HMS Networks AB (publ)

Good morning, Staffan Dahlström and Joakim Niederborn is sitting here on this recording talking about our quarter four that we published early this morning. So we have an agenda today with an update of the business quarter four, some words about the new organization, and then Joakim will deep dive into the financial summary and we end with the open Q&A. All right, let's move into Q4. Mixed bag of results on one hand, organic minus 33%. Not so good, of course, but this is an effect of a weak market combined with the destocking from customers. So this is a double negative effect. And we've seen this on our order intake on the previous quarters. um but we compensate this with two things we compensate this with good mnas we made two mnas and two acquisitions during 2024 red lion of peak system we'll talk more about them but of course this helps and we are seeing some uh actually positive organic growth positive total growth as a result of this um quite good order intake surprisingly good we didn't expect this to be as good at as it was in red lion red lion have some project business with quite high swings up and down and this quarter was a high swing up with some great orders And we see that also the organic water intake is recovering a bit. But of course, plus 2% organic is too weak. But we are seeing a continuous Sunday stocking, quite weak marketing. We think with this will improve going forward. But also Q4, it's been quite weak market. From a profit level point of view, on one hand, we see that we are declining our profits, but I must say we're quite proud that we can drive good profit levels, even if our organic growth is minus 33%. We worked hard to improve or maintain our gross margins despite lower volumes, and we made a lot of changes in the company to make sure we are more agile and ready for the future. Good cash flow. Cash flow is a combination of that we have a business that is capex lean, but also we are reducing our too high level of inventory since some quarters. And this helps in combination. So good cash flow. And as you see, adjusted EPS 2.6. If you look at the full year, just a few words. The only thing I would like to mention is that the trend here with negative organic growth, of course, that's something we know and we are working. We think this will help. But it's notable that despite this weak market, due to the good acquisitions we made, we are on total at plus 1%. But it's good to have a growth year behind us here. But let's move into some of the trends we're seeing. Order intake, as I mentioned, good level, but it's mainly driven out of the acquired red lion that was surprisingly good in Q4. But we're also seeing some stabilization of the organic growth there. um but it's a challenging market germany is still challenging uh japan we see some more destocking to be executing japan the next couple of two quarters i think um but we also worked a lot internally it's been good timing to do a lot of internal changes now when we have a weaker market demand it's easier to do changes when you have some headwinds so we launched a new division structure i'll talk more about this in a moment and a combination of we need to be ready for new growth but also the integration of the two large acquisitions needed to need an organization that is a little bit updated to the new organization And we've also been busy with new product development. We just, end of quarter four, released a completely new E1 product with E1 Edge and E1 Cloud, where we think we can penetrate more customers, especially in this medium-large machine builder segment that we try to focus on here. And we did one acquisition. Peak System was acquired on the 1st of November. Fantastic German company, and we'll talk more about this in a few moments. A full year, challenging year, as I said, destocking effect and weak market on almost all geographical areas. It's been US that is having a little bit more steam than the other markets. But we took the opportunity to execute M&As. We worked this for a long time and 2024 was a year of delivery on M&A plans. And as I said, we've been busy with product development. We launched our 5G products. And as I said, the new E1 offer that we believe is something for the future. So this is new divisions, a lot of internal work, restructuring program as a combination of weak market demand, but especially building for the future to be ready for this. Every year in quarter four, we always talk about our design wins. This is related to the Anybus business we have. And this is the reason why we do this is that it's a very long term and very sticky model where customers integrate our technology inside their devices. It takes some time for them to do that. But when we are in there, we see a reoccurring revenue. Every time they need communication in their products, we get an order and they have product life cycles from 7 to 8 to 10, 12 years. So this is very sticky. It's interesting to note this over the years that 2012, this business was 76% of our business. Now it's 32%. It doesn't mean that it's been bad. It's been great. But it also shows that as a company strategy, we said that we cannot only stand on one leg. We need to do more acquisition. We need to do other things in the company. And over the last 10 years, we've