HMS Group Financial resultsgrouphms.com/files/HMS_Conf_call_17_9m.pdf · 2016 9m 2017 9m Pumps OGEP Compressors Construction 9.5 10.5 10.8 22.3 4.9 5.2 1.4 4.5 26.5 42.6 2016 9m 2017

HMS Group9 months 2017 IFRS Results Conference call presentation

12 December 2017

Financial results

Business & Outlook

2

Rub bn 2017 9m 2016 9m chg, yoy

Revenue 31.4 30.3 4%

Gross profit 8.5 7.7 10%

EBITDA 5.0 4.7 6%

Operating profit 3.4 3.0 15%

Profit for the year /period 1.7 1.2 33%

Gross margin 27.0% 25.5% 151 bps

EBITDA margin 15.9% 15.5% 41 bps

Operating margin 10.9% 9.8% 109 bps

Net income margin 5.3% 4.1% 115 bps

Total debt 16.5 16.3 1%

Net debt 12.7 13.4 -5%

EBITDA LTM 6.7 6.3 6%

Net debt to EBITDA LTM 1.91 2.14

ROCE adj. 15.6% 12.5% 319 bps

ROE 13.3% 9.6% 370 bps

10.0 10.1

30.3 31.4

41.042.7

1.7 1.84.7 5.0 6.3 6.7

17.4%

18.4%

15.5%15.9%

15.3%15.6%

3Q'16 3Q'17 9m'16 9m'17 9m'16LTM

9m'17LTM

Revenue and EBITDA

Revenue, Rub bn EBITDA, Rub bn EBITDA margin, %

13.4 12.717.0 15.9 16.3

12.1 11.1 12.4 12.4 13.3

2.02.1 2.4

1.7

2.1

2012 2013 2014 2015 2016

Total debt, Rub bn Net debt, Rub bn Net debt to EBITDA LTM

31.5 32.4 32.437.3 41.6

6.1 5.2 5.3 7.4 6.4

19.4%

16.2% 16.3%

20.0%

15.3%

2012 2013 2014 2015 2016

Revenue adj., Rub bn EBITDA adj., Rub bn EBITDA margin

FINANCIAL HIGHLIGHTS

HIGHLIGHTS

Source: Company data, IFRS accounts 3

Revenue +1% Revenue +4% Revenue +4%

EBITDA +7% EBITDA +6% EBITDA +6%

Revenue -20% yoyEBITDA na

0.560.45

-0.05 -0.12

-8.7% -26.7%

2016 9m 2017 9m

Revenue Construction, Rub bn EBITDA Construction, Rub bn EBITDA margin EPC, %

6.7 6.7

0.7 1.1

9.8%

16.5%

2016 9m 2017 9m

Revenue Compressors, Rub bn EBITDA Compressors, Rub bn EBITDA margin Compressors, %

12.0

15.0

2.0 1.5

16.6%

9.7%

2016 9m 2017 9m

Revenue OGE, Rub bn EBITDA OGE, Rub bn EBITDA margin OGE, %

11.8 12.3

1.7 2.1

14.6%

17.1%

2016 9m 2017 9m

Revenue Pumps, Rub bn EBITDA Pumps, Rub bn EBITDA margin Pumps, %

Revenue +26% yoyEBITDA -27% yoy

SEGMENTS OVERVIEW

Revenue +5% yoyEBITDA +23% yoy

CONSTRUCTIONCOMPRESSORS

Revenue up 5% yoy due to growing recurring business

EBITDA up 23% yoy and EBITDA margin increased to 17.1% due to recovering profitability of recurring business, which is now within a range of pumps’ “upper” profitability level

Revenue up 26% yoy because of growth of both recurring business and large projects

EBITDA down 27% yoy due to lower profitability of both large contracts and recurring business

EBITDA margin decreased to 9.7%

Revenue stable at Rub 6.7 bn

EBITDA increased 67% yoy due to better order intake, enhanced operating activity and one-off economy derived from a large contract’s execution

EBITDA margin reached 16.5%

Revenue down 20% yoy

EBITDA still negative

OIL AND GAS EQUIPMENT & PROJECTSPUMPS

4Source: Company data, IFRS accountsNote: 2016 9m segments are reconciled according to new segments composition

Revenue 0% yoyEBITDA +67% yoy

2017 9m 2016 9m chg, yoyGeneral and administrative expenses 3.44 3.12 10%% of revenue 11.0% 10.3%Labour costs 1.82 1.66 10%% of revenue 5.8% 5.5%Social taxes 0.40 0.43 -7%% of revenue 1.3% 1.4%Taxes and duties 0.18 0.14 27%% of revenue 0.6% 0.5%Other expenses 1.05 0.89 17%% of revenue 3.3% 2.9%

