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

All right. And it's 2 p.m. CET. Welcome, everyone, to HMS Networks Investor Briefing. My name is Joakim Nideborn, I'm CFO of HMS. Unfortunately, I have traveling today with not the best connectivity. So I will leave the camera off to save some bandwidth and I'm going to take you through a short introduction to HMS, and the way I'm thinking we're going to structure today's call is that I'm going to go on for some, well, 25 minutes or so to present the company with first introduction to what we do, and then we're going to have a look at our strategic objectives and then our financial update based on Q3. So there will be no -- please can everyone please mute to the first section and then you would have a chance of questions. Thanks for that. So just to be clear, there will be no new financial information than what we shared in Q3. And I will not answer any questions about current trading and so on. So the purpose of the call is to give everybody an introduction to the HMS business, to understand what we do rather than what's going on at the moment. But with that, I'm going to kick off with the introduction to HMS. And if we start just looking at the mission statement, we are enabling valuable data and insights, allowing our customers to increase productivity and sustainability. And I think that's exactly what we're trying to do by connecting various machines to different networks and to cloud services. We're trying to get our customers to understand what's going on in the processes and to be able to have a more efficient production. I'm going to, of course, get a bit deeper than that. Just, first, some highlights about the company. So we're approaching 10 million connected devices, I think we'll reach that this year. And just a bit more than 400,000 machines that are continuously connected to our cloud solutions and monitored remotely by that. And we say that we are in the business of industrial ICT, so that's information and communication technology, and I will get a bit deeper also what we mean by that. We are quite early to adapt to new technology and driving some of the development in our industry. We are about 800 employees, 1/3 in R&D, 1/3 in sales and the rest is trying to support those very important functions. Offices in 18 countries, partners in 50, headquartered in Halmstad, Sweden on the West Coast. Last 12 months as of Q3 this year, we were at about SEK 3 billion in sales and a 26% operating margin. And we managed to keep a CAGR of 20% actually based -- you can choose pretty much whatever base year you want, you would find a CAGR of about 20% regardless. Now we took the last 10 years as an example but that would go for more than 10 years, and you can get 5 years or whatever you want to be about the same number. Al right. Looking at where we have our business. So we have developed our business in 2 base end markets, you could say, what we call industrial automation and building automation. Within industrial automation, which is by far the largest area, we have the manufacturing space with factory automation as being the biggest segment and you all understand when we go through the different solutions that we have that we are sort of a horizontal offering. So it's not so easy for us to say exactly what share of revenue we have in different verticals but the manufacturing space, it's maybe 60% or so of our revenue. So that's by far the largest one. And then within transportation infrastructure was also an interesting area where we've been breaking good ground in warehouse handling with AGVs, for instance, where we have a lot of our wireless applications delivered to. Then we have power and energy, where we have managed to break some ground also the last 2, 3 years within battery management with these big solar plants and to manage the battery cells related to those plants, the communication there. And then finally, building automation, where we have a business called Intesis that we acquired in 2016, that's has been developing very nicely. But it's a little bit different end markets than the rest. So we keep that separate for the time being where we connect our conditioning to building management systems, and I'll get into that as well. And I think the main point I want to make is that you see some various verticals and some different areas of end usage. It's pretty much the same technology that we sell into all of these. So I think that's important to keep in mind that we sell the same solutions to all these different customers. Let me then go into what we call our playing field a bit more in detail, and then you recognized from previous page, the industrial automation and the building automation split. Starting with industrial automation, we have what we referred to as control centric and information-centric businesses. And if I start with the control centric, so what we do here is really trying to support in most cases, real-time controlling. So it's, to a large extent, robot's -- robot controlling. We have a really, really quick information exchange and when we say real time, of course, as a matter of definition, we mean maybe 2 milliseconds in terms of latency on the data. Otherwise, we will have problems for our customers. So it's really quick information exchange. And what we want to accomplish is smart manufacturing, increased uptime of machinery and of course, productivity and sustainability is in our mission. And what we really do is if you look at the shop floor you will find a lot of different types of network standards that are being used. When you and me work in the office environment, it's kind of simple because we only use IP, internet protocol for all information but on the shop floors, it's a bit different. You have both fieldbus protocols and you have Ethernet-based protocols. And today, we have a range of about 30, 3-0 different standards that are being used. That makes it a bit difficult. If you are a device or machine builder, and you need to connect to all those different systems, then you typically come to HMS for help or someone else but HMS is the topic of today, of course. So I think that's our really core knowledge how to connect all these