HMS Group Annual Results 2010

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HMS Group Annual Results 2010

  1. 1. HMS Group FY2010 IFRS ResultsRoadshow Presentation May 2011
  2. 2. 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
  3. 3. 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, Provision for obsolete inventory, Provision for impairment of accounts receivable, Unused vacation allowance, Excess of fair value of net assets acquired over the cost of acquisition. This measurement basis excludes the effects on non-recurring expenditure from the operating segments, such as restructuring costs, legal expenses and goodwill impairments, when the impairment is a result of an isolated, non-recurring event 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 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 recognised 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 3
  4. 4. Agenda HMS GROUP AT A GLANCE 5 HMS At a Glance 6 Story of Growth & Profitability 7 BUSINESS STRATEGY & INVESTMENT HIGHLIGHTS 8 Industry Fundamentals and Growth Potential 9 New Milestone Projects 10 Significant Upside from Aftermarket 13 Advanced R&D Capabilities 14 Operational and Product Quality Excellence 15 Strong Management Team 16 Business Strategy 17 Sources of Best-in-class Margins & Growth 18 2010 BUSINESS UPDATE 19 2010 Business Update 20 Leader in Flow Control Solutions 21 FINANCIAL PERFORMANCE 22 Outstanding Performance for the FY 2010 23 EBITDA Development 24 Revenue & EBITDA Contribution by Segments 25 CAPEX & Working Capital 26 MID-TERM PROSPECTS 27 Key Contracts Execution and Backlog Analysis 28 Selected End-market Projects from Mid-term 29 CONTACTS 30 APPENDIX 31 4
  5. 5. HMS GROUP AT A GLANCE 5
  6. 6. HMS At a Glance Who we are Key investment highlights  The leading provider of pumps and pump-based  Attractive industry fundamentals: impressive end-markets mix prospects integrated solutions in Russia  The leading provider of flow control solutions in Russia and the CIS  The core markets: oil and gas, nuclear and thermal power  Advanced R&D capabilities: basis for high margin & and water sectors in Russia and the CIS sustainable performance and growth  Diversified and well-established customer base  Production of high capacity pump systems up to 12 Mwt  Operational and product quality excellence  Blue-chip customer base includes Rosneft, Transneft,  History of resilient financial growth and strong backlog Rosatom, etc and more than 4,000 other clients  Strong management team: company founders and top professionals Revenue RUB 23,070 mln EBITDA adj. RUB 3,519 mln Profit for the year RUB 1,581 mln Industrial pumps Modular equipment EPC Revenue RUB 10,712 mln Revenue RUB 5,805 mln Revenue RUB 6,135 mln EBITDA adj. RUB 2.367 mln EBITDA adj. RUB 599 mln EBITDA adj. RUB 550 mln New photo Pump station of Baltic pipeline system, Transneft Oilfield Pump Station 2, Vankor oilfield, Rosneft Oil Pump Station ‚Tayezhnaya‛, Transneft The leading provider of high capacity pumps and pump-based integrated solutions in RussiaSource: Company dataNotes: Hereinafter ‚EBITDA‛ read as ‚EBITDA adjusted‛, ‚EBITDA margin‛ read as ‚EBITDA adjusted margin‛ and ‚Net Income‛ read as ‚Profit for the year‛ 6
  7. 7. Story of Growth and Profitability Revenue & EBITDA performance, 2005-2010 Revenue, 2009 vs 2010 (mln RUB) Revenue CAGR 39% EBITDA CAGR 36% 16.5% 23,070 15.3% 12.8% 12.3% 11.7% 10.6% 14,772 14,046 13,399 6,724 4,498 3,519 1,644 1,890 1,423 744 830 2005 2006 2007 2008 2009 2010 Revenue, RUB mln EBITDA, RUB mln EBITDA margin, % Source: Company data 5 Years – 5 Times Growth of Revenue & EBITDA Despite Crisis 7
  8. 8. BUSINESS STRATEGY & INVESTMENT HIGHLIGHTS 8
