HMS Group Investor Presentation June 2011
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HMS Group Investor Presentation June 2011

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HMS Group presentation prepared for one-on-one meetings with investors within Renaissance Capital Investor Conference in Moscow, 27-28 June 2011

HMS Group presentation prepared for one-on-one meetings with investors within Renaissance Capital Investor Conference in Moscow, 27-28 June 2011

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HMS Group Investor Presentation June 2011 HMS Group Investor Presentation June 2011 Presentation Transcript

  • HMS GroupInvestor Presentation June 2011
  • DisclaimerThe information contained herein has been prepared using information available to HMS Group (“HMS”or “Group” or “Company”) at the time of preparation of the presentation. External or other factorsmay have impacted on the business of HMS Group and the content of this presentation, since itspreparation. In addition all relevant information about HMS Group may not be included in thispresentation. No representation or warranty, expressed or implied, is made as to the accuracy,completeness or reliability of the information.Any forward looking information herein has been prepared on the basis of a number of assumptionswhich may prove to be incorrect. Forward looking statements, by the nature, involve risk anduncertainty and HMS Group cautions that actual results may differ materially from those expressed orimplied in such statements. Reference should be made to the most recent Annual Report for adescription of the major risk factors. This presentation should not be relied upon as a recommendationor forecast by HMS Group, which does not undertake an obligation to release any revision to thesestatements.This presentation does not constitute or form part of any advertisement of securities, any offer orinvitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in HMSGroup, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, orbe relied on in connection with, any contract or investment decision. 2
  • Agenda WHO WE ARE 4 HMS at a Glance 5 History of Growth: Industry Consolidation 6 Shareholder Structure and Corporate Governance 7 FINANCIAL PERFORMANCE IN 2010 & 1Q 2011 8 Financial Performance for 2010 9 EBITDA Development in 2010 10 Revenue & EBITDA Contribution by Segments 2010 11 Financial Highlights for 1Q 2011 12 EBITDA Development in 1Q 2011 13 Revenue & EBITDA Contribution by Segments 1Q 2011 14 CAPEX & Working Capital in 1Q 2011 15 2011 & 2012 BUSINESS UPDATE & OUTLOOK 16 HMS is the Leader on Growing Markets 17 Backlog Analysis 18 Demand Shifts to Integrated Solutions 19 Selected End-market Projects for Mid-term 20 Sources of Best-in-class Margins & Growth 21 CONTACTS 22 APPENDIX 23 3
  • WHO WE ARE 4
  • HMS at a GlanceKey investment highlights Key financial indicators for 2005-2010 Attractive industry fundamentals: impressive prospects of 16.5% 23,070 oil & gas, nuclear and thermal power and water sectors in 15.3% Russia and the CIS 12.8% 12.3% The leading provider of flow control solutions in Russia and 11.7% 10.6% 14,772 the CIS, including high-capacity pump systems up to 12 14,046 13,399 MW Advanced R&D capabilities: basis for high-margin & sustainable performance and growth 6,724 Diversified and well-established customer base with more 4,498 3,519 than 4,000 clients 1,644 1,890 830 1,423 744 Operational and product quality excellence 2005 2006 2007 2008 2009 2010 History of resilient financial growth and strong backlog Revenue, Rub mn EBITDA, Rub mn EBITDA margin, % Strong management team: company founders and top professionals Source: Company dataRevenue Rub 7,051 mln* EBITDA adj. Rub 1,588 mln* Profit for the period Rub 991 mln*Industrial pumps Modular equipment EPCRevenue Rub 4,427 mln Revenue Rub 1,148 mln Revenue Rub 1,452 mlnEBITDA adj. Rub 1,285 mln EBITDA adj. Rub 143 mln EBITDA adj. Rub 150 mln New photoPump station of Baltic pipeline system, Transneft Oilfield Pump Station 2, Vankor oilfield, Rosneft Oil Pump Station “Tayezhnaya”, Transneft* 1Q 2011 Key FinancialsNotes: Hereinafter “EBITDA” read as “EBITDA adjusted”, “EBITDA margin” read as “EBITDA adjusted margin” and “Net Income” read as “Profit for the period/year” 5
  • History of Growth: Industry Consolidation From pumps to integrated solutions1993–2002 Pump Trading Pump Design and2003 Pump Trading Manufacturing Pump Design and Modular Equipment2004–2006 Pump Trading Design Manufacturing and Manufacturing Pump Design and Modular Equipment2007–2008 Pump Trading Design Construction Manufacturing and Manufacturing Pump Design and Modular Equipment2009–Today Pump Trading Design EPC Manufacturing and ManufacturingOil and gas production Oil transportation Power generation Water utilities 6
