INVESTMENT OPPORTUNITY

PRESENTATION

ОАО «ГАЗМАШ» (OJSC GAZMASH)

September 2013 www.gasmash.ru

ГАЗМАШ

About the company

OJSC Gazprom is considering attraction of the

strategic investor for the purchase of 99.99% of shares

of OJSC Gazmash

OJSC Gazmash is the leading Russian

manufacturer of the domestic kitchen stoves,

controlling 25% of the Russian market. It also

manufactures the accessories for gas appliances. The primary objective of OJSC Gazmash is

producing the products which meet consumers demands in

terms of the quality, design and price.

OJSC Gazmash was founded in 1992 and used the

gas appliances production assets previously owned by the

gas group Gazprom.

As of today, OJSC Gazmash consists of the

headquarters in Moscow and three production facilities – in

Chaikovskiy, Votkinsk and Balakirevo (Vladimir region).

Furthermore, OJSC Gazmash is the sole shareholder of

Kanevskoy Gas Equipment Plant Ltd. (Krasnodar

Territory). It also holds the majority (84.6%) of the shares

of Volgogazapparat, Ltd. (Volgograd).

The headquarters of the Company are located in Moscow.

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Economic indicators

Key financial indicators of OJSC Gazmash, 2012

Production output – domestic stoves

(Company Gazmash) thousand pc. 568

Turnover thousand RUR 2 949 298

thousand USD 97 104

Net assets thousand RUR 2 840 978

thousand USD 93 537

Net liabilities thousand RUR -207 066

thousand USD -6 818

EBITDA thousand RUR 120 913,7

thousand USD 3 981

Net profit thousand RUR 48 317

thousand USD 1 591

Source: Company data

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Economic indicators

Source: Company data

Key indicators of solvency and financial stability of OJSC

Gazmash for 2012

The Company is characterized by high solvency and liquidity. Current assets of the

Company are in line with the absolute financial stability, i.e. they are secured by their own capital

sources. The liquidity ratios considerably exceed the standard indicators. The share of the most

liquid assets – immediately available funds and their equivalents – is 12.8% of the total assets of

the Company.

INDICATORS Standards At the

beginning

of 2012

At the end

of 2012

Current liquidity ratio >2 8.6 11.8

Instant liquidity ratio >=1 5.8 7.6

Functioning capital maneuverability ratio 0.5-0.2 0.4 0.4

Equity-assets ratio (financial independence) >=0.4 0.94 0.95

Current assets coverage ratio >=0.1 0.88 0.91

ГАЗМАШ

Position of OJSC Gazmash in the domestic gas and electric appliances market

OJSC Gazmash and its branches promote the following production

lines in the market:

Brand Production line Price range

gas stoves, electric stoves, dual-fuel freestanding

stoves average, above

average

built-in appliances, cooktops and ovens below average,

average

countertop stoves economy

gas grills economy

air purifiers economy

gas stoves, electric stoves, combined electric and

gas fixed stoves economy

Hearth gas stove economy

countertop stoves economy

gas and electric freestanding stoves economy

countertop stoves economy

Очаг single-burner gas stove economy

mobile homes economy

Source: Company data

More than 90% of the products belong to the domestic kitchen category.

OJSC Gazmash has been successfully expanding its production line. Currently, the Company is negotiating a

contract for the OEM production of the kitchen purifiers of the Darina brand.

ГАЗМАШ

Position of OJSC Gazmash in the domestic gas and electric appliances market

OJSC Gazmash and its subsidiaries manufacture

about 55% of the total number of the locally produced

domestic stoves

Type

Total output of the

domestic freestanding

stoves in the Russian

Federation

Participation share of Gazmash

Group, as compared to the local

manufacturers of the domestic stoves

thousand pc. thousand pc. %

Gas stoves 549,00 438,20 80%

Electric stoves 379,50 74,04 19,5%

Total 928,50 512,24 55%

Source: Company data, except for the countertop stoves and built-in appliances.

