HMS Group Financial resultsgrouphms.com/files/Wood_Conference_Presentation.pdf*China Nuclear Energy...
Transcript of HMS Group Financial resultsgrouphms.com/files/Wood_Conference_Presentation.pdf*China Nuclear Energy...
HMS GroupWood Conference Presentation
December 2016
HMS GROUP AT A GLANCE
Overview
HMS Group is a large industrial machinery producer – theleading manufacturer of industrial pumps and compressors inRussia and the CIS
12 manufacturing facilities in Russia, the CIS and Germany and6 R&D centers, including one of the largest pump-testingfacilities in Europe
Leading market positions in industrial pump production and oil& gas equipment markets, which are characterized by highentry barriers
Experienced integrated management, sales and R&D teams.Top-management of HMS Group leads the company since itsestablishment in 1993
Key financials 2011 – 2015
25.531.5 32.4 32.4
37.3
5.6 6.1 5.2 5.3 7.4
21.8% 19.4% 16.2% 16.3% 20.0%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
0
10
20
30
40
50
60
2011 2012 2013 2014 2015
Revenue EBITDA EBITDA margin
Key industries: oil & gas, nuclear and thermal power generation, petrochemistry and wastewater industry
Top-notchclients: Transneft
Rub bn
2
Industrial pumps
44% of total Revenue FY2015
55% of total EBITDA FY2015
Engineering, manufacturing and installation ofpumps and pump related products
Compressors
9% of total Revenue FY2015
4% of total EBITDA FY 2015
Design, engineering, manufacturing, deliveryand installation of compressors, compressorpackages and compressor stations
Source: HMS Group, Revenue and EBITDA 2007-2013 are adjusted for Sibkomplektmontazhnaladka, which was divested in 2013
Oil & gas equipment and engineering
41% of total Revenue FY2015
44% of total EBITDA FY2015
Manufacturing and installation of oil & gasequipment, including modular: pump stations,metering equipment, oil, gas, and waterprocessing units, tanks, vessels and etc.
• Focus on core products• Entering new markets• Optimization of the
business portfolio
HMS GROUP EVOLUTION
2013-Present
HMS Group enjoys the largest installed base in Russia
Pump-and-Compressor-basedintegratedsolutions
2012
Pump-based integrated solutions
2009-2012
Oil & gasconstruction
2007-2008
Modularequipment design& manufacturing
2004-2006
Pump design & manufacturing
2003
Pump trading
1993-2002
87%98%
57%
87%70%
13%
2%
43%
13%30%
0%
20%
40%
60%
80%
100 %
120 %
Oil upstream(Water
injectionpumps)
Oil pipelinepumps,
Transneft
Thermalpower
generationpumps
Water wellpumps
Nuclearpower
generation -feed pumps
HMS Group Other
Upstream MidstreamThermalenergy
WaterNuclear energy
Oil & gas
Optimization of the business portfolio3 HMS entered oil & gas infrastructure construction segment in 2007 with a view to offer
integrated solutions Following the financial crises, this segment saw a sharp decrease in profitability HMS Group decided to exit the segment and continues to develop Engineering and
Procurement (“EP”) business, based on HMS products and engineering competences
Mature business platform1 HMS Group business is based on the mature and established business platform with a focus
on products where the Company has unmatched R&D expertise and production capabilities The company has stable recurring business with confirmed order backlog for the next year EU presence: HMS Group has access and is conducting business with EU engineering
companies (Siemens, Alstom, etc.) through its EU-based subsidiary Apollo Goessnitz Business is to be further developed organically, i.e. currently there are no plans for M&A Further development will be held with low CAPEX at ca. 1.5x of D&A level
Source: Frost & Sullivan, HMS Group
Growing market share in traditional and expanding into new markets
3
Entering new markets2 Further development of business with Gazprom & other majors in oil & gas industry by
executing large customized projects in all key segments of HMS Group Customers in new markets are already a part of the client base and offer strong future
opportunities Return to the market of oil transportation on the back of localization of trunk line pumps in
Russia Oil & gas refining and petrochemicals represents another growth area with expanded
