hms group annual results 2010
TRANSCRIPT
HMS Group FY2010 IFRS Results
Roadshow Presentation
May 2011
227.24.5
2
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.
2
Disclaimer
227.24.5
2
Calculations 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
169.196.203
65.152.175
11,164
Source: Company data
3
All numbers 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 income/expenses, Depreciation and Amortization, Provision for
obsolete inventory, Provision for impairment of accounts receivable, Unused vacation allowance, Excess of fair value of net
assets acquired over the cost of acquisition. This measurement basis excludes the effects on non-recurring expenditure from
the operating segments, such as restructuring costs, legal expenses and goodwill impairments, when the impairment is a result
of an isolated, non-recurring event
EBIT is calculated as Gross margin minus D&T and SG&A 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 Long-term borrowings plus Long-term financial lease liabilities plus Short-term borrowings plus Short-
term financial lease liabilities minus Cash & cash equivalents
ROCE is calculated as EBIT divided average Debt plus 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
recognised 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
Agenda
4
HMS GROUP AT A GLANCE 5
HMS At a Glance 6
Story of Growth & Profitability 7
BUSINESS STRATEGY & INVESTMENT HIGHLIGHTS 8
Industry Fundamentals and Growth Potential 9
New Milestone Projects 10
Significant Upside from Aftermarket 13
Advanced R&D Capabilities 14
Operational and Product Quality Excellence 15
Strong Management Team 16
Business Strategy 17
Sources of Best-in-class Margins & Growth 18
2010 BUSINESS UPDATE 19
2010 Business Update 20
Leader in Flow Control Solutions 21
FINANCIAL PERFORMANCE 22
Outstanding Performance for the FY 2010 23
EBITDA Development 24
Revenue & EBITDA Contribution by Segments 25
CAPEX & Working Capital 26
MID-TERM PROSPECTS 27
Key Contracts Execution and Backlog Analysis 28
Selected End-market Projects from Mid-term 29
CONTACTS 30
APPENDIX 31
227.24.5
2
HMS GROUP AT A GLANCE
5
Who we are Key investment highlights
Attractive industry fundamentals: impressive end-markets mix prospects
The leading provider of flow control solutions in Russia and the CIS
Advanced R&D capabilities: basis for high margin & sustainable performance and growth
Diversified and well-established customer base
Operational and product quality excellence
History of resilient financial growth and strong backlog
Strong management team: company founders and top professionals
The leading provider of pumps and pump-based
integrated solutions in Russia
The core markets: oil and gas, nuclear and thermal power
and water sectors in Russia and the CIS
Production of high capacity pump systems up to 12 Mwt
Blue-chip customer base includes Rosneft, Transneft,
Rosatom, etc and more than 4,000 other clients
Source: Company data Notes: Hereinafter ‚EBITDA‛ read as ‚EBITDA adjusted‛, ‚EBITDA margin‛ read as ‚EBITDA adjusted margin‛ and ‚Net Income‛ read as ‚Profit for the year‛
Industrial pumps
Revenue RUB 10,712 mln
EBITDA adj. RUB 2.367 mln
Modular equipment
Revenue RUB 5,805 mln
EBITDA adj. RUB 599 mln
EPC
Revenue RUB 6,135 mln
EBITDA adj. RUB 550 mln
The leading provider of high capacity pumps and pump-based integrated solutions in Russia
HMS At a Glance
6
Revenue RUB 23,070 mln EBITDA adj. RUB 3,519 mln
New photo
Pump station of Baltic pipeline system, Transneft Oilfield Pump Station 2, Vankor oilfield, Rosneft Oil Pump Station ‚Tayezhnaya‛, Transneft
227.24.5
2
Profit for the year RUB 1,581 mln
Story of Growth and Profitability
Revenue, 2009 vs 2010 (mln RUB)
7
Source: Company data
227.24.5
2
4,498
6,724
13,399 14,046
14,772
23,070
744 830 1,423 1,644 1,890
3,519
16.5%
12.3%
10.6%
11.7%
12.8%
15.3%
2005 2006 2007 2008 2009 2010
Revenue, RUB mln EBITDA, RUB mln EBITDA margin, %
Revenue CAGR 39%
EBITDA CAGR 36%
Revenue & EBITDA performance, 2005-2010
5 Years – 5 Times Growth of Revenue & EBITDA Despite Crisis
BUSINESS STRATEGY & INVESTMENT HIGHLIGHTS
8
511
231
2009 2015E
1,586
743303
489
1,011
311
1,103
3,340
2009 2015E
Water utilities
