HMS Networks

Earnings Release • Apr 30, 2008

HMS Networks AB (publ) Q1 report January-March 2008

Strong start for 2008 2008

• Net sales rose to SEK 77.3 m (68.0), which is equivalent to a growth of 13.8%. Over the last 12-month period, net sales rose by 16.6 % to SEK 278.8 m.
• Orders received went up by 29% to SEK 79.8 m (61.8).
• The operating profit improved by 36.0% to SEK 18.6 m (13.7). The operating margin was 24.0% (20.1). Over the last 12-month period the operating margin was 21.3 %.
• The profit after tax climbed by 36.0% to SEK 11.5 m (8.5) and earnings per share improved to SEK 1.02 (0.81).

"The year has started well in all respects for HMS. With improved orders received and a relatively good product mix, we can start 2008 with record results for HMS. Moreover we have had a major breakthrough regarding larger design-wins for our new Anybus-technology, which is important for our long-term growth," says Nicolas Hassbjer, CEO of HMS.

HMS Networks is a world-leading supplier of communication technology for industrial automation. Sales totalled SEK 270 m in 2007. Over 90% of these sales were to customers located outside Sweden. All development and the major portion of manufacturing is carried out 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% annually over the last 10 years. HMS is listed on the OMX Nordic Exchange in Stockholm in the Small Cap, Information Technology sector.

CEO's comments

The net sales and profit showed a strong performance over Q1 2008. Growth on a rolling 12-month basis was 16.6%. During the same period last year, we had relatively high sales to certain high volume customers that increased sales but had a negative effect on the gross margin. During Q1 2008 we have a more favourable product mix that has contributed to the better gross margin. In this better gross margin we can also see the first effects of our new Anybus-NP30 chip that is implemented step-by-step in the manufacturing of high volume products over the year. Despite the increased costs of our recently completed growth plan, we can report a strong improvement in the operating profit. This year, HMS saw a breakthrough in major design-wins for our new Anybus technology. This breakthrough shows that HMS is strongly positioned to attract major customers with a need for a strong partner in the area of industrial communication. The strong orders received, even with a weaker market in the US, is also a positive signal. With our current resources we are well prepared for continued growth.

Net sales

Net sales for the last four quarters totalled SEK 278.8 m (238.3) which corresponds to an annual growth of 16.6 %. Orders received over the four quarters amounted to SEK 285.3 m (241.1) corresponding to an 18.4 % increase.

Net sales for the year's first quarter totalled SEK 77.3 m (68.0), which corresponds to a growth of 13.8 % compared to the same period last year. In total, fluctuations in exchange rates had no significant impact on sales in the first quarter. Orders received totalled SEK 79.8 m (61.8) which corresponds to an increase of 29.1 %.

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

Operating profit

The operating profit for the last four quarters was SEK 59.4 m (47.3). The operating profit for the last four quarters has been charged with costs of SEK 3.8 m related to the organisation's move. Adjusted for these costs the operating profit was SEK 63.2 m, which corresponds to an operating margin of 22.7%. The company's costs for the IPO during the previous year are accounted for in the net interest income and only affects the net profit for 2007.

The operating profit for Q1 2008 was SEK 18.6 m (13.7) which is a rise of 36.0 % compared to the same period last year. The operating margin was 24.0 % (20.1). Q1 is characterized by a stable market demand and favourable product mix.

The graph shows the operating profit per quarter in the bars referring to the scale on the left axis. The line shows the operating profit for the last 12-month period referring to the scale on the axis to the right. The graph shows the profit without adjustments for nonrecurring expenses.

Cash flow, investments and financial position

The cash flow from operating activities was SEK 4.7 m (4.8). Strong sales growth during the latter part of the quarter has resulted in a relatively large rise in working capital, which is estimated to be a one-off effect in Q1. Investments for the period totalled SEK 0.3 m (0.8). At the year-end cash equivalents totalled SEK 30.2 m (15.6) and unutilised credit facilities stood at SEK 20.0 m. The Group's net debt fell to SEK 90.7 m (116.9).

Tax

The period's tax charge was SEK 4.9 m (3.4). The tax charge has been calculated on the basis of the tax position that currently applies to the Group and the earnings trend of the reporting entities belonging to the Group.

Equity

The Group's equity amounted to SEK 193.9 m. 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

Shareholders' equity	As at 31 March	As at 31 Dec.
(SEK 000s)	2008 2007		2007
Balance on 1 January	182 211	153 158	153 158
Currency translation differences	-151	-4	-748
Payment, warrants			33
Profit for the period	11 531	8 476	29 768
Closing balance	193 893	161 630	182 211

Important events during the year

HMS Networks in Halmstad received an order on 11 February worth SEK 1 million for Anybus Gateways to connect 100 industrial robots to a new car manufacturing line. The order, which was delivered in full during Q1 2008, is for one of the world's leading manufacturers of robots. The Anybus Gateway products work as a translator and will be used to connect the robot's embedded network language to a currently used network system.

