Hexatronic Group — Interim / Quarterly Report 2018

Feb 22, 2019

Hexatronic Group AB (publ) Year-End Report 2018

(Full year 1 January – 31 December 2018

The full year (1 January – 31 December 2018)

• Net sales amounted to MSEK 1,597.8 (1,299.4), which represents 23% (26%) growth during the full year.
• The operating result before interest, taxes, depreciation and amortisation (EBITDA) totalled MSEK 138.2 (151.0), which corresponds to an EBITDA margin of 8.7% (11.6%).
• The operating result amounted to MSEK 92.5 (122.3).
• Net earnings totalled MSEK 59.3 (90.4).
• Earnings per share after dilution totalled SEK 1.62 (2.38).
• Cash flow from operating activities during the full year amounted to MSEK 15.6 (133.4)
• The board will propose a dividend of SEK 0.40 (0.40) per share for the financial year 2018 to the annual general meeting.

The quarter (1 October – 31 December 2018)

• Net sales amounted to MSEK 443.2 (325.0), which represents 36% (7%) growth during the quarter.
• The operating result before interest, taxes, depreciation and amortisation (EBITDA) totalled MSEK 31.0 (37.9), which corresponds to an EBITDA margin of 7.0 (11.7%).
• The operating result amounted to MSEK 17.4 (30.4).
• Net earnings totalled MSEK 6.3 (23.7).
• Earnings per share after dilution totalled SEK 0.17 (0.62).
• Cash flow from operating activities during the quarter amounted to MSEK 51.6 (56.0)

Comments from the CEO

Continued strong international growth

2018 was a year of continued strong growth for Hexatronic. The main item on our agenda was to increase our presence the UK, Germany and USA. All these markets are in the early stages of developing fiber to the home (FTTH). We made acquisitions in these markets during the year, which means we are continuing to reposition Hexatronic strategically towards distinct emerging markets. On a pro forma basis, i.e. including Opternus and PQMS, sales to the relatively well-developed Swedish market today account for about 35% which is a gradual decrease from 49% in 2017 and 60% in 2016.

Overall, 2018 was a strategically successful year in which we advanced our positions on several emerging markets. In terms of profitability, however, it was a poor year in which we did not achieve our EBITDA target of 10%, mainly due to the biding Swedish FTTH market. In addition to the acquisitions in the UK, Germany and USA, we also made important investments in sales and marketing on these markets, which had an adverse impact on profitability for the full year.

Growth during the quarter totalled 36%, of which 34% related to acquisitions and 2% to organic growth. There is still very strong growth outside of the Nordics, and weaker development primarily on the Swedish market. In terms of financial results, the already seasonally weak quarter was burdened by agent costs of MSEK 3.0 relating to the patent dispute in the UK. In the corresponding period last year, we had a positive effect of MSEK 6.5 relating to the reimbursement of costs from our counterparty in the Swedish patent dispute, which we won. We continued to see good development in the USA, and our operations in the UK showed a strong upward trend. The recent acquisition in Germany has developed according to plan and has also created awareness of Hexatronic on the German market.

Looking ahead to 2019, we believe that the global market will show healthy growth. The Swedish market will be much the same as in 2018. We noticed a certain amount of price pressure on the Swedish market towards the end of 2018, which we are responding to with streamlining and cost cutting. We believe the British market will develop strongly and that we are well positioned to benefit from that growth. We are building up stock in the UK due to the uncertainty surrounding Brexit. Also, the North American market is expected to grow, and we believe we will take market share. The German market will grow from low volumes. We do however believe that the major growth on the German market is a year or so off yet.

We enter the first quarter of 2019 with an order book which is organically 18% higher than at the same point last year. We plan to continue making acquisitions intensively and are bolstering our resources so that we can carry on growing on important emerging markets. The first quarter is normally our weakest quarter due to the winter period. We believe that our comprehensive efforts in the UK, Germany and USA will have a positive effect on both growth and profitability during 2019.

We still have a highly positive view of the FTTH market, the opportunities 5G will bring in the shape of fiber expansion, and our potential for continued profitable growth moving forward. Thank you for joining us on this journey.

Henrik Larsson Lyon President and CEO of Hexatronic Group AB (publ)

Events during the quarter (October – December 2018))

• Hexatronic acquired the German fiber optic company Opternus GmbH. The company is consolidated into the Hexatronic Group from November 1, 2018.

Events since the end of the period

No events to report since the end of the period.

Financial information, Group

	Quarter	Quarter	Period	Full year
	181001	171001	180101	170101
MSEK	181231	171231	181231	171231
Net sales	443.2	325.0	1,597.8	1,299.4
EBITDA	31.0	37.9	138.2	151.0
EBITDA margin	7.0%	11.7%	8.7%	11.6%
Operating result	17.4	30.4	92.5	122.3
Net earnings	6.3	23.7	59.3	90.4
Earnings per share after dilution, SEK	0.17	0.62	1.62	2.38
Cash flow from operating activities	51.6	56.0	15.6	133.4
Liquid assets	84.6	108.2	84.6	108.2

See other key metrics on page 18.

Net sales and results

The full year (January – December 2018)

Net sales for the full year amounted to MSEK 1,597.8 (1,299.4). Net sales increased by 23% for the Group compared to the year before. The growth in sales is attributable to the acquisitions of Blue Diamond Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus. Organically the net sales dropped by 6% compared to the year before because of a weaker Swedish market.

EBITDA totalled MSEK 138.2 (151.0), which corresponds to an EBITDA margin of 8.7% (11.6%).

Other operating expenses and operating income have been affected by adjustments of previously booked debt raised for additional purchase amounts, which is shown in the outcome for the quarter below.

During the year, the Group has had significant agent costs for the ongoing patent dispute in the UK.

Net financial items for the full year amounted to -10.8 MSEK (-6.2), whereof net interest amounted to -6.9 MSEK (-1.8), unrealised foreign exchange differences to -1.6 MSEK (-4.4) and other financial items to -2.3 MSEK (0).

