HMS Networks sees net sales rise amid tougher trading conditions

HMS Networks reported a 19% improvement in net sales for its first quarter on Thursday, to SEK 380m (£30.88m), with currency translations having a positive effect of SEK 25m on net sales.

The Sweden-based industrial communications company said its operating profit reached SEK 60m, down from SEK 63m, which made for an operating margin of 16%, falling from 20% year-on-year.

Order intake was SEK 387m, rising 11%, while cash flow from operating activities improved to SEK 52m from SEK 20m.

Profit for the period totalled SEK 41m, up from SEK 37m, while the earnings per share were SEK 0.88, compared to SEK 0.80 in the prior comparative period.

Looking at the last 12 months, net sales amounted to SEK 1.43bn, which was a 16% increase, with currency translations having a positive effect of SEK 88m.

Operating profit rose to SEK 248m from SEK 218m, making for an operating margin of 17%, down from 18%.

Order intake reached SEK 1.47bn, up 17%, while cash flow from operating activities improved to SEK 224m from SEK 174m.

Profit for the period totalled SEK 175m, up from SEK 140m, with earnings per share rising to SEK 3.76 from SEK 2.99.

Since the quarter ended, HMS acquired 74.9% of the shares in the German company WEB­factory.

The board said the acquisition would have a limited impact on the company’s earnings per share in 2019.

“The year has started with solid growth and profitability, which in the first quarter led to new record sales of SEK 380m,” said HMS Networks chief executive officer Staffan Dahlström.

“The increase is mainly explained by acquisition effects from the German Beck IPC and favorable currency situation.

“At the same time, we see signals of increased uncertainty in the short-term perspective on investments in our industrial segment, but we believe that the long-term picture continues to look bright thanks to favorable technology trends that drive investments and transformations in our business segments in the longer term.”

During the quarter, Dahlström said the firm saw continued positive development in the US, but with signals of a coming slowdown in the future.

In Germany and the rest of central Europe, it was looking at a “mixed picture” with continued weak development in the automotive segment, which also impacted the investments made by their subcontractors, although the market remained favorable in other segments.

In Asia, Dahlström said the weak trend HMS saw at the end of 2018 continued, with a mix where China and India were “relatively good”, but the Japanese market - which was HMS largest area in the region - was hesitant, primarily in the automotive and semiconductor segments.

“We report a somewhat weaker gross margin than normal, which is primarily explained by lower margins from the previously acquired company Beck IPC.

“The integration work of Beck IPC is ongoing and various initiatives to improve the gross margins are ongoing,” Dahlström said.

“We continue to invest in expanding our sales organisation.”

During the quarter, he said new sales offices were opened in Seoul and Dubai, which the board saw as “important markets” in the long-term, with HMS’ presence set to give the company increased growth in those markets.

“Our continued investments within sales and markets combined with the lower gross margin affects our operating margin, which is a few percentage points lower than normal in the quarter.

“During the quarter, we presented new future concepts for 5G.

“This has been done in demonstration applications together with, among others, Ericsson and ABB at the Mobile World Congress and Hannover Messe.”

HMS Networks saw 5G as a “future important technology” for wireless secure communication in industrial applications, he explained, adding that although it would take a few years before it would be installed on a larger scale, the firm already saw a “great interest” from industrial customers to move from Wi-Fi solutions to new private cellular solutions based on 4G and 5G.

At the German Hannover Messe in early April, the company successfully launched its new ‘HMS HUB’ cloud solution, based on a technology that was the result of the acquisition of Beck IPC last year.

Dahlström said HMS HUB enabled the connection of HMS intelligent products to communicate via HMS HUB, via cloud or on-premise, to process and filter data before sending information to our customers’ IT or cloud systems.

“During the quarter, we entered into an agreement to acquire 74.9% of the German software company WEBfactory, [and] closing took place after the end of the quarter [on] 1 April.

“The company, with annual sales of approximately €2.5 m and 27 employees, will be an important complement to HMS’ Industrial internet of things strategy and gives us the opportunity to create additional value for customers who use our products to connect industrial appliances and machines to our cloud solutions.

“In the short term, this acquisition will not have any major impact on HMS’ profitability, but it is a strategically important reinforcement that we believe will be very important for HMS within a few years.”

Dahlström concluded by saying that, despite the “somewhat uncertain” investment climate in HMS’ main segments going forward, the board was sticking to its ambitious growth targets for the coming years of a long-term annual growth rate of 20% per year and an operating margin of 20%.

“Our focus is to drive continued growth in all our business areas.

“We continue to focus on our long-term growth goals based on a balanced view of our costs.

“In the long-term, we believe that the market for industrial data communication will be an interesting growth area.”