HMS : Q2 Report 2021

Second quarter

• Net sales for the second quarter reached SEK 474 m (355), corresponding to an in- crease of 33%. Currency translations had a negative effect of SEK 33 m on net sales
• Order intake was SEK 606 m (302), corresponding to an increase of 100%
• Operating profit reached SEK 121 m (69), equal to a 25.5% (19.4) operating margin
• Profit after taxes totalled SEK 98 m (54) and earnings per share was SEK 2.02 (1.24)
• Cash flow from operating activities amounted to SEK 126 m (115)

Subsequent events

• Acquisition of 60% of all shares in the Spanish company Owasys Advanced Wireless Devices S.L.

Interim report 2021 January - June

First six months

• Net sales for the first six months reached SEK 929 m (716), corresponding to a
  30% increase. Currency translations had a negative effect of SEK 62 m on net sales
• Order intake was SEK 1,170 m (703), corresponding to an increase of 67%
• Operating profit was SEK 235 m (136), equal to a 25.3% (18.9) operating margin
• Profit after taxes totalled SEK 192 m (102) and earnings per share was SEK 3.94 (2.26)
• Cash flow from operating activities amounted to SEK 257 m (170)

This is a translation of the Swedish language original. In the event of any differences between this translation and the Swedish original, the latter shall prevail.

"The record high order intake is primarily driven by a strong recovery in all markets, but also due to an increasingly challenging component shortage situation which causes our customers to prepare for longer delivery times.

Staffan Dahlström, CEO,

HMS Networks AB

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Comment from the CEO

Continued strong development but challenging component supply situation

The underlying demand continues to be strong for HMS products and we can conclude that we have yet another record quarter in terms of sales, order intake and operating profit.

Order intake during the quarter amounted to a record level of SEK 606 m, corresponding to a growth of 100%, of which 88% was organic compared to the previous year. For the first half of the year, the corresponding figures are 67% and 60% respectively.

The record-high order intake is driven by a strong recovery in all markets and increased interest in connecting machines. But it is also due to an increasingly challenging component shortage situation which means that our customers build safety stocks to prepare for longer delivery times. We estimate that we have advance purchase effects, due to customers' concerns about component shortages, of approximately SEK 100 m, with some of our larger customers placing orders longer in advance than normal. This means that we have a significantly larger order book than usual, more than twice as large compared to the end of Q2 2020.

The lack of components has partly affected our delivery capacity and we have had to postpone some deliveries. This has had a negative impact on the quarter's sales of approximately SEK 30 m. All in all, the quarter's sales reach a new record level of SEK 474 m, corresponding to a growth of 33% compared to the previous year, whereof 28% is organic growth.

Furthermore, we see continually strengthened gross margins amounting to 63.7% (62.0%) and we now see the full effect of the price adjustments that were implemented at the turn of the year. We see some negative effects from increased component prices, which might affect the gross margin by a few percentage points in the coming quarters.

During the quarter, we started up several long-term investments within our development and marketing organizations to take advantage of the trends we see in increased automation and a strengthened focus on sustainability among our customers. These investments in combination with a return to more normal business travel will gradually increase our operating costs by approximately 10% until the fourth quarter.

We can also conclude a new record quarter for our operating profit,

which amounts to SEK 121 m, corresponding to an operating margin of 26%, an increase of 76% compared with the second quarter last year. The positive result is driven by expansive sales in combination with good gross margins and low operating expenditures.

Cash flow continues to be strong at SEK 126 m (115) for the quarter, which has contributed to reducing our debt. At the end of the quar- ter, we had a net debt of SEK 78 m.

All markets at record levels during the second quarter

In our large and important markets in Europe, such as Germany,

France and Italy, the strong market recovery continues and our order intake has more than doubled from last year's quarters, which were weak. A strong machine-building market and robot industry, together with the automotive industry's conversion to electric car manufacturing and generally large investments in increased automation and digitization in the industry are driving the growth of HMS in Europe.

North America is also delivering positive results with a strong economy and consistently strong end-customer verticals. Among other things, we have won new business in the growing area of battery manufacturing.

In Asia, China and Japan continue their strong development. Demand from Japanese robot manufacturers is at record levels and despite a good comparison quarter last year, order intake is up over 60% in Asia.

We also see an increased demand in our offering for remote control of machines where more and more machine manufacturers choose to integrate remote control as standard in their machines, which has resulted in sales growth of over 50% and order intake that has more than doubled.

Acquisition of Owasys Advanced Wireless Devices after the end of the quarter

On July 1, HMS acquired 60% of the Spanish company Owasys Advanced Wireless Devices S.L., with 20 employees and headquartered in Bilbao. Owasys offers wireless communication platforms that enable remote monitoring and control of various types of utility vehicles and industrial machines. The acquisition enables HMS to address the vertical for mobile machines and utility vehicles, an interesting addition to the "Information-centric"part of our playing field. Owasys is expected to have sales of EUR 5.5 m and an operating profit of EUR 1.4 m in 2021.

Positive outlook but delivery challenges during the third quarter

The recovery after the pandemic has continued at a good pace during the second quarter and the underlying demand from our customers is expected to continue also in the coming quarters. The challenges with component supply mean that we now see longer delivery times to customers, which will affect our sales during the third quarter, as deliveries may be postponed until the following quarter. During the fourth quarter, we estimate that the situation will stabilize, and we expect to be able to deliver the majority of the orders that have been postponed from previous quarters.

