HMS : Q4 Report 2022

HMS Networks

Year-end report 2022

January - December

Fourth quarter

• Net sales for the fourth quarter reached SEK 764 m (571), corresponding to an increase of 34%. Currency translations had a positive effect of SEK 65 m on net sales
• Order intake was SEK 718 m (699), corresponding to an increase of 3%
• Operating profit reached SEK 192 m (109), equal to a 25.1% (19.2) operating margin
• Profit after taxes totalled SEK 151 m (86) and earnings per share was SEK 3.25 (1.85)
• Cash flow from operating activities amounted to SEK 177 m (104)
• Acquisition of all shares in the British company Control Specialists Ltd.

Subsequent events

• Acquisition of additional 20% of the shares in Owasys Advanced Wireless Devices S.L.

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.

Yearly

• Net sales for the year reached SEK 2,506 m (1,972), corresponding to a 27% increase. Currency translations had a positive effect of SEK 158 m on net sales
• Order intake was SEK 3,064 m (2,538), corresponding to an increase of 21%
• Operating profit reached SEK 653 m (446), equal to a 26.0% (22.6) operating margin. Adjusted operating profit reached SEK 626 m, equal to a 25.0% adjusted operating margin
• Profit after taxes totalled SEK 508 m (362) and earnings per share was SEK 10.89 (7.61). Adjusted profit after taxes totalled SEK 481 m and adjusted earnings per share was SEK 10.31
• Cash flow from operating activities amounted to SEK 431 m (508)
• Acquisition of the remaining 30% of the shares in Procentec B.V.
• Acquisition of all shares in the Australian company Global M2M Pty Ltd.
• The Board of Directors propose a dividend to the amount of SEK 4.00 (3.00) per share

Hardware Meets Software™

CEO comments

A strong finish to the record year 2022

We finish the year with yet another strong quarter where we deliver a new turnover record and continued stable order intake.

Order intake amounted to SEK 718 million (699). We continue to see

some customers who place large orders earlier as a consequence of

long delivery times in the market and continued uncertainty regard-

ing the supply of semiconductors. In the quarter, we estimate that these orders amount to approximately SEK 85 million.

Turnover amounted to a record level of SEK 764 million (571), corresponding to an organic growth of 22%. We can conclude that during the quarter, we managed to handle the component supply issues better than expected, and we see a gradual improvement in our capacity to deliver.

In Europe, both order intake and turnover remain strong, while we are beginning to see signs of a slowdown in order intake in North America. In Asia, we continue to see order growth compared to the previous year, although at a lower level than earlier in 2022.

For the full year 2022, we reach an order intake of SEK 3,064 million (2,538). A part of this consists of early orders from customers who want to secure future deliveries in an uncertain market. This year's turnover amounts to SEK 2,506 million (1,972), corresponding to an organic increase of 17%, which we are very satisfied with.

During the fourth quarter, we see a continued good gross margin of 63.6% (60.8), the same level as we had in the previous quarter. Our price increases in 2022 mean that we compensate for the cost increases we have seen on components during the quarter. Although we still make purchases on the spot market at a significantly higher cost, we see that the need for these purchases decreases every quarter. Our operating costs increased organically by 14%, which is primarily

explained by a general cost inflation, investments in our sales and marketing organization and improved IT support in our operations. All in all, we end the year with an operating result on record levels for the fourth quarter - SEK 192 million (109), corresponding to an operating margin of 25%. Also for the full year, we see a new record with an adjusted operating profit of SEK 626 million (446).

After a couple of quarters with weaker cash flow, we now see an improvement as our cash flow amounts to SEK 177 million (103). With a sequential turnover growth of over 20%, our working capital is also increasing. Our net debt continues to decrease and is now down to SEK 300 million, which means that we have a strong balance sheet that brings good opportunities for the future.

Steady inflow of new Design-Wins

The continued component shortage and delivery problems in the electronics industry during 2022 have forced many of our customers to modify their existing products in order to deliver, thus reducing their focus on new development in the short term. Even though, for those of our products that are sold according to our Design-Win business model (approximately 44% of HMS's turnover) we can still see a continued stable inflow of new customers in 2022. In total, we received 146 (174) new Design-Wins during the year, and the total

number of active Design-Wins now amounts to 1,843 (1,790). Of these, 1,493 (1,447) are in production, while 280 (343) are expected to go into production in the coming years.

Acquisitions and strategic collaborations

During the quarter, HMS acquired all shares in Control Specialists

Ltd., a small British company with three employees and an annual turnover of 0.5 MGBP. The company has a long-standing collaboration with the Procentec business in technical certifications and training. We see an opportunity to develop our customer relations in United Kingdom by also providing these services for our customers within industrial networks.

