REG-HMS Group HMS Group: 2018 9M IFRS Results

HMS Hydraulic Machines & SystemsAnnouncement

11/12/2018 08:25

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   HMS Group (HMSG)
   HMS Group: 2018 9M IFRS Results

   11-Dec-2018 / 11:20 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.

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   HMS Group announces management statement and financial highlights

   for 9 months 2018

    

   HMS HYDRAULIC MACHINES & SYSTEMS GROUP 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 nine
   months ended September 30, 2018.

    

   Financial highlights 9 months 2018:

   ▪            Revenue: Rub 31.9 bn (+1% yoy)

   ▪            EBITDA 1  1 : Rub 4.3 bn (-13% yoy), EBITDA margin 13.6%

   ▪            Operating profit: Rub 2.7 bn (-21% yoy), operating margin
   down to 8.5%

   ▪            Profit for the period: Rub 1.2 bn (-29% yoy), net income
   margin down to 3.7%

    

   ▪            Total debt: Rub 19.2 bn (+16% yoy)

   ▪            Net debt: Rub 14.8 bn (+16% yoy)

   ▪            Net debt-to-EBITDA LTM ratio: 2.40x

    

   Operational highlights 9 months 2018:

   ▪            Backlog: Rub 37.9 bn (-9% yoy)

   ▪            Order intake: Rub 30.7 bn (-32% yoy) 

   ---
    

   OPERATING REVIEW

   BACKLOG

   Backlog 2  2  decreased by 9 percent to Rub 37.9 billion due to
   underperformance of the oil & gas equipment and projects and construction
   business segments.  The main reason was fewer large oil & gas equipment
   contracts signed in the reporting period.  The other two business segments
   increased based both on the growth of large integrated contracts and
   recurring business.

    

   Backlog, Rub mn                  2018 9m 2017 9m Change yoy
   Industrial pumps                  17,450  10,519        66%
   Oil & Gas equipment and projects   7,631  22,337       -66%
   Compressors                       10,146   4,407       130%
   Construction                       2,677   4,505       -41%
   Total                             37,904  41,767        -9%

    

   ORDER INTAKE

   Order intake 3  3  decreased to Rub 30.7 billion (-32% yoy).  Two of HMS'
   business segments declined.  

   The pumps segment increased to Rub 13.4 billion purely based on the
   recurring business. 

   The oil and gas equipment and projects segment was down to Rub 8.8 billion
   because of absence of large contracts signed in the reporting period.  

   The compressors increased to Rub 8.1 billion mainly because the company
   signed more large contracts.

   In terms of contracts' mix, the drop was only attributable to fewer large
   contracts signed in the reporting period.  

    

   Order intake, Rub mn 2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Industrial pumps      13,432  12,221        10%   4,988   4,214        18%
   Oil & gas equipment    8,820  23,383       -62%   3,304   2,079        59%
   Compressors            8,072   5,934        36%   3,406   1,672       104%
   Construction             391   3,624       -89%     617      27      2188%
   Total                 30,715  45,163       -32%  12,315   7,992        54%

    

   GROUP PERFORMANCE

   Revenue was almost stable, up by a minor 1 percent yoy to Rub 31.9
   billion.

   EBITDA was down by 13 percent yoy to Rub 4.3 billion.  The industrial
   pumps and compressors were the main factors that affected the company's
   EBITDA.

    

   Rub bn        2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Revenue        31,862  31,411         1%  11,519  11,618        -1%
   EBITDA          4,319   4,987       -13%     999   2,240       -55%
   EBITDA margin   13.6%   15.9%               8.7%   19.3%  

    

   In terms of contracts' type, revenue from the recurring business declined
   by 11 percent yoy. Large contracts advanced 38 percent yoy.  EBITDA from
   the recurring business decreased by 50 percent yoy.  In contrast, EBITDA
   generated by large contracts grew by 26 percent yoy, but didn't manage to
   compensate for that decline in the recurring business.

   EBITDA margin was down to 13.6% from 15.9% in the comparative period.

    

                                                   Change Share of  Share of 
   Cost of sales, Rub mn           2018 9m 2017 9m  yoy     2018 9m   2017 9m
                                                            revenue   revenue
   Cost of sales                    23,790  22,931     4%     74.7%     73.0%
   Materials and components         15,278  15,928    -4%     47.9%     50.7%
   Labour costs                      4,239   3,724    14%     13.3%     11.9%
   Construction and design and
   engineering services of           1,197     811    48%      3.8%      2.6%
   subcontractors
   Social taxes                      1,156   1,044    11%      3.6%      3.3%
   Others                            1,921   1,423    35%      6.0%      4.5%

    

   Cost of sales grew by 4 percent yoy to Rub 23.8 billion because of
   increased labor costs and social taxes (+13% yoy if to sum them up).  As a
   percentage of revenue, the cost of sales also was up to 75% from 73%.  

   As a result, gross profit was down to Rub 8.1 billion (-5% yoy) and gross
   margin declined to 25.3% vs. 27.0% for 9 months 2017.