The quarter (October – December 2018)

Net sales during the quarter amounted to MSEK 443.2 (325.0). Net sales increased by 36% for the Group compared to the same quarter last year. The growth is attributable to the acquisitions of Blue Diamond

Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus. The organic growth was 2% compared to the same quarter last year.

EBITDA totalled MSEK 31.0 (37.9), which corresponds to an EBITDA margin of 7.0% (11.7%).

Other operating income during the quarter totalled MSEK 15.0 (17.1), of which MSEK 9.2 relates to adjustment of a previously booked debt raised for additional purchase amounts linked to the acquisitions of PQMS and Opternus, and MSEK 1.5 relates to insurance compensation for agent costs linked to the patent dispute in the UK.

During the quarter, the Group has had significant agent costs for the ongoing patent dispute in the UK.

Other operating expenses during the quarter totalled MSEK 4.7 (0) linked to adjustment of a previously booked debt raised for an additional purchase amount related to the acquisition of Blue Diamond Industries.

Net financial items during the quarter amounted to -3.7 KSEK (-2.4), whereof net interest amounted to -2.0 MSEK (-0.3), unrealised foreign exchange differences to -0.6 MSEK (-2.1) and other financial items to -1.1 MSEK (0).

Net sales 12 months, MSEK and EBITDA margin rolling 12 months (%)

Financial position and liquidity

Liquid assets

Liquid assets on 31 December 2018, excluding overdraft facilities, amounted to MSEK 84.6 (108.2). Unutilised overdraft facilities amounted to MSEK 42.6 on 31 December 2018.

Non-current assets

Non-current assets amounted to MSEK 594.7 on 31 December 2018 (212.8). The increase is primarily related to acquired assets in connection with the acquisitions of Blue Diamond Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus.

Equity

Equity amounted to MSEK 494.4 on 31 December 2018 (415.3), which equated to SEK 13.54 per outstanding share before dilution at the end of the reporting period.

Borrowing

The Parent Company has an acquisition facility of MSEK 565. The utilised amount on 31 December 2018 totalled MSEK 408.2, and MSEK 351.7 of this is long-term borrowing. The debt falls due for payment on 15 December 2021 with an option to extend. The Parent Company's loan agreements include the usual conditions, commitments and provisos.

Net debt totalled MSEK 353.4 at the end of the reporting period compared to MSEK 14.2 in net cash as per 31 December 2017.

Equity ratio

The equity ratio on 31 December 2018 was 38% (53%).

Cash flow

Cash flow from operating activities

Cash flow from operating activities during the full year amounted to MSEK 15.6 (133.4), including a change in working capital of MSEK -83,2 (12.7). The negative change in working capital is primarily attributable to increased capital tied up in inventories and accounts receivable.

Cash flow from operating activities during the quarter amounted to MSEK 51.6 (56.0), including a change in working capital of MSEK 28.8 (30.3). The lower cash flow is attributable to increased capital tied up in inventories.

Cash flow from investing activities

Cash flow from investing activities during the full year amounted to MSEK -361.5 (-45.8). The cash flow is primarily attributable to the acquisition of Blue Diamond Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus and to some extent to investments in tangible and intangible assets.

Cash flow from investing activities during the quarter amounted to MSEK -96.7 (-9.6). The cash flow is primarily attributable to the acquisition of Opternus and investments in tangible and intangible assets.

Cash flow from financing activities

Cash flow from financing activities during the full year amounted to MSEK 322.3 (-18.9). The cash flow from financing activities during the full year is attributable to new borrowing related to the acquisition of Blue Diamond Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus, amortisation of loans and dividend paid.

Cash flow from financing activities during the quarter amounted to MSEK 69.9 (0.1). The cash flow from financing activities during the quarter is attributable to new borrowing related to the acquisition of Opternus and amortisation of loans.

Dividend policy

Any dividend is decided by the Annual General Meeting, following a recommendation by the Board of Directors. The Group is currently in an expansive phase of development, and in the next few years the focus will be on re-investing profits back into the business.

The Board will propose to the AGM a dividend of SEK 0.40 (0.40) per share for the 2018 financial year.

The Group's financial goals up until 31 December 2018

Profitability

An EBITDA margin (EBITDA as a percentage of net sales) of at least 10% on a rolling 12-month basis. The EBITDA margin on a rolling 12-month basis on 31 December 2018 was 8.7% (11.6%).

Growth

The Group shall grow more than its market organically. The Group strives for an average annual growth of at least 20%. The growth will be both organic and acquisition-driven. Growth on a rolling 12-month basis was 23% (26%).

Financial stability

The Group shall have an equity ratio of at least 30%. The equity ratio was 38% at the end of the reporting period.

In acquisitions, the equity ratio may fall below 30% for a period of less than 12 months. This may occur when the Board deems that the profitability and cash flow from acquired companies will cause a swift improvement in the equity ratio.

New Group financial goals from 1 January 2019

In light of the transition to the new reporting standard, IFRS 16 Leases, the Board of Directors has adopted new financial goals to apply from 1 January 2019.

Profitability

The EBITA margin (Earnings before interest, taxes, and amortisation) should be at least 9% on a rolling 12 month basis. The EBITA margin for year 2018 was 7.2%.

Growth

The Group shall grow more than its market organically. Annual growth of at least 20%. The growth will be both organic and acquisition-driven.

Segments

Hexatronic Group AB (publ) is an engineering group specialising in fibre communications. The Group delivers products and solutions for optical fibre networks and supplies a complete range of passive infrastructure for telecom companies, including related training. Hexatronic Group AB (publ) comprises the operating segment fibre optic communication solutions.

Customers

The Group's customers are telecom operators, network owners, telecom companies, installers and system houses, and a part of the Group's products are distributed via wholesalers.

Employees

There were 564 (384) employees in the Group on 31 December 2018. The increase in employees compared to the same time last year is primarily due to the acquisition of Blue Diamond Industries, PQMS, Gordon Franks Training and Opternus.

