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

Thank you very much, and welcome to this Q4 presentation. You will be listening to myself; our CFO, Pernilla Lindén; and our Deputy CEO, Martin Åberg. The agenda, we will have first quickly Hexatronic at a glance, some Q4 highlights, financial overview, business overview. And then market outlook and the summary, and we end with the Q&A. So first, Hexatronic at a glance. So we are active in connectivity, passive connectivity solutions. Last year, we had revenues of SEK 8.2 billion and an EBITA level of SEK 1.2 billion. Over the last 5 years, we have had a strong yearly growth of average 39% in terms of revenues and 61% in terms of EBITA. EBITA margin last year, 15.1% and roughly 2,000 employees. When we look at the markets we operate in here, you see the main drivers. And today, fiber optic networks, it's a critical infrastructure in most countries. And what we see is that there is still a low fiber penetration in many countries and especially in the strategic growth markets we operate in. We also see that 5G deployment that drives the need for fiber networks. 5G is totally dependent on the fiber network. And we also see that the increase of data-intensive technology creates need for more fiber connectivity in industries like data centers, and now AI is a big driver for data center expansion. We also see an industrial shift from copper to fiber in demanding industries. And that's like oil and gas, sensing, defense, subsea applications and so on. And on top of that, when it comes to fiber infrastructure, we see some significant government initiatives for rural deployments primarily and especially in the U.S., U.K. and Germany, but most Western countries today have subsidies for rural areas. If we look at fiber to the home, which is a driver for our business. These figures shows the subscribers to the total number of homes in different countries. So you can call it homes connected with fiber. And you see on the top that there are some big countries with a low penetration like the U.S., U.K., Germany, Italy, Austria and so on. And in the bottom, you see some quite mature countries like Sweden and Norway, where close to 70% of the houses are connected with fiber. So still a lot to do. I should say these figures are a little bit old out. They are 1 year old, and we expect to get updated figures in March this year. And to the right, you see some of the big government incentives or subsidies to roll out fiber, and this is primarily in rural areas, where it's -- the business case for the telecom operators is not profitable. So in the U.S., you have the big BEAD program, which is USD 42.5 billion. In the U.K., you had the Project Gigabit fund of GBP 5 billion. And in Germany, they have their Gigabit Strategy, which is EUR 3 billion per year subsidy. So big incentives on top of all the private investments done in fiber infrastructure. When we look at Hexatronic -- and these figures are on pro forma basis, I should say 75% of our revenues is in Fiber Solutions. And that's our fiber-to-the-home business, but also transport networks, submarine telecom cables. Harsh Environment, 13% of our total revenues. And then Data Center, that's 10%. And the smallest part is Wireless, that's around 2%, and that's solutions for the wireless industry. If we then move into the Q4 highlights, we had a strong operating cash flow in the quarter, and we continue to grow in new areas, especially Harsh Environment and Data Center. So financially, net sales increased 4%, but we had a negative organic growth of 23%, and that's in Fiber Solutions. The growth was primarily then in Harsh Environment and Data Center and to a large extent, acquisition-driven. EBITA was down 45% to SEK 170 million, and that represents a margin of 9.1%. If we exclude the one-off costs linked to our cost-saving program, we have an EBITA -- an adjusted EBITA of 10.7% in the quarter. And earnings per share amounted to SEK 0.94 per share. The cash flow from operating activities was SEK 462 million, up from SEK 292 million in the corresponding quarter last year. And we had a cash conversion of 228%. And this comes mainly from the reduction of working capital, and they're mainly inventory. The interest-bearing debt -- net debt, I should say, excluding IFRS reduced to almost SEK 400 million, SEK 383 million, and we had an interest-bearing net debt of SEK 2.1 billion at the end of the quarter. And that meant that we reduced our leverage from 1.5x to 1.2x (sic) 1.4x. And this is in accordance with the bank covenants we have. So it's excluding IFRS 16. If we include IFRS 16, it's down from 1.8x to 1.7x. We also see a normalized order book and we have been talking about this for a couple of quarters, that we are down to a bit about 2 months of sales in order book, and that's what we normally had pre-pandemic level. And I should say also that this doesn't mean that this order book should be delivered in the next 2 months. There are orders that will be delivered in the later quarters or so. And we initiated in the quarter a cost-saving program, where we estimate the annual savings of approximately SEK 90 million, and that has been implemented. That was the financial highlights. Some significant events, we did an acquisition of USNet, and that strengthened our exposure in the U.S. data center market. You will hear more about that later. We took up a new senior term loan facility of SEK 500 million with existing banks. And at the end of the quarter, the Board of Directors proposed to pay no dividend for the financial year 2023. When we look over the last 5 years, we have had a continuous and strong sales and earnings growth. So as I mentioned initially, yearly growth on average of 39% in terms of revenue and EBITA growth of 61% per year in average over the last 5 years. So strong development there. And also, the earnings per share have had a similar development with plus 68% growth yearly. A little bit about the latest acquisition. So I will hand over to Martin Aberg, who is responsible for M&A.

