HMS Networks

Earnings Release • Apr 24, 2018

Net sales for the first quarter reached SEK 320 m (279), corresponding to an increase of 15 % ¡

First quarter

• Operating result reached SEK 63 m (57) equal to a 20 % (21) operating margin ¡
• Order intake was SEK 350 m (299) ¡

Last twelve months

• ¡ Net sales for the last twelve months amounted to SEK 1 225 m (1 030), corresponding to a 19 % increase. The revaluation of the Swedish krona had a positive impact of SEK 10 m
• ¡ Operating profit was SEK 218 m (186), equal to a 18 % (18) operating margin
• ¡ Order intake reached SEK 1 255 m (1 065)
• ¡ Cash flow from operating activities amounted to SEK 174 m (203)
• ¡ Profit after taxes totaled SEK 140 m (128) and the earnings per share was SEK 2.99 (2.75)

Comment from the CEO

The year had a positive start with strong growth and profitability, which during the first quarter resulted in a new record turnover and an operating margin in line with our target of 20%.

The strong growth in Asia continues and a new Singapore office was established at the beginning of the quarter to further strengthen our position in Southeast Asia. Also in Europe, we see stable growth and continued strong demand. The somewhat uncertain market situation in North America continues in the beginning of the year with no growth in local currency, although some improvement was seen in the latter part of the quarter.

We see a slightly improved gross margin, which consists mainly of a favorable product mix and certain economies of scale during the quarter.

Over the last 12 months, the number of employees has increased by approximately 50 people to strengthen key functions. We see that this investment has yielded positive results as expected and we achieve, despite increased costs, SEK 63 m in operating profit for the quarter, corresponding to 20 % operating margin.

As previously announced, we have started an expansion of the Halmstad production facility to meet future expected volume increases. This work goes according to plan. We still see long delivery times on several electronic components and to counteract future delivery impact, we continue to increase our component inventories. Recently, delivery times have continued to increase, and this situation is expected to continue a bit into 2019. The primary impact for us is that we need to keep a larger component stock than usual, to continue maintaining good delivery times towards our customers. Despite somewhat higher working capital in the quarter, we see that our financial situation is still strong with a low net debt of about 1.26 times EBITDA on a yearly basis.

We continue to work on our organic growth, which was 14 % in local currencies compared with the first quarter of 2017. In parallel, we are working long-term to find new interesting acquisitions to complement our business.

We stick to our ambitious growth targets for coming years - A long-term annual growth of 20 % per annum and an operating margin of more than 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 run, we estimate that the market for industrial data communications will constitute an interesting growth area and we continue to focus on our motto "HMS Connecting Devices".

Staffan Dahlström, CEO, HMS Networks AB

Order intake, net sales and earnings

First quarter

Order intake increased by 17 % to SEK 350 m (299) of which SEK 13 m (2) will be delivered after the upcoming twelve months. Net sales increased by 15 % to SEK 320 m (279) of which currency translation effects affected by SEK 2 m (8). Gross profit increased by SEK 28 m to SEK 198 m (170) to an increased gross margin of 61.8 % (61.0). Operating expenses increased in total by SEK 22 m to SEK 135 m (112) driven primarily by increased personell costs, as a result of the increase in the number of employees by approximately 50 persons. The strenghening of the organization has primarily been focused on sales and marketing, but also supporting functions have been upgraded. Operating profit before depreciation EBITDA amounted to SEK 75 m (68), corresponding to a margin of 23.5 % (24.5). Depreciation amounted to SEK 12 m (11) and Operating profit EBIT increased by SEK 6 m corresponding to 9 % to SEK 63 m (57). The improved result was primarily driven of the strong organic growth.

Profit before tax was SEK 52 m (56) due to a financial net of SEK-11m (-1) mainly depending on negative currency translation effects of SEK 10 m (0) due to revaluation of intra-Group transactions and interest expenses of SEK 1 m (2). Profit after tax amounted to SEK 37 m (40) and earnings per share before and after dilution was SEK 0.80 (0.86) and SEK 0.79 SEK (0.86) respectively.

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.