  • Shareholder Structure and Corporate GovernanceBoard of Directors Comments The Board is comprised of professionals with     significant experience in pump and oil and gas industries  It includes founders, who have led HMS since its inception German Tsoy Artem Molchanov Kirill Molchanov  HMS is the core business of the largestChairman of the Board Member of the Board Member of the BoardNon-executive Director Managing Director First Deputy CEO shareholders (CEO) (CFO)  Long-term commitment to the business from shareholders Shareholders StructureVladimir Lukyanenko Nikolay Yamburenko Yury Skrynnik GermanMember of the Board Member of the Board Member of the Board Tsoy OtherNon-executive Director Head of Industrial Director for Strategic 17.3% managers Pumps Marketing 21.8% Vladimir Lukyanenko 24.0% Free-float 36.9% Philippe Delpal Andreas Petrou Gary Yamamoto Source: Company dataMember of the Board Member of the Board Member of the Board Independent Non-executive Director IndependentNon-executive Director Cyprus Non-executive Director  Founders 7
  • FINANCIAL PERFORMANCE IN 2010 & 1Q 2011 8
  • Financial Performance for 2010Comments Revenue, 2009 vs 2010 EBITDA, 2009 vs 2010 Total revenue up 56% yoy to Rub 15.3% 23,070 mln 12.8% The growth reflects: +56% +86% 23,070 3,519  Significant increase in size of orders for pump-based integrated solutions 14,772  Completion of key projects 1,890  Consolidation of GTNG  Stable growth of revenue from ordinary contracts Organic revenue growth of 47% yoy, 2009 2010 2009 2010 excluding impact from GTNG EBITDA margin Source: Company data Source: Company dataEBIT, 2009 vs 2010 ROCE, 2009 vs 2010 Net income, 2009 vs 2010 +1,825bps +133% 36.2% +2,156% 3,027 1,581 18.0% 1,298 70 2009 2010 2009 2010 2009 2010Source: Company data Source: Company data Source: Company data 9
  • EBITDA Development in 2010 Comments World HRC price performance in 2010  EBITDA increased by 86% yoy to Rub 3,519 mln due to: 800  Strong revenue growth in all business units 22% 750  Focus on innovative high-margin contracts 700  Effective cost control  Consolidation of GTNG 650  EBITDA organic growth of 72% yoy 600  EBITDA margin increased to 15.3% 550  SG&A grew less than revenue due to economy of scale and cost optimization strategy 500 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 World hot rolled coil price index performance, $/tonne 50,000 Source: Bloomberg Key EBITDA drivers, 2009 vs 2010 (% of revenue) 0 operating expenses 20.2bn vs 13.7bn in 2009 |+47.2% yoy 2009 2010 revenue in 2010 +56.2% yoy 75.6% 75.3% 3.3% 2.5% 9.1% 12.4% 0.5% 1.9% 0.7% 15.3% 12.6% 3.1% 12.8% 1.5% 7.3% 2.3% Revenue Revenue Cost of sales sales Cost of Distribution and and General & Distribution SG&A Other expenses Operating profit Other expenses Operating profit Depreciation & & Depreciation Others Others EBITDA* EBITDA transport Administrative transport amortisation amortisationSource: Company data expenses expenses expenses expenses 10
  • Revenue & EBITDA Contribution by SegmentsHighlights by core segments, 2009 vs 2010 Comments Industrial pumps 22.1% Industrial pumps: 16.0%  Sales up 70% yoy to Rub 10,712 mln, enjoying strong demand 10,712 revenue +70% for integrated pumping solutions primarily in oil transportation and upstream 6,308  EBITDA grew by 134% yoy, and EBITDA margin rose to 22.1%, 2,367 ebitda primarily attributable to increasing share of contracts for pump- 1,012 +134% based integration solutions 2009 2010 Revenue, Rub mln EBITDA, Rub mln EBITDA margin, % Modular equipment Modular equipment: 18.9% 5,805  Sales up 39% yoy, driven by demand from the major oil revenue +39% companies to equip new oil fields and modernize existing 4,166 installed base of modular equipment 10.3%  EBITDA decreased 24% yoy and EBITDA margin also down to 10.3% due to execution of low-margin contracts concluded in 786 ebitda 599 -24% 2009 2009 2010 Revenue, Rub mln EBITDA, Rub mln EBITDA margin, % EPC 9.0% EPC: 6,135 revenue  Revenue growth of 46% yoy is primarily attributable to an +46% impact of GTNG acquisition and entering the market of projects 4,189 and design. Revenue growth, excluding an effect of acquisition, was c. 14% yoy  EBITDA increased significantly to Rub 550 mln, and EBITDA ebitda margin rose to 9.0%. Newly acquired GTNG added to EPC’s 0.8% 550 +1,548% EBITDA Rub 271 mln 33  Such a significant EBITDA growth is primarily attributable to a 2009 2010 low EBITDA base in 2009, caused by significant price pressure Revenue, Rub mln EBITDA, Rub mln EBITDA margin, % connected to investment cutbacks by oil companiesSource: Company data 11
  • Financial Highlights for 1Q 2011Significant yoy & qoq growthRub, mln 1Q 2011 1Q 2010 chg, yoy 4Q 2010 chg, qoqRevenue 7,051 3,835 +84% 6,912 +2%Gross profit 2,072 774 +168% 1,845 +12%EBITDA 1,588 431 +269% 1,268 +25%Operating profit 1,378 117 +1,083% 883 +56%Net income (loss) 991 (89) n/a 492 +101%Total debt 2,688 5,629 -52% 4,648 -42%Gross margin 29% 20% +919bps 27% +270bpsEBITDA margin 23% 11% +1,130bps 18% +417bpsOperating margin 20% 3% +1,651bps 13% +676bpsNet income margin 14% (2%) +1,638bps 7% +692bpsSource: Company data 12