  9. 9. Industry Fundamentals and Growth Potential Russian energy & utilities Russian oil sector investments infrastructure investments (RUB bn) (RUB bn) Comments  Infrastructure modernization and expansion Water utilities CAGR Oil refining and CAGR – Large portion of Russian infrastructure is Thermal power generation ’09-’15 petrochemicals ’09-’15 outdated and at or near end of useful life Nuclear power generation Oil pipelines 2,576 – Economic growth driving demand for new 3,340 Oil exploration infrastructure 21.7% and extraction 540 15.3% 1,011 – Very large expected spending by public and private sectors in energy generation, public utilities 810 and oil and gas industries 21.7% 1,131 19.0% 1,586 1,103 230  State development programs 311 285 1,226 – Large on-going projects in the public utilities and 489 16.1% 12.2% 743 616 electricity generation with ongoing impact until 303 2020-30 2009 2015E 2009 2015ESource: Frost & Sullivan report 2009 Source: Frost & Sullivan report 2009 Russian pumps market history and Russian modular equipment market history and EPC market history and forecast3- forecast1 (RUB bn) forecast2 - HMS core segments (RUB bn) HMS core segments (RUR bn) CAGR 18.8% CAGR 14.0% CAGR 14.1% 224 22 511 10 231 79 2009 2015E 2009 2015E 2009 2015E Significant increase in capital spending in core end markets drives growth of all HMS’ businessesSource: 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 vibrationpumps, as well as integrated solutions and aftermarket2 Includes pump stations, automated group metering units, associated gas processing and transport units3 Includes oil field infrastructure construction, oil and gas transportation, construction and engineering, research and design services for oil and gas industry (upstream) 9
  10. 10. 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) 10
  11. 11. 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 11
  12. 12. 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. 12
  13. 13. 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 13
  14. 14. 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) 14
  15. 15. Operational and Product Quality Excellence Comments Comparative analysis examples Submersible water well  Plants are certified in accordance with pumps HMS Grundfos ISO:9001:2008 Model 3ЭЦВ6-10-110 SP17-11 Flow rate, m3/h 10 10  Products are compliant with API 610 standard Head, m 110 110  Modern software systems for R&D and project Efficiency ratio, % 57.0-59.2 53.9-58.3 Model 3ЭЦВ6-25-100 SP30-12 management Flow rate, m3/h 25 25 – SolidWorks, ANSYS CFX, Bentley, Primavera Head, m 100 100 Efficiency ratio, % 59.8-62.1 57.4-61.7  Equipment from well-established foreign Water utilities pumps HMS KSB producers for critical manufacturing processes Model 1Д315-75 Omega 100-250A – Skoda, Schiess, Doosan, Demag, Schenk, Flow rate, m3/h 315 315 Sodik, Ibarmia and other Head, m 75 75 Efficiency ratio, % 83.0 82.6  HMS’ products include high-precision, safety- Weight, kg 190 210 critical equipment for hazardous facilities (nuclear plants, refineries, pipelines) Source: The Russian Association of Pump ManufacturersSchiess Demag Skoda Ibarmia HMS has a strong focus on operational excellence and manufactures top quality products 15
  16. 16. Strong Management Team Key Senior Management Artem Molchanov  Kirill Molchanov  Andrey Nasledyshev Nikolay Yamburenko  Anatoliy Nazarov Igor Tverdokhleb CEO First Deputy CEO Deputy CEO Head of Industrial Pumps Head of Modular Head of R&DIndustry experience: Industry experience: Industry experience: Industry experience: Equipment Industry experience: 17 years 17 years 11 years 32 years Industry experience: 24 years Years with HMS: Years with HMS: Years with HMS: Years with HMS: More than 35 years Years with HMS: 17 years 17 years 6 years 7 years Years with HMS: 6 years 4 years Founders / Shareholders The management team… Shareholders Structure German  … is comprised of professionals with significant experience Other Tsoy 17.33% managers in pump and oil and gas industries 21.42%  … includes founders, who have led HMS since its inception  … has a strong commitment to the business Vladimir Lukyanenko 24.00% Free-float 37.25% Source: Company data HMS’ founders remain shareholders and continue to be actively involved in managing the business 16
