Welcome to the HMS Networks Q3 presentation for 2023. During the questions- and- answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to CEO Staffan Dahlström and CFO Joakim Nideborn. Please go ahead. ... Welcome to this Q3 call from HMS. I'm Staffan Dahlström, and I'll start this, and Joakim will join with some more details a bit later. We run this morning with four items. I'll start with a short summary for especially for newcomers who are not so familiar with HMS Networks, a short business update, and then Joakim will dive into our results of the quarter, and then we finish up with a Q&A. All right, so just in brief, we are having a bit of a mixed picture. We have good sales. We have a new record level on revenue, plus 26%. On the other hand, we are seeing order intake that goes in the other direction. This is quite complicated, and Joakim will spend some time to explain what is destocking, what is underlying demand, and things like that. So, give us some time because we spend most of the time today to explain this, because this is a very important indicator for us. Since we have high revenue, we are seeing a good result, a new record level, SEK 223 million. So, this gives us a strong margin. Q3 is normally a strong quarter for us, with a little bit of lower cost for vacation effects and other things there, so it's always quite good margins. Cash flow is improving, but we are not really fully happy with our inventory build-up. That is, keep on going here, but fairly good cash flow. So, let's move into more about HMS, just as a faceplate for newcomers. HMS Networks, hardware meets software, that's our business. We are well connected in our industry. It's a specialized company in the field of Industrial ICT, Information and Communication Technology. Almost 10 million devices connected through our Anybus brand around the world, and soon, 500,000 machines connected to our cloud-based remote access system for diagnostics and remote access of machines. We are a tech company focusing a lot on new technology. Right now, we talk a lot about Smart Grid, 5G, IoT, and these things. But keep in mind, we're also working with large Industrial end users in paper, steel, transportation. These are industries that love to talk about new technology, but they also would like to have these technologies available for a long time. So, we are always having this mix of new tech, but also long life cycle of products. We are 800 employees in 18 countries. We have 1/3 of employees in R&D, 1/3 in sales and marketing, and this has been important for us through the years to really focus on developing fantastic products, but also making sure that we really can sell and make sure that we identify our customers' pain points and help them solve their problems. Headquartered in beautiful Halmstad, southwest coast of Sweden, but most of our employees is actually outside Sweden nowadays. Last year, revenue, SEK 2.5 billion, EBIT margin, 25%, and we've been growing on average 20% last 10 years per year. And the majority of that, I think some 14%-16% has been organic, and then we made a couple of M&As that top up this growth. All right, so we talk about enable valuable data and insights. The reason we talk about that is that with this data and insights, our customers can improve their productivity and their sustainability. So, the hardware and software product and services we make them is very important and help them to become better. We have the main market, Industrial Automation, three subsegments in manufacturing, like Factory automation, Process automation, Transportation Infrastructure, and Power and Energy. And then we have a subsection for Building Automation. Building Automation is commercial buildings, industrial buildings, airports, these things. And the common denominator here is the communication technology and also the requirements that we see in these applications about quality, about uptime, and if it doesn't work, it costs a lot of money for our customers. So, reliability is a key thing why people use our products. We have two types of customers. We have the makers of industrial equipment, the machine builders, the device manufacturers, and then we have users of automation systems. When we look on the markets, we go to market through device makers and machine builders, either direct, where we have 44% of revenue, where we have a direct sales force working with very good collaboration with these customers. With machine builders, we have, that is 25% of revenue. We have a combination of direct sales to large customer, but also a lot of successful distributors around the world. In the machine builder industry, of course, we would like to be part of every machine. Right now, we are more specified as an option if you need remote access or if you need connectivity in your production line, et cetera. And then we have our end users and system integrators, where we spend quite much energy in the last couple of years, both organically and some acquisitions. Here we work either with projects together with our system integrators, but also quite much of the e-commerce and regular distribution to go to market in this field here. If you look at our strategy, until 2025, around our strategies, we have the framework or of our people strategy. We talk about happy and high-performing employees generating loyal customers, but we also talk about the planet and our sustainability work, and this frames the four strategies with organic growth. We've