DJ HMS Group: 9M 2019 IFRS results
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.
The issuer is solely responsible for the content of this announcement.
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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sum of labour costs and social taxes) in 3Q 2019 decreased to 6.6% as a
share of revenue, compared with 8.0% in 2Q 2019. That was also one of the
factors that influenced positively 3Q 2019 profit for the period and
increased margins.
Operating profit was down to Rub 1.6 billion, compared with Rub 2.7 billion
last year (-41% yoy).
in millions of Rub 9m 2019 9m 2018 Change yoy
Finance costs 1,292 1,186 9%
Interest expenses 1,279 1,180 8%
Interest rate, average 8.72% 8.75%
Interest rate Rub, average 8.89% 8.90%
Finance costs were Rub 1.3 billion, up by 9% yoy, compared with Rub 1.2
billion for 9m 2018. The main factor was an increase of interest expenses
(+8% yoy) due to a higher total debt level. Average rates decreased to 8.72%
p.a., compared with 8.75% last year.
BUSINESS SEGMENTS PERFORMANCE
Industrial pumps[i]
in 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
millions
of Rub
Orders 16,423 13,432 22% 5,852 5,011 17%
Backlog 18,834 17,450 8% 18,834 19,398 -3%
Revenue 13,904 11,198 24% 5,924 4,739 25%
EBITDA 1,871 1,198 56% 804 793 1%
EBITDA 13.5% 10.7% 13.6% 16.7%
margin
Order intake of industrial pumps grew by 22% yoy based on both recurring
business and large contracts.
Backlog grew by 8% yoy to Rub 18.8 billion due to recurring business and
large contracts as well, mainly in the sphere of pumps for nuclear power
stations.
Revenue was Rub 13.9 billion, up 24% yoy, compared with Rub 11.2 billion for
9m 2018. EBITDA increased to Rub 1.9 billion, by 56% yoy, from Rub 1.2
billion for 9m 2018. The growth was based on both recurring business and
large contracts.
EBITDA margin recovered to 13.5%, compared with 10.7% for 9m 2018, due to a
number of factors, including the implemented cost-optimization program as
well as a higher share of large contracts.
There are two low-margin production facilities in the pumps business
segment, and their negative effect has been already reflected in the
company's financial results. Currently, HMS is working on an optimization
strategy of their operations.
Oil and Gas equipment & projects (OGEP)[ii]
in 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
millions
of Rub
Orders 11,096 8,820 26% 4,410 3,679 20%
Backlog 9,374 7,631 23% 9,374 7,550 24%
Revenue 8,599 16,512 -48% 2,664 3,528 -24%
EBITDA (171) 2,716 na 79 (120) na
EBITDA -2.0% 16.5% 3.0% -3.4%
margin
Order intake increased to Rub 11.1 billion by 26% yoy, compared with Rub 8.8
billion for 9m 2018, fully based on recurring contracts.
Backlog was up by 23% yoy to Rub 9.4 billion, compared with Rub 7.6 billion
for 9m 2018, due to recurring contracts as well.
Revenue was down by 48% yoy to Rub 8.6 billion, compared with Rub 16.5
billion for 9m 2018. EBITDA and EBITDA margin were still negative.
HMS Neftemash was the main loss-generator for the segment. When its backlog
of large projects decreased in mid-2018, the production facility didn't
manage to cut quickly its fixed costs. Also it didn't manage to sign a
sufficient volume of profitable recurring contracts to replace large
contracts. The combination of the above-mentioned factors resulted in a
decrease of revenue and margins in the period from 4Q 2018 to 2Q 2019.
Consequently, recurring business generated less EBITDA than expected.
HMS Group has changed management at HMS Neftemash to speed up the costs
reduction. Implemented austerity measures align with more profitable orders
portfolio resulted in a recovery of the oil & gas equipment and projects
segment's financial results, where 3Q 2019 EBITDA grew to Rub 79 million
compared with Rub (120) million in 2Q 2019.
The management has a positive outlook for 2019 FY results, though by
customers' requests, HMS Neftemash postponed deliveries from 3Q-4Q 2019 to
the 2020 year, worth c. Rub 0.4 billion EBITDA, that should positively
influence 1H 2020.
Compressors[iii]
in 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
millions
of Rub
Orders 8,578 8,072 6% 1,400 4,278 -67%
Backlog 11,931 10,146 18% 11,931 14,854 -20%
Revenue 13,326 5,306 151% 4,388 6,006 -27%
EBITDA 1,266 438 189% 431 458 -6%
EBITDA 9.5% 8.3% 9.8% 7.6%
margin
Order intake was up 6% yoy to Rub 8.6 billion, compared with Rub 8.1
billion, mainly due to large contracts signed.
