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HMS Group (HMSG) HMS Group: 2018 3M IFRS Results 08-Jun-2018 / 11:00 MSK Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. HMS Group announces management statement and financial highlights for 3 months 2018 HMS HYDRAULIC MACHINES & SYSTEMS PLC (the "HMS Group", "Group") (LSE: HMSG), the leading pump, oil & gas equipment and compressor manufacturer and provider of flow control solutions and related services in Russia and the CIS, today announces its financial results for three months ended March 31, 2018. Financial highlights 3 months 2018: ? Revenue: Rub 8.7 bn (-11% yoy) ? EBITDA[1]: Rub 1.1 bn (+3% yoy), EBITDA margin 12.4% ? Operating profit: Rub 430 mn (-23% yoy), operating margin down to 4.9% ? Profit for the period: Rub 19 mn (-75% yoy), net income margin 0.2% ? Total debt: Rub 17.1 bn (+8% yoy) ? Net debt: Rub 14.8 bn (+14% yoy) ? Net debt-to-EBITDA LTM ratio: 2.16 x Operational highlights 3 months 2018: ? Backlog: Rub 46.0 bn (+28% yoy) ? Order intake: Rub 10.4 bn (-54% yoy) OPERATING REVIEW BACKLOG Backlog grew to Rub 46.0 billion (+28% yoy). The main driver was the pumps business segment, though all the four business segments grew, due to a number of large integrated contracts signed and executed in the reporting period. Backlog, Rub mn 2018 3m 2017 3m Change yoy Industrial pumps 15,699 10,147 55% Oil & Gas equipment and projects 18,743 18,351 2% Compressors 7,777 6,819 14% Construction 3,736 719 419% Total 45,953 36,036 28% ORDER INTAKE Order intake[2] decreased more than twice to Rub 10.4 billion. Almost all business segments of HMS declined, except the industrial pumps, which increased by 23% yoy due to the dynamics of the recurring business. The oil and gas equipment and projects segment was down to Rub 3.4 billion because of absence of large contracts signed in the reporting period. The compressors declined 39% yoy to Rub 3.0 billion because of a decline in both large contracts and recurring business. However, in terms of contracts' mix, the drop was only because of fewer large contracts signed in the reporting period, as the recurring business grew by a minor 1% yoy. But those fluctuations are normal for the order intake made up of large projects. Order intake, 2018 3m 2017 3m Change yoy 2018 3m 2017 4Q Change Rub mn qoq Industrial 4,229 3,427 23% 4,229 8,762 -52% pumps Oil & gas 3,436 14,044 -76% 3,436 4,025 -15% equipment Compressors 2,995 4,903 -39% 2,995 1,268 136% Construction (253) 121 -310% (253) 462 -155% Total 10,408 22,495 -54% 10,408 14,516 -28% GROUP PERFORMANCE Revenue decreased by 11 percent yoy to Rub 8.7 billion. EBITDA was up by 3 percent yoy to Rub 1.1 billion. Solid results of the oil & gas equipment and projects segment were the contributor to the company's EBITDA growth. Rub bn 2018 3m 2017 3m Change 2018 1Q 2017 Change qoq yoy 4Q Revenue 8,726 9,760 -11% 8,726 13,011 -33% EBITDA 1,080 1,047 3% 1,080 1,852 -42% EBITDA 12.4% 10.7% 12.4% 14.2% margin In terms of contracts' type, revenue from the recurring business declined by 33 percent yoy. Large contracts, in contrast, advanced 78 percent yoy. Though EBITDA from the recurring business decreased by 63 percent yoy, the doubled EBITDA, generated by large contracts, compensated for that decline. All the above led to an increase in EBITDA margin to 12.4% from 10.7% in the comparative period. Cost of sales, 2018 2017 3m Change Share of Share of Rub mn 3m yoy 2018 3m 2017 3m revenue revenue Cost of sales 6,548 7,713 -15% 75.0% 79.0% Materials and 4,008 6,195 -35% 45.9% 63.5% components Labour costs 1,426 1,228 16% 16.3% 12.6% Construction and 322 212 52% 3.7% 2.2% design and engineering services of subcontractors Depreciation and 365 321 14% 4.2% 3.3% amortization Others 427 -243 -276% 4.9% -2.5% Cost of sales was 15 percent yoy down to Rub 6.5 billion mainly due to a decline in materials and components (-35% yoy), thus reflecting the products mix's change. As a percentage of revenue, the