However, for the same reasons as in Q1, we could see margins to be somewhat muted in Q2 with the normalization in the second half.

And then some overall factor. As Pernilla mentioned, we have seen FX as a major headwind to our top line in recent quarters. That should now start to abate going forward with the exchange rates that we're seeing today. We do expect a slight increase in leverage in Q2, driven by an upcoming earn-out payment. And we do continue to have an attractive M&A pipeline with focus on Data Center and Harsh Environment.

So with that, we'll move over to Q&A section.

[Operator Instructions] The next question comes from Max Bacco from SEB.

Perhaps starting with the cost increases and also the price increases going forward, you said that you expect to be able to fully compensate. Can you give any indication of the magnitude that you expect? How much will prices be increased within the Fiber Solutions segment as it looks right now, if you have anything to add to that?

I don't think -- thank you, Max. I fully understand the question. I don't think we will give a number on that, one there is -- for competitive reasons. But also, quite frankly, we don't know what's happening to oil prices. What I will say and the way I would think about it is the plan and the ambition is to keep gross profit in absolute terms, so in SEK or dollars, the same. We're not intending to increase prices more so that we make more money, but we're certainly planning to pass on 100% of the price increases.

As I said, possibly with some timing, right? What we've seen historically is that sometimes on the way up, you're lagging a little bit on the price increases, but you typically make that back on the way down because you can hold on to higher prices for a little bit longer when raw materials come down. So over the cycle, I see it as a net zero sum game, but there could be some phasing, potentially.

Okay. It sounds very reassuring. And then the next question then on the on the Harsh Environment segment, which as you guided for ahead of the quarter impacted by both the weather and then also the government shutdown in the U.S. margins down some 1.7 percentage points year-over-year. Do you expect to see a similar magnitude in Q2 or perhaps less so, on the margin pressure?

Yes, we see that effect also within Q2.

The next question comes from Adrian Gilani from ABG Sundal Collier.

I'd like to use my 2 questions on the raw material costs as well. I guess, first of all, a bit of a follow-up on Max's question on -- can you at least split out how much of the raw material cost line item in the P&L is resins and fiber? And also just since there are many different price indices for these kinds of things, can you give a rough approximation of how much prices are up on the stuff that you buy?

I mean, fiber I don't have a number because it depends so much on which specification on fiber, and it also depends on contracts that are confidential. I think for resin, the rough guidance is that -- at least so far, what I've seen is that it's followed quite correlated with oil price.

So if oil price is up 10%, resin is up 10%. I'm not sure if that will hold in the future. But so far, it seems to be a rule of thumb.

Okay. And how much -- before sort of the price increases started, how much of your raw material cost base were these?

That's not something that we're disclosing.

Okay. Understood. And just the second one on timing impacts. Can you go a bit deeper into the timing impacts and how the purchasing agreements compared to your pricing structure to clients? Like, where is the discrepancy? And is there a particular quarter where you expect there to be a squeeze on the timing effects?

Yes. At this point, I'm not sure that there is a discrepancy. We're working through that at the moment. I think, resin prices is -- it's more or less a spot market. It's a commodity, but there are lead times, right? So it's more about measuring our -- what we have in inventory and what we have on the water, so to speak, versus how quickly we can increase our prices.

The fiber market, both on our -- on the sourcing and on the customer side tends to be a little bit longer contracts.

Okay. I understand.

Adrian, I understand that this is something that's important. Again, I think reality is that there will be some impact to the top line here, which is very difficult to predict because the world changes every day. But again, I do think that it's a reasonable assumption that over time, the gross dollars -- gross margin dollars or SEK will be largely unimpacted.

The next question comes from Fredrik Nilsson from Redeye.

I was thinking about the improvement in the U.S. Fiber Solutions market. Is that both within duct and your fiber systems? And is it current customer increasing their rollouts again? Or is it more new customers coming into you?

It's yes, yes and yes. It's both new customers and also some historical customers that had slow build-out levels last year are coming back with much more aggressive plans now. And it's also -- it's both fiber cable and duct and conduit. And I would say in particular -- recently, particularly in conduit, we've seen very good volume momentum. We have talked about that has been the case for a while, but it's so far been offset by year-on-year price declines. I think that year-on-year price decline is mostly behind us now.

Okay. I see. That's clear. And regarding investments in Data Center, as far as I understand, you are looking for more niche markets perhaps rather than investing more into hyperscalers. I mean, why is that given the very strong growth we see within hyperscalers?

Yes. So I mean, hyperscaler, we have served the hyperscaling market for a very long time, very long relations. We're very well positioned to continue to capture that growth. So we'll continue to focus on that market. What we are saying is that we would like to have a balanced and very resilient business mix. So still, we expect hyperscalers to be dominant in our exposure. But we also would like to broaden the customer base.

And it's to customers with very high requirements and a similar offering. So it's very much in line with what we have been doing and what we're doing.

The next question comes from Max Bacco from SEB.

Two more, if I may.

Of course.

So -- perhaps circling back to the Harsh Environment segment, you said beyond Q2, you expect to be back to normal levels in line with quarters seen previously. But shouldn't we be able to expect some continued margin improvements beyond Q2 year-over-year, driven by underlying improvements in Rochester Cable and then potentially also some operating leverage on volume growth?

Yes, I think that's a fair expectation, and I would have the same expectation. I think given the first quarter, I don't really have that visibility to commit to that here and now, but that would be the expectation.

Okay. Perfect. And then on Fiber Solutions, I mean, you have talked some time about the very strong demand within submarine cables. And you highlighted here that for the book for 2026 and almost for 2027 as well. Do you have any concrete plans to expand the capacity up in Hudiksvall for submarine cables?

It's -- I mean we're looking at different options, obviously. And I think if we have any concrete plans, we will come back and inform the market about that in due time.

The next question comes from Adrian Gilani from ABG Sundal Collier.

Another round from me as well. One question on the Data Center margin. What is it that is changing sort of between Q1 and then into Q2 that makes you confident to guide up the margin again into Q2?

Thank you, Adrian. I mean, first of all, I mean, we mentioned 2 things that impacted the costs for the quarter. And if we look at our organic initiatives, we expect a smaller loss. We expect it to be breakeven in the next quarter or the following quarter and also a mix of projects is what we are expecting.

Okay. And then also one on submarine cables since you explicitly mentioned them in the outlook, which you typically don't, and mentioned the larger orders coming in Q3. Should I read this as something exceptional? And can you give a rough indication on how big these Q3 orders will be since that can be quite lumpy on the submarine side?

Yes. We had a similar peak in Q4 of last year, and we expect that Q3 this year will be at that level or probably a little bit higher than that even. So there's at least 50, if not a little bit more additional sales in that segment compared with Q1 and Q2, and that's pretty good profitability.

[Operator Instructions] 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.

Thank you. So we have a few questions also coming in online, so we will read those so that management can answer them.

So the first one is, could the input cost inflation in Fiber Solutions lead to demand destruction, especially if you raise prices 1:1. What does your dialogue around this with customer look like?

I think in the U.S., the market is strong enough that it's not an issue. And keep in mind, these are big construction projects and the material part tends to be 20% or less. So even if there's significant increase to some of the materials, the total project cost doesn't go up that much.

I would be more concerned about that as a possibility perhaps in the European market, which is a little bit soft already. We're not seeing it today, but I'm not ruling that out.

Thank you, Rikard. So the next question is, what do you think about upcoming orders from the BEAD program?

So this is an interesting one and it's been discussed very heavily and back and forth. It's -- by now, it's clear that the BEAD program is moving forward. I think, we're already starting to see some effect of it in the market, but I think it's pretty minor today. However, as of the second half of '26, I expect it to become a more meaningful driver of volumes in the U.S., but also keeping in mind that the BEAD program is one of many factors.

I've said for some time now, I think we should look at it as a cherry on the cake and not BEAD alone will drive the market. I think that there are many other factors that are also important. Interest rate is one of them. A lot of the funding is not BEAD. The majority of the funding is still private and a lot of that is private equity and interest rates are very important.

Thank you for those comments, Rikard. So the next question is, could you put your submarine cable comments into perspective? So we say in the quarter, largely fully booked for 2026 and filling up for 2027. What is the magnitude of such an order book relative to the SEK 50 million delta mentioned in Q4 2025?

Yes. We're deliberately trying not to disclose the exact -- for competitive reasons, exactly how much we're selling and what margins or pricing we have there. So I think I would repeat what I said that it's looking good. We have an almost full order book for '26, and it's quite rapidly filling up for '27 as well.

Thank you for that, Rikard. Next question is, what is the typical lag in terms of margin recovery when you put prices through based on your experience?

I would say, a couple of months.

Okay. Thank you. And then we have a last question also. Can you give a guidance on CapEx, which has been very low now for the last 5 quarters? What's a reasonable expectation for the full year?

So the guidance that we have given when it comes to CapEx is that it would be very low then for Data Center, around 1%, and that's probably what we've been seeing. Harsh Environment, 3% to 5%, which is also where we've been. Where we've been lower is within the Fiber Solutions area. And then we guided over time that it should be around 3%. And what we've said there is, well -- is as well, that we have capacity in many areas. But if we see that we need some more capacity, then we will add that over time.

Thank you for that, Pernilla. There are no more written questions online. So I hand it back to Rikard for some final comments.

Okay. Thank you, everyone, for calling in today, and we will see you again in 3 months' time.

Welcome to the Hexatronic Q4 2025 Report Presentation. [Operator Instructions]

Now, I will hand the conference over to CEO, Rikard Froberg. Please go ahead.

