Hexatronic Q3 2024 slides: sequential profit improvement amid fiber market challenges

Introduction & Market Context

Hexatronic Group AB reported its Q3 2024 financial results on October 25, highlighting sequential profitability improvement despite ongoing challenges in European fiber markets. The fiber optic solutions provider continues to navigate a transitional period in its core business while seeing strong growth in its diversification segments.

The company operates in a market characterized by varying fiber penetration rates across strategic growth regions, with significant government initiatives supporting long-term fiber expansion in key markets like the US, UK, and Germany.

As shown in the following chart detailing market opportunities for fiber infrastructure:

Government funding initiatives remain a crucial driver for future growth, with programs like the US BEAD ($42.5 billion), UK’s Project Gigabit (£5 billion), and Germany’s Gigabit Strategy (€3 billion annually) supporting expansion in markets with relatively low fiber penetration.

The following slide illustrates these government initiatives and current penetration rates:

Quarterly Performance Highlights

Hexatronic reported net sales growth of 2% to SEK 1,951 million in Q3 2024, despite continued weak demand in Fiber Solutions across Europe and persistent price pressure. Compared to the previous quarter, sales decreased by 4% sequentially.

EBITA amounted to SEK 230 million, down from SEK 296 million in Q3 2023. However, the EBITA margin improved sequentially to 11.8%, showing operational improvements despite year-over-year pressure.

The following chart illustrates the key factors affecting EBITA performance:

A more detailed breakdown of the financial performance shows that gross margin improved to 43.1% compared to 42.4% in Q3 2023, while operating costs increased to 27.8% of net sales versus 24.4% in the same period last year.

Looking at the company’s long-term performance, Hexatronic has maintained impressive growth rates, with a 5-year sales CAGR of 33% and a 5-year EBITA CAGR of 43%. The following chart illustrates this growth trajectory:

Segment and Regional Performance

Hexatronic’s business is increasingly diversified across three key areas: Fiber Solutions (74% of group sales), Engineered solutions for challenging conditions (14%), and Data center solutions (12%).

As shown in the following breakdown of the company’s diversification strategy:

The performance across these segments varied significantly in Q3 2024. While the core Fiber Solutions segment faced challenges, the Harsh Environment segment grew by an impressive 47% compared to Q3 2023, and the Data Center segment increased by 8%.

The following slide provides a detailed breakdown of performance by focus area:

From a regional perspective, Europe (excluding Sweden) accounts for 45% of group revenue but showed a slight decline compared to the corresponding period last year, primarily due to weakness in Germany and the UK:

In contrast, North America, representing 38% of group revenue, grew by 13% in Q3, driven by organic sales in FTTH systems:

Financial Position and Cash Flow

Hexatronic maintained solid operational cash flow in Q3 2024, with cash flow from operating activities reaching SEK 144 million compared to SEK 107 million in the same period last year. The company’s cash conversion remained strong at 70%.

The following chart illustrates the company’s cash flow dynamics:

Net debt decreased by approximately SEK 85 million compared to the previous quarter, though the leverage ratio increased slightly from 1.9x to 2.0x during the quarter. The company maintains good financial flexibility with liquidity of SEK 1,852 million, comprising SEK 676 million in cash and SEK 1,175 million in unutilized back-up facilities.

Strategic Initiatives and Outlook

Several key strategic developments were announced during the quarter. Most notably, CEO Henrik Larsson Lyon will step down after more than 10 years leading the company. Additionally, Hexatronic acquired parts of Icelandic company Endor and opened a new duct and pipe factory in Ogden, Utah, expanding its North American production capacity.

For the near-term outlook, Hexatronic expects a return to seasonal variations in its Fiber Solutions business, with lower activity anticipated in the fourth and first quarters. The company is "cautiously positive" for next year, noting signs of improved markets in several countries.

The BEAD program in the US is expected to start reaching the market in mid-2025, potentially providing a significant growth catalyst. Meanwhile, the company anticipates strong markets for its new focus areas "for a long time to come," primarily driven by investments in defense, energy, and AI.

The order book stands at approximately 2.5 months of sales, providing reasonable visibility for the near term as the company continues to execute its diversification strategy while navigating the challenges in its core fiber markets.

Full presentation:

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