HMS Q2 Report 2019

HMS Networks: Interim report 2019, January June Second quarter

Net sales for the second quarter reached SEK 416 m (329), corresponding to an increase of 26 %. Currency translations had a positive effect of SEK 19 m on net sales

Operating profit reached SEK 72 m (63) equal to a 17 % (19) operating margin

Order intake was SEK 375 m (336), corresponding to an increase of 11 %

Cash flow from operating activities amounted to SEK 51 m (51)

Profit after taxes totalled SEK 51 m (42) and the earnings per share was SEK 1.10 (0.90)

HMS acquired 74.9 % of the shares in the German company WEBfactory GmbH

HMS acquired 100 % of the shares in the Dutch company Raster Products B.V.

First six months

Net sales for the first six months amounted to SEK 796 m (649), corresponding to a 23 % increase. Currency translations had a positive effect of SEK 43 m on net sales

Operating profit was SEK 132 m (125), equal to a 17 % (19) operating margin

Order intake was SEK 762 m (686), corresponding to an increase of 11 %

Cash flow from operating activities amounted to SEK 103 m (71)

Profit after taxes totalled SEK 92 m (79) and the earnings per share was SEK 1.98 (1.69)

Comment from the CEO The second quarter of the year offered a mixed picture. We achieve a record turnover of SEK 416 million and our second-best quarterly result ever of SEK 72 million, while at the same time, the organic order intake in local currency is weak and at the same level as the previous year ( 1 %). The sales increase of 26 % is a combination of organic growth ( 13 %), currency effects ( 5 %) and acquisition effects ( 8 %). The large difference between sales and order intake is partly due to the fact that a number of major orders from 2018 were delivered during the quarter and a weaker development in order intake during the last part of the quarter.

The gross margin has developed as expected and has strengthened from the first quarter to reach 61.2 %. Price increases for older products in combination with a positive marginal effect from the acquisition of WEBfactory are the main factors for the improvement. Despite an increased cost base, due to continued investments in both the market and development organization and acquisition effects, we can report an operating profit of SEK 72 million, corresponding to a margin of 17 %.

The market situation reported in the first quarter also continues in this quarter, which means increased uncertainty in the short-term perspective regarding investments in our industrial segments. This is now reflected in a weakened order intake in most of our markets and increased caution among our customers, where we primarily see a decrease in ongoing customer orders from existing customers. We see great interest in our new products and during the quarter we have exceeded internal expectations of new Design-Wins for our Embedded products, so we feel confident that we have an attractive product offering to create long-term future growth.

In Asia, we delivered several major orders during the quarter, which were received in 2018 and has created good growth in the quarter. However, the order intake had a weak development, particularly in Japan. Although our operations in China and India are relatively good and growing, the large but weak Japanese market is pulling down Asia as a whole. Also in the US, the picture is mixed with good invoicing but weak order intake, which reflects the increased uncertainty our US customers see in the state of the market and trading situation. Europe and the important German market have been relatively stable, but we see indications that our customers' customers are taking more caution regarding future investments.

Since April, HMS is the majority shareholder (74.9 %) of German WEBFactory GmbH. Our ambition is to use WEBfactory's software as a value-adding accessory for our customers who want to visualize data from their machines that are connected via our IIoT solution HMS-HUB.

During the quarter, we have also acquired Dutch Raster Product B.V., which has been our distributor for some of our products for many years. 80 % of Raster's sales today consist of HMS's product offering and we intend to continue to develop the business and build a larger base for increased sales of HMS offerings in the Netherlands, which is an interesting market for the future.

During the quarter, our HMS Labs team has started to work on Machine Learning (ML) to explore how we can support our customers to implement AI functions in their industrial equipments in the future. We continue our commitment to 5G and during the quarter, we participated in various marketing activities in Germany and the US around 5G together with leading players in the Telecom industry, where we see a great interest in using 5G communication technology in industrial applications.

Despite the uncertain investment climate within our main segments, which will be challenging for our growth in the short term, we stick to our ambitious long-term goals - a long-term growth of 20 % per year and an operating margin of 20 %. Our focus is to drive continued growth in all our business areas. We continue to work on our long-term growth goals based on a balanced view of costs and growth potential. In the long term, we believe that the market for industrial communication will be an interesting growth area and we will continue to focus on our motto HMS - Connecting Devices .

Halmstad July 16, 2019

Staffan Dahlstr m

Chief Executive Officer

Further information can be obtained from:

CEO Staffan Dahlstr m, telephone 46 (0) 35 17 29 01

CFO Joakim Nideborn, telephone 46 (0) 35 710 69 83

HMS Networks Q2 Report 2019 (English)

LINK:	http://www.hms-networks.com/news-and-insights/news-from-hms/2019/07/16...
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