	Q1 2018	Q1 2017	%
Order intake (SEK m)	350	299	17 %
Net sales (SEK m)	320	279	15 %
Gross profit	198	170	17 %
Gross margin	61.8 %	61.0 %
EBITDA (SEK m)	75	68	10 %
EBITDA (%)	23.5 %	24.5 %
EBIT (SEK m)	63	57	9 %
EBIT (%)	19.6 %	20.6 %

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.

Quarterly data	Q1 2018	Q4 2017	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016
Order intake (SEK m)	350	288	289	328	299	267	252	247
Net sales (SEK m)	320	301	305	299	279	265	254	232
Gross margin (%)	61.8	60.3	60.9	61.8	61.0	61.5	62.2	60.9
EBITDA (SEK m)	75	43	77	71	68	51	65	44
EBITDA (%)	23.5	14.3	25.1	23.7	24.5	19.1	25.4	18.8
EBIT (SEK m)	63	31	65	59	57	40	55	35
EBIT (%)	19.6	10.2	21.2	19.9	20.6	14.9	21.5	15.0
Cash flow for operating activities per share (SEK)*	0.43	0.77	1.33	1.21	1.13	0.77	1.47	0.98
Earnings per share before dilution (SEK)*	0.80	0.43	0.90	0.86	0.86	0.55	0.79	0.56
Earnings per share after dilution (SEK)*	0.79	0.43	0.90	0.86	0.86	0.54	0.78	0.55
Equity per share (SEK)*	16.28	15.37	14.76	14.32	13.94	13.35	12.55	12.00

* Key ratios have been recalculated based on the 4:1 share split in the second quarter of 2017.

Cash flow, investments and financial position

Cash flow from operating activities before changes in working capital amounted to SEK 70 m (58). Cash flow from changes in working capital was SEK -50 m (-5) mainly due to a combination of increased accounts receivables driven by the increase in net sales, but also a decrease of a large part of current liabilities. There has also been a planned increase of inventory, mainly of components with longer lead times. Cash flow from operating activities was SEK 20 m (53). During the quarter, investments in new assets claimed 10 SEK m (6). Financing activities claimed SEK 33 m, which can be explained by the re-purhase of own shares of SEK 32 m in December 2017 affecting liquidity in January 2018. Interests claimed SEK 1 m (2) and amortizations claimed SEK 1 m (16). Cash flow for the quarter was SEK -22 m (22).

Cash and cash equivalents and net debt

Cash and cash equivalents amounted to SEK 71 m (121) and unused credit facilities to SEK 136 m (30). The Group´s net debt amounted to SEK 335 m (381) and net debt to EBITDA ratio for the last twelve months was 1.26 (1.68). Net debt/Equity ratio was 42 % (57).

The HMS Networks AB share

HMS Networks AB (publ) is listed on the Nasdaq OMX Stockholm Mid Cap list, in the Information Technology sector. The total number of shares amounted to 46 819 thousand of which 223 thousand shares are held by the company.

A list of the company's ownership structure can be found on the company's website (www.hms-networks.com).

Annual General Meeting and dividend

The Annual General Meeting will be held at the company's premises on Wednesday, April 25, 2018 at 10.30 CET. The Board of Directors proposes to the Annual General Meeting 2018 that an ordinary dividend of SEK 1.50 (1.00) per share will be paid for the 2017 fiscal year. Excluding shares held by the company, this corresponds to a total of SEK 70 m (47). The dividend is proposed to be paid on one occasion with record date April 27, 2018.

Share savings program

Today the Company has four ongoing share saving programs. Based on a decision by the Annual General Meetings permanent employees are offered to save in HMS shares in an annual share saving program. Between 47 % and 60 % of the employees opted to participate in the respective program. If certain criterias are met the Company is committed to give the participant a maximum of two HMS shares for every share saved by the employee. As of March 31, 2018, the total number of saved shares amounted to approximately 133 thousand within ongoing programs.

On December 31, 2017 the share saving program from 2014 was concluded. During the first quarter of 2018, 139 thousand shares, of which 69 thousand were performance shares, were distributed free of charge to the participants. For the allocation of these shares, HMS used shares in its own possession. The total holding of own shares at the end of the period were 223 thousand shares.

