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HMS Group Investor presentation

  1. 1. HMS GroupJP Morgan Russia Corporate access days Investor presentation 13-14 March 2012
  2. 2. Agenda WHO WE ARE 3 Operating environment 4 HMS at a Glance 5 Development of Business Model 6 INVESTMENT HIGHLIGHTS 7 Attractive Industry Fundamentals 8 The Leading Provider of Flow Control Solutions 9 Advanced R&D Capabilities 10 Main Shareholders Run the Business 11 Healthy Debt Position 12 Hedging & Risk Management 13 FINANCIAL PERFORMANCE 14 Financial Highlights for 9M 2011 15 Pumps 16 Oil & Gas Equipment 17 EPC 18 EBITDA Development in 9M 2011 19 Capex & Working Capital as of 30 June 2011 20 2011 & 2012 BUSINESS UPDATE & OUTLOOK 21 HMS Group M&A Strategy & Outlook 22 Backlog 23 Selected End-market Prospects for Mid-term 24 Business Update 25 CONTACTS 26 APPENDIX 27 2
  3. 3. WHO WE ARE 3
  4. 4. HMS at a GlanceKey investment highlights Key financial indicators for 2005-9m’11 23,070 Growing markets in Russia and the CIS: 20,560 21.4%  oil & gas  power generation 16.5% 14,772 14,046  water 13,399 12.8% 15.3% 12.3% 11.7% Leader in flow control solutions on these markets 10.6% Best team in Russia: 6,724  management 4,498 4,398 3,519  sales 744 830 1,423 1,644 1,890  research & development 2005 2006 2007 2008 2009 2010 9M 2011 Resilient financial growth and healthy debt position Revenue, Rub mn EBITDA, Rub mn EBITDA margin, % Source: Company data9 months 2011 key financials contribution by business segments9M’11 total revenue Rub 20,560 mn EBITDA adj. Rub 4,398 mn profit for the period Rub 2,972 mnIndustrial pumps Oil & gas equipment EPCRevenue Rub 12,136 mn Revenue Rub 3,722 mn Revenue Rub 4,385 mnEBITDA Rub 3,628 mn EBITDA Rub 220 mn EBITDA Rub 431 mn New photoPump station of Baltic pipeline system, Transneft Oilfield Pump Station 2, Vankor oilfield, Rosneft Oil Pump Station “Tayezhnaya”, TransneftNotes: Hereinafter “EBITDA” read as “EBITDA adjusted”, “EBITDA margin” read as “EBITDA adjusted margin” and “Net Income” read as “Profit for the period/year” 4Pumps read as Industrial pumps
  5. 5. Operating Environment Oil production in Russia, history & perspectives HMS revenue by segments, 2010 Greenfield CAGR 11.2% 600 10.8% 2012F-2020F Oil upstream Oil refining Oil trasportation 9.2% 9.0% 50% 2% 18% 500 7.4% 400mn tonnes 300 2.4% 2.3% 2.1% 2.2% 200 1.3% 1.4% 1.5% 1.0% 0.2% 0.4% 0.4% 0.4% 0.1% 0.1% 0.0% Water 100 -0.6% 12% 0 2000 2002 2004 2006 2008 2010 2012F 2014F 2016F 2018F 2020F Others Metal Nuclear Thermal Total production, 2000-2008 Traditional oil regions, 2009-2020F 8% 1% 1% 8% Greenfield, 2009-2020F Change in total production, % YoY Source: REnergyCo, Rosstat Source: Company data, Management accounts Installed base of HMS Group in Russia Announced investment programs1 Company Investments Time frame Investments in oil upstream Gazprom Neft US$ 80 bn by 2020100%90% 13% 13% 2% Lukoil US$ 50 bn by 2017 30%80% 43% Rosneft US$ 125 bn by 202070% TNK-BP US$ 45 bn by 202060% Total US$ 300 bn50% 98% 87% 87% Investments in oil downstream40% 70% Gazprom Neft US$ 11 bn by 201830% 57%20% Lukoil US$ 20 bn by 2020 10% TNK-BP US$ 3 bn by 2016 0% Total US$ 34 bn Water well Water injection Thermal power Oil pipeline Nuclear power pumps pumps (CNS) generation pumps, generation - Investments in oil transportation pumps Transneft Feed pumps HMS Group Others Transneft, capex US$ 43 bn by 2017 Transneft, modernization US$ 15 bn by 2017 Total US$ 58 bn by 2017 Investments in nuclear Rosatom US$ 350 bn by 2030 Source: Company data Source: Public data, companies’ websites 5 1 Selected companies