strong references, incl. international engineering majors
Evolution and development of the core products expertise
Business platform and core expertise are established and provide strong base for future growth
Source: HMS Group
Advanced R&D is the basis for value-added integrated solutions
4
Recurring businessIntegrated solutions & highly
customized equipment
Size Numerous small-size contracts Single large-scale project
Impact of R&D Medium Critical
Technological entry-barriers Medium High
Competition type Price R&D and references
Competition level High Limited
Revenue growth potential Limited High
Revenue downside potential Limited Visibility for at least 1.5 years
Repeat business Very significant Possible
Aftermarket demand Average High
EBITDA margin Average Higher than average
Share of revenue generated by large projects
BUSINESS MODEL: COMBINATION OF LARGE INTEGRATED PROJECTS & RECURRING BUSINESS
Super-blocks X-9001, X-9004 for Vankor oilfield, RosneftProject and designing stage
ESPO-1 oil transportation station, TransneftProject and designing stage
Examples of large integrated projects
Source: HMS Group
Development stage Completion stage Development stage Completion stage
75%66%
73%88%
80%73%
23%
29%24%
13%20%
27%
2010 2011 2012 2013 2014 2015
Revenue from large integrated projects
Revenue from recurring business
RECENT PROGRESS IN DEVELOPMENT OF EXPORT BASE AS A RESULT OF 5-YEAR LONG PROGRAM
5
Iraq
Iran
Europe / European EPC-companies (Apollo)
International EPC-companies in Russia & CIS
Nuclear power1
Other regions2
Special pumps
Standard pumps
Europe (via Apollo brand) and Middle East
Compressors
Iran
Activities already completed Target markets by geography
Significant progress in tailoring existing products to the requirements of international customers
International sales offices setup in Milan Dubai and Teheran (Iran), expanded existing sales teams in Russia, Ukraine and Germany
Registration in Approved Vendor List of major international clients
Reference contracts awards by leading global oil & gas operators and EPC contractors
Apollo acquisition and integration into HMS Group
1) Sales by group company Nasosenergomash Sumy (“NEM”) to international projects of RosatomGroup
2) Other Middle East countries (Kuwait, Saudi Arabia), South America, Northern Africa, South-Eastern Asia
3) International Electrotechnical Commission
Apollo and HMS Group major international clients
Power & Metallurgy
Oil & gas
Chemicals& other industries
Source: HMS Group
36%
Rosneft, 17%
Gazprom, 15%
Gazprom Neft, 11%
Transneft, 6%
Lukoil, 4%
Tatneft, 3%
Surgutneftegas, 3%
CNEIC*/**, 2%
BP Iraq, 2%
Rosatom**, 1%
37.3 bn RUB
CUSTOMER BASE DEVELOPMENT
*China Nuclear Energy Industry Corporation**Project in nuclear power generation industrySource: HMS Group
% of revenueAmount, mn RUB
Top-10 customers 64% 24,012
Other customers 36% 13,284
Total 100% 37,296
Revenue breakdown by clients FY2015
6
Well-diversified client base of 5,000 names
Strong and stable base of “Blue-chip” clients, that includes the largest oil & gas companies in Russia
Largest clients operate through numerous contracts in different subsidiaries, taking independent purchasing decisions. Therefore client diversification
by legal entities (right chart) is much higher than client diversification by group of companies (left chart)
The largest installed base in key segments ensures sustainable recurring business
Cross-sale: HMS Group sells to its existing client base additional equipment, that is new to the clients’ business
Significant growth potential from new markets (please see slides 7)
49%
17%
11%
7%
5%3%2%3%
Revenue breakdown by industries FY2015
Petrochemicals
37.3 bn RUB
Water supply
Oil extraction
Gas recovery and transportation
Oil transportation
Nuclear powerThermal power
Metals & mining
Other industries
Source: HMS Group
LEADER IN BOTH LARGE PROJECTS AND STANDARD PRODUCTION SEGMENTS
Established top player in large scale projects (with “blue-chip” client base)
Company enjoys sustainable recurring business from standard pumps and compressors with over 5,000 clients
WELL-DIVERSIFIED QUALITY CLIENT BASE
