HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Financial Information (unaudited) 30 June 2021
HMS Hydraulic Machines & Systems Group plc
Consolidated Condensed Interim Financial Information (unaudited)
30 June 2021
Contents Independent Auditor’s report on Review of consolidated condensed interim financial information ................ 1 Consolidated Condensed Interim Statement of Financial Position ................................................................. 3 Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income ................ 4 Consolidated Condensed Interim Statement of Cash Flows .......................................................................... 5 Consolidated Condensed Interim Statement of Changes in Equity ................................................................ 6 Notes to the Consolidated Condensed Interim Financial Information 1 General Information .............................................................................................................................. 7 2 Basis of Preparation .............................................................................................................................. 7 3 Accounting Policies and Critical Accounting Estimates and Judgments .............................................. 7 4 Property, Plant and Equipment ............................................................................................................. 9 5 Other Intangible Assets ....................................................................................................................... 10 6 Goodwill............................................................................................................................................... 10 7 Right-of-use Assets and Lease Liabilities ........................................................................................... 11 8 Cash and Cash Equivalents ................................................................................................................ 11 9 Inventories ........................................................................................................................................... 12 10 Trade and Other Receivables and Other Financial Assets ................................................................. 12 11 Borrowings .......................................................................................................................................... 13 12 Trade and Other Payables .................................................................................................................. 14 13 Other Taxes Payable .......................................................................................................................... 14 14 Provisions for Liabilities and Charges ................................................................................................. 14 15 Equity and Earnings per Share ........................................................................................................... 15 16 Share-based Payments ....................................................................................................................... 15 17 Income Taxes ...................................................................................................................................... 16 18 Revenue .............................................................................................................................................. 16 19 Cost of Sales ....................................................................................................................................... 17 20 Distribution and Transportation Expenses .......................................................................................... 17 21 General and Administrative Expenses ................................................................................................ 17 22 Other Operating Expenses, Net .......................................................................................................... 18 23 Finance Income ................................................................................................................................... 18 24 Finance Costs ..................................................................................................................................... 18 25 Balances and Transactions with Related Parties................................................................................ 18 26 Contingencies and Commitments ....................................................................................................... 19 27 Segment Information ........................................................................................................................... 21 28 Fair Value of Financial Instruments .................................................................................................... 23 29 Subsequent Events ............................................................................................................................. 24
Deloitte O INVESTORSIN PEOPLE Platinum
Deloitte LimitedMáximos PlazaTower 1, 3rd Floor213 Arch. Makariou III AvenueCY-3030 Limassol, CyprusMall: P.O. Box 58466CY-3734 Limassol, Cyprus
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Independent Auditor’s report on Review of consolidated condensed interim financial information
To the Board of Directors of HMS Hydraulic Machines & Systems Group Pic
Introduction
We have reviewed the accompanying consolidated condensed interim financial information of HMS Hydraulic Machines & Systems Group Pic (the "Company") and its subsidiaries (together with the Company, the “Group”), which is presented in pages 3 to 24 and comprises the consolidated condensed interim statement of financial position as at 30 June 2021, and the consolidated condensed interim statements of profit or loss and other comprehensive income, changes in equity and cash flows for the six-month period then ended and other explanatory information.
Board of Directors’ responsibilities
The Group’s Board of Directors is responsible for the preparation and presentation of this consolidated condensed interim financial information in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting” as adopted by the European Union.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union and the requirements of the Cyprus Companies Law, Cap.113.
Auditor’s responsibility
Our responsibility is to express a conclusion on this consolidated condensed interim financial information based on our review. This report, including the conclusion, has been prepared for and only for the Company. We do not, in giving this conclusion, accept or assume responsibility for any other purpose to any other person to whose knowledge this report may come to.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity'. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
I MAKING AN
i IMPACT THAT gr jpg I MATTERSi g p r i [ i f 5
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Deloitte.Independent Auditor's Report on Review of consolidated condensed interim financial information (continued)
To the Board of Directors of HMS Hydraulic Machines & Systems Group Pic
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying consolidated condensed interim financial information is not prepared, in all material respects, in accordance with IAS 34 “Interim Financial Reporting” as adopted by the European Union.
Andreas GeorgiouCertified Public Accountant and Registered Auditor for and on behalf of
Deloitte LimitedCertified Public Accountants and Registered Auditors Máximos Plaza, Tower 1, 3rd Floor 213 Arch. Makariou III Avenue CY-3030 Limassol, Cyprus
Limassol, 21 September 2021
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HMS Hydraulic Machines & Systems Group picConsolidated Condensed Interim Statement of Financial Position at 30 June 2021 (unaudited)(in thousands of Russian Roubles, unless otherwise stated)
HMSG R O U P
Note 30 June 2021 31 December 2020ASSETSNon-current assets:Property, plant and equipment 4 14,384,553 14,684,279Other intangible assets 5 1,590,627 1,743,399Goodwill 6 3,190,624 3,255,984Right-of-use assets 7 200,254 183,211Investments in associates 94,933 94,307Deferred income tax assets 815,368 786,455Other long-term assets 5,733 42,252Investment property 172,008 176,833Total non-current assets 20,454,100 20,966,720
Current assets:Inventories 9 10,452,424 8,847,749Trade and other receivables and other financial assets 10 12,835,583 15,598,766Contract assets 11,379,208 6,201,354Current income tax receivable 138,151 94,972Cash and cash equivalents 8 5,915,041 10,360,588Total current assets 40,720,407 41,103,429TOTAL ASSETS 61,174,507 62,070,149
EQUITY AND LIABILITIESEQUITYShare capital 48,329 48,329Share premium 3,523,535 3,523,535Treasury shares 15 (93,775) (33,055)Other reserves 129,392 129,392Currency translation reserve 578,984 646,427Retained earnings 5,353,615 5,510,974Equity attributable to the shareholders of the Company 9,540,080 9,825,602Non-controlling interests 3,607,196 3,518,674TOTAL EQUITY 13,147,276 13,344,276
LIABILITIESNon-current liabilities:Long-term borrowings 11 14,880,643 20,452,736Deferred income tax liability 1,474,276 1,421,489Retirement benefit obligations 637,311 646,213Provisions for liabilities and charges 14 197,920 228,199Lease liabilities 7 167,032 153,048Other long-term payables 266,719 230,581Total non-current liabilities 17,623,901 23,132,266
Current liabilities:Trade and other payables 12 20,234,212 17,969,950Contract liabilities 1,404,426 4,304,845Short-term borrowings 11 7,423,907 1,548,574Provisions for liabilities and charges 14 528,003 589,762Retirement benefit obligations 78,573 77,859Lease liabilities 7 24,118 20,440Current income tax payable 47,216 134,080Other taxes payable 13 662,875 948,097Total current liabilities 30,403,330 25,593,607TOTAL LIABILITIES 48,027,231 48,725,873TOTAL EQUITY AND LIABILITIES 61,174,507 62,070,149
The accompanying notes on pages 7 to 24 are an integral part of this consolidated condensed interim financialinformation.
3
HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Profit or Loss and Other Comprehensive Income for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
______________________________________________________________________________________
The accompanying notes on pages 7 to 24 are an integral part of this consolidated condensed interim financial information.
