HMS Group Investor Presentation July 2014
HMS at a Glance Overview Key financials for 2007-2013, Rub bn 32.4 31.5 HMS Group is the leading pump and compressor manufacturer as well as provider of flow control solutions and related services 19.4% 27.5 to oil and gas (~80% of revenue), nuclear and thermal power 20.0% 23.1 16.0% generation and water utility sectors in Russia and the CIS 12.8% 15.3% 18 operating facilities in Russia and the CIS with 5 research & 11.7% development centres, one of the largest pump testing facilities 14.8 14.0 Growing markets driven by strong investments in oil & gas, power generation and water supply sectors 6.1 5.5 5.2 3.5 Unique integrated management, sales and R&D team 1.9 1.6 The story of resilient financial growth 2008 2009 2010 2011 2012 2013 Revenue, Rub bn EBITDA, Rub bn EBITDA margin Source: Company data Data 2012 and 2013 excl. SKMN Industrial pumps Oil & gas equipment Compressors EPC* 54% Revenue 24% Revenue 9% Revenue 13% Revenue 73% EBITDA 17% EBITDA -4% EBITDA 11% EBITDA EBITDA margin: 21.7% EBITDA margin: 11.4% • EBITDA margin: -7.3% • EBITDA margin: 13.6% Oil Pump Station “ Tayezhnaya ”, Transneft Pump station of the Baltic pipeline Twin modular compressor unit Example of Oil Pumping Station system, Transneft Manufacturing and installation of Design, engineering, Project & design, Design, engineering, oil & gas equipment, including construction, turn-key manufacturing, delivery and manufacturing, delivery and modular (pump stations, projects installation of compressors, installation of pumps and pump metering equipment, oil, gas and compressor packages and related products water processing and preparation compressor stations units, tanks & vessels, etc.) *excl. construction subsidiary SKMN Source: Company data as of December 31, 2013 2
Business Model Development Way of the market consolidator – from pumps to integrated solutions based on excellent R&D base Exit from Pump- and Modular Construction Pump Design Pump-based Compressor- Equipment Business to Pump Trading Construction Integrated based & Design & Stronger Focus Solutions Integrated Manufacturing on Machine- Manufacturing Solutions building 1993 – 2002 2003 2004 – 2006 2007 – 2008 2009 – 2012 2012 – 2013 2013 – Today Significant demand on the key market 2013 revenue breakdown Leading installed base in Russia Installed pumps and units CAPEX of Russian oil majors 2012-2020F more than $50 bn Oil industry Thermal Nuclear Other; 12% 600 11% Water Metal & energy energy upstream midstream Mining; 1% 9% 9% 500 Power; 5% 7% 400 Revenue mn tonnes 300 Water; 16% RUB 32.4bn 2%2% 2% 2% 200 1%1% 1% 1% 0% 0% 0% 0%0%0%0% -1% 100 Oil & Gas; 67% 0 2000 2002 2004 2006 2008 2010 2012F 2014F 2016F 2018F 2020F Greenfield, 2009-2020F Traditional oil regions, 2009-2020F Total production, 2000-2008 Production growth, % YoY Source: Company data 3 Source: REnergyCo, Rosstat
Key Investment Highlights 1 Supportive Industry Fundamentals The Leading Provider of Flow Control Solutions 2 3 Focus on Value-added Integrated Solutions Operating on Protected Markets in Russia 4 Advanced Research & Development Capabilities 5 6 Well-established Top-tier Customer Base 4
