HMS Group Investor Presentation July 2014 HMS at a Glance Overview - - PowerPoint PPT Presentation

SLIDE 1

HMS Group

Investor Presentation

July 2014

SLIDE 2

HMS at a Glance

2



HMS Group is the leading pump and compressor manufacturer as well as provider of flow control solutions and related services to oil and gas (~80% of revenue), nuclear and thermal power generation and water utility sectors in Russia and the CIS



18 operating facilities in Russia and the CIS with 5 research & development centres, one of the largest pump testing facilities



Growing markets driven by strong investments in oil & gas, power generation and water supply sectors



Unique integrated management, sales and R&D team



The story of resilient financial growth

Key financials for 2007-2013, Rub bn Overview

Source: Company data

EPC* Oil & gas equipment Industrial pumps

Pump station of the Baltic pipeline system, Transneft Example of Oil Pumping Station Oil Pump Station “Tayezhnaya”, Transneft



Design, engineering, manufacturing, delivery and installation of pumps and pump related products



Manufacturing and installation of

• il & gas equipment, including

modular (pump stations, metering equipment, oil, gas and water processing and preparation units, tanks & vessels, etc.)



Project & design, construction, turn-key projects

Compressors

Twin modular compressor unit



Design, engineering, manufacturing, delivery and installation of compressors, compressor packages and compressor stations

54% Revenue 73% EBITDA

• EBITDA margin: 21.7%

24% Revenue 17% EBITDA

• EBITDA margin: 11.4%

9% Revenue

• 4% EBITDA
• EBITDA margin: -7.3%

13% Revenue 11% EBITDA

• EBITDA margin: 13.6%

Source: Company data as of December 31, 2013 14.0 14.8 23.1 27.5 31.5 32.4 1.6 1.9 3.5 5.5 6.1 5.2 11.7% 12.8% 15.3% 20.0% 19.4% 16.0% 2008 2009 2010 2011 2012 2013 Revenue, Rub bn EBITDA, Rub bn EBITDA margin Data 2012 and 2013 excl. SKMN *excl. construction subsidiary SKMN

SLIDE 3

Way of the market consolidator – from pumps to integrated solutions based on excellent R&D base Significant demand on the key market Leading installed base in Russia

CAPEX of Russian oil majors 2012-2020F more than $50 bn Installed pumps and units

upstream 7% 9% 11% 9% 2%2%2%

• 1%

1% 2% 1% 0%0%0% 1%1% 0%0%0%0% 100 200 300 400 500 600 2000 2002 2004 2006 2008 2010 2012F 2014F 2016F 2018F 2020F mn tonnes Greenfield, 2009-2020F Traditional oil regions, 2009-2020F Total production, 2000-2008 Production growth, % YoY

2009–2012 Pump-based Integrated Solutions 2007–2008 Construction 2004–2006 Modular Equipment Design & Manufacturing 2003 Pump Design & Manufacturing 1993–2002 Pump Trading

Business Model Development

3

Water Thermal energy midstream Nuclear energy Source: Company data Source: REnergyCo, Rosstat

Pump- and Compressor- based Integrated Solutions 2012–2013

Oil industry

Exit from Construction Business to Stronger Focus

• n Machine-

building 2013–Today

Oil & Gas; 67% Water; 16% Power; 5% Metal & Mining; 1% Other; 12%

2013 revenue breakdown

Revenue RUB 32.4bn

SLIDE 4

Key Investment Highlights

4

Supportive Industry Fundamentals 1 The Leading Provider of Flow Control Solutions 2 Operating on Protected Markets in Russia 4 Advanced Research & Development Capabilities 5 Well-established Top-tier Customer Base 6 Focus on Value-added Integrated Solutions 3

SLIDE 5

473 527 827 485 446 603 110 193 277 889 1 182 1 756 180 450 425 2008 2012 2017E Oil & Gas (surface) Oil & Gas (submersible) Power Generation Municipal Water Other 970 1162 1915 166 194 332 224 229 352 2008 2012 2017E Refrigeration General Service (Air) Gas Processing Oil & Gas Production and Transportation



Modernization of basic industries, backed by state development programs leads to expenditure on equipment, including specialized pumps



Pumps for water injection and oil refineries are expected to demonstrate the highest growth rate



Modest growth in surface pumps for oil and gas industry is largely explained by diminished growth in the segment of pumps for oil transportation due to the completion of major pipeline project (ESPO), after an explosive expansion over 2008-2012



Oil and gas equipment is expected to grow driven by modernization of the current and development of new oilfields, increase of associated gas utilization ratio, installation of modern metering units



Compressors are expected to grow with CAGR of 10.3% thanks to a number of new pipelines development programs, increase of associated gas utilization ratio

