HMS Networks AB (publ) (HMS) Earnings Call Transcript & Summary

Okay. Good morning, everyone, and welcome to slightly gray and cold Halmstad this morning, but a warm welcome to you and to the HMS Networks Capital Markets Day. My name is Thomas Carlson, and I will be your host for this next 2 hours, 2.5 maybe, depending on how much questions we get. So I'll be behind the screen taking any questions you may have during these next 2 hours or so. We have a packed agenda for you and I can ensure they have a very interesting next 2 hours, where most of our corporate management team here are ready to present to you. So during the next hours, we'll have a look at this. We'll have a short introduction by our CEO, Staffan Dahlström, followed by a strategic overview for the next 5 years by Staffan, Hans Larsson, our CTO and Joakim Nideborn, our CFO. Then we'll have a look into some technology, 5G business opportunities for HMS by our CTO, Jörgen Palmhager. And then have a look at the HMS sustainability plan by Joakim as well. Towards the end we'll have a look at the financial overview and a short summary before we head into the Q&A session. So as I said, I'll be behind the screen taking any questions you may have and you can use the Team live events Q&A function shoot any questions you may have and we'll a short break at the end rearranged to [indiscernible] have a short panel discussions with the questions that you have coming in. So once again, a warm welcome to Halmstad, and I'll leave the floor to our first presenter for today, Staffan Dahlström, who introduce HMS Networks. Once again, welcome.

Thanks, Thomas. Good morning, everybody. So let me give you a short introduction to HMS and what we do. I know some of you guys are new to the company, and many of you are also quite familiar to our business. But we've also been changing our business partly in the last couple of years and expanding our playing field. So what we do? We are connecting devices, systems and industrial machines. This means that we help our customers to connect their robots, their packaging machines or their industrial systems. For example, we have customers like the Swiss company, VAT, making vacuum valves for semiconductor manufacturing. They use our Anybus embedded technology to make sure that they can connect their valves into whatever semiconductor manufacturing line their customers may have. Another example is our wireless products, where we use our wireless technology to help customers making AGVs, automatic guided vehicles inside manufacturing plants for automotive or maybe logistic centers to connect to both the control systems, but also the [indiscernible] systems. So these AGVs can move freely without cables. Thirdly, we also work with, as an example, with remote access of industrial machines, allowing machine makers and machine owners to monitor data from their machines without being physically close to their machines. So here, we have over 300,000 machines inside of Talk2M cloud system. So this is one of the leading IoT systems for industrial applications. And this is just free snapshots of our business and all of them are quite similar when it comes to its B2B business, its industrial application, and it's really critical network communications. So it's important to our customers. That their systems work 24/7 for now and for many years ahead. Look on our product portfolio, we have quite a broad range of products and technology, ranging from embedded communication technology to gateways, to wireless products, to remote access products, to software and cloud technology. So all this is a quite broad range of products, a combination of hardware and software, and this is really what we focus on. We have 4 main brands, Anybus, Ewon, Intesis and Ixxat, all with its individual strong product offer, but all their products and solutions are offered in our common go-to-market channel through our market units around the world. We also have 2 new areas coming in from acquisitions in the recent years. WEBfactory, German software company, adding more of a software content to our products. We can combine this with some of our harder products. And the newest addition, Procentec. Dutch company working with network diagnostic, making sure that you understand your network traffic and helping our customers to increase uptime and minimize downtime of their networks, very exciting technology. So this is our product offer. And what we do with this offer is to target 2 industrial groups of customers. First, we talk about users, uses of industrial automation systems. This could be food and beverage companies, pulp and paper, automotive, et cetera, users of these technologies. Here, we normally work with distributors, system integrators, different partners to access these end users of technology, and this is some 25% of our revenue. We also have a big business with makers of industrial equipment. And here, we work with the manufacturers of devices or machines, and we are becoming part of their bill of material or part of their solution that they deliver to users of industrial automation. And this is some 75% of our revenue today. So if you look at the company, as just a brief overview, we have more than 7 million devices connected, running every day in industrial applications. So this makes us a quite big company in this specialized niche of industrial communication. As I mentioned before, we have 300,000 machines connected through our Talk2M system. So we are really a leader in this remote access of machines. We focus on industrial communication in industrial Internet of Things, IoT. We are a technology company. Jörgen will talk later about 5G and what's going on there. But we also work a lot with AI, wireless technology, IoT and smart grid for energy distribution. So technology is very close to our heart, and that's our DNA coming from a technology sector. As a company, we are almost 700 employees around the world. We have our own offices in 16 countries today. But we have partners and integrators in more than 50 countries. And we are headquartered here in Sweden, very beautiful, normally very beautiful area of Southwest Sweden, but as you see today, quite grayish here in November. But we like this part of the country, and we enjoy being here on the West Coast. As a company, last year, we landed our revenue at SEK 1.5 billion, we have a new ambition to double this, more than double it to SEK 5 billion in 2025. Joakim will talk more about our financial goals. And our ambition is to keep our solid operating profit at around 20%. Last year, we had an earnings per share of SEK 4.43 per share. So this is how we operate today. If we talk to our teams here, our managers, we made this word cloud survey a couple of weeks ago, and we asked our managers, what do you feel is the strength of the company? And as you know, the word cloud is expanding the words that many people select. And it's quite interesting to look on the strength we have here. We have a solid existing business. We have a good reputation. We have a large customer base. We have good product quality, strong supply chain, good tech skills, and there's a lot of good things here. So we feel very confident now when we release our 2025 goals and going forward towards more continued expansion that we have a strong base of business and you know this industrial world is a quite conservative world where a lot of things keep on moving in a slower pace than more consumer-oriented things here. So we have a strong position to start from. But how did we get this strong position? And let's take a look -- a quick look on the history of the company. Started in the late 80s quite many years ago with my partner, Nicolas and myself, as a small start up, working with engineering services and electronics back in the 80s and we were fighting hard to find this new product that we should conquer the world, and it was quite hard a couple of years here. But back in 1994, we released the first successful product, Anybus, that became an instant success. So since then, we saw quite rapid growth of the company. We took in new capital, new owners, and they helped us expand both the product offer, but also the international expansion. We started, especially in U.S., in Germany and Japan, which is still our three major markets. We had help from different shareholders. And back in 2007, we were making our IPO at Stockholm or NASDAQ OMX at SEK 8.50 per share. And since then, we've been public, and slightly after the IPO, we got a little bit of a headwind from the financial crisis. And you see this in the bump in the nice curve here on the screen. But quite nicely, we bounced back quickly 2010. So it was a big dip, but also quite a big recovery. And this is also what we see in the future when it comes to the slow business now. We expect the industry to pick up later because investments are normally not canceled, they are delayed for the future. So we expect that when things go better here, also the CapEx investment at our end customers will increase. Back to the history. Back in 2013, we started the first larger acquisition. We bought German Ixxat, and this was a starting of our agenda for acquisition and in combination with organic growth. And since 2013, we have done 6 successful acquisitions. And one of them was Spanish Intesis, and Intesis was extra important since they also helped us to take a step into the very interesting market of building automation. So this is one of our key markets since 2016. So we have a long history, but now we are in 2020, a challenging market with corona but our ambition is clear. We want to keep on growing. We have ambition to become the world's greatest industrial ICT company. And Hans will talk more about what this means. But we feel we have a strong foundation, and we have a good ambition for the future to keep on growing. How to do this, how to become the world's greatest industrial ICT company? Well, take a look on the coming sessions here and we explain on our plan. Our focus areas going forward. We have, just from a high-level view from the company. What we are doing is we are enabling invaluable data and insights from industrial machinery. Okay? Why do we do this? Well, this is quite important because this gives increased sustainability, like energy savings and increased productivity for our customers. They get more data, more insights from their from their machines, from their devices and from their systems, and this helps them to increase their productivity and sustainability. So what we do is very important. This is our mission. HMS enables valuable data and insights, allowing our customers to increase their productivity and sustainability. So this is what we wake up every morning to think about, and this is what we want to do. Look at the strategic focus areas. We have 3 main areas that we would like to focus on. We have our environmental sector, very important for us. There are companies who want to reduce their emissions. There are even companies who want to have zero emission. We have higher ambition than that. We want to have a net positive approach to this. We want to focus to become more than just zero when it comes to emission. And Joakim will talk more about the details going forward, how our environmental plans look in the coming years. Secondly, we believe that staff and customers, very important, we think that happy and high-performing employees drive happy and loyal customers. This is very important for us. Sounds simple, but we believe this is where it starts. And the third area, we want to continue growing, important for us to combine growth of profitability, we believe that ambitious growth plans, combined with good profitability, drive us to be agile and flexible and really focused on the future. The targets we have here for 2025 for environmental is that we want to have a net positive external impact when it comes to CO2 emissions, but we also want to do that for internal purposes. This is not easy. And Joakim will talk about how we measure this and what ambitions we have there. We want to make sure that our customers and our employees recommend us to their colleagues, to their other business peers. We want them to be a company that they recommend us. We want them to recommend us as a workplace or recommend us as a supplier. So therefore, we focus on net promoter scores and we want the net promoter scores through our employees to be greater than 25, but also from our customers to be greater than 25. And we think this is a very strong measurement of our success going forward. Happy and high-performing employees generates loyal customers, very important for us. And finally, the financial goals, we want to reach revenue 2025 that exceeds SEK 5 billion, more than SEK 3.14 billion. We want to maintain a good profit level at 20% EBIT and we also want to make sure that we can make dividends to our shareholders of 30% to 50% of EPS. So this is really the high level targets and our 3 key focus areas for our coming 5 years. With this, I would like to hand over to Hans talking about our playing field and where we are active on our markets. Hans, welcome.

