REG-HMS Group HMS Group: 9M 2019 IFRS results
16/12/2019 13:50
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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.
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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 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: 2.98x
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 of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change 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 the 195 1,174 -83% 369 321 15%
period
Depreciation & 1,699 1,321 29% 587 564 4%
amortization
Free cash flow (2,623) (1,993) 32% (705) (690) 2%
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
Change Share of Share of 9m
in millions of Rub 9m 2019 9m 2018 yoy 9m 2019 2019
revenue revenue
Cost of sales 2 2 29,620 23,790 25% 80.7% 74.7%
Materials and components 20,582 15,278 35% 56.1% 47.9%
Labour costs incl Social 5,238 5,395 -3% 14.3% 16.9%
taxes
Depreciation and amortization 1,437 1,131 27% 3.9% 3.6%
Construction and design and
engineering services of 1,561 1,197 30% 4.3% 3.8%
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 Rub 9m 2019 9m 2018 Change yoy Share of 9m Share of 9m
2019 revenue 2019 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 expenses 5,471 5,370 2% 14.9% 16.9%
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
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 3 i
in millions of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
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 margin 13.5% 10.7% 13.6% 16.7%
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) 4 ii
in millions of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
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 margin -2.0% 16.5% 3.0% -3.4%
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 5 iii
in millions of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
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 margin 9.5% 8.3% 9.8% 7.6%
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 6 iv
in millions of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
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 margin 4.5% -12.7% 8.3% 1.2%
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 of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
Working capital 11,522 11,340 2% 11,522 9,508 21%
Working capital / 20% 25% 20% 17%
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 millions of Rub 9m 2019 9m 2018 Change yoy 3Q 2019 2Q 2019 Change qoq
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 / EBITDA 2.98 2.40 2.98 2.97
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:
7 https://webcasts.eqs.com/hmsgroup20191217
Please, dial in 5-10 minutes prior to the scheduled start time.
Pre-registration is available.
We will share materials on 8 HMS' investor website ahead of the webcast.
Contacts:
Investor Relations, 9 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.
LEI: 254900DDFETNLASV8M53
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10 1 EBITDA is defined as operating profit/(loss) 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 acquisition, defined benefits scheme
expense and provisions (including provision for obsolete inventory, ECL
allowance and provision for impairment of trade and other receivables and
other financial assets, 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.
11 2 Herein, materials & components, labour costs and social taxes,
construction & design were additionally derived from Change in work in
progress and finished goods, thereby do not coincide with the note in the
financial statement
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12 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.
13 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.
14 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.
15 iv The construction provides construction works for projects for
customers in the oil upstream and midstream, gas upstream.
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ISIN: US40425X4079
Category Code: QRT
TIDM: HMSG
LEI Code: 254900DDFETNLASV8M53
OAM Categories: 1.3. Payments to governments
2.2. Inside information
2.3. Major shareholding notifications
3.1. Additional regulated information required to be
disclosed under the laws of a Member State
Sequence No.: 35754
EQS News ID: 937291
End of Announcement EQS News Service
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