4
Note
Six months ended
30 June 2021
Six months ended
30 June 2020
Revenue 27 25,795,798 19,498,083 Cost of sales 19 (20,931,033) (15,537,017)
Gross profit 4,864,765 3,961,066 Distribution and transportation expenses 20 (764,521) (905,929) General and administrative expenses 21 (2,589,855) (2,404,748) Other operating expenses, net 22 (84,735) (126,603)
Operating profit 1,425,654 523,786 Finance income 23 94,976 163,837 Finance costs 24 (916,536) (941,454) Share of results of associates 143 264
Profit/(loss) before income tax 604,237 (253,567)
Income tax expense 17 (226,484) (60,144)
Profit/(loss) for the period 377,753 (313,711)
Profit/(loss) attributable to: Shareholders of the Company 305,134 (344,105) Non-controlling interests 72,619 30,394
Profit/(loss) for the period 377,753 (313,711)
Other comprehensive income/(loss): Items that will not be subsequently reclassified to profit or loss Remeasurement of post-employment benefit obligations 26,745 (5,721) Items that may be reclassified subsequently to profit or loss Currency translation differences (60,454) 299,070 Currency translation differences of associates 483 (23)
Other comprehensive (loss)/income for the period (33,226) 293,326
Total comprehensive income/(loss) for the period 344,527 (20,385)
Total comprehensive income/(loss) attributable to: Shareholders of the Company 255,161 (47,380) Non-controlling interests 89,366 26,995
Total comprehensive income/(loss) for the period 344,527 (20,385)
Basic and diluted earnings/(loss) per ordinary share for profit/(loss) attributable to the ordinary shareholders (RR per share)
15 2.63 (3.03)
HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Cash Flows for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
The accompanying notes on pages 7 to 24 are an integral part of this consolidated condensed interim financial information.
5
Note Six months ended
30 June 2021
Six months ended
30 June 2020
Cash flows from operating activities Profit/(loss) before income tax 604,237 (253,567)
Adjustments for: Depreciation and amortisation 19-22 1,208,328 1,210,967 (Gain)/loss from disposal of property, plant and equipment and intangible assets 22 (23,071) 4,548 Finance income 23 (94,976) (163,837) Finance costs 24 916,536 941,454 Change in retirement benefits obligations 19-21 32,778 34,835 Change in warranty provision 19 (53,133) 76,070 Change in expected credit losses allowance for trade and other receivables and other financial assets and allowance for impairment of non-financial assets 21 3,435 30,578 Change in allowance for obsolete inventories 19 40,208 1,300 Change in provision for legal claims 22 15,800 13,401 Share-based compensation 16 12,500 29,460 Foreign exchange (gain)/loss, net 22 (28,974) 15,063 Amortisation of government grants 19 (15,562) (15,562) Share of results of associates (143) (264)
Operating cash flows before working capital changes 2,617,963 1,924,446
Increase in inventories (1,646,820) (1,267,369) Decrease in trade and other receivables 2,874,978 1,652,074 (Increase)/decrease in contract assets (5,183,717) 860,673 Increase/(decrease) in accounts payable and accrued liabilities 1,597,269 (3,445,237) (Decrease)/increase in contract liabilities (2,900,419) 1,650,330 Decrease in other taxes payable (285,338) (671,572)
Cash (used in)/from operations (2,926,084) 703,345
Income tax paid (327,500) (555,558) Interest paid (913,654) (1,061,544) Interest received 95,142 172,052
Net cash used in operating activities (4,072,096) (741,705)
Cash flows from investing activities Repayment of loans advanced 1,401 2,536 Loans advanced (2,205) (18,406) Interest received - 1,000 Proceeds from sale of property, plant and equipment, net of VAT 27,054 18,765 Purchase of property, plant and equipment, net of VAT (528,868) (511,335) Acquisition of intangible assets, net of VAT (128,693) (231,256) Repayment of contingent consideration liability - (33,000)
Net cash used in investing activities (631,311) (771,696)
Cash flows from financing activities Repayments of borrowings (3,085,640) (3,826,233) Proceeds from borrowings 3,420,035 2,314,701 Repayment of the lease liabilities principal (9,965) (19,805) Buy back of issued shares 15 (60,720) - Dividends related to Long-term Incentive Program - (5,660) Dividends paid to non-controlling shareholders of subsidiaries (395) (92) Dividends paid to the shareholders of the Company 15 - (391,942)
Net cash from/(used in) financing activities 263,315 (1,929,031)
Net decrease in cash and cash equivalents (4,440,092) (3,442,432)
Effect of exchange rate changes on cash and cash equivalents and effect of translation to presentation currency (5,455) 64,537
Cash and cash equivalents at the beginning of the period 10,360,588 9,952,118
Cash and cash equivalents at the end of the period 5,915,041 6,574,223
HMS Hydraulic Machines & Systems Group plc Consolidated Condensed Interim Statement of Changes in Equity for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
The accompanying notes on pages 7 to 24 are an integral part of this consolidated condensed interim financial information. 6
Equity attributable to the shareholders of the Company
Note Share
capital Share
premium Treasury
shares Other
reserves
Currency translation
reserve Retained earnings Total
Non- controlling
interest Total
equity
Balance at 31 December 2019 48,329 3,523,535 (319,475) 62,716 (44,878) 7,029,094 10,299,321 3,569,953 13,869,274 (Loss)/profit for the period - - - - - (344,105) (344,105) 30,394 (313,711) Other comprehensive income Remeasurement of post-employment benefit obligations - - - - - (3,191) (3,191) (2,530) (5,721) Currency translation differences - - - - 299,939 - 299,939 (869) 299,070 Currency translation differences of associates - - - - (23) - (23) - (23) Total comprehensive income/(loss) for the period - - - - 299,916 (347,296) (47,380) 26,995 (20,385) Share-based compensation 16 - - - - - 23,800 23,800 - 23,800 Transfer of GDRs under LTIP 15,16 - - 139,460 21,346 (160,806) - - - Dividends declared to the shareholders of the Company 15 - - - - (391,942) (391,942) - (391,942) Dividends declared by the Group’s subsidiaries - - - - - - - (206) (206) Total transactions with owners, recognised directly in equity - - 139,460 21,346 - (528,948) (368,142) (206) (368,348)
Balance at 30 June 2020 48,329 3,523,535 (180,015) 84,062 255,038 6,152,850 9,883,799 3,596,742 13,480,541
Balance at 31 December 2020 48,329 3,523,535 (33,055) 129,392 646,427 5,510,974 9,825,602 3,518,674 13,344,276 Profit for the period - - - - - 305,134 305,134 72,619 377,753 Other comprehensive income Remeasurement of post-employment benefit obligations - - - - - 17,470 17,470 9,275 26,745 Currency translation differences - - - - (67,926) - (67,926) 7,472 (60,454) Currency translation differences of associates - - - - 483 - 483 - 483 Total comprehensive income for the period - - - - (67,443) 322,604 255,161 89,366 344,527 Buy back of issued shares 15 - - (60,720) - - - (60,720) - (60,720) Share-based compensation 16 - - - - - 12,500 12,500 - 12,500 Dividends declared to the shareholders of the Company 15 - - - - - (492,463) (492,463) - (492,463) Dividends declared by the Group’s subsidiaries - - - - - - - (844) (844)
Total transactions with owners, recognised directly in equity - - (60,720) - - (479,963) (540,683) (844) (541,527)
Balance at 30 June 2021 48,329 3,523,535 (93,775) 129,392 578,984 5,353,615 9,540,080 3,607,196 13,147,276
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
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1 General Information
HMS Hydraulic Machines & Systems Group plc (the “Company”) was incorporated in Cyprus on 27 April 2010. The Company’s registered office is at 5 Alkaiou, 2404, Nicosia, Cyprus. The principal business activities of the Company and its subsidiaries (the “Group”) are the manufacture and repair of a wide range of pumps and pumping units, compressors, modular equipment, including oil and gas equipment, engineering and construction services mainly for oil and gas companies. These products and services are sold both in the Russian Federation and abroad. The Group’s manufacturing facilities are primarily located in Orel, Tomsk, Ulyanovsk, Tumen regions and the Republic of Tatarstan of the Russian Federation, Sumy in Ukraine, Minsk and Bobruisk in Belorussia, Goessnitz (Thuringia) in Germany. At 30 June 2021 and 31 December 2020, HMS Holding JSC, 100% subsidiary of H.M.S. Technologies Ltd., held 71.51% of the Company’s shares. The Company does not have an ultimate controlling party above H.M.S. Technologies Ltd.