Thank you very much, Staffan. So we are active in 2 significant markets. So one is the industrial automation. The other one is building automation. But with the new strategy we have now, we are also expanding our playing field a bit. So we say we have the target to become the world's greatest industrial ICT company. So what is ICT? Well, ICT is information and communication technology. And we add the industrial part to this because we are an industrial company. So when we look at the playing field, we will distinguish between 3 specific parts. So it will be control, information and infrastructure. So starting with control. Control centric applications are typically on-premise control its industrial automation, insight production lines, insight machines, it's real time. We talk about milliseconds, microseconds of communications to control production. Information is built on data. So it's acquisition of data, and it's, of course, what you do with the data. So analytics, creating insights you need to optimize your uptime or doing preventive maintenance or whatever you have. And infrastructure is basically the data, transportation insight machines, insight systems or also up to cloud, et cetera. If we look a little bit more at the details, on the control side, this is really the bulk of our revenues. We have about 7% of our revenues here. It's a market where we believe that market grows around 5% annually, and we are active in some subsegments here. We are really the market leader in network connectivity. Main driver in this field is Industry 4. That's a trend, which you will hear a lot about. And that's actually driving the development here. Slow moving, technology wise, in some parts, but always steadily moving forward. When it comes to the information side, here, we have about 20% of our revenues. It's a faster growing market. We believe it's in the range of 10% to 15% of annual growth. And this is typically where I talk about the industrial IOT. So we are a leader here in remote access solutions through our Ewon brand. So we have both, let's say, the access, but also the data acquisition and what we do with the data, dashboarding presentation, et cetera. And finally, we have also the infrastructure part of it. Here, this market, we believe, has a growth of 5% to 7%. It's the smaller of the 3 portions for us. We have 10% of our revenues here and is primarily within CAN technologies, where we are really a leader in products for CAN. We also have an interesting opportunity here. It's early, but we're in an early adopting to 5G now. So Let's move a little bit more into the details of this playing field, control, information and infrastructure and where do we actually have our sweet spots and sweet spots for us, that's where we have significant portion of the revenue. So if we start from the left side here, we talk about embedded connectivity and embedded connectivity is really where it started. It's our Anybus embedded offering. This is what we're really well known for in the market. Next sweet spot in the control side is network-to-network connectivity. We have a wide range of gateways connecting machines to each other and machines to, let's say, IT systems, et cetera. So based on Anybus, Ixxat products. And both these sweet spots are really focusing on the factory automation part. But we have another sweet spot in the control sector as well, focusing on the building automation. So since 2016, we have Intesis in our portfolio. And Intesis has a wide range of gateways strictly for integrating air conditioning units into the building automation systems. So these are all 3 sweet spots in the control side. If we move into information-centric solutions. We already mentioned remote access here. We are the real market leader. We have our Ewon brand. And this is also where we have good opportunities to build upon the Ewon success with additional IoT solutions, additional software solutions to create the insights and make something out of the data. And lastly, a smaller dot here in our CAN technology. This was 10% of the business. We have our Ixxat range of products. And the CAN, it's widely used in automotive industry. It's also used in communication in various automation insight machines. So strong position, also showing a bit of a growth and something we can build upon. Within this playing field, within our sweet spots, we have good chances for organic growth. So these yellow circles here should symbolize that we are growing each sweet spot here. We have some growth drivers, so we have a good inflow of new design wins. So a design win for us is when a customer is designing our technology in their products. So for example, the Anybus embedded communication of course would be designed into a customer product, and we leave with the customer product. So it's a very sticky business model, which we like a lot. We can also work with market penetration. So we are represented in all, let's say, significant markets around the world, but we have, let's say, different penetration per sweet spot in these markets. So we have a chance to work with market penetration in markets where we're already present. We have a good opportunity to add software and services. So on top of our Flexy, our Netbiter Argos solutions out there in the field collecting information. We can build various software applications. We have our WEBfactory acquisition, which provides some technologies and some software we can build upon. So this is also a good opportunity to leverage the strength we have. And of course, we can do some selective market expansions. The last couple of years, we established a direct representation in the Middle East region, in Southeast Asia, in Korea, so we are kind of eating up the white spots on the map, but there are some other areas where it could make sense to have a direct representation. Apart from our existing sweet spots, we can now, of course, also establish new sweet spots, and we have a couple of them in the making, which I would like to refer to here. So IoT solutions for users. You remember that Staffan mentioned, we work with makers and users, makers or makers of devices and machines. The users are where these devices and machines are being used on the factory floor, for example. We can see that a lot of companies. They have now machines with remote access from us, from Ewon and they see the benefits, especially now we've grown as a driver that their suppliers can remotely access the machines to do maintenance, troubleshooting, and we see more and more of these customers looking for standardizing on remote access solutions, also giving opportunities to be IoT solutions on the data. So this is a nice opportunity, which we'll explore further. We also have a lot of technology, and we have a good relation to a lot of these device makers and machine builders. So the larger ones there, when they want to create their own IoT solution, they might not buy something off the shelf, they might build a solution, and there was a good opportunity to get designed into their IoT solutions with our technology. So as an example, Caterpillar has an IoT solution for remote monitoring of the power generators. And in that solution, we have a cast of Netbiter product, which is an integrated part. So we see good opportunities to explore that further. Next one here, network diagnostics. This is something which came in with the acquisition of Procentec. Procentec works with diagnostics and troubleshooting on the factory floor basically for the users. So it's hardware and its services and its education. For us, this is really interesting. We have kind of never really made any business from the installed base out in the field. But here, we have a chance to work with the end users with the technologies that we might have delivered parts of it and actually create a good relation with end users and build the business. So very exciting and interesting. And finally, we have what is not the sweet spot yet, but with a good potential, we have 5G for industrial applications. And here, we have to emphasize this is for industrial applications. We are well positioned. We have good partners in this area. We also have very good products for proof of concepts because that's what it is right now. And you will hear a lot more about this a little bit later from Jörgen. So with that, I would like to hand over to Joakim, who will talk a little bit more about mergers and acquisitions. Thank you.

