Hexatronic

REG

Hexatronic Group AB (publ)
Interim Report January – June 2024

Continued strong cash flow and modest recovery in Fiber Solutions 

Second quarter (April 1 – June 30, 2024) 

• Net sales decreased by 10 percent to MSEK 2,024 (2,258). Sales decreased organically by 18 percent. 

• EBITA decreased by 45 percent to MSEK 222 (405), corresponding to an EBITA margin of 11.0 percent (17.9). 

• Operating profit (EBIT) decreased by 49 percent to MSEK 192 (377), corresponding to an operating margin of 9.5 percent (16.7). 

• Net result decreased by 66 percent to MSEK 89 (259). 

• Earnings per share after dilution amounted to SEK 0.44 (1.27). 

• Our new focus areas, Harsh Environment and Data Center, continued to improve with strong organic and acquisition-driven growth in the second quarter. 

• Leverage ratio (net debt/EBITDA (pro forma), R12) amounted to 2.2x compared to 1.7x as of December 31, 2023. 

• Cash flow from operating activities amounted to MSEK 221 (348).  
  
  

Significant events during the quarter 

• Hexatronic announced changes in the company's executive management. Jakob Skov, Head of focus area Harsh Environment, joined the company's executive management as of April 2024 and in June 2024 Pernilla Grennfelt joined Hexatronic as Head of Investor Relations and the company's executive management. 

• The AGM resolved, for the period until the next Annual General Meeting, to re-elect Erik Selin, Helena Holmgren and Jaakko Kivinen and to elect Magnus Nicolin, Diego Anderson, Linda Hernström and Åsa Sundberg as members of the Board of Directors. Magnus Nicolin was elected as Chairman of the Board of Directors.  

• Hexatronic has been selected by NOVOS FiBER as a strategic partner in the U.S. market for Hexatronic's end-to-end fiber-to-the-home (FTTH) solution. The agreement initially runs for a period of three years and is expected to generate sales of approximately 400 MSEK. 
  
  

Significant events since the end of the quarter 

• No significant events occurred after the end of the quarter. 

Comments from the CEO

Continued strong cash flow and modest recovery in Fiber Solutions

The second quarter saw sequential sales growth for the Group of 14 percent. This is primarily attributable to a modest recovery in the market for Fiber Solutions, positive seasonal effects, and continued good development in our new focus areas. Despite ongoing price pressure, our profitability improved during the quarter, rising to 11.0% from 9.4% in the previous quarter. This improvement is due to higher capacity utilization and the cost savings program announced in November. Additionally, our business continued to generate strong operating cash flow, amounting to SEK 221 million in the quarter, which corresponds to a cash conversion of 115 percent.

Sequentially improved profitability and growth
The second quarter of 2023 was the company's historically strongest quarter in terms of both sales and profitability. Compared to last year, sales decreased by 10 percent in the second quarter. The EBITA margin for the quarter was 11.0 percent compared to 17.9 percent in the corresponding quarter last year. However, compared with the previous quarter, sales increased by 14 percent and EBITA by 33 percent, improving profitability by just over 1.6 percentage points. The quarter-over-quarter improvement in profitability was partly driven by higher volumes in several of our factories and by the previously communicated cost reduction program, partly offset by continued price pressure during the quarter.

Marginally improved demand with continued price pressure in Fiber Solutions
In the US, we saw a slight increase in demand for both Blue Diamond Industries' duct sales and our fiber-to-the-home (FTTH) system sales. We signed a contract worth approximately SEK 400 million over three years with Novus Fiber, further proving the strength of our FTTH system offering. We saw increased price pressure for duct sales, which we believe will continue during the year. Work on the new duct factory in Utah is currently in the completion phase according to the previously communicated plan. 

In Europe, we saw continued weak demand with price pressure in most markets. The markets in the UK and Germany remained weak during the quarter.

Sales in APAC developed favourably, mainly due to a couple of major projects.

New focus areas continue to develop strongly  
Our new focus areas, Harsh Environment and Data Center, develop very positively, with strong organic and acquisition-driven growth in the second quarter. Together they represent a significant part of the Group – around 27 percent of sales during the second quarter.

Sales in Harsh Environment amounted to SEK 297 million in the second quarter, up from SEK 153 million in the corresponding quarter last year. The increase is mainly attributable to the acquisition of Fibron Cable, although organic growth was also strong.

Sales in Data Center amounted to SEK 250 million in the second quarter, compared to SEK 190 million in the corresponding period last year. The increase is driven by both organic growth and the acquisition of USNet. During the quarter, we merged USNet with DCS to form a strong data center company in the US. After the end of the quarter, a letter of intent was signed to acquire parts of Icelandic Endor to further broaden our offering in hardware and services for the data center market, as well as to strengthen our customer base and presence in Iceland, Sweden and Germany.

As we have previously communicated, our acquisition agenda primarily focuses on strengthening our offerings and presence in Harsh Environment and Data Center.

Continued reduction in net debt and good financial flexibility 
We continue to have good financial flexibility for long-term value creation. Interest-bearing net debt (i.e. excluding IFRS 16) decreased during the quarter from SEK 2,102 million to SEK 1,996 million. Over the past three quarters, we have reduced interest-bearing net debt by approximately SEK 500 million.

The ratio of interest-bearing net debt to pro forma EBITDA on a rolling 12-month basis, which reflects our existing bank covenants, increased from 1.7 times to 1.9 times during the quarter. Including IFRS 16, this corresponds to an increase from 2.0 times to 2.2 times during the quarter. The increase is due to lower profitability in the second quarter compared with the record-strong second quarter of the previous year.

Outlook for the second half of the year and beyond 
We expect the Harsh Environment and Data Center markets to remain strong for the rest of the year and for a long time to come, mainly driven by investments in defense, energy and AI. 

In line with our previous assessment, we expect the market for Fiber Solutions to remain weak in the third quarter, with a gradual increase in demand from the latter part of 2024. However, we expect a return to the pre-pandemic seasonal pattern of lower activity in the fourth and first quarters.

We continue to see strong underlying structural trends supporting the continued deployment of fiber optic systems globally.

The order book as of the end of the second quarter corresponded to approximately 2.5 months of sales, where we estimate a normalized order book is 2 to 3 months.

Finally, I would like to welcome our new members to the Board, who bring increased international weight and important industry expertise. 

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, President and CEO, + 46 (0)70-650 34 00
Pernilla Lindén, CFO, + 46 (0)70-877 58 32
Pernilla Grennfelt, Head of Investor Relations, +46 (0)70 290 99 55

This is information that Hexatronic Group AB (publ) is obliged to make public pursuant to the Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication through the agency of the contact person set out above on July 16, 2024 at 07.00 CEST.

Hexatronic Group AB (publ) enables non-stop connectivity for communities worldwide. We partner with customers across four continents – from telecom operators to network owners – offering leading-edge fiber technology and solutions for any and all conditions.  Hexatronic Group AB (publ) was founded in 1993 in Sweden and is listed on Nasdaq Stockholm. Our global product brands include Viper, Stingray, Raptor, InOne, and Wistom®.

Attachment

• Hexatronic Group AB (publ) - Interim report Q2, 2024