Welcome to the HMS Networks' Q1 2026 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Staffan Dahlström and CFO Joakim Nideborn. Please go ahead.
Thank you. Good morning, everybody. Welcome to this quarter one call. It's me, Staffan Dahlström, CEO, and Joakim Nideborn, calling in from a crispy and sunny spring day in Halmstad. I think also this report is quite crispy and sunny, and we're very pleased to present three sections, business update, I'll do that, and then Joakim dive into the numbers, and we end up with a Q&A. If we look on the quarter one here, we are very pleased to see a fairly good momentum. We have good organic growth on sales, up 15%. Little bit of headwind on the weak Swedish currency at the moment. Joakim will talk more about that.
Also order intake is organically growing double-digit, and this combination of double-digit growth on both net sales and order intake, we're really pleased to see that, and we feel that the market is fairly strong and it's a broad, good market we feel. We're also happy to see that we are improving our profits on the EBITDA level that we follow from this year. EBITDA margin 27.2%, better than we expected. I think we're seeing stable development on gross margin. We have kept OPEX on a flat level, and of course, this gives a good EBITDA margin when we have good net sales growth. Cash flow continued to be strong, and this gives us adjusted EPS, earnings per share, at SEK 3.78.
If you look on the last 12 months, I think it's only one thing I would like to highlight, and that is the cash flow for operations, where we almost make SEK 1 billion in a year. We are very happy to have this, and Joakim will talk more about our debt and how we see the covenants and things like this. As I said, market is fairly strong in North America after a dip end of last year. We said that was temporary. It was strong development. We also see that China, that's a smaller market for us, but growing well. In China, we also saw some boost effect where we felt that some Chinese customers, they were concerned about lead times. Otherwise, we see a balance between order intake and invoicing to a large extent.
Europe, that's been quite slow, and Japan continue to slowly improve. Positive signs. It's broad and positive. 1 billion SEK in order intake make us proud. Of course, we're worried about the situation in Middle East. For us, this have not a direct impact to a large extent. It's mainly our business in building automation, where we have a fairly decent business in the Middle East and Saudi and Dubai. That's a lot of real estate projects there. There we've seen a drop in order intake in March. But all in all, I think Middle East is less than 2% of our revenue. But of course, we are worried, and we follow this, but it seems like our industrial customers and the industrial markets are almost getting used to this kind of turbulence and changes, and they keep on investing, and we see a fairly stable market.
We continue to invest in product development, part of our new strategy, in all our divisions, and we see this on a little bit higher R&D expenses. We also work a lot with different pilot projects and use more AI, but we are not implementing AI on a full scale in our operation yet. We are more in the exploration and test phase, where we test and try with our engineers. The ambition here is to be able to do more with the current resource we're having. We're also very happy to see that the asset acquisition we did from Molex Industrial Communications from January 1 got a very good start. We integrate this business with their two development centers in Canada and France very well. We also integrate the supply chain, and the customers have welcomed this, been very positive.
Some customers also placed orders for the entire 2026, so this is also a little bit boost on the order intake. This was not a big acquisition, but it's very positive to see the smooth integration and how positive this has been. Just as a reminder on the next slide, this was fairly small acquisition. We got this from Molex, and from their point of view, this was too small and too strange for their large sales organization, and we did not pay a big amount of this. We said that we hope this will add more than $10 million annual revenue. Quarter one, I think the order intake was SEK 140 million. Yeah, it's true. It's more than $10 million annually. I think this is better than we expected.
All in all, this is a good addition to our INT division, where we feel that their product complements our technologies and our products. It's very positive with a positive customer feedback that we have a lot of common customers, and they feel that, okay, now when HMS takes over, we are ready to invest in this technology and commit to it. All in all, a very positive asset acquisition. With that, Joakim, some numbers.
Yes, some numbers. I'm going to start with the order intake as we normally do, which you saw was very pleasing. We did just about SEK 1.1 billion in order intake and 19% growth or 10% organic growth. You see, we also have 10% organic growth for the last 12 months.
