Annual Report 2020

Financial overview

Revenue was Rub 46.5 billion, down by 10% yoy, compared with Rub 51.4 billion for 2019, because of less revenue generated by the oil & gas equipment and the compressors business segments.

EBITDA, in contrast, was up to Rub 4.9 billion, by 3%, due to increased margins of pumps and compressors contracts. EBITDA margin grew to 10.6%, compared with 9.4% for 2019.

Consolidated revenue from recurring business declined by 9% yoy, and revenue from large projects was down by 11% yoy. EBITDA from recurring business declined by 12% yoy, and, in contrast, EBITDA from large contracts increased by 26% yoy. 

Loss for the period was Rub 816 million, compared with profit for the period at Rub 151 million for 2019. Included in this loss is an impairment of goodwill of Rub 425 million, recognized on acquisition of TMCP in the beginning of 2019. The goodwill was impaired as a result of not meeting targeted synergies with HMS Neftemash in executing large contracts, due to the Covid-19 pandemic and general situation on the oil and gas market. Loss for the 2020 year adj.1 was Rub 265 million.

Free cash inflow was Rub 3.0 billion, compared with Rub 23 million in 2019, despite lower revenue, due to the implemented cost-optimization program.

Rub mn20202019 Change yoy4Q 20203Q 2020Change qoq
Revenue46,47651,413 -10%15,00011,97825%
EBITDA4,9474,824 3%1,5761,26425%
EBITDA margin10.6%9.4%  10.5%10.6% 
(Loss)/Profit for the period adj.(265) 151 na(41)90na
Impairment of goodwill (note 9)(426)   (426)  
Impairment of previously recognised
deferred tax assets (n.22)
(126)   (126)  
(Loss)/Profit for the period(816)151 na(593)90na
Free cash flow2,95823 12879%2,0742,397-13%

Expenses and Operating Profit

Cost of sales was down by 11% yoy to Rub 37.1 billion, compared with Rub 41.8 billion for 2019, due to lower materials and components costs and labour expenses. Materials and components declined 15% yoy because of lower revenue. Labour costs were down by 2% yoy due to the cost-cutting program.

Rub mn 20202019Change yoyShare of
2020 revenue
Share of
2019 revenue
Cost of sales37,07141,804 -11%79.8%81.3%
Materials and components23,76027,957 -15%51.1%54.4%
Labour costs incl. Social taxes6,9067,060 -2%14.9%13.7%
Depreciation and amortization2,1221,954 9%4.6%3.8%
Construction and design22,5572,467 4%5.5%4.8%
Others1,7262,365 -27%3.7%4.6%

Gross profit declined to Rub 9.4 billion, by 2% yoy, compared with Rub 9.6 billion for 2019.

SG&A expenses3 declined by 2% yoy due to decrease in general & administrative expenses. Distribution & transportation expenses were up by 1% yoy, mainly due to higher transportation expenses and labour costs. General & administrative expenses declined to Rub 5.2 billion by 3% yoy, compared with 2019, mainly due decrease in labour costs and business trips expenses.

Operating profit was down to Rub 1.3 billion by 35% yoy, compared with Rub 2.1 billion in 2019. 

Rub mn 20202019Change yoyShare of
2020 revenue
Share of
2019 revenue
Gross profit9,405 9,609 -2%20.2%18.7%
Distribution and transportation1,986 1,961 1%4.3%3.8%
General and administrative5,243 5,395 -3%11.3%10.5%
SG&A expenses7,228 7,356 -2%15.6%14.3%
Other operating expenses412 196 111%0.9%0.4%
Operating expenses excl. cost of sales 7,641 7,553 1%16.4%14.7%
Operating profit1,338 2,057 -35%2.9%4.0%
Finance costs 1,926 1,785 8%4.1%3.5%

Finance costs increased to Rub 1.9 billion by 8% yoy, compared with Rub 1.8 billion in 2019. The main reason was the 5% increase in interest expenses due to the higher level of average debt within 2020, compared with 2019. 

Average interest rates decreased to 8.00% p.a., compared with 8.57% p.a. last year.

Rub mn 20202019Change yoy
Finance costs 1,9261,785 8%
Interest expenses 1,848 1,764 5%
Interest rate, average 8.00%8.57%  
Interest rate Rub, average 8.12%8.69%  

Business segments performance

Industrial pumps4

Revenue grew to Rub 20.3 billion by 2% yoy, based on the recurring business. EBITDA was up to Rub 2.9 billion, by 13% yoy, compared with Rub 2.6 billion in 2019, due to a larger share of regular orders with higher profitability. EBITDA margin was 14.5%, compared with 13.1% in 2019.