One of the world's largest suppliers of inverters in industrial automation decided in February to build HMS´s new technology into their new generation products. The value of this new Design-Win is around SEK 1 m for this year and is estimated to exceed SEK 10 m per year when the customer's new product has reached full volume production.

Outlook for 2008

HMS's long term goals remain unchanged. The Company's strategy to achieve these goals includes a continued effort to build a strong portfolio of design-wins within embedded network cards and to widen 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 Small Cap, Information Technology sector. At year-end the total number of shares was 10,571,650.

Risk management

The HMS Group is exposed to business and financial risks throughout its operations. These risks have been described at length in the Company's Annual Report for 2007. 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 2007. The accounting policies are unchanged compared to those applied in 2007.

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 was SEK 1.5 m (-0.1). Cash and cash equivalents stood at SEK 0.05 m (0.6) and borrowings at SEK 116.6 m (127.5).

Annual General Meeting and reports

HMS Networks AB's AGM will be held at the company's premises on 30 April 2008 at 10.30 a.m. The complete year-end report is available on the company's website and a printed version can be obtained by sending your name and address to ir@hms.se.

• Q2 report will be published on 30 July 2008
• Q3 report will be published on 5 November 2008
• The financial statement for 2008 will be published on 6 February 2009

The Board of Directors and CEO confirm that this quarterly report provides a fair presentation of the company's and 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 quarterly report has not been reviewed by the Company's auditor.

Halmstad 30 April 2008

Urban Jansson Jörgen Centerman Ray Mauritsson

Sebastian Ehrnrooth Staffan Dahlström Nicolas Hassbjer

CEO

Further information can be obtained from the CEO Nicolas Hassbjer or the CFO Gunnar Högberg by phoning +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	Q1	Q1	Q1-Q4	Q2-07– Q1-08
(SEK 000s)	2008	2007	2007	LTM
Revenue	77 345	67 989	269 464	278 820
Cost of goods and services sold	-36 740	-35 194	-128 193	-129 740
GROSS PROFIT	40 605	32 795	141 271	149 081
Sales and marketing costs	-10 967	-8 884	-42 355	-44 438
Administrative expenses	-4 466	-3 183	-14 496	-15 779
Research and development costs	-6 236	-7 014	-25 710	-24 932
Other operating income			295	295
Other costs	-343	-44	-4 496	-4 795
OPERATING PROFIT	18 594	13 670	54 509*	59 433*
Financial income		104	720	616
Financial costs	-2 172	-1 853	-12 817	-13 136
Profit before tax	16 422	11 922	42 413**	46 913**
Tax	-4 891	-3 445	-9 652	-11 097
Deferred tax			-2 993	-2 993
PROFIT FOR THE PERIOD	11 531	8 476	29 768**	32 823**
Attributable to shareholders of the Parent Company	10 818	8 306	29 284	31 796
Attributable to minority interest	713	170	484	1 027
Basic earnings per share, SEK	1.02	0.81	2.81**	3.03**
Earnings per share, diluted, SEK	0.99	0.69	2.65**	2.90**
Key ratios
Net increase in revenue (%)	13.8	20.9	18.5	16.6
Gross margin (%)	52.5	48.1	52.4	53.5
Operating margin EBIT (%)	24.0	20.1	20.2*	19.5*
Return on capital employed (%)	16.9	17.3	16.8	16.9
Return on total equity (%)	17.6	21.3	17.1	21.3
Working capital in relation to sales (%)	10.8	8.8	8.1	10.8
Capital turnover rate	0.66	0.72	0.79	0.66
Debt/equity ratio	0.47	0.72	0.69	0.47
Equity/assets ratio (%)	55.0	48.0	52.1	55.0
Capital expenditure in property, plant and equipment	298	748	5 044	4 594
Capital expenditure in intangible fixed assets	1 170	210	2 872	3 832
Depreciation of property, plant and equipment	961	737	3 163	3 387
Amortisation of intangible fixed assets	995	451	3 668	4 212
Number of employees (average)	155	132	144	149
Revenue per employee	2.0	2.0	1.9	1.9
Operating cash flow per share, SEK	0.45	0.50	3.29	3.23
Operating cash flow per share, diluted, SEK	0.43	0.46	3.09	3.09
Basic number of shares, average, thousands	10 570	10 240	10 406	10 489
Number of shares, diluted average, thousands	10 972	11 060	11 040	10 972

* Including SEK 3.8 m in non-recurring costs for relocation of the Swedish operations.