Thank you, Hans. Hello, everyone. So I'm actually going to continue using the playing field that Hans has introduced to explain to our strategy for continued expansion with mergers and acquisitions. And this will actually be a bit of a bigger focus for us going forward. In the past, we've said that about 1/3 of the growth should come from M&A. And now we say that 50% of the growth should come from M&A. And this is also why you have seen the dividend target being a bit changed from being 50% to now give us an interval of 30% to 50% in order to finance these acquisitions. We have 4 main strategies that I will present to you today to do this. And let's start with the first one, which we call bolt-on to core businesses. This is actually a new strategy for us that we haven't used in the past. We think that with our strong positions in the playing field, the sweet spot that you see, we think that we can find good complementary businesses to those businesses that we already have. And we will integrate them into the brands that we had. And with adding those new product lines or new solutions that it might be, we think we can gain more better market access to specific vertical to be a new geographic market or a new market segment that we're not accessing today. This is the first strategy. That might not be the biggest one, but it's something that we would like to utilize. The second one, that actually is the biggest one, that one that we have now successful in the past, and I would think we're going to continue doing this is where you see -- will see most of our acquisitions being made in the future as well, will be strong new product companies. So this will be a company that is outside our sweet spots, but within inside our playing fields. So here, we're looking for new strong complementing companies with strong offerings, good position in their niche of the business that we can add something to the HMS offering. In many cases, we see that we can utilize our sales organization to get this offer out on a wider geographic market that's proven successful in the past. So that's something that we're going to continue to work with. We think you will also see the bigger acquisitions for us being made here. And big for us would be from, let's say, EUR 10 million and not. And in the other areas, you'll probably see a bit smaller acquisitions. The third area is what we call software solutions. And here we have -- we made our first acquisition within this area last year with WEBfactory. We're seeing cons presented that we're going to work more with users. This we think will be a good access to the user market, where we can supply a more complete offering, starting from the connectivity, going up to data aggregation and actually present the data to the user. This is interesting for us because we think this will add a new business model to us. Today, we have about 5% in software and recurring revenues. With these acquisitions, we expect to gain more recurring revenues, and that will be very nice for our cash flows going forward. We don't know exactly how much this will be in 2025. We think we'll have more than 5%, but we don't want to say a specific number because we just don't really know how far this can take us. But we think we will have a larger part of recurring revenues going forward. The fourth area, we call this technology to shorten time to market. And this will be -- you probably won't see a lot of these acquisitions, but we don't want to exclude a strategy. In many cases, we see that we have a strong offering. We maybe miss a piece of the puzzle to be able to present something completely new to the market. If we then can find companies that has this technology that might be interesting for us to pick up. So I mean, the main reason for these acquisitions will not be to increase the sales, it will be to get an IP that we're missing to speed up the time to market and to get better business opportunities because of that. You might also see us going into acquiring distributors. It will be very selective. We've done 1 of those acquisitions in the past. Last year, we acquired Raster Products in Netherlands. There are not that many opportunities of given reasons since most our distributors will carry a lot of brands. We will be 1 of them. So acquiring that type of distributor will destroy a lot of value, and just doesn't make sense. Actually might be 1 or 2 markets where it's interesting to do this. So we won't exclude it, but you won't be seeing it a lot. We often get the questions. So I mean, a bit more specific what areas are you looking for? And I mean, the quick answer is our playing field is what we're targeting and that's what we're going to look for. But just to mention some areas, we can say that we have the building automation space where we have Intesis today working with connectivity of air conditioning. And we think there are more things to do. We also have some offerings with WEBfactory and energy surveillance that we think is interesting. So here, we can definitely expand our scope, and that's one area that we're looking to penetrate a bit more. We also have remote access, where we have our Ewon offering today. And we're sure that there are other technologies, other applications that we're not reaching today that could be interesting, that is also we are looking for. There is a strong underlying growth in this area that we'd like to capitalize on. Third area would be into the infrastructure area, where we see there are many wireless technologies that we think will have a nice growth going forward, and then we can certainly expand our scope in that area by such as acquisitions. Okay. I also want to take you through our fundamental M&A criteria. So what are we looking for when we evaluate these companies? And we have 4 different areas. The first 1 is market and position. So I mean, we would like to make sure that the companies we go after, they have leading position within their the market segment. That is very crucial. Those should be growing markets because without that, it will be difficult to scale up these businesses. And of course, it's pleased to fit with our overall strategy in our playing field. Then we have technology and supply. First thing, we need to have strong IP learning companies that we normally see with good gross margins. And that is important for us, and it also goes with a strong position in many cases. Since many of the companies we go after are a bit smaller, we'd like to also see that the supply chain is not too dependent on 1 or 2 suppliers. So that's something I would work with. So yes reduce the risk of these acquisitions. Of course, we also need to understand the technology in order to be able to evaluate if this is something that we can work with. In terms of development potential, in many cases, we go after companies that are founder-led or with a management team that knows the business very well, and it's often niche businesses so that we have a strong management team is crucial for us. And we will like them to stay on and commit to continue to drive the companies. If it's founder-led, in many cases, it's important for the founder to have a good home for the company that they have founded. And then we would like to have a growth story too, of course. We will need to see that there is a specific driver that will be able to grow -- drive the growth in these companies. And finally, in this area, that we can add some value, could be that we open up our sales network for these companies. Could be as we plan to do with the Procentec acquisition. We can present some of our IP blocks that they taking use and deliver and develop further. And then the final area, financial performance. And this is maybe the easiest one. We need to see that there is organic growth possibilities for at least 8% organic growth. We need to have EBITDA more than 15%. We have our EBIT target of 20%. If we don't acquire companies with decent profitability, it will be difficult for us to sustain that margin. And then the final thing, we would like to acquire a majority stake, preferably 100%, but in some cases, it might also make sense to take a majority stake and have an opportunity to up to 100% at a later stage. All right. I think it's time for some 5G. Jörgen?

Okay. Thank you very much. So I will talk a little bit about 5G and how this new technology will contribute to bringing the industrial automation and the smart factories of tomorrow forward. It's quite exciting in our business to talk about 5G. It's a new famous technology that is coming into our market. And this is not something that happens every day actually. So why is 5G so interesting for the industry? Well, we have now, for a couple of years, have been talking about Industry 4, the fourth industrial revolution. And all the great things that this will bring. But there has been an element missing, and this is the technology that actually can make it truly scalable, truly mobile and truly flexible. So this is actually why 5G comes in. So with smart manufacturing, the targets are to drive efficiency in the industry, to drive cost optimization, but also increase the customer focus throughout the value chain production. This, of course, requires adaptation of new technologies, solutions and architectures, which includes 5G. Key requirements is still flexibility, mobility and, of course, reliability. Failure and downtime is definitely not an option within industrial manufacturing. And here, 5G shows excellent performance actually to overcome this compared to other wireless technologies. So since 5G has been designed with these requirements in mind from the beginning, this means that today, the notion in the industry is that 5G will enable the last mile of the Industrial 4.0 vision. And this is also 1 of the reasons, I believe, at least, but it's predicted that the industrial applications will be 1 of the fastest-growing applications within 5G altogether. So -- but it's easy to use terms like smart and so on. And I would like to begin a little bit to explain what HMS sees in smart and how we contribute to this moving forward. So taking a look at our playing field, we start with control. Well, to be smart, of course, you need a fully automated production and intralogistic-s within your manufacturing site. This includes, of course, material handling and warehousing as well. To do this, you also need information. And what this means circa you need both horizontal and vertical integrated value chains. For example, meaning machine to machine, system to system, device to device. This is an area where HMS has been very successful in the future. But now to make it smart, you also need the integration to the IT systems. So -- and this is normally called then will refer to as IT/OT convergence. And of course, finally, infrastructure. You need a robust communication infrastructure that provides both wired and wireless services. And of course, what we see here is that when doing this, connectivity will still be a very key part of this. So industrial communication, connecting and bridging legacy system and open technology standards, industrial IOT, remote connectivity and security. All the things that HMS are doing today will still play a very, very crucial and vital part of the new systems of the future. But we also see new emerging architectures and solutions coming in. We talk about wireless and wired. We talk about this IT centric and OT centric dynamic solutions in parallel with traditional static solutions that we have seen in the industry. We talk about intelligent new technologies like machine learning, AI and so on, in combination with a more logic control sequences we have been using in the past and 1 for even more security. And here, we see that 5G will actually be a technology and a solution that will contribute all of these 3 parts here. So just talking about this last mile. So what do we actually mean a little bit more in technology. There are 3 main capabilities of 5G that is actually extra important for the industry. And if you take a look on the value chain from that material arrives at factory until finished goods are leaving the factory, we talk about enhanced mobile broadband. 5G has the potential to provide industrial networking capabilities with speeds that are as good or even better as wired technologies today. And this, of course, means that all these data heavy applications like artificial intelligence and machine learning and so on, we'll be able to run on top of 5G. The other one that is extremely important for the industry is what's called to ultra-reliable, low-latency communication. Meaning reliability, of course, but also high-speed communication or low-latency communication, being able to talk to devices at millisecond accuracy, which is extremely important for control, like motion control, mobile robots and so on. And last but not least, the ability to connect a massive amount of devices. To do smart things, we need more information, we need more data. So wireless sensor technologies are becoming extremely important, but also doing things like intralogistics, you also would like to keep track of location and also keep track of where your assets are. So all these technologies combined together provides a very, very good scene to take the industry forward. But, you could say that 5G actually takes in the benefits that we see with both hardwired ethernet and traditional WiFi. So it has the flexibility and scalability. It has the high capacity that is needed. It has the low latency. It has the ultra reliability and it's one standard. In the industry today, and we see that we have a lot of different standards available. And this is actually one standard that can address and solve many of the use cases we are looking for in the future. And it has the possibility to operate in a licensed spectrum, which means that we know that in this spectrum, meaning frequency, we will only see 5G traffic. We will not see anything else. So there will not be no other WiFi devices or anything like this, interfering with the very critical traffic from the control systems. But as with all new technologies, when they enter the market, there are a lot of technology gaps that needs to be closed. And 1 thing is, for instance, spectrum availability. If you're going to run your own network, you need to have your own frequencies. And to this frequencies in the air and spectrum availability is very, very hard regulated today. So activities are ongoing to open up. So industries can get access to their own spectrum to be able to run their own private networks. But with private networks also comes the challenge of these users to operate their own mobile network. And of course, this is where we have the operators and so on to the telecom companies. So there are new discussions and new partnerships being aligned and new services being created around this. Interoperability is another thing. We need to make sure that the traffic that is required for the industry actually can run on top of the 5G technologies in a good way and reliable way. And interoperability is extremely important because we will see a lot of old existing technologies that now needs to communicate over 5G. How can we ensure that we still continues to operate in a safe format. And of course, least -- not the least, affordability. It will be more expensive than traditional wiring we see today. But of course, we all expect that the benefits will be as big that you actually can afford this kind of investments that you need to do. And as always, over time, costs for new technologies will drop. But all of this also means that there is a lot of industrial devices on the market today: robots, machine, drives, controllers, sensors and so on, but it's not capable of communicating over 5G, and we need to provide solutions to make these devices come on to the 5G network. And this is actually one of the key parts that HMS is focusing on today. So this still -- even though we will address all the challenges, this does not mean that 5G will replace all existing technologies we see today. 5G, we will start to seeing them in new automation architectures and addressing the shortcomings of ethernet and, of course, the WiFi systems we have today. So 5G will come in and solve specific solutions and so on before moving over to becoming more of a new technology that will replace what we already have today. But even though our industry is conservative, it takes time for new things to get established and develop. So we believe that 5G will coexist with wired technologies for quite long time. And wires will still be used where it makes sense from a performance, cost and architecture alternative, like within insight of a machine, for instance. So when can we expect that 5G can come in and and will start generating revenue and business opportunities for the industry? Well, you could say that it could be seen that it will become a mainstream technology from industrial communication by 2025. Based on this is that it takes normally 5 to 8 years for new technology to become established. But it must be shown that these new technologies actually bring value and solve real-world use cases in order to become this. But 5G definitely have all of these capabilities. So from a part where HMS is looking on today, we have 3, I would say, categories of users that we are addressing when we are now starting to work with 5G on the factory floor. And why do I want to use this? Well, they would like to overcome this static wired technologies, and they are looking into bringing higher flexibility into reconfigurable systems, mobile machine, automated-guided vehicles and so on, and not the least, battery-operated handheld tools. And for this, you need robust and flexible wired technologies like 5G. And it's not only in new deployment, so-called greenfield, there's also big need to renewal of existing applications or systems in the factory, call it brownfield deployments. And they do this all to address this new Industry 4 requirements that are coming in. So use case number 1. The automation engineer, a guy on the factory floor. He is looking to use 5G to do cable replacement, to migrate systems that it has over to wireless, to capture new system data like introducing new parallel systems on the factory floor, and he might also have brought a new extension to its factory. So he need to integrate new systems. Then we have the automation architect, the one who is thinking about the new architectures of the future, really addressing the 4.0 requirements, is focusing on designing reconfigurable systems, looking into mobile machine, this battery operation and solving this intralogistics and position kind of applications. And the third guy that we are working with is actually more of a digitalization consultant. He is looking to do the IT integration of the factory floor. It has a lot of data needed to be able to doing this kind of smart analytics and so on. So measure, measure, measure, trying to get out as much information from the system as possible. And of course, connecting machine and people and to do image processing and other high ends like augmented reality solutions and so on. So use case number one, definitely a brownfield, an existing installation where you would like to do add-ons using 5G. And this is driven by internal strategy directions to evaluate and use 5G. A guy in the middle, is focusing on greenfield installations. He realizes the full potential of 5G and the value it brings to Industry 4. The last guy, working on digitalization. Well, normally, he does not -- he is not that focused on automation, but he definitely knows what 5G means and that he will do the job for him in his type of applications. So these are the real-world challenges and the application use cases we are focusing on today and are active in providing solution to. So from HMS' point of view, when we talk about 5G internally, what do we talk about? Well, we have been working with industrial 5G applications since 2018. We have and are still a very active member in organization and forums, driving the industrial 5G agenda forward. We have formed our own 5G unit within HMS, focusing solidly on industrial 5G products and services for smart manufacturing. And we have entered strategic partnerships with several of the 5G technology founders like Ericsson and others and are today doing activities on the market together. And as a result of this, we are a key supplier in several of industrial 5G proof-of-concept installations that are taking place today throughout the market. And especially, of course, these are the guys that are going in the forefront of 5G are the as usually the automotive companies. That is really normally the first ones to adopt new technologies and to adopt new automation architectures. And the real value we bring with this is actually that we do combination. We combine this new 5G technology with our existing industrial communication solutions. And by doing this, we really bring something that is unique to the market in terms of solution and innovation, I would say. So this is my short introduction to 5G, what we see for the future with this and also showing that there is a great potential for 5G moving forward. And if you are interested in learning more about this, we are very active in these areas. And I think already today this afternoon, we will do a presentation at the IoT Solutions World Congress, which is a digital format this year, where Jens Jakobsen from HMS will represent our 5G solutions for the industry. All right. That was my thought. Thank you very much. Moving over to Joakim again with the sustainability.