Parent Company

The Parent Company's main business consists of performing Group-wide services. Revenue for the full year January-December amounted to MSEK 27.2 (22.2) and the result for the period was MSEK -4.6 (8.8).

The Parent Company's financial assets amounted to MSEK 630.2 at the end of the period (compared to MSEK 221.8 at the beginning of the year). The increase is related to the value of shares in the acquired companies Blue Diamond Industries, PQMS, Gordon Franks Training, Smart Awards and Opternus. The value of shares in ICT Education and Iftac has been written-down by MSEK 15.5 during the full year.

Transactions with related parties

The Group rents premises from Fastighets AB Balder, in which the Group's board member Erik Selin has a significant influence. The rental contract has been entered under normal commercial conditions. The rent for the premises amounts to MSEK 4.6 annually.

Significant risks and uncertainties

Like all business activities, Hexatronic's operation is associated with risks of various kinds. Continually identifying and assessing risks is a natural and integral part of the operation, enabling risks to be controlled, limited and managed proactively.

The Group's ability to map and prevent risks minimises the likelihood of unpredictable events having an adverse impact on the business. The aim of risk management is not necessarily to eliminate the risk, but rather to safeguard set business goals with a balanced risk portfolio. Mapping, planning and management of identifiable risks supports the management in making strategic decisions. Risk assessment also aims to increase the entire organisation's risk awareness.

Several risk areas have been identified in Hexatronic's risk management process. Hexatronic has divided identified risks into operational and environmental risks, market risks and financial risks.

A more detailed description of the Group's risks and risk management is provided in the Hexatronic Group Annual Report for 2016/17 on page 32-35.

Patent dispute

In June 2018 Emtelle UK Ltd. filed a lawsuit in England against Hexatronic UK Ltd., Hexatronic Cables & Interconnect Systems AB and Hexatronic Group AB., for infringement in two British patents related to airblown fiber. Hexatronic has contested the claim.

The Group – Hexatronic Group AB (publ)

The Group offers a broad product range designed for fibre optic communication solutions for telecom companies, operators and network owners. It develops, designs, manufactures and sells its own products and system solutions in combination with products from leading partners around the world. The Group conducts its own business through established companies in Sweden, Norway, the UK, Germany, China, USA and New Zealand.

The Group's growth strategy is to grow organically by continuously developing its product range and introducing more added value services such as servicing, aftermarket sales, support and training.

The Group has an explicit acquisition and growth strategy.

The market

Broadband expansion is in full swing all around the world. Some nations have come a long way, while several major countries have barely begun.

At EU level, and in many individual countries, there are digitalisation goals that include a certain bandwidth per household at a point in time. "The Digital Agenda for Europe" stipulates the goals up to 2025. The global economy is changing quickly, and it is important to the competitiveness of individual countries and the whole of the EU that the goals are accomplished.

There is still high activity on the global FTTH market worldwide, and especially on our focus markets of the Nordics, Central Europe and North America. In an FTTH Council Europe report presented in February 2018, relating to the percentile coverage of FTTH/FTTB by country, small countries such as the United Arab Emirates, Singapore and South Korea are at the top of the rankings for the percentage of fiber households. In Europe, Latvia is in the lead with 50.6% followed by Sweden with 43.4% and lagging far behind are major nations like Germany and Italy with just 2.3% each, while the UK has under 1%.

In terms of size, the North American market is comparable to Europe, and expansion there is expected to be strong in the next few years. During 2017, the number of 'homes passed' increased by 20% to 50 million households in total, which indicates that the market is active.

On the Swedish market, it is primarily connection in rural areas that is yet to be completed. Since the material requirement for rural connection is about 2.6 times higher for duct and cable than in built-up areas, this means that the number of connections is falling, the need for materials is not decreasing at the same rate.

5G is imminent – a technological shift that is required to provide sufficient support for new services and connected products that need higher transfer speeds in the networks, such as driverless vehicles. Video currently comprises around 50% of all traffic, and this is expected to rise to 75% by 2023. The transition to 5G entails a dramatic condensation of senders/receivers, which has an effect on the fiber networks as these are largely connected to fiber, and the need for fiber will increase.

The development of 5G is in its infancy and is expected to gather real momentum in two to three years' time. The number of mobile users is expected to increase from around 8 billion to around 9 billion by 2023, according to the Ericsson Mobility Report.

The development of Internet of Things (IoT) and smart cities has only just begun, and the market is expected to grow dramatically in the years to come. Creative ideas and solutions are emerging, and new needs are arising. The opportunities and potential applications are virtually endless.

The segments expected to grow the most in IoT are the 'short range' ones, i.e. products with a wireless range of up to 100 m, often with a connection to WiFi, Bluetooth and Zigbee. The number of IoT products is expected to grow by about 20% a year up to 2023, which would then result in 20 billion connected devices worldwide – a clear indication of the dramatic growth that's anticipated in this segment.

Outlook

The Group will continue to work with large customers and major projects, where the Group's added value as a competent systems and product supplier constitutes a competitive edge. The Group's principal offering is systems and products for broadband communication, primarily for fibre optic networks.

The Group has an active acquisition and growth strategy whereby attractive candidate – i.e., those that can complement Hexatronic either in terms of market or products – are continuously being evaluated. The Group does not prioritise acquisitions in which cost synergies need to be harnessed to achieve a good return on the acquisition investment.

The Group does not publish forecasts.

The Hexatronic share

The company's share is listed in the Mid cap segment on Nasdaq Stockholm.

The company's share is listed under the ticker HTRO. On the balance sheet date, the share capital in Hexatronic Group AB (publ) amounted to SEK 1,825,590.95, distributed among a total of 36,511,825 shares, before dilution from existing employee stock option programmes.

At the Annual General Meeting (AGM) on 19 April 2018, it was decided to authorise the Board to acquire and transfer personally held shares in line with the Board's decision, and to decide on the new issue of shares and/or warrants and/or convertibles equating to no more than 10% of the registered share capital. The AGM decided to pay a dividend of SEK 0.40 per share, which was paid on 26 April 2018.