2 Basis of Preparation
This consolidated condensed interim financial information for the six months ended 30 June 2021 has been prepared in accordance with International Accounting Standard 34 (“IAS 34”), Interim financial reporting, as adopted by the European Union (“the EU”). The consolidated condensed interim financial information should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2020 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the EU and the Cyprus Companies Law, Cap. 113. Impact of the COVID-19 outbreak on the Group’s operations. Starting from early 2020, a new coronavirus disease (COVID-19) has begun rapidly spreading all over the world resulting in announcement of the pandemic status by the World Health Organization in March 2020. Responses put in place by many countries to contain the spread of COVID-19 are resulting in significant operational disruption for many companies and have significant impact on global financial markets. The Group in the first half of 2020 was experiencing postponement of tenders and general decline in demand along with price pressures as a result of COVID-19 spread. However, 2021 saw strong business performance supported by solid signed new contracts and servicing backlog, which resulted in generating higher revenue compared to that of the first part of 2020.
3 Accounting Policies and Critical Accounting Estimates and Judgments
Accounting policies. The accounting policies applied are consistent with those of the annual consolidated financial statements for the year ended 31 December 2020, as described in those annual consolidated financial statements, except as described in the paragraph Adoption of new or revised standards, amendments and interpretations below. Adoption of new or revised standards, amendments and interpretations. Certain new standards, interpretations and amendments to the existing standards, as disclosed in the Group’s consolidated financial statements for the year ended 31 December 2020, became effective for the Group from 1 January 2021. They have not significantly affected this consolidated condensed interim financial information of the Group. The details of the new standards, which may be relevant to the Group’s financial reporting, are presented below:
Title Description
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase II
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (e.g. LIBOR, EURIBOR) is replaced with an alternative nearly risk-free interest rate. The amendments include a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest. The Group intends to use the practical expedient in future periods if it becomes applicable.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
8
3 Accounting Policies and Critical Accounting Estimates and Judgments (continued)
Critical accounting estimates and judgments. The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next reporting period. Estimates and judgements are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management also makes certain judgements, apart from those involving estimations, in the process of applying the accounting policies. (a) Assessment of construction revenue and receivables related to construction contracts The Group recognises revenue from construction projects, design and engineering projects and certain other long-term contracts over time, using the input method. The use of this method requires the Group to estimate the proportional revenue and costs. If circumstances arise that may change the original estimates of revenues, costs, or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. For the six months ended 30 June 2021, the Group recognised revenue from such contracts in amount of RR 16,362,472 (for the six months ended 30 June 2020: RR 8,300,559) (Note 18).
In addition, receivables and contract assets related to construction contracts and certain other contracts, under which the revenue is recognised over time, are subject to credit risk. In other words, although some revenue continues to be contractually bound, the customer can still refuse to pay or to pay in time. Where revenue has been validly recognised on a contract, but an uncertainty subsequently arises about the recoverability of the related amount due from the customer, any allowance against the amount due is recognised as an expense.
(b) Estimated impairment of property, plant and equipment and goodwill At 30 June 2021, the Group performed an analysis to determine whether there were any indicators of impairment of its cash generating units (“CGU”) as of that date. As a result of analysis performed by the Group, no additional impairment has been recognised at 30 June 2021.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
9
4 Property, Plant and Equipment
Property, plant and equipment and related accumulated depreciation and impairment consist of the following:
Land Buildings Plant and
equipment Transport Other Construction
in progress Total Cost Balance at 1 January 2020 1,543,729 10,755,331 11,301,370 340,389 1,452,342 577,691 25,970,852 Additions - 5,105 116,056 15,540 36,540 226,742 399,983 Reclassification from intangible assets - - - - - 65,294 65,294 Transfers - 20,792 176,557 - 5,256 (202,605) - Disposals (4,789) (89,360) (35,572) (18,644) (19,559) (911) (168,835) Translation to presentation currency 4,197 38,949 37,634 (109) 32,962 68 113,701 Balance at 30 June 2020 1,543,137 10,730,817 11,596,045 337,176 1,507,541 666,279 26,380,995 Balance at 1 January 2021 1,548,478 10,781,702 11,911,081 332,049 1,611,857 627,093 26,812,260 Additions - 2,925 150,108 5,031 31,831 377,907 567,802 Transfers - 11,290 61,020 - 2,653 (74,963) - Disposals - (4,445) (72,638) (1,630) (23,086) (587) (102,386) Translation to presentation currency (1,644) (8,775) 5,855 333 (12,511) 391 (16,351) Balance at 30 June 2021 1,546,834 10,782,697 12,055,426 335,783 1,610,744 929,841 27,261,325 Accumulated depreciation and impairment Balance at 1 January 2020 (7,993) (3,254,742) (5,923,421) (234,674) (1,007,695) (9,751) (10,438,276) Eliminated on disposals - 25,575 31,671 18,644 19,087 - 94,977 Depreciation expense - (201,619) (560,817) (15,337) (91,176) - (868,949) Translation to presentation currency - (14,119) (20,208) 105 (20,934) - (55,156) Balance at 30 June 2020 (7,993) (3,444,905) (6,472,775) (231,262) (1,100,718) (9,751) (11,267,404) Balance at 1 January 2021 (7,993) (3,648,283) (7,010,574) (239,075) (1,212,305) (9,751) (12,127,981) Eliminated on disposals - 3,719 62,107 1,630 22,963 - 90,419 Depreciation expense - (198,004) (559,866) (14,202) (81,887) - (853,959) Translation to presentation currency - 4,453 1,180 (219) 9,335 - 14,749 Balance at 30 June 2021 (7,993) (3,838,115) (7,507,153) (251,866) (1,261,894) (9,751) (12,876,772) Carrying amount Carrying amount at 1 January 2020 1,535,736 7,500,589 5,377,949 105,715 444,647 567,940 15,532,576 Carrying amount at 30 June 2020 1,535,144 7,285,912 5,123,270 105,914 406,823 656,528 15,113,591 Carrying amount at 1 January 2021 1,540,485 7,133,419 4,900,507 92,974 399,552 617,342 14,684,279 Carrying amount at 30 June 2021 1,538,841 6,944,582 4,548,273 83,917 348,850 920,090 14,384,553
At 30 June 2021, RR 198,809 of the Group’s property, plant and equipment had been pledged (31 December 2020: RR 133,655), including RR 38,362 related to borrowings (31 December 2020: RR 40,356) (Note 11) and RR 160,447 related to bank guarantees (31 December 2020: RR 93,299). Construction-in-progress includes advances for capital expenditures for a total of RR 223,398 at 30 June 2021 (31 December 2020: RR 174,232). At 30 June 2021, the Group had contractual commitments for the purchase of components for construction of property, plant and equipment for RR 210,327 (31 December 2020: RR 291,039).
