Thank you very much. Hello, everybody. Welcome to this quarter three call. It's myself, Staffan Dahlström, and Joakim Nideborn, our CFO, who will be joining you for this afternoon. We have a couple of topics. I'll start with a short summary and a business update, then Joakim will drill down into the details of our numbers just presented an hour ago. Then we end up with a Q&A. Let me start with just a short overview. For the quarter, we are continuing to see quite weak development on our net sales and also order intake, a little bit as expected. Keep also in mind that quarter three last year was a fairly good quarter for us. We have strong comparable. We have a weak top line. It looks better further down. We are quite happy with a good EBIT.
We are up compared to last year. We are SEK 77 million compared to SEK 56. You also need to keep in mind that last Q3 2019, we made a SEK 25 million provision for our restructuring program. We are similar to the EBIT level we had before that provision. We land on 22% EBIT margin, better than our long-term target, which is 20%. I must say, we are very pleased with the continued good cash flow for operations, landing at SEK 116, resulting in a quite good earnings per share as well. That was the quarter, and this accumulates over to the nine months with a similar development. Weak order intake, weak net sales, as expected. We are on par with the last year's profit before that provision for restructuring.
We are landing first nine months on 20% EBIT margin on our targets. We're quite happy with that. We've been maintaining good cost control, and of course, we've also done some savings from the restructuring program, but also COVID-19 situation helps us to also reduce some OpEx costs. Joakim will talk more about that. Just a few words about our business. What we wake up every morning doing is to think about how we help our customers connecting their devices and machines to different networks. We have millions of critical applications, critical machines that are connected in power plants, in automotive plants, in breweries, in this kind of industrial automation applications. We have four brands. We have Anybus, we have Ixxat, we have Ewon, we have Intesis, all with different functionality and a little different focus area.
We also have our fifth area for software, WEBfactory. I'll talk more about WEBfactory in a minute. We focus on two areas. We focus on makers of industrial equipment and industrial devices, companies such as Rockwell Automation, Schneider Electric, Caterpillar, where we help them with their connectivity built into their device or into their machine, which allow them to connect to any type of system that their end user may have. We also work with these users. This could be companies that produce the beer or the car or the electricity that you use. Here we have different products for interconnecting different systems and machines in their plants or in their remote installations. These are two very important areas for us. If you look on the distribution of our sales, it actually looks quite much the same as previous quarters.
Even if we see a downturn on our top line, the distribution is quite much the same. We have 47% of our quarter three revenue on the design-win models. This is a long-term model where we embed our technology in the maker's products, this is a long-term business. Of course, we need to have makers that sell a lot of product that can buy a product as well. We are a little bit depending on our customers' success and that we've seen some headwinds in this business the last quarters. We also work with our gateway routers and other products. That's a mix. We sell this both to users and to makers, this comes together to 48%, quite much the same as we've seen before. Software subscriptions and services is an area we want to expand, we are still on a low 5%.
We have long-term targets to grow that, but it's still on a single-digit %. What we and our board of directors have done in the last couple of months is to spend a lot of time thinking about the long-term future. Of course, we need to have two things in our minds for the future, the short-term activity we do in this challenging market, but we also need to make sure that we focus on our long-term activities. We have now set a new goal, and our ambition is for 2025, our revenue that year should exceed SEK 5 billion or more than SEK 3.14 billion. We are engineers, so we like this easy-to-remember kind of numbers. 5 billion is very important for us, and that's our ambition to go there, both by organic growth and also by selective acquisition.
Maybe the mix will be approximately 50/50 to go there. Profitability, we are around 20%, and we will maintain that target going forward. That's an ambitious target, but we've seen that we can deliver that, and we would like to maintain this profit level over the business plan for these years. We are doing a slight change to our dividend policy. We used to have approximately 50% of EPS should be in dividend. We are now saying 30%-50% to also allow for some more flexibility when it comes to preserving some cash in the company for acquisition, et cetera. At the same time, we are saying that dividend is important for our shareholders. With the business updates, let's go quickly in there. We have a couple of companies acquisitions we have done. We bought 70%, the majority of the Dutch PROCENTEC group.
The remaining 30% is owned by three senior executives in the management team there, and we work with them to develop this company. What they do is hardware and software for surveillance and diagnostic over network traffic in industrial applications. This could be in a steel plant or in a paper plant where they attach their sensors and equipment to the network, and we can then monitor potential problems in this network to have a service. They do the service. We can predict also that there are areas that might impact their network traffic going forward, so therefore they can also do proactive services on these things. A specialized company, they are headquartered in Rotterdam in Netherlands and have own sales offices in Germany, U.K., and Italy. They are around 70 employees.
