HMS Group Financial results

HMS Group 9 months 2017 IFRS Results Conference call presentation

12 December 2017

Financial results Business & Outlook

2

FINANCIAL HIGHLIGHTS HIGHLIGHTS 2017 9m

2016 9m

chg, yoy

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%

Rub bn

Revenue

Profit for the year /period

1.7

1.2

33%

Revenue and EBITDA Revenue, Rub bn

EBITDA, Rub bn

18.4% 17.4% 15.9%

15.5%

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%

6.7

6.3

6%

1.91

2.14

EBITDA LTM Net debt to EBITDA LTM

15.6%

12.5%

319 bps

ROE

13.3%

9.6%

370 bps

16.2% 32.4

31.5 6.1 2012

2013

Revenue adj., Rub bn

2014

1.8

1.7

3Q'17

Revenue +1% EBITDA +7%

4.7

5.0

6.3

6.7

9m'16

9m'17

9m'16 LTM

9m'17 LTM

Revenue EBITDA

+4% +6%

Revenue +4% EBITDA +6%

2.4

2.1

2.0

2.1 1.7

15.3% 13.4 7.4

5.3

2015

EBITDA adj., Rub bn

42.7

10.1

10.0

41.6

37.3

32.4 5.2

Source: Company data, IFRS accounts

16.3%

15.6%

31.4

30.3

20.0%

19.4%

15.3%

41.0

3Q'16

ROCE adj.

EBITDA margin, %

17.0 12.1

12.7

11.1

12.4

15.9

12.4

16.3

13.3

6.4 2016 EBITDA margin

2012

2013

Total debt, Rub bn

2014 Net debt, Rub bn

2015

2016

Net debt to EBITDA LTM

3

SEGMENTS OVERVIEW PUMPS

OIL AND GAS EQUIPMENT & PROJECTS 12.3

11.8

17.1%

Revenue +5% yoy EBITDA +23% yoy

16.6%

Revenue +26% yoy EBITDA -27% yoy

15.0

12.0 9.7%

14.6% 2.1

1.7

2016 9m

2017 9m

Revenue Pumps, Rub bn EBITDA margin Pumps, %

 

2.0 2016 9m

EBITDA Pumps, Rub bn

2017 9m

Revenue OGE, Rub bn EBITDA margin OGE, %

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

 



COMPRESSORS

1.5

EBITDA OGE, Rub bn

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%

CONSTRUCTION Revenue 0% yoy EBITDA +67% yoy

6.7

6.7

Revenue -20% yoy EBITDA na 0.56

16.5%

0.45

9.8%

2016 9m Revenue Compressors, Rub bn EBITDA margin Compressors, %

  

2016 9m -8.7%

2017 9m EBITDA Compressors, Rub bn

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%

Source: Note:

-0.05

1.1

0.7

Company data, IFRS accounts 2016 9m segments are reconciled according to new segments composition

Revenue Construction, Rub bn EBITDA margin EPC, %

 

-0.12 2017 9m -26.7% EBITDA Construction, Rub bn

Revenue down 20% yoy EBITDA still negative

4

COSTS COST OF SALES Cost of sales % of revenue Materials and components % of revenue Labour costs % of revenue Social taxes % of revenue Other expenses % of revenue

Comments 2017 9m 2016 9m 22.9 22.6 73.0% 74.5% 15.4 15.1 49.0% 49.9% 3.60 3.35 11.5% 11.1% 1.04 0.96 3.32% 3.18% 2.89 3.15 0.01% 0.01%

chg, yoy 2%

2% 8% 8%

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

-8%

DISTRIBUTION & TRANSPORTATION Distribution and transportation expenses % of revenue Transportation expenses % of revenue Labour costs % of revenue Insurance % of revenue Other expenses % of revenue

2017 9m 2016 9m 1.30 1.28 4.1% 4.2% 0.43 0.43 1.4% 1.4% 0.40 0.36 1.3% 1.2% 0.14 0.01 0.4% 0.0% 0.34 0.48 1.1% 1.6%

chg, yoy 1%

2017 9m 2016 9m 3.44 3.12 11.0% 10.3% 1.82 1.66 5.8% 5.5% 0.40 0.43 1.3% 1.4% 0.18 0.14 0.6% 0.5% 1.05 0.89 3.3% 2.9%

chg, yoy 10%

-1%

Distribution and transportation costs: - up 1% yoy - almost stable as a share of revenue

9% 1486% -29%

GENERAL & ADMINISTRATIVE General and administrative expenses % of revenue Labour costs % of revenue Social taxes % of revenue Taxes and duties % of revenue Other expenses % of revenue Source: Company data, IFRS accounts Note: Differences in calculations can occur due to the rounding-off rule

