Fourth quarter
Yearly
Subsequent events
CEO comments
A QUARTER WITH SOLID SALES AND WEAK ORDER INTAKE
The last quarter of 2023 followed the same trend as the previous quarters. Continued solid turnover while order intake continues to be negatively affected when our customers continue to reduce their inventory levels in a somewhat weaker market.
The order intake for the quarter amounts to SEK 426 million (718), corresponding to an organic decline of 34%. We estimate that the quarter’s order intake is negatively affected by our customers’ inventory adjustments of approximately SEK 150 million, in contrast to the corresponding quarter last year, when we had inflated orders of SEK 85 million. Furthermore, the order intake has been negatively impacted by currency revaluations of the order book by SEK 43 million. Underlying order intake is estimated to be SEK 618 million, indicating a somewhat weaker market than previous quarter.
The quarter’s turnover amounted to SEK 760 million (764), which corresponds to an organic decline of 3% compared to the corresponding period last year.
The order book amounted to SEK 778 million, which is a decrease of SEK 328 million compared to the previous quarter.
PROFITABILITY IN LINE WITH FINANCIAL TARGETS
Our gross margin remains at almost the same level as previous quarter, 65.3% (63.6) and we are pleased to see that we have managed to navigate through the last years with growing gross margins, with a full year margin in 2023 of 65%.
Our operating expenses increased to SEK 335 million (294) and is burdened with restructuring costs of SEK 7 million primarily from realizing efficiency improvement with the integration of the sales organization from our previous acquisition, Procentec. The quarter is also impacted by transaction costs of SEK 17 million, relating to the acquisition of Red Lion Controls. Organic increase of operating costs excluding restructuring and transaction costs were 3%.
The adjusted operating profit in the quarter reached SEK 193 million (192), corresponding to an operating margin of 25.3% (25.1). The quarter’s cash flow from operations amounts to SEK 119 million (177), which is impacted by continued increased working capital, primarily related to our inventory.
MARKET SLOW-DOWN IN EUROPE AND JAPAN BUT POSITIVE SIGNALS FROM AMERICAS
The order normalization has continued with a similar pace as in Q3 for both Europe and Japan where many of our large customers still are placing few or small orders. This is due to a combination of previous large orders, but also an increased uncertainty for the market’s underlying demand.
In the Americas, we see a trend break where order intake is now increasing compared to the last two quarters and we assess that the customers’ inventory adjustments have essentially been completed, which is a promising indication for 2024.
ACQUISITION OF RED LION CONTROLS
On December 11th we entered into a binding agreement with Spectris Group Holdings Limited to acquire the Red Lion Controls business, a well-established US-based provider of industrial communications & automation solutions. The acquisition will significantly strengthen our presence in the North American market and enable several cross-selling opportunities and expand our product offer.
We are currently waiting for all the necessary approvals to close the transaction, that we expect to happen during springtime.
With the acquisition, HMS will have a solid platform for further growth in the American market.
STABLE DESIGN-WINS DEVELOPMENT
For our Design-Win business model (approximately 52% of HMS’s turnover) we see a continued stable inflow of new customers in 2023. In total, we received 139 (146) new Design-Wins during the year, and the total number of active Design-Wins now amounts to 1,945 (1,843), an increase of 6% compared to 2022. Of these, 1,582 (1,493) are in production, while 259 (280) are expected to go into production in the coming years.
INVESTMENTS IN EWON
HMS has during the quarter started the development of the next-generation Ewon Remote Access and Remote Data solution. Already having connected over half a million devices worldwide, Ewon continues to develop the portfolio to remain market leader.
Specifically designed for machine builders, this strategic initiative includes the development of a state-of-the-art device and an advanced Cloud platform, promising heightened levels of performance, reliability, and security in Remote Access and Remote Data with extended features for more advanced users. Initial customer testing is scheduled for 2024, with the official product release planned early 2025.
OUTLOOK
In the short term, the market continues to be characterized by inventory adjustments and uncertainties due to the macro-economic situation. The market is in “wait-and-see mode” where customers are hesitant to place order until their view of the market demand is clearer. We estimate that order intake will improve first in the second half of 2024, with a gradual improvement during the second quarter. Our customers’ willingness to invest in digitalization, productivity improvements and sustainability is strong and underlying demand is still considered to be good, although there is some concern linked to how the industry will be affected by weaker consumer purchasing power, increasing energy costs and the complicated security 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 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 January 26, 2024
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 January 26, 2024.
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 3,025 million in 2023. HMS is listed on the NASDAQ OMX in Stockholm in the Large Cap segment and Telecommunications sector.
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