different networks and keep those products up to date with standard changes, with new features and so on. And you might be surprised, you would think that everything is wireless these days. It's not when you look at these type of technologies. And the main reason is what I mentioned before with real-time controlling, I think there is a problem with wireless technologies today that they are not fast enough to -- in a reliable way, to be able to handle those [indiscernible] loads in a fast and efficient type of manner as we can with the wired cable. We also have an offer for network monitoring and diagnostics, meaning that if you have a network that is functioning, you want to make sure that, that keeps in place and you keep the uptime going and then you want to make sure that you don't get an intruder network. You want to see that all the devices are function as they should. That is something we do as well and can also help with diagnostics if there is a failure. So this is really about reliable and robust manufacturing processes. If we then go over to the information-centric area, which is slightly different. Here, we're really after getting better insights to our customers, increase operational overall equipment efficiency and also, of course, we're for productivity and sustainability. And here, we do it by connecting -- allowing you to connect your machine remotely. So if you want to update some firmware and do some maintenance, you can do that from remote. You don't have to physically go out to the plant and connect to the control system. In most cases, used through a PLC programmable logic controller, which is the main device for making a controlling in these type of environments. So we have actually 2 main offers in this area. One is, as I said, to allow you to connect remotely. And the other 1 is to extract data from that same PLC device, which is then controlling your processes. So then you can extract the data and we will also help you to visualize that data in dashboards and show KPIs and whatever you want to do with our cloud solutions. And here it's not -- I think the main differentiator is that when we talk to the information-centric offering, it's not so important to be real time. You would like to learn in longer term, drive improvements of our processes, it's not really about optimizing them in real time. And then the third offering in building automation, which is a little bit niche. We are primarily focusing on connecting various HVAC devices, so primarily air conditioning to the building automation system in order to be more effective in using energy to have the right temperature in buildings and so on. We also do some controlling for lighting, fire, access control and so on but the air conditioning is the main part. And it's all about making sure that everybody speaks the same language so that you can actually connect different systems to another. Then looking at our different types of customers. I think this is quite important to understand our business model because we have actually, we can say, 3 different business models and 2 different main customer groups. We talk about what we call makers of industrial equipment and users of automation systems. And it's really about are you the one who are manufacturing or are you the one who are using the machines. I think next slide will make it a bit clear what we mean by that. I think this, again, is important because we go to market in very different ways, the business is sticky in different ways in these different groups. Let's start with the device manufacturers. And maybe I should first define device manufacturer, machine builder and user and system integrators. That's the 3 main customer groups that we see. Start on the maker side with device manufacturers and machine builders. The main difference there is it's quite similar but we say a device manufacturer would typically be a device that is smaller than 1 cubic meter and a device -- sorry, a machine builder would be larger machines. Normally, the offerings we sell is a little bit different, the cost sensitivity is also quite different in these customer groups and what we are prepared to offer your clients in their view is also a little bit different. But if we start with the device manufacturers, here we sell on a design win business model, meaning that we work a lot to win the design. Let's say, it's a robot that's going to be connected. It could take us maybe 6 to 12 months to get access and get a chance to win the business and then we get to design win. And then it takes maybe a year or could be 2 years before the robot is ramped up in production. So it's a long process. But in return, it's a really sticky business because our product, in this case, becomes a part of the makers [indiscernible] material and then normally, the product is certified with that component in it and then it becomes quite difficult to change. And we never see that we're being exchanged once we won this design win. And this is also 100% of direct sales, so it's our own sales engineers that are making the sell. And as I said, pretty long complex process. But once it's there, it's really good business for many years. In many cases, like 10 years before you have a new family in place and then there's a new race to be run. The other area on the maker side is the machine builders, again, the slightly larger machines. And the main part of offering to sell to these type of customers is often this remote access offering. Here, we have 27% of our revenue. And this is a little bit different from the design win. It happens that we are specified as a static component. But in most cases, we are sort of an option or an add-on that the customers could choose to add. The main value proposition we have here is basically that this machine builder, when they sell a machine, quite often, they are also engaging in an aftermarket service agreement. So they are maybe selling an SLA that the product is going to -- the machine is going to work a percentage of the time. And they want to make sure that they can do diagnostics and see what's happening without actually having to go out to the plant. So that's the main usage that we have, the main value proposition. We