The parent company

The Parent Company's operations are primarily focused on Groupwide management and financing. Apart from the Group's CEO, the Parent Company has no employees. The operating profit for the first quarter amounted to SEK 0 m (0). Cash and cash equivalents amounted to SEK 1 m (0) and borrowing amounted to SEK 0 m (0).

Related party transactions

No transactions with related parties have occurred during the period.

Contingent liabilities

There have been no changes in the Group's contingent liabilities, described on page 87 in Note 34 of the Annual Report for 2017.

Significant events

There are no significant events during the period to report.

Subsequent events

No significant events have occurred subsequent to the first quarter, but prior to the signing of this interim report.

Outlook

The HMS Group long term growth is supported by a continued inflow of Design-Wins, a broader product offering within the Industrial Internet of Things (IIoT) and Wireless, supplementary technology platforms from earlier acquisitions, an expansion of the HMS sales channels according to the existing strategy.

The global economic development for the HMS market areas is con sidered stable. The impact that economic developments and cur rency fluctuations have on HMS are difficult to assess. HMS longterm goals are unchanged: Long-term growth on average 20 % per annum and an operating margin of above 20 %.

Accounting policies

This report has been prepared in accordance with International Financial Reporting Standards (IFRS) and IAS 34, for Interim Reporting.

As of January 1, 2018 HMS applies IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The imple mentation of the new standards have not had any significant impact on the Group's financial reports as of March 31, 2018. Complete accounting policies as for the new standards are described in the Annual Report 2017.

None of the new standards that have come into force on January 1, 2019 or later have been early adopted by the Group.

IFRS 16 Leases replaces the previous IAS 17 Leases and enters into force as of January 1, 2019. The Group has started a project to evaluate the impact of the new standard on the Group's financial reports.

HMS continues to apply the same accounting principles and valua tion methods as those described in the most recent Annual Report. The parent company report is prepared in accordance with RFR2, Accounting for Legal Entities, and the Swedish Annual Accounts Act and accounting principles and the valuation methods as those described in the most recent Annual Report.

HMS applies the European Securities and Market Authority's (ESMA) guidelines on alternative key indicators (measures that are not defined in accordance with IFRS).

Risk management

The HMS Group is exposed to business and financial risks through its operations. These risks have been described at length in the Com pany's Annual Report 2017. In addition to the risks described in these documents, no additional significant risks have been identified.

Audit review

This interim report has not been reviewed by the Company's auditors.

Short about the company

Strategies

GROWTH STRATEGY – HMS's main focus is on organic growth. Expansion on existing markets will be through improved and extended product ranges, new technology, high level of service and new sales channels. A certain degree of growth can be through the selective acquisition of businesses that will be a valuable complement to the company's organic growth strategy.

DEVELOPMENT STRATEGY – The Company's core expertise is made up of an extensive understanding of industrial network communication.

PRODUCT STRATEGY – HMS markets five product lines, which to a certain degree are based on a common technical platform:

• ¡ Anybus Embedded embedded network interface cards
• ¡ Anybus Gateways communication translators between different networks and for wireless communication
• ¡ IXXAT communication platforms for industrial machines and equipment
• ¡ eWON Remote Solutions remote monitoring and data access

of industrial control system

¡ Intesis – communication translators between various building automation networks

PRODUCTION STRATEGY – HMS maintains an in-house lowvolume production in Halmstad, Nivelles and Igualada. Volume production takes place in close partnership with subcontractors (in Europe and Asia) in order to achieve flexible costs and to make use of economies of scale.

MARKETING STRATEGY – The Anybus solutions are marketed and sold to players in industrial and infrastructure automation. IXXAT communication platforms are marketed and sold to machine builders of industrial applications, medical equipment and the automotive industry. eWON products are marketed and sold mainly through a network of distributors to a wide range of customers, from device manufacturers to owners of installations in need of remote monitoring and management. Intesis products are marketed and sold to manufacturers, system integrators and end users in the area of building automation.