done quite many acquisition of small entrepreneurial companies. And now also this larger acquisition of especially Peak and Red Lion. But back to the design wins. We see here in 2024 that we are successful in winning more new customers. So last year we had 139 new design wins. Now we have 152. This means that we have an attractive product offer. We are out there winning new business for the future. But we also see that some of these customers that we have in the design portfolio is getting older and we see that this year we retire 173. So the net effect here is minus one. But this is quite natural after product we have. We released the first product for this in the 90s. So, of course, it's been plus 20 years of a good success for this product. We talked about the new acquisition peak system, just a very few words about this German based technology company working with the software and hardware for communication around cars, around utility vehicles, in some medical machines and the intralogistics, and have some similarities to our business with ICSAT in Germany, but together with ICSAT and also our business in Spain, Ovasys, we form now a vehicle communication subdivision that focus on these kind of tools and connectivity. And there are two applications. One is working around passenger cars in the R&D cycle and also off the market, how to get data out from the car and how to do simulations and things like this. That's one part of the business. We are not inside the vehicles there. Then we work with low volume, like utility vehicles and special vehicles, where we actually use our technology on board the vehicle. But that's in the low volumes and special machines, etc. Very nice company, downstart south of Frankfurt, high profitability, almost a little bit better than HMS, we're impressed about that. So 30% EBITDA margin, around single digit CAGR in growth and 25 million euro revenue. So we think this is a mature, well-established company, very technology driven and have a good position in the market. we believe that this is a good acquisition for the future and this will add to our growth and our profitability so we view this as more bolt-on acquisition where we together with ixart and overseas form this new vehicle communication group where we think that peak gives complementary products and technology they have a in quite strong classical distribution network where we've been a little weaker with ixart We have quite good e-commerce around ICSAT. We can help peak here. We see that they have software things we can use to differentiate our offering. And we also see that their hardware and software is a good leverage on our hardware and software. So we also see that we can go with the future product and harmonize this going forward. And they are in Darmstadt. We are in Raversburg, both in South Germany. So you'll see that the culture and the geographical closeness is also good for this combined business. So we're quite excited about this. All right. Let's spend a few words on this new organization. We talked about this on previous calls, but I just want to highlight this since I think this is a key for our future growth. We divide our business. We go from a matrix organization into three divisions. The large division, 44% of our revenue is called industrial data solutions. Here we focus on industrial automation towards machine builders, system integrators and end users. Very clear focus for who is the customer. Second division, industrial network technology. This is very much where we started with our Anybus business and going back to the roots where we have dedicated salespeople only focusing on device manufacturers on this kind of design wins and the longer sales process where we see that it's key to have a different type of sales structure and sales mentality to be successful here. And then we have this new industries where we collect some of the new and more faster growing business. We have our building automation division with brand Intesis that is growing well, but it's a quite small business. And we have this newly formed vehicle communication. Both need a bit of extra love, so we treat them in this kind of greenhouse environment to make sure we utilize their growth potential in the next coming years. Focusing on having focus on the customers and making sure that the R&D teams have one flow of technology towards these customers. We try to achieve three things. Of course, a more customer-centric focused organization from sales to R&D. We also need to reduce the complexity when we'll be growing our previous organization with the matrix. Actually, we've grown out of that organization. And we think the next step is much going to give full accountability to the divisions regarding strategies, resources, financial performance. So it's also a way for us to build organization for the next coming five years. Combined with three divisions, we have some shared services. We have a common supply chain, but we still see a good potential for synergies between different products we make here. And then we have a small group function with guys like me and Joakim and a few more. So we believe that this is a good step for the future and we are implementing this now and it looks very good. So Joakim, with that, should we move into some financials?