Thermal power generation
Nuclear power generation
Russian energy & utilities infrastructure investments (RUB bn)
Significant increase in capital spending in core end markets drives growth of all HMS’ businesses
Comments
Infrastructure modernization and expansion
– Large portion of Russian infrastructure is outdated and at or near end of useful life
– Economic growth driving demand for new infrastructure
– Very large expected spending by public and private sectors in energy generation, public utilities and oil and gas industries
State development programs
– Large on-going projects in the public utilities and electricity generation with ongoing impact until 2020-30
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
CAGR
’09-’15
21.7%
21.7%
16.1%
810
6161,226
285230
540
2,576
1,131
2009 2015E
Oil refining and
petrochemicals
Oil pipelines
Oil exploration
and extraction
CAGR
’09-’15
15.3%
19.0%
12.2%
Russian oil sector investments (RUB bn)
EPC market history and forecast3- HMS core segments (RUR bn)
79
224
2009 2015E
22
10
2009 2015E
Source: Frost & Sullivan report 2009 1 Includes pumps for water injection, oil refining and petrochemicals, oil pipelines, energy generation (thermal and nuclear (excluding MCP)), water utilities pumps, household vibration pumps, as well as integrated solutions and aftermarket 2 Includes pump stations, automated group metering units, associated gas processing and transport units 3 Includes oil field infrastructure construction, oil and gas transportation, construction and engineering, research and design services for oil and gas industry (upstream)
Industry Fundamentals and Growth Potential
9
Source: Frost & Sullivan report 2009 Source: Frost & Sullivan report 2009
Russian pumps market history and forecast1 (RUB bn)
Russian modular equipment market history and forecast2 - HMS core segments (RUB bn)
CAGR 18.8% CAGR 14.0% CAGR 14.1%
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
Prirazlomnoye
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
10
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
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
11
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
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
12
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
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
13
Water injection pumps
HMS supplies 87%
Other 13%
Total number of pumps: 4,500
Oil trunk pipeline pumps1
HMS supplies 98%
Other 2%
Total number of pumps: 1,044
Note: In red are highlighted the pump’s components that suffer the greatest degree of deterioration during operation of the pump and which can be replaced in order to extend the pump’s operation life
Source: Company data, Frost & Sullivan report 2009
Very large installed base requires repair and maintenance services
Large portion of installed base is outdated, creating opportunity for upgrades as well as replacement
Energy represents 80% of operating cost for a typical pump
Trend for modernization of equipment to increase energy efficiency
Most repair and maintenance historically largely in-house
HMS has contracts with companies including
– TNK-BP (full outsourcing of maintenance of water injection pumps at the Samotlor field)
Exceptional
installed base
Energy efficiency
Outsourcing trend
Source: Frost & Sullivan report 2009, Company data 1 In Transneft’s pipeline system
Key drivers for aftermarket services growth Installed base
Example of pump servicing
Advanced R&D Capabilities
Very strong in-house R&D and significant experience in
pump development
– 5 in-house R&D facilities in Russia and the CIS,
centralized research coordination
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
– Current facility allows to test pumps up to 8MW in
power; new facility for pumps up to 14MW under
construction
Deep integration with clients’ R&D
– HMS’ R&D works closely with clients’ R&D divisions in
developing pre-tender documentation and helps clients
adopt new design solutions and technical regulations
– Increases the likelihood of the use of HMS equipment
in projects
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)
14
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
