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Friday, May 20, 2022
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

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In search of profits, Hexo plans for more ‘right-sizing’ in 2022

The firm has sold its 25% interest in Belleville Complex Inc. for $10.1 million

Hexo aims to be cash flow positive in fiscal 2022
Founder and former CEO Sebastien St-Louis was fired last October, after an investor letter criticized him for a recent spate of acquisition deals. Image via Hexo

In a bid to be cash-flow positive before other major players in Canada’s weed market, Hexo Corp. (TSX: HEXO) (Nasdaq: HEXO) is cutting costs and selling out non-core assets.

On Wednesday, the Quebec firm provided an update to its “Path Forward” plan to reach cash flow positivity, with ambitious goals for the next three quarters.

For $10.1 million, Hexo has sold its 25-per-cent interest in Belleville Complex Inc. — a 2-million square foot facility in Ontario — to Olegna Holdings Inc, which is majority-owned by Hexo director Vincent Chiara. The firm will continue to lease the facility with no changes to the lease arrangement.

Through cost reductions and revenue growth, the firm says it expects to generate cash flow of about $37.5 million in fiscal 2022, and an estimated $135 million in fiscal 2023 for a total of $175 million over the two years.

Hexo says it will slash operating expenses by about 30 per cent by the end of fiscal 2023 by right-sizing the organization, as well as relying less on outside consultations and streamlining operations.

Read more: Hexo to shutter 3 production sites in early 2022

Another $30 million in savings is anticipated through manufacturing and production cost cuts.

“It is a strategic imperative for Hexo to strengthen its capital position and restructure the company’s operations to ensure a path to achieving positive cash flow from operations within the next three quarters,” CEO Scott Cooper says in a statement.

“As an organization, we are making strategic decisions quickly to ensure we have the optimal operating footprint we need for the next phase in Hexo’s strategic evolution, while remaining focused on the needs of customers and in our continued efforts in product innovation.”

In the firm’s first quarter, its net loss totalled $117 million, but its topline revenue had increased 31 per cent over the previous period.

On Wednesday, company stock dropped 3 per cent to US$0.57 on the Nasdaq.

Read more: Hexo’s sales spike 31% with $117M loss after steep impairments in Q1

Read more: Hexo co-founder and CEO exits after rocky ride

 

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