Interim report 2022, January - June

Second quarter

Net sales for the second quarter reached SEK 601 m (474), corresponding to an increase of 27%. Currency translations had a positive effect of SEK 30 m on net sales

Order intake was SEK 815 m (606), corresponding to an increase of 35%

Operating profit reached SEK 143 m (121), equal to a 23.7% (25.5) operating margin

Profit after taxes totalled SEK 109 m (98) and earnings per share was SEK 2.33 (2.02)

Cash flow from operating activities amounted to SEK 56 m (126)

Acquisition of the remaining 30% of the shares in Procentec B.V.

First six months

Net sales for the first six months reached SEK 1,118 m (929), corresponding to a 20% increase. Currency translations had a positive effect of SEK 51 m on net sales

Order intake was SEK 1,671 m (1,170), corresponding to an increase of 43%

Operating profit reached SEK 282 m (235), equal to a 25.2% (25.3) operating margin. Adjusted operating profit reached SEK 255 m, equal to a 22.8% adjusted operating margin

Profit after taxes totalled SEK 221 m (192) and earnings per share was SEK 4.74 (3.94). Adjusted profit after taxes totalled SEK 195 m and adjusted earnings per share was SEK 4.17

Cash flow from operating activities amounted to SEK 136 m (257)

Subsequent events

Acquisition of all shares in the Australian company Global M2M Pty Ltd

Comment from the CEODemand continues at a high and stable level

The second quarter of the year represents another quarter with solid demand across all our markets. Order intake continues to be strong with SEK 815 m, corresponding to an organic growth of 16%. We are still experiencing a somewhat boosted order intake from our customers due to the uncertainties in the global supply chain of electronic components. We estimate the boost effect to be SEK 150 m, which is less compared to previous quarter, but still a significant part of the order intake.

The significant deprecation of the Swedish Krona against most other currencies leads to a revaluation of our record-high orderbook, impacting the reported order intake positively by SEK 50 m.

We report a new all-time high revenue of SEK 601 m in the quarter, corresponding to an organic growth of 17%. This is partly driven by a better-than-expected component availability during the latter part of the quarter. The general situation in the supply chain is starting to become more predictable but it is far from good. We still have challenges with lead times and our backlog of orders is larger than ever. This is an industry-wide challenge and most of our customers have understanding for the longer lead-times. We see less allocations and reconfirmations from our semiconductor suppliers, but several key components are still very challenging to source, and we expect it to be so for the rest of this year.

Navigating the cost inflation

As in previous quarters, we continue to see a significant cost inflation in raw material. To protect our gross margin, we have been working actively with a combination of long-term price increases and a short-term surcharge on booked orders. We are now starting to see the effects of this work. Our gross margins are going in the right direction during the quarter with 62.2% (63.7%) even if it still is a way to go to come back to the levels before the supply chain issues started in 2021.

Record result

As a result of the high delivery volumes and stable gross margins, we reached a new record result in the second quarter with an EBIT of SEK 143 m (121) corresponding to an EBIT margin of 23.7%.

We continue to build component inventory to be able to deliver our backlog when key components are becoming available. The inventory build-up is SEK 50 m which impacts our cash flow negatively in the quarter. The cash flow totals SEK 56 m for the quarter.

Acquisition of the remaining 30% of the shares in Procentec

As reported in Q1-report, HMS acquired the remaining 30% in Dutch Procentec during the beginning of the quarter, making HMS 100% owner of Procentec. The purpose of the acquisition is to accelerate the integration work with rest of HMS organization. We see the main future synergies on the market side in North America and Asia.

Acquisition of Australian distributor Global M2M

Australia is becoming a more interesting market for HMS. To accelerate the market penetration, HMS came to an agreement with our main distributor in Australia, Global M2M, to acquire the company. The business consists of four employees and represent most of HMS' brands. Australia is now HMS' 17th country with its own sales organization.

New product releases

During the quarter we released the next generation of our leading Remote Access product line, Ewon Cosy+, with new world-class security features to meet customers' future expectations of solid cyber security for industrial applications.

We are also starting to see a wider interest in our new AI-based software product for analysing network failures, SNAP Analysis from Procentec. SNAP is a subscription service that identifies the reason for network failure based on advanced signal interpretation and analysis, allowing the customer to drastically minimize network downtime.

Continued positive outlook despite a challenging macro situation

There are several challenges and risks ahead with the uncertain development of the global economy, for example continued covid concerns and the war in Ukraine. We also continue to have the uncertainties in the supply of electronic components.

Despite the macroeconomic risks, HMS sees a good market ahead and believes that the coming quarters will be solid in terms of sales and profitability, but with a dependency on the availability of key semiconductor components.

Looking further ahead, HMS is of course dependent on the general development of the global economy, but we think that our customers' continued investments in increased automation and digit

LINK:	http://www.hms-networks.com/news-and-insights/news-from-hms/2022/07/14...
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