hms group 6 months 2013 resultsgrouphms.com/files/presentation_9m2013 final+.pdf · 2013. 12....

HMS Group 9 months 2013 IFRS Results Conference call presentation

17 December 2013

Financial results

Business & Outlook

Appendix

3Q2013 2Q2013 Change 9m2013 9m2012 Change

8,611 8,170 +5% Revenue 24,066 23,563 +2%

2,621 2,348 +13% Gross profit 6,643 6,732 -1%

1,486 1,319 +15% EBITDA¹ 3,658 4,021 -9%

146 1,460 -90% Operating profit 1,993 2,772 -28%

1,118 916 +23% Operating profit adj.² 2,421 2,772 -13%

-487 888 -155% Net income 427 1,494 -71%

485 344 +41% Net income adj.² 855 1,494 -43%

16,202 17,319 -6% Total debt 16,202 13,967 +16%

15,162 14,900 +2% Net debt 15,162 12,758 +19%

5,868 5,932 -1% EBITDA LTM 5,868 5,132 +14%

2.58 2.51 Net debt / EBITDA LTM 2.58 2.49

30.4% 28.7% +170 bps Gross margin 27.6% 28.6% -100 bps

17.7% 16.1% +152 bps EBITDA margin¹ 15.1% 17.1% -200 bps

1.7% 17.9% -1,617 bps Operating margin 8.3% 11.8% -348 bps

-5.7% 10.9% -1,652 bps Net income margin 1.8% 6.3% -457 bps

ROCE³ 13,3% 17.8% -450 bps

ROE³ 3,4% 12.4% -900 bps

3

Financial highlights, Rub mn

Financial Highlights

6,703 6,935 7,307 7,632 8,624 10,093 7,285 8,170 8,611

3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

1,265 1,111 1,367 1,105 1,550 2,210 854 1,319 1,521

18,9%

16,0%

18,7%

14,5%

18,0%

21,9%

11,7%

16,1%

17,7%

3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13

EBITDA, Rub mn EBITDA margin

Revenue performance quarterly

EBITDA performance quarterly

¹Hereinafter, read EBITDA as EBITDA adjusted, EBITDA margin as EBITDA adjusted margin ²Excluding impairment of construction assets and excess of fair value of net assets acquired over the cost of acquisition ³ Formulas for calculation - see slide 17

Source: Company data

2Q 2013 vs 3Q 2013

Segments overview: Industrial pumps

4

Industrial pumps business segment delivered sustainable strong results for 9m 2013: revenue amounted to Rub 12.4bn (+12% yoy) and EBITDA achieved Rub 2.5bn (+9% yoy), EBITDA margin stood at healthy 20%

Roughly 20% of the segment's revenue and 42% of EBITDA for 9m 2012 were attributable to ESPO contracts. During 2013, the segment's performance was additionally supported by Zapolarye-Purpe and Turkmenistan projects, which all together accounted for 18% of revenue and 30% of EBITDA for 9m 2013. Excluding these projects, Industrial pumps enjoyed a 9% growth in revenue and 30% in EBITDA yoy backed by stable inflow of orders for standard pumps

Q/q comparison also shows positive dynamics due to quarterly fluctuations: shipments of pumps for power projects were transferred from 2Q 2013 to 3Q 2013

Industrial pumps accounted for 52% of total revenue and 68% of total EBITDA for 9m 2013

9m 2012 vs 9m 2013

Revenue +12% EBITDA +9%

11,088

12,405

2,278 2,479

20.5%

20.0%

9 months 2012 9 months 2013

Revenue Pumps, Rub mn EBITDA Pumps, Rub mn

EBITDA margin Pumps, %


4,606 4,681

824

1 205

17.9%

25.7%

2Q 2013 3Q 2013

Revenue Pumps, Rub mn EBITDA Pumps, Rub mn

EBITDA margin Pumps, %

2Q 2013 vs 3Q 2013

Segments overview: Oil & Gas equipment

5


Oil & Gas equipment business segment suffered from the lack of contracts for integrated solutions in its portfolio: revenue and EBITDA for 9m 2013 declined by 8% and 43% yoy correspondingly