It's a small company, but a very nice technology, and it fits very good to our users and our ambition to do more business within software and services, which we think we can develop here. EUR 12 million approximately. Going forward, we expect maybe single-digit growth and double-digit EBIT margins. Of course, our ambition is to improve the growth by helping them. We also know that with users in this industry, it takes time to generate new business models. The idea is also to develop their business with more from this kind of product they have today to explain why things don't work, to also have predictive maintenance and have more intelligence in these products to help our customers to have preventive maintenance. From preventive maintenance to something more intelligent that can predict future potential problems.
We see a good market and a good fit with PROCENTEC going forward. As you may remember, we bought 74.9% of the software company WEBfactory last spring. We now agreed with the founder who owned the remaining 25.1% to acquire his shares. The idea now is to speed up the integration and use more of their products integrated with our other hardware offer. So far the business with primarily Germany and Central Europe has been quite challenging. We all seen a lot of delays with customers in this kind of software and monitoring applications where we do focus on. We strongly believe that being 100% owner of WEBfactory can help us accelerate how we use the product, how we sell the product, but also how we bundle the software together with other products from HMS to make a solution based on both hardware and software.
We also see continued impact from the COVID-19. It's a mixed picture. We see customers with exposure towards MedTech and food and beverage, they are performing quite well. We see continued challenging business related to automotive. We've seen that for quite some time. This is still a challenge. In China, we see a quite good pickup in some verticals like wind power. We see that our ordering tech in China in Q3 is up 50%. This looks quite good. In general, we see a lower hesitant CapEx investments in the industrial applications in general. What we know from other earlier downturns is that this lower CapEx investments normally doesn't take away CapEx long-term, it's more a delay. We believe that there's a good opportunity post-COVID that these investments will come. We are quite positive in the midterm.
We see in general that Europe has been down both in sales and order, especially Germany, France, Italy, Spain, where we see a lot of the effects from COVID-19. Asia is down in our revenue, but a good pickup in orders, so that looks promising. U.S. is, I would say, sideways, low growth, but it's quite okay. There's also big uncertainty in U.S. for the near future. We see Germany and Central Europe is down. We see that Anybus is down, but for other brands and other geographies, it's quite okay. A mixed picture. We have stable gross margin despite lower volume and also despite a current situation that is a bit unusual for us. We have had years of positive effects, but now we see some headwinds on this, and this is also affecting some of our gross margins.
We've been fighting to really be more efficient here internally, and we are quite happy to maintain a good, stable gross margin here. From my side, short COVID-19 update. We still have a team that is fully functional, fully healthy, so we have no direct impact in our teams for COVID-19, but we are very careful. We have continued home office work for most of our staff. The policy is that we would like to have our different teams at least one day a week in the office, and their manager decide what is the best day, and we try to organize it so we don't meet everybody at the same time. We are finding new ways to work and new ways to meet to make sure we can do our business going forward. We continue some short-time work in Germany.
It's around 20%, where in Sweden we work full-time, and most other countries we work full-time as well. We have full function in our supply functions in Sweden, in Spain, in Belgium. We are fully up and running there. Looking forward for quarter four, we can say that the quarter four so far has started to be in line with quarter three. We don't see big changes upwards or downwards, so it's more sideways. Keep on rolling here. We see challenges in Germany, so we maintain short-term work until further notice. We continue COVID-19 very much, and of course, like we all, we are quite concerned about this second wave coming up here in many of our markets. We need to be careful, but our customers are also learning how to deal with this and taking countermeasures.
Most of our customers are up and running and have a business that is working quite well. We are canceling all these traditional fairs and face-to-face meeting with customers. We see a lot of digital events, and I must say, I'm quite both surprised and sometimes also impressed how well this works and the customer interactions that it goes on. We see a lot of digital meetings with our customers, and customers appreciate this as well for their safety, but also for their efficiency. As we said last quarter, we believe that, even if we have a little bit headwind right now, we see a good market conditions for automation and digitalization going forward. We are quite optimistic for medium term of business when we have corona behind us. We focus on our long-term business for the time here.
With that, I would like to shift over to Joakim to give us a little bit more details of numbers.
Okay. Thank you, Staffan. We're going to start out as normal with our order intake situation, which is maybe the softest point in the report. We see a bit of an uptick from the weak Q2, and things are definitely moving in the right direction, even if that is pretty slowly so. We are showing now SEK 336 million in comparison to SEK 372 million, organically, a decrease of 7%. It's really isolated to a couple of countries where we see the big drop, Germany, Italy, and France, that is representing this challenging development. Otherwise, we have a small decline in the U.S., and the positive, as Staffan also mentioned, is Asia. Both Japan and China is doing well.