After the end of the year, an additional 20% of the shares in Owasys were acquired. HMS now owns 80% and the other 20% is owned by four entrepreneurs, all active in the company.

Prospects

We end the year with an order book of SEK 1.4 billion, which means that we are well equipped for 2023. We expect to gradually reduce our large order book in the coming quarters as our customers' pre-purchasing start to normalize due to improved component availability and shorter lead times. At what pace this will happen and to what ex- tent, is difficult to say, but we see that the majority of our customers

are still prepared to keep large stocks to ensure their ability to deliver.

Customers' willingness to invest in digitalization, productivity and sustainability is high and the underlying demand is still considered to be good, even if there is some concern linked to how the industry will be affected by weaker consumer purchasing power, increasing energy costs and the macro political uncertainty.

We continue to work with a focus on long-term growth based on a balanced view of our costs. In the long term, we consider the market for Industrial ICT (Information & Communication Technology) to be an interesting area, both in terms of organic growth and acquisi- tions.

"It has been a challenging year but our fantastic staff has really come through and done their utmost to be able to deliver products to our customers," says Hanna Tegnhammar, Production Manager in conversation with CEO Staffan Dahlström.

+3% +34% 25%

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 3% to SEK 718 m (699), of which currency translations amounted to SEK 29 m (7). The organic decrease in order intake was 1%.

Net sales increased by 34% to SEK 764 m (571), of which currency translation effects were SEK 65 m (-7). The organic increase in net sales was 22%.

Gross profit reached SEK 486 m (347), corresponding to a gross margin of 63.6% (60.8). Operating expenses amounted to SEK 294 m (238). The organic increase in operating expenses was 14%, corresponding to SEK 33 m, mostly related to increased sales and marketing initiatives and a strenghened IT-organization.

Operating profit before depreciation/amortization and write-downsamounted to SEK 225 m (133), corresponding to a margin of 29.4% (23.4). Depreciations/amortizations and write-downs amounted to SEK 33 m (24). Operating profit amounted to SEK 192 m (109), corresponding to a margin of 25.1% (19.2). Currency translations affected the Group's operating profit by SEK 13 m (-4).

Net financials were SEK -11 m (5) mainly related to weakening of the Swedish Krona which gave negative translation differences mainly on option debt and additional purchase price. Profit before tax was therefore of SEK 180 m (114).

Profit after tax amounted to SEK 151 m (86) and earnings per share before and after dilution was SEK 3.25 (1.85) and SEK 3.24 (1.84) respectively.

Yearly

Order intake increased during the year by 21% to SEK 3,064 m (2,538), of which currency translations amounted to SEK 233 m (-83). The organic increase in order intake was 10%.

Net sales increased by 27% to SEK 2,506 m (1,972), of which currency translation effects were SEK 158 m (-75). The organic increase in net sales was 17%.

Gross profit reached SEK 1,577 m (1,230), corresponding to a gross margin of 62.9% (62.4). Operating expenses amounted to SEK 958 m (787). The organic increase in operating expenses was 15%, corresponding to SEK 115 m, mostly related to increased sales and marketing initiatives and a strengthened IT-organization.

Operating profit before depreciation/amortization and write-downsamounted to SEK 760 m (548), corresponding to a margin of 30.3% (27.8). Depreciations/amortizations and write-downs amounted to SEK 108 m (102). Operating profit amounted to SEK 653 m (446), corresponding to a margin of 26.0% (22.6). Operating profit includes a non-recurringitem of SEK 27 m, related to the revaluation of option debt for Procentec during the first quarter. Adjusted operating profit

amounted to SEK 626 m, corresponding to an adjusted margin of 25.0%. Currency translations affected the Group's operating profit by SEK 39 m (-31).

Net financials were SEK -29 m (3), mainly related to weakening of the Swedish Krona which gave negative translation differences mainly on option debt and additional purchase price. Profit before tax was therefore SEK 623 m (448).

Profit after tax amounted to SEK 508 m (362) and earnings per share before and after dilution was SEK 10.89 (7.61) and SEK 10.85 (7.61)

respectively. Adjusted profit after tax amounted to SEK 481 m and

adjusted earnings per share to SEK 10.31.

SEK m				Net sales			SEK m
900								2 800
800								2 600
							2 400
700								2 200
600								2 000
							1 800
500								1 600
400								1 400
							1 200
300								1 000
							800
200
							600
100								400
							200
-								0
2020 Q4	2021 Q1	2021 Q2	2021 Q3	2021 Q4	2022 Q1	2022 Q2	2022 Q3	2022 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.

