HMS Group: 2017 FY IFRS Results

HMS Group announces management statement and financial highlights

for FY 2017

Moscow, Russia - April 24, 2018 - 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 twelve months ended December 31, 2017.

Financial highlights FY 2017:

▪ Revenue: Rub 44.4 bn (+7% yoy)

▪ EBITDA[1]: Rub 6.8 bn (+7% yoy), EBITDA margin 15.4%

▪ Operating profit: Rub 4.6 bn (+26% yoy), operating margin up to 10.3%

▪ Profit for the period: Rub 2.1 bn (+73% yoy), net income margin 4.7%

▪ Total debt: Rub 16.0 bn (-2% yoy)

▪ Net debt: Rub 11.4 bn (-14% yoy)

▪ Net debt-to-EBITDA LTM ratio: 1.7x

Operational highlights FY 2017:

▪ Backlog: Rub 44.2 bn (+84% yoy)

▪ Order intake: Rub 65.5 bn (+61% yoy)

OPERATING REVIEW

BACKLOG & ORDER INTAKE

Backlog grew to Rub 44.2 billion (+84% yoy). All the four business segments demonstrated growth, but the main driver was the oil & gas equipment and projects business segment (OGEP).

The significant growth in all segments was fully due to a number of large integrated contracts signed and executed in the reporting period.

Order intake[2] also hit a record high and reached Rub 65.5 billion (+61% yoy).  All four business segments of HMS contributed to this growth, especially the oil and gas equipment and projects segment.  The main driver was an outstanding growth of the portfolio of large contracts. However, recurring business also demonstrated growth, of 3% yoy.

Note to HMS' Backlog and Order intake:

The contract to deliver oil & gas equipment for reconstruction of a gas processing plant, signed in 2Q 2017 (Rub 23.3. bn) is still subject to uncertainty.  The company hasn't received any advance payments, and even hasn't started any work.  HMS isn't certain that the execution of this project will start in the nearest future.

The company doesn't include the contract its Backlog and Order intake. 

GROUP PERFORMANCE

Revenue increased by 7% yoy and amounted to Rub 44.4 billion. The OGEP and the industrial pumps business segments contributed to this growth the most.

EBITDA was up by 7% yoy to Rub 6.8 billion.  Robust results of the compressors segment were the major driver of the company's EBITDA growth.

In terms of contracts' type, revenue from recurring business grew by 7% yoy, wherein machine-building product sales increased by 8% yoy. Large projects' revenue advanced 5% yoy.  EBITDA from recurring business grew 2% yoy and large contracts jumped by 15% yoy. All that led to an EBITDA margin increase to 15.4% from 15.3% last year.

Cost of sales grew by 6% yoy to Rub 32.5 billion almost completely due to an increase in materials and components (+9% yoy) and labour costs (+11% yoy).  However, the cost of sales as a percentage of revenue decreased to 73%.  The lagging growth of costs led to an expansion in gross margin (2017: 26.8% vs 25.9% in 2016).

SG&A expenses[3] increased by 9% yoy, and as a share of revenue grew to 15.3% from 15.0%.

Operating expenses excl. cost of sales grew by 8% yoy. As a share of revenue they also increased, to 16.5%. The main reason was an increase in labour costs due to the budgeted growth in wages.

Distribution and transportation expenses grew by 5% yoy to Rub 1.8 billion. The main reason was a growth of labour costs and transportation expenses.  As a share of revenue, distribution and transportation expenses stayed almost unchanged at 4%.

General and administrative expenses grew by 11% yoy to Rub 5.0 billion due to labour costs' increase (+9% yoy). As a share of revenue, general and administrative expenses grew to 11.3% from 10.9%.

Operating profit grew by 26% yoy to Rub 4.6 billion from Rub 3.6 billion. Operating margin increased to 10.3% from 8.7%.

Finance costs decreased by 7% yoy. The main factor was lower interest expenses (-14% yoy) due to lower interest rates as a result of debt portfolio refinancing. Within a one-year period, average rates decreased from 12.2% p.a. to 9.8% p.a.

Profit for the year increased 73% yoy to Rub 2.1 billion from Rub 1.2 billion.

BUSINESS SEGMENTS PERFORMANCE

Industrial pumps[i]

The industrial pumps business segment's revenue increased by 5% yoy to Rub 17.5 billion from Rub 16.7 billion. EBITDA grew by 13% yoy to Rub 3.1 billion. EBITDA margin was up to 18.0% which is within the range of the pumps' "upper" profitability level.

Oil & Gas equipment and projects (OGEP)[ii]

The OGEP business segment's revenue advanced 28% yoy to Rub 21.5 billion from Rub 16.8 billion based on an impressive growth of both recurring business and large projects. However, the segment's EBITDA was down 12% yoy to Rub 2.6 billion due to lower EBITDA, generated also by recurring business and large contracts, as well.