China is doing extremely well. We're winning a lot of new interesting projects in China that is probably going to help us a lot in the future. A very good order intake there. Looking at the first nine months, we're down pretty much SEK 100 million, organically 9%. As Staffan said, for the first time now in some years, we're actually seeing some headwind from the currencies, which you will see throughout the report is affecting us on many lines here. The picture is pretty much the same as in the quarter for the first nine months. We have Germany and Italy being the main reasons for the decline. U.S. is pretty much flat, and Asia is growing very nicely. That's of course very positive. A bit of a change, a different picture depending on what geography and Staffan also commented on the customer mix.
That is also quite different. We have some customers performing quite good, and the ones that are more into automotive and industrial investments are having a bit of a more challenging time. Let's have a look at the sales, which is a slightly different view than on the order side. As you see, we're now pretty stable around the 350 level. If you look at the last couple of quarters, we have SEK 345 million in the quarter to compare with SEK 377 million for Q2 one year ago. Organically, we're down 6%. It's the German market and Italy that is behind most of this decline. The difference compared to the order intake is that we have also Asia being down on the sales, but obviously, this is going to change in the future given the strong order intake that we see now.
In the first nine months, pretty much the same view here. We're down SEK 111 million in sales. Organically, that means 9%. As you see, it's pretty much the same view on the different markets as for the quarter. I think for the coming, I think we wrote in the report for Q4 that what we've seen as an order intake is continuing pretty much in line with the pace that we see in Q3. I think we believe that there will be pretty slow recovery from this situation, but we're a little bit positive and hope that we will see at least as good numbers as we see now for the coming quarter as well. The sales split per region in percent, maybe not that interesting. We have 60% of the business in EMEA, which is quite normal.
We have a bit more in America, with 23% and 17% in Asia. This will probably change a little bit in the coming quarters, where Asia will have a bigger percentage given the strong order intake. It's pretty much what we normally see here. Maybe what needs a bit more explanation is to understand the result and the gross margins, because you might get a bit of the wrong view just looking at the numbers without understanding the underlying reasons. If we start with the EBIT level as such, it's actually a record quarter for us, SEK 77 million, even if we had adjusted SEK 81 million in Q3 last year, adjusted for this restructuring provision that we had. It's also good to see that we have margins, 22.3%, which I think is the best we'll be seeing in many years, and also above our target.
The reason is, of course, the low OpEx and the still quite solid gross margin that makes us achieve this good number. Just to understand, the gross margin is 61.9%. You might also see that this is actually down compared to Q3 last year. We think, if anything, we're quite satisfied with that number in the report, actually. We have negative impact from the fact that we have lower volume, SEK 32 million lower sales, which gives an under absorption of our manufacturing overhead, and that is impacting with about one percentage point negatively. We also have the currency headwind, which is also giving about one percentage point negative effect compared to the number one year ago. I think, although we managed to do some good things internally, we're doing good things in supply. We managed to get through some price increases.
To achieve the 61.9 with this low volume, we think it's actually quite good. Looking at the OpEx is, of course, dramatically down SEK 44 million. You also should remember that SEK 25 of that is related to this provision that we had for the restructuring program. The organic number is SEK 13 million down, 8%. Also, just wanted to mention the short- time work impact, which might be interesting to also know. In total, that's SEK 4 million, where SEK 1 million comes from governmental support related to this. That same number for the full year is SEK 7 million, SEK 5 million in governmental support and SEK 7 million for the other impact. Some other comments on the first nine months. It just happened to be so that the EBIT level is exactly on the same number as for the first nine months last year.
SEK 230 million, which, given the lower sales, takes us to precisely our target, 20%. Here you can actually see that the margins are up one percentage point, so 62.1 compared to 61.1. This is due to the reasons I mentioned before, and also quite positive to see that we can actually increase this margin even if the volume is working against us. OpEx is, of course, dramatically down SEK 70 million organically, and adjusted for this SEK 25 million restructuring provision, it's SEK 53 million. Out of that SEK 53 million, we have about SEK 33 million related to the restructuring program, and the rest is just basically lower run rate in terms of lower activities with less traveling and less customer events and so on, due to macro situation.