Staffan touched upon it already. One very big contributing factor to the strong order intake was the Molex acquisition and the fact that we got many of these full-year orders. We're very pleased with the underlying business as well. In that number of SEK 1.1 billion, we do think we have around SEK 130 million where customers have been placing orders that they normally would maybe do throughout the year, but now placing everything in Q1. Underlying, we can see it's really all divisions and all geographic markets that are doing well. We see a broad-based strong demand. With everything happening in the world, we were quite happy to see that the customers are still investing and placing orders. Maybe what sticks out the most for us is the INT division, I'll come back to that, with organic growth of 25%.
We've been talking about this for maybe some 12, 18 months that we thought we would see this pickup. Now we're maybe a bit later than what we believed, and now we're seeing that business coming back on a really broad base also now in Q1. If we move over to the sales side, we're also continuing the growth. You see on the graph there, it's a nice continued development. SEK 971 million and 9% growth, which is actually organically 15%. Now it's the second quarter where we have double-digit organic growth. If you've been following us, you've been seeing that we had a more challenging situation throughout 2024 and first half of 2025, and now we feel that we're back on the right track with all the inventory levels have been normalizing out in the supply chains.
Very good to note that we do have a book-to-bill of 1.16. We've been saying that we believe we should have more than one this year to continue the growth journey and to place the foundation for future growth. That's the 1.16 is a very good number, especially when we show this 15% organic growth on sales. What's behind also here, it's quite broad-based. We see our four largest markets are among the ones that are performing the best. In order of size, we have the U.S., the biggest market, Germany, Japan, and China. All of them are contributing very well to this development. Going into the divisions. We're starting with Industrial Data Solutions, the largest one, and now 40% of the group profits. Here you see on the order intake that we report a negative 3% in development.
Actually, organically, that's +5% due to the massive currency effects from Q1 2025 until now. As you might remember, after Q1, I think it was in April, especially the U.S., dollar took a big hit versus the Swedish krona, and that is a big impact on the bridge, of course, when you compare quarter-over-quarter. Net sales, a good number. The Q4 number for 2025 was exceptionally strong at SEK 481. Now, SEK 418, as we do in the quarter, for us is not bad. 13% organic growth. I think this also comes down to good margins of 25.4%. We've been able to build the margin in this division quite well from around 20%-25%, if you take 18-month period. Here, North America is the biggest market. That's also what is performing the best.
It's a little bit slower for us in IDS in Europe and APAC, still okay. To mention one big driver, we've been seeing the data center vertical performing very well. We're winning new business in various applications for data center business. Yes, to mention also, we are meeting on the order side, a very tough comp in Q1 2025. Both in Q4 2024 and Q1 2025, we had some big project orders that we did not really have now in the beginning of 2026. We see a strong underlying development. Over to Industrial Network Technology, a fantastic quarter with 25% organic growth in orders and 23% growth on net sales. Here you also see on the green bar in the left-hand side graph, that Molex business coming in with SEK 140 million.
The reported growth is now 73%, a very strong add-on to the business. Of course, this order intake pace is not sustainable. I think Staffan said it, that it's basically our customers placing orders for the full year. I think what you can expect is maybe more the pace that you see on the sales around SEK 40 million on a quarterly level. Staffan also mentioned this has been turning out a bit better than we expected. We didn't know exactly what to expect given that it was some older products and some customers that had been announced with end of life, and it seems like the business is still going very strong here. Integration is going well, and we see it difficult to pick a lot of markets that are performing good or bad.
We see the very key markets in Central Europe and Japan is driving. Those are really big markets for INT. That's very good to see that we are back to see good growth in those key markets. Finally, New Industries. Also solid quarter for New Industries. We have a 7% organic growth on orders and 8% on net sales. Pretty much in line with our financial long-term targets. Good profitability with over 27% EBITA margin. Here we saw a good development in the vehicle communication business, both in Europe and North America. On the building automation business, we had a good start. The first two months were quite good, and then in March we saw a massive slowdown in orders from the Middle East, which has been impacting the numbers a little bit.