2,648 1,395

Supportive Industry Fundamentals

5

3,888 2,798

Pump market revenues in Russia, US mn

Source: Frost & Sullivan research

1

2,137 1,423 784

O&G equipment market revenues, US mn Comments

CAGR 2008-12 2012-17E O&G surface includes: Water injection

• 4.2%

9.4% Oil transportation 59.5%

• 8.1%

Oil downstream 3.4% 10.9% Municipal water

• 2.1%

6.2% Power generation 15.0% 7.5% Total 7.0% 6.8% 981 CAGR 2008-12 2012-17E Pump stations 1.2% 9.6% AGMUs 3.5% 8.6% Associated gas processing & transport units 13.3% 2.4% Oil, gas and water processing units 1.9% 8.3% Tanks and vessels 20.5% 9.3% Total 5.7% 7.7% 1,620 CAGR 2008-12 2012-17E Oil & gas production and transportation 4.6% 10.5% Gas processing 4.0% 11.3% General service 0.6% 9.0% Refrigeration 0% 7.4% Total 3.8% 10.3%

Compressor market revenues, US mn

CAGR 7.0% CAGR 6.8% CAGR 7.7% CAGR 5.7% CAGR 3.8% CAGR 10.3%

33 29 36 165 173 274 87 100 151 121 199 225 92 86 149 117 126 188 76 69 91 94 199 310 2008 2012 2017E Tanks & Vessels Tubular Furnaces & Line Heaters Oil, Gas, Water Processing Units Oil & Gas Metering Units Associated Gas Processing & Transport Units AGMUs Pump Stations Other Equipment

SLIDE 6

Pumps and Oil & Gas equipment

Oil and gas industry

The Leading Provider of Flow Control Solutions

Leading market share in key markets

 HMS Group has leading positions in almost every core target market, and managed to strengthen its market share in 2012  The Group’s market share in Pumps and Oil and Gas equipment increased by 18% year-on-year in 2012.  Recent acquisition of DGHM and KKM resulted in significant strengthening of HMS Group’s position in Oil, gas and water processing

units segment and making HMS a leader in Tanks and vessels segment.

 In the pumps for water utilities and power generation applications segment, HMS outperformed market growth thanks to strong

demand for water utilities pumps and higher revenue from pumps for nuclear application (contracts signed in previous years)

Summary

2

Source: Company data

Water utilities Power generation

Industrial pumps only Industrial pumps only

6

Market growth +5% yoy HMS +18% yoy Market growth +13% yoy HMS +21% yoy Market growth +11% yoy HMS +28% yoy 42% 42% 37%

15,4 23,0 22,4 10,1 13,9 16,4 2010 2011 2012 HMS Group revenue, Rub bn Other players revenue, Rub bn 2,7 2,8 3,0 1,3 1,8 2,2 2010 2011 2012 HMS Group revenue, Rub bn Other players revenue, Rub bn 1,6 2,1 2,2 0,9 1,0 1,3 2010 2011 2012 HMS Group revenue, Rub bn Other players revenue, Rub bn 25.4 36.9 38.8 4.0 4.6 5.2 2.4 3.1 3.5

SLIDE 7

5% 6% 25% 34% 27% 12% 95% 94% 75% 66% 73% 88% 2008 2009 2010 2011 2012 2013 Revenue from standard equpment Revenue from integrated solutions

Share of integrated solutions in revenue

Focus on Value-added Integrated Solutions

Source: Company data

Advanced R&D is the basis for value-added integrated solutions

7

Standard equipment Integrated solutions & customized pumps Size Numerous small-size contracts Single large-scale project Impact of R&D Medium Critical Technical entry-barriers Medium High Competition type Price R&D and references Competition level High Limited Revenue growth potential Limited High Revenue downside potential Limited Visibility for at least 1.5 years Repeat business Very significant Possible Aftermarket demand Average High EBITDA margin 10-15% 25-30%

3

Super-blocks X-9001, X-9004 for Vankor oilfield, Rosneft ESPO-1 oil transportation station, Transneft

Examples of successful integrated solutions

25% 30%

• 1. Project & design works
• 2. Project management
• 3. Production of key elements (pump units,

auxiliary equipment)

• 4. Assembling
• 5. Testing
• 6. Disassembling,

transportation and assembling on customer site

• 7. Supervision, start-up and commissioning
• 8. Aftermarket services

SLIDE 8

Operations on Protected Markets in Russia

Source: Company data

4

8

Where we compete…



Limited R&D



Small scale of operations



Pump manufacturing is a non-core business for many players (Votkinsk Plant, Uralhydromash, Katasky Plant)



Products are often not in direct competition with HMS product line



Not well-positioned in terms of operational efficiency due to limited scale of operations



No single competitor in all key segments

Global players



Lack of local engineering expertise (Weir, KSB, Sulzer, Grundfos, Flowserve)



Lack of references with Russian clients



Not well-positioned in terms of price of products

Chinese players



Lack of relevant technologies to produce customized pumps



Lack of references



Inapplicable for mission-critical applications



No brand names



No established relationships with Russian clients

Customized Equipment Standard Equipment Russian players

Industry HMS OZNA Volgograd Nefte Mash Ural Hydro Mash Weir (UK) Flowserve (US) Sulzer (Swiss) KSB (Germany) Grundfos (Denmark) Siemens (Germany) Howden (UK) CKD Kompresory Pumps Power generation       Oil and Gas        Water      O&G equipment   Compressors Gas production & transportation     Natural gas production & transportation     Gas processing    

