Hexatronic Group AB (publ) (HTRO.ST) Earnings Call Transcript & Summary

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.