Thank you, Henrik. So we have closed 2 acquisitions. Both are within Data Centers, that is one of our prioritized M&A areas going forward. The first one, USNet that Henrik mentioned, based in Texas. We briefly presented that during our last conference call. And basically, USNet extends our addressable market in the U.S. to also include the fast-growing segments of colocation and hyperscale data centers in the U.S. The second is that after the quarter, we made a minor add-on acquisition to one of our Data Center companies ideas in the U.K. The acquired company, M Connect, provides engineering resources, and this is critical for the growth of ideas, and at the same time, it will reduce cost, hence improve the profitability of ideas. Very positive for the quarter was our very strong development in Rochester Cable, that for the quarter positively contributed to our group margin. And this is a strong improvement from Q3, where you might remember that it negatively impacted our EBITA margin by [ 0.8% ]. We also had a strong quarter for the Harsh Environment Company, Fibron, and also USNet that I just mentioned. And both of those were acquired during the second half of 2023. And then key focus for 2024 is to continue to develop the M&A pipeline, both within the data center space and within Harsh Environment. And then generally, for 2024, you should expect substantially lower M&A activity. We have had 2 very strong M&A years, and those are behind. So key focus, develop the pipeline going forward.

Thank you very much, Martin. We will continue with the financial highlights. I will hand over to our CFO, Pernilla Linden.