** Including SEK 8.8 m non-recurring costs for relocation and Initial Public Offering.

CONSOLIDATED BALANCE SHEET	2008-03-31	2007-03-31	2007-12-31
(SEK 000s)
ASSETS
Goodwill	236 071	236 071	236 071
Other intangible assets	13 913	14 380	13 736
Property, plant and equipment	11 178	10 071	11 869
Deferred tax assets	762	1 155	828
Total fixed assets	261 924	261 677	262 503
Inventories	16 255	19 735	18 255
Trade and other receivables	39 336	32 388	30 552
Other current receivables	4 872	7 043	8 642
Cash and cash equivalents	30 199	15 617	30 117
Total current assets	90 662	74 783	87 566
TOTAL ASSETS	352 586	336 460	350 069
EQUITY AND LIABILITIES
Equity	191 221	160 163	180 252
Minority interest in equity	2 672	1 467	1 959
Total equity	193 893	161 630	182 211
Liabilities
Non-current liabilities	120 938	132 485	125 138
Deferred income tax liabilities	6 637	3 038	6 358
Total non-current liabilities	127 475	135 523	131 497
Trade payables	18 486	24 586	21 558
Other current liabilities	12 731	14 721	14 802
Total current liabilities	31 217	39 307	36 360
TOTAL EQUITY AND LIABILITIES	352 586	336 460	350 069
CONSOLIDATED CASH FLOW STATEMENT	Q1	Q1	Jan-Dec
(SEK 000s)	2008	2007	2007
Cash flows from operating activities before changes in working capital	13 148	6 480	35 149
Cash flows from changes in working capital	-8 404	-1 669	-949
Cash flows from operating activities	4 744	4 811	34 200
Cash flows from investing activities	-282	-846	-7 059
Cash flows from financing activities	-4 380	-5 674	-14 350
Cash flows for the period	82	-1 709	12 791
Cash and cash equivalents and
short-term investments at beginning of period	30 117	17 326	17 326
Cash and cash equivalents at end of period	30 199	15 617	30 117

Quarterly data

Revenue per region	Q1 2008	Q4 2007	Q3 2007	Q2 2007	Q1 2007	Q4 2006	Q3 2006	Q2 2006
(SEK 000s)
EMEA	53 444	41 279	42 618	43 681	39 418	36 265	33 844	31 319
Americas	11 907	13 112	13 018	12 379	13 789	11 608	12 223	11 290
Asia	11 993	11 727	12 171	11 490	14 617	12 679	10 407	11 548
Income statement	Q1 2008	Q4 2007	Q3 2007	Q2 2007	Q1 2007	Q4 2006	Q3 2006	Q2 2006
Revenue	77 345	66 118	67 807	67 550	67 989	60 552	56 474	54 157
Gross profit	40 605	34 702	38 461	35 313	32 795	29 634	29 179	26 673
Gross margin	52.5%	52.5%	56.7%	52.3%	48.1%	48.9%	51.7%	49.3%
Operating profit	18 594	8 704	16 888	15 285	13 632	11 021	14 135	10 322
Operating margin	24.0%	13.2%	24.9%	22.7%	20.0%	18.2%	25.0%	19.1%
Profit before tax	16 422	6 706	11 830	11 935	11 942	9 497	12 341	8 751
Parent Company

PARENT COMPANY INCOME STATEMENT	Q1	Q1	Q1-Q4	Q2 07 – Q1 08
(SEK 000s)	2008	2007	2007	LTM
Revenue	2 172		100	2 272
Cost of sales and services
GROSS PROFIT	2 172	0	100	2 272
Administrative expenses	-625	-87	-1 092	-1 630
Other costs - net			- 800	-800
OPERATING PROFIT	1 547	-87	-1 792	-158
Financial costs	-1 585	-1 593	-11 181	-11 173
Profit before tax	-38	-1 680	-12 973	-11 331
Tax			1 880	1 880
PROFIT FOR THE PERIOD	-38	-1 680	-9 342	- 9 451
PARENT COMPANY BALANCE SHEET (SEK 000s)	2008-03-31	2007-03-31	2007-12-31
ASSETS
Financial fixed assets	289 113	289 113	289 113
Accumulated financial fixed assets	289 113	289 113	289 113
Other receivables	300	764	543
Cash and cash equivalents	54	558	44
Total current assets	354	1 322	587
TOTAL ASSETS	289 467	290 435	289 700
EQUITY AND LIABILITIES
Equity	114 700	111 789	114 738
Non-current liabilities	116 628	127 541	120 441
Trade payables	3
Liabilities to Group companies	57 188	51 105	51 839
Other current liabilities	948		2 682
Total current liabilities	58 139	51 105	54 521
TOTAL EQUITY AND LIABILITIES	289 467	290 435	289 700

Our Vision

"All automation devices will be intelligent and networked. HMS will be the market leader in connectivity solutions for industrial devices".

Our Mission

"To provide reliable and flexible solutions to connect industrial devices to networks and products enabling interconnection between different industrial networks".

HMS Networks AB (publ) Co.Reg.No. 556661-8954 Stationsgatan 37 I 302 45 Halmstad I Sweden Tel: +46 35 172 900 I Fax: +46 35 172 909 http://investors.hms.se