Yes, let's do that. And for the first time in a while, I'm going to start with the most positive that's been a bit of a negative before the order intake that we can report 893 million. And as you've seen, 110% growth, out of which 2% is organic. And even if 2% organic is not much, it's really good to see that the trend is broken. And for the first time since 2022, we can report growing organic order intake. The big positive is, of course, in Relian and the North American market, where we have been reporting a couple of quarters with slightly lower than what we have expected. And what's been missing out is the product business in Relian, where the The pipeline has been a bit weak, and now we can report this really, really strong order intake in Red Lion, where we see several good product orders, and especially a nice order that we got just before Christmas for data centers, for the power supply monitoring of data centers. So that's very good to see that we have this tick up in Red Lion. and then we still see a bit of destocking especially in in japan where we have during 22 23 we got a lot of customers that placed a lot of orders building a lot of safety stocks we've been talking about this several times before and here we still see a bit of destocking in in especially in japan so that's impacted by 50 million negatively in in the quarter We also have peak in. Peak is starting up the first two months in November and December on just as expected. So good start for peak in the group. And I'm going to show now the slide that you've seen for a couple of years with the destocking and boost orders. And here you see the 50 million that is destocked. And I think this is probably the last time we're going to show this slide. Because with this, we will more or less see that destocking is over. And we've been seeing the declining pace on destocking for the, yeah, well, since Q1. And this is, again, we think this is the last time we need to talk about this. So that's positive. Going into the sales, 807 million, 6% growth and organically minus 33%, pretty much in line with our expectations. And while we're super happy that the Reliant Order Intake is improving, we still think that the market is rather challenging, especially in Europe and around Germany. We don't really see the lift in the German market and we're tracking about sideways compared to the previous quarter. And as we write in the report, we believe that we need to wait until the second half of the year until we're going to see a better improvement than what we're currently seeing. Also good, of course, when order intake is doing well, book to bill is here 1.07 if I exclude the currency effects. and um this is also the first time since i think 2022 when we've had a book to build greater than one so that's very positive to see that demand is slightly coming back um the main thing that is challenging is the still the embedded business will be where we don't have the the same pace that we we want to have but we hope that this will pick up again in the second half of 2025. And again, peak coming in, delivering as expected for the first two months. So that's good to see. If I take a few words on Red Lion, you see in the net sales, we have a small tick up, not a huge change to previous pace, 260 million in sales and 1% growth over previous year. And then as you see, the big improvement is on the order intake side. with a 37% improvement to 348 million. And this is, of course, a pace that we're super happy with, with the 348. Even if we don't think that we will see that full pace going forward, these orders that we got for the entrant switches, for instance, that is not something that will come back in the same pace in the coming quarters. But we think we are in a positive trend. So that's because we see several of these project orders, but we had some really good ones that we will not get all the time. And we can also say that the integration for Red Lion is now completed, at least the first phase, and Red Lion will, going forward, be a part of the IDS division and the supply chain is now integrated in the global supply chain in HMS Group. The backlog is increasing, 97 million up, and now we have the 703 million in backlog. corresponding to about 20% of rolling 12-month sales, which I think is a good number. And we expect to be somewhere between 15 and 20% in backlog. So we prefer to be on the higher, of course, then we have a better situation for the coming quarters. Looking at sales per region, not a big surprise here. We have 41% in North America, 44% in Europe, which is still the main market. APEC is about 15%. And the reason why APEC is falling a bit behind is because we have the new acquisitions in Peaky's is stronger in Europe and Reliant obviously a lot stronger in North America. A few words on profitability. All in all, I think we're quite happy with the result of 163 million or 20% EBIT. We have, as you saw, a 33% decline in organic sales. And then to still be able to make 20% margin, we believe is quite strong. In the Q4, that is quite often a bit higher for us in terms of cost. One of the main contributors to this is the gross margin. And when you just look at the reported figure of 62.6 in relation to 65.3, you can see that that's gone down. and organically we're down 0.5 percent in gross margin and I think that is one of the strongest points in this report that with the 33 percent decline in sales the gross margin is only suffering by a half percent organically the rest of the reason that we're down is that we have the acquisitions peaking red lion that are slightly below 60 and of course that dilutes the overall gross margin The gross margin of 62.6 is the same figure for the whole year. And they will meet the comparable of 65%. So it's pretty much the same story. Again, we're quite happy that we can maintain the gross margin with that volume drop. Talking a bit about the OPEX as well. So we have a 402 million in OPEX, which is organically 18% down. And we continue to be quite cautious on the cost side. And we also did a bit of a restructuring going into the new organization, seeing what roles we need and how we can become more efficient. And then we'll talk about