  6. 6. Development of Business ModelWhy integrated solutions ESPO-I pipeline is an example of integrated solutionsType of project / Standard pumps Integrated solutionsService & customized pumpsSource Array of small-size Large-scale projects contractsResearch & development Normal CriticalTechnical entry-barriers Average HighCompetition type Price R&D and referencesCompetition level High LimitedRevenue growth potential Limited UnlimitedEBITDA margin 10-15% 25-30%Revenue downside Limited Limited, nearest 1.5potential yearFrequency High n/a 1. Trunk pump 8. JointsAftermarket demand Average High 2. Motor 9. Friction oil pipelines 3. Coupling 10. Air cooling unit 4. Oil coolers 11. Antifreeze feed pipes for oil coolers 5. Adsorptive dryers 12. Antifreeze feed pipes for motor coolers 6. Air collectors 13. Antifreeze air cooling unit 7. CompressorsIntegrated solutions’ revenue contribution Producers Products / Services  HMS and other suppliers  Design, production and testing of pumps including Siemens 95% 94% 75% 75% 64%  Design of integrated pumping solution  Overall project management  Procurement for supply of engines, 5% 6% 25% 25% 36%  HMS cooling sleeves, valves and other equipment 2008 2009 9M 2010 2010 9M 2011  Turn-key commissioning Revenue from integrated solutions Revenue from standard equpmentSource: Company data 6
  7. 7. INVESTMENT HIGHLIGHTS 7
  8. 8. Attractive Industry FundamentalsMix of growing markets Russian selected pumps market revenues, Russian energy & utilities infrastructure Russian oil sector investments, Rub bn investments, Rub bn Rub bn CAGR 18.0% CAGR 16.2% CAGR 11.8% 2,576 58.1 3,340 Oil refining & petrochemicals Power generation Municipal water 9.8 540 Oil pipelines Municipal water 1,011 Thermal power Nuclear power Oil exploration & extraction Oil & Gas, surface 810 CAGR 16.1% 30.4 1,320 25.4 1,586 271 1,359 5.2 392 337 12.2 1,226 610 7.7 17.9 712 1.1 743 4.2 8.0 357 2.4 2002 2010 2015E 2010 2015E 2010 2015E CAGR 2002-10 ‘10-15E CAGR 2010-15E CAGR 2010-15E Power generation 21.4% 13.5% Municipal water 17.1% Oil refining & petrochemicals 12.2% Municipal water 14.3% 20.0% Thermal power 17.3% Oil pipelines 15.7% Oil & Gas, surface 16.2% 17.5% Nuclear power 13.0% Oil exploration & extraction 9.5%Source: Frost & Sullivan 2010 8
  9. 9. The Leading Provider of Flow Control SolutionsLeading market share on key markets…Oil industry1 Water utilities2 Power generation3 Market growth +24% Market growth +32% Market growth +36% 575,7 135,2 81,8 465,7 102,7 243.9 61.4 60,2 +41% 32.9 173.1 +43% 42.9 +15% 28.6 292.6 331.8 73.8 48.9 59.8 31.6 2009 2010 2009 2010 2009 2010 HMS Group revenue, US$ mln HMS Group revenue, US$ mln HMS Group revenue, US$ mln Other Other OtherKey conclusions HMS Group has leading positions in all key markets of presence with ~ 40% share on pumps market. HMS Group managed to expand its market share in the most key segments of business In the oil industry and water utilities the company’s share outperformed overall market growth Decrease in power generation pumps is attributable to the nuclear industry’s specifics expressed in long-term only contracts. Revenue from signed in 2009 contracts will be recognized during 2011/2012Notes:1 includes pumps and oil and gas equipment2,3 includes pumps 9
  10. 10. Advanced R&D CapabilitiesPumps Project design Very strong in-house R&D and significant experience in pump  Giprotyumenneftegaz (GTNG) is the leading Russian R&D development centre specializing in design of on-surface (as opposed to Unique testing facility (one of the largest in the former Soviet sub-surface) facilities for oil and gas fields, e.g. it Union and globally) for all types of large specialized pumps designed over 200 fields in Russia including many of the for nuclear power plants and oil transportation largest (e.g. Samotlor, Mamontovskoye, Priobskoye) Deep integration with clients’ R&D  Significant R&D resources for design of water utilities projects (RVKP) 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, Pre-tender pricing and Design and Delivery and project contract production installation After-market preparation negotiation services 1–24 months 1 month up to 24 months 1–3 months 10
