HMS Group9 months 2017 IFRS Results Conference call presentation
12 December 2017
Financial results
Business & Outlook
2
Rub bn 2017 9m 2016 9m chg, yoy
Revenue 31.4 30.3 4%
Gross profit 8.5 7.7 10%
EBITDA 5.0 4.7 6%
Operating profit 3.4 3.0 15%
Profit for the year /period 1.7 1.2 33%
Gross margin 27.0% 25.5% 151 bps
EBITDA margin 15.9% 15.5% 41 bps
Operating margin 10.9% 9.8% 109 bps
Net income margin 5.3% 4.1% 115 bps
Total debt 16.5 16.3 1%
Net debt 12.7 13.4 -5%
EBITDA LTM 6.7 6.3 6%
Net debt to EBITDA LTM 1.91 2.14
ROCE adj. 15.6% 12.5% 319 bps
ROE 13.3% 9.6% 370 bps
10.0 10.1
30.3 31.4
41.042.7
1.7 1.84.7 5.0 6.3 6.7
17.4%
18.4%
15.5%15.9%
15.3%15.6%
3Q'16 3Q'17 9m'16 9m'17 9m'16LTM
9m'17LTM
Revenue and EBITDA
Revenue, Rub bn EBITDA, Rub bn EBITDA margin, %
13.4 12.717.0 15.9 16.3
12.1 11.1 12.4 12.4 13.3
2.02.1 2.4
1.7
2.1
2012 2013 2014 2015 2016
Total debt, Rub bn Net debt, Rub bn Net debt to EBITDA LTM
31.5 32.4 32.437.3 41.6
6.1 5.2 5.3 7.4 6.4
19.4%
16.2% 16.3%
20.0%
15.3%
2012 2013 2014 2015 2016
Revenue adj., Rub bn EBITDA adj., Rub bn EBITDA margin
FINANCIAL HIGHLIGHTS
HIGHLIGHTS
Source: Company data, IFRS accounts 3
Revenue +1% Revenue +4% Revenue +4%
EBITDA +7% EBITDA +6% EBITDA +6%
Revenue -20% yoyEBITDA na
0.560.45
-0.05 -0.12
-8.7% -26.7%
2016 9m 2017 9m
Revenue Construction, Rub bn EBITDA Construction, Rub bn EBITDA margin EPC, %
6.7 6.7
0.7 1.1
9.8%
16.5%
2016 9m 2017 9m
Revenue Compressors, Rub bn EBITDA Compressors, Rub bn EBITDA margin Compressors, %
12.0
15.0
2.0 1.5
16.6%
9.7%
2016 9m 2017 9m
Revenue OGE, Rub bn EBITDA OGE, Rub bn EBITDA margin OGE, %
11.8 12.3
1.7 2.1
14.6%
17.1%
2016 9m 2017 9m
Revenue Pumps, Rub bn EBITDA Pumps, Rub bn EBITDA margin Pumps, %
Revenue +26% yoyEBITDA -27% yoy
SEGMENTS OVERVIEW
Revenue +5% yoyEBITDA +23% yoy
CONSTRUCTIONCOMPRESSORS
Revenue up 5% yoy due to growing recurring business
EBITDA up 23% yoy and EBITDA margin increased to 17.1% due to recovering profitability of recurring business, which is now within a range of pumps’ “upper” profitability level
Revenue up 26% yoy because of growth of both recurring business and large projects
EBITDA down 27% yoy due to lower profitability of both large contracts and recurring business
EBITDA margin decreased to 9.7%
Revenue stable at Rub 6.7 bn
EBITDA increased 67% yoy due to better order intake, enhanced operating activity and one-off economy derived from a large contract’s execution
EBITDA margin reached 16.5%
Revenue down 20% yoy
EBITDA still negative
OIL AND GAS EQUIPMENT & PROJECTSPUMPS
