Operating performance

Backlog and order intake

Backlog1 of HMS Group by the end of 2015 decreased to Rub 24,409 million, down 14% yoy mainly due to a 54% yoy decline in the large contracts portfolio.

As regards standard equipment, the backlog grew by 9% yoy from Rub 18,081 million to Rub 19,741 million. Swings in the backlog for large contracts are incidental to a normal volatility of the portfolio and depend on large contracts signed, a client’s production cycle, etc.

Backlog, Rub mn 2015 FY 2014 FY Change yoy
Industrial pumps 10,075 11,076 -9%
Oil & Gas equipment 5,716 12,343 -54%
Compressors 6,915 2,131 224%
EPC 1,702 2,693 -37%
Construction 581 1,671 -65%
Project and design 1,121 1,022 10%
Total 24,409 28,243 -14%
XLS

In the pump business segment the backlog declined by 9% yoy to Rub 10,075 million due to fewer contracts signed for standard equipment.

The oil & gas equipment business segment’s backlog declined to Rub 5,716 million, because of ongoing recognition of revenues from the Group’s large contracts in the oil & gas equipment business segment. However, the backlog for standard oil & gas equipment increased by 76% yoy.

The compressors business segment grew more than threefold and reached Rub 6,915 million not only because of a large contract signed in the 3rd quarter, but also thanks to an explosive growth in small- and middle-size orders (+83% yoy).

The EPC segment’s backlog was down by 37% yoy to Rub 1,702 million due to negative performance of the construction sub-segment.

Order intake2 for FY 2015 decreased to Rub 32,979 million, down 5% yoy compared to FY 2014 mainly because fewer large-scale orders were received in 2015. In addition, an almost 50% drop in the EPC segment affected the whole order intake. The volume of large contracts signed declined by 42% yoy, and, in contrast, the number of standard equipment orders increased by 6% yoy.

Order intake, Rub mn 2015 FY 2014 FY Change yoy
Industrial pumps 15,399 15,592 -1%
Oil & gas equipment 7,919 13,963 -43%
Compressors 8,145 2,168 276%
EPC 1,517 2,983 -49%
Construction -181 1,559 n/a
Project and design 1,698 1,424 19%
Total 32,979 34,705 -5%
XLS

GROUP PERFORMANCE

Revenue reached Rub 37,296 million, 15% yoy higher than Rub 32,351 million the year before.

EBITDA grew by 41% yoy to Rub 7,446 million. As the result, EBITDA margin for the full year reached 20.0% versus 16.3% for the comparative period.

Rub mn 2015 FY 2014 FY Change yoy
Revenue 37,296 32,351 15%
EBITDA 7,446 5,272 41%
EBITDA margin 20.0% 16.3%  
XLS

The main reason for the higher revenue and EBITDA for the full year 2015 is the execution of large contracts on the back of slow but stable growing revenue and EBITDA from standard production.

Export sales of the Group amounted to Rub 3,819 million (10% share of HMS’ revenue).

Cost of sales, Rub mn 2015 FY 2014 FY Change yoy Share of
revenue 2015
Share of
revenue 2014
Cost of sales 25,783 23,511 10% 69.1% 72.7%
Supplies and raw materials 16,520 13,400 23% 44.3% 41.4%
Labour costs 5,928 5,677 4% 15.9% 17.5%
Construction & design and engineering
services of subcontractors
1,135 1,763 -36% 3.0% 5.4%
Depreciation and amortization 1,281 1,264 1% 3.4% 3.9%
Others 919 1,407 -35% 2.5% 4.4%
XLS

Cost of sales grew by 10% yoy to Rub 25,783 million from Rub 23,511 million. The growth was mainly due to a 23% yoy increase in the costs of supplies and raw materials, which accounted for 44% share of the revenue compared to 41% last year. This significant growth was the result of execution of large contracts in the oil & gas business segment, which are more material-intensive.

Since large contracts are more material-intensive but less labor-intensive, the labor costs demonstrated only a slight increase, but as a share of revenue they decreased to 16% from 18% in the comparative period.

