Hexatronic Group AB (publ) Year-end report January – December 2023
Hexatronic Group AB (publ)
Year-end report January – December 2023
Strong operating cash flow and continued growth in new
areas
Fourth quarter (October 1 – December 31,
2023)
- Net sales increased by 4 percent to MSEK 1,861 (1,795). Sales
decreased organically by -23 percent.
- EBITA decreased by 45 percent to MSEK 170 (310), corresponding
to an EBITA margin of 9.1 percent (17.3).
- Adjusted EBITA margin of 10.7 percent (adjusted for
restructuring costs of MSEK 29).
- Operating profit (EBIT) decreased by 52 percent to MSEK 138
(291), corresponding to an operating margin of 7.4 percent
(16.2).
- Net profit decreased by 12 percent to MSEK 191 (218).
- Earnings per share after dilution amounted to SEK 0.94
(1.06).
- Leverage ratio (net debt/EBITDA (pro forma), R12) amounted to
1.7x (1.3x).
- Cash flow from operating activities amounted to MSEK 462
(292).
Significant events during the quarter
- Hexatronic acquires USNet and strengthens its position in the
US data center market with a broader service offering and
cross-selling opportunities.
- Hexatronic enters into a new senior term loan facility
agreement of MSEK 500 with its existing lenders.
- Hexatronic downgrades short-term outlook and expects that the
EBITA margin, excluding restructuring costs, will amount to 12-14
percent for the second half of the 2023. Furthermore, the company
is initiating a cost savings program that is expected to result in
annual savings of approximately MSEK 90.
Significant events since the end of the
quarter
- The Board of Directors proposes to
the Annual General Meeting that no payment of dividend will be made
for the financial year 2023.
Comments from the CEO
Strong operating cash flow and continued growth in new
areas
During the quarter, we improved operating cash flow and
delivered sales growth, mainly driven by our expansion in Harsh
Environment and Data Center. This despite a continued weak market
climate in Fiber Solutions, mainly in the US and Germany. EBITA
margin excluding restructuring costs amounted to 10.7 percent in
the fourth quarter and 13.1 percent for the second half of the
year, in line with the communication published on November 21,
2023. Like the rest of the industry, we expect the market in Fiber
Solutions in the first half of 2024 to continue to be affected by
higher financing costs, cost inflation and high inventory levels in
some markets. We are addressing these challenges through the
previously communicated cost savings program and continued focus on
operating cash flow. During the second half of 2024, we expect
market demand in Fiber Solutions to increase gradually. In
parallel, we will continue our strategic ambition to grow our
businesses in Harsh Environment and Data Center to further
strengthen our diversification, both areas with strong underlying
market drivers.
Profitability in line with previous
communication
Adjusted for restructuring costs of MSEK 29 related to the cost
savings program, EBITA margin for the second half of 2023 was 13.1
percent (17.8). This is in line with the 12-14 percent previously
communicated. The EBITA margin for the fourth quarter amounted to
10.7 percent excluding restructuring costs (17.3) and 9.1 percent
including restructuring costs. Lower capacity utilization in Fiber
Solutions and price pressure in some markets explain the decrease
compared with the corresponding period last year.
Continued growth in Harsh Environment and Data
Center
Fourth quarter showed a total sales growth of 4 percent compared to
the corresponding period last year, which can mainly be attributed
to completed acquisitions in Harsh Environment and Data Center.
Harsh Environment grew sales during the quarter primarily driven
by the acquisitions of Rochester Cable and Fibron. Rochester Cable
developed very well both operationally and in terms of
profitability, and had a continued strong order intake. Fibron has
developed well and in line with our expectations.
Data Center also developed strongly during the quarter. As
previously communicated, USNet was acquired during the quarter.
USNet is active in project management, decommissioning and
relocation services of data centers in the US. USNet complements
our existing company DCS well in the US market.
Expansion in Harsh Environment and Data Center continues to be a
strategic focus area for our long-term growth and diversification.
Both areas benefit from strong underlying macro trends and in the
fourth quarter they together accounted for almost a third of Group
sales and contributed positively to the EBITA margin.
As we communicated on November 21, 2023, the market conditions
in Fiber Solutions, particularly in the German market and the duct
market in the US, have weakened, resulting in a 23% organic decline
in Group sales in the quarter. We believe that higher financing
costs and cost inflation have contributed to a deterioration in
investment calculations and thus the postponement of projects.
North America
North America showed sales growth of 15 percent in the quarter,
mainly driven by the acquisition of Rochester Cable, as well as
increased sales in Canada and system sales in the US. It is
particularly reassuring that our system sales in the US continue to
grow, which is a sign of strength for our core offering in Fiber
Solutions. This development partly compensated for lower demand for
duct in Blue Diamond Industries.
