HMS Networks AB (publ)

your meeting thank you operator a good morning everybody and welcome to this beautiful beginning of Easter morning here so it's a pleasure to present our quarter one report as normal I will start with a summary and introduction of a business short business update but I know you will be waiting for Joakim's updates on the numbers so you will take the financial results at the end so let's quickly make a review of q1 and I must say that we are pretty happy with the situation despite the component shortage and the challenge we have there. Order intake continues to be very strong, but keep in mind that part of the strong order intake is not only market demand, it's also a compensation for long lead times. So also our customers are building up the inventory and we try to be very transparent about the boost order and Joaquin will dive into this later. But also net sales growth of 14% in considering the ship shortage is good. We've been fighting a lot for reaching this number. We are very satisfied that we are keeping growing despite the challenges we see on the component side. So this is fine. And EBIT, note that we have an event here where we have a balance sheet change, a revaluation. And Joaquin will talk more about this. Take a look on the adjusted EBIT and adjusted EPS. But we are maintaining a good, strong EBIT, adjusted EBIT margin, 21.7 over our target. We are happy with that. Cash flow is good, but not as good as it used to be. Reason why is that we are building up more inventory. But trust us, we are very happy that we are building up some inventory as well because this will help us going forward. So all in all, positive quarter one. And I think we can skip the rolling 12 and move into our business updates. Some of you know our business very well. Some of you are new. But just a summary, HMS is hardware meets software. We make sure that industrial machines and devices can communicate both with each other and different IT systems. We have the integrated offer of our four brands of Anybus, E-Warn, Indusys and Ixat. And this is integrated and uses the same go-to-market channel around the world. We made a couple of acquisitions, smaller acquisition last year. A German web factory, a software company. We started with 75%. We now own 100%. Procentech, a Dutch company working with network diagnostics. Very interesting. We started almost two years ago with 70%. And early this week, we acquired the remaining minorities. We own now 100%. And the small but very interesting Spanish, Obasis, working with communication solutions for mobile machines, where we own 60%. So when we look on our business, if we move to the next slide, we have two major customer groups. We have the makers of industrial equipment, companies such as Atlas Copco, ABB, and Mitsubishi Electric. But we also have users of automation systems. These are companies that use automation systems such as BASF or Volkswagen or this kind of pulp and paper kind of companies. And if you look on our go-to-market on the next page, this is quite important because on the maker side, we have two typical customers, either device manufacturers making different devices, drives, robotics, these kinds of machines. This is 75% of our revenue. Sorry, 43% of our revenue. And there we have a business model that is very sticky. We are working with DesignWinds. They integrate our technology inside their devices. But we also see that the flip side of that good sticky design wind model is that we also have a very, we need to have a lot of sales initially before we get revenue. So it's a long sales process, but it also remains a design for seven to up to 10 years. Secondly is our machine builder business. This is today or last year, 35% of revenue. Then we try to be part of their building material. Of course, we always dream about becoming the standard part of bill of material. In most cases, we are more an option. So when this machine needs a remote access or when this machine needs to connect to a certain manufacturing line or something like that, then they add an HMS product to that bill of material. We go to market through direct sales with large customers and distribution sales with many, many small machine builders around the world. And finally, we have our end users and system integrators. It is a smaller part of revenue, but we also see good growth here. Here we either work with system integrators to help them in a large project where we help them specify the right communication technology and the right products from us to solve their big projects. But we also have like a traditional product sales. We advertise our products on our websites and marketing channels. And they just find that our product fits very good to the requirements they have there. So we work here with traditional distributors and a quite good growing e-commerce distribution as well towards this market of end users. So let's take a look at our vision and our targets going forward. We have a vision to become the world's greatest industrial ICT company. We believe that the way to go there is to follow our mission. And our mission is to enable valuable data and insights, allowing our customers to increase productivity and sustainability. And this is a good market to be at because a lot of our customers, they realize that there's a hidden information inside their machines. And if we can liberate this data and connect this to their other system, it can help them with their productivity, but also for their sustainability in energy saving and doing things smarter. Our group objectives for 2025 is environmental. We want to become a company that is net positive in our CO2 emissions. We do things here internally, but we also work a lot with our customers where we see a big impact