Interim report 2024, January September

18/10/2024

Interim report 2024, January September 18 Oct 2024 at 07:30 GMT+2

Regulatory press release

Third quarter

Order intake for the third quarter increased by 37% to SEK 677 m (492). Organically, order intake decreased by 8% and currency translations affected by -4%

Net sales increased slightly to SEK 792 m (789). Organically, net sales decreased by 30%, acquired growth was 31% and currency translations affected by -1%

Adjusted EBIT reached SEK 194 m (226), equal to a 24.5 % (28.7) adjusted operating margin

EBIT reached SEK 163 m (223), equal to a 20.6% (28.2) operating margin

Adjusted profit after tax totaled SEK 126 m (176) and adjusted basic earnings per share was SEK 2.51 (3.77)

Profit after tax totaled SEK 95 m (172) and basic earnings per share was SEK 1.89 (3.69)

Cash flow from operating activities amounted to SEK 205 m (167)

First nine months

Order intake for the first nine months increased by 2% to SEK 1,918 m (1,877). Organically, order intake decreased by 23%, acquired growth was 26% and currency translations affected by -1%

Net sales decreased by 1% to SEK 2,253 m (2,265). Organically, net sales decreased by 24%, acquired growth was 23% and currency translations affected by 0%

Adjusted EBIT reached SEK 503 m (596), equal to a 22.3% (26.3) adjusted operating margin

EBIT reached SEK 396 m (584), equal to a 17.6% (25.8) operating margin

Adjusted profit after tax totaled SEK 342 m (472) and adjusted basic earnings per share was SEK 7.05 (10.12)

Profit after tax totaled SEK 235 m (460) and basic earnings per share was SEK 4.86 (9.87)

Cash flow from operating activities amounted to SEK 415 m (400)

Subsequent events

New organizational structure from 2025 to strengthen customer focus and cross-selling, which will generate full-year savings of SEK 40 m

Acquisition of PEAK-System Technik GmbH

Divestment of the MB Connect Line

CEO comments

STABLE PROFITABILITY ON A HESITANT MARKET

Order intake decreased during the third quarter of the year as a result of a continued challenging macro-economic situation with a temporary weak demand. The picture is similar to what we have seen in recent quarters with pending investments by our customers and continued adjustments of inventory levels.

The quarter's order intake amounts to SEK 677 million (492), corresponding to a growth of 37%. Excluding Red Lion, we see an organic decrease in order intake by 8% compared to the corresponding period last year. We estimate that the quarter's order intake was negatively affected of approximately SEK 100 million due to our customers' inventory adjustments. With this, we see that our order book is down to a normal level.

Revenue for the quarter amounts to SEK 792 million (789). Excluding Red Lion, this is an organic decrease of 30% compared to the corresponding period last year. The organic turnover reduction is, as well as the order intake, a result of customers' inventory adjustments and a weak underlying market.

Our gross margin lands at 63.5% (65.4), which can be seen as a good level as production volumes compared to the previous year has decreased, and due to the dilution effect we get from Red Lion's slightly lower gross margin compared to HMS previous level. The gross margin is driven by a favorable product mix and a positive development of Red Lion's gross margin during the period.

We can conclude that the cost saving program announced earlier this year has resulted in the effects we expected and in combination with good cost control in general, the quarter's operating expenses amount to SEK 343 million (293). Amortization of excess values and items affecting comparability are included with a total of SEK 31 million. Organically, operating costs decreases by 22% compared to the corresponding period last year.

The adjusted operating profit for the quarter amounts to SEK 194 million (226), which corresponds to an operating margin of 24.5% (28.7). The quarter's cash flow from current operations amounts to SEK 205 million (167), helped by large inventory reductions.

In summary, we put a challenging quarter behind us marketwise. At the same time, what we can control in the short term has developed well with a good gross margin and cost control, as well as working capital reduction, which overall results in a good cash flow.

EUROPE AND THE EMBEDDED BUSINESS REMAIN CHALLENGING

Europe continues to see a weak development, where the important automotive industry is struggling, and we see a general wait-and-see attitude from our customers. Stock adjustments are still ongoing and furthermore, the demand for our customers' products has in turn become weaker during the year.

In North America, we see, somewhat unexpectedly, a step back where the market continues to be challenging for our embedded businesses and Red Lion also has a weak quarter. However, we see that our distributors have a somewhat more positive view of their demand.

In Asia, just like before, our Japanese customers have large stocks and order intake is therefore still weak. China continues to develop positively, and we have the best quarter since Q1 2023.

Despite the challenging market, we have seen a good development of new design-wins during the year, which shows that there are underlying investments in HMS' technology.

NEW ORGANIZATION TO STRENGTHEN CUSTOMER FOCUS AND CROSS-SELLING

Since 2017, HMS has had a matrix organization with responsibility for sales in Market Units and product development in Business Units. With the strong organic growth HMS has shown in recent years, combined with the acquisitions of Red Lion Controls and most recently PEAK-System, we see an opportunity to become even more customer-focused, create clear responsibility for results and lay the foundation for further technology collaborations and synergies within the closely related businesses.

Wit

LINK:	https://www.hms-networks.com/news/news-details/18-10-2024-2965332-Inte...
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Interim report 2024, January September

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