also have other applications -- yes, you say applications, we're also the end user would like to understand what's going on in their process from this remote access offering. And this is a combination of some direct sales but also to a large extent, distribution sales to reach all of these machine builders. And here, we have a lot of different customers and the smaller customer or the more of them will buy from distribution and the larger ones we try to handle on our own. Then going over to the user side. So we have end-user -- [indiscernible] and system integrators being the main customers, 29% of revenues. This is a lot of product sales, if you have, for instance, let's say, you're an automotive manufacturer, and you're going to extend the plant and you're going to put in a new line or 2 and you want to connect that to the other plants as well. Typically, will buy a bunch of gateways and try to connect these different plans together. And quite often, you are doing this with the help of a system integrator. And here, we see, if you're going to compare the user sales with a maker sales, most often, you see a lot of smaller orders with a few devices per order. The exception would be if you have these really large projects where, of course, it would be larger volumes. But it's a quicker business in the sense that here you have typically get an order and ship out the next day or within a week where the maker business is much longer cycles in the orders. And here we go to market both with what we call a traditional distributors or value-adding distributors that make some kind of consulting service as well, and also through e-commerce and distributors are the main ways to go to market. And then I'm just going to quickly go through a little bit how we see the market growth in these different segments because it varies a little bit, starting with the control centric business, which is a really mature business. It's been around for many years for us. We have a leading position in the market, being #1 in the world on this, even if it's a rather small niche 71% of the HMS sales year-to-date, Q3 2023 and growing by 8% CAGR over a period of 5 years according to various industry reports and our own assessments. Then we're going over to information centric. Here, we see high growth. We are expecting some 15% growth over the coming 5 years in CAGR. And that's where we have been since, I guess, 2016, when we entered this business, we've been around 15%, 16% CAGR for this business organically. And we have been voted -- I can't remember how many years the best product for [indiscernible] in the world. I think it's starting to approach 10 years now with our Ewon Flexy and Ewon Cosy products. 21% of our business year-to-date 2023. And then finally, the building automation space with a 10% CAGR. We've actually been outpacing that a little bit the last few years. This is what individual report says, what we can expect from the future. And again, we are pretty big in this air conditioning connectivity to building management systems. And there, I think we are #1 or maybe #2 in the world in that space as well, even if it's a really small niche. All right. That was the business introduction and let's go over to strategic objectives. And here, we had a Capital Markets Day in this September, I think it was this year when we launched a small strategy update for our 2025 strategy. We've been talking about since we launched this new strategy in 2020. We've been talking about having focus on organic growth and M&A and that they should both drive the top line with about equal parts. We've been talking about our people strategy and our planet strategy, which I'll talk a little bit more about on the next slide. What we want to achieve there because those are, of course, really important questions for us. Then what was a bit new in the strategy that we presented now in September was that we are also adding operational efficiency and sales excellence. And why are we doing that? I think maybe, first of all, it's a really important message to the organization internally. We've been doing a lot of investments over the last couple of years in getting better data support, changing ERP system, looking at different ways to go to market in sales with a higher degree of digitalization. And I think now we are at the point where we need to start to see the returns of those investments. So I think this is really important things that we'll work with in 2024 and 2025 to really get the full potential of those investments that's been done and we talked a lot about that internally. So we wanted to make it clear that this is really on top of the agenda. then looking at our targets, I'm going to come back to the planet and the people strategy here. Starting with the planet. So we have -- since I guess, 2020, we've really been trying to reduce our emissions. And while that is really challenging when you're growing with 20% per year, we've been trying to put this on as high as we can on the agenda. And as a consequence, we have now decided that we're going to sign up for science-based targets during 2024 to really show that we are serious with this and to get even more focus on doing the right things in the climate topic. We've also seen that our products have a pretty good effect on -- for our customers. We're saving a lot of emissions when we can reduce travel and increase productivity and so on. And we had about 1 million tonnes saved in 2022 for our customers. And now the objective is to triple that at 2030. So that will call for first, of course, improved products from our side but also we need to make sure that we grow the offering that we have in order to accomplish that. And I think for us, as a rather small company still quite international, it's difficult to recruit just by paying more. We need to make something else to attract the people to work for us. And I think the people agenda has been really important for us to drive for personal development and to have a decent work life balance and to be able to show that we want to have -- we want to help to have a healthy way of living, basically. And we have a target to reach or to stay actually above 50 in Net Promoter Score on