Over 5,000 small and medium clients generate ca. 75% of revenues
The blue-chip client base covering nearly all oil & gas majors
Largest clients operate through numerous contractsin different subsidiaries, taking independent purchasing decisions and offering numerous points of entry
MARKET SHARE AND INSTALLED BASE
HMS is a major player in pumps, oil & gas equipment and compressors, with large-to-dominant market shares and established relations with clients (including follow-on services)
The largest installed base in Russia
DELIVERY OF MISSION-CRITICAL EQUIPMENT
Crucial to clients: installed at the final stage of construction projects and difficult to replace
Affordable within clients’ project budgets: equipment accounts for less than 2-3% of total project CAPEX
As a result, clients do not postpone their purchases or negotiate equipment prices down
WELL ESTABLISHED BUSINESS PLATFORM/
LOW LEVERAGE
MANAGEMENT FOCUSES ON MAINTENANCE OF MODERATE DEBT POSITION
Current Net debt / EBITDA ratios of around 1.8x are conservative and are in line with BBB/BB rating categories
Naturally hedged: match in revenues, costs and debt currency structures – ca. 98% of debt is Ruble denominated
Short-term debt remains at low levels and is actively managed
FACTORS OF BUSINESS SUSTAINABILITY
7
LOW CAPEX NEEDS AND FLEXIBLE DIVIDEND POLICY
Fully invested business – modest maintenance CAPEX needs at ca. 1.5x of D&A level
All major acquisitions have already been completed
No strict dividend commitments allow to minimize payments during harsh market environment
1 2
3 4
5 6
GROWTH DRIVERS FOR 2016-2017 AND LONG-TERM
8
GAZPROM & OTHER MAJORS’ PROJECTS IN OIL & GAS INDUSTRY
Compressors (compressor business segment) Pumps Pressure vessels Technological oil & gas engineering (EP* contracts)
OIL TRANSPORT
Return to the market of oil transportation on the back of localization of main line pumps in Russia
EXPORT
International sales based on already developed product lines, secured references and integration of Apollo (German subsidiary)
Sales to the CIS countries through development of more focused sales structure
OIL & GAS REFINING ANDPETROCHEMICALS
Expanded strong references in oil & gas refining and chemicals, incl. international engineering majors
Enhanced product range of pumps, compressors, pressure vessels according to API and ASME
ENGINEERING (EP) IN OIL & GAS
Capitalizing on and further development of expertise in oil & gas upstream technological engineering
API PUMPS
A full-scale line of pumps for oil & gas applications according to international standards has been already developed for:
– International sales– Oil & gas refining and petrochemical
industries in Russia
COMPRESSORS
Integration, transformation & modernization of KKM is starting to deliver EBITDA growth
LOCALIZATION OF TECHNOLOGIES TO BENEFIT FROM IMPORT SUBSTITUTION
Localization of Ukrainian and German pumps in Russia (oil transport, oil refining, thermal & nuclear power generation pumps, heavy pumps for water)delivers cost savings
GROWTH
OF HMS
MARKET SHARE
IN INDUSTRIAL & GEOGRAPHICAL BREAK-DOWN
Growth markets Key products & technologies
* Engineering & Procurement
HMS GROUP TO LEVERAGE ON ALREADY ACQUIRED COMPETENCES AND THEIR FURTHER DEVELOPMENT
9
CORPORATE GOVERNANCE
HMS Group has a stable and long-term composition of its
Board of Directors and top-management:
HMS Group is the core business of the largest
shareholders
CEO and CFO are one of the founders of the Company
and they manage HMS Group since its establishment in
1993
HMS’ 18 managers purchased c. 3.4 percent share within
2016 under the Buy-back program
HMS Group Board of Directors consists of three Executive
Directors and five Non-executive Directors, including two
Independent Directors
As a general rule, the Company targets to pay out ca. 50% of
the Profit attributable to Shareholders of the Company
subject to capital constraints such as debt and liquidity
position and forecasts
HMS Group plans to pay out dividends twice a year
Litigations involving the company:
Grigorishin’s Litigation: no changes since the last
announcement (April 2014)
Tsoy’s Litigation: all claims were withdrawn in June 2016.