  17. 17. Business StrategyFocus on integrated  Higher margin than stand-alone products and servicessolutions and other  HMS Group’s largest customers more often prefer to work with manufacturershighly-engineered that can offer integrated and customized solutionsproducts  Creates strong ties with customers, pull-through demand for aftermarket servicesStrengthen position  Take advantage of positive market trends in existing core markets  Organic expansion into attractive market segmentsin core markets  Increase of aftermarket services component to generate higher-margin andincluding regular cash flowsaftermarket and  Core export opportunities: water projects in FSU, Rosatom nuclear contracts,export O&G in Kazakhstan and IraqExpand research  Leverage leading R&D capabilities in order to develop next-generation customizedand development pumps, technological upgrades and integrated pump systemscapabilities  Work closely with customers to develop technical policies and standards  Commitment to integration and optimization of current production assets and commitment to increase synergies between acquired businessesImprove operational  Standardization and continuous improvement of operations and businessefficiency processes (e.g. ERP, budgeting and reporting methodology and software development, etc.)  Our targets are technology and R&D facilitiesPursue selective &  Pursue acquisition opportunities in high-growth sectors where HMS has limitedvalue enhancing presenceacquisitions  Search for cost and revenue synergies 17
  18. 18. 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 18
  19. 19. 2010 BUSINESS UPDATE 19
  20. 20. 2010 Business UpdateInnovations bring success1 Successful completion of two milestone projects:  Vankor oilfield development Stage 1  Turkmenistan pilot station2 Contract for supplying pump-based integrated systems for ESPO3 Acquisition of controlling stake in GTNG:  Entrance into lucrative oilfield infrastructure project design,  That pave the way for major oil project for core HMS business Oilfields, projected by GTNG Others4 Research & Development:  R&D of new types of pumping equipment for trunk pipelines, nuclear plants, power plants and water works  14 MWT testing facilities construction5 Operations efficiency focus through introduction of IT systems and quality management systems 20
  21. 21. The Leading Provider of Flow Control Solutions 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 ‚hot 113.8 16% 97.5 cycle‛. The market share decrease in refinery & petrochemicals is 86.0 99.2 68% attributable to HMS Group’s presence only in standard ‚cold 21.7 25.1 cycle‛ pumps 7.5 12.6 2009 2010 2009 2010 2009 2010  Deferred demand is being created for standard ‚cold cycle‛ Pump stations Automated group Associate gas pumps metering units processing and transport units  Decrease in nuclear non-MPC pumps is attributable to the 2009 2010 industry’s specifics expressed in long-term only contracts HMS Group revenue, US$ mln Others  Revenue from signed in 2009 contracts will be recognized in 2011Source: Frost & Sullivan report 2010 21
  22. 22. FINANCIAL PERFORMANCE 22
  23. 23. Outstanding Performance for the FY 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 23
  24. 24. EBITDA Development 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 24
  25. 25. 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 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 primarily attributable to increasing share of contracts for pump- 134% 1,012 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 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 786 599 -24% 2009 2009 2010 Revenue, RUB mln EBITDA, RUB mln EBITDA margin, % EPC 9.0% EPC: 6,135 46%  Revenue growth of 46% yoy is primarily attributable to an 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 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 25