  11. 11. Main Shareholders Run the BusinessBoard 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 Managing Director (CEO) First Deputy CEO (CFO) Shareholder Shareholder Shareholder shareholdersIn company since 1993 In company since 1993 In company since 1993  Long-term commitment to the business from shareholders Shareholders Structure Shares are held through HMS TechnologiesVladimir Lukyanenko Nikolay Yamburenko Yury Skrynnik Non-executive Director Head of Industrial Pumps Director for Strategic Marketing German Shareholder Shareholder Shareholder TsoyIn company since 2005 In company since 2003 In company since 2005 Managers 17% 22% Vladimir Lukyanenko 24% Free-float 37% Philippe Delpal Andreas Petrou Gary Yamamoto Independent Non-executive Independent Chairman Audit Chairman Remuneration Source: Company data as of December 6, 2011 Committee Committee  Founders 11
  12. 12. Healthy Debt PositionModerate leverage… …with comfortable repayment schedule… Including Rub 3 bn bonds issue 4,885 4,539 4,297 3,455 2.4 2.0 1.2 0.9 2008 2009 2010 9M 2011 Net Debt, Rub mn Net Debt to EBITDA LTM Source: Company data Source: Company data as of 01 March, 2012…and low currency and maturity risks Comments Short-term debt Long-term debt  Low leveraged business profile with Net Debt to S&P corporate EBITDA LTM ratio of only 0.9 with internal 15.9% 84.1% credit rating: covenant of 2.5 BB- Outlook:  Easy access to additional liquidity with more than Stable Rub 1.7 bn of undrawn credit facilities Rub Euro Others  Steady debt repayment schedule with negligible 96.4% 1.7% 2.0% currency risk and prudent maturity structure  More than 96% of Rub-nominated debt with fixed interest rate Fixed rate Floating rate  Interest rate of 8.9%, down from 11% a year ago, 98.3% 1.7% while interest coverage ratio1 of 15.4 Source: Company data as of 01 March, 2012 1 EBIT LTM / Interest expenses as of September 30 12
  13. 13. Hedging & Risk ManagementRisk type Coverage Raw materials price fluctuations Sale price adjustments for standard products in line with raw materials costs changes Advances received under the long-term projects are transferred to the suppliers in order to fix raw materials price for the whole project life-cycle Delay of projects execution Day-to-day monitoring and control over of projects implementation Currency risks Revenue, expenses and debt are nominated in Rubles Interest risk 99% of debt with fixed interest rate Short-term oil price drop Limited impact on business based on standard products and solutions High opportunity costs for customers with complicated long- term projects: - HMS solutions are mission critical for the infrastructure projects - Only 1-2% of total project’s CAPEX relates to pumps - HMS solutions are usually implemented on the final stages of project execution Long-term oil price decline – influence on Low risk due to limited competition and large market share, margin and also because of commodities price correlation (steel and oil)– Long-term oil price decline – fallen revenues Not covered 13
  14. 14. FINANCIAL PERFORMANCE 14
