HMS Group announces management statement and financial highlights
for 6 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 six months ended June 30, 2018.
Financial highlights 6 months 2018:
▪ Revenue: Rub 20.3 bn (-5% yoy)
▪ EBITDA[1]: Rub 3.3 bn (+6% yoy), EBITDA margin 16.3%
▪ Operating profit: Rub 2.1 bn (+4% yoy), operating margin up to 10.1%
▪ Profit for the period: Rub 961 mn (+16% yoy), net income margin 4.7%
▪ Total debt: Rub 18.5 bn (+15% yoy)
▪ Net debt: Rub 13.5 bn (0% yoy)
▪ Net debt-to-EBITDA LTM ratio: 1.93x
Operational highlights 6 months 2018:
▪ Backlog: Rub 37.3 bn (-5% yoy)
▪ Order intake: Rub 18.4 bn (-43% yoy)
OPERATING REVIEW
BACKLOG
Backlog[2] didn't change much in comparison to the last year (-5% yoy) but decreased vs. the beginning of 2018. The underperformance of the oil & gas equipment and projects business segment was due to fewer large contracts signed in the reporting period. All other business segments grew based both on large integrated contracts and recurring business.
|
Backlog, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
|
Industrial pumps
|
15,744
|
11,128
|
41%
|
|
Oil & Gas equipment and projects
|
9,682
|
21,610
|
-55%
|
|
Compressors
|
8,614
|
5,652
|
52%
|
|
Construction
|
3,263
|
849
|
284%
|
|
Total
|
37,303
|
39,239
|
-5%
|
ORDER INTAKE
Order intake[3] decreased Rub 18.4 billion (-43% yoy). All business segments of HMS declined.
The pumps segment decreased to Rub 8.4 billion due to recurring business. The oil and gas equipment and projects segment was down to Rub 5.5 billion because of absence of large contracts signed in the reporting period. The compressors declined to Rub 4.7 billion because of a decline in large contracts though recurring business grew.
In terms of contracts' mix, the drop was mainly attributable to fewer large contracts signed in the reporting period.
|
Order intake, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Industrial pumps
|
8,444
|
8,686
|
-3%
|
4,214
|
4,229
|
0%
|
|
Oil & gas equipment
|
5,516
|
17,989
|
-69%
|
2,079
|
3,436
|
-39%
|
|
Compressors
|
4,666
|
5,059
|
-8%
|
1,672
|
2,995
|
-44%
|
|
Construction
|
(226)
|
404
|
-156%
|
27
|
(253)
|
-111%
|
|
Total
|
18,401
|
32,138
|
-43%
|
7,992
|
10,408
|
-23%
|
GROUP PERFORMANCE
Revenue decreased by 5 percent yoy to Rub 20.3 billion.
EBITDA was up by 6 percent yoy to Rub 3.3 billion. The oil & gas equipment and projects segment was the main contributor to the company's EBITDA growth.
|
Rub bn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Revenue
|
20,343
|
21,349
|
-5%
|
11,618
|
8,726
|
33%
|
|
EBITDA
|
3,319
|
3,138
|
6%
|
2,240
|
1,080
|
107%
|
|
EBITDA margin
|
16.3%
|
14.7%
|
|
19.3%
|
12.4%
|
|
In terms of contracts' type, revenue from the recurring business declined by 20 percent yoy. Large contracts advanced 39 percent yoy. EBITDA from the recurring business decreased by 49 percent yoy, but EBITDA, generated by large contracts, compensated for that decline.
As a result, EBITDA margin grew to 16.3% from 14.7% in the comparative period.
|
Cost of sales, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
Share of 2018 6m revenue
|
Share of 2017 6m revenue
|
|
Cost of sales
|
14,664
|
15,961
|
-8%
|
72.1%
|
74.8%
|
|
Materials and components
|
9,049
|
11,372
|
-20%
|
44.5%
|
53.3%
|
|
Labour costs
|
2,852
|
2,491
|
14%
|
14.0%
|
11.7%
|
|
Construction and design and engineering services of subcontractors
|
751
|
456
|
65%
|
3.7%
|
2.1%
|
|
Depreciation and amortization
|
747
|
641
|
17%
|
3.7%
|
3.0%
|
|
Others
|
1,266
|
1,001
|
27%
|
6.2%
|
4.7%
|
Cost of sales was 8 percent yoy down to Rub 14.7 billion because of less materials and components required (-20% yoy) due to the change in the product mix. As a percentage of revenue, the cost of sales also decreased, from 75% to 72%.