Operating expenses, Rub mn 2015 FY 2014 FY Change yoy Share of
revenue 2015
Share of
revenue 2014
Distribution and transportation 1,378 1,237 11% 3.7% 3.8%
General and administrative 4,603 4,340 6% 12.3% 13.4%
Other operating expenses 624 222 181% 1.7% 0.7%
Total operating expenses 6,605 5,798 14% 17.7% 17.9%
Finance costs 2,087 2,148 -3% 5.6% 6.6%
XLS

Distribution and transportation expenses increased by 11% yoy to Rub 1,378 million rubles. As a percentage of revenue the figure went down to 3.7% from 3.8% for the full year 2014.

General and administrative expenses totaled Rub 4,603 million for FY 2015, up 6% yoy because of a 16% yoy growth of labour costs due to an increase in compensation to employees combined with a change in the base for statutory social insurance contributions (SICs). From 2015 onwards all payments to employees are included in the base for SICS. Limits for some SIC bases were raised and limits for some SICs were scrapped. Despite the increase of labour costs in absolute terms, general and administrative expenses, as a share of revenue, declined to 12% compared to 13% for the FY 2014.

In absolute figures, SG&A expenses3 grew by 7% yoy, but in terms of share of revenue they decreased to 16% from 17% for 2014. This is a direct consequence of the operating leverage, when revenue is growing faster than expenses.

Total operating expenses5 grew by 14% yoy to Rub 6,605 million from Rub 5,798 million, but as a percentage of revenue they declined to 17.7% from 17.9% in the comparative period.

Operating profit increased more than five-fold and reached Rub 4,525 million versus Rub 855 million in the previous year. Operating margin grew to 12.1% from 2.6% for the FY 2014.

In 2014, the Group recognized Rub 2,186 million impairment of goodwill, which reflected geopolitical risks and worsened economic conditions in Russia. And in 2015, HMS recognized impairment of property, plant and equipment of Giprotyumenneftegaz and Bobruisk Machine Building Plant in total amount of Rub 364 million, and impairment of investment property of Rub 19 million (Rub 383 in total).

If adjusted, the Group’s operating profit increased by 61% yoy to Rub 4,909 million with operating margin adj. at 13.2% versus 9.4% last year.

Rub mn 2015 FY 2014 FY Change yoy
Operating profit 4,525 855 429%
Impairment of property, plant and equipment and investment property 383 0  
Impairment of goodwill 0 2 186  
Operating profit, adj. 4,909 3,041 61%
Operating margin, adj. 13.2% 9.4%  
XLS

Finance costs decreased by 3% yoy, where interest expenses for 12 months 2015 were 28% yoy higher and reached Rub 1,804 million while foreign exchange loss went down by 52% yoy to Rub 343 million from Rub 720 million in the previous year.

Interest expenses’ growth is the result of the average debt burden5 growth (Rub 16.4 billion for the FY 2015 vs. Rub 14.8 billion for the FY 2014) combined with an increase in the average interest rate6:

  • 10.7% for 2015 vs. 9.8% for 2014 for all loans, including FX-denominated,
  • 11.7% for 2015 vs. 10.6% for 2014 correspondingly for Rub-denominated loans.

HMS Group undertook major efforts to keep interest rates at a manageable level.

Profit for the period reached Rub 1,764 million versus loss for the period of Rub 1,575 million in the previous year. If adjusted for one-off impairments, profit for the year adjusted increased by 239% yoy to Rub 2,071 million from Rub 611 million, and profit for the year margin adjusted was 5.6% this year versus 1.9% last year.

Rub mn 2015 FY 2014 FY Change yoy
Profit / (Loss) for the year 1,764 -1,575 n/a
Impairment of property, plant and equipment and investment property (net of tax 20%) 307 0  
Impairment of goodwill 0 2,186  
Profit for the year, adj. 2,071 611 239%
Profit for the year margin, adj. 5.6% 1.9%  
XLS

SEGMENT PERFORMANCE

The reportable operating segments derive their revenue primarily from the manufacture and sale of industrial pumps, oil and gas equipment, compressors, oil and gas construction and the other products and services. From 2015 onwards, HMS Group will report a total segment’s revenue, which includes external revenue and intersegment revenue, for more consistent demonstration of the performance of each segment.

Industrial pumps business segment

The industrial pumps business segment designs, engineers, manufactures and supplies a diverse range of pumps and pump-based integrated solutions to customers in the oil and gas, power generation and water utilities sectors in Russia, the CIS and internationally. The business segment’s principal products include customized pumps and integrated solution as well as standard pumps; it also provides aftermarket maintenance and repair services and other support for its products.

