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This presentation represents HMS Group's financial results for six months ended on 30 June 2011
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HMS Group Midyear results 2011
Investor Presentation
October 2011
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.
Disclaimer
2
Agenda
3
WHO WE ARE 4
HMS at a Glance 5
HMS Group Core Industries 6
Development of Business Model 7
INVESTMENT HIGHLIGHTS 8
Attractive Industry Fundamentals 9
The Leading Provider of Flow Control Solutions 10
Advanced R&D Capabilities 11
Main Shareholders Run the Business 12
Healthy Debt Position 13
Hedging & Risk Management 14
FINANCIAL PERFORMANCE 15
Financial Highlights for 1H 2011 16
EBITDA Development in 1H 2011 17
Revenue & EBITDA Contribution by Segments 18
Capex & Working Capital as of 30 June 2011 19
2011 & 2012 BUSINESS UPDATE & OUTLOOK 20
HMS Group Recent Acquisitions 21
Significant Upside from Aftermarket 22
Backlog 23
Order Intake 24
HMS Group Recent Selected Contracts 25
Selected End-market Prospects for Mid-term 26
CONTACTS 27
APPENDIX 28
WHO WE ARE
4
4,498
6,724
13,39914,046
14,772
23,070
13,857
744 8301,423 1,644 1,890
3,519 3,133
16.5%
12.3%
10.6%11.7%
12.8% 15.3%
22.6%
2005 2006 2007 2008 2009 2010 1H2011
Revenue, Rub mn EBITDA, Rub mn EBITDA margin, %
1H’11 key financials contribution by business segments
Key investment highlights Key financial indicators for 2005-1H’11
Growing markets in Russia and the CIS:
oil & gas
power generation
water
Leader in flow control solutions on these markets
Best team in Russia:
management
sales
research & development
Resilient financial growth and healthy debt position
HMS at a Glance
Notes: Hereinafter “EBITDA” read as “EBITDA adjusted”, “EBITDA margin” read as “EBITDA adjusted margin” and “Net Income” read as “Profit for the period/year” Pumps read as Industrial pumps
Source: Company data
Pumps*
Revenue Rub 8,518 mn
EBITDA adj. Rub 2,574 mn
Oil & gas equipment
Revenue Rub 2,320 mn
EBITDA adj. Rub 127 mn
EPC
Revenue Rub 2,798 mn
EBITDA adj. Rub 356 mn
New photo
Pump station of Baltic pipeline system, Transneft Oilfield Pump Station 2, Vankor oilfield, Rosneft Oil Pump Station “Tayezhnaya”, Transneft
5
1H’11 total revenue Rub 13,857 mn EBITDA adj. Rub 3,133 mn profit for the period Rub 2,082 mn
Oil upstream ~50%
HMS Group Core Industries
6
Revenue contribution by industries
Oil transportation ~18%
Water utilities ~12%
Nuclear power generation ~1%
Metallurgy & Mining ~1%
Others ~8%
Note: “Others” include general industry pumps and other axillary equipment
Oil refining ~2%
Thermal power generation ~8%
Oil ~70%
Power generation ~9%
Source: Management accounts
5% 6% 25% 40%
95% 94% 75% 60%
2008 2009 2010 1H 2011
Revenue from integrated solutions Revenue from standard equpment
Source: Company data
Development of Business Model
Why integrated solutions ESPO-I pipeline is an example of integrated solutions
Producers Products / Services
HMS and other suppliers including Siemens
Design, production and testing of pumps
HMS
Design of integrated pumping solution
Overall project management
Procurement for supply of engines, cooling sleeves, valves and other equipment
Turn-key commissioning
1. Trunk pump 2. Motor 3. Coupling 4. Oil coolers 5. Adsorptive dryers 6. Air collectors 7. Compressors
8. Joints 9. Friction oil pipelines 10. Air cooling unit 11. Antifreeze feed pipes for oil coolers 12. Antifreeze feed pipes for motor coolers 13. Antifreeze air cooling unit
7
Type of project / Service
Standard pumps Integrated solutions & customized pumps
Source Array of small-size contracts
Large-scale projects
Research & development Normal Critical
Technical entry-barriers Average High
Capex requirements High Average
Competition type Price R&D and references
Competition High Limited
Revenue growth potential Limited Unlimited
EBITDA margin 10-15% 25-30%
Revenue downside potential
Limited Limited, nearest 1.5y
Frequency High n/a
Aftermarket demand Average High
Integrated solutions’ revenue contribution
INVESTMENT HIGHLIGHTS
8
2.4
8.0
17.9
4.2
12.2
30.4
1.1
5.2
9.8
2002 2010 2015E
Power generation
Municipal water
Oil & Gas, surface
712
1,226
337
810
271
540
2010 2015E
Oil refining & petrochemicals
Oil pipelines
Oil exploration & extraction
357
743
610
1,586
392
1,011
2010 2015E
Municipal water
Thermal power
Nuclear power
Attractive Industry Fundamentals
9
21.4% 13.5%
14.3% 20.0%
CAGR 2002-10
58.1
25.4
Russian selected pumps market revenues, Rub bn
Russian energy & utilities infrastructure investments, Rub bn
Source: Frost & Sullivan 2010
Mix of growing markets
7.7
‘10-15E
16.2% 17.5%
17.1%
17.3%
CAGR 2010-15E
13.0%
3,340
1,359
12.2%
15.7%
9.5%
CAGR 2010-15E
2,576
1,320
Russian oil sector investments, Rub bn
CAGR 11.8% CAGR 16.2% CAGR 18.0%
CAGR 16.1%
Power generation
Municipal water
Oil & Gas, surface
Municipal water
Thermal power
Nuclear power
Oil refining & petrochemicals
Oil pipelines
Oil exploration & extraction
31.6
48.9
28.6
32.9
2009 2010
HMS Group revenue, US$ mln
Other
59.8 73.8
42.9
61.4
2009 2010
HMS Group revenue, US$ mlnOther
10
Leading market share on key markets…
292.6 331.8
173.1
243.9
2009 2010
HMS Group revenue, US$ mln
Other
Oil industry1 Water utilities2 Power generation3
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 2011/2012
Key conclusions
465,7
575,7
102,7
135,2
60,2
81,8
+41% +43%
+15%
1 includes pumps and oil and gas equipment 2,3 includes pumps
The Leading Provider of Flow Control Solutions
Notes:
Market growth +24% Market growth +32% Market growth +36%
Advanced R&D Capabilities
Very strong in-house R&D and significant experience in pump
development
Unique testing facility (one of the largest in the former Soviet
Union and globally) for all types of large specialized pumps
for nuclear power plants and oil transportation
Deep integration with clients’ R&D
Giprotyumenneftegaz (GTNG) is the leading Russian R&D
centre specializing in design of on-surface (as opposed to
sub-surface) facilities for oil and gas fields, e.g. it
designed over 200 fields in Russia including many of the
largest (e.g. Samotlor, Mamontovskoye, Priobskoye)
Significant R&D resources for design of water utilities
projects (RVKP)
Pumps Project design
Pre-tender project
preparation
up to 24 months
Tender, pricing and contract
negotiation
1–3 months
Design and production
1–24 months
Delivery and installation
1 month
After-market services
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
11
Free-float37%
Vladimir Lukyanenko
24%
Managers22%
German Tsoy17%
Vladimir Lukyanenko Non-executive Director
Shareholder In company since 2005
Artem Molchanov Managing Director (CEO)
Shareholder In company since 1993
Main Shareholders Run the Business
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
HMS is the core business of the largest
shareholders
Long-term commitment to the business from
shareholders
Source: Company data as of October 6, 2011
Board of Directors Comments
Shareholders Structure
Kirill Molchanov First Deputy CEO (CFO)