Again, for the group, this is not a big impact. It's less than 2% in the Middle East of the total sales, but for building automation, it's 20% of the business. With a big slowdown that is, of course, visible for that part of the business. Going over to the results. First, I just want to make you aware that we are now reporting a new main profitability metric, EBITDA, which was SEK 264 million and a 27% margin. This is our long-term operating target for profitability. This is where we have the 25% target to reach 25% of EBITDA. The difference compared to before when we showed adjusted EBIT is actually a bit more difficult for us as a company to live up to.
It's the same in the fact that we are taking away the excess values, the amortization of the excess values, but we are not making any other adjustments. So all the integration costs, M&A costs, and this is actually burdening the EBITDA results. Also, amortization of activated R&D cost is impacting the number. I hope that was clear how that works. Otherwise, you have to ask. What we can see then, SEK 264 million, 27% margin, very strong start of the year for us and good to see that we are above the financial target. It's really a strong top line and cost controlling that is behind the numbers, so nothing strange. Looking at the gross margin, we were slightly down compared to last year.
A big negative effect from currency and also, I would say it's a good product mix within the divisions, but the fact that INT is growing a lot and taking a bigger share of the whole is reducing the group margin a little bit. I think we've been talking about this before, that if and when INT starts to come back to good old form, that will put a bit of a pressure on the margin. On the other side, we have been rather successful with the price increases, and also the volume of course is good in the quarter, which is mitigating. All in all, with the mix that we have, we're quite happy to be able to present 62.4%.
On the OPEX side, we came in a little bit short of what we believed we would do, and we're a little bit behind on some of the plans. We are investing in some certain areas of the business, both in R&D, also adding a team in artificial intelligence to drive that development within the group. It's a little bit behind the schedule, but we will be there and recoup. We also have salary increases coming in Q2. Looking ahead, we will have a little bit of a higher cost level. Just two more things I want to mention here. One is the R&D, where we are, as Staffan also said, we're now investing in both INT and IDS in the new generation of products, which is increasing the pace of investment in R&D on an acceleration of costs.
This increased to SEK 27 million from 15 last Q1. 12 million more in activated R&D, which is of course, you could say a little bit helping the results. On the other hand, you see the FX effect. We had some really good currency hedges in 2025, which has been wearing off towards the end of the year and now into 2026. We still have hedges, but it's at lower rates than what we used to have before. We see a pretty big impact on EBIT or EBITDA of the 31%. That's SEK 31 million from the FX rates. If we move on further down in the profit and loss, we come to the adjusted results, adjusted EPS results, and here we have a 3.78 as adjusted EPS. A pretty solid number.
We're happy to see interest costs coming down from SEK 34 million a year ago to SEK 20 million now. It's a combination of course, reduced debt, but also better terms in the financing agreement, which is keeping that down a little bit. If you want to see the reported EPS, we're at 3.24, and here we are just adjusting for the excess value amortization of the acquisitions. We continue to show a good cash conversion, and the cash flow is solid with SEK 250 million. Behind that, we're reducing inventories a little bit in Q1. We're tying up quite a bit more in our customers' good invoicing in the end of the quarter. March was a very strong month in invoicing, so we tie up some SEK 37 million more in working capital in Q1.
For the year, Staffan mentioned already SEK 940 million on good track to that SEK 1 billion mark that we would really like to reach soon. If we look at the net debt situation, it continues to move in the right pattern. We are reducing a bit more since Q4, and we're now down on net debt to EBITDA. If I look at pre-IFRS 16 basis of 1.87, and of course, that puts us in a good spot compared to 3.36 a year ago. I think we're quite happy with that reduction. It also means that we can put some more efforts into the M&A agenda again, and we are building that agenda now in the divisions. We're going quite well in looking at new targets and building that pipeline. Just to summarize before we hand over for questions, takeaways from the first quarter.
