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

Financial Highlights Key factors beyond HMS’ performance for 6m 2014: Financial highlights, Rub mn  1H 2014 was initially budgeted lower than 2H 2014  weaker-than-expected markets  delay of some targeted projects 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 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 3 2 ROCE = EBIT LTM / average capital employed 3 ROE = total equity period average / profit for the year

Financial Highlights: LTM vs. Half-yearly Last 12 month (LTM) comparison represents sustainability and trends of HMS’ business performance better than half-yearly one EBITDA performance, 2011 –1H’2014 EBITDA performance, 1H’2011– 1H’2014 Revenue performance, 1H’2011– 1H’2014 23.8% 21.2% 17,608 17,544 19.8% 17.9% 14,814 17.1% 13,851 13,041 12,474 12,842 14.1% 12.8% 12.9% 12.9% +11% +13% 6,762 6,080 3 098 2 464 2 373 3 728 2 096 3 142 1 652 777 875 1H'11 2H'11 1H'12 2H'12 1H'13 2H'13 1H'14 1Q'14 2Q'14 1H'11 2H'11 1H'12 2H'12 1H'13 2H'13 1H'14 1Q'14 2Q'14 EBITDA, Rub mn EBITDA margin Revenue, Rub mn Revenue LTM performance, 2Q’12 – 2Q’14 EBITDA LTM performance, 2Q’12 – 2Q’14 32,491 32,422 32,358 31,543 30,386 31,460 31,549 20.6% 26,325 28,422 19.4% 18.4% 18.4% 17.3% 16.9% 16.2% 16.2% 16.2% 4 837 5 243 6 101 5449 5824 5746 5238 5316 4794 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 EBITDA LTM, Rub mn EBITDA margin Линейная ( Revenue LTM, Rub mn) Linear (Revenue LTM, Rub, mn) Revenue LTM, Rub mn Source: Company data 4 4 The data excludes SKMN results due to its disposal in 3Q 2013

Segments overview: Half-year results Industrial pumps Oil & gas equipment 3,568 Revenue -7% Revenue -17% 8,161 7,574 2,944 EBITDA -11% EBITDA -33% 15.1% 14.5% 11.6% 9.4% 1,231 1,095 415 278 6 months 2013 6 months 2014 6 months 2013 6 months 2014 Revenue OG equipment, Rub mn EBITDA OG equipment, Rub mn Revenue Pumps, Rub mn EBITDA Pumps, Rub mn EBITDA margin OG equipment, % EBITDA margin Pumps, % In 1H 2014, the segment executed 3 large-scale projects: ESPO, Zapolyarye-Purpe and The segments performance in both periods mostly reflected the results of regular   Turkmenia , which all together accounted for almost 1/5 of the segment’s revenue 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  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 Underloading of Neftemash standard production capacity in 1H 2014 due to their  generation and oil treatment reservation for large-scale projects execution as well as weaker than expected markets Compressors EPC Revenue -55% Revenue +8% 1,595 1,604 EBITDA -246% EBITDA +303% 1,480 13.1% 7.1% 729 -7.0% 114 -22.8% -166 209 (103) 6 months 2013 6 months 2014 6 months 2013 6 months 2014 Revenue Compressors, Rub mn EBITDA Compressors, Rub mn Revenue EPC, Rub mn EBITDA EPC, Rub mn EBITDA margin Compressors, % EBITDA margin EPC, % Poor performance of compressors business segment was the result of: EPC segments demonstrated solid consolidated results: revenue grew by 8% yoy   – delay of some targeted large tenders by Rosneft, Gaspromneft etc and EBITDA turned positive – failure with the tender for Yurkharov field – Project & Design sub-segment experienced a decline in profitability in the – deferred start of Rospan project reporting period due to delay of some targeted projects – Construction sub-segment compensated this decline, but the Group’s strategy to The Group launched the cost optimization programme to partly compensate the  TGS disposal is still in place abovementioned delays, which is expected to have a positive effect only next year 5 Source: Company data

Customer base development Revenue contribution by Top- 7 clients, 1H’14 vs 1H’13 Comments 1H 2013 Well-diversified client base of 4,000-6,000 names, stable growth  of revenue coming from small-to-mid clients with annual Rosneft 19% Others 45% purchases below Rub 200 mn Strong and stable base of “Blue - chip” clients, which includes the  Transneft 11% largest oil & gas and energy companies in Russia Revenue RUB 14,814mn HMS Group may have different Top-3 customers for each  Lukoil 7% period, depending on the particular project mix Turkmenia 2% Surgutneftegaz 7% Prevailing installed base in the key segments ensures recurring  Gazpromneft 3% Gazprom 6 % business growth During 6m 2014, HMS Group sold products and services to  1H 2014 almost 3,000 unique clients, including VOIC, trade companies, dealers and individual entrepreneurs Transneft 13% Others 48% Recently, HMS Group has been actively developing Gazpromneft 9% its collaboration with Gazprom through both direct Revenue RUB 12,842mn Rosneft 8% and indirect sell. The charts on revenue contribution reflect only direct contracts with Gazprom. Lukoil 6% Turkmenia 4% Gasprom 6% All four HMS Group’s business segments are well- Surgutneftegaz 5% positioned to benefit from their expected participation in Gazprom’s “ Eastern gas programme ” . Source: Company data 6

Cost analysis Cost of sales Comments 6m 2014 6m 2013 chg, yoy Cost of sales declined by 12% yoy in line with a revenue decrease Cost of sales 9,609 10,968 -12% % of revenue 74.8% 74.0% Supplies and raw materials declined by 12% yoy, but remained almost flat as  Supplies and raw materials 4,441 5,060 -12% a percentage of revenue % of revenue 34.6% 34.2% Labour costs 2,915 2,809 +4%  Labour costs grew by 4% yoy, driven by consolidation of NIITK % of revenue 22.7% 19.0% Cost of goods sold 716 1,327 -46% Other expenses were 12% of revenue, the same as last year  % of revenue 5.6% 9.0% Other expenses 1,537 1,772 -13% % of revenue 12.0% 12.0% Distribution & transportation expenses 6m 2014 6m 2013 chg, yoy Distribution and transportation costs stayed in line with a slight decrease by Distribution & transportation expenses 619 639 -3% 3% yoy % of revenue 4.8% 4.3% Transportation expenses 205 214 -4%  Transportation expenses contracted by 4% yoy % of revenue 1.6% 1.4% Labour costs 253 252 0%  Labour costs were flat yoy in absolute numbers, though they comprised a % of revenue 2.0% 1.7% higher portion of revenue due to its decline Lease expenses 35 27 +46% % of revenue 0.3% 0.2%  The share of other expenses in revenue remained flat at 1% Other expenses 126 146 -14% % of revenue 1.0% 1.0% General & administrative expenses 6m 2014 6m 2013 chg, yoy General & administrative costs grew both in absolute numbers and as a General & administrative expenses 1,939 1,811 +7% percentage of revenue they; most of the increase came from: % of revenue 15.1% 12.2% Labour costs 1,246 1,222 +2% growth of labour costs reflects inflation increase  % of revenue 9.7% 8.2% Depreciation & amortization 90 93 -3% growth of provisions for tax risks as well as legal services, which are the  % of revenue 0.7% 0.6% part of other expenses Taxes and duties 90 80 +13% % of revenue 0.7% 0.5% Other expenses 513 416 +23% % of revenue 4.0% 2.8% 7 Source: Company data