The completion of the new production plant in Ogden, Utah, is
proceeding according to plan. The plant expands 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 during the third quarter of 2024.
Europe
Fourth quarter sales in Europe, excluding Sweden, were in line with
the corresponding period last year. A weaker development in Fiber
Solutions, especially in Germany, was offset by a positive
development in Data Center and the acquisition of Fibron.
Sales in Sweden decreased 19 percent, due to lower activity in
fiber deployment but also lower activity in sales to mobile
operators during the quarter.
APAC
APAC showed a sales growth of 12 percent. This is mainly due to the
acquisitions of Fibron, Rochester Cable and KNET which showed
positive sales development in these regions.
Strong operating cash flow
Cash flow from operating activities amounted to MSEK 462 in the
fourth quarter, compared with MSEK 292 in the corresponding period
last year. In line with our plan, inventory levels and accounts
receivables continued to decrease during the quarter, partly offset
by decrease in accounts payable. We continue to focus on optimizing
our inventory levels in 2024.
Continued financial flexibility
We continue to have good financial flexibility for creating
long-term value, even though we, during 2023, made historically
extensive acquisition- and capacity investments, totalling
approximately MSEK 1,500.
During the quarter, interest-bearing net debt (i.e. excluding
IFRS 16) decreased by MSEK 383 and amounted to MSEK 2,111 at the
end of the quarter. The decrease is mainly attributable to a strong
operating cash flow. Interest-bearing net debt in relation to pro
forma EBITDA on a rolling 12-month basis, key ratio that reflects
our existing bank covenant, decreased from 1.5x to 1.4x during the
quarter. Including IFRS 16, it corresponds to a decrease from 1.8x
to 1.7x in the quarter.
To strengthen our financial flexibility, we entered into a new
senior term loan facility agreement of MSEK 500 with existing
lenders under the existing agreement and subject to the same credit
documentation and covenants.
Lower expected investments and acquisitions in
2024
We have completed two years with a high investment level. In 2022
and 2023, we invested in two new duct factories in the US, of which
one is completed. In addition, we significantly expanded our
production capacity in several of our production units within Fiber
Solutions. After completing the investment program with mainly the
completion of the duct factory in Ogden, Utah, in the third quarter
of 2024, we believe that we will be able to grow for several years
without extensive investments in Fiber Solutions. In total,
Hexatronic invested 67 MSEK in the fourth quarter and 518 MSEK
during the full year 2023. We estimate that capital investments in
2024 and onwards will amount to approximately 3-4 percent of sales,
of which approximately 1-2 percent are expected to be maintenance
investments.
On the acquisition side, we have continued to identify and build
relationships with profitable companies that have a strong market
position, primarily in Harsh Environment and Data Center. After the
end of the quarter, we completed a small add-on acquisition to the
Data Center company IDS in the form of the UK based company M
Connect, which will contribute to increased profitability in
IDS.
For 2024, we expect significantly lower investment levels in
acquisitions compared to 2023.
Cost savings program proceeding according to
plan
On November 21, 2023, we announced a cost savings program that
affects approximately 160 employees and is expected to lead to
annual savings of approximately MSEK 90. The program is proceeding
according to plan and is expected to yield full effect from the end
of the first quarter, 2024. The cost of the program, which affects
the fourth quarter, amounts to MSEK 29, which is in line with the
initially estimated MSEK 30.
Expected gradual increase in market demand during the
second half of 2024 in Fiber Solutions
Our view of the market remains, and we expect continued weak market
demand in Fiber Solutions in the coming quarters and then a gradual
increase in market demand in the second half of 2024. In the second
half of the year, we expect to see the initial effects of the BEAD
program in the US, while inventory levels are expected to have
normalized. With our expanded capacity, we are well positioned for
an expected increase in demand, even if this means lower capacity
utilization in the short term.
In Harsh Environment and Data Center, we expect market demand to
remain strong during the year.
As communicated in the third quarter of 2023, our order book is
back to pre-pandemic levels. At the end of 2023, we had an order
book corresponding to just over 2 months of sales, compared with
about 5 months of sales at the end of 2022. Before the pandemic, we
typically had an order book corresponding to about 2 months of
sales.
Fiber optic networks are critical infrastructure and the degree
of penetration remains low in many countries, such as the US,
Germany and the UK. We therefore see strong underlying structural
trends supporting global build out over the long term. 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.
Welcome to join us on our growth journey.
Henrik Larsson Lyon
President and CEO Hexatronic Group AB (publ)
Please direct any questions to:
Henrik Larsson Lyon, CEO Hexatronic Group, +46 706 50 34
00
Pernilla 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 CET on February 9,
2024.
This is a translation of the Swedish version of the year end
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 AB (publ) - Year-End report 2023
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