HMS Hydraulic Machines & Systems Group plc

ANNUAL REPORT ‘16

On frontline 
of production

2

HMS GROUP IN 2016

HMS Group is a major pump and compressor 
equipment producer and provider of flow control 
solutions and related services for oil and gas, 
nuclear and thermal power generation, utilities 
and water supply in Russia and CIS countries  
as well as one of the leading manufacturers of 
skid mounted modular oilfield equipment. We are 
a dynamic engineering company with successful 
practice in design, installation and construction 
and the commissioning of complex oil and gas 
production and water facilities.

You can find more information  
on our web site:  
www.grouphms.com

HMS GROUPANNUAL REPORT 2016Contents

OVERVIEW

Who We Are
Highlights
Chairman and CEO Statements
Map of Operations
Investment Theses
Strategy
History
Business Model
2016 in Context

MARKETS

Macroeconomic Development
Market Trends:
Oil Industry
Power Generation and Water Utilities

2
4
6
10
12
14
16
20
22

28

30
32

PERFORMANCE

Operating Performance
Financial Performance
HMS Key Projects
Research And Development
Corporate Social Responsibility

34
35
40
42
46

GOVERNANCE

BoD and its Committees
Risk Management and Internal Control
HMS GDRs

48
54
58

ADDITIONAL INFORMATION

Shareholder’s info and Disclaimer

60

HMS 
GROUP

ANNUAL 
REPORT 
2016

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HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE 
WHO WE ARE

2

HMS Group is a large producer of industrial machinery, 

and the leading manufacturer of industrial pumps and 

compressors in Russia and in CIS countries, as well 

as one of the leading manufacturers of skid mounted 

modular oilfield equipment. We are a dynamic 

engineering company with successful practice in the 

design, installation, construction and commissioning  

of complex oil & gas production and water facilities.  

HMS Group is a vertically integrated holding company 
with a modern corporate management system wherein 
the functions of the manufacturing companies’ 
shareholders and that of its business administration 
are traditionally separated. 

HMS’ parent holding company is HMS HYDRAULIC 
MACHINES & SYSTEMS GROUP PLC (the Republic of 
Cyprus), which issued securities in the form of Global 
Depositary Receipts at the London Stock Exchange in 
February 2011.

HMS consists of 12 manufacturing facilities in Russia, CIS 
countries and Germany, plus 7 Research & Development 
centres and Institutes, including one of the largest 
pump-testing facilities in Europe, and employs 
15 thousand people.

The company operates via four divisions:

Industrial Pumps

REVENUE
16,724 RUB MN

EBITDA MARGIN 
16%

Description
The industrial pumps business 
segment is our oldest division, 
responsible for designing, 
engineering, manufacturing and 
supplying a diverse range of 
pumps and pump-based integrated 
solutions to customers in the oil 
and gas, power generation and 
water utilities sectors in Russia, 
CIS countries as well as across 
the globe. It also provides 
aftermarket maintenance, repair 
services and other support for 
its products. 

Core products and services:
 ˆ Oil transport
 ˆ Oil refineries 
 ˆ Nuclear and Thermal power 
 ˆ Water utilities 
 ˆ Water injection 
 ˆ Trunk pipelines 
 ˆ General industrial pumps

HMS GROUPANNUAL REPORT 2016 
Contents  Who We Are  Highlights

3

Oil & Gas Equipment

Compressors

Engineering, 
procurement and 
construction (EPC) 

REVENUE
15,144 RUB MN

REVENUE
8,700 RUB MN

REVENUE
2,297 RUB MN

EBITDA MARGIN 
20%

EBITDA MARGIN 
7%

EBITDA MARGIN 
-3%

Description
The engineering, procurement and 
construction (EPC) business segment 
provides design and engineering 
services, project management 
and project construction work 
for customers in the sectors of 
oil upstream and midstream, gas 
upstream and water utilities. 

Core products and services:
 ˆ Oil & gas projects focused on 

design and planning 

 ˆ Oilfield surface infrastructure 
and pipeline construction 

Description
The oil & gas equipment business 
segment manufactures, installs and 
commissions modular pumping 
stations, automated metering 
equipment, oil, gas and water 
processing and preparation units, 
as well as other equipment and 
systems, that are primarily used for 
the extraction and transportation 
of oil. 

Core products and services:
 ˆ Oil pumping stations and pump 
stations for water injection 
 ˆ Oil & gas and water processing 

units 

 ˆ High-precision and automated 

metering units 

 ˆ Tanks, reservoirs and vessels 
 ˆ Oil development equipment 

Description
The compressor business 
segment was established after 
the acquisition of the leading 
Russian compressor producer, 
Kazankompressormash (KKM), in 
July 2012. In 2013, this segment was 
bolstered by the acquisition of 
NIITK, a research & design institute 
providing compressor technologies. 
The division is responsible for the 
design, engineering, manufacture, 
and supply of a diverse range of 
compressors and compressor-based 
solutions to customers in the oil 
and gas, metals and mining and 
other core industries in Russia. 

