10.06.2013

HMS Group announces interim management statement and financial highlights for the three months ended March 31, 2013

Moscow, Russia – June 10, 2013 – HMS Group plc (the “Group”) (LSE: HMSG), the leading pump and compressor manufacturer and provider of flow control solutions and related services in Russia and the CIS, today announces its interim management statement and financial highlights for the three months ended March 31, 2013. The financial data is based on management accounts only and hasn’t been reviewed by external auditors.

THE THREE MONTHS OF 2013 HIGHLIGHTS

  • Backlog grew by 26% year-on-year and amounted to RUB 23,521 million
  • Order intake grew by 17% from RUB 7,840 million in Q1 2012 to RUB 9,162 million in the reporting period
  • Revenue for the three months 2013 was flat (-0.3% YoY) and amounted to RUB 7,285 million
  • Adjusted EBITDA1 for the three months of 2013 amounted RUB 854 million, down 38% year-on-year with EBITDA margin of 11.7%
  • Profit for the period totaled RUB 26 million
  • Total debt grew by 51% from RUB 10,034 million in Q1 2012 to RUB 15,195 million
  • Net debt grew by 158% to RUB 14,150 million, while Net Debt to EBITDA (LTM) ratio reached 2.47

Artem Molchanov, Managing Director (CEO) of HMS Group, commented:

«In the first quarter of 2013, we continued to enjoy a healthy order flow for execution during the rest of the year, and managed to book more than Rub 9 bn of new orders. However, these orders mainly consisted of mid- and small- size contracts for production and delivery of standard equipment.

As a result, we saw profitability in the first quarter of 2013 at a lower level than in the same period of 2012. EBITDA margin of 11.7% appeared to be weaker, compared to what, we believe, can be a long-term sustainable level. However, we prepared a set of measures to be taken in the near future, which would help us to improve profitability in the second half of the year. In addition, we prepare for a number of large-scale projects, which were delayed due to consolidation in the oil and gas industry. These projects are expected to commence in the late 2013 - early 2014

We stay properly cautious about the economic uncertainties around us, though keep confidence in strong fundamentals, which will allow us to benefit from the growth prospects of our main end-markets.”

FINANCIAL SUMMARY

(RUB million)
3M 2013
3M 2012
Year-on-Year Change
Order intake
9,162
7,840
16.9%
Backlog
23,521
18,625
26.3%
Revenue
7,285
7,307
-0.3%
Adjusted EBITDA
854
1,367
-37.6%
Operating profit
387
834
-53.6%
Profit for the period
26
485
-94.7%
Basic and diluted earnings per share (RUB per share)
0.05
4.17
n/a
ROCE (LTM)2
14.8%
23.3%
n/a

OPERATING REVIEW

Group

Total order backlog reached RUB 23.5 billion, driven by a strong inflow of mid- and small size contracts during the first quarter of 2013. As a result the total backlog was 26.3% higher than RUB 18.6 billion in the end of Q1 2012, with solid backlog diversification.

The Group’s revenue in Q1 2013 was flat year-on-year (-0.3%) and amounted to RUB 7,285 million during the three months of 2013, mainly due to the stable growth of the industrial pumps business segment amid contraction of the revenue in the EPC business segment and lack of large-scale infrastructural projects in the oil and gas equipment business segment.

Cost of sales grew in line with inflation by 6.5% year-on-year from RUB 5,269 million in the first quarter of the previous year to RUB 5,610 million in the reporting period. As a result, in the first quarter of 2013 cost of sales share in revenue grew from 72% to 77%.

Distribution and transportation expenses contracted by 7% year-on-year and comprised 3.9% of revenue versus 4.2% due to lower transportation costs, including insurance, mainly driven by the life-cycle of current project mix.

General and administrative expenses grew by 27% year-on-year and amounted to RUB 948 million for the three months of 2013. Labour costs increase, driven by consolidation of Kazankompressormash and Apollo Goessnitz, resulted in G&A expenditures growth.

