HMS Networks AB (publ)

Thank you, operator. Good morning. Staffan Dahlström here. We have an interesting presentation for today, but I'm myself sitting in Stockholm and Joakim sitting in the south part of Sweden, so let's see if we can sync this. But the agenda for today is, at normal, I make a short introduction and summary. I make a short business update, but then Joakim will give the highlights of the financial report that was finished, was presented earlier today. And then we end up with a Q&A at the end. So let's move into some of the quick summaries for you who haven't read the report. We are delivering a solid Q3, good growth in net sales. We see a quite good order intake that Joachim will dive a bit deeper into this because it's quite complex with boost orders, currency and something that makes this complex. We're super happy to keep on reporting good results, but this was all-time high, 179 million Swedish. We are super happy with a strong EBIT and a strong margin. We see a fair cash flow, but we are building up some inventory, and we are consequently delivering a good and solid earnings per share. Just a reminder for you who are quite new to our business, HMS, hardware meets software. We run with hardware products, software products for industrial communications. We have four businesses in our integrated offer, where we go to market throughout the world in a common sales area. Our business units are Anibus, E1, Indus and Exat. Then we have our not yet integrated businesses with WebFactory and Procentec, where we are working with integration and probably 2023, these two businesses will be integrated in offer. And then we have a part-owned business in Spain, Obasys, where we own 60% of that business. And consequently, that is not integrated in our business. And talking about our business on a high level, we talk about our playing field. We have two major customer groups. We have on one side makers of industrial equipment, and this is our big portion of the business. But we also have a growing, expanded business with users of automation systems. And if you look at the high level business, summary of our revenue, our business models, and our go-to-market. We start on the left side with the makers of industrial equipment. We have two major categories. We have the device manufacturers that represent a larger portion of our business, 43%, where we have a very well-working model of design wheels, quite long design wheel process, but also very sticky business where we become integrated into the customer's bill of material deep inside their hardware and software in their devices complex sales process because the competition here is more substitute substitute other technologies or make things by your own engineers so we go to market to a direct sales channel with our skilled sales engineers also on makers of the industrial equipment we have our machine builders growing part 35 percent of our revenue and here of course our dream is to be part of every machine as a standard equipment, but in most cases we are specified as an option. An option if you need, for example, remote access to that machine, if you need an integration to a production line, then we are integrated as an option to the specification. We have a combination of direct sales for large accounts and also distribution sales for many small customers. On the user side, we work with the users, and the users here is what we call the Volkswagen, the BASF kind of companies, the large companies that use automation systems in their facilities. It's 22% of the revenue, and it's been smaller, but we are doing some acquisitions here and growing quite quickly here. You can see the project sales will become part of a project, whether building or renovating a facility. But also more and more traditional product sales through our websites and through our commercial channels. And here we go to market either through traditional distributors, but to a large extent also e-commerce that is specialized on industrial automation and communication. All right, so if we take a little bit of really high level on our vision and mission. We are sticking to our vision of becoming the world's greatest industrial ICT company. For us, industrial ICT is information and communication technology, but we are really focused on the industrial side of this. And we have a very important mission that is super important for our customers, where we help them enable valuable data and insights. allowing our customers to increase productivity and increase their sustainability. These are the two major drivers for our customers. It used to be primarily productivity, but we also now see that sustainability, energy saving is increasing importance for our customers. We have 25 objectives, very important for us, environmental goals. We want to become net positive in our CO2 emissions, both in scope one, scope two, scope three, but also how we help our customers to make a smaller footprint when it comes to CO2 emissions, where we do a lot of great things for our customers. We believe that happy and high performing employees generate loyal customers. So we focus a lot on our net promoter scores, both with staff and our customers, where we have high scores. And of course, we are a growth company. We love growth, but we also like to be profitable on this journey. So 5 billion is our revenue target for 2025. And we want to have a profitability that is beyond 20%. And you will see today that we are performing well on that target. But let's move quickly into a business update before Joachim talks about the numbers. We see continued solid demand. It is complex with the order intake, and Joakim will dive into that. We see an improvement in the component availability. This used to be a really, really tough challenge for us. It's still tough, but we think it's getting better and better, and this will also ease the coming quarters. We don't really see any clear signs of market slowdown. Of course, some of our customers are concerned about the future. But still, we see solid order intake and things go quite well. So far, no clear indication of market slowdown. We also see that for the last six, seven quarters, our customers have been building up much more inventory since our lead times and in general in the industry, lead times have gone up. And we've tried to be really transparent about what is real orders, what is boost orders and what is currency. So we'll show you some good pictures later on this. But also to meet this all-time high order book we're having, we also continue to build our component inventory, which is a bit weak on our cash flow then. And as we reported on the last report, 42, we made an acquisition of our Australian distributor, Global M2M, and they are now integrating our Asian Pacific market unit. And we believe that Australia is an important market for us going forward. But of course, this is not a big business. It's 20 million Swedish at the moment. But we believe that this is an important market for the future and something that will add additional growth for us. So with this quick summary, I would like to hand over to Joakim to talk more about our financial results and numbers.

