HMS Group 6 months 2014 IFRS Results Conference call presentation - - PowerPoint PPT Presentation

HMS Group

6 months 2014 IFRS Results

Conference call presentation

30 September 2014

Financial results Business & Outlook Appendix

Source: Company data * Hereinafter, read EBITDA as EBITDA adjusted, Net income as Profit for the period / year, EBITDA margin as EBITDA adjusted margin ** Operating profit and Profit for the period (Net income) include Excess of fair value, i.e. gain occurring when the price paid for the company acquired is less than the Group’s share in the fair value of net assets

• acquired. This gain is recognized immediately in profit or loss as a bargain purchase gain

1 Net debt = Total debt – Cash & cash equivalents 2 ROCE = EBIT LTM / average capital employed 3 ROE = total equity period average / profit for the year

Financial Highlights

3

Financial highlights, Rub mn

6m’14 6m’13 chg, yoy 2Q’14 1Q’14 chg, qoq Revenue 12,842 14,814

• 13.3%

6,762 6,080 11.2% Gross profit 3,233 3,846

• 15.9%

1,741 1,491 16.8% EBITDA * 1,652 2,096

• 21.2%

875 777 12.6% Operating profit ** 636 2,211

• 71.2%

429 207 107.2% Net income **

• 235

1,309 n/a 75

• 311

n/a Total debt 14,454 17,319

• 16.5%

14,454 12,857 12.4% Net debt 1 12,276 14,900

• 17.6%

12,276 11,156 10.0% EBITDA LTM 4,794 5,824

• 17.7%

4,794 5,316

• 9.8%

Net debt to EBITDA LTM 2.6 2.6 2.6 2.1 Gross margin 25.2% 26.0%

• 79 bps

25.8% 24.5% 122 bps EBITDA margin * 12.9% 14.1%

• 128 bps

12.9% 12.8% 17 bps Operating margin 5.0% 14.9%

• 997 bps

6.3% 3.4% 294 bps Net income margin

• 1.8%

8.8%

• 1,067 bps

1.1%

• 5.1%

622 bps ROCE 2 10.7% 14.1%

• 343 bps

10.7% 13.5%

• 283 bps

ROE 3

• 1.9%

10.5%

• 1.237 bps
• 1.9%
• 2.4%

51 bps Key factors beyond HMS’ performance for 6m 2014:  1H 2014 was initially budgeted lower than 2H 2014  weaker-than-expected markets  delay of some targeted projects

3 098 2 464 2 373 3 728 2 096 3 142 1 652 777 875 23.8% 19.8% 17.1% 21.2% 14.1% 17.9% 12.9% 12.8% 12.9% 1H'11 2H'11 1H'12 2H'12 1H'13 2H'13 1H'14 1Q'14 2Q'14 EBITDA, Rub mn EBITDA margin 13,041 12,474 13,851 17,608 14,814 17,544 12,842 6,080 6,762 1H'11 2H'11 1H'12 2H'12 1H'13 2H'13 1H'14 1Q'14 2Q'14 Revenue, Rub mn

4

EBITDA performance, 2011–1H’2014 Revenue performance, 1H’2011– 1H’2014

+11% +13%

4

EBITDA LTM performance, 2Q’12 – 2Q’14 Revenue LTM performance, 2Q’12 – 2Q’14

Source: Company data

Last 12 month (LTM) comparison represents sustainability and trends of HMS’ business performance better than half-yearly one

Financial Highlights: LTM vs. Half-yearly

EBITDA performance, 1H’2011– 1H’2014

26,325 28,422 31,460 31,549 32,422 32,491 32,358 31,543 30,386 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 Revenue LTM, Rub mn Линейная ( Revenue LTM, Rub mn) 4 837 5 243 6 101 5449 5824 5746 5238 5316 4794 20.6% 18.4% 18.4% 19.4% 17.3% 16.2% 16.2% 16.2% 16.9% 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 EBITDA LTM, Rub mn EBITDA margin Linear (Revenue LTM, Rub, mn) The data excludes SKMN results due to its disposal in 3Q 2013

