HMS Q4 Report 2019

Fourth quarter

Net sales for the fourth quarter reached SEK 346 m (363), corresponding to a decrease of 5 %. Currency translations had a positive effect of SEK 15 m on net sales

Order intake was SEK 337 m (387), corresponding to a decrease of 13 %

Operating profit reached SEK 55 m (52) equal to a 15.9 % (14.3) operating margin

Operating profit, adjusted for settlement regarding agreed additional purchase price related to Beck IPC and restructur ing effect, amounted to SEK 33 m, corre sponding to an operating margin of 9.5%

The total tax for the quarter amounted to SEK +20 m, mainly related to retroactive tax reduction of SEK 28 m

Profit after taxes totalled SEK 67 m (42) and earnings per share was SEK 1.46 (0.90). Adjusted profit after tax totaled SEK 31 m and adjusted earnings per share was SEK 0.68 SEK

Cash flow from operating activities amounted to SEK 61 m (49)

Yearly

Net sales for the full year amounted to SEK 1,519 m (1,366), corresponding to an 11 % increase. Currency translations had a positive effect of SEK 73 m on net sales

Order intake was SEK 1,470 m (1,433), corresponding to an increase of 3 %

Operating profit was SEK 243 m (251), equal to a 16.0 % (18.4) operating margin

Operating profit, adjusted for restruc turing costs and settlement regard ing agreed additional purchase price, reached SEK 246 m equal to a 16.2 % operating margin

Profit after taxes totalled SEK 205 m (171) and earnings per share was SEK 4.43 (3.68). Adjusted profit after tax totalled SEK 188 m and adjusted earnings per share was SEK 4.06

Cash flow from operating activities amounted to SEK 254 m (193)

The Board of Directors propose a dividend to the amount of SEK 1.90 (1.80) per share

Comment from the CEO We conclude 2019 with a weak fourth quarter. The market situation is still challenging, and the quarter showed both weaker sales and order intake. Sales amounted to SEK 346 m, a decrease of 5 % from the corresponding period last year. Organically, the decrease is 10 %.

In Europe, mainly driven by Germany, the downturn has continued and we believe that the market will continue to be weak during the first part of 2020. The Americas and Asia also saw a weaker market during the quarter, although there are some positive indicators for the future. In general, the future demand in our markets is difficult to assess. On the product side, we can see that Anybus and also partly Ixxat are the main reasons for our weaker development. Especially our embedded products, which are dependent on investments in production, are affected when our customers have weak own demand and continue to reduce their stock. On the positive side, we can see that both Ewon and Intesis made a stronger quarter.

Despite a hesitant market, we see that interest in HMS solutions remains high and we have a record number of new leads. The products sold according to our Design-Win business model, continue to show stable growth in the number of new customers during 2019. In total, we received 199 (177) new Design-Wins during the year. This brings the total number of active Design-Wins to 1,797 (1,693), an increase of 6 % compared to the previous year. Of these, 1,399 (1,304) are in production, while 398 (389) are expected to be in production in the coming years. 49 % of the total revenue is related to Design-Wins. A continued steady inflow of new Design-Wins is proof of HMS' attractive product offering and gives us good platform for future growth.

During the quarter, the integration of Beck IPC GmbH was completed, including a settlement regarding agreed additional purchase price. This had a positive impact on the quarter's operating profit by SEK 19 m.

The quarter shows a stable gross margin of 61.2 %, which is slightly better than the corresponding quarter last year, despite lower production volumes during the quarter. Operating profit for the quarter amounted to SEK 55 m, corresponding to an operating margin of 16 %. The adjusted operating profit, excluding the above mentioned earn-out settlement and restructuring effect, amounts to SEK 33 m. Our cash flow continues to be strong, largely driven by improvements in working capital.

The previously communicated cost-savings program has been implemented during the quarter. The cost reduction program aimed to adapt the organization to focus on segments with growth potential, and also strengthen cost control in areas with weaker growth prospects in the future. 43 employees have terminated their employment at HMS, and the cost of the program totalled at SEK 22 m, compared to the previously estimated SEK 25 m. The annual savings are expected to be SEK 45 m, which is in line with what was previously communicated.

During the year, we continued to develop our global Supply Chain, which in 2019 delivered more than 1.1 million products to our customers. During the year, we moved some of our production from China to Europe, where we expanded production in Lithuania and started cooperating with a new partner in Romania. A large part of the final stages in our production processes programming and quality control are carried out within HMS' own facilities and approximately 90 % of our products are defined as Made in the EU.

The full year 2019 concludes sales of SEK 1,519 m, an increase of 11 % from 2018 and an operating profit of SEK 243 m, corresponding to an operating margin of 16 %. It is also worth noting that profit after tax in 2019 has been positively affected this year's last quarter partly thanks to Belgian tax authorities has granted us SEK 19 m in tax relief for product development operations linked to our Ewon products for 2018-2019.

Looking back over the last ten years, HMS has delivered an annual average sales growth of 18 % and an average operating margin of 18 %, which is just below our long-term goals of 20 % growth and operating margin. In the sh

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