Russian International

SLIDE 9

• Apollo Goessnitz (acquired in 2012) is a center of innovative technologies complying with

API standards in off-shore and oil refinery

• 3. Foreign innovative centers
• 2. Project and design institutes
• Leading project & design facility Giprotyumenneftegaz (GTNG) including acquired in 1H 2013

Noyabrskneftegazproekt (NNGP) – OIL & GAS

• Leading project & design institute NIITurbokompressor (NIITK) - COMPRESSORS
• One of the leading Russian institute for water utilities Rostov Vodokanalproekt - WATER

9

• 1. Research & development and engineering centres

Leading R&D centers in Russia and CIS:

• Design office in Livny: advanced R&D works focused on pumps
• Research Institute VNIIAEN in Sumy: focus on high-speed centrifugal pumps
• Specialized R&D center in Moscow focused on design of demanding complex

solutions for energy efficient pump systems

• Neftemash (Tyumen): oil and gas equipment and complex solutions for oil and gas

processing

• Kazankompressormash (Kazan): compressors and gas processing units with

improved efficiency for natural and associated gas Tender, pricing and contract negotiation 1–3 months Design and production 1–24 months Delivery and installation 1 month After-market services

HMS ability to participate in pre-tender preparation stage creates unique competitive advantage

Pre-tender project preparation up to 24 months

Advanced R&D Capabilities 5

SLIDE 10

Source: Company data

10

6

Revenue contribution by Top clients, 2012 vs. 2013

Others 40% Gazprom 1% Gazpromneft 4% Rosneft & TNK-BP 20% Others 43% Gazpromneft 5% Transneft 12% Rosneft & TNK BP 13% Gasprom 5% Surgutneftegaz 6% Lukoil 4% Taas-Yurakh 6% Transneft 20% Lukoil 10% Revenue RUB 31.5bn Revenue RUB 32.4bn Surgutneftegaz 6%

2012 2013

Well-established Top-tier Customer Base



Well-diversified client base of 4,000-6,000 names, stable growth

• f revenue coming from small-to-mid clients with annual

purchases below Rub 200 mn



Strong and stable base of “Blue-chip” clients, which includes the largest oil & gas and energy companies in Russia



HMS Group may have different Top-3 customers for each period, depending on the particular project mix



Prevailing installed base in the key segments ensures recurring business growth

Comments During 2013, HMS Group sold products and services to almost 3,000 unique clients, including VOIC, trade companies, dealers and individual entrepreneurs

Turkmenia 7%

SLIDE 11

Artem Molchanov Managing Director (CEO) Shareholder In company since 1993

Board Composition

 The Board is comprised of professionals with significant

experience in flow control and oil and gas industries

 It includes founders, who has led HMS since its

inception

 The largest shareholders are not involved in running

business

 Dividend policy: pay out not less than 25% of profit for

the year

Source: Company data as of 20 June, 2014

Board of Directors (since June 20, 2014) Comments Shareholders Structure

Kirill Molchanov First Deputy CEO (CFO) Shareholder In company since 1993 Yury Skrynnik Head of Compressors Business segment Shareholder In company since 2005 Nikolay Yamburenko Chairperson Head of Industrial Pumps Shareholder In company since 2003 Philippe Delpal Independent Chairman Audit Committee Andreas Petrou Gary Yamamoto Independent Chairman Remuneration Committee

11

Treasury shares 1.5% Free-float 26.9% Vladimir Lukyanenko 27.4% German Tsoy 19.8% Managers 24.4%

Hold through HMS Technologies (71.5%)

Executive Directors Non-executive Directors

SLIDE 12

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 Rostov Vodokanalproekt (RVKP)

• Services: Project design for water utilities

Rostov Sumy

12

HMS Household pumps

 Products: Household vibration pumps

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)

 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 (Construction and Project & design) Compressors

Source: Company data

HMS’ 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

 Products: Compressors

Kazan Kazankompressormash (KKM) Apollo Goessnitz GmbH

 Products: Centrifugal pumps and systems for

• il refining

Germany

Goessnitz (Thuringia)