Thank you, Henrik. We had a total sales of SEK 1.9 billion in Q4. It's an overall growth of 4% or SEK 65 million. As Henrik said, it's driven by acquisition. Acquisition-driven growth of 24% from KNET that was acquired in 2022. Rochester Cable and Fibron in the Harsh Environment area, USNet in the Data Center area and ATG in 2023. That was offset by an organic decline of 23%, primarily attributed to Fiber Solutions in Germany and U.S. But that was partly offset by the continued growth in our system sales in the U.S., together with a double-digit growth, for example, in Canada and Austria. If we're looking at the gross margin. The gross margin was at 40.4%, which is 5.5% lower than our record high quarter last year. That is mainly due to lower manufacturing utilization, some price pressure and mix effect. And mix effect, that is related to Fibron and Rochester with a lower than group gross margin, but with an EBITA percent margin within our financial target. We have previously communicated that we have initiated a cost-saving program. The program is mainly related to a reduction of production staff, but also white collar workers in Fiber Solutions in several of our geographical markets. Starting from the end of the first quarter in 2024, the program is expected to generate a general annual saving of approximately SEK 90 million. If we exclude the one-off cost of SEK 29 million related to the launch of the cost-saving program in the quarter, OpEx is in line with the last year level, even if we have invested in increased OpEx due to the new acquisitions. That results in an operating expense in percent of sales of 26.1% compared to 27.3% last year. Overall, we had an EBITA margin of SEK 170 million or 9.1%, a 45% decline compared to last year. If we exclude the one-off cost, we had an EBITA margin of 10.7%. We had 13.1% EBITA margin for the second half of the year, which is in line with earlier communication. We had a strong operating cash flow in the quarter. Cash flow from the operating activities before changes the working capital of SEK 203 million. We positive -- it had a positive effect of reducing our accounts receivable of SEK 291 million, where we had a portion of spillover effect from Q3 from some bigger invoices that was paid in the beginning of the quarter, but overall stable in number of days. And we continue to strategically reduce our inventory during the quarter and reduced that with SEK 158 million. The positive effect of the reduction of AR and inventory is partly offset due to accounts payable decreasing mainly due to the reduced purchase of raw material and products and the focus we have of actively reducing our inventory. Overall, we had a positive effect from changes in working capital of SEK 259 million. The total cash flow from operating activities amounted to SEK 462 million that corresponds to a cash conversion of 228% in the quarter and a full year cash conversion of 86%. In total, Hexatronic invested in CapEx during the quarter of SEK 68 million or 3.6% of sales in the fourth quarter. And in -- for the full year, SEK 580 million, which corresponds to 6.4% of sales. After 2 investment-heavy years in 2022 and 2023 and after we have completed the investment program with the duct factory in Ogden, Utah -- that will be done in the third quarter in 2024. We expect that we will be able to grow for several years without extensive investments in Fiber Solutions. We estimate that investments in 2024 and onwards will amount to approximately 3% to 4% of sales, and with approximately 1% to 2% expected to be maintenance investments. During the quarter, as Martin said, we acquired USNet to a purchase price of USD 5.5 million. And to strengthen our financial flexibility, we entered into a new senior term loan facility agreement of SEK 500 million with existing lenders under the existing agreement and subject to the same credit augmentation covenants. Interest-bearing net debt, excluding IFRS 16, decreased by almost SEK 400 million sequentially compared to Q3 and amounted to SEK 2.1 billion at the end of the quarter. The decrease is mainly attributed to a strong operating cash flow. Interest-bearing net debt in relation to proforma EBITDA on a rolling 12-month basis, a key ratio that reflects our existing bank covenant, it decreased from 1.5% to 1.4% during the quarter. If we include IFRS 16, it corresponds to a decrease from 1.8x to 1.7x in the quarter. At the end of Q4, we had SEK 840 million of cash and an unutilized backup facility of SEK 990 million, which gives a liquidity of approximately SEK 1.7 billion.

