For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. If you are listening to the presentation via webcast, you can ask written questions using the form below. Now, I will hand the conference over to CEO Rikard Fröberg. Please go ahead.
Good morning and welcome to this presentation of our first quarter earnings. I am sorry. My name is Rikard Fröberg. I'm CEO of Hexatronic Group, and with me today are CFO Pernilla Lindén and Deputy CEO Martin Åberg. As usual, we will start with a very brief overview of the Hexatronic Group. Today, we are a global business with operations in over 40 countries and sales in over 100 countries. We have about 2,000 employees, and revenue last year was just over SEK 7.5 billion, with an EBITDA margin of 10.6%. As you can see, we're quite well diversified, with three different business areas, fiber solutions being the biggest, accounting for about two-thirds of our revenue. Harsh environment and data center are smaller but growing in importance. Just over half our turnover is from Europe.
North America accounts for close to 40%, and APAC sales are just over 10% of total. We have 18 production facilities covering the markets well, with production in each of the continents where we're active. It has been, for quite a while actually, an important strategy for us to have local production set up to be close to our customers. Obviously, this is extra important and a strength in today's world, where trade barriers are only increasing. Let's get to the main event and take a look at the Q1 highlights. We're quite pleased to present today a solid quarter with growth on top line and EBITDA level, driven by very strong performance in our data center business.
Starting with sales, we landed at SEK 1,882 million, which is 6% higher than last year, and also slightly higher sequentially, which is in line with the seasonality we were expecting. In fact, this was the first quarter since Q3 2023, where we saw a modest organic growth. EBITDA improved 10% year- on- year due to operational leverage and business mix, offset to an extent by higher freight costs. EBITDA margin, therefore, was up 40 basis points and landed at 9.8%. As already mentioned, the main performance driver was the data center business area, which had a record quarter and 41% sales growth. Fiber solutions saw slightly lower sales, with APAC up, Europe flat, and North America was lower year- on- year, affected by some one-off shipments in Q1 of last year.
Our net debt coverage is stable at just under two times EBITDA, which allows us room for future investments, and we maintain our cautiously optimistic view for the remainder of 2025. Some key events in the quarter. First, I joined the team on March 1, so I have been here about two months now. It's been a very intense induction and an absolute delight. I must say, Hexatronic is a fantastic company, and it's truly a privilege to lead this team. We have also implemented our three business areas, and the segment reporting now is therefore following that structure. This gives us better transparency and is also well aligned with how we operate the business. We have, of course, seen quite a bit of volatility and uncertainty related to tariffs. I think it's important here to note that Hexatronic's direct exposure is quite low.
It's less than 5% of our total sales that are subject to the U.S. tariffs. Related to this, and in line with our longer-term strategy, we have decided to start manufacturing also of fiber optic cable in the U.S. After the end of the quarter, we were quite happy to lock in a refinancing of our bank loans. Here is an overview of our three business areas. Fiber solutions is still the biggest one, and today is about two-thirds of group sales, but has a slightly lower margin, so the share of EBITDA in the quarter was just over 50%. Harsh environment is about 15% of total, both for sales and for profits. Data center now accounts for about one-fifth of sales and one-third of profits in the quarter.
We continue to see diversification and increasing weight of the focus growth areas of harsh environment and data center. This is what we expect to see, and this is what we want to see. Just one note here is to remember the seasonality that we have talked about, where typically fiber solutions has the weakest quarter in Q1 and Q4, while data center has typically the strongest quarter in Q1. Now, let's go through the business areas, and starting with fiber solutions. Overall, we saw a 2% sales decline with growth in APAC. Europe was flat, and North America declined. The main factor of the North America decline versus last year is that we had some significant submarine cable shipments from Sweden in Q1 of last year. Sequentially, the sales in North America were higher than in Q4.
EBITDA margins saw a slight increase with business mix and capacity utilization as positives, and this was somewhat offset by higher freight costs. We continue to view North America and APAC as growth opportunities, but we also note that the recent tariff debates are increasing market uncertainty to an extent. The BEAD program looks to be somewhat delayed. However, important to remember that the bulk of the market in the U.S. is funded. Europe continues to be a tougher market with an expectation of flat growth and continued price pressure, focusing here on operational efficiency and cost reductions. Moving on to harsh environment, this business grew by 5% in the quarter. The efficiency improvement that we have talked about, primarily in Rochester Cable, is on plan.