EBITDA of the Group contracted by 37.6% year-on-year from RUB 1,367 million to RUB 854 million on the back of margin contraction due to changes in contract mix and lower share of high-profitable infrastructure contracts. EBITDA margin was 11.7% in the three months of 2013, compared to 18.7% in the corresponding period of 2012.

Operating profit of the Group in the first quarter performed similarly, with a 54% decline on yearly basis. Operating profit amounted to RUB 387 million with operating margin of 5.3%.

Total outstanding debt grew by 51.4% year-on-year from RUB 10,034 million to RUB 15,195 million driven by utilization of undrawn credit facilities for working capital financing. Net debt grew by 158% to RUB 14,150 million. Interest rate on average outstanding debt stood at 9.4% while interest expenses as a percentage of revenue grew from 2.8% in the first quarter of 2012 to 4.7% in the reporting period.

The Group reported profit for the period of RUB 26 million. Change in operating margin, higher interest expenses, coupled with a higher than nominal effective tax rate affected the profit for the period.

As a result, earnings per share stood at RUB 0.05.

Return on capital employed taken for the last 12 months was 14.8% for the first quarter of 2013.

Industrial Pumps Business Segment

The industrial pumps business segment designs, engineers, manufactures and supplies a diverse range of pumps and integrated solutions to customers in the oil and gas, power generation and water utility sectors in Russia, the CIS and internationally. The business unit’s principal products include ready-made pumps built to standard specifications, customized pumps and integrated solutions. It also provides aftermarket sales, maintenance and repair services and other support for its products.

The industrial pumps business segment’s external revenues grew by 5.5% year-on-year in the first quarter of 2013 and amounted to RUB 3,118 million, compared to RUB 2,955 million for the same period of the previous year.

Due to changes in the contract mix and lower share of projects required integrated solutions, EBITDA in the industrial pumps segment declined by 33% year-on-year in the first quarter of 2013 to RUB 451 million, compared to RUB 672 million in the same period of 2012. EBITDA margin was 14.5%, down from 22.8% for the corresponding period of 2012.

Oil and Gas Equipment Business Segment

The oil and gas equipment business unit manufactures and installs 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, as well as for the water utility sector. The segment’s 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 a customer’s site as a modular but fully integrated part of the customer’s operations.

In Q1 2013, the oil and gas equipment business segment’s external revenue declined by 3.8% year-on-year to RUB 1,931 million, compared to RUB 2,006 million in the corresponding period of 2012. Revenue decline is mainly attributable to the last year’s strong performance of the segment due to the participation in the second stage of the Vankor oilfield development.

Due to high-base effect and lack of projects involved integrated solutions, the segment’s EBITDA decreased by 57.7% year-on-year to RUB 252 million in the reporting period, compared to RUB 595 million in the first quarter of 2012. EBITDA margin was 13.1%, compared to an exceptional 29.7% in the corresponding period of the previous year.

Compressors Business Segment

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.

In July 2012, HMS acquired Kazankompressormash (KKM), one of the leading compressor producers in Russia, which was consolidated into the IFRS reporting of the Group starting from July 01, 2012. Previously, KKM didn’t apply IFRS accounting principles for its financial reporting which makes it therefore impossible to provide a year-on-year comparison for the key financial indicators.

HMS applied IFRS accounting principles for KKM reporting starting from the third quarter of 2012 and reports the results under the Compressors business segment.

In the first quarter of 2013, revenue of the business segment was RUB 751 million with negative EBITDA of Rub 44 million affected by a number of deliveries under contracts with low profitability and scheduled low delivery volumes in Q1 2013. However, based on the current KKM’s backlog and delivery schedule, the performance of the first quarter is expected to improve in the coming quarters thanks to deliveries growth and higher profitability of the contracts.

Engineering, Procurement and Construction (EPC) Business Segment

The engineering, procurement and construction (EPC) business segment provides design and engineering services, project management and construction works for projects, including on a turn-key basis, for customers in the upstream oil and gas, oil transportation and water utility sectors.

External revenue of the EPC business contracted by 37% year-on-year from RUB 2,346 million in the first quarter of the previous year to RUB 1,485 million for the reporting period.