Well, what we would like you to remember is the order intake. Solid over SEK 1 billion for the first time for us. Organic growth in sales, 15% second quarter in a row with double-digit growth on the net sales side. Then we also would like to be clear with these pre-orders of about SEK 130 million that you can not expect to come back in coming quarters. Then INT, we need to lift out INT, a very strong development here with both over 20% organic growth in both orders and sales, and a good start to the new acquisition in INT. The macro situation is still uncertain. We are happy to see that the underlying market seems to be working well enough anyway. Middle East, even if it's a bit of an impact on the building automation business, not a lot for the whole group.
What we also do see, I'm not sure if we talked about this before, we do see lead time for certain semiconductors coming up again, for instance, memories. Also, some prices been coming up a bit. We are not impacted by the worst, latest geometries, but still, it's a bit of a push upwards in pricing. We are trying to now place orders for more or less the full year to make sure that we have the material we need to be able to continue to deliver. Then finally, profitability and cash flow quite well. Both cash flow, cash conversion good, and the underlying profitability is slightly better than our long-term targets. We are continuing to invest in business now in R&D, in AI, and we are very happy to see the continued development of the year.
With that, I would like to hand over to operator for questions.
If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Jesper Stugemo from Handelsbanken. Please go ahead.
Yes, good morning, Staffan and Joakim, and congrats to the very strong results here. Three questions from me, if I may. My first one is related to the increased order placements you saw among Chinese customers here, given the disruption in supply chains. It sounds like pre-buying. Do you expect a similar pattern in H1 or full 2026 as we saw in the pandemic years in terms of boosted orders, or how should we view this?
We start with that. We'll say, Joakim, I think we list here SEK 130 million on order intake as a little bit boosted, but I think we are much more into a balanced situation. We see some concerns in some Chinese customers due to geopolitical things. The memory is a bit worrying. It's not that we are using the same memories as the AI market, but it's the same factories, the Micron of the world.
I think the fact that they have a full schedule also affects this kind of industrial component that we buy. We don't really see that this is a big trend. It's mainly related to some customers in China, and of course, this with the Molex acquisition is a one-time effect. We bought this asset without order book, and some customers were really happy, so they committed to larger time order. What do you say, Joakim, do you see this as a big trend?
No, I think we've been discussing that a lot, Jesper. I think it's been something we've been also challenging the different business owners in the company, how they see this. I think what we say in the report, we believe that about SEK 130 million was maybe placed a bit early. Otherwise, it seems to be a quite solid market, and we've also been seeing other peers reporting strong numbers for the first quarter. We're happy to see that the investments seem to continue.
Yeah, okay, thanks. Very clear. A follow-up then on the memory prices here. How do you work to secure your volumes to deliver to the customers and the risk here? Also on inflationary COGS coming up and potential workarounds to not lower the gross margin here.
Yeah, very relevant question. What we've been doing is we've been placing orders for the rest of the year. We haven't taken all the volume yet. We will probably take volume a bit earlier than what we normally would do. I think you can maybe expect that we build a little bit of working capital for throughout the year. I would maybe have expected that we could reduce. Before, if you asked me half a year ago, I'd probably think that we could reduce working capital throughout the year. Now, that might be challenging. I think that's pretty much what we can do. On the pricing side, so far, it seems like we've been covering what we need to cover in the yearly increases. If that view changes, we will, of course, act as we always do to protect the margins.
Okay, thanks. Very clear. I'll jump back in line here.
Thanks, Jesper.
The next question comes from Victor Hagberg from Danske Bank. Please go ahead.
Good morning. Just on the EBITDA margin potential. Of course, we know that costs are not fully ramped up yet, but the organic margin potential looks higher than at least what we picked up at the CMD. I was thinking that maybe, I don't know, 27% as an organic potential by 2030. You're already at that level. Just what are your thoughts on the organic potential if we would exclude the M&A impact, which we know will probably dilute it?
