HMS Year-end report 2018

Fourth quarter

Net sales for the fourth quarter reached SEK 363 m (301), corresponding to an increase of 20 %. Currency translations had a positive effect of SEK 21 m on net sales

Operating profit reached SEK 52 m (31) equal to a 14 % (10) operating margin

Order intake was SEK 387 m (288), corresponding to an increase of 34 %

Cash flow from operating activities amounted to SEK 49 m (36)

Profit after taxes totalled SEK 42 m (20) and the earnings per share was SEK 0.90 (0.43)

Yearly

Net sales for the full year 2018 reached SEK 1,366 m (1,183), corresponding to an increase of 15 %. Currency translations had a positive effect of SEK 65 m on net sales

Operating profit reached SEK 251 m (212) equal to a 18 % (18) operating margin

Order intake was SEK 1,433 m (1,204), corresponding to an increase of 19 %

Cash flow from operating activities amounted to SEK 193 m (207)

Profit after taxes totalled SEK 171 m (143) and the earnings per share was SEK 3.68 (3.06)

Acquisition of 100 % of the shares in Beck IPC GmbH

The Board of Directors propose a dividend to the amount of SEK 1.80 (1.50) per share

Comment from the CEO The final quarter of the year is ending strong. Order intake increased by 34 %, to SEK 387 million, net sales increased by 20 % to SEK 363 million and operating profit increased by 68 % to SEK 52 million.

The quarter's result is a combination of organic growth, acquisition effects from German Beck IPC, a favourable currency situation and profitable technology trends that drive investments in our business segments.

The strong order intake is very pleasing, but at the same time, we see a difficult-to-assess economic climate going forward. Many of our customers are still positive about their own growth, but are concerned about macro data that indicates a coming slowdown in growth within several industrial segments.

During the quarter, we have seen a strong and positive development in the US. In Germany, we see a mixed picture with continued weak Automotive segment, but still strong in other areas. In Japan, we see a weaker development in Japanese export companies, which contributed to the low growth in Asia throughout the quarter.

The quarter's gross margin was negatively affected by lower margins from the newly acquired Beck IPC. The integration work of Beck IPC is ongoing and various initiatives to improve gross margins have been initiated.

For the year, we summarize a net sales growth of 15 %, which in local currencies corresponds to a growth of 10 % compared to 2017. Despite increased investments in innovation, product development, marketing and sales, we reach SEK 251 M (212) in operating profit, corresponding to a margin of 18.4 % and an operating profit increase of 18 % compared to 2017.

Looking back over the past nine years, HMS has delivered an annual average net sales growth of +21 % and an average operating margin of 18 %. These results are in line with our long-term goals of an average annual growth of 20 % per year and an operating margin of 20 %.

For our products that are sold according to our Design-Win business model, we can see continued stable growth in the number of new customers during 2018. In total, we received 177 (217) new Design-Wins during the year and another 73 active Design-Wins from our acquisition of Beck IPC. This causes the total number of active Design-Wins to amount to 1,693 (1,590), an increase of 6.5 % compared with the previous year. Of these, 1,304 (1,192) are in production, while 389 (398) are expected to come into production in the coming years. A continued stable growth of new Design-Wins is proof of HMS's attractive product offering and gives us good prospects for future growth.

The costs of the company's marketing activities are large during the last quarter of the year due to participation in a number of large international fairs. HMS presented a number of new products for industrial automation and the Industrial Internet of Things, where safety, ease of installation and quality were in focus. During the fairs, HMS also launched a new partner program to further stimulate collaboration for business and innovation globally.

We see that interest in HMS solutions remains high, which is confirmed by a stable growth of new customer inquiries, leads , in all markets. The fourth quarter generated 6,240 leads (5,573), an increase of 12 % compared to the same period last year and the total for the year was 18,079 (15,940), an increase of 13 % compared to 2017.

During the quarter, we initiated a technology collaboration with the Asian company WoMaster. The collaboration is focused on developing solutions based on WoMaster's products for industrial network infrastructure together with HMS' software for industrial protocols. The ambition is that this will result in new HMS products already during 2019.

In our third quarter report, we described that the previously strained situation regarding component shortages has brightened. The improvement trend has continued and we do not predict that this will cause problems for HMS's delivery capacity in 2019, since we have built up buffer stocks and due to the fact that accessibility of components seems to be normalized in the future.

Although, the market situation in the short term is difficult to assess, in the longer term, we see good growth opportunities and the goal is to continue to grow with our ambitious growth targets - a long-term annual growth of 20 % per year and an operating margin of 20 %. Our focus is to drive continued growth in all our business areas, organically and through acquisitions. We continue to focus on our long-term growth goals based on a balanced view of our costs. In the long term, we believe that the market for industrial data communication will be an interesting growth area and we will continue to focus on our motto Connecti

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