Overall the numbers were in line with estimates. Although ‘Rest of Europe’ (183% growth y/y) and ‘North America’ (12% growth y/y) were the growth drivers during the quarter, the small deviation in net sales is attributable to these regions. North America continued to develop strongly (the duct business grew over 25%) but with room for improvements in terms of sales of the system solution. During the second half of the year, Hexatronic will strengthen its sales organisation in North America to be able to process more customers. We are positive about the strategy as we believe that more “feet’s on the ground” is one of the main pillars for accelerated growth. The EBITA came in 2% below our forecast, supported by a strong gross margin of 45.2 (44.0) % (estimates: 44.2).
‘Rest of Europe’ was primarily driven by the CityFibre deal, and the region is now Hexatronics largest market (31% of total sales). A piece of essential news is that Hexatronic has signed several FTTH contracts on the German market amounting to a total order value of approximately SEK 40 million. The main part is system sales for delivery in the next 12 months. The situation in Germany is in many ways reminiscent of developments in the UK ahead of the large CityFibre deal and clarifies the company's strategy. That is that Hexatronic acquires companies in a new geographical area to establish a local presence, followed by smaller pilot projects which develop to larger businesses in the next phase.
‘Sweden’ is still slow and contracted 10% y/y. Hexatronic now expects that the Swedish market will have roughly 10% lower volumes for the full year, compared to previous expectations of a flat market. Our unrevised estimates are 2% lower growth for the full year and will thus be cut. ‘Rest of the world’ (-25% growth y/y) has been weak where some projects have been postponed to H2’19. Still, the organic order book stood 20% y/y, fuelled by the international markets.
Overall we will most likely only make minor short-term adjustments, mainly to reflect the weaker than expected outlook for the Swedish market. We continue to have a positive view on Hexatronic and its growth prospects in the UK, Germany and the US – a journey that has just begun.
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