the company was not required to pay anything in
connection with this litigation
Source: HMS Group, as at 30 September 2016
The Board of Directors Comments
Yury SkrynnikExecutive Director
ShareholderIn company since 2005
Nikolay YamburenkoChairman of the BoardNon-executive Director
ShareholderIn company since 2003
Philippe DelpalIndependent
Non-executive Director
Andreas PetrouNon-executive
Director
Gary YamamotoIndependent
Non-executive Director
Artem MolchanovExecutive Director
Managing Director (CEO)Shareholder
In company since 1993
Kirill MolchanovExecutive Director
First Deputy CEO (CFO)Shareholder
In company since 1993
Vladimir LukyanenkoNon-executive
DirectorShareholder
10
Treasury shares3.7% Management
27.8%
Vladimir Lukyanenko27.4%Free-float
21.3%
German Tsoy19.8%
Shareholding structure by legal entities Shareholding structure by holders (effective share)
Share in HMS Group
Managers and persons closely associated with management 27.8%
Vladimir Lukyanenko 27.4%
Other GDRs holders (Free-float) 21.3%
German Tsoy 19.8%
Treasury shares 3.7%
Share in HMS Group
HMS Technologies 71.5%
GDRs Holders, where: 24.7%
- managers and persons closely associated with management 3.4%
- other GDRs holders (Free-float) 21.3%
Treasury shares 3.7%
HMS Technologies71.5%
Free-float21.3%
Management3.4%
Treasury shares3.7%
GDRs Holders
SHAREHOLDING STRUCTURE
Source: HMS Group, as on 10 October 2016
Financial results
Business & Outlook
11
20,379 25,515 31,460 32,358 32,351 37,296 36,098 41,071
2010 2011 2012 2013 2014 2015 2015 6mLTM
2016 6mLTM
3,670 5,562 6,101 5,238 5,272 7,446 6,984 7,038
18.0%
21.8%
19.4%
16.2% 16.3%
20.0% 19.3%
17.1%
2010 2011 2012 2013 2014 2015 2015 6mLTM
2016 6mLTM
EBITDA adj., Rub mn EBITDA margin
2016 6m 2015 6m chg, yoy
Revenue 20,363 16,589 +23%
Gross profit 4,977 5,035 -1%
EBITDA 2,956 3,364 -12%
Operating profit 1,771 2,117 -16%
Profit for the year 696 1,101 -37%
Gross margin 24.4% 30.3% -591 bps
EBITDA margin 14.5% 20.3% -576 bps
Operating margin 8.7% 12.8% -406 bps
Net income margin 3.4% 6.6% -322 bps
Total debt 16,113 16,146 0%
Net debt 12,752 14,705 -13%
EBITDA LTM 7,038 6,984 +1%
Net debt to EBITDA LTM 1.81 2.11
ROCE 16.1% 16.6% -51 bps
ROE 5.7% 9.2% -353 bps
FINANCIAL HIGHLIGHTS
Financial highlights, Rub mn Revenue performance, 2010–2016 6m LTM
EBITDA performance, 2010–2016 6m LTM
CAGR 2010-2015: 13%
Source: Company data, management accounts, exclusive of SKMN
Source: Company data, management accounts, exclusive of SKMN (Revenue and EBITDA 2010-2013 data are adjusted for Sibkomlektmontazhnaladka, asset sold in Dec 2013)Source: Company data, management accounts
12
CAGR 2010-2015: 15%
7,274 7,119
1,175 1,108
16.1% 15.6%
2015 6m 2016 6m
Revenue OGE, Rub mn EBITDA OGE, Rub mn EBITDA margin OGE, %
Revenue -2% yoyEBITDA -6% yoy
1,3561,200
133 52
9.8%
4.3%
2015 6m 2016 6m
Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin EPC, %
1,391
4,661
47441
3.4%
9.5%
2015 6m 2016 6m
Revenue Compressors, Rub mn EBITDA Compressors, Rub mn EBITDA margin Compressors, %
8,149 7,718
1,927909
23.6%
11.8%
2015 6m 2016 6m
Revenue Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA margin Pumps, %
SEGMENTS OVERVIEW
Revenue -5% yoyEBITDA -53% yoy
EPCCompressors
– Revenue decreased by 5% yoy to Rub 7.7 bn
– EBITDA declined by 53% yoy and EBITDA margin went down to 11.8% due to a decline in the share of large contracts in revenue and EBITDA, a decline in demand for oilfield equipment repair services, and postponement of some deliveries to 2H 2016
– 2H 2016 is expected to be substantially better in terms of revenue and EBITDA
– Revenue and EBITDA almost stable, with 2% yoy and 6% yoy decline correspondingly, because of less large contracts executed
– EBITDA margin at 15.6% due to a higher-than-average margin of ordinary business
– 2H 2016 is expected to deliver comparable results
– Revenue grew by 235% yoy to Rub 4.7 bn and EBITDA increased by 845% to Rub 441 mn due to conclusion of more large contracts
– EBITDA margin up to 9.5 %
– 2H 2016 results should be comparable to 1H2016
– EPC continued to show weak financial results in the both construction and project & design sub-segments because of tougher competition and pricing pressure in the oil & gas engineering and construction market in Russia
– The company expects weak results in 2H 2016