The fair value on the issued options, in all employee stock option programs, has been calculated according to the Black & Scholes model. Each option entitles the holder to buy one share.

Employee stock option programmes active at the time of this report's publication are:

• In 2016/17 an employee stock option programme was approved with 700,000 options available to the company's personnel; 346,500 of these options were subscribed at an issue price of SEK 51.65, with a redemption window of 15 January – 15 February 2020.
• In 2018 an employee stock option programme was approved with 1,000,000 options available to the company's personnel; 603,000 of these options were subscribed at an issue price of SEK 82.20, with a redemption window of 15 May – 15 June 2021.

Share price development in the past 12 months (SEK)

The company's market value at the end of the period was MSEK 1,705.

The number of shareholders at period end, 7,854, is based on data from Euroclear. The shareholder structure of Hexatronic Group AB (publ) on 31 December 2018 is shown in the table below.

Shareholder	No. of shares	Capital & votes %
Accendo Capital	4 658 447	12,8%
Handelsbanken Funds	3 187 176	8,7%
Jonas Nordlund, privately and corporately	2989841	8,2%
Martin Åberg and Erik Selin via Chirp AB	1785872	4,9%
Fondita Nordic Micro Cap	1763000	4,8%
Swedbank Robur, West Fund	1 342 039	3,7%
Nordea Funds	1 272 355	3,5%
Avanza Pension - Insurance Company	1 156 296	3,2%
Göran Nordlund, privately and corporately	1083954	3,0%
Consensus Asset Management	850888	2,3%
Other shareholders	16 421 957	45,0%
Total outstanding shares	36 511 825	100,0%

Other information

Publication

This information comprises disclosures that Hexatronic Group AB (publ) must publish according to the EU Market Abuse Regulation and the Swedish Securities Market Act. The information was submitted for publication, under responsibility of the contact persons named below, on 22 February 2019 at 08:00 CET.

Financial calendar

Interim Report January-March 2019: 3 May 2019 Interim Report April-June 2019: 16 August 2019 Interim Report July-September 2019: 6 November 2019 Year-End Report: 21 February 2020

Annual General Meeting

The AGM will be held on 9 May 2019.

Please direct any questions to:

• Henrik Larsson Lyon, President and CEO, + 46 (0)70-650 34 00
• Lennart Sparud, CFO, + 46 (0)70-558 66 04

The Board of Directors and President hereby confirm that this interim report provides a true and fair overview of the business, financial position and results of the Parent Company and the Group and describes significant risks and uncertainty factors with which the Parent Company and the companies forming the Group are faced.

Gothenburg, 22 February 2019

Anders Persson Erik Selin Chairman Board member

Jaakko Kivinen Malin Frenning Board member Board member

Malin Persson Henrik Larsson Lyon

Board member President and CEO

This interim report has been reviewed by the company's auditor.

Hexatronic Group AB (publ) is a group that develops, markets and delivers products, components and system solutions with the main focus on the fiber optic market. Hexatronic offers a wide range of innovative system and product solutions mainly for passive fiber optic infrastructure with global trademarks like Ribbonet®, Micronet™, Drytech™, Lightmate®, FibreHub™, Matrix, Viper, Stingray and Wistom®. The Group has its headquarters in Gothenburg, Sweden and has sales offices and/or subsidiaries in Sweden, Norway, Finland, United Kingdom, Germany, China, New Zealand and the US. The Group is listed on Nasdaq Stockholm under the ticker HTRO. For more information, visit www.hexatronicgroup.com.

Consolidated income statement (SEK thousand) Quarter Quarter Full year Full year

	181001	171001	180101	170101
	181231	171231	181231	171231
Revenue
Net sales	443,159	324,994	1,597,768	1,299,419
Other operating income	14,989	17,089	17,526	19,003
	458,148	342,083	1,615,294	1,318,423
Operating expenses
Raw materials and goods for resale	-264,517	-181,222	-906,639	-728,476
Other external costs	-73,306	-52,123	-259,596	-176,801
Personnel costs	-84,686	-70,803	-306,191	-259,950
Other operating expenses	-4,653	0	-4,653	-2,191
Earnings before interest, taxes, depreciation and amortisation (EBITDA)	30,985	37,934	138,214	151,004
Depreciation of tangible assets and amortisation of
intangible assets Operating result	-13,624 17,362	-7,486 30,448	-45,669 92,545	-28,704 122,300
Result from financial items
Financial income	2,219	152	194	230
Financial expenses	-5,936	-2,568	-10,988	-6,399
Result after financial items	13,645	28,033	81,751	116,130
Income taxes	-7,310	-4,346	-22,472	-25,699
Net result for the period	6,335	23,686	59,279	90,432
Attributable to:
Parent Company shareholders	6,335	23,686	59,279	90,432
Earnings per share
Earnings per share before dilution (SEK)	0.17	0.65	1.63	2.50
Earnings per share after dilution (SEK)	0.17	0.62	1.62	2.38
Consolidated statement of comprehensive income	Quarter	Quarter	Full year	Full year
	181001	171001	180101	170101
	181231	171231	181231	171231
Result for the period	6,335	23,686	59,279	90,432
Items which can later be recovered in the income statement
Translation differences	826	22	11,542	-2,687
Cash flow hedge	0	-3,077	3,077	-3,077
Other comprehensive income for the period	826	-3,055	14,619	-5,765
Comprehensive income for the period	7,160	20,631	73,898	84,667
Attributable to:
Parent Company shareholders	7,160	20,631	73,898	84,667

Consolidated balance sheet (SEK thousand)
	2018-12-31	2017-12-31
Assets
Non-current assets
Intangible assets	454,517	118,585
Tangible assets	139,197	93,933
Financial assets	1,015	312
Total non-current assets	594,729	212,830
Current assets
Inventories	334,282	236,925
Current receivables
Accounts receivable	261,774	204,062
Current tax receivables	1,594	0
Other receivables	2,553	1,649
Prepaid expenses and accrued income	23,582	13,394
Total current receivables	289,502	219,104
Liquid assets	84,621	108,239
Total current assets	708,405	564,268
Total assets	1,303,134	777,098