Shareholder In company since 1993
German Tsoy Chairman of the Board
Shareholder In company since 1993
Yury Skrynnik Director for Strategic Marketing
Shareholder In company since 2005
Nikolay Yamburenko Head of Industrial Pumps
Shareholder In company since 2003
Philippe Delpal Independent
Chairman Audit Committee
Andreas Petrou Non-executive
Gary Yamamoto Independent
Chairman Remuneration Committee
Founders
12
98.6% 1.4%
Fixed rate Floating rate
77.0% 23.0%
Long-term debt Short-term debtS&P corporate credit rating: BB- Outlook: Stable
13
Moderate leverage… …with comfortable repayment schedule…
…and low currency and maturity risks Comments
Source: Company data as of 01 July, 2011
Healthy Debt Position
Low leveraged business profile with Net Debt to EBITDA LTM ratio of only 0.7
Easy access to additional liquidity with more than Rub 2.97 bn of undrawn credit facilities (as of 01 September, 2011)
Steady debt repayment schedule with negligible currency risk and prudent maturity structure
More than 98% of Rub-nominated debt with fixed interest rate
Weighted average interest rate of 8.7%, down from 11% a year ago, while interest coverage ratio grew to 14.5
3,455
4,539 4,297
4,105
2.0
2.4
1.2
0.7
2008 2009 2010 1H 2011
Net Debt, Rub mn Net Debt to EBITDA LTM
490
1,255 1,218
2,090
488
2,965
2011E 2012E 2013E 2014E 2015E
Repayments, Rub mn Undrawn credit line, Rub mn
Source: Company data Source: Company data as of 01 September, 2011
98.4% 1.5% 0.1%
Rub Euro Others
14
Risk 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
Currency risks
Interest risk
Short-term oil price drop
Day-to-day monitoring and control over of projects implementation
99% of debt with fixed interest rate
Revenue, expenses and debt are nominated in Rubles
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 – fallen revenues
Low risk due to limited competition and large market share, and also because of commodities price correlation (steel and oil)
Long-term oil price decline – influence on margin
Not covered
Hedging & Risk Management
FINANCIAL PERFORMANCE
15
431 709 1,111 1,268 1,588 1,545
11.2%
13.4%
15.8%
18.4%
22.5% 22.7%
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
EBITDA, Rub mn EBITDA margin
Rub, mn 1H 2011 1H 2010 chg, yoy
Revenue 13,857 9,149 +51.5%
Gross profit 4,292 2,182 +96.7%
EBITDA 3,133 1,140 +174.8%
Operating profit 2,743 1,035 +164.9%
Net income (loss) 2,082 388 +436.8%
Total debt 4,599 6,361 (27.7%)
Net debt 4,105 4,489 (8.6%)
Net debt to EBITDA LTM ratio 0.7 2.1
Gross margin 31.0% 23.8% +713bps
EBITDA margin 22.6% 12.5% +1,015bps
Operating margin 19.8% 11.3% +847bps
Net income margin 15.0% 4.2% +1,079bps
Significant growth of revenues
Financial Highlights for 1H 2011
Source: Company data
16
Revenue performance
EBITDA and EBITDA margin performance
Source: Company data
Source: Company data
3,835 5,314 7,009 6,912 7,051 6,806
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11
Revenue, Rub mn Linear ( Revenue, Rub mn)
1,035
30
(497)
(14)(167)
388
2,743
8
(207)
37
(499)
2,082
Operatingprofit
Financeincome
Financecosts
Share ofresults ofassociates
Income taxexpense
Net income
1H 2010 1H 2011
56.5%
15.1% 16.6%11.8%
58.5%
20.6%
11.9%9.0%
Materials Labour Cost of goods sold Other costs
1H 2010 1H 2011
69%
11%
20%
3%
23%
Revenue Cost of sales SG&A expenses & others Operating profit Depreciation & amortisation with other deductions
EBITDA
76%
13%
11%
2%
12%
Source: Company data
operating expenses 11.1bn vs 8.1bn in 1H’11 | +37% yoy revenue in 1H’11 | +51% yoy ebitda in 1H’11 | +175% yoy
Net income components, Rub mn
EBITDA Development in 1H 2011
EBITDA key drivers, % of revenue
Cost of sales components, Rub mn
Source: Company data 17
Source: Company data
0
20,000
1H 2010 1H 2011
Oil & gas equipment:
Revenue contracted by 12% yoy
EBITDA margin decreased to 5.5%
Absence of orders for integrated solutions in 1H affected margin performance
Standard equipment margin declined after crisis as a result of the competition growth in this segment
Situation is expected to brighten in 2H owing to the contracts for integrated solutions to be signed in 2H 2011 and entrance into new market segments, e.g. associate gas processing
Highlights by core business segments, Rub mn Comments
Pumps:
Revenue increased by 133% yoy and amounted to Rub 8,518 mn
EBITDA margin grew to 30.2%
Execution of the project in the oil transportation segment as well as stable order intake in other market segments resulted in healthy EBITDA and EBITDA margin growth
Revenue from pumps excluding integrated solutions grew by 8% with EBITDA margin of 20% due to growth of demand and effective cost control
Revenue & EBITDA Contribution by Segments
Source: Company data
Pumps
Oil & gas equipment
EPC EPC:
Revenue down 2% to Rub 2,798 mn
Construction revenue declined to Rub 1,637 mn due to intentional rejection of low-margin contracts
Project & design revenue up to Rub 1,170 mn, mainly due to GTNG acquisition
Healthy margin in construction sub-segment and superior margin in project & design (5.3% and 23.1% respectively) resulted in 12.7% of EBITDA margin in EPC segment
Despite recent signature of several large contracts, the Group sticks to conservative projections on construction development
ebitda +265%
revenue +133%
ebitda -56%
revenue -12%
ebitda +171%
revenue -2%
18
3,656
8,518
706
2,574
19.3%
30.2%
1H 2010 1H 2011
Revenue, Rub mn EBITDA, Rub mn EBITDA margin, %
2,6232,320
285127
10.9%
5.5%
1H 2010 1H 2011
Revenue, Rub mn EBITDA, Rub mn EBITDA margin, %
2,857 2,798
131
356
4.6%
12.7%
1H 2010 1H 2011
Revenue, Rub mn EBITDA, Rub mn EBITDA margin, %
351
2,932
(3,848)
(507)
(1,423)
(1,726)
3,303
494
Cash as ofJan 1, 2011
Operatingcash flowbefore WCchanges
WCchanges&others
Income tax& interest
paid
Net cashused in
operatingactivities
Net cashused ininvestingactivities
Net cashfrom
financingactivities
Cash as ofJul 1, 2011
-2,263
93
( 1,178 ) 5,220
6,398
Working capital1H 2010
Inventorieschange
Receivableschange
Payableschange
Working capital1H 2011
HMS Group generated Rub 2,932 bn of operating cash flow before changes in working capital
Substantial working capital increase in 1H 2011 led to the negative operating cash-flow due to ongoing execution of the large infrastructure oil transportation contract with significant advance payments received last year
Working capital is expected to fit target range of 10-15% of revenue with positive operating cash flow in 1H 2012 as a result of:
Next payment of about Rub 2 bn under the contract
Prepayments on contracts signed in 2H’11, and contracts in process of signing
Investing cash flow consisted of:
Organic capex of Rub 438 mn, in line with target level of 1.5-2.5 times depreciation
Acquisition of Sibneftemash – Rub 1,280 mn
Financing cash flow was supported by IPO proceeds of Rub 3,373 mn
Comments Working capital as of 30 June 2011, Rub mn
Cash flow performance in 1H 2011, Rub mn Capital expenditures in 1H 2011 vs 1H 2010
CAPEX & Working Capital as of 30 June 2011
Source: Company data