Yes. Let's do that. So I think, as you remember, Staffan presented 3 focus areas for us: 1 being the environment, 1 being our staffing customers; and the third 1 was growth and profitability. And what we've been talking about so far mostly relates to the profit and growth part. And I'm going to now also talk about the environmental part and the staff and customers. And of course, we see a lot of demand from you guys from the investment community to -- around ESG reporting and to make sure that we do good things there. And that is important, for sure. But the main reason that we are now focusing more on these areas actually that we, first of all believe is very important in the management team, but we also see it from our staff, from our customers, there is a high demand to improve in this area. By that not said that we're doing a lot of bad things today, but we think we can become even better, and that's what we would like to do until 2025. So just to reiterate the targets. We would like to be net positive on CO2 emissions in the internal perspective. And the external perspective, I'm now going to go through what we are doing to accomplish that, at least some areas of it. And on the staffing customer side, we would like to reach the NPS, about 25. So I'm also going to go through what areas we think would be important to achieve that. Let's start with the environment. And first, just to put this in context, I think you're all familiar with scope 1, 2 and 3. Scope 1 being the direct impact that we will have from our facilities, from our assets. Scope 2 being the indirectly impact from the energy that we purchased. And scope 3 being more or less everything else. So I think what we're going to do now is define what areas within scope 3 that we think will be most important and also tell you a bit about scope 1 and 2. We also will look at the upstream activities in our operations and in the downstream, just to make it a bit easy to follow. So let's start with the first area. We call this the internal impact because we think this is something that actually within -- we are in directly to do something about. If we start with scope 1, starting with our vehicles, today, we have a fleet mostly consisting of diesel cars, which is not great. So we are now rolling out new policies to go over to only electric cars or at least cars with electronic components. So we have -- could be hybrids in the short run, short -- could be electric cars in the longer run. Within our facilities, so we know we have mostly offices for -- we don't have a lot of factories. We have some production here in Halmstad, otherwise, it's mostly office buildings. So it's difficult to say 1 or 2 things. There will be many small initiatives that we're working with to improve the carbon dioxide emissions in the offices. Looking at scope 2, we have the energy part where we, in our biggest sites today, are using green energy. In 2025, that will be in all our sites. So that is something that we're rolling out, probably going to be done before 2025. But that is something that we believe is easy enough for us to do, and they will have a good impact. So that's definitely something that we're going to do. Then going over to scope 3, which is a bit more complicated because it's so wide. So we have decided to focus on some areas, at least in the first run, might be that we have an updated plan during this 5-year time since it's a pretty long time. But one of the areas that will have a big impact is our EMSs, our contract manufacturers. And here we are working together with them to see what we can do to reduce their footprint. And we think that we have many of the EMS that we have, we are pretty big customers. So we think that we will have a good chance of influencing these guys as well. The second area is the transportations that we have in the upstream activities. And here we know that there are green alternatives that we have in some places where we're going to make sure that we have that for all our transports going forward. The third area will be our own traveling. And right now, we're not doing a lot of it, at least not by plan. We think there are some different things we can do here. I mean, first of all, what the pandemic has learned is that we don't have to travel as much as we've done in the past. So we think that we can actually reduce the traveling and use more digital tools instead. That is something that we're going to continue with also post-pandemic. But also, there are other options. So we can use green options instead of flying. In many cases, train would be feasible. So that we're going to try to use in more cases. And if we have to fly, which we still will have to do, we just make sure that we climate compensate for those flights. Then looking at the downstream activities, we have the same situation with the transports, the same initiative goes for that. We also have the design store products and the end of life use our products. And I mean, here, we see when we work with the part designs, we use parts that can be recycled. We're happy enough to have us the stay in place for many years, but still, we'll use parts in recycled materials that can be recycled. And also, we're working with the packaging material of the products to make sure that we use as little material as possible when we do the packaging. And then last but not least, which might actually be the most important thing, is the savings that our products will actually give when they are in use. And here, we know that we have a lot of carbon dioxide savings from reduced chips when we use, for instance, our remote access offering. So you don't have to send the engineer out to the plant. So if we should do one single thing, it should be better design our products that will enable a faster growth, that will enable more customers to come out to connect remotely. That will be the main thing that we actually can do. So that's, of course, a main priority for us. So going over to the employees and customers. We have some areas that we think are of high importance here. We're going to start talking about health and development, which, of course, is imperative for us. So we would like to encourage a healthy lifestyle of our employees and make sure that we develop the staff. So they are -- they have the latest skills and tools that they need to do a good job. And what we do here is we offer a lot of training opportunities, that crossfit training during lunch. We have running running groups and so on to make sure that people get moving to just get down the sick leave, it's a good thing for everyone. On the education side, we set aside a certain time of year for each employee to develop their skill sets in the way they want, of course, and meet together with their management. Company culture. We are a small company that are becoming a bigger company. And what's important for us is to keep this entrepreneurial feeling within the group that people there to take their own initiatives, and that is something we really encourage to also try to spread this in the middle of organization that we have. The third area is leadership, where pilots might not say too much to you. This is our leadership tool that we use. We have P for passion, I for initiative, L for leadership, O for organization and T for top priority growth. This is something we work with all our managers to develop in these different dimensions. We have local sessions going on all the time. We have also global initiatives where we collect our managers every year to make sure they get the last -- latest update to what's required and what we'd like to do to develop within. So that's something that's super important for HMS. Then we have diversity and the equality some of these things are probably given to you. It's given for us that you get the same pay for the same job, that everybody has the same opportunities to develop in the company regardless of gender or where they come from or whatever it might be. This is completely given for us and something that we work extremely much with. In terms of diversity, I think we have now about 30 different nationalities within the group, which is not that bad for the size of company that we have. But what we see is our different sites are still quite homogeneous. So here we think we can -- we can actually do more and more work to get more influence in the different sites. And we also have, today, it's a male-dominated industry. We have about 12% female managers, which we're not happy with. We've set a target for 2025 to reach 20% female managers, which you might not think is super aggressive, but we feel we need to start somewhere, and we don't want to hire a lot of people just because they're -- the mandate will feel a bit bad. So we think this is a good start to get to the 20%. And from that, we can set a new target. Then being a responsible taxpayer, I think you see a lot of companies being super intelligent in how they set up the structure to pay the taxes in Ireland. We're not that interested in that. We would like to pay the taxes where we have our business and be fair a citizen. So that is the key of our DNA and something that we're going to continue to do. Last area, ethics and anticorruption. First of all, I think we would like to be a fair business partner to our employees, to our customers, to our suppliers. And that's also within our DNA. And to make sure that we keep on track. We have our code of conduct where we have updates regularly, and we make sure that the staff gets training, and they need to do tests to make sure that they've understood the different parts there that's in there. Also, we have a supply code of conduct that we will ask to all our suppliers to comply with, and we will, of course, all depend on this as well to make sure that they stay in compliance. Okay. Finally, around the sustainability. I think what we presented to you now is our ambitions within this area. We think that we, especially in the environmental part, we have pretty strong ambitions, as you see. We don't have all the answers yet, how to do it. We still have 5 years to go to this level. So we're pretty sure that we will come up with everything that needs to be placed until then. We would like to encourage you to follow us in our sustainability report on our way to our objective. What we're going to try to do is to be a bit more crisp and show some more KPIs on where we're going and how we're developing going forward, so you can follow us also in this journey. But take it as the ambitions, and we are working with some areas, we're going to add more, and we want to make sure that we reach those targets by 2025. All right. That was sustainability. I'm going to continue now with the financial overview, and I will start with a few slides on the last decade. So I think many of you have seen this slide before. We have -- during the last decade, we have achieved 18% CAGR. And starting from 2010, which was a good year after the financial crisis with a 41% growth versus 2009. So it's a good base year to start from. During the time, we have made 7 successful acquisitions. We made Ixxat in '13. We made Intesis and Ewon in '16, Beck in '18, and WEBfactory and Raster in '19. And then as it's not visible in the graph, but we made Procentec now just 2 months ago. So at the end of Q3, we had 4 main brands that would be Anybus, Ixxat, Ewon and Intesis. And as you see, Anybus being the base business of HMS, where it all started. This is still, by far, the largest part of the business with 56% of the total sales. We have Ixxat being 12%, Ewon 21% and Intesis being 8% of the sales. So I think this is where we still have our main businesses, Procentec will get in there as well, being around 10%, a bit less maybe. But then you might wonder, okay, so how did we achieve this growth? What was organic? What was M&A and so on? I'm going to try to explain that to you as well. So starting off, we have here 2010 to SEK 345 million, going to 2019, SEK 1,519 million. As you see, SEK 587 million is organic growth in this period, being 12% CAGR. Then we have also the acquisitions, which adds SEK 412 million, if I count rolling 12-month sales from the time of the acquisition. So in total, that will take us to a 16% CAGR. We've also had a very favorable currency development in the period, adding another 2 percentage points in terms of CAGR, SEK 175 million. That takes us to a total of the 18% CAGR. And what's also worth mentioning, I think 2020 was actually first year from 2013 where we have negative -- we will have negative currency impacts on the business. So as you see, we've had a good tailwind from the currencies, but now we will not be that way in this year. And just to put it in perspective, we have 60% of our sales in euros and 25% in U.S. dollars. So that was the last decade. Now we're going to assume in a little bit on the last 5 years to see what's happened during that time. So I'm sorry for the busy slide here, we have -- we are showing the net sales per quarter divided per brand. And I think it draws some interesting things to comment on related to this. First of all, we'll always get the question, what about the seasonality in sales? And we don't really have a lot of seasonality in our sales. As you can see also between 2016 to mid-2019, we had a pretty solid growth every quarter. So I think it's easier to evaluate our business on a sequential basis than on a year-by-year basis. What happened there in mid-2019 was that we saw declining investments in the underlying business in factory automation, which impacted primarily Anybus and Ixxat, which started to see a decline in order intake in sales during that period. And then, I'll talk about this later, but that also caused us to put a restructuring program in place. So the growth drivers during this period has been the remote access offering with Ewon and the building automation offering with Intesis. But despite -- even if they continue to grow after mid-2019, that couldn't make up for the declining business in Anybus and Ixxat. And then, of course, in 2020, everybody knows what's happened. What will be interesting to look at is also, we have, during this period, we had group CAGR of 17%, where currency actually helped us 4% of that. But then looking at the different brands. We have, in this period, and this is also adjusted for any M&A. So this is without any M&A impact. Anybus grew 10%, Ixxat, 9% CAGR, Ewon, 21% and Intesis, 29%. So what I would like to say here is that, first of all, you see that all the acquisitions that we've made, we actually managed to scale up the growth on all of them after the time of the acquisitions. So I think that is very positive, and it proves that we actually have a good strategy for how to integrate them, how to use the sales offering, the sales force to get these offerings out in the wider market. Then let's go down to P&L, talking about gross margins for a while. So as you can see in the trend line, the yellow across here, we have improved our gross margins over the period. We are now around 62% and and this is in a year when a lot of things actually working against us. We have lower volumes. We have currency effects working against us in the gross margin side. But with some internal efficiency in supply, we're doing a good job there to take out some costs. And with some circa price increases, we can still expand the margins to 62%. I also would like to point out that a weak Swedish crown is working in our favor. So it's positive for our gross margins. And 1 reason to that is that we have pretty big part of the manufacturing overhead in Swedish crown because we have all the overhead team in Sweden. Then we have -- looking at the different brands. What we can say is that most brands are in very similar levels in terms of gross margin. The exception would be the embedded business, the embedded custom business that we have within Anybus, which is normally bigger volumes and a bit lower margins. That is also helping us with a few parts of the percentage points this year for 10 percentage points. And this might work against us in the future when we scale up the business again. When investments comes back, this will then limit the gross margin expansion. So we think that 62% is a fair level for us to be in the future as well. What you see in 2019 -- sorry, in 2018, the drop in gross margins there for a few quarters is mostly dependent on the Beck IPC acquisition, took some time to get it integrated and to fix those things. And then in Q2 '19, we had also the acquisition of WEBfactory that helped the gross margin a little bit. All right. Let's continue down to operating expenses. We have, as you can see, for the period of '16 to '19, we had OpEx growth pretty much in line with sales growth. And then we had, as you saw, before the drop in sales down to 2020. And what we did here in Q3 2019, when we saw this, we act immediately put in place a restructuring program to take out SEK 45 million on the run rate, which is now done. Everything is going according to plan, and we are ready with all those things. What I also would like to say, if you look at the OpEx per function, we have the sales and marketing being about 22% to 23% of sales is pretty much the same over the whole period. Admin is between 8% to 9% of sales and R&D is between 12% to 13% of sales. And you can see that this is pretty stable over the whole period, and this is where we expect to be going forward as well. And we think that we will need those R&D investments in order to have a successful offering that we can continue to grow within the future. What you will see us do a bit differently, maybe is we'll be a bit more selective on the open expansion post-pandemic. So we'll not invest in all the areas that we've done before. We'll make a -- be a bit more careful there. Okay. So all this comes down to the operating margin. You know we have our target of the 20%. And that was the same target as we had before. We're still keeping that target. And we've been on around 18% for the last few years. We think that we should be able to go up to the 20% now. And we have the restructuring program in place. We have the epidemic impact this year that is helping us to actually reach 20%, that's where we are year-to-date. What you'll also see here is that we have a bit of a seasonality effect. We have Q3 always being very strong. We have vacation effects in there, so giving us lower OpEx. And in Q4 is quite often quite bad for us, which is because we have the marketing investments in terms of many facts and trade shows that will go in the fourth quarter. In terms of -- what will help us to get to this target is, of course, the sales growth coming back. We're going to continue the good cost control. We're going to have the more selective OpEx expansion. And the solid gross margins, all of this should take us from this 18% to 20%. I also would like to show to you just the EBIT -- sorry, the EPS graph, which I think is quite positive. We've seen a growing EPS despite the decline in top line this year. And we think we are in a pretty good position to continue the EPS expansion. Then we have cash flows and cash conversion, which is one of the things that I think we've been doing pretty well in this period, which is one of the key things for HMS continued growth strategy. So as you saw, we expanded the M&A growth to be now 50% of the total growth. This will be one key to achieve that. In 2017 here, you saw we actually achieved 18% organic growth and still could have almost 100% cash conversion being defined here as cash flow from operations divided by EBIT. During 2018, we had an inventory buildup, which puts some pressure on this for us. We have some component shortages that led us to take on some more components in inventory. Then we had, in 2020, very good cash flows. And I mean, the main reason for that is that we have lower demand, which actually makes that we can take out some working capital and then get it up to cash conversion. Okay. So I also would like to add that besides what you don't see in the graph, we are a pretty CapEx-light business. We have R&D investments that would normally be somewhere between 2%, 2.5% of sales. We have fixed assets that will be less than 1% of sales normally. We have some investments in our facilities in Halmstad that need to do in the operations. Otherwise, it's a little bit of IT, but not much more than that. So all of this, you can see also the net debt-to-EBITDA, how that is developed through the acquisition journey the last couple of years. And when I start by saying that we have an RCF of EUR 45 million. We currently utilized a bit less than 50%. And we have a covenant that is on 3x net debt-to-EBITDA towards the banks. But to see what's happened during the period. We acquired Ewon and Intesis in '16. So you saw we went up a bit in leverage, pretty quickly coming down, as you see here. Then in Q3 '18, we acquired on Beck, going up a little bit again, then down and up with the with the WEBfactory and Raster in Q2 '19. And from that, you've been seeing that we've been able to amortize a lot. And one thing that's behind that is, of course, that we didn't give a dividend in 2020. And now we did Procentec, you can't see it in the graph, but I think we expect to close the year somewhere around 0.5, which also, of course, needs in a very good position to continue making acquisitions. But over time, I think we expect to be somewhere between 1 and 2.5 in net debt-to-EBITDA. So I mean, if you would like to discuss more details, you're always welcome to contact us. You can also reach out to 1 of these 2 guys. They know this very well. We have Frederik with Nordea, Victor with Danske Bank, Joachim with DNB, that can help you understand the business better.