EBITDA in the EPC business segment grew by 84% year-on-year to RUB 198 million in the first quarter of 2013 with EBITDA margin of 13.3% versus 4.6% in the compared period of the previous year. Margin growth was mainly driven by focus on profitability improvements of the construction contracts as well as better efficiency of project and design works.


FINANCIAL REVIEW

Operating cash flows before working capital changes amounted to RUB 709 million, down by 40% as compared with the first quarter of the previous year. Tough payment pattern of the customers led to increase of trade and other receivables, which resulted in working capital growth. As a result, cash used in operations amounted to RUB 1,036 million versus cash generated from operations of RUB 484 million in the corresponding period of the last year. Taking into account interests and taxes paid, net cash outflow from operating activities in the first quarter reached RUB 1,541 million, compared to outflow of RUB 175 million in the same period of 2012.

Net cash used in investing activities totaled RUB 535 million in the first quarter of 2013, compared to RUB 427 million in the first quarter of the previous year mainly driven by loans advanced and capital expenditures.

Total debt grew by 51% year-on-year to RUB 15,195 million in the reporting period, compared to

RUB 10,034 million in the first quarter of 2012 mainly driven by working capital needs financing.

By the end of the three months, 84% of total debt was represented by long-term credit facilities with maturity of more than 1 year.

The net debt to EBITDA (taken for the last 12 months) ratio reached 2.47. The Group’s cash balances stood at RUB 1,045 million by the end of the first quarter of 2013, compared to RUB 4,546 million by the end of same period of the last year. The ability of the Group to meet its debt obligations remained comfortable over the reporting period with the interest coverage ratio of 3.77, based on last 12 months performance.

As of March 31, the Group’s net working capital (NWC) amounted to 25.8% of total revenue taken for the last 12 months, up by 96 bps compared to NWC-to-revenue ratio as of the end of the first quarter of 2012.

Conference call information

HMS Group’s management will host a conference call today at 9 am (New York) / 2 pm (London time) / 3 pm (CEST) / 5 pm (Moscow Time) to present and discuss the first quarter 2013 results.

To participate in the audio meeting, please dial in:

Russia:                  +7 (495) 580 9532

United Kingdom:

                             44-20-7190-1595 (Local access)

                             0800-358-5263 (Toll free)

USA:

                             1-480-629-9822 (Local access)

                             1-877-941-6013 (Toll free)

Confirmation Code:    4622554  
Title:                         HMS Group Q1 2013 IFRS results

Webcast Meeting:
To access the live and/or achieved event, clink on the link:
http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=2005

Please, join in 5-10 minutes prior to the scheduled start time. Pre-registration is available.

The management’s slide presentation will be published at the HMS Group’s website in the investor relations section during the day of the event. A replay of the conference call in the MP3 format as well as the link for the web-cast will be available on the Company’s website www.grouphms.com following the event.

Please, dial in 5-10 minutes prior to the scheduled start time.

For further information, please visit www.grouphms.com or contact:

Sergey Klinkov
Head of Investor Relations
Tel: +7 (495) 730-66-12
ir@hms.ru

Nozima Karimova
Head of Press Service
Tel: +7 (495) 730-66-01
karimova@hms.ru

The 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. The 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. The Group reported revenues of RUB 7.3 billion, adjusted EBITDA of RUB 854 million and profit for the period of RUB 26 million for the 3 months ended March 31, 2013. The HMS Group’s global depositary receipts (“GDRs”) are listed under the symbol “HMSG” on the London Stock Exchange.

The forward-looking statements contained herein are based upon various assumptions, many of which are based, in turn, upon further assumptions, which may include without limitation, the HMS Group’s examination of historical operating trends, data contained in the HMS Group’s records and other data available from third parties. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The HMS Group does not intend to provide any representation or warranty and does not assume any obligation to update any forward-looking statement contained herein.


1 EBITDA is defined as operating profit/loss adjusted for other 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.

2 ROCE is calculated as EBIT (last twelve months) divided by average total debt plus average equity.