DJ HMS Group: 2018 3M IFRS Results
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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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billion for 3 months 2017. Working capital was higher than average as the
company was at a certain stage of some large projects' execution. Compared
to the year-end 2017, working capital grew significantly due to a few
material payments from customers obtained in December 2017.
Working capital & Capex, Rub mn 2018 3m 2017 3m Change yoy
Working capital 11,535 9,133 26%
Working capital / Revenue LTM 27% 22%
Capital expenditures 334 297 13%
Capital expenditures increased by 13 percent yoy to Rub 334 million.
HMS Group generated a negative operating cash flow of Rub 2.7 billion
compared to a positive cash flow of Rub 1.1 billion last year, due to the
growth of working capital. That resulted in a negative free cash flow[4] of
Rub 2.9 billion.
Cash flow performance, Rub mn 2018 3m 2017 3m Change yoy
Net cash (used in)/from operating (2,648) 1,086 -344%
activities
Net cash used in investing activities (258) (289) -11%
Free cash flow (FCF) (2,906) 797 -464%
Net cash from/(used in) financing 574 (894) -164%
activities
Cash & cash equivalents, at the end 2,298 2,861 -20%
of the period
DEBT POSITION
Total debt increased by 8 percent yoy to Rub 17.1 billion from Rub 15.8
billion.
Net debt was up by 14 percent yoy to Rub 14.8 billion. The Net
debt-to-EBITDA LTM ratio increased to 2.16x.
Leverage, Rub mn 2018 3m 2017 3m Change yoy
Total debt 17,140 15,842 8%
Long-term debt 16,140 12,510 29%
Short-term debt 1,000 3,332 -70%
Net debt 14,842 12,981 14%
Net debt / EBITDA LTM 2.16x 2.08x
SIGNIFICANT EVENTS AFTER THE REPORTING DATE & FINANCIAL MANAGEMENT
Discontinuance of Grigorishin's litigation
On 12 February 2014, the Company was served in Cyprus with an interim order
of the District Court of Nicosia (the "Order"). The Order was obtained on an
ex parte basis by Konstantin Grigorishin, and certain other plaintiffs
against a number of defendants, including the Company, certain of its
shareholders and directors, and The Bank of New York (Nominees) Limited.
Amongst other things, the Order froze the property of most of the
defendants, including the Company, but excluding The Bank of New York
(Nominees) Limited and two other defendants, for an amount up to EUR 400
million.
In April 2014, following written and oral submissions against the Order by
the Company and several other defendants, the District Court of Nicosia (the
"Court") discharged the Order in full, including in respect of the Company
and its shareholders and directors. Following such discharge, there were no
further substantive steps, known to the Company, by plaintiffs to proceed
with their claim against the Company or its directors. The Company has
maintained that there was no legal ground for the claims and allegations
made by Mr. Grigorishin and the other plaintiffs against the Company.
On 29 March 2018, a Notice of Discontinuance was filed by plaintiffs with
the Court. Following the filing of the Notice of Discontinuance and an
appearance of our legal representatives before the Court on 4 May 2018, the
Court ordered the discontinuance of the action against the defendants. An
English translation of the Court's order of the discontinuance was made
available to the Company on 16 May, 2018. The discontinuance of the
proceedings was not a result of any settlement agreement, and the Company
was not required to make any payments to the plaintiffs.
FINANCIAL MANAGEMENT
As of May 1, 2018, average interest rate decreased to 8.9% compared to 12.2%
at the beginning of 2017.
DIVIDENDS AND HMS GDRS
During the period from April 25, 2018 up to and including June 7, 2018, HMS
Group hasn't purchased any of its global depositary receipts ("GDRs"). As of
today, HMS Group has purchased 1,076,887 GDRs (4.60 percent of its issued
share capital).
Based on strong and better than budgeted financial results of 2017, on April
24, 2018 the Board of Directors recommended the payment of final dividends
in respect of FY 2017 in the amount of 6.83 rubles per ordinary share, i.e.
34.15 rubles per one GDR.
However, the company's long-term dividend policy stays unchanged - HMS
targets to pay out total dividends in the region of 50% of the Profit
attributable to shareholders for the year, subject to capital constraints
such as debt and liquidity position and forecast.