Oil & gas equipment Industrial pumps

Segments overview: Half-year results

5

Revenue -7% EBITDA -11% Revenue -17% EBITDA -33% Revenue +8% EBITDA +303%

EPC Compressors



In 1H 2014, the segment executed 3 large-scale projects: ESPO, Zapolyarye-Purpe and Turkmenia , which all together accounted for almost 1/5 of the segment’s revenue



Decrease of revenue and EBITDA for 6 months 2014 was attributable to weaker markets and a decline of orders for some types of high-margin pumps for power generation and oil treatment



The segments performance in both periods mostly reflected the results of regular business due to a minor recognition of revenue under the large-scale Rospan project (less than 2% of the total project’s amount) in 1H 2014



Underloading of Neftemash standard production capacity in 1H 2014 due to their reservation for large-scale projects execution as well as weaker than expected markets



Poor performance of compressors business segment was the result of:

– delay of some targeted large tenders by Rosneft, Gaspromneft etc – failure with the tender for Yurkharov field – deferred start of Rospan project 

The Group launched the cost optimization programme to partly compensate the abovementioned delays, which is expected to have a positive effect only next year



EPC segments demonstrated solid consolidated results: revenue grew by 8% yoy and EBITDA turned positive

– Project & Design sub-segment experienced a decline in profitability in the

reporting period due to delay of some targeted projects

– Construction sub-segment compensated this decline, but the Group’s strategy to

TGS disposal is still in place

Source: Company data

Revenue -55% EBITDA -246%

8,161 7,574 1,231 1,095 15.1% 14.5% 6 months 2013 6 months 2014 Revenue Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA margin Pumps, % 1,604 729 114

• 166

7.1%

• 22.8%

6 months 2013 6 months 2014 Revenue Compressors, Rub mn EBITDA Compressors, Rub mn EBITDA margin Compressors, % 1,480 1,595 (103) 209

• 7.0%

13.1% 6 months 2013 6 months 2014

Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin EPC, %

3,568 2,944 415 278 11.6% 9.4% 6 months 2013 6 months 2014 Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn EBITDA margin OG equipment, %

Source: Company data

Customer base development

Revenue contribution by Top-7 clients, 1H’14 vs 1H’13 Comments

Others 45% Gazprom 6% Gazpromneft 3% Rosneft 19% Others 48% Gazpromneft 9% Transneft 13% Rosneft 8% Gasprom 6% Surgutneftegaz 5% Transneft 11% Lukoil 6% Revenue RUB 14,814mn Revenue RUB 12,842mn Surgutneftegaz 7%

1H 2013 1H 2014

Lukoil 7%



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



During 6m 2014, HMS Group sold products and services to almost 3,000 unique clients, including VOIC, trade companies, dealers and individual entrepreneurs

Recently, HMS Group has been actively developing its collaboration with Gazprom through both direct and indirect sell. The charts on revenue contribution reflect only direct contracts with Gazprom. All four HMS Group’s business segments are well- positioned to benefit from their expected participation in Gazprom’s “Eastern gas programme”.

6

Turkmenia 4% Turkmenia 2%

6m 2014 6m 2013 chg, yoy Cost of sales 9,609 10,968

• 12%

% of revenue 74.8% 74.0% Supplies and raw materials 4,441 5,060

• 12%

% of revenue 34.6% 34.2% Labour costs 2,915 2,809 +4% % of revenue 22.7% 19.0% Cost of goods sold 716 1,327

• 46%

% of revenue 5.6% 9.0% Other expenses 1,537 1,772

• 13%

% of revenue 12.0% 12.0%

Cost analysis

7

Cost of sales Comments

6m 2014 6m 2013 chg, yoy Distribution & transportation expenses 619 639

• 3%

% of revenue 4.8% 4.3% Transportation expenses 205 214

• 4%

% of revenue 1.6% 1.4% Labour costs 253 252 0% % of revenue 2.0% 1.7% Lease expenses 35 27 +46% % of revenue 0.3% 0.2% Other expenses 126 146

• 14%

% of revenue 1.0% 1.0%

Distribution & transportation expenses

6m 2014 6m 2013 chg, yoy General & administrative expenses 1,939 1,811 +7% % of revenue 15.1% 12.2% Labour costs 1,246 1,222 +2% % of revenue 9.7% 8.2% Depreciation & amortization 90 93