Oilfields, projected by GTNG
Oilfields, projected by others
Oilfields, projected by GTNG vs others
Operational and Product Quality Excellence
Plants are certified in accordance with ISO:9001:2008
Products are compliant with API 610 standard
Modern software systems for R&D and project management
– SolidWorks, ANSYS CFX, Bentley, Primavera
Equipment from well-established foreign producers for critical manufacturing processes
– Skoda, Schiess, Doosan, Demag, Schenk, Sodik, Ibarmia and other
HMS’ products include high-precision, safety-critical equipment for hazardous facilities (nuclear plants, refineries, pipelines)
HMS has a strong focus on operational excellence and manufactures top quality products
Submersible water well pumps
HMS Grundfos
Model 3ЭЦВ6-10-110 SP17-11
Flow rate, m3/h 10 10
Head, m 110 110
Efficiency ratio, % 57.0-59.2 53.9-58.3
Model 3ЭЦВ6-25-100 SP30-12
Flow rate, m3/h 25 25
Head, m 100 100
Efficiency ratio, % 59.8-62.1 57.4-61.7
Comparative analysis examples
Water utilities pumps HMS KSB
Model 1Д315-75 Omega 100-250A
Flow rate, m3/h 315 315
Head, m 75 75
Efficiency ratio, % 83.0 82.6
Weight, kg 190 210
Source: The Russian Association of Pump Manufacturers
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
Skoda Ibarmia Schiess Demag
15
Comments
Strong Management Team
HMS’ founders remain shareholders and continue to be actively involved in managing the business
Founders / Shareholders
… is comprised of professionals with significant experience
in pump and oil and gas industries
… includes founders, who have led HMS since its inception
… has a strong commitment to the business
Anatoliy Nazarov Head of Modular
Equipment Industry experience: More than 35 years
Years with HMS: 4 years
Kirill Molchanov First Deputy CEO
Industry experience: 17 years
Years with HMS: 17 years
Andrey Nasledyshev Deputy CEO
Industry experience: 11 years
Years with HMS: 6 years
Nikolay Yamburenko Head of Industrial Pumps
Industry experience: 32 years
Years with HMS: 7 years
Igor Tverdokhleb Head of R&D
Industry experience: 24 years
Years with HMS: 6 years
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
Source: Company data
Artem Molchanov CEO
Industry experience: 17 years
Years with HMS: 17 years
16
Key Senior Management
The management team… Shareholders Structure
Free-float37.25%
Vladimir Lukyanenko
24.00%
Other managers21.42%
German Tsoy
17.33%
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
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
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
17
Business Strategy
227.24.5
2
Financial and Operational highlights
18
Sources of Best-in-class Margins & Growth
HMS Group high and sustainable margins are the result of a number of cumulative factors
Mix of growing markets Unfolding innovative projects
Shift in structure of demand
First class customer base
Strong negotiation force over customers
Unique pump R&D Exceptional project design capabilities
End-to-end solutions capabilities: from design to implementation and after-market
Growth through integrated solutions: ahead of market with lower capex
Further bolt-on acquisition growth strategy based on successful track record of integrated acquisitions
United team of founders and high professionals
High market share Technical entry barriers for international majors
Multidecade track record with customers
Installed base
Focus on operations excellence and project execution
REVENUES &
MARGINS
POTENTIAL
2010 BUSINESS UPDATE
19
Innovations bring success
2010 Business Update
1 Successful completion of two milestone projects:
Vankor oilfield development Stage 1
Turkmenistan pilot station
20
227.24.5
2
5 Operations efficiency focus through introduction of IT systems and quality management systems
4 Research & Development:
R&D of new types of pumping equipment for trunk pipelines, nuclear plants, power plants and water works
14 MWT testing facilities construction
3 Acquisition of controlling stake in GTNG:
Entrance into lucrative oilfield infrastructure project design,
That pave the way for major oil project for core HMS business
Oilfields, projected by GTNG
Others