We have a target, 2030, that includes the M&A impact. We are talking about most of the M&As we look at will have a dilutive effect on our margins, gross margins, and net margins. We look on the combination. Of course, the more organic growth we are able to generate, the better it will be for our margins, I think, because there we have a higher leverage. Joakim, any comments from you? It's really difficult.
I think we try to be humble. I mean, 25% is It's a pretty good margin in itself. Now we've been having three good quarters in a row with slightly higher margins. We also see that we need to continue to invest to be able to get organic growth. We think that we don't want to save ourselves to a higher margin and miss out on potential growth. I think it's always a balance, but we think that 25%, maybe some quarters we will be a bit better, but that's pretty much what we're trying to steer against.
Okay. Fair enough. Also on the gross margin, given your expectations now on the growth in respective segments with different profiles, balancing this with effects and price hikes, do you see a change in the gross margin profile today versus what you saw at the CMD in September?
Not necessarily. Not a lot, I'd say. Compared to then, I think we've been seeing even weaker U.S., dollar and euro versus the SEK, which is, of course, not great for our margins. I think maybe that will do a percentage point or so. I think we have some good things going on. We think that we don't want to change the long-term target for sure. We set a target of 65% to 2030. We will not be the next quarter, but we think that's still relevant with what we're doing.
Okay. Thank you very much.
Thanks, Victor.
The next question comes from Erik Larsson from SEB. Please go ahead.
Thank you. First, a question on OpEx. You talked about ramping costs here and perhaps lagging a bit, but at the same time, it's only up 3% here in Q1 organically, if I understood correctly. So maybe if you could just speak to how steep this increase could be the coming quarters would be helpful.
Yeah, I don't expect it to be super steep, but we're probably going to add SEK a couple of million per quarter. I think you can expect that when we're ramping up. Normally, Q2 and Q4 are a bit more heavy for us in terms of market investments and traveling and different customer events. I think that you can probably expect to add on. It's going to be slowly but safely increasing a few percentage points from where we are today. That's pretty much what we believe. I think we are in a good place, and we will do some smart investments but not go crazy.
All right, great. On data centers, I think the last time, at least that I remember, that you mentioned a larger order was in Q4 2024 or something. Could you give some more backdrop on how this vertical has developed over the past year? Because now it seems to have been a good driver.
I think we see this in different projects that we see for INT, they are selling some gateways. We see in building automation, they are connecting the ACs for cooling. We don't see so much of this switching business for network infrastructure we got for power conversion in Q4. It's a quite broad mix of automation projects that are related to data center. As you said before, we are not part of the compute in these centers. It's about incoming power, the cooling or heating, and these kind of things, automation systems around it. We see broad automation projects with our system integration in U.S., that they are involved in this kind of automation projects in data centers.
Okay, a final question, if you could just explain more about the improvements you see in Europe. Is it broad-based or is it any specific driver?
I think we see two different things on INT. We see a pickup, quite broad-based on customers who don't have inventory anymore, and also customers who work towards automotive business. It's not great, but it's not too bad either. Then we see some verticals where automotive, in general, is not good. Maybe it's not getting worse, but other verticals are pretty good. Infrastructure and automation in general, electrification. That's starting to see some momentum in Europe, we think.
Okay, thank you. That's all from me.
Thanks, Erik.
The next question comes from Simon Granath from HMS. Please go ahead.
Hey, guys. Should be ABG, of course. Congrats again on the strong performance. We have previously been discussing that there have been some discrepancy in recent quarters between the larger and smaller projects, with larger projects being a bit on a pause. Are you seeing any change on the latter, either in terms of orders now or in terms of customer dialogs? Thanks.
No, I think we're still waiting for some larger orders. I would say we see more of small and mid-size broad-based orders and not too much of this larger projects order that we got end of 2024.
Thank you. Only one follow-up more, and that is another topic that we spoke about at the CMD, and that was on the potential upgrade cycle for Anybus to meet upcoming security requirements. Are you seeing that play out?