Rub mn 20202019Change yoy4Q 20204Q 2019Change qoq
Revenue20,25619,770 2%6,3115,65712%
EBITDA2,9312,599 13%1,11679740%
EBITDA margin14.5%13.1%  17.7%14.1% 

Oil and Gas equipment & projects (OGEP)5

Revenue declined to Rub 11.3 billion, by 14% yoy, compared with Rub 13.2 billion in 2019. EBITDA was down to Rub 241 million, compared with Rub 430 million in 2019. The main reasons were the COVID-19 pandemic and postponement of projects for 2021.

Rub mn 20202019Change yoy4Q 20203Q 2020Change qoq
Revenue11,284 13,160 -14%2,890 3,241 -11%
EBITDA241 430 -44%(49) 47 -204%
EBITDA margin2.1%3.3%  -1.7%1.4% 

Compressors6

Revenue was down by 16% yoy to Rub 14.9 billion, compared with Rub 17.9 billion, due to less revenue generated by recurring business.

EBITDA grew by 25% yoy to Rub 1.9 billion, compared with Rub 1.5 billion in 2019, due to higher margins generated by large contracts. EBITDA margin was up to 13.0%, compared with 8.6% in 2019.

Rub mn 20202019Change yoy4Q 20203Q 2020Change qoq
Revenue14,94717,884 -16%6,0803,07598%
EBITDA1,9391,546 25%79648963%
EBITDA margin13.0%8.6%  13.1%15.9% 

Construction7

Revenue was down to Rub 718 million, compared with Rub 1.4 billion in 2019. EBITDA was Rub (63) million, compared with Rub (29) million last year.

Rub mn 20202019Change yoy4Q 20203Q 2020Change qoq
Revenue7181,394 -49%138174-21%
EBITDA(63)(29) 117%(43) (59)-27%
EBITDA margin-8.8%-2.1%  -31.2%-34.0% 

Working capital and Capital expenditures

Working capital declined to Rub 6.8 billion, by 24% yoy, compared with Rub 8.8 billion in 2019. As a share of revenue, working capital declined to 14.5% which is a very low ratio. It was a result of tough anti-crisis measures initiated by the company.

Maintenance capex was down to Rub 1.4 billion, by 12% yoy, compared with Rub 1.6 billion in 2019

Rub mn 20202019Change yoy4Q 20203Q 2020Change qoq
Working capital6,7528,846 -24%6,7528,715-23%
Working capital / Revenue LTM14.5%17.2%  14.5%18.9% 
Capital expenditures1,3921,571 -11%250399-37%
Acquisition0670  00 

Debt position

Total debt declined by 9% yoy to Rub 22.2 billion, compared with Rub 24.3 billion in 2019. Net debt was down to Rub 11.8 billion, by 18% yoy, compared with Rub 14.4 billion in 2019. 

Net debt to EBITDA LTM ratio decreased to 2.39x, compared with 2.98x in 2019.

Rub mn 20202019Change yoy4Q 20203Q 2020Change qoq
Total debt22,17524,321 -9%22,17521,115-3%
Net debt11,81414,369 -18%11,81416,960-15%
Net debt / EBITDA LTM2.392.98  2.392.98 

Significant events after the reporting date & financial management

Large contracts

After the reporting date, in April 2021, the company announced the signature of a Rub 7.5 billion contract to design and manufacture oil & gas equipment for one of the largest gas fields in Russia. The contract is for manufacture, delivery and installation of membrane modules and elements, turbocompressor units for an interstage compressor station and gas transportation units for a gas booster station as part of a helium concentrate membrane recovery unit. This is a follow-up contract HMS Group has secured with this client. The first one was announced in 2017 in a Rub 10.2 billion contract, and that was the first project of that kind in Russia.

Buyback program

After the reporting date, HMS Group repurchased 176,000 GDRs under its buyback program.

Dividends

The Board of Directors at the meeting on April 21, 2021, recommended payment of a final dividends in respect of FY 2020 in the amount of Rub 4.25 per one ordinary share (Rub 21.25 per one GDR). The dividends are subject to the approval at the AGM on June 24, 2021. Subject to such approval, the Dividends may be paid on July 1, 2021 to shareholders on the Company’s register at close of business (UK time) on June 18, 2021 (the “Record Date”).

MOEX listing

Also, the Board of Directors approved the listing of the Group’s GDRs as a Foreign Issuer on the Moscow Exchange. The Company’s GDRs will continue trading on the Main Market of the London Stock Exchange. Trading of HMS Group’s GDRs on the Moscow Exchange is expected to commence in the second quarter of 2021, subject to approval by the Moscow Exchange.

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1 Loss for the period adj. – is the reported Loss for the period, excluding the effects of goodwill impairment and impairment of previously recognized deferred tax asset. 2 Construction and design and engineering services of subcontractors.
3 SG&A expenses - Selling, General and Administrative Expenses, compiled of distribution & transportation expenses plus general & administrative ones.
4 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 solutions as well as pumps built to standard specifications; it also provides aftermarket maintenance and repair services and other support for its products.
5 The oil and gas equipment and projects 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.
6 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.
7 The construction provides construction works for projects for customers in the oil upstream and midstream, gas upstream.