Good morning, everyone, and welcome to this Q4 earnings call from a cold and wintery Stockholm. I'm Rikard Froberg, CEO of Hexatronic, and I have with me, as usual, Martin Aberg, our Deputy CEO; and Pernilla Linden, Group CFO. Also with us today for the first time is Patrik Johannesson, 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 SEK 1.8 billion 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 EBITA of SEK 133 million 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 EBITA 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 our Harsh Environment business area with 15% organic growth and an EBITA 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 SEK 350 million. 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 Fiber 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 2 fast-growing businesses, Harsh Environment and Data Center, that only a year or 2 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, not better nor worse, in the market conditions. There's continued softness in the fiber-to-the-home market, which impacts our microduct 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 SEK 50 million higher than in Q3. And this submarine cable 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 EBITA was on a similar level to the third quarter, which was expected. And as we know, fourth quarter and first quarter have lower volumes, which obviously impacts EBITA. But also here, there was a bit of help from those submarine shipments in the quarter.

The performance improvement program, we are on track and expect to largely complete the activities of the cost savings during quarter 1. 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 BEAD 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 SEK 120 million 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 EBITA 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 full year adjusted EBITA margin increase of about 1 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 would 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 Aberg to talk more about that.

Thank you, Rikard. The fourth quarter for the Data Center business area came in strong on both sales and profitability. All our businesses performed well, which resulted in an organic sales growth of 62% 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 EBITA margin of 15.3%, and this compares to 12.7% 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 continue 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 [ program ] Data Center activities, 2025, the organic sales growth was exceptional. It was at 37%. And going forward, we expect a sales growth that 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 Communication Zone as Rikard said, which is an installation and service company that is based in Chicago. The company was acquired from the 2 founders, and they will remain in the business and continue to develop our U.S. Data Center activities, together with the existing Data Center team we have in the U.S. market. And the acquisition is in line with our M&A strategy, which is to grow our Data Center activities in the U.S. market and 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 USD 20 million. That's a potential earnout of approximately USD 3.5 million. And this translates to an EBITA multiple of 6x if the full earnout is achieved. The transaction was structured as a share deal. But in the U.S., when you acquire a corporation, it can be structured as an asset deal for tax purposes, and this gives us substantial tax benefits. So the net present value of those tax benefits amounted to close to USD 3 million, which brings the effective multiple down to a maximum of 5.3x if the full earnout 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, I should say. 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 broadened our services through this acquisition.

And then, over to the financial impact of the acquisition. Pro forma, it increases our sales with 13%. Margins, if we would have owned Communication Zone during 2025, would have increased from 17.9% to 18.3%. And lastly, the acquisition was financed with cash and existing debt facility.

And moving over to the strategic rationale of the acquisition. Below is what we presented a year ago when we introduced the 3 business areas. The outlook and ambition was to broaden our service offering by acquisitions. And 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 Communication Zone, 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 Communication Zone's 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 SEK 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 Rikard said, we have a negative effect on exchange rate to this quarter of 9%. It's more or less all currencies that have weakened compared to the SEK.

We had an adjusted gross margin at 37.5% compared to 41.4% prior year. Gross margin was decreased due to continued softness in the FTTH market, price pressure and the typical seasonality, as well as the low capacity utilization and fixed cost coverage within our factories within Fiber Solutions, as well as a small mix effect between our business areas.

Adjusted EBITA of SEK 133 million or an EBITA 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 Fiber Solutions business, resulting in a reduced capacity utilization within our factories, which was then partly offset by strong development within our Data Center and Harsh Environment. Overall, an EBITA of SEK 37 million or 2%, and that was affected by onetime costs of SEK 97 million; SEK 28 million related to the performance improvement program launched in September, mainly related to Fiber Solutions Europe, and SEK 67 million related to the extended performance improvement program for North America of SEK 67 million. Net financial items of minus SEK 35 million, that is mainly related to interest. And tax rate is mainly affected by nonrecurring 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 market. The implementation of the plan is well underway. And for the fourth quarter, we added SEK 28 million as onetime costs, totaling to SEK 230 million, which is in line with earlier communicated onetime costs. Savings on this part is SEK 110 million 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 onetime cost is related to severance, facility costs, transition costs and legal costs. Noncash items is mainly related to write-down, intangible assets and inventory.

As Rikard said, we have now also decided to expand the performance improvement program and make some adjustments to our American operations. And the onetime cost for this part is planned to be SEK 67 million and is related to a write-down of fixed assets and the costs [ to downsize of ] the operations. SEK 9 million of the SEK 67 million is related to cash. And the yearly saving is estimated to be SEK 10 million. So overall, the EMEA and North American performance improvement program will give SEK 120 million in savings, and we will have full run rate by end of Q1 2026 and a cash payback in total of 1.1 years.

If we then look at Fiber Solutions, so total net sales of Fiber Solutions of SEK 1.2 billion 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 U.K., and that was partly offset by Sweden due to the large submarine cable delivery. North America declined with 16%. That is mainly related to Canada with a slowdown in the build-out of FTTH, but the conduit business in North America saw good volume growth but low pricing, while year-over-year, there is still a meaningful price decline. APAC had a growth of 11% due to increased project deliveries.

We had an adjusted EBITA of SEK 61 million or 5.2%. And profitability was hurt by the lower sales volumes, mainly within microduct, and then consequently, low capacity utilization and then the continued price pressure. And during the quarter, we had low CapEx investment in the quarter of SEK 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 SEK 310 million 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 the sales per geography can fluctuate between quarters.

Adjusted EBITA at SEK 35 million and a margin of 11.4%. We continue to see positive effects from the improved production efficiency in Rochester Cable. CapEx investments in the quarter of SEK 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 SEK 369 million 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 our recent acquisition, Communication Zone. Solid EBITA margin of 15.3%, and CapEx investment in the quarter of SEK 2.2 million or 0.6% of sales.

So cash flow from operating activities before changes in working capital of SEK 148 million. Positive effect from working capital of SEK 200 million in the quarter. SEK 144 million is related to inventory, where we have actively worked to reduce the levels for a period of time. SEK 94 million is related to efficient accounts receivable collection, partly offset by decreased accounts payable. Cash flow from operating activities of SEK 349 million or 235%. Overall CapEx investments of SEK 27 million or 1.5% of sales. SEK 164 million is related to the acquisition of Communication Zone. And group financing activities is related to amortization and lease liabilities.

Net debt, which corresponds to net debt excluding lease liabilities, amounted to SEK 1.6 billion at the end of the quarter, which is a decrease of SEK 124 million compared to last quarter due to positive cash flow and positive FX effect of SEK 27 million, partly offset by decreased adjusted rolling 12 adjusted EBITA, leading to a net debt in relation to pro forma adjusted EBITA 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 ratio somewhat during the next couple of quarters. On top of that, we have an earnout 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 SEK 661 million of cash and SEK 1.1 billion of unutilized backup facilities, which gives us a liquidity of SEK 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 EBITA 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 Fiber 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 microduct volumes, but we see interesting growth opportunities in other product areas like submarine cable. 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 a real effect of the cost savings in coming quarters.

Harsh Environment, the full year, we had a very respectable organic growth of 11%. Still a ways to go to the SEK 2 billion revenue target. But with double-digit organic growth and an ambition for acquisitions, I think we're on our way. Adjusted EBITA margin improved by almost 1 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 over-deliver. With the latest acquisition of Communication Zone, we're now at a run rate of about SEK 1.5 billion, 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.

[Operator Instructions] The next question comes from Max Bacco from SEB.

Well done in the quarter. So 2 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, do you -- 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 levels 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 are -- 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 are not saying that it will -- we will see that we have a further margin expansion. So we keep to our -- what we have guided before long term that we will be at 15%, but a strong outlook for '26.

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 U.S., you might have some impact on order 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 U.S. has had some impact in January. But we still have -- there's still a couple of months to go in the quarter. So 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.

The next question comes from Fredrik Nilsson from Redeye.

I want to start 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?

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 -- 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?

Yes. I mean, you sell to companies building power lines, for example, the part of the duct and conduit that's unrelated to the fiber.

You're right. 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 BEAD 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.

[Operator Instructions] 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 Solutions and Harsh Environment into Data Centers? And -- I'm sorry, Data Center and Fiber Solutions -- have there been any reclassification 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?

Can you take that?

Yes. Okay. So the background why we categorize sales into Data Centers, Fiber Solutions and Harsh Environment, that is basically how we are organized today in the business, so mirroring that. In terms of reclassification in sales between Fiber Solutions and Harsh Environment into Data Center, [ that has ] not been anything basically. Top line has been performing very strongly in Data Centers with organic growth of 62% in Q4, [indiscernible] 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 the addressable market that we see. So around 10% is [ the 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, especially when we sell through distribution. But I think it's largely by customer segment.

So apart from these, are there other drivers of the expected return to growth in Fiber Solutions in 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 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 this way. We don't disclose the cost savings in the quarter. 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 rate as of the end of Q1. And then, revenue decline, I think we expect a similar seasonality in Q1 and Q4 as 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 SEK 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.

Welcome to the Hexatronic Q3 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CEO, Rikard Fröberg. Please go ahead.

Good morning, everyone, and very welcome to Hexatronic's Third Quarter Presentation for 2025. I'm Rikard Fröberg, CEO of the Hexatronic Group. And with me today, I have Martin Åberg, Deputy CEO; and Pernilla Linden, Group CFO.

