HMS Networks AB (publ)

Good morning, everybody. Welcome to this Q2 session by myself, Staffan Dahlström, and Joachim Nierborn, our CFO. And the agenda for today is just a quick summary and introduction. I will continue with a short business update, and Joachim will then dive into the financial numbers, and we'll finish up with a Q&A. So let's take a look at the numbers. Many of you have seen the reports an hour ago, and we have a very good Q2. Record level on net sales, up 33%. Fantastic order intake. We have a strong demand in the market, but there's also one component that is more of a safe offering from our customers, and Joaquin will talk a little bit more about this, because this is important to understand. And very good profit level, 121 million for the quarter. Good EBIT margin, good cash flow, good ETS. So we have a fantastic quarter. We're very happy with quarter two. And when we combine this good quarter two with the good previous quarter one, we get a very good first six months of the year. So we are approaching $1 billion sick on the first half year here. $9.29 on the net sales and a very good all-in take. This also gives us a fantastic backlog for the remainder of the year and also some of it actually into 2022. And same thing here, we accumulate two good quarters and this means that we have very good numbers. EBIT margin north of 25, much higher than we have expected actually. Good cash flow and good ETFs. So let's move a little bit into the details. But before that, let me spend a couple of minutes just describing our business for you on the call who are quite new to our business. HMS, Hardware Meet Software, we do industrial connectivity, connecting devices. So this is a combination of hardware and software, and we allow our customers to connect different machines to interchange information, or also the machines to different cloud systems or IT systems. Our four major brands that is divided into our business units, Anybus, Evon, Indusys and Ixat have different connectivity and communication and information products and they're all sold through our common sales channel through our four different marketing units. We have two fairly recent acquisitions, German Web Factory, a software company, And last fall, we acquired the Dutch Presenter company. Presenter goes very well, and I'm sure Joachim will talk about this a little bit more. So this is our business and our brand. And if you look on where we do our business, we are talking about industrial ICT. ICT, information and communication technology, this is our business, and we do the industrial part of that. They're well established. We have more than 7 million products connected in automation. We have more than 300,000 machines connected into our cloud system so we can help our customers to do remote diagnostics and remote access to these machines. But we are a technology company. One third of our employees is in R&D. Another one third is in sales and marketing. So this is R&D and sales and marketing, of course, are two major activities, but we focus on new things such as 5G, IoT, wireless, and this kind of things. And as a company size, we are slightly more than 700 employees around the world. We have operations with subsidiaries in 16 countries and partners in over 50 countries. And we're headquartered here on the southwest coast of Sweden. Sunshine also outside, not only on our numbers. It's a fantastic summer day here. Sunny, 30 degrees outside. So let's take a look at how we go to market. We have two types of customers. We have users or automation system. This is the smaller part, maybe 25% of our business, the system integrators and users. And here we normally go to market through our partners and distributors. The larger portion is the makers of industrial equipment. Could be machine builders or device makers. And here we mainly go direct with our own Salesforce to these customers. We set a new strategy for the coming five years. Last fall, I think we presented this in December, or maybe it was November, with 2025 targets in three different areas. We have environmental targets. We have staff and customers and growth and profitability. And on the left side, the environment, we have bold goals here. We want to be net positive by 2025. So we put a stake in the ground. This is important for us. But it's also important for our customers. We want to be net positive on our own internal operations, of course. But the major difference we can make is actually helping our customers to help them with their sustainability and their environmental targets. We have very good target numbers for staff and customers. We measure net promoter scores. We have high scores there. And we are approaching to our growth and profitability target 2025. We want to have revenue of 5 billion, more than 3.14 billion Swedish. We want to maintain an EBIT margin of 20%. And as you noted, we are much higher right now. And we keep a dividend policy of 30% to 50%. So these are targets. And we work hard to fulfill all these three. And we think with these three targets together, we become a very good company. Short business update, if you look at quarter two, we can see that we have growth everywhere. All our brands are growing with an order intake more than 50%. So we see a very exceptional strong market at the moment. A couple