 Description: R&D center for centrifugal, rotary

and screw compressors NIITK (Turbokompressor) HMS Group

 Headquarters

SLIDE 13

Financial results Business & Outlook Appendix

13

SLIDE 14

Financial highlights

HMS Group Financial Highlights

1 Hereinafter, read EBITDA as EBITDA adjusted, Net income as Profit for the period / year, EBITDA margin as EBITDA

adjusted margin

2 EBIT LTM / average capital employed

14

The data excludes SKMN results due to its disposal in 3Q 2013

1Q’14 1Q’13 Change 1Q’14 4Q’13 Change 6,080 6,895

• 12%

Revenue 6,080 9,171

• 34%

1,491 1,507

• 1%

Gross profit 1,491 2,538

• 41%

777 700 11% EBITDA¹ 777 1,586

• 51%

207 249

• 17%

Operating profit 207 848

• 76%
• 311
• 75

315% Profit (loss)¹

• 311

309

• 200%

12,857 15,195

• 15%

Total debt 12,857 12,687 1% 11,156 14,150

• 21%

Net debt 11,156 11,102 0% 5,316 5,449

• 2%

EBITDA LTM¹ 5,316 5,238 1% 2.10 2.60

• 19%

Net debt / EBITDA LTM¹ 2.10 2.12

• 1%

24.5% 21.9% 267 bps Gross margin 24.5% 27.7%

• 315 bps

12.8% 10.2% 232 bps EBITDA margin¹ 12.8% 17.3%

• 451 bps

3.4% 3.6%

• 21 bps

Operating margin 3.4% 9.2%

• 584 bps
• 5.1%
• 1.1%
• 403bps

Profit margin¹

• 5.1%

3.4%

• 858 bps

13.5% 14.4%

• 90 bps

ROCE² 13.5% 13.8%

• 30 bps
• 2.4%

0.1%

• 250 bps

ROE

• 2.4%

2.5%

• 490 bps

*The data excludes SKMN results

EBITDA performance, 1Q 2012 – 1Q 2014 Revenue performance, 1Q 2012 – 1Q 2014

6 715 6 801 8 088 9 856 6 895 7883 8409 9171 6080 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 Revenue, Rub mn Линейная ( Revenue, Rub mn) 1 346 1 000 1 649 2 106 700 1400 1553 1586 777 20,0% 14,7% 20,4% 21,4% 10,1% 17,8% 18,5% 17,3% 12,8% 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 EBITDA, Rub mn EBITDA margin

SLIDE 15

5 276 4 810 5 221 6 101 5 449 5 854 5 758 5 238 5 316 20,6% 18,5% 18,6% 19,4% 17,3% 16,2% 16,2% 16,2% 16,9% 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 EBITDA LTM, Rub mn EBITDA margin 25 591 25 985 28 068 31 460 31 549 32 722 33 043 32 358 31 543 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 Revenue LTM, Rub mn Линейная ( Revenue LTM, Rub mn) 6 715 6 801 8 088 9 856 6 895 7883 8409 9171 6080 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 Revenue, Rub mn

EBITDA LTM performance, 1Q 2012 – 1Q 2014 Revenue LTM performance, 1Q 2012 – 1Q 2014

Financial Highlights: LTM vs Quarterly

Revenue quarterly performance, 1Q 2012 – 1Q 2014

The data excludes SKMN results due to its disposal in December 2013 1 346 1 000 1 671 2 262 700 1400 1595 1586 777 20,0% 14,7% 20,5% 19,4% 10,1% 17,8% 19,0% 17,3% 12,8% 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 EBITDA, Rub mn EBITDA margin

EBITDA quarterly performance, 1Q 2012 – 1Q 2014

CAGR +1.6%

15

SLIDE 16

207 +45

• 309
• 263

+12

• 311

Operating profit Finance income Interest expenses FX loss Income tax Loss for the period

Rub-denominated loan between NEM and HMS Finance Rub 110mn Euro-denomianated loan of Neftemash Rub 106mn Other loans Rub 47 mn

Rub mn 3m2014 3m2013 change Gross profit 1 491 1 507

• 15

EBITDA 777 700 77 Depreciation

• 359
• 296
• 63

Non-monetary items

• 119
• 102
• 17

Other income and expense

• 92
• 53
• 38

Operating Profit 207 249

• 42

Finance Income 45 42 3 Finance costs

• 576
• 335
• 241

Interest expenses

• 309
• 345

36 Foreign exchange gain/loss

• 263

10

• 273

Income tax 12

• 29

42 Loss for the period

• 311
• 75
• 236

16

Analysis of Profit Decline

Loss for the period bridge Comments

The Group’s performance in 1Q 2014 was negatively affected by:



Growth in depreciation was the key factor behind operating profit decline yoy. In 2H 2013, the Group acquired NIITK and NNGP, which all together contributed Rub 49mn in total depreciation costs



Increase of finance costs was the key factor behind net profit decline yoy. FX loss in 1Q 2014 amounted to Rub 263mn as a result of revaluation of intra-group debts between subsidiaries and the Group’s external FX liabilities.

SLIDE 17

1,894 1,446 297 168 15.7% 11.6% 1Q'13 1Q'14 Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA margin OG equipment, % 3,320 3,477 401 513 12.1% 14.8% 1Q'13 1Q'14 Revenue Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA margin Pumps, % 931 862 49 144 5.3% 16.7% 1Q'13 1Q'14 Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin EPC, % 751 294

• 44
• 54
• 5.9%
• 18.4%

1Q'13 1Q'14 Revenue Compressors, Rub mn EBITDA Compressors, Rub mn EBITDA margin Compressors, %

Revenue -24% EBITDA -43%

Oil & gas equipment

Revenue & EBITDA Contribution by Segments

17

Industrial pumps

Revenue +5% EBITDA +28%

Compressors EPC

Revenue -61% EBITDA -22%



The decrease in the segment’s performance reflects quarterly volatility of business



The recently signed large-scale contract is under research and design stage and hasn’t yet supported the segment’s results Revenue -7% EBITDA +197%