  • EBITDA Development in 1Q 2011 10,000Key EBITDA drivers in 1Q’10 vs 1Q’11, % of revenue operating expenses 0 operating expenses 5.7bn vs 3.7bn in 1Q’10 | +52.6% yoy revenue in 1Q’11 | +83.9% yoy 1Q 2010 1Q 2011 2.1% 6.4% 70.6% 1.3% 2.0% 1.0% 22.5% 4.0% 19.5% 12.5% 79.8% 11.2% 6.1% 2.1% 0.7% 3.0% Revenue Revenue CostCost of sales Distribution & of sales Distribution & General & General & Other expenses Other expenses Operating profitDepreciation & Operating profit Depreciation & Other operating Others EBITDA EBITDA* transport transport expenses administrative administrative amortisation expenses, net & amortisationSource: Company data expenses expenses non-monetary items expenses expensesNet income drivers in 1Q’10 vs 10’11, Rub mln Comments 1,378  EBITDA increased by 269% yoy to Rub 1,588 mln primarily due to:1,400  Execution of large high-margin infrastructure contracts in oil1,200 transportation 9911,000  Margins growth in other segments of a pump market 800  Consolidation of GTNG 600  Low EBITDA in 1Q 2010 400  Effective cost control by hedging of raw materials & supplies 200 117 prices 10 4 9 0  Effective SG&A cost control and economy of scale (4) (1)  Higher-than-average profitability of construction contracts(200) (89) (133)(400) (210) (267)  As a result, EBITDA margin increased to 22.5% Operating Finance Finance Share of Income tax Net  Organic EBITDA, excluding consolidation of GTNG, grew by 244% profit income costs results of expense income yoy to Rub 1,481 mln associates  Net income grew to Rub 991 mln in 1Q 2011 compared to a net 1Q 2010 1Q 2011 loss of Rub 89 mln in 1Q 2010 due to the growth of operating profit and reduction of finance costsSource: Company data 13
  • Revenue & EBITDA Contribution by SegmentsHighlights by core segments, Rub mln Comments Industrial Pumps Industrial Pumps:  Revenue increased by 198% yoy and amounted to Rub 4,427 29.0% revenue mln, primarily due to the execution of large-scale projects for 4,427 +198% the delivery of integrated pumping systems as well as a stable 15.8% order intake of regular contracts  EBITDA up 446% yoy, mainly as a result of large high-margin 1,488 1,285 ebitda contracts in oil transportation, growing profit margin for other +446% types of pumping equipment, as well as a low EBITDA base in 235 1Q 2010 1Q 2010 1Q 2011  EBITDA margin grew to 29.0% Revenue, Rub mln EBITDA, Rub mln EBITDA margin, % Modular equipment Modular equipment:  Revenue was down 7% yoy to Rub 1,148 mln, compared to Rub revenue 1,235 mln in the corresponding quarter of 2010 12.4% -7%  EBITDA increased by 3% yoy to Rub 143 mln in 1Q 2011, 1,235 1,148 compared to Rub 138 mln in 1Q 2010 11.2%  EBITDA margin was up to 12.4% ebitda 138 143 +3%  These changes reflect average quarterly fluctuations 1Q 2010 1Q 2011 Revenue, Rub mln EBITDA, Rub mln EBITDA margin, % EPC EPC: 10.3% revenue  Revenue grew by 34% yoy to Rub 1,452 mln, primarily due to 6.3% 1,452 +34% the consolidation of GTNG 1,086  EBITDA was up 119% yoy and totaled Rub 150 mln following the consolidation of GTNG ebitda  EBITDA margin increased to 10.3% 150 +119% 69  Organic revenue, excluding the impact of the GTNG acquisition, decreased by 15% yoy, and organic EBITDA was down by 37% 1Q 2010 1Q 2011 yoy Revenue, Rub mln EBITDA, Rub mln EBITDA margin, %Source: Company data 14
  • CAPEX & Working Capital in 1Q 2011Capital expenditures in 1Q’10 vs 1Q’11 Debt position in 1Q’10 vs 1Q’11 HMS’ internal covenant for Net debt/ EBITDA is 2.5x 5,629 15.8% total debt 1.6x -52% 235 2,960 8.9% 143 2,688 0.7x 82 cash 58 -77% 683 1Q 2010 1Q 2011 1Q 2010 1Q 2011 Organic capex, Rub mln Depreciation & amortization, Rub mln Total debt, RUB mln Cash, Rub mln Capex to D&A ratio, x Effective interest rate, Q-endSource: Company data Source: Company dataKey highlights in 1Q‘10 vs 1Q’11 Working capital performance in 4Q’10 vs 1Q’11Rub, mln 1Q 2011 1Q 2010 chg, % 15.8%Operating cash flow (840) 1,986 - 4,147 +70%Investment cash flow (241) (50) -Free cash flow (1,081) 1,936 - 10.6%Financing cash flow 1,415 264 - 2,441Long-term debt 2,132 3,698 (42%)Short-term debt 556 1,930 (71%)Net debt 2,005 2,669 (25%)Total debt to Equity ratio 0.31 2.66 - 4Q 2010 1Q 2011Total debt to EBITDA ratio 1.69 13.07 - Working capital, Rub mln Working capital to revenue LTM ratioSource: Company data Source: Company data 15
  • 2011 & 2012 BUSINESS UPDATE & OUTLOOK 16
  • HMS is the Leader on Growing Markets Leading market share in pumps… 8% 19% 152% 25% 42% 19% 30% 31% 41.2 83.9 41.9 46.7 33.2 47.3 45.0 38.0 76.5 19.0 33.6 37.9 25.5 36.0 16.0 64.5 261% 13.9 15.7 28% 32.8 24.0 22.2 13% 11.8 35.9 26.8 14.7 51% 59.6 19.3 68% 30.3 18.2 46.9 33.2 64.9 28.0 25.2 15.3 20% -13% 22.3 -4% 21.8 22.7 21.3 25.2 13.5 17.6 16.9 18.0 9.1 7.3 6.4 7.6 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 Oil industry - Oil industry - Oil industry - Water utilities - Water utilities - Water utilities - Power generation - Power generation - Water injection Refining & Oil transportation Submersible water Clean water supply Household vibration Nuclear non-MPC Thermal pumps pumps petrochemical pumps pumps well pumps and dry-pit sewage pumps pumps 2009 2010 HMS Group revenue, US$ mln Others … and modular equipment Comments  In 2010, HMS Group expanded its presence in the most key 13% 4% 20% segments 75.1 72.0 126.4 .153.0 172.6  The company’s share grew mainly faster than its core segments 105.0 73.4  Russian government introduced new fuel specifications, and 50.0 67.0 15% 50.3 hence, oil companies undertake refinery’s upgrade mainly in 113.8 16% 97.5 “hot cycle”. The market share decrease in refinery & 86.0 99.2 68% petrochemicals is attributable to HMS Group’s presence only in 21.7 25.1 standard “cold cycle” pumps. Deferred demand is being created 7.5 12.6 2009 2010 2009 2010 2009 2010 for standard “cold cycle” pumps Pump stations Automated group Associate gas  Decrease in nuclear non-MPC pumps is attributable to the metering units processing and industry’s specifics expressed in long-term only contracts. 2009 2010 transport units Revenue from signed in 2009 contracts will be recognized in HMS Group revenue, US$ mln Others 2011Source: Frost & Sullivan report 2010 17
