HMS Networks

Annual Report • Feb 14, 2008

HMS Networks AB (publ)

Year End Report 2007

Investments for continued growth completed

• Net sales increased to 269.5 MSEK (227.4). Adjusted for 7.5 MSEK in negative currency effects the growth amounted to 21.8%.
• Operating profit improved to 54.5 MSEK (51.7). Adjusted for one-off costs for relocation of the Company the operating margin was 21.6% (22.7).
• w from ongoing operations improved to 34.2 MSEK (28.5). • Cash flo
• taxes totalled 29.9 MSEK (33.3) and earnings per share amounted to 2.81 SEK • Profit after (3.21).
• f directors propose a dividend of 1.00 SEK per share. • The board o

We have now completed a considerable strengthening of our organisation and relocation of the entire s - Swedish operations. This has a short term negative effect on profitability, but gives us the right condition for a continued growth, says Nicolas Hassbjer, CEO of HMS.

HMS Networks is a world-leading supplier of communication technology for industrial automation. Sales totalled MSEK 270 in 2007. Over 90% of these sales were to customers located outside Sweden. All development and the major portion of manufacturing are performed at the head office in Halmstad. Sales offices are located in Tokyo, Beijing, Karlsruhe, Chicago, Milan and Mulhouse. HMS has 155 employees and produces network interface cards and products to interconnect different networks under the trademark Anybus®. The network interface cards are embedded in automation equipment such as robots, control systems, motors and sensors. This allows subcomponents in machines to communicate with one another and with different networks. HMS was formed in 1988 and has had an average organic growth of 30% per year over the last 10 years. HMS is listed on OMX Nordic Exchange in Stockholm in the category Small Cap, Information Technology.

Comments of the CEO

Operations and financial performance have developed according to our expectations. HMS has a relatively small exposure against the American dollar, but the material weakening of the dollar and in certain degree the yen affects sales and profit negatively. Adjusted for exchange rate differences the growth is 21.8% which is slightly better than our objective of an average growth of 20%. New design wins that have entered into serial production have had a relatively small effect on growth. The new customers deciding to use Anybus in their products, i.e. Design Wins, has developed well. This has given us a strong portfolio of design wins which will enter serial production in the coming years. The profit for 2007 is affected negatively by nonrecurring expenses for the IPO and relocation of the entire Swedish operations. Moreover we have completed an extensive growth plan and strengthened our organization. In two years we have expanded from 100 employees to more than 150 and most of them have been added during 2007. This is also reflected in the result with full effect in the 4th quarter. With our long sales cycles it will take some more time before we can see the full effect of this investment. We are now well prepared for a continued growth with good profitability.

Growth in sales

Net sales for this year's operation increased to 269.5 t this MSEK (227.4), which corresponds to 18.5% growth compared to last year. Changes in exchange rates affec year's net sales with -7.5 MSEK. The order intake increased to 266.9 MSEK (233.4).

et sales for the fourth quarter totalled to 66.1 MSEK e N (60.6). Net sales have to some extent been affected by th move to new premises. Exchange rates had a negative effect of 1.9 MSEK in the fourth quarter.

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

Growth in profit

Operating profit totalled to 54.5 MSEK (51.7) for the year. ted In . The financial year has been charged with 3.8 MSEK in expenses related to the relocation to a new office. Adjus for these expenses the operating profit totalled 58.3 MSEK, equivalent to an operating margin of 21.6 %. addition to this changes in exchange rates is estimated to affects the result with approximately -5.0 MSEK. Expenses for the Company's IPO is accounted for under financial expenses and does not affect the operating profit for 2007

he operating profit for the fourth quarter totalled to 8.7 T MSEK (11.0). Adjusted for non-recurring expenses the operating profit totalled to 11.7 MSEK.

The graph shows operating result per quarter in the bars referring 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. The graph shows the result without adjustments for non recurring expenses.