Increase in the segment’s profitability is attributable to larger share of large-scale projects in 1Q 2014 vs 1Q 2013



In the reporting period HMS Group recognized a part of revenue under ESPO, Turkmenia and Zapolyarye-Purpe large-scale projects



Decrease in revenue and EBITDA was a result of quarterly volatility of business as well as contract mix



The segment improved its profitability yoy due to strong results in both sub-segments



Growth of profitability was related to mix of projects and costs minimization initiatives

SLIDE 18

1Q'14 1Q'13 change Cost of sales 4,588 5,389

• 15%

% of revenue 75.5% 78.2% Supplies and raw materials 2,274 2,313

• 2%

% of revenue 37.4% 33.5% Labour costs 1,511 1,421 6% % of revenue 24.9% 20.6% Cost of goods sold 138 638

• 78%

% of revenue 2,3% 9,3% Other expenses 665 1 016

• 35%

% of revenue 10,9% 14,7% 1Q'14 1Q'13 change Distribution and transportation expenses 306 285 7% % of revenue 5.0% 4.1% Transportation expenses 111 92 21% % of revenue 1.8% 1.3% Labour costs 121 113 7% % of revenue 2.0% 1.6% Insurance 10 8 25% % of revenue 0.2% 0.1% Other expenses 64 72

• 13%

% of revenue 1.0% 1.0% 1Q'14 1Q'13 change General & administrative expenses 905 923

• 2%

% of revenue 14.9% 13.4% Labour costs 597 624

• 4%

% of revenue 9.8% 9.1% Depreciation & amortization 46 47

• 2%

% of revenue 0.8% 0.7% Taxes and duties 44 43 2% % of revenue 0.7% 0.6% Other expenses 218 208 5% % of revenue 3.6% 3.0%

Cost Analysis

18

Cost of sales Comments Distribution & transportation expenses General & administrative expenses

General and administrative costs declined by 2% yoy comprising 15% and 13% of revenue in the reporting periods respectively Labour costs showed a 4% decrease Depreciation and amortization, tax and duties and other expenses remained almost flat yoy both in absolute and relative numbers Cost of sales declined by 15% Main components of cost of sales – supplies and raw materials combined with COGS – accounted for 40% and 43%

• f revenue in 1Q’14 and 1Q’13 respectively

Labour costs grew both in absolute numbers and as a percentage of revenue due to acquisition of NIITK and NNGP Distribution and transportation expenses were up 7% yoy and accounted for 5.0% of the revenue in 1Q’14 The share of transportation costs grew from 1.3% to 1.8% of revenue due to execution of Turkmenia project The increase of transportation costs was the major factor behind growth of total distribution and transportation expenses

Totals may differ as a result of rounding

SLIDE 19

Working capital Cash flow performance 1Q’14 vs 1Q’13, Rub mn Capital expenditures2 1Q’14 vs 1Q’13



Operating cash flow turned positive and amounted to Rub 144 mn



Free cash flow was neutral



Working capital1 decreased by 42% yoy due to optimisation of payables and receivables, payments received under executed large contracts and prepayments under new contracts



Working capital amounted to 16% of revenue LTM versus 21% of revenue in 1Q’13



Organic capex2 decreased to Rub 0.2bn from Rub 0.3bn in previous period



Capex declined as a result of completion of the investment programme in industrial pumps business segment



D&A grew by 21% yoy due to acquisition of NIITK and NNGP in the second half of 2013



Capex-to-Depreciation-and-Amortization ratio decreased to 0.6x from 1.1x

CAPEX & Working Capital

Source: Company data

19

¹Working capital formula – see slide 16 ²Capital expenditures=Organic CAPEX = Purchase of PPE + Purchase of intangible assets

Comments

• incl. continued operations

1Q’13 1Q’14 change Operating cash flow

• 1,541

144 Investing cash flow 854 160 Free cash flow

• 2,395
• 16

Financing cash flow 2,094 142 Cash and cash equivalents 1,045 1,701

21%

• f revenue

16%

• f revenue

336 219 296 359 1,1x 0,6x 1Q'13 1Q'14 Organic capex, Rub mn Depreciation & amortization, Rub mn Capex to D&A ratio, x 6,751

• 1,350

+34 +119

• 356

5,198 WC 1Q'13 Inventories change Receivables change &

• ther adj.

Deposits change Payables &

• ther adj.