Source: Company data Source: Company data
19
Sibneftemash acquisition (1,280) Rub mn
IPO proceeds 3,373 Rub mn
WC changes (3,650) Rub mn
300
438
146
226
2.1x1.9x
1H 2010 1H 2011
Organic capex, Rub mn Depreciation, Rub mn Capex to Deprecation ratio, x
+ +
+ =
13%
23%
1H 2010 1H 2011
WC to Revenue LTM
13%
23%
1H 2010 1H 2011
WC to Revenue LTM
13%
23%
1H 2010 1H 2011
WC to Revenue LTM
2011 & 2012 BUSINESS UPDATE & OUTLOOK
20
Products portfolio Pumps for oil refining and metallurgy & mining
applications
Deal details: US$ 9.7 mn for 57% of the company (primary stock)
Key financials, BAS 1H’11 Revenue Rub 222 mn 1H’11 EBITDA Rub 30 mn 1H’11 EBITDA margin 13%
Bobruisk Machine Building Plant acquisition
Acquisition rationale Broadening of HMS Group product portfolio with complementary
equipment Potential growth of revenue and EBITDA margin:
Sales power and R&D capability of HMS Group Well-known brands and/ or technical equipment base of
acquired companies Attractive multiples
21
HMS Group Recent Acquisitions
Source: Bloomberg FX rate
Sibneftemash acquisition
Key financials, RAS 1H’11 Revenue Rub 485 mn 1H’11 EBITDA Rub 79 mn 1H’11 EBITDA margin 16%
Products portfolio Tanks and vessels for oil and oilfield services
companies
Deal details: Rub 1,292 mn for 98.6% of the company
596
61
484
1H 2011
HMS has two contracts signed:
– TNK-BP 1-year contract worth Rub 117 mn*, which implicates full maintenance of water injection pumps at the Samotlor field
– 1-year contract worth Rub 484 mn* for maintenance and overhaul services on an Eastern-Siberian oilfield with a very high level of probability for 2-more-year prolongation, that can generate about Rub 1 bn additionally
Contracts’ details:
– HMS Group employs the contractors’ personnel, takes a lease of the contractors’ repair facilities and processing equipment, reducing capex and staff recruitment costs
5% 41% 43%
HMS Group Flowserve Sulzer
Aftermarket Original equipment
Spare parts & services
Comments HMS Group has a very large installed base
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
Significant Upside from Aftermarket
In red are highlighted the pump’s components which can be replaced in order to extend the pump’s operation life
22
Case study: Pump modernization at the Samotlor oilfield
Aftermarket input in total revenue vs peers
Source: Companies’ websites, latest published data used
Water injection pumps
HMS supplies 87%
Other 13%
Oil trunk pipeline pumps, Transneft
HMS supplies 98%
Other 2%
Aftermarket trend in HMS Revenue, Rub mn
Source: Company data
New aftermarket contract, Sept 2011
Samotlor
Note: * excluding VAT
657
Source: Frost & Sullivan 2010
Revenue recognition depends on production period for various type of equipment and the nature of the project
Backlog structure performance
Backlog
Source: Company data, Management accounts
23
1
2 As of June 30, 2011 backlog became more diversified with approximate ESPO contribution of 1/3 versus 2/3 last year, that resulted in higher backlog turnover
Rub mn 1H 2011 1H 2010 chg, YoY Production period /Annual revenue
Products & services on demand, short production cycle - - - Rub 4-5 bn
Oil transportation pumps 4,914 11,506 (57%) 12-36 months
Construction component of EPC 1,492 2,796 (47%) 6-18 months
Other equipment 7,323 5,093 +44% 2-8 months
Total backlog 13,728 19,396 (29%)
6,236 10,678 7,870
12,404
1H 2010 2H 2010 1H 2011
ESPO project, Rub mn
Total order intake excluding ESPO, Rub mn
5,260 8,023 7,216
777
1H 2010 2H 2010 1H 2011
ESPO project, Rub mn
Order intake for other equipment, Rub mn
994 134 11,627
1H 2010 2H 2010 1H 2011
ESPO project, Rub mn
Order intake for oil transportation pumps, Rubmn
Comments
Order Intake
24
Total order intake
Other equipment Oil transportation pumps
Order intake growth in 1H was driven by regular orders (Rub 5-300 mn) across all business segments except construction and oil transportation
Order intake in oil transportation contracted due to the fact, that potential contracts are in a pre-tender stage
Order intake in construction segment contracted as the company intentionally rejected low-margin contracts
Seasonally, 2H is stronger than 1H in terms of new orders
Growing number of Rub 1-3 bn orders (ESPO and Vankor expansion, new oilfields and nuclear plants) are expected to become the core driver of HMS Group’s revenue going forward
Source: Company data, Management accounts
Construction segment of EPC
Source: Company data, Management accounts Source: Company data, Management accounts
Source: Company data, Management accounts
976 1,661 520
1H 2010 2H 2010 1H 2011
Order intake for construction, Rub mn
18,640
6,037 11,627
HMS Group passed the pre-qualification audit by ENI (07 July, 2011)
Rub 500 mn : HMS Group to produce modular equipment to an oilfield in Eastern Siberia (08 July, 2011)
Rub 300 mn : HMS Group to carry out design works for a Western Siberia gas condensate field (11 July, 2011)
Rub 1 bn : HMS Group signed a new contract on construction for a gas field in Western Siberia (01 September, 2011)
Rub 484 mn : HMS Group signed a new aftermarket contract for an oilfield in Eastern Siberia (29 September, 2011)
HMS Group successfully works on its order book and future growth
HMS Group Recent Selected Contracts
25
Project Brief description Completion Key metrics Comments
Rosneft
Vankor 2 stage Further development. Capex for 2011 US$ 2.6 bn next stage by 2014 Min capex Rub 480 bn HMS won a number of tenders
Yurubcheno-Tokhomsk oilfield Feasibility study under preparation, depends on tax concessions by 2014 Planned production 20mt
Associated gas utilization program (Komsomolskoe, Priobskoe oilfields)
Achievement of 95% level of associated gas utilization HMS participated in previous stages
Lukoil & Bashneft JV
Trebs and Titov fields Joint development of the fields, in stage of project development. Reserves 141 mt
by 2013 Capex US$5-6 bn HMS has good references for previous
projects
Transneft
ESPO expansion 9 oil-pumping stations to be constructed to deliver oil to Khabarovsk and Komsomolsk refineries by 2015
9 OPS by 2015 HMS participated in previous stages
Zapolyarye – Pur-pe pipeline Oil transportation from YANAO and Northern Krasnoyarsk region oilfields
4 OPS by 2015 Capex Rub 120 bn HMS participates in a project design
ESPO expansion 4 OPSs to be constructed to deliver oil to Primorsk refinery by 2017
4 OPS by 2017 HMS participated in previous stages
Pur-pe – Samotlor expansion Construction of 2 OPS. Total capex in 2011 Rub 77 bn 2 OPS by 2017 HMS participated in previous stages
TNK-BP
Russkoe oilfield Giant oilfield in YANAO with specific oil. Project production 20 mtpa
Capex US$ 4.5 bn HMS participates in a project design
Samotlor Further development of an active oilfield in Nizhnevartovsk. by 2014 Capex US$ 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% on 2010 HMS participates in a project design
Verkhnechonsk oilfield Oilfield located in the Eastern Siberia, Irkutsk region. Development was stimulated by close proximity of ESPO pipeline.