SALES STRATEGY – Sales take place via the company's sales offices on defined key markets in 15 countries. Sales on the company's other markets, in some 50 countries, take place via agents and/or distributors.

Business model

HMS has designed its business models to fit each market and product line. For the Embedded market, most business is via framework agreements (i.e. design-wins). The sales cycle is relatively long and the design phase is performed in close cooperation with the customer. After that, there is steady revenue over a long period of time. For Gateways and eWON the business model is more traditional, with a short business cycle and manufacturing based on customer orders. IXXAT and Intesis uses a mix of the above mentioned business models.

Report occasions

• ¡ Annual General Meeting will be held on April 25, 2018
• ¡ Half year report 2018 will be published on July 19, 2018
• ¡ Third quarter report 2018 will be published on October 24, 2018
• ¡ Year-end report 2018 will be published in February, 2019

Halmstad April 24, 2018

Staffan Dahlström Chief Executive Officer

Further information can be obtained by: CEO Staffan Dahlström, telephone +46 (0) 709 17 29 01 or CFO Joakim Nideborn, telephone +46 (0) 707 72 29 83

This information is such that HMS Networks AB (publ) is required to disclose in accordance with the Swedish Financial Instruments Trading Act and the Swedish Securities Market Act. The information was submitted for publication at 08.00 CET on April 24, 2018.

Income statements

SEK millions	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Net sales	320	279	1,225	1,183
Cost of goods and services sold	-122	-109	-475	-462
GROSS PROFIT	198	170	750	722
Sales and marketing costs	-69	-60	-277	-268
Administrative expenses	-28	-20	-111	-103
Research and development costs	-38	-32	-146	-140
Other operating income	1	0	3	2
Other operating costs	-1	-0	-1	-0
OPERATING PROFIT	63	57	218	212
Financial income	0	1	0	1
Financial costs	-11	-2	-27	-18
Profit before tax	52	56	191	195
Tax	-14	-16	-51	-52
PROFIT FOR THE PERIOD	37	40	140	143
Earnings per share before dilution, SEK*	0.80	0.86	2.99	3.06
Earnings per share after dilution, SEK*	0.79	0.86	2.98	3.04

* Key ratios have been recalculated based on the 4:1 share split in the second quarter of 2017.

Statement of comprehensive income

SEK millions	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Profit for the period	37	40	140	143
Other comprehensive income
Items that may be reclassified subsequently to income statement
Cash flow hedges	0	0	-1	-1
Hedging of net investments	-11	-1	-18	-7
Translation differences	44	-4	75	27
Income tax relating to components of other comprehensive income	2	0	4	2
Other comprehensive income for the period, net of tax	36	-4	61	20
Total comprehensive income for the period	73	36	200	163

Balance sheets

SEK millions	Mar 31 2018	Mar 31 2017	Dec 31 2017
ASSETS
Goodwill	784	743	760
Other intangible assets	263	281	261
Property, plant and equipment	51	38	49
Deferred tax assets	4	2	1
Other long term receivables	2	2	1
Total fixed assets	1,104	1,066	1,072
Inventories	133	86	117
Trade and other receivables	160	130	133
Other current receivables	26	20	25
Cash and cash equivalents	71	121	91
Total current assets	390	356	366
TOTAL ASSETS	1,494	1,422	1,438
EQUITY AND LIABILITIES
Equity	796	666	721
Liabilities
Non-current liabilities	402	416	391
Deferred income tax liabilities	81	87	84
Total non-current liabilities	483	504	474
Interest-bearing current liabilities	4	86	4
Trade payables	87	66	99
Other current liabilities	124	101	140
Total current liabilities	215	253	243
TOTAL EQUITY AND LIABILITIES	1,494	1,422	1,438

Cash flow statements

SEK millions	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Cash flow from operating activities before changes in working capital	70	58	213	201
Cash flow from changes in working capital	-50	-5	-38	6
Cash flow from operating activities	20	53	174	207
Cash flow from investing activities	-10	-6	-29	-25
Cash flow from financing activities	- 33	-25	-198	-190
Cash flow for the period	-22	22	-52	-8
Cash and cash equivalents at beginning of the period	91	99	121	99
Translation differences in cash and cash equivalents	2	0	2	0
Cash and cash equivalents at end of period	71	121	71	91