using our products, which is helping our customers to do a major savings in their CO2 emissions going forward. We also believe that if we can have happy and high-performing employees, they will generate loyal customers, and we really like loyal customers. So we focus a lot on net promoter scores with our employees and also with our customers, and we rate well beyond our target at the moment. We are very happy about that. And we also keep on being a growing company with good profitability. So financially, we would like to be beyond 3 pi billion in 2025 in our revenue, combination of organic growth and some acquisitions, and maintain an EBIT margin well over 20%. So this is our target. And how is it going? Well, if I start with a short business update from quarter one, It's very similar to the previous quarter. We see a strong demand across all geographies we work in. Drivers are increased automation, digitalization, energy monitoring, remote access, and now also more and more sustainability and also electrification. And we see a super strong growth on all markets. Part of this, as I mentioned before, it's a market where we and our customers and other suppliers have problems to find electronic components. and we have long lead times, our customers have long lead times, and this is also building up boost effects in the order book. So we are estimating that part of this good order intake is also a boosting effect, orders that are placed earlier than normal, and we estimate this to be 250 million in quarter one. We expect this situation to continue for the remainder of the year, but we are expecting that the situation will be better from second half of the 2022 here. So we are seeing some light in the tunnel when it comes to component availability. And as I mentioned, we acquired the remaining minorities of Dutch Procentec earlier this week. So we now own 100%. And we are super happy with this company. And we believe that as 100% owner, we think we can accelerate the commercial success, especially in North America, in Asia, where Procentec themselves have been not focused enough and they didn't have the local organization. We have that and we can now scale this business up. So all in all, a good business quarter for quarter one and we are, as you hear, quite positive about the future.

So Joakim, let's talk about some numbers. Thank you, Staffan. I will do that and I will start with our order intake. which is extraordinary, 857 million, as you already know. And looking at the graph in the top left corner, you see that this is continuing on the very good trend from 2021, also reaching now new record levels. So we did 41% organic growth. We were, of course, quite satisfied. And then, as Staffan said, we have this boost effect of 250 million, which is a large part of that. But the underlying market is also quite strong, and we see a lift from previous quarters also here. If we do the adjustment for this boost effect and also taking away currency effects, we see underlying organic growth of 14% in orders compared to the already strong Q1 2021. And looking at the book-to-bill, this is significantly better than our sales level. And the book-to-bill of 1.66, which is of course, extraordinary for us and not a sustainable level to be at going forward. And we think what we will see going forward, when we hope that the supply chain will stabilize somewhat, we think that the order rate intake will come down. This boost effect will go down and disappear towards maybe towards the end of the year or so. And then our sales levels will also increase when component availability becomes better. So that should be normalizing. All brands are growing. That's good to know. The driver here is our Anybus business with 60% organic growth. And the main reason why this is driving growth is because we see this design business where customers have our devices as a part of their bill of material. They are very afraid that they're going to go dry on our stuff. So that's why we see this order placement far out in the future. And we already have many of our large customers that have placed a full demand for 2022 already now. And the expansion and this boost effect is really that more and more customers are realizing that this uncertainty in the supply chain will continue for a bit, and they want to make sure to have as much as they can in their own hands. So that's the main reason for this situation. Going over, talking about sales, also a quite okay quarter with $517 million and 5% organic growth. We see that for the first time we have rolling 12-month sales over 2 billion, so that is a bit of a milestone for us, good to see. And we knew that we wouldn't be able to match the Q4 for numbers. We also talked about that when we released the Q4 report. We caught a bit of a break on the component side, and to be honest, right now it's really component availability that is deciding our delivery levels. And Stefan talked about it a bit already. We know that Q2 is still looking quite challenging, We hope, at least the picture that we see now, is that Q3 and Q4 will be better. Difficult to say how much better, but we think that we'll be able to reach somewhat higher levels towards the end of the year on this side. Also worth mentioning on the building automation side, that's been, I'm not going to say bad, but it's been a bit more hesitant than the industrial automation part of our business the last two years. Here we're now seeing a good growth of 32% within the Intesys brand. So that's also a new record quarter for Intesys. And we think that now when the lockdowns have released, we'll be able to have a decent market also for the building automation business, even if it's a rather small share for us, about 10% of the overall group. I wanted to show