  26. 26. CAPEX & Working Capital Capital expenditures, 2009 vs 2010 M&A expenditures, 2009 vs 2010 2.1x 2,918 950 GTNG 2467 0.6x 450 344 192 571 SIBNA 248 2009 2010 2009 2010 Organic capex, RUB mln Depreciation, RUB mln Capex/ Depreciation ratio, x Total M&A capex, RUB mln Controlling interest acquisition, RUB mln Source: Company data Source: Company data Working capital position update, 2009 vs 2010 Working capital performance, 2009 vs 2010 2010 2009 Working capital, RUB bn 2.4 2.7 0.18x chg, % -10% 22% Working capital/ Total assets, x 0.11 0.23 Working capital/ Revenue, % 10.6% 18.3% 0.11x 2,702 Current ratio, x 1.05 1.20 2,441 Quick ratio, x 0.83 0.64 Inventories, days 63 92 Receivables, days 105 73 2009 2010 Payables, days 148 106 Working capital, RUB mln Working capital / Revenue, xSource: Company data Source: Company data 26
  27. 27. MID-TERM PROSPECTS 27
  28. 28. Key Contracts Execution and Backlog AnalysisHighlights Backlog 2010 vs 2011, RUB mln Order backlog doubled yoy to RUB 19.8 bn, 19,837 1,506 34% including RUB 1.3 bn backlog from acquired GTNG 2,418% Organic backlog growth, excluding impact from GTNG, was up 95% yoy 10,078 General backlog increase reflects market growth 9,500 1,123 Robust backlog growth of high-margin pump-based 402 3% integrated solutions for large infrastructure projects 7,975 8,254 Signed contracts for oil transportation pumps:  Recognized revenue of RUB 3.7 bn (incl. ESPO 31 Dec 2009 31 Dec 2010 RUB 3.5 bn) in 2010, current backlog RUB 10.1 Other Oil transportation pumps Nuclear pumps bn, the most part of revenue to be recognized Source: Company data in 2011 Signed contract for nuclear pumps: Backlog structure as of 31 Dec 2010, RUB mln  Recognized revenue RUB 0.1 bn, current Water injection backlog RUB 1.5 bn, the most part of revenue pumps Oil recognition in 2011 transportation Other 0.2 0.7 pumps Signed contracts for project design: 10.1 Project & design  Significant increase of backlog due to GTNG 1.3 acquisition – plus RUB 1.3 bn Modular equipment Standard equipment and other products, sold from 1.4 the company’s warehouses, bring up to RUB 2.5 bn of revenue. Usually these products are not considered in backlog calculation Nuclear pumps Construction 1.5 2.7 Other pumps 2.1 Source: Company data 28
  29. 29. Selected End-market Projects from Mid-termFinancial and number of highlights Increased Operational HMS end-market projectsProject Brief description Completion Key metrics CommentsLukoil & Bashneft JV Joint development of the fields, in stage of project development. Reserves HMS has good references for previousTrebs and Titov fields by 2013 Capex US$5-6 bn 141 mt projectsRosneft Min capex RUB 480 bnVankor 2 stage Further development. Capex for 2011 US$ 2.6 bn next stage by 2014 HMS participated in previous stages Planned production 25 mtpaYurubcheno-Tokhomsk oilfield DevelopmentAssociated gas utilization program Achievement of 95% level of associated gas utilization HMS participated in previous stages(Komsomolskoe, Priobskoe oilfields)Moskovtsev oilfield Development of a new field in KHMAO is planned to begin in 2012 Reserves ~33mlnTransneft 9 oil-pumping stations to be constructed to deliver oil to Khabarovsk andESPO expansion 9 OPS by 2015 HMS participated in previous stages Komsomolsk refineries by 2015Zapolyarye – Pur-pe pipeline Oil transportation from YANAO and Northen Krasnoyarsk region oilfields 4 OPS by 2015 Capex RUB 120 bn HMS participates in a project designESPO expansion 4 OPSs to be constructed to deliver oil to t Primorsk refinery by 2017 4 OPS by 2017 HMS participated in previous stagesPur-pe – Samotlor expansion Construction of 2 OPS Total capex in 2011 RUB 77 bn 2 OPS by 2017 HMS participated in previous stagesTNK-BPRusskoe oilfield Giant oilfield in YANAO with specific oil. Project production 20 mtpa Capex US$ 4.5 bn HMS participates in a project designSamotlor 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 and Planned production for 2011 is 3.2bcm, up 17% on 2010 HMS participates in project designcondensate fields Oilfield located in the Eastern Siberia, Irkutsk region. Development was Peak production byVerkhnechonsk oilfield Additional US$3-4 bn HMS participated in previous stages stimulated by close proximity of ESPO pipeline. 