Strong acquisition growth and profitability in line with targets
Hexatronic Group AB (publ)Interim report
January – September 2023
Strong acquisition growth and profitability in line with
targets
Second quarter (July 1 – September 30,
2023)
- Net sales increased by 11 percent to MSEK 1,917 (1,729). Sales
decreased organically by -13 percent.
- EBITA decreased by 7 percent to MSEK 296 (317), corresponding
to an EBITA margin of 15.4 percent (18.3).
- Operating profit (EBIT) decreased by 12 percent to MSEK 266
(302), corresponding to an operating margin of 13.9 percent
(17.5).
- Net profit decreased by 35 percent to MSEK 172 (266).
- Earnings per share after dilution amounted to SEK 0.85
(1.30).
- Cash flow from operating activities amounted to MSEK 107
(255).
Events during the quarter
- Hexatronic completed the previously announced acquisition of
Fibron BX, a leading OEM manufacturer of electro-optic cables for
harsh environments and strengthens the company's position in the
Harsh Environment market.
- Hexatronic acquires ATG Technology Group Limited, a strategic
acquisition of a distributor within fiber optic solutions in the
New Zealand market.
- Hexatronic provides an update due to softer market conditions
primarily in the US and Germany, and foresees a negative organic
sales growth during the second half of 2023. The EBITA margin is
expected to be in line with the financial target of 15-17 percent
during the second half of 2023.
Events since the end of the quarter
- Hexatronic acquires USNet and
strengthens its position in the US data center market with a
broader range of services and cross-selling opportunities.
Comments from the CEOStrong acquisition growth and
profitability in line with targets
During the third quarter, sales continued to increase with a
growth of 11 percent compared to the corresponding period last
year, driven by acquisitions. As previously communicated, we noted
softer market conditions in the US and Germany, which resulted in
an organic decline in sales of 13 percent during the quarter.
Despite a softer market, we delivered an EBITA margin of 15.4
percent. This is a decrease from 18.3 percent in the same period
last year, which was a record quarter, and reflects the softer
market conditions resulting in lower capacity utilization as well
as price pressure in some markets.
North AmericaNorth America showed a sales growth of 4 percent in
the quarter, driven by growing sales in Canada and the acquisition
of Rochester Cable. This development compensated for a lower demand
of duct as well as some postponed project deliveries of Fiber to
the Home (FTTH) systems.
In the US, there is still a strong focus on growing our FTTH
business and securing our local offering in order to capitalize on
the effects of the BEAD program, which we expect to start to take
effect in the second half of 2024. As planned, all production lines
in our factory in Clinton, South Carolina, have been installed and
commissioned since the end of the quarter. At the same time, we
continue to establish the new plant in Ogden, Utah, which will
expand our addressable market for duct to include the western
United States, which is a significant market. As previously
communicated, we expect the plant to be ready for production in the
third quarter of 2024.
EuropeSales in Sweden decreased by 15 percent, where we saw
lower activity in fiber deployment as well as lower activity in
sales to mobile operators during the quarter.
The Rest of Europe showed strong sales despite softer market
conditions in UK and Germany. Sales growth amounted to 19 percent,
primarily explained by positive sales development in our
acquisitions IDS, Rochester Cable and Fibron, combined with
positive sales growth in Finland and Austria. High cost of capital
and inflation has resulted in lower return on investments, hence
postponed projects in the UK and German market. In Germany, the
structure of governmental subsidies for fiber network expansion in
rural areas was also changed, which created a delay of projects.
For Hexatronic's part, we managed to counteract the softer market
in the UK through good growth, primarily with a major existing
customer.
APACAPAC showed a positive sales growth of 34 percent. This is
attributed to the acquisition of South Korean KNET in combination
with several project deliveries in Australia. During the quarter we
acquired ATG, a distributor of fiber optic solutions based in New
Zealand. We see several synergies between ATG and OSA in Australia
while strengthening our regional presence.
New growth areas Expansion within Harsh Environment, Data Center
and Wireless continues to be a priority to ensure long-term growth
and diversification. Today, the first two areas represent
approximately 18 percent of the Group's pro forma sales.
In Harsh Environment, we saw sales growth, primarily driven by
the acquisition of Rochester Cable earlier in the year. During the
quarter, we also completed the acquisition of Fibron, which
strengthens our offering in electro-optical cables for harsh
environments, while we see good potential to realize synergies with
Rochester Cable. Today, Harsh Environment represents just over 12
percent of the Group's sales on a pro forma basis.
After the end of the quarter, we acquired USNet, which is active
in project management, installation and rebuilding of data centers
in the US. USNet complements our existing company DCS well and
creates a stronger platform in the US data center market through a
broader range of services with opportunities for cross-selling.
Data centers today represent around 6 percent of the Group's annual
sales on a pro forma basis.
We continue to focus on strategic acquisitions in these areas
while pursuing initiatives to drive organic growth, including
realizing synergies.
Cash flowCash flow from operating activities amounted to MSEK
107 in the third quarter, compared to MSEK 255 in the corresponding
period last year. In line with our plan, we continued to reduce our
inventories during the quarter, while accounts payable decreased.
We continue to prioritize the reduction of our inventories for the
remainder of 2023.
OutlookIn the later part of September, we communicated an
expected negative organic sales growth and an EBITA margin within
our financial target of 15-17 percent for the second half of 2023.
We maintain this view.
With supply chains back to normal and to some extent a softer
market, we have during the year seen that the order book in
relation to sales gradually decreased and is now basically back to
normal levels. At the end of the quarter, we had an order book
corresponding to just over 2 months of sales compared with just
over 5 months of sales at the end of the corresponding quarter last
year. Before the pandemic, we normally had an order book
corresponding to about 2 months of sales.
We expect that the overall market for investments in fiber optic
telecommunications infrastructure in the coming quarters will
continue to be at the same level as in the third quarter. The main
reasons are higher cost of capital and inventory build-up in some
of the markets.
Fiber optic networks are a critical infrastructure, and the
degree of build out is still low in many countries, such as the US,
Germany and the UK. We therefore see strong underlying structural
trends supporting global build out. Primarily privately financed
projects but also projects financed by subsidies from several
government investment programs such as the BEAD program in the US,
Gigabit Strategy in Germany and Project Gigabit UK. Similar
programs exist in most countries.
Governmental subsidies are expected to have an increased
positive impact on the market going forward. In combination with
normalizing inventory levels, we expect a gradual market recovery
from H2 2024.
Welcome to join us on our growth journey.Henrik Larsson
LyonPresident and CEO Hexatronic Group AB (publ)
Please direct any questions to:Henrik Larsson
Lyon, CEO Hexatronic Group, +46 706 50 34 00Pernilla Lindén,
CFO Hexatronic Group, +46 708 77 58 32
This is information that Hexatronic Group AB (publ) is obliged
to make public pursuant to the EU Market Abuse Regulation. The
information was submitted for publication under responsibility of
the contact persons set out above, at 07:00 CEST on October 27,
2023. This is a translation of the Swedish version of the interim
report. When in doubt, the Swedish wording prevails.
Hexatronic creates sustainable networks all over the world. We
partner with customers on four continents – from telecom operators
to network owners – and offer leading, high-quality fiber
technology for every conceivable application. Hexatronic Group
(publ.) was founded in Sweden in 1993 and the Group is listed on
Nasdaq OMX Stockholm. Our global brands include Viper, Stingray,
Raptor, InOne, and Wistom®.
- Hexatronic Group - Interim report Q3 2023
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