  15. 15. HMS Group Financial HighlightsFinancial highlights Revenue performance 3Q’11 2Q’11 chg, QoQ Rub, mn 9M’11 9M’10 chg, YoY6,703 6,806 -1.5% Revenue 20,560 16,158 +27.2%2,056 2,221 -7.4% Gross profit 6,349 3,781 +67.9% 1,265 1,545 -18.1% EBITDA 1 4,398 2,251 +95.4% 1,169 1,364 -14.3% Operating profit 3,912 1,988 +96.8% 890 1,091 -18.5% Net income (loss) 1 2,972 1,052 +182.6% 3,835 5,314 7,009 6,912 7,051 6,806 6,703 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Revenue, Rub mn Linear ( Revenue, Rub mn)5,689 4,599 +23.7% Total debt 5,689 5,088 +11.8% Source: Company data4,885 4,105 +19.2% Net debt 4,885 3,189 +53.2% EBITDA performance 0.9 0.7 Net debt to EBITDA LTM 0.9 1.2 22.5% 22.7% 18.4% 18.9%30.7% 32.6% -195bps Gross margin 30.9% 23.4% +748bps 15.8% 13.4%18.9% 22.7% -383bps EBITDA margin 1 21.4% 13.9% +746bps 11.2%17.4% 20.0% -260bps Operating margin 19.0% 12.3% +672bps13.3% 16.0% -276bps Net income margin 14.5% 6.5% +795bps 431 709 1,111 1,268 1,588 1,545 1,265 ROCE 2 38.6% 28.0% +1,006bps 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 EBITDA, Rub mn EBITDA marginSource: Company data1 Hereinafter, read EBITDA as EBITDA adjusted, Net income as Profit for the period / year, EBITDA margin as EBITDA adjusted Source: Company datamargin2 EBIT LTM / average capital employed 15
  16. 16. PumpsPumps financial highlights, Rub mn 9M 2011 vs. 9M 2010  3Q 2011 vs. 3Q 2010  3Q 2011 vs. 2Q 2011 revenue revenue 4,090 revenue 12,136 +60% 3,942 -8% 31.5% -12% 29.9% 3,619 29.1% 29.1% 3,619 7,598 19.8% 20.2% ebitda ebitda 1,289 ebitda 3,628 +142% 1,054 +32% 1,054 -18% 796 1,502 9M 2010 9M 2011 3Q 2010 3Q 2011 2Q 2011 3Q 2011 Revenue Pumps, Rub mn Revenue Pumps, Rub mn Revenue Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA margin Pumps, % EBITDA margin Pumps, % EBITDA margin Pumps, %Source: Company dataPumps:■ Execution of the project in the oil transportation segment as well as delivery of standard pumps resulted in high EBITDA and EBITDA margin growth, YoY■ Revenue from pumps excluding integrated solutions grew by 5.5% YoY with EBITDA margin of 18.7% due to growth of demand and effective cost control■ EBITDA margin is lower in 3Q 2011 vs. 2Q 2011 due to unusual high 22.4% EBITDA margin in 2Q 2011 for standard pumps, resulted from signing of a good number of lucrative contracts 16
  17. 17. Oil & Gas EquipmentOil & gas equipment financial highlights, Rub mn 9M 2011 vs. 9M 2010  3Q 2011 vs. 3Q 2010  3Q 2011 vs. 2Q 2011 4,033 revenue revenue revenue 1,410 1,402 1,402 -8% -1% +20% 3,722 1,172 10.5% ebitda ebitda 6.7% ebitda -48% 9.7% -32% n/a 5.9% 6.7% 422 137 220 93 93 -1.4% -16 9M 2010 9M 2011 3Q 2010 3Q 2011 2Q 2011 3Q 2011 Revenue OG equipment, Rub mn Revenue OG equipment, Rub mn Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA margin OG equipment, % EBITDA margin OG equipment, % EBITDA margin OG equipment, %Source: Company dataOil & gas equipment:■ Absence of orders for integrated solutions in 9 months of 2011 affected revenue and EBITDA margin performance■ Situation is expected to brighten in 4Q 2011 – beginning of 2012 due to participation in current tenders for new infrastructure projects in Eastern Siberia as well as entrance into new market segments■ 3Q 2011 revenues up QoQ due to recently acquired Sibneftemash■ EBITDA margin grew to 6.7% in 3Q 2011 compared to the previous quarter also thanks to Sibneftemash’s EBITDA margin of more than 20% 17
  18. 18. EPCEPC financial highlights, Rub mn 9M 2011 vs. 9M 2010  3Q 2011 vs. 3Q 2010  3Q 2011 vs. 2Q 2011 revenue revenue revenue 4,392 4,385 1,587 1,587 -0% 1,535 +3% +18% 1,347 ebitda ebitda 15.3% ebitda 9.8% +64% -42% -63% 6.0% 8.5% 206 431 131 4.8% 4.8% 262 76 76 9M 2010 9M 2011 3Q 2010 3Q 2011 2Q 2011 3Q 2011 Revenue EPC, Rub mn Revenue EPC, Rub mn Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin EPC, % EBITDA margin EPC, % EBITDA margin EPC, %Source: Company dataEPC:■ Revenue remained stable at Rub 4,385 mn for 9M 2011, compared to Rub 4,392 mn in 9M 2010■ HMS’ policy of participation in the construction projects with higher than average profitability led to slower revenue growth■ EBITDA grew by 64.5% YoY with average EBITDA margin of 9.8%: Construction sub-segment’s EBITDA margin grew to 3.9% in 9M 2011 though revenue contracted – Project & design sub-segment of EPC stood at 19.4% EBITDA margin for 9M 2011 while revenue amounted to – Rub 1,675 mn■ EBITDA margin dropped to 4.8% in 3Q 2011 compared to 2Q 2011 due to temporary change of contracts mix■ Signing of a large contract in August 2011 hasn’t substantially influenced construction sub-segment’s revenue for 3Q 2011 18