We continue to work with a focus on long-term growth based on a balanced view of our costs. In the long term, we continue to believe that the market for Industrial ICT (Information & Communication Technology) will be an interesting area, both in terms of organic

growth and acquisitions.

+100%	+33%	26%
Order intake	Net sales	Operating margin
Q2	Q2	Q2

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Order intake, net sales and earnings

Second quarter

Order intake increased during the second quarter by 100% to SEK 606 m (302), of which currency translations affected by SEK -23m (-8).Procentec B.V., acquired in the fourth quarter of 2020, has contributed to order intake with SEK 62 m. The organic increase in order intake was 88%.

Net sales increased by 33% to SEK 474 m (355), of which currency translation effects were SEK -33 m (-2). Procentec B.V. has contributed to net sales by SEK 54 m. The organic increase in net sales were 28%.

Gross profit reached SEK 302 m (220), corresponding to a gross margin of 63.7% (62.0). Operating expenses amounted to SEK 182 m (162), whereof SEK 15 m corresponds to Procentec B.V. The organic change in operating expenses was 8%, corresponding to SEK 13 m.

Operating profit before depreciation/amortization and write-downs amounted to SEK 147 m (111), corresponding to a margin of 31.1% (31.2). Depreciations/amortizations and write-downs amounted to SEK 27 m (42). Operating profit amounted to SEK 121 m (69), corresponding to a margin of 25.5% (19.4). Currency translations affected the Group's operating profit by SEK -13 m (0). The acquired company Procentec B.V. has contributed to the operating profit for the quarter by SEK 17 m, including amortization of overvalue.

Net financials was SEK -4 m (0), which gave a profit before tax of SEK 117 m (69).

Profit after tax amounted to SEK 98 m (54) and earnings per share before and after dilution was SEK 2.02 (1.24) and SEK 2.01 (1.24) respectively.

First six months

Order intake increased during the first six months by 67% to SEK 1,170 m (703), of which currency translations affected by SEK -74 m (11). Procentec B.V., has contributed to order intake with SEK 123 m. The organic increase in order intake was 60%.

Net sales increased by 30% to SEK 929 m (716), of which currency translation effects were SEK -62 m (1). Procentec B.V. has contributed to net sales by SEK 105 m. The organic increase in net sales was 23%.

Gross profit reached SEK 593 m (445), corresponding to a gross margin of 63.9% (62.2). Operating expenses amounted to SEK 359 m (321), whereof SEK 30 m corresponds to Procentec B.V. The organic change in operating expenses was 7%, corresponding to SEK 24 m.

Operating profit before depreciation/amortization and write-downs amounted to SEK 289 m (201), corresponding to a margin of 31.1% (28.0). Depreciations/amortizations and write-downs amounted to SEK 54 m (65). Operating profit amounted to SEK 235 m (136), corresponding to a margin of 25.3% (18.9). Currency translations affected the Group's operating profit by SEK -25 m (4). The acquired company Procentec B.V. has contributed to the operating profit by SEK 33 m, including amortization of overvalue.

Net financials was SEK -2 m (-5), which gave a profit before tax of SEK 232 m (131).

Profit after tax amounted to SEK 192 m (102) and earnings per share before and after dilution was SEK 3.94 (2.26) and SEK 3.93 (2.25) respectively.

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MSEK	Net sales	MSEK
500		1 800
450		1 700
		1 600
400		1 500
350		1 400
		1 300
300		1 200
250		1 100
2019 Q2 2019 Q3 2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2

Net sales per quarter		Net sales rolling 12 m

The graph shows turnover per quarter on the bars referring to the scale on the left axis. The line shows turnover for the latest 12 month period referring to the scale on the axis to the right.

MSEK			Operating profit EBIT			MSEK400
120
110								380
100								360
							340
90								320
80								300
70								280
60								260
							240
50								220
40								200
2019 Q2	2019 Q3	2019 Q4	2020 Q1	2020 Q2	2020 Q3	2020 Q4	2021 Q1	2021 Q2

EBIT per quarter		EBIT rolling 12 m

The graph shows operating result EBIT per quarter. The bars refer to the scale on the left axis. The line shows operating result for the last 12 month period referring to the scale on the axis to the right.

	Q2	Q1	Q4	Q3	Q2	Q1	Q4	Q3
Quarterly data	2021	2021	2020	2020	2020	2020	2019	2019
Order intake (SEK m)	606	565	408	336	302	401	337	372
Net sales (SEK m)	474	455	405	345	355	361	346	377
Gross margin (%)	63.7	64.0	61.6	61.9	62.0	62.4	61.2	62.8
EBITDA (SEK m)	147	141	99	102	111	90	78	82
EBITDA (%)	31.1	31.0	24.3	29.4	31.2	25.0	22.6	21.7
EBIT (SEK m)	121	114	75	77	69	67	55	56
EBIT (%)	25.5	25.0	18.5	22.3	19.4	18.5	15.9	14.9
Cash flow from operating activities per share (SEK)	2.69	2.83	1.79	2.49	2.47	1.18	1.30	1.93
Earnings per share before dilution (SEK)¹	2.02	1.93	1.21	1.33	1.24	1.01	1.46	0.98
Earnings per share after dilution (SEK)¹	2.01	1.92	1.20	1.32	1.24	1.01	1.46	0.98
Equity per share (SEK)	27.98	27.08	25.75	24.62	23.60	22.49	21.06	19.88

¹ Attributed to parent company shareholders.

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