been very successful the last couple of years. Our M&A strategy, where we feel we should do more, we don't have any large debt anymore, and we are ambitious here, but it's been difficult for us to identify and execute on the M&A side for the last two years. We recently started two new things. One is operational efficiency, where we see we can do more. We've done a lot of changes the last couple of years, new ERP system, we have some new top managers to drive this for us. So, we see that this can be done in a better way, also through using new tools for AI and things like that, that we're starting. We're also driving product with sales excellence. We have sales team in 18 countries. We have fantastic teams there, but we also see a potential to do more, harmonization and use more of best practice in this. So, this is the framework we work with and keep us busy until 2025. Last month, we presented our updated goals in these areas. For planet, we talk about our science-based targets, about how we and our value chain can reduce emissions, very important for us. But we also talk about the HMS effect, that is, helping customers to eliminate or avoid their emissions. So, it's not so scientific, but here we talk about big effects. We would like to triple this effect by 2030. So, this is a very important combination of sustainability work. In people strategy, we have a high and ambitious target for employee NPS and customer NPS. We also would like to continue to drive our diversity. We would like to have more than 30% female managers by 2025. We used to be at 14% a couple of years ago, years ago. We are now at 22%, but we believe more female managers will be the enabler for also having more diversity in our teams. A female manager attract more female, especially engineers, we think. We are in a male-dominated industry, but we really search for female managers. And growth is very important for us. We updated our EBIT goals for from 20% to 25%, ambitious. And we talk about our goal of pi plus. Pi plus for us means that we should reach our SEK 3.14 billion by 2025, but we will do this only by organic growth. As I said, we have also ambitious M&A plans, and the plus is to indicate the M&As we are planning. But, you know, M&A is difficult to schedule and it's a bit uncertainty there, so we don't put any real number on that, but more than SEK 3.14 billion organically. All right, so that was the goals. If we just take one more slide before Joakim enter the scene here, just a few updates, and Joakim will dive into the details. We see a new record quarter in sales. Of course, we have a large order book built up over two years here. So, now when normalization of supply chain is taking place, we see that we can deliver more, but this also mean that our customers are also adjusting their inventory, do destocking, and this will be a topic of Joakim today. We really need to dive into this because we see actually a quite relatively stable market underneath this order intake that looks weak on the first view here. As I said, we are back on. We have still some few hiccups on the supply chain, but in general, it's much, much better than it was two years ago. So, we're quite fine here, but we remain on high inventory levels. We're not very happy with the cash flow, but it will probably continue for some time before we can also start with some changes. And of course, having a high inventory also give us some security in our delivery performance. As I said, we don't have any interest-bearing debt anymore. Very good, and this makes us even more hungry for M&As. So, we feel that the long-term potential remains solid. We have ambitious target for organic growth, but also for M&As going forward. And with this, I would like to hand over to Joakim. All right, thank you, Staffan, and good morning to everyone. I'm going to start off with looking at the order intake. I'm sure you're interested in understanding what's going on there. So, looking at the graph to the upper left, you see that we have this normalization that is really ongoing and escalating in the third quarter. We saw some signs already in Q2, but now we really see this, that we were expecting to see some normalization. All in all, we end in SEK 492 million, which is down 27% or 25% organic for the quarter, which of course, is a large drop. Looking at the Book- to- Bill, we are at 0.62, so they would be in about 0.8 before, and also showing that this is really taking off. The majority of the decline is due to this order intake normalization and to some part, destocking as well. We put both in there because there's a small difference in terms of the order intake normalization. It's just that the customers already placed orders before, and the destocking is when they already have goods in stock. We think that the larger effect is really that they already placed orders, not necessarily changing the inventory levels. So, the big difference compared to previous quarters is that we now see this escalating in Europe and also at some part in Japan. I think Japan in Q2 was a mixed picture. We saw some normalization, but also some longer orders. Now, we see this normalization quite clearly. And in Europe, we only saw some small effects in previous quarters, and now we have pretty much across the whole area, we see major effects. So, that's why we see this big, big change in pace. Maybe on a more positive note, in the U.S., we have reported already in Q2 that we saw some of this going on, and