Cash flow, investments and financial position

Cash flow from operating activities improved to 34.2 MSEK (28.5), due to the increased result before depreciation and a more efficient use of the working capital. The investments of the period totalled to 7.1 MSEK (36.9). At the year-end the cash equivalents totalled 30.1 MSEK (17.3) and unutilised credit facilities 20.0 MSEK. The Group's net debt amounted to 95.0 MSEK (120.8).

Tax

The year's tax charge totalled to 12.5 MSEK (12.3). The tax charge for the current year has been calculated on the basis of the tax situation applying to the Group at present and the profit development of the reporting entities belonging to the Group.

Equity

The Group's equity amounted to 182.2 MSEK. The total number of shares at the end of the year was 10 571 650. After full dilution, the total number of shares is 11 152 900. The Group's equity/assets ratio is 52.1 %.

Consolidated changes in equity

Equity	Per December 31
Tkr	2007	2006
Balance at 1 January	153 158	119 294
Currency translation differences	-748	181
Transfer		149
Payment, warrants	33	260
Profit for the period	29 768	33 274
Closing balance	182 211	153 158

Dividend

The board of directors of HMS Networks AB (publ) proposes a dividend of 1.00 SEK per share. The proposed dividend is based on the previously established policy to distribute 30% of the year's net profit in dividend.

Important events during the year

All material markets show a growth. The strongest growth occurred in Germany, Brazil and China.

The Company has completed a long term plan to strengthen the sales and marketing organisation. During the fourth quarter the marketing activities were intensified through participation on a number of international automation fairs that coincided in November.

Mitsubishi Electric which is the leading manufacturer of communication systems in Asia presented an additional new network system, CC-Link IE at the System Control Fair in Tokyo.

At year end the total number of design wins amounted to 651 (581). Of these 492 (412) were in the production phase and generated revenue in 2007. The Company estimates that the present portfolio of design wins in the development phase is stronger than the design wins that went into production phase. The average revenue per design win in the production phase amounted to 0.43 MSEK (0.45).

During November, the Company successfully relocated the Swedish operations to new premises in Halmstad. This decision that has been previously announced was done to secure the needs for expansion and combine the Swedish operations in one building to improve the communication, co-operation and efficiency.

2008 Outlook

The HMS comprehensive goals are unchanged. The Company's strategy to reach these goals includes a continued effort to build a strong portfolio of design wins within embedded network cards and to broaden the offer to closely related areas within network technology based on the Company's technology platform.

HMS Networks AB:s shares

HMS Networks AB is listed on the OMX Nordic Exchange in the category Small Cap, Information Technology. Average turnover totalled 4.9 MSEK per day. Average number of shares sold totalled 69 239 shares per day. The volume weighted average share price during 2007 was 70.76. At year end the total number of shares amounted to 10 571 650.

Risk management

The HMS Group is exposed to business and financial risks through its operations. These risks have been described at length in the Company's annual report 2006 and in the prospectus prepared in connection with the recently completed initial public offering. In addition to the risks described in these documents, no additional significant risks have been identified.

Accounting policies

This year end report has been prepared in accordance with the Swedish Annual Accounts Act and IAS 34, for Interim Reporting. For information on the accounting policies applied, refer to the annual report for 2006. The accounting policies are unchanged compared to those applied in 2006.

Nomination committee

The HMS nomination committee consists of persons represented by the largest owners. The nomination committee consists of: Urban Jansson (chairman), Nicolas Hassbjer, and Johan Lannebo, Lannebo Fonder. Suggestions and point of views from shareholders about the constellation of the board of directors can be sent to valberedning@hms.se or to HMS Networks AB, Att. Valberedningen, Stationsgatan 37, 302 45 Halmstad, Sweden.

The parent company

The Parent Company's operations are primarily focused on Group-wide management and financing. Apart from the Group's CEO, the Parent Company has no employees. The operating loss for the period amounted to -1.8 MSEK (-0.3). The operating loss for the period has been charged with expenses in connection with the completed IPO preparations, amounting to 5, 0 MSEK. Cash and cash equivalents amounted to 0.04 MSEK (0.6) and borrowing to 120.4 MSEK (132.9).

