HMS Group (HMSG)
HMS Group: 9M 2019 IFRS results
16-Dec-2019 / 16:48 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
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HMS Group Reports 3Q 2019 Profit of Rub 369 million
Moscow, Russia - December 16, 2019 - HMS Group Plc (the "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 the nine months ended
September 30, 2019.
Financial highlights 9 months 2019:
- Revenue: Rub 36.7 bn (+15% yoy)
- EBITDA[1]: Rub 3.4 bn (-21% yoy), EBITDA margin at 9.2%
- Operating profit: Rub 1.6 bn (-41% yoy)
- Profit for the period: Rub 195 mn (-83% yoy)
- Total debt: Rub 21.1 bn (+10% yoy)
- Net debt: Rub 17.0 bn (+14% yoy)
- Net debt-to-EBITDA LTM ratio: 2.9 8x
Operational highlights 9 months 2019:
- Backlog: Rub 41.4 bn (+9% yoy)
- Order intake: Rub 36.2 bn (+18% yoy)
GROUP PERFORMANCE
9m 2019 financial Results
in millions 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change
of Rub qoq
Orders 36,227 30,715 18% 11,686 13,054 -10%
Backlog 41,395 37,904 9% 41,395 43,412 -5%
Revenue 36,681 31,862 15% 13,262 14,565 -9%
EBITDA 3,392 4,319 -21% 1,439 1,452 -1%
EBITDA margin 9.2% 13.6% 10.8% 10.0%
Profit for 195 1,174 -83% 369 321 15%
the period
Depreciation 1,699 1,321 29% 587 564 4%
&
amortization
Free cash (2,623) (1,993) 32% (705) (690) 2%
flow
Order intake grew by 18% yoy to Rub 36.2 billion, compared with Rub 30.7
billion for 9m 2018, based on the increase in all main business segments.
Both recurring business and large contracts contributed to this growth.
Backlog grew to Rub 41.4 billion by 9% yoy, compared with Rub 37.9 billion
last year, driven by all main business segments as well. Also, the growth
was based on both the recurring business and large contracts.
Revenue grew to Rub 36.7 billion, up by 15%, compared with Rub 31.9 billion
for 9m 2018. The main contributor to this growth was the compressors
business segment.
EBITDA was down to Rub 3.4 billion compared with Rub 4.3 billion (-21% yoy)
because of a weak performance of the oil & gas equipment and projects
segment.
Revenue from recurring business was up by 18% yoy, and revenue from large
projects grew by 9% yoy. EBITDA from recurring business increased 37% yoy,
but from large projects contracted by 45% yoy. Due to a lower input of large
contracts, EBITDA margin declined to 9.2%, compared with 13.6% for 9m 2018.
Profit for 3Q 2019 of Rub 369 million together with 2Q 2019 compensated the
loss in 1Q 2019, so profit for 9m 2019 turned positive Rub 195 million, but
it was 83% yoy lower compared with Rub 1.3 billion profit for the period for
9m 2019.
Depreciation & amortization was up 29% yoy to Rub 1.7 billion, compared with
Rub 1.2 billion for 9m 2018 due to acquired assets in 2018-2019.
Free cash outflow increased to Rub (2.6) billion from Rub (2.0) billion for
9m 2018, due to an increase in working capital and Rub 700 million
acquisition made in Feb 2019. If excluding this acquisition, free cash
outflow this year was lower compared with last year.
HMS AUSTERITY PROGRAM
In 2019, HMS experiences the influence of several negative factors that
affected the company's financial results:
? Change in a mix of large contracts portfolio, where compressor-based
large contracts increased their share, and they traditionally have lower
margins compared with pumps and oil & gas equipment:
HMS addressed this by working on prospective profitable contracts. As a
result, today the company has signed already a sustainable volume of large
contracts in the pumps and the compressors segments. In the oil & gas
equipment and projects segment, the portfolio of large contracts is
improving. Also, based on a current pipeline of large projects, the oil &
gas equipment and projects segment has a potential of the further
portfolio's development.
? Weak results of the oil & gas equipment and projects business segment in
recurring business:
HMS had analyzed the factors, that affected financial results of the
segment, and has taken actions to mitigate their impact on 2020 FY results.