  • Backlog AnalysisBacklog structure performance, Rub bn 22.8 20.6 19.8 5.3 1.3 15.8 6.2 5.6 1.4 1.5 9.5 6.0 1.5 4.0 1.1 12.1 0.4 10.1 10.1 6.5 4.3 4.1 2.8 2.7 1.8 31 Dec 09 31 Mar 10 30 Sep 10 31 Dec 10 31 Mar 11 Construction component of EPC Oil transportation pumps Nuclear pumps OthersSource: Company dataComments Backlog decreased to Rub 15.8 bn Backlog reduction is attributable to: – ESPO revenue recognition – Decline in low-margin construction component of EPC segment Oil transportation pumps backlog amounts to Rub 6.5 bn, the most part of revenue to be recognized in 2011 Nuclear pumps backlog amounts to Rub 1.5 bn, the most part of revenue to be recognized in 2011 Other products and services backlog remains stable Standard pumps and other equipment, sold from the Company’s warehouses, bring up to Rub 2.5 bn of revenue. Usually these products are not considered in backlog calculation HMS Group expects backlog to grow by 4Q 2011 18
  • Demand Shifts to Integrated SolutionsRussian markets history and forecast, Rub bn Example of integrated solutions for ESPO-I pipeline Pumps1 CAGR 18.8% 224 79 2009 2015E Modular equipment2 CAGR 14.0% 22 10 2009 2015EHMS core markets transformational development Trunk pipelines construction, km >10,000 1. Trunk pump 8. Joints <2,500 2. Motor 9. Friction oil pipelines 3. Coupling 10. Air cooling unit 4. Oil coolers 11. Antifreeze feed pipes for oil coolers 2005-2009 after 2009 5. Adsorptive dryers 12. Antifreeze feed pipes for motor coolers 6. Air collectors 13. Antifreeze air cooling unit Thermal power capacity, GW 7. Compressors >20 <5 Producers Products / Services  HMS and other suppliers including  Design, production and testing of 2004-2010 after 2010 Siemens pumps  Design of integrated pumping Oil reserves, bn bbl ~75 solution ~60  Overall project management  HMS  Procurement for supply of engines, cooling sleeves, valves and other equipment end of 1999 end of 2009  Turn-key commissioningSource: Frost & Sullivan report 20091 Includes pumps for water injection, oil refining and petrochemicals, oil pipelines, energy generation (thermal and nuclear (excluding MCP)), water utilities pumps, household vibration pumps,as well as integrated solutions and aftermarket2 Core markets for HMS, includes pump stations, automated group metering units, associated gas processing and transport units 19
  • Selected End-market Projects for Mid-termFinancial and number of highlights Increased Operational HMS end-market projectsProject Brief description Completion Key metrics CommentsRosneftVankor 2 stage Further development. Capex for 2011 US$ 2.6 bn next stage by 2014 Min capex Rub 480 bn HMS participated in previous stagesYurubcheno-Tokhomsk oilfield DevelopmentAssociated gas utilization program Achievement of 95% level of associated gas utilization HMS participated in previous stages(Komsomolskoe, Priobskoe oilfields)Lukoil & Bashneft JV Joint development of the fields, in stage of project development. HMS has good references for previousTrebs and Titov fields by 2013 Capex US$5-6 bn Reserves 141 mt projectsTransneft 9 oil-pumping stations to be constructed to deliver oil toESPO expansion 9 OPS by 2015 HMS participated in previous stages Khabarovsk and Komsomolsk refineries by 2015 Oil transportation from YANAO and Northern Krasnoyarsk regionZapolyarye – Pur-pe pipeline 4 OPS by 2015 Capex Rub 120 bn HMS participates in a project design oilfields 4 OPSs to be constructed to deliver oil to Primorsk refinery byESPO expansion 4 OPS by 2017 HMS participated in previous stages 2017Pur-pe – Samotlor expansion Construction of 2 OPS. Total capex in 2011 Rub 77 bn 2 OPS by 2017 HMS participated in previous stagesTNK-BP Giant oilfield in YANAO with specific oil. Project production 20Russkoe oilfield Capex US$ 4.5 bn HMS participates in a project design mtpaSamotlor Further development of an active oilfield in Nizhnevartovsk. by 2014 Capex US$ 4.6 bn HMS participated in previous stagesUvat 21 oilfields in Tyumen region HMS participated in previous stagesEast- and Novo- Urengoy gas & Planned production for 2011 is 3.2bcm, up 17% on 2010 HMS participates in a project designcondensate fields Oilfield located in the Eastern Siberia, Irkutsk region. Development Peak production byVerkhnechonsk oilfield Additional US$3-4 bn HMS participated in previous stages was stimulated by close proximity of ESPO pipeline. 2014Gazprom The field will become a resource base for Russian pipeline gas and HMS produces units for complex gasShtokman gas and condensate field liquefied natural gas (LNG) exports to the Atlantic Basin markets preparationGazprom NeftPriobskoe oilfield Western Siberia. Recoverable reserves ~600 mt HMS participates in a project designUrmanskoe and Shinginskoe oilfields Eastern SiberiaSberbank CapitalDulisma oilfield Irkutsk region. Further development. 3rd resource base for ESPO Total reserves 15 mt HMS participated in previous stagesTaas-yuriah oilfield Sakha region. Further development. Total reserves ~130 mt Capex Rub 15-30 bnIraq HMS already submitted technicalRumaila brownfield Consortium headed by BP Capex US$ 15 bn surveyAz Zubair Consortium headed by Eni Capex US$ 20 bn HMS participates in a tenderRosatomBelene (Bulgaria) Unit 1 by 2017-18 Capex € 5-6.3 bnMunicipal water HMS has good references fromCentral Asia Irrigation stations for Uzbekistan and Turkmenia previous projectsGrozvodokanal Modernization and reconstruction of water utilities in Chechnya Capex about Rub 100 bn HMS participated in previous stages 20 Source: Public information, Company data