We're also now when we're pretty much through the effects of the restructuring program, happy to see that we will get the SEK 25 million, sorry, the SEK 45 million yearly effects that we had planned when we did this last year. Just some comments on earnings per share. There's not a lot of interesting things happening here. We have a good underlying result, which is basically us following through no strange things happening within that financials or tax in the quarter. We're happy to be able to present SEK 1.33 in the quarter and SEK 3.58 year to date on the earnings per share. Looking at the cash flow, we have also record cash flow, SEK 116 million. Of course, we do get some help from some working capital adjustments. We have a positive effect on the cash flow by SEK 20 million due to this.
The two main items is we have some inventory reductions compared to last quarter, and also we have substantially lower receivables by SEK 28 million. With that said, I just also wanted to say that we still have pretty much the normal level. We're actually up a few SEK million compared to year-end in receivables. It's not that we just empty out this. I think we managed to get some help and maybe we'll not have the same effect in the coming quarters. We're very happy with the SEK 116. Yeah, even if we get the help from the working capital, we still think that's quite healthy. In relation to sales, we're at 10.7% working capital, which is where we normally expect to be around this 10%. Nothing strange there. Year-to-date, also very strong number, SEK 286 compared to SEK 193.
We get some help from working capital reductions, not so much for the first nine months, only SEK 8 million. Here we have the big change is actually inventory that is down SEK 23 million compared to year- end. We might see a bit of a buildup in inventory for the coming quarters since we will have to take on some components that we see with longer lead time due to some COVID-19 impact. Won't be a big problem for us, but we need to have those components, so we'll take a bit more inventory of those than we normally keep. What is behind the very strong cash flow and the improvements is that we got some tax returns that I think we talked about in also Q4 reports related to the Belgian business.
Overall, I think we have pretty low financing costs due to the fact that we have a low debt at the moment. When we get the lower net debt to EBITDA, we also get better financing costs as such. Yes, to end up with the leverage and the debt situation here we have, as you can see in the graph, a very positive trend. Of course, the fact that we didn't give a dividend this year helps a little bit. Still, we've been able to convert pretty well to our cash and to work down the debt level. I think we have a very strong situation now going into Q4. As you understand, we made the acquisition of PROCENTEC in October and also the last 25% of WEBfactory.
That will of course increase the net debt in the quarter, but still it will be on very low levels, going out to the quarter at 0.42 net debt to EBITDA.
Even if that will be a little bit higher for Q4, we will still be on very comfortable levels, and we will have a lot of firing power left for new investments and interesting acquisitions. Before I leave back to operator for questions, we just wanted to say also that we will have a capital market day that will be digital. It will be on November 18, between 9:00 AM to 12:00 AM Central European time. We hope that you will want to listen in to see what we have to say about the coming time for HMS. Thank you for listening. Operator?
Thank you. If you have a question for the speakers, please press one on your telephone keypad now. Our first question comes from the line of Viktor Högberg from Danske Bank. Please go ahead.
Hi. I've got a couple of questions. First, on the new revised financial targets and the implications from them. It implies a slightly lower growth rate over time than the previous targets and a slightly lower organic growth rate. That is at least my take. Is that due to the higher revenue base, or do you see something shifting in the market or from the competition, or could you just elaborate a bit on the organic part of the growth target up until 2025?
Maybe I can start with that, Joakim. I just want to say that me and Joakim are in different locations, so we don't see each other. Let me start with this. I think this new target of exceeding SEK 5 billion in 2025 represents a growth of what could be 18% a year, something like this, which is lower than our original, but it's still not that far away from it. I think this is a combination of bigger numbers and what we see is challenging, but also realistic going forward. Our estimation is that this would probably be, let's say, 50/50 mix based on organic and M&As. Organic will be 8%-10%, something like that, and the same for M&A going forward. Joakim, maybe you can give a more detailed picture on this.
No, I think it was a good description, Staffan. I think the fact that, as you say, if you do the math, you're probably not a little bit lower than 20% that we have said before, and our feeling is, yes, that we don't really have that. The market isn't really there, and maybe we've overestimated the potential before. If you look at the market reports and so on, we still think this is quite ambitious and in line with the higher intervals on the industry reports. That's the reason behind.
Okay. Turning to the M&A part, half of this growth, where do you see your pipeline? You just executed on a deal a couple of weeks ago. How's the pipeline looking? What are you looking at? I know software multiples are higher than hardware multiples, but you're still wanting to grow your software business. Also, how you see your balance sheet over time? How much gearing would you be comfortable with?
Joakim, will you take this?
