2. Speakers
Financial and Operational highlights Revenue, 2009 vs 2010 (mln RUB)
Artem Molchanov
Managing Director & CEO
Kirill Molchanov
First Deputy General Director & CFO
Alexander Rybin
Head of Capital markets and IR
2
3. Disclaimer
The 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 factors may
have impacted on the business of HMS Group and the content of this presentation, since its preparation.
In addition all relevant information about HMS Group may not be included in this presentation. 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 assumptions
which may prove to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty
and HMS Group cautions that actual results may differ materially from those expressed or implied in such
statements. Reference should be made to the most recent Annual Report for a description of the major
risk factors. This presentation should not be relied upon as a recommendation or forecast by HMS
Group, which does not undertake an obligation to release any revision to these statements.
This presentation does not constitute or form part of any advertisement of securities, any offer or
invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in HMS
Group, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be
relied on in connection with, any contract or investment decision.
3
4. Agenda
HMS At-a-glance 5
HMS Group highlights for the FY 2010 6
Outstanding performance for the FY 2010 7
EBITDA development 8
Revenue and EBITDA contribution by segments 9
Key contracts and backlog 10
Cost of sales optimization 11
CAPEX & working capital 12
Debt & liquidity position 13
1Q update & IR calendar 14
IR contacts 15
Appendix I 16
Appendix II: Calculations 39
4
5. HMS At-a-glance
Who we are Key investment highlights
The leading Russian pump and pump-based integrated Attractive industry fundamentals: impressive end-
markets mix prospects
solutions provider
The leading provider of flow control solutions in Russia
and the CIS
Our 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
Produce high capacity pump systems up to 12 Mvt
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
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 Russian high capacity pump and pump-based integrated solutions
Source: Frost & Sulliv an report 2009, Company data provider
5
6. HMS Group Highlights for the FY 2010
Key financial figures change yoy 2010 RUB mln 2010 (mln RUB)
Revenue, 2009 vs 2009 RUB mln
Revenue 56% 23,070 14,772
EBITDA adj. 86% 3,519 1,890
EBIT 133% 3,027 1,298
Profit for the year 2,156% 1,581 70
Net debt -6% 4,297 4,573
EBITDA adj. margin 246 bps 15.3% 12.8%
ROCE 1,825 bps 36.2% 18.0%
Business Highlights: Growth through innovations
Completed large-scale projects, including the delivery of “superblock” modular equipment to Rosneft for the
1st stage of the development of Vankor oil field and full-cycle project for construction of water-lifting pump
station for the Republic of Turkmenistan
Engaged in number of new significant contracts during 2010, including the delivery of integrated pump -based
systems for 14 pumping stations of East Siberia-Pacific Ocean trunk pipelines and projects for development
and design of new oilfields and pipelines
Acquired a 51% stake in Giprotyumenneftegaz (GTNG) for a total cash consideration of RUB 2,467 mln
Designed new types of pumping equipment for trunk pipelines, nuclear plants, power plants and water works
Enjoyed robust backlog increase reflecting overall market growth
Operations’ efficiency focus through introduction of IT systems and quality management system
Note: 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.
For this purpose, EBITDA is defined as operating profit/loss adjusted for other income/expenses, depreciation and amortisation, 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. 6
7. Outstanding Performance for the FY 2010
Comments
Financial and Operational highlights Revenue, 2009 vs 2010 (mln vs 2010
Key financials, 2009 RUB)
Total revenue up 56% yoy to RUB 23.1 bn
The growth reflects: 12.8% 15.3%
+56%
Significant increase in size of orders for
pump-based integrated solutions
Completion of key projects
Consolidation of GTNG
+86%
1,890
Stable growth of revenue from ordinary 14,772 23,070 3,519
contracts 2009 2010
Organic revenue growth of 47% yoy, excluding Revenue, RUB mln EBITDA adj., RUB mln
impact from GTNG EBITDA adj. margin
Source: Company data
ROCE, 2009 vs 2010 EBIT, 2009 vs 2010 (RUB mln)
36.2% 3,027
+1,825 bps +133%
18.0%
1,298
2009 2010 2009 2010
Source: Company data Source: Company data
7
8. EBITDA Development
Comments
Comments Revenue & Operating costs, 2009 vs 2010
EBITDA and EBITDA margin, 2009 vs 2010 (mln RUB)
EBITDA adj. increased by 86% yoy to RUB 3,519 mln
due to:
Strong revenue growth in all business units
Focus on innovative high-margin contracts
Effective cost control
Consolidation of GTNG
EBITDA adj. margin increased to 15.3%
SG&A and commercial expenses grew less than 1,084 1,581
14,772 70 23,070 2,915
revenue due to economy of scale and cost 2009 2010
optimization strategy Revenue Operating profit Profit for the year
50,000
Source: Company data
Key EBITDA adj. drivers, 2009 vs 2010 (% of revenue)
operating expenses 0
20.2bn v s 13.7bn in 2009 |+47.2% y oy
2009 2010
rev enue in 2010 +56.2% y oy
75.6% 75.3% 3.3% 2.5% 9.1%
12.4%
0.5% 0.7%
12.6% 1.9% 3.1% 15.3%
1.5% 12.8%
7.3% 2.3%
Revenue
Revenue Cost of sales sales
Cost of Distribution and and SG&A
Distribution SG&A Other Other expenses Operating profit
expenses Operating profit Depreciation & Others EBITDA adj.
