Hexatronic Presents Interim Report April - June 2020
14 Aug 2020
Q2 from Hexatronic – Strong profitability and strategic acquisitions
"During the quarter profitability (EBITA) increased to 10.5 percent, an increase of 35 percent compared to the same quarter in 2019, primarily due to a high gross margin and good capacity utilisation in our factories. The operating result and earnings per share also improved considerably at 50 percent and 63 percent respectively compared to the same quarter last year. During the second quarter and just after its end, we made two strategic acquisitions: Tech Optics in the UK and Light Brigade in the USA,” says CEO Henrik Larsson Lyon
Events during the quarter
- Hexatronic signed a strategic supply agreement with KCOM in the UK worth up to MSEK 40.
- Hexatronic acquired the UK-based fiber optic company Tech Optics Ltd.
- Hexatronic won submarine cable orders totalling MSEK 40.
- Based on the very uncertain situation in the world, the Board decided to withdraw the previously announced dividend proposal.
Events since the end of the period
- Hexatronic acquired the US-based fiber optic training company The Light Brigade Inc.
- Hexatronic estimated the negative sales effect in the second quarter, because of the COVID-19 pandemic, to be approximately MSEK 40-50 but an increased profitability.
Comments from the CEO
Strong profitability and strategic acquisitions
Profitability (EBITA) increased during the quarter to 10.5 percent, an increase of 35 percent on the same period last year. This good profitability means that we are clearly approaching our goal of at least 9 percent on a rolling 12-month basis. The operating result and earnings per share also improved considerably at 50 percent and 63 percent respectively compared to the same period last year. The higher profitability is primarily due to a high gross margin and good capacity utilisation in our factories.
During the second quarter and just after its end, we made two minor strategic acquisitions: Tech Optics in the UK and Light Brigade in the USA. The companies are well established on their markets and have a long history, with more than 30 years in fiber optics. Tech Optics consolidates our position in fiber optic solutions for demanding sectors such as defence, oil and gas. The acquisition of Light Brigade, which was completed on 1 August, means that the Group now includes North America’s leading training company in fiber optics. The acquisition strengthens our position as a Group that offers complete system solutions and enables us to offer more training in our Fiber to the Home (FTTH) systems.
Growth on our strategic markets remained strong during the second quarter. In Europe, excluding Sweden, we grew organically by 13 percent, primarily driven by strong growth in the UK. We are continuing to grow in North America where organic growth was 9 percent. Altogether the Group’s sales grew by 5 percent during the quarter. In the prevailing circumstances with the adverse effects of COVID-19, we are satisfied with the sales growth during the quarter.
We judge that COVID-19 had a negative impact on sales of around 10 percent during the quarter. Most of our companies have been affected to some extent. Our operation in New Zealand essentially closed for a month, resulting in a corresponding loss of sales. Our training companies, which work extensively with practical training, were severely impacted. The new factory in Texas is up and running, although not to the extent we were hoping. This is due to difficulties recruiting enough operators due to the ongoing pandemic.
The effects of COVID-19 have begun gradually decreasing during the quarter. We do, however, anticipate continued negative impact during the third quarter. In what remains a very uncertain situation, we currently believe that the effects will be less in the third quarter than in the second.
The order book has continued to develop positively, and we entered the third quarter with an order book that was 22 percent higher organically than at the same point last year.
Despite the ongoing pandemic, we remain positive in our outlook on the market. We believe that the need for robust networks with high capacity will increase due to the dramatic increase in distance working and the higher demand for online meetings.
Thank you for joining us on this journey.
Henrik Larsson Lyon
President and CEO Hexatronic Group AB (publ)