Rub 2.6bn or 41% of the segment's revenue for 9m 2012 was delivered from a single lucrative Vankor project. During 2013, Oil & Gas equipment business segment served exclusively small and mid-sized orders. As a result, EBITDA margin was 12.2%, an average margin for standard equipment

EBITDA margin quarterly growth is an evidence of different mix of contracts under execution

Oil & Gas equipment accounted for 24% of total revenue and 20% of total EBITDA for 9m 2013

9m 2012 vs 9m 2013

Revenue -8% EBITDA -43%

6,350

5,860

1 257

715

19.8%

12.2%


Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn

EBITDA margin OG equipment, %

1,898 2,031

129

335 6.8%

16.4%

2Q 2013 3Q 2013

Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn

EBITDA margin OG equipment, %

Segments overview: Compressors

6

Compressors business segment is represented by Kazankompressormash (KKM) which started to report under IFRS within the Group since 3Q 2012, and newly acquired NIITK, which impact on total segment's performance in 3Q 2013 was immaterial

Over a year within the Group, Compressor business segment showed impressive improvement: quarterly revenue more than doubled achieving record high in 3Q 2013 – over Rub 1bn, while EBITDA grew from Rub 56mn in 3Q 2012 to Rub 136mn in 3Q 2013. Solid performance of the Compressors business segment is a direct result of several new material contracts signed by KKM

The management looks forward for further margins growth due to acquisition of NIITK and a growing share of integrated solutions in the segment’s portfolio

Compressors accounted for 11% of total revenue and 9% of total EBITDA for 9m 2013

9m 2012 vs 9m 2013

2,717

250


Revenue Compressors, Rub mn EBITDA Compressors, Rub mn

Quarterly performance since KKM consolidation

493

933

751

853

1,113

56 30 -44

158 136

11.4%

3.2%

5.9%

18.5%

12.2%

3Q2012 4Q2012 1Q 2013 2Q 2013 3Q 2013

Revenue Compressors, Rub mn EBITDA Compressors, Rub mn

EBITDA margin Compressors, %

n/a

9.2%

Segments overview: EPC

7

EPC business segment demonstrated weak results for 9m 2013 with revenue decline almost twofold to Rub 3bn and EBITDA on a negative side (Rub -183mn)

The segment’s lackluster performance was attributable to the Construction sub-segment which showed a Rub 389mn loss on EBITDA line on the back of delayed payments from customers.

EBITDA margin growth in Project and Design sub-segment to 14.2% for 9m 2013 was not able to offset the decline in EBITDA margin in construction business.

The company is considering the disposal of its construction assets with the goal to focus on its core business

.

Project & Design sub-segment performance 9m 2012 vs 9m 2013


Construction sub-segment performance

Revenue -8% EBITDA +1,371%


5,632

3,079

250 -183

4.4%

-5.9% 9 months 2012 9 months 2013

Revenue EPC, Rub mn EBITDA EPC, Rub mn

EBITDA margin EPC, %

1,588 1,455

14

206 0.9%

14.2%


4,044

1,624

236 -389

5.8%

-24.0%


9m 2013 9m 2012 change

Cost of sales 17,423 16,831 4%

% of revenue 72.4% 71.4%

Supplies and raw materials 8,239 7,779 6%

% of revenue 34.2% 33.0%

Labour costs 4,363 4,251 3%

% of revenue 18.1% 18.0%

Cost of goods sold 1,581 1,875 -16%

% of revenue 6.6% 8.0%

Other expenses 3,241 2,925 11%

% of revenue 13.5% 12.4%

9m 2013 9m 2012 change

Distribution and transportation expenses 963 902 7%


Transportation expenses 367 324 13%


Labour costs 360 339 6%


Insurance 30 28 6%


Other expenses 232 260 -11% % of revenue 0.9% 0.9%

Cost analysis

8

Cost of sales Comments

Distribution & transportation expenses

General & administrative expenses

General & administrative costs grew by 14% yoy mainly due to growth in provision for impairment of accounts receivable in the construction sub-segment. Labour costs remained almost flat yoy Tax and duties jumped by 91% due to payment of local tax under Turkmenia project