Core products and services:
 ˆ Oil & gas production 
 ˆ Oil & gas transportation 
 ˆ Gas processing 
 ˆ Oil refineries 
 ˆ Oil & gas chemistry 
 ˆ Refrigeration applications for 

various industries 

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE 
 
 
HIGHLIGHTS

4

HMS Group is a dynamically growing diverse corporation that 

combines leading machine-building (pumps, compressors, oil & gas 

equipment), engineering and construction companies. Our markets 

are oil & gas, nuclear and thermal power generation, water supply & 

utilities, metallurgy, etc.

HMS GROUPANNUAL REPORT 2016Who We Are  Highlights  Chairman and CEO Statements

41,582

7,446

31,460

32,358

32,351

37,296

6,101

5,238

5,272

6,369

13,410

12,687

16,967

15,884

16,336

5

‘12

‘13

‘14

‘15

‘16

‘12

‘13

‘14

‘15

‘16

‘12

‘13

‘14

‘15

‘16

REVENUE
41,582 RUB MN
11%

EBITDA
6,369 RUB MN
14%

TOTAL DEBT
16,336 RUB MN
3%

Name

Backlog

Order intake

Revenue

EBITDA, adj.

Net debt

EPS

Dividend per share*

ROCE

UNIT

Change yoy

2016 FY

2015 FY

2014 FY

2013 FY

Rub mn

Rub mn

Rub mn

Rub mn

Rub mn

Rub

Rub

%

-2%

23%

11%

-14%

8%

–

2%

-174bps

24,035

40,624

41,582

6,369

13,347

10.53

8.53

14.0%

24,409

32,979

37,296

7,446

12,388

16.34

8.37

16.9%

28,243

34,705

32,351

5,272

12,432

-13.83

-

11.1%

22,333

34,814

32,358

5,238

11,102

16.79

3.41

13.9%

2012 FY

18,963

33,086

31,46

6,101

12,064

17.98

6.82

18.7%

13,347

28,243

40,624

12,432

12,388

12,064

11,102

22,333

18,963

24,409

24,035

34,814

34,705

33,086

32,979

‘12

‘13

‘14

‘15

‘16

‘12

‘13

‘14

‘15

‘16

‘12

‘13

‘14

‘15

‘16

NET DEBT
13,347 RUB MN
8%

BACKLOG
24,035 RUB MN
2%

ORDER INTAKE
40,624 RUB MN
23%

* If payment of final dividend of Rub 5.12 per ordinary share in respect of 2016 FY will be approved at the AGM on June 20, 2017. If not, 2016 FY total dividend equals Rub 3.41 per ordinary 

share, paid already on January 26, 2017.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCECHAIRMAN STATEMENT

6

Chairman of HMS Group,
Nikolay Yamburenko

2016 was difficult due to tough market 
conditions, however the company has 
managed to maintain its growth.

HMS GROUPANNUAL REPORT 2016Highlights  Chairman and CEO Statements  Map of Operations

Dear Shareholders,

7

In 2016, we had mixed financial performance, in 
comparison to the very successful year in 2015: revenue 
increased by 11 percent and EBITDA decreased by 
14 percent. 

Today, we are planning to grow as a result of increased 
export and large contracts, while maintaining a steady 
growth of business with our standard products. 

In 2016, the company moved to a new policy of profit 
distribution among shareholders. We reduced the cost 
of HMS’ GDRs ownership through negotiation with 
a depositary bank, made a decision to pay dividends twice 
a year (interim and final), and approved a new dividend 
policy to pay out total dividends in the region of 50 percent 
of  the “Profit attributable to Shareholders of the Company” 
for the year, as set out in the IFRS Consolidated Financial 
Statements. However, the size of the dividends will be 
subject to the necessity of balancing the interests of all 
capital consumers: financing of capital expenditures and 
working capital, maintaining of the Net Debt-to-EBITDA 
ratio in a comfortable range, and payment of dividends. 

Nevertheless, on the whole, given the remaining low 
liquidity of our GDRs, we want to have a stable base of 
shareholders who will enjoy a good dividend yield. 

Naturally, we are eager to further strengthen our activity 
in the field of investor relations, which, along with our 
new dividend policy, has already resulted in the growth of 
market capitalization, and which we believe will drive it 
further. 

It is worth mentioning that, generally speaking, the last few 
years for Russian oil and gas machine building industries 
have not been very successful. Many of our competitors are 
in a state of bankruptcy or pre-bankruptcy, either because 
of the weak market or due to financial mismanagement. 
Large clients are continuing to put pressure on pricing, 
which inevitably affects profitability. 