  19. 19. EBITDA Development in 9M 2011 40,000 20,000EBITDA key drivers, % of revenue 0 9M 2010 9M 2011 operating expenses 14.2 bn vs. 16.6 bn in 9M’11 | +18% yoy revenue in 9M’11 | +27% yoy ebitda in 9M’11 | +95% yoy 69% 77% 12% 2% 11% 2% 12% 19% 14% 21% Revenue Revenue Cost of sales of sales Cost SG&A expenses & others & others SG&A expenses Operating profit Depreciation & amortisation Operating profit Depreciation & amortisationEBITDA EBITDA w other deductionsdeductions w otherSource: Company dataNet income components, Rub mn Cost of sales components, Rub mn 3,912 63.5% 60.5% 2,9721,988 20.8% 1,052 15.1% 12.1% 11.8% 9.4% 6.9% 46 13 9 67 Materials Labour Cost of goods sold Other costs (326) (323) (668) (693)Operating Finance Finance Share of Income tax Net income profit income costs results of expense 9M 2010 9M 2011 associates 9M 2010 9M 2011Source: Company data Source: Company data 19
  20. 20. CAPEX & Working Capital as of 30 Sept 2011 Cash flow performance in 9M’11, Rub mn Capital expenditures in 9M’11 vs. 9M’10 745 Bobruisk acquisition 4,216 (272) Rub mn 2.2x (5,317) 1.8x + + 456 804 351 346 + = (1,815) IPO proceeds 249 (715) 3,373 Rub mn 4,244 WC changes (4,825) Rub mn Sibneftemash acquisition (1,280) Rub mn (1,992)Cash as of Operating WC Income tax Net cash Net cash Net cash Cash as of 9M 2010 9M 2011Jan 1, 2011 cash flow changes & interest used in used in from Jul 1, 2011 Organic capex, Rub mn Depreciation, Rub mn before WC &others paid operating investing financing Capex to Deprecation ratio, x changes activities activities activities Source: Company data Source: Company data Comments Working capital as of 30 Sept 2011, Rub mn HMS Group generated Rub 4,216 mn of operating cash flow before 28% changes in working capital 28% Substantial working capital increase in 9M 2011 led to the negative operating cash-flow due to ongoing execution of the large 6,833 7,576 infrastructure oil transportation contract with significant advance 23% payments received last year Working capital is expected to fit target range of 10-15% of revenue with positive operating cash flow in 9M 2012 as a result of: 6% 6% 13%  Next payment of more than Rub 2 bn under the contract  Prepayments on contracts signed in 2H 2011, and contracts in process of signing 791 (1,355) 9M 2010 9M 2011 9M 2010 1,307 9M 2011 Investing cash flow consisted of: Working capital to Revenue LTM - Working capital to Revenue LTM  Organic capex of Rub 745 mn, in line with target level of Working capital Inventories Receivables Payables Working capital 1.5-2.5 times depreciation 9M 2010 change 1H 2010 change change 1H 2011 9M 2011  Acquisition of Sibneftemash for Rub 1,280 mn, and Bobruisk WC to Revenue LTM for Rub 272 mn Source: Company data 20
  21. 21. 2011 & 2012 BUSINESS UPDATE & OUTLOOK 21