that continues in Q3. But we're starting to see the light in the tunnel and believe that this will turn around maybe even in the coming quarter, and it looks a bit brighter for the future. And I think it's been the same through this whole period, that the U.S. has been quicker into the first drop when we talked around COVID, and then faster recovery after that. And also now we see the destocking is getting towards an end in the U.S. To try to explain this, a bit more in detail, I have this graph that I think you've been seeing now for the last two to three years, looking at the underlying demand as we see it per quarter. So, this is looking at the normalized orders in the dark blue. And here we see, as Staffan touched upon it, we don't really see a big change in demand in the underlying market, slightly down from Q1, Q2, but actually up in comparison to Q3 in 2022. And to maybe illustrate that, we did. I think we put this graphics in place in Q2 to try to show how we see the picture, and I'll take this. It's a lot of things going on in this graph, so I'll try to break it down for you. Starting on the left with the reported order intake in Q3 2022, SEK 675 million. And then to the very right, you see the reported order intake in Q3 2023 of SEK 492 million. So, we start by normalizing the order intake in Q3 2022, taking away SEK 50 million in boost effect and SEK 50 million in revaluation of the order backlog that we also had in that quarter, saying that an underlying demand would be some SEK 575 million. And from there, if I now move to the right again, we take and add back this order normalization of SEK 150 million to end in SEK 642 million as a normalized order intake in Q3 2023. That, that really shows us that we comparison to that quarter, we have an underlying growth of some 14% organic numbers. With that said, of course, the SEK 575 million was the weakest quarter we've seen in a while in Q3 2022. And as I said before, the sequentially comparison to previous two quarters, we are slightly down in underlying demand. But still, I think the big numbers you see when you look at the reported figure is not really how we see the underlying demand. I think that's the point I want to make with this. If we then move over to the sales, we can see that we have a new record level of SEK 789 million, which we're happy with, and we don't see a lot of disruption in the supply chain. What we see is really what the customers would like to have. There's not a big difference in the customer demand and what we manage to ship out now, which we're happy to see. With that said, we see it also a mixed picture there with some customers that really would like to have deliveries as soon as possible still. But we have discussions with like customers who would like to push out the current orders to have deliveries a month or two later, since they are trying to manage inventories. This is something that we've been seeing developing now over the last two quarters, these discussions with customers really trying to manage inventories. What we maybe thought before, we thought that, for some time, a lot of customers would have some more inventory than under normal circumstances. Maybe that's not the case. I think everybody is going back to trying to push this to a minimum, as it was before. Of course, one main driver for this is the cost of capital and interest rates going up, and customers would like to minimize the cost of keeping that inventory. So all in all, SEK 789 million, 20% organic increase. We, as we also write in the report, we had this SEK 40 million lost sales sort of in Q2 when we went live with the ERP system. We had some delays in the first month that we're now fully managing to recoup in Q3, which is also a bit of a driver for the good sales number there. Given the order intake, you see that the reason we can have this good development is primarily due to Anybus and Ixxat benefiting from solid backlogs that we can deliver upon, and that is now being reduced. Of course, now in the future, we need to see the order intake coming up as well to keep these good levels. We can also comment on Ewon sales, where we see actually some destocking going on with customers both in two levels, actually, both the distributors and the end users of the product that's been building some inventory and are adjusting that somewhat, and that's something we believe will continue also for the coming quarters. Now, looking at the backlog, we have, of course, eaten some backlogs, still about SEK 1.1 billion in backlog, rather solid. Looking to the right-hand side, you see the order backlog in relation to rolling 12 months sales. And here we come from a situation of around a ratio of 0.2 in 2019 and 2020, and then we've been up to, as you see, ramping up to the 0.7 as a top level in mid-2022, and now quite rapidly down again, starting to look like a normal distribution. We ended up just short of 0.4. And if we were to assume that we were coming down to this ratio of 0.2 in the coming quarters, we would see a backlog of some, yeah, maybe SEK 500 million-SEK 600 million. So, I think we still have some overbacklog left to be delivered out that will support us in the coming quarters when we also expect this order normalization to be going on... Sales per region, not a big difference compared to what we normally see. 20% in America, 62% in EMEA, and 18% in APAC. So, I think this is sort of the normal ratio. Then talking a little bit about the