HMS Group FY 2013 IFRS Results Conference call presentation April 2014
Financial results Business & Outlook Appendix 2
Financial Highlights Financial highlights*, Rub mn Revenue performance 2007-2013 * 2013 2012 Change 31,460 32,358 Revenue 32,358 31,460 3% CAGR +13% 25,515 Gross profit 9,120 9,833 -7% 20,379 EBITDA¹ 5,238 6,101 -14% Operating profit 4,179 4,243 -2% 13,399 11,668 12,032 Operating profit adj.² 3,664 4,243 -14% Profit from continuing operations 2,073 2,342 -12% Profit incl. discontinued operations 1,156 2,312 -50% 2007 2008 2009 2010 2011 2012 2013 Revenue, Rub mn Линейная ( Revenue, Rub mn) Total debt 12,687 13,410 -5% EBITDA performance 2007-2013 * Net debt 11,102 12,064 -8% Net debt / EBITDA 2.12 1.98 CAGR +20% 21.8% 6,101 Gross margin 28.2% 31.3% -307bps 5,562 18.0% 5,238 16.4% EBITDA margin¹ 16.2% 19.4% -320bps 19.4% 14.1% 16.2% 3,670 Operating margin 12.9% 13.5% -57bps 10.6% Profit margin from continuing operations 6.4% 7.4% -104bps 1,969 1,650 1,423 Profit margin incl. discontinued operations 7.1% 7.4% -33bps ROCE³ 13.9% 18.7% -483bps 2007 2008 2009 2010 2011 2012 2013 ROE³ 8.6% 6.8% 181bps EBITDA, Rub mn EBITDA margin *The data are adjusted for SKMN disposal, unless otherwise stated ¹Hereinafter, read EBITDA as EBITDA adjusted, EBITDA margin as EBITDA adjusted margin ² Excluding the impairment of construction business and excess of fair value of net assets acquired over the cost of acquisition 3 ³Formulas for calculation - see slide 16
Revenue & EBITDA Contribution by Segments Pumps Oil & gas equipment Revenue +3% Revenue -1% 17,595 17,066 7,828 7,743 EBITDA -11% EBITDA -37% 25.1% 21.7% 17.8% 11.4% 4,279 3,816 1,397 883 2012 2013 2012 2013 Revenue Pumps, Rub mn EBITDA Pumps, Rub mn Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA margin Pumps, % EBITDA margin OG equipment, % Decline in the segment’s profitability was attributable to lower share of large -scale EBITDA decrease was caused by high base of 2012, when HMS executed Vankor project projects: in EBITDA their share decreased from 53% in 2012 to 36% in 2013 Vankor project accounted for Rub 2.7bn in revenue in 2012 Excluding large- scale projects, the segment’s revenue grew by 13% and EBITDA In 2013, the segment served exclusively small and medium-sized orders for standard increased by 23% yoy tanks, vessels and measuring equipment Compressors EPC Revenue +37% Revenue -45% 4,207 5,140 EBITDA +115% EBITDA -160% 3,066 13.6% 2,808 8.7% 6.6% 572 266 341 -7.3% -204 2012 2013 2012 2013 Revenue EPC, Rub mn EBITDA EPC, Rub mn Revenue Compressors, Rub mn EBITDA Compressors, Rub mn EBITDA margin EPC, % EBITDA margin Compressors, % Data for 2012 includes the results of KKM for the full year 2012 The segment delivered weak results in 2013: revenue declined almost twofold and EBITDA turned negative The contracts signed by KKM since its joining HMS Group boosted the segment’s The segment’s poor performance was attributable to the construction sub -segment, revenue and EBITDA, which grew by 37% and 115% yoy respectively. while project and design sub-segment showed growth both in revenue and EBITDA For more information - see slide 6 For more information - see slide 5 4
EPC Segment Overview EPC performance 2012 vs 2013 Project & Design sub-segment performance Revenue -45% Revenue 0% 5,140 EBITDA -160% EBITDA +114% 2,210 2,204 2,808 6.6% 12.1% 5.7% 268 341 -204 125 -7.3% 2012 2013 2012 2013 Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin EPC, % Comments TGS performance (continuing operations) 2,936 EPC business segment demonstrated weak results in 2013 with 7.4% Revenue -80% revenue decline almost twofold to Rub 2.8bn and EBITDA on a EBITDA -319% negative side (Rub -204mn) 599 EBITDA margin growth in Project and Design sub-segment to 216 12.1% for 2013 was not able to offset the decline in EBITDA -472 margin in construction business. 2012 2013 -78.8% The segment’s lackluster performance was attributable to the Construction sub-segment, which showed a Rub 472mn loss on TGS and SKMN performance (discontinued operations) EBITDA line Revenue -56% 5,131 10.0% The construction sib-segment is represented only by the EBITDA -245% construction subsidiary TGS 2,246 The company has already disposed its construction subsidiary SKMN and intends to dispose or close-down the second one (TGS) 351 -508 The size of TGS business has already reduced to limit risks related 2012 2013 to the asset. -77.6% 5