  22. 22. HMS Group M&A Strategy & OutcomeEV/EBITDA of recently acquired companies What does HMS Group buy  Pumps, compressors, oil & gas equipment, project & design 16.5  Russia and the CIS  Revenue within $ 20-100 mn  Low-leveraged companies 10.4  Friendly management 9.3 7.5 Acquisitions rationale: 5.6  Broadening of HMS Group’s product portfolio with complementary 4.1 equipment  Potential growth of revenues and EBITDA margin of acquired companies: – Sales power and R&D capability of HMS Group GTNG Sibneftemash Bobruisk – Well-known brands and/or technical equipment base of EV/EBITDA Acquisition Year EV/EBITDA next year after Acquisition Year acquired companiesSource: Company data  Potential growth of revenues and EBITDA margin of the whole Group through integrated solutionsCAGR of selected subsidiaries’ revenue & EBITDA: from M&A to 2012 (RAS) The Acquisition of Dimitrovgradkhimmash (DGHM) PUMPS OIL & GAS CONSTRUCTION PROJECT & in Feb’12 EQUIPMENT DESIGN  Key financials, RAS: 37.2% 35.1% 37.5% 37.2% 2011E Revenue of Rub 1.6 bn 24.1% 2011E EBITDA Rub 387 mn 18.5% 18.2% 18.5% 2011E EBITDA margin 24.5% 11.2%  Deal details: n/a Rub 206 mn for next 11% of the -0.8% company (followed by several -9.7% previous transactions resulted in Rub 543 mn for 51%) HMS Pumps NEM HMS Neftemash TGS SKMN GTNG M&A in 2003 M&A in 2005 M&A in 2004 M&A in 2006 M&A in 2007 M&A in 2010 2.2x EV/EBITDA 2011E (9.8x EV/EBITDA in 2006) CAGR Revenue 2011 CAGR EBITDA 2011Source: Company data HMS not only grew through acquisitions but managed to achieve significant organic growth 22
  23. 23. BacklogBacklog structure performance Revenue recognition depends on production period for various type of equipment and the 1 nature of the project There is no direct correlation between decline in backlog and potential decline in revenues 2 because of backlog’s diversification and different production periods of equipment as well as projects’ nature Production period Rub mn 9M 2011 6M 2011 chg, QoQ 9M 2010 chg, YoY /Annual revenue Products & services on demand, short production cycle about Rub 4 bn Core equipment & services 7,364 7,323 +1% 7,622 (3%) 2-8 months Construction component of EPC 1,595 1,492 +7% 2,847 (44%) 6-18 months Oil transportation pumps 3,138 4,914 (36%) 10,101 (69%) 12-36 months ESPO pumps 2,306 4,011 (43%) 10,101 (77%) 12-36 months Non-ESPO pumps 832 903 (8%) 0 n/a 6-12 months Total backlog 12,097 13,728 (12%) 20,570 (41%)Source: Company data, Management accounts 23
  24. 24. Order intake developmentOverview Total order intake Although overall order intake in 2011 contracted by 21% as compared with the previous year and amounted to Rub 23.2 bn… 29 318 The Group enjoyed 37% YoY order intake growth, net of a large ESPO-related contract amounted to Rub 12.4 bn that had been signed in the first half of 12 404 2010 Order intake in industrial pumps business segment down by 67% YoY due to a high-base effect resulted from the massive ESPO-related contract obtained in 2010 16 914 23 222 Order intake in the oil and gas equipment segment demonstrated impressive growth of 101% YoY and amounted to Rub 7,832 mn versus Rub 3,897 mn in 2010 2011 the beginning of 2011. Проект ВСТО, млн. Rub mn ESPO project, руб. Order intake in the EPC segment rose by 93% from Rub 4,003 mn to 7,731 mn Полученные заказы, искл. ESPO,млн. руб. Order intake, net of ВСТО, Rub mn mainly due to significant contracts signed by the Group in the second half of Source: Company data 2011: – orders in the construction sub-segment grew by 108% from Rub 2,634 mn to Rub 5,478 mn – project and design orders up 65% from Rub 1,368 mn to Rub 2,253 mn.Industrial pumps Oil and gas equipment EPC 7 731 19 780 4 003 12,404 5 533 2 637 7,376 6,597 3 897 7 832 1 366 2 198 2010 2011 2010 2011 2010 2011 ВСТО, млн. руб. Rub mn ESPO project, Oil and gas equipment, Rub mn Полученные заказы на нефтегазовое оборудование, млн. руб. Полученные заказы на строительство, Rub руб. Orders for construction works, млн. mn Полученные pumpsна промышленные насосы, млн. руб. Industrial заказы excluding ESPO, Rub mn Orders for project and design, Rub mn Полученные заказы на проектирование и дизайн, млн. руб.Source: Company data 24