Consolidated balance sheet (SEK thousand)
	2018-12-31	2017-12-31
Equity
Equity attributable to Parent Company shareholders
Share capital	1,826	1,809
Other contributed capital	205,787	186,077
Reserves	5,905	-8,714
Result brought forward, including comprehensive Income for the period	280,897	236,087
Equity	494,415	415,259
Non-current liabilities
Liabilities to credit institutions	351,741	70,530
Deferred tax	62,630	35,372
Total non-current liabilities	414,372	105,903
Current liabilities
Liabilities to credit institutions	56,457	23,510
Overdraft facilities	29,863	0
Accounts payable	173,772	140,886
Provisions	3,000	3,000
Current tax liabilities	0	11,779
Other liabilities	72,815	26,215
Accrued expenses and deferred income	58,440	50,546
Total current liabilities	394,347	255,936
Total equity, provisions and liabilities	1,303,134	777,098

Consolidated statement of changes in equity (SEK thousand)	Share capital	Other capital contributions	Reserves	Result brought forward, including result for the period	Total equity
Balance brought forward as of 1 January 2017	1,807	182,924	-158	145,774	330,347
Result for the period	0	0	-2,792	90,432	87,640
Other comprehensive income	0	0	-5,765	-118	-5,883
Total comprehensive income	0	0	-8,556	90,313	81,757
New share issue relating to business acquisitions Employee stock option programme	2 0	1,627 1,526	0 0	0 0	1,629 1,526
Total transactions with shareholders, reported directly in equity	2	3,153	0	0	3,155
Balance carried forward as of 31 December 2017*	1,809	186,077	-8,714	236,087	415,259
Balance brought forward as of 1 January 2018	1,809	186,077	-8,714	236,087	415,259
Result for the period	0	0	0	59,279	59,279
Other comprehensive income	0	0	14,619	0	14,619
Total comprehensive income	0	0	14,619	59,279	73,897
New share issue relating to business acquisitions	17	17,436	0	0	17,453
Employee stock option programme	0	2,274	0	0	2,274
Dividends paid	0	0	0	-14,469	-14,469
Total transactions with shareholders, reported directly in equity	17	19,710	0	-14,469	5,258
Balance carried forward as of 31 December 2018	1,826	205,787	5,905	280,897	494,415

* Other capital contributions have been decreased and result brought forward including result for the period has been increased by MSEK 4.751, compared to the last annual report regarding incorrect accounting of adjustment within the item Equity.

Consolidated statement of cash flows (SEK thousand)	Quarter 181001	Quarter 171001	Full year 180101	Full year 170101
	181231	171231	181231	171231
Operating result	17,362	30,448	92,545	122,300
Items not affecting cash flow	18,508	5,587	50,508	16,534
Interest received	101	152	194	164
Interest paid	-5,274	-2,929	-10,403	-2,025
Income tax paid	-7,875	-7,477	-34,094	-16,299
Cash flow from operating activities before changes in working capital	22,822	25,780	98,749	120,674
Increase (-)/decrease (+) in inventories	12,103	-15,974	-67,247	-29,931
Increase (-)/decrease (+) in accounts receivable	70,670	66,936	1,378	-7,726
Increase (-)/decrease (+) in operating receivables	-2,815	651	-4,627	8,369
Increase (+)/decrease (-) in accounts payable	-36,584	-6,206	5,183	35,613
Increase (+)/decrease (-) in operating liabilities	-14,611	-15,140	-17,872	6,360
Cash flow from changes in working capital	28,763	30,266	-83,186	12,684
Cash flow from operating activities	51,585	56,046	15,564	133,358
Investing activities
Acquisition of tangible and intangible assets	-9,916	-6,628	-41,034	-33,087
Acquisition of subsidiaries after deduction of acquired liquid assets	-86,794	-2,991	-320,478	-12,683
Cash flow from investing activities	-96,710	-9,619	-361,512	-45,770
Financing activities
Borrowings	87,105	0	348,728	0
Amortisation of loans	-21,726	0	-43,446	0
Changes in overdraft facilities	4,557	0	29,863	-20,277
New share issues for the period	0	101	1,654	1,340
Dividends paid	0	0	-14,469	0
Cash flow from financing activities	69,936	101	322,330	-18,937
Cash flow for the period	24,811	46,528	-23,618	68,651
Liquid assets at the start of the period	59,810	61,710	108,239	39,588
Liquid assets at the end of the period	84,621	108,239	84,621	108,239

Key metrics for the Group	Quarter	Quarter	Full year	Full year
	181001	171001	180101	170101
	181231	171231	181231	171231
Growth in net sales	36%	7%	23%	26%
EBITDA margin	7.0%	11.7%	8.7%	11.6%
EBITDA margin, 12 months rolling	8.7%	11.6%	8.7%	11.6%
Operating margin	3.9%	9.4%	5.8%	9.4%
Equity ratio	37.9%	53.4%	37.9%	53.4%
Earnings per share before dilution (SEK)	0.17	0.65	1.63	2.50
Earnings per share after dilution (SEK)	0.17	0.62	1.62	2.38
Net sales per employee (SEK thousand)	801	844	3,090	3,456
Result per employee (SEK thousand)	11	62	115	241
Quick ratio	0.9	1.3	0.9	1.3
Average number of employees	553	385	517	376
Number of shares at period end before dilution	36,511,825	36,171,677	36,511,825	36,171,677
Average number of shares before dilution	36,438,900	36,171,677	36,278,940	36,148,508
Average number of shares after dilution	36,836,200	37,965,697	36,676,240	37,942,528

For the definition of key metrics, see the Annual Report for 2016/17.