that in a second, how that turned out. And also for the full year, you can see that we are saving back some 20%. organically so it's that has been a key in order to to protect the margins and you also see that we do almost 22 margin for for the year with this pretty big drop in in sales so i think when we conclude we were happy with this that we managed to have this cost control and still deliver decent margin with the the weak top line A few words also on the restructuring program. So we communicated just before the Q3 report that we will make a bit of restructuring going into the new structure. And we said that we would be looking over to reduce some 40 positions and save 40 million with that. And the restructuring cost should be 25, I think we said. Now when we're done, we've taken out 32 positions and saved 44 in yearly run rate saving. uh which a little bit of that is actually impacting q4 because we managed to conclude this quite quickly so we have a few million positive impact in in q4 from this as well and then we had a restructuring cost of 16 that is reported in in q4 if i don't just summarize since we made a restructuring in q2 as well If I summarize the year in terms of this, we can see that we have reduced 76 position in these programs and saved with that 85 million in yearly run rate savings. Of course, a big part of that is also hitting 2024, given that the first part was done in the second quarter. And then we have a total of 42 million related to these programs. and on top of this we have about 25 positions that that have left the company as a normal turnover that we have not replaced and we can sort of save back that efficiency gain with the new organization as well so all in all we've produced about 100 positions and saved more than 100 million in them in the year so we i think we go well into 2025. with this new organization. And this has worked out pretty much as planned. I think we have to conclude. At the earnings per share, we do 2.6 and a small decline compared to last year. And of course, one contributor to that is the higher financial cost now with a higher leverage and more debt, of course. So that's impacting. Then you have probably already seen that the board is proposing no dividend for the year. We don't think there's any drama in that. I think we did two major acquisitions last year. I spent more than four and a half billion Swedish crowns on acquiring those companies, which is a lot in relation to the size of HMS. And we had this discussion in the board already before we made a peak acquisition that this probably will lead to that dividend will be difficult for 2024. And that's what was concluded on the board meeting here. No, nothing strange with that. We just need to deliver the balance sheet a little bit. Earnings per share for the year, 9.65. A small decline as well, again, from previous year. That was extremely good. I'm talking about the cash flow. Here we have, again, a good cash flow for the quarter. uh 177 million which is an improvement by 49 compared to the same period last year the big difference compared to a year ago was that a year ago we were building inventory now we're releasing inventory so we have a 35 million positive effect on on the cash flow from from the release in inventory in the quarter and we believe that we can continue to to lower the inventory throughout 2025 as well and then this will then help us to have a good cash flow for 2025 also. For the year we did 592 million in comparison to 519 so again even if the profits were a bit lower the cash flow is stronger due to the release of inventory primarily. We also want to comment a bit on the net debt situation, where we have in total 3.3 billion in net debt. And you see that it's ticking up from Q3 related to the acquisition of Peak System. That explains more or less the increase in total. Maybe from our perspective, what's most interesting is to look at the dark blue part of the bar, which shows more or less the interest bearing net debt. And here you see that we are just above 2.8 billion. and this gives us a net depth if i exclude ifr 16 effects divided by ebitda of of 3.30 37 if i take the performer from acquisitions included and with this situation the focus for 2025 will be for us to deliver the the balance sheet and come down we we we know that we knew that we would be above three when we made this last acquisition of peak and that's not the situation that we want to be in long term we're not worried short term we have good discussions with our bank and they were also in on these plans but for 2025 we're going to work down towards two it might not cut all the way but that's the plan for for 2025. So if we summarize 2024, before we hand over to operate for questions, so first thing that you should take away two really good acquisitions made would rely on a new platform in for the North American market, which rose the North American business from about 20% to more than 40% of our business, getting more even distribution, and also value adding sales offering that we can cross sell. And then we recently did the peak system acquisition that will go into the new industries division. And we see a lot of synergies together with our EXALT brand on that side. The second thing we believe we should take away is the profitability in the changing markets. I think we managed to protect gross margins and also the EBIT margin at least decently. We're suffering from BSD stocking. We have been suffering from that. And the market has been challenging, especially in Europe. and um as we said europe will probably continue to be a bit challenging for another two or three quarters um sorry about that we also expect to see this improvement and in the second half of 2025 as we said and then the third thing the new organization to to enable us to focus more on on on similar type of customers and do cross-selling where it matters where it will have a good impact And it also gives full accountability to our divisions to run the strategy and to run the business in the best possible way. So with that, let's hand over for operator and open up for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Simon Granath from ABG. Please go ahead.

