HMS : Q4 Report 2021

Fourth quarter

• Net sales for the fourth quarter reached
  SEK 571 m (405), corresponding to an in- crease of 41%. Currency translations had a negative effect of SEK 7 m on net sales
• Order intake was SEK 699 m (408), corresponding to an increase of 71%
• Operating profit reached SEK 109 m (75), equal to a 19.2% (18.5) operating margin
• Profit after taxes totalled SEK 86 m (57) and earnings per share was SEK 1.85
  (1.21)
• Cash flow from operating activities amounted to SEK 104 m (83)
• HMS acquired minority shares in Connectitude AB

Year-end report 2021 January - December

Yearly

• Net sales for the year reached
  SEK 1,972 m (1,467), corresponding to a 34% increase. Currency translations had a negative effect of SEK 75 m on net sales
• Order intake was SEK 2,538 m (1,447), corresponding to an increase of 75%
• Operating profit was SEK 446 m (288), equal to a 22.6% (19.6) operating margin
• Profit after taxes totalled SEK 362 m (220) and earnings per share was SEK 7.61 (4.79)
• Cash flow from operating activities amounted to SEK 508 m (370)
• HMS acquired 60% of the shares in
  Owasys Advanced Wireless Devices S.L.
• The Board of Directors propose a dividend to the amount of SEK 3.00 (2.00) per share

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.

"It is gratifying to be able to sum up a record year for HMS with sales that reach almost SEK 2 billion and an operating margin that well exceeds our long- term goals. 2021 has given us a good start in the journey towards our goals for 2025.

Staffan Dahlström, CEO,

HMS Networks AB

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Comment from the CEO

A strong finish to the record year 2021

The strong market demand from previous quarters continued in the fourth quarter. Furthermore, we had a temporary improvement during the quarter in the availability of semiconductor components that increased our delivery capacity. In total, this resulted in a new quarterly record with an order intake of SEK 699 million, and sales of SEK 571 million, which corresponds to an increase of 71% in order intake and 41% in sales compared to the same quarter last year. Operating profit ends up at SEK 109 million, which is an increase of 46%.

We can thus close a fantastic 2021 with impressive annual figures. An order intake of SEK 2,538 million, corresponding to a growth of 75% and a record turnover of SEK 1,972 million, an increase of 34% of which 26% is organic growth. Our operating profit reaches a new record level of SEK 446 million, which corresponds to a growth of 55% compared to the previous year. Notable is also our strong cash flow during the year, which amounts to SEK 508 million, an increase of 38% compared to the previous year.

A strong cash flow and a strong balance sheet create good conditions for future investments, both organically and through acquisitions.

Good growth in all of our geographic markets

All of our geographic markets continue to show good growth in both order intake and sales, primarily driven by increasing investments in automation, digitization, energy efficiency and remote monitoring of industrial machines. Apart from increased productivity in industrial applications, we also see an increased focus on sustainability as an underlying reason for the high investment rate.

We see the largest increase in Continental Europe, which has more than doubled its organic order intake in the quarter. Just like previous quarters, it is a combination of high investments pace and compensation for longer lead times and component uncertainty that is behind the development. We can see that the markets in Continental Europe that had the toughest 2020 have shown the strongest recovery in 2021.

Continued great uncertainty regarding semiconductors

There is still a great deal of uncertainty and problems regarding the supply of various semiconductor components, especially processors. During the quarter, we succeeded in solving several of our challenges in the short term and therefore managed to deliver better volumes than expected. For the coming quarters, we see a continued shortage of components and we believe that our delivery capacity will remain volatile.

As in the third quarter, we see an impact on our gross margin as an effect of cost increases on compontens and a continued need for component supply in the spot market. The gross margin ended at 60.8% (61.6).

During the second half of 2021, we made price increases that mostly will have effect at the turn of the year 2021/2022. We have chosen not to change already confirmed orders, which means that we believe in a gradual improvement in the gross margin as our price increases take effect in 2022.

Order book strengthened by pre-order

The strong market situation in combination with longer lead times

and the previous-mentioned challenges in component supply leads to customers continuing to place orders further into the future. We continue to build an order book which now amounts to SEK 864 million, strengthened by an estimated SEK 200 million from pre-orders in the quarter. We see this as a direct consequence of the current supply chain situation, which does not reflect underlying demand. Of this year's order intake, we estimate that approximately SEK 500 million are orders placed in advance due to the supply chain contraints in the market.

Stable inflow of new Design Wins

Despite the fact that many of our customers have been forced to work on modifying their existing products in order to be able to deliver and thus in the short term reduced their focus on new develop- ment, interest in HMS solutions has remained high. For those of our products sold according to our Design-Win business model, approximately 43% of HMS sales, we can see a continued stable flow of new customers in 2021. In total, we received 174 (165) new Design-Wins during the year, and that the total number of active Design Wins now amounts to 1,790 (1,820). Of these, 1,447 (1,418) are in production, while 343 (402) are expected to go into production in the coming years.

Acquisitions and strategic collaborations

Spanish Owasys, which HMS acquired 60% of on July 1, has developed well and several technology and marketing projects have already been started together with HMS.