The Annual General Meeting will be held on June 21, 2018. The final
dividends will be paid on July 3, 2018, to shareholders on the company's
register at close of business (UK time) on June 15, 2018 (the "Record
Date").
If approved at the Annual General Meeting of Shareholders, total dividends
for 2017 will amount to 11.95 rubles per ordinary share or 59.75 rubles per
one GDR.
***
WEBCAST TO DISCUSS 3 MONTHS 2018 IFRS FINANCIAL RESULTS
Date: Friday, June 08, 2018
Time: 5.00 PM (MOSCOW) / 3.00 PM (London) / 4.00 PM (CET) / 10.00 AM (NY)
Speaker:
Inna Kelekhsaeva - Deputy Head of Capital markets
Q&A session:
Kirill Molchanov - First Deputy General Director and Co-Founder
Alexander Rybin - Head of Capital markets
To participate in the conference call, please dial in:
Russia Local: +7 495 646 9190
UK Local: +44 (0)330 336 9411
UK Toll Free: 0 800 279 7204
US Local: +1 646 828 8144
US Toll Free: 800 347 6311
Conference ID: 6076892
Title: HMS Group 2017 FY IFRS results
Webcast meeting:
To access the live event, click on the link:
http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=5623 [1]
Please, dial in 5-10 minutes prior to the scheduled start time.
Pre-registration is available.
We will share materials on HMS' investor website [2] ahead of the webcast.
Contacts:
Investor Relations, ir@hms.ru [3]
***
HMS Group is the leading pump and compressor manufacturer, as well as
provider of flow control solutions and related services to the oil and gas,
nuclear and thermal power generation and water utilities sectors in Russia
and the CIS. HMS Group's products are mission-critical elements of projects
across a diverse range of industries. It has participated in a number of
large-scale infrastructure projects in Russia, including providing pumps and
modular equipment to the Vankor oil field and pumping stations on recent
trunk pipelines projects linking Russia's core oil producing areas to export
ports on the Pacific Ocean and Baltic Sea. HMS Group's global depositary
receipts ("GDRs") are listed under the symbol "HMSG" on the London Stock
Exchange.
Press Release Information Accuracy Disclaimer
Information published in press releases was accurate at the time of
publication but may be superseded by subsequent releases or other
information.
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[1] EBITDA is defined as operating profit/loss from continuing operations
adjusted for other operating income/expenses, depreciation and amortisation,
amortisation of government grants, impairment of assets, excess of fair
value of net assets acquired over the cost of the acquisition, defined
benefits scheme expense and provisions (including provision for obsolete
inventory, provision for impairment of accounts receivable, unused vacation
allowance, warranty provision, provision for legal claims, tax provision and
other provisions). This measurement basis, therefore, excludes the effects
of a number of non-recurring income and expenses on the results of the
operating segments.
[2] According to management accounts
[3] SG&A expenses = Selling, General and Administrative Expenses =
Distribution and transportation + General and administrative
[4] Free cash flow (FCF) = Net cash from operating activities (operating
cash flow) + Net cash used in investing activities (investing cash flow),
represents the cash that a company is able to generate after laying out the
money required to maintain or expand its assets base.
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[i] The industrial pumps business segment designs, engineers, manufactures
and supplies a diverse range of pumps and pump-based integrated solutions to
customers in the oil and gas, power generation and water utilities sectors
in Russia, the CIS and internationally. The business segment's principal
products include customized pumps and integrated solutions as well as pumps
built to standard specifications; it also provides aftermarket maintenance
and repair services and other support for its products.
[ii] The oil and gas equipment and projects business segment manufactures,
installs and commissions modular pumping stations, automated metering
equipment, oil, gas and water processing and preparation units and other
equipment and systems for use primarily in oil extraction and
transportation. The segment's core products are equipment packages and
systems installed inside a self-contained, free-standing structure which can
be transported on trailers and delivered to and installed on the customer's
site as a modular but fully integrated part of the customer's technological
process.
[iii] The compressors business segment designs, engineers, manufactures and
supplies a diverse range of compressors and compressor-based solutions,
including compressor units and compressor stations, to customers in the oil
and gas, metals and mining and other basic industries in Russia. The
business segment's principal products include customized compressors,
series-produced compressors built to standard specifications, and
compressor-based integrated solutions.
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