  25. 25. Selected End-market Projects for Mid-term Financial and number of highlights Increased Operational HMS end-market projects Project Brief description Completion Key metrics Comments Rosneft Vankor 2 stage Further development. Capex for 2011 $ 2.6 bn next stage by 2014 Min capex Rub 480 bn HMS won a number of tenders Yurubcheno-Tokhomsk oilfield Start of oil production in 2013. Oil reserves & resources 513mt by 2013 pick production 10mtpa Komsomolskoe, Priobskoe oilfields Achievement of 95% level of associated gas utilization HMS participated in previous stages Lukoil & Bashneft JV JV. Project development stage. Reserves 141 mt. Start of HMS has good references for previous Trebs and Titov fields by 2013 Capex c.$ 5.9 bn production is expected in 2013. Max capacity 6 mtpa projects Transneft OPS to be constructed to deliver oil to Khabarovsk and ESPO expansion 9 OPS by 2015 HMS participated in previous stages Komsomolsk refineries Oil transportation from YANAO and Northern Krasnoyarsk regionZapolyarye – Pur-pe pipeline to ESPO pipeline 4 OPS by 2016 Capex Rub 120 bn HMS participates in a project design ESPO expansion OPS to be constructed to deliver oil to Primorsk refinery 4 OPS by 2017 HMS participated in previous stages Pur-pe – Samotlor expansion Construction of 2 OPS 2 OPS by 2017 Capex Rub 53 bn HMS participated in previous stages Yurubcheno-Takhomskoe-Taishet Oil transportation from Yurubcheno-Tokhomsk and Kuyumbinsk Investment decision by Capex Rub 63 bn HMS participated in previous stages pipeline oilfields to ESPO-1. Length ~600 km. Capacity ~18mtpa 2011-end TNK-BP Giant oilfield in YANAO with specific oil. Project production 20 Russkoe oilfield Capex $ 4.5 bn HMS participates in a project design mtpa Samotlor Further development of an active oilfield in Nizhnevartovsk. by 2014 Capex $ 4.6 bn HMS participated in previous stages Uvat 21 oilfields in Tyumen region HMS participated in previous stages East- and Novo- Urengoy gas & condensate fields Planned production for 2011 is 3.2bcm, up 17% in 2010 HMS participates in a project design Oilfield located in the Eastern Siberia, Irkutsk region. Development Peak production by Verkhnechonsk oilfield Additional $3-4 bn HMS participated in previous stages was stimulated by close proximity of ESPO pipeline. 2014 Gazprom The field will become a resource base for Russian pipeline gas and HMS produces units for complex gas Shtokman gas and condensate field liquefied natural gas (LNG) exports to the Atlantic Basin markets preparation Gazprom NeftPriobskoe oilfield Western Siberia. Recoverable reserves ~600 mt HMS participates in a project design Urmanskoe and Shinginskoe oilfields Eastern Siberia Kuyumbinskoe oilfield 50/50 w TNK-BP thru Slavneft. Reserves C1 65 mt, C2 151 mt Sberbank Capital Dulisma oilfield Irkutsk region. Further development. 3rd resource base for ESPO Total reserves 15 mt HMS participated in previous stages Taas-Yuriah oilfield Iraq Sakha region. Further development. Total reserves ~130 mt Capex Rub 15-30 bn Rumaila brownfield Consortium headed by BP Capex $ 15 bn HMS submitted technical survey Az Zubair Consortium headed by Eni Capex $ 20 bn HMS participates in a tender Municipal water Central Asia Irrigation stations for Uzbekistan and Turkmenia HMS has good references NuclearRosatom Pumps for 5 blocks. Tender to be held at 2011-end –2012-beg By 2014 Tenders Rub 1.5 bn HMS has good references Source: Public information, Company data as of December 6, 2011  Contracts signed 25