2 Contract for supplying pump-based integrated systems for ESPO
Associate gas processing and transport units
7.5 12.6
97.5
113.8
2009 2010
20%
68% 86.099.2
67.0
73.4
2009 2010
Pump stations
Leading market share in pumps…
21
… and modular equipment
Source: Frost & Sullivan report 2010
In 2010, HMS Group expanded its presence in the most key segments
The company’s share grew mainly faster than its core segments
Russian government introduced new fuel specifications, and hence, oil companies undertake refinery’s upgrade mainly in ‚hot cycle‛. The market share decrease in refinery & petrochemicals is attributable to HMS Group’s presence only in standard ‚cold cycle‛ pumps
Deferred demand is being created for standard ‚cold cycle‛ pumps
Decrease in nuclear non-MPC pumps is attributable to the industry’s specifics expressed in long-term only contracts
Revenue from signed in 2009 contracts will be recognized in 2011
227.24.5
2
22.325.2
15.7
16.0
2009 2010
Oil industry - Water injection
pumps
17.6 16.9
46.959.6
2009 2010
Oil industry - Refining &
petrochemical pumps
18.0
64.9
15.3
19.0
2009 2010
Oil industry - Oil transportation
pumps
21.8
28.0
11.8
13.9
2009 2010
Water utilities - Submersible water
well pumps
13.5
22.7
19.3
24.0
2009 2010
Water utilities - Clean water supply and dry-pit sewage
7.6 9.1
30.3
35.9
2009 2010
Water utilities - Household vibration
pumps
The Leading Provider of Flow Control Solutions
7.3 6.4
18.2
26.8
2009 2010
Power generation - Nuclear non-MPC
pumps
21.325.2
14.7
22.2
2009 2010
Power generation - Thermal pumps
38.0 41.2
76.5 83.9 41.9 46.7 45.0
33.2 47.3
64.5
33.2
33.6 32.8
37.9 25.5 36.0
13%
8% 19% 152% 25% 42% 19% 30% 31%
-4%
261% 28%
68%
20% -13%
51%
Comments
.153.0 172.6
13%
15%
Automated group metering units
21.7 25.1
50.350.0
2009 2010
4%
16%
75.1 72.0
105.0
126.4
2009 2010
HMS Group revenue, US$ mln Others
2009 2010
HMS Group revenue, US$ mln Others
FINANCIAL PERFORMANCE
22
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
Outstanding Performance for the FY 2010
Source: Company data Source: Company data
Source: Company data
Total revenue up 56% yoy to RUB 23,070 mln
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
23
ROCE, 2009 vs 2010 EBIT, 2009 vs 2010
227.24.5
2 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
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*
Key EBITDA drivers, 2009 vs 2010 (% of revenue)
Comments World HRC price performance in 2010
EBITDA Development
expenses
EBITDA increased by 86% yoy to RUB 3,519 mln 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 24
operating expenses
20.2bn vs 13.7bn in 2009 |+47.2% yoy revenue in 2010 +56.2% yoy
227.24.5
2
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: Bloomberg
22%
500
550
600
650
700
750
800
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
World hot rolled coil price index performance, $/tonne
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
Industrial 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 25
Industrial pumps
Modular equipment
EPC
227.24.5
2
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
1,548%
46%
-24%
39%
134%
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, %
571
2,918
248
2467
2009 2010
Total M&A capex, RUB mln Controlling interest acquisition, RUB mln
Working capital position update, 2009 vs 2010 Working capital performance, 2009 vs 2010
Capital expenditures, 2009 vs 2010 M&A expenditures, 2009 vs 2010
CAPEX & Working Capital
Source: Company data
Source: Company data Source: Company data
Source: Company data
26
SIBNA
GTNG
2010 2009
Working capital, RUB bn 2.4 2.7
chg, % -10% 22%
Working capital/ Total assets, x 0.11 0.23
Working capital/ Revenue, % 10.6% 18.3%
Current ratio, x 1.05 1.20
Quick ratio, x 0.83 0.64
Inventories, days 63 92
Receivables, days 105 73
Payables, days 148 106
227.24.52
2,7022,441
0.18x
0.11x
2009 2010
Working capital, RUB mln Working capital / Revenue, x
192
950
344
4500.6x
2.1x
2009 2010
Organic capex, RUB mln Depreciation, RUB mln Capex/ Depreciation ratio, x
MID-TERM PROSPECTS
27
7,975 8,254
402
10,078
1,123
1,506
31 Dec 2009 31 Dec 2010
Other Oil transportation pumps Nuclear pumps
Backlog structure as of 31 Dec 2010, RUB mln