WC 1Q'14

SLIDE 20

855 3,148 5,001 1,303 2,152 322 2,806 2014E 2015E 2016E 2017E 2018E 2019E Debt to be repaid, Rub mn Undrawn credit lines, Rub mn

20

Financial Position

Source: Company data

Net debt to EBITDA ratio Comments

• Total debt decreased by 15% yoy to Rub 12.9bn
• Net debt decreased by 21% yoy due to working capital optimization
• Net Debt to EBITDA ratio decreased from 2.6x to 2.1x
• Available liquidity of Rub 4.0bn fully covers 2014E repayments
• Average interest rate was 9.6% on 16 May 2014 for all loans,

including FX-denominated and 10.2% for Rub-denominated only

• In March 2014, Standard and Poor’s Rating Services affirmed HMS’

“B” long-term credit rating (outlook “Stable”) and removed from CreditWatch Negative, it had placed in October 2013

• In May 2014, HMS Group refinanced its loans in the total amount of

almost Rub 1bn

Long-term debt 66%

Source: Company data as of 16 May, 2014

Floating rate 7.8% Fixed rate 92.2% Short-term debt 34% Credits in Rub 86.7% Euro 11.9% Others 1.4%

Low currency and maturity risks

S&P corporate credit rating: B Outlook: stable Upgrade on March 2014

Comfortable repayment schedule

Cash 1,171

Source: Company data as of 16 May, 2014 Available liquidity 4.0 Rub bn 2,574 3,413 4,551 4,288 4,809 12,064 11,102 14,150 11,156 1.81 2.08 2.41 1.22 0.87 1.98 2.12 2.60 2.10 2007 2008 2009 2010 2011 2012 2013 1Q'13 1Q'14 Net Debt, Rub mn Net Debt to EBITDA ratio

SLIDE 21

Financial results Business & Outlook Appendix

21

SLIDE 22

14,842 16,082 19,922 23,505 1Q'11 1Q'12 1Q'13 1Q'14 ESPO 6 056 1 377 1 053 394 Other pumps 5 231 9 072 10 621 10 411 O&G equipment 1 131 3 071 3 496 7 938 Compressors 2 671 2 207 EPC: project and design 1 551 1 274 1 609 1 615 EPC: construction 1 829 1 288 472 939

+96% +9%

3,529 6,932 7,579 6,692 1Q'11 1Q'12 1Q'13 1Q'14 ESPO Other pumps 2 004 3 393 3 324 4 128 O&G equipment 819 2 666 1 775 2 099 Compressors 1 265 263 EPC: project and design 543 365 1 114 202 EPC: construction 163 508 102

• 12%

Backlog & Order Intake

Source: Company’s data, Management accounts

22

Backlog for 1Q in 2011-2014 Order intake for 1Q in 2011-2014

The data excludes the results of SKMN due to its disposal in 2013 The results of RVKP and NRS are included in Other pumps

+18% +24% +8%

69%

• 2%

24% 226%

• 33%

18% n/a n/a

• 79%
• 33%

205%

• 82%

212%

• 80%
• 100%
• 77%
• 24%
• 63%

73% 17%

• 2%

172% 14% 127% n/a n/a

• 17%
• 18%

26% 0%

• 30%
• 63%

99%

SLIDE 23

Contacts and HMS Group Key Details

23

Company address: 7 Chayanova Str. Moscow 125047 Russia Investor Relations Phone +7 (495) 730-66-01 ir@hms.ru http://grouphms.com/shareholders_and_investors/ Twitter HMSGroup and HMSGroup_Rus Vera Timoshenko, Head of Investor Relations timoshenko@hms.ru HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange (Main market, IOB): Identifier Number Number of shares outstanding ISIN US40425X2099 117,163,427 Ticker HMSG Bloomberg HMSG LI Reuters HMSGq.L

SLIDE 24

Financial results Business outlook Appendix

24

• Financials
• Maps
• Projects

SLIDE 25

25

Statement of Financial Position

Note 31 March 2014 31 December 2013 ASSETS Non-current assets: Property, plant and equipment 5 13,867,874 14,215,280 Other intangible assets 6 1,370,966 1,447,716 Goodwill 7 5,205,277 5,145,730 Investments in associates 8 112,212 127,423 Deferred income tax assets 192,983 199,132 Other long-term receivables 12 314,891 375,123 Total non-current assets 21,064,203 21,510,404 Current assets: Inventories 10 6,119,768 5,476,236 Trade and other receivables and other financial assets 11 9,613,602 9,438,936 Current income tax receivable 176,587 122,805 Cash and cash equivalents 9 1,701,267 1,584,222 Restricted cash 9 7,413 8,055 Total current assets 17,618,637 16,630,254 TOTAL ASSETS 38,682,840 38,140,658 EQUITY AND LIABILITIES EQUITY Share capital 20 48,329 48,329 Share premium 20 3,523,535 3,523,535 Treasury shares 20 (201,205) (201,205) Other reserves (191,585) (191,585) Currency translation reserve (398,435) (170,541) Retained earnings 6,379,885 6,692,152 Equity attributable to the shareholders of the Company 9,160,524 9,700,685 Non-controlling interest 3,515,441 3,543,343 TOTAL EQUITY 12,675,965 13,244,028 LIABILITIES Non-current liabilities: Long-term borrowings 13 8,476,633 11,521,956 Finance lease liability 1,521 1,799 Deferred income tax liability 1,722,649 1,807,980 Pension liability 435,462 442,326 Provisions for liabilities and charges 19 59,850 58,450 Other long-term payables 18 389,315 372,643 Total non-current liabilities 11,085,430 14,205,154 Current liabilities: Trade and other payables 16 9,539,689 8,079,792 Short-term borrowings 13 4,380,482 1,164,640 Provisions for liabilities and charges 19 175,022 200,997 Finance lease liability 8,780 9,489 Pension liability 68,405 69,869 Current income tax payable 14,250 212,434 Other taxes payable 17 734,817 954,255 Total current liabilities 14,921,445 10,691,476 TOTAL LIABILITIES 26,006,875 24,896,630 TOTAL EQUITY AND LIABILITIES 38,682,840 38,140,658