The key metrics presented are deemed essential to describing the Group's development as they both constitute the Group's financial objectives (growth in net sales, EBITDA margin, equity ratio) and are the key metrics by which the Group is governed. Several key metrics are considered relevant to investors, such as earnings per share and the number of shares. Other key metrics are presented in order to provide different perspectives on how the Group is developing and are therefore deemed to be of benefit to the reader.

Parent Company income statement (SEK thousand)	Full year	Full year
	180101	170101
	181231	171231
Revenue
Net sales	27,242	22,245
	27,242	22,245
Operating expenses
Other external costs	-28,163	-14,476
Personnel costs	-20,119	-21,271
Earnings before interest, taxes, depreciation and amortisation (EBITDA)	-21,039	-13,501
Depreciation of tangible assets	-215	-225
Operating result	-21,254	-13,726
Result from financial items
Interest income	1,134	1,538
Interest expenses	-14,112	-2,443
Result after financial items	-34,232	-14,630
Appropriations	29,550	25,510
Result before tax	-4,682	10,880
Tax on profit for the period	90	-2,088
Net result for the period	-4,591	8,792

Parent Company balance sheet (SEK thousand)
	2018-12-31	2017-12-31
Assets
Tangible assets	548	762
Financial assets	630,239	221,847
Total non-current assets	630,786	222,609
Current receivables
Receivables from Group companies	151,401	128,644
Current tax receivables	507	0
Other receivables	3,324	2,871
Prepaid expenses and accrued income	1,605	1,144
Total current receivables	156,837	132,659
Cash and bank balances	0	51,348
Total current assets	156,837	184,007
Total assets	787,623	406,616
Equity, provisions and liabilities
Equity	192,922	193,480
Untaxed reserves	6,330	6,330
Non-current liabilities
Liabilities to credit institutions	343,092	70,530
Total non-current liabilities	343,092	70,530
Current liabilities
Liabilities to credit institutions	56,457	23,510
Overdraft facilities	29,863	0
Accounts payable	6,504	2,488
Liabilities to Group companies	98,914	101,166
Current tax liabilities	0	1,050
Other liabilities	49,104	1,839
Accrued expenses and deferred income	4,437	6,222
Total current liabilities	245,279	136,276
Total equity, provisions and liabilities	787,623	406,616

NOTES

Note 1 General information

Hexatronic Group AB (publ), with corporate identity number 556168-6360, is the Parent Company of the Hexatronic Group. Hexatronic Group AB (publ) is based in Gothenburg at the address Sofierogatan 3A, SE-412 51 Gothenburg, Sweden.

All amounts are in thousands of Swedish kronor (SEK thousand) unless otherwise stated. The figures in parentheses refer to the previous year.

Note 2 Accounting policies

The consolidated financial statements for Hexatronic Group ("Hexatronic") have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, RFR 1 Supplementary Accounting Rules for Groups and the Swedish Annual Accounts Act. This interim report has been prepared in accordance with IAS 34 Interim Reporting, the Swedish Annual Accounts Act and RFR 1 Supplementary Accounting Rules for Groups.

The Parent Company's financial statements have been prepared in accordance with the Swedish Annual Accounts Act and the Swedish Financial Reporting Board's recommendation RFR 2 Accounting for Legal Entities. The application of RFR 2 means that in its interim report for the legal entity, the Parent Company applies all IFRS and statements adopted by the EU as far as possible within the framework of the Swedish Annual Accounts Act and the Swedish Insurance Act and regarding the relationship between accounting and taxation.

For full accounting policies, see the Annual Report for 2016/17.

New standards applied from 1 January 2018

IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers are applied from 1 January 2018.

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 presents a new model for classification and measurement of financial instruments, a forward-looking impairment model based on expected credit losses, and a reformed approach to hedge accounting. The new standard also entails a change in the character of the Group's disclosures relating to financial instruments. The Group has deemed that the standard does not entail any material effects on the consolidated financial statements, and the transition therefore involved no adjustment to the opening balance for 2018.

IFRS 15 establishes principles for reporting useful information to users of financial reports regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Revenue in the Hexatronic Group's standard operation comprises the sale of goods and services. The Group's sales consist primarily of products, the sale of which is identified at a point in time. The sales that have been identified over time partly comprise training, the extent of which in relation to the Group's total net sales is deemed to involve insignificant amounts and is therefore reported at a point in time, and partly sales of submarine cables which are reported according to the percentage-of-completion method.

Hexatronic Group meets the requirements that IFRS 15 places on revenue recognition about the sale of goods. Since submarine cable contracts occur only to a limited extent, the new standard did not have a significant effect on the Group's accounting. Consequently, the opening balances for 2018 have not been recalculated.

Estimated effects from transition to IFRS 16 Leases

Hexatronic has assessed the impact of the transition to the new standard IFRS 16 Leases effective 1 January 2019. Hexatronic´s initial estimate is that IFRS 16, during 2019, will have small positive impact on operating profit and a negative impact on profit after financial items. The estimated effects on the balance sheet are presented in the table below. The lease portfolio covers mainly operational office leases. Leases are reclassified to IFRS 16 to the amounts recognized immediately before the date of application of the new standard.

Hexatronic has assessed many contracts concerning premises being open-ended contracts. This requires the Hexatronic lessee to determine the contract period instead of considering the termination clause. The lessee then determines the length of the contract period based on factors such as the importance of building to the business, any planned or made leasehold investments and the market situation for premises. Consequently, these contracts have in many cases had the contract period extended.

Hexatronic has chosen to perform the transition in line with the Cumulative catch-up approach and has applied the expedient to not restate any comparative information. Right-of-use assets have been determined as an amount equal to the lease liabilities as identified at initial application. A marginal rate of interest equal to the parent company´s borrowing interest rate has been applied. Lease contracts shorter than 12 months or ending within 12 months at the date of application are considered short-term and hence not recognized as lease liability or right-of-use asset. Low value contracts, with a value as new below SEK 50 thousand, are also excluded from being recognized as lease liability or right-of-use asset.