SEK m			Operating profit EBIT			SEK m
220								750
200								700
							650
180
							600
160								550
140								500
							450
120
							400
100								350
80								300
							250
60
							200
40								150
							100
20
							50
0								0
2020 Q4	2021 Q1	2021 Q2	2021 Q3	2021 Q4	2022 Q1	2022 Q2	2022 Q3	2022 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.

Quarterly data	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
2022	2022	2022	2022	2022	2021	2021	2021
Order intake (SEK m)	718	675	815	857	699	669	606	565
Net sales (SEK m)	764	624	601	517	571	472	474	455
Gross margin (%)	63.6	63.6	62,2	61.8	60.8	61.4	63.7	64.0
EBITDA (SEK m)	225	204	167	165	133	126	147	141
EBITDA (%)	29.4	32.7	27.7	31.9	23.4	26.6	31.1	31.0
EBIT (SEK m)	192	179	143	139	109	101	121	114
EBIT (%)	25.1	28.7	23.7	26.9	19.2	21.5	25.5	25.0
Cash flow from operating activities per share (SEK)	3.80	2.52	1.21	1.71	2.22	3.16	2.69	2.83
Earnings per share before dilution (SEK)¹	3.25	2.90	2.33	2.41	1.85	1.81	2.02	1.93
Earnings per share after dilution (SEK)¹	3.24	2.89	2.33	2.40	1.84	1.80	2.01	1.92
Equity per share (SEK)	32.54	28.91	27.27	26.27	24.32	25.67	27.98	27.08

¹ Attributed to parent company shareholders.

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Cash flow, investments and financial position

Fourth quarter

Cash flow from operating activities before changes in working capital amounted to SEK 208 m (127) for the fourth and last quarter of the year. During the quarter the increase of the inventory of components has continued to ensure a good delivery capacity. Therefore changes in working capital were SEK -31 m (24). Cash flow from operating activities was thereby SEK 177 m (104).

Cash flow from investing activities was SEK -51 m (-24) of which the majority corresponds to investments in intangible and tangible assets of SEK -45 m (-11). Aquisition of subsidiaries has been made of SEK -4 m (-). Changes of financial assets was SEK -2 m (-15).

Cash flow from financing activities was SEK -125 m (-11) which is mainly explained by changes in external loans of SEK -113 m (-) and amortizations of lease liabilities by SEK -12 m (-9). This means that cash flow for the quarter was SEK 2 m (69).

Yearly

Cash flow from operating activities before changes in working capital amounted to SEK 647 m (536) for the year. Increase in component inventory has been made during the year to ensure a good delivery capacity. Therefore changes in working capital were SEK -216 m (-28). Cash flow from operating activities was thereby SEK 431 m (508).

Cash flow from investing activities was SEK -366 m (-100) of which the majority corresponds to the acquisition of subsidiaries of SEK -280 m (-45). Moreover investments in intangible and tangible assets was SEK -83 m (-39). Changes in financial assets was SEK -3 m (-17).

Cash flow from financing activities was SEK -99 m (-321) which is mainly explained by changes in external loans of SEK 112 m (-174). Dividend was disbursed of SEK -140 m (-93). Repurchase of own shares has been made by SEK -34 m (-19). Amortizations of lease liabilities has been made by SEK -41 m (-36). This means that cash flow for the year was SEK -34 m (87).

Large Cap list, in the sector Telecommunications. By the end of the period the total number of shares amounted to 46,818,868 of which 176,320 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).

Share savings program

The company has four ongoing share savings programs. Based on a decision by the Annual General Meetings, permanent employees are offered to save in HMS shares in an annual share savings program. Between 41% and 53% of the employees opted to participate in the respective program. If certain criteria are met the company is committed to distribute a maximum of two HMS shares for every share saved by the employee, to the participant. As of December 31, 2022, the total number of saved shares amounted to 78,082 (94,153) within ongoing programs.

On December 31, 2021 the share savings program from 2018 was finalized. During the first quarter of 2022, 62,251 shares, of which 31,228 performance shares, were distributed free of charge to the participants. Shares used for the allocation were own shares held by the company.

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 profit for the year amounted to SEK 0 m (0). Dividends from subsidiaries amounted to SEK 229 m (423). The profit after tax for the year was SEK 236 m (423). Cash and cash equivalents amounted to SEK 3 m (2) and external borrowing does not exist.

Related party transactions

No material transactions with related parties have occurred during the period.