While we still have a lot more work to do, things are moving in the right direction with a profit improvement in the quarter of about one percentage point. We have known for some time that Rochester would require a fair bit of work and also investment, as it was an underinvested and, I would say, somewhat neglected carve-out acquisition from a larger corporate business. The longer-term outlook here for harsh environment is fundamentally favorable, with defense and energy sectors expected to remain strong. Now we get to the star performer of the quarter, which is data center. Here, I am going to hand it over to Martin, who is leading that business area.
Thank you, Rikard. As Rikard mentioned earlier, the data business area normally has a stronger first half year due to vacation periods in both the third and the fourth quarter. In the first quarter, sales growth was 41%, and EBITDA growth was 37%. This is compared to our first quarter last year, which was also a record quarter. All businesses in the business area performed in the quarter. We had strong growth in both Europe and in the U.S. We grew both product sales and service sales, although we grew service sales stronger. This was expected since we have a stronger exposure to the fast-growing cloud segment on the services side. The carve-out of parts of Icelandic Endor that we acquired in the fourth quarter of last year contributed to a strong start to the year. For Hexatronic, all these sales are, of course, accounting for inorganic growth.
If you compare the sales of this business compared to the sales before the acquisition, they have more than doubled the sales in the quarter. This is, of course, a fantastic start that we are very pleased with. Moving over to the outlook. At the investor update that we did a month back, March 28, we zoomed in on the service market, on the data center and customer segment. Just to quickly summarize the market outlook from research firms, the cloud segment is expected to grow at around 15% CAGR from 2025 to 2029, while the other parts of the businesses are expected to have a market growth corresponding to sales CAGR of 2%-9% for this period. Overall, we expect market growth in all parts of the business area, but with the highest growth in the cloud segment.
We're actively working to diversify the business area regarding customers, offerings, and also end customer exposure. In the quarter, we made good progress. We have a few promising new customers, which has good potential to both diversify the business and contribute to growth and development of the business going forward. If we move over to M&A, we have talked about a strong pipeline in the data center business area over the last six to nine months, and several conversations have moved forward. Our ambition to make a few acquisitions this year remains.
We were a bit more specific on the investor update in March in terms of what we are searching for. It is both within our current main focus area, which is ICT services, but it is also to broaden our service offering to other areas, such as electrical and security. To summarize, the market remains strong, and we hope to come back to you about acquisitions in the data center business area in the near future. With that, I hand over to Pernilla to summarize the financials for the quarter.
Thank you, Martin. Our total sales for Q1 was SEK 1.9 billion, with an overall growth of 6%. That was driven by a record quarter for data center, and harsh environment continued to develop positively, while fiber solutions were slightly down. Organically, we had a growth of 1% and a 4% acquisition-driven growth, mainly from the recent acquisition, Endor, within our data center business. We also had a positive FX effect during this quarter. If we are looking at our gross margin, we had a gross margin of 41.6%, which is 1.1 percentage points above last year. That is mainly due to manufacturing efficiency within fiber solutions and the harsh environment. Our operating costs were 28.6% of net sales in the quarter, compared to 27.5% in Q1 2024.
The increase of the operating cost to net sales is mainly related to increased freight cost and also the cost related to the change of CEO. Depreciation has increased compared to last year due to the capacity investments that we've made over the last years, and in percentage of sales at 4.1%. Overall, EBITDA of SEK 184 million, up 10% compared to last year, or 9.8% of net sales. Financial net of SEK 31 million, and that is mainly related to interest expense. We had also a positive effect of exchange rate differences of revaluation of additional purchase price. Tax amounted to 30.3% compared to 32.4%, and the lower tax rate is explained by a higher portion of deductible interest expenses. Earnings per share at SEK 0.42.
If we then go over and talk about our fiber solutions, total net sales of fiber solutions of SEK 1.2 billion in Q1, with an overall decline of 2%. Europe was flat compared to last year. Decline in Sweden was partly offset by growth in the U.K. and Germany, and continued strong growth in Finland and Austria. As Rikard said before, sales in North America declined, with sales in North America lower than last year, but are increasing sequentially . We had a main submarine cable that was included in Q1. The U.S. duct business showed increased volume, but that was offset by lower prices than last year. APAC and rest of the world increased with 16%, mainly due to orders to Micronesia and the rest of APAC. EBITDA of SEK 167 million, a growth of 3%.