Cost of sales grew by 4% yoy, driven by full 9m consolidation of KKM and Apollo in 2013 Main components of cost of sales – supplies and raw materials combined with COGS – accounted for 41% of revenue, the same share as in the previous year

Distribution and transportation costs were up 7% yoy and accounted for 4% of the revenue. The share of transportation and labour costs grew similarly from 1.4% to 1.5% of revenue contributing to the total growth of distribution and transportation costs The main reason for labour costs increase was the consolidation of Apollo

Source: Company data

9m 2013 9m 2012 change

General and administrative expenses 3,089 2,703 14%

% of revenue 12.8% 11.4%

Labour costs 1,875 1,781 5%


Depreciation and amortization 152 128 19%


Taxes and duties 190 100 91%


Other expenses 872 694 26%


6,384

-308

+1,247 + 170

+1,590

9,084

WC 9m 2012 Inventories change

Receivables change & other adj.

Deposits change

Payables & other adj.

WC 9m 2013

Working capital

Cash flow performance for 6m 2013, Rub mn Capital expenditures2 for 9m 2013 vs 9m 2012

Working capital1 grew by 24% because of: – Increase in receivables (Rub 1.2 bn) mainly due to acquired KKM

and Apollo – Decrease in payables (Rub 1.6 bn) thanks to a received large

advance payment in 1Q 2012 for the ESPO contract and further execution of the project

and amounted to 27% of revenue LTM, compared to 21% last period Net working capital increase led to cash outflow from operating

activities of Rub 0.5 bn vs. net cash inflow of Rub 1.9 bn for 9 months 2012

Organic capex2 decreased to Rub 976mn from Rub 1,157mn last year, and as a result Capex-to-Depreciation-and-Amortization ratio decreased substantially, to 1.0x from 1.7x

CAPEX & Working Capital

Source: Company data 9

6%

28%

9M 2010 9M 2011

Working capital to Revenue LTM

27%

6%

28%

9M 2010 9M 2011


21%

6%

28%

9M 2010 9M 2011


Working capital to revenue LTM

1,157 976 687 935

1.7x

1.0x


Organic capex, Rub mn Depreciation & amortization, Rub mn

Capex to D&A ratio, x

1,346

-472

-1,489 1,656

1,040

Cash & cash equivalents as of Jan 1, 2013

Operating cash flow

Investing cash flow

Financing cash flow

Cash and cash equivalents as of Oct 1, 2013

¹Working capital formula – see slide 17 ²Capital expenditures=Organic CAPEX = Purchase of PPE + Purchase of intangible assets

11 3 982 4 313 4 482 294 2 124 294 2 800

2013E 2014E 2015E 2016E 2017E 2018E 2019E

Debt to be repaid, Rub mn Undrawn credit lines, Rub mn

Long-term debt 79.0%

Comfortable repayment schedule

Cash 1,040

10 Source: Company data as of 01 December, 2013

Financial position

Source: Company data Source: Company data as of 1 December, 2013

Maturity payment of 3 Rub bn bonds 03

Available liquidity 3.8 Rub bn

Maturity payment of 3 Rub bn bonds 02

Net debt to EBITDA LTM ratio

Fixed rate 99.8%

Floating rate 0.2%

Short-term debt 21.0%

Credits in Rub 85.6%

Euro 8.8%

Others 5.5%

Low currency and maturity risks Comments

Net debt 19% yoy expansion occurred due to bank loans, attracted for acquisitions of Apollo and NIITK, and growing needs in working capital financing