Cash and cash equivalents and net debt

Cash and cash equivalents amounted to SEK 144 m (172) and unused credit facilities to SEK 397 m (490). Net debt amounted to SEK 300 m (347) and mainly consists of external loans of SEK 136 m (-) and a debt corresponding to expected exercise price, in total SEK 99 m (391). SEK 160 m (78) of net debt corresponds to lease liabilities.

Net debt to EBITDA ratio for the last twelve months was 0.39 (0.63). Net debt/Equity ratio was 19% (30) and Equity/Assets ratio was 59% (53).

The HMS Networks AB share

HMS Networks AB (publ) is listed on the Nasdaq OMX Stockholm

Contingent liabilities

There have been no changes in the Group's contingent liabilities, described on page 109 in Note 37 of the Annual Report for 2021.

Significant events

HMS aquires Control Specialists Ltd

December 9 2022, HMS acquired all shares in the British company Control Specialists Ltd. Control Specialists is a key partner to Pro- centec - HMS' offering in monitoring and diagnostics of industrial networks. They deliver certifications and certified trainings related to industrial networks in the United Kingdom.

Control Specialists realized a turnover of m 0.5 GBP in 2022 and will be integrated into HMS Industrial Networks Ltd during 2023, to further strengthen the Procentec training offering. The acquisition has limited impact on HMS's sales and earnings per share in 2022.

4

The acquisition generated SEK 5 m excess value in the Group. The acquired company is consolidated in the HMS Group account as of December 9 2022 and will have a limited impact on the group's results and position.

According to preliminary acquisition analysis, the purchase price, acquired net assets and goodwill amounts to:

Purchase sum:	SEK m
Cash and cash equivalents	8
Total purchase sum	8
The assets and liabilities recognized in conjuction
with the acquisition are as follows:	SEK m
Intangible fixed assets	-
Tangible fixed assets	0
Deferred tax assets	-
Current assets	1
Cash and cash equivalents	3
Deferred tax liabilities	-
Non-current liabilities	-
Current liabilites	-1
Total identifiable net assets	3
Goodwill*	5
Acquired net assets	8

*Goodwill is attributable to the company's market position within wireless communication and expected synergies with existing operations. No part of the recognized goodwill is expected to be tax deductable.

Subsequent events

After the end of the period, an additional 20% of the shares in Owasys Advanced Wireless Devices S.L. has been acquired at a value corresponding to which option debt was reported. After this aquisition 80% of the company's total number of shares are held.

There are no other events that are to be considered significant after the end of the period until the signing of this interim report.

Outlook

HMS has a record order book which is expected to gradually reduce in the coming quarters, as our customers' pre-purchasing start to normalize, as an effect of improved component availability and shorter lead times. At what pace this will happen and to what extent is difficult to say, but the majority of HMS's customers are still prepared to keep large stocks to ensure their ability to deliver.

Customers' willingness to invest in digitalization, productivity and sustainability is high and underlying demand is still considered to be good, even if there is some concern linked to how the industry will be affected by weaker consumer purchasing power, increasing energy costs and the uncertain geopolitial situation.

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 2021. In addition, no significant risks are considered to have arisen.

Audit review

This interim report has not been reviewed by the Company's audi- tors.

Nomination committee

In accordance with principles adopted at a prior HMS' Annual General Meeting, the following persons have been assigned to be a part of the Nomination Committee: Johan Menckel, Investment AB La- tour, representing 26% of the shares, Staffan Dahlström representing 13% of the shares, Tomas Risbecker, AMF Fonder representing 8% of the shares, Patrik Jönsson, SEB Fonder representing 8% of the shares, and Charlotte Brogren, Chairman of the Board. The Nomination Committee has appointed Johan Menckel as its Chair- man.

Accounting policies

HMS Group's consolidated accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS), adopted by the EU. The Interim Report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The parent company applies Swedish Financial Reporting Board's recommendation, RFR 2 Accounting for Legal Entities, and the Swedish Annual Accounts Act.

Other new or revised IFRS standards or other IFRIC-interpretations that came into effect after January 1, 2022 have not had any significant impact on the Group's financial reports as of December 31, 2022.

The accounting principles applied conform to those described in the 2021 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).

HMS in short

Strategies

GROWTH STRATEGY - HMS' growth strategy is a combination of organic growth and acquisitions. Expansion in existing markets is done through a continuously improved and expanded product offer- ing. This is combined with a high level of service and active investments in new sales channels globally. New markets are addressed with innovative and targeted solutions.

DEVELOPMENT STRATEGY - HMS' core competence is the broad and deep knowledge of industrial communication and IIoT, Industrial Internet of Things. A clear platform strategy ensures that all development centres within HMS are using core HMS technol- ogy.

PRODUCT STRATEGY - HMS offers solutions for industrial

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