EBITDA*
transport expenses
transport amortisation
Source: Company data expenses
8
9. Revenue and EBITDA Contribution by Segments
Highlights by core segments, 2009 vs 2010 Comments
Revenue, RUB mln Industrial pumps:
– Sales up 70% yoy to RUB 10,712 mln, enjoying
strong demand for integrated pumping solutions
+46%
6,135 primarily in oil transportation and upstream
5,805 +39% – EBITDA adj. grew by 134% yoy, and EBITDA adj.
4,189
margin rose to 22.1%, primarily attributable to
4,166 +70%
10,712
increasing share of contracts for pump-based
6,308 integration solutions
2009 2010 Modular equipment
Industrial pumps Modular equipment EPC
– Sales up 39% yoy, driven by demand from the
EBITDA adj., RUB mln major oil companies to equip new oil fields and
modernize existing installed base of modular
equipment
550 +1,548%
– EBITDA adj. decreased 24% yoy and EBITDA adj.
599 -24%
33
margin also down to 10.3% due to execution of
+134%
786
low-margin contracts concluded in 2009
2,367
EPC
1,012
– Revenue growth of +46% yoy is primarily
2009 2010
Industrial pumps Modular equipment EPC
attributable to an impact of GTNG acquisition and
entering the market of projects and design
– Revenue growth, excluding an effect of acquisition,
EBITDA adj. margin, %
was c. 14% yoy
0.8% 9.0% +606 bps – EBITDA adj. increased significantly to RUB 550
mln, and EBITDA adj. margin rose to 9.0%
10.3% -856 bps
18.9%
– Newly acquired GTNG added to EPC’s EBITDA
+816 bps RUB 271 mln
22.1%
16.0% – Such a significant EBITDA is primarily attributable
2009 2010
to a low EBITDA base in 2009, caused by
Industrial Pumps Modular equipment EPC significant price pressure connected to investment
Source: Company data
cutbacks by oil companies 9
10. Key Contracts Execution and Backlog Analysis
Highlights Backlog, 2010 vs 2011 (RUB mln)
19,837
Order backlog doubled yoy to RUB 19.8 bn,
including RUB 1.3 bn backlog from acquired GTNG
+3%
Organic backlog growth excluding impact from 8,254
GTNG was up 95% yoy 9,500
1,506 +34%
General backlog increase reflecting market growth
+2,418%
Robust backlog growth of high-margin pump-based 7,975 10,078
integrated solutions for large infrastructure projects 1,123
402
Signed contracts for oil transportation pumps 2010 2011
scheduled:
Oil transportation pumps Nuclear pumps Other
Recognized revenue of RUB 3.7 bn in 2010:
current backlog RUB 10.1 bn, the most part of Source: Company data
revenue to be recognized in 2011
ESPO contracts execution scheduled, Backlog structure for 2011 (RUB bn)
recognized revenue of RUB 3.5 bn
Signed contract for nuclear pumps scheduled:
Water injection
pumps
Recognized revenue RUB 0.1 bn, current Oil Other 0.2
transportation 0.7
backlog RUB 1.5 bn, the most part of revenue pumps
10.1
Project & design
recognition in 2011 1.3
Signed contracts for project design scheduled: Modular
equipment
1.4
Significant increase of backlog due to GTNG
acquisition – plus RUB 1.3 bn Nuclear pumps
1.5
Backlog doesn’t include contracts with production Construction
2.7 Other pumps
period less than 3 months, e.g. for standard pumps. 2.1
These short-term contracts generate revenue of
about RUB 3 bn per year Source: Company data
10
11. Cost of Sales Optimization
Comments Cost of of sales structure, vs 2010 vs 2010 (%)
Cost sales breakdown, 2009 2009 (RUB mln)
11,164 17,367 5.1%
Operating costs grew 47% yoy in 2010 vs revenue growth 5.4%
1.5% 1.3%
2.3% 2.0%
by 56% yoy 3.9% 3.3%
13.2%
15.4%
Cost of sales increased by 56% yoy in 2010, reflecting the
15.5%
16.1%
consolidation of GTNG and also due to the increase in
supplies, raw materials and labor costs.