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
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5 Other Intangible Assets
Project documen-
tation, development
costs and patents
Customer relationships
and order backlog
Software licenses and
websites Trademarks Licenses and
certificates Total Cost
Balance at 1 January 2020 898,768 1,700,059 441,070 43,406 38,334 3,121,637 Additions 148,848 - 78,173 - 6,898 233,919 Disposals (68,576) - (134,914) - (2,712) (206,202) Reclassification to property, plant and equipment (65,294) - - - - (65,294) Translation to presentation currency 165 44,552 3,257 - 559 48,533 Balance at 30 June 2020 913,911 1,744,611 387,586 43,406 43,079 3,132,593
Balance at 1 January 2021 969,014 1,619,910 451,650 43,406 57,252 3,141,232 Additions 32,122 - 147,230 - 8,530 187,882 Disposals (10,676) - (115,959) - (4,803) (131,438) Translation to presentation currency 2,834 (21,396) 456 - - (18,106) Balance at 30 June 2021 993,294 1,598,514 483,377 43,406 60,979 3,179,570
Accumulated amortisation and impairment
Balance at 1 January 2020 (158,803) (671,721) (254,394) (20,594) (14,479) (1,119,991) Amortisation on disposals 68,575 - 134,914 - 2,712 206,201 Amortisation expense (63,124) (146,685) (107,738) (1,099) (6,729) (325,375) Translation to presentation currency 225 (33,447) (2,216) - (564) (36,002) Balance at 30 June 2020 (153,127) (851,853) (229,434) (21,693) (19,060) (1,275,167)
Balance at 1 January 2021 (218,864) (867,247) (269,052) (22,793) (19,877) (1,397,833) Amortisation on disposals 10,657 - 115,959 - 4,803 131,419 Amortisation expense (79,235) (138,470) (112,932) (1,099) (7,965) (339,701) Translation to presentation currency (1,460) 18,725 (95) - 2 17,172 Balance at 30 June 2021 (288,902) (986,992) (266,120) (23,892) (23,037) (1,588,943)
Carrying amount Carrying amount at 1 January 2020 739,965 1,028,338 186,676 22,812 23,855 2,001,646 Carrying amount at 30 June 2020 760,784 892,758 158,152 21,713 24,019 1,857,426 Carrying amount at 1 January 2021 750,150 752,663 182,598 20,613 37,375 1,743,399 Carrying amount at 30 June 2021 704,392 611,522 217,257 19,514 37,942 1,590,627
6 Goodwill
Movements in goodwill and the composition of the goodwill balance are as follows:
Six months ended
30 June 2021 Six months ended
30 June 2020 Carrying amount at 1 January 3,255,984 3,370,275 Effect of translation to presentation currency related to Apollo Goessnitz GmbH (65,360) 136,280 Carrying amount at 30 June 3,190,624 3,506,555
Goodwill is allocated to cash generating units, which represent the lowest level within the Group at which the goodwill is monitored by management and which are not larger than a segment for segment reporting purposes as follows:
30 June 2021 31 December 2020
Apollo Goessnitz GmbH 1,257,696 1,323,056 Kazankompressormash JSC 1,239,809 1,239,809 Sibneftemash JSC 511,784 511,784 EPF “SIBNA” Inc. JSC 117,308 117,308 Dimitrovgradkhimmash JSC 64,027 64,027
Total carrying amount of goodwill 3,190,624 3,255,984
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
11
7 Right-of-use Assets and Lease Liabilities
Land Buildings Plant and
equipment Other Total
Cost Balance at 1 January 2020 13,936 62,113 120,219 16,548 212,816 Termination of lease agreements - - (10,000) (2,413) (12,413) Translation to presentation currency 28 126 10,170 1,905 12,229 Balance at 30 June 2020 13,964 62,239 120,389 16,040 212,632 Balance at 1 January 2021 30,264 65,066 122,731 - 218,061 Additions - - 29,007 - 29,007 Translation to presentation currency 532 1,144 (4,425) - (2,749) Balance at 30 June 2021 30,796 66,210 147,313 - 244,319 Accumulated depreciation and impairment Balance at 1 January 2020 (4,266) (5,668) (20,078) (8,190) (38,202) Eliminated on termination of lease agreements - - - 292 292 Depreciation expense (1,831) (3,029) (4,950) (1,910) (11,720) Translation to presentation currency 23 41 (1,039) (1,192) (2,167) Balance at 30 June 2020 (6,074) (8,656) (26,067) (11,000) (51,797) Balance at 1 January 2021 (2,717) (11,633) (20,500) - (34,850) Depreciation expense (1,541) (3,217) (5,087) - (9,845) Translation to presentation currency (39) (186) 855 - 630 Balance at 30 June 2021 (4,297) (15,036) (24,732) - (44,065) Carrying amount Carrying amount at 1 January 2020 9,670 56,445 100,141 8,358 174,614
Carrying amount at 30 June 2020 7,890 53,583 94,322 5,040 160,835
Carrying amount at 1 January 2021 27,547 53,433 102,231 - 183,211
Carrying amount at 30 June 2021 26,499 51,174 122,581 - 200,254
At 30 June 2021 and 31 December 2020, lease liabilities were as follows: 30 June 2021 31 December 2020
Current lease liabilities 24,118 20,440 Non-current lease liabilities 167,032 153,048
Total lease liabilities 191,150 173,488
At 30 June 2021 and 31 December 2020, lease liabilities were measured on a present value basis using the interest rates implicit in the lease agreements, except to certain lease agreements for which the weighted average incremental borrowing rate was used. For the six months ended 30 June 2021, lease expenses for short-term leases and leases of low-value assets in amount of RR 92,430 (for the six months ended 30 June 2020: RR 75,772) (Notes 19, 20, 21) were recognised in the consolidated condensed interim statement of profit or loss and other comprehensive income and were not included in the measurement of lease liabilities. For the six months ended 30 June 2021, total cash outflows for leases contracts recognised as right-of-use assets amounted to RR 19,481, of which RR 9,516 was included in interest paid (for the six months ended 30 June 2020: RR 27,917, of which RR 8,112 was included in interest paid).
8 Cash and Cash Equivalents
Cash and cash equivalents comprise of the following:
30 June 2021 31 December 2020
Cash on hand 2,021 1,627 RR denominated balances with banks 2,575,318 3,281,688 Foreign currency denominated balances with banks 651,013 564,406 RR denominated bank deposits 2,712,132 6,538,608 Foreign currency denominated bank deposits 1,523 2,019 Other cash equivalents 4,884 4,090 Less: ECL allowance for cash and cash equivalents (31,850) (31,850)
Total cash and cash equivalents 5,915,041 10,360,588
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
12
9 Inventories
30 June 2021 31 December 2020
Raw materials and supplies 4,722,586 4,062,030 Work in progress 3,984,473 3,077,177 Finished goods and goods for resale 1,745,365 1,708,542
Total inventories 10,452,424 8,847,749
Inventories are presented net of allowance for obsolescence in amount of RR 830,753 at 30 June 2021 (31 December 2020: RR 794,011).
At 30 June 2021, inventories of RR 706,550 had been pledged (31 December 2020: RR 647,349), including RR 668,280 related to borrowings (31 December 2020: RR 609,079) (Note 11) and RR 38,270 related to bank guarantees (31 December 2020: RR 38,270). The cost of inventories recognised as expense during the period and included in cost of sales is disclosed in Note 19.
10 Trade and Other Receivables and Other Financial Assets
30 June 2021 31 December 2020
Trade receivables 9,280,535 12,492,813 Less: ECL allowance (375,185) (382,310) Short-term loans issued 33,537 34,108 Bonds and bank promissory notes receivable 26,190 4,000 Bank deposits 25,063 6,353 Other receivables 521,159 207,599 Less: ECL allowance (35,560) (34,404)
Financial assets, net 9,475,739 12,328,159 Prepayments and advances to suppliers and subcontractors 2,736,163 2,911,384 Less: allowance for impairment of advances to suppliers and subcontractors (36,806) (38,545) VAT receivable 613,626 377,990 Other taxes receivable 46,861 19,778
Non-financial assets, net 3,359,844 3,270,607
Total trade and other receivables and other financial assets 12,835,583 15,598,766
The VAT receivable balance comprises VAT related to export sales which is expected to be offset against VAT payable after appropriate confirmation is received from the tax authorities subsequent to the reporting date. Settlement of VAT receivables and payables is normally executed on net basis.
At 30 June 2021, trade receivables arising from certain sales contracts in the amount of RR 777,624 (31 December 2020: RR 1,089,538) were pledged as collateral for certain borrowings (Note 11).
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
13
11 Borrowings
Interest rate
Denomi- nated in 30 June 2021 31 December 2020
Long-term unsecured loans and bonds:
Unsecured bank loans CBR Key Rate(1)+2.75% to 8.75% RR 15,039,884 14,205,483
Bonds 2 7.95% RR 2,991,635 2,989,796 Bonds 1 8.15% RR 2,988,267 2,985,409
Unsecured bank loans EURIBOR+3.00%- EURIBOR+3.45% EUR 431,013 453,413
21,450,799 20,634,101
Less: current portion of long-term borrowings (6,570,156) (181,365)
Total long-term borrowings 14,880,643 20,452,736
Short-term unsecured bank loans: Unsecured bank loans CBR Key Rate+2.75% RR 500,001 1,000,000
500,001 1,000,000 Short-term secured bank loans: Secured loans 3.00% EUR 172,405 181,365 Secured loans 11.00% BYN 2,853 2,860
175,258 184,225 Current portion of long-term borrowings 6,570,156 181,365 Interest payable 178,492 182,984
Total short-term borrowings 7,423,907 1,548,574
(1) Key rate of the Central Bank of the Russian Federation (CBR Key Rate).
