CEO statement



Dear Stakeholders and Partners of HMS Group,

The slowdown in the Russian economy began in 2013, and HMS Group faced problems with its construction sub-segment, which generated losses. The management fixed them by selling one of our loss-making construction companies, Sibkomplektmontazhnaladka, and significantly restructuring along with cost cutting program another construction asset Tomskgazstroy. As a result, EPC segment returned to positive territory in 2014 and showed impressive growth in profitability.

Challenging market conditions in 2014 were further complicated by international sanctions, affecting the accessibility to credit resources and their borrowing costs, the depreciated ruble and the more than the threefold raise of the key rate. And last year the management faced another difficulty related to the compressors segment and caused by periodic volatility of Kazankompressormash’s orders portfolio, but the recent growth of backlog assumes that the problem has been remedied.

However, against all the odds, I am pleased to report on HMS’ sustainable operating highlights in 2014 – stable revenue with a higher EBITDA and EBITDA margin, an increased backlog and a solid order intake.

Herein, it is critical to emphasize our ability to counter crises, emerge from them and strengthen our company’s resistance. In general, HMS Group’s entire history from 1993 to today can be described as a life in constant crisis and tough competition. The nineties and the first half of the 2000s were a period of high interest rates, low customer demand and lack of access to credit resources. Despite the above factors, by 2007 we were the largest pump producer in Russia.

Then came the crisis of 2008. In the next few years we boosted the Group’s revenue and EBITDA twofold.

Today we are experiencing another crisis. Whatever macroeconomical factors we have and environment we operate – within the former USSR, on almost 1/6 of the Earth’s habitable land, HMS Group, perhaps, is the best in the design, production and sales of pumping and compressor equipment … and I’m assured of that because thanks to our team we will get through this crisis successfully.

In 2014, we replaced the large-scale ambitious ESPO project by two new large projects, in total worth over 12 billion rubles. The first contract was to deliver an integrated oil and gas equipment solution for a major Siberian gas field and the second - to deliver equipment for the extraction, transportation and processing of liquid hydrocarbons.

If speaking about standard equipment, in 2014, the influx of small and mid-size orders was comparable to 2013, proving the reliability of our business model. Also, while working on the Iraq market, we expanded our export portfolio up to several tens of millions US dollars.

During the banking crisis in December 2014, we accumulated 2 billion rubles of own cash to be used against near debts repayment. As a result, even in this difficult economic environment, our Net debt/EBITDA ration stood at a healthy level of 2.36.

We are working on enhancing HMS’ resilience to crisis phenomena and boosting the company’s development. In the whole, the company put in great efforts on diversification by:

  • clients where Gazprom became one of the largest customers;
  • segments and markets with entrance into a new market of gas projects;
  • geographical with export portfolio exceeding 30% of total pumps backlog.

Though the markets remain highly volatile and current developments are further impacting visibility, I believe that HMS Group will demonstrate better performance in the upcoming period

.

Sincerely yours,
Artem Molchanov

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HMS GROUP

Moscow, Chayanova st., 7, Russia

Tel.: +7 495 730 6601

Fax: +7 495 730 6602

E-mail: info@hms.ru

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E-mail: ir@hms.ru

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