Hydraulic elements & Systems Q4’14 sales down 11.7% YoY, net income 22% lower; 2014 bottom line up 30.5% YoY (NEUTRAL)

Hydraulic elements & Systems Q4'14 sales declined by 11.7% YoY to BGN 8.7m. At the same time operating expenses fell by 11.8% YoY driven by the 19% YoY decrease in material expenses. Thus, the EBITDA margin was pushed a bit higher at 12.6% from 12.4% in Q4'13. Financial income quadrupled to BGN 85k, which gave some support to the bottom line but anyway it came at BGN 372k 22% lower YoY. Overall, 2014 operating profitability was improved with the EBITDA margin rising to 16.1% from 15% in 2013. Sales, of which 67% exported to the EU, increased 5.3% YoY to BGN 42.2m, while OPEX advanced slower by 4% YoY, driven by the 13.7% increase in compensation costs, while material expenses increased by 2% only thanks to the stables steel prices. Further down the line, financial income doubled to BGN 345k, which brought net income to BGN 3.8m, up 30.5% YoY, the net margin increasing to 8.9% from 7.2% in 2013. HES announced expectations for 2015 sales of BGN 39.6m, down 6.2% versus 2014 on more pessimistic expectations about the EU economy. Focus would be put on improving further profitability, CAPEX would reach BGN 3.4m compared to BGN 3m in 2014.