About 60% of HMS Group’s cost of sales is for raw
materials and supplies, where ferrous metals account for 55.4% 59.7%
most of the cost 2009 2010
Materials Labour Cost of goods sold Subcontractors D&A Utilities Other
Dual-supplier policy: Source: Company data
– HMS Group doesn’t have monopolistic or exclusive
World HRC price performance in 2010
suppliers
800
– HMS Group doesn’t have even one supplier with
share more than 5% 750 +22%
Fixing suppliers’ prices and making advance payments for 700
long-term contracts and passing on price increases to
650
clients for short-term contracts helps to hedge commodity
prices and currency risks 600
550
500
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
World hot rolled coil price index performance, $/tonne
expenses
Source: Bloomberg
11
12. CAPEX & Working Capital
Capital expenditures, 2009 vs 2010 (RUB mln) M&A expenditures, 2009 vs 2010 (RUB mln)
2.1x
1
GTNG
(2,467)
1
0.6x
SIBNA
(248)
192 344 950 450 571 2,918
2009 2010 2009 2010
Organic capex Depreciation Capex/ Depreciation ratio M&A capital expenditures M&A quantity
Source: Company data Source: Company data
Working capital position update Working capital ratios, 2007-2010
2010 2009
Working capital, RUB bn 2.4 2.7 0.23
chg, % -10% 22% 0.20 0.20
0.18
Working capital/ Total assets, x 0.11 0.23 0.16
0.15
Working capital/ Revenue, % 10.6% 18.3%
Current ratio, x 1.05 1.20 0.11
Quick ratio, x 0.83 0.64
Inventories, days 63 92
Receivables, days 105 73 1,973 2,222 2,702 2,441
2007 2008 2009 2010
Payables, days 148 106 Working capital, RUB mln Working capital / Total assets, x
Working capital / Revenue, x
Source: Company data Source: Company data
12
13. Debt & Liquidity Position
Comments Debt position, 2009 vs 2010
15.8%
Total debt decreased by 13% yoy from RUB 5,331 mln to 5,331
4,648 -13%
RUB 4,648 mln
Significant operating cash flow growth from RUB -0.2 bn
9.9%
to RUB 3.6 bln
Free cash flow stood at RUB 283 mln despite GTNG
acquisition
During 2010 interest rates on long-term borrowings were 758 -54%
351
revised and decreased for 4-7%. As a result effective
interest rate amounted to around 9.9% per annum 2009 2010
Total debt, RUB mln Cash, RUB mln
Effective interest rate, year-end
Source: Company data
Highlights, 2009 vs 2010 (RUB mln) Debt & net debt/EBITDA position, 2009 vs 2010
2010 2009 HMS’ internal covenant for
Net cash flow from operations 3,575 -211 Net debt/ EBITDA is 2.5x
Net cash flow from investing activities -3,292 -509
2.4x
Net cash flow from financing activities -690 815
Free cash flow 283 -720
1.2x
Cash 351 758
Total debt 4,648 5,331
Total debt/ Equity ratio 1.04 2.35
Total debt/ EBITDA 1.32 2.82 3,438 1,893 3,864 784
2009 2010
Long-term debt, RUB mln Short-term debt, RUB mln
Source: Company data Source: Company data
13
14. 1Q Trading Update & IR Calendar
Traditional flow of usual contracts including oil transportation and nuclear pumps
for clients’ current facilities
1Q2011 Key
IPO proceeds were used for RUB 3.3 bn debt repayment
Events
Average interest rate for a number of large long-term borrowings was decreased
to c. 8.9%
Active discussions with several targets
M&A Activity 1 deal in a stage of finalizing
In addition to current 40% of DKHM, 11% to be bought at the beginning of 2012
HMS Group can expect to report a strong increase in revenues and adjusted
2011E Outlook*
EBITDA
Mid-May: Annual results roadshow
31 May –2 June: VTB Capital Russia Calling in London
June-beginning: 1Q results announcement
IR Calendar
09 June: Credit Suisse Oil & Gas Conference in London
28 June: Renaissance Capital Investor Conference in Moscow
June: HMS site visit – to be considered
HMS Group is in line with its growth strategy and continues to deliver on
promises to its shareholders and investors
• Actual results and dev elopments may be materially dif f erent from any f orecast, forward-looking statement, opinion or expectation expressed in this presentation.