So thank you very much, Pernilla. We will now look into the different geographical areas and the business overview. And we start by Europe, excluding Sweden, which represents 47% of our total revenues. So in the quarter, we saw a flat development versus same quarter last year. The -- we saw an organic decline, primarily due to Germany, but partly U.K. also. And I can say most of the markets we operate are softer when it comes to Fiber Solutions. This was mitigated by a positive development in Data Centers and, of course, the acquisition of Fibron. When we look at the market going forward, we see -- and also what we have operated in the quarter, that the softness in the fiber infrastructure market is very much due to the higher cost of capital, the inflation, and to some extent, the inventory levels. And I should say that we see that competitors have reported larger problems, I would say, with inventory levels. We have some customers in Germany that have that problem. But overall, not a major problem for us, but it's good for the whole market if that inventory goes out. If we look at the next area, and that's North America, that represents 36% of our total revenue. Here, we grew 15% and that was driven by the acquisition of Rochester Cable. We had a strong development in Hexatronic Canada, and that's Fiber Solutions. And we also increased our revenues when it comes to fiber-to-the-home systems in the U.S. We had an organic decline, and that is primarily then for Blue Diamond Industries and the business of conduit and pipe. We continued the investments in the new factory in Ogden, Utah, and that's for Blue Diamond Industries for conduit and pipe. And that is -- we expect that to be in operations in Q3 this year, as we have mentioned before. And it's interesting, both timing-wise, I would say, for the BEAD money that will start to flow out as we expect in the second quarter -- the second half this year, but also that we open up a new market for Blue Diamond Industries. We have previously not been able to serve the Western part of the U.S. When we look at the market development, it's the same explanation here, as I mentioned for Europe, the higher cost of capital inflation and inventory levels, the same here. We haven't had a major problem with inventory levels with our customers to some extent in Blue Diamond Industries, but in the industry as a whole has had a problem with that. And that has led to a softer U.S. market primarily, and that's primarily in conduit and pipe but also fiber-to-the-home. And as I mentioned, the BEAD program, we expect that it will start to show effect in the second half of this year. The first 2 states that are fully BEAD-approved is Virginia and Louisiana, and more are to follow. Moving on to Sweden, that represents 9% of our total revenue. There, we saw an organic decline of 19%, and that's primarily then fiber-to-the-home business, but also our business with mobile operators that was weaker. And I would say the same explanation here, the cost of capital and inflation has led to a softer market. And finally, then APAC, that represents 8% of our total revenue. Here, we saw a growth of 12%, and that was driven by the acquisitions of Fibron, Rochester Cable and KNET. Same here when it comes to market development for fiber solutions. It's a softer market in Australia and New Zealand and other markets there also. Then coming to the market outlook and summary. So market outlook. Overall, the market for fiber optic infrastructure, we expect the demand to be lower as we have seen in the second half of 2023 and for the coming quarters. Then we expect a gradual increase in the market demand in the second half of 2024 of this year. We expect the market for Harsh Environment and Data Center to continue to grow strong macro drivers there. And we also expect that these governmental subsidies that I've been talking about, that they will have increasing impact on the market going forward. And then especially the BEAD program in the U.S. Overall, we can say a big part of the market is private capital telecom operators, private equity. But governmental subsidies, they are focusing on rural areas that if they were not there, they would not probably have been built. So it's a very positive impact. If I make a summary of what we have talked about, we had a continued expansion. We grew revenues by 4%, and that was primarily driven then by Harsh Environment and Data Center that represented about 1/3 of revenues in Q4. And that mitigated the softer conditions in Fiber Solutions. We had this negative organic growth, and that is mainly to -- attributed to the softer market in Germany, but also the U.S. market for duct, conduit and pipe. On a positive note, we grew our revenues for fiber to the home systems in the U.S. despite being a softer market. So it's a good testament to our solution and what we are doing there. We also had a strong cash flow development over SEK 462 million. And that, as we have said, is a cash conversion of 228%, primarily driven by reduced working capital and then inventory. We have strengthened our financial position. So the leverage went down from 1.8x to 1.7x, and that's net debt to EBITDA including IFRS 16. We reduced the interest-bearing net debt with close to SEK 400 million to SEK 2.1 billion. And then the leverage ratio excluding IFRS 16 decreased from 1.5x to 1.4x. And as we have talked about before, we see a normalized order book that corresponds to roughly 2 months of sales. The cost-saving program that we have initiated is going well, and we expect the full effect of SEK 90 million in annual savings, that will be fully implemented end of Q1, so we should have the full effect in Q2. And we also guided that we will reduce our CapEx levels going forward to 3% to 4% of revenues, aware of 1% to 2% is maintenance CapEx. And that is for this year and also going forward. We have done a huge investment in capacity over these years, and the final stage of that is the Ogden plant in Utah. Good. I think that was our presentation. Now we will move over to a Q&A session.

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

I have a number of questions, but I believe they should be pretty short. So the first one on the outlook on the market, where you say that the first half of 2024 will continue to be weak. Should we expect a similar level to Q4 2023? Or perhaps even weaker?

I mean our guidance is that we expect that the market will be roughly on the same level.

Okay. Perfect. And the next one, I mean, before I believe 2021, you had a quite seasonally weak Q1 quarter in terms of profitability and so on, which you haven't seen during the last couple of years. Should we expect any seasonality, Q1 2024? Or is it still the same as during the last 2 years?

It's a good question. And it's correct that what you said that previously, we had a seasonality effect for Q4 and Q1. I would say we're weaker, the Q2 and Q3. The last year, couple of years, we have had surprisingly strong Q4 and Q1 with a very strong demand. I would expect that we are in the softer market conditions. We are coming back to a little bit more of seasonality, that Q4, Q1 is a little bit weaker. No one wants to keep inventory over year-end, the cost of capital and so on. So it might be that we are back to a more, call it, normal pattern.

Okay. Perfect. And the next one, you state that you expect a gradual increase in market demand during the second half of 2024. Is that also included for the duct business?