Oil & gas equipmentPumps
13
From 2015 onward, HMS Group will report a total segments’ revenue, incl. external and intersegment revenue, for more consistent demonstration of the performance of each separate segment
Source: Company data
Revenue +235% yoyEBITDA +845% yoy
Revenue -12% yoyEBITDA -61% yoy
2016 6m 2015 6m chg, yoyGeneral and administrative expenses 2,098 1,990 5%% of revenue 10.3% 12.0%Labour costs 1,442 1,292 12%% of revenue 7.1% 7.8%Audit and consultancy services 26 81 -68%% of revenue 0.1% 0.5%Taxes and duties 92 113 -19%% of revenue 0.5% 0.7%Other expenses 539 504 7%% of revenue 2.6% 3.0%
2016 6m 2015 6m chg, yoyDistribution and transportation expenses 883 623 42%% of revenue 4.3% 3.8%Labour costs 316 277 14%% of revenue 1.6% 1.7%Transport expenses 288 191 51%% of revenue 1.4% 1.1%Agency services 123 4 3,255%% of revenue 0.6% 0.0%Other expenses 156 152 2%% of revenue 0.8% 0.9%
Distribution and transportation costs up by 42% yoy, and as a percentage of revenue up to 4.3% from 3.8% last year
General and administrative expenses grew by 5% yoy, and as a share of revenue declined to 10%
2016 6m 2015 6m chg, yoyCost of sales 15,387 11,554 33%% of revenue 75.6% 69.7%Materials and components 10,690 7,847 36%% of revenue 52.5% 47.3%Labour costs 2,963 2,914 2%% of revenue 14.6% 17.6%Construction and design and engineering services of subcontractors
708 508 39%
% of revenue 3.5% 3.1%Other expenses 1,025 285 259%% of revenue 5.0% 1.7%
COST ANALYSIS
Cost of sales Comments
Distribution & transportation expenses
General & administrative expenses
Cost of sales grew by 33% yoy to Rub 15.4 bn from Rub 11.6 bn:
Materials and components increased by 36% yoy, and their share in revenue was up to 53% from 47% - the main reason was a change in the prevailing type of contracts, which became more material-intensive
Source: Company dataNote: Differences in calculations can occur due to the rounding-off rule
14
558
766745 7640.7x
1.0x
2015 6m 2016 6m
Organic capex, Rub mn Depreciation & amortization, Rub mn Capex to D&A ratio, x
212 247
8,81310,143
294 971
127
2,999
8,537
WC2015 FY
WC2015 6m
Inventorieschange
Receivableschange &other adj.
Depositschange
Payableschange &other adj.
WC2016 6m
Cash flow performance, Rub mn 2016 6m 2015 6m Change yoy
Operating cash flow 1,431 -1,909 -175%
Investing cash flow -883 -564 57%
Free cash flow (FCF) 547 -2,472 -122%
Financing cash flow -622 -514 21%
Cash and cash equivalents 3,361 1,440 133%
Comments Working capital 2015-2016 6m
Cash flow performance, Rub mn Capital expenditures2 6 months 2015-2016
Operating cash flow turned positive Rub 1.4 bn because of improvement in working capital1
Working capital decreased by 16% yoy to Rub 8.5 bn mainly due to execution of large integrated projects and procurement of produced equipment to the customers’ sites
Working capital also declines as a share of revenue LTM to 21%
Free cash flow turned positive Rub 547 mn despite increased investment activities
Organic capex2 increased by 37% yoy, where Rub 247 mn (or 32%) of all HMS’ capital investments was channeled to a development of the Localization project in Livny
The company continues to invest in development of new product lines (especially in accordance to API and ASME) in parallel with modernization of existing production facilities
CAPEX & Working Capital
Source: Company data
Source: Company data
1Working capital formula - see slide 142 Capex = Organic capex = Purchase of PPE + Purchase of intangible assets
Note: Differences in calculations can occur due to the rounding-off rule
Source: Company data
28%of revenue
2015 6m LTM
21%of revenue
2016 6m LTM24%of revenue
2015 FY
Capex of Localization project
15
792
4,676
7,270
1,294 1,382 694
2016 2017 2018 2019 2020 2021
Debt to be repaid as of 01.09.2016, Rub mn
12,064 11,102 12,432 12,388 13,937 14,705 12,752
1.98 2.12
2.36
1.66
2.25 2.11
1.81
2012 2013 2014 2015 2016E 2015 6m 2016 6m
Net debt, Rub mn Net debt to EBITDA LTM
Total debt stood stable at Rub 16.1 bn
Net debt decreased to Rub 12.8 bn
Net Debt-to-EBITDA LTM ratio decreased to 1.81x from 2.11x
HMS’ weighted average interest rate was 12.5% for all loans, including FX-denominated, and 12.9% for Rub-denominated only, as of July 1, 2016
Long-term debt82%
Comments
Comfortable repayment schedule