Thank you. Morning Staffan and Joakim and congrats on the robust results here. I'd like to start on Red Lion. It's clearly doing well after loop form performance in recent quarters. You did mention that project sales were better than expected so I'm wondering if you think this was driven by pent up demand or is it just a case of good and strong performance also with some tailwinds from a better market. As a follow up, you also mentioned some project wins around data centers. Will we hear you talk more about these types of revenues going forward?

Thank you. We see We Red Lion that do quite much project business with distributors and system integrators that take our product and it becomes part of some kind of system that is used in a certain application. So we see that is a quite lumpy up and down kind of business. Some quarters good, some quarters bad. There is a stable flow of base business every quarter, and then there comes some spikes. And this quarter, we got quite a few of this kind of surprising large order. One of them was to Microsoft data centers. We are not involved in the data center in the compute, but with our product, they do some kind of power monitoring. of the incoming power into the buildings so that's where some of our redline products are used good project we expect more orders in this but that's just one example of this kind of orders we see And we see data centers is, of course, big in U.S., but we also see areas in the process industry, oil and gas and others where Redline is also active. We also see some pent up demand and good investment going forward. So we are quite positive about this. But keep in mind, quarter by quarter, it's a bit lumpy business if you get these projects.

Thank you so much. And you did mention in the report China as one of the outperforming regions in Q4. What is your mid- and long-term view about China? We've read about some market share losses from non-Chinese robot OEM vendors in recent quarters. And although this dynamic does not necessarily entail a negative impact to your business, the country still makes up for a relatively low share of your direct sales. So I'm wondering if you would like to enhance this further, potentially through increased investments?

Yeah, thanks, Simon. I think this is a good question. It's an interesting topic. I think when we started in China with our sales office there, most of our business was related to European and American companies investing there, and they want to have Western technology inside their factories. I think that trend has changed now. We see most of our customers in China is more domestic players in um certain infrastructure product and automotive product but we're also seeing a big trend in china that chinese both government and customers there's a push for uh by chinese so we see that in areas where we have unique products such as our ixa brand or any bus brand there we have quite good business and that will continue some other businesses both in our building automation this e1 thing we are doing And there we always have a bigger challenge because the internal competition is much larger in China. So we see that the unique products with high technical value, we are successful in selling to this application in China, and that's where we see the growth. But we're not trying to sell a lot of Red Lion products there. For example, we have a very little market there. It's difficult to sell this kind of American-made products in China with local competition. So the strategy going forward is to be more focused on the products where we have a unique position and provide a unique value in China. But keep in mind, that's a small portion of our business.

Thank you so much. And as a final question from me on OPEX, you manage to hold these at very low levels, even if we exclude the recent cost saving program. Is it fair to assume that bonus accruals remain depressed here in Q4 and that these might normalize going into 2025 all as equal and is there anything else to point out on cost in 2025 or are current levels relatively representative for the near term?

I'll try to answer like this, Simon. In Q3, as you know, we released some bonus provisions to reflect the fact that we didn't really perform as we should in total over the year. Q4 has been normal in that sense, but this year has been a bit lower, of course, with that organic drop. It means not a big payout on bonuses, so a lot of people are not getting big bonuses this year. If we perform according to what we believe we should in next year, we will of course have higher bonus payouts. So then you will see an increase in OPEX from that part. But there's nothing that stands out in Q4 as it did in Q3. I hope that answers your question.

Yes, very much so. And could you also say something about

opex excluding bonuses in 2025 is the current level also relatively representative yeah i think what we've done now is we set the organization that we believe we should have going forward with the exchange of organization so of course there will be a bit of salary inflation and um And that will always be there. But other than that, I think we shouldn't see any big impact to the Opus. So we've set what we should have now. And we're going to roll that forward, more or less. That's what we see in the short term, at least.