Depreciation at 5% of sales, and that is 0.4 percentage points higher than last year. That is due to the capacity investments that we have made over the last years. An EBITDA of SEK 105 million, 1% growth compared to last year, or an EBITDA margin of 8.5%. That is 0.2 percentage points higher than last year, with a positive effect from higher capacity utilization in the factories, and that is partly offset by the increased freight cost. We had low CapEx investments in the quarter, only SEK 4 million, or 0.3% of sales, and that was mainly related to maintenance. If we move over then to harsh environment, we had a total net sales of harsh environment of SEK 286 million, with an overall growth of 5%. Growth is mainly driven by sales to APAC and the rest of the world.
Europe was in line with last year, and North America was declining. The companies within harsh environment have an international customer base, and the majority of revenue is related to larger projects, which is why sales per geography can fluctuate from quarter to quarter. EBITDA of SEK 39 million, growth with 13%, depreciation at 3.3% of sales. EBITDA of SEK 29 million, or 15% growth compared to last year. EBITDA margin strengthened compared to previous year as a result of the ongoing work with manufacturing efficiency within Rochester Cable. CapEx investments in the quarter of 3.2% of sales, which is mainly related to maintenance investments in Rochester Cable. Data center, total net sales of SEK 362 million, with an overall growth of 41%. As Martin said, which is a record quarter for our data center business.
We are pleased to see that it's a strong development for all units and a positive contribution from the Endor acquisition business. We had a fantastic start with Endor that was more than doubling their sales in the quarter compared to last year. EBITDA of SEK 72 million, growth with 35%, and depreciation at 1.2% of sales. EBITDA of SEK 68 million, 37% growth compared to last year, or a margin of 18.8%. In the data center business, the CapEx investments is quite low, and the quarter was SEK 1 million or 0.3% of sales, which is mainly related to maintenance investments. If we go over and look at our cash flow, overall, our cash flow was not overall satisfactory. Operating activities before changes in working capital of minus SEK 50 million. We had a negative effect of working capital of SEK 192 million.
Accounts receivable has increased with SEK 204 million during the quarter, and that is mainly due to increased sales and customer mix. Inventory has increased with SEK 127 million, which is partly offset by increased accounts payable. Total CapEx investments of only SEK 14 million, or 0.8% of sales, and that is mainly related to maintenance investments. As we have communicated earlier, after the heavy investment years of 2022 to 2024, we believe that we'll be able to grow for several years without any extensive investments in the fiber solutions business. Group financing activities amounted to SEK 34 million, and that is amortization of lease liabilities. If we then are looking at our interest-bearing net debt, which corresponds to net debt excluding lease liabilities, that is mounted to SEK 1.9 billion at the end of the quarter, which is an increase of SEK 43 million compared to last quarter.
That increase is partly offset with the increase of the rolling 12 EBITDA. Interest-bearing net debt in relation to proforma EBITDA on a rolling 12-month basis is stable at 1.9 for the quarter. At the end of Q1, we had SEK 499 million of cash and an unutilized backup facility of SEK 1.3 billion, which gives us a liquidity of approximately SEK 1.8 billion. We have a continued solid financial position. I will hand over to Rikard again.
Thank you, Pernilla. Let's go to the summary here. If I summarize the highlights of Q1, it was a solid quarter with sales growth of 6% and EBITDA growth at 10%. The data center business continues to impress and had a record quarter. This growth is helping with our diversification and more than offsets the slight decline in fiber solutions. We have a solid balance sheet and look to continue acquisitions to further drive growth, and that is primarily in data center and harsh environment. Recapping our outlook and guidance for fiber solutions, we do expect Europe to continue to be rather challenging with price pressure and limiting growth in 2025, but we see opportunities to offset in North America and in APAC. Harsh environment, we expect a continued and gradual margin improvement.
Data center continues strong performance, albeit probably not on the same level as quite in Q1. We are, as you heard, quite hopeful to execute one or a few acquisitions in this year. All in all, we therefore maintain our cautiously optimistic view of 2025. With that, we're wrapping up the presentation part for today, and we will move on to taking some questions.
To ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Max Bacco from SEB. Please go ahead.
