Hexatronic Presents Interim Report Q2 2023
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Teleconference on-demand: Interim report Q2, 2023
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Second quarter (April 1 – June 30, 2023)
- Net sales increased by 36 percent to MSEK 2,258 (1,662). Organic growth amounted to 7 percent.
- EBITA increased by 45 percent to MSEK 405 (278), corresponding to an EBITA margin of 17.9 percent (16.8).
- Operating profit (EBIT) increased by 43 percent to MSEK 377 (264), corresponding to an operating margin of 16.7 percent (15.9).
- Net profit increased by 37 percent to MSEK 259 (189).
- Earnings per share after dilution amounted to SEK 1.27 (0.93).
- Cash flow from operating activities amounted to MSEK 348 (176)
Events during the quarter
- Hexatronic signs agreement with new network operator in the US to a value of 20 MUSD.
- Hexatronic has signed an agreement to acquire Fibron, a leading OEM manufacturer of electro-optical cables for harsh environments, thereby strengthening the opportunities in the Harsh Environment market.
- Hexatronic initiated and completed a repurchase program of its own shares with support from the authorization from the annual general meeting on May 9, 2023. Within the framework of the program, all 1,200,000 ordinary shares were repurchased.
- Hexatronic initiates the share savings program (LTIP 2023) decided by the Annual General Meeting on May 9, 2023.
Events since the end of the quarter
No significant events occurred after the end of the quarter.
Hexatronic CEO Henrik Larsson Lyon, in an interview about Q2, 2023
Comments from the CEO
Continued growth, improved profitability and cash flow
Hexatronic continued to grow during the second quarter. Sales increased by 36 percent, with 7 percent attributed to organic growth, and the EBITA margin expanded to 17.9 percent, surpassing our long-term targets of at least 20 percent sales growth and an EBITA margin within the range of 15-17 percent. At the same time, cash flow from operating activities developed positively due to reducing our inventories, and increased to SEK 348 million in the quarter.
North America continued to develop well and reached a sales growth of 58 percent driven by duct sales in Blue Diamond Industries and sales of our FTTH systems in the US and Canada. The factory in Clinton, South Carolina is gradually increasing its production and, as before, is expected to be fully operational in the latter part of the third quarter. The investment in a fourth duct factory in Ogden, Utah is proceeding according to plan and production is expected to start at the beginning of the third quarter of next year.
During the quarter, President Joe Biden announced the start of the Broadband Equity, Access and Deployment (BEAD) program in the United States, which is part of the Infrastructure Investment & Jobs Act (IIJA) passed in November 2021. It is a USD 42.5 billion federal investment to provide high-speed broadband access in areas with no or poor broadband access. The assessment is that these subsidies will begin to show effect in 2024. At the same time, we believe that IIJA will have a positive effect on demand for duct in the US over the next 7-8 years.
Europe, excluding Sweden, also developed well with growth of 47 percent, mainly driven by growth in the UK and Germany.
Sales in Sweden decreased by 28 percent as a natural consequence of a couple of large submarine cable projects delivered in the second quarter of last year and affecting the comparison. The underlying market was stable.
Sales in APAC grew by 7 percent, mainly due to the acquisition of KNET, which was consolidated from December 1, 2022.
Increased demand and the fact that the pandemic and the war in Ukraine created major problems in the supply chains meant that many customers secured their needs by placing orders with more forward planning. In recent years, our order book has increased from about two months of sales to about five months in 2022. Today, when supply chains function normally, we see a change in customer behavior. In the second quarter, we have an order book about three months of sales and we expect it to decrease during the year to about two months of sales, which was normal before the pandemic. Above all, the normalized customer behavior, but also to some extent a softer market, meant a negative organic growth of the order book of 29 percent compared to the corresponding quarter last year.
In line with our focus, cash flow improved during the quarter. Improved profitability and active efforts to reduce our inventories resulted in a positive cash flow from operating activities of SEK 348 million. We have continued focus on reducing our inventories during the second half of the year.
During the quarter, we entered into a binding agreement to acquire Fibron in the UK. Fibron, like Rochester Cable, produces electro-optical cables for harsh environments and will be part of our business area Harsh Environment (fiber optic solutions for harsh environments), strengthening our position in Harsh Environment and providing further diversification. We also see several synergies with Rochester Cable through, among other things, complementary production capabilities, improved utilization rates and increased tendering capabilities.
During the quarter, we noted that growth in several of our geographical markets where we operate has been affected by increased interest rates and inflation, which means that customers have been more cautious in their investment decisions. Therefore, our assessment is that several of the markets will have lower or no growth in the second half of the year. We believe the lower growth rate is temporary as there is a significant structural need to expand and strengthen communication networks in many countries. Through our geographical spread, our diversification and the acquisitions we have made, we are well-positioned to continue to grow in the second half of the year, although at a lower rate than in the first half of the year.
Welcome to join us on our growth journey.
Henrik Larsson Lyon
President and CEO Hexatronic
Group AB (publ)
Publication
This information comprises disclosures that Hexatronic Group AB (publ) must publish according to the Swedish Securities Market Act. The information was submitted for publication, under responsibility of the contact persons named below, on 15 August 2023 at 07:00 CEST.