Annual general meeting and reporting occasions

The general meeting for HMS Networks AB will be held in the premises of the company on April 30, 2008 at 10.30. The year-end eport will be available at the Company's webpage from March 31st.. r

• First quarter report presented on April 30, 2008
• Second quarter report presented on July 30, 2008
• Third quarter report presented on November 5, 2008
• Year-end report 2008 presented on February 6, 2009

The Board of Directors and CEO confirm that the interim report provides a fair presentation of the Company's and the Group's operations, financial position and results and describes the significant risks and uncertainties that the Company and the companies included in the Group face. This year end report has not been reviewed by the Company's auditor.

Halmstad, February 14, 2008

Urban Jansson Jörgen Centerman Ray Mauritsson

Sebastian Ehrnrooth	Staffan Dahlström	Nicolas Hassbjer
		CEO

Further information can be obtained from CEO Nicolas Hassbjer or CFO Gunnar Högberg on telephone +46-35-17 29 00. See also http://investors.hms.se

The financial report in summary for the Group and Parent company below.

CONSOLIDATED INCOME STATEMENT	Q4	Q4	Q1-Q4	Q1-Q4
(SEK 000s)	2007	2006	2007	2006
Revenue	66 118	60 551	269 464	227 438
Cost of sales and services	-31 416	-30 918	-128 193	-111 594
GROSS PROFIT	34 702	29 634	141 271	115 844
Selling and marketing costs	-11 079	-10 138	-42 355	-32 167
Administrative expenses	-4 392	-2 750	-14 496	-9 903
Research and development costs	-7 822	-5 356	-25 710	-19 487
Other operating income	295		295
Other costs	-3 000	-369	-4 496	-2 550
OPERATING PROFIT	8 704	11 021	54 509	51 737
Finance income	415	323	720	556
Finance costs	-2 413	-1 847	-12 816	-6 662
Profit before income tax	6 706	9 497	42 413	45 631
Tax	1 359	-2 102	-9 652	-12 357
Deferred tax	-2 993		-2 993
PROFIT FOR THE PERIOD Attributable to shareholders of the Parent	5 073	7 395	29 768	33 274
Company	5 372	6 904	29 284	32 783
Attributable to minority interest	-299	491	484	491
Result per share before dilution, SEK	0.52	0.73	2.81	3.21
Result per share after dilution, SEK	0.49	0.67	2.65	3.00
Key ratios
Net increase in revenue (%)	9.2	21.5	18.5	26.3
Gross margin (%)	52.5	48.9	52.4	50.9
Operating margin EBIT (%)	13.2	18.2	20.2	22.7
Operating margin EBITA (%)	15.2	21.3	22.1	23.6
Non-recurring expenses	- 3 000	0	- 3 800	0
Operating margin EBIT adjusted to non-recurrent cost (%)	17.7	18.2	21.6	22.7
Return on capital employed (%)	16.8	18.6	16.8	18.6
Return on total equity (%)	17.1	24.3	17.1	24.3
Working capital in relation to sales (%)	8.1	7.3	8.1	7.3
Capital turnover rate	0.79	0.69	0.79	0.69
Debt/equity ratio	0.69	1.07	0.69	1.07
Equity/assets ratio (%)	52.1	46.6	52.1	46.6
Capital expenditure in property, plant and equipment	3 285	831	5 044	8 643
Capital expenditure in intangible fixed assets	1 051	960	2 872	2 633
Depreciation of property, plant and equipment	880	886	3 163	3 174
Amortisation of intangible fixed assets	954	491	3 668	1 964
Number of employees (average)	152	117	144	119
Revenue per employee	1.8	1.9	1.9	1.9
Operating cash flow per share, SEK	1.11	1.81	3.29	2.79
Operating cash flow per share, diluted, SEK	1.04	1.68	3.09	2.59
Basic number of shares, average, thousands	10 570	10 220	10 406	10 220
Number of shares, diluted average, thousands	11 060	10 020	11 040	11 020