As always, we start with an overview and introduction to the company. Hexatronic today, it's a global business with about SEK 7.5 billion 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 3 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 as overall, the quarter was in line with expectations. We saw SEK 1.9 billion revenue, which was an organic growth of 2% and adjusted EBITA was SEK 146 million, 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 1/3 of sales and over half of the profits. Our Fiber Solutions business area is still challenged by softer market conditions in the FTTH or fiber-to-the-home segment. This business area came in slightly below our expectation at 5.4% adjusted EBITA 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% EBITA 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 2x.

A few key events that were announced in the quarter. First, as already mentioned, we launched step 1 of the performance improvement program for Fiber Solutions. This step includes some hard cost savings totaling around SEK 110 million, mainly from rightsizing our organization and actually closing 1 duct factory in Netherlands. It 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 Ease 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 Patrick 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 are two sets of targets here, the 2028 top line ambition and an EBITA 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 SEK 2 billion for Harsh Environment and SEK 3 billion for Data Center. And this would roughly double the size of these 2 businesses combined and make it about 50% of Hexatronic total sales.

We also see that Harsh Environment and Data Center are highly differentiated offerings that we feel should be making 15% EBITA margin over time. In fact, Data Center is currently slightly higher than that, while Harsh Environment still has some way to go. The Fiber Solutions 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 EBITA 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.

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 Fiber 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 EBITA, the shift becomes even more substantial. The 2 smaller business areas already today account for close to 60% of the EBITA in the quarter. And of course, that is driven by their strong performance, but also obviously by the relatively lower margin of Fiber 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 Fiber 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 flat -- sales have been flat now for about the last 3 quarters. Geographically, we saw declines in both Europe and North America. APAC was slightly down in SEK but saw modest growth in local currency.

The volume shortfall, particularly in microduct is causing under-absorption in our factories and therefore, some margin pressure, and this is why we have decided to close one of the duct 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 U.S. market, we expect volume growth in 2026.

And here is a look at our different product segments within Fiber Solutions and how they developed in the quarter. 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 Fiber 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 passed, which use a lot of microduct 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-digit volume growth, but 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 microduct 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 EBITA 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 a 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, Rikard. We closed another strong quarter, as Rikard said, with 39% organic sales growth. We saw strong performance across our businesses in the quarter. Over the last two 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 U.S. market. If we look at it sequentially, we are slightly down from the second quarter. The second half of the year is always lower and especially the fourth quarter, and this is due to fewer working days in December.

In terms of EBITA, margin increased 2.3 percentage points to 16.9%. And the margin expansion we see in the quarter 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 with continued strong demand. And this is especially among the larger players in the hyperscale and colocation segment 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 U.S. organization with installation of security systems, audiovisual solutions and also wireless networks for indoor environments. We have also recently expanded our electrical offering in Europe, and this is to become an even stronger partner to our customers. And as we discussed 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 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. Roughly 40% of our sales is towards the cloud segment, and this is the main growth segment that I just mentioned. When we look at independent market studies, this segment is expected to have an annual growth rate of plus 15% over at least the next 5 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 rate 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. The focus here is, of course, to continue to broaden and diversify our customer base. So, all in all, focus is, of course, to leverage on the strong market growth that we have in the data center space, but equally important to continue to diversify the business in terms of offering end customer segment as well as the customer base. And with that, I hand over to Pernilla for the financial overview.

Thank you, Martin. So overall, we had a total sales of SEK 1.9 billion in Q3. It's an overall decline of 3%. Organically, we had a growth of 2%. Growth was driven by strong performance in both Harsh Environment and Data Center, and that was partly offset by the decline in Fiber Solutions. We had a 1% acquisition-driven growth from our recent acquisition, Endor within our Data Center business. And next quarter, the Endor business will be included in the organic growth.

We also had a 6% negative effect from exchange rates this quarter, more or less all currencies in the group having a negative impact, but primarily due to a weaker U.S. dollar, Korean won, Aussie dollar, and sterling. During the quarter, Hexatronic has recognized SEK 202 million of nonrecurring costs linked to the performance improvement program launched in Q2. The program is mainly in the Fiber Solutions business area, and nonrecurring cost is related to severance costs, facility costs, write-down of tangible assets, inventory, and transition costs. Adjusted for the nonrecurring onetime costs in the quarter, adjusted gross margin were at 37.5% compared to 43.1% in Q3 2024. The 5.6 percentage points lower GP is mainly related to price pressure as well as lower capacity utilization and fixed cost coverage within our factories within Fiber Solutions but also mix of our different business areas.

Adjusted operating costs were 26.2% of sales in the quarter, which is lower than last year of 27.8%. And the reduced operating cost is mainly related to lower freight costs, explained by the reduced freight costs from Asia, but also lower cost of external services. So overall, we had an adjusted EBITA of SEK 146 million or 7.7% compared to Q3 last year at an EBITA level of 11.8%. Actual EBITA, including nonrecurring one-time costs of SEK 202 million at minus SEK 56 million or minus 3% EBITA. Net financial items of minus SEK 9 million, that was mainly related to net interest expense of SEK 31 million, but also other financial items that include revaluation of additional purchase price and acquisition options with a positive of SEK 20 million.

Tax rate during the quarter amounted to minus 35% compared to 29.5% in Q3 2024. And the tax rate this quarter is mainly heavily affected by the nonrecurring items related to the performance improvement program. And the negative tax rate is explained by the fact that the group recognized a tax expense in connection with a negative profit before tax. The cost has arisen in countries where the group currently has no taxable profits. As it is currently not possible to assume with reasonable certainty that these tax losses will be utilized in the future, it's not possible to report any deferred tax assets. If we exclude the one-time effect here, we are more or less in line with the last quarter.

During the quarter, Hexatronic announced a performance improvement program, mainly, as I said, in the Fiber Solutions business area with consolidation of manufacturing footprint, organizational alignment in Europe, and then with an increased focus on selected growth areas. The total cost savings are estimated at SEK 102 million, and the net effect on EBITA at SEK 110 million on an annual basis. And this will be realized starting from the fourth quarter 2025, be fully realized by the end of the first quarter in 2026.

Nonrecurring items are estimated at SEK 230 million. But now in the third quarter, we have recognized SEK 202 million, and those costs are related, as I said before, to severance, facility costs, write-down of tangible assets, inventory, and transition costs. And the remaining communicated nonrecurring items for the program are expected to be reported in the fourth quarter.

If we then take a look at the Fiber Solutions, we had a total sales of SEK 1.2 billion in Q3 with an overall decline of 14%. Organic, we had a decline of 7%, and that is mainly due to the weaker demand of the FTTH equipment business and price pressure. Europe declined by 7%. And for this quarter, that is mainly related to Sweden and Finland, and that was partly offset then with growth in Germany and U.K. North America declined with 26%, and it's related to Canada with a slowdown in the build-out of FTTH, but also our U.S. business. The conduit business in North America saw good volume growth, but with low pricing, where we -- year-over-year, there's still a meaningful price decline. APAC declined with 3% but increased in local currency.

Adjusted EBITA of SEK 66 million or 5.4%. Profitability was hurt by the lower sales volume, mainly within Microduct, and also then low-capacity utilization and continued price pressure. Within Fiber Solutions, we realized SEK 190 million of nonrecurring items in Q3. EBITA then for the quarter of minus SEK 124 million 10% compared to 12.6% last year. And we also had then low-capacity investments during the quarter, SEK 10 million for the quarter or 0.8% of sales, which is all related to maintenance.

If we then take a look at Harsh Environment, total sales for Harsh Environment of SEK 314 million, a growth of 8% or organic growth of 15%. And growth is mainly driven by the defense and energy sector. And as we previously have communicated, the company within Harsh Environment had an international customer base and the majority of revenues from larger projects, which means that both quarterly sales and sales per geography can fluctuate between the quarters.

Adjusted EBITA at SEK 35 million and a margin of 11%. We continue to see a positive effect from improved production efficiency within Rochester Cable. CapEx investment in the quarter of SEK 13.2 million or 4.2% of sales, mainly related to production and efficiency improvement in Rochester.

Let's move over to Data Center then. Total net sales for Data Center of SEK 334 million with an overall growth of impressive 43% and an organic growth of 39%. And I'm especially pleased to see that we have strong development for all units, but especially in the service business in Europe and North America. And we continue -- contribution from the acquired business is in line with our expectations. So, a solid EBITA margin at 16.9%. And CapEx investments in the quarter is low at SEK 3.7 million or 1.1% of sales.

If we then move over to cash flow. If we're looking at cash flow from operating activities before changes of working capital, we had SEK 132 million. We had a positive effect from working capital of SEK 22 million. Inventory was decreased by SEK 68 million, mainly in the Fiber Solutions business area, but offset by lower accounts payable, and that is mainly due to the focus of reduction of inventory. Accounts receivable has increased with SEK 22 million during the quarter, mainly due to customer mix, but increase in operating liabilities of SEK 46 million is mainly due to prepayments from customers related to the Harsh Environment business area. So, cash flow from operating activities of SEK 154 million or 117%. Total CapEx investments in Q3 of SEK 27 million or 1.4% of sales, and mainly maintenance investment and production efficiency improvement investments in Rochester Cable.