Equity

Change in Group Equity, SEK millions	Mar 31 2018	Mar 31 2017	Dec 31 2017
Balance at January 1	721	636	636
Total comprehensive income for the period	73	36	163
Share-related payment	1	1	8
Repurchase of own shares	-	-8	-39
Dividends	-	-	-47
Closing balance	796	666	721

Financial accounts

	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Net increase in net sales (%)	15.0	38.5	19.0	24.3
Gross margin (%)	61.8	61.0	61.2	61.0
EBITDA (SEK m)	75	68	266	259
EBITDA (%)	23.5	24.5	21.7	21.9
EBIT (SEK m)	63	57	218	212
EBIT (%)	19.6	20.6	17.8	17.9
Return on capital employed (%)	-	-	18.9	18.7
Return on Shareholder's equity (%)	-	-	19.6	21.0
Working capital in relation to sales (%)*	-	-	5.5	5.1
Capital turnover rate	-	-	0.85	0.83
Net debt/equity ratio	0.42	0.57	0.42	0.42
Equity/assets ratio (%)	53.3	46.8	53.3	50.2
Investments in tangible fixed assets (SEK millions)	4	1	25	22
Investments in intangible fixed assets (SEK millions)	5	5	10	10
Depreciation of tangible fixed assets (SEK millions)	-3	-3	-11	-11
Amortization of intangible fixed assets (SEK millions)	-9	-8	-37	-35
Of which amortization of overvalues aquired	-3	-3	-12	-12
Of which amortization of capitalized development costs	-6	-5	-25	-24
Number of employees (average)	523	472	499	489
Net sales per employees (SEK m)	0.61	0.59	2.5	2.4
Equity per share, (SEK)*	16.28	13.94	15.29	14.65
Cash flow from operations per share, (SEK)*	0.43	1.13	3.74	4.44
Total number of share, average (thousands)*	46,819	46,819	46,819	46,819
Holding of own shares, average (thousands)*	292	113	178	158
Total outstanding shares, average (thousands)*	46,527	46,706	46,461	46,661

* Key ratios have been recalculated based on the 4:1 share split in the second quarter of 2017.

Quarterly data

Net sales per region SEK millions	Q1 2018	Q4 2017	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016
EMEA	198	181	185	185	175	162	157	144
Americas	59	62	64	62	65	64	53	49
Asia	63	58	55	52	39	39	43	39

Income statement SEK millions	Q1 2018	Q4 2017	Q3 2017	Q2 2017	Q1 2017	Q4 2016	Q3 2016	Q2 2016
Net sales	320	301	305	299	279	265	254	232
Gross profit	198	182	186	185	170	163	158	141
Gross margin (%)	61.8	60.3	60.9	61.8	61.0	61.5	62.2	60.9
Operating profit	63	31	65	59	57	40	55	35
Operating margin (%)	19.6	10.2	21.2	19.9	20.6	14.9	21.5	15.0
Profit before tax	52	25	58	56	56	36	51	36

Net sales per brand

SEK millions	Q1 2018	Q1 2017
Anybus	189	158
IXXAT	38	38
eWON	64	56
Intesis	24	17
Other	5	10
Total	320	279

All brands are based on a common technology platform and are marketed and sold in common sales channels. Therefore, no complete segment follow-up is reported.

Parent company's income statement

SEK millions	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Net sales	4	4	16	16
Gross profit	4	4	16	16
Administrative expenses	-4	-4	-16	-16
Operating profit	-	-	0	0
Profit before tax	-	-	0	0
Tax	-	-	0	0
Profit for the year	-	-	0	0

Parent company´s balance sheet

SEK millions	Mar 31 2018	Mar 31 2017	Dec 31 2017
ASSETS
Financial assets	337	337	337
Total financial assets	337	337	337
Other receivables	2	2	0
Cash and cash equivalents	1	0	0
Total current assets	2	2	1
TOTAL ASSETS	339	339	338
EQUITY AND LIABILITIES
Equity	118	196	118
Current liabilities
Accounts payables - trade	0	0	1
Liabilities to Group companies	217	140	183
Other current liabilities	4	3	36
Total current liabilities	221	143	220
TOTAL EQUITY AND LIABILITIES	339	339	338

Definitions

NUMBER OF OUTSTANDING SHARES

The number of registered shares, less repurchased own shares that are held as treasury shares.

