HMS Q3 Report 2021

Third quarter

Net sales for the third quarter reached SEK 472 m (345), corresponding to an in crease of 37%. Currency translations had a negative effect of SEK 7 m on net sales

Order intake was SEK 669 m (336), corresponding to an increase of 99%

Operating profit reached SEK 101 m (77), equal to a 21.5% (22.3) operating margin

Profit after taxes totalled SEK 84 m (61) and earnings per share was SEK 1.81 (1.33)

Cash flow from operating activities amounted to SEK 148 m (116)

HMS acquired 60% of the shares in Owasys Advanced Wireless Devices S.L.

First nine months

Net sales for the first nine months reached SEK 1,401 m (1,061), cor responding to a 32% increase. Cur rency translations had a negative effect of SEK 69 m on net sales

Order intake was SEK 1,839 m (1,039), corresponding to an increase of 77%

Operating profit was SEK 336 m (213), equal to a 24.0% (20.0) operating margin

Profit after taxes totalled SEK 276 m (163) and earnings per share was SEK 5.75 (3.58)

Cash flow from operating activities amounted to SEK 405 m (286)

Comment from the CEO The trend continues - order intake at new record levels

We continue to see a strong demand in our markets driven by increasing investments in automation, digitalization, energy efficiency and remote monitoring of industrial machinery. Order intake reaches a new record level and amounts to SEK 669 million, corresponding to a growth of 99% compared to the previous year, 80% of this growth is organic. For the first nine months, the corresponding figures are 77% and 66% respectively. As in previous quarters during the year, order intake is boosted by the fact that customers place orders for delivery longer time ahead than usual. This is due to longer lead times related to component shortage. We estimate this temporary positive effect in the order intake to amount to approximately SEK 140 million during the quarter.

The component shortage has also impacted our delivery capacity negatively. Our customers have a good understanding of the current component shortage situation and our assessment is that we do not lose customer orders to any greater extent due to longer delivery times. Despite the challenging situation sourcing components, we achieved net sales of SEK 472 million during the quarter, corresponding to a growth of 37%, of which 18% was organic compared to the previous year. For the first nine months, the corresponding figures are 32% and 22% respectively.

We estimate that the delivery situation has had a negative impact on our sales of approximately SEK 50 million during the quarter as the current component shortage has affected the ability to deliver certain products. The Ewon and Intesis brands in particular experienced delivery disruptions during the quarter.

The effect of the strong order intake and delivery challenges leads to a large build-up of the order book and we now have an order book of approximately SEK 750 million, which is approximately three times higher compared to the corresponding quarter previous year. We assess that the risk of order cancellations is low.

Our geographic markets

In our most important geographical market, Europe, we once again reached an all-time high order intake. The main driving forces are a continued very strong machine-builder market together with increased demand for remote solutions. The positive development has also continued in Asia, with good development both in China and Japan. Our organic order intake more than doubled, primarily driven by a strong industrial market in China. Also in the US, we have noted new record levels in order intake as the market for industrial automation, and the economy in general, continues to be very strong.

The lack of components results in short-term gross margin pressure

The global component shortage is now also affecting costs, and during the quarter we have seen prices of components multiply for some components, which has a negative effect on our manufacturing costs and leads to temporarily lower gross margin of 61.4%. To compensate for these cost increases, we are now implementing price increase for new orders. We expect to see the full effect of the price adjustments in the middle of next year, which means that the gross margin can be expected to be around current, somewhat lower, levels until mid 2022.

Our operating expenditures are increasing according to plan, in line with higher activities and new investments for growth. The increase in operating expenditures in combination with the temporarily lower gross margin mean that profitability is somewhat lower than the two previous quarters in 2021, even though we reach an operating profit of SEK 101 million, corresponding to 22% operating margin. This is still better than our long-term goal. It is also worth noting that cash flow from operations amounts to a record level of SEK 148 million.

The new family members deliver

Our latest acquisitions, Procentec and Owasys deliver. Procentec continues on a winning streak and has during the year shown an organic doubled net sales. Owasys' business is developing as planned, although there are some challenges related to component supply.

Since we see it as probable that the existing put/call options will be exercised to increase HMS ownership to one hundred percent in these two companies we will, in accordance with IFRS, not report any minority. Thus, a liability is also reported that corresponds to the expected payment for the remaining shares in the two companies. In total, the assessment of these options affects our net debt of SEK 390 million.

Sustainability and staff

With more and more people fully vaccinated, the world is starting to open up again. Our employees now work from our offices to an increasing extent and we can meet more and more customers in person. Trade shows are also re-starting, albeit on a small scale.

LINK:	http://www.hms-networks.com/news-and-insights/news-from-hms/2021/10/22...
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