Second quarter
* Order intake for the second quarter was SEK 769 m (703), corresponding to an

    increase of 9% whereof acquired growth was 36% and organic growth was -22%.
    Currency translations had an effect of on net sales of -5%
  * Net sales reached SEK 845 m (703), corresponding to an increase of 20%
    whereof acquired growth was 40% and organic growth was -20%. Currency
    translations had no material effect of on net sales
  * Adjusted EBIT reached SEK 172 m (154), equal to a 20.4 % (21.9) adjusted
    operating margin
  * EBIT reached SEK 104 m (150), equal to a 12.3% (21.4) operating margin
  * Adjusted profit after tax totaled SEK 103 m (119) and adjusted basic
    earnings per share was SEK 2.12 (2.56)

* Profit after tax totaled SEK 34 m (116) and basic earnings per share was SEK

    0.70 (2.48)
  * Cash flow from operating activities amounted to SEK 152 m (78)

First six months
* Order intake for the first six months was SEK 1,242 m (1,384), corresponding

    to a decrease of 10% whereof acquired growth was 18% and organic growth was
    -29%
  * Net sales reached SEK 1,461 m (1,476), corresponding to a 1% decrease
    whereof acquired growth was 19% and organic growth was -20%. Currency
    translations had a negative effect of SEK 3 m on net sales
  * Adjusted EBIT reached SEK 309 m (370), equal to a 21.1% (25.0) adjusted
    operating margin
  * EBIT reached SEK 233 m (362), equal to a 16.0% (24.5) operating margin
  * Adjusted profit after tax totaled SEK 216 m (296) and adjusted basic
    earnings per share was SEK 4.55 (6.35)
  * Profit after tax totaled SEK 140 m (288) and basic earnings per share was
    SEK 2.94 (6.18)
  * Cash flow from operating activities amounted to SEK 210 m (233)

CEO comments
FIRST QUARTER WITH RED LION
The second quarter of the year saw an improvement in organic order intake
compared with the first quarter. We are in a relatively weak market situation
where our customers continue to work on adjusting their inventory levels and are
in a wait-and-see mode to understand how demand will develop going forward.
The quarter's order intake, including Red Lion, amounts to SEK 769 million
(703), corresponding to a growth of 9%. Excluding Red Lion, we see an organic
sequential improvement of 9%, but a decrease by 22% compared to last year. We
estimate that the quarter's order intake was negatively affected by our
customers' inventory adjustments by approximately SEK 100 million. Looking
ahead, we believe that customers' inventories are beginning to balance with the
current demand, and we expect to see significantly less of these inventory
adjustments going forward.
The quarter's turnover, including Red Lion, amounts to SEK 845 million (703),
which corresponds to an increase of 20%, but a decrease of 20% compared to the
corresponding period last year.
THE RESTRUCTURING PROGRAM NOW IMPLEMENTED
The restructuring program launched at the beginning of the quarter has been
completed. The program, which has realized early cost synergies from the
acquisition of Red Lion and optimized the European organization, has resulted in
savings of SEK 23 million in 2024 and SEK 41 million in full-year effect. The
cost of the program amounts to SEK 27 million and will be charged to the second
quarter.
Our gross margin lands at 61.9% (64.7), which we think is a good level
considering low sales volumes and the addition of Red Lion's slightly lower
gross margin.
Operating expenses for the quarter amount to SEK 423 million, which includes
items affecting comparability related to the acquisition of Red Lion Controls
and the restructuring program - totaling SEK 69 million. All items affecting
comparability are explained later in the report. Good cost control is important
to us in these slightly more uncertain times, and we can see that the adjusted
operating expenses are decreasing organically by 21%.
The adjusted operating profit in the quarter amounts to SEK 172 million (154),
which corresponds to an operating margin of 20.4% (21.9). The quarter's cash
flow from current operations amounts to SEK 152 million (78).
NORTH AMERICAN ORDERS BACK UP AFTER TEMPORARY DECLINE
The biggest positive impact on the improved sequential order intake comes from
the North American market, which after a temporary decline in the first quarter,
is now once again developing well.
The European market is moving sideways from the first quarter of 2024 and we
have received several indications that the recovery will be somewhat slower than
previously estimated.
In Asia, China is showing good development and good outlook. The, for HMS,
important Japanese market is slowly moving in the right direction, with a large
number of pre-purchase orders placed.
THE INTEGRATION OF RED LION IS IN FULL PROGRESS
The acquisition of Red Lion was completed at the beginning of the quarter and
the response from the customers is very positive.
The integration work has been in full swing for three months and the main focus
is commercial synergies. In Red Lion's largest market, the USA, our sales
organizations have already held several joint customer and distributor meetings.
In Asia, the sales organizations are already merged, and although fine-tuning of
internal processes remains, the work has gone very well. Several collaborations
have also started in Europe and our existing sales infrastructure is being used
to improve Red Lion's presence in Europe.
At the same time, several integration initiatives are underway within the supply
chain and support functions to further support sales synergies and increased
operational efficiency, including changing business systems.
This is the first interim report that includes Red Lion as part of the HMS
Group. We have updated the report to make it easier for the reader to follow the
development of HMS organically as well as with Red Lion included. As the
acquisition results in large amortizations of excess values, we have chosen to
introduce a number of adjusted key figures in order to be able to follow and
evaluate the business. These key figures are described in more detail later in
the report.
NEW PRODUCTS
We have launched our first commercial standard product for 5G, the Anybus
Wireless Bolt 5G, which addresses a new market for high performance wireless
industrial applications. As we mentioned earlier, we assess 5G as an important
technology development for mobile applications, for example AGV and Robot
installations in Automotive, but it will likely take time before 5G begins to be
used on a wider front in these applications.
OUTLOOK
The recovery in demand has taken longer than expected and there are still some
inventory adjustments and general uncertainty due to the macroeconomic
situation. We expect a gradual improvement in order intake during 2024,
especially during the last quarter of the year.
Customers' willingness to invest in digitization, productivity improvements and
sustainability is high 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 difficult
global security situation.
We continue to work with a 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
ICT (Information & Communication Technology) will be an interesting area, both
in terms of organic growth and acquisitions.
Halmstad July 12, 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 CEST on July 12, 2024.
HMS Networks AB (publ) is a market-leading provider of solutions in Industrial Information and Communication Technology (Industrial ICT) and employs over 1 200 people. Local sales and support are handled through over 20 sales offices all over the world, as well as through a wide network of distributors and partners. HMS reported sales of SEK 3,025 million in 2023 and is listed on the NASDAQ OMX in Stockholm in the Large Cap segment and Telecommunications sector.
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