The Group’s borrowings are denominated in the following currencies:
30 June 2021 31 December 2020
RR 21,698,189 21,363,533 EUR 603,495 634,899 BYN 2,866 2,878
Total borrowings 22,304,550 22,001,310
Bonds 1. In July 2020, HYDROMASHSERVICE JSC, the Group’s subsidiary, issued RR 3.0 billion of bonds. The maturity of the bonds is 10 years with a 3-year put option and semi-annual coupon periods. Coupon rate of 8.15% is set for the first 6 coupon periods. Subsequent coupon rates are to be determined in July 2023. The Group’s subsidiaries HMS Group JSC, HMS Neftemash JSC and Sibneftemash JSC issued guarantees in respect of these bonds.
Bonds 2. In October 2020, HYDROMASHSERVICE JSC issued RR 3.0 billion of bonds. The maturity of the bonds is 10 years with a 3-year put option and semi-annual coupon periods. Coupon rate of 7.95% is set for the first 6 coupon periods. Subsequent coupon rates are to be determined in September 2023. HMS Group JSC, HMS Neftemash JSC and Sibneftemash JSC issued guarantees in respect of these bonds. Assets pledged. At 30 June 2021, certain foreign subsidiaries of the Group pledged property, plant and equipment and inventories in total amount of RR 38,362 and RR 668,280 (31 December 2020: RR 40,356 and RR 609,079), respectively. At 30 June 2021 and 31 December 2020, a foreign subsidiary of the Group pledged deposits and its rights under some sales contracts with customers as the security for certain borrowings. At 30 June 2021, the Group recognised deposits and trade receivables under these sales contracts in amount of RR 6,034 and RR 777,624 (31 December 2020: RR 6,348 and RR 1,089,538), respectively.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
14
12 Trade and Other Payables
30 June 2021 31 December 2020
Trade payables 14,414,679 13,760,707 Dividends payable to the shareholders of the Company (Note 15) 492,463 - Other payables 203,084 170,691
Financial trade and other payables 15,110,226 13,931,398 Advances from customers 3,902,668 2,925,155 Wages and salaries payable 1,221,318 1,113,397
Other non-financial payables 5,123,986 4,038,552
Total trade and other payables 20,234,212 17,969,950
13 Other Taxes Payable
30 June 2021 31 December 2020
VAT 309,171 592,894 Social funds contribution 192,895 198,738 Personal income tax 80,312 70,387 Withholding tax provision, related to acquisition of subsidiary 45,827 45,827 Property tax 19,143 21,498 Land tax 10,761 11,045 Transport tax 1,053 3,195 Other taxes 3,713 4,513
Total other taxes payable 662,875 948,097
14 Provisions for Liabilities and Charges
Warranty provision
Provision for legal claims
Provision for tax risks
At 1 January 2020 461,797 243,062 -
Additional provisions 256,491 22,967 - Unused amounts reversed (38,867) (9,566) - Provision used during the period (162,242) (60,756) - Effect of translation to presentation currency 598 235 -
At 30 June 2020 517,777 195,942 -
At 1 January 2021 579,018 229,045 9,898
Additional provisions 225,214 39,608 - Unused amounts reversed (69,682) (23,808) - Provision used during the period (208,665) (45,226) (9,898) Effect of translation to presentation currency 150 269 -
At 30 June 2021 526,035 199,888 -
Warranty provision. The Group provides warranties on certain products and undertakes to repair or replace items that fail to perform satisfactorily. A provision has been recognised at the year-end for expected warranty claims based on past experience of the level of repairs and returns. At 30 June 2021, the closing balance of the warranty provision comprised a short-term portion of RR 328,115 and a long-term portion of RR 197,920 (31 December 2020: RR 350,819 and RR 228,199, respectively). Provision for legal claims. Provision for legal claims was accrued in accordance with the management position related to claims received from the counterparties of the Group’s subsidiaries. In the opinion of management, after taking appropriate legal advice, the outcome of these legal claims will not give rise to any significant loss beyond the accrued amounts.
Provision for tax risks. Provision for tax risks was accrued in accordance with decision of the tax authorities which were received by the Group’s subsidiary as a result of field tax inspections for prior periods. During the six months ended 30 June 2021, the provision for tax risks was fully utilised as the Group’s subsidiary made respective tax payments and redeemed the liabilities in full.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
15
15 Equity and Earnings per Share
Treasury shares. During the six months ended 30 June 2021, 176,000 GDRs of the Company representing 0.75% of its issued share capital were bought back by a wholly-owned subsidiary of the Group from a member of key management for a total consideration of RR 60,720 (Note 25). During the six months ended 30 June 2020, there was no buy back of GDRs of the Company. 344,667 GDRs of the Company representing 1.47% of its issued share capital with the total cost of RR 139,460 were transferred to the participants under the Long-term Incentive Program in May-June 2020 (Note 16). At 30 June 2021, the Company, via a wholly-owned subsidiary, is holding 257,960 (31 December 2020: 81,960) of its own GDRs with the total cost of RR 93,775 (31 December 2020: RR 33,055). The voting and dividend rights of these GDRs are suspended. Dividends. No interim dividends were declared by the Board of Directors during the six months ended 30 June 2021 and 2020. At the Annual General Meeting in June 2021, the Company’s shareholders approved the final dividend in respect of the year ended 31 December 2020 of 4.25 Russian Roubles per ordinary share amounting to a total dividend of RR 492,463. These dividends were included in Trade and other payables line of the consolidated condensed interim statement of financial position at 30 June 2021 (Note 12) and were paid in July 2021. At the Annual General Meeting in June 2020, the Company’s shareholders approved the final dividend in respect of the year ended 31 December 2019 of 3.41 Russian Roubles per ordinary share amounting to a total dividend of RR 391,942. These dividends were paid in June 2020. Earnings per share. The Company has no dilutive potential ordinary shares; therefore, the diluted earnings per share equal the basic earnings per share. Basic earnings per share are calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number of ordinary shares outstanding during the period, which includes the effect of treasury shares. For the six months ended 30 June 2021 and 2020, earnings and loss per share were calculated as follows:
Six months ended
30 June 2021 Six months ended
30 June 2020
Profit/(loss) for the period attributable to ordinary shareholders 305,134 (344,105) Weighted average number of ordinary shares in issue (thousands) 115,185 113,684
Basic and diluted earnings/(loss) per ordinary share (expressed in RR per share) 2.63 (3.03)
16 Share-based Payments
LTIP 2016-2018. In March 2016, the Board of Directors of the Company approved a Long-term Incentive Program (the “Program”) for the Group’s key executives. The Program stipulated three awards based on results for 2016, 2017 and 2018. Each of the three awards was to be transferred to the participants in the form of the Company's GDRs following the respective 3-year service period of the award. GDRs for this Program were derived from GDRs owned and bought by the Group. The Participants of the Program were also entitled to dividends for not yet vested share awards. The Group accounted for this Program as an equity-settled share-based payment transaction under IFRS 2, Share-based Payments, during 2016-2020. The fair value of share awards was determined with a reference of the market price of the Company's GDRs at the respective grant date. By 31 December 2020, the Group transferred the awarded GDRs to the participants of the Program. For the six months ended 30 June 2020, the Group recognised share-based compensation expense of RR 33,864 in general and administrative expenses in the consolidated condensed interim statement of profit or loss and other comprehensive income, including the allocation of fair value of GDRs calculated at grant date to the reporting period of RR 29,460 and the respective personal income tax effect of RR 4,404. The Group also recognised related social security contributions expense of RR 5,181. For the six months ended 30 June 2020, dividends accrued to the Participants of the Program for the share awards not yet vested amounted to RR 5,660 and were recorded as a deduction of retained earnings. As a result, total effect of the Program on retained earnings amounted to RR 23,800.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
16
16 Share-based Payments (continued)
LTIP 2019-2021. In December 2018, the Board of Directors of the Company approved a new Long-term Incentive Program (the “New Program”) for the Group’s key executives. Under the conditions of the New Program, GDRs of the Company will be granted to the participants based on the Group’s profit attributable to shareholders of the Company in the years 2019 to 2021. The list of participants of each tranche as well as share of each participant in the total package is to be approved by the Group’s Board of Directors. The transfer of GDRs to the participants will happen over 2022-2024, if participants are still employed by the Group. GDRs for this New Program will come from GDRs owned and bought by the Company. The Participants of the New Program are also entitled to dividends for not yet vested share awards. As the Group obtained a loss attributable to shareholders of the Company for the years ended 31 December 2020 and 2019, the Group did not recognise any share-based compensation expense in respect of Awards 2019 and 2020. For the six months ended 30 June 2021, the Group recognised share-based compensation expense of RR 14,368 in general and administrative expenses in the consolidated condensed interim statement of profit or loss and other comprehensive income, including the allocation of fair value of GDRs calculated at grant date to the reporting period of RR 12,500 and the respective personal income tax effect of RR 1,868. The Group also recognised related social security contributions expense of RR 2,198.