RETURN ON SHAREHOLDER'S EQUITY

Share of the profit after tax attributable to the parent company shareholders in relation to the average of Shareholder's equity.

RETURN ON CAPITAL EMPLOYED

Profit after financial income in relation to the average capital employed.

EBIT

Operating income according to income statement.

EBITDA

Operating profit excluding depreciation and amortization of tangible and intangible assets.

EQUITY PER SHARE

Average equity attributable to the Parent Company's shareholders divided by the number of outstanding shares at the end of the period.

FINANCIAL ASSETS

Long-term and short-term financial receivables plus cash and cash equivalents.

AVERAGE NUMBER OF OUTSTANDING SHARES

The average number of registered shares less repurchased own shares that are held as treasury shares.

CAPITAL TURNOVER

Net sales in relation to average balance sheet total.

CASH FLOW FROM OPERATING ACTIVITIES PER SHARE

Cash flow from operating activities in relation to the average number of outstanding shares.

NET DEBT

Long-term and current interest-bearing financial liabilities less financial assets.

NET DEBT/EQUITY RATIO

Net debt in relation to Shareholders' equity.

EARNINGS PER SHARE, UNDILUTED

Share of the profit after tax attributable to the parent company shareholders in relation to the average number of outstanding shares.

EARNINGS PER SHARE, DILUTED

Share of the profit after tax attributable to the parent company shareholders in relation to the average number of outstanding shares plus an adjustment for the average number of shares that are added when converting the outstanding number of convertibles and options.

WORKING CAPITAL

Current assets less cash and cash equivalents and current liabilities calculated on average values.

OPERATING MARGIN

Operating profit in relation to net sales.

EQUITY/ASSETS RATIO

Shareholders' equity in relation to total assets.

CAPITAL EMPLOYED

Total assets less non-interest-bearing current liabilities, provisions, and total deferred tax liabilities.

Alternative key ratios

HMS presents certain financial measures in the interim report that has not been defined in accordance with IFRS. The company considers that these measures provide valuable additional information for investors and the company's management, as they enable the evaluation of relevant trends and the company's performance.

As not all companies calculate financial measures in the same way, these are not always comparable with the measures used by other companies. These financial measures should therefore not be viewed as substitutes for IFRS-defined measures, unless otherwise stated.

SEK millions	Q1 2018	Q1 2017	1704-1803 12 months	Q1-Q4 2017
Operating profit	63	57	218	212
Depreciation/amortization	12	11	48	46
EBITDA	75	68	266	259

HMS Networks AB (publ) is the leading independent supplier of products for industrial communication and remote management. Reported sales reached SEK 1,183 m in 2017 with more than 94 per cent outside Sweden. Development and manufacturing take place at the headquarter in Halmstad and in Ravensburg, Nivelles and Igualada. Local sales and support are handled by branch offices in Japan, China, Germany, USA, Italy, France, Belgium, Singapore, Spain, India, UK, Finland and Denmark. HMS employs more than 500 people and develops and manufactures solutions for connecting automation devices and systems to industrial networks under the Anybus®, IXXAT® and Intesis® brand and products for remote solutions and control under the eWON® brand. HMS is listed on the NASDAQ OMX in Stockholm, category Mid Cap, Information Technology.

Our vision

"In a world where all devices are intelligent and networked… HMS is the leader in making industrial devices and systems communicate – for a more productive and sustainable world.".

Our mission

"We drive innovation in collaboration with partners and customers creating leading technologies, products and solutions bringing value to real-world challenges".

HMS Networks AB (publ) Org.No. 556661-8954 Box 4126 | 300 04 Halmstad | Sweden Phone: +46 35 17 29 00 info@hms.se www.hms-networks.com/ir