2014Gazprom The field will become a resource base for Russian pipeline gas and HMS produces units for complex gasShtokman gas and condensate field liquefied natural gas (LNG) exports to the Atlantic Basin markets preparationGazprom Neft Doubling oil equivalent production rate to 100 mtpa through developmentStrategy 2020 by 2020 of new projects in YANAO, KHMAO, Eastern Siberia and offshorePriobskoe oilfield Western Siberia. Recoverable reserves ~600 mt HMS participates in a project designUrmanskoe and Shinginskoe oifields Eastern SiberiaSberbank CapitalDulisma oilfield Irkutsk region. Further development. 3rd resource base for ESPO Total reserves 15 mt HMS participated in previous stagesTaas-yuriah oilfield Sakha region. Further development. Total reserves ~130 mt Capex RUB 15-30 bnIraqRumaila brownfield Consortium headed by BP Capex US$ 15 bn HMS already submitted technical surveyAz Zubair Consortium headed by Eni Capex US$ 20 bn HMS participates in a tenderRosatomRostov NPP Reactor 4 by 2015 Min capex RUB 100 bn HMS participated in previous stagesBelene (Bulgaria) Reactor 1 by 2017-18 Capex € 5-6.3 bnMunicipal waterGrozvodokanal Modernization and reconstruction of water utilities in Chechnya Capex about RUB 100 bn HMS participated in previous stagesSource: Public information, Media resources, Company data 29
  30. 30. СontactsGeneral Inquiriesir@hms.ruAlexander Rybin Inna KelekhsaevaHead of Capital Markets IR OfficerTel: +7 (495) 730-66-01 Tel: +7 (495) 730-66-01ir@hms.ru kelekhsaeva@hms.ruwww.grouphms.com7 Chayanova Str.Moscow 125047Russia 30
  31. 31. APPENDIX 31
  32. 32. Income Statement RUB ‘000 2010 2009 Revenue 23,070,014 14,772,269 Cost of sales (17,367,404) (11,164,202) Gross profit 5,702,610 3,608,067 Distribution & transportation expenses (573,198) (482,576) General & administrative expenses (2,102,642) (1,827,189) Other operating expenses (112,149) (97,679) Impairment of goodwill - (116,998) Operating profit 2,914,621 1,083,625 Finance income 57,089 46,806 Finance costs (823,391) (865,141) Share of results of associates 15,108 17,193 Profit before income tax 2,163,427 282,483 Income tax expense (582,299) (212,386) Profit for the year 1,581,128 70,097 Profit/(loss) attributable to: Shareholders of the Company 1,469,116 (31,821) Non-controlling interest 112,012 101,918 Profit for the year 1,581,128 70,097 Currency translation differences (85,899) (70,502) Currency translation differences of associates 1,540 1,283 Other comprehensive loss for the year (84,359) (69,219) Total comprehensive income for the year 1,496,769 878 Total comprehensive income/(loss) attributable to: Shareholders of the Company 1,402,382 (76,930) Non-controlling interest 94,387 77,808 Total comprehensive income for the year 1,496,769 878 Basic and diluted earnings per ordinary share for 14.32 (0.03) profit/(loss) attributable to the ordinary shareholdersSource: Company data 32