Yeah, sure. I can take it. I think it's a mix, what we're looking for. I think what we'll probably see is doing some software acquisitions more than the WEBfactory business. I still think that the majority will be maybe a little closer to our more, what shall I say, base business, so to say. I think the business for remote access and remote data we have with mostly through Ewon, is also an interesting area for us to see what more there can be done. That's one area that we're going to look more to. What else did you have? The gearing. Well, I think, as you see now, we're at very low levels. I think going up to 2.5 or so will not be a problem at all. That's through EBITDA. They were quite comfortable. I think it could go higher than that.
It might happen from time to time, but that would probably be in a limited period if that happens.
Okay. Just the last question on growth. PROCENTEC, you said you expect single-digit organic growth. Is that to be expected over time, or is that near-term expectations? What do you see for the PROCENTEC business? Maybe for 2021, in a recovery year with easier comparatives, maybe above that, or what do you see from PROCENTEC short term and longer term?
Maybe I can start. I would say single-digit growth for that business. That is how they are standing and going today. They have growth on their current business. I think that first, maybe 2021, HMS will not be doing a lot of changes. We need to support them and help them. Going forward, I can see more engagement from us to help them find new markets, like in North America, in Asia, where they are not really present today. We hope that can also, over time, help them to grow faster than the single-digit growth. For 2021, I would expect HMS will not be having the time to accelerate that faster. In the midterm, we will be able to grow that business more than single digits, I think.
Okay. On the gross margins, you had some headwinds here, both in volumes and in FX. You quantified it to around two percentage points; you still managed at 62% gross margin, or slightly below 62. What does that imply when we will see volumes coming back, presumably next year? Would the 64% be a relevant target or 63% on the gross margin? What do you see over time? Will you meet another headwind in gross margins besides this?
Maybe I start, Staffan. I think what we also should remember, that I think I mentioned quickly, is that we all, given all those headwinds, we have the help from a good product mix. As we saw when Staffan presented, we have the embedded business; the design-win business was only 47% of revenues. That is normally around 50%, maybe 51%. That is actually helping us a little bit, but we have less of these low-margin custom products. I think on one hand, when the volumes come back, it will also probably coming back on those offerings with a bit lower margin. That might be working a little bit in our disadvantage. With the currency situation, it's very difficult to say, but I think when volume comes back to be slightly north of 62%, shouldn't be impossible.
We want to be a bit careful guiding since we still think that 62%. We've been improving from like 60% to 62% in the last couple of years. Somewhere 62%, maybe a slightly north of 62% should be achievable, we think, for the coming year.
Okay. Just last comment or a question on the gross margin. PROCENTEC, we got the EBIT expectations. What about their gross margin? Is it in line with your business or slightly below? I would assume it to be closer to 50% than 60% given the EBIT margin.
Yeah, you would think maybe, but actually, it's very much in line with our gross margin. We don't really see that will have any impact in any direction from that point of view. I think where there might be some potential is that it's still a relatively small company starting to set up a bit of a group structure with some sales offices. I think that's why maybe you see the OpEx being a bit higher in percentage compared to, for instance, us. That's what we think we can work a little bit on to maybe get the EBIT margins up slightly. But the gross margins are very healthy, so that we're happy with.
Okay. Last question. ABB comments robotics surprise positively for them. Their comments were that we're going to see on orders. This is going to be seen in the numbers in 2021, not in Q4. What do you see for Q4? We have a very much easier comparatively when it comes to growth from Q4 2019 than we had in Q3 2019. Is the market there for returning to growth, slight growth already in Q4, or what do you see? You added a comment on positive data points, but still uncertain markets. On a net basis, what does that add up to?
Yeah, that's a very good question. To be honest, we don't fully know. We look on the macro data, the PMI indexes are looking quite good actually going forward. When we talk to customers, we still see they are nervous and a bit hesitant. We get mixed feelings. I think our conclusion is that it will continue to be sideways for a couple of quarters. We don't see the strong momentum yet, even if the macro data seem to be better. We can't really see that we see it in our orders and in the comments from our customers yet.
Okay. That's it for me. Thank you.
Thanks, Viktor.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. As there are no further questions, I will hand it back to the speakers for closing remarks.
Okay. Thank you very much. Thanks for taking time on this Friday afternoon to join HMS here. I just want to highlight again, Capital Markets Day, digital format, November, 9:00 Central European time. Be very welcome to join, and we talk more about the strategy. We'll have some other team members from our management team as well joining, and we hope to take this time to give you a little bit more detailed information about our business and our view of the future. Thanks a lot for this meeting and look forward to see you soon again. Thank you. Have a nice weekend.