All right. Thanks a lot, Stefan. I'll try to do that. And good morning to everyone. Let's kick it off with looking at the order intake as we normally start with. If you have a look at the upper left graph, you might see that it looks a bit dramatic. It's not as dramatic as it looks like. We have now 675 million in order intake, which is a growth of 1% reported, but minus 11% organic. And we have pretty big FX effects from the weakening of the Swedish crown that continued throughout the quarter, as you know. So that's why we can report the positive growth in the reported numbers. No M&A effects in the quarter for the first time in a while. And what's really happened that we need to dive into is the boost orders have been wearing off quite a bit. And I'll show you this more on the next slide, exactly how this looks like. The fact that we have this weakening of the Swedish crown has also given us some 50 million in revaluation of the order book. And the way we show the order intake is looking at the closing balance of the order book minus the opening balance plus the sales. So with this big FX movement, we also get this effect. We want to report it separately so we understand what the underlying demand really is. For the first time in many, many quarters, we see a book to build in constant currencies that are below one. Normally, you would see that as a bad thing. We think in one way it's not bad. We need to start delivering out our order book. and giving our customers the volumes that they need. So in one way, this is nothing strange. And we believe that we're going to continue to see a trend of a book-to-bill that's below one throughout next year as well, given the big order book and the big boost effect that we had for now some quarters. um one thing that i wanted to to mention specifically is any bus that continues to be surprisingly strong we must say we have good comparable quarter that we're measuring against and still showing organic growth in orders and it just shows that we have a really strong offering and it's still highly relevant even if it's been around for for some years So taking a look at the underlying demand on orders a bit more. So we've been having this graph now for some quarters where we show the boost effect in the light blue. And then the last couple of quarters, we're also showing the FX revaluation impact on the order book, which also impacts the order intake the way we present it. And here you see that the most interesting thing is then the dark blue one, which shows the underlying demand. And here we are, maybe you could say slightly down compared to Q2, but it's still a pretty big uptick compared to 2021. So we are, as Staffan also said, quite positive that we don't really see any major signs of any slowdown in the market. It's the normalization of the boost effect that we expected that is coming and we think that will continue into Q4. At some point, we're going to see the reversal of this boost effect that will probably happen sometime during next year. Of course, it's difficult to say exactly when. I also wanted to show you our order book, which is It's actually growing now, this quarter, and the only reason it's growing is that we have this FX effect. Otherwise, since we had the book to build in constant currencies below 1, it would have been reduced slightly. But it's still growing. We're almost at 1.5 billion. which is for us extremely high level, and you see the history from 2020 and 2019, we had completely different levels. Of course, the company has grown, but this is just a completely different customer behavior that we're seeing. And you see also the proof of that on the right-hand side in this graph showing orders for delivery longer out than three months. We've been having a big ramp up over 2021. And now we can say that we are quite stable and we expect this to start coming down slowly in line with our delivery capacity is becoming better and better. And component availability is of course the main challenge in order to improve the delivery capacity. To continue on that note, going over to the sales, we are happy to see that we are having another record quarter of 624 million. So 32% growth, 23% organic growth. And then year-to-date organic growth is 15%. So it's a solid development. And then, of course, we could have been better if we had better component availability. Also here, really good to see that Anybus is delivering well. We've had a very good order intake for some quarters on Anybus, and now we're managing also to convert that to sales. So that's very strong, 42% organic growth on Anybus compared to last year. It's, of course, a very good number. On the other brands, I think basically all brands, we could have been performing a little bit better if we had better component availability. And looking forward, we think that we will have slow improvements. Maybe a couple of quarters ago, we thought it would be more of a clear cut. We would be seeing a completely different market. It's getting better, but it's going slowly, and there's still some problems and end-of-life issues that we need to handle and work with. So we expect to be, again, slowly improvement over the coming quarters, and that's how we hope it will develop. And also, looking here, you have no acquisition effects on the sales side. So 23% organic growth and then another 9% from the currency. Sales per region, pretty similar to what we normally see. 60-20-20 is what we normally say between the Americas and APEC, and it's a similar situation now. and pretty similar to what we had last year as well but nothing strange then go over to the to the profitability and here we have a record quarter 179 million in ebit of course a result that we're very pleased with 28.7 margin compared to 21.5 a year ago and pretty far beyond that target so that's very good now we need to remember also that we have Q3 is the quarter that would normally perform the best. And here we have solid volumes, as you saw on the sales side, with record volumes on the sales. We have managed, which is very positive, and this is maybe one of the strongest numbers in the report, the gross margin of 63.6%. We now, for the first time, actually managed to compensate ourselves for the COGS increases that we've seen over pretty much a year's time now from the inflation on the component side. And now we're managing with the price increase that we've done throughout