  • Sources of Best-in-class Margins & Growth HMS Group high and sustainableFinancial and Operational highlights margins are the result of a number of cumulative factors  Mix of growing markets  High market share  Unfolding innovative  Technical entry barriers  Unique pump R&D projects for international majors  Exceptional project design  Shift in structure of  Multidecade track record capabilities demand with customers  First class customer base  Installed base REVENUES &  United team of founders  Strong negotiation force and high professionals MARGINS over customers POTENTIAL  End-to-end solutions capabilities: from design  Further bolt-on acquisition to implementation and  Focus on operations growth strategy based on after-market excellence and project successful track record of  Growth through execution integrated acquisitions integrated solutions: ahead of market with lower capex 21
  • СontactsGeneral Inquiriesir@hms.ruAlexander Rybin Inna KelekhsaevaHead of Capital Markets IR OfficerTel: +7 (495) 730-66-12 Tel: +7 (495) 730-66-01ir@hms.ru kelekhsaeva@hms.ruwww.grouphms.com7 Chayanova Str.Moscow 125047Russia 22
  • APPENDIX 23
  • CalculationsNotes to the presentation and formulas used for some figures’ calculations All numbers in millions of Russian Rubles, unless otherwise stated Management of the Group assesses the performance of operating segments based on a measure of adjusted EBITDA, which is derived from the consolidated financial statements prepared in accordance with IFRS EBITDA is defined as operating profit/loss adjusted for other income/expenses, depreciation and amortization, impairment of assets, provision for obsolete inventory, provision for impairment of accounts receivable, unused vacation allowance, defined benefits scheme expense, warranty provision, provision for legal claims, provision for VAT and other taxes receivable, other provisions, excess of fair value of net assets acquired over the cost of acquisition. This measurement basis excludes the effects of non-recurring income and expenses on the results of the operating segments EBIT is calculated as Gross margin minus D&T and SG&A expenses Total debt is calculated as Long-term borrowings plus Long-term financial lease liabilities plus Short-term borrowings plus Short-term financial lease liabilities Net debt is calculated as Long-term borrowings plus Long-term financial lease liabilities plus Short-term borrowings plus Short- term financial lease liabilities minus Cash & cash equivalents ROCE is calculated as EBIT divided average Debt plus Equity Working capital is calculated as Inventories plus Trade and other receivables minus Trade and other payables Backlog is calculated as the preceding backlog plus new or additional customer orders booked during the reporting period, less amounts of contract value booked as revenue under ‘‘Russian GAAP’’ on an unconsolidated basis under the relevant contracts, plus or minus adjustments made in the judgment of the Group’s management. The Group may also make certain adjustments to bookings to reflect amendment, expiry or termination of contracts, cancellation of orders, changes in price terms under contracts or orders, or other factors affecting the amount of potential revenue which the Group believes may be recognized under such contracts. The Group’s backlog estimates are not an indication of potential revenues. Actual revenues and other measures of financial performance under IFRS may differ materially from any estimate of backlog, and changes in backlog between periods may have limited or no correlation to changes in revenue or any other measure of financial performance under IFRS 24
  • Statement of Financial PositionRUB,’000 31 March 2011 31 December 2010ASSETSNon-current assets:Property, plant and equipment 5,980,920 5,948,674Other intangible assets 285,890 310,156Goodwill 1,783,915 1,783,915Investments in associates 510,712 507,141Deferred income tax assets 135,372 130,779Other long-term receivables 26,597 27,123Total non-current assets 8,723,406 8,707,788Current assets:Inventories 3,363,911 2,840,745Trade and other receivables and other financial assets 8,572,511 10,399,853Current income tax receivable 62,323 38,086Prepaid expenses 28,875 39,361Cash and cash equivalents 683,252 351,086Restricted cash 5,829 4,978 12,716,701 13,674,109Non-current assets held for sale 96,095 96,095Total current assets 12,812,796 13,770,204TOTAL ASSETS 21,536,202 22,477,992EQUITY AND LIABILITIESEQUITYShare capital 48,329 42,510Share premium 3,523,535 210,862Currency translation reserve (471,187) (234,785)Retained earnings 3,891,200 2,897,296Other reserves 122,852 38,987Equity attributable to the shareholders of theCompany 7,114,729 