Peak production by 2014
Additional US$3-4 bn HMS participated in previous stages
Gazprom
Shtokman gas and condensate field The field will become a resource base for Russian pipeline gas and liquefied natural gas (LNG) exports to the Atlantic Basin markets
HMS produces units for complex gas preparation
Gazprom Neft
Priobskoe oilfield Western Siberia. Recoverable reserves ~600 mt HMS participates in a project design
Urmanskoe and Shinginskoe oilfields Eastern Siberia
Sberbank Capital
Dulisma oilfield Irkutsk region. Further development. 3rd resource base for ESPO Total reserves 15 mt HMS participated in previous stages
Taas-yuriah oilfield Sakha region. Further development. Total reserves ~130 mt Capex Rub 15-30 bn
Iraq
Rumaila brownfield Consortium headed by BP Capex US$ 15 bn HMS already submitted technical
survey
Az Zubair Consortium headed by Eni Capex US$ 20 bn HMS participates in a tender
Municipal water
Central Asia Irrigation stations for Uzbekistan and Turkmenia HMS has good references from
previous projects
Financial and Operational highlights
Selected End-market Projects for Mid-term
Source: Public information, Company data
Increased number of HMS end-market projects
26
Contracts signed
Contacts and HMS Group Key Details
27
Company address: 7 Chayanova Str. Moscow 125047 Russia
Investor Relations Phone +7 (495) 730-66-01 [email protected] http://grouphms.com/shareholders_and_investors/ Twitter HMSGroup and HSMGroup_Rus Sergey Klinkov, Head of Investor Relations [email protected] Inna Kelekhsaeva, Deputy Head of Investor Relations [email protected]
HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange Identifier Number Number of shares outstanding ISIN US40425X2099 117,163,427 Ticker HMSG Bloomberg HMSG LI Reuters HMSGq.L Credit Rating Standard & Poor’s BB- (Outlook stable) as of 16 June, 2011
APPENDIX
28
Calculations
All figures in millions of Russian Rubles, unless otherwise stated
Management of the Group assesses the performance of operating segments based on a measure of adjusted EBITDA, which
is derived from the consolidated financial statements prepared in accordance with IFRS
EBITDA is defined as operating profit/loss adjusted for other operating income/expenses, depreciation and amortization,
impairment of assets, provision for obsolete inventory, provision for impairment of accounts receivable, unused vacation
allowance, defined benefits scheme expense, warranty provision, provision for legal claims, provision for VAT and other taxes
receivable, other provisions, excess of fair value of net assets acquired over the cost of acquisition. This measurement basis
excludes the effects of non-recurring income and expenses on the results of the operating segments
EBIT is calculated as Gross margin minus Distribution & transportation expenses minus General & administrative expenses
Total debt is calculated as Long-term borrowings plus Long-term financial lease liabilities plus Short-term borrowings plus
Short-term financial lease liabilities
Net debt is calculated as Total debt minus Cash & cash equivalents at the end of the period
Working capital is calculated as Inventories plus Trade and other receivables minus Trade and other payables
Backlog is calculated as the preceding backlog plus new or additional customer orders booked during the reporting period, less
amounts of contract value booked as revenue under ‘‘Russian GAAP’’ on an unconsolidated basis under the relevant
contracts, plus or minus adjustments made in the judgment of the Group’s management. The Group may also make certain
adjustments to bookings to reflect amendment, expiry or termination of contracts, cancellation of orders, changes in price
terms under contracts or orders, or other factors affecting the amount of potential revenue which the Group believes may be
recognized under such contracts. The Group’s backlog estimates are not an indication of potential revenues. Actual revenues
and other measures of financial performance under IFRS may differ materially from any estimate of backlog, and changes in
backlog between periods may have limited or no correlation to changes in revenue or any other measure of financial
performance under IFRS
Notes to the presentation and formulas used for some figures’ calculations
29
RUB,’000 30 June 2011 31 December 2010
ASSETS Non-current assets: Property, plant and equipment 6,486,500 5,948,674 Other intangible assets 380,488 310,156 Goodwill 2,348,255 1,783,915 Investments in associates 523,324 507,141 Deferred income tax assets 98,618 130,779 Other long-term receivables 50,536 27,123
Total non-current assets 9,887,721 8,707,788
Current assets: Inventories 3,623,361 2,840,745 Trade and other receivables and other financial assets 8,681,888 10,399,853 Current income tax receivable 51,856 38,086 Prepaid expenses 32,448 39,361 Cash and cash equivalents 493,999 351,086 Restricted cash 5,197 4,978
12,888,749 13,674,109
Non-current assets held for sale 53,850 96,095
Total current assets 12,942,599 13,770,204
TOTAL ASSETS 22,830,320 22,477,992
EQUITY AND LIABILITIES EQUITY Share capital 48,329 42,510 Share premium 3,523,535 210,862 Currency translation reserve (417,946) (234,785) Retained earnings 4,887,224 2,897,296 Other reserves 122,852 38,987
Equity attributable to the shareholders of the Company 8,163,994 2,954,870 Non-controlling interest 1,532,288 1,508,263
TOTAL EQUITY 9,696,282 4,463,133
LIABILITIES Non-current liabilities: Long-term borrowings 3,528,388 3,864,176 Finance lease liability - 9 Deferred income tax liability 1,082,918 745,762 Pension liability 256,996 262,525 Provisions for liabilities and charges 45,607 35,691
Total non-current liabilities 4,913,909 4,908,163
Current liabilities: Trade and other payables 5,907,622 10,799,358 Short-term borrowings 1,068,698 775,242 Provisions for liabilities and charges 327,839 312,213 Finance lease liability 2,288 8,446 Pension liability 14,485 24,736 Current income tax payable 18,654 115,340 Other taxes payable 880,543 1,071,361