of drivers is the machine building and robot manufacturing. New record levels goes very well. You also see this on industrial PMIs. That is also very high. After a couple of years for us in automotive, we see also that investments in e-cars is helping, or any bus business in Germany and U.S. Of course, the combustion engine is now moved to an electrical drivetrain, but there's a lot of pieces in the car that is being assembled and automated and things like that. So our customers in that market see a very good situation at the moment. We also find some new businesses in renewable energy, in wind. but recently also more in battery manufacturing, where we see a lot of investment, then they need more automation here as well. But the point here is that we need to keep in mind that there's also a boost effect in our orders. We expect this to be 100 million in the second quarter. We have component issues, both HMS, but it's a market problem in general. And we see that some of our customers are placing more orders just to make sure they have secure their shipments to from us. So we estimate that there's extra orders. But without this, we still see a good, very good market. And we think this will continue for 2021. We see the good investment climate, but we have challenges in the component situations. And we believe that we will see more problems in quarter three. Some of these orders will be probably pushed out to quarter four. But all in all, we hope and expect that at the end of the year, we should be more in balance. So what is kicked out of quarter three will probably be delivered out in quarter four. We made a new acquisition first of July, small acquisition in Spanish Bilbao. We bought 60% from the founders of this company. So the four founders, they keep 10% each and they remain very committed to the business. Obasis is doing wireless gateways and platforms for what we call mobile machines. This could be utility vehicles, it could be ADVs, and this kind of transportation, things that is moving that need local control, but also wireless technology, cellular or short-range wireless. Small company, revenues around 6 million, good EBIT level, and also good growth, good customers, good growth, and good technology. And we see Synergy here to also take some of our software components and put that on top of the Ovasys product there. So nice, it's small, but it's a nice area for us and we believe that this is opening a new door for H&S into the interesting area of mobile machines. I'm sure you're very curious to hear more about the financial numbers. That looks good.

Thank you, Stefan. And as always, we're going to start out with talking about order intake. and then if you start by taking a look at the graph on the upper left we really just like how this start to start to look like uh stuff already mentioned we're 606 million in order intake up 100 nice round figure compared to obviously week second quarter last year but still very nice comparable um 88 of that is organic so um we can see that all our businesses are going very well indeed and the same number for for the first half of the year is 1 170 million compared to 703 so 60 67 percent up organic 60 percent up and so i just wanted to mention and talk a bit more about the the stocking effects that we see We have 100 million in Q2, roughly, and 170 million year-to-date. And, of course, that will come back sometime to impact the future order intake, because what it really means is that we have orders that should be placed in Q3, Q4, that are being placed now. I think the reason is that we see sort of a ripple effect through the whole supply chain, starting with the semi-foundries saying that instead of placing forecasts, you need to place orders. And that message is escalating through the supply chain and also impacting us, of course, and our customers as well. So this 170 million is our best judgment of what we think is sort of out of period orders. And, you know, given the situation that is still quite strong in the market, we see very good GDP growth numbers, we see strong PMIs, and macro experts say that this will continue in a good way. We don't really know where we will see this 170 million impacting us in a negative way. It might actually be that it will not even be this year. But we guess that it will be a slow process when the market is stabilizing and the component availability becomes better. But it's difficult to say exactly. Looking at the different markets, I think everything is good. Europe, obviously, very strong and more than 100% up. We had also a tough quarter in Q2 last year. in Germany, France, Italy, and so on, when we see really good comeback in those markets. I also wanted to highlight E1, which is also performing extremely well. This is our remote access offering. And what we see is a bit changed behavior from some customers that used to have like an optional remote access feature and more of them are now standardizing to remote access. And that is obviously a very positive trend for us. because that will be with us for the coming time as well. So going over to the net sales situation, also here we have a good development, 474 million compared to 355, so 33% up, out of which 28% is organic. For the first half, we have 929, 30% up, or 33% organic. And I think also here we have a good