As a result, gross profit grew to Rub 5.7 billion (+5% yoy) and gross margin reached 27.9% vs. 25.2% for 6 month 2017.
|
Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
Share of 2018 6m revenue
|
Share of 2017 6m revenue
|
|
Distribution and transportation
|
933
|
899
|
4%
|
4.6%
|
4.2%
|
|
General and administrative
|
2,585
|
2,359
|
10%
|
12.7%
|
11.1%
|
|
SG&A expenses
|
3,519
|
3,258
|
8%
|
17.3%
|
15.3%
|
|
Other operating expenses
|
104
|
152
|
-32%
|
0.5%
|
0.7%
|
|
Operating expenses ex. Cost of sales
|
3,623
|
3,410
|
6%
|
17.8%
|
16.0%
|
|
Finance costs
|
772
|
930
|
-17%
|
3.8%
|
4.4%
|
SG&A expenses[4] increased by 8 percent yoy, and as a share of revenue grew to 17.3% from 15.3%.
Operating expenses excl. cost of sales grew by 6 percent yoy with a share of revenue of 17.8% due to growth of labor costs.
Distribution and transportation expenses grew by 4 percent yoy to almost Rub 1.0 billion, mainly due to growth of labour costs and social taxes. As a share of revenue, distribution and transportation expenses demonstrated minor change, to 4.6% from 4.2%.
General and administrative expenses grew by 10 percent yoy to Rub 2.6 billion due to 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 12.7% due to quarterly volatility of revenue.
Operating profit increased by 4 percent yoy to Rub 2.1 billion from Rub 2.0 billion, and operating margin was up to 10.1%.
|
Finance costs, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
|
Finance costs
|
772
|
930
|
-17%
|
|
Interest expenses
|
767
|
930
|
-17%
|
|
Fees for early repayment of loans
|
5
|
0
|
na
|
|
Foreign exchange loss, net
|
(2)
|
(1)
|
246%
|
|
Finance lease expenses
|
1
|
1
|
-10%
|
|
Interest rate, average
|
8.8%
|
10.8%
|
|
|
Interest rate Rub, average
|
8.9%
|
10.9%
|
|
Finance costs decreased by 17 percent yoy, fully due to a decrease in interest expenses (-17% yoy) due to lower interest rates as a result of debt portfolio refinancing. Average rates decreased from 10.8% p.a. to 8.8% p.a.
Profit for the period was up 16 percent yoy to Rub 1.0 billion and profit margin for the period increased to 4.7%.
BUSINESS SEGMENTS PERFORMANCE
Industrial pumps[i]
The industrial pumps business segment's revenue decreased by 8 percent yoy to Rub 7.3 billion from Rub 7.9 billion. EBITDA was down by 32 percent yoy to Rub 876 million. EBITDA margin declined to 11.9%.
Several factors influenced the segment's underperformance, including less profitable contracts executed in the reporting period and some forced increase in wages.
|
Industrial pumps, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Revenue
|
7,334
|
7,928
|
-8%
|
4,337
|
2,997
|
45%
|
|
EBITDA
|
876
|
1,282
|
-32%
|
523
|
353
|
48%
|
|
EBITDA margin
|
11.9%
|
16.2%
|
|
12.1%
|
11.8%
|
|
Oil & Gas equipment and projects (OGEP)[ii]
The OGEP business segment's revenue grew 7 percent yoy to Rub 11.2 billion, and EBITDA hiked to Rub 2.1 billion due to the low base effect. EBITDA margin increased to 18.6% from 6.2% in the comparative period.
A beneficial mix of contracts combined with a recovered performance of Giprotyumenneftegas (GTNG) led to this higher-than-average profitability of the business segment.
|
OGEP, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Revenue
|
11,185
|
10,423
|
7%
|
6,074
|
5,111
|
19%
|
|
EBITDA
|
2,084
|
650
|
221%
|
1,257
|
828
|
52%
|
|
EBITDA margin
|
18.6%
|
6.2%
|
|
20.7%
|
16.2%
|
|
Compressors[iii]
Revenue declined by 34 percent yoy to Rub 3.4 billion. EBITDA was also down to Rub 336 million. EBITDA margin decreased to 9.9% that is much less than 18.1% in the compared 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 unsteady recognition of large contracts' revenue this year.