Source: Company data as of 1 September, 2016 (management accounts)
FINANCIAL POSITION
Source: Company data as of 1 July, 2016 Source: Company data as of 1 September, 2016
Net debt-to-EBITDA LTM ratio
Short-term debt18%
Credit portfolio structure
UniCredit Bank 29.2%
Borrowings in FX2%
Borrowings in Rub98%
VTB Bank 33.3%
Sberbank 21.4%
16
Raiffeisenbank 11.2%
FRP 1.8%
Others 3.1%
Source: Company data as of 1 September, 2016 (management accounts)
Total debtRub 16.1 bnon 01.09.16
UPDATED DIVIDEND POLICY
Source: Company data, IFRS accounts 17
As a general rule, the Company targets to pay out in the region of 50 % of the “Profit attributable to Shareholders of the Company” subject to capital constraints such as debt and liquidity position and forecasts
HMS Group plans to pay out dividends basically twice a year
3,225 2,098 1,042
-1,596
1,8851,500 792 393 0 954
47%
38% 38%
0%
51%
2011 2012 2013 2014 2015
Profit attributable to Shareholders of the Company, Rub mn
Dividends paid for the year, Rub mn
Dividends share in Profit, %
HMS’ dividends track record, 2011-2015 Comments
The Board of Directors of HMS Group on September 23,
2016, approved a new dividend policy:
– Targeted dividends in the region of 50% of the
«Profit attributable to Shareholders of the
company»
– Plan to pay interim and annual dividends
According to a previous dividend policy, HMS intended
to pay not less than 25% of its Profit for the year,
subject to reviewing its capital position against its
current and expected future capital requirements
Old New
Base for dividends calculation
Profit for the yearProfit attributable to shareholders of the
Company
Target level of dividends size
25% 50%
Dividends paymentfrequency
Once a yearTwice a year
as a general rule
Financial results
Business & Outlook
18
6,993 5,990
3,384
11,175 2,131
3,973
822
1,268
13,330
22,406
6m 2015 6m 2016
Industrial pumps Oil & gas equipment
Compressors Engineering & procurement
BACKLOG & ORDER INTAKE
Source: Company data, Management accounts
Backlog 6m 2015 vs. 6m 2016 Order intake 6m 2015 vs. 6m 2016
19
Order intake up 68% yoy to Rub 22.4 bn:
– Pumps order intake down by 14% yoy to Rub 6.0 bn
– Oil & gas equipment orders up 230% yoy to Rub 11.1 bn
– Compressors order intake up 86% yoy to Rub 4.0 bn
– EP contacts up 54% yoy to Rub 1.3 bn
Large contracts signed increased to Rub 7.6 bn from Rub 1.0 bn
Ordinary business order portfolio up 20% yoy to Rub 14.8 bn
Backlog up 6% yoy to Rub 26.2 bn:
– Pumps backlog down by 21% yoy to Rub 8.4 bn
– Oil & gas equipment backlog up 10% yoy to Rub 9.7 bn
– Compressors backlog up 107% yoy to Rub 6.3 bn
– EP backlog down 22% yoy to Rub 1.8 bn
Large projects backlog increased by 22% to Rub 7.4 bn
Ordinary business backlog stayed unchanged at Rub 18.8 bn
10,643 8,406
8,846 9,729
3,039 6,291
2,2831,771
24,812 26,197
6m 2015 6m 2016
Industrial pumps Oil & gas equipment
Compressors Engineering & procurement
-21%
+10%
+107%
-22%
-14%
+230%
+86%
+54%
Total Backlog, where 24,812 26,197
Ordinary business 18,716 18,786
Large integrated projects 6,096 7,411
Total Order intake, where 13,330 22,406
Ordinary business 12,311 14,810
Large integrated projects 1,019 7,596
Appendix
20
ONGOING MANAGEMENT ACTIVITIES
21
Special pumps
Further development of relations with existing and potential key clients:
‒ Oil & gas companies operating in MENA (BP, ENI, LUKOIL, etc.)
‒ EPC-companies (Italian, Korean)
‒ European packagers (GE, Siemens, GEA)
Standard pumps
Potential M&A’s / JV with European / Asian producers of pumps for water supply and wastewater (API)
Compressors
Potential M&A / JV with European / Asian producers of compressors
Development and promotion of combined “Apollo + NEM1” portfolio of pumps for thermal power
Offering of the new product lines of stainless steel end suction and borehole pumps:
‒ Further development of the existing product lines
‒ Investments in the production facilities in Livny, Russia
The company is constantly expanding its export capabilities on the back of existing platform:
Using a German brand Apollo for all sales in export markets
Utilizing cost advantages by transferring manufacturing of parts and complete products to Russia and Ukraine
Development of distribution channels:
‒ Opening of additional sales offices abroad (Milan, Dubai, Teheran, etc.)