• 3%

% of revenue 0.7% 0.6% Taxes and duties 90 80 +13% % of revenue 0.7% 0.5% Other expenses 513 416 +23% % of revenue 4.0% 2.8%

General & administrative expenses

General & administrative costs grew both in absolute numbers and as a percentage of revenue they; most of the increase came from:

• growth of labour costs reflects inflation increase
• growth of provisions for tax risks as well as legal services, which are the

part of other expenses Cost of sales declined by 12% yoy in line with a revenue decrease

• Supplies and raw materials declined by 12% yoy, but remained almost flat as

a percentage of revenue

• Labour costs grew by 4% yoy, driven by consolidation of NIITK
• Other expenses were 12% of revenue, the same as last year

Distribution and transportation costs stayed in line with a slight decrease by 3% yoy

• Transportation expenses contracted by 4% yoy
• Labour costs were flat yoy in absolute numbers, though they comprised a

higher portion of revenue due to its decline

• The share of other expenses in revenue remained flat at 1%

Source: Company data

8,654

• 1,194
• 2,661

+ 80 + 648 5,526 WC 6m 2013 Inventories change Receivables change &

• ther adj.

Deposits change Payables &

• ther adj.

WC 6m 2014

Comments Working capital Cash flow performance for 6m 2014, Rub mn Capital expenditures2 for 6m 2014 vs. 6m 2013

Key priority of working capital management:

• ptimisation of all elements: inventories, receivables and payables



Working capital1 decreased because of:

–

advances related to new large-scale projects;

–

final payments under executed large-scale projects;

–

disposal of SKMN and amounted to 18% of revenue LTM, compared to 25% last period³



Net working capital decrease reduced cash outflow from operating activities to Rub -0.5 bn vs. Rub -1.3 bn for 6 months 2013



Free cash flow totaled to Rub -1bn



Organic capex2 decreased to Rub 535mn from Rub 638mn last year



D&A increased by 20% yoy due to NIITK and NNGP, acquired in 2H13, Capex-to-D&A ratio decreased substantially to 0.7x from 1.1x

CAPEX & Working Capital

Source: Company data

8

1 Working capital formula - see slide 18 2 Capital expenditures = Organic capex = Purchase of PPE + Purchase of intangible assets

³ For this ratio calculation revenue 2013 LTM includes results of SKMN

• incl. discontinued operations

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

• 479
• 1,344

Investing cash flow

• 450
• 1,664

Free cash flow

• 928
• 3,008

Financing cash flow 1,536 4,076 Cash and cash equivalents 2,177 2,418

25%

• f revenue

18%

• f revenue

638 535 604 724 1,1x 0,7x 6 months 2013 6 months 2014 Organic capex, Rub mn Depreciation & amortization, Rub mn Capex to D&A ratio, x

809 2,377 6,722 2,197 2,146 316 1,332 2014E 2015E 2016E 2017E 2018E 2019E Debt to be repaid, Rub mn Undrawn credit lines, Rub mn

Long-term debt 79.7%

Comments Comfortable repayment schedule

Cash 1,164

9

Source: Company data as of 01 September, 2014

Financial position

Source: Company data as of 29 September, 2014 Maturity payment of Rub 3bn bonds 03 Available liquidity Rub 2.5bn Maturity payment of Rub 2.1bn bonds 02

Net debt to EBITDA LTM ratio

Floating rate 6.8% Fixed rate 93.2% Short-term debt 20.3% Credits in Rub 89.2% Euro 9.9% Others 0.9%

Key priorities of debt management:  refinancing HMS’ indebtedness successfully and in timely manner;  diversification of the portfolio of bank-creditors

• Net debt decreased by 18% yoy due to working capital
• ptimization; Net Debt to EBITDA LTM ratio was flat yoy at 2.6x
• Available liquidity of Rub 2.5bn fully covers 2014E repayments
• Average interest rate was 10.1% on 1 September 2014 for all loans,

including FX-denominated and 10.7% for Rub-denominated only

• In September 2014, HMS Group made a partial redemption of its

Ruble bonds for Rub 900mn excl. accumulated coupon interest

• In April-June 2014, HMS Group obtained two unsecured 3-year

bank credits for the total amount of Rub 1.7bn for refinancing its current bank indebtedness.

