Hexatronic Group - Interim report Q2 2019

Hexatronic Presents Interim Report April - June 2019

Q2 from Hexatronic: Strong growth in Europe and success in our strategic growth markets the UK, North America and Germany.

Read the full report here.

The quarter (1 April – 30 June 2019)

• Net sales amounted to MSEK 484.9 (411.6), which represents 18% (19%) growth during the quarter.
• The operating result before interest, taxes and amortisation (EBITA) totalled MSEK 39.8 (34.2), which corresponds to an EBITA margin of 8.2% (8.3%).
• The operating result amounted to MSEK 31.1 (30.2).
• Net earnings totalled MSEK 20.2 (19.8).
• Earnings per share after dilution totalled SEK 0.54 (0.52).
• Cash flow from operating activities during the quarter amounted to MSEK 5.4 (-44.3)

The period (1 January – 30 June 2019)

• Net sales amounted to MSEK 906.0 (750.8), which represents 21% (18%) growth during the period.
• The operating result before interest, taxes and amortisation (EBITA) totalled MSEK 61.1 (53.6), which corresponds to an EBITA margin of 6.7% (7.1%). The EBITA margin on a rolling 12-month basis was 7.0% (8.9%).
• The operating result amounted to MSEK 45.5 (43.9).
• Net earnings totalled MSEK 25.3 (31.1).
• Earnings per share after dilution totalled SEK 0.68 (0.82).
• Cash flow from operating activities during the period amounted to MSEK 36.2 (-46.1)

Comments from the CEO

Strong growth in Europe
The first half-year has brought some important successes on all three of our strategic growth markets: the UK, Germany and North America.

Sales in Europe (excluding Sweden) showed powerful organic growth of just over 100% compared to the same quarter last year. The region has now overtaken Sweden and is our largest geographic market.

Particularly the sales in our strategic market UK have developed well. One important success factor has been our system solution, Matrix. Matrix was pivotal in the major contract we won with CityFibre during the first quarter and was a direct factor in the one with Zzoomm during the second. The Zzoomm contract runs for five years and we have exclusivity until the end of December 2020 and covers our entire Matrix solution including training. Our sales during the exclusivity period are estimated at about MSEK 30, with considerably higher potential over the years to come.

Our second strategic growth market, Germany, has seen a breakthrough and we have won several minor projects to be delivered from this autumn up to the first half of 2020. Several of these are pilot projects and are expected to lead to bigger contracts in the next phase.

Our third strategic growth market, North America, has continued to develop strongly, particularly on the duct side with growth of just over 25%. Based on the potential development and existing customers wanting to increase their business with us, during June we decided to add an additional production plant located west of the current facility in Middlesboro, Kentucky, USA. We anticipate production from the first quarter of 2020, and a positive impact on the company’s profits from 2021. Important progress has been made in sales of our system solution in North America, although a fair amount of work remains to be done until we have established the same strong position as in the UK. We will therefore be reinforcing our sales organization in North America during the second half of 2019 so as to build up a stronger client base. We still believe we have good potential to develop strong system sales on this market.

The Swedish market developed on a par with the first quarter with sales some 10% lower than the corresponding period last year. We anticipate the Swedish market for 2019 being around 10% lower than the previous year.

Sales in other markets developed weakly during the quarter due to low activity in New Zealand, as well as several projects being postponed until the autumn, primarily in the Middle East.

Overall for the quarter we achieved sales growth of 18% and an EBITA margin of 8.2% EBITA, which is in line with the same quarter last year. Not satisfied with this, we are adapting the Swedish organization to the weaker market situation there, while also investing in the organization outside of Sweden so as to grow in the UK, Germany and North America, among other territories. The most important component in increasing our profitability is to boost organic growth and make optimal use of our production plants. We believe we are in a good position to achieve this. We are in period of flux in which the Swedish market has progressively declined since early 2018, while we are growing in markets with high growth potential outside of Sweden.

We enter the third quarter of 2019 with an order book that is 20% higher organically than at the same point last year. The organic growth in the order book is driven by markets outside of Sweden.

We still have a highly positive view of the FTTH market, the opportunities 5G will bring in the shape of fiber expansion, and our potential for continued profitable growth moving forward.

Thank you for joining us on this journey.

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

Events during the quarter (1 April – 30 June 2019)

• Hexatronic signed a strategic supply agreement with Zzoomm Ltd. regarding supply of Hexatronic´s full Matrix system. The agreement will run for five years and Hexatronic UK will be the exclusive supplier for the passive components and training for the first 1.5 years. The approximate value for this initial exclusive start-up phase is 2.5 MGBP.
• Hexatronic decided to establish a second production facility in the United States, to meet the increased demand of High Density Polyethylene conduit for the protection of fiber optic and power cables. The production plant will be an extension of the wholly owned subsidiary Blue Diamond Industries current production in Middlesboro, Kentucky, which today covers demand in eastern United States. The new location west of Middlesboro will allow Blue Diamond to serve a significantly larger geographical market.
• The AGM was held on 9 May 2019. The AGM decided to pay a dividend of SEK 0.40 per share, which was paid on 16 May 2019. Mats Otterstedt was elected as a new Board member. A decision was made to introduce an incentive programme through a targeted issue of up to 500,000 options. A decision was made to introduce a long-term, performance-based incentive plan for senior executives and other key people in the Group who are resident in Sweden. The Board was authorised to make decisions to acquire or transfer its own shares in accordance with the Board proposal and to decide on new issues of shares and/or warrants and/or convertibles amounting to up to 10% of the registered share capital.

Events since the end of the period    

• Hexatronic recently signed several FTTH contracts on the German market amounting to a total order value of approximately 40 MSEK. The main part is system sales for delivery in the next 12 months.