Group financing activities amounted to SEK 33 million, which is related to amortization of lease liabilities. Interest-bearing net debt, which corresponds to net debt, excluding lease liabilities, amounted to SEK 1.7 billion at the end of the quarter. That is a decrease of SEK 96 million compared to last quarter, and due to positive cash flow and positive FX effect of revaluation of our loans of SEK 19 million that was partly offset by the decreased rolling 12 adjusted EBITA, leading to an interest-bearing net debt in relation to pro forma adjusted EBITDA on a rolling 12 months at 2x during the quarter. At the end of Q3, we had SEK 596 million of cash and SEK 1.1 billion of unutilized backup facilities, which gives us a total liquidity of SEK 1.7 billion. And we have a continued solid financial position.

Okay. Time for me to wrap things up. First, again, as a summary of the quarter performance. Organic sales growth of 2% overall and adjusted EBITA that landed at SEK 146 million or 7.7% margin. Our Fiber Solutions business continues to operate in a rather challenging environment, particularly for fiber-to-the-home and Microduct. The performance improvement program there is up to speed and fully on track, and we booked one-off costs associated with this of about SEK 200 million in the quarter.

Data Center and Harsh Environment, strong results and double-digit organic growth, now accounting for more than half of group profits. Our cash flow is healthy, generating SEK 154 million operating cash flow, which corresponds to 117% cash conversion. And our net debt was slightly reduced to SEK 1.7 billion.

In terms of the outlook, starting off with a reminder of the seasonality that we typically see, where Fiber Solutions usually has lower activity in Q4 and Q1. This is simply weather-related. Data Center is slightly different, with a lower second half and stronger first half, as we heard from Martin, and we expect these patterns to remain.

Looking at the business areas for Fiber Solutions, we expect the market situation to stabilize. And by stabilize, I mean, no real improvement is expected in Q4, but also not expecting conditions to get worse. Of course, remembering that seasonality effect. The performance improvement program here will continue to ramp up as planned, and we will see full run rate of the cost savings by the end of Q1.

For Data Center, simply put, we expect a good growth to continue in Q4, just take the seasonality in account. And then going into next year, continued strong development, but also keeping in mind that the comps are getting significantly higher, so percentage growth likely to be somewhat moderated. And also, for Harsh Environment, more of the same, I would say. We expect stable robust development here. The margin trend should be slow and gradual upward with some quarterly ups and downs because of the project nature of the business.

Last but not least, we are still focused on executing our M&A pipeline, primarily in Data Center and Harsh Environment, where we see compelling opportunities for value creation. And I have said now a number of times that we want to make one or more deals this year. I think that is still the ambition. But obviously, there's less year remaining by now, and it always takes two parties to make a deal. So, it's not entirely in our hands when it will happen, but the pipeline is promising, and we continue with that ambition.

So that wraps up the presentation part of the session today. And with that, we will move on to Q&A.

[Operator Instructions] The next question comes from Adrian Gilani from ABG Sundal Collier.

For my first question on Data Center, as we have spoken about before, you've chosen to set the margin target of 15% over the cycle. And that's, as you mentioned, below where you're currently at. So, with that in mind, how long would you say that the current margin levels in Data Center could be sustainable?

Thank you, Adrian. It's Martin here. So, this will very much depend on our M&A pipeline, obviously. So, we see nothing that is trending downwards today, rather the opposite where we have. We're growing the business at quite a flat gross margin and good scale effect. So, it's always difficult to assess what the margin will be long-term, but it will be a function of the M&A pipeline, I would say.

And then on the CapEx, before you've said that we should expect CapEx at 3% to 4% of sales. You're now on track to come in quite a bit below that. But does this mean we should expect higher investment pace in next year or will you rather keep the current pace?

Okay. So, we are at this stage now at a lower, you are right, and that is mainly because of the Fiber Solutions, we are only maintenance investments. If we're looking at the Harsh Environment, we are between the 3% to 5% that we have already communicated, and we are also on the Data Center where we have communicated. When it comes to Fiber Solutions, as we talked at the Investor Update, there will be specific investments in some areas going forward where we see that we have possibility to have a good growth. But for now, it is lower due to that we are only doing maintenance.

I think, Adrian, this is tied to also the performance improvement program right now is very much focused on rightsizing and lowering our costs. The next stage here is to invest for growth, and we have areas that we've talked about. We see, for example, the submarine cable business is growing. We have online, and we're starting to get closer to the full utilization of that line. So that could be the type of investment that could come. And then that would be a step-up, of course, in the CapEx rate for Fiber Solutions.

The next question comes from Fredrik Nilsson from Redeye.

I want to start with the growth you saw within Fiber Solutions in Germany and UK. What is driving that growth? And do you believe it is sustainable?

I would say that the major reason for that is that the market has been lower for a period of time, as you know, and then you have lower comparables. So, we have in this quarter a slight growth. So, the market has stabilized somewhat.

And next question from me. I mean, considering the strong data center market, have you seen any increase in valuations of potential M&A targets?

So, what we target are the small and midsized open management owned businesses. And in that part of the market, we're still talking about the same valuations. Then of course, we can see some transaction between private equity and similar that are priced significantly higher. But on the private small size bilateral discussions, it's still in the same valuation range.

[Operator Instructions]

I think we had a couple of written questions coming in.

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 question here. Could you elaborate a bit on what is happening in Fiber Solutions North America in general with minus 26% sales growth? Additionally, Dura-Line reported yesterday, stating that it see strong volume growth within Duct. Are you seeing the same? What are your thoughts on Fiber Solutions North America going into 2026?

Yes. Good question, and there's quite a lot there. So let me try to unpack it. Starting with our decline in North America. It's a few different factors that are working together. So, the first one is exchange rates, right? I think that's 6% or 7% in the quarter with the U.S. dollar weakening. And then the second effect is a decline in volumes primarily microduct that we've seen. And it's important to remember, it's North America. It's not just the U.S. There's some decline in the U.S., but actually a more drastic decline in Canada, where the building for now of homes passed has more or less stopped. There are some new rules that the government is trying to push in Canada that if you build a network, you have to allow access to your competitors and all the majors are saying, well, in that case, we're not going to build anything. So, we'll have to see how that situation develops. And for the last two quarters at least, we've seen very, very low activity in Canada.

And then the third aspect of this is the conduit business, and this relates a bit with Dura-Line. Here, as we have talked about, we are seeing actually volume growth is quite healthy. It's volume growth. But we are comparing with a year ago when prices were significantly higher. So, building on that, if I then compare with Dura-Line, they came out with what I consider to be a strong result. They reported yesterday but well done by them. I think we match from what I can see, if not exceed their volume growth, but we're not matching their margin. And I think I don't know exactly, of course, with Dura-Line, I believe that they have higher capacity utilization. They are the market leader. I believe that on the back of that, they have higher capacity utilization and also stronger pricing with a few accounts. So that was a good result.

There are others in the space that we know are having a harder time. And there's -- recently, there was a public disclosure from Atkore that they're doing a strategic review. And if you read between the lines, my interpretation is that they're looking to get out of the business and because they are struggling in that business. You can find that it's publicly available.

What's your perspective on the bid opportunities in the U.S. for 2026? It seems the program is finally gaining significant momentum. Are you and your partners ahead of the curve in preparing for this with your customers?

I'd like to think we're always ahead of the curve. And it is -- I think I agree, it looks like it is coming in 2026. I don't think it will be January 1, the tap is turned on 100%. But gradually during 2026, we do expect to see the impact of that. That's one of the reasons why we are expecting better development in North America next year. Also, the tax incentives in the Big Beautiful Act could be quite powerful for CapEx investments as well. So yes, we are seeing the same signs, and it seems also that there -- at the end of the day, there will be a reasonable split between fiber and other technologies in the BEAD program.

Okay. I think we have no more questions. So, thank you, everyone for calling in. And for those of you who are in Sweden, I hope you enjoy a well-deserved and action-filled sports break next week.

Welcome to the Hexatronic Investor Update September 2025 presentation. [Operator Instructions]

Now I will hand the conference over to CEO, Rikard Fröberg. Please go ahead.

Good morning, everyone, and once again, welcome to beautiful Stockholm and this investor update. I'm Rikard Fröberg, CEO of the Hexatronic Group, and here is the purpose of the session today. So first, we want to provide more insights into the 3 business areas that make up Hexatronic of today. These business areas were created earlier this year and is the way we manage and run the business. As you will see, fiber optic communications is a common denominator, but there are important differences between the business areas. And as we know, the Fiber Solutions business is currently the one that is challenged with difficult market conditions, and we are, therefore, launching today a performance improvement program, and we'll give specifics about its content.

Finally, we're also introducing new financial targets now by business area to replace our previous group level targets. With me today, I have Deputy CEO, Martin Åberg; CFO, Pernilla Linden; and Head of Harsh Environment, Jakob Skov.

Here is the agenda, and we're already into the first point, which is an introduction. Then we will go to Fiber Solutions, followed by Data Center and Harsh Environment. Last, I will do a short wrap-up, and then we will take your questions.

So I've been here now for about 6 months in role. And of course, initially, there was a sharp focus on just getting to know the business, our customers, investors and employees, of course. But rather soon, it became clear to me that we have some really exciting opportunities in our business. We also need to make some changes, particularly when it comes to Fiber Solutions business. And we announced in July a necessary performance improvement program. And today, we are here activating this program and starting the implementation.

And as I look at Hexatronic and where we are today, there are a few key insights and reflections. Clearly, Hexatronic has enjoyed strong growth and success for a number of years up until about 2023, but then the tide kind of turned, and we now need some course corrections. And I view the creation of the business areas as a critical step on that journey. The business areas all have different needs and opportunities. And by organizing ourselves this way, we can better focus on each of them.