result. Also here, a record result, SEK 223 million, 28.2% margin. So, very nice to see these good margins and a good result. Q3 is normally our strongest quarter in terms of earnings. We have some effects on the OpEx that helps us a little bit there. And of course, the strong top line also drives the results. We also should comment on the gross margin. Quite happy to see that development. For the first time, we break above 65%, 65.4%, up 1.8 percentage points in comparison to the same quarter last year. Yes, as we've been reporting on the previous quarters, it's the same drivers, about the same impact actually, both from price adjustments fully coming through, and the FX situation continues to help us with the weak Swedish crown. Then the efficiency we've managed to pull in our supply chain with the higher quantities we deliver out, we don't have to build a fixed cost in the same ratio, also helping us a bit. About equal parts on those three reasons for the built gross margin. If we then take a few minutes on the OpEx, so SEK 293 million, a rather big increase, 24% organically. We have been investing a lot in the sales and marketing organization, more resources, penetrating some new areas with more resources and so on. Also doing more marketing activities again. Of course, this is positive that we managed to do these investments. We think that we will be a little bit more careful going forward, so we expect slightly lower OpEx increases for the coming quarters. They will still be an increase, but it will be in a significantly slower rate than what we see in the third quarter. Earnings per share, SEK 3.69. Not a lot of comments on that, no surprises in the net financials and so on. So, I think good performance on that side, and good to see good DPS underlying. The cash flow, SEK 167 million from operating activities. We think it's okay. We still suffer a little bit from high inventory, also a buildup of some SEK 59 million here in the third quarter. The major explanation for that is early orders that were placed, like maybe 15 months ago, for components coming in, difficult to adjust the exact timing of these deliveries with how we would like to have our deliveries being made. So, I think we see it as a bit of an insurance to be able to keep these good sales levels, and to deliver out on the backlog. We expect this to be reduced over the coming year, maybe not in the short term, but in the, in the 12-month period, this will be slightly reduced. So, it could have been even better, but we're approaching the 75% in, in cash conversion that we believe we should be over time. So, I think that's, that's all right. Final slide from my side, looking at the balance sheet a little bit, Staffan said this already, we, we are in a sort of an interest-bearing net cash situation, not by a lot, but a little bit. And, then we have the, the leasing effects, and we still have this, debt related to the option we have for, for Owasis acquiring the last 20%. So, all in all, very solid situation, and we're happy with to having this extra dry powder in the current market. So by that, Staffan, if you would like to summarize this. Thanks, Joakim. Crystal clear. So, I think as Joakim described here, it's important to understand this situation with the order situation. We look on this as an normalization of order intake and destocking, but it's quite complex. I hope this slides was helping you because we really try to make this transparent, what we see. And we believe that there's a growth underlying growth on year by year, but as we all see that this quarter was slightly weaker than the previous quarter, so relatively stable is our conclusion. And of course, we are happy to see records in net sales and EBIT. Particularly, I'm very happy to see the gross margin. We've been working a lot with improvements and looking on the mix and special pricing for special customers, et cetera. So, we're happy to see there are good results here, and it's a solid 65%. And we are increasing our OpEx. We're doing some major investments in building up the new organization for future growth, but we are happy to see that the growth on revenue and the good gross margin makes EBIT looks quite good, actually. So, we are happy with what we see on the net sales and on EBIT. With that, I would like to open up for questions. If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Joachim Gunell from DNB Markets. Please go ahead. Good morning. So, can you start by talking a bit about the pace of the order momentum through the quarter, month by month, if possible, and what you have seen so far into Q4? And similar to that, when you talk about the order book coming down to SEK 500 million-SEK 600 million long term. What is long term there? Thank you. Joakim, would you like to take this? Yes, that sounds good. So, if we start with the pace, Joakim, we have actually quite similar pattern. We saw a pretty rapid scene change from June to July, where we started to see this normalization. So, the order intake base has been rather solid throughout the quarter, and we see a similar pace so far into October as well. And then what was now the second question? Sorry, I lost that one. You, you commented about the fifth, SEK 500 million-SEK 600 million as some sort of- Yeah, right. -long-term, normalization. What is long term here? Yeah, so that, that's a very good question. I think we, what, what we're trying to say is that we still have some... If we now have this situation for