Third quarter
First nine months
CEO comments
NORMALIZATION OF ORDER INTAKE AND RECORD NET SALES
The third quarter of 2023 shows a mixed picture. We set new records in net sales and profitability when we can now deliver from our large order book. At the same time, we see a temporarily weakened order intake linked to the normalization of orders and customers’ inventory adjustments, which is currently affecting the entire supply chain.
The order intake for the quarter amounts to SEK 492 million (675), corresponding to an organic decline of 25%. We estimate that the quarter’s order intake is negatively affected by normalization of orders and our customers’ inventory adjustments of approximately SEK 150 million, in contrast to the corresponding quarter last year, when we had inflated orders of SEK 50 million. The recent disruptions in the global supply chain of electronic components are now resolved to a large extent, resulting in shorter delivery times. As our order book is still very large, we expect the normalization of order intake to continue for another couple of quarters. However, we estimate that order intake will improve going forward when customers’ inventory levels are in line with market demand.
The quarter’s net sales amounted to a record level of SEK 789 million (624), which corresponds to an organic growth of 20% compared to the corresponding period last year. In the previous quarter, we reported delivery delays due to the roll out of a new business system (ERP). This is now remedied, and we are back to a satisfactory delivery capacity.
The order book amounts to SEK 1,106 million, which is a decrease of SEK 210 million compared to the previous quarter. On the long term, we estimate that a normal order book over time is approximately SEK 500-600 million.
THE US AHEAD OF EUROPE AND JAPAN IN NORMALIZING ORDERS
In general, we see a mixed picture of customer needs as lead times are now starting to normalize. Some customers want deliveries as quickly as possible, while others are waiting with new orders to manage their stocks.
Our largest market, Europe, is characterized by rapid change where we see the majority of large customers waiting to place orders. This is as expected, since they have already placed large orders in previous quarters. We also see a similar situation in Japan. In the US, we have seen this trend in the previous quarter, and we assess that inventory reduction and order normalization are beginning to be completed.
In China, which is a relatively small part of our sales, order intake continues to be at low levels, where the economy as a whole has developed significantly weaker compared to previous expectations.
STRONG PROFITABILITY
We continue to see a good development of our gross margin which amounts to 65.4% (63.6) driven by a combination of favorable currency situation, price adjustments and increased efficiency in our supply chain. Our operating expenses increased to SEK 293 million (225), corresponding to an organic increase of 24%. Last year’s planned investments to build a new base for future growth are now in place, and we assess that operating costs will increase at a slower pace going forward as we expect to see the effect of these investments. During the quarter, we reached a new record level for operating profit with SEK 223 million (179), corresponding to an operating margin of 28.2% (28.7). The quarter’s cash flow from current operations amounts to SEK 167 million (118), which is impacted by continued increased working capital, primarily related to our inventory.
Our balance sheet remains strong, and we no longer have any interest-bearing net debt.
UPDATED STRATEGIC TARGETS
In September, we presented updated targets for growth and profitability at our capital markets day in Stockholm. The company’s growth ambition is to reach π (3.14) billion in 2025 through organic growth alone. Any upcoming acquisitions will be added to this, and we therefore speak of this new target as π+ 2025. The profitability target was raised to 25% EBIT. Raised targets for employee satisfaction and customer loyalty were also presented. When it comes to sustainability, the company presented its ambition to adhere to the Science Based Targets initiative (SBTi).
OUTLOOK
In the short term, the outlook is characterized by inventory adjustments and normalization of order placement at our customers. These adjustments aside, our underlying market continues to look relatively stable. With a continued large order book, we are in a favorable position for good sales during a period of weaker order intake. We estimate that order intake will improve going forward when customers’ inventory is in line with market demand.
Customers’ willingness to invest in digitalization, 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 October 18, 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 October 18, 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 Telecommunications sector.
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