2,954,870Non-controlling interest 1,453,681 1,508,263TOTAL EQUITY 8,568,410 4,463,133LIABILITIESNon-current liabilities:Long-term borrowings 2,132,174 3,864,176Finance lease liability - 9Deferred income tax liability 950,249 745,762Pension liability 267,648 262,525Provisions for liabilities and charges 52,787 35,691Total non-current liabilities 3,402,858 4,908,163Current liabilities:Trade and other payables 7,789,261 10,799,358Short-term borrowings 550,418 775,242Provisions for liabilities and charges 268,106 312,213Finance lease liability 5,247 8,446Pension liability 25,219 24,736Current income tax payable 21,341 115,340Other taxes payable 905,342 1,071,361Total current liabilities 9,564,934 13,106,696TOTAL LIABILITIES 12,967,792 18,014,859TOTAL EQUITY AND LIABILITIES 21,536,202 22,477,992 25Source: Company data
  • Statement of Comprehensive Income Three months ended Three months endedRUB,’000 31 March 2011 31 March 2010Revenue 7,051,377 3,834,974Cost of sales (4,979,520) (3,060,568)Gross profit 2,071,857 774,406Distribution and transportation expenses (150,620) (152,313)General and administrative expenses (450,891) (480,540)Other operating expenses, net (92,228) (25,028)Operating profit 1,378,118 116,525Finance income 3,778 9,719Finance costs (133,292) (209,948)Share of results of associates 9,196 (4,221)Profit/(loss) before income tax 1,257,800 (87,925)Income tax expense (267,293) (1,395)Profit/(loss) for the period 990,507 (89,320)Profit/(loss) attributable to:Shareholders of the Company 996,562 (96,503)Non-controlling interest (6,055) 7,183Profit/(loss) for the period 990,507 (89,320)Currency translation differences (289,207) (33,607)Currency translation differences of associates 1,540 392Other comprehensive loss for the period (287,667) (33,215)Total comprehensive income/(loss) for the period 702,840 (122,535)Total comprehensive income/(loss) attributableto:Shareholders of the Company 760,160 (120,628)Non-controlling interest (57,320) (1,907)Total comprehensive income/(loss) for the period 702,840 (122,535)Basic and diluted earnings per ordinary share forprofit/(loss) attributable to the ordinaryshareholders (expressed in Rub per share) 8.98 (0.94)Source: Company data 26
  • Cash Flow Statement Three months ended Three months ended RUB,’000 31 March 2011 31 March 2010Cash flows from operating activitiesProfit/(loss) before income tax 1,257,800 (87,925)Adjustments for:Depreciation and amortisation 143,229 81,510Loss/(gain) from disposal of property, plant and equipmentand intangible assets 1,688 (6,221)Finance income (3,778) (9,719)Finance costs 121,082 208,528Pension expenses 10,112 38,305Warranty provision (28,958) (11,857)Write-off of receivables 10,984 -Interest expense related to construction contracts (1,632) (7,787)Provision for impairment of accounts receivable (34,513) 47,634Investments impairment provision 343 -Provision for obsolete inventories 31,435 89,595Foreign exchange translation differences 12,210 1,420Provision for VAT receivable (5,819) -Provisions for legal claims (69,111) 13,209Share of results of associates (9,196) 4,221Other non-cash items (179) (2)Operating cash flows before working capital changes 1,435,697 360,911Increase in inventories (607,855) (138,274)Decrease/(increase) in trade and other receivables 1,716,233 (1,584,048)(Decrease)/increase in other taxes payable (141,583) 424,768(Decrease)/increase in accounts payable and accrued liabilities (2,941,933) 3,182,260Restricted cash (851) (298)Cash (used in)/generated from operations (540,292) 2,245,319Income tax paid (177,300) (56,899)Interest paid (122,528) (202,857)Net cash (used in)/from operating activities (840,120) 1,985,563Cash flows from investing activitiesRepayment of loans advanced 453 53Loans advanced - 4,066Proceeds from sale of property, plant and equipment andintangible assets 2,226 373Interest received - 3,323Purchase of property, plant and equipment (235,326) (57,622)Acquisition of intangible assets (7,948) -Net cash used in investing activities (240,595) (49,807)Cash flows from financing activitiesRepayments of borrowings (4,176,052) (1,131,519)Proceeds from borrowings 2,218,829 1,431,873Payment for finance lease (3,208) (3,538)Acquisition of non-controlling interest in subsidiaries - (32,362)Cash received from additional share issue of subsidiary 80 -Proceeds from share issue, net of issue costs 3,375,240 -Net cash from financing activities 1,414,889 264,454Net increase in cash and cash equivalents 334,174 2,200,210Effect of exchange rate changes on cash and cashequivalents (2,008) 1,726Cash and cash equivalents at the beginning of theperiod 351,086 758,127Cash and cash equivalents at the end of the period 683,252 2,960,063 27Source: Company data