• We emphasize that we base all our f inancial f orecasts on the researches perf ormed by the independent market analy sts. Theref o re, we indemnif y HMS Group f rom any responsibility in relation
to any inv estor or group of inv estors acting in reliance upon such f orecasts
14
15. IR Contacts
Alexander Rybin
Head of Capital Markets and IR
Tel: +7 (495) 730-66-12
rybin@hms.ru
Vyacheslav T soy
Deputy Head of Capital Markets and IR
Tel: +7 (495) 730-66-01
vtsoy@hms.ru
Inna Kelekhsaeva
IR Officer
T +7 (495) 730-66-01
el:
kelekhsaeva@hms.ru
15
17. Income Statement
RUB‟000 2010 RUB „000 2009 RUB „000
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 & administrativ e 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 dif f erences (85,899) (70,502)
Currency translation dif f erences 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 comprehensiv e 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 shareholders
Source: Company data 17
18. Balance Sheet
RUB‟000 31 Decem ber 2010 31 Decem ber 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
Inv estments in associates 507,141 507,293
Def erred income tax assets 130,779 53,992
Other long-term receiv ables 27,123 61,362
Total non-current assets 8,707,788 4,931,555
Current assets:
Inv entories 2,840,745 3,179,644
Trade and other receiv ables and other f inancial assets 10,399,853 2,778,048
Current income tax receiv able 38,086 58,016
Prepaid expenses 39,361 36,213
Cash and cash equiv alents 351,086 758,127
Restricted cash 4,978 905
13,674,109 6,810,953
Non-current assets held f or 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 reserv e (234,785) (168,051)
Retained earnings 2,897,296 1,480,712
Other reserv es 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
Def erred income tax liability 745,762 197,307
Pension liability 262,525 125,407
Prov isions f or liabilities and charges 35,691 11,550
Total non-current liabilities 4,908,163 3,772,218
Source: Company data 18
19. Balance Sheet (cont’d)
RUB‟000 31 Decem ber 2010 31 Decem ber 2009
Current liabilities:
Trade and other pay ables 10,799,358 3,255,533
Short-term borrowings 775,242 1,879,914
Prov isions f or liabilities and charges 312,213 209,760
Finance lease liability 8,446 13,094
Pension liability 24,736 20,922
Current income tax pay able 115,340 25,069
Other taxes pay able 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 11,742,508
Source: Company data 19
20. Cash Flow Statement
RUB‟000 31 Decem ber 2010 31 Decem ber 2009
Cash flows from operating activities
Prof it bef ore income tax 2,163,427 282,483
Adjustments f or:
Depreciation and amortisation 449,776 343,987
Loss f rom 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 prov ision 51,109 18,150
Write-of f of receivables 23,931 -
Interest expense related to construction contracts 17,408 14,953
Prov ision f or impairment of accounts receiv able (13,023) 69,559
Impairment of taxes receiv able 10,052 -
Inv estments impairment prov ision (1,338) 6,099
Prov ision f or obsolete inv entories (107,634) 95,949
Foreign exchange translation dif f erences 4,618 (4,016)
Prov ision f or VAT receiv able (10,887) 29,918
Prov isions f or 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 inv entories 452,945 (810,442)
(Increase)/decrease in trade and other receiv ables (6,921,060) 34,526
Increase/(decrease) in taxes pay able 674,369 (9,530)
Increase/(decrease) in accounts pay able 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
Repay ment of loans adv anced 3,139 122,476
Loans adv anced (5,498) (108,139)
