Hexo Corp Looks To Improve Cash Flows By $175 Million By 2023 From Cuts, Organic Growth

Hexo Corp (TSX: HEXO) this morning provided the market with an update to its ongoing restructuring plan, further outlining initiatives it is undertaking to reduce its SG&A spend while also indicating it has continue the process of selling off assets.

The restructuring plan, referred to as “The Path Forward” by the company, is focused on achieving cash flow positive from operations. However, the plan puts much of the pain in FY2023, when the majority of the cuts to the firms SG&A are to be made.

The company has indicated that it wants to achieve its target of cash flow positive operations within the next three quarters.

Fiscal 2022 is expected to see an increase in incremental cash flow to the tune of $37.5 million, which is to come from cost reductions and “anticipated organic revenue growth.” The second year of the plan will see $135 million in additional cash flow improvement, however its unclear if this figure is the product of lofty organic growth models, or severe cost cutting measures planned for the tail end of calendar 2022.

In terms of SG&A reduction, the company is looking to cut its costs by approximately one third, with a 30% reduction in the category slated to occur by the end of FY2023. The target is to be met via the reduction in the use of consultants, the launch of a new IT platform that will “streamline the organization,” right-sizing the company (read: job cuts and potential facility closures), and “realizing the synergistic benefits of the recent acquisitions.”

The company also expects to achieve $30 million in savings from the transitioning from co-packing to in-house production, looking for procurement savings, and rejigging its current production network.

Lastly, the firm this morning announced it has sold its 25% interest in the Belleville Complex for $10.1 million to Olegna Holdings, whom holds the majority stake in the firm. The firm initially acquired the stake in 2018, however its unclear what they paid for that position, with the only details at the time being that they loaned $20 million to the venture for the purchase of the building, which was later repaid. Proceeds from the sale will go towards the High Trail Note. No changes to the firms lease arrangement are expected.

Hexo Corp last traded at $0.73 on the TSX.

Information for this briefing was found via Sedar and Hexo Corp. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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