Yes. So I mean, we primarily talk about fiber solutions here. So the BDI business, but also the fiber-to-the-home business, we are doing in the different markets.

Yes. Perfect. And on Rochester Cable, perhaps a question to Martin. I believe the previous guidance was that Rochester Cable should reach group margins in Q1 2024. Now it seems that profitability was already very good here in Q4. Do you see that you have more to do short term in Rochester Cable in terms of profitability? Or are you already at the satisfying level, so to say?

Yes, I mean, you are right that we're expecting it this first half year rather than already in Q4. And we generally believe that we will be on this -- the margin goals that we have for the group going forward.

Okay. Perfect. And the next question, I mean, here in the quarter, you did 10.7% adjusted EBITA margin. And during 2024, of course, the cost saving program should have incremental impact on the margin, and then also perhaps a bit more on Rochester Cable as well. If we disregard the potential seasonality in Q1, I mean, was the 10.7% adjusted EBITA margin the trough in this down cycle?

We don't provide them.

Yes. It was the bottom of the cycle?

Yes, yes.

Yes, exactly. I mean, we don't guide on our ability level. We refer to our financial targets. And as you know, they are over a business cycle.

Yes. Okay, understood. A couple of more questions, try to take them as quick as possible. As I understood it, you did have organic growth in the U.S. within your fiber optics or fiber to the home system solution, which is in stark contrast to competitors that report quite sluggish developments. Do you have any comments on that, why that is?

I think 2 things. First, I mean, we are quite small in the U.S. market compared to our competitors. Secondly, I mean, we have over a number of years, built up a team and selling our solution, which is not commonly used. I mean we can show big cost savings using our technology. And I think we get more and more traction for that solution with a lot of different operators and frequently private equity-backed newcomers to the market. So I would say we are in a growth mode there.

Okay. Perfect. And then in the U.K., in contrast, you had some negative organic growth. And I mean, obviously, CityFibre, which, as I understand it, your largest customer, they do have some issues. But at the same time, during the last couple of months, they won several awards within the Project Gigabit contracts. And you also -- you also announced in Q2, I believe it was that you were ramping up deliveries to a new undisclosed customer. So perhaps a bit more color on the U.K. market, if you have any?

Yes. I think we talked about that in Q3 also that we see the same pattern in several markets that our customers target to connect more customers. They have built a lot of -- in a lot of cities, and it has been a little bit of a raise to start to build in a city, to take that city. Now I would say there is a strong focus of connecting customers within those cities. So we see fewer newer cities being started. So that has one effect. And I would say also, when it comes to CityFibre, they won -- I think they announced 9 projects. They have 1 within Project Gigabit. So that's, of course, very positive. And that's, as we said before, in rural areas. And with this undisclosed customer in the U.K., we continue to have a good development.

Okay. Understood. And turning to the German market instead, I believe it was in Q3, you commented that hiccup in the government subsidiaries had a negative impact on the market. Now you're more 0.2 high cost of capital and so on. Do you have any update on the government subsidiaries in the German market?

I mean, we expect that we will see a gradual increase from that in 2024, that more projects are coming out. So we see over the year a gradual increase from these governmental projects. That's our expectation.

Okay. Perfect. And the next one, just a few more left here. You mentioned during the call that you are, to a large extent, compliant with the BEAD requirements in the U.S. that everything more or less should be U.S.-made. However, what remains, to my understanding, is the actual production of fiberoptic cables. Do you have any updates on that? I believe you had mentioned earlier that you have some different alternatives that you are looking into?

Yes. And first, let me say that the biggest impact for us when it comes to BEAD finance projects, that will be on Blue Diamond Industries. And there, we are fully BEAD-compliant, as we produce in the U.S. When you look at Hexatronic U.S. selling our solution, our customer base there, they are generally not interested in BEAD program -- BEAD programs, which is a rural BEAD. They are primarily targeting areas with higher density of households. We have a few smaller customers that probably will go for BEAD. And as you mentioned, in order to be able to supply to them, we have to be compliant, and it's primarily the fiberoptic cable manufacturing we have to do in the U.S. And we have a plan there. It's still on the planning stage, but we know what to do. And we know -- we expect minor capital expenditure to do it. So there is a plan. We'll have to follow that.