Net Debt to EBITDA LTM ratio increased to 2.58x from 2.49x

Available liquidity of Rub 4.0 bn fully covers 2013E repayments

Average interest rate was 9.3% on 1 December 2013 for all loans, including FX-denominated

2 574 3 413 4 551 4 288 4 809 12 064 15 162 12 758 15 162

1,81

2,08

2,41

1,22

0,87

1,94

2,58 2,49

2,58

2007 2008 2009 2010 2011 2012 9m 2013

9m 2012

9m 2013

Net Debt, Rub mn Net Debt to EBITDA LTM ratio

Financial results

Business & Outlook

Appendix

214 1 450 1 565 1 482

1 241 2 216 1 595

5 093 1 814

230

2 491

2 361

1 424

2 464

2 375

4 845

6 616

6 912

2 306

4 357

769

12 096

23 712

18 012

9 months 2011 9 months 2012 9 months 2013

ESPO pumps 2 306 4 357 769

Pumps excl ESPO 4 845 6 616 6 912

Oil & Gas equipment 1 424 2 464 2 375

Compressors 230 2 491 2 361

EPC: Construction 1 595 5 093 1 814

EPC: Project & Design 1 482 1 241 2 216

Others 214 1 450 1 565

Total 12 096 23 712 18 012

Total without ESPO 9 790 19 355 17 243

ESPO pumps: old 2 306 617 0

ESPO pumps: new 3 740 769

445 1 416 820

1 553 1 398 2 176

1 702

4 448

1 873 213

2 006

3 487

3 449

6 009

5 684

4 870

9 325

8 723

0

4 626

0

12 232

29 227

22 763


ESPO pumps 0 4 626 0

Pumps excl ESPO 4 870 9 325 8 723

Oil & Gas equipment 3 449 6 009 5 684

Compressors 213 2 006 3 487

EPC: Construction 1 702 4 448 1 873

EPC: Project & Design 1 553 1 398 2 176

Others 445 1 416 820

Total 12 232 29 227 22 763

Total without ESPO 12 232 24 601 22 763

ESPO pumps: old

ESPO pumps: new 4 626

Backlog & Order intake

Source: Company data, Management accounts

12

n/a n/a

+91% -6%

+74% -5%

+842% +74%

+161% -58%

-10% +56%

+218% -42%

+139% 22%

+101% -7%

n/a n/a

n/a n/a

Backlog for 9m of 2011-2013 Order intake for 9m of 2011-2013

+89% 40% -82%

+37% 31% 4%

+73% 78% -4%

+983% 771% -5%

+219% 171% -64%

-16% -28% 79%

+578% 2105% 8%

+96% 66% -24%

+98% 77% -11%

-73% -73% -100%

n/a n/a -79%

Construction sub-segment: trends and prospects

13

I. Before the crisis of 2008 and 2009:

– Construction sub-segment initially generated positive returns and margins

– Construction sub-segment was an element of strategy to deliver customers integrated “turn-key” projects with high proportion of the Group’s products and services

II. After crisis:

– Despite some improvement in the market, it didn’t recover to pre-crisis level

– Most of customers’ projects are managed separately: either Engineering (E) and Procurement (P) and C (Construction), or E&P and C separately, as opposed to the Western “turn-key” EPC practice

– Excessive construction capacities

– High concentration of major players, who win the most part of large and profitable contracts

III. 2013: Gradual deterioration in the construction market accelerated in the second half of the year

– In 2012, construction capex forecasts were still positive, however in 2013 these estimates were started to be reviewed

– Construction capex of current and potential projects was revised downward (particularly, Gazprom)

– Several already signed contracts with Gazprom were postponed (totaled Rub 3.3 bn)