Proceeds f rom sale of property , plant and equipment and intangible assets 24,585 1,775
Interest receiv ed 56 39,352
Div idends receiv ed 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 f rom 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 20
21. Cash Flow Statement (cont’d)
RUB‟000 31 Decem ber 2010 31 Decem ber 2009
Cash flows from financing activities
Repay ments of borrowings (9,034,047) (5,571,316)
Proceeds f rom borrowings 8,800,148 6,775,593
Pay ment f or f inance lease (12,663) (19,971)
Acquisition of non-controlling interest in subsidiaries (578,844) (208,799)
Expenses related to share issue (58,049) -
Cash receiv ed f rom capital contribution 85,817 -
Cash receiv ed f rom additional share issue of subsidiary 428,420 -
Div idends paid to non-controlling shareholders of subsidiaries (320,458) (160,009)
Net cash (used in)/from financing activities (689,676) 815,498
Net (decrease)/increase in cash and cash equivalents (406,256) 95,239
Effect of exchange rate changes on cash and cash equivalents (785) (6,594)
Cash and cash equivalents at the beginning of the year 758,127 669,482
Cash and cash equivalents at the end of the year 351,086 758,127
Cash flows from investing activities
Repay ment of loans adv anced 3,139 122,476
Loans adv anced (5,498) (108,139)
Proceeds f rom sale of property , plant and equipment and intangible assets 24,585 1,775
Interest receiv ed 56 39,352
Div idends receiv ed 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 f rom 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)
Cash flows from financing activities
Repay ments of borrowings (9,034,047) (5,571,316)
Proceeds f rom borrowings 8,800,148 6,775,593
Pay ment f or f inance lease (12,663) (19,971)
Acquisition of non-controlling interest in subsidiaries (578,844) (208,799)
Expenses related to share issue (58,049) -
Cash receiv ed f rom capital contribution 85,817 -
Cash receiv ed f rom additional share issue of subsidiary 428,420 -
Div idends paid to non-controlling shareholders of subsidiaries (320,458) (160,009)
Net cash (used in)/from financing activities (689,676) 815,498
Net (decrease)/increase in cash and cash equivalents (406,256) 95,239
Effect of exchange rate changes on cash and cash equivalents (785) (6,594)
Cash and cash equivalents at the beginning of the year 758,127 669,482
Cash and cash equivalents at the end of the year 351,086 758,127
Source: Company data 21
22. Business Strategy
Focus on integrated Higher margin than stand-alone products and services
solutions and other HMS Group’s largest customers more often prefer to work with manufacturers that
highly-engineered can offer integrated and customized solutions
products Creates strong ties with customers, pull-through demand for aftermarket services
Take advantage of positive market trends in existing core markets
Strengthen position
Organic expansion into attractive market segments
in core markets
Increase of aftermarket services component to generate higher-margin and
including
regular cash flows
aftermarket and
Core export opportunities: water projects in FSU, Rosatom nuclear contracts,
export
O&G in Kazakhstan and Iraq
Expand research Leverage leading R&D capabilities in order to develop next-generation customized
and development pumps, technological upgrades and integrated pump systems
capabilities 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 businesses
Improve operational
Standardization and continuous improvement of operations and business
efficiency
processes (e.g. ERP, budgeting and reporting methodology and software
development, etc.)