Gazprom Group has been holding the strongest position in the economy

price range. The participation share of the Company in terms of the

freestanding gas stoves production, as compared to other local

manufacturers, is up to 80%.

The Holding Company Gazmash has been maintaining the stable and

strong position in this sector for decades, regardless of the increasing

competition.

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Market potential

The estimated capacity of the Russian market is about 2.5-3 million pc.

The share of the Russian companies in the market is 41%. The share of the foreign

companies is 59%. The participation share of OJSC Gazmash is 25% of the total

stove market.

The capacity of the given market is expected to exceed 4.07 million pc. by 2020. It

is related to the anticipated commissioning of more than 770 million m2 of

residential properties, increasing number of the replaced stoves resulting from the

post-crisis demand recovery. Moreover, the demand for the Russian products in

CIS and other neighboring countries (Kazakhstan, Ukraine, Kirgizia, Mongolia,

etc.) is on the rise.

The structure of the Russian domestic freestanding stoves market in 2012

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Market potential

The principal competitors are the products of the

following brands: Gefest (Belarus), Hansa (Poland), Greta

(Ukraine), Indesit (Italy), Electronicsdeluxe (Russia,

Penza).

The pace of the import growth has slowed down due

to the ongoing fall of the RUR against EURO and USD,

while EURO and USD experienced a rise by 6.2% and

7.7%, correspondingly, as compared with the beginning of

the year. It resulted in rising cost of the imported products.

According to the expert opinion, the national average

increase of the prices for the imported products constitutes

10%, causing the replacement of the imported products with

the domestic ones.

Furthermore, the slow growth of the actual

household income and the reduced consumer lending

figures, which dropped from 35% in 2011 down to 20% in

2012, also affected the dynamics of the market

development.

Consequently, the demand leans towards the

cheaper Russian products featuring the same quality as

the imported ones, i.e. the products offered by OJSC

Gazmash.

ГАЗМАШ

Marketing

channels

The products of OJSC Gazmash are available virtually in all the regions of the Russian Federation: Central Region, Ural, Volga Region, North of Russia. The market of the Far East region is being actively explored.

The products are sold through the following networks: 1. Stores and dealers. Numerous contracts with the largest retail networks of the electronics and domestic appliances in Russia are being negotiated. Thus, the contract with M.Video, the federal hypermarket network, has been signed. During the last 8 months, the large retail networks purchased 26.9% of the products of the Company , as compared with 20.4% in 2012. 2. Nationwide programs

Gazmash has been actively cooperating with the government agencies in various constituent regions of the Russian Federation, including Moscow and St. Petersburg, within the framework of the nationwide Gasification Program. The Company also participates in the social programs assisting the low-income population groups (WWII veterans, elderly and underprivileged individuals) in replacement of the gas equipment. More than 55,000 stoves were supplied in 2012 under the social programs. 3. Construction organizations. Construction organizations purchase the stoves meeting their specifications and price expectations for the newly built residential and commercial properties intended for further commissioning (sale).

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Production activity: General information

The production facilities of the Company for

manufacture of the stoves are located in those regions

of the Russian Federation which are characterized by

the high sales potential and well-developed

infrastructures facilitating the timely delivery of the

products.

1. Krasnodar Territory – 5.3 million people 2. Perm Territory – 2.6 million people

3. Volgograd Oblast – 2.6 million people

ГАЗМАШ

Production activity: General information

For the last 20 years OJSC Gazmash has been continually

improving the quality of its products. The company has cooperation agreement with REMSO Group

(Belgium) since 1995, using their enameling materials for the stoves (frit,

primer).

Within the framework of continuous improvement of the quality of its

products, OJSC Gazmash concluded a long-term contract in 2000 with FERRO

Group of Companies (USA) for the supply of the enameling materials.

In 2005, OJSC Gazmash signed agreement on cooperation with the

leading international suppliers and entered in a contract with Mondragon

Corporation (Spain) for the supply of the state-of-the-art accessories for the

electric, induction and gas stoves.