cost of sales also decreased, from 79% to 75%. That led to a higher gross profit of Rub 2.2 billion (+6% yoy) and an expanded gross margin of 25.0% vs. 21.0% for 3 month 2017. Rub mn 2018 2017 3m Change Share of Share of 3m yoy 2018 3m 2017 3m revenue revenue Distribution and 460 431 7% 5.3% 4.4% transportation General and 1,227 1,057 16% 14.1% 10.8% administrative SG&A expenses 1,687 1,488 13% 19.3% 15.2% Other operating 61 2 3758% 0.7% 0.0% expenses Operating 1,748 1,489 17% 20.0% 15.3% expenses ex. Cost of sales Finance costs 380 500 -24% 4.4% 5.1% SG&A expenses[3] increased by 13 percent yoy, and as a share of revenue grew to 19.3% from 15.2%. Operating expenses excl. cost of sales grew by 17 percent yoy. As a share of revenue they also increased, to 20.0%. The main reason was an increase in labour costs due to a long-term incentive program and growth of wages. Distribution and transportation expenses grew by 7 percent yoy to Rub 460 million. The main reason was growth of labour costs and social taxes. As a share of revenue, distribution and transportation expenses also grew, to 5.3% from 4.4%. General and administrative expenses grew by 16 percent yoy to Rub 1.2 billion due to combined growth of labour costs and social taxes. As a share of revenue, general and administrative expenses grew to 14.1% partly due to quarterly volatility of revenue. Operating profit decreased by 23 percent yoy to Rub 430 million from Rub 557 million. Operating margin declined to 4.9%. Finance costs, Rub mn 2018 3m 2017 3m Change yoy Finance costs 380 500 -24% Interest expenses 374 501 -25% Fees for early repayment of loans 5 - Na Foreign exchange gain from borrowings, (1) (2) -70% net Finance lease expenses 0 1 -40% Interest rate, average 9.0% 11.4% Interest rate Rub, ave 9.1% 11.6% Finance costs decreased by 24 percent yoy. The main factor was a decrease in interest expenses (-25% yoy) due to lower interest rates as a result of debt portfolio refinancing. Average rates decreased from 11.4% p.a. to 9.0% p.a. Profit for the period was down 75 percent yoy to Rub 19 million from Rub 77 million for 3 months 2017. BUSINESS SEGMENTS PERFORMANCE Industrial pumps[i] The industrial pumps business segment's revenue decreased by 15 percent yoy to Rub 3.0 billion from Rub 3.5 billion. EBITDA was down by 39 percent yoy to Rub 353 million. EBITDA margin declined to 11.8%. Industrial 2018 3m 2017 3m Change yoy 2018 1Q 2017 4Q Change qoq pumps, Rub mn Revenue 2,997 3,530 -15% 2,997 5,141 -42% EBITDA 353 576 -39% 353 1,034 -66% EBITDA 11.8% 16.3% 11.8% 20.1% margin Oil & Gas equipment and projects (OGEP)[ii] The OGEP business segment's revenue grew 10 percent yoy to Rub 5.1 billion, and EBITDA was up 85 percent yoy to Rub 828 million, fully based on growth of large projects. EBITDA margin increased to 16.2% from 9.6% in the comparative period. OGEP, Rub mn 2018 3m 2017 3m Change 2018 1Q 2017 Change qoq yoy 4Q Revenue 5,111 4,661 10% 5,111 6,499 -21% EBITDA 828 447 85% 828 1,132 -27% EBITDA 16.2% 9.6% 16.2% 17.4% margin Compressors[iii] Revenue grew by 14 percent yoy to Rub 1.9 billion. EBITDA, in contrast, was down by 42 percent yoy to Rub 99 million. EBITDA margin decreased to 5.3%. The decline in the segment's profitability was due to execution of a number of lower-than-last-year-margin large compressor-related contracts. Compressors, 2018 3m 2017 3m Change 2018 1Q 2017 4Q Change Rub mn yoy qoq Revenue 1,880 1,653 14% 1,880 2,481 -24% EBITDA 99 172 -42% 99 47 110% EBITDA margin 5.3% 10.4% 5.3% 1.9% Construction[iv] Construction doubled its revenue to Rub 382 million. But EBITDA demonstrated a negative value. Construction, 2018 3m 2017 3m Change yoy 2018 1Q 2017 4Q Change Rub mn qoq Revenue 382 128 199% 382 597 -36% EBITDA (122) (53) 129% (122) 44 -373% EBITDA margin -31.8% -41.5% -31.8% 7.4% FINANCIAL REVIEW CASH FLOW PERFORMANCE Working capital was up 26 percent yoy to Rub 11.5 billion from Rub 9.1
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