? Postponement of a number of signed and budgeted oil & gas equipment
deliveries from 3Q-4Q 2019 to the 2020 year due to HMS customers'
decisions:
On the one hand, this factor will affect and has already affected 2019 FY
financial results, and on the other hand, it should positively influence
2020 FY financial results.
? The "Arctic Cascade" project of PAO NOVATEK, the first ever HMS project
in the field of designing and manufacturing of compressors for
liquefaction of natural gas:
HMS Group had analyzed the project, and has taken actions to prevent losses
in foreseeable projects of that kind. The equipment was manufactured under
the innovative proprietary natural gas liquefaction technology called the
"Arctic Cascade" patented by PAO NOVATEK in 2018. The aim of the project was
to localize the manufacturing and assembly of LNG equipment to decrease the
overall cost of liquefaction and develop a technological base within Russia.
While the participation in the project incurred losses for HMS due to the
fact that the company has developed a new product, the project's successful
execution has given the access to the new and prospective LNG market in
Russia.
? Austerity measures time lag:
HMS had started the cost-optimization program at the end of 1H 2019. It has
taken several months from the implementation of austerity measures to the
decrease of fixed costs and increase of profitability, which were clearly
seen at the improved results of 3Q 2019.
The cost-optimization program of HMS Group consists of two types of
austerity measures - short-term and long-term. The short-term measures have
been already implemented and realized. In 2020, the short-term ones will be
partly complimented or replaced by long-term measures.
The short-term measures include (1) a temporarily decrease of wages, which
has been already realized in 2H 2019, and (2) a decrease or cancellation of
dividend payments in 2020, which decision will depend on 2019 FY results and
general situation with large contracts portfolio in the spring 2020.
The long-term austerity measures include, among others:
? Rightsizing (personnel optimization);
? Minimization of operating costs including optimization of procurement
processes and improvement of products' design solutions;
? Reduction of capital expenditures to Rub 1.5 billion per annum (pure
maintenance level);
? Strengthening of control over working capital;
? Analysis of non-performing assets for further decision-making regarding
restructuring of HMS business.
Expenses and Operating profit
in millions of 9m 9m 2018 Change Share of Share of
Rub 2019 yoy 9m 2019 9m 2019
revenue revenue
Cost of sales[2] 29,620 23,790 25% 80.7% 74.7%
Materials and 20,582 15,278 35% 56.1% 47.9%
components
Labour costs incl 5,238 5,395 -3% 14.3% 16.9%
Social taxes
Depreciation and 1,437 1,131 27% 3.9% 3.6%
amortization
Construction and 1,561 1,197 30% 4.3% 3.8%
design and
engineering
services of
subcontractors
Others 803 790 2% 2.2% 2.5%
Cost of sales increased to Rub 29.6 billion by 25% yoy, compared with Rub
23.8 billion for 9m 2018, because of the combination of two main factors:
? Large contracts to produce compressors have a higher share of outsourced
components in their costs of sales, and as a result, their profitability
are lower than those ones in the pumps or the oil & gas equipment segment;
? Recurring business portfolio consisted of less profitable contracts
compared with last year.
Gross profit was down 13% yoy to Rub 7.1 billion, compared with Rub 8.1
billion for 9m 2018.
in millions of 9m 9m 2018 Change Share of Share of
Rub 2019 yoy 9m 2019 9m 2019
revenue revenue
Distribution and 1,402 1,378 2% 3.8% 4.3%
transportation
General and 3,981 3,876 3% 10.9% 12.2%
administrative
SG&A expenses 5,382 5,253 2% 14.7% 16.5%
Other operating 89 117 -24% 0.2% 0.4%
expenses
Operating 5,471 5,370 2% 14.9% 16.9%
expenses ex. Cost
of sales
Operating profit 1,590 2,701 -41% 4.3% 8.5%
Finance costs 1,292 1,186 9% 3.5% 3.7%
Distribution and transportation expenses increased by 2% yoy, mainly due to
an increase in transportation expenses (+16% yoy). As a share of revenue,
distribution and transportation expenses was down to 3.8% compared with 4.3%
last year.
General and administrative expenses were up by 3% yoy to Rub 4.0 billion,
compared with Rub 3.9 billion last year, mainly due to the increase in bank
services (+41% yoy) and depreciation & amortization (+40% yoy). As a share
of revenue, general and administrative expenses decreased to 10.9% from
12.2% for 9m 2018.
SG&A expenses (Selling, General and Administrative Expenses, compiled of
distribution & transportation expenses plus general & administrative ones)
grew to Rub 5.4 billion, up 2% yoy, and as a share of revenue, declined to
14.7% from 16.5%.
As the result of the cost-optimization program, SG&A labour expenses (the
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