Highlights Backlog 2010 vs 2011, RUB mln
Key Contracts Execution and Backlog Analysis
Order backlog doubled yoy to RUB 19.8 bn,
including RUB 1.3 bn backlog from acquired GTNG
Organic backlog growth, excluding impact from
GTNG, was up 95% yoy
General backlog increase reflects market growth
Robust backlog growth of high-margin pump-based
integrated solutions for large infrastructure projects
Signed contracts for oil transportation pumps:
Recognized revenue of RUB 3.7 bn (incl. ESPO
RUB 3.5 bn) in 2010, current backlog RUB 10.1
bn, the most part of revenue to be recognized
in 2011
Signed contract for nuclear pumps:
Recognized revenue RUB 0.1 bn, current
backlog RUB 1.5 bn, the most part of revenue
recognition in 2011
Signed contracts for project design:
Significant increase of backlog due to GTNG
acquisition – plus RUB 1.3 bn
Standard equipment and other products, sold from
the company’s warehouses, bring up to RUB 2.5 bn
of revenue. Usually these products are not
considered in backlog calculation
28
3%
34%
2,418%
9,500
19,837
Source: Company data
Source: Company data
227.24.5
2
Other0.7
Water injection pumps
0.2
Project & design1.3
Modular equipment
1.4
Nuclear pumps1.5
Other pumps2.1
Construction2.7
Oil transportation
pumps10.1
Financial and Operational highlights
29
Selected End-market Projects from Mid-term
Source: Public information, Media resources, Company data
Increased number of HMS end-market projects
227.24.5
2 Project Brief description Completion Key metrics Comments
Lukoil & Bashneft JV
Trebs and Titov fields Joint development of the fields, in stage of project development. Reserves 141 mt
by 2013 Capex US$5-6 bn HMS has good references for previous
projects
Rosneft
Vankor 2 stage Further development. Capex for 2011 US$ 2.6 bn next stage by 2014 Min capex RUB 480 bn
Planned production 25 mtpa HMS participated in previous stages
Yurubcheno-Tokhomsk oilfield Development
Associated gas utilization program (Komsomolskoe, Priobskoe oilfields)
Achievement of 95% level of associated gas utilization HMS participated in previous stages
Moskovtsev oilfield Development of a new field in KHMAO is planned to begin in 2012 Reserves ~33mln
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 Northen 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 t 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 and condensate fields
Planned production for 2011 is 3.2bcm, up 17% on 2010 HMS participates in 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$3-4 bn HMS participated in previous stages
Gazprom
Shtokman gas and condensate field The field will become a resource base for Russian pipeline gas and liquefied natural gas (LNG) exports to the Atlantic Basin markets
HMS produces units for complex gas preparation
Gazprom Neft
Strategy 2020 Doubling oil equivalent production rate to 100 mtpa through development of new projects in YANAO, KHMAO, Eastern Siberia and offshore
by 2020
Priobskoe oilfield Western Siberia. Recoverable reserves ~600 mt HMS participates in a project design
Urmanskoe and Shinginskoe oifields Eastern Siberia
Sberbank Capital
Dulisma oilfield Irkutsk region. Further development. 3rd resource base for ESPO Total reserves 15 mt HMS participated in previous stages
Taas-yuriah oilfield Sakha region. Further development. Total reserves ~130 mt Capex RUB 15-30 bn
Iraq
Rumaila brownfield Consortium headed by BP Capex US$ 15 bn HMS already submitted technical survey
Az Zubair Consortium headed by Eni Capex US$ 20 bn HMS participates in a tender
Rosatom
Rostov NPP Reactor 4 by 2015 Min capex RUB 100 bn HMS participated in previous stages
Belene (Bulgaria) Reactor 1 by 2017-18 Capex € 5-6.3 bn
Municipal water
Grozvodokanal Modernization and reconstruction of water utilities in Chechnya Capex about RUB 100 bn HMS participated in previous stages
General Inquiries [email protected] Alexander Rybin Head of Capital Markets Tel: +7 (495) 730-66-01 [email protected] www.grouphms.com 7 Chayanova Str. Moscow 125047 Russia
Inna Kelekhsaeva IR Officer Tel: +7 (495) 730-66-01 [email protected]
30
Сontacts 227.24.5
2
APPENDIX
31
Source: Company data 32
Income Statement
RUB ‘000 2010 2009
Revenue 23,070,014 14,772,269
