27.04.2015

HMS Group announces management statement and financial highlights for 12 months ended December 31, 2014

Moscow, Russia – April 27, 2015 – 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 12 months ended December 31, 2014.

2014 FY HIGHLIGHTS:

  • Backlog increased by 23% yoy to Rub 27.5 billion vs. Rub 22.3 billion, while order intake stayed almost flat year-on-year at Rub 34.7 billion, driven by a steady demand despite downturn and economic uncertainty
  • Revenue of Rub 32.4 billion stayed unchanged in comparison with 2013
  • EBITDA1 totaled Rub 5.3 billion, up 1% yoy; EBITDA margin was 16.3% compared to 16.2% in 2013
  • Operating profit dropped by 80% yoy to Rub 0.9 billion with operating margin at 2.6% versus 12.9% last year
  • Operating profit adj., if exclude all non-monetary adjustments2, was flat at Rub 3.8 billion and operating margin decreased to 11.6% versus 11.8% last year
  • Profit for the year was negative Rub 1.6 billion, down from positive Rub 1.2 billion
  • Profit for the year adj., if exclude write-offs, grew by 55% yoy to Rub 1.2 billion from Rub 0.8 billion last year
  • Total debt grew by 34% yoy to Rub 17.0 billion from Rub 12.7 billion
  • Net debt increased by 12% yoy to Rub 12.4 billion resulting in Net debt-to-EBITDA ratio of 2.36x compared to 2.12x last year
  • Return on capital employed (ROCE) adj. 3 was 11.1% versus 13.9% in the previous year. If taken without any adjustments, then ROCE dropped to 3.1% compared to 15.8% in 2013

Commenting on the financial results in respect of FY 2014, Artem Molchanov, Managing Director (CEO) of HMS Group, stated:

“The slowdown in the Russian economy began in 2013, and HMS Group faced problems with its construction sub-segment, which generated losses. The management fixed them by selling one of our loss-making construction companies, Sibkomplektmontazhnaladka, and significantly restructuring along with cost cutting program another construction asset Tomskgazstroy. As a result, EPC segment returned to positive territory in 2014 and showed impressive growth in profitability.

Challenging market conditions in 2014 were further complicated by international sanctions, impacting on the accessibility to credit resources and their borrowing costs, the depreciated ruble and the more than the threefold raise of the key rate. And last year the management faced another difficulty related to the compressors segment and caused by periodic volatility of Kazankompressormash’s orders portfolio, but the recent growth of backlog assumes that the problem has been remedied.

Against all the odds, I’m pleased to report on HMS’ sustainable operating results in 2014 – stable revenue with a higher EBITDA and EBITDA margin, an increased backlog and a solid order intake.

In 2014, we replaced the large-scale ambitious ESPO project by two new large projects, in total worth over 12 billion rubles. The first contract was to deliver an integrated oil and gas equipment solution for a major Siberian gas field and the second - to deliver equipment for the extraction, transportation and processing of liquid hydrocarbons.

We are working on enhancing HMS’ resilience to crisis phenomena and boosting the company’s development. In the whole, the company put in great efforts on diversification by:

  • clients, where Gazprom became one of the largest customers;
  • segments and markets with entrance into a new market of gas projects;
  • geographical - with export portfolio exceeding 30% of total pumps backlog.

Though the markets remain highly volatile and current developments are further impacting visibility, I believe that HMS Group will demonstrate better performance in the upcoming period.”

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1 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.

2 Non-monetary adjustments are derived as significant one-off non-cash items including impairment of goodwill, impairment of assets, excess of fair value of net assets acquired over the cost of acquisition, and foreign exchange loss from borrowings.

3 ROCE adj. is calculated as EBIT divided by (average total debt + average equity), and ROCE is calculated as Operating profit from Consolidated statement of Profit or Loss, divided by (average total debt + average equity).