hms group 6 months 2013 resultsgrouphms.com/files/presentation_9m2013 final+.pdf · 2013. 12....
TRANSCRIPT
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HMS Group 9 months 2013 IFRS Results Conference call presentation
17 December 2013
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Financial results
Business & Outlook
Appendix
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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
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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, %
Revenue +2% EBITDA +46%
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, %
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2Q 2013 vs 3Q 2013
Segments overview: Oil & Gas equipment
5
Revenue +7% EBITDA +159%
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%
9 months 2012 9 months 2013
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, %
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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
9 months 2012 9 months 2013
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%
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Segments overview: EPC
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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
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Project & Design sub-segment performance 9m 2012 vs 9m 2013
Revenue -45% EBITDA -173%
Construction sub-segment performance
Revenue -8% EBITDA +1,371%
Revenue -60% EBITDA -265%
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%
9 months 2012 9 months 2013
4,044
1,624
236 -389
5.8%
-24.0%
9 months 2012 9 months 2013
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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%
% of revenue 4.0% 3.8%
Transportation expenses 367 324 13%
% of revenue 1.5% 1.4%
Labour costs 360 339 6%
% of revenue 1.5% 1.4%
Insurance 30 28 6%
% of revenue 0.1% 0.1%
Other expenses 232 260 -11% % of revenue 0.9% 0.9%
Cost analysis
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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%
% of revenue 7.8% 7.6%
Depreciation and amortization 152 128 19%
% of revenue 0.6% 0.5%
Taxes and duties 190 100 91%
% of revenue 0.8% 0.4%
Other expenses 872 694 26%
% of revenue 3.6% 2.9%
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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
Working capital to Revenue LTM
21%
6%
28%
9M 2010 9M 2011
Working capital to Revenue LTM
Working capital to revenue LTM
1,157 976 687 935
1.7x
1.0x
9 months 2012 9 months 2013
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
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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
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Financial results
Business & Outlook
Appendix
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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
9 months 2012 9 months 2013
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
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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%
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Construction sub-segment: trends and prospects
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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
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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
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Contacts
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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]
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Financial results
Business & Outlook
Appendix
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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
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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
18