CONSOLIDATED BALANCE SHEET	2007-12-31	2006-12-31
(SEK 000s)
ASSETS
Goodwill	236 071	236 071
Other intangible assets	13 736	14 522
Property. plant and equipment	11 869	10 059
Deferred income tax assets	828	1 155
Total fixed assets	262 503	261 807
Inventories	18 255	17 249
Trade and other receivables	30 552	25 057
Other current receivables	8 642	7 528
Cash and cash equivalents	30 117	17 326
Total current assets	87 566	67 160
TOTAL ASSETS	350 069	328 967
EQUITY AND LIABILITIES
Equity	180 252	151 864
Minority interest in equity	1 959	1 294
Total equity	182 211	153 158
Liabilities
Non-current liabilities	125 138	138 173
Deferred income tax liabilities	6 358	3 329
Total non-current liabilities	131 497	141 502
Trade payables	21 558	20 707
Other current liabilities	14 802	13 599
Total current liabilities	36 360	34 306
TOTAL EQUITY AND LIABILITIES	350 069	328 967

CONSOLIDATED CASH FLOW STATEMENT	Q4	Q4	Q1 – Q4
(SEK 000s)	2007	2006	2007	2006
Cash flows from operating activities before changes in working capital	4 998	15 163	35 149	36 508
Cash flows from changes in working capital	6 513	3 365	-949	-7 987
Cash flows from operating activities	11 511	18 527	34 200	28 520
Cash flows from investing activities	-3 363	-33 873	-7 059	-36 949
Cash flows from financing activities	-4 094	-1 415	-14 350	-13 847
Cash flows for the period	4 054	-16 761	12 791	-22 276
Cash and cash equivalents and short-term investments at beginning of period	26 063	34 086	17 326	39 602
Cash and cash equivalents at end of period	30 117	17 326	30 117	17 326

Quarterly data

Revenue per region	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
(SEK 000s)	2007	2007	2007	2007	2006	2006	2006	2006
EMEA	41 279	42 618	43 681	39 418	36 265	33 844	31 319	34 743
Americas	13 112	13 018	12 379	13 789	11 608	12 223	11 290	11 728
Asia	11 727	12 171	11 490	14 617	12 679	10 407	11 548	9 785
Income statement	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
	2007	2007	2007	2007	2006	2006	2006	2006
Revenue	66 118	67 807	67 550	67 989	60 552	56 474	54 157	56 256
Gross profit	34 702	38 461	35 313	32 795	29 634	29 179	26 673	30 358
Gross margin	52.5%	56.7%	52.3%	48.1%	48.9%	51.7%	49.3%	54.0%
Operating profit	8 704	16 688	15 285	13 632	11 021	14 135	10 322	16 259
Operating margin	13.2%	24.9%	22.7%	20.0%	18.2%	25.0%	19.1%	28.9%
Profit before tax	6 706	11 830	11 935	11 942	9 497	12 341	8 751	15 042

Parent Company

PARENT COMPANY INCOME STATEMENT	Q4	Q4		Q1-Q4	Q1-Q4
(SEK 000s)	2007	2006		2007	2006
Revenue				100
Cost of sales and services
GROSS PROFIT	0	0		100	0
Administrative expenses	806	-338		-1 092	-315
Other costs - net				- 800
OPERATING PROFIT	806	-338		-1 792	-315
Finance costs	-1 564	-1 777		-11 181	-6 400
Profit before income tax	-758	-2 115		-12 973	-6 715
Tax	3 631	1 880		3 631	1 880
PROFIT FOR THE PERIOD	2 872	-235		-9 342	-4 835
PARENT CO MPANY BALANCE SHEET (SEK 000s) ASSETS Financial fixed assets		2007-12-31 289 113			2006-12-31 289 113
Accumulated financial fixed assets		289 113			289 113
Other receivables			543		15
Cash and cash equivalents			44		582
Total current assets			587		597
TOTAL ASSETS		289 700		289 710
EQUITY AND LIABILITIES
Equity		114 738			114 824
Non-current liabilities		120 441			132 894
Trade payables					75
Liabilities to Group companies		51 839			41 605
Other current liabilities			2 682		312
Total current liabilities		54 521			41 992
TOTAL EQUITY AND LIABILITIES		289 700			289 710