HMS Q2 Report 2018

Second quarter

Net sales for the second quarter reached SEK 329 m (299), corresponding to an increase of 10 %

Operating profit reached SEK 63 m (59) equal to a 19 % (20) operating margin

Order intake was SEK 336 m (328), corresponding to an increase of 3 %

Cash flow from operating activities amounted to SEK 51 m (57)

Profit after taxes totalled SEK 42 m (40) and the earnings per share was SEK 0.90 (0.86)

First six months

Net sales for the first six months amounted to SEK 649 m (577), corresponding to a 13 % increase. The revaluation of the Swedish krona had a positive impact of SEK 14 m

Operating profit was SEK 125 m (117), equal to a 19 % (20) operating margin

Order intake was SEK 686 m (626), corresponding to an increase of 10 %

Cash flow from operating activities amounted to SEK 71 m (109)

Profit after taxes totalled SEK 79 m (80) and the earnings per share was SEK 1.69 (1.72)

Subsequent events

After the quarter, HMS acquired 100 percent of the share capital in the German company, Beck IPC GmbH. The acquisition price amounted to EUR 5 m on a cash and debt free basis and was paid in cash.

Comment from the CEO The year's strong development continues during the second quarter with record net sales, but with a growth that is slightly weaker compared to previous quarters. Organic growth reaches 10 %, adjusted for currency effects, local currency growth is 6 % compared with the same quarter in 2017. This growth level is not satisfactory for HMS.

After two quarters with weak development in North America, the business is now back in a growth phase. The growth has now been driven by a strong industrial market and reinforcements in our sales organization. On the other hand, we see a reversed situation in Japan where the strong start of the year has now been followed by a weak second quarter. However, we believe that this is a temporary adjustment of inventory volumes with major customers. We are still seeing good development in Asia in general. In Germany, which is HMS single largest market, we see a mixed picture with a negative development among customers in the automotive industry but a positive development in other sectors.

The quarter has seasonally involved a large number of market activities and trade fairs, as well as a number of new product launches. Despite continued expansion in personnel and marketing activities, our cost increase is in balance with our growth. We therefore achieve a healthy operating profit of 63 MSEK, corresponding to 19 % operating margin.

We and our customers see continued concerns about availability of electronic components. We have managed to maintain a good delivery capability and a satisfying gross margin despite challenging component supplies. However, we see more and more examples of our customers being forced to postpone their planned deliveries due to a lack of electronic components. How much this has impacted our net sales is difficult to estimate. Our assessment is that this is a long-term capacity problem that will continue in 2019 and is likely become worse before it gets better. Therefore, we continue to work proactively to secure our component supply. We believe that the primary effect from the situation will be larger component inventories than normal. The situation may also have a certain effect on the gross margin, but for now the effect is expected to be limited.

The acquisition of German Beck IPC, that was made after the end of the quarter, will provide a complete technology base for Industrial Internet of Things (IIoT). With this we are strengthening our technology platform, we get a good offer for OEM applications and customers who want to store IIoT data locally ( on-premise ) as well as in the cloud. In addition to the technology, we strengthen our development organization with a strong team north of Frankfurt and about 50, mainly German, industrial customers using Beck IPC's products today. In the short term, this acquisition does not have a major impact on HMS profitability, but it is a strategically important strengthening in an area that we believe will be very important for HMS within a few years.

We stick to our ambitious growth targets for coming years A long-term annual growth of 20 % per annum and an operating margin of 20 %. Our focus is to drive continued growth in all our business areas. We continue to focus on our long-term growth goals based on a balanced view of our costs. In the long run, we estimate that the market for industrial data communications will constitute an interesting growth area and we continue to focus on our motto HMS Connecting Devices .

Halmstad July 19, 2018

Staffan Dahlstr m

Chief Executive Officer

Further information can be obtained from:

CEO Staffan Dahlstr m, telephone +46 (0) 709-17 29 01 or

CFO Joakim Nideborn, telephone +46 (0) 707-72 29 83

HMS Networks Q2 report 2018 (English)

LINK:	http://www.hms-networks.com/press/2018/07/19/hms-networks-interim-repo...
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