The investments of OJSC Gazmash are spent mainly on the expansion of the production potential of the plant. The Company signed a contract with Sipama (Italy) and purchased the advanced equipment for the production of the stoves with standard dimensions 60x60cm intended for the Southern Federal District of the Russian Federation where the stoves of the given dimensions are in high demand.

The high quality of the products is supported by the following:

- maintaining the market position;

- use of IQNet, the global certification mark;

- right to use ACCREDIA, the certified quality management mark;

- ISO 9001 certificate; - processing OEM orders at the facilities.

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Production activity: Facility specific information

Chaikovskiy Gas Equipment Plant, which is the branch of OJSC Gazmash, is the only domestic stoves manufacturer

in Russia that has been constructed after Perestroika without attracting foreign investments.

The facility is equipped with the modern production equipment of the leading European brands (Binelli Italy, GEMA

Switzerland, and Brandt France). It produces a wide range of domestic gas, dual fuel (combined) and electric stoves under a popular

Darina brand, which is one of the leading brands in terms of sales.

On January 23, 2013 officials of IQNet, the international certification network (Bern, Switzerland) presented Chaikovskiy

Gas Equipment Plant with the quality management certificates confirming that the quality management system implemented at the

facility complies with the requirements of ISO 9001:2008 and GOST ISO 9001-2008, as applied to the design, production and

servicing of the gas, electric and combined stoves, as well as various models of the built-in kitchen appliances of the Darina brand.

Chaikovskiy branch of OJSC Gazmash manufactures domestic freestanding stoves (gas (19 models), electric (10 models),

combined and electric gas (8 models)), built-in electric broilers, cooktops, countertop gas grills and convectors. The facility features

the extensive production line with a wide price range from the cheapest models to the models with the price above average. The most

expensive model is the electric stove with glass-ceramic surface D ЕС 141 609 W. The sale price of the given model varies within

the above-mentioned average price range.

All the products manufactured by Chaikovskiy branch of OJSC Gazmash meet the requirements of a contemporary

Russian consumer, they have all the functional features and a modern design.

Furthermore, the facility manufactures the accessories and materials for domestic stoves, such as gas burners, table grids, powder

enamels, etc.

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Production activity: Facility specific information

Kanevskoy Gas Equipment Plant became a branch of OJSC Gazmash in 2007. It was reequipped within

the framework of the investment program (2009-2012) and manufactures a wide range of stoves of economy class

under the Flama brand. New production facilities (Nordson Deutschland GmbH) used for the treatment of the metal

surface and enamel coating of the components were commissioned in 2013. The warranty period for Flama domestic

stoves has been increased up to 5 years as a result of the improved quality of the products.

Kanevskoy Gas Equipment Plant Ltd. manufactures domestic freestanding stoves under the Flama brand

(gas (15 models), electric (4 models) and gas-electric (5 models), floor (2) and table (2) models of the stoves, as well

as single-burner gas stoves (Ochag brand). Kanevskoy Gas Equipment Plant Ltd. has been manufacturing the gas and

electric stoves since 2012, meeting the requirements of the construction agencies. The given type of stoves has a

simplified design and minimal functionality. The price range of Flama stoves is low and lowest plus. The possibility

of moving up to the next price range is being reviewed at the moment.

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Production activity: Facility specific information

Volgogazapparat Ltd. has been a branch of OJSC Gazmash since 1993. Close attention to the quality and

expansion of the product range, reliability and service life of the products made such brands as Lada and Lada-Lux the

most popular trademarks in the lowest price range.

Volgogazapparat Ltd. specializes in production of the domestic gas and electric stoves of economy class

manufactured under the Lada brand .

The products manufactured by Volgogazapparat Ltd. meet the demand of people with low-income and

construction companies.

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Production activity: Facility specific information

Votkinsk branch of OJSC Gazmash was opened in 2007. It is located at the site of the Votkinsk Gas Equipment Plant. The plant

has been manufacturing low-budget gas stoves since 2007. The facility is equipped with the locally manufactured machinery. The

products manufactured by the Votkinsk branch in partnership with Chaikovskiy branch are represented exclusively by the models of the

gas stoves within the lower price range of the Darina production line .