you, I think you maybe already made the analysis yourselves, but the order intake or the boost effect of order intake in relation to the total order intake. Here you see what we've been communicating over the last five quarters. You also then note that Q1 2022 is the highest level of this boost effect. It's also by far the highest level in total, but we see that the underlying demand has bumped up a bit from levels around 500 million to now beyond 600 million, so the underlying market is strong. We're quite happy with stuff that's been through the drivers, but still we have this high boost effect. And how that plays out to our backlog, you'll see on this slide when you see that our backlog has increased more than 300 million from Q4. So we are now at about 1.2 billion in order backlog, which is very high for us. We're quite unused to this high level. we also see that we have about 50% of our orders for delivery more than three months out in time. And then there's still a bunch of orders that we haven't confirmed. So the real number should probably be more than 60%, since there will be only a small share of unconfirmed orders that will be confirmed within the coming three months. So it's an unusual situation for us. And we believe that even if now the supply chain will be stabilizing, We don't expect this to fully normalize to the levels between maybe 15% to 20% out of orders for delivery more than three months out. We think that customers will have adjusted to a different way. The just-in-time thinking might not be back as we've seen before, at least not in the midterm. Sales per region looks like it normally does. We have about 60% in Europe. 20 in Americas and 20 in APEX, but this is pretty much the picture that we see for Q1 as well, so nothing strange there. Let's then also take a look at our profitability. As you've seen, we reported $139 million, but the adjusted number, which is more relevant, is $112 million and 21.7% margin. The difference of this $27 million is related to revaluation of option-related debt for Procentec. And as you understood, we acquired remaining shares two days ago, and we already knew the purchase price. That was pre-agreed. And we knew that when we went out on March, so we could determine this purchase price perfectly already under March. And the difference then is 27 million. That is a positive EBIT effect, only one time effect that we have now in Q1. No cash flow impact, but it's still there. So the relevant comparison is then 112 million. And I must say we're quite happy with being able to deliver 21.7% margin in this climate as we have at the moment. And gross margins of 61.8%. We're also okay with that, even if it's a drop from the 64% we had in Q1 2021. We see negative effect from price increases of a bit more than three percentage points. So, I mean, this is something that we've had impact from also second half of 2021, but it's escalating. So we see even higher effects now, and the same will be for Q2. I mean, going forward, the price increases on the components will be there. The difference is that we have now pushed another round of price increases that's been implemented just recently, and that will also start to show effects a little bit from Q2, but the main part from the second half of 22, a stepwise improvement on that side. So we hope the gross margin should be able to improve during the second half of the year. This is basically what we're saying here. Also worth mentioning, OPEC's increase of 11% organically, pretty much related to sales and marketing initiatives, where now everything is opening up again. We can do more activities. We think this is good investments to do for the long run, and we're happy that we managed to get some good new colleagues to drive new sales in actually many of our markets. Going over to earnings per share, 2.41, but maybe more relevant to look at the adjusted 1.84, so basically in line with the last couple of quarters. Nothing strange to comment on here. It's good to see that we are on these levels. Let's have a look on the cash flow as well. So here we have a pretty big drop compared to the previous quarters as well. And Staffa mentioned it already, we have a 50 million build-up of working capital, out of which about 30 million is related to inventory build-up, which this sounds strange to say, but we're quite happy that we've managed to do that. It's not easy these times, and what we're trying to do is improve our odds to deliver when we get those key components that we hopefully will be able to get. more of in the second half of the year. So this is in line with our plans at the moment. We are not optimizing our inventory too much. We feel like we have the money we need, but we need to have the delivery capacity. It feels like a given thing to do. Working capital all in all is still on very good level, 6.6% of sales. And this will move north a little bit. We still think this will remain below 10%. So all in all in control. Final slide before we let you ask questions, looking at the balance sheet. And here we have a net debt of 299 million. The main difference compared to last time is this revaluation of this option-related debt of 27 million. Other than that, we've been expanding the cash a little bit, but a small decline from 347 in Q4. So looking at the metrics, next step to EBITDA, 0.52 in good shape, and we feel that we have the firing power we need in relation to our M&A pipeline, so that feels good going forward. And with that, I'd like to hand over to the operator and see if we have any questions on the line.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name has been announced, you can ask your question. If you find it's answered before it's returned 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.