the year, managed to compensate ourselves really for that. And then you see this marked in optic on the gross margin side, which is of course helping us a lot on the bottom line as well. We also need to mention the fact that we have a very favorable FX situation with the weak Swedish crowns. This is giving a positive EBIT impact of 10 million Swedish crowns in comparison to the same quarter last year. That's of course boosting a little bit as well. And the way the currencies are at the moment is very solid for us. On the OPEC side, I want also to mention that we have been doing, you've seen this before this year, we've been doing some investments in the sales and marketing organization. Also compared to 2021, which was a difficult year, we still COVID around and now we're managing to travel more, meet more customers, which we believe is positive for the future. And then you know also that Q3 is low in OPEX. I need to mention that we have about 20 million in lower OPEX due to the vacation effects. And this is, of course, something that will come back in Q4. And with the investments we're doing, we expect to be maybe some 15% to 20% up in OPEX in Q4. So I think this Q3 is a very strong result with a 28.7% margin, but it's not necessarily representative for the future performance. Earnings per share, I want to touch upon that as well. 2.9 Swedish crowns, of course, a record there as well. Maybe worth to mention, given the large FX effects, we're getting higher net financials than normally. We have 11 million in the quarter. And the main things that are striking in there is the revaluation of our option-related debt and also additional purchase price reservations related to the overseas acquisition that we did last year. Having a look at the cash flow then, it's 180 million, slightly better than recent quarters, still quite hit by the inventory buildup that we're continuing. We're building inventory with another 50 million, and this is to the majority related to components. We've been seeing the same trend throughout the year. We'll be trying to improve or increase our component inventory to be better in the delivery performance towards our customers. This is also why we're managing to grow the business slightly in the quarter compared to previous quarter that we have many components available. So when we have these shortage components, in many cases, it's the processors that are being the shortage components at the moment. When we get those components out, then we can deliver. And we want to make sure that we have that situation going forward as well. When we expect the volumes to ramp up slightly, then we need to have this extra inventory. So it's hitting our working capital short term, but we believe it's the right decision for the business in the near future. Also with the higher sales levels, we have some receivables build up that is also impacting the cash flow a little bit. But good to see that we're improving. And this is maybe not our first priority at the moment. Now it is to make sure that we can deliver. And then we have to live with the fact that we're hanging a bit behind on the cash flow that will come back next year. And also to see year to date, we've been building this inventory of 129 million. And overall, I think we're still in a good position with an average working capital of less than 10% on sale. The final slide I want to touch upon is the net debt situation. And here you see that we're moving sideways compared to Q2 roughly. Two things worth mentioning there is one is that we're having some new rental contracts that is being hit by IFRS 16. So this is increasing from 80 to 163 million. And no dramatics in that. It's not the impact of covenants or anything, but it's something that needs to be there. and then on the other hand to compensate for that with the profits we're doing we're managing to um lower what we call here all other net depth the dark blue when it goes from 235 to 155 and that's maybe what's interesting here it's um that's where we have our interest bearing that that's where we have our covenants pay that so that's what we're following and you see that we're doing very well here we have a net depth of ebitda of 0.72 so i think we have plenty of room for for future acquisitions and investments that we want to go after. So all in all, quite solid balance sheet from our perspective. And then I would like to hand over to Staffan to summarize before we go over to questions.

Thank you, Joakim. So as you hear, we think we are delivering a quite stable quarter, but there are two things we would like to highlight. I think first, we see a stable demand But of course, there are uncertainties ahead. We see order intake looks softer, but I think you feel also that we are transparent about the changes and we look on the real demand. It is pretty solid when we take away for the boost orders in this effect. And as Joakim mentioned, we're expecting that these boost orders will be coming back on the negative side. But we need to get back on short lead times and eat up the order book we're having. So we are quite positive about this. We see that the component availability is slowly improving. And in general, our customers remain positive. And I think that, of course, worries about the future. Everybody talks about that everybody else see weak markets. But our customers are still quite solid. And we think we are in an industry that is holding up quite well for the time being. Secondly, I must say I'm very happy with the continued solid execution. Very important that we can improve our gross margins. We are back on the high levels we had in the beginning of last year. A lot of work with the price adjustments and working with our cost sides. But this also indicates that we have a position where we can raise prices to some of our customers and we are getting away with it. And that's very important. That shows that we are important. We talked about our expanded inventory. I think it's important that we allow ourselves to also expand our inventory to make sure we can eat up our order book. And of course, we are super happy with all-time records in sales and plus 77% of our earnings. So strong quarter and we are happy with this, but we need to be a little bit careful for being agile for the coming quarters. But so far, we are not too concerned about the coming quarters. So with that, I would like to open for Q&A.