Total current liabilities 8,220,129 13,106,696
TOTAL LIABILITIES 13,134,038 18,014,859
TOTAL EQUITY AND LIABILITIES 22,830,320 22,477,992
Source: Company data
Statement of Financial Position
30
Source: Company data
Statement of Comprehensive Income RUB,’000
Six months ended 30 June 2011
Six months ended 30 June 2010
Revenue 13,857,464 9,149,003 Cost of sales (9,564,991) (6,967,040)
Gross profit 4,292,473 2,181,963
Distribution and transportation expenses (387,385) (260,016) General and administrative expenses (1,019,510) (845,719) Other operating expenses, net (143,071) (40,923)
Operating profit 2,742,507 1,035,305
Finance income 7,981 30,077 Finance costs (206,740) (496,684) Share of results of associates 36,976 (13,914)
Profit before income tax 2,580,724 554,784
Income tax expense (498,760) (166,971)
Profit for the period 2,081,964 387,813
Profit attributable to:
Shareholders of the Company 1,989,928 371,001 Non-controlling interest 92,036 16,812 Profit for the period 2,081,964 387,813
Currency translation differences (238,951) 43,060 Currency translation differences of associates (6,791) 4,839
Other comprehensive (loss)/income for the period (245,742) 47,899
Total comprehensive income for the period 1,836,222 435,712
Total comprehensive income attributable to:
Shareholders of the Company 1,806,767 412,211 Non-controlling interest 29,455 23,501 Total comprehensive income for the period 1,836,222 435,712
Basic and diluted earnings per ordinary share for profit/(loss) attributable to the ordinary shareholders (expressed in Rub per share) 17.44 3.62
31
RUB,’000 Six months ended
30 June 2011 Six months ended
30 June 2010
Cash flows from operating activities
Profit before income tax 2,580,724 554,784
Adjustments for: Depreciation and amortisation 302,546 154,840 Loss/(gain) from disposal of property, plant and equipment and intangible assets 6,364 (9,322) Finance income (7,981) (29,236) Finance costs 198,756 496,684 Pension expenses 1,102 33,207 Warranty provision (35,738) 9,216 Interest expense related to construction contracts 2,594 3,815 Provision for impairment of accounts receivable (83,795) (16,681) Investments impairment provision 341 (143) Provision for obsolete inventories 26,183 (115,093) Foreign exchange translation differences 7,984 (841) Provision for VAT receivable (11,327) 5,321 Provisions for legal claims (18,313) (12,492) Share of results of associates (36,976) 13,914 Loss from disposal of subsidiary - 4,369 Other non-cash items (468) (1,456)
Operating cash flows before working capital changes 2,931,996 1,090,886
Increase in inventories (769,019) (184,578) Decrease/(increase) in trade and other receivables 1,640,600 (5,983,497) (Decrease)/increase in other taxes payable (197,670) 803,368 (Decrease)/increase in accounts payable and accrued liabilities (4,521,724) 7,264,719 Restricted cash 219 360
Cash (used in)/generated from operations (915,598) 2,991,258
Income tax paid (311,625) (127,252) Interest paid (195,798) (511,611)
Net cash (used in)/from operating activities (1,423,021) 2,352,395
Cash flows from investing activities Repayment of loans advanced - 3,033 Loans advanced - (2,401) Proceeds from sale of property, plant and equipment and intangible assets 7,683 6,220 Interest received - 4,275 Dividends received 14,002 15,288 Purchase of property, plant and equipment (438,160) (300,496)
Cash received from disposal of subsidiary - 7,475
Acquisition of intangible assets (29,888) (8,400) Acquisitions of subsidiaries, net of cash acquired (1,280,000) (2,339,457) Net cash used in investing activities (1,726,363) (2,614,463) Cash flows from financing activities Repayments of borrowings (6,262,415) (5,257,621) Proceeds from borrowings 6,214,859 6,301,637 Payment for finance lease (6,157) (6,918)
Acquisition of non-controlling interest in subsidiaries - (33,945)
Cash received from additional share issue of subsidiary - 428,420
Proceeds from share issue, net of issue costs 3,372,516 -
Dividends paid to non-controlling shareholders of subsidiaries (15,863) (145,937)
Cash received from capital contribution - 85,817
Net cash from financing activities 3,302,940 1,371,453
Net increase in cash and cash equivalents 153,556 1,109,385
Effect of exchange rate changes on cash and cash equivalents (10,643) 3,555
Cash and cash equivalents at the beginning of the period 351,086 758,127
Cash and cash equivalents at the end of the period 493,999 1,871,067
Source: Company data
Cash Flow Statement
32
Focus on integrated solutions and other highly-engineered products
Higher margin than stand-alone products and services HMS Group’s largest customers more often prefer to work with manufacturers
that can offer integrated and customized solutions Creates strong ties with customers, pull-through demand for aftermarket services
Strengthen position in core markets including aftermarket and export
Take advantage of positive market trends in existing core markets Organic expansion into attractive market segments Increase of aftermarket services component to generate higher-margin and
regular cash flows Core export opportunities: water projects in FSU, Rosatom nuclear contracts,
O&G in Kazakhstan and Iraq
Expand research and development capabilities
Leverage leading R&D capabilities in order to develop next-generation customized pumps, technological upgrades and integrated pump systems
Work closely with customers to develop technical policies and standards
Improve operational efficiency
Commitment to integration and optimization of current production assets and commitment to increase synergies between acquired businesses
Standardization and continuous improvement of operations and business processes (e.g. ERP, budgeting and reporting methodology and software development, etc.)