EBITDA margin declined to 12.0% on the back of a fall in yields of products sold in the reporting period.

Compressors[iii]

Revenue demonstrated the growth of 5% yoy to Rub 9.1 billion. EBITDA almost doubled from Rub 619 million to Rub 1.1 billion in FY 2017. This impressive growth was due to an enhanced tender & large project management and a number of middle-size projects executed in 2H 2017. EBITDA margin increased to 12.5%.

Construction[iv]

Construction increased its revenue by 53% yoy and reached Rub 1.0 billion from Rub 684 million in the comparative period. EBITDA continued to demonstrate weak results facing challenges in the oil & gas facility construction market.

FINANCIAL REVIEW

CASH FLOW PERFORMANCE

Working capital was down by 21% yoy to Rub 7.8 billion from Rub 10.0 billion in 2016. The sharp decrease in working capital was because of a number of payments received from customers and delivery of equipment produced under large contracts. As a share of revenue, working capital dropped to 18% from 24% at 2016-end.

In December 2017, the company obtained a few payments from customers that were budgeted for to be received at the beginning of 2018. As a result of the earlier payments in 2017, working capital in 1Q 2018 is expected to grow.

Capital expenditures grew by 27% yoy to Rub 2.2 billion. The company completed the second stage of the Localization project in 4Q 2017.  Now the shop is in full operation. Total investment in the project was Rub 710 million in 2017. Capex, excluding the localization, was up by 40% yoy and reached Rub 1.5 billion.

HMS Group generated positive operating cash flow of Rub 5.2 billion that almost tripled.

Increased operating cash flow resulted in positive free cash flow[4] of Rub 3.1 billion.

DEBT POSITION

Total debt decreased by 2% yoy to Rub 16.0 billion from Rub 16.3 billion.

Net debt was down by 14% yoy to Rub 11.4 billion. The Net debt-to-EBITDA LTM ratio was down to 1.7x due to lower Net debt combined with higher EBITDA in the reporting period.

SIGNIFICANT EVENTS AFTER THE REPORTING DATE & FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT

As of April 1, 2018, average interest rate decreased to 8.9% compared to 12.2% at the beginning of 2017.

CONTRACTS

In January 2018, the company announced signing of a contract worth Rub 3.1 billion for delivery and installation of oil & gas equipment for a pre-transport gas treatment unit. The project is to be completed by the end of 2018.

In April 2018, HMS signed three export contracts worth c. US$ 15.5 million to deliver pumping equipment to a power plant, located in South Asia. Also, the company announced a Rub 1.9 billion contract to deliver compressor equipment to a gas production and treatment facility in Russia.

DIVIDENDS AND HMS GDRS

During the period from December 11, 2017 up to and including April 24, 2018, HMS Group purchased 43,000 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).

On December 7, 2017, the Board of Directors approved the payment of interim dividends in respect of the first 9 months 2017 in the amount of 5.12 rubles per ordinary share, i.e. 25.6 rubles per one GDR. Dividends were paid on January 26, 2018.  

Based on strong and better than budgeted financial results of 2017, on April 24, 2018 the Board of Directors recommended the payment of final dividends in respect of FY 2017 in the amount of 6.83 rubles per ordinary share, i.e. 34.15 rubles per one GDR.

However, the company's long-term dividend policy stays unchanged - HMS targets to pay out total dividends in the region of 50% of the Profit attributable to shareholders for the year, subject to capital constraints such as debt and liquidity position and forecast.

If approved at the Annual General Meeting of Shareholders, total dividends for 2017 will amount to 11.95 rubles per ordinary share or 59.75 rubles per one GDR.

***

WEBCAST TO DISCUSS 2017 FY IFRS FINANCIAL RESULTS

Date:  Thursday, April 26, 2018

Time:  5.00 PM (MOSCOW) / 3.00 PM (London) / 4.00 PM (CET) / 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:  +7 495 213 1767

UK Local:  +44 (0)330 336 9105

UK Toll Free:  0800 358 6377

US Local:  +1 323 701 0225

US Toll Free:  888 394 8218

Conference ID: 7452073

Title: HMS Group 2017 FY IFRS results

Webcast meeting:

To access the live event, click on the link:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=5535

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, [email protected]

***

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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HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Financial Position at 31 December 2017

(in thousands of Russian Roubles, unless otherwise stated)

HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 31 December 2017 

(in thousands of Russian Roubles, unless otherwise stated)

HMS Hydraulic Machines & Systems Group plc

Consolidated Statement of Cash Flows for the year ended 31 December 2017

(in thousands of Russian Roubles, unless otherwise stated)

[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.

[2] According to management accounts

[3] SG&A expenses = Selling, General and Administrative Expenses = Distribution and transportation + General and administrative

[4] 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.

[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.

[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.

[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.

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