Two business areas are very much on track with strong performance, strong value creation potential that really could transform this company. But the third one, Fiber Solutions is in a turnaround situation. We have been very focused on the FTTH or the fiber-to-the-home market. And for a long time, that market served us very well, but now it's challenged. So we need to adjust our cost base to this new reality. And also, we have to find new sources of growth. And that's exactly what the performance improvement program is designed to do.

Two words that you will hear repeated throughout the presentation today are diversification and differentiation. So first, diversification. Now we will, of course, continue to serve the FTTH segment. But if we look at the longer-term horizon, there's an opportunity for Hexatronic to build significant positions in Harsh Environment and Data Center, which we think can be about half the business by 2028. Also within Fiber Solutions, we have opportunities to diversify beyond just fiber-to-the-home.

Second is differentiation. And historically, I would say that Hexatronic has driven differentiation primarily through innovation and a strong system selling approach. Again, we will continue with this, of course. And in fact, on innovation, I feel that we can accelerate. We will deliberately expand and invest in the part of our portfolio that has higher differentiation. And actually, we're now also taking some steps to reduce capacity in the more standardized segment. So with this approach, we can also gradually shift or move our business blend or the center of gravity towards the higher differentiation, which always tends to have more stickiness and also higher margins.

And of course, this is a journey. And in fact, we're on that journey already. If we go back a few years to 2021, Hexatronic was pretty much a pure-play Northern European fiber solutions business. Today, 1/3 and growing of our business is the new businesses. And if you do the math on our new financial targets, you will quickly realize that by 2028, we could be about 50-50 on revenue and more than 50% on profits from Data Center and Harsh Environment. So that's a very different company from the Hexatronic of 2021 and even today.

And if we take a look now at the new financial targets, you will see that we're setting a higher margin target for Data Center and Harsh Environment and Fiber Solutions. And again, this is driven by their level of differentiation being higher than Fiber Solutions. You'll also probably notice that the 15% EBITDA target for data center is actually slightly lower than where we have -- where we are today, where we have been trending in recent quarters. And certainly, we don't want to lower our margins, but this is a longer-term target, over a business cycle. And we're currently putting a fair bit of resources for organic growth into that business, which we feel will pay off long term, but in the short term, is a bit of an investment.

For Harsh Environment, it's the other way around. We're not yet at the 15% margin level. Also here, important to note is a longer-term target. And we feel that with the nature of that business, we should be able to get to 15% over time, but it is a step-by-step plan. And also for Fiber Solutions, we're currently trading lower than this target, and we'll cover shortly what needs to happen to close that gap.

The second financial target is the 2028 top line. This does include M&A growth, which has always been an important driver for Hexatronic. And you will see again that we have an ambition to grow both Harsh Environment and Data Center substantially, which will, in turn, gradually drive up the blended margin of the group.

So now with that introduction, we will be heading on to the section covering Fiber Solutions. And let's start with a recap of the portfolio that sits within Fiber Solutions. So the biggest share here is the FTTH and transport network products. And while there is some product overlap between the two, the easiest way to think about it is that the FTTH or fiber-to-the-home is the last mile, the fiber-to-the-home or the last mile, right? And the transport networks is more the middle mile and the backbone, typically larger cables, higher fiber counts, the motorways of data network, if you like. And it's currently that transport network market that sees growth, driven by the need to connect data centers around the world, while FTTH is clearly quite soft, particularly in Europe.

Then you have submarine cable, which is a smaller business, but highly differentiated and showing good margins as well as growth prospects. Conduit and pipes is perhaps the least differentiated part of the portfolio, and this is unsurprisingly where we see quite heavy price pressure. And then we have some currently smaller segments rounding out the portfolio with instruments, tools, wireless products and training.

Sorry, wrong way. Let's go this way. So as a consequence to the current FTTH market softness, we saw a clear decline in demand after the boom years in 2022 and '23. And then there seemed to be a bit of a stabilization. But unfortunately, and somewhat unexpectedly, there's been a renewed decline in demand in recent months, and that brings us to where we are today. So we're starting at about SEK 5.2 billion revenue on a run rate level, and we have set a target to reach SEK 6 billion by 2028. This is about 4% annual growth, and we see that most of that growth will come from the U.S. market organically. In fact, we expect Europe to be rather flat.

On the margin side, we target 10% EBITDA over a business cycle. Today, we were at 6.4% in Q2 after 4 consecutive quarters of margin compression. And this margin decline is troublesome. And clearly, we have a lot of work to turn this around, and that work starts today with the performance improvement program, targeting SEK 110 million of EBITDA improvements through hard and direct cost savings. And this SEK 110 million corresponds to for Fiber Solutions, about 2% of EBITDA margin. So based on where we are today and that savings, you can see that we will close a fair chunk of the gap, but not all. And the remainder of that gap, we plan to close from operational excellence initiatives such as procurement savings, scrap rate reductions and things like that. These savings are more long-term oriented and will be gradually captured with start in 2026.

Let's take a look at the program in its totality. It has 3 main components: One, cost savings from consolidating the footprint; two, operational excellence; and three, growth initiatives. So I would call it like one is short-term and hard cost savings, followed by more medium-term margin and productivity improvements and then growth. And zooming in on the first component in those cost savings, we are today announcing that we plan to close the plant in Netherlands, a factory called Weterings and consolidating volumes in Europe in our facilities in Sweden and Austria. This will give immediate cost savings and also benefits in higher volumes and better loading for the remaining lines.

We're also restructuring and rightsizing the broader organization across Europe, both blue collar and white collar. Some smaller unprofitable business will be discontinued. And in total, these actions correspond to a workforce reduction of about 120 full-time equivalents.

I will now hand over to Pernilla for some more specifics on that part of the program.

Thank you, Rikard. So the performance improvement program Phase 1 called consolidated footprint consists of savings in total of SEK 122 million and an EBITDA effect of SEK 110 million. The EBITDA impact from the cost reduction activities is compared to the cost levels the first half of 2025. And the program consists only from sustained savings, so no short-term savings. The program is linked to Fiber Solutions and is mainly in the EMEA region. The program includes the planning of the closure of the Netherlands manufacturing plant called Weterings. And we also consolidated volumes then to our other manufacturing plants in Sweden and Austria as well as we are rightsizing our other manufacturing sites, commercial and back-office teams.

Overall, 2/3 of the program is linked to FTE reductions. In total, 120 FTE is affected. We have indirect labor of savings of SEK 58 million, SEK 26 million of direct labor and then the rest is related to reduced facility costs, other cost, depreciation and then offset by some discontinued business, mainly related to the closure of Weterings.

In summary, the performance improvement program Phase 1 called consolidated footprint consists of a total EBITDA effect of SEK 110 million. The cash effect, the cost of the program is SEK 125 million and the noncash effect of SEK 105 million, totaling to a total cost of SEK 230 million. The onetime cash effect of SEK 125 million is mainly related to severance costs, facility costs and transition costs. The noncash onetime consists mainly related to tangible assets and inventory related to the consolidation of the manufacturing footprint in EMEA. Overall, the cash payback of the program is 1.2 years, and the materialization of the program will gradually take effect with full run rate impact end of Q1 2026.

And by that, I will hand over to Rikard again.

Thank you. Moving on then to the second component of the program, which is operational excellence. This is slightly more long term in nature and will target reductions in scrap rates, improved yields, sourcing savings as well as reduced working capital, mainly in inventory. We're not disclosing a specific number here. But to give you an idea, I would describe it as this is the way to close the remainder of the gap after the SEK 110 million of direct savings.

And last but certainly not least, we have targeted growth initiatives to get the Fiber Solutions business back to growth. Let's take a look at where we see the main ones. Starting with the FTTH market. This graph shows that some of our core markets are beginning to become mature. The Nordics, except for Finland, have been there for quite a while. And while there's still solid business to be had in those markets, the rate of fiber build is more driven by things like new construction and infrastructure. U.K. is also beginning to see this shift with 70% now of homes passed and a clear trend towards homes connected rather than homes passed. However, the U.S. has a lot of build to do and remains our biggest growth opportunity within Fiber Solutions, both from market growth and from share gains as we are a quite small player in the U.S.

Germany remains at low levels, but hasn't really picked up and probably needs some trigger, maybe a political change for that to happen. We've been waiting for that and others have as well. We haven't really seen Germany pick up pace yet. But at some point, that is bound to happen.

However, while it's clearly then a mixed picture for the FTTH outlook, there are some adjacent segments with growth opportunities. Main ones listed on this slide with the most imminent ones on the left-hand side. Starting with submarine cable, while it's not very large today, it's a concrete and immediate opportunity for growth where Hexatronic is well positioned. Same with transport networks. It's a market that Hexatronic traditionally has put a little bit less focus on, but we're shifting that, and we start to see a growing pipeline of opportunities here.

Wireless is a segment that is forecast to show growth in coming years from an overall densification of networks, whether it's 5G, fixed wireless or other. And then there are some interesting plays in security applications and electrical utilities, but these are more long term for Hexatronic.

And let's take 1 minute and just review in a little bit more detail the submarine cable opportunity. These are cables manufactured in our flagship plant in Hudiksvall, Sweden. They are not the transatlantic cables, but rather for short and medium distances such as connecting Sweden and Finland, for example. We see good demand and growth in this segment. It's fueled by an overall increase in data traffic, but also factors like security concerns and build-out of windmill and wind energy. So this is an area that we expect to grow and invest in.