10%

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

-7% 27% 17% 5

CAPEX & Working Capital CASH FLOW PERFORMANCE

CAPEX 2017 9m

2016 9m

Chg, yoy

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%

3.7

2.9

30%

Cash flow performance, Rub bn

Operating cash flow

Cash and cash equivalents

1.4 RUB BN +4% yoy 1.3

1.2x

1.2x

1.4 1.2


1.1

Capex of Localization project

0.5

0.4

2016 9m Organic capex, Rub bn

2017 9m Depreciation & amortization, Rub bn Capex to D&A ratio


Comments

WORKING CAPITAL

 Working capital increased 2% yoy due to execution of large projects

9.8 RUB BN

 HMS generated Rub 3.1 bn operating cash inflow (+111% yoy)

+2% 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

1.4 0.5 1.8

6.8

8.8

WC 2014 FY

WC 2015 FY

9.6

WC Inventories Receivables Payables WC 9m 2016 FY change change & change & 9m 2017 FY other adj. other adj.

21% 24% 23% of revenue of revenue of revenue 2014 FY 2015 FY 2016 9m

Note: Differences in calculations can occur due to the rounding-off rule

9.8

23% of revenue 2017 9m


6

STABLE FINANCIAL POSITION LEVERAGE

DEBT REPAYMENT

12.7 RUB BN

16.6 RUB BN

-5% yoy

As of 01 November 2017 2.4x

2.0x

2.1x

8,518

2.1x

2.1x

1.9x 1.7x

12.1

12.4

11.1

12.4

13.4

13.3

12.7 3,676

3,318

79 2012

2013

2014

2015

2016

Net debt, Rub bn

2016 9m

2017

2017 9m

Net debt-to-EBITDA LTM ratio


2018

2019

2020

2021

Debt to be repaid as of 01 November 2017, Rub mn Source: Company data, management accounts

CREDIT PORTFOLIO STRUCTURE BY BANKS

Comments

16.6 RUB BN



As of 01 November 2017

 

3.2%

32

5.0%

 20.9% Sberbank

15.4%

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

RUB Bonds Raiffeisenbank VTB Bank UniCredit Bank

17.6%

19.2%

Borrowings in FX 3%

Long-term debt 77%

Borrowings in Rub 97%

Fund of Industrial Development Others

18.8%

Short-term debt 23%

7 Source: Company data, management accounts

Source: Company data as of 01 November, 2017, management accounts, IFRS accounts

Financial results Business & Outlook

8

BACKLOG & ORDER INTAKE BACKLOG

ORDER INTAKE

42.6 RUB BN

51.0 RUB BN

+60% yoy

+61% yoy 74.3 65.9 Rub 23.3bn contract 51.0

Rub 23.3bn contract

4.4

42.6

+227%

26.5

31.6 0.2

+6%

1.4

5.9

na

4.5 5.2

+29% +79%

4.6

28.5

+107%

4.9

15.9

22.3

10.8

+12%

+11%

9.5

10.5

10.9

12.2

2016 9m

2017 9m

2016 9m

2017 9m

Pumps

OGEP

Compressors

Construction

Pumps

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

OGEP

Compressors

Construction

2016 9m

chg

2017 9m

31.6

+61%

51.0

Recurring business

24.0

0%

24.0

Large integrated projects

7.6

+255%

26.9

Total Order intake, where

Source: Company data, management accounts

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 9

HMS REVENUE STRUCTURE REVENUE BY TOP-7 CLIENTS

REVENUE BY PRODUCTS’ TYPE

REVENUE 2016 9M

30.3 RUB BN

31.4

30.3

1.3 1.7

1.6 2.4

7.6 7.6

21.0% Gazprom neft Rosneft

37.8%

Gazprom

15.7%

20.8

18.7

Transneft Surgutneftegaz KMPO Lukoil

2016 9m

Others

1.7% 3.3% 4.6%

11.0%

2017 9m

Project & construction

Export

Large contracts

Machine-building only recurring products

4.8% Source: Company data, IFRS accounts

Comments

REVENUE 2017 9M

31.4 RUB BN 23.4%

Rosneft



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)

Gazprom

36.6%

Gazprom neft Transneft Lukoil 18.4%

Peton Khimtek Tatneft

1.4% 1.9% 3.7%

Others 4.7%

9.9%

Source: Company data, Management accounts

10

CONTACTS

Capital markets Phone +7 (495) 730-66-01 [email protected] http://grouphms.com/shareholders_and_investors/

Company address: 7 Chayanova Str. Moscow 125047 Russia

HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange (Main market, IOB): Identifier ISIN Ratio Ticker Bloomberg Reuters

Number RegS: US40425X4079 144A: US40425X3089 1 GDR : 5 Shares HMSG HMSG LI HMSGq.L

Number of shares outstanding 117,163,427

11

Disclaimer

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.

12

Calculations and formulas Notes to the presentation and formulas used for some figures’ calculations 

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 13 between periods may have limited or no correlation to changes in revenue or any other measure of financial performance under IFRS