Industrial pumps, Rub mn 2015 FY 2014 FY Change yoy
Revenue 17,925 16,899 6%
EBITDA 4,098 3,137 31%
EBITDA margin 22.9% 18.6%  
XLS

The industrial pumps business segment’s revenue grew to Rub 17,925 million from Rub 16,899 million (+6% yoy). EBITDA increased by 31% yoy to Rub 4,098 million due to several factors: input of large-scale contracts in the oil & gas equipment business segment, import substitution, and costs optimization along with NEM’s costs depreciation because of deprecation of the Ukrainian hryvnia against the Russian ruble. EBITDA margin grew up to 22.9% not only because of execution of large contracts, which are more profitable, but also because of growth of the average margin of standard pumps production.

Oil & gas equipment business segment

The oil & gas equipment business segment manufactures, installs and commissions 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. The segment’s core 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 the customer’s site as a modular but fully integrated part of the customer’s technological process.

Oil & Gas equipment, Rub mn 2015 FY 2014 FY Change yoy
Revenue 15,218 10,291 48%
EBITDA 3,246 1,908 70%
EBITDA margin 21.3% 18.5%  
XLS

The oil & gas equipment business segment continued to deliver outstanding results due to signed contracts for delivery of integrated solutions both in terms of revenue and EBITDA. Revenue increased by 48% yoy to Rub 15,218 million, EBITDA was up 70% yoy and reached Rub 3,246 million with EBITDA margin growing to 21.3% from 18.5% last 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 main products include standard compressors, customized compressors and compressor-based integrated solutions.

Compressors, Rub mn 2015 FY 2014 FY Change yoy
Revenue 4,183 2,661 57%
EBITDA 315 -255 n/a
EBITDA margin 7.5% -9.6%  
XLS

Revenue grew by 57% yoy to Rub 4,183 million. EBITDA turned positive Rub 315 million in comparison to negative Rub 255 million last year. The improving results of the compressors business segment are explained by increased number and value of contracts for standard equipment combined with execution of a large contract in the oil & gas equipment business segment. In addition, the most shipments and revenue recognition was completed in the 4th quarter of 2015. EBITDA margin reached 7.5% versus negative 9.6% last year.

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 for customers in the oil & gas upstream and midstream.

EPC, Rub mn 2015 FY 2014 FY Change yoy
Revenue EPC 2,617 3,356 -22%
Project and design 1,593 2,266 -30%
Construction 1,024 1,089 -6%
EBITDA EPC 180 490 -63%
Project and design 132 279 -53%
Construction 48 211 -77%
EBITDA margin EPC 6.9% 14.6%  
Project and design 8.3% 12.3%  
Construction 4.7% 19.3%  
XLS

The EPC business segment’s results continued to weaken compared to FY 2014 with revenue down to Rub 2,617 million (-22% yoy) and EBITDA decreasing by 63% yoy to Rub 180 million.

In general, the EPC segment is experiencing tougher competition and stiffer pricing in the oil & gas engineering and construction market, which influenced the segment’s financial results. As a result, the EPC margin went down to 6.9% from 14.6% in the period of comparison.

___________________________
[1] Backlog is calculated under management accounts 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, including adjustments in compliance with IFRS. 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.
Note: Backlog for 2014 was adjusted for Rub 733 mn, and order intake for 2015 was adjusted by Rub 2.9 bn.
[2] Under management accounts, signed contracts during the reporting period.
[3] SG&A expenses = Distribution and transportation expenses + General and administrative expenses
[4] Total operating expenses = Distribution and transportation expenses + General and administrative expenses + Other operating expenses (net)
[5] Total debt average FY 2015 is derived as (Total debt 31.12.2014 + Total debt 31.12.2015)/2, and total debt average FY 2014 is derived as (Total debt 31.12.2013 + Total debt 31.12.2014)/2.
[6] Herein, average interest rate for 2015 is derived as (weighted average interest rate on 01.01.2015 + weighted average interest rate on 01.01.2016)/2, and average interest rate for 2014 is derived as (weighted average interest rate on 01.01.2014 + weighted average interest rate on 01.01.2015)/2.
Your page has been added successfully. Please click on "My Annual Report" () to see your selection.
Link für Popup
Scroll Top