the employee side. I think we are at 51 actually at the time being. We've been over 50 now for 3 quarters in a row, so we're very happy with that. When we started this work in 2020, we were around 25 in Net Promoter Score. So we really managed to make improvement to get to this level of above 50. And then for the customers, of course, it's super important to have customers that are satisfied with what we do. And we also have a target to have a Net Promoter Score of more than 50 for our customers. right now, we are not achieving rates in relation to that. I think we are around 30. I think the main reason when we ask the customers is that the lead times have been long throughout the period of difficulties with components. So understandable in a way and we see a pretty dramatic drop over this last 18 months when the lead times have been extended. And as everyone else, we've been pushing price increases as well, of course, no customer likes that. So we're convinced that this is a temporary drop but we're going to work really hard to get back to the plus 50 mark. And then finally, here, we have some work to do on the top manager positions. We want to have 30% of our managers being female. Today, we are around 20%, 22%, something like that, and we want to accomplish this by 2025. So that's a really challenging target, but we're working with that as well. And then on the growth and profitability side, we want to be above 25% EBIT. This is something we increased now in September on the Capital Markets Day. It used to be 20%, and we see that we've been achieving this 25% now for 1.5, 2 years, and I thought it was time to really reflect that in the operating market target as well. In terms of sales, we want to reach SEK 5 billion plus by 2025. And what we mean here is that organically, we should get to SEK 5 billion, so SEK 3.14 billion being engineers with [indiscernible] to say pie instead of having us SEK 3 billion target. And then the plus would be from any acquisitions on top. So that's how we communicated that in the Capital Markets Day. Let me just take a few very quick minutes on the financial updates from Q3. It's not super new but I'll just give you some highlights. I think the quarter, as such, in terms of sales and profitability was a new record for us due to really, really high amounts of orders for the last 2 years, we have now a pretty big order book that we are eating of. We see a bit of a change compared to Q2 in terms of order intake with a lot of normalization and inventory adjustments going on at our customers. This is not in any way unexpected. I think we've been communicating quite clearly that, that's going to happen. Maybe this is happening a little bit quicker than we thought. We thought it would be a slower process. It's now been quite rapid change, and you see in the graph in a second. But again, I think when we talk to customers, we are not so concerned. We think if you adjust for this, the underlying market is fairly okay. And I think the customers are pretty clear that they are making these inventory adjustments now when component lead times are back to normal, and they can defend having these big safety stocks anymore. And of course, I assume that all CFOs out there also have a bit of a higher voice now in interest rates have come up and again, the availability of components is better, and it's quite natural that safety stocks have been reduced and inventory adjusted. So we think that we will see sort of the same trend for a few more quarters. That's pretty much what we communicated when we launched in Q3. And then just on the balance sheet. We're happy to see that we are now -- we don't have any interest-bearing debt anymore. We still have some leasing related debt, of course, but interest-bearing is now gone, and that makes us in a good position to continue to try and execute on our M&A agenda for the future. And then just to show you, I'm just going to go through this real quick order intake. Looking at the graph, the SEK 492 million, of course, not a great number. But I think it's maybe more interesting to see it in this way. When we're trying to show you what we have, we did this since the beginning of 2021, the light blue, which we said is boosted orders that come from these component shortages and the dark blue is really underlying demand. And here you see that we are at SEK 642 million in Q3 2023 in underlying demand. So yes, it's a little bit lower than in [Technical Difficulty] to 2022, it's actually a quite okay number. And we say that we had this normalization of [Technical Difficulty] on the order side. Then looking at the sales, as I said before, a new record quarter, SEK 789 million, 20% growth year-to-date, we have grown by 23% organically, and I didn't put the slide in but we still have a pretty solid order book. So to have this order intake with a bit lower pace for quarter or 2 more, it's nothing strange. We have order book that will support us, and we should be able to deliver decent sales volumes anyway. Finally, on the profitability side, record result, SEK 223 million, 28% EBIT margin. Now Q3 is always strong in terms of margin since we do have some vacation effects and so the cost base is a bit lower. And year-to-date margin, we're at 50 -- sorry, 25.8%, which is actually a pretty solid result given that the 25% target. and then also, just to make a quick note on that. I think we've been seeing good improvement on the gross margin over the last couple of quarters. We had some challenges in late 2021, early 2022, when we saw really high COGS inflation. And now I think we managed to recoup that on -- with price increases and 65.4% is a really good number for us, maybe not what we can expect to be on that level forever but I think that's very solid. And here, it's [indiscernible] price adjusted have been driving also a currency situation reporting in Swedish crowns and some efficiency improvements we've done in our supply chain. All right. I think I'm just going to stop right there and then open up for Q&A. I said I would go up to 25 minutes. It became 27. So the rest of the hour we have for questions. So yes, please raise your hand if you have a question, and I will take you one by one.