Pursue selective & value enhancing acquisitions
Our targets are technology and R&D facilities Pursue acquisition opportunities in high-growth sectors where HMS has limited
presence Search for cost and revenue synergies
HMS Group Business Strategy
33
2009–Today Integrated Solutions Modular Equipment Design and Manufacturing
Pump Design and Manufacturing Pump Trading
2007–2008 Construction Modular Equipment Design and Manufacturing
Pump Design and Manufacturing Pump Trading
2004–2006 Modular Equipment Design and Manufacturing
Pump Design and Manufacturing Pump Trading
2003 Pump Design and Manufacturing Pump Trading
1993–2002 Pump Trading
HMS Group Positioning
The sole domestic engineering company in Russia
34
From pumps to integrated solutions based on excellent R&D base
Above ground
Under ground
Note: * Modular Equipment (Oil & gas equipment)
Industry HMS IntegraEurasia
DrillingWeir Flowserve
Dresser
RandTechnip Schlumberger
Baker
Hughes
Power generation √ √ √
Oil and Gas √ √ √
Water √ √ √
Oil and gas equipment √ √ √ √
Repair √ √ √
Oil and Gas √ √ √ √
Power generation √
Water √
Seismic research √ √ √ √
Well service √ √ √ √
Drilling √ √ √ √
Oil production increase √ √ √ √
Pum
ps
ME*
EPC
Serv
ice
Russian Foreign
1,890
3,519
12.8%
15.3%
2009 2010
EBITDA margin
1,298
3,027
2009 2010
14,772
23,070
2009 2010
18.0%
36.2%
2009 2010
Revenue, 2009 vs 2010 Comments
Financial Performance for 2010
Source: Company data Source: Company data
Source: Company data
Total revenue up 56% yoy to Rub 23,070 mn
The growth reflects:
Significant increase in size of orders for pump-based integrated solutions
Completion of key projects
Consolidation of GTNG
Stable growth of revenue from ordinary contracts
Organic revenue growth of 47% yoy, excluding impact from GTNG
ROCE, 2009 vs 2010 EBIT, 2009 vs 2010
EBITDA, 2009 vs 2010
Net income, 2009 vs 2010
+133% +1,825bps
+56% +86%
Source: Company data
70
1,581
2009 2010
+2,156%
Source: Company data
35
55%
16% 15%
4% 2% 2%5%
60%
16% 13%
3% 2% 1%5%
Materials Labour Cost ofgoods sold
Constructionworks by
sub-contractors
D&A Utilities Others
2009 2010
75.3% 2.5% 9.1%
0.5% 12.6% 1.9% 0.7% 15.3%
Revenue Cost of sales Distribution andtransportexpenses
SG&A Other expenses Operating profit Depreciation &amortisation
Others EBITDA*
EBITDA key drivers, 2009 vs 2010 (% of revenue)
Comments Cost of sales components comparison, 2009 vs 2010
EBITDA Development in 2010
expenses
EBITDA increased by 86% yoy to Rub 3,519 mn due to:
Strong revenue growth in all business units
Focus on innovative high-margin contracts
Effective cost control
Consolidation of GTNG
EBITDA organic growth of 72% yoy
EBITDA margin increased to 15.3%
SG&A grew less than revenue due to economy of scale
and cost optimization strategy
Source: Company data
operating expenses
20.2bn vs 13.7bn in 2009 |+47.2% yoy revenue in 2010 +56.2% yoy
0
50,000
2009 2010
75.6% 3.3% 12.4%
1.5% 7.3% 2.3% 3.1% 12.8%
Revenue Cost of sales Distribution and transport expenses
General & Administrative
expenses
Other expenses Operating profit Depreciation & amortisation
Others EBITDA
Source: Company data
36
Modular equipment:
Sales up 39% yoy, driven by demand from the major oil
companies to equip new oil fields and modernize existing
installed base of modular equipment
EBITDA decreased 24% yoy and EBITDA margin also down to
10.3% due to execution of low-margin contracts concluded in
2009
Highlights by core segments, 2009 vs 2010 Comments
Pumps:
Sales up 70% yoy to Rub 10,712 mln, enjoying strong demand
for integrated pumping solutions primarily in oil transportation
and upstream
EBITDA grew by 134% yoy, and EBITDA margin rose to 22.1%,
primarily attributable to increasing share of contracts for pump-
based integration solutions
Revenue & EBITDA Contribution by Segments
Source: Company data
Pumps
Modular equipment
EPC EPC:
Revenue growth of 46% yoy is primarily attributable to an impact of GTNG acquisition and entering the market of projects and design. Revenue growth, excluding an effect of acquisition, was c. 14% yoy
EBITDA increased significantly to Rub 550 mln, and EBITDA margin rose to 9.0%. Newly acquired GTNG added to EPC’s EBITDA Rub 271 mln
Such a significant EBITDA growth is primarily attributable to a low EBITDA base in 2009, caused by significant price pressure connected to investment cutbacks by oil companies
ebitda +1,548%
revenue +46%
ebitda -24%
revenue +39%
ebitda +134%
revenue +70%
6,308
10,712
1,012
2,367
16.0%
22.1%
2009 2010
Revenue, Rub mln EBITDA, Rub mln EBITDA margin, %
4,166
5,805
786 599
18.9%
10.3%
2009 2010
Revenue, Rub mln EBITDA, Rub mln EBITDA margin, %
4,189
6,135
33 550 0.8%
9.0%
2009 2010
Revenue, Rub mln EBITDA, Rub mln EBITDA margin, %
37
Source: Frost & Sullivan report 2009, Transneft website (www.transneft.ru)
Novorossiysk
Moscow
Unecha
Primorsk
Kozmino
Skovorodino
Verkhnechonskoye
Tengiz
Timano-Pechora basin
Caspian Pipeline Consortium expansion (35 MMt, 1,510 km)
Baltic Pipeline System-II (50 MMt, 1,000 km)
ESPO-I and ESPO-I capacity expansion (50 MMt, 2,694 km)
Russia
ESPO-II and ESPO-II capacity expansion (47 MMt, 2,046 km)
Talakanskoye
Purpe-Samotlor (25 MMt, 430 km)
Vankor Salymskoye
Samotlor
Nizhnevartovsk
Priobskoye
Purpe
Tyamkinskoye
Russkoye
Taishet
Zapolyarnoye-Purpe (45 MMt, 536 km)
Syzran
Tikhoretsk-Tuapse 2 (12 MMt, 295 km)
Haryaga Yuzhny
Khylchuyu
Haryaga-Yuzhny Khylchuyu (8 MMt, 160 km)
Yurubcheno-Tokhomskoe
Yurubcheno-Tokhomskoe-Taishet (18 MMt, 600 km)
Tuapse
Tikhoretsk
Komsomolsky NPZ -port De-Kastry (9 MMt, 313 km)
Oil pipeline projects
Mature oil producing regions
Underdeveloped oil producing regions
Developing oil fields
HMS participation confirmed
Oil products pipeline projects
Komsomolsky NPZ
De-Kastri
“Yug” (South) (9 MMt, 1,465 km)
Komsomolsky NPZ -De-Kastry (n.d., 300 km)
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
New Milestone Projects Oil & Gas Production and Oil Transportation
Zapolyarnoye
South
> 3 bn tons of oil reserves to
be developed in the next
several years
Oil production development
> 10,000 km of pipelines to be constructed or
replaced
> 140 of pump stations to be constructed or
reconstructed
> 550 reservoirs with total capacity of almost
10 mln m3 to be reconstructed
Transneft investment program 2010-2017
Central Asia