2017 9m 2016 9m chg, yoyDistribution and transportation expenses 1.30 1.28 1%% of revenue 4.1% 4.2%Transportation expenses 0.43 0.43 -1%% of revenue 1.4% 1.4%Labour costs 0.40 0.36 9%% of revenue 1.3% 1.2%Insurance 0.14 0.01 1486%% of revenue 0.4% 0.0%Other expenses 0.34 0.48 -29%% of revenue 1.1% 1.6%

Distribution and transportation costs:- up 1% yoy- almost stable as a share of revenue

General and administrative expenses:- up 10% yoy, due to growth in labour costs (+10% yoy)- grew to 11.0% from 10.3%, as a share of revenue

2017 9m 2016 9m chg, yoyCost of sales 22.9 22.6 2%% of revenue 73.0% 74.5%Materials and components 15.4 15.1 2%% of revenue 49.0% 49.9%Labour costs 3.60 3.35 8%% of revenue 11.5% 11.1%Social taxes 1.04 0.96 8%% of revenue 3.32% 3.18%Other expenses 2.89 3.15 -8%% of revenue 0.01% 0.01%

COSTS

COST OF SALES Comments

DISTRIBUTION & TRANSPORTATION

GENERAL & ADMINISTRATIVE

Cost of sales increased 2% yoy to Rub 22.9 bn from Rub 22.6 bn:

Materials and components grew 2% yoy, but the share in revenue decreased to 49.0% from 49.9%

* Herein, Materials & components and Labour costs were additionally derived from Change in work in progress and finished goods, thereby do not coincide with the note in the financial statement

Source: Company data, IFRS accountsNote: Differences in calculations can occur due to the rounding-off rule

5

1.3 1.4

1.2 1.1

1.2x1.2x

2016 9m 2017 9m

Organic capex, Rub bn Depreciation & amortization, Rub bn Capex to D&A ratio

0.5 0.4

6.8 8.8 9.6

0.51.4

1.8

9.8

WC2014 FY

WC2015 FY

WC9m 2016 FY

Inventorieschange

Receivableschange &other adj.

Payableschange &other adj.

WC9m 2017 FY

Cash flow performance, Rub bn 2017 9m 2016 9m Chg, yoy

Operating cash flow 3.1 1.4 111%

Investing cash flow (1.4) (1.4) -5%

Free cash flow (FCF) 1.7 0.0 n/a

Financing cash flow (1.0) (0.6) 73%

Cash and cash equivalents 3.7 2.9 30%

Comments WORKING CAPITAL

CASH FLOW PERFORMANCE CAPEX

Working capital increased 2% yoy due to execution of large projects

HMS generated Rub 3.1 bn operating cash inflow (+111% yoy)

Organic capex grew to Rub 1.4 bn (+4% yoy), where:

Rub 415 mn of all HMS’ capital investments was channeled to the Localization project

HMS Group plans to finalized the project in 4Q 2017

Capex excl. localization increased 20% yoy

Free cash flow increased to Rub 1.7 bn

CAPEX & Working Capital

Source: Company data, IFRS accounts

Source: Company data, IFRS accounts

Note: Differences in calculations can occur due to the rounding-off rule

Source: Company data, IFRS accounts

23%of revenue2016 9m

23%of revenue2017 9m

24%of revenue

2015 FY

Capex of Localization

project

6

21%of revenue

2014 FY

1.4 RUB BN

+4% yoy

9.8 RUB BN

+2% yoy

12.111.1

12.4 12.413.3 13.4 12.7

2.0x2.1x

2.4x

1.7x

2.1x 2.1x

1.9x

2012 2013 2014 2015 2016 2016 9m 2017 9m

Net debt, Rub bn Net debt-to-EBITDA LTM ratio

79

3,676 3,318

8,518

32

2017 2018 2019 2020 2021

Debt to be repaid as of 01 November 2017, Rub mn

9m 2017 Total debt increased to Rub 16.5 bn from Rub 16.3 bn 9m 2017 Net debt decreased to Rub 12.7 bn 9m 2017 Net Debt-to-EBITDA LTM ratio amounted to 1.9x

Average interest rate decreased to, as of 01 November, 2017: 10.2% from 12.2% for all loans since 2017-beg, and 10.4% from 12.4% for Rub-denominated only