another quarter or two with this, order normalization, we still have some support in the big order book to be able to hold up, a decent sales delivery. So, I think that could be two quarters, it could be four quarters, we, we don't really know. But given the, the rather high pace we've seen in this, conversation now in, in Q3, we probably changed our own, our own opinion a little bit, that we thought this would be a slower process over a longer period. Now we think it will be a little bit quicker, so maybe one to two quarters more, and then we should see a change in the order intake pace. It's not impossible that we'll start to see a bit of a softer improvement from these levels already, but it's another two quarters, maybe we think we'll see these kind of patterns. That is very helpful. And, I don't mean to sound like a broken record. We've asked this question, I think, on all the earnings results over the past year, but are there any signs of order cancellations here, or is it mainly related to delays you want to sit out? No cancellations, but as I said, we do have some discussions, customers who want to postpone some deliveries. Great. And when it comes to price revisions for 2024, you commented on the September capital markets that this is something that you are evaluating and will have the reason to get back to. So, just pricing as a topic, is-do you see this as worrisome if your customers are increasingly starting to look over their costs as on a little weaker, weakening demand, et cetera? I think we've done a good job the last two years of compensating for high cost and inflation. However, we have a couple of large customers where we were a little bit stuck with longer contracts. So, I think there we see price adjustments on some of these customers to compensate for quite high inflation that we haven't been able to get through the previous years. So, I think it's much more specific customers with specific adjustment now than a general pricing. But overall, we think this will result in a little bit support in price increases, but we talk about low single-digit numbers on the total that will support this. Perfect. The final one from me. The way I understood it back in September was that your ambition is to reach your 25% EBIT margin target here, not only by 2025, but in 2023, 2024 and 2025. So, based on the current order trajectory and the fact that your net sales could, from an organic point of view, actually be down into next year, and in light of your, as you highlighted, very impressive gross margins here, operating leverage obviously works both ways. So, the 25%, call it indication on EBIT margin for 2024, is that, well, can you just comment a bit if that factors in a view that net sales should not turn negative, or do you believe if there's an opportunity here to tackle, and we call it negative organic sales growth by cost measures? Thank you. I think, of course, we have 25% as a target, but I think I mentioned this on the Capital Markets Day. This doesn't. A target means a target, not a guarantee. Of course, we will remain with a target, but as you say, if we see that this little bit slower-growing market will remain over the entire 2024, I think it will be a challenge to meet the target. But I think what we think right now is that the market will improve in the second half of 2024. So, from an organic point of view, I think we are feeling quite okay there. Then let's see, we are, we hope to make more on the M&A side, and some of the M&As we look at have good profit level, but not 25%. So, there's also some kind of, you know, dilution when we look on the M&A. So, we keep our target, but this doesn't mean that it's free from challenges to get there. Thank you, Staffan and Joakim, and have a good day. Thank you. The next question comes from Viktor Högberg from Danske Bank. Please go ahead. Good morning. So, judging by your comments, do you think that the largest inventory effect was seen now in Q3 with drawdown? And you say coming one, two quarters might have some effect as well, but do you think this was the largest effect? That's my first question. And the second question, on the sales growth, how much of that was price on the organic sales growth? Will you take this, Joakim? ... Yeah, I can take that one. So the first one with was this the largest normalization that we've seen that we will see? Of course, difficult to answer. What we said was that we see we think that in the U.S., we will see an improvement. And you still see, if you look at the slide where I showed a boost effect over 2021 and 2022, and then the reduction, there is still quite a bit left in terms of normalizing the order intake. And so I don't want to say that this is the lowest we've seen. We think that it—we don't think it will be much worse than this, but it could be that we have another two, one or two quarters in the similar range as we've seen in this quarter. And then the question regarding pricing in the growth, we don't want to be fully transparent with that, but single digits, rather high single digits, we can say. Okay. And how much of the costs, how much was the investments in the ERP system? I think that might have some effect on Q3 OpEx, right? And the effect would probably decline from this level. How much was it? Yeah, that has had some effect between SEK 10 million, maybe SEK 10 million-SEK 12 million, something like that, in Q3. We are still rolling out, so we've been through the major parts of the rollout, but