Yes. Perfect. And 3 more very quick questions. KNET, due to the quite sluggish duct market seems to have quite lower sales this year or 2023. And I noticed that you wrote down the earnout component relating to KNET here in the quarter, quite a lot. Do you see any risk for a goodwill write-down related to KNET, given the quite soft market?

No. No, we don't do that. We do an impairment test on a yearly basis. And overall, KNET is -- it's performing in a good way, even if expectations were higher when we acquired them.

Okay. Perfect. And then on the CapEx reduction here in Q4, it was quite drastic compared to Q3. And I mean, pretty much in line with the guidance here for 2024. Any comments on that, why it decreased so much quarter-over-quarter?

It's just the phasing of the cost then related to the Ogden manufacturing.

Okay. Yes. And then the final one, how much do you expect to pay out in earn-outs during 2024? If you have any comments on that?

The main earnout for this year will be for the Fibron acquisition.

Yes. Okay. Okay. Understood. Perfect. That was all for me. Thank you very much for taking the time.

The next question comes from Stefan Ward from Pareto Securities.

Thanks. Congratulations on a very solid result, especially happy to see the good cash flow generation coming through. I have a couple of questions relating to that. What you -- if you can help us understand what -- how do you think about the working capital development over the first half. Have you done your inventory correction now? And so forth, we can start there.

We are happy with the performance that we have done when it comes to our inventory. We will continue to focus on making sure that we have the right mix to be able to meet the demand. But also then to further decrease it somewhat. So it's a continued focus for us.

Continued focus, but we don't need to see any sort of dramatic swings or over the next couple of quarters in working capital?

We don't guide on that. But of course, I mean, as always, we will continue to focus on our working capital and manage that in the best way.

Perfect. Then also, I was positively surprised of the gross margin that you were able to keep it at such a high level despite softer organic growth and what could be cleared as lower utilization rates. Can you comment anything on how utilization rates have been and perhaps in the different markets?

I mean when it comes to utilization, of course, now we are running with overcapacity in most plants. So that has gone down. If you remember from last year, especially in the first half, we were running at max capacity, I would say, most of the plants, 5 shifts. I would say today, we are -- if I take an average, probably running at around 3 shifts in our plants.

But you don't see any sort of -- given that we've been in a softer market now for a couple of quarters, do you see any sort of risk of further weakness or when you guide for the first half, is it that you don't see any sort of pickup, but it's not really deteriorating?

I mean, we guide on the market. And as I said before, we expect that the coming quarters, we will have a market demand that is similar to what we saw during last H2 last year.

So with that information, it's fairly reasonable that you should be able to keep the gross margin at around the current level?

I mean we don't guide on that. You have to do your own assumptions there.

Yes. Right. Then I would like to have some comments on the U.S. market. When I look at the data that has been coming in from other players in the market, competitors to you, but also from the bigger network carriers, it looks like the rollout pace in terms of homes passed have continued uninterrupted at a very high pace in 2023, suggesting that the softness in demand is entirely related to the inventory correction that we've mentioned, but that there hasn't really been any interruption in the rollout of the actual network. Is that -- what would you say of that conclusion?

I think we have seen the same that it seems like the rollout has continued in a good pace last year. I think there might have been an effect because there was a very mild winter beginning 2023 that CapEx deployment continued on a high level beginning of the year. I heard one of the big contracting companies in the U.S. saying that some of their customers, they actually used up their CapEx budget earlier than expected due to the very good conditions for deploying networks in the beginning of the year. So yes, I think as we reported before, we haven't had a major problem with our customers having huge inventories. But -- and we are a small player there. But I think our bigger competitors, they have had a real problem with the inventory buildup, both with distributors and also with end customers. So -- and that's when you read what they say, the ones that have reported in Q1, they all talk about there is still some excess inventory in the market that they expect that will diminish here in the first half of this year. So I think that will be positive for the whole market when that inventory is gone.