SLIDE 26

26

Statement of Comprehensive Income

Note Three months ended 31 March 2014 Three months ended 31 March 2013 Continuing operations Revenue 22 6,079,781 6,895,392 Cost of sales 23 (4,588,329) (5,388,507) Gross profit 1,491,452 1,506,885 Distribution and transportation expenses 24 (305,578) (285,302) General and administrative expenses 25 (904,839) (922,537) Other operating expenses, net 26 (73,910) (50,187) Operating profit 207,125 248,859 Finance income 27 45,295 41,511 Finance costs 28 (576,235) (335,486) Share of results of associates 8 318 (601) Loss before income tax (323,497) (45,717) Income tax benefit/(expense) 21 12,813 (28,872) Loss for the period from continuing operations (310,684) (74,589) Discontinued operations Profit for the period from discontinued operations

• 92,568

(Loss)/profit for the period (310,684) 17,979 (Loss)/profit attributable to: Shareholders of the Company (299,465) 276 Non-controlling interest (11,219) 17,703 (Loss)/profit for the period (310,684) 17,979 Items that may be reclassified subsequently to profit or loss Currency translation differences (276,072) 38,481 Currency translation differences of associates 8 15,529 1,173 Total items that may be reclassified subsequently to profit or loss (260,543) 39,654 Other comprehensive (loss)/income for the period (260,543) 39,654 Total comprehensive (loss)/income for the period (571,227) 57,633 Total comprehensive (loss)/income attributable to: Shareholders of the Company (527,359) 25,145 Non-controlling interest (43,868) 32,488 Total comprehensive (loss)/income for the period (571,227) 57,633 Basic and diluted earnings per ordinary share for loss/(profit) attributable to the ordinary shareholders (RR per share) 20 (2.52) 0.00 From continuing operations (2.52) (0.68) From discontinued operations

• 0.68

SLIDE 27

27

Cash Flows Statement

Note Three months ended 31 March 2014 Three months ended 31 March 2013* Cash flows from operating activities Profit before income tax (323,497) (45,717) Adjustments for: Depreciation and amortisation 5, 6 359,131 295,615 Loss from disposal of property, plant and equipment and intangible assets 26 3,807 7,109 Finance income 27 (45,295) (41,511) Finance costs 28 576,235 335,486 Pension expenses 14 15,178 16,760 Warranty provision 23 (4,530) 3,259 Provision for tax risks 25

• (13,728)

Provision for impairment of accounts receivable 25 14,982 14,332 Provision for obsolete inventories 23 (4,277) (7,666) Provision for VAT receivable

• 42

Foreign exchange gain, net 26 (50,454) (6,072) Provision for legal claims 26 (20,056) (3,909) Share of results of associates 8 (318) 601 Net monetary effect on non-operating items (22,307) 2,942 Write-off of receivables

• 1,707

Operating cash flows before working capital changes 498,599 559,250 (Increase)/decrease in inventories (860,042) 62,215 Increase in trade and other receivables (336,400) (1,075,935) (Decrease)/increase in other taxes payable (183,048) 170,323 Increase/(decrease) in accounts payable and accrued liabilities 1,795,009 (667,457) Restricted cash 9 642 933 Cash generated from/(used in) operations 914,760 (950,671) Income tax paid (311,244) (108,540) Interest paid (459,314) (394,170) Net cash generated from/(used in) operating activities – continuing operations 144,202 (1,453,381) Net cash generated from operating activities – discontinued operations

• (87,323)

Net cash generated from/(used in) operating activities 144,202 (1,540,704) Cash flows from investing activities Repayment of loans advanced 16,795 6,900 Loans advanced (9,076) (216,647) Loans provided to discontinued operations

• (319,729)

Proceeds from sale of property, plant and equipment and intangible assets 41,238 18,482 Interest received 9,551 29,521 Dividends received 716 240 Purchase of property, plant and equipment (211,295) (309,812) Acquisition of intangible assets (7,540) (25,722) Net cash used in investing activities – continuing operations (159,611) (816,767) Net cash used in investing activities – discontinued operations

• (37,593)

Net cash used in investing activities (159,611) (854,360) Cash flows from financing activities Repayments of borrowings (1,749,087) (4,310,827) Proceeds from borrowings 1,893,069 6,341,864 Payment for finance lease (1,926) (1,736) Buy back of issued shares 20

• (54,457)

Dividends paid to non-controlling shareholders of subsidiaries (182) (615) Net cash from financing activities – continuing operations 141,874 1,974,229 Net cash from financing activities – discontinued operations

• 119,729

Net cash from financing activities 141,874 2,093,958 Net increase/(decrease) in cash and cash equivalents – continuing operations 126,465 (295,919) Net (decrease) in cash and cash equivalents – discontinued operations