Yes, good morning. I hope you can hear me. Nice to hear your voice again, Rikard. Basically two questions from me. Hi, hi. First, starting with fiber solutions in North America, as you said, the majority of the decline explained by a one-off shipment here in Q1 last year. I guess, could you perhaps add some flavor to what you're seeing in Hexatronic U.S. within the fiber system sales? Also within the duct business, I guess, Blue Diamond Industries and also KNET to some extent. You said higher volumes, but lower prices. That has been the case now for a couple of quarters, if I remember correctly. Just on prices there in the duct business, are you seeing some kind of stabilization sequentially, or does it continue? Do you see a continuous decline? Two questions basically, Hexatronic U.S. and then the duct business.
Yes. First of all, a few things here. One, the numbers that we're presenting here is North America, and that includes Canada. Canada was a low quarter. We're rather concentrated in the customer base in Canada. There is one or two customers, and if they place big orders in the quarter or not, it makes a difference. Canada was low in the quarter. In the United States, in particular, as Pernilla mentioned, we see volumes actually increasing, but pricing is lower than a year ago. That's right, Max. We're seeing sequentially, at least for the duct business, that pricing seems to have stabilized versus the prior quarter. We still have one or a couple of quarters where we're lapping last year, lapping what was higher prices last year.
Okay. Understood. Perfect. One question on harsh environment. I mean, as you alluded to at the investor update, the clear ambition here for 2025 is to improve the profitability, which we saw here in Q1 already, up some 60 basis points, I think it was. Just wondering, your ambitions here for 2025, for the full year, for the harsh environment segment, is it, I mean, the magnitude of the improvement that you are aiming for, is it a similar level as we saw in Q1, or do you hope to see an acceleration here throughout the year in terms of profitability?
Yeah, we're definitely working for a continued, I would say, slow and steady improvement, higher than what it was in Q1. There is a lot of work still remaining there. As you mentioned, Max, this year, we see growth opportunities, but we're really focusing on the margin improvement, which we think in the short term is the most important one for shareholder value. Longer term, we also see good growth opportunities. The market is definitely there.
Okay. Perfect. That was all for me at the moment. I will jump back in the queue. Thank you very much.
Thank you.
The next question comes from Adrian Gilani from ABG Sundal Collier. Please go ahead.
Yes, hello. I'd like to start off with a question just on the data center segment. Given that we only have limited historical figures on the new segment structure, can you talk a bit about sort of how lumpy sales and earnings are in data centers? Q1 was obviously a very strong quarter, but was there anything unusual in this, or are these figures that you think you can be able to sort of replicate going forward as well?
Thank you, Adrian. This is Martin here. As I said, I mean, it's a very strong quarter. I think we talked a bit about the seasonality that we have the strongest first half year, and especially Q1 has been the strongest. If we look longer term, a few years back, we have provided that during the investor update, and it has been steady growth. We say, I mean, underlying, the expectation is to continue to grow, but we expect to have the same pattern with a stronger first half year than the second half year.
Okay. Understood. For my second one, I might be reading too much into this, but previously you included a reminder on seasonality in the outlook statement saying that Q2 and Q3 should be at a higher level compared to Q1 and Q4. Now that's not included here, but should we still expect that there should be just a seasonal uptick into Q2, or are you more pessimistic about that now?
No, we think that seasonal pattern still remains. The one that you're referring to, Adrian, is for fiber solutions in particular.
Yeah. Okay. Perfect. I'll jump back in the queue. Thank you.
Question comes from Stefan Wård from Pareto Securities. Please go ahead.
Thanks. I have a couple of questions also sort of tagging along previous questions here. On the price situation in the U.S., were you referring to lower prices year on year? Was that for the duct business alone, or is it also for fiber solutions broader?
That was mostly for the duct business.
How would you describe fiber solution pricing environment in the U.S. at the moment?
It's more of a system sell, so it's not as clear-cut there. I don't see it moving really clearly either up or down.
Okay. Great. Thanks. You mentioned in Europe fiber solutions, I read it as stable demand, but continued price pressure. Is that the correct interpretation, or would you add some color to that?
Yes, I think that's correct.
Okay. Then also on this, referring to the seasonality that Adrian spoke about just recently, last year you had a sequential increase of 14% in the second quarter. I understand that we can't perhaps comment exactly on the figures, but is it similar to that magnitude of seasonality that we can expect also in this year?
Yes, you're right. We're not going to comment on the exact figure. What we have said is that we expect both for data center that has a different seasonality that we did show quite clearly, I think, at the investor update. For fiber solutions, we expect that the pattern to be similar.