Amidst such conditions, HMS Group has once again 
confirmed its status as the market leader, by further 
developing the business through capturing the market 
share of its competitors, among other things. 

However, in the mid-term perspective, the main source of 
growth is planned to be a result of the new development 
strategy approved by the Board of Directors in 2016. 
It involves an increase in market capitalization due to both 
the growth of the business and a new shareholding policy. 

The initial results of the strategy have already been 
reflected in the financial results of 2016, in both the current 
portfolio of orders and in the growth of HMS’ market 
capitalization. 

Recently, we have successfully completed the preparation 
of our company for explosive growth:

 ˆ Executed many large projects for Russia’s oil and gas 
majors, proving ourselves as a reliable supplier and 
one that is able to deliver technically sophisticated 
projects;

 ˆ Certified our production in accordance with  

international standards and created a professional 
export sales team;

Yours faithfully, 
Nikolay Yamburenko

 ˆ By the end of 2017, we expect to complete 

the localization of production of foreign high-tech 
pumps for the transport of oil and oil products, oil 
processing and petrochemistry (in compliance with API 
standards), as well as for thermal and nuclear power 
generation, and water utilities;

 ˆ  Assured full access to capital markets, both on 

the public debt market and the bank facilities market, 
including the possibility of receiving large bank 
guarantees for the execution of large contracts.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCECEO STATEMENT

8

CEO of HMS Group,
Artem Molchanov

There are great opportunities 
available on the market, and we are 
confident that we possess the power 
and abilities to seize them.

HMS GROUPANNUAL REPORT 2016Highlights  Chairman and CEO Statements  Map of Operations

Dear Shareholders,

9

Next year, we will celebrate the anniversary of 
HMS Group, which will be turning 25 years old. In terms 
of human age, the company is reaching adulthood. 
Since its establishment in 1993, we have come a long 
way, growing from a small trade company to one of 
the largest private machine-building companies in 
Russia. In the Forbes list for 2016, HMS Group is honored 
to be ranked 9th place. It is also important to point out 
that in this list we are the only producer of oil & gas 
equipment, in addition to being the only company listed 
on the London Stock Exchange. 

Over the last few years, we have completed 
the optimization and integration of acquired assets, 
in particular by KKM, that in turn illustrated successful 
integration of KKM into HMS Group. 

Furthermore, we have accumulated vast experience 
in the realization of large projects, involving complex 
technological solutions, with such large Russian and 
international companies as Transneft, Rosneft, Gazprom, 
Gazprom Neft, BP, ENI, and others. We have gained 
a reputation as a reliable supplier and have received 
references that allow us to further strengthen our 
presence on the extremely competitive and high-tech 
market of solutions based around pumps, compressors 
and oil & gas equipment, both within Russia and abroad.

HMS Group expects to complete its localization 
project for Ukrainian and German pumps at the base 
of HMS Livgidromash, located in the Orlov region, 
by the end of 2017. The main emphasis of this 
localization is on high-tech pumps for transportation 
of oil and oil products, oil processing and petro-
chemistry (in accordance with API standards), as well 
as for thermal and nuclear power generation and 
water utilities. 

The company has improved its access to capital, both 
on the public debt market and on the market of bank 
facilities. At the end of 2016, Fitch assigned the company 
a B+ credit rating. In February 2017, we successfully 
returned to the bond market. In 2017, the key priority 
of HMS’ debt policy will be the optimization of interest 
rates, along with the prolongation of the debt portfolio’s 
duration. 

In 2016, the Board of Directors approved a new 
development strategy based on the following:

 ˆ Export: organic growth via entry into global markets 
and the reengineering of HMS’ products to comply 
with the standards of these markets;

 ˆ Large contracts: the further development of 

technological engineering;

 ˆ Shareholder policy: the distribution of a substantial 
part of the profit among shareholders in the form of 
dividends, and the increase of IR activity. 

The initial results of this strategy were reflected in 
the financial results of 2016, in the order intake portfolio 
for 2017, and in the growth of HMS’ market capitalization. 

In the context of all its business components, including 
production, finance, sales, and the agreed policy of 
the shareholders, HMS Group has prepared a basis for 
further development by signing new large contracts 
with Russian companies, as well as by increasing 
export activity. There are great opportunities available 
on the market, and we are confident that we possess 
the power and abilities to seize them. 

Not everything depends on us – a significant amount 
also depends on our clients and when they start to 
implement the realization of certain projects.

Given the existing possibilities and with a little luck, we 
believe in the continual growth of HMS Group’s business.

