Fourth quarter
Yearly
Comment from the CEO
We conclude 2019 with a weak fourth quarter. The market situation is still challenging, and the quarter showed both weaker sales and order intake. Sales amounted to SEK 346 m, a decrease of 5 % from the corresponding period last year. Organically, the decrease is 10 %.
In Europe, mainly driven by Germany, the downturn has continued and we believe that the market will continue to be weak during the first part of 2020. The Americas and Asia also saw a weaker market during the quarter, although there are some positive indicators for the future. In general, the future demand in our markets is difficult to assess. On the product side, we can see that Anybus and also partly Ixxat are the main reasons for our weaker development. Especially our embedded products, which are dependent on investments in production, are affected when our customers have weak own demand and continue to reduce their stock. On the positive side, we can see that both Ewon and Intesis made a stronger quarter.
Despite a hesitant market, we see that interest in HMS solutions remains high and we have a record number of new leads. The products sold according to our Design-Win business model, continue to show stable growth in the number of new customers during 2019. In total, we received 199 (177) new Design-Wins during the year. This brings the total number of active Design-Wins to 1,797 (1,693), an increase of 6 % compared to the previous year. Of these, 1,399 (1,304) are in production, while 398 (389) are expected to be in production in the coming years. 49 % of the total revenue is related to Design-Wins. A continued steady inflow of new Design-Wins is proof of HMS’ attractive product offering and gives us good platform for future growth.
During the quarter, the integration of Beck IPC GmbH was completed, including a settlement regarding agreed additional purchase price. This had a positive impact on the quarter’s operating profit by SEK 19 m.
The quarter shows a stable gross margin of 61.2 %, which is slightly better than the corresponding quarter last year, despite lower production volumes during the quarter. Operating profit for the quarter amounted to SEK 55 m, corresponding to an operating margin of 16 %. The adjusted operating profit, excluding the above mentioned earn-out settlement and restructuring effect, amounts to SEK 33 m. Our cash flow continues to be strong, largely driven by improvements in working capital.
The previously communicated cost-savings program has been implemented during the quarter. The cost reduction program aimed to adapt the organization to focus on segments with growth potential, and also strengthen cost control in areas with weaker growth prospects in the future. 43 employees have terminated their employment at HMS, and the cost of the program totalled at SEK 22 m, compared to the previously estimated SEK 25 m. The annual savings are expected to be SEK 45 m, which is in line with what was previously communicated.
During the year, we continued to develop our global Supply Chain, which in 2019 delivered more than 1.1 million products to our customers. During the year, we moved some of our production from China to Europe, where we expanded production in Lithuania and started cooperating with a new partner in Romania. A large part of the final stages in our production processes – programming and quality control – are carried out within HMS’ own facilities and approximately 90 % of our products are defined as “Made in the EU.”
The full year 2019 concludes sales of SEK 1,519 m, an increase of 11 % from 2018 and an operating profit of SEK 243 m, corresponding to an operating margin of 16 %. It is also worth noting that profit after tax in 2019 has been positively affected this year’s last quarter partly thanks to Belgian tax authorities has granted us SEK 19 m in tax relief for product development operations linked to our Ewon products for 2018-2019.
Looking back over the last ten years, HMS has delivered an annual average sales growth of 18 % and an average operating margin of 18 %, which is just below our long-term goals of 20 % growth and operating margin. In the short term, however, we see that it will be challenging to reach our growth targets, as our markets are still expected to have a weak development, especially in the Automotive segment. However, we continue to focus on long-term growth and a balanced view of our costs. In the long term, we continue to believe that the market for industrial communication will be an interesting growth area and we will continue to focus on our motto “Connecting Devices”.
Halmstad February 3, 2020
Staffan Dahlström
Chief Executive Officer
Further information can be obtained from:
CEO Staffan Dahlström, telephone +46 (0) 35 17 29 01
CFO Joakim Nideborn, telephone +46 (0) 35 710 69 83
This 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 February 3, 2020.
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®, Ewon® and Intesis™ brands. Development takes place at the headquarters in Halmstad, Ravensburg, Nivelles, Igualada, Wetzlar and Buchen. Local sales and support are handled by branch offices in Germany, USA, Japan, China, Singapore, Italy, France, 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 1,519 million in 2019. HMS is listed on the NASDAQ OMX in Stockholm, category Mid Cap, Information Technology.
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