development in all brands. I wanted to point out Procentec that is doing extremely well. They have doubled sales in Procentec. And I think we have to say that the brand has reached a new level. And it's a combination of a strong development of existing customers, especially in the U.S. It's doing very well. But we also have some really interesting new customers, global customers that are choosing percent tech and that will also expect to have a good development going forward with this business. E1 as well, doing well, 45% up. And it's also good to note that Intesys, our brand within building automation, is doing well, growing 26%. This has been a few challenging quarters in the building automation space, and we haven't seen the rebound as we have in the industrial automation space. But now we're doing okay also in the building space, which is good to see. I also wanted to comment a bit about the sourcing situation and with the availability of components. It is difficult for us to forecast exactly how this will happen. We know that we have an impact in Q2 of about 30 million. we couldn't deliver and we had to push out those orders into q3 and q4 and then we will have some components coming in end of q3 so it's a bit uncertain how much we'll be able to get out in q3 it might be that we'll have a spillover into q4 so i guess what we say is that it's likely that q3 will be a bit weaker q4 a bit stronger and i don't want to speculate on exactly how much because we simply don't know and i think the main point we want to make though is that The order book is very strong. It's the best order book we've had ever, more than double compared to the average order book last year. And even if we have to push out some deliveries, we have the orders and the customers don't really have any alternatives. So we're not that afraid of losing business, but it might be a bit of a timing issue when we can't deliver. Sales per region overview. It looks about the same as it always does. We have the EMEA region being the biggest one with 61% of our sales, up a little bit from last year when I was heavily impacted. The U.S. or America is up 22% of the total, and then APEC 17%. Going over to look at our results, also here we have a record quarter with 121 yearly EBIT. A good margin of 25.5%, up versus 19.4%. And the main driver here is the high volume, of course. We also have continued good gross margins of 63.7%. So we're quite happy with that number. We see that the price increases and the work we did last year is paying off. We see full effect from the price increases. So even if we have a slight hit from component increases, we have that impacts about 1% negatively. We still managed to have a solid level on the gross margins. And of course, also the volumes itself help a little bit to get better utilization on a fixed cost. So that's also working in our favor. The OPEX is under control, we must say. I guess the relevant comparison is up 19 million compared to Q2, taking up some non-recurring items in Q2 2020, 12% up in the OPEX. So I think we're about in line with what we had in Q1, which we expected. What we can say going forward is that we have launched some interesting growth initiatives during the quarter. That will impact slightly in Q3, but primarily in Q4. So I think Q4 will definitely be some 10% up from the Opus levels that we see right now. So let's just have a look at EPS. I don't have a lot of comments. There's not a lot of interesting things happening here. I think we see good development, which is just a result of a solid business. first time over two crowns with two 2.02 swedish crowns eps and um compared to 1.24 that is a good increase of 63 and also for the first six six months we have a nice 3.94 compared to 2.26 Then having a quick look at the cash flow, I think we continue to have a good cash conversion. What we believe is positive is that we keep the working capital in good levels in these kind of difficult times. So we have just small effects from 5 million negative working capital impact in the quarter. So 126 million compared to a very strong 115 that we had in Q2 2020. But there we had the working capital working in a favor a bit more. So for the first half of the year, 257 million, also a very good number. And you see on the bars that we have a good trend also on the cash flow. Which brings us to our last slide. looking at the debt situation and i think if you take away the leasing debt of 75 million we're almost that free only 3 million in debt also very positive that despite that we paid a dividend of 93 million due to we managed to decrease the death level and then as you probably have seen all the stuff i've talked about we made it was this acquisition first of july which will of course impact the um the death situation slightly but it's under margin i'd say So I think all in all, we can look back in Q2 with a strong balance sheet and, you know, about our M&A agenda, we're quite optimistic that we have the means we need to fulfill that. So I think with that, we will leave over to operator for some questions.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. If you find it's answered before it's your turn to speak, you can dial 02 to cancel. And our first question comes from the line of Joachim Gunnell of D&B Markets. Please go ahead. Your line is open.