CASH FLOWS PERFORMANCE
|Cash flow performance, Rub mn||2013 FY||2014 FY||Change yoy|
|Net cash from operating activities||4,523||960||-79%|
|Net cash used in investing activities||-2,375||-1,077||-55%|
|Net cash (used in)/from financing activities||-1,918||2,996||-256%|
|Free cash flow (FCF)||2,148||-118||-105%|
Operating cash flow dropped by 79% yoy from 4,523 million rubles to 960 million rubles mainly due to changes in working capital that grew both in absolute figures and as a share of total revenue.
Working capital increased by 32% yoy to 6,836 million rubles and comprised a 21% share of total revenue versus 16% for the previous period. The key factor behind the working capital increase was the growth in receivables and inventories (2.8 billion rubles in total) related to two large oil & gas equipment contracts under execution.
Absence of M&A deals substantially decreased outflow from investing activities, which equaled -1,077 million rubles (-55% yoy).
Due to current economic downturn, capital expenditures were reduced by 21% yoy and amounted to 1,223 million rubles in comparison with 1,553 million rubles last year. But still HMS Group is realizing large projects for KKM’s modernization and development of manufacture competences for high capacity oil transport pumps and nuclear pumps in Russia.
2,996 million rubles of net cash inflow from financing activities was a result of borrowings. This amount of money was attracted as a part of preparation for rubles bond redemption in February 2015.
That said, negative free cash flow accounted for only 118 million rubles for 12 months 2014.
Depreciation and amortization went up by 11% yoy primarily due to a 72% yoy increase in amortization expenses on patents and project documentation, related to NIITurbokompressor acquired in 2013, and a 7% yoy growth of depreciation expenses on plant and equipment caused by a complete modernization of HMS Livgidromash’s foundry, which in the whole gave 95% of total D&A raise.
DEBT AND LIQUIDITY POSITION
|Debt & Liquidity, Rub mn||2013 FY||2014 FY||Change yoy|
|Cash and cash equivalents at the end of the period||1,584||4,535||186%|
By the end of 2014, HMS Group increased its total debt by 34% yoy to 16,967 million rubles from 12,687 million rubles as of the end of 2013. The increase in debt was mainly a result of required working capital growth incidental to execution of large projects and a drawdown of available credit lines so as to have sufficient “liquidity cushion” for redemption of the Group’s ruble bonds with maturity in February 2015. At the same time, net debt increased only by 12% yoy to 12,432 million rubles.
As a result, the Net debt-to-EBITDA ratio amounted to 2.36x, and under a net debt-to-EBITDA bank maintenance covenant with a 4.50x threshold is implying an ample headroom for the next 12 months.
As of 1 January 2015, despite limited access to capital markets and thus sharp increase in rates thanks to managerial efforts the weighted average interest rate was 10.1% for all loans, including FX-denominated. A solid liquidity position with 4.5 billion rubles in cash covered HMS’s short-term debt of 3.4 billion rubles.
In September 2014, HMS Group made a partial redemption of its Ruble bonds for 900 million rubles excluding accumulated coupon interest. HMS purchased 900,000 bonds at 100% par value. Bonds buy-back was financed by an unsecured non-revolving credit line up to 3 years, lent by Raiffeisenbank at the end of this August. The bank also acted as a purchase agent.
In December 2014, Standard & Poor’s Rating Services lowered the long-term corporate rating of the company from “B” to “B-“ and placed it on CreditWatch with negative implications. Also, S&P downgraded Rub 5.1 billion notes issued by HMS’ subsidiary CJSC “Hydromashservice” to “CCC+” and placed them on CreditWatch negative. According to S&P, the downgrade reflects discomfort about the Rub 2.1 billion unsecured bond repayment in February 2015. At the end of 2014, HMS Group made a decision to withdraw credit ratings of Standard & Poor’s.
In January 2015, the company made a partial redemption of its Rubles bonds for 1.9 billion rubles excluding accumulated coupon interest. Though HMS Group made a public offer to acquire the outstanding securities for 2.1 billion rubles at 100% par value, it received claims only for 1.9 billion rubles. The buy-back was financed by both HMS’ own funds and credit lines. Raiffeisenbank acted as the purchase agent. As a result of above actions, only 177 million rubles bonds left to be redeemed on maturity date and they were successfully paid off in February 2015.