we still have a lot of sales companies left, and we will also some of the recent acquisitions we will cover as well. So, I think we'll still see an effect of this throughout the full 2024. Maybe not as high, or it will not be as high as we've seen now, but there will still be a couple of millions per quarter in ERP rollout. Okay. And just two questions on the order backlog, and the comment on normalized level SEK 500 million-SEK 600 million in order backlog. Just want to put that in relation to the target of SEK 3.14 billion in sales by 2025. That's roughly SEK 800 million in quarterly sales. Would, wouldn't you expect your sales and orders to match roughly over time? That, that's the idea going forward, yeah. When everything is... When everything is normalized out, we normally have a very good relationship between sales and orders. Very close one, yeah. Okay, so the SEK 500 million-SEK 600 million is not a long-term order, it's the effect now in the next couple, maybe next year, or? So- Trying to understand- Yeah, just to be clear, the SEK 500 million-SEK 600 million, given the size that we currently have, that's what we would expect to be, to have in the backlog. So, that doesn't have anything to do with the order intake or the sales pace. It's just what we have in the backlog. Ah, sorry. Misunderstanding on my part. Yeah. It's about the visibility, which we say normally we have quite a short visibility, and that's what we expect to have going forward as well. Mm-hmm. Okay. Just one thing to clarify, maybe, if I didn't miss anything, but I don't think you had any FX revaluations in the backlog... Correct. ... in Q2, Q3. Just taking the backlog in Q2, subtracting the Q3 deliveries and then adding the Q3 orders, I arrive at a lower order book, SEK 100 million, something lower than, than what you see. I'm just wondering what I'm missing here. Any effects... Good, good question, Viktor. There are a couple of reasons for this. We're sort of. We've actually been understating our order book in the recent quarters. We have. It's not a perfect relation between the sales and orders and how we calculate that for the order book. For instance, we have some hedging that ends up in sales. We have some freight costs that we don't take as order intake, but we'll invoice it to our customers, so it will appear in sales. And we also have some software revenue recognition that is handled in a little bit of a tricky way. So, we've been restating the order book. This is the real order book that we have. It was a little bit underestimated before. We can take the details if you want offline. It's rather technical, but there's... Yeah. That's really why you don't get the numbers to add up. Sorry. Okay. Thank you very much. Thank you. The next question comes from Simon Granath, from ABGSC. Please go ahead. Hi, Staffan and Joakim, and thank you for the presentation. I have one or two brief follow-up questions. I was initially thinking about the destocking. Is it fair to assume that close to the SEK 1 billion that you saw in boosted orders in 2021 and 2022 should or could be destocked, or are there any other factors relating to FX, price hikes, et cetera, that makes that number less relevant going forward? Yeah, very relevant question, Simon. I think I don't expect the full to be reversed as normalization. The reason for that is that we have grown the business, so we're basically twice the size in comparison to before. So, I expect us to have a larger underlying order book than what we had going into this situation. Just looking at the ratios, I think we had SEK 260 million in order book before 2021, going into 2021. And given that we're twice the size at the moment, I think it's somewhere between, as I said, I think we wrote in the report as well, is SEK 500 million-SEK 600 million is what we expect to be like the lower bottom on the order book. So, we don't expect to see an order book lower than SEK 500 million-SEK 600 million. That means that you have maybe, yeah, SEK 400 million-SEK 500 million left to be sort of reversed, if that makes sense. It certainly does. Thank you so much for a very clear answer. Sorry, if I missed any comments on this, but given your wording that you expect orders to improve going forward when inventory adjustments are done, would it be fair to say that you anticipate underlying orders to remain solid in the near term here, or do you see a risk of them dropping in the near term as well? Do you want to take that one, Staffan, or should I? You can take it because I think it's not easy to answer. So, if you have a good answer, go ahead. Yeah, so I don't have a great answer. I think the same. I think this is a matter of timing, right? I think we, of course, we are in a growing industry. We expect order intake to grow in the long term. We can't say what quarter we will have the underlying orders growing a lot. As you know, 2024 doesn't look like the greatest year in terms of macro-outlook, so we'll see. We see growth in the underlying orders, but I can't tell you exactly when. That's, that's very fair. Thank you so much for having my questions. Thanks, Simon. As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Thank you very much. Everybody on the call, thanks a lot for joining this Q3 session. We will be back with Q4, and we keep on focusing on our business to make sure we continue to deliver growth and follow our plans going forward. Stay tuned and look forward to see you next time. Thank you. Goodbye!