Low currency and maturity risks, debt portfolio

2,574 3,413 4,551 4,288 4,809 12,064 11,102 14,900 12,276 1.81 2.08 2.41 1.22 0.87 1.98 2.12 2.55 2.57 2007 2008 2009 2010 2011 2012 2013 1H'13 1H'14 Net Debt, Rub mn Net Debt to EBITDA ratio

Bonds 03 21% Bonds 02 14% Others 2% UniCredit 14% Raiffeisen 13% Sberbank 36%

S&P corporate credit rating : B Outlook: Stable Reaffirmed in March 2014

Financial results Business & Outlook Appendix

7,863 17,455 13,216 18,681 1H'11 1H'12 1H'13 1H'14 ESPO 4 626 Other pumps 4 000 6 929 6 427 7 298 O&G equipment 2 096 3 634 3 069 9 629 Compressors 1 968 1 277 EPC: project and design 1 248 682 1 627 374 EPC: construction 519 1 584 125 103 13,082 20,740 15,878 29,763 01.07.2011 01.07.2012 01.07.2013 01.07.2014 ESPO 4 011 5 622 1 067 346 Other pumps 4 958 9 541 9 041 10 358 O&G equipment 1 534 2 303 2 089 14 614 Compressors 972 1 965 2 596 EPC: project and design 1 734 1 167 1 513 991 EPC: construction 845 1 135 203 858

Backlog & Order intake

Source: Company data, Management accounts

11

Backlog in 1H of 2011-2014 Order intake in 1H of 2011-2014

• Order intake for 1H’14 includes Rub 6bn LH-project won in 2Q’14 (attributable to O&G equipment segment). The total amount of contract is preliminary and will be finalised in the

course of the project execution

• The data excludes the results of SKMN due to its disposal in 2013
• The results of RVKP and NRS are included in Other pumps
• 23%

+122%

• 24%

40%

• 81%
• 68%

92%

• 5%

15% 50%

• 9%

600% n/a n/a 32%

• 33%

30%

• 35%

34%

• 82%

323%

+59% 87%

73%

• 7%

14% 73%

• 16%

214% n/a n/a

• 35%
• 45%

139%

• 77%

205%

• 92%
• 18%

41% Record high backlog secures HMS’ future stable revenue

Geopolitics-based Risks & Opportunities: Sanctions & Ukraine

12 Risk Risk description Risk mitigation Reduction of demand

• n products made in

Ukraine The Group’s subsidiary NEM is located in Ukraine. Its revenue was about 13% of the Group’s consolidated revenue for 6m 2014 and FY2013. Pumps produced by NEM are primarily sold to Russian customers. Certain customers may take a conservative and cautious position when considering the purchase of products from Ukraine. Opportunities to change a supplier are limited as major NEM’ competitors are located in the US and Western Europe. The Group has speeded up the previously developed project aimed at building up the respective competencies of NEM within its Russian subsidiaries. Reduction of Russian O&G Capex Since March 2014, the US and EU have imposed sanctions on Russia. Sectoral sanctions are authorized on the energy sector. Certain Russian

• il companies are subjects to capital markets restrictions. The Group’s

management identifies potential risks of reduction of CAPEX programmes by Russian O&G companies, which can negatively affect the Group’s performance due to its large exposure to Russian O&G sector. This risk is beyond the Group’s control Suspension of regular business between Russia and Ukraine Full termination of goods delivery from the Ukraine to Russia This risk is beyond the Group’s control Opportunity Opportunity description Benefit for HMS Participation in strategic O&G projects The US and EU sanctions, imposed on Russian energy sector are limited to the oil exploration and production for deepwater, Arctic offshore and shale

• projects. The Group’s management believes that such situation could

catalyze the development of traditional oil & gas projects. The Group may benefit from the development

• f traditional O&G deposits as most of its

products are used for that type of projects. Import substitution Russia may increase import duties for oil & gas equipment to stimulate domestic production. Certain customers have taken a conservative and cautious position when considering the purchase of products made by foreign manufacturers. The Group may benefit from a lower competition with foreign pump producers. Currently, HMS is a partner of choice for many Russian O&G majors. Participation in Gazprom’s “Eastern gas programme” Gazprom’s “Eastern gas programme” is the key project in Russian gas sector targeting the establishment of a new gas export center in Eastern Russia to supply pipeline gas from Russia to the Asian-Pacific region. The Group may benefit from delivery of compressor equipment for adjacent pipelines to the GTS “The Power of Siberia” and participation in the development