1 Supportive Industry Fundamentals Pump market revenues in Russia, US mn O&G equipment market revenues, US mn Tanks & Vessels Tubular Furnaces & Line Heaters Oil & Gas (surface) 3,888 Oil, Gas, Water Processing Units Oil & Gas (submersible) CAGR 7.7% CAGR 6.8% 1,423 Oil & Gas Metering Units Power Generation 425 Associated Gas Processing & Transport Units Municipal Water 310 AGMUs Other CAGR 7.0% CAGR 5.7% Pump Stations 91 2,798 Other Equipment 981 450 1 756 188 CAGR 2008-12 2012-17E 784 199 2,137 CAGR 2008-12 2012-17E Pump stations 1.2% 9.6% 149 69 180 94 O&G surface includes: AGMUs 3.5% 8.6% 76 126 1 182 Water injection -4.2% 9.4% Associated gas processing 225 277 117 86 13.3% 2.4% 889 & transport units Oil transportation 59.5% -8.1% 92 199 603 Oil, gas and water 151 193 Oil downstream 3.4% 10.9% 1.9% 8.3% 110 121 processing units Municipal water -2.1% 6.2% 446 485 100 87 Tanks and vessels 20.5% 9.3% 274 Power generation 15.0% 7.5% 827 165 173 527 Total 5.7% 7.7% 473 Total 7.0% 6.8% 33 29 36 2008 2012 2017E 2008 2012 2017E Compressor market revenues, US mn Comments Modernization of basic industries, backed by state development programs Refrigeration leads to expenditure on equipment, including specialized pumps General Service (Air) Pumps for water injection and oil refineries are expected to demonstrate CAGR 10.3% Gas Processing 2,648 Oil & Gas Production and Transportation the highest growth rate 352 Modest growth in surface pumps for oil and gas industry is largely 332 explained by diminished growth in the segment of pumps for oil CAGR 3.8% transportation due to the completion of major pipeline project (ESPO), 1,620 after an explosive expansion over 2008-2012 1,395 229 CAGR 2008-12 2012-17E 194 Oil and gas equipment is expected to grow driven by modernization of the 224 Oil & gas production 4.6% 10.5% 166 current and development of new oilfields, increase of associated gas and transportation 1915 Gas processing 4.0% 11.3% utilization ratio, installation of modern metering units 1162 General service 0.6% 9.0% 970 Compressors are expected to grow with CAGR of 10.3% thanks to a Refrigeration 0% 7.4% number of new pipelines development programs, increase of associated Total 3.8% 10.3% gas utilization ratio 2008 2012 2017E 5 Source: Frost & Sullivan research
The Leading Provider of Flow Control Solutions 2 Leading market share in key markets Oil and gas industry Water utilities Power generation Pumps and Oil & Gas equipment Industrial pumps only Industrial pumps only Market growth +5% yoy Market growth +13% yoy Market growth +11% yoy HMS +18% yoy HMS +21% yoy HMS +28% yoy 3.5 38.8 5.2 36.9 3.1 4.6 4.0 42% 1,3 37% 16,4 42% 2,2 2.4 13,9 25.4 1,0 1,8 1,3 0,9 10,1 2,2 23,0 2,1 22,4 3,0 2,7 2,8 1,6 15,4 2010 2011 2012 2010 2011 2012 2010 2011 2012 HMS Group revenue, Rub bn HMS Group revenue, Rub bn HMS Group revenue, Rub bn Other players revenue, Rub bn Other players revenue, Rub bn Other players revenue, Rub bn Source: Company data Summary 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) 6
Focus on Value-added Integrated Solutions 3 Advanced R&D is the basis for value-added integrated solutions Share of integrated solutions in revenue 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 66% Competition type Price R&D and references 73% 75% 88% 94% Competition level High Limited 95% Revenue growth potential Limited High 30% Revenue downside potential Limited Visibility for at least 1.5 years 25% 5% 6% 25% 34% 27% 12% Repeat business Very significant Possible 2008 2009 2010 2011 2012 2013 Aftermarket demand Average High EBITDA margin 10-15% 25-30% Revenue from standard equpment Revenue from integrated solutions Source: Company data Examples of successful integrated solutions ESPO-1 oil transportation station, Transneft Super-blocks X-9001, X-9004 for Vankor oilfield, Rosneft 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 7
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