4Source: Company data, IFRS accountsNote: 2016 9m segments are reconciled according to new segments composition
Revenue 0% yoyEBITDA +67% yoy
2017 9m 2016 9m chg, yoyGeneral and administrative expenses 3.44 3.12 10%% of revenue 11.0% 10.3%Labour costs 1.82 1.66 10%% of revenue 5.8% 5.5%Social taxes 0.40 0.43 -7%% of revenue 1.3% 1.4%Taxes and duties 0.18 0.14 27%% of revenue 0.6% 0.5%Other expenses 1.05 0.89 17%% of revenue 3.3% 2.9%
2017 9m 2016 9m chg, yoyDistribution and transportation expenses 1.30 1.28 1%% of revenue 4.1% 4.2%Transportation expenses 0.43 0.43 -1%% of revenue 1.4% 1.4%Labour costs 0.40 0.36 9%% of revenue 1.3% 1.2%Insurance 0.14 0.01 1486%% of revenue 0.4% 0.0%Other expenses 0.34 0.48 -29%% of revenue 1.1% 1.6%
Distribution and transportation costs:- up 1% yoy- almost stable as a share of revenue
General and administrative expenses:- up 10% yoy, due to growth in labour costs (+10% yoy)- grew to 11.0% from 10.3%, as a share of revenue
2017 9m 2016 9m chg, yoyCost of sales 22.9 22.6 2%% of revenue 73.0% 74.5%Materials and components 15.4 15.1 2%% of revenue 49.0% 49.9%Labour costs 3.60 3.35 8%% of revenue 11.5% 11.1%Social taxes 1.04 0.96 8%% of revenue 3.32% 3.18%Other expenses 2.89 3.15 -8%% of revenue 0.01% 0.01%
COSTS
COST OF SALES Comments
DISTRIBUTION & TRANSPORTATION
GENERAL & ADMINISTRATIVE
Cost of sales increased 2% yoy to Rub 22.9 bn from Rub 22.6 bn:
Materials and components grew 2% yoy, but the share in revenue decreased to 49.0% from 49.9%
* Herein, Materials & components and Labour costs were additionally derived from Change in work in progress and finished goods, thereby do not coincide with the note in the financial statement
Source: Company data, IFRS accountsNote: Differences in calculations can occur due to the rounding-off rule
5
1.3 1.4
1.2 1.1
1.2x1.2x
2016 9m 2017 9m
Organic capex, Rub bn Depreciation & amortization, Rub bn Capex to D&A ratio
0.5 0.4
6.8 8.8 9.6
0.51.4
1.8
9.8
WC2014 FY
WC2015 FY
WC9m 2016 FY
Inventorieschange
Receivableschange &other adj.
Payableschange &other adj.
WC9m 2017 FY
Cash flow performance, Rub bn 2017 9m 2016 9m Chg, yoy
Operating cash flow 3.1 1.4 111%
Investing cash flow (1.4) (1.4) -5%
Free cash flow (FCF) 1.7 0.0 n/a
Financing cash flow (1.0) (0.6) 73%
Cash and cash equivalents 3.7 2.9 30%
Comments WORKING CAPITAL
CASH FLOW PERFORMANCE CAPEX
Working capital increased 2% yoy due to execution of large projects
HMS generated Rub 3.1 bn operating cash inflow (+111% yoy)
Organic capex grew to Rub 1.4 bn (+4% yoy), where:
Rub 415 mn of all HMS’ capital investments was channeled to the Localization project
HMS Group plans to finalized the project in 4Q 2017
Capex excl. localization increased 20% yoy
Free cash flow increased to Rub 1.7 bn
CAPEX & Working Capital
Source: Company data, IFRS accounts
Source: Company data, IFRS accounts
Note: Differences in calculations can occur due to the rounding-off rule
Source: Company data, IFRS accounts
23%of revenue2016 9m
23%of revenue2017 9m
24%of revenue
2015 FY
Capex of Localization
project
6
21%of revenue
2014 FY
1.4 RUB BN
+4% yoy
9.8 RUB BN
+2% yoy
12.111.1
12.4 12.413.3 13.4 12.7
2.0x2.1x
2.4x
1.7x
2.1x 2.1x
1.9x
2012 2013 2014 2015 2016 2016 9m 2017 9m
Net debt, Rub bn Net debt-to-EBITDA LTM ratio
79
3,676 3,318
8,518
32
2017 2018 2019 2020 2021
Debt to be repaid as of 01 November 2017, Rub mn
9m 2017 Total debt increased to Rub 16.5 bn from Rub 16.3 bn 9m 2017 Net debt decreased to Rub 12.7 bn 9m 2017 Net Debt-to-EBITDA LTM ratio amounted to 1.9x
Average interest rate decreased to, as of 01 November, 2017: 10.2% from 12.2% for all loans since 2017-beg, and 10.4% from 12.4% for Rub-denominated only
Long-term debt77%
Comments
DEBT REPAYMENT
Source: Company data, management accounts
STABLE FINANCIAL POSITION
Source: Company data, IFRS accounts Source: Company data, management accounts
LEVERAGE
Short-term debt23%
CREDIT PORTFOLIO STRUCTURE BY BANKS
Borrowings in FX3%
Borrowings in Rub97%
7Source: Company data as of 01 November, 2017, management accounts, IFRS accounts
12.7 RUB BN
-5% yoy16.6 RUB BNAs of 01 November 2017
20.9%
19.2%
18.8%
17.6%
15.4%
3.2%5.0%
Sberbank
RUB Bonds
Raiffeisenbank
VTB Bank
UniCredit Bank
Fund of Industrial Development
Others
16.6 RUB BNAs of 01 November 2017
Financial results
Business & Outlook
8
10.9 12.2
15.9
28.54.6
5.9
0.2
4.4
31.6
51.0
2016 9m 2017 9m
Pumps OGEP Compressors Construction
9.5 10.5
10.8 22.3
4.9
5.2
1.4
4.5
26.5
42.6
2016 9m 2017 9m
Pumps OGEP Compressors Construction
BACKLOG & ORDER INTAKE
Source: Company data, management accounts
BACKLOG ORDER INTAKE
9
+12%
+79%
+29%
na
2016 9m chg 2017 9m
Total Backlog, where 26.5 60% 42.6
Recurring business 21.6 21% 26.1
Large integrated projects 4.9 237% 16.4
2016 9m chg 2017 9m
Total Order intake, where 31.6 +61% 51.0
Recurring business 24.0 0% 24.0
Large integrated projects 7.6 +255% 26.9
+11%
+107%
+6%
+227%
Rub 23.3 bn contract: Delivery of various equipment
The Project is still subject to uncertainty as the company hasn’t received any advance payments, and even hasn’t started any work on the Project.