  • New Milestone Projects Oil & Gas Production and Oil Transportation Mature oil producing regions Haryaga-Yuzhny Zapolyarnoye-Purpe Underdeveloped oil producing regions Khylchuyu (45 MMt, 536 km) Oil pipeline projects (8 MMt, 160 km) Baltic Pipeline Oil products pipeline projects System-II (50 MMt, 1,000 km) Primorsk Developing oil fields Prirazlomnoye HMS participation confirmed Timano-Pechora Tikhoretsk-Tuapse 2 basin Yuzhny Haryaga Moscow ESPO-II and ESPO-II Komsomolsky NPZ (12 MMt, 295 km) Khylchuyu Zapolyarnoye capacity expansion -De-Kastry Unecha Russia (47 MMt, 2,046 km) (n.d., 300 km) Salymskoye Purpe Russkoye Vankor“Yug” (South) Tikhoretsk Priobskoye Yurubcheno-(9 MMt, 1,465 Syzran Tokhomskoe Talakanskoye Samotlorkm) Tyamkinskoye Novorossiysk Nizhnevartovsk Verkhnechonsko Tuapse ye Tengiz De-Kastri Skovorodino Taishet Komsomolsky NPZCaspian Pipeline Consortium Purpe-Samotlorexpansion Komsomolsky NPZ (25 MMt, 430 km)(35 MMt, 1,510 km) -port De-Kastry Yurubcheno- ESPO-I and ESPO-I (9 MMt, 313 km) Tokhomskoe-Taishet capacity expansion (18 MMt, 600 km) (50 MMt, 2,694 km) Kozmino Transneft investment program 2010-2017 Oil production development Export markets > 10,000 km of pipelines to be constructed or > 3 bn tons of oil reserves to Central Asia replaced be developed in the next  Rapidly growing sales of modular equipment to oil several years and gas sector in Kazakhstan > 140 of pump stations to be constructed or Iraq reconstructed Oil refining development  Significant installed base of HMS pumps from Soviet > 550 reservoirs with total capacity of almost and post Soviet periods  26oil refineries are to be 10 mln m3 to be reconstructed  Currently undertaking projects for Oil Ministry and reconstructed BP Source: Frost & Sullivan report 2009, Transneft website (www.transneft.ru) 28
  • New Milestone Projects Thermal and Nuclear Power Utilities TGC-3 (Mosenergo) TGC-1 TGC-2 TGC-6 Investments 2010-2015: Investments 2010-2015: Investments 2010-2015: Investments 2010-2015: RUB 39 bn RUB 73 bn RUB 28 bn RUB 16 bn Kolskaya Leningradskaya-II TGC-9 TGC-4 Investments 2010-2015: Investments 2010-2015: RUB 28 bn RUB 21 bn TGC-13 (Enisei) Investments 2010-2015: Kalininskaya TGC-11 RUB 10 bn Smolenskaya Kurskaya Investments 2010-2015: Novovoronezhskaya-II RUB 26 bn Rostovskaya Rostovskaya Beloyarskaya TGC-14 TGC-12 (Kuzbas) Investments 2010-2015: TGC-5 Investments 2010-2015: RUB 8 bn Investments 2010-2015: RUB 21 bn RUB 14 bn TGC-8 TGC-7 (Volga) TGC-10 (Fortum) Selected nuclear power plant projects abroad Investments 2010-2015: Investments 2010-2015: Investments 2010-2015: RUB 18 bn RUB 11 bn RUB 47 bn using Russian technology No of power units / Investments Name Country Unit capacity (MW) 2010-2015 (RUB bn) Belene NPP Bulgaria 1 / 1,000 128Summary of total investments in power generating capacity Tianwan NPP China 2 / 1,000 86 Number of power units to be Additional generation Investments 2010- constructed or reconstructed capacity, MW 2015 (RUB bn) Kudankulam NPP India 2 / 1,000 65 Mokhovtse NPP Slovakia 2 / 440 53 TGC n/a 13,627 359 Akkuyu NPP Turkey 4 / 1,200 27 OGC n/a 11,962 467 Ukraine 2 / 1,200 Nuclear plants 41 21,500 808 Belarus 2 / 1,200 (Russia) Other projects 1,581 Nuclear plants Armenia 1 / 1,200 17 17,880 1,940 (Foreign) Vietnam 1 / 1,200Source: Frost & Sullivan report 2009 Nuclear Power Plants HMS participation confirmed Projects under construction Planned projects 29
  • New Milestone Projects Water Utilities Asia-Pacific Economic Cooperation Olympic Games in Sochi in 2014 FIFA World Cup 2018 Summit in Vladivostok in 2012 Investment 2010-2014: RUB 930 bn1 Investment 2010-2018: RUB 1.6 trn1 Investment 2010-2012: RUB 660 bn1 Kaliningrad Petrozavodsk St. Petersburg Tver Vladimir Export markets Moscow Yaroslavl Central Asia Kaluga Kirov  Recently undertook turnkey construction of Rostov-on-Don N.Novgorod Perm Kazan pumping stations in Turkmenistan and Uzbekistan Volgograd Ekaterinburg Azov Tyumen  Presence in water markets of Tajikistan and Krasnodar Samara Orenburg Kyrgyzstan Sochi Omsk  Offices in Ashkhabad (Turkmenistan) and Tashkent (Uzbekistan) Barnaul Leading integrated water utilities JSC Rosvodokanal JSC Evraziysky JSC RKS Vladivostok Total Capex 2010- Capex Large-scale State Programs Capex in water projects, RUB bn (2007–2015) 2015 (RUB bn) period Federal Program "Zhilische" (public 620 2011-2015 housing) 1,011 Regional programs "Clean Water“2 520 2011-2017 844 (unconfirmed budget) 724 606 Water Strategy of Russian Federation 351 2009-2020 471 372 393 until 2020 (excl. "Clean Water") 295 311 Reconstruction of Grozny utilities 105 2010-2011 St. Petersburg Water Utilities 103 2010-2025 Development Program 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015ESource: Frost & Sullivan report 2009, Media sources Source: Frost & Sullivan report 20091 Figures have been taken from various media sources; they are not final and may change in the future2 The “Clean Water” program is a nationwide large investment plan aimed at improving drinking water quality. 30
  • Significant Upside from Aftermarket Key drivers for aftermarket services growth Installed base  Water injection pumps  Very large installed base requires repair Other 13% and maintenance services Exceptional installed base  Large portion of installed base is HMS supplies 87% outdated, creating opportunity for upgrades as well as replacement Total number of pumps: 4,500  Oil trunk pipeline pumps1  Energy represents 80% of operating Other 2% cost for a typical pump Energy efficiency  Trend for modernization of equipment HMS supplies 98% to increase energy efficiency Total number of pumps: 1,044 Source: Company data, Frost & Sullivan report 2009  Most repair and maintenance Example of pump servicing historically largely in-house  HMS has contracts with companies Outsourcing trend including – TNK-BP (full outsourcing of maintenance of water injection pumps at the Samotlor field) Note: In red are highlighted the pump’s components that suffer the greatest degree of deterioration during operationSource: Frost & Sullivan report 2009, Company data of the pump and which can be replaced in order to extend1 In Transneft’s pipeline system the pump’s operation life 31