Long-term debt77%

Comments

DEBT REPAYMENT

Source: Company data, management accounts

STABLE FINANCIAL POSITION

Source: Company data, IFRS accounts Source: Company data, management accounts

LEVERAGE

Short-term debt23%

CREDIT PORTFOLIO STRUCTURE BY BANKS

Borrowings in FX3%

Borrowings in Rub97%

7Source: Company data as of 01 November, 2017, management accounts, IFRS accounts

12.7 RUB BN

-5% yoy16.6 RUB BNAs of 01 November 2017

20.9%

19.2%

18.8%

17.6%

15.4%

3.2%5.0%

Sberbank

RUB Bonds

Raiffeisenbank

VTB Bank

UniCredit Bank

Fund of Industrial Development

Others

16.6 RUB BNAs of 01 November 2017

Financial results

Business & Outlook

8

10.9 12.2

15.9

28.54.6

5.9

0.2

4.4

31.6

51.0

2016 9m 2017 9m

Pumps OGEP Compressors Construction

9.5 10.5

10.8 22.3

4.9

5.2

1.4

4.5

26.5

42.6

2016 9m 2017 9m

Pumps OGEP Compressors Construction

BACKLOG & ORDER INTAKE

Source: Company data, management accounts

BACKLOG ORDER INTAKE

9

+12%

+79%

+29%

na

2016 9m chg 2017 9m

Total Backlog, where 26.5 60% 42.6

Recurring business 21.6 21% 26.1

Large integrated projects 4.9 237% 16.4

2016 9m chg 2017 9m

Total Order intake, where 31.6 +61% 51.0

Recurring business 24.0 0% 24.0

Large integrated projects 7.6 +255% 26.9

+11%

+107%

+6%

+227%

Rub 23.3 bn contract: Delivery of various equipment

The Project is still subject to uncertainty as the company hasn’t received any advance payments, and even hasn’t started any work on the Project.

HMS isn’t certain that the execution of this project will start in the nearest future

If added, Backlog would grow by 148% yoy to Rub 65.9 bn and Order intake would increase 135% yoy to Rub 74.3 bn

Rub 23.3bncontract

Rub 23.3bncontract

65.9

42.6 RUB BN

+60% yoy51.0 RUB BN

+61% yoy

74.3

23.4%

18.4%

9.9%4.7%3.7%

1.9%1.4%

36.6%

Rosneft

Gazprom

Gazprom neft

Transneft

Lukoil

Peton Khimtek

Tatneft

Others

21.0%

15.7%

11.0%4.8%

4.6%3.3%

1.7%

37.8%

Gazprom neft

Rosneft

Gazprom

Transneft

Surgutneftegaz

KMPO

Lukoil

Others

18.7 20.8

7.6 7.6

2.4 1.7 1.6 1.3

30.3 31.4

2016 9m 2017 9m

Project & construction Export

Large contracts Machine-building only recurring products

Source: Company data, IFRS accounts

HMS REVENUE STRUCTURE

REVENUE BY TOP-7 CLIENTS REVENUE BY PRODUCTS’ TYPE

10

Comments

Source: Company data, Management accounts

A stable number of large clients generates revenue from both large contracts and recurring business

Around 6 thousand of unique clients create a “safety cushion” with recurring business

Revenue grew due to growth of machine-building only recurring products (+11% yoy)

REVENUE 2016 9M

30.3 RUB BN

REVENUE 2017 9M

31.4 RUB BN

CONTACTS

Company address:7 Chayanova Str.Moscow 125047Russia

Capital marketsPhone +7 (495) [email protected]://grouphms.com/shareholders_and_investors/

HMS Hydraulic Machines & Systems Group Plc is listed on the London Stock Exchange (Main market, IOB):

Identifier Number Number of shares outstandingISIN RegS: US40425X4079 117,163,427

144A: US40425X3089Ratio 1 GDR : 5 SharesTicker HMSGBloomberg HMSG LIReuters HMSGq.L

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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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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 from continuing operations adjusted for other operating income/expenses, depreciation and amortisation, impairment of assets, excess of fair value of net assets acquired over the cost of acquisition, defined benefits scheme expense and provisions (including provision for obsolete inventory, provision for impairment of accounts receivable, unused vacation allowance, warranty provision, provision for legal claims, tax provision and other provisions). This measurement basis, therefore, excludes the effects of a number of non-recurring income and expenses on the results of the operating segments

EBIT is calculated as Gross profit 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

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

ROE is calculated as Total equity period average divided by Profit for the period

Operating profit adj. & Profit for the year adj. are deferred as adjusted by impairment of PPE, investment property and goodwill

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

Capex = Organic capex = Purchase of PPE + Purchase of intangible assets

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

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