Yes, of course. So yes, just as a reflection, there we saw that AT&T, I mean, they identified an additional 10 million to 15 million homes that they could find sort of economically sensible to cover on top of those 26 million, which are the target by 2023. So that's quite an ambitious increase. And it looks like they've been rolling out aggressively over the second half, but doing so from inventory levels. From another perspective, what would you say is the bottleneck mostly for you to grow in the U.S.? Is it demand? Or is it labor shortage or...

I think when we see the market demand picking up, if we now -- our expectation is second half, I think the labor part will be the main part. I mean, unemployment rates are very low in the U.S. Immigration is low. So I think it will be labor that is the broad bottleneck for the market.

And just judging from -- you mentioned in the report or in the presentation, I don't remember exactly but that the Ogden expansion is continuing as planned and that you -- if I remember correctly, you would be then in operation in Ogden by Q3 this year.

Yes.

And that's from -- sorry?

That will also be great, we'll start production that the plant early Q3, and then a gradual ramp-up of that.

Gradual ramp-up, like the one you did in South Carolina?

Yes.

And in the big picture here, has there been any sort of change? Or it sounds like that the opportunity that you see on the West Coast and to be able to serve the entire U.S. with the conduit and pipe. But has there been any material changes to that original assumptions when you first started with Ogden expansion due to the softness that we've seen?

No. I mean, if you look at midterm, I don't see a change, okay? It's a softer market now, but we know that there is a lot coming up, both BEAD and all the other money in the Infrastructure, Investment and JOBS Act. And plus, of course, all the private investments. So no on midterm, no change.

Okay. Perfect. That's all for me.

Thank you.

The next question comes from Jacob Edler from Danske Bank.

I think most of my questions already have been answered by my sector colleagues here. But just starting off a bit, I had a question regarding the BEAD program. You're talking about that for H2 of '24, as we know. How should we think about the phasing there, Q3 versus Q4? I suppose you'll get a ramp-up effect already in Q3 from the Ogden plant as we talked about earlier here, but I'm just talking about BEAD, is it more weighted towards Q4? Or can we see some impact already in Q3? That's the first question.

I would say we expect in the second semester and most probably some effects in Q3 and probably a larger impact in Q4. But I think it will still be small compared to 2025, when more states are fully approved and are starting to deploy this. So the big impact, we will most probably see in 2025, and it will most probably be a gradual increase there over the year.

Perfect. And just a more kind of philosophical question. A couple of quarters ago, you were reporting 18%, 17% EBITA margins. And especially maybe looking at the years of, let's say, '22, you were one of the only actors that could serve the market in '22, right, when there was a component issue, et cetera. How do you reason regarding pricing power? Your competitors in the U.S. are also building capacity. Do you believe when the market returns for 5-city home systems that you'll be able to get back to the pricing power you once saw, so to speak?

I think it depends a little bit where. If you take Blue Diamond Industries, I mean, that product is a commodity. So price is important. And there, you have -- the demand needs to pick up. It's clear that we are investing in more capacity, and some of our competitors, so the supply side will increase also. I think everyone sees that BEAD and the whole Infrastructure, Investment and JOBS Act will be a major injection. So I think prices that are a little bit under pressure now, we'll probably raise in the future when the market demand takes off. When it comes to Fiber Solutions, as we are targeting to sell a system to a large extent, I think we have a little bit defense, like a cushion towards price pressure. But of course, we are exposed there also. And in a softer market, everyone is trying to get volumes to their plants. So of course, then it becomes a bit of a price. And the same there, I mean, clearly, there is more capacity by us and others. So we need to see the market bond pick up again.

Yes. Perfect. Very clear. Just -- I think the last question I have here is just regarding, I think, more aimed towards Pernilla, but the SEK 21 million in one-offs this quarter, can you give some flavor on how that was split over the different cost items, roughly speaking? And also when it comes to the savings program of SEK 90 million, how should we kind of model that in, just so we get it correctly?