Mobile homes (trailers) of 7 different types (air-conditioned hostel, site office, bath house with sauna, etc.) are also manufactured at this

facility.

Mobile home layout Hostel with 8 beds (length 9m, width 2.5m)

Design – north style (on the frame/chassis/sledge)

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Production activity: Facility specific information

Balakirevo branch of OJSC Gazmash was opened in 1993 at the production facilities of Balakirevo mechanical plant which is

one of the largest military and industrial complexes. It became a leading manufacturer of the accessories for the domestic gas appliances

in Russia and CIS: gas valves, thermostatic gas valves, automated gas valves, flame control devices, gas burner nozzles, magnetic valves,

thermal couples and bellows. The facility features the equipment of the following brands: SIT, OPI, Merloni Progetti (Italy), Raspe &

Paschen (Germany).

Balakirevo branch of OJSC Gazmash has been consistently working on upgrading the quality of its products.

For this purpose it has been using, among others:

−the modern pipe provers (ATEQ, France);

−3D modules for controlling the geometrical parameters of the gas valve components (Zeiss, Germany);

−multipurpose testing machine for determining the strength and deformation properties of the supplied brass mill products,

which ensures the consistent quality of the produced stove accessories.

ГАЗМАШ

Investment potential

- available cash assets (more than 200 million RUR);

- vacant production premises (45.4 thousand m2 intended to be used for the assembly of the

gas and electric stoves and as the finished products warehouse);

- available backup energy (4 700 thousand kWh) and gas (3 217 thousand m3)

consumption;

The assets of OJSC Gazmash have very high potential for

development.

- vacant land plots (industrial) available for the expansion of the production facilities (3.1 ha);

ГАЗМАШ

Staff

Over the last 10-15 years there have been significant changes in the target

market of the products manufactured by OJSC Gazmash. The market has become more

competitive with increased investment capacities. During the times of economic crisis, a

number of Russian plants went bust or found themselves on the verge of bankruptcy,

including Omsk Gas Equipment Plant, OJSC Kazan Gas Equipment Plant, JSC Lysvensk

Metallurgical Plant. Meanwhile, more than 45 years of experience in the domestic gas

appliances manufacturing, highly qualified management and a professionally recruited

team enable Gazmash to:

- maintain its position in the gas stoves market in unstable economic conditions;

- develop the alternative sales channels;

- reduce the operating costs and increase the overall performance due to the anti-

recessional policy timely developed and implemented at OJSC Gazmash.

Amidst the critical shortage of the highly skilled human resources, OJSC

Gazmash managed to keep its staff.

In 2012, the average staff number was 2,214 employees (75% of the staff are

involved in the production). The staffing level of the company at the end of 2012 was

90% (against the background of staff shortage in the industrial sector of the Russian

Federation).

OJSC Gazmash implements the Human Resources Management Policy

according to the plan of actions. The occupation training, couching, continuing education,

versatility and career development training of the staff employed at the branches and

subsidiaries are organized at the premises of vocational schools.

The plant has its own engineering department, engaged in design of new products,

responding promptly to the consumer demand and introducing new products in the market

on a regular basis.

ГАЗМАШ

Development of OJSC Gazmash

Investment activity of the Company

OJSC Gazmash has been implementing a medium-term investment program in order to

ensure:

•complete modernization of existing facilities;

•design of a contemporary stove of a new generation with the potential development of

the model range;

•enhanced quality of the valves.

Within the framework of the medium-term investment program, OJSC Gazmash is planning technical re-

equipment of stamping and welding facilities with the state-of-the-art automated machinery, the development of

the new facilities for the production of the hardened glass and packaging, expanded polystyrene and “stretch

hood” products, implementation of the new assembly line and mechanical treatment equipment for the

production of gas valves with automatic flame control of the new design. Re-equipping of facilities will reduce

the labor intensity and will increase the quality of the products.

ГАЗМАШ

Development of OJSC Gazmash

The Company has been implementing the investment program using its own assets.