Cost of sales (17,367,404) (11,164,202)
Gross profit 5,702,610 3,608,067
Distribution & transportation expenses (573,198) (482,576)
General & administrative expenses (2,102,642) (1,827,189)
Other operating expenses (112,149) (97,679)
Impairment of goodwill - (116,998)
Operating profit 2,914,621 1,083,625
Finance income 57,089 46,806
Finance costs (823,391) (865,141)
Share of results of associates 15,108 17,193
Profit before income tax 2,163,427 282,483
Income tax expense (582,299) (212,386)
Profit for the year 1,581,128 70,097
Profit/(loss) attributable to:
Shareholders of the Company 1,469,116 (31,821)
Non-controlling interest 112,012 101,918
Profit for the year 1,581,128 70,097
Currency translation differences (85,899) (70,502)
Currency translation differences of associates 1,540 1,283
Other comprehensive loss for the year (84,359) (69,219)
Total comprehensive income for the year 1,496,769 878
Total comprehensive income/(loss) attributable to:
Shareholders of the Company 1,402,382 (76,930)
Non-controlling interest 94,387 77,808
Total comprehensive income for the year 1,496,769 878
Basic and diluted earnings per ordinary share for profit/(loss) attributable to the ordinary shareholders
14.32
(0.03)
Source: Company data 33
Balance Sheet
RUB’000 31 December 2010 31 December 2009
ASSETS
Non-current assets:
Property, plant and equipment 5,948,674 3,954,807
Other intangible assets 310,156 47,109
Goodwill 1,783,915 306,992
Investments in associates 507,141 507,293
Deferred income tax assets 130,779 53,992
Other long-term receivables 27,123 61,362
Total non-current assets 8,707,788 4,931,555
Current assets:
Inventories 2,840,745 3,179,644
Trade and other receivables and other financial assets 10,399,853 2,778,048
Current income tax receivable 38,086 58,016
Prepaid expenses 39,361 36,213
Cash and cash equivalents 351,086 758,127
Restricted cash 4,978 905
13,674,109 6,810,953
Non-current assets held for sale 96,095 -
Total current assets 13,770,204 6,810,953
TOTAL ASSETS 22,477,992 11,742,508
EQUITY AND LIABILITIES EQUITY
Share capital 42,510 36,154
Share premium 210,862 210,862
Share capital to be issued - 6,356
Currency translation reserve (234,785) (168,051)
Retained earnings 2,897,296 1,480,712
Other reserves 38,987 37,035
Equity attributable to the shareholders of the Company 2,954,870 1,603,068
Non-controlling interest 1,508,263 669,631
TOTAL EQUITY 4,463,133 2,272,699
LIABILITIES
Non-current liabilities:
Long-term borrowings 3,864,176 3,429,475
Finance lease liability 9 8,479
Deferred income tax liability 745,762 197,307
Pension liability 262,525 125,407
Provisions for liabilities and charges 35,691 11,550
Total non-current liabilities 4,908,163 3,772,218
Source: Company data 34
Balance Sheet (cont’d)
RUB’000 31 December 2010 31 December 2009
Current liabilities:
Trade and other payables 10,799,358 3,255,533
Short-term borrowings 775,242 1,879,914
Provisions for liabilities and charges 312,213 209,760
Finance lease liability 8,446 13,094
Pension liability 24,736 20,922
Current income tax payable 115,340 25,069
Other taxes payable 1,071,361 293,299
Total current liabilities 13,106,696 5,697,591
TOTAL LIABILITIES 18,014,859 9,469,809
TOTAL EQUITY AND LIABILITIES 22,477,992 11,742,508
Source: Company data 35
Cash Flow Statement
RUB’000 31 December 2010 31 December 2009
Cash flows from operating activities
Profit before income tax 2,163,427 282,483
Adjustments for:
Depreciation and amortisation 449,776 343,987
Loss from disposal of property, plant and equipment and intangible assets 938 2,305
Finance income (57,089) (42,790)
Finance costs 818,773 865,141
Pension expenses/(income) 33,808 17,673
Warranty provision 51,109 18,150
Write-off of receivables 23,931 -
Interest expense related to construction contracts 17,408 14,953
Provision for impairment of accounts receivable (13,023) 69,559
Impairment of taxes receivable 10,052 -
Investments impairment provision (1,338) 6,099
Provision for obsolete inventories (107,634) 95,949
Foreign exchange translation differences 4,618 (4,016)
Provision for VAT receivable (10,887) 29,918
Provisions for legal claims 34,073 13,655
Share of results of associates (15,108) (17,193)