• f

Chayandinskoye deposit. Though not immune to risks, which are difficult to forecast, HMS Group may even benefit in the current situation if its opportunities

• utweigh the risks

Contacts

13

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

Financial results Business & Outlook Appendix

Consolidated statement of financial position 6 months 2014

Note 30 June 2014 31 December 2013 ASSETS Non-current assets: Property, plant and equipment 5 13,709,743 14,215,280 Other intangible assets 6 1,264,321 1,447,716 Goodwill 7 5,158,198 5,145,730 Investments in associates 9 102,790 127,423 Deferred income tax assets 207,009 199,132 Other long-term receivables 13 154,988 375,123 Investment property 14 281,568

• Total non-current assets

20,878,617 21,510,404 Current assets: Inventories 11 5,937,162 5,476,236 Trade and other receivables and other financial assets 12,4 9,448,306 9,438,936 Current income tax receivable 165,379 122,805 Cash and cash equivalents 10 2,177,162 1,584,222 Restricted cash 9,782 8,055 Total current assets 17,737,791 16,630,254 TOTAL ASSETS 38,616,408 38,140,658 EQUITY AND LIABILITIES EQUITY Share capital 23 48,329 48,329 Share premium 23 3,523,535 3,523,535 Treasury shares 23 (201,205) (201,205) Other reserves (191,585) (191,585) Currency translation reserve (739,686) (170,541) Retained earnings 6,069,101 6,692,152 Equity attributable to the shareholders of the Company 8,508,489 9,700,685 Non-controlling interests 3,363,595 3,543,343 TOTAL EQUITY 11,872,084 13,244,028 LIABILITIES Non-current liabilities: Long-term borrowings 16 10,187,051 11,521,956 Finance lease liability 1,008 1,799 Deferred income tax liability 1,644,907 1,807,980 Pension liability 382,905 442,326 Provisions for liabilities and charges 22 89,710 58,450 Other long-term payables and deferred income 21 372,295 372,643 Total non-current liabilities 12,677,876 14,205,154 Current liabilities: Trade and other payables 19,4 8,954,799 8,079,792 Short-term borrowings 16 4,266,577 1,164,640 Provisions for liabilities and charges 22 182,139 200,997 Finance lease liability 6,736 9,489 Pension liability 70,506 69,869 Current income tax payable 19,252 212,434 Other taxes payable 20,4 566,439 954,255 Total current liabilities 14,066,448 10,691,476 TOTAL LIABILITIES 26,744,324 24,896,630 TOTAL EQUITY AND LIABILITIES 38,616,408 38,140,658

15

Consolidated statement of income 6 months 2014

Note Six months ended 30 June 2014 Six months ended 30 June 2013* Continuing operations Revenue 25 12,841,772 14,813,995 Cost of sales 26 (9,609,023) (10,967,577) Gross profit 3,232,749 3,846,418 Distribution and transportation expenses 27 (618,962) (639,456) General and administrative expenses 28 (1,938,565) (1,811,178) Other operating expenses, net 29 (38,745) (139,736) Excess of fair value of net assets acquired over the cost of acquisition 8

• 954,814

Operating profit 636,477 2,210,862 Finance income 30 102,072 82,108 Finance costs 31 (886,189) (815,046) Share of results of associates 9 (242) (904) (Loss)/profit before income tax (147,882) 1,477,020 Income tax expense 24 (87,535) (168,098) (Loss)/profit for the period from continuing operations (235,417) 1,308,922 Discontinued operations Loss for the period from discontinued operations 15

• (163)