And the first question I have is from Ludwig. I can't hear you Ludwig.

Was it -- Joakim, it's Nikolai?

Yes, sorry. Sorry. Sorry, Nikolai, yes.

Yes. No worries. No worries. Well, my first question was on Anybus. I was just wondering in terms of -- you have a few different form factors on the embedded Anybus products. It's a quite a specific question. But I was just wondering if, over the last year or 2 or 3 even, whether you have seen any trends in the percent of sales that go to the different form factors, the modules, the bricks and the chips.

Yes, very good question. I think there is a bit of a trend that I think you could say if I were to look at complete sales, there is a trend that we have a lower percentage of the modules. Obviously, the modules are the most expensive products but not necessarily the best gross margin. So there is a bit of a change that some larger customers are building more themselves. So it really works like this. If you do that, if you buy the module, you buy pretty much a complete solution. If you buy the brick, you will do a little bit of integration work yourself. And if you buy as a chip, you have typically really high volumes and a low selling price and then you're going to completely integrate it into the rest of your solution. So I think we've been seeing better growth. I mean, everything is growing but we see better growth on the bricks than the modules. And I must also say that I don't follow that super closely. But of course, the Anybus team is doing that, but that's sort of the trend, if I should say anything.

Could you just comment, Joakim, on what -- since when you have seen that trend emerging?

I think that's been -- that's probably been going on since I started with HMS that was in 2017. It's not super clear, but slowly, slowly, we see that pacing. And I think it comes from the fact that we are having more large customers. It's not so common that a customer would change from one to the other offering. That's quite unusual.

Okay. So it's more towards the brick and not the chip as such.

No, no. I think there are competitors. We have some competitors on the chip side. So I think it's more about choosing a different option made. So it's not that you go from a brick to chip normally. All right. Next question, Aaron, Scott, please.

I just had 1 on inventory adjustment or how you've been estimating the impact of destocking. Can I just ask how you calculate the sort of over ordering and boosted orders that you've seen. It's a more precise estimate than most companies are prepared to give. And then secondly, how long do you expect this destocking to continue?

All right. Thank you Aaron for that. So that's, of course, a good question and the answer is that this is not easy. I think what we did, we started because we realized that something was happening in 2021, where we suddenly saw this rapid order intake increase. So that's when we started to present that development. And it was much easier to look, of course, on the order intake, to boost orders because we simply ask our customers. So when do you want delivery. And we saw if the customer normally would place an order with delivery a month from now. And now suddenly, they placed an order in January to be delivered in December, you kind of realize that something was up. So I think that was quite easier to do the exercise. What we did was, we did 2 things to understand. One was that we looked at the ordering pattern. So from a pure numerical perspective on those orders. And then we also asked our largest customers. So in all our different geographies, we have the third largest customers. So I think we covered our 150 largest customers, which would -- I don't know exactly, but it would give you a good indication, representing a large percentage of our sales of how much they really want to know and how much they need it for the future. So that's how we did when we calculated the boost effects. And then to do the reversal is, of course, more difficult because it's difficult to go to a customer and ask why didn't you place an order. So I think we've been trying to rely solely on a pure interview basis with our customers to understand what's going on. And of course, we -- so it's really -- it's built bottom up from individual discussions from our customers. And I think the reason we're doing it is because we really need to understand in terms of forecasting and preparing the [Technical Difficulty] And then we said, okay, we think it's important that we also let our investors in a little bit on this because what we want to do, I think our job is to give you a fair picture of what's happening in the company and to avoid unnecessary ups and downs in the trading. And maybe that didn't fully help because I think the share price has been a bit up and down anyway. But I think we try to reflect what we see and we don't see a problem in being transparent. We realized that we'll be more transparent than most other companies. And yes, I guess that's the answer to your question.

Yes. And just on -- are you able to share an estimate of what do you expect [indiscernible] starting to continue.

Yes, sure. So I think what we said in the Q3 call was also that we will expect this to be sort of similar into Q1 and then maybe see improvements in Q2 next year. I hope that we'll see a bit of improvement in maybe already in Q1. But I think that would make sense for us when we run the scenarios and listen to what the main customers are saying because we know that there were a lot of customers that placed good orders in the first half of the year that are now saying to us, guys, we're done for 2023. We'll come back to early 2024 because we have what we need already in place. So I think Q1 a little bit better and Q2 should be starting to move again. All right. Rob McKee, please?

Good morning. You talked on previous calls, you mentioned and I think this is for the AnyBus business, but like ABB, Rockwell, Schneider being large customers, I think, but who else are your big customers in that segment? And then do you expect to grow in line with their -- so your volumes in line with their volumes? Because it sounds like the mix of in versus -- in-house versus outsource isn't really changing. So how do you expect to grow relative to them? And then just also finally on between device manufacturers, machine builders and end users and system integrators, will that mix? Do you expect that mix to change going forward? Like who's growing fastest?

All right. Thanks, Rob. So let's see if I can remember everything you asked. The first -- what was the first part now. I've got to write it down.

Just the [indiscernible] who are the large customers, I mentioned a few.

So yes, I think Rockwell and Schneider would be the largest 2. ABB is up there. Bosch is a big one as well Mitsubishi. And then we have a few other ones that I'm not allowed to say. Caterpillar is pretty big. You can basically see the big automation players and big machine builders like Atlas Copco, also a pretty big Swedish company. And then we have a range of distributors that would be among the largest as well. [indiscernible] also big one.

Okay. And then are growing -- is that business -- are you growing in line with their -- like are you taking sort of wallet share or growing units faster than those customers in the AnyBus business?

So here's my take on this. The reason, I mean, if you were to look at the last, I don't know, 10 years, just plot our growth versus all of these customers, you would probably find that we'll be growing faster organically. I think the reason is that the penetration of connected devices increases. So I mean, it's not -- a couple of years ago, it wasn't certain that you wanted to connect the robot and now it's done in a much -- to a greater extent. So I think that has been -- they've been selling -- if they've been selling 5% growth in robots, we've been selling controllers 10% growth is just because they've been selling more robots that are connected. I think that's the main reason why we've been outgrowing that. And I guess that would continue to help us that the penetration still will increase a little bit. So I think this, if you look at the growth estimates that I showed I think they are a little bit higher than what you would see if you were to look at maybe the best simple proxy of just looking at industrial automation business as a whole and is growing. And then you saw that my numbers were a little bit higher. Did I miss something on your question?

