HMS: Report Q3 2021
Third quarter net sales reached SEK 472 million (345), which corresponds to an increase of 37%. Currency conversions had a negative effect of SEK 7 million on net sales
Order intake was SEK 669m (336m), which corresponds to an increase of 99%
Operating profit reached SEK 101 million (77), an operating margin of 21.5% (22.3)
Profit after tax was SEK 84 million (61) and earnings per share was SEK 1.81 (1.33)
Cash flow from operating activities amounted to SEK 148 million (116)
HMS acquired 60% of Owasys Advanced Wireless Devices SL shares
First nine months
Net sales for the first nine months reached SEK 1,401 million (1,061), which corresponds to an increase of 32%. Currency conversions had a negative effect of SEK 69 million on net sales
Order intake amounted to SEK 1,839m (1,039), corresponding to an increase of 77%
Operating profit amounted to SEK 336 million (213), an operating margin of 24.0% (20.0)
Profit after tax amounted to SEK 276 million (163) and earnings per share to SEK 5.75 (3.58)
Cash flow from operating activities amounted to SEK 405 million (286)
The trend continues – order intake to new recordsWe continue to see strong demand in our markets, driven by increasing investments in automation, digitalization, energy efficiency and remote monitoring of industrial machines. Order intake reached a new record level and amounted to SEK 669 million, corresponding to a growth of 99% compared to the previous year, 80% of this growth is organic. For the first nine months, the corresponding figures are 77% and 66% respectively. As in the previous quarters of the year, order intake is boosted by the fact that customers order more in advance than usual. This is due to the longer lead times due to the shortage of components. We estimate this temporary positive effect on order intake at around SEK 140 million in the quarter.
The shortage of components also negatively impacted our ability to deliver. Our customers have a good understanding of the current component shortage situation and our assessment is that we are not losing more customer orders due to the longer delivery times. Despite the difficult component sourcing situation, we achieved net sales of SEK 472 million in the quarter, which is a growth of 37%, of which 18% organic year-on-year former. For the first nine months, the corresponding figures are 32% and 22% respectively.
We estimate that the delivery situation negatively impacted our sales by approximately SEK 50 million in the quarter, as the current component shortage has affected the ability to deliver some products. In particular, the Ewon and Intesis brands experienced delivery disruptions during the quarter.
The effect of the strong order intake and delivery problems leads to a large build-up of the order book and we now have an order book of around SEK 750 million which is around three times higher than the corresponding quarter of the previous year. We believe that the risk of order cancellation is low.
Our geographic markets
In our most important geographic market, Europe, we once again reached a record level of order intake. The main driving forces are a still very strong market for machine builders and an increased demand for remote solutions. The positive trend also continued in Asia, with good development in both China and Japan. Our organic order intake more than doubled, mainly thanks to a strong industrial market in China. In the United States, too, we achieved new record orders as the industrial automation market and the economy in general remain very strong.
Lack of components puts pressure on gross margin in the short term
The global component shortage is now also affecting costs, and during the quarter we saw component prices multiply for some components, which negatively affects our manufacturing costs and leads to a temporarily lower gross margin of 61.4%. To compensate for these cost increases, we are now applying price increases for new orders. We expect to see the full effect of the price adjustments in the middle of next year, which means gross margin should be around current levels, somewhat lower, through mid 2022.
Our operating expenses are increasing as expected, in line with increased activities and new investments for growth. The increase in operating expenses combined with the temporarily lower gross margin means that profitability is slightly lower than in the previous two quarters in 2021, even though we reach an operating profit of SEK 101 million, corresponding to a margin operating rate of 22%. This is even better than our long term goal. It should also be noted that cash flow from operations stands at an all time high of SEK 148 million.
New family members deliver
Our latest acquisitions, Procentec and Owasys keep their promises. Procentec continues on a winning streak and has doubled organic sales during the year. Owasys business is developing as expected, although there are some challenges related to component sourcing.
Since it seems likely to us that the existing put / call options will be exercised to increase HMS ‘equity interest to 100% in these two companies, we will not declare, in accordance with IFRS, any minority. Thus, a liability is also declared which corresponds to the expected payment for the remaining shares in the two companies. In total, the valuation of these options affects our net debt by SEK 390 million.
Sustainability and people
With more and more people fully vaccinated, the world is starting to open up again. Our employees are now working more and more from our offices and we can meet more and more clients in person. Trade shows are also resuming, albeit on a small scale. We have learned a lot about how we can conduct our business more efficiently during the pandemic and we are benefiting from it. Still, we shouldn’t underestimate the importance of real meetings when it comes to maintaining relationships and building new business.
Our sustainability work continues towards our goals for 2025 both with regard to the environment, our employees, our customers and our responsible companies. As part of the sustainability work, we have also signed the UN Global Compact initiative, which seems like a natural commitment for HMS.
Positive outlook but delivery difficulties in the fourth quarter
Demand is expected to continue at a high level and most of our clients have a strong underlying business. This should continue over the next few quarters. Group sales are now strongly affected by component availability, and we estimate that our delivery capacity will remain at current levels for the remainder of the year and then gradually improve over the next year. The situation on the components market is still uncertain and temporary setbacks cannot be ruled out. We have a good relationship with our customers, who understand the situation affecting the entire industry and we consider the risk of business loss to be low.
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 industrial ICT (Information and Communication Technologies) market will be an interesting area, both in terms of organic growth and acquisitions.
Halmstad October 22, 2021
Chief Executive Officer
Further information can be obtained from:
Staffan DahlstrÃ¶m, CEO, +46 (0) 35 17 2901
Joakim Nideborn, Chief Financial Officer, +46 (0) 35 710 6983
This information is such that HMS Networks AB (publ) is required to make it public under EU Market Abuse Regulation and Securities Law. The information has been submitted for publication, through the contact persons indicated above, at 2:00 p.m. CET on October 22, 2021.
HMS Networks AB (released) is one of the leading providers of solutions in the field of industrial information and communication technologies (Industrial ICT). HMS develops and manufactures products under the AnybusÂ®, IxxatÂ®, EwonÂ® and IntesisÂ® brands. The development takes place at the head office in Halmstad as well as in Ravensburg, Nivelles, Igualada, Wetzlar, Buchen, Delft and Bilbao. Local sales and support are handled by branches in Germany, USA, Japan, China, Singapore, Italy, France, Spain, Netherlands, India, UK , in Sweden, South Korea and the United Arab Emirates, as well as through a global network of distributors and partners. HMS employs over 700 people and had a turnover of SEK 1,467 million in 2020. HMS is listed on the NASDAQ OMX in Stockholm, in the Mid Cap, Information Technology category.