HMS isn’t certain that the execution of this project will start in the nearest future
If added, Backlog would grow by 148% yoy to Rub 65.9 bn and Order intake would increase 135% yoy to Rub 74.3 bn
Rub 23.3bncontract
Rub 23.3bncontract
65.9
42.6 RUB BN
+60% yoy51.0 RUB BN
+61% yoy
74.3
23.4%
18.4%
9.9%4.7%3.7%
1.9%1.4%
36.6%
Rosneft
Gazprom
Gazprom neft
Transneft
Lukoil
Peton Khimtek
Tatneft
Others
21.0%
15.7%
11.0%4.8%
4.6%3.3%
1.7%
37.8%
Gazprom neft
Rosneft
Gazprom
Transneft
Surgutneftegaz
KMPO
Lukoil
Others
18.7 20.8
7.6 7.6
2.4 1.7 1.6 1.3
30.3 31.4
2016 9m 2017 9m
Project & construction Export
Large contracts Machine-building only recurring products
Source: Company data, IFRS accounts
HMS REVENUE STRUCTURE
REVENUE BY TOP-7 CLIENTS REVENUE BY PRODUCTS’ TYPE
10
Comments
Source: Company data, Management accounts
A stable number of large clients generates revenue from both large contracts and recurring business
Around 6 thousand of unique clients create a “safety cushion” with recurring business
Revenue grew due to growth of machine-building only recurring products (+11% yoy)
REVENUE 2016 9M
30.3 RUB BN
REVENUE 2017 9M
31.4 RUB BN
CONTACTS
Company address:7 Chayanova Str.Moscow 125047Russia
Capital marketsPhone +7 (495) [email protected]://grouphms.com/shareholders_and_investors/
HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange (Main market, IOB):
Identifier Number Number of shares outstandingISIN RegS: US40425X4079 117,163,427
144A: US40425X3089Ratio 1 GDR : 5 SharesTicker HMSGBloomberg HMSG LIReuters HMSGq.L
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The information contained herein has been prepared using information available to HMS Group (“HMS” or “Group” or
“Company”) at the time of preparation of the presentation. External or other factors may have impacted on the
business of HMS Group and the content of this presentation, since its preparation. In addition all relevant information
about HMS Group may not be included in this presentation. No representation or warranty, expressed or implied, is
made as to the accuracy, completeness or reliability of the information.
Any forward looking information herein has been prepared on the basis of a number of assumptions which may prove
to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty and HMS Group cautions that
actual results may differ materially from those expressed or implied in such statements. Reference should be made to
the most recent Annual Report for a description of the major risk factors. This presentation should not be relied upon
as a recommendation or forecast by HMS Group, which does not undertake an obligation to release any revision to
these statements.
This presentation does not constitute or form part of any advertisement of securities, any offer or invitation to sell or
issue or any solicitation of any offer to purchase or subscribe for, any shares in HMS Group, nor shall it or any part of
it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or
investment decision.
Disclaimer
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Calculations and formulas
All figures in millions of Russian Rubles, unless otherwise stated
Management of the Group assesses the performance of operating segments based on a measure of adjusted EBITDA, which is derived from the consolidated financial statements prepared in accordance with IFRS
EBITDA is defined as operating profit/loss from continuing operations adjusted for other operating income/expenses, depreciation and amortisation, 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, 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
EBIT is calculated as Gross profit minus Distribution & transportation expenses minus General & administrative expenses minus Other operating expenses
Total debt is calculated as Long-term borrowings plus Short-term borrowings
Net debt is calculated as Total debt minus Cash & cash equivalents at the end of the period
ROCE is calculated as EBIT LTM divided by Average Capital Employed (Total debt + Total equity)
ROE is calculated as Total equity period average divided by Profit for the period
Operating profit adj. & Profit for the year adj. are deferred as adjusted by impairment of PPE, investment property and goodwill
Working capital is calculated as Inventories plus Trade and other receivables, excluding Short-term loans issued, Bank deposits and Promissory notes receivable, plus Current income tax receivable minus Trade and other payables minus Short-term provisions for liabilities and charges minus Current income tax payable minus Other taxes payable
Capex = Organic capex = Purchase of PPE + Purchase of intangible assets
Backlog is calculated as the preceding backlog plus new or additional customer orders booked during the reporting period, less amounts of contract value booked as revenue under ‘‘Russian GAAP’’ on an unconsolidated basis under the relevant contracts, plus or minus adjustments made in the judgment of the Group’s management. The Group may also make certain adjustments to bookings to reflect amendment, expiry or termination of contracts, cancellation of orders, changes in price terms under contracts or orders, or other factors affecting the amount of potential revenue which the Group believes may be recognized under such contracts. The Group’s backlog estimates are not an indication of potential revenues. Actual revenues and other measures of financial performance under IFRS may differ materially from any estimate of backlog, and changes in backlog between periods may have limited or no correlation to changes in revenue or any other measure of financial performance under IFRS
Notes to the presentation and formulas used for some figures’ calculations
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