  • Advanced R&D CapabilitiesPumps Project design Very strong in-house R&D and significant experience in  Giprotyumenneftegaz (GTNG) is the leading Russian R&D pump development centre specializing in design of on-surface (as opposed to – 5 in-house R&D facilities in Russia and the CIS, sub-surface) facilities for oil and gas fields, e.g. it centralized research coordination designed over 200 fields in Russia including many of the largest (e.g. Samotlor, Mamontovskoye, Priobskoye) Unique testing facility (one of the largest in the former Soviet Union and globally) for all types of large  Significant R&D resources for design of water utilities specialized pumps for nuclear power plants and oil projects (RVKP) transportation Oilfields, projected by GTNG vs others – Current facility allows to test pumps up to 8MW in power; new facility for pumps up to 14MW under construction Deep integration with clients’ R&D – HMS’ R&D works closely with clients’ R&D divisions in Oilfields, projected by GTNG developing pre-tender documentation and helps clients Oilfields, projected by others adopt new design solutions and technical regulations – Increases the likelihood of the use of HMS equipment in projects Pre-tender preparation/aftermarket support is crucial for establishing/maintaining strong relationships with clients HMS ability to participate in pre-tender preparation stage creates unique competitive advantage Tender, pricing Pre-tender project Design and Delivery and and contract After-market preparation production installation negotiation services (up to 24 months) (1–24 months) (1 month) (1–3 months) 32
  • East Siberia – Pacific Ocean pipelineTotal number of pumping stations 41 Yakutsk Sea of Krasnoyarsk 13 14 15 Okhotks 12 region 11 16 17 10 18 9 8 RUSSIA 19 7 20 6 KhabarovskTaishet 5 Ust’-Kut 3 4 Skovorodino 21 22 region 1 23 2 Buryat 24 25 Irkutsk region 26 34 region 27 33 31 32 35 Chita 28 29 30 Chita Blagoveschensk 36 region Irkutsk 37 38 39 CHINA 40 41 MONGOLIA Vladivostok Number of contracted pumping stations 20 Number of new pumping stations for increasing capacity 21 Pumping stations under construction by HMS 12 To supply Komsomolsk and Khabarovsk refineries 9 Pumping stations constructed by Sulzer 7 To supply Primorsk refinery 4 Pumping stations under construction by Turbonasos 2 No information at the present time 8Source: Company data, Transneft 33
  • Zapolyarnoe-Pur-pe pipeline Project figures Implementation Capacity, mtpa up to 45 Construction period 2011-2015 Total length, km 488 1st stage Dec 2013 Projected cost, RUB bn 120 2nd stage Dec 2014 Total length of inlet pipelines, km 1,200 3rd stage Dec 2015 Inlet pipelines Max capacity Inlet point Oilfield License holder in 2020, mt Main OPS 1 Vostochno-Messoyakhinskoe Slavneft * 10.9 Main OPS 1 Zapadno-Messoyakhinskoe Slvaneft 2.4 3rd stage Total Main OPS 1 13.3 OPS 2 Russkoe TNK-BP 6.8 OPS 2 Zapolyarnoe Gazprom 2.3 OPS 2 Tazovskoe Gazprom 1.0 OPS 2 Northern Urengoyskoe Gazprom n/a OPS 2 Salekaptskoe Lukoil 0.3 2nd stage Total OPS 2 10.9 OPS 3 Urengoyskoe Gazprom 7.4 OPS 3 Pestsovoe Gazprom n/a OPS 3 En-Yakhinskoe Gazprom n/a OPS 3 Samburgskoe SeverEnergiya ** 0.2 OPS 3 Yaro-Yakhinskoe SeverEnergiya 0.5 OPS 3 License plot of Western Urengoyskoe TNK-BP 1.1 Total OPS 3 9.7 Total capacity to Pur-pe 34.0-45.0 1st stage Legend Projected Zapolyarnoe–Pur-pe pipeline Inlet pipelines from main perspective oilfields (with production level over 2mln tons in 2020) New OPS Maximum level of pumping capacity by 2020, mtpa Main OPS – main oil-pumping station of the future Zapolyarnoe-Pur-per pipeline OPS – oil-pumping stationSource: Public sources, Transneft site * TNK-BP and Gazprom Neft have per 50% share 34 ** Gazprom holds 51%; this shareholding should be sold to Novatek
  • Revenue Contribution by ClientsComments Revenue by Clients*, 2009 vs 2010  FY2009 Total revenue Stable growth of revenue generated by Other Salym Rub 14,772 mln Petroleum 2% clients received from replacement and NK Dulisma 1% Surgutneftegaz 3% Others modernization works 50% Lukoil 1% Orion Stroy Sharp increase in contracts’ quantity from 4% TNK-BP Transneft, Rosneft and Gazprom Neft played its 8% role in a substantial revenue growth Rosneft 21% Gazprom Neft 4% New types of contracts include: Transneft 6% – Integrated pump-based solutions (i.e. pumping  Revenue structure by clients, Rub mln stations for Transneft) – Full-cycle projects (i.e. pumping stations in 14,298 Turkmenia) 7,329 – Project and design contracts for design of new 7,443 8,772 oilfields and pipelines 2009 2010 Others Large clientsSelected clients  FY2010 Total revenue Salym Rub 23,070 mln Petroleum 1% NK Dulisma Hors Others 1% Group Surgutneftegaz 38% 1% 1% Lukoil 2% Turkmenistan Orion Stroy 5% TNK-BP 5% Rosneft 22% Gazprom Neft 8% Transneft 16% Source: Company data 35 * Large client - a client that brings revenue more than Rub 200 mln a year