KKM: One Year With HMS Group KKM performance 2012 vs 2013 New strategy for KKM: focus on integrated solutions Further integration of KKM with the Group and NIITK 4,118 Revenue +34% EBITDA +110% 3,066 Value of one gas pumping station (integrated solution) for the trunk gas pipeline is similar to current annual revenue of KKM 13.6% (around Rub 3bn) 8.7% There are no “one - stop shop” providers of integrated solutions in 559 266 Russia with experience similar to HMS (ESPO-1, ESPO-2) 2012 2013 KKM produced and delivered a compressor station for Usinskiy Revenue Compressors, Rub mn EBITDA Compressors, Rub mn Gas Processing Plant (Lukoil) under a contract signed after M&A EBITDA margin Compressors, % The company targets a number of large projects in oil & gas Data for 2012 includes the results of KKM for the full year 2012 Additional cost saving programmes are launched Main factors of revenue and profitability growth in compressors segment 1. Capability to secure large contracts for 2. Competences in project & design of a 3. Competences in large flow control compressor-based integrated solutions compressor-based integrated solution project management – Technical solutions, more profitable for a producer – Strong negotiation power towards suppliers Current status: Current status: HMS has a strong track record with ESPO, Vankor, Turkmenia, Lukoil Current status: Russian majors The compressor design center NIITK 3 compressor station contracts signed (Turbokompressor) acquired in April since the acquisition of KKM 2013 All 3 factors, brought together, led to revenue and EBITDA growth already. However an integration process is not completed yet. According to the integration plan, a number of issues are to be addressed to reach sustainability and further growth 6
Contribution of Large-scale Projects to Revenue and EBITDA The Group’s performance in 2012 -2013 Share of large-scale projects in revenue 32,358 Revenue +3% 31,460 EBITDA -14% 2013 2012 12% 19.4% 27% 16.2% 6,101 5,238 2012 2013 Revenue, Rub mn EBITDA, Rub mn EBITDA margin, % Comments Share of large-scale projects in EBITDA 2013 2012 Average margin of large-scale projects is 20-30%, while average margin of regular business is about 13% Lower share of large-scale projects in 2013 negatively affected 27% the Group’s profitability – EBITDA margin decreased by 3% Large-scale projects include the ESPO, Vankor, Taas-Yurakh, 51% Zapolyarye-Purpe, Turkmenia and Stavrolen 7
Cost Analysis Cost of sales Comments 2013 2012 change Cost of sales grew by 7% yoy, driven by full consolidation of Cost of sales 23,238 21,627 7% KKM and Apollo in 2013 % of revenue 71.8% 68.7% Supplies and raw materials 10,567 10,935 -3% Main components of cost of sales – supplies and raw % of revenue 32.7% 34.8% materials combined with COGS – accounted for 41% of Labour costs 5,374 5,100 5% revenue, almost the same share as in the previous year % of revenue 16.6% 16.2% Cost of goods sold 2,799 2,222 26% % of revenue 8.7% 7.1% Other expenses 4,498 3,369 34% % of revenue 13.9% 10.7% Distribution & transportation expenses 2013 2012 change Distribution and transportation expenses were up 11% yoy Distribution and transportation expenses 1,377 1,239 11% and accounted for 4.3% of the revenue. % of revenue 4.3% 3.9% Transportation expenses 549 419 31% The share of transportation costs grew from 1.3% to 1.7% of % of revenue 1.7% 1.3% revenue being the major factor behind growth of distribution Labour costs 468 461 2% and transportation costs % of revenue 1.4% 1.5% Insurance 44 36 22% % of revenue 0.1% 0.1% Other expenses 315 323 -3% % of revenue 1.0% 1.0% General & administrative expenses 2013 2012 change General and administrative costs grew by 5% yoy remaining flat 3,970 3,796 General and administrative expenses 5% yoy as a percentage of revenue % of revenue 12.3% 12.1% 2,596 2,548 Labour costs 2% The company kept its promise to hold labour costs at the current % of revenue 8.0% 8.1% level - they comprised 8% of revenue Depreciation and amortization 191 168 14% % of revenue 0.6% 0.5% Increase in tax and duties by 38% was attributable to payment of 191 138 Taxes and duties 38% local tax under Turkmenia project % of revenue 0.6% 0.4% 993 942 Other expenses 5% % of revenue 3.1% 3.0% 8 Source: Company data
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