• (5,187)

Effect of exchange rate changes on cash and cash equivalents and effect of translation to presentation currency (9,420) (279) Cash and cash equivalents at the beginning of the period 1,584,222 1,346,082 Cash and cash equivalents at the end of the period 1,701,267 1,044,697

SLIDE 28

Calculations and Formulas

28



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

• perating segments



EBIT is calculated as Gross margin minus Distribution & transportation expenses minus General & administrative expenses minus Other operating expenses



Total debt is calculated as Long-term borrowings plus Short-term borrowings



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, excluding Short-term loans issued, Bank deposits and Promissory notes receivable, plus Current income tax receivable minus Trade and other payables minus Short-term provisions for liabilities and charges minus Current income tax payable minus Other taxes payable. In 2011, Working capital was adjusted for working capital of acquired DGHM (Rub 309 mn)



ROCE is calculated as EBIT LTM divided by Average Capital Employed (Total debt + Total equity)



Backlog is calculated as the preceding backlog plus new or additional customer orders booked during the reporting period, less amounts of contract value booked as revenue under ‘‘Russian GAAP’’ on an unconsolidated basis under the relevant contracts, plus or minus adjustments made in the judgment of the Group’s management. The Group may also make certain adjustments to bookings to reflect amendment, expiry or termination of contracts, cancellation of orders, changes in price terms under contracts or orders, or other factors affecting the amount of potential revenue which the Group believes may be 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

SLIDE 29

Oil pipeline projects Mature oil producing regions Underdeveloped oil producing regions Developing oil fields HMS participation confirmed Oil products pipeline projects Novorossiysk Moscow Kozmino Skovorodino

Verkhnechonskoye

Tengiz

Timano-Pechora basin Caspian Pipeline Consortium expansion (67 MMt, 1,510 km) ESPO-I capacity expansion (80 MMt, 2,694 km,)

Russia

ESPO-II capacity expansion (50 MMt, 2,046 km) Talakanskoye Vankorskoye Salymskoye Samotlor

Nizhnevartovsk

Priobskoye Purpe Tyamkinskoye Russkoye

Taishet

Zapolyarye-Purpe (45 MMt, 500 km)

Syzran

Tikhoretsk-Tuapse-2 (12 MMt, 247 km) Haryaga Yuzhny Khylchuyu Yurubcheno-Tokhomskoe Kuyumba-Taishet (15 MMt, 700 km)

Tuapse Tikhoretsk

ESPO - Komsomolsk refinery (8 MMt, 330 km)

Komsomolsk

Project South (9 MMt, 1,465 km) Zapolyarye Prirazlomnoye Taas-Yuryakh Verkhne-Shapshinskoe

Khabarovsk

ESPO –Khabarovsk refinery (6 MMt, 28 km) Novoportovskoye Urengoyskoye Kyuymbinskoe Messoyakhskoye Trebs & Titov Uzhno-Tambeyskoye Kovyktinskoye Chayandinskoye Bovanenkovskoye

Developing gas condensate fields

Milestone Projects in Oil & Gas

Oil & Gas production and oil transportation

Source: Frost and Sullivan, Company data

29

SLIDE 30

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

Milestone Projects in Power

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) 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

30

Baltic

Berezovskaya SDPP

Thermal and nuclear power utilities

SLIDE 31

31

Export Markets

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

HMS office Russia China Kazakhstan Belarus Ukraine India UAE Uzbekistan Turkmenistan Iraq Vietnam Kyrgyzstan Tajikistan Italy Bulgaria Turkey

Europe



Office in Milan supports cooperation with international companies Iraq



Office in Baghdad 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)

SLIDE 32

31,460 32,358 6,101 5,238 19.4% 16.2% 2012 2013 Revenue, Rub mn EBITDA, Rub mn EBITDA margin, %

32

Contribution of Large-scale Integrated Solutions

Share of large-scale projects in revenue



Average margin of large-scale integrated solutions is 20-30%, while average margin of regular business is about 13%



Lower share of large-scale integrated solutions in 2013 negatively affected the Group’s profitability – EBITDA margin decreased by 3%



Large-scale integrated solutions include the ESPO, Vankor, Taas-Yurakh, Zapolyarye-Purpe, Turkmenia and Stavrolen

Share of large-scale projects in EBITDA The Group’s performance in 2012-2013 Comments

Revenue +3% EBITDA -14%

27% 2012 12% 2013 51% 2012 27% 2012

The revenue breakdown is approximate and done in accordance with the company’s internal calculations

SLIDE 33

Number of new pumping stations for increasing capacity 21 New stations contracted by HMS 3 New station contracted by Turbonasos 1 New stations to be contracted 16 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

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 Okhotsk CHINA

Total number of pumping stations: 41

22 21

33

SLIDE 34

Zapolyarye-Purpe pipeline

Projected Zapolyarye–Purpe 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 Zapolyarye-Purper 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 Purpe 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 2012-2016 1st stage 2014 2nd stage 2015 3rd stage 2016

Implementation

1st stage 2nd stage 3rd stage

34

SLIDE 35

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

• bligation 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

35