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HMS Networks AB
Annual Financial Report

Year-end report 2020, January - December

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Profibus PA Cable, DataGuard® (SWA/PVC) 1x2x18/1AWG Profibus PA PVC / SWA / PVC UV Stable Black. Company: Belcom Cables Limited. Product types: Cables/Connectors. Procentec introduced new network diagnostics products at live virtual product launch HMS Networks presents its third quarter report and new financial targets HMS Networks AB (publ) acquires remaining 25.1% of WEBfactory GmbH.

Fourth quarter

• Net sales for the fourth quarter reached SEK 405 m (346), corresponding to an in­crease of 17%. Currency translations had a negative effect of SEK 10 m on net sales
• Order intake was SEK 408 m (337), cor­responding to an increase of 21%
• Operating profit reached SEK 75 m (55, adjusted operating profit previous year was 33), equal to a 18.5% (15.9) operating margin
• Profit after taxes totalled SEK 57 m (67, adjusted profit after taxes previous year was 31)
• Earnings per share was SEK 1.21 (1.46, adjusted earnings per share previous year was 0.68)
• Cash flow from operating activities amounted to SEK 83 m (61)
• HMS acquired 70% of the shares in Procentec B.V.
• HMS acquired the remaining 25.1% of the shares in WEBfactory GmbH
• The Board of Directors have decided on new financial targets for the Group

Yearly

• Net sales for the year reached SEK 1,467 m (1,519), corresponding to a 3% decrease. Currency translations had a negative effect of SEK 19 m on net sales
• Order intake was SEK 1,447 m (1,470), corresponding to a decrease of 2%
• Operating profit was SEK 288 m (243, adjusted operating profit previous year was 246), equal to a 19.6% (16.0) operating margin
• Profit after taxes totalled SEK 220 m (205, adjusted profit after taxes previous year was 188)
• Earnings per share was SEK 4.79 (4.43, adjusted earnings per share previous year was 4.06)
• Cash flow from operating activities amounted to SEK 370 m (254)
• The Board of Directors propose a dividend to the amount of SEK 2.00 (0) per share

Comment from the CEO

Back to growth in the fourth quarter
After some challenging quarters, we are pleased to see a trend break in the fourth quarter, and a recovering market. Both order intake, which amounted to SEK 408 million, and sales, which amounted to SEK 405 million, improved organically compared to the correspond­ing quarter last year – by 13% and 8% respectively. As communicated in the two latest quarterly reports, the gradual improvement in the market continues, but now also with growth compared to the cor­responding quarter last year.

Our efforts to improve the gross margin continue to develop favour­ably. Despite a currency headwind, we see a gross margin of 61.6% (61.2%) for the quarter and 62.0% (61.1%) for the full year. The quarter’s operating profit amounts to SEK 75 million, a significant improvement compared with the previous year. The positive result is driven by a recovery in sales combined with good gross margins and low operating expenditures. We estimate to have SEK 20 mil­lion in non-recurring savings, related to pandemic effects in sales and marketing in the fourth quarter. For the full year the same number is approximately SEK 48 million. For the full year, we achieved an operating margin of 19.6%, which is very close to our long-term target of 20%.

Cash flow continues to be strong at SEK 83 million (61) for the quarter, and a record high of SEK 370 million (254) for the full year, which has contributed to lowering our debt. When we close the year, we have a low net debt in relation to EBITDA of 0.49 (1.20).

Recovery in our main markets
After several challenging quarters for the Central European mar­ket, we now see double-digit growth in order intake for the quar­ter. There are several factors behind the recovery, primarily a more positive outlook from our customers. We also see that the electronics industry in general now have a growing demand, which put pressure on component suppliers and foundries - which in its turn is driving longer lead times that partly also causing our customers to increase inventory levels.

The U.S. market continues to develop steadily with a growth of a few percent in both sales and order intake – primarily driven by end costumers in the consumer and pharmaceutical industries.

Asia shows good growth in sales as a result of this year’s strong order intake in China and Japan. China’s large investments in wind power projects account for a large part of the growth. We foresee this to be a continued growth driver for HMS as China aims to become carbon neutral by 2060.

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New Design-Wins indicate continued interest in HMS products
Even though many of our customers have had a challenging year, interest in HMS solutions has continued to be high and we have seen a record number of new sales leads, especially from digital events and campaigns. For products using our Design-Win business model, we can see a continued stable intake of new customers in 2020. In total, we received 165 (199) new Design-Wins during the year, and the total number of active Design-Wins amount to 1,820 (1,797), an increase of 1% compared to the previous year. Of these, 1,418 (1,399) are in production, while 402 (398) are expected to go into production in the coming years. Of this year’s total sales, 46% (49) are related to the Design-Win business model.

HMS2025 strategy launched in November
During the quarter, we presented the company’s new long-term strat­egy — HMS2025. This comprises new financial targets, which in­clude a growth target with net sales exceeding SEK “π” (3.14) billion and an operating margin target of 20%. To achieve these ambitious goals, we will have an increased focus on acquisitions, which means a slightly adjusted dividend policy. Furthermore, HMS2025 contains new ambitions regarding our focus markets, sustainability, employees and customer satisfaction.

Acquisitions during the quarter
On October 1, HMS acquired 70% of the shares in Dutch Procen­tec B.V. The remaining 30% is owned by three senior executives in the company. The company, which offers hardware and software to monitoring and diagnostics of 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 to offer services that provide preventive support to reduce operational problems in our customers’ critical industrial networks.

During the quarter, we also acquired the remaining part of German WEBfactory GmbH. As a 100% owner, we can now increase the in­tegration and use of WEBfactory’s software products together with other product segments, and we see great opportunities for new busi­ness that combines hardware and software.

A brighter 2021
The fourth quarter was a step in the right direction for HMS. Al­though there is still great uncertainty in the market and a risk of local lockdowns, we see that the world is adapting to the situation that accompanies the pandemic. We expect that 2021 will be characterized by a continued recovery and see that the growth trend has continued in the start of 2021.

We continue to work with a focus on long-term growth and a bal­anced view of our costs. In the long run, we continue to believe that the market for Industrial ICT (Information & Communication Technology) will be an interesting area, both in terms of organic growth and acquisitions.

Halmstad February 3, 2021

Staffan Dahlström
Chief Executive Officer

Further information can be obtained from:
Staffan Dahlström, CEO, +46 (0) 35 17 2901
Joakim Nideborn, CFO, +46 (0) 35 710 6983

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