|
Compressors, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Revenue
|
3,403
|
5,188
|
-34%
|
1,523
|
1,880
|
-19%
|
|
EBITDA
|
336
|
938
|
-64%
|
237
|
99
|
138%
|
|
EBITDA margin
|
9.9%
|
18.1%
|
|
15.6%
|
5.3%
|
|
Construction[iv]
Though construction more than doubled its revenue to Rub 806 million, its profitability is in negative territory.
|
Construction, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
2018 2Q
|
2018 1Q
|
Change qoq
|
|
Revenue
|
806
|
283
|
185%
|
423
|
382
|
11%
|
|
EBITDA
|
(161)
|
(90)
|
79%
|
(40)
|
-122
|
-67%
|
|
EBITDA margin
|
-20.0%
|
-32.0%
|
|
-9.4%
|
-31.8%
|
|
FINANCIAL REVIEW
CASH FLOW PERFORMANCE
Working capital stood stable at Rub 10.0 billion, keeping its share of revenue in the normal range of 22-25%.
It grew compared to an unusually low level of working capital at the beginning of 2018 (Rub 8.2 bn) and declined in comparison to April 1, 2018 (Rub 11.5 bn). The reason for such fluctuations was inflows and outflows related to large contracts.
|
Working capital & Capex, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
|
Working capital
|
9,990
|
10,008
|
0%
|
|
Working capital / Revenue LTM
|
23%
|
24%
|
|
|
Capital expenditures
|
792
|
764
|
4%
|
Capital expenditures increased by 4 percent yoy to Rub 792 million.
HMS Group generated a negative operating cash flow of Rub 749 million compared to a positive cash flow of Rub 1.7 billion last year, due to the growth of working capital for 6 months 2018 vs. almost stable level of working capital for 6 months 2017. That led to a negative free cash flow[5] of Rub 1.5 billion.
|
Cash flow performance, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
|
Net cash (used in)/from operating activities
|
(749)
|
1,675
|
-145%
|
|
Net cash used in investing activities
|
(735)
|
(739)
|
-1%
|
|
Free cash flow (FCF)
|
(1,483)
|
937
|
-258%
|
|
Net cash from/(used in) financing activities
|
1,750
|
(1,506)
|
-216%
|
|
Cash & cash equivalents, at the end of the period
|
4,913
|
2,434
|
102%
|
DEBT POSITION
Total debt increased by 15 percent yoy to Rub 18.5 billion from Rub 16.0 billion.
Net debt was almost unchanged at Rub 13.5 billion. The Net debt-to-EBITDA LTM ratio decreased to 1.93x due to the large EBITDA.
Level of net debt and its dynamics are correlated to working capital and its dynamics.
|
Leverage, Rub mn
|
2018 6m
|
2017 6m
|
Change yoy
|
|
Total debt
|
18,462
|
16,018
|
15%
|
|
Long-term debt
|
17,245
|
14,905
|
16%
|
|
Short-term debt
|
1,217
|
1,113
|
9%
|
|
Net debt
|
13,549
|
13,584
|
0%
|
|
Net debt / EBITDA LTM
|
1.93x
|
2.07x
|
|
SIGNIFICANT EVENTS AFTER THE REPORTING DATE & FINANCIAL MANAGEMENT
Recently, HMS Group announced the signing of a Rub 1.8 billion contract to deliver a compressor-based equipment for a gas booster station at an oil and gas condensate field in Russia. The project will be completed in 2021.
FINANCIAL MANAGEMENT
As of September 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 June 7, 2018 to and including October 1, 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).
2018 GUIDANCE
Revenue and EBITDA:
HMS Group expects 2018FY revenue to grow year-on-year to Rub 47-53 billion. At the same time, the company forecasts lower EBITDA (Rub 6.2-6.4 bn) and profitability.
The pumps business segment will demonstrate better results in the 2nd half of 2018. The oil & gas equipment and projects business segment will be the main driver of the Group's FY2018 performance though with lower profitability in the period remaining. The compressor business segment is also expected to show significantly better results in the 2nd half of 2018.
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 6 MONTHS 2018 IFRS FINANCIAL RESULTS
Date: Tuesday, October 2, 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: +1 646 828 8193
US Toll Free: 800 394 8218
Conference ID: 2357237
Title: HMS Group 6 months 2018 IFRS results
Webcast meeting:
To access the live event, click on the link:
https://webcasts.eqs.com/hmsgroup20181002
Please, dial in 5-10 minutes prior to the scheduled start time. Pre-registration is available.
We will share materials on HMS' investor website ahead of the webcast.
Contacts:
Investor Relations, 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.
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Information published in press releases was accurate at the time of publication but may be superseded by subsequent releases or other information.