  33. 33. Balance Sheet RUB’000 31 December 2010 31 December 2009 ASSETS Non-current assets: Property, plant and equipment 5,948,674 3,954,807 Other intangible assets 310,156 47,109 Goodwill 1,783,915 306,992 Investments in associates 507,141 507,293 Deferred income tax assets 130,779 53,992 Other long-term receivables 27,123 61,362 Total non-current assets 8,707,788 4,931,555 Current assets: Inventories 2,840,745 3,179,644 Trade and other receivables and other financial assets 10,399,853 2,778,048 Current income tax receivable 38,086 58,016 Prepaid expenses 39,361 36,213 Cash and cash equivalents 351,086 758,127 Restricted cash 4,978 905 13,674,109 6,810,953 Non-current assets held for sale 96,095 - Total current assets 13,770,204 6,810,953 TOTAL ASSETS 22,477,992 11,742,508 EQUITY AND LIABILITIES EQUITY Share capital 42,510 36,154 Share premium 210,862 210,862 Share capital to be issued - 6,356 Currency translation reserve (234,785) (168,051) Retained earnings 2,897,296 1,480,712 Other reserves 38,987 37,035 Equity attributable to the shareholders of the Company 2,954,870 1,603,068 Non-controlling interest 1,508,263 669,631 TOTAL EQUITY 4,463,133 2,272,699 LIABILITIES Non-current liabilities: Long-term borrowings 3,864,176 3,429,475 Finance lease liability 9 8,479 Deferred income tax liability 745,762 197,307 Pension liability 262,525 125,407 Provisions for liabilities and charges 35,691 11,550 Total non-current liabilities 4,908,163 3,772,218Source: Company data 33
  34. 34. Balance Sheet (cont’d) RUB’000 31 December 2010 31 December 2009 Current liabilities: Trade and other payables 10,799,358 3,255,533 Short-term borrowings 775,242 1,879,914 Provisions for liabilities and charges 312,213 209,760 Finance lease liability 8,446 13,094 Pension liability 24,736 20,922 Current income tax payable 115,340 25,069 Other taxes payable 1,071,361 293,299 Total current liabilities 13,106,696 5,697,591 TOTAL LIABILITIES 18,014,859 9,469,809 TOTAL EQUITY AND LIABILITIES 22,477,992 11,742,508Source: Company data 34
  35. 35. Cash Flow Statement RUB’000 31 December 2010 31 December 2009 Cash flows from operating activities Profit before income tax 2,163,427 282,483 Adjustments for: Depreciation and amortisation 449,776 343,987 Loss from disposal of property, plant and equipment and intangible assets 938 2,305 Finance income (57,089) (42,790) Finance costs 818,773 865,141 Pension expenses/(income) 33,808 17,673 Warranty provision 51,109 18,150 Write-off of receivables 23,931 - Interest expense related to construction contracts 17,408 14,953 Provision for impairment of accounts receivable (13,023) 69,559 Impairment of taxes receivable 10,052 - Investments impairment provision (1,338) 6,099 Provision for obsolete inventories (107,634) 95,949 Foreign exchange translation differences 4,618 (4,016) Provision for VAT receivable (10,887) 29,918 Provisions for legal claims 34,073 13,655 Share of results of associates (15,108) (17,193) Impairment of goodwill - 116,998 Impairment of property, plant and equipment and intangible assets 19,288 13,848 Loss on disposal of subsidiaries 4,360 - Other non-cash items (646) (18,861) Operating cash flows before working capital changes 3,425,836 1,807,858 Decrease/(increase) in inventories 452,945 (810,442) (Increase)/decrease in trade and other receivables (6,921,060) 34,526 Increase/(decrease) in taxes payable 674,369 (9,530) Increase/(decrease) in accounts payable and accrued liabilities 7,063,530 (71,350) Restricted cash (4,073) (285) Cash generated from operations 4,691,547 950,777 Income tax paid (277,738) (286,395) Interest paid (838,533) (875,750) Net cash from/(used in) operating activities 3,575,276 (211,368) Cash flows from investing activities Repayment of loans advanced 3,139 122,476 Loans advanced (5,498) (108,139) Proceeds from sale of property, plant and equipment and intangible assets 24,585 1,775 Interest received 56 39,352 Dividends received 16,800 10,313 Purchase of property, plant and equipment (950,275) (192,365) Acquisition of associates - (122,756) Acquisitions of subsidiaries, net of cash acquired (2,339,457) (239,806) Proceeds from disposal of subsidiaries, net of cash disposed 7,475 - Acquisition of intangible assets (48,681) (19,741) Net cash used in investing activities (3,291,856) (508,891)Source: Company data 35

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