	Closing
	balance 31		Estimated
	Dec 2018	Estimated	adjustments	Estimated
	before	reclassifications	due to	adjusted
	transition to	due to	transitions	opening
	IFRS 16	transition to	to IFRS 16	balance 1
MSEK	Leases	IFRS 16 Leases	Leases	Jan 2019
Right-of-use assets premises	-	-	180,685	180,685
Lease liabilities, interest bearing	-	-	180,685	180,685

Note 3 Revenue

January to December 2018
		Rest of	North	Rest of the
Geographical markets	Sweden	Europe	America	world	Total
Revenue from external customers	606,701	287,637	365,625	337,805	1,597,768
Category
Goods	577,281	245,678	365,625	337,805	1,526,389
Services	29,420	41,959	0	0	71,379
Total	606,701	287,637	365,625	337,805	1,597,768
Time for revenue recognition
At a given time	606,701	287,637	365,625	337,805	1,597,768
Over time	0	0	0	0	0
Total	606,701	287,637	365,625	337,805	1,597,768

January to December 2017
		Rest of	North	Rest of the
Geographical markets	Sweden	Europe	America	world	Total
Revenue from external customers	788,891	227,488	16,757	266,283	1,299,419
Category
Goods	743,403	227,488	16,757	266,283	1,253,931
Services	45,488	0	0	0	45,488
Total	788,891	227,488	16,757	266,283	1,299,419
Time for revenue recognition
At a given time	788,891	227,488	16,757	266,283	1,299,419
Over time	0	0	0	0	0
Total	788,891	227,488	16,757	266,283	1,299,419

Note 4 Pledged assets

	Group			Parent Company
Pledged assets	181231	171231	181231	171231
Assets pledged for liabilities to credit institutions
Chattel mortgages	157,350	57,166	100	100
Shares in subsidiaries	281,484	338,190	82,504	134,258
Total	438,834	395,356	82,604	134,358

Note 5 Business acquisitions

Business acquisitions 2018

Blue Diamond Industries LLC

On 2 January 2018, the Group acquired 100% of the share capital in Blue Diamond Industries LLC for MUSD 26.8. There may be a possible additional purchase price of a maximum of MUSD 2.5 based on the EBITDA of the forthcoming two financial years.

The table below summarises the purchase price paid for Blue Diamond Industries and the fair value of acquired assets and assumed liabilities recognised on the acquisition date.

Purchase price as of 2 January 2018
Liquid assets	222,898
Contingent purchase consideration (not paid)	16,450
Total purchase price	239,348

Recognised amounts for identifiable acquired assets and taken-over liabilities

Liquid assets	4,601
Tangible assets	23,932
Customer contracts and customer relations	71,066
Inventories	21,397
Accounts receivable	30,432
Other receivables	512
Accounts payable	-15,035
Other payables	-2,668
Total identifiable net assets	134,237
Goodwill	105,111

Acquisition-related costs of SEK 2,900 thousand are included in other external costs in the consolidated statement of comprehensive income for the 2018 financial year. Total cash flow, excluding acquisition related costs, attributable to the business acquisition amounted to SEK -218,296 thousand. Goodwill is attributable partly to the added earning capacity the company is expected to bring, and partly to the anticipated synergistic effects of merging the Group's operations with those of Blue Diamond Industries.

Under the terms of the conditional purchase price, the Group will pay a maximum of SEK 20,750 thousand, up to a maximum of SEK 11,676 thousand based on EBITDA in the period 2 January 2018 – 31 December 2018, and a maximum of SEK 9,081 thousand based on EBITDA in the period 1 January 2019 – 31 December 2019.

The fair value of the conditional purchase price of SEK 16,450 thousand was estimated by applying the return of value approach. The fair value estimates are based on a discount rate, which is based on a two-year government bond of approximately 0.2%, and an assumed EBITDA in Blue Diamond Industries. The fair value of accounts receivable totals SEK 30,432 thousand. No accounts receivable is deemed to be doubtful.

Blue Diamond Industries net sales have been included in the consolidated income statement since 2 January 2018 and amount to SEK 301,956 thousand. Blue Diamond Industries also generated a net profit of SEK 21,138 thousand in the same period on group level.

Professional Quality Management Services Ltd. ("PQMS")

On 8 June 2018, the Group acquired 100% of the share capital in PQMQ for MGBP 1.5. There may be a possible additional purchase consideration of a maximum of MGBP 1.95 based on the EBITDA of the forthcoming three financial years.

The table below summarises the purchase price paid for PQMS and the fair value of acquired assets and assumed liabilities recognised on the acquisition date.

Purchase price as of 8 June 2018
Liquid assets	11,376
Equity instruments (91,029 shares, based on the share price per acquisition date)	5,279
Contingent purchase consideration (not paid)	10,357
Total purchase price	27,012

Recognised amounts for identifiable acquired assets and taken-over liabilities

Liquid assets	755
Tangible assets	2,684
Customer contracts and customer relations	13,078
Trademarks	3,799
Accounts receivable	9,051
Other receivables	4,915
Trade creditors	-3,253
Other liabilities	-10,818
Total identifiable net assets	20,221
Goodwill	6,753

Acquisition-related costs of SEK 1,324 thousand are included in other external costs in the consolidated statement of comprehensive income for the 2018 financial year. Total cash flow, excluding acquisition related costs, attributable to the business acquisition amounted to SEK -10,620 thousand. Goodwill is attributable to the added earning capacity the company is expected to bring.

Under the terms of the conditional purchase price, the Group will pay a maximum of SEK 22,877 thousand, up to a maximum of SEK 7,919 thousand based on EBITDA in the period 1 May 2018 – 30 April 2019, a maximum of SEK 7,919 thousand based on EBITDA in the period 1 May 2019 – 30 April 2020, and a maximum of SEK 7,039 thousand based on EBITDA in the period 1 May 2020 – 30 April 2021.