‒ Increase headcount of sales and marketing personnel focused solely on the external markets
‒ Drawing in new partners on the established and new markets
ALL PRODUCT GROUPS
(1) “NEM” – HMS Group company Nasosenergomash Sumy
Sales development in Iran market
M&A and JV projects of HMS Group are flexible and subject to HMS Group capital constrainssuch as debt and liquidity position and forecasts
Source: HMS Group
Management activities
KEY DRIVERS OF EXPORT SALES DEVELOPMENT
22
Industry
Nuclear power
Thermal power
Oil & GasEurope
Oil & Gas International EPCsin Russia & CIS
Oil & GasIran
Oil & GasIraq
Oil & GasOther regions
Standard pumpsfor water supply
First contracts with several clients are already secured
Opening of sales office in 2016
Further development of distribution network: sales agents and local partners / packagers
Compressors sales development in Iran market
Further development of relations and participation in tenders of the current clients (BP, ENI, LUKOIL) and new clients as well
Expected resumptions of capex. First contract with BP signed
Development of relations with European and Korean EPC-companies:‒ Development of Italian sales office with focus on local EPCs‒ Development and promotion of combined “Apollo + NEM”: economy of scale + Ukrainian low-cost base
Utilization of German sales office to promote NEM/LGM product lines (with their production localized in Germany)
Utilization of additional sales opportunities:
‒ Well-developed relations with Russian major oil & gas companies
‒ Russian and German localization of selected products
Development of sales office in the Middle East: increase of employee headcount focused on other Middle East countries: Saudi Arabia, Kuwait, etc.
Opening of sales & promotion offices in the new geographical markets (Northern Africa, South America, South-Eastern Asia)
Development and promotion of combined “Apollo + NEM” portfolio of pumps for thermal power
Localization of Apollo pumps in Russia to increase price competitiveness
Sales office in Europe – hiring of the experienced KAM’s with perfect connections with the European thermal power majors
Industry sales will be driven by abroad projects of Rosatom Group
The current forecast of nuclear power segment (slide 4) is based on past regular sales of HMS Group to Rosatom Group, already signed contracts of HMS and Rosatom and project portfolio of Rosatom Group
Development and promotion of new product lines (stainless steel):
‒ End suction pumps (brand “Kordis”) and submersible pumps (brand “Ciris”), 4-8 inches
‒ Vertical multistage pumps
Opening / strengthening of sales offices in Europe and UAESource: HMS Group
STATEMENT OF FINANCIAL POSITION
Note 30 June 2016 31 December 2015ASSETSNon-current assets:Property, plant and equipment 4 13,848,729 14,161,704Other intangible assets 5 867,270 984,280Goodwill 6 3,342,231 3,466,063Investments in associates 96,374 106,040Deferred income tax assets 351,293 380,351Other long-term assets 42,174 43,444Investment property 239,119 244,247Restricted cash - 23,219Total non-current assets 18,787,190 19,409,348
Current assets:Inventories 8 7,273,069 6,860,390Trade and other receivables and other financial assets 9 12,831,069 11,701,492Current income tax receivable 166,161 152,680Cash and cash equivalents 7 3,361,039 3,496,420Restricted cash - 2,573Total current assets 23,631,338 22,213,555TOTAL ASSETS 42,418,528 41,622,903
EQUITY AND LIABILITIESEQUITYShare capital 48,329 48,329Share premium 3,523,535 3,523,535Treasury shares 15 (297,678) (213,489)Other reserves 122,730 (191,585)Currency translation reserve (162,113) 476,312Retained earnings 6,258,835 6,180,042Equity attributable to the shareholders of the Company 9,493,638 9,823,144Non-controlling interests 2,979,561 3,325,643TOTAL EQUITY 12,473,199 13,148,787
LIABILITIES
Non-current liabilities:Long-term borrowings 10 12,698,912 11,217,538Deferred income tax liability 1,433,356 1,534,031Pension liability 518,391 566,475Provisions for liabilities and charges 14 157,626 132,865Other long-term payables 127,428 133,552Total non-current liabilities 14,935,713 13,584,461
Current liabilities:Trade and other payables 12 10,380,239 8,455,740Short-term borrowings 10 3,413,889 4,666,626Provisions for liabilities and charges 14 432,500 451,410Redemption liability 27 - 326,759Pension liability 72,131 69,538Current income tax payable 100,159 142,323Other taxes payable 13 610,698 777,259Total current liabilities 15,009,616 14,889,655TOTAL LIABILITIES 29,945,329 28,474,116TOTAL EQUITY AND LIABILITIES 42,418,528 41,622,903
STATEMENT OF PROFIT OR LOSS
NoteSix months ended
30 June 2016Six months ended