Our targets are technology and R&D facilities
Pursue selective &
Pursue acquisition opportunities in high-growth sectors where HMS has limited
value enhancing
presence
acquisitions
Search for cost and revenue synergies
22
23. Target Industries Development
Increased development of greenfield and brownfield projects
Project Brief description Date of announcement Key metrics
Caspian Pipeline Consortium The project w ill involve construction of 10 new pumping
December 2010 Capex: US$ 5.4 bn
pipeline capacity expansion stations and is scheduled to be completed by 2014
Development of the Trebs and Titov A JV of Bashneft and Lukoil for joint development of the Total reserves: 140.1 mln
April 2011
fields fields tons
Development of the Russian Arctic Unprecedented strategic alliance betw een Rosneft and
January 2011 Area: 125,000 km2
continental shelf BP for one of the largest development projects to date
A long-term cooperation betw een Rosneft and Lukoil for
Rosneft / Lukoil alliance April 2011 n/a
joint exploration of the Arctic shelf and Nenets areas
Development of oil and gas Agreement betw een Rosneft and ExxonMobil for joint
January 2011 n/a
resources in the Black Sea development focusing on the Tuapse Trough
Proposed taxation reform favorable to the oil and gas sector
In February 2011, Russian Ministry of Energy is reported to have submitted new proposal for tax reform to the Ministry of Fin ance
The proposal includes a reduction of crude oil export duty to 60% and equalization of oil products export duties at 66% of the duty for crude oil
The proposed reforms also envisage the promotion of new greenfield development through the elimination of MET and the introducti on of an
excess profit tax for new fields
If enacted, the proposed reforms would significantly benefit the economics of E&P activities in Russia
Thermal power generation sector development Water utilities development
Despite ongoing pressure on electricity tariff growth, investment Russian State Parliament developed the draft legislation on
programmes in thermal power generation remain unchanged adoption of rate-of-return regulation (RAB) in water utilities –
with the Russian Government providing guaranteed return on cornerstone to bringing financial independence to companies of
investments to newly-constructed power plants through so- the sector
called capacity agreements (DPM)
RAB regulation will be used as a pre-condition for significantly
Moreover, Russian Ministry of Energy is actively discussing the stepping up investment efforts in the sector with the average
opportunities for tax breaks and holidays for capacity renovation depreciation level of assets of 72%
projects, which should significantly intensify efforts in the
Over the course of the next 5-7 years we expect investment
modernization field
programmes in water utilities to grow significantly (similar
HMS exposure to thermal power remains robust with power tariff adoption in electricity grids led to 5-fold growth of capex
block modernization programmes emerging as the new plans), allowing HMS to significantly extend its order book
market opportunity in the sector
Source: Publicly av ailable inf ormation 23
24. Blue-chip Customer Base
Comments Revenue by Clients*, 2009 vs 2010
FY2009 Total revenue Salym
Stable growth of revenue generated by Other clients RUB 14,772 mln
Petroleum
2%
NK Dulisma
Surgutneftegaz
received from replacement and modernization works Others
1%
3%
50% Lukoil
1%
Sharp increase in contracts’ quantity from Transneft, Orion Stroy
4%
Rosneft and Gazprom Neft played its role in a TNK-BP
8%
substantial revenue growth
Rosneft
21% Gazprom Neft
New types of contracts include: 4%
Transneft
6%
– Integrated pump-based solutions (i.e. pumping
stations for Transneft) Revenue structure by clients, RUB mln
– Full-cycle projects (i.e. pumping stations in
+95%
Turkmenia)
14,298
– Project and design contracts for design of new 7,329
+18%
oilfields and pipelines 7,443 8,772
2009 2010
Selected clients Others Large clients
FY2010 Total revenue Salym
Petroleum
RUB 23,070 mln 1%
NK Dulisma Hors
Others 1% Group Surgutneftegaz
38% 1% 1%
Lukoil
Turkmenistan 2%
Orion Stroy
5%
TNK-BP
5%
Rosneft
22%
Gazprom Neft
8%
Transneft
16%
Source: Company data
* Large client - a client that brings rev enue more than RUB 200 mln a y ear
24
25. Industry Fundamentals and Growth Potential
Russian energy & utilities Russian oil sector investments
Comments
