HMS Networks presents its third quarter report and new financial targets

Third quarter

Net sales for the third quarter reached SEK 345 m (377), corresponding to a decrease of 8%. Currency translations had a negative effect of SEK 10 m on net sales

Order intake was SEK 336 m (372), corresponding to a decrease of 10%

Operating profit reached SEK 77 m (56) equal to a 22.3% (14.9) operating margin

Profit after taxes totalled SEK 61 m (46) and earnings per share was SEK 1.33 (0.98)

Cash flow from operating activities amounted to SEK 116 m (90)

First nine months

Net sales for the first nine months reached SEK 1,061 m (1,172), corresponding to a 9% decrease. Currency translations had a negative effect of SEK 9 m on net sales

Order intake was SEK 1,039 m (1,134), corresponding to a decrease of 8%

Operating profit was SEK 213 m (188), equal to a 20.0% (16.0) operating margin

Profit after taxes totalled SEK 163 m (138) and the earnings per share was SEK 3.58 (2.96)

Cash flow from operating activities amounted to SEK 286 m (193)

Subsequent events

Acquisition of 70% of the shares in Procentec B.V.

Acquisition of the remaining 25.1% of the shares in WEBfactory GmbH

The Board of Directors have decided on new financial targets for the Group

Comment from the CEO The third quarter was characterized by continued market uncertainty due to the corona pandemic. During the quarter, our sales saw weak development, but as costs remained low, we can show a record in both result and cash flow for the quarter.

Continued challenging market in Europe, hesitant in the USA and better in Asia

Compared to the corresponding quarter in 2019, sales decreased organically by 6% and order intake by 7%. The development from the second quarter continues with weak demand in Central Europe, mainly in our large markets such as Germany, France and Italy. On the other hand, Asia has continued to develop well, especially when it comes to order intake, where Japan has a stable growth rate and China is showing impressive growth of more than 50%. The U.S. continues to show a slow growth and combined with a weaker dollar and the upcoming presidential election, it is difficult to assess the outlook in the near future.

Despite the lower volume, we still manage to maintain a gross margin of 62%, which is primarily driven by internal improvements and a good product mix within Anybus.

Home office and digital transformation

The health of our employees remains our absolute top priority, which is why we continue to have a mix of office and home office work in most of our locations in the Group. We completed most of our short-time work in Sweden in connection with the summer holidays and today we mainly have short-time work in Germany.

With new ways of working and new digital meeting places, we see an opportunity for continued savings even after the pandemic. New ways of working, together with the restructuring program we implemented at the end of last year, have resulted in the operating costs for the quarter decreasing by 8% in comparable terms compared with the previous year. A good gross margin in combination with our new cost situation means that we can deliver an operating profit for the quarter of SEK 77 m, which means that we exceed our long-term profitability target of 20%. The good profitability and management of our working capital has resulted in a continued strong cash flow of SEK 116 m for the quarter.

New acquisitions

After the end of the quarter, we made two acquisitions. On October 1, we acquired 70% of Dutch Procentec BV, where the remaining 30% is owned by three senior executives in the company. The company, which offers hardware and software to monitor and diagnose network traffic in industrial processes, will provide HMS with new opportunities for business with users of automation equipment. We see great opportunities to develop this business from today's diagnostic tools and offer preventative maintenance services to reduce operational problems in our customers' critical networks.

We have also acquired the remaining 25.1% of German WEBfactory GmbH. As a 100% owner, we can now increase the integration and use of WEBfactory's software products together with our other product brands, and we see great opportunities for new business where hardware meets software.

New financial targets

The HMS Board of Directors has decided on new financial targets for 2025, which include a growth target for net sales exceeding billion (SEK 3.14 billion) with an operating margin target of 20%. To achieve these ambitious goals, we will have more focus on acquisitions than before, which has resulted in a slightly adjusted dividend policy. The new policy will be to distribute 30-50% of the annual earnings per share, which gives the company greater flexibility to finance future acquisitions.

HMS has invited for a Capital Markets Day on November 18 to present the updated strategy and ambitions for the coming five year period.

An uncertain future and a bright future

We continue to see great uncertainty about the future and how the corona pandemic will affect our customers in the coming quarters. The fourth quarter has started at the same order intake pace as during the third quarter and although some market data looks somewhat more positive now, compared with a quarter ago, we still believe in a slow recovery. However, with a strong financial position, we will, despite the uncertain situation in the short term, continue to focus on new acquisition opportunities and invest in technology innovation.

Our assessment is that automation and digitalization of industrial processes will see increased demand when we have the corona crisis behind us. HMS must then be ready to meet this demand with competitive products and solutions. Despite the turbulence in the short term, we continue to work with a focus on long-term growth based on a balanced view of our cos

LINK:	http://www.hms-networks.com/news-and-insights/news-from-hms/2020/10/23...
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