Impairment of goodwill - 116,998
Impairment of property, plant and equipment and intangible assets 19,288 13,848
Loss on disposal of subsidiaries 4,360 -
Other non-cash items (646) (18,861)
Operating cash flows before working capital changes 3,425,836 1,807,858
Decrease/(increase) in inventories 452,945 (810,442)
(Increase)/decrease in trade and other receivables (6,921,060) 34,526
Increase/(decrease) in taxes payable 674,369 (9,530)
Increase/(decrease) in accounts payable and accrued liabilities 7,063,530 (71,350)
Restricted cash (4,073) (285)
Cash generated from operations 4,691,547 950,777
Income tax paid (277,738) (286,395)
Interest paid (838,533) (875,750)
Net cash from/(used in) operating activities 3,575,276 (211,368)
Cash flows from investing activities
Repayment of loans advanced 3,139 122,476
Loans advanced (5,498) (108,139)
Proceeds from sale of property, plant and equipment and intangible assets 24,585 1,775
Interest received 56 39,352
Dividends received 16,800 10,313
Purchase of property, plant and equipment (950,275) (192,365)
Acquisition of associates - (122,756)
Acquisitions of subsidiaries, net of cash acquired (2,339,457) (239,806)
Proceeds from disposal of subsidiaries, net of cash disposed 7,475 -
Acquisition of intangible assets (48,681) (19,741)
Net cash used in investing activities (3,291,856) (508,891)
Source: Company data 36
Cash Flow Statement (cont’d)
RUB’000 31 December 2010 31 December 2009
Cash flows from financing activities
Repayments of borrowings (9,034,047) (5,571,316)
Proceeds from borrowings 8,800,148 6,775,593
Payment for finance lease (12,663) (19,971)
Acquisition of non-controlling interest in subsidiaries (578,844) (208,799)
Expenses related to share issue (58,049) -
Cash received from capital contribution 85,817 -
Cash received from additional share issue of subsidiary 428,420 -
Dividends paid to non-controlling shareholders of subsidiaries (320,458) (160,009)
Net cash (used in)/from financing activities (689,676) 815,498
Net (decrease)/increase in cash and cash equivalents (406,256) 95,239
Effect of exchange rate changes on cash and cash equivalents (785) (6,594)
Cash and cash equivalents at the beginning of the year 758,127 669,482
Cash and cash equivalents at the end of the year 351,086 758,127
Cash flows from investing activities
Repayment of loans advanced 3,139 122,476
Loans advanced (5,498) (108,139)
Proceeds from sale of property, plant and equipment and intangible assets 24,585 1,775
Interest received 56 39,352
Dividends received 16,800 10,313
Purchase of property, plant and equipment (950,275) (192,365)
Acquisition of associates - (122,756)
Acquisitions of subsidiaries, net of cash acquired (2,339,457) (239,806)
Proceeds from disposal of subsidiaries, net of cash disposed 7,475 -
Acquisition of intangible assets (48,681) (19,741)
Net cash used in investing activities (3,291,856) (508,891)
Cash flows from financing activities
Repayments of borrowings (9,034,047) (5,571,316)
Proceeds from borrowings 8,800,148 6,775,593
Payment for finance lease (12,663) (19,971)
Acquisition of non-controlling interest in subsidiaries (578,844) (208,799)
Expenses related to share issue (58,049) -
Cash received from capital contribution 85,817 -
Cash received from additional share issue of subsidiary 428,420 -
Dividends paid to non-controlling shareholders of subsidiaries (320,458) (160,009)
Net cash (used in)/from financing activities (689,676) 815,498
Net (decrease)/increase in cash and cash equivalents (406,256) 95,239
Effect of exchange rate changes on cash and cash equivalents (785) (6,594)
Cash and cash equivalents at the beginning of the year 758,127 669,482
Cash and cash equivalents at the end of the year 351,086 758,127
55.4% 59.7%
16.1%15.5%
15.4%13.2%
3.9% 3.3%2.3% 2.0%1.5% 1.3%5.4% 5.1%
2009 2010
Materials Labour Cost of goods sold Subcontractors D&A Utilities Other
Cost of Sales Optimization 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
expenses
Operating costs grew 47% yoy in 2010 vs revenue
growth by 56% yoy
Cost of sales increased by 56% yoy in 2010, reflecting
the consolidation of GTNG and also due to the increase
in supplies, raw materials and labor costs.