infrastructure investments (RUB bn) (RUB bn)
Water utilities CAGR Oil refining and CAGR Infrastructure modernization and expansion
Thermal power generation ’09-’15 petrochemicals ’09-’15 – Large portion of Russian infrastructure is outdated
Nuclear power generation Oil pipelines
and at or near end of useful life
3,340 2,576
Oil exploration – Economic growth driving demand for new
1,011 21.7% and extraction 540 15.3% infrastructure
– Very large expected spending by public and
810
1,131 private sectors in energy generation, public utilities
1,586 21.7% 19.0%
1,103 230 and oil and gas industries
311 285 State development programs
1,226
489 16.1% 12.2%
743 616 – Large on-going projects in the public utilities and
303
electricity generation with ongoing impact until
2009 2015E 2009 2015E 2020-30
Source: Frost & Sulliv an report 2009 Source: Frost & Sulliv an report 2009
Russian pumps market history and Russian modular equipment market history EPC market history and forecast3-
forecast1 (RUB bn) and 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‟ businesses
Source: Frost & Sulliv an report
1 Includes pumps f or water injection, oil ref ining and petrochemicals, oil pipelines, energy generation (thermal and nuclear (e xcluding MCP)), water utilities pumps, household v ibration
pumps, as well as integrated solutions and af termarket
2 Includes pump stations, automated group metering units, associated gas processing and transport units
3 Includes oil f ield inf rastructure construction, oil and gas transportation, construction and engineering, research and design serv ices f or oil and gas industry (upstream) 25
26. Oil and gas sector
Oil field
► ►
Main oil pipeline
Oil refinery
► ► ► ► ►
► ►
► ►
Oil product storage
►
►
Filling station
Filling station
►
►
Source: Company data
26
27. 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-
Syzran Tokhomskoe Talakanskoye
(9 MMt, 1,465 km) Samotlor
Tyamkinskoye
Novorossiysk Nizhnevartovsk Verkhnechonskoye
Tuapse
Tengiz
De-Kastri
Skovorodino
Taishet Komsomolsky
NPZ
Caspian Pipeline Consortium
Purpe-Samotlor (25
expansion Komsomolsky NPZ
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 be Central Asia
replaced developed in the next several Rapidly growing sales of modular equipment to oil
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 26 oil refineries are to be and post Soviet periods
10 mln m3 to be reconstructed reconstructed Currently undertaking projects for Oil Ministry and BP
Source: Frost & Sulliv an report, Transnef t website (www.transnef t.ru)
27
28. Nuclear power generation
Reactor hall
Turbine hall
Feed pumps
Condensate pumps
Pumps for security systems
Pumps for lubrication systems
Pumps for auxiliary systems
Source: Company data
28
29. New Milestone Projects
Thermal and Nuclear Power Utilities
TGC-3 (Mosenergo) TGC-1 TGC-2 TGC-6
Investment 2010-2015: Investment 2010-2015: Investment 2010-2015: Investment 2010-2015:
RUR 39 bn RUR 73 bn RUR 28 bn RUR 16 bn
Kolskaya
Leningradskaya-II
TGC-9
TGC-4 Investment 2010-2015:
Investment 2010-2015: RUR 28 bn
RUR 21 bn
TGC-13 (Enisei)
Investment 2010-2015:
Kalininskaya TGC-11 RUR 10 bn
Smolenskaya
Kurskaya Investment 2010-2015:
Novovoronezhskaya-II RUR 26 bn
Rostovskaya
Rostovskaya
Beloyarskaya
TGC-14
TGC-12 (Kuzbas) Investment 2010-2015:
TGC-5 RUR 8 bn
Investment 2010-2015:
Investment 2010-2015:
RUR 21 bn
RUR 14 bn
Selected nuclear power plant projects abroad using Russian
TGC-8 TGC-7 (Volga) TGC-10 (Fortum) technology
Investment 2010-2015: Investment 2010-2015: Investment 2010-2015:
RUR 18 bn RUR 11 bn RUR 47 bn No of pow er units / Investments
Nam e Country
Unit capacity (MW) 2010-2015 (RUR bn)
Belene NPP Bulgaria 1 / 1,000 128
Summary of total investments in power generating capacity
Tianw an NPP China 2 / 1,000 86
Num ber of power units to be Additional generation Investments
constructed or reconstructed capacity, MW 2010-2015 (RUR bn) Kudankulam NPP India 2 / 1,000 65
TGC n/a 13,627 359 Mokhovtse NPP Slovakia 2 / 440 53
Akkuyu NPP Turkey 4 / 1,200 27
OGC n/a 11,962 467
Ukraine 2 / 1,200
Nuclear plants Belarus 2 / 1,200
41 21,500 808
(Russia) Other projects 1,581
Armenia 1 / 1,200
Nuclear plants
17 17,880 1,940
(Foreign) Vietnam 1 / 1,200
Source: Frost & Sulliv an
Nuclear Power Plants HMS participation confirmed Projects under construction Planned projects 29
30. Water industry
Water supply to industrial
enterprises
►
Irrigation
Urban water supply
► Water treatment
Water conditioning