Very good question. We're doing some initiative in security, and there's a lot of new regulations, and we try to get our arms around how to monetize on this. We have a team working on this with some products. In general, we see a lot of customers who want to talk about cybersecurity and this, but we can't really see that there's a. If you look at our revenue, it's not a big part of our revenue, and we're still trying to find a way in this cybersecurity landscape. I can't really see that we have cracked the code there yet. There's a lot of customer interest. Right now it's more interesting in education and consultant services and not really a product business yet. We are still working, trying to find our ways there.
Very clear. That's all from me. Thanks.
Thanks.
The next question comes from Joachim Gunell from DNB Carnegie . Please go ahead.
Thank you. Good morning. Just two questions from my side. The first one relates to end market momentum in some of your verticals. You commented a bit on the data center opportunity, and to your point, it could be any other industrial building. Right? It's not necessarily the service and rec center. But you also comment a bit about semicon manufacturing. To what extent do you see that as a growth driver? And oil and gas, are you seeing customers in that more broader energy, and the market become more opportunistic? Where CapEx investment is going there.
Well, if I start, and this is a little speculation, we see that we have customers in semiconductor. They are highly successful. There seem to be a lot of investments, broad-based, not only AI, but most of the customers we have is more on the machine side in semiconductor, doing all these vacuum things and these kind of things, and that seem to be very strong momentum. On oil and gas, we are speculating that with the challenges we see now in Middle East, wouldn't that drive more investments in other areas of the world to be in where they have oil, that this would be more investment.
We haven't seen it yet, but we are speculating that there might be good market opportunities in North America, in other parts of Europe, in other parts of Asia, where you could explore more of the oil and gas resources they have there to complement the Middle East market. We haven't seen it yet. We're just speculating about it.
Understood. In terms of exposure in the IDS division, the energy footprint is quite sizable, right?
Yes, it is.
Perfect. Just finally.
Just to comment that, Joachim, North America is the big market, so the exposure is mainly related to North American oil and gas.
Absolutely. That's clear. We saw here, of course, with the Molex order activity, that yet another acquisition for which you paid fairly low price tags are playing out the way that you hoped for. Now that we see cash flow take your net debt levels to, call it, acquisition territory, can you just comment a bit about your appetite and, call it, self-confidence when it comes to pursue more M&A towards the latter part of the year?
I think we have a pretty good confidence, and I think the reason is probably that we are a bit selective, so we want to continue to be selective. We are looking at a couple of things at the moment, so we hope that we're going to be able to get something done this year as well. We will be as active as we can, run as fast as we can. Now we have three divisions that are all looking into building their pipelines and managing those pipelines. I think we have a pretty good foundation.
Sounds encouraging. Thank you.
Thanks, Joachim.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Jesper Stugemo from Handelsbanken. Please go ahead.
Yes. Hi again. Sorry, I just have a follow-up on this $130 million in early orders. Maybe I missed that, but how much of this was translated into sales in this quarter? Thank you.
Nothing has been translated into sales of that SEK 130.
Nothing.
The point is that.
Okay
... normally we would have received those in Q2, Q3, and so on.
Joakim, the larger part, this SEK 130, is related to this Molex pre-orders, and the other part is related to these Chinese customers. That's the two things we have there.
Some of the panel meters.
Oh, you're right. Okay, yeah.
Where we have some more lead times, yeah.
Okay, perfect. Thank you, guys.
Thanks, Jesper.
Thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you, operator, and thanks everybody for joining this call. We are just getting ready for our AGM here in Halmstad, and we are very happy to see a strong quarter, solid quarter, and we feel that the market is fairly stable. It's not great, but we feel that things are falling into the right places. We're very happy to see good progress on the acquired unit from Red Lion, PEAK-System, and now also this Molex business we acquired from 1st of January. Things are moving in the right direction, but it is an uncertain world out there. As I said, we are impressed by our customers' robustness and their willingness to continue their plans despite the geopolitical things and trade things. We are fairly optimistic about the coming quarters. Stay tuned, and I look forward to talk to you next quarter.
Have a great Thursday. Thank you, and bye.