The pattern will be similar to last year?
That is our expectation, and that pattern is similar to what we saw prior to COVID.
Okay. Just a final question, if I may, on data center business. It's almost a third, or it is a third of Group EBITDA in Q1, and it's growing stronger than the rest of the group. Even though there is seasonality in that, is that like a likely framework to have for the full year that data center can become one-third of group earnings?
I think what we said before, I mean, if you look at the season pattern, I mean, data center has this year and also last year the strongest Q1, while we see that Q1 is a weak quarter for the fiber solution. Based on that, we wouldn't say it would be a third.
Okay. Thanks.
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Question comes from Max Bacco from SEB. Please go ahead.
Yes. Hi. Thank you, Max here again. Perhaps taking the opportunity to ask a bit more high-level question. I mean, Rikard, you have been on the job a couple of weeks now at least. Of course, you touched upon this during the investor update. It would be interesting to hear your impressions once again. I mean, I know that you have traveled around quite a lot and met many of the subsidiaries and so on. It seems to be some efficiency work that can be done within the group, I mean, fiber solutions in Europe and, of course, harsh environments and so on and so forth. If you could just talk about how you will approach this, will you work any different within the group compared to how you have done it before and so on and so forth? If you could elaborate a bit on that.
Yes, sure. We have a decentralized structure and a decentralized philosophy. I think that's quite important. We want the commercial decisions to be made as close to the customer, as close to the market as possible. I don't see that changing. At the same time, we are working quite actively and have for some time with how do we extract the benefits of being part of an almost SEK 8 billion group when it comes to purchasing volumes and skills and so on. I think there are further opportunities there when we're talking about things like reducing scrap in our factories, where we see that those levels are different between the different factories when it comes to being world-class in how and when we purchase things like resins and other raw materials. I think those are some of the main opportunities that we want to drive.
Okay. Understood. I guess we will hear more about it in the future. Thank you.
Thank you, Will. Thank you, Max.
Question comes from Stefan Wård from Pareto Securities. Please go ahead.
I have a question regarding the financial targets. We've had the Q4 report before you came on board, Rikard, but then we had also the CMD update end of March, and now the Q1 update. You haven't done any changes to your financial targets, which is annual growth of 20% over a business cycle and EBITDA margins of 15%-17%, if I remember correctly. Are these still valid, would you say, or are they under review, or can you comment anything on? Because I'm a little bit we haven't got any hard sort of guidance for 2025, so this is what we have to rely on then.
Yeah. I.
Your comments would be helpful.
Stefan, I would say, yes, they are still valid, and yes, they are also under continuous review as with any company. As you pointed out, those targets are over a business cycle, and they also include M&A, which we haven't done in a while. I think we're in the cycle. I think we're still in the more challenging part of the cycle, although we're hopeful that it won't be too much longer.
Okay. Regarding the profitability, that is also what we should expect from the company going forward.
Those are our targets.
Okay. Thanks.
No more phone questions at this time. I hand the conference back to the speakers for any written or closing comments.
Yeah, I think we have one written comment.
Good morning. Question on cash conversion. You have done a good job in stabilizing EBITDA with an EBITDA of SEK 184 million. Yet operating cash flow is negative SEK 5 million. It has been an increase of SEK 127 million on inventory and also the accounts receivable. Can you give a little bit more highlights on the reasoning? When it comes to receivables, that has increased due to that we've had higher sales, but also it's a change of mix of customers. Some of the large customers that we have have a little bit longer payment terms, and hence why the number of days have increased slightly. We are talking about that we are somewhere between 55-58, something like that. We are a little bit higher today. We are at 59-60 days, and that is mainly due to the customer mix.
When it comes to the stock, that is we have partly increased it due to the seasonality, but we're also a little bit higher than we want to be, so we will continue to work to reduce it. We have another question here. What should we expect in CapEx for 2025 and going forward? We have earlier communicated that our ambition is to be within 3%-4% of sales for the full year, which is 1%-2% is maintenance, and the rest is capacity. If we're looking at our fiber solutions business, we are saying that the main investments will be in maintenance, but also then some small CapEx investments overall. We are saying 3%-4%. Harsh environment, our ambition is to be around 5%, and there is also maintenance and capacity, and then data center less than 1%.
Okay. I think that's it for the questions. Once again, we will wrap things up here, and thank you everyone for calling in today.