30 June 2015Revenue 17 20,363,333 16,588,722Cost of sales 18 (15,386,761) (11,554,155)Gross profit 4,976,572 5,034,567
Distribution and transportation expenses 19 (883,068) (622,986)General and administrative expenses 20 (2,098,479) (1,990,279)Other operating expenses, net 21 (224,281) (304,681)Operating profit 1,770,744 2,116,621
Finance income 22 84,484 104,892Finance costs 23 (887,409) (709,762)Share of results of associates 222 (172)
Profit before income tax 968,041 1,511,579
Income tax expense 16 (272,252) (410,334)
Profit for the period 695,789 1,101,245
Profit/(loss) attributable to:Shareholders of the Company 725,195 1,152,726Non-controlling interests (29,406) (51,481)Profit for the period 695,789 1,101,245
Other comprehensive loss:Items that will not be reclassified to profit or lossRemeasurement of post-employment benefit obligations 33,917 (39,644)
Items that may be reclassified subsequently to profit or lossCurrency translation differences (686,814) (875,072)Currency translation differences of associates (9,888) (19,578)Other comprehensive loss for the period (662,785) (934,294)Total comprehensive income for the period 33,004 166,951
Total comprehensive income/(loss) attributable to:Shareholders of the Company 106,471 353,694Non-controlling interests (73,467) (186,743)Total comprehensive income for the period 33,004 166,951
Basic and diluted earnings per ordinary share for profit attributable to the ordinary shareholders (RR per share)
15 6.34 9.99
CASH FLOW STATEMENTNote
Six months ended30 June 2016
Six months ended30 June 2015
Cash flows from operating activitiesProfit before income tax 968,041 1,511,579Adjustments for:Depreciation and amortisation 18-21 764,424 744,697Loss from disposal of property, plant and equipment and intangible assets 21 10,948 2,951Finance income 22 (84,484) (104,892)Finance costs 23 887,409 709,762Change in retirement benefits obligations 48,171 47,596Change in warranty provision 18 49,916 44,025Loss/(gain) on revaluation of redemption liability 21 17,961 (10,553)Change in provision for impairment of trade and other receivables and other financial assets 20 766 7,007Change in provision for obsolete inventories 18 9,454 (4,687)Foreign exchange loss, net 21 71,041 157,561Change in provision for legal claims 21 (2,540) 17,192Share of results of associates (222) 172
Impairment of property, plant and equipment charge and reversal, net 21 (1,274) 31,534
Operating cash flows before working capital changes 2,739,611 3,153,944Increase in inventories (680,242) (1,440,682)Increase in trade and other receivables (1,002,050) (216,198)Decrease in other taxes payable (161,623) (482,043)Increase/(decrease) in accounts payable and accrued liabilities 1,887,733 (1,437,754)Cash from/(used in) operations 2,783,429 (422,733)Income tax paid (389,040) (500,824)Interest paid (989,650) (949,254)Decrease/(increase) in restricted cash 25,792 (35,695)Net cash from/(used in) operating activities 1,430,531 (1,908,506)Cash flows from investing activitiesRepayment of loans advanced 6,165 10,325Loans advanced (139,406) (31,711)Proceeds from sale of property, plant and equipment and intangible assets 6,297 14,242Interest received 9,219 1,214
Purchase of property, plant and equipment, net of VAT (699,882) (522,323)Acquisition of intangible assets, net of VAT (65,885) (35,545)Net cash used in investing activities (883,492) (563,798)Cash flows from financing activitiesRepayments of borrowings (4,772,906) (3,822,967)Proceeds from borrowings 5,153,191 3,313,745Proceeds from government grant 25 17,000 -Acquisition of non-controlling interest in subsidiary 15 (346,900) -Buy back of issued shares 15 (84,189) -Payment for finance lease (330) (1,140)Dividends paid to non-controlling shareholders of subsidiaries (8,144) (3,610)Dividends paid to the shareholders of the Company 15 (579,863) -Net cash used in financing activities (622,141) (513,972)Net decrease in cash and cash equivalents (75,102) (2,986,276)Effect of exchange rate changes on cash and cash equivalents and effect of translation to presentation currency (60,279) (108,230)
Cash and cash equivalents at the beginning of the period 3,496,420 4,534,953Cash and cash equivalents at the end of the period 3,361,039 1,440,447
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
Working capital is calculated as Inventories plus Trade and other receivables, excluding Short-term loans issued, Bank deposits and Promissorynotes 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
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
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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