And an important enabler for growth in Fiber Solutions is innovation and product development. Innovation has long been in Hexatronic's DNA. However, I think in recent years, it has stood back somewhat as a lot of resources have been so focused on capacity expansions. So here, we have an opportunity to now reboot and put once again more focus and more resources to true product innovation. I see opportunities to accelerate both the innovation process and also the commercial launch process with an objective to cut the overall lead time from idea to market quite significantly. And I actually wanted to share today an example of a recent innovation that I think is great. It's about Viper. Micro cables is one of our core brands, and it's been around for a while now. But we recently launched an upgraded version.

And while it may not look all that different, it's actually a significant improvement for the end user. In this case, that's the installer. This is the first to the world dry micro cable, which means it doesn't have any of the typical grease that's needed to protect the fiber on the inside. Therefore, you can install it without wiping off the grease. This saves time and avoids a rather messy operation. In addition, there's a protective yarn inside, which on the new version sticks with the cover. When you strip the cover off, it sticks there, again, saving time for the installer who doesn't have to manually remove it.

So if you do this -- if you're an installer, you do this every day, all day, it's quite a big change. And for me, this is a great example of innovation. And let's see if we can review a video that actually demonstrates this.

Can we get the video, please?

[Presentation]

All right. So you saw here clearly illustrated on the left, significant reduction in the time for the installer. So really addressing an unmet customer need and therefore, improving the customers' productivity and the total cost of installation. This is classic Hexatronic. And so wrapping up then for Fiber Solutions. To summarize here, we will reclaim the profitability where; one, we're taking actions to reduce cost to the tune of about 2 percentage points of EBITDA margin; two, operational excellence initiatives to drive margins further over time; and three, investments in growth and innovation. With this plan, we're targeting 10% EBITDA and SEK 6 billion of sales.

That wraps up things for Fiber Solutions, and we move on to Data Center and Martin.

Thank you very much, Rikard. Today, I will provide an update of the data center business area. We'll talk about our offering with an emphasis on the services side, talk about our financial targets that we are introducing, talk a bit about the state of the market, outlook going forward and also conclude with, okay, what is our strategy to really achieve those targets going forward.

So looking at the financial overview. Over the last 3 years, we have established a platform for growth. I will come back to that, but we have a very strong geographical presence. We have a strong offering and so on. So over the last 3 years, we have grown this platform to SEK 1.2 billion in sales or more than $120 million, and this corresponds to an average annual growth rate of 46% throughout this period. And the majority of this growth that comes from acquisition, I would say, roughly 70%, but it's also a very strong organic growth rate. The business has been very profitable throughout this period. And over the past 3 years, it has been -- the EBITDA margin has been in the range of 13% to 18%, last 12 months at 17.3%.

So moving over to our offering. So we are in a unique position to provide specialty ICT services to the data center builds. And this is both for the U.S. market and the EMEA market. The core of this is to design and build the data center IT infrastructure, and that is really working hand-in-hand with our customers for the installation in the first phase, but then continue after the installation is complete, and this is what we call Smart Hands or day 2 services. And here, we typically work a few years with the customers. In some cases, the teams has been around the data centers for more than 5 years.

Moving over to the product side of it, connectivity. This is our bespoke fiber optical assembly and patch panel solutions for end users. The products are designed and produced in the U.S. and we have this local production, we can really have short lead times to the customers to provide them with the products they need. Containment, that is our hot and cold air product offering. Every data center needs this product range. And what we do is that we have the capability to design, produce and manufacture this product offering, and this is both in the U.S. and in EMEA.

And finally, the LAN offering. This is supply of copper-based systems for commercial products. It's end-to-end structural cabling, panels, cabinets and wallboxes. So it's a full turnkey solution for our customers. We mainly focus on the Italian market, but it's also international sales outside Italy.

As you can see, we have a combined products and service offering, which today is quite evenly split between services and product sales. And main growth potential we see within services, where we address both the hyperscale and the colocation segments. And this is really the segment of the market that is expected to have the highest growth rates over the next 5 years.

Here we zoom in on our different services. So we start from the top with the fit-out services. And for us, this is really where it starts, the installation of fit-out. Typically, we have an in-design cycle here that can last for several months. And then from our design, we can then transfer an empty space or a white box to an operational ready data center.

And then moving on to the professional services, I talked about the managed services. So when the data center operational ready, we have these managed services or what we call day 2 services. This is to support our customers, and they have daily cabling and engineering requirements throughout the life cycle of a data center. So here, we really, really can support them for a long period of time.

And then relocation. After some years, the customer needs support in upgrading the infrastructure. Typically, it is after 3 to 4 years of time. The hardware has then taken a number of generations and with more processing power, you would like an upgrade. And this is where we can support our customers with the upgrade, and we can do it at their site or we can help them relocate to a different geography.

And over the past 6 months, we have also increased our focus to 3 new business or service areas. And those have been traditionally, to a smaller extent, addressed mostly then by sub-suppliers. And those 3 new areas are electrical, physical security and indoor wireless. Okay. So that is basically our services side.

So to summarize the service side, we have a very sticky position with our customers. So we help them from the initial design phase through installation and then we support them for several years throughout the data center life cycle. And then when they need to upgrade or relocate, we help them there as well. And now by strengthening our focus on adjacent installation and managed services, we become an even more strategic and integrated partner to our customers. And this is super important with the high build rates and expansion our customers are doing. So they are more dependent on having strong partners.

So if we move over to our breakdown of revenue. Overall, we have a clear focus towards the data center end customer segment, but we are very well diversified in terms of our offering and also our customer base. So close to 50% of our sales is today services. And the other 50% is quite evenly split between connectivity and LAN that we just talked about. And then we have the small containment part that is an interesting growth opportunity for us, both in Europe and in the U.S.

If we look over to the breakdown of end customers, 40% is roughly to the Cloud segment and 30% to the Enterprise segment. So 70% in total of our sales today is towards the data center market.

If we look at the customer concentration area, our largest 10 customers today account for roughly 50% of our sales. So we have a good diversification in this business unit as well. So looking at where we are present today geographically. So we are established on the 2 main key markets, and that is North America and Europe. And looking at the latest [indiscernible] report, those 2 geographies account for roughly 70% of the world market. And when they forecast up until 2029, they see that those geographies will account for roughly 70% at that point in time as well. So with the strong growth, it is really in our existing home market that we see that it will have strong growth.

In terms of split of sales, 62% Europe, 36% U.S. and as discussed, quite evenly split between services and products. So continue to focus where we are present in our home markets. So today, we're introducing 2 financial targets for the data center business area, one for sales and one for profitability. And starting with the growth target is to grow sales from SEK 1.2 billion to SEK 3 billion until 2028. And this corresponds to approximately a CAGR of 30%. To put this in perspective, over the last 3 years, we have grown 46% annually sales.

The first half this year, we have not made any acquisitions in the data center business area, but we have been growing with 24% organically. All in all, the strong market outlook that I will come back to that we see throughout this decade makes us confident, and this is also combined with a very actionable M&A pipeline that we see that we will hit this 2028 sales target.

If we move over to the profitability target, the target is 15% EBITDA over a business cycle. If we look at LTM, last 12 months until June, we were at 17.3%. And over the last 3 years, we have been at plus 15%. So we are today above this target. We have very healthy margins on both products and service side and slightly higher on the product side. We have our own branded, very limited third-party products, so a healthy margin on that. And also on the services side, we provide very critical services to the data center. They invest massively. So there, we can also charge a premium compared to different end customer segments with the same type of services.

So all in all, looking at our existing data center business, it is today performing above the profitability target, even after adjusting for a few products with higher-than-normal profitability. So we are confident in the profitability target. And this also gives us room for acquiring services businesses that we typically, on average, see are at 15% or just below.

So moving over to the market outlook. Here, we have 4 data center market segments. The numbers are from the most recent [indiscernible] report, and that covers the period from '25 to 2029. So if we start from the bottom and talking about the on-premise enterprise customers, the traditional data centers. And this is data center owned and managed by the end customer, the customer itself. So these are typically client-heavy CapEx, a bit slower technology path. And this market is expected to grow at single-digit growth rates.

The higher growth segment of the market is the off-premises or the Cloud segment. And here, we see a transition from on-premise to off-premise, and that is for the reasons just mentioned. And this is where the colocation data centers come into play. They also refer to as multi-tenants. So multiple companies can share the same building. So it provides good scalability. They share power, they can share cooling, Internet connection, physical security and all infrastructure you need. So basically, what they do is that they move into an apartment, but they bring their own service.

So depending on what the needs you have as a customer, you can move into a 1-bedroom apartment, a 3-bedroom apartment or a 5-bedroom apartments. It's scalable in that sense. If the customer decides he needs the entire building, renting all apartments, then it is really a hyperscale lease market segment. So -- and finally, hyperscale own, this is what you read about in the news. It's a very large data center. They are typically owned by companies, Microsoft, Google, AWS, Oracle and the likes.

And to conclude, for more than 10 years, we have been working as a close partner to several of these cloud players. So this is the part of the market that is expected to have the highest growth rates for the next 5 years or throughout this decade. This is an important market for us because it accounts for 40% of our sales. So we have a good exposure here, and we see that we'll continue to grow in this segment.

So in terms of growth, to continue on that, we look at it from 2 different perspectives. First, our offering and then the customer segments. So with regards to the offering, we see the main opportunity within the services side. Here, we are addressing the fast-growing cloud, as I just described, and we have done that for more than a decade.