Just the mix between device manufacturing [indiscernible] to others? Is that going to change?

Yes. I think what we see right now is that the system integrator business is a little bit better. And I think that will see -- we've seen for the maybe last 1, 2 years even if I think the device manufacturers have been -- it's been looking really well because I think they've been stocking up a little bit. But if you reduce for that, I think that the system integrator and the business will outgrow the other areas a little bit. All right. Let's see who is in line. I think it was -- I'll let Jonathan go first and then come back to the ones who already ask some questions. So Jonathan, please go ahead.

Two very different questions. You talked about the lack of any interest-bearing debt. Historically, you've obviously done a few deals. But I think you recently expressed a willingness to take on bigger M&A. Just wondering if that is still. And the second question is on the building automation, the focus on HVAC. Has that been a deliberate focus or that's the area that you think as a starting point into other areas in building automation?

All right. So if I go first on the interest-bearing debt and your question regarding larger M&A, if that's still on the table. I would say, yes, that is something that we've been discussing for some time, also with us being a little bit bigger. I think the largest acquisition we've done so far is maybe some EUR 25 million in revenues. And I think that is becoming a rather small share of the HMS business. So we're willing to look at some bigger targets and we're looking at some big targets at the moment. So I think that's interesting. Then on the HVAC, very good question. That's exactly what you're saying if we're looking at different verticals when it comes to building and integrating those to building automation systems, building automation -- building management system, sorry. Yes, that's really been our top strategy discussion on that type of business. And we are trying to do it to some extent. The value chain looks a little bit different for some of the other verticals. So it's not as easy as it might be in -- on a management consulting [ work ]. But we do have some of those ideas. And why we started with HVAC, I think the company Intesis started working. That was how the company started and they managed. I think what we do differently than everyone else is that we actually have really close collaborations with the main air condition manufacturers. So we have access to their proprietary protocols and they are fine with us making these integrations to those proprietary protocols, which the other players do not have. So they have to reverse engineer. And I think that's a big upside. And it also enables us to push our offering in their distributor channels in a better way.

You do -- sorry, just a follow-up. You do have products currently that address other areas in building automation or you're thinking about developing other products within other parts of automation?

Yes, we already have part of the address but we don't push it maybe that actively, and we don't make the final adjustments to make it really attractive. But I think there is some work to be done there. All right. I think you have the same people in line that has asked some questions. So I'm going to go Nikolai first.

So just a question on wireless. You mentioned it earlier also, I think within the warehouse and kind of AGV use case that you're seeing some wireless business, so to speak. So could you just comment on to what extent are these new kind of use cases and customers versus existing customers kind of switching over to wireless? And could you comment on how much business you actually do within wireless and whether it's still relatively small and then whether you see any threats from kind of wireless growing, right? Because at least it seems like -- just expect what I mean, it just seems like your kind of hardware expertise and your kind of form factors and the way you integrate into your -- or you let your customers integrate your products into their products, just seems like some kind of advantage, which is more difficult to see in wireless.

Yes. I think what we do is maybe first, what type of application, I think it's really about the access point for the AGV. I think that's the main application to make sure that is connected. And today, I think most people are using WiFi or 4G network for those. And it's not working super good. So we think 5G would be an exciting opportunity to improve the wireless communication and also make more complex AGV requirements basically. Today, it's a small part, it's about 3% of our business. So it's a small part, but we think, I mean, this has a lot of potential. And I'm not sure if I agree that we would be in a worse position than in any other area to be able to tie up customers and go with our solution. I'm not sure that's the case. But it's not as integrated as an AnyBus embedded module, of course. So there, you're right. In that sense, it could be easy to change to different supply if that was what you were after. So maybe it could be a market with some more interesting competition and maybe a bit fast moving. But we see that as a fast-growing area with some good potential for the future.

Just 1 example is LumenRadio, which I think you probably know Joakim, they kind of address that space, right? And their -- I mean, their products you seem a bit simpler in a way. I'm not sure if you know them well.

Yes, of course, we know it. We were looking to buy them before they made the IPO. I think the problem we saw with Lumen is probably they are basing a lot on proprietary protocols. And that is not always -- if you see the business that they do, they do a lot of -- was this like entertainment business. So lighting controlling for really advanced, if you have a concert or you have a big movie set, stuff like that but they are not so big in industrial space. I mean that's a couple of million, I think. And I think the reason is because you don't -- you want to have open standards, you don't want to go on proprietary standards. At least I was looking from our point of view on the industrial automation space. That was the risk that we didn't want to bet on with Lumen. But otherwise, I mean, it's a super nice company, really nice products. And I think they've been doing an excellent job in what they do. But yes, in the industrial automation space, we believe it's maybe a bit more challenging to grow that. So that's why we didn't go after it. I think we need to move on in terms of getting through everything. Aaron Scott is next in line.