During the quarter, we acquired a minority of Swedish Connectitude AB, and we have started collaborative projects using Connectitude's software together with our Ewon offering. This type of minority investment is a way for us to create new long-term col- laborations, commercially and technically, in areas we deem interest- ing.

Continued positive market situation with short-term variations in delivery capacity

Overall, we continue to see a positive attitude among our custom- ers. Despite the ongoing pandemic and geopolitical uncertainty, our customers' interest and need for industrial communication continues to be great and many of our core industries are developing strongly.

We consider the outlook for 2022 to be good, we are entering the year with a strong order book and good speed in our key markets. In the short term, our sales will continue to be strongly dependent on the availability of components. We estimate that our delivery capacity will be volatile, especially during the first half of the year.

The situation on the component market is still uncertain and temporary setbacks cannot be ruled out. We have a good dialogue with our customers, who understand the situation that has affected the entire industry and we see the risk of lost business as small. 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.

+71%	+41%	19%
Order intake	Net sales	Operating margin
Q4	Q4	Q4

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Order intake, net sales and earnings

Fourth quarter

Order intake increased during the fourth quarter by 71% to SEK 699 m (408), of which currency translations amounted to SEK 7 m (-17).The organic increase in order intake was 65%.

Net sales increased by 41% to SEK 571 m (405), of which currency translation effects were SEK -7 m (-10). The organic increase in net sales was 37%.

Gross profit reached SEK 347 m (250), corresponding to a gross margin of 60.8% (61.6). Operating expenses amounted to SEK 238 m (175). The organic increase in operating expenses was 36%, corresponding to SEK 63 m, mostly related to increased marketing initia- tives.

Operating profit before depreciation/amortization and write-downs amounted to SEK 133 m (99), corresponding to a margin of 23.4% (24.3). Depreciations/amortizations and write-downs amounted to SEK 24 m (24). Operating profit amounted to SEK 109 m (75), corresponding to a margin of 19.2% (18.5). Currency translations affected the Group's operating profit by SEK -4 m (-6).

Net financials were SEK 5 m (-5), which gave a profit before tax of SEK 114 m (70).

Profit after tax amounted to SEK 86 m (57) and earnings per share before and after dilution was SEK 1.85 (1.21) and SEK 1.84 (1.20) respectively.

Yearly

Order intake increased by 75% to SEK 2,538 m (1,447), of which currency translations affected by SEK -83 m (-17). The organic increase in order intake was 66%.

Net sales increased by 34% to SEK 1,972 m (1,467), of which currency translation effects were SEK -75 m (-19). The organic increase in net sales was 26%.

Gross profit reached SEK 1,230 m (909), corresponding to a gross margin of 62.4% (62.0). Operating expenses amounted to SEK 787 m (633). The organic increase in operating expenses was 19%, corresponding to SEK 120 m.

Operating profit before depreciation/amortization and write-downs amounted to SEK 548 m (401), corresponding to a margin of 27.8% (27.4). Depreciations/amortizations and write-downs amounted to SEK 102 m (113). Operating profit amounted to SEK 446 m (288), corresponding to a margin of 22.6% (19.6). Currency translations affected the Group's operating profit by SEK -31 m (-8).

Net financials were SEK 3 m (-14), which gave a profit before tax of SEK 448 m (274).

Profit after tax amounted to SEK 362 m (220) and earnings per share before and after dilution was SEK 7.61 (4.79) and SEK 7.57 (4.77) respectively.

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MSEK	Net sales	MSEK
600		2 200
		2 000
500		1 800
400		1 600
	1 400
300		1 200
	1 000
200		800
	600
100		400
		200
-		0
2019 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4

Net sales per quarter		Net sales rolling 12 m

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

MSEK			Operating profit EBIT			MSEK500
140
120								450
							400
100								350
80								300
								250
60								200
40								150
20								100
							50
0								0
2019 Q4	2020 Q1	2020 Q2	2020 Q3	2020 Q4	2021 Q1	2021 Q2	2021 Q3	2021 Q4

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.

	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Quarterly data	2021	2021	2021	2021	2020	2020	2020	2020
Order intake (SEK m)	699	669	606	565	408	336	302	401
Net sales (SEK m)	571	472	474	455	405	345	355	361
Gross margin (%)	60.8	61.4	63.7	64.0	61.6	61.9	62.0	62.4
EBITDA (SEK m)	133	126	147	141	99	102	111	90
EBITDA (%)	23.4	26.6	31.1	31.0	24.3	29.4	31.2	25.0
EBIT (SEK m)	109	101	121	114	75	77	69	67
EBIT (%)	19.2	21.5	25.5	25.0	18.5	22.3	19.4	18.5
Cash flow from operating activities per share (SEK)	2.22	3.16	2.69	2.83	1.79	2.49	2.47	1.18
Earnings per share before dilution (SEK)¹	1.85	1.81	2.02	1.93	1.21	1.33	1.24	1.01
Earnings per share after dilution (SEK)¹	1.84	1.80	2.01	1.92	1.20	1.32	1.24	1.01
Equity per share (SEK)	24.32	25.67	27.98	27.08	25.75	24.62	23.60	22.49

¹ Attributed to parent company shareholders.

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