LDN - Business

Hexagon to cut 700 jobs after trade war hits sales

[July 05, 2019] By Esha Vaish

STOCKHOLM (Reuters) - Shares in Hexagon <HEXAb.ST> tumbled 15% on Friday after the Swedish industrial technology group warned of a fall in sales as the trade war hits China's smartphone industry and said it would cut 700 jobs.

Investors have been concerned about Hexagon's exposure to the Chinese market, which counts for a sixth of the company's revenue, and slowdowns in the automotive and electronics industries that have led rivals to issue warnings.

"Having experienced favorable growth in China over recent quarters, Hexagon has seen a much weaker-than-expected development in June," the maker of measurement and positioning systems and software said on Friday.

CEO Ola Rollen told Reuters June accounts for typically 50 percent of Hexagon's sales in its manufacturing intelligence unit and that the electronics sector had historically been a growth segment for Hexagon, representing 4%-5% of group sales.

"In June several orders were canceled or postponed due to the uncertainty in the electronics - mobile phone handsets production - sector in China," Rollen said in an email.

"No one knows exactly how this geopolitical tension will impact the global demand situation but we are now beginning to see concrete negative results from this trade war," he added.

UNCERTAINTY

Although Washington and Beijing reopened stalled talks this month, companies remain cautious with no firm deadline set for a final deal as the world's two largest economies remain at odds over significant issues.

Samsung <005930.KS> forecast a steep plunge in its quarterly profit on Friday as chip prices fell due to a supply glut and U.S. sanctions on Chinese telecom group Huawei.

Hexagon estimated revenue of 975 million euros ($1.10 billion) for the second quarter ended June. It said this meant organic sales would shrink 1% from a year ago, which JP Morgan analysts said was well below consensus for growth of 4.5%.

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Brokerage Credit Suisse said the drop might suggest broader weakness beyond electronics in China.

"That is a question that will be answered in greater detail when we have reviewed all markets, but as a broad comment, yes, the rest of the business has performed more or less in line with expectations," Rollen said.

Hexagon's sensors and software are used for measurement and quality inspection in manufacturing processes and in engineering plant design and also in areas such as infrastructure planning, construction, mining, agriculture and energy.

The company predicted an adjusted operating profit of 237 million euros, against 228 million a year ago. JP Morgan had a forecast of 262 million euros.

BACK IN THE SPOTLIGHT

Hexagon, which employs over 20,000 people, said it would reduce its global workforce by around 700 employees and book a cost of 44 million euros in the second quarter.

The measure is expected to result in annualized cost savings of 51 million euros by the end of 2020. Rollen ruled out further need for restructuring or cost saving measures.

"We believe that this measure is enough, in combination with extensive new product launches, to set us back on track towards our financial targets set for 2021," he said.

The group is targeting sales of 4.6-5.1 billion euros and an operating margin of 27-28 percent by the end of 2021.

Rollen recently faced unwanted attention over insider share trading charges against him, related to a purchase of shares in a firm unconnected to Hexagon. He was found not guilty last month by an appeals court in Oslo.

(Reporting by Esha Vaish; editing by Keith Weir and Elaine Hardcastle)

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