Hexatronic Group Interim Report July - September 2017

"Continued strong growth and profitability in Interim Report from Hexatronic. We enter the last quarter with an order book which, organically, is 94% larger than at the same point last year, which is very encouraging", says Henrik Larsson Lyon, CEO.

Read the full report here.

Hexatronic Group AB (publ) Interim Report July – September 2017

(Reporting period January – September 2017 and September 2016 – September 2017)

The quarter (July-September 2017)

• Net sales amounted to MSEK 336.9 (259.2), which represents 30% (43%) growth during the quarter.
• The operating result before interest, taxes, depreciation and amortisation (EBITDA) totalled MSEK 42.9 (33.2), which corresponds to an EBITDA margin of 12.7% (12.8%).
• The operating result amounted to MSEK 35.7 (27.7).
• Net earnings totalled MSEK 26.8 (16.6).
• Earnings per share after dilution totalled SEK 0.71 (0.46).
• Cash flow from operating activities during the quarter amounted to MSEK 54.3 (31.5)

The period (January-September 2017)

• Net sales amounted to MSEK 974.4 (727.2), which represents 34% (40%) growth during the period.
• The operating result before interest, taxes, depreciation and amortisation (EBITDA) totalled MSEK 113.1 (77.0), which corresponds to an EBITDA margin of 11.6% (10.6%). The EBITDA margin on a rolling 12-month basis was 11.4% (9.6%).
• The operating result amounted to MSEK 91.9 (62.4).
• Net earnings totalled MSEK 66.7 (40.5).
• Earnings per share after dilution totalled SEK 1.76 (1.14).
• Cash flow from operating activities during the quarter amounted to MSEK 77.3 (88.4)

Comments from the CEO

Continued strong growth and profitability
The quarter developed according to our expectations with continued strong growth of 30%, almost all of which was organic. An EBITDA margin of 12.7% was still comfortably above our goal of 10%, although it was somewhat lower than profitability in the previous quarter, mainly due to the sales mix and supporting purchases of ducts in order to fulfil our delivery commitments. Cash flow from operating activities also developed well during the quarter and amounted to MSEK 54.

However, despite the continued strong sales development we have been restricted by limited access to optical fibre, of which there is a shortage globally, and by duct production capacity. We believe these factors will also be a limitation over the coming quarters. To assure continued growth we have decided to invest in increased duct production capacity. We have also secured increased access to optical fibre for 2018, which is somewhat above the Group’s growth goal of 20%. We are working to further improve our access to optical fibre.

Our strategic growth markets are developing well. It is encouraging that we have reached an important milestone in the USA. Our system offering, Matrix, has now been approved by a major American operator. We do not think this will have a major impact on sales in the next few quarters, but we see strong potential in the long term. 

One key component of our strategy for achieving our long-term growth and profitability goals is acquisitions. We are also convinced that we have to be ‘local’ in the markets in which we want to grow, i.e. we need to have a local organisation for sales, distribution and potentially in-house production. During the quarter we made an organisational change that increases the focus on acquisitions.

After the end of the quarter, the Patent and Market Court announced its verdict in the Swedish patent dispute with Emtelle Ltd. The court’s decision to declare Emtelle’s patent invalid has gained legal effect and is in line with our expectations.

We enter the last quarter with an order book which, organically, is 94% larger than at the same point last year, which is very encouraging. The trend we saw at the end of the previous quarter, i.e. our major customers placing orders considerably further in advance to secure their needs, continued in Q3.

We still have a very positive view of the market in which we operate, for both the short and long term, where we see good opportunities for continued profitable growth.

Thank you for joining us on this journey.

Henrik Larsson Lyon
President and CEO of Hexatronic Group AB (publ)

Events during the quarter (July – September 2017)

• To lay a better foundation for the Group’s further expansion, Martin Åberg was appointed Deputy CEO of Hexatronic Group AB, with responsibility for the Group’s mergers and acquisitions. Martin will also continue in his role as President of Proximion AB.
• Håkan Bäckström, formerly Vice President of Hexatronic Cables & Interconnect Systems AB (‘HCI’) was appointed as President of HCI. Håkan will retain his role as Head of Sales & Marketing for HCI.
• With the AGM’s authorisation, Hexatronic’s Board of Directors decided on a new issue of 30,892 shares. The sellers of the shares in Hexatronic UK Ltd. (formerly OpticReach Ltd.), which Hexatronic acquired in January 2016, each subscribed for half of the shares. Payment is by way of offsetting. The reason for the deviation from the shareholders’ preferential right was that it was an offset issue.
• In spring 2015, Hexatronic was sued by Emtelle Ltd. regarding the alleged infringement of a Swedish patent relating to what is known as air blown fibre. Hexatronic contested the suit and issued a counter-suit claiming that the Emtelle patent should be declared invalid. Negotiations in the Swedish Patent and Market Court were held in early September 2017. The Court made a decision on the dispute in favour of Hexatronic. The Court declared the patent invalid and thus struck down Emtelle’s patent infringement claim. Emtelle was obliged to compensate Hexatronic for court costs amounting to approximately MSEK 5.1. The decision has gained legal effect.
• The company decided to invest in further production capacity for ducts at its factory in Hudiksvall, northern Sweden. The investment is part of the company’s strategy to increase production capacity and product breadth, in order to meet increased demand for its products. The investment amounts to approximately MSEK 21 and will take place in two stages with the first capacity increase taking place in spring 2018 and the second in autumn 2018.

Events since the end of the period

• With the AGM’s authorisation, Hexatronic’s Board of Directors decided on a new issue of 30,892 shares. The sellers of the shares in Hexatronic UK Ltd. (formerly OpticReach Ltd.), which Hexatronic acquired in January 2016, each subscribed for half of the shares. Payment is by way of offsetting. The reason for the deviation from the shareholders’ preferential right was that it was an offset issue.
• In spring 2015, Hexatronic was sued by Emtelle Ltd. regarding the alleged infringement of a Swedish patent relating to what is known as air blown fibre. Hexatronic contested the suit and issued a counter-suit claiming that the Emtelle patent should be declared invalid. Negotiations in the Swedish Patent and Market Court were held in early September 2017. The Court made a decision on the dispute in favour of Hexatronic. The Court declared the patent invalid and thus struck down Emtelle’s patent infringement claim. Emtelle was obliged to compensate Hexatronic for court costs amounting to approximately MSEK 5.1. The decision has gained legal effect.
• The company decided to invest in further production capacity for ducts at its factory in Hudiksvall, northern Sweden. The investment is part of the company’s strategy to increase production capacity and product breadth, in order to meet increased demand for its products. The investment amounts to approximately MSEK 21 and will take place in two stages with the first capacity increase taking place in spring 2018 and the second in autumn 2018.