Thank you, Joakim. Great presentation. Okay. Let's make a summary before Q&A. And not easy to summarize all this comprehensive information we've been sharing today. But as a quick summary, we have 3 main areas. We talk about our environmental focus, making HMS a net positive CO2 company by 2025. That's an important ambition we have. Secondly, keeping working with our employees, making sure that our employees are happy and high performing, so they can generate good business and create loyal customers. And as Joakim described very clearly, we have growth ambitions. We come from a solid foundation. We have a good situation today. But they are a good ambition going forward. And as Hans explained, our playing field, it still leave us a lot of room for growth going forward, and we have a good organic ambition and good M&A ambition. So these are our 3 focus areas when we set our targets going forward. But let's look on this boiler plate we had from the beginning. As I said, we have our 3 areas: environmental, staff and customers, growth and profitability. We are a tech company. We will continue working with technology development related to 5G, related to IOT, related to wireless technology, AI, smart grid. That's important for us. That's our future. But you also see what Hans explained in the playing field, even if we have quite, I would say, business-to-business in this industrial field. That's quite conservative market, but it's also a playing field with a lot of room for expansion. We have our control, we have our information. We have our infrastructure section, that is on our sweet spot. We have good ambition to grow a sweet spot, but there's a lot of empty areas between our sweet spots, where we can actually expand through organic growth but also through acquisitions. So we're quite confident that this playing field is enough for us for the coming years to come to keep our growth targets. And our growth target is to make sure we exceed our SEK 5 billion revenue to 2025. So that's beyond SEK 3.14 billion. We would like to maintain our operating goal of 20%, as you saw on the curve from Joakim. We are almost there. And NPS, larger than 25, that's important for us, but also being a net positive when it comes CO2. So this picture we have here, this is what we and our management take forward, and this is what we wake up with every morning, and this is what we run for. So we are quite excited about the future. We have a good plan. We have a good market even if right now, it's a bit depressing. But we look ahead, we have a long-term perspective, and we are quite confident for 2025. All right. We will open the Q&A session in 5 -- 4, 5 minutes. Maybe it's time for a leg stretcher, grab a coffee, hang on here, and we just rearranged the tables and keep on posting your questions to Thomas, and we bring up as many as possible in the following section. So have a good coffee and see you soon. Thank you. [Break]