About 60% of HMS Group’s cost of sales is for raw
materials and supplies, where ferrous metals account for
most of the cost
Dual-supplier policy:
– HMS Group doesn’t have monopolistic or exclusive
suppliers
– HMS Group doesn’t have even one supplier with
share more than 5%
Fixing suppliers’ prices and making advance payments for
long-term contracts and passing on price increases to
clients for short-term contracts helps to hedge
commodity prices and currency risks
Cost of sales breakdown, 2009 vs 2010 (RUB mln)
11,164 17,367
22%
Source: Bloomberg
Source: Company data
37
Comments Cost of sales structure 2009 vs 2010, %
World HRC price performance in 2010
500
550
600
650
700
750
800
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
World hot rolled coil price index performance, $/tonne
170.70.67
147.193.150
69.114.167
200.193.188
227.24.52
207.213.225
137.165.78
Source: Company data * Large client - a client that brings revenue more than RUB 200 mln a year
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
38
Blue-chip Customer Base
FY2010 Total revenue
RUB 23,070 mln
FY2009 Total revenue
RUB 14,772 mln
7,443 8,772
7,329
14,298
2009 2010
Others Large clients
Revenue structure by clients, RUB mln
NK Dulisma1%
Salym Petroleum
2%
Surgutneftegaz3%
Lukoil1%
Orion Stroy4%
TNK-BP8%
Gazprom Neft4%
Transneft6%
Rosneft21%
Others50%
NK Dulisma1%
Salym Petroleum
1%Hors
Group1%
Surgutneftegaz1%
Lukoil2%
Orion Stroy5%
TNK-BP5%
Gazprom Neft8%
Transneft16%
Rosneft22%
Others38%
Comments Revenue by Clients*, 2009 vs 2010
Selected clients
Turkmenistan
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
39 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
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
40
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
A pumping station for ESPO-I pipeline
Case Study: ESPO-I Expansion and ESPO-II Contracts
Segment Products / Services Design and
manufacturing
Pumps Design, production and testing of
pumps
HMS and other
suppliers including
Siemens
EPC
Design of integrated pumping
solution
Overall project management
Procurement for supply of
engines, cooling sleeves, valves
and other equipment
Turn-key commissioning
HMS
Key contract highlights
HMS is supplying pump systems (pumps, motors, cooling sleeves, valves and etc.) to Transneft for ESPO-I and ESPO-II pipelines
HMS designed unique type of pumps for the project, constructed a special pump testing facility
HMS prepared target specification for design of hardware (engines, cooling sleeves, valves and etc.) for European producers (Siemens, Voit and etc.) as well as coordinated full cycle procurement
Key features of the project include:
– New approach for oil pumping: Variable motor revolution, which saves energy
– Integrated approach for project management: HMS coordinated procurement from multiple suppliers, R&D process for supplementary equipment and performed turnkey commissioning
– Construction of a special testing facility
– New approach to modeling: 3D design in ANSYS CFX was used to model operation of an entire pumping system
1. Trunk pump 2. Motor 3. Coupling 4. Oil coolers
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
5. Adsorptive dryers 6. Air collectors 7. Compressors 8. Joints
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
Source: Company data
41
South
Production assets
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
42
HMS Household pumps
Products: Household vibration pumps
HMS Group
Headquarters
Sales team1: 118
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
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
Source: Company data
Note: Number of employees as of 9M 2010 1 Total number of HMS’ sales people for 9m 2010 is 192
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
Competitive Environment in Russia 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
43 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
Growth Strategy: Selective Acquisitions in Key Segments
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
44
Source: Company data 1 The Group has an option to acquire 11.0% of the voting shares of its associate, DGKhM, in 2012
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