I think on the operating profit margin target, obviously, it implies a slowdown or contraction in margins from current level. Is that done so to leave headroom for acquisitions. And so if acquisitions aren't made of lower-margin businesses, we might expect margins to near-term levels.

I think it's a relevant question. And I think there are 3 parts to the answer. I think, yes, 1 is because it's difficult to find acquisitions on a 25% or 25% plus EBIT margin basis. Most companies are not there in our industry. And we don't want that to be too limiting factor. I mean there are many good companies that, of course, do a little bit less than 25%. So I think that's 1 reason. Then we also need to acknowledge the fact that, I mean, right now, looking at numbers, we've had these boost orders. It is maybe on the peak on the macro landscape. So that's [indiscernible] we have a pretty weak Swedish crown that is giving us some leverage as well. So I think [Technical Difficulty] and said that it's going to be like this forever. But I think the acquisition one is the main reason why we don't say that we should expand further than that.

And that's even despite the revenue target not accounting for acquisitions.

The SEK 3.14 billion is without acquisitions. Yes. Correct. All right. I think we have Robert next in line.

At the Capital Markets Day, you talked a bit about security and the opportunity, and you clearly see something in the market that you think needs to be addressed [ that ] Staffan talked about it a bit but I didn't -- is it possible to just explain what it is you see in the [indiscernible], where is the opportunity that you see? And then as you think about acquisitions, would these be like hardware or software? What types of businesses exist that would be interesting to you in security?

Yes. Good question. And I think we received a lot of questions on that topic. It's certainly not that simple. I think what we see is that I think the security thinking in -- on the OT, on the operations technology on the shop floors is really, really poor. So there are a lot of risks. And it's not a problem unless you start to connect devices to the cloud. And I guess the problem that arises now is that a lot of companies want to connect the devices to the cloud to be able to gather all the information. And of course, that's part of our business to do that. And what we've seen is that many of the large users, big plants, they do not want to do it because they are afraid of the risks. So I mean, for us, we see that's a bit of a business enabler for the rest of our business as well to make sure that there is a better offer to -- with firewalls and threat detection and so on. So we've been looking into that quite a bit, and we see that there is some void in the market. There are a few companies that are starting to do interesting things. Unfortunately, it's difficult from an M&A perspective because you have some really large companies that are doing quite okay. And then you have some smaller ones more on a [indiscernible] base, but not too many mature companies are the right size for us. So it's [Technical Difficulty] exactly what I said, trying to support with the first most basic step in order to improve your security in those networks. And yes, we have a few targets that we're looking at but it's -- I wish the list was longer if I put it like that. All right. Jonathan.

Just wanted to kind of come back a little bit to the idea of the margin targets and balancing profitability with revenue growth. And perhaps I was asking, which would you be willing to sacrifice if you had to for a year or so? Would it be the revenue growth? I mean, you're already ahead of kind of the trajectory of your revenue growth target but revenue growth or operating margin.

I think now we didn't talk too much about the trends and our positioning in this call. We had a discussion on that in the Capital Markets Day. And I think we believe that we are very well positioned in this industry and given that that's the case, I think we would be willing to sacrifice the profitability, of course, not to any means but a few percentage points if we think that we're doing the right things for the long-term growth. So I think you can probably expect that if there were a bit tougher times [Technical Difficulty] property margin would go down a little bit. I mean that would be all parties to do the right thing for the top line. I think as we discussed with our owners and the board a lot. And I think everybody is pretty clear on that priority. All right. We have 9 minutes left. And do Jonathan have another one?

Oh yes, sorry, I take my hand on but I will have another one since I'll go through. Just on the longevity, I guess, that's not dominance, but the market leadership of AnyBus. I guess it speaks to the competitive positioning and high quality of the product but I guess also is if you look at the newer side of the coin, it's revenue concentration challenge. I mean, it has been your flagship product for a long time. I'm guessing that AnyBus -- your AnyBus offering now in the trade level like the AnyBus offering when you first started it. So how do you kind of think conceptually about the dominance of AnyBus and carrying that flagship on for the next few years and even decades?