And our main service today is what we talked about initially with the ICT services. And we will continue to grow and serve our customers with ICT services, but we're also focused to increase our share of wallet with our customers. We're doing this by increasing our focus on those adjacent services that are requested by our customers and that we already today partly serve for subsuppliers. And these are the services that I mentioned, electrical, indoor wireless, physical security.

And recently, we have made a strategic initiative to grow this side of the business by recruiting more than 30 new and skilled experienced colleagues for this initiative. We have had a very strong start, but we expect to be loss-making on this initiative with SEK 1 million to SEK 2 million per month in the second half of the year and turn it to breakeven early next year. And we expect it to be quite a substantial opportunity already for 2026.

On the end customer dimension, 70% of our sales today is focused to the data center market. And this will continue to be our key focus going forward. But that said, we'll also continue to focus on our other 30% of the market. And this is important for our diversification, especially when we talk many years ahead. And the same services are requested for these end customer segments. And we will really focus on the niches that has the highest requirements where we still can enjoy good margins. An example of that is high-end customer offices and demanding industries, just to take a few examples.

So if we move over to M&A, we will continue with our low-risk approach to M&A, work in our existing markets, acquire businesses that we know about, that are having similar offering as we are having today. We see that they are trading today or the sales price in the market is roughly 5 to 7x EBITDA. We will focus still on the small midsized segment of the market, so say enterprise value typically below EUR 50 million. And we'll continue to have this approach where we get aligned interest with the entrepreneurs, with the selling management teams and also cap the downside using earn-out structures.

So if we're looking more on the -- what we are searching for. And as we said, I mean, we see the main growth opportunity within the services side. And the reason being also on the M&A is that some years back, there was a very high consolidation wave on the product side for data centers. And we still see that it's super fragmented on services, both in the U.S. and in Europe. And we have conducted a structured search, and we have more than 200 companies on that list at different stages.

So to summarize where we are and the opportunities we see ahead of us. And the market -- it's a strong market. And as long as we can see, we see it as continued to be strong at least throughout this decade. And if we look at our mix, 40%, as I mentioned, was in the really high-growth segment, and then we have also an Enterprise segment that is lower growth.

But if we look at the business mix, we see the addressable market is expected to grow at approximately 10% per year. We have in the past successfully gained market shares, and we see with the entrepreneurial team we have today, we see that we have good opportunities to continue to beat the market.

But if we look at the financial targets, the majority of the sales is expected to come from acquisitions. And over the last 2 years, we have built a strong M&A pipeline, and we have several ongoing discussions at different stages, and we have ambition to close deals this side of the year. Industry peers trading at 5 to -- or trading -- industry multiples, I would say, at 5x to 7x EBITDA. It is really accretive to earnings. And what's also attractive in the data center business that is very asset-light. We're talking about net working capital to sales of 12% to 14% and CapEx levels of approximately 1%.

And finally, we're introducing financial targets for the business area. The sales of the SEK 3 billion in '28. We're confident to achieve this with the strong market growth we see and with the M&A pipeline we have today. And the same with the 15% EBITDA margin over the business cycle. We are today 2% above this if you look at LTM numbers, but also taking into account that we focus on acquiring services business that might be at 15% or slightly lower. So we have some headroom there as well.

So all in all, we are in a good position. We have established on the main markets that is forecasted to have strong growth for the foreseeable future.

So with that, I would like to hand over to Jakob, that is Head of our business area, Harsh Environment.

Thank you, Martin. As Martin said, I'm having the pleasure of heading Harsh Environment. And today, I'll talk about the 3 units we have built within Harsh Environment, the markets we're in with a dive on the RV segment, financial targets and growth. We are mainly in the offshore applications, as you can see here on the nice picture.

Let me start with an overview. It consists of the 3 business areas: Dynamic Cables, Connectivity and Critical Sensing. In critical sensing, we still have a legacy business into the backbone network. And since our last presentation, we've actually seen an uptick in activity, mainly driven by the bespoken data center build-out around the world.

The strategy for us is to capitalize on the know-how and deploy that into growing sensing business areas. Our value proposition is a capability to enable very accurate temperature guidance to our customers. Such a guidance is depicted here on the lower right. It is a system that can actually give a very precise temperature profile of a steel caster. We have installations worldwide and consider ourselves as the market leader in fiber optical sensing in the steel caster segment.

Installing such an optical system drives the need for not only fibers, but also fiber connectorized solutions. So there's a very close link with the connectivity unit. The connectivity unit serves all our main markets being defense, industry and energy. Here, we act as the trusted adviser to mainly OEM companies. Our strength is in the optical understanding of how to combine optical cables and often 2 very different connector types from 2 different suppliers. It could, for example, be a radar system in Norway being installed or upgraded on a destroyer from a British manufacturer. Each of them, we are the missing link, helping to connect seamlessly those 2 systems.

And over the years, we have grown a profound close relationship with key customers. So we act almost as an integral part of the customer's design cycle. Our expertise is the design of such solutions in harsh environments like a critical radar system. Finally, to the left, we have the largest unit, Dynamic Cables. They are called umbilical cables because they act as multifunctional cables, carrying energy, data and often a third function being, for instance, fluids. You can see such a cable down here to the left.

They work as a working cable. And unlike conventional cables that are laid out, these are actually read on, read off multiple times. Such a read on, read off is what you can see up to the left corner, where it is a part of a RV system. The yellow robot is called a working class ROV, and these are the workhorses in multiple types of offshore applications. They are used in all parts of the life cycle from exploration to decommissioning. And I will come back a little bit later in a deep dive on those markets.

The business unit is dominated by the Dynamic Cables. It currently generates more than 80%. And those working cables are, as just said before, mainly deployed in offshore installations, but also increasingly in defense and connectivity has grown relatively quite a lot in defense.

If we look at the customer segment breakdown, we are still dominated by energy either directly or indirectly, but seeing an increasing activity in both defense and industry. Those markets are characterized by very long life cycles. We often see 8 to even 10 years or even further, if it's a submarine, up to 20 years of deployment and design wins. We have a very broad customer base. And even though a substantial part of the sale can be characterized as project sale, we have a high degree of recurring customers having almost the same top 10 customer concentration.

Having said that, we do have more and more new customers coming on board, making the concentration amongst the top 10 going down from 50% to 40%, enabling us to have an even stronger and more diversified portfolio to grow from in the years ahead. Long-lasting designs are especially seen in the RV markets. And if we look at the RV markets, we are in all the markets depicted here being oil and gas, renewables, infrastructure and so forth. These RVs are in subsea construction, underwater inspection, maintenance, asset monitoring as well as environmental monitoring. RVs are used in many offshore applications in the defense and recently even more to monitor the critical infrastructure.

Recently, we also see an uptick in the trench and power market. The trench and power markets are being deployed in offshore renewables and infrastructure build-out and also driven by the high growth in offshore data cables. Trenches drive an increasing demand for specialty umbilicals and can be directly correlated to the increase of offshore cable laying activity.

If we look more into how the market is divided, you can talk about new builds, service and maintenance and asset and operator owners. We play in all 3 subsegments, and I've mentioned a few of the main customers here -- operators. In terms of cable consumption, the largest part is being deployed in the service and maintenance segment. However, being designed in, in the OEM segment does give you a head start when the cables must be serviced. We supply across all 3 segments and aim to be the preferred choice within the service and maintenance area.

The largest of the 3 is the service and maintenance market. And just last week, Oceaneering was awarded a 4-year contract by Petrobras. Petrobras and their massive build-out is expected to drive a substantial part of this growth in this area over the next 3 to 5 years.

And speaking of growth, we've definitely grown mainly by the acquisitions of the 2 large acquisitions in 2023 being Rochester Cable followed by Fibron. With the pause of acquisitions in '24, we've been in a steadier period of organic growth as well as improving our profitability in the acquired businesses. We are trailing at SEK 1.2 billion currently, and we are trailing around 10.5% EBITDA. It is a project business. And in general, you can expect to see larger swings quarter-over-quarter than what we've seen in the last 3 quarters.

Our focus going forward is on leveraging that we have manufacturing sites in both Europe and in the U.S., which enables us to better service international customers. And with those 2 manufacturing sites, we are well positioned to capture the anticipated growth in the defense markets. And in the defense market, especially in connectivity, we have a very strong foothold in the Nordics as well as having an assembly setup in the U.K. and we wish to grow both organic by following our large accounts internationally and inorganic with a geographical focus being in a close proximity where the service setup is the competitive edge here.

Like for data centers, we are introducing 2 financial targets for the harsh business area, growth target and a profitability target. The target to grow is to reach at least SEK 2 billion in the year 2028, which corresponds to a CAGR of 16%, it is both organic as well as inorganic. It will be a combination of organic sales growth and acquisitions.

Looking at the EBITDA target of reaching 50% is ambitious. However, the main levers here is getting Rochester business up in gear, which I do believe is manageable as well as driving business even more towards the defense and the high-margin industries. And then top it with acquisitions, we should be able to trend towards 15% no later than in 2028.

A sustained growth within Harsh Environment is believable when looking at the main markets we serve. We actually see no shortage in the energy demand. And even if the geopolitical situation changes to a more peaceful world, which would lead hopefully to lower oil prices, there is an underlying very strong growth demand in energy. These cycles are very strong and along the installed base of offshore sites does require continued maintenance.

In the defense, our cable and connector sale is mainly driven by the Naval build-out worldwide. It is a sector that is the second largest investment area for the military budgets and the upgrade, replenishment and recent announcement of many new build-outs does signal a very strong growth ahead of us.