Okay, everyone, welcome back to the Q&A section. We will take care of some very good questions that we received during these 2 hours. So you have -- still have time to ask questions as we go through this Q&A up until 11 around. One question that's been coming in a lot is if this presentation will be recorded and distributed afterwards? And yes, it will be distributed as a PDF on the website and also a recording. So let's dive into the questions here. First one, this is for Hans. In terms of -- it's from Joachim Gunell from DNB Markets. In terms of the potential sweet spots you mentioned. Can you discuss the growth drivers in more detail in terms of which are the most important segments to drive the bulk of your 2025 target growth? Where will your attention be as a management team.

Yes, that's a good question. When we look at the control centric part of the invested bulk of our business, it's 7% of our revenues today. So even if we move the growth percentage wise, this is lower than the bigger bulk of revenues. The drivers here is, of course, increased automation in factories and building automation, increased [indiscernible] and all will be content also in visual process line machines. So pretty solid drivers, which would be [indiscernible]. And then the growth through rate is the highest in the automation side of things. There, we have a very solid base position with our Ewon foothold, 300,000 devices connected in the cloud. Here, we see a good potential. We see that the market is moving really from connection only to data. So we will make up for these devices we bring to the cloud. We have, in the last 2 years, established a solution partner program with partners to put applications in both using the data to create insights. And we have also added factory software, which is a component here for our sales also that the -- one of the application side here. So here we see a really good growth rate. It's an area where we, as a management team, spend a fair amount of time, of course. But I would say we need to be all over the place and focus on all our sweet spots. I mean, we have business, which is not in the sweet spot today. So we have kind of defined this sweet spot to know where we need to spend our attention. And that's it for this question.

Thank you. Next one is I think for Jörgen. Where are your current priorities from an R&D standpoint to execute the technology shifts you see?

Well, for the technology, if we go back and talk about 5G and so on as a true normal technology that is coming in. Let me start with this. Our market has always been changing. As things going on every time there's technology issues going on. We have a quite good established setup for handling this. We have both initiatives within our local business units where they are focused on their application areas and technology areas and so on. We also have a centralized approach, which we call HMS Labs, where we look at truly emerging technologies that will take a couple of years to be established where we do a little bit of incubation and trying to bring this technology out in a more package format to the business unit. But when it comes to 5G, for instance, in our industry, we must remember that when new technology enter that has the potential to change the way we do it today. It's really, really important that it's done in a collaborative of companies and partners. So that's not only one company that can drive this. And our focus today exactly, we're very active within this venues and organizations, bringing this out, be an active contributor to this. Because no company, by itself, can establish new technology. We must make sure that we have this interoperability that we have is and set up and that the users -- actually, the end users and the factory owners and so on actually can trust the technology that it's truly a multi-vendor technology that is coming out.

Thank you. Great. Next question, I think, is for Hans again. And it seems as if COVID has a greater premium on software transformation and being able to do more remotely and must be on every single point of contact, factory or plant or have sent a team to diagnose customer. Is this -- this still seems as a very fragmented market. But how do you think about HMS Network is positioned to capture the market opportunity from a remote monitoring Ewon side?

Yes. That's totally correct observation. I mean, the main driver for remote access in the past has been the machine builders that build a machine basically somewhere in the world and there they give remote access to maybe commission the machine, fine-tuning it or troubleshooting [indiscernible]. The driver there is the warranty time, of course, because machine builder would have 0 to 8 weeks during the warranty time. And then post warranty, they can charge for a trip. So it's by an engineer. Now with corona, it has been quite a lot of focus for the asset owners here, the machine, let's say, the factory owners that when the production line goes down, even if you pay for, you might not get the service engineer to come and fix it. So we see increasingly that factory owners are interested in remote access, but also concerned about the security aspects of having companies connecting into factories. So for us, we have a very secure solution. We have, for example, a company like [indiscernible] in Netherlands. They have a [indiscernible], a standardized now on Ewon devices for remote access, and they will be in charge of reach a buyer, who can access regional machines at which time. So this is clearly a potential for us. We talk about this sweet spot in the making, where we talk about user IoT and is clearly a move for us to start talking to these end users and better to better taking to the machines builders like we did in the past. So long answer to a short question, but it's a correct observation, and we're moving on that.