17 Income Taxes
Income tax expense for the six months ended 30 June 2021 and 2020 included:
Six months ended
30 June 2021 Six months ended
30 June 2020
Current tax expense 197,311 336,480 Deferred tax expense/(benefit) 29,173 (276,336)
Total income tax expense 226,484 60,144
Most companies of the Group were subject to tax rate of 20% on taxable profits in the Russian Federation for the six months period ended 30 June 2021 and 2020.
18 Revenue Disaggregation of the Group’s revenue for the six months ended 30 June 2021 and 2020, which is consistent with the revenue by segment disclosure, is disclosed in Note 27. During the six months ended 30 June 2021, the Group recognised revenue over time in amount of RR 16,362,472 (for the six months ended 30 June 2020: RR 8,300,559), the remaining revenue was recognised at a point of time (Notes 3, 27). Contract assets increased during the six months ended 30 June 2021, primarily as a result of changes in the measure of progress and the excess of contract expenditure over customer advance payments. The Group’s revenue recognised for the six months ended 30 June 2021 comprises RR 3,785,432 (for the six months ended 30 June 2020: RR 1,415,800) that was included in the opening contract liabilities.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
17
19 Cost of Sales
Six months ended
30 June 2021 Six months ended
30 June 2020
Materials and components 14,960,921 9,702,506 Labour costs 2,900,987 2,754,783 Construction, design and engineering and other services of subcontractors 1,189,331 1,065,193 Depreciation and amortisation 1,051,295 1,048,054 Social taxes 817,227 769,288 Utilities 258,485 234,018 Change in allowance for obsolete inventories 40,208 1,300 Lease expense 35,879 20,205 Change in retirement benefits obligations 21,986 27,598 Change in work in progress and finished goods (855,784) (911,331) Change in warranty provision (53,133) 76,070 Amortisation of government grants (15,562) (15,562) Other expenses 579,193 764,895
Total cost of sales 20,931,033 15,537,017
20 Distribution and Transportation Expenses
Six months ended
30 June 2021 Six months ended
30 June 2020
Labour costs 336,770 301,833 Transportation expenses 171,060 294,550 Social taxes 84,729 74,790 Lease expense 33,717 29,360 Products certification 24,508 15,737 Agency services 20,532 12,202 Material expenses 15,986 18,037 Depreciation and amortisation 12,217 13,097 Entertaining costs and business trip expenses 10,325 9,567 Advertising 9,605 37,411 Telecommunication services 8,075 7,015 Customs duties 3,251 2,338 Change in retirement benefits obligations 1,430 933 Insurance(1) (5,407) 47,089 Other expenses 37,723 41,970
Total distribution and transportation expenses 764,521 905,929 (1) Including reversal of insurance expenses of RR 30,448 accrued in 2020.
21 General and Administrative Expenses
Six months ended
30 June 2021 Six months ended
30 June 2020
Labour costs 1,384,018 1,262,621 Social taxes 303,261 271,341 Bank services 157,593 188,740 Depreciation and amortisation 140,943 144,912 Taxes and duties 116,634 84,089 Audit and consultancy services 70,799 55,767 Security 51,229 31,664 Stationary and office maintenance 42,694 37,924 Property, plant and equipment repair and maintenance 38,490 31,453 Insurance 38,191 44,645 Entertaining costs and business trip expenses 28,075 18,932 Lease expense 22,834 26,207 Telecommunications services 13,370 12,715 Change in retirement benefits obligations 9,362 6,304 Training and recruitment 7,107 5,672 Change in ECL allowance and allowance for impairment of trade and other receivables and other financial assets 3,435 30,578 Other expenses 161,820 151,184
Total general and administrative expenses 2,589,855 2,404,748
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
18
22 Other Operating Expenses, Net
Six months ended
30 June 2021 Six months ended
30 June 2020
Charity, social expenditures 87,453 47,957 Change in provision for legal claims 15,800 13,401 Fines and late payment interest under contracts 12,830 25,750 Depreciation of social assets 3,873 4,904 Foreign exchange (gain)/loss, net (28,974) 15,063 (Gain)/loss from disposal of property, plant and equipment and intangible assets (23,071) 4,548 (Gain)/loss on purchase/sale of foreign currency, net (1,025) 12,004 Other expenses, net 17,849 2,976
Total other operating expenses, net 84,735 126,603
23 Finance Income
Six months ended
30 June 2021 Six months ended
30 June 2020
Interest income 94,745 161,978 Foreign exchange gain from deposits, net 231 1,859
Total finance income 94,976 163,837
24 Finance Costs
Six months ended
30 June 2021 Six months ended
30 June 2020
Interest expense 874,756 932,667 Interest expenses on lease liabilities 9,516 8,112
Foreign exchange loss from borrowings, net - 229
Other finance expenses 32,264 446
Total finance costs 916,536 941,454
25 Balances and Transactions with Related Parties
Parties are generally considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions as defined by IAS 24. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may enter into transactions which unrelated parties may not and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties. The table below contains the disclosure by group of related parties with which the Group entered into significant transactions or has significant balances outstanding.
Joint venture category of related parties includes a trading company registered in Kazakhstan. For the six months ended 30 June 2021 and 2020, its financial result was not material for the application of equity accounting.
Other category of related parties comprises individuals who are the ultimate owners of shares in the Company, who are also key management of the Group, and other key managers as well as the companies controlled by those individuals.
Balances with related parties 30 June 2021 31 December 2020
Associates Joint
Venture Other Associates Joint
Venture Other
Loans issued - - 20,000 - - 20,000 Accounts receivable 697 32,369 656,208 19 48,323 607,207 Less: ECL allowance for accounts receivable - - (10,052) - - (8,773) Accounts payable (5,979) (876) (1,157,087) (4,156) (876) (1,245,525) Current lease liabilities (6,231) - - (5,683) - - Non-current lease liabilities (82,736) - - (84,481) - -
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
19
25 Balances and Transactions with Related Parties (continued)
All monetary balances outstanding are expected to be settled in cash. Neither party issued guaranties to secure accounts receivable or payable.