In the industrial area, Rochester has a very strong North American position, and we see a quite positive trend in the current business environment in North America. As well as in general, as stated also in our last call, we continue to see more industries embracing the intrinsic value of fiber optics in the harsh environments.

And to support our growth, we will have ambitions to acquire businesses in all 3 areas with the bias of strengthening our cable harnessing and connector businesses, especially around the defense and industrial area. That market is a highly fragmented market space, both in technology, size and geography and is very suited for acquisitions for us. We have an ambition to acquire 1 to 2 companies aiming to better have a geographical coverage as well as portfolio expansion.

Defense and industry markets are favoring high mix, low volume and highly complex sales processes. And thus strengthening with acquisitions, it fits very well with our sweet spot and our stronghold of today.

And looking ahead, we do have a strong market outlook. The underlying demand in the energy sector remains very strong in the foreseeable future. And if we look at the defense market, I've highlighted just 2 programs here being AUKUS. It's a joint initiative between Australia, United Kingdom, United States. It's a program that will run beyond 2040 and amongst other initiatives, encompasses upgrades of new builds of submarines for all 3 countries.

And recently, Norway announced an order for British destroyers, and we believe Sweden and Denmark are expected to follow suit. We are well positioned with local presence and sales to the prime contractors in Norway, Sweden, U.K. and the U.S. as well as having a sister company in Australia. As stated earlier, Rochester is well on its way with efficiency targets we have set forth. And from a profitability standpoint, it might not quite be there or in line with our targets. So it will remain our focus in the next year.

It's a multipronged approach where we invest in both people, equipment and modernizing the infrastructure, and we are well on its way. In connectivity, we expect to follow the growth of our defense primes, and we've been working with them for many, many years. We will also capture new industries while they embrace the intrinsic value of these hybrid solutions. We'll try to strike the balance between the 2 business units, Dynamic Cables and Connectivity, and that implicitly implies that our acquisition targets will mainly be within the connectivity sphere.

I have a very positive outlook. And with these words, I'll give the final remarks back to Rikard.

Thank you, Jakob. And all that remains for me now is to wrap things up, and then we will go to take questions. And these are the key points that I hope you will take away from the session today. For Fiber Solutions, due to the current headwinds, we're taking decisive actions to consolidate and take out significant costs, but also go after growth. The capital needs going forward are relatively low. So we turn this business around and then drive for maximum cash flow. And this cash flow can fund some really exciting growth opportunities in the harsh environment and data center space. And if we're successful here, it can really transform what this company could be in 3 years' time. And we hope that you want to join us on that journey.

With that, I think we'll thank everyone for tuning in, and we will move to questions. And I know that we have had some questions come in already electronically.

Sure. So we have one question here. Any more details what happened in Fiber Solutions during Q2 2025. Based on peers reporting, the softness seems to be more related to Hexatronic, than a market issue. Any improvement during Q3?

Okay. So a lot there. I don't think we have any more details on Q2 today than what we said at the time. I would disagree -- when we look at the European market, I don't agree with the notion that it was Hexatronic. I mean we know from many discussions that we have, this is a tough market. I think -- maybe in the U.S., it's a little bit different, especially we see there that the transport network market is quite strong, and we have some peers who are more positioned to that market having quite positive momentum and also positive outlook. And as I said before, we are shifting some focus there. We haven't seen it in our numbers yet, but we have a pipeline and an outlook there that is building and that's making me hopeful for 2026. And in terms of if we see -- there was a question, do we see an improvement right now? No, we don't. It continues to be a rather challenged market.

The second question then, in Fiber Solutions, do you expect any lost volumes for production plant closed down and FTE reduction?

Yes. I think the similar question came a couple of times. So yes, but it's not that material because there is -- and I'll hand it over to Pernilla to comment on the numbers, but there's some irrigation business in the factory in Netherlands that we don't intend to move. And then there's also a small business in Germany that we are exiting.

I'll say, up to SEK 50 million.

Less than SEK 50 million in top line. And in the EBITDA impact that we have given is a net number for any margin that was there.

Yes. What M&A assumptions have you included in the financial targets in terms of acquisition multiples and sales growth per segment driven by M&A?

So if we start with the M&A multiples, I mean, throughout the last 10 years, we have seen multiples being roughly 5 to 7 that we are doing and peers are doing. So we expect it to be in that range going forward as well. And that is also the conversations we're having today. It's quite narrowed in to that range.

In terms of M&A, and we have not separated organic and M&A-driven growth, but we expect a substantial M&A growth, especially within data center, but also within the Harsh Environment side.

If you could continue on the M&A agenda, how is M&A agenda intended to be financed?

To be financed. Yes. So we have a leverage today that we think is rather comfortable. So there's room to go a little bit higher there, especially if we see that short term, it's the right thing to do. But clearly, this is where the turnaround of the margin in Fiber Solutions is so important, both from a cash flow perspective and also from a net debt-to-EBITDA multiple perspective. So we need to focus on that. We need to keep a close eye on the next 6 to 9 months. Beyond that, I think that we will quite significantly start to delever from the cash flow generated by the business.

So what is the time line for the financial targets regarding profitability, especially on Fiber Solutions and Harsh Environment?

So starting with Fiber Solutions. The first step of that program, the SEK 110 million, Pernilla, we've said that we will start to see some small effects in the last quarter of this year. And then as of Q1 of 2026, we will see most of that. The next bucket is the operational excellence. I would expect that to start kicking in during 2026. And then for Harsh Environment, I think I will hand over to Jakob to provide some color. But as we have said a couple of times in this presentation, it will be a gradual process to increase. I think it's also important to remember, it's a project-based business. So separate quarters can go a little bit up or down. But I would say on an annual basis, if we see a percentage point or 2 of margin improvement in a year, that would tell me that clearly, we're on the right track, and I would be quite satisfied with that. It's not going to happen overnight. Anything to add, Jakob?

No, you're spot on. I expect at least to be there by '28.

So then postponing fiber optic cable manufacturing in the facility in South Carolina to 2027. But at the same time, ambition is to grow and diversify the customer base in the U.S. and Canada. How does that make sense?

Yes. So we need that facility to focus. If we're really going to get the operational improvements, we need to focus on yield rates improvements and scrap rate reduction, that kind of stuff to, at the same time then introduce a new and slightly different type of manufacturing, we think would be a stretch. We also now have more certainty on the tariffs. And when we see the -- at the tariffs, it wasn't as bad as it could have been, combined with the relatively low volumes of that specific cable that was intended for production in the short term. I think it's quite manageable.

I think you have partly answered this question before, but we'll take it again. You assess Europe fiber on the market as low. Is it due to competition or lower demand?

It's the combination, right? So clearly, there's been -- we added capacity quite significantly a few years ago and so did many others. So a lot of capacity added and then the demand did not keep up with that. So I would say it's both. It's an imbalance of demand versus available capacity.

Which type of data centers does Hexatronic focus on? Hyperscale owned, leased colocation or enterprise?

So today and over the last few years, we've been working on all those 3 segments. I would say where you see most growth today and where also our focus is the colocation or hyperscale leased. And the background to that is that when you build a large data center today, it takes time to get permit for power and so on. So many different actors has decided to build a colocation space and the larger players like Microsoft, Oracle, AWS and so on have decided to rent that entire space. So that is really where we are seeing the growth in the market now. It's a big focus for us.

Let's see. So it appears reasonable to infer that you estimate the addressable market for data center will grow by 10% to 11% in total based on the data you provided. Based on this, one could assume that approximately 2/3 of your 30% CAGR ambition might be driven by M&A activity. However, do you also anticipate capturing additional organic market share to complement this growth? Or is it focused primarily on acquisitions?

I mean, we don't disclose this in any detail. But of course, over time, it's always difficult in many years to beat the market. I would say, I mean, historically, in the first half of this year, we have had clearly outperformed the market. We're doing strategic initiatives, as we mentioned, but I believe we're investing more than many of our competitors. So we expect to be a bit higher than market. But clearly, a significant portion of the sales to reach those SEK 3 billion will be from acquisitions.

What are the main reasons behind the much more cautious long-term outlook for FTTH compared to just 1 year ago?

Yes. So I wasn't here a year ago. I based the outlook on what we're seeing in the market today. I think we have to be realistic about the rate of volumes that we're seeing today and also the outlook for the next 12 months.

So how large market share of the Harsh Environment market does Hexatronic have?

It's a difficult question because it's so fragmented, but we are in those areas that I just mentioned today, RV in the top 3 area. We don't disclose market size -- share.

From the 11 states that have come the furthest in BEAD, I note that 74% has been allocated to fiber, more than additional fears of 50% early in the summer. Is your outlook on BEAD more positive now than relative to when you reported in Q2?

I think it's -- maybe not more positive, but a little bit more clear. It seems to me that BEAD will move forward during 2026. It seems that, yes, fiber will be a substantial part of it. There was some speculation that at some point that maybe BEAD would be entirely scrapped, maybe it would all go to satellite. That doesn't seem to be the case. But we've also been clear that I think we said 80% of the build in the U.S. is privately funded. We need to base our strategy on capturing the privately funded market. And if and when BEAD comes, it should be icing on the cake and not something that our strategy hinges on. But yes, I do -- today, I do expect that BEAD will start coming into the market sometime during 2026.

I think that was all from what we have received -- questions that we have received.

Okay. So I will wrap it up then. Thank you to all the speakers and particularly, thank you to all our investors and listeners today.

Thank you.