(Loss)/profit for the period (235,417) 1,308,759 (Loss)/profit attributable to: Shareholders of the Company (222,000) 1,234,633 Non-controlling interests (13,417) 74,126 (Loss)/profit for the period (235,417) 1,308,759 Other comprehensive (loss)/income: Items that will not be reclassified to profit or loss Currency translation differences attributable to non-controlling interests (101,100) 59,284 Remeasurements of post-employment benefit obligations (3,119) 32,757 Items that may be reclassified subsequently to profit or loss Currency translation differences attributable to shareholders of the Company (593,536) 193,255 Currency translation differences of associates 9 24,391 5,269 Other comprehensive (loss)/income for the period, net of tax (673,364) 290,565 Total comprehensive (loss)/income for the period (908,781) 1,599,324 Total comprehensive (loss)/income attributable to: Shareholders of the Company (794,877) 1,452,962 Non-controlling interests (113,904) 146,362 Total comprehensive (loss)/income for the period (908,781) 1,599,324 Basic and diluted (loss)/earnings per ordinary share for (loss)/profit attributable to the ordinary shareholders (RR per share) 23 (1.92) 10.60 From continuing operations (1.92) 10.55 From discontinued operations

• 0.05

16

Consolidated statement of cash flows 6 months 2014

Note Six months ended 30 June 2014 Six months ended 30 June 2013* Cash flows from operating activities Profit before income tax (147,882) 1,477,020 Adjustments for: Depreciation and amortisation 724,269 604,407 Loss from disposal of property, plant and equipment and intangible assets 29 4,978 9,980 Finance income 30 (102,072) (82,108) Finance costs 31 886,189 815,046 Net periodic benefit expenses/ (income) 17 9,841 (27,137) Warranty provision 26 (522) 3,264 Provision for tax risks, other than income tax 28 26,884 (13,728) Provision for impairment of accounts receivable 28 38,960 188 Provision for obsolete inventories 26 56,148 (2,433) Provision for VAT receivable

• 38

Foreign exchange gain, net 29 (111,105) (15,872) Provision for legal claims 29 (41,175) 4,586 Share of results of associates 9 242 904 Net monetary effect on non-operating items (23,776) 12,225 Write-off of receivables 2,605 1,295 Excess of fair value of net assets acquired over the cost of acquisition 8

• (954,814)

Operating cash flows before working capital changes 1,323,584 1,832,861 (Increase)/decrease in inventories (937,539) 168,686 Increase in trade and other receivables (421,837) (1,435,365) (Decrease)/increase in other taxes payable (346,201) 48,882 Increase/(decrease) in accounts payable and accrued liabilities 994,071 (773,978) Restricted cash (1,727) 46,924 Cash generated from/(used in) operations 610,351 (111,990) Income tax paid (469,039) (242,533) Interest paid (619,996) (627,486) Net cash used in operating activities – continuing operations (478,684) (982,009) Net cash used in operating activities – discontinued operations

• (361,738)

Net cash used in operating activities (478,684) (1,343,747) Cash flows from investing activities

• Repayment of loans advanced

24,297 13,539 Loans advanced (23,846) (223,460) Loans provided to discontinued operations

• (613,136)

Proceeds from sale of property, plant and equipment and intangible assets 69,573 26,367 Interest received 15,027 65,442 Dividends received

• 742

Purchase of property, plant and equipment (510,770) (584,835) Acquisition of intangible assets (23,797) (52,816) Acquisitions of subsidiaries, net of cash acquired

• (236,589)

Net cash used in investing activities – continuing operations (449,516) (1,604,746) Net cash used in investing activities – discontinued operations

• (59,026)

Net cash used in investing activities (449,516) (1,663,772) Cash flows from financing activities Repayments of borrowings (3,513,714) (6,108,079) Proceeds from borrowings 5,211,530 9,975,336 Payment for finance lease (3,907) (3,798) Buy back of issued shares 23

• (177,308)

Proceeds from the sale of treasury shares

• 7,511

Dividends paid to the shareholders of the Company (157,489)

• Dividends paid to non-controlling shareholders of subsidiaries

(296) (30,485) Net cash from financing activities – continuing operations 1,536,124 3,663,177 Net cash from financing activities – discontinued operations

• 413,136

Net cash from financing activities 1,536,124 4,076,313 Net increase in cash and cash equivalents – continuing operations 607,924 1,076,422 Net decrease in cash and cash equivalents – discontinued operations

• (7,628)

Effect of exchange rate changes on cash and cash equivalents and effect of translation to presentation currency (14,984) 3,533 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 2,177,162 2,418,409

17

18

Calculations and formulas



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

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

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