Transactions with related parties Six months ended
30 June 2021 Six months ended
30 June 2020
Associates Joint
Venture Other Associates Joint
Venture Other
Sales of goods and finished products 84 6,080 28,965 - 152,149 2,886
Sales of services - - 333 - - 23,481
Purchase of intangible assets (22,958) - - (11,123) - -
Purchase of materials and components - - (22,526) - - (76,912)
Purchase of services (5,753) - (2,043) (5,033) - (1,651)
Development costs expensed (7,082) - - (19,277) - - Interest expenses on lease liabilities (3,443) - - (6,869) - -
Other income 13 - 966 - - 848
At 30 June 2021 and 31 December 2020, the Group owned a 47.69% interest in its associate VNIIAEN OJSC, located in Ukraine. VNIIAEN OJSC is a research and development centre, which specialises in pumping equipment for the nuclear power generation and oil transportation industries. During the six months ended 30 June 2021, the Group bought back 176,000 GDRs for a total consideration of RR 60,720 from a member of key management (Note 15).
Key management compensation
Key management compensation amounted to RR 142,101 for the six months ended 30 June 2021 and included fees and other short-term benefits such as salaries and bonuses paid to management as set forth in labour contracts concluded annually of RR 127,733 as well as share-based compensation of RR 14,368. Included in these amounts are emoluments paid to the Company's Directors by the Company totalling RR 23,786 and emoluments paid to the Company's Directors by subsidiaries in their executive capacity totalling RR 27,753 for the six months ended 30 June 2021, including share-based compensation of RR 3,632. Key management compensation amounted to RR 148,642 for the six months ended 30 June 2020 and included fees and other short-term benefits such as salaries and bonuses paid to management as set forth in labour contracts concluded annually of RR 114,778 as well as share-based compensation of RR 33,864. Included in these amounts are emoluments paid to the Company's Directors by the Company totalling RR 20,114 and emoluments paid to the Company's Directors by subsidiaries in their executive capacity totalling RR 27,122 for the six months ended 30 June 2020, including share-based compensation of RR 6,156.
26 Contingencies and Commitments
(i) Legal proceeding
The Group is involved in various claims and legal proceedings arising in the ordinary course of business. At 30 June 2021, management concluded that possible risk related with various claims and legal proceedings amounted to RR 155,500 (31 December 2020: RR 139,296). All probable legal risks are provided for (Note 14).
(ii) Tax legislation
Russian and Ukrainian tax, currency and customs legislation is subject to varying interpretations and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activity of the Group companies may be challenged by the state authorities. The Russian and Ukrainian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances, reviews may cover longer periods. The Group includes companies incorporated outside of Russia. Tax liabilities of the Group are determined on the assumptions that these companies are not subject to Russian profits tax because they do not have a permanent establishment in Russia.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
20
26 Contingencies and Commitments (continued)
Since 1 January 2015, the Russian Tax Code has been supplemented with the framework of beneficial ownership to the income paid from the Russian Federation (beneficial ownership framework) for the purposes of applying tax benefits under the Double Tax Treaties (DTT). This legislation is not expected to have significant impact on the Group’s income tax liabilities.
The Russian transfer pricing legislation is to a large extent aligned with the international transfer pricing principles developed by the Organisation for Economic Cooperation and Development (OECD). This legislation provides the possibility for tax authorities to make transfer pricing adjustments and impose additional tax liabilities in respect of controlled transactions (transactions with related parties and some types of transactions with unrelated parties), provided that the transaction price is not at arm’s length. Management has implemented internal contro ls to be in compliance with this transfer pricing legislation. Management believes that it has adequately provided for tax liabilities in the accompanying consolidated condensed interim financial information. At 30 June 2021, the Group accrued uncertain income tax positions as a component of income tax payable of RR 15,868 (31 December 2020: RR 29,712). (iii) Environmental matters
The enforcement of environmental regulation in Russian Federation and Ukraine is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its obligations under environmental regulations. As obligations are determined, they are recognised immediately. Potential liabilities, which might arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material. In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for environmental damage.
(iv) Insurance policies
The Russian and Ukrainian insurance services market is evolving. Part of the Group’s production facilities are adequately covered by insurance. The Group has not adequately insured business interruption, third party liability for damage to property and environment resulting from accidents involving the Group’s property or connected with its operations. Until the Group ensures adequate insurance coverage there is a risk that losses incurred or property damage inflicted by the Group may have a significant effect on the Group’s financial position and operations.
(v) Contractual commitments
In the normal course of business, the Group has entered in the long-term purchase contract for development engineering services with an associate of the Group. At 30 June 2021, commitments for purchase of the services amounted to RR 206,121 (31 December 2020: RR 31,998). At 30 June 2021, the Group had contractual commitments for the purchase of components for construction of property, plant and equipment for RR 210,327 (31 December 2020: RR 291,039). During the year ended 31 December 2016, the Group’s subsidiary Sibneftemash JSC obtained the right to receive government subsidies in the amount of RR 170,000 for development of technology and process equipment system for thermochemical treatment of oil-and-gas-bearing formations in order to increase production of raw hydrocarbons and provide environmental improvement at the fields as a replacement of the import technology of hydraulic fracturing with proppant – gel agents. The grant is subject to certain conditions set for the period till 2023. At 30 June 2021, management believes that the Group will be able to comply with the conditions stipulated by the agreement. During the year ended 31 December 2019, the Group’s subsidiary HMS Neftemash JSC obtained the right to receive government subsidies in the amount of RR 75,000 for development of intelligent mobile secondary reference metrology complex. The grant is subject to certain conditions set for the period till 2023 inclusive, including amounts of own investments and volume of production produced by the results of development. At 30 June 2021, management believes that the Group will be able to comply with the conditions stipulated by the agreement.
(vi) Loan covenants
Under the terms of its loan agreements, the Group is required to comply with a number of covenants, including Net debt/EBITDA (earnings before interest, taxes, depreciation, and amortisation) ratio and certain other requirements. At 30 June 2021 and 31 December 2020, the Group was in compliance with all its loan covenants.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
21
27 Segment Information
Management has determined the operating segments based on the management reports, which are primarily derived from unaudited and not reviewed IFRS financial statements. The management reports are reviewed by the chief operating decision-maker (CODM), and are used to make strategic decisions. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director of the Company. The following criteria have been used for determining the operating segments and assigning the Group subsidiaries to particular segment:
• Business activities of companies;
• Organisational structure of companies;
• Nature of production processes;
• Manufactured and sold products;
• Specific characteristics of buyers/customers. The first operating segment “Industrial pumps” includes following significant subsidiaries:
30 June 2021 30 June 2020
1 HMS Livhydromash JSC HMS Livhydromash JSC 2 Livnynasos JSC Livnynasos JSC 3 NASOSENERGOMASH Sumy JSC NASOSENERGOMASH Sumy JSC 4 HYDROMASHSERVICE JSC HYDROMASHSERVICE JSC 5 Plant Promburvod OJSC Plant Promburvod OJSC 6 Bobruisk Machine Building Plant OJSC Bobruisk Machine Building Plant OJSC 7 Dimitrovgradkhimmash JSC Dimitrovgradkhimmash JSC 8 Apollo Goessnitz GmbH Apollo Goessnitz GmbH 9 Nizhnevartovskremservis JSC Nizhnevartovskremservis JSC
The second operating segment “Oil and gas equipment and projects” includes:
1 HMS Neftemash JSC HMS Neftemash JSC 2 Sibneftemash JSC Sibneftemash JSC 3 EPF “SIBNA” Inc. JSC EPF “SIBNA” Inc. JSC 4 Giprotyumenneftegaz PJSC Giprotyumenneftegaz PJSC 5 Institute Rostovskiy Vodokanalproekt JSC Institute Rostovskiy Vodokanalproekt JSC
The third operating segment “Compressors” includes:
1 Kazankompressormash JSC Kazankompressormash JSC 2 NIITurbokompressor named after
V.B.Shnepp JSC NIITurbokompressor named after
V.B.Shnepp JSC 3 CIPS LLC CIPS LLC
The fourth operating segment “Construction” includes Tomskgazstroy PJSC.
The table below contains other companies that did not fall under the above listed operating segments and do not meet the quantitative thresholds for separate disclosure.