Backlog increased by 18% yoy to Rub 11.9 billion, compared with Rub 10.1
billion last year, based on growing backlog of large contracts.
Revenue was up by 151% yoy to Rub 13.3 billion, compared with Rub 5.3
billion, based both on recurring business and large contracts. EBITDA grew
by 189% yoy to Rub 1.3 billion, compared with Rub 438 million for 9m 2018.
EBITDA margin increased to 9.5%, compared with 8.3% for 9m 2018.
Among others, one of the main factors that affected the compressors
segment's EBITDA was execution of the pilot "Artic Cascade" project. On the
one hand, it generated losses for the company, but on the other hand, the
company had analyzed the project, has taken actions to prevent them and is
fully prepared for execution of similar projects in the future.
Also, the successful execution of the "Artic Cascade" turned PAO NOVATEK
into one of HMS largest clients. Also, in September 2019, PAO NOVATEK and
HMS Group signed the Memorandum on localization of LNG equipment.
The "Arctic Cascade" allowed HMS to develop competencies in the new area of
equipment for liquefaction of natural gas and penetrate the Russia's booming
LNG market.
Construction[iv]
in 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
millions
of Rub
Orders 129 391 -67% 24 87 -73%
Backlog 1,256 2,677 -53% 1,256 1,610 -22%
Revenue 1,098 1,258 -13% 404 359 13%
EBITDA 49 (160) na 33 4 668%
EBITDA 4.5% -12.7% 8.3% 1.2%
margin
Order intake equaled Rub 129 million. Backlog declined to Rub 1.3 billion,
compared with Rub 2.7 billion last year, due to execution of two large
contracts signed in 2017-2018.
Revenue was Rub 1.1 billion, down 13% yoy, compared with Rub 1.3 billion for
9m 2018. EBITDA was Rub 49 million, compared with Rub (160) million last
year.
Working capital and Capital expenditures
in millions 9m 2019 9m 2018 Change 3Q 2019 2Q 2019 Change
of Rub yoy qoq
Working 11,522 11,340 2% 11,522 9,508 21%
capital
Working 20% 25% 20% 17%
capital /
Revenue LTM
Capex 1,203 1,441 -17% 403 293 37%
Acquisition 670 - - -
Working capital was Rub 11.5 billion, up by 2% yoy, compared with Rub 11.3
billion for 9m 2018, due to revenue growth. As a share of revenue, working
capital declined to 20% from 25% in the comparing period.
Capital expenditures were Rub 1.2 billion, down by 17% yoy, compared with
Rub 1.4 billion last year, as the result of the implemented austerity
measures.
DEBT POSITION
in 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
millions
of Rub
Total debt 21,115 19,177 10% 21,115 19,988 6%
Net debt 16,960 14,828 14% 16,960 15,628 9%
Net debt / 2.98 2.40 2.98 2.97
EBITDA LTM
Total debt increased to Rub 21.1 billion, up by 10% yoy, compared with Rub
19.2 billion for 9m 2018. Net debt was Rub 17.0 billion, up by 14% yoy,
compared with Rub 14.8 billion for 9m 2018.
Net debt to EBITDA LTM ratio increased to 2.98x compared with 2.40x last
year.
SIGNIFICANT EVENTS AFTER THE REPORTING DATE & FINANCIAL MANAGEMENT
LARGE CONTRACTS
After the reporting date, HMS announced the signature of a number of large
compressor contracts, worth Rub 7.5 billion.
DEBT REFINANCING
In November 2019, the Group completed refinancing of a number of credits,
which moved the most repayments to the 2022 year. Average interest rate was
decreased to 8.55% pa.
HMS Group attracted Rub 3 billion bank credit that was deposited, which will
be utilized for ruble bonds redemption in February 2020.
***
WEBCAST TO DISCUSS 9 MONTHS 2019 IFRS FINANCIAL RESULTS
Date: Tuesday, December 17, 2019
Time: 4.00 PM (MOSCOW) / 1.00 PM (London) / 8.00 AM (NY)
Conference passcode: 94353676#
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 9315
Russia Toll Free: 8 800 500 9863
UK Local: +44 207 194 3759
UK Toll Free: 0800 376 6183
US Local: +1 646 722 4916
US Toll Free: +1 844 286 0643
Conference ID: 94353676#
Title: HMS Group 9 months 2019 IFRS results
Webcast meeting:
To access the live event, click on the link:
https://webcasts.eqs.com/hmsgroup20191217 [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
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