  26. 26. Business Update Selected contracts and eventsFinancial and Operational highlights up to dateCore events First TURNKEY project on Srednebotuobinskoe oil & gas condensate field, Rub 2.6 bn Development of the second stage of the East-Siberian oilfield totaled Rub 2.7 bn UNIQUE testing facility was put into operation to increase R&D capacities First large contract for AFTERMARKET services on an East-Siberian oil and gas field, Rub 480 mnLarge contracts & significant events Contract worth more than Rub 1 bn for construction of well clusters and their support infrastructure facilities on a gas field in Western Siberia (2H 2011) Contract to provide engineering services on a gas field in Eastern Siberia, Rub 1.27 bn (2H 2011) Contract for production of pumps for Rostov and Baltic nuclear stations of Rub 613 mn Contract for delivery of modular equipment for Surgutneftegaz of Rub 668 mn Contract for provision of replacement and overhaul services for Transneft, Rub 186 mnPermanent inflow of standard contracts In 3Q 2011 HMS Group sold products Contract for production of pumping equipment for Norilsk Nickel and services for Rub 3,554 mn to Contract for production of oil and gas equipment for Surgutneftegaz and Rosneft 3,426 clients (excluding three largest Contract for production of modular equipment for Vingapur oil and gas field clients) with average revenue per client Contract for delivery of group measuring units to Gazprom Neft of around Rub 1 mn Source: Company data 26
  27. 27. Contacts and HMS Group Key DetailsInvestor Relations Company address:Phone +7 (495) 730-66-01 7 Chayanova Str.ir@hms.ru Moscow 125047http://grouphms.com/shareholders_and_investors/ RussiaTwitter HMSGroup and HMSGroup_RusSergey Klinkov, Head of Investor Relationsklinkov@hms.ruInna Kelekhsaeva, Deputy Head of Investor Relationskelekhsaeva@hms.ruHMS Hydraulic Machines & Systems Group Plc is listed on the London Stock ExchangeIdentifier Number Number of shares outstandingISIN US40425X2099 117,163,427Ticker HMSGBloomberg HMSG LIReuters HMSGq.LCredit RatingStandard & Poor’s BB- (Outlook stable) affirmed on 29 November, 2011 27
  28. 28. APPENDIX 28
  29. 29. HMS Group 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 29
  30. 30. HMS Group PositioningFrom pumps to integrated solutions based on excellent R&D base1993–2002 Pump Trading Pump Design and2003 Pump Trading Manufacturing2004–2006 Pump Trading Pump Design and Modular Equipment Design Manufacturing and Manufacturing2007–2008 Pump Trading Pump Design and Modular Equipment Design Construction Manufacturing and Manufacturing2009–Today Pump Trading Pump Design and Modular Equipment Design Integrated Solutions Manufacturing and ManufacturingThe sole domestic engineering company in Russia Eurasia Dresser Baker Industry HMS Integra Weir Flowserve Technip Schlumberger Drilling Rand Hughes Power generation √ √ √ Pumps Oil and Gas √ √ √ Water √ √ √Above Oil and gas equipment √ √ √ √ ME*ground Repair √ √ √ Oil and Gas √ √ √ √ EPC Power generation √ Water √ Seismic research √ √ √ √ ServiceUnder Well service √ √ √ √ground Drilling √ √ √ √ Oil production increase √ √ √ √ Russian Foreign Note: * Modular Equipment (Oil & gas equipment) 30
  31. 31. Financial Performance for 2010Comments Revenue, 2009 vs 2010 EBITDA, 2009 vs 2010 Total revenue up 56% yoy to Rub 15.3% 23,070 mn 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 31
  32. 32. EBITDA Development in 2010 Comments Cost of sales components comparison, 2009 vs 2010  EBITDA increased by 86% yoy to Rub 3,519 mn due to:  Strong revenue growth in all business units 60% 55%  Focus on innovative high-margin contracts  Effective cost control  Consolidation of GTNG 16% 16% 15% 13%  EBITDA organic growth of 72% yoy 5% 5% 4% 3% 2% 2% 2% 1%  EBITDA margin increased to 15.3% Materials Labour Cost of Construction D&A Utilities Others  SG&A grew less than revenue due to economy of scale goods sold works by and cost optimization strategy sub- contractors 2009 2010 Source: Company data 50,000 EBITDA key 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 32

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