I think it's a good question. I think maybe I can say this, we do not expect AnyBus to be so strong as it's been for the last 3 years. I think it's been that's been almost the highest growing offering. It's been up to this 20% organic now since 2020. And I think that's the reason we expected the other areas to eat sort of share of wallet within HMS. But that did not happen in this period. So I think maybe it's also fair to differentiate the different AnyBus products because, of course, AnyBus is embedded that was held to the device manufacturers. That's the largest offering. But the gateway offering, which is distribution or a system integrated sale. That's been growing, yes, is good. So it's a different packaging and different customer -- target customer and that is also growing really nicely. So I mean, if you compared to -- I'm going to go back all the way to the financial crisis because then we only had AnyBus embedded. So since then and seeing also what happened in the financial crisis, which wasn't fun for us as for most other companies. I think we have a much wider portfolio. And also the full wireless offering is also within AnyBus and that's a completely different offering. So it's not 1 -- only 1 offering in AnyBus. But for sure, I mean, it's a very big part. I think AnyBus in itself is about 60% of revenue. So of course, super important part. There's no doubt about it. I think that's also 1 part where we're looking for complement acquisitions to try to spread ourselves on some more areas, not be too dependent on such a dominant offering because we want to build a solid and good growing companies in all type of environments for the future as well. All right, Nikolai.

Yes. Just a question on growth, I guess, both in the medium term and the long term. So on the medium term, if you just look at the most recent order intake in Q3 and even given if you guys are right in the destocking effects that you estimate, the order intake is quite low compared to your the targets that you set in the Capital Markets Day, right? So could you just kind of compare those 2 numbers a little bit and tell us how you think about it? And then on the long term, what -- could you talk about what -- on AnyBus, could you talk about what opportunity you see to grow the number of design wins?

Yes. So I think on a short-term basis, I think I can just repeat what we said in the Q3 call, which I think is still valid. And I mean, obviously, we see that the order intake will be lower in -- it was low in Q3. It'll probably be a bit lower in a couple of quarters more, as I said before as well. We do have the order book to rely on for a little bit there to keep the sales on a decent level. And -- but in terms of 2024, we also said that on the Q3 call, I mean, a flat number compared to '23 would not be bad for 2024. I mean that will be -- that's just pure math. With that lower order intake and order book that is not there to sustain, 2024 will not be a super year in terms of growth. But I think then we should be through this inventory adjustment, and we don't see why we shouldn't be back to good growth after 2024. And I think that's what I showed these numbers before what we expect in the different offerings. And we believe that, that will be in a good manner after 2024. And as we said on the Capital Markets Day I mean, we wouldn't still have the target at SEK 5 billion if we didn't think it was achievable. And of course, we always want to have tough targets, and that's a little bit how we like to work as being competitive people. But I think [indiscernible] good position to reach that one.

Could you comment on design wins, growing the number of design wins long term...

Yes. I think that we're in a good position to keep growing the design wins. We've been having a solid trend, a bit of a bump, I think it was 2020 with the pandemic. But otherwise, I think we've been -- we're showing a decent growth. And maybe just to also be clear on how you should interpret that. It's -- if we're going to have a growth with new design wins is actually that's new customers, you could say, or new wins on an existing customer. And then you typically grow with your existing customers. So any growth design wins will be sort of on top of the normal growth. And I think that's why we also can without grow the market. But if we can keep a couple of percentage points in growth in design wins, I think we're in a good position to continue to show good growth numbers. It will not be 10% growth in design wins, that will not be the case. But if we can do 3%, 4%, 5%, I think that's not too bad. All right. I think we're starting to run out of time. I'm going to give Aaron the last opportunity.

Joakim, I was just on some of the Jonathan's question more on longevity of HMS's market leadership position. You've mentioned markets are growing sort of high single digits, double digits. Do you foresee any change to the competitive environment and whether that's new entrants being attracted to the market or new technologies, taking share from HMS? Or -- and secondly, are there any changes to the market that might disintermediate HMS? It would be that generative AI or otherwise? Just your thoughts on that would be helpful.

Yes. I think it's actually a bit of a mixed picture on if we compare between the different offerings. I think on the information-centric side, where we have this remote access, remote data offering, they will see a pretty big high activity on the -- on new solutions and on competition side. And of course, everybody is trying to fill that offering with more software services, which we are also working on, and we added some extra 30 engineers, which is quite a lot for us beginning of 2023 to work on that. We'll talk a little bit more about that, I think, in the Q4 report, we can explain more what we are doing. And again, I think there, we have -- we see a movement on the competition side. When it comes to the AnyBus offering, I think Staffan always says that I mean that's -- our CEO, Staffan Dahlstrom, that's still a blue ocean. There are a couple of handful of players that's been for a long time. They're still there. And we don't see a lot of new entrants. And we see it's pretty much business as usual. We are trying to expand that offering a bit as well. And I guess, the competition is doing that also. But all in all, I think there is -- we don't expect any major changes in the recent time on that side. I hope that answered the questions. I think we're running out of time. I need to run to next meeting, but thanks a lot for listening and taking interest in HMS, and hope to talk to you soon again. Thanks a lot.

Thank you, Joakim.

Thanks.

Bye-bye.