► ► Sewage treatment
► ►
Surface water intake
► ► ► Reuse of treated
wastewater
Borehole water intake
► ►
►
Water industry
Release of wastewater
Source: Company data
30
31. New Milestone Projects
Water Utilities
Asia-Pacific Econom ic Cooperation
Olym pic Gam es in Sochi in 2014 FIFA World Cup 2018
Sum m it in Vladivostok in 2012 Investment 2010-2014: RUR 930 bn 1 Investment 2010-2018: RUR 1.6 trn 1
Investment 2010-2012: RUR 660 bn 1
Kaliningrad Petrozavodsk
St. Petersburg
Tver
Vladim ir Export markets
Moscow
Yaroslavl Central Asia
Kaluga Kirov
Recently undertook turnkey construction of
Rostov-on-Don N.Novgorod Perm
pumping stations in Turkmenistan and Uzbekistan
Volgograd Kazan Ekaterinburg
Azov Tyum en Presence in water markets of Tajikistan and
Krasnodar Sam ara Orenburg Kyrgyzstan
Sochi
Om sk
Offices in Ashkhabad (Turkmenistan) and Tashkent
(Uzbekistan)
Barnaul
Leading integrated water utilities
JSC Rosvodokanal JSC Evraziysky JSC RKS
Vladivostok
Large-scale State Programmes
Total Capex 2010-
2015 (RUR bn)
Capex period Capex in water projects, RUR bn (2007–2015)
Federal Programme "Zhilische" (public 620 2011-2015
housing)
1,011
Regional programmes "Clean Water“2 520 2011-2017 844
(unconf irmed budget) 724
606
Water Strategy of Russian Federation until 351 2009-2020 471
372 393
2020 (excl. "Clean Water") 295 311
Reconstruction of Grozny utilities 105 2010-2011
St. Petersburg Water Utilities Dev elopment 103 2010-2025
Programme 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
Source: Frost & Sulliv an report, media sources Source: Frost & Sulliv an report
1 Figures hav e been taken f rom v arious media sources; they are not f inal and may change in the
f uture
2 The “Clean Water” program is a nationwide large inv estment plan aimed at improv ing drinking
water quality . 31
32. Significant upside from aftermarket
Key drivers for aftermarket services growth Installed base
Water injection pumps
Very large installed base requires repair and Other 13%
maintenance services
Exceptional installed
base Large portion of installed base is outdated, HMS supplies
creating opportunity for upgrades as well as 87%
replacement Total number of pumps: 4,500
Oil trunk pipeline pumps1
Other 2%
Energy represents 80% of operating cost for a
typical pump
Energy efficiency HMS supplies
Trend for modernization of equipment to increase 98%
energy efficiency Total number of pumps: 1,044
Source: Company data, Frost & Sulliv an
Example of pump servicing
Most repair and maintenance historically largely
in-house
Outsourcing trend HMS has contracts with companies including
– TNK-BP (full outsourcing of maintenance of
water injection pumps at the Samotlor field)
– Transneft
Source: Frost & Sulliv an, Company data Note: In red are highlighted the pump’s components that
1 In Transnef t’s pipeline sy stem suf f er the greatest degree of deterioration during operation
of the pump and which can be replaced in order to extend
the pump’s operation lif e
32
33. The leading provider of flow control solutions in
Russia
Leading market share in pumps … … and modular equipment
Market size Market size
HMS Other HMS Other
RUR bn RUR bn
To tal HM S' co re segments 41% 59% 9.0
To tal HM S' co re
35% 65% 10.0
Submersible water well pumps 65% 35% segments
1.0
Water injectio n pumps 59% 41% 1.1
Oil pipeline pumps 54% 46% 1.0 P ump statio ns 56% 44% 4.6
Water utilities pumps 41% 59% 1.0
Thermal po wer generatio n pumps 41% 59% 1.1 A uto mated gro up 2.2
30% 70%
metering units
Nuclear po wer generatio n pumps 29% 71% 0.8
Oil refining and petro chemical pumps 27% 73% 1.9 A sso ciated gas
pro cessing and 7% 93% 3.2
Ho useho ld vibratio n pumps 20% 80% 1.1 transpo rt units
Source: Frost & Sulliv an report (f or 2009) Source: Frost & Sulliv an report (f or 2009)
Leading independent player in oil and gas field project design Comments
Total market size: SurgutNIPIneft, 21% Leading player in core business segments:
RUR 19.1 bn Other, 31%
– Almost half of market share in core pump market segments
with no close local or international competitors
Rosneft-NTC, 12% – Strong position in modular equipment
NizhnevartovskNIPIneft, 5% – Leading independent player in oil and gas field project
Giprovostokneft, 7% HMS1, 10% design
TomskNIPIneft, 7% UfaNIPIneft, 7%
Source: Frost & Sulliv an report (f or 2009)
1 HMS’ subsidiary GTNG – a leading independent Russian oil and gas R&D center
Leading market positions in core segments
33