Just a little bit extra flavor that I think was that right now we have we have been holding back quite much on the cost and done these changes. We need to spend more time to make sure the current change is working. But if we see a pickup later in the second half of the year, I think then we probably will do some more investment in future growth. But I think first we need to see the growth and the increased profit level, and then we can release a little bit of this OPEX cost savings we have been doing, but we keep cost saving mode here until we see a clear market trend that we are taking another step into our growth.

Appreciate it. Thanks for having my questions.

Thanks, Simon.

The next question comes from Joakim Gunell from DNB Markets. Please go ahead.

Thank you and good morning. touching a bit on how to bridge the fact that orders are apparently starting to pick up Q4 versus Q3, partly of course aided by Red Lion. Despite this you talk about the incremental softness for 2025 pushing the recovery you envision towards H2 versus H1. Help us just dissect, if you can quantify to start with, how much was the project, call it the positive Microsoft surprise there before Christmas, if you can just quantify the one-off elements that you think was in the Q4 orders. And also, I mean, sequentially, HMS excluding Red Lion was also up quite substantially, quarter over quarter here in Q4 on the order side. So is this mainly HMS excluding embedded, or is this also embedded starting to pick up slightly? Thank you.

Okay, so that was a long question. We'll try to sort it out for you, Joakim. So if we first start with, I exclude this question with the projects first. We see a small pickup more or less everywhere. So that's very positive. It's not super quick. It's a couple of percent improvement that we see in run rate. then we don't want to quantify a single orders we don't normally do that but let's say that in total project orders for for redline in in the quarters in the quarter has been maybe 100 million and then we should have we should always have something but maybe not everything so it's somewhere in that range and then you have to do the math yourself but it's um what we're trying to to get across is that we are slightly positive that we're seeing a bit of a pickup but but we don't really think that you should take the 893 and say that this is the level we are at right now because that's not what we think it is there are a couple of one-offs in in the quarter but we're i mean we're still positive but not in that pace i hope that makes sense in in terms of sorting out perfect and and also if you can on the hms excluding red lion side just talk about uh embedded the trajectory here in q4 and um basically if you saw a pick up here as well yeah so as i said embedded is picking up with a few percentage points in comparison to the previous quarter so it's slightly slowly going in the right direction but it's um yeah slowly but safely that's that's what we believe and that's why we also say that the second half we believe that we will see a better a better pace

Lovely, thank you. You've spent a lot of time talking to your customers and we're two months now post the US election. Are you sensing any shift in tone or outlook to your US-based customers with regards to the impact from reshoring, increased focus on domestic production, etc. amidst the Trump administration?

I think in general, our customers in the US are quite positive in general, I think. The discussion about tariffs in our industry seems to be... People are waiting and seeing, but it feels like most people are not so concerned. I think we have... Most of our product is not highly competitive. The expectation from us and many others is that we keep on carrying extra costs towards the customers. Customers in the US, they realize that this would be the case, but people are just positive in the US. I think on other markets it's much more. In Germany, for example, they're concerned about these tariffs and how to manage this. Is it possible to carry everything towards the customers? We are just increasing our agility, I think, on this, but we are super happy that we have now Red Lion with own R&D, with own manufacturing in the US. I think our ability to navigate in this kind of complex tariff and the potential trade war situation is much greater than a year ago. So I think this was something we were looking for when we acquired Red Lion, to have more flexibility in our supply chain as well. So I think we are well prepared for the future, but we need to wait and see what it means in reality.

Lovely. And just touching upon that tariff discussion, can you comment a bit just about your sourcing situation in light of this, whether you see this as a potential cost headwind into 2025?

I think we have, as I said, now we have a manufacturer in the US. The only thing we are surprised about is that we have an EMS partner in Canada, and we did not see that that would be affected in the past. So we're quite surprised when Trump talked about the tariffs on Canada. Luckily, this supplier we have in Canada also have other sites in the US. So we're working with them to try to mitigate the effects. But these are things that we did not see coming. But everything else regarding Mexico and regarding China, there we have been expecting something to happen and we are well prepared for that.