Thanks. I think the next 1 is for Jörgen since he talked about greenfield and brownfield. How large share of sales today is driven by greenfield and newbuild? And how much is more brownfield?

Well, it's -- this is quite hard to say because we -- when we are focusing on the users that actually are brownfield or the what we feel the occasion space, we have a very small part of our sales today focusing on the users, as Joakim said, you mentioned it in percentage. what was that?

About 75% on the makers.

75% on makers. When we supply the makers, this is our recurring revenue growth, these makers are [ neutral]. They can they sell either to brownfield or the brown -- greenfield. So it's really hard for us to determine this. But to be quite honest, it's really, really seldom that you see that the brand-new factory is being built ground up. Today, you do a lot of modifications, you do rebuilds, you do extensions. And s could actually be seen as brownfield, I would say.

Okay. So about the sweet spot, we talk about that. And I think is for Joakim, how large share of sales is software and how much is service? What do you think about that?

So today, if we say without, we don't take percentage if we can. We have about -- it is over 5% that is recurring, the multi value software sales. We have a very little on the service offering. We presented and you can see being -- they have bigger volume share in service offering. So if we do that, it maybe be 50-50.

Okay. Right. Okay. A question about the Procentec acquisition, I think this can be for you, Staffan. Regarding the progress in software and upmarket transition. In what way would you say that the Procentec acquisition will be -- will strengthen your aftermarket business to tap into the installed base or if you're selling any of those devices that you have in the strategy. And what's the strategic reasoning behind making this acquisition now?

We have seen that we want to come closer to users of industrial automation systems. We have a deep base of installed units, but we have not delivered that to the end users. We haven't delivered the machine gate versus device manufactures. And then they end up in this end user application where what we see a lot of value in these systems because they need work 24/7. And if it doesn't work, that's a lot of lost value for the customers. They are willing to be proactive here and they look for how can we maintain our uptime network. That's exactly what Procentec is doing. They started with troubleshooting tools when things does not work how to fix it. Now that we'll need more predictive tools to make sure we can plan, okay, when will this not work? How can we be proactive in smaller business? I think this helps us to grow with the user of industrial automation, find value for business, but we also reduce our IPs because it's the same IP that is used for monitoring the network that actually could create the communication from the network. We've been seeing a lot of synergies in the technology, but they open up a way to work towards the users so it's quite important.

Right. Thank you. The next question here is kind of 2 sided. So maybe if we can start with the first, how -- who are your main competitors today? And maybe that's for Hans or Staffan? And then more to Jørgen, where are your -- what you see potential emerging competition given the IoT and 5G trends? That's maybe in regards to the main competitors today.

I think as you said, we have several different stronger imports. I would say that we have different competitors in different sweet spots. So this is a fragmented marketplace. We don't really have a head-to-head competitor in our playing field but in the embedded communications sweet spot, we have competition of substitutes, such as microprocessors that is easily deployed. We do it in-house instead of using HMS. We have a few mainly German, smaller competitors, like as a great company called [ In-sur ] that is competitive to us in that industry. Within network and network gateways and another set of smaller competitors, et cetera, et cetera. But I think this is a very fragmented marketplace, and we don't have a clear -- this is our main competitor. Would you agree, Hans?

Yes, I agree completely. We have a lot of competition, but it's fragmented and is different in the different sweet spots. What we can see in an area like without access where we clearly the market leader and is a market where it's becoming increasingly competitive in the base function of remote access, but then obviously, you try to be step ahead with our data collection and dashboarding and whatever we deliver. So I hopefully I will say again there. But yes, completion is sound it shows that there is more of us.

And going more into the technology side and Jörgen, I guess.

So of course, new technology there's also new players coming around. And of course, there are small -- start-up with the new ideas and so on, but they might not be the real challenge here. What we see is, of course, that these are all the IT companies. The larger companies on the IT side is moving in, settling in and taking a look of the industry. You have companies like Microsoft, companies like Cisco and so on. And of course, they will actually, of course, generate competition in these areas. Maybe not from going in and doing industrial automation, but being able to be a technology provider, or a backbone provider, or tech provider and so on, that enables others to become competitors for HMS. We have seen, of course, activities from these kind of companies. And of course, when you come look at the infrastructure, 5 years coming in, of course, the guys that are delivering primary infrastructure to the commercial side. Of course, they're also looking into the industry side like Ericsson and so on. This is not really competition to us. We are not in the space today. We see this more as a potential having partnerships and actually being -- to go together to answer the market provide a better offering. But of course, with new technology, with the move that we're now leaving our safe open domain and also moving into the IT domain, which might be much more fast-moving and so on, these companies that are active there will, of course, competition going forward.

And I think that also in our industry, we're going to put something in a factory floor. It's always been impossible for one company to solve all applications in that factory. Great companies like CMS and ABB, fantastic company with the newest sort of proposals and even these countries like Siemens, cannot solve all applications. So in the industry, we come from -- it's quite natural with this kind of cooperation and media multi-vendor application because you select the best robot and then the best this and the best that for your process. And I think this will be see in 5 years that it's a mix of commercial companies coming in that will use a dominated state that there's so much amount of the connectivity at a minimum. So this is 2 different industries that need to merge to make this happen. So I think that's what we see in a very good collaboration, which we us and companies like CMS and ABB and Ericsson and whatnot and Cisco. So I think we have seen this all in these collaborations.

And as I said, industry has always been, well it should be multivendor, it should be interoperable, competition is, of course, something, but we use the term frienemies as well. We need both to be a little bit of friends in order to develop a standard moving forward. On your own, you can't do this, we need to work together.

Okay. Moving ahead with a more financial side. I think this is for, you, Joakim, from Joachim Gunell DNB Markets. On the topic of the EBIT margin improvement, you're already at 90% versus your 20% medium-term target. So I'm just wondering, from your point of view, how much it will increase this there. Shouldn't new adjacent services and the growing software mix be exited on the margin side? And can you talk a bit about some of the key levers that you can pull?

Okay. So let's first start by commenting the level of EBITDA at the moment. So year-to-date, we're actually at 20%. And I think we are seeing a lot of onetime effects there. We are running extremely lean for the -- at the moment with no traveling, no trade shows, no customer events, also some short-term work impact, especially from Germany. So I think the current OpEx level is not at all sustainable. Just want to be very clear with that. And if we're going to be able to sustain a pretty high single-digit organic growth, which we would like to do with our new target. We will need to add on some resources from the level that we are today. So I think you will see the OpEx expand when we see the coming back. Right now, we are careful in what we take on. So we would not be able to have this 20% margin with this top line development in normal circumstances. But yes we have very special effects this year. So we still have some work to do to get to 20% then complementing acquisitions. Again, we hope will -- we'll add to that. It makes software acquisitions that will also help us a little bit to increase the margins. That is one part of the recipe also to get to the 20%. So I have in to say that under normal circumstances, the 20% is giving us work to get there. So we will need to make some things better if we get -- if we want to get to 20%. What levers we control, I think we are -- we, of course, adding some parts of the economy of scale. We really don't necessarily see that we will have the number research and supply that is in relation to the new sales that we get, where we think we'll have some operational leverage, but also will be part of driving this to the 20% growth maybe also on the admin side, you can see some other trends on the central resources that we go forward. I think that's about it. In terms of R&D, we still think there will be somewhat 12% to 13% below of sales going forward, but also goes for the new acquisitions that we have. So we don't necessarily see that there will be a lot of leverage to gain that. [ Thomas ], anything I missed on that?

I think you used both the levers and you -- yes, you got it. So many more questions about mergers and acquisitions coming up. So the first one here, could you -- maybe it's a tough one. Could you elaborate a bit on the go-to-market strategy with the acquisitions? And how you have been able to accelerate the growth in the acquired units historically as we have?

We've done a couple of mistakes, and we've learned some lessons. But I think what we find is these kind of companies, they're all already successful. So I think sometimes we need to make sure that we do the right things. In general, we'll be trying to integrate them in our sales organization. That's been successful. But we also saw we acquired Intesis, 2016. That -- they. also were very successful in a different area where we did not have the sales. We were very careful in how we expanded that. It took us 3 years before we started to integrate the sales organization. So I think, of course, we learn to be a little bit careful. We don't count a lot of synergies short term. We want to make sure that the successful companies can be even more successful by some help from HMS that we are not really forcing sample on them. We would like to collaborate with them. And this is what we see now with Procentec in that we own only 70%. We want to work with the management team. And we tell them, let us know if you want to start an office in U.S. or not, we've already have this infrastructure that we try to coach them instead of telling them what to do. So I think this is what we learned to make sure that the local management team are really in the driver seat. I think we also see good synergies within our sales organization. We're also seeing good synergies from a technology point of view, we'll have a common technology platform going forward, but this takes years to do this. And we are quite careful in how we do these things. Because the companies who buy are good companies on the beginning. We don't need to transform them We ned to help them become even better.