Well, it is mostly linked to personnel and the reduction of the people of 160 people. So that is the lion part of it. Of course, it's cost -- costs attached to them as well. Overall, it's a total cost for them. And when it comes to implementation of those SEK 90 million, what we said is that those are implemented by the end of Q1. So you will see the full effect in Q2, but partly, of course, in Q1 as well.

Okay. Perfect. I was more maybe referring to -- let's talk about Q4. How much was taken of those one-offs were in, let's say, cost of goods sold versus down in OpEx, so to speak?

Most of it is taken in OpEx.

Okay. Perfect. I think that was all my questions, most have already been answered.

The next question comes from Fredrik Nilsson from Redeye.

And as your U.S. fiber business seemed to do very well in the relative market sense, I mean, could you tell us a bit about the duct market and how impactful you believe the BEAD will be for that market? Is it as impactful as for your fiber offering?

I mean if your question is if the effect of the BEAD, how much impact that will have, it's clearly that it will impact Blue Diamond Industries the most on the conduit and pipe side, and to a lesser extent on our fiber-to-the-home system sales in the U.S. As I mentioned, the major part of our customers are not interested in BEAD programs. They are funded privately and go for more dense areas. So the BEAD will have the biggest impact on Blue Diamond Industries. And that's why we do these capacity investments.

The next question comes from Adrian Gilani from ABG Sundal Collier. Please go ahead.

I think most of the topics have been discussed already, but I just have 2 quick follow-ups from my end. First of all, you already talked a bit about the -- what your sector peers are saying regarding destocking. But if we look at some of the peers that have -- such as Corning reporting last week, they even went as far as to say that they expect Q1 to be the low point for them and that the destocking situation will actually improve from Q2 already. But it sounds like you're not expecting any sort of improvement in terms of destocking as far as Q2 goes?

As I mentioned before, I mean, we don't have a major problem with our customers having large inventory. I think the big ones in the U.S. like Corning, CommScope, [indiscernible] , they have all reported much bigger problems on that. We just -- as we guided before, we expect the market for the next coming quarters to be softer in line with what we saw in H2 last year. I think this destocking problem will have a bigger impact on them.

Okay. I understand. And then a bit of a housekeeping question. Can you just remind us if we saw any of the positive effects from the cost savings program here in Q4 or if the full SEK 90 million per annum run rate is still sort of ahead of us, so to say?

I mean, we saw a small impact in Q4, and then the major impact comes gradually in Q1.

Yes. Full effect in Q2.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Written questions here. I'll start with 1 question that is -- is there any evidence that you are taking market share in the U.S. Fiber Solutions area? If so, what is the competitive advantage that Hexatronic brings to the U.S. market? And on the first part of the question, I would say, I mean, we saw last year growth of our business in fiber-to-the-home solutions in the U.S. And we look at the competitors that I would say are considerably larger than we are, they had quite big declines last year. So from that perspective, we probably took some market share, but we still have a very small market share. And the competitive advantage we are bringing in that we take our Air Blown Solution that is quite commonly used in Europe, and that's what we have promoted in the U.S. back since 2015. And we can show that a customer can save between 20% and 30% of the total project cost by using our solution compared to what they do today. So yes, I think we have a big competitive advantage with our solution in the U.S. market, and that's why we actually went to the U.S. many years ago. Other -- there is another question.

The next question comes from Jacob Edler from Danske Bank.

I just had a follow-up. Just -- if you look at the M&A contribution this quarter, it was obviously up quite a bit sequentially. And then as you talked about, driven a lot by Rochester, obviously, also integrated USNet in the quarter. I'm just wondering here, obviously, the run rate in Harsh Environment has come up quite a lot sequentially. What would you say here short term into H1? Should we expect Harsh Environments to kind of continue to grow? Or was there any one-off elements here? Or how should we read them, just so we get that clear?

Yes, I mean, you're right that this is a sequential increase in Rochester, entered in March, but Fibron in August, I mean. So it's -- we generally see that there is strong macro trends, but we don't guide on any -- on the different segments or in different areas. Thank you very much. I see no more questions. So I thank you very much for your interest and participation to this conference call, and hope to hear from you when we report Q1. Have a nice weekend. Thank you very much.