– Started second half of the year showed accelerated deterioration of the market

Decision to revaluate the construction business

– Based on the recent negative changes in the industry, HMS’ management decided to impair construction sub-segment assets

– This decision was supported by independent marketing research and appraisal report

– The company is considering the disposal of construction assets

Construction business trends and its impairment in financials

Rub mn, IFRS 2H 2012A 1H 2013A 2H 2013F chg, YoY%

Revenue 1,426 +12% 1,604 +63% 2,609 +83%

EBITDA 86 +33% 114 +151% 285 +233%

EBITDA margin 6% 7% 11%

01.07.2012 01.07.2013 01.10.2013 chg, %

Backlog 972 +102% 1,965 +10% 2,170 +123%

up to Rub 50 mn

up to Rub 500 mn

Rub 1-3 bn

Financial and operating results

Kazankompressormash: One year with HMS Group

14

Main factors of revenue and profitability growth in compressors segment

Shift in the strategy: key points of concept

1. Capability to secure large contracts for compressor-based integrated solutions

Current status:

HMS has a strong track record with Russian majors

3 compressor station contracts signed since the acquisition of KKM

2. Competences in project & design of a compressor-based integrated solution

– Technical solutions, more profitable for a producer – Strong negotiation power towards suppliers

Current status:

The compressor design center NIITK (Turbokompressor) acquired in April 2013

3. Competences in large flow control project management

Current status:

ESPO, Vankor, Turkmenistan, Lukoil

All 3 factors, brought together, led to revenue and EBITDA growth already

Compressor

Compressor unit

Compressor station

1. Value of one gas pumping station (integrated solution) for the trunk gas pipeline is similar to current annual revenue of KKM (around Rub 3bn)

2. There is no “one-stop shop” providers of integrated solutions in Russia with experience similar to HMS (ESPO-1, ESPO-2)

3. If HMS succeed, revenue of KKM can double based on 1 successful contract for 1 gas pumping station

Source: Company data and forecasts

KKM produced and delivered a compressor station for Usinskiy Gas Processing Plant (Lukoil) under a contract signed right after M&A

Other 3 large contracts are under production

The company participates in a work out of several large projects, including East Urengoy and Novy Urengoy license areas, Novoportovskoye field, etc.

All the data for 2H2013 are based on preliminary estimation

Contacts

15

Company address: 7 Chayanova Str. Moscow 125047 Russia

Investor Relations Phone +7 (495) 730-66-01 [email protected] http://grouphms.com/shareholders_and_investors/ Twitter HMSGroup and HMSGroup_Rus Vera Timoshenko, Head of Investor Relations [email protected]

HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange (Main market, IOB): Identifier Number Number of shares outstanding ISIN US40425X2099 117,163,427 Ticker HMSG Bloomberg HMSG LI Reuters HMSGq.L

mailto:[email protected]:[email protected]:[email protected]://grouphms.com/shareholders_and_investors/http://grouphms.com/shareholders_and_investors/http://grouphms.com/shareholders_and_investors/http://grouphms.com/shareholders_and_investors/http://grouphms.com/shareholders_and_investors/mailto:[email protected]:[email protected]:[email protected]

Financial results

Business & Outlook

Appendix

Calculations and formulas

17

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 adjusted for other operating income/expenses, depreciation and amortization, impairment of assets, provision for obsolete inventory, provision for impairment of accounts receivable, unused vacation allowance, defined benefits scheme expense, warranty provision, provision for legal claims, provision for VAT and other taxes receivable, other provisions, excess of fair value of net assets acquired over the cost of acquisition. This measurement basis excludes the effects of non-recurring income and expenses on the results of the operating segments

EBIT is calculated as Gross margin 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 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. In 2011, Working capital was adjusted for working capital of acquired DGHM (Rub 309 mn)

ROCE is calculated as Total equity period average divided by Profit for the year

ROCE is calculated as EBIT LTM divided by Average Capital Employed (Total debt + Total equity)

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

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

18

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