In 2013, the amount of investment in the Company was 5.7 million USD.

From 2010 until June 2013, the percent defective allowable was 0.21%, meanwhile the standardized value was

2.5%. For instance, in January 2011 the percent defective allowable at Chaikovskiy Gas Equipment Plant was 0.274%,

dropping down to 0.104% in June 2013.

Over the last several years OJSC participated in the development of the federal standards harmonized with the

international and European standards and ensuring the compliance with the requirements of the regulations of the Custom

Union “On Safety of the Gaseous Fuel Appliances”.

The performance characteristics of the products manufactured by the Company ensure trouble free

operation of the gas appliances under extreme climatic temperature differentials, fluctuating gas pressure and

voltage.

ГАЗМАШ

Development of OJSC Gazmash

Russian domestic appliances market remains prospective for manufacturers. The

companies offering more attractive or commercially viable products win the competitive struggle.

Flexible demand and promising market growth guarantee the stable growth of sales for the next

few years.

OJSC Gazmash has been designing and assimilating the new products in order to increase

the marketability and stability of its products under the post-crisis conditions and to maintain its

position in the Russian market of domestic gas and electric stoves.

In order to expand the assortment matrix, the Company intends to introduce new products

with the glass ceramic surface, induction stoves and stainless steel stoves of unique design (glass

panoramic façade, mirror glass of the oven door) in a variety of styles (country, high-tech,

modern) with improved functional features (recessed lighted switches, electronic timer with

clock, grill, broiling rack, convection, electrical ignition of the burners and gas control feature).

New products of the Darina brand introduced in 2013

Innovative activity ГАЗМАШ

Development of OJSC Gazmash

The Company organized a number of marketing and promotional

activities in order to maintain the brand recognition, including PR

(press tours for the journalists to the factories, tours for the target and

potential clients, and sponsorship of socially significant events), ATL

(primarily sponsorship of culinary and design TV programs to

promote the brand recognition) and BTL (joint advertisement

campaigns with partners; direct marketing; internet communications

aimed at upgrading the information on the internet; increasing the

information volume using the current newsworthy opportunities in the

blogosphere and social networks; advertisement in women’s

magazines with the conceptual serial publications on safety and

energy efficiency of the stove). The Company has its own website

www.gasmash.ru featuring the description of the full range of

products.

The well-known writer D. Dontsova, having the image of a culinary

expert and who is positively perceived by the target group of the products

consumers, has been actively involved in promotion of the products

manufactured by OJSC Gazmash since 2011. Within the framework of

partnership with D. Dontsova, the Company published a special gift edition

of the recipe book entitled The Secrets of Cooking with Darina. Also the

Company participates in very popular consumer shows and publishes the

articles in target and image mass media.

Marketing support

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Development of OJSC Gazmash

In order to ensure the effective development of the assortment

matrix, the Company has been segmenting its trademarks according

to the price niches, depending on their target positioning.

It allows for the expansion of the range of influence and

increases the marginality of the Company operating in almost every

price niche without interference and competitiveness.

- Products of the Darina brand are usually attributed to the

below average price range.

- The products of the Flama brand are attributed to the low

price niche intended to follow the strategy of maintaining the price

leadership in the market.

- The products of the Lada brand are supposed to be entered

exclusively in the construction market since they meet

specifications and price expectations in terms of municipal and

commercial residential properties requiring installation of gas

stoves.

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Social responsibility of OJSC Gazmash

Being a socially responsibly company, Gazmash organizes charity events on a

regular basis. One of the most significant events was the Miracle Fair organized for children

sick with cancer in medical care at Kaluga regional hospital offering treatment to thousands

of children from various regions of the Russian Federation. OJSC Gazmash gave children

sick with cancer several hours of joy including competitions, master classes, shows and

gifts. The campaign was supported by D. Dontsova and widely covered by the mass media.

The Company made a donation for the purposes of purchasing modern medical

equipment urgently needed for the treatment of young patients with such a diagnosis.

ГАЗМАШ