Second quarter
First six months
CEO comments
CONTINUED STABLE DEMAND
Although economic indicators point to a weaker market climate, we still have solid demand from our customers. Despite a normalization of delivery conditions and thus less inventory buildup at our customers, we still see the effects of the disruptions in the global supply chain for electronic components from the past two years.
The order intake for the quarter amounts to SEK 703 million (815), corresponding to an organic decrease of 17%. We estimate that the quarter’s order intake is negatively affected by approximately SEK 30 million as our customers reduce their inventory levels, in contrast to the same quarter last year when we had boost orders of SEK 150 million. The continued weak development of the Swedish krona positively affects the order intake through currency conversion of our order book, with SEK 35 million. Adjusted for these different effects, we assess that underlying demand is stable on similar levels as a year ago.
The quarter’s revenue amounted to SEK 703 million (601), which corresponds to an organic growth of 10% compared to the same period last year. In May, we initiated the rollout of a new ERP (Enterprise Resource Planning) system, which resulted in temporarily lower delivery capacity for a few weeks, thereby affecting the quarter’s revenue by approximately SEK 40 million. We expect to recover this amount in the second half of the year. Since a few weeks ago, we have returned to a satisfactory delivery capacity. The order backlog remains unchanged at SEK 1.3 billion. Adjusted for currency effects, we see a book-to-bill ratio of 0.94.
Our balance sheet remains strong with an interest-bearing net debt of SEK 93 million.
STRONG GROSS MARGIN
We continue to see a favorable development of our gross margin, which amounts to 64.7% (62.2), driven by a combination of a favorable currency situation and implemented price adjustments. Our operating costs increased to SEK 305 million (231), corresponding to an organic increase of 25%.
During the quarter, we achieve an operating result of SEK 150 million (143), corresponding to an operating margin of 21.4% (23.7). The result has been negatively affected due to postponed sales and roll-out cost related to the launch of the new ERP system and from higher costs for continued expansion.
The quarter’s cash flow amounts to SEK 79 million (56), which is impacted by the buildup of working capital related to our inventory. Currency effects and slightly lower sales than planned also affect the inventory buildup.
CONTINUED STRONG ORDER INTAKE IN EUROPE
Central Europe, which is our most important market, is performing well, and although we cannot match last year’s order intake, we see an improvement from the first quarter of this year. We get mixed signals from the automotive industry, with continued investments in manufacturing of electrified vehicles but weakened exports to China. Our business within Building automation continues to show strong growth.
In Japan, we see a mixed picture where some of our customers are reducing their inventories, while some major customers still place long-term orders. In China, we face a weak market where many customers are cautious and reduce their inventories, due to high expectations for China’s growth, currently not being met.
In North America, we see continued good sales but a certain effect of customers’ inventory adjustments that impacts the order intake negatively.
STRENGTHENING THE ORGANIZATION
In May, we went live with the roll out of a new ERP system with the goal of building a platform for future expansion and improving our internal efficiency. The most complex parts have now been implemented with good results, even though we experienced lower delivery capacity for a few weeks. We will continue the rollout of the new ERP system to our sales companies during the rest of this year and the following year.
During June and July, we have also recruited a Chief Operating Officer and a Chief Human Resources Officer. These two new roles will be important in further developing our organization for continued growth. Both will start after the summer.
OUTLOOK
The outlook has not changed significantly since the beginning of the year. We see a certain inventory adjustment from customers, which we believe will continue in a balanced pace in the coming quarters. With a continued strong order backlog of SEK 1.3 billion, we are in a good position to continue the solid sales growth during 2023.
Customers’ willingness to invest in digitization, productivity improvements and sustainability is high and the underlying demand is still considered to be good, even if there are some concerns linked to how the industry will be affected by weaker consumer purchasing power, increasing energy costs and the complicated macro political situation.
We continue to work with a focus on long-term growth based on a balanced view of our costs. In the long term, we also believe that the market for Industrial ICT (Information & Communication Technology) will be an interesting area, both in terms of organic growth and acquisitions.
Halmstad July 14, 2023
Staffan Dahlström
Chief Executive Officer
For more information, please contact:
Staffan Dahlström, CEO HMS, +46 (0)35 17 29 01
Joakim Nideborn, CFO HMS, +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 07.30 CET on July 14, 2023.
HMS Networks AB (publ) is a market-leading provider of solutions in industrial information and communication technology (Industrial ICT). HMS develops and manufactures products under the Anybus®, Ixxat®, Ewon® and Intesis® brands. Development takes place at the headquarter in Halmstad and in Ravensburg, Nivelles, Igualada, Wetzlar, Buchen, Delft, Sibiu, Rotterdam and Bilbao. 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, Australia, UAE and Vietnam, as well as through a worldwide network of distributors and partners. HMS employs over 800 people and reported sales of SEK 2,506 million in 2022. HMS is listed on the NASDAQ OMX in Stockholm in the Large Cap segment and
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