Perfect. And the final thing from my side, we can see in the order intake and the sales development that Red Lion is evidently starting to perform here. So very encouraging to see. Can you just comment a bit also on the progress made when it comes to supply chain and the production initiatives you have ongoing there? whether you have reached a point where you have merged your sales organizations in the US?

If you look on Red Lion integration, there are a couple of things that we have completed with the organization and we're just now moving into a common sales organization in the US with the former HMS and the Red Lion teams that's underway. Most of the things in manufacturing, we are now during the year here installing new machines and upgrading the factory in York. from Redline to become like a sister factory of what we have in Halmstad with similar machines and similar processes and things like this also with the ability to have good transfer of products between them based on what we see happening but that I think the effects we're seeing in for example gross margins and stuff like that when it comes to high productivity will be maybe a couple of quarters out I expect We see improvement now on the gross margin of Red Lion, but it's mainly coming from some changes in commercial terms and the rebates, less discounts and things like this. Easy things to do with quick effects. So we have the low hanging fruits are picked, but now we need to climb a little bit further up in the tree.

Well, good luck on the climb, and it's very impressive to see you safeguard margins in light of this net sales trajectory. Thank you. Thanks, Joakim.

The next question comes from Victor Hogeberg from Danske Bank. Please go ahead.

All right, so just a follow-up on the previous question on gross margin. What do you expect now when embedded would take off again if demand would recover in the second half? The current level is very strong, given the lower level of sales, but I'd like to explain what the current makes as well, which should change when demand recovers. Any thoughts on that? Appreciate it.

Yeah, so I think you, I guess what you're getting to, Victor, is that we have a bit, the fact that we're not dropping more on gross margin is that we have a positive mix effect when embedded business goes down, which has this year. And of course, when embedded business comes back, there will be a bit of a push downwards on the gross margin. On the other hand, we believe that we can offset most of that with the fact that we're getting more volume. to get better utilization. But also what Staffan talked about in Red Lion, there is potential to improve the gross margin. And that will not come in the next quarter. But towards the end of the year, maybe we start to see some improvements also on Red Lion from the investments that we're going to do. So we hope that all in all, we can try to mitigate most of this on the gross margin push downwards we'll get from increased and better business.

Okay, so your expectation on a group level is rather to keep this level.

That's our ambition for 2025 is to keep Rosemarne more or less flat where we have been now. So we have some work to do, but we're trying to get it done.

I see. And a final question, just coming back to Red Lion, very strong water intake, but you still reiterate the commentary about recovering in the second half. Is that just you being conservative, maybe overly conservative, given how Reliant is performing? And Reliant will be part of organic growth in Q2 already. Or is it a reflection of these project-based orders, which you don't expect to be recurring now in Q1 and Q2?

I think in Q4, we were positively surprised about the good order intake in this project with Red Lion. But as I said, it's a bit lumpy business, so we can't really see that drawing the line upwards for the coming quarter. So we think it will be a bit lumpy going forward as well. We see trends that is improving, but it's too early to just discount that this week market is over. It will take some more time, we believe, to make this. and maybe we are a bit conservative but we we don't know we it's too early to say that this week market is over so we are we're staying a little bit cautious when we talk about the bounce back here okay thank you very much thank you there are no more questions at this time so i hand the conference back to the speakers for any closing comments thank you thanks everybody for attending this quarter four call and mixed bags with some good things but also continue the weak market we cannot be proud of minus 33 percent in organic growth of course but we feel we're doing the right things internally to protect the margins to change the organization to do the good acquisitions last year so now we are busy to making sure we keep on working with the synergies and making sure we stay On one hand, close to customers and be a little bit careful on the cost side until we see a clear trend change, which we believe will happen in the second half of 2025. So until that, we keep on working hard here to make sure that we focus on a long-term ambition to improve our growth and keep our profitability at this target of 25%. So from me and Joakim, thanks for attending this and I wish you all a good day and thanks for following HMS.