HMS Networks: Interim report 2019, January – September

Third quarter
Net sales for the third quarter reached SEK 377 m (353), corresponding to an increase of 7 %. Currency translations had a positive effect of SEK 15 m on net salesRestructuring costs of SEK 25 m impacts the third quarter, related to a cost reduction programOperating profit reached SEK 56 m (74) equal to a 14.9 % (20.9) operating marginOperating profit before restructuring costs reached SEK 81 m equal to a 21.6 % operating marginOrder intake was SEK 372 m (360), corresponding to an increase of 3 %Cash flow from operating activities amounted to SEK 90 m (73)Profit after taxes totalled SEK 46 m (51) and earnings per share was SEK 0.98 (1.09)First nine monthsNet sales for the first nine months amounted to SEK 1,172 m (1,003), corresponding to a 17 % increase. Currency translations had a positive effect of SEK 58 m on net salesOperating profit was SEK 188 m (199), equal to a 16.0 % (19.9) operating marginOperating profit before restructuring costs reached SEK 213 m equal to a 18.2 % operating marginOrder intake was SEK 1,134 m (1,046), corresponding to an increase of 8 %Cash flow from operating activities amounted to SEK 193 m (144)Profit after taxes totalled SEK 138 m (129) and earnings per share was SEK 2.96 (2.78)
Comment from the CEO
The third quarter showed weaker growth and order intake and we can see that the market slowdown has continued. Sales for the quarter were SEK 377 m, which represents a growth of 7 % compared to the same period last year. The growth is mostly currency- and acquisition driven, organic growth was 1 %. Order intake during the quarter was SEK 372 m, an organic decline of 5 %.The weak market development, as previously reported, continued during the third quarter. Both macro data and our customers continue to indicate a weak outlook in all our important geographical markets. Japan has been weak throughout the year but now both Germany and the US have shown clear signs of slowdown, although the US has shown some recovery during the latter part of the quarter.Right now, we see a combination of both a weaker market and customers lowering their inventories. Primarily, we see a slowdown in the manufacturing industry for our brands Anybus and Ewon, whereas we see a more stable development for our brands Ixxat and Intesis, which are primarily geared towards other industrial markets.The quarter shows a good gross margin of almost 63 %, which is better than our last quarters. This is mainly driven by an advantageous product mix during the quarter.As reported in a press release on September 23, a cost reduction program has been initiated to adjust our costs to a weaker market. We therefore report restructuring costs of SEK 25 m during the quarter in order to achieve a cost savings of approximately SEK 45 m. Our operating profit before restructuring costs amounts to SEK 81 m for the quarter, corresponding to an operating margin of 21.6 %. After restructuring costs, operating profit is SEK 56 m and the operating margin is 14.9 %.The cost reduction program will reduce the number of employees by approximately 40 people. As we have expanded during the last few quarters, both organically and through acquisitions, the number of employees after the program has been completed will be more than at the beginning of 2019. The ambition is to continue to invest in segments with great growth potential, and to continue to have good cost control in areas with weaker growth outlook going forward.Our cash flow is strong during the quarter, SEK 90 m, as a result of the underlying good profitability. We also reduce our net debt and strengthen our financial position, which gives us a relatively low net debt of SEK 463 m, corresponding to 1.45 times EBITDA.The new acquisitions, WEBfactory and Raster Products, have entered the group well and are developing according to plan. Strategic partnerships have begun with WEBfactory and we are already seeing some cross-selling.In the short term we still see limited growth potential. We continue to work with our long-term growth targets, sales growth of 20 % per annum and operating margin of 20 %. 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 “HMS – Connecting Devices”.Halmstad October 22, 2019Staffan Dahlström
Chief Executive OfficerFurther information can be obtained from:
CEO Staffan Dahlström, telephone +46 (0) 35 17 29 01 
CFO Joakim Nideborn, telephone +46 (0) 35 710 69 83This information is such that HMS Networks AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the contact persons set out above, at 14.00 CET on October 22, 2019.HMS Networks AB (publ) is the leading independent supplier of solutions for industrial communication and the Industrial Internet of Things. HMS develops and manufactures products under the Anybus®, Ixxat® and Ewon® brands. Communication solutions for building automation are offered through the subsidiary Intesis. Development and manufacturing take place at the headquarters in Halmstad, and in Ravensburg, Nivelles, Igualada, Wetzlar and Buchen. Local sales and support are handled by branch offices in Germany, USA, Japan, China, Singapore, Italy, France, Switzerland, Spain, the Netherlands, India, UK, Sweden, South Korea and UAE, as well as through a worldwide network of distributors and partners. HMS employs over 600 people and reported sales of SEK 1,366 million in 2018. HMS is listed on the NASDAQ OMX in Stockholm, category Mid Cap, Information Technology.AttachmentHMS Q3 Report 2019