    

                                                          Share of  Share of 
   Rub mn                      2018 9m 2017 9m Change yoy   2018 9m   2017 9m
                                                            revenue   revenue
   Distribution and              1,378   1,299         6%      4.3%      4.1%
   transportation
   General and administrative    3,876   3,444        13%     12.2%     11.0%
   SG&A expenses                 5,253   4,742        11%     16.5%     15.1%
   Other operating expenses        117     330       -65%      0.4%      1.0%
   Operating expenses ex. Cost   5,370   5,072         6%     16.9%     16.1%
   of sales
   Finance costs                 1,186   1,340       -12%      3.7%      4.3%

    

   SG&A expenses 4  4  increased by 11 percent yoy, and as a share of revenue
   grew to 16.5% from 15.1%.

   Operating expenses excl. cost of sales grew by 6 percent yoy with a share
   of revenue of 16.9% due to growth of labor costs.

   Distribution and transportation expenses grew by 6 percent yoy to Rub 1.4
   billion, mainly due to growth of labour costs and social taxes.  As a
   share of revenue, distribution and transportation expenses demonstrated
   minor change, to 4.3% from 4.1%.

   General and administrative expenses grew by 13 percent yoy to Rub 3.9
   billion due to the combined growth of labour costs and social taxes.  This
   growth was mainly attributable to the long-term incentive program and
   increased salaries.  As a share of revenue, general and administrative
   expenses grew to 12.2% due to quarterly volatility of revenue. 

   Operating profit declined by 21 percent yoy to Rub 2.7 billion from Rub
   3.4 billion, and operating margin was down to 8.5%.

    

   Finance costs, Rub mn                2018 9m 2017 9m Change yoy
   Finance costs                          1,186   1,340       -12%
      Interest expenses                   1,180   1,338       -12%
      Fees for early repayment of loans       5       0         na
      Foreign exchange (gain)/loss, net     (1)       0         na
      Finance lease expenses                  2       2        12%
   Interest rate, average                  8.8%   10.2%           
   Interest rate Rub, average              8.9%   10.4%  

    

   Finance costs decreased by 12 percent yoy, fully due to a decrease in
   interest expenses (-12% yoy) because of lower interest rates as a result
   of debt portfolio refinancing.  Average rates decreased from 10.2% p.a. to
   8.8% p.a.

   Profit for the period was down 29 percent yoy to Rub 1.2 billion and its
   margin for the period declined to 3.7% vs. 5.3% for the comparative
   period.

    

   BUSINESS SEGMENTS PERFORMANCE

   Industrial pumps 5  i 

   The industrial pumps business segment's revenue decreased by 9 percent yoy
   to Rub 11.2 billion from Rub 12.3 billion.  EBITDA was down by 43 percent
   yoy to Rub 1.2 billion. EBITDA margin declined to 10.7%.

   Less profitable contracts, executed in the reporting period, and some
   forced increase in wages were the main factors which influenced the
   segment's underperformance, among others.

    

    

    Industrial pumps,   2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Rub mn
   Revenue               11,198  12,346        -9%   3,864   4,337       -11%
   EBITDA                 1,198   2,114       -43%     322     523       -38%
   EBITDA margin          10.7%   17.1%               8.3%   12.1%           

    

   Oil & Gas equipment and projects (OGEP) 6  ii 

   The OGEP business segment's revenue grew 10 percent yoy to Rub 16.5
   billion, and EBITDA hiked 86 percent yoy to Rub 2.7 billion due to the low
   base effect.  EBITDA margin increased to 16.5% from 9.7% in the
   comparative period.

   The recovered performance of Giprotyumenneftegas (GTNG) combined with a
   beneficial mix of contracts generated higher than average profitability of
   the business segment.

    

   OGEP, Rub mn  2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Revenue        16,512  15,037        10%   5,327   6,074       -12%
   EBITDA          2,716   1,460        86%     632   1,257       -50%
   EBITDA margin   16.5%    9.7%              11.9%   20.7%  

    

   Compressors 7  iii 

   Revenue declined by 20 percent yoy to Rub 5.3 billion.  EBITDA was also
   down to Rub 438 million.  EBITDA margin decreased to 8.3% that is much
   less than 16.5% in the comparative period. 

   The decline in the segment's profitability was due to the high-base effect
   last year (execution of a number of high-margin large contracts and
   one-off economies emerged during their execution) combined with an
   unsteady recognition of large contracts' revenue this year.

    

   Compressors, Rub mn 2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Revenue               5,306   6,650       -20%   1,903   1,523        25%
   EBITDA                  438   1,096       -60%     102     237       -57%
   EBITDA margin          8.3%   16.5%               5.3%   15.6%  

    

   Construction 8  iv 

   Construction increased its revenue to Rub 1.3 billion (+181% yoy). But it
   generated negative EBITDA.

    

   Construction, Rub mn 2018 9m 2017 9m Change yoy 2018 3Q 2018 2Q Change qoq
   Revenue                1,258     447       181%     453     423         7%
   EBITDA                 (160)   (120)         na       1    (40)         na
   EBITDA margin         -12.7%  -26.7%               0.3%   -9.4%  

   FINANCIAL REVIEW

   CASH FLOW PERFORMANCE

   Working capital increased by 16 percent yoy to Rub 11.3 billion, but kept
   its share of revenue in the normal range of 22-25%. 