1 HMS Group Management LLC HMS Group Management LLC 2 HMS Group JSC HMS Group JSC 3 4 5 6 7
HMS Hydraulic Machines & Systems Group plc H.M.S. FINANCE LIMITED H.M.S. CAPITAL LIMITED CMPC LLC HMS New Urengoy-Property LLC
HMS Hydraulic Machines & Systems Group plc H.M.S. FINANCE LIMITED H.M.S. CAPITAL LIMITED CMPC LLC HMS New Urengoy-Property LLC
8 HMS Tyumen-Property LLC HMS Tyumen-Property LLC
Geographically, management considers non-current assets by their location and revenue based on the location of the Group's customers. 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. Sales between segments are carried out at the arm’s length. The revenue from external parties reported to management is measured in a manner consistent with that in the consolidated statement of profit or loss.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
22
27 Segment Information (continued)
Management of the Group assesses the performance of operating segments based on a measure of Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation), which is derived from the management report.
For this purpose, Adjusted EBITDA is defined as operating profit/(loss) adjusted for other operating income/expenses, depreciation and amortisation, amortisation of government grants, impairment of assets, excess of fair value of net assets acquired over the cost of acquisition, defined benefits scheme expenses, allowances and provisions (including allowance for obsolete inventory, ECL allowance for trade and other receivables, cash and cash equivalents and other financial assets and allowance for impairment of non-financial assets, unused vacation provision, warranty provision, provision for legal claims, tax provision and other provisions). This measurement basis, therefore, excludes the effects of a number of non-recurring income and expenses on the results of the operating segments. The segment information provided to the CODM for the reportable segments is reconciled to corresponding amounts reported in the Group’s consolidated condensed interim financial information prepared in accordance with IFRS.
The segment information provided to the CODM for the reportable segments for the six months ended 30 June 2021 is as follows:
Disclosures by segments
Industrial pumps
Oil and gas equipment
and projects Compressors Construction Other
companies Intersegment transactions Total
External revenue 7,830,576 7,995,028 9,606,468 358,850 4,876 - 25,795,798 Intersegment revenue 159,169 346,450 320,158 - 938,631 - 1,764,408 Adjusted EBITDA 833,637 817,964 978,153 (20,819) 290,202 (43,908) 2,855,229
The segment information provided to the CODM for the reportable segments for the six months ended 30 June 2020 is as follows:
Disclosures by segments
Industrial pumps
Oil and gas equipment
and projects Compressors Construction Other
companies
Intersegment transactions Total
External revenue 8,226,634 5,115,165 5,762,436 389,409 4,439 - 19,498,083 Intersegment revenue 61,154 38,392 30,217 16,487 731,070 - 877,320 Adjusted EBITDA 1,018,891 243,164 652,774 39,138 134,589 18,362 2,106,918
A reconciliation of financial information analysed by the CODM to the corresponding information presented in this consolidated condensed interim financial information is presented below:
Six months ended 30 June 2021
Industrial pumps
Oil and gas equipment
and projects Compressors Construction Other
companies Intersegment transactions Total
Adjusted EBITDA 833,637 817,964 978,153 (20,819) 290,202 (43,908) 2,855,229
Depreciation and amortisation (543,688) (228,713) (391,362) (12,811) (31,754) - (1,208,328) Non-monetary items(1) (97,037) (60,720) 25,077 3,538 (42,605) - (171,747) Amortisation of government grants (Note 19)
- 15,562 - - - -
15,562
Other operating (expenses)/income, net(2)
(23,266)
72,951
(26,323)
12,526
(98,391)
(2,559)
(65,062)
Operating profit/(loss), IFRS 169,646 617,044 585,545 (17,566) 117,452 (46,467) 1,425,654
Finance income 94,976 Finance costs (916,536) Share of results of associate 143
Profit before income tax, IFRS 604,237
(1) Non-monetary items consist of defined benefits scheme expenses, allowances and provisions (allowance for obsolete inventories, ECL allowance for trade and other receivables, cash and cash equivalents and other financial assets and allowance for impairment of non-financial assets, unused vacation provision, warranty provision, provision for legal claims, tax provision and other provisions). (2) Other operating (expenses)/income, net include other operating income and expenses as per Note 22, excluding depreciation of social assets and provision for legal claims.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
23
27 Segment Information (continued)
Six months ended 30 June 2020
Industrial pumps
Oil and gas equipment
and projects Compressors Construction Other
companies Intersegment transactions Total
Adjusted EBITDA 1,018,891 243,164 652,774 39,138 134,589 18,362 2,106,918
Depreciation and amortisation (553,481) (238,069) (373,685) (16,737) (28,995) - (1,210,967) Non-monetary items(1) (126,530) (26,874) (99,041) (4,739) (22,245) - (279,429) Amortisation of government grants (Note 19)
-
15,562 - - -
-
15,562
Other operating (expenses)/ income, net(2)
(52,843)
(28,313)
(15,816)
1,960
(16,984)
3,698
(108,298)
Operating profit/(loss), IFRS 286,037 (34,530) 164,232 19,622 66,365 22,060 523,786
Finance income 163,837 Finance costs (941,454) Share of results of associate 264
Loss before income tax, IFRS (253,567)
(1) Non-monetary items consist of defined benefits scheme expenses, allowances and provisions (allowance for obsolete inventories, ECL allowance for trade and other receivables, cash and cash equivalents and other financial assets and allowance for impairment of non-financial assets, unused vacation provision, warranty provision, provision for legal claims, tax provision and other provisions). (2) Other operating (expenses)/income, net include other operating income and expenses as per Note 22, excluding depreciation of social assets and provision for legal claims.
28 Fair Value of Financial Instruments
Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between knowledgeable willing parties, other than in a forced sale or liquidation, and is best evidenced by an active quoted market price. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) Level 2 measurements are valuation techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) Level 3 measurements are valuations not based on observable market data (that is, unobservable inputs). Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable inputs that require significant adjustment, that measurement is a Level 3 measurement. The significance of a valuation input is assessed against the fair value measurement in its entirety. The estimated fair values of financial instruments have been determined by the Group using available market information, where it exists, and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to determine the estimated fair value. The Russian Federation continues to display some characteristics of an emerging market and economic conditions continue to limit the volume of activity in the financial markets. Market quotations may be outdated or reflect distress sales transactions and therefore not represent fair values of financial instruments. Management has used all available market information in estimating the fair value of financial instruments. Financial assets carried at amortised cost. The estimated fair value of fixed interest rate instruments is based on estimated future cash flows expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining maturity. Discount rates used depend on credit risk of the counterparty. The carrying amounts of trade receivables and loans issued approximate their fair values. Their fair values are within Level 2 of the fair value hierarchy. Cash and cash equivalents are carried at amortised cost which approximates their current fair value. Liabilities carried at amortised cost. The estimated fair value of fixed interest rate instruments with stated maturity was estimated based on expected cash flows discounted at current interest rates for new instruments with similar credit risk and remaining maturity. The fair value of issued bonds is based on quoted market prices (Level 1 of the fair value hierarchy). At 30 June 2021, the fair value of bonds was RR 5,098 higher than their carrying amounts (31 December 2020: the fair value of bonds was RR 208,395 higher than their carrying amounts). The fair value of borrowings was based on Level 2 inputs. At 30 June 2021, the fair value of borrowings was RR 175,288 higher than their carrying amounts (31 December 2020: the fair value of borrowings was RR 317,379 higher than their carrying amounts). Carrying amounts of other liabilities carried at amortised cost approximate their fair values.
HMS Hydraulic Machines & Systems Group plc Notes to the Consolidated Condensed Interim Financial Information for the six months ended 30 June 2021 (unaudited) (in thousands of Russian Roubles, unless otherwise stated)
24
29 Subsequent Events
Borrowings. In August-September 2021, the Group refinanced RR 3.4 billion of its short-term borrowings, shifting the payments from the first half of 2022 to 2024.