Chairman’s statement

Building a more focused, efficient and stronger company

Dear Shareholders,

2014 proved to be a distinguishing year for HMS Group. It was a year of funding constraints, sanctions, low oil prices and a weak ruble.

Downward trends in the Russian economy as well as the slowing-down of investment activities in the Group’s core markets due to imposed sanctions and limited access to capital led to delays in customer tenders for new large infrastructure projects, which we have historically considered priorities for our strategic development. Nevertheless, this year we signed 2 large-size contracts to deliver oil & gas equipment.

HMS Group pursued an active M&A strategy over the previous few years. The key reasons for this strategy were to intensify our presence in existing markets, enter new markets, and add new products to our product portfolio. The acquired companies contributed positively to the Group’s overall development. HMS Group focused on organic development in 2014.

HMS Group has delivered creditable results, which illustrate the intrinsic resilience of our Company. We completed large scale projects in the industrial pumps segment in 2014, and supplemented them with oil and gas equipment contracts. All our business segments, excluding compressors, showed results in line with our expectations. The lower-than-expected performance in our compressor business was a direct consequence of the deteriorating market conditions in Russia and postponed large tenders. Meanwhile, our reorganized and restructured EPC business segment delivered solid results, and we see opportunities for its further improvement and development.

In my opinion, the theme of this annual report, Expertise Stability Innovation, accurately demonstrates our business model. Over 20 years, we have transformed a small trading company into a leading industrial Group, which offers a full range of products and services for flow control solutions. Now it is time to optimise the Group’s structure, completely integrate our acquired assets, and rearrange them with increased efficiency in order to benefit from synergies and interaction across all business segments. Our priority is to improve business performance by unlocking productivity improvements and leveraging our expertise throughout our operations.

Business optimization also means an improvement in the quality of our backlog through greater project selectivity, an emphasis on operational performance to drive earnings, an improvement in our capital structure and further diversification of our existing end-markets and clients.

Internal focus is also concerned with providing a safe and healthy work environment. Our target is to have zero work-related accidents. Our people continue to be HMS Group’s main and the most valuable resource.

Outlook for 2015

We expect 2015 to continue to present challenges for us. The outlook for the Russian economy remains unchanged, so there are still high uncertainties regarding the long-term trends. Nevertheless, we remain confident about the future prospects of our business. Building on our leading market positions and strategic priorities, HMS Group is well-positioned for long-term success and profitable growth. We believe that our markets still offer a lot of potential and our optimisation programme, which is already underway, will make us even better positioned to take advantage of our anticipated opportunities.

Yours faithfully,
Nikolay Yamburenko

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