The fair value of the conditional purchase price of SEK 10,357 thousand was estimated by applying the return of value approach. The fair value estimates are based on a discount rate, which is based on a two-year government bond of approximately 0.2%, and an assumed EBITDA in PQMS. The fair value of accounts receivable totals SEK 9,051 thousand. No accounts receivable is deemed to be doubtful.

PQMS net sales have been included in the consolidated income statement since 8 June 2018 and amount to SEK 35,535 thousand. PQMS also generated a net profit of SEK -184 thousand in the same period on group level.

Had PQMS been consolidated from 1 January 2018, the consolidated income statement for the period 1 January 2018 to 31 December 2018 would have shown increased net sales amounting to SEK 56,348 thousand and a net profit of SEK 1,902 thousand.

Gordon Franks Training Ltd. (GFT)

As part of the acquisition of PQMS, on 8 June 2018 the Group acquired 100% of the share capital in GFT for MGBP 0.1. There may be a possible additional purchase price of a maximum of MGBP 0.13 based on the EBITDA of the forthcoming three financial years.

Smart Awards Ltd. (SAL)

As part of the acquisition of PQMS, on 8 June 2018 the Group acquired 100% of the share capital in SAL for MGBP 0.4. There may be a possible additional purchase price of a maximum of MGBP 0.52 based on the EBITDA of the forthcoming three financial years.

Opternus GmbH ("Opternus")

On 1 November 2018, the Group acquired 100% of the share capital in Opternus GmbH for EUR 10,000 thousand. There may be a possible additional purchase consideration of a maximum of EUR 2,500 thousand based on the EBITDA of the forthcoming three financial years.

The table below summarises the purchase price paid for Opternus and the fair value of acquired assets and assumed liabilities recognised on the acquisition date.

Purchase price as of 1 November 2018

Total purchase price	126,941
Contingent purchase consideration (not paid)	22,507
Equity instruments (218,776 shares, based on the share price per acquisition date)	10,414
Liquid assets	94,020

Recognised amounts for identifiable acquired assets and taken-over liabilities

Goodwill	67,963
Total identifiable net assets	58,978
Other payables	-34,001
Accounts payable	-9,460
Other receivables	1,760
Inventories	8,712
Accounts recievable	19,487
Trademarks	43,327
Customer contracts and customer relations	19,036
Other intangible assets	451
Tangible assets	2,407
Liquid assets	7,259

Acquisition-related costs of SEK 1,811 thousand are included in other external costs in the consolidated statement of comprehensive income for the 2018 financial year. Total cash flow, excluding acquisition related costs, attributable to the business acquisition amounted to SEK -86,761 thousand. Goodwill is attributable to the added earning capacity the company is expected to bring.

Under the terms of the conditional purchase price, the Group will pay a maximum of SEK 26,025 thousand, up to a maximum of SEK 11,061 thousand based on EBITDA in the period 1 October 2018 – 31 December 2019, a maximum of SEK 8,849 thousand based on EBITDA in the period 1 January 2020 – 31 December 2020, and a maximum of SEK 6,116 thousand based on EBITDA in the period 1 January 2021 – 30 September 2021.

The fair value of the conditional purchase price of SEK 22,507 thousand was estimated by applying the return of value approach. The fair value estimates are based on a discount rate, which is based on a two-year government bond of approximately 0.2%, and an assumed EBITDA in Opternus. The fair value of accounts receivable totals SEK 19,487 thousand. No accounts receivable is deemed to be doubtful.

Opternus net sales have been included in the consolidated income statement since 1 November 2018 and amount to SEK 28,221 thousand. Opternus also generated a net profit of SEK 1,383 thousand in the same period on group level.

Had Opternus been consolidated from 1 January 2018, the consolidated income statement for the period 1 January 2018 to 31 December 2018 would have shown increased net sales amounting to SEK 163,346 thousand and a net profit of SEK 8,675 thousand.

RECONCILIATION BETWEEN IFRS AND KEY METRICS USED

In this interim report, Hexatronic presents certain financial parameters that are not defined in IFRS, known as alternative key metrics. The Group believes that these parameters provide valuable supplementary information for investors, as they facilitate an evaluation of the company's results and position. Since not all companies calculate financial parameters in the same way, these metrics are not always comparable with those used by other companies. Investors should see the financial parameters as a complement to, rather than a replacement for, financial reporting in accordance with IFRS.

Organic growth
SEK thousand, %	October-December	January-December
Net sales 2018	443,159	1,597,768
Acquisition driven	-111,230	-371,076
Comparable net sales	331,929	1,226,692
Net sales 2017	324,994	1,299,419
Net sales increase	118,165	298,349
%	36%	23%
Organic growth	6,935	-72,727
%	2%	-6%

Organic growth is calculated as net sales for the year adjusted by acquisitions in relation to net sales for the previous year adjusted by acquisitions.

Annual growth, rolling 12 months
%	12 months
Net sales January-December 2018	1,597,768
Net sales January-December 2017	1,299,419
Annual growth, rolling 12 months	23%

Average annual growth is calculated as the Group´s total net sales during the period compared to the same period the year before.

Equity ratio
%	2018-12-31	2017-12-31
Equity	494,415	415,259
Balance sheet total	1,303,134	777,098
Equity ratio	38%	53%

Equity ratio is calculated as equity as a percentage of balance sheet total.

Quick asset ratio
%	2018-12-31	2017-12-31
Current assets	708,405	564,268
Inventories	-334,282	-236,925
Current assets-inventories	374,123	327,343
Current liabilities	394,347	255,936
Quick asset ratio	95%	128%

Quick asset ratio is calculated as current assets minus inventories divided by current liabilities.

Core working capital
SEK thousand	2018-12-31	2017-12-31
Inventories	334,282	236,925
Accounts receivable	261,774	204,062
Accounts payable	-173,772	-140,886
Core working capital	422,284	300,101

Core working capital is defined as inventories plus accounts receivable minus accounts payable.

HEXATRONIC GROUP AB (PUBL) SOFIEROGATAN 3A, SE-412 51 GOTHENBURG, SWEDEN WWW.HEXATRONICGROUP.COM