   Its growth was fully based on inflows and outflows related to large
   contracts.

   Working capital & Capex, Rub mn 2018 9m 2017 9m Change yoy
   Working capital                  11,340   9,775        16%
   Working capital / Revenue LTM       25%     23%           
   Capital expenditures              1,441   1,404         3%

    

   Capital expenditures increased by 3 percent yoy to Rub 1.4 billion.

   HMS Group generated a negative operating cash flow of Rub 620 million
   compared to a positive cash flow of Rub 3.1 billion last year, due to the
   growth of working capital for 9 months 2018.  The operating outflow led to
   a negative free cash flow 9  5  of Rub 2.0 billion.

    

   Cash flow performance, Rub mn                   2018 9m 2017 9m Change yoy
   Net cash (used in)/from operating activities      (620)   3,074      -120%
   Net cash used in investing activities           (1,374) (1,365)         1%
   Free cash flow (FCF)                            (1,993)   1,709      -217%
   Net cash from/(used in) financing activities      1,678   (973)       272%
   Cash & cash equivalents, at the end of the        4,349   3,727        17%
   period

    
   DEBT POSITION

   Total debt increased by 16 percent yoy to Rub 19.2 billion from Rub 16.5
   billion.

   Net debt also grew at the same pace to Rub 14.8 billion.  As a result, the
   Net debt-to-EBITDA LTM ratio was up to 2.40x due to higher net debt and
   lower EBITDA LTM.

   Level of net debt and its dynamics are correlated to working capital and
   its dynamics.

   Leverage, Rub mn      2018 9m 2017 9m Change yoy
   Total debt             19,177  16,469        16%
   Long-term debt         18,191  12,939        41%
   Short-term debt           986   3,529       -72%
   Net debt               14,828  12,742        16%
   Net debt / EBITDA LTM   2.40x   1.91x           

    

   SIGNIFICANT EVENTS AFTER THE REPORTING DATE & FINANCIAL MANAGEMENT

   FINANCIAL MANAGEMENT

   As of December 1, 2018, average interest rate decreased to 8.7% compared
   to 9.8% at the beginning of 2018.

    

   DIVIDENDS AND HMS GDRS

   During the period from October 1, 2018 to and including December 10, 2018,
   HMS Group has purchased 66,100 of its global depositary receipts ("GDRs").
    As of today, 1,142,987 GDRs (4.88 percent of its issued share capital)
   were bought under the Buy-back program.

   On December 6, 2018, the Board of Directors approved payment of interim
   dividends in respect of 9 months 2018 in the amount of 3.84 rubles per
   ordinary share, i.e. 19.20 rubles per one GDR. Dividends will be paid on
   January 25, 2019, with record day on January 11, 2019. Ex-dividend date
   will start from January 10, 2019.

    

   2018 GUIDANCE

   Revenue and EBITDA:

   HMS Group expects 2018FY revenue Rub 50-53 billion and EBITDA in the range
   of Rub 6.2-6.4 billion. 

   Finance costs:

   The company doesn't expect a further decrease in interest expenses due to
   the fact that the process of interest rates' decrease has stopped in
   Russia.

    

   ***

   WEBCAST TO DISCUSS 9 MONTHS 2018 IFRS FINANCIAL RESULTS 

    

   Date:  Tuesday, December 11, 2018

   Time:  5.00 PM (MOSCOW) / 3.00 PM (London) / 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:  0800 279 7204

    

   US Local:  +1 929 477 0448

   US Toll Free:  800 239 9838

    

   Conference ID: 7885750

   Title: HMS Group 9 months 2018 IFRS results

    

   Webcast meeting:

   To access the live event, click on the link:

   https://webcasts.eqs.com/hmsgroup20181211

    

   Please,  dial  in  5-10  minutes  prior  to  the  scheduled  start  time. 
   Pre-registration is available.

   We will share materials on  10 HMS' investor website ahead of the webcast.

    

   Contacts:

   Investor Relations,  11 ir@hms.ru

    

    

   ***

   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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    12  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.

    13  2  According to management accounts

    14  3  According to management accounts

    15  4  SG&A expenses = Selling, General and Administrative Expenses =
   Distribution and transportation + General and administrative

    16  5  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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    17  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.

    18  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.

    19  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.

    20  iv  The construction provides construction works for projects for
   customers in the oil upstream and midstream, gas upstream.

   ══════════════════════════════════════════════════════════════════════════

   ISIN:           US40425X4079
   Category Code:  QRT
   TIDM:           HMSG
   LEI Code:       254900DDFETNLASV8M53
   OAM Categories: 1.3. Payments to governments
                   2.2. Inside information
                   3.1. Additional regulated information required to be
                   disclosed under the laws of a Member State
   Sequence No.:   6835
   EQS News ID:    756381


    
   End of Announcement EQS News Service

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