Some more questions on mergers and acquisitions. Maybe this for you Jörgen, the M&A ambition implies a higher pace than historically. What are the key challenges to achieve this? Would be interesting to hear about your acquisition sourcing, how do you work with finding targets? And some numbers on the number of potential targets. And also, I think maybe we'll break the question there.

Okay. I think this is all I can handle. I think the first part of it, I mean, one of the main challenges I think you find good targets and to actually be to close our targets, that's the main thing. We need to see a lot of companies, not all of them will be the same. So that happens sometime from the discussions quite often. They'll say, I have a few quotas. But we notice here now, the structure we have of the different sources I think we like to use every different sources that we can. We use -- we talk to the bankers that approach us. We explain to them what we're looking for. Sometimes you get leased. That makes sense that way. We also get a lot of proposals from different brokers around the world of companies that they believe with HMS. However, I think the main strategy that's been successful for us is actually quite a long channel for the companies that we know that will be in the trade shows that we see in the space, so to say, it could be, in most cases, I think between now and Stockholm conference, I think in 9 cases. But with this bolt-on initiative that I discussed before, we also see that our business units, they'll also know the specific companies in the different sweet spots. We expect them to bring about new leads into the pipe as well that they can continue to work with locally. There will be a new source to help us, I think.

Right. Actually, last part of the CapEx questions here as well. How is the competition looking in terms of other buyers? And also how you think the valuation of those will be on average?

Okay. Good question. So the compensation, I think it's different. Our primary channel, as I said, would be to finance towards ourselves, to approach them when they're not on the market, so to say. But finally, in that case, we don't really have a competition. We'll be long about the deal. And we bet it's really good indeed to have that situation going forward. I think on the broker-sold companies, normally the competition is quite tough. Many companies are bidding. And then also depends a little bit where we are in the cycle. I think now it's in call for a couple of months. It's coming back now after the summer. And we see more companies coming out and more or people willing to buy at this point. About the valuation multiples. I think we -- most of the acquisition done in May, we expect to pay around 10x EBITDA. And could vary plus/minus maybe 2x, depending on exactly where they are and the underlying growth in that field. Something that will be different, though, that we've learned is a software companies, pure software companies that are more expensive. And you try that. And in some ways, we defer a few of those companies this year, and we were below. So I think we'll be asking to accept that I going to go to that type of business, so the return revenues, we need to pay higher multiples. I think we'll be prepared to do that when we find the perfect fit as well. But yes, they know they will be different on those.

Thanks. Some more about M&A. Maybe this is for you Staffan. Could you expand on the verticals you find the capital for M&As. You mentioned building automation. So that's the competitor in cases or whether an adjacent segment? And what would be a good vertical to manage?

We already mentioned some of the work called fee automation. There, we think there's a lot of nice opportunities to be around what we have done with indices. Also, there's a lot of drive for energy savings and asset management and additional things in this for industrial or larger buildings. You mentioned also energy. We are doing an initiative within organic growth, within smart grid. We have only nice products, how to communicate between any dispute centers and things like this. And there, we believe that there's room for positions to really build that area because we see some areas that we'd like to replicate there. Geographically, I think we would like to do something, both in Asia and in U.S., but our focus also have been on the Continental Europe or Nordic area. But of course, we think that in Asia, we do nice and grow faster than only organic. And on the U.S. market, we see that there's much more things that could be done. I think we are looking quite broad at the moment. So it's not so specialized, we are out scouting in audit areas. So logistic automation or service products another segment that we have done that does that fall outside the industrial focus. On the concerted focus, my understanding is a bit more or health care and these applications and actual we are feeling right now that this is too far away from our industrial or industrial automation kind of focus areas, out of all our main.

Question around software here. What kind of software offering do you lack today that you think you could have a good go-to-market approach together with maybe that's more M&A as well?

Maybe I could start with M&A. Right now, this is interesting with grid factoring. We are asking our -- working with our business units, developing products for Ewon, for Anybus, for Intesis, et cetera, where they take were factory and bundle a solution in that software, together with our existing hardware. And we've done some successful pilots now in Netherlands, for example, in the wind part, we actually take our connectivity, our data collections, I think, and then we add this software on top for diagnostics, asset management and things like this. So I think the challenge we have here is more a go-to-market because even on the verticals we need to be really good in ways more to handle, for example. And then you need a go-to-market plan to reach these municipalities and wastewater plants. So I think there is more commercial challenge than so much technology challenge. We also -- I would agree, I mean, whatever we can package as a solution on top of our hardware would be very interesting for us. I think we have a lot of these bits and pieces already, but we need to tackle it together and then find a way to the market. And then we have these solution partners. I mean they are basically software companies who standardize on getting data of software, out of cloud systems. So very easy for an end user to deploy. And of course, offering doing it ourselves. We think offering is also an important factor in the software business, which drives our sales, it drives our strength in the infrastructure and the data side of it. So I think there are many ways we can do it. But the only few software that is channeled across -- has to be connected somehow to what we do in the industry for an example.

Yes, more interest in M&As, these are for you Staffan, I suppose. So you increase focus on M&A. What will change in terms of your criteria to execute on interesting targets? Will you source more companies? And if so, we will be changing the way of sourcing and -- or will it pay more?

Yes. We said to you we're working. I mean we are working now to expand our short list. I think it's too short today. So we need more names on that list, and this is one of the reasons we engaged now more business unit managers on -- so they know the past performance. This group who came in with -- improves the short term. So I think we try to get more within organization. We're just recruiting a new M&A manager who can work more with us. No standard there, but I think we need a larger short list because we know that many of these companies are founder-led or privately held, family owned. So it's not easy to buy them. You need to gain trust. It could take years. And if you look on this acquisition, we are done, the 7 acquisitions we have done, these are companies we have been working with who know more than before. Take Procentec. We know that we've been drinking beer with them, doing their trade shows for the last 5 years. So we have a friendly relationship with them. And now the stars was on the right position to actually execute it because the founders, had retired, and they would like to use new softwares. So that was not easy. We need not have a competition. We were the only person that would like to sell them, we pay the fair amount of money, we will be with them. And I think this is a very typical kind of M&A process we have. So it's a long process, and we need to make sure we have more of these processes ongoing, but it's so difficult to say when can they close. It's out of our control in many cases.

Okay, another one on competition. I think we answered that. Jörgen on 5G, what we say, I see revenue -- we say, about the revenues, from the 5G products and solutions. What does the mainstream by -- what do you mean by mainstream in 2025? We will start with that and then get the second question.

With mainstream, I mean it will become an x factor and accepted technology that you will see actually in many installations. My view is that this will first happen within the large organizations that is driving automation, being involved around software this is -- has always been, as I said earlier, the automotive company that is really pushing the boundaries of what's possible to do with automation technologies of today. When it comes to revenue, it's very, very hard to say, of course, I'm not really in the sales area, but of course, we see that if you take a look on the estimates that could be done is that if every machine should have a 5G connection instead of a normal ethernet connection, well, then it could be quite substantial, of course, part but it takes time to get there. We need both to prove that the technology is working. This is what's going on today. Then you need to approach the makers, the machine business, the device manufacturers, making sure that they also adopt this 5G technology. And this is, I think, our main sweet spot is both to provide infrastructure components bringing in 5G with industrial communications, but also helping our traditional customers getting on to 5G. So I'm not sure...

Maybe I could make an example. We've been working with wireless technologies, Bluetooth and Wi-Fi for 10-plus years. 10 years ago, that was a new technology in the industry. And we talk about the value of not having a cable, go wireless instead. The first application pursued was hard to reach application. It was this kind of cranes and it was very expensive to take the cable here. We're moving robot arms because it was so expensive to run the cable there. They were the first adopters on wireless technology. Now 10 years later, a lot of cables that went against are replaced by our wireless. So that mean's become more mainstream accepted. I think this setting to 5G will be these cyclic applications that are difficult to solve today whiteout 5G that are going to have the highest value there. So that will spread to also other applications. So in 2025, we think that 5G will not replace everything, I think we improved technology that is okay to choose without a big debate with the end user.

Exactly, yes. And also the product offering, the infrastructure, the affordability as talked about earlier has to come down to a reasonable level. And the knowledge has been has been going up. The competence, and it's a trusted technology more or less.

I think maybe you clarify there, I mean, nobody's talked about industrial applications, which are 5G.

I think it has more applications.

We have 5G mode in several product. We have several product today with 3G, 4G and there will be 5G. That's just a natural event. So now we're talking about specific applications.

We are talking about factory automation, smart manufacturing, how 5G company that solves on-prem private network installations. Of course, in the commercial, 5G networks using this state of transportation, that will be done much earlier thinking that might be the biggest one. But this is just like we do for 4G LTE today.