Rapidly growing sales of modular equipment to oil and gas sector in Kazakhstan
Iraq
Significant installed base of HMS pumps from Soviet and post Soviet periods
Currently undertaking projects for Oil Ministry and BP
Export markets
26 oil refineries are to be
reconstructed
Oil refining development
38
Trebs & Titov (140 MMt, 2,151 km)
Prirazlomnoye
TGC-13 (Enisei) Investments 2010-2015: RUB 10 bn
TGC-9 Investments 2010-2015: RUB 28 bn
TGC-8 Investments 2010-2015: RUB 18 bn
TGC-7 (Volga) Investments 2010-2015: RUB 11 bn
TGC-6 Investments 2010-2015: RUB 16 bn
TGC-5 Investments 2010-2015: RUB 14 bn
TGC-3 (Mosenergo) Investments 2010-2015: RUB 39 bn
TGC-14 Investments 2010-2015: RUB 8 bn
TGC-12 (Kuzbas) Investments 2010-2015: RUB 21 bn
TGC-11 Investments 2010-2015: RUB 26 bn
TGC-10 (Fortum) Investments 2010-2015: RUB 47 bn
TGC-4 Investments 2010-2015: RUB 21 bn
TGC-2 Investments 2010-2015: RUB 28 bn
TGC-1 Investments 2010-2015: RUB 73 bn
Source: Frost & Sullivan report 2009
Nuclear Power Plants HMS participation confirmed Projects under construction Planned projects
Leningradskaya-II
Kalininskaya
Rostovskaya
Novovoronezhskaya-II
Beloyarskaya
Kurskaya Smolenskaya
Kolskaya
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
New Milestone Projects Thermal and Nuclear Power Utilities
South
Rostovskaya
Summary of total investments in power generating capacity
Selected nuclear power plant projects abroad using Russian technology
Number of power units to be constructed or reconstructed
Additional generation capacity, MW
Investments 2010-2015 (RUB bn)
TGC n/a 13,627 359
OGC n/a 11,962 467
Nuclear plants (Russia)
41 21,500 808
Nuclear plants (Foreign)
17 17,880 1,940
Name Country No of power units / Unit capacity (MW)
Investments 2010-2015 (RUB bn)
Belene NPP Bulgaria 1 / 1,000 128
Tianwan NPP China 2 / 1,000 86
Kudankulam NPP India 2 / 1,000 65
Mokhovtse NPP Slovakia 2 / 440 53
Akkuyu NPP Turkey 4 / 1,200 27
Other projects
Ukraine 2 / 1,200
1,581 Belarus 2 / 1,200
Armenia 1 / 1,200
Vietnam 1 / 1,200
39
Kirov
Perm
Barnaul
Petrozavodsk
Vladimir
Rostov-on-Don
Azov
Kaluga
Tver
Orenburg
Omsk
Tyumen Krasnodar
393471
606724
844
1,011
311372295
2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
Source: Frost & Sullivan report 2009, Media sources 1 Figures have been taken from various media sources; they are not final and may change in the
future
2 The “Clean Water” program is a nationwide large investment plan aimed at improving drinking water quality.
Capex in water projects, RUB bn (2007–2015)
Source: Frost & Sullivan report 2009
Large-scale State Programs Total Capex 2010-
2015 (RUB bn) Capex period
Federal Program "Zhilische" (public housing)
620 2011-2015
Regional programs "Clean Water“2 (unconfirmed budget)
520 2011-2017
Water Strategy of Russian Federation until 2020 (excl. "Clean Water")
351 2009-2020
Reconstruction of Grozny utilities 105 2010-2011
St. Petersburg Water Utilities Development Program
103 2010-2025
JSC RKS JSC Evraziysky JSC Rosvodokanal
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
New Milestone Projects Water Utilities
Central Asia
Recently undertook turnkey construction of pumping stations in Turkmenistan and Uzbekistan
Presence in water markets of Tajikistan and Kyrgyzstan
Offices in Ashkhabad (Turkmenistan) and Tashkent (Uzbekistan)
South
Moscow
Kaliningrad
St. Petersburg
Volgograd Kazan
N.Novgorod
Yaroslavl
Ekaterinburg
Sochi
Samara
FIFA World Cup 2018 Investment 2010-2018: RUB 1.6 trn1
Olympic Games in Sochi in 2014 Investment 2010-2014: RUB 930 bn1
Asia-Pacific Economic Cooperation Summit in Vladivostok in 2012 Investment 2010-2012: RUB 660 bn1
Vladivostok
Export markets
Leading integrated water utilities
40
Number of new pumping stations for increasing capacity 21
To supply Komsomolsk and Khabarovsk refineries 9
To supply Primorsk refinery 4
No information at the present time 8
Number of contracted pumping stations 20
Pumping stations under construction by HMS 12
Pumping stations constructed by Sulzer 7
Pumping stations under construction by Turbonasos 2
East Siberia – Pacific Ocean pipeline
Source: Company data, Transneft
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
North
Krasnoyarsk region
1 2
3 4 5
6 7
8
9
10
11
12 13 14 15
16 17
18
19
20
23 24
25
26 27
28 29 30
31 32 33
34
35
36
37
38
39
40
41
Buryat region
Chita region
RUSSIA
MONGOLIA
Irkutsk Chita
Ust’-Kut
Yakutsk
Skovorodino
Blagoveschensk
Vladivostok
Taishet
Irkutsk region
Khabarovsk region
Sea of Okhotks
CHINA
Total number of pumping stations 41
22 21
41
169.196.203
170.70.67
147.193.150
69.114.167
65.152.175
200.193.188
227.24.52
207.213.225
137.165.78
Zapolyarnoe-Pur-pe pipeline
Projected Zapolyarnoe–Pur-pe pipeline
Inlet pipelines from main perspective oilfields (with production level over 2mln tons in 2020)
New OPS
Maximum level of pumping capacity by 2020, mtpa
Main OPS – main oil-pumping station of the future Zapolyarnoe-Pur-per pipeline
OPS – oil-pumping station
Legend
Inlet pipelines
Inlet point Oilfield License holder Max capacity
in 2020, mt
Main OPS 1 Vostochno-Messoyakhinskoe Slavneft * 10.9
Main OPS 1 Zapadno-Messoyakhinskoe Slvaneft 2.4
Total Main OPS 1 13.3
OPS 2 Russkoe TNK-BP 6.8
OPS 2 Zapolyarnoe Gazprom 2.3
OPS 2 Tazovskoe Gazprom 1.0
OPS 2 Northern Urengoyskoe Gazprom n/a
OPS 2 Salekaptskoe Lukoil 0.3
Total OPS 2 10.9
OPS 3 Urengoyskoe Gazprom 7.4
OPS 3 Pestsovoe Gazprom n/a
OPS 3 En-Yakhinskoe Gazprom n/a
OPS 3 Samburgskoe SeverEnergiya ** 0.2
OPS 3 Yaro-Yakhinskoe SeverEnergiya 0.5
OPS 3 License plot of Western Urengoyskoe TNK-BP 1.1
Total OPS 3 9.7
Total capacity to Pur-pe 34.0-45.0
* TNK-BP and Gazprom Neft have per 50% share ** Gazprom holds 51%; this shareholding should be sold to Novatek
Source: Public sources, Transneft site
Capacity, mtpa up to 45
Total length, km 488
Projected cost, RUB bn 120
Total length of inlet pipelines, km 1,200
Project figures Construction period 2011-2015
1st stage Dec 2013
2nd stage Dec 2014
3rd stage Dec 2015
Implementation
1st stage
2nd stage
3rd stage
42
Gazprom Neft5%
Transneft34%
Rosneft10%
Gazprom Neft7%
TNK-BP5%
Hors Group3%
NK Dulisma3%
Gazprom2%
Lukoil2%
Stroygazconsulting2%
Surgutneftegaz1%
Others31%
Stable growth of revenue generated by Other clients
received from replacement and modernization works
Sharp increase in contracts’ quantity from Transneft,
Rosneft and Gazprom Neft played its role in a
substantial revenue growth
New types of contracts include:
– Integrated pump-based solutions (i.e. pumping
stations for Transneft)
– Full-cycle projects (i.e. pumping stations in
Turkmenia)
– Project and design contracts for design of new
oilfields and pipelines
Rosneft26%
Orion Stroy11%
TNK-BP7%
Transneft6%
Gazprom Neft5%
Surgutneftegaz2%
Salym Petroleum2%
Lukoil1%
Others40%
Source: Company data * Large client - a client that brings revenue more than Rub 100 mn per period
43
Diversified and Well-established Customer Base
Revenue by Clients*, 1H 2011 vs 1H 2010 Comments
Case study: Gazprom Neft’s revenue breakdown
1H 2010 Total revenue
Rub 9,149 mn
1H 2011 Total revenue
Rub 13,857 mn
Revenue structure by clients
Rub mn
5,5139,498
3,636
4,360
1H 2010 1H 2011
Large clients, Rub mn Others, Rub mn
1H 2011
Gazpromneft-Vostok30.09%
Gazpromneft-Hantos27.51%
Gazpromneft-NNG22.73%
Gazpromneft-Noyabrskneftegas
19.62%
Other 6 subsidiaries0.05%
Source: Company data
Competitive Environment in Russia
Source: Company data
Limited R&D
Small scale of operations
Pump manufacturing is a non-core business for most of players
Products are often not in direct competition with HMS product line
Key names: NPO Frunze, Votkinsk Plant, Uralhydromash
Not well-positioned in terms of operational efficiency due to limited scale of operations
Global players
Lack of local engineering expertise
Water pumps: KSB, Grundfos
Oil trunk pumps: Sulzer, Flowserve
Power: Weir, KSB
Not well-positioned in terms of price of products
Chinese players
Lack of relevant technologies to produce customized pumps
No brand names
No established relationships with Russian clients
Customized Pumps Standard Pumps
Russian players
44
45
Russia
China
Kazakhstan
Belarus
Ukraine
India
UAE
Uzbekistan
Turkmenistan
Iraq
Vietnam
Kyrgyzstan
Tajikistan
Export Markets
Central Asia
Recently undertook turnkey construction of pumping station on Amu Darya river in Turkmenistan and construction of pumping station on water-storage basin Arnasai in Uzbekistan
Rapidly growing sales of modular equipment to oil and gas sector in Kazakhstan
Presence in water markets of Tajikistan and Kyrgyzstan
Offices in Ashkhabad (Turkmenistan) and Tashkent (Uzbekistan)
Europe
Office in Milan *
Iraq
Significant installed base of HMS pumps, particularly in oil and gas, from Soviet and post Soviet periods
Office in Baghdad diversifies customer base, currently undertakes projects for Oil Ministry and BP
The UAE
Office in Dubai *
Nuclear Exports
Long history of HMS involvement in Rosatom’s foreign as well as domestic projects
International agreements in place for the construction of 19 reactors in China, India, Belarus, Turkey, Ukraine, Armenia, Slovakia, Bulgaria and Vietnam using Russian technology
― Current tenders for development of 16 other reactors worldwide
Source: Company data, media sources Note: * To be opened at 2011-end
HMS office
Italy Bulgaria
Turkey
Livny
Russia
Ukraine
Tomsk
Nizhnevartovsk
Tyumen
Dimitrovgrad
Nizhnevartovskremservice (NRS)
Services: Maintenance and repair of pump equipment, drilling and other oil and gas field equipment
HMS Neftemash
Products: Modular equipment for oil and gas and water industries
Sibneftavtomatika (SibNA)
Products: High-precision measuring equipment for oil, gas and water flow rates
Tomskgazstroy (TGS)
Services: Trunk oil and gas pipeline and auxiliary facilities construction
Sibkomplektmontazhnaladka (SKMN)
Services: Design, construction and commissioning of oil and gas field projects
Rostov Vodokanalproekt (RVKP)
Services: Project design for water utilities
Rostov
Sumy
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HMS Household pumps
Products: Household vibration pumps
HMS Group
Headquarters
Promburvod (PBV)
Products: Water well submersible pumps
Livnynasos (LN)
Products: Water well submersible pumps
Nasosenergomash (NEM)
Products: Pumps for thermal and nuclear power generation and oil & gas industry
VNIIAEN, associate 47%
Description: R&D center for pumps used in nuclear, thermal power generation, oil and gas industry
Dimitrovgradhimmash (DGHM), associate 40%
Products: Equipment for oil and chemical industries and pumps for oil refining
HMS Pumps
Products: Industrial pumps for oil and gas, power generation
Giprotyumenneftegaz (GTNG)
Services: Project and construction design of oil and gas facilities
Belarus
Minsk
Moscow
Bavleny
Industrial pumps Modular equipment EPC
Source: Company data
Production Assets
Bobruisk Machine Building Plant (BMBP)
Products: Pumps for oil refining and metals & mining
Bobruisk
Sibneftemash
Products: Tanks and vessels for oil and oilfield service companies
Growth Strategy: Selective Acquisitions in Key Segments
Source: Company data 1 The Group has an option to acquire 11.0% of the voting shares’ current quantity of its associate, DGKhM, in 2012, as a result HMS Group will own 51.0% of the voting shares of DGKhM
Flow control solutions in oil and gas
Pumps for oil and gas, chemical and petrochemical applications
Modular equipment, tanks and vessels
Dimitrovgradkhimmash (DGKhM)1
Increase of market share
Diversification of product offering
Expansion into new segments
Water Pumps for wet-pit sewage applications
Pumps for water utilities, nuclear and thermal power generation
Modular equipment for wastewater treatment
Diversification of product offering
Strengthening positions in water segment
Increase of market share
Expansion into wastewater treatment segment
Power Pumps for nuclear and thermal power generation, marine applications
Pumps for nuclear and thermal power generation, oil refining, chemical and petrochemical applications
Pumps for thermal power generation, water utilities
Increase of market share
Diversification of product offering
Other Pumps for oil refining and metals and mining
Pumps for oil refining, oil transportation, water utilities and vessels
Pumps for oil transportation, oil refining, metals and mining
Pumps for chemical applications, nuclear power generation, water utilities
Diversification of product offering
Expansion into new segments
Increase of market share
Core Focus for Potential Acquisitions Acquisition Objectives and Rationale
Oil & Gas
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