Yours faithfully, 
Artem Molchanov

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEMAP OF OPERATIONS

10

GERMANY

Moscow

BELARUS

Minsk

Kazan

Goessnitz

Bobruisk

Livny

Sumi

UKRAINE

Rostov-on-Don

Dimitrovgrad

Tyumen

Nizhnevartovsk

RUSSIA

Tomsk

 HMS Livgidromash

 Promburvod (PBV)

(before 26.08.2010 Livgidromash)
Location: Livny, Orel region, Russia
Founded in 1947
A member of HMS Group since 2003
Products: pumps for oil processing, 
petrochemical, shipbuilding, power 
generation, water, utilities and 
environment, agriculture
http://www.hms-pumps.com
Business unit: Pumps

 Livnynasos

Location: Livny, Orel region, Russia
Founded in 1970
A member of HMS Group since 2006
Products: submersible centrifugal ECV-
type pumps for municipal, industrial, 
rural and household water supply as 
well as for irrigation and groundwater 
control
http://www.livnasos.ru
Business unit: Pumps

 Nasosenergomash (NEM)

Location: Sumy, Ukraine
Founded in 1949
A member of HMS Group since 2004
Products: pumps for oil and gas: 
midstream, upstream; thermal and 
nuclear power, water supply and 
utilities. 
http://nempump.com
Business unit: Pumps

Location: Minsk, Belarus
Founded in 1927
A member of HMS Group since 2007
Products: electric driven submersible 
pumps for water supply, utilities and 
environment.
http://www.promburvod.com
Business unit: Pumps

 Bobruisk Machine Building Plant 

(BMBP)
Location: Bobruisk, Belarus
Founded in 1898
A member of HMS Group since 2011
Products: pumps for oil refining, 
petrochemical, steel and mining, power, 
pulp and paper, construction, as well as 
for water and water waste and sewage 
in municipal, agricultural and industrial 
water supply systems. 
http://www.bmbpump.by
Business unit: Pumps

 HYDROMASHSERVICE
Location: Moscow, Russia
Founded in 1993
The associated trading company of HMS 
Group
Products: pumps and units, 
compressors and units, oilfield, 
measuring and modular equipment 
Services: commissions, installation 
supervising, repair, service maintenance 
and equipment upgrade
http://www.hms.biz
Business unit: Pumps

 Dimitrovgradkhimmash (DGHM)
Location: Dimitrovgrad, Ulyanovsk region, 
Russia
Founded in 1931
A member of HMS Group since 2011
Products: pumps for chemical 
processing and oil and gas, vessel 
equipment, chemical equipment, spare 
parts for gas pumping stations
http://www.himmash.net
Business unit: Pumps

 Apollo Goessnitz GmbH (Apollo)

Location: Goessnitz, Germany
Founded in 1863
A member of HMS Group since 2012
Products: process and standard pumps 
and systems, system engineering — 
projecting, design and manufacture of 
plants for liquid fuels, process plants, 
plants for water supply, automation 
systems and electrical Apollo is certified 
according to ISO 9001 by Lloyd’s Register 
Quality Assurance
http://www.apollo-goessnitz.de
Business unit: Pumps

 Nizhnevartovskremservice (NRS)

Location: Nizhnevartovsk, Russia
Founded in 1998
A member of HMS Group since 2006
Services: pumping, drilling and other 
oilfield equipment repair, maintenance 
and upgrade.
http://www.nv-rs.ru
Business unit: Pumps

HMS GROUPANNUAL REPORT 2016Chairman and Ceo Statements  Map of Operations  Investment Theses

GERMANY

BELARUS

Minsk

Moscow

Kazan

Goessnitz

Bobruisk

Livny

Sumi

UKRAINE

Rostov-on-Don

Dimitrovgrad

Tyumen

Nizhnevartovsk

RUSSIA

Tomsk

Industrial pumps

Oil & gas equipment

Compressors

EPC

11

 Institute Rostovskiy 
Vodokanalproekt (RVKP)
Location: Rostov-on-Don, Russia
Founded in 1932
A member of HMS Group since 2008
Description: institute with focus on 
water supply and waste water and 
sewage systems and related hydro-
technical facilities design.
http://rvkp.ru
Business unit: Pumps

 Sibnefteavtomatika (SIbna)

 Tomskgazstroy (TGS)

Location: Tyumen, Russia
Founded in 1986
A member of HMS Group since 2009
Products: controlling devices and 
systems development and manufacture 
for oil and gas, power generation, water, 
heat and gas supply.
http://sibna.ru/eng/main
Business unit: Oil & gas equipment

Location: Tomsk, Tomsk region, Russia
Founded in 1968
A member of HMS Group since 2006
Products: linear objects construction, 
reconstruction and overhaul such as 
oil pipelines, gas pipelines, product 
pipelines, water pipelines, condensate 
pipelines and power transmission lines.
http://www.tgs.tomsk.ru 
Business unit: EPC

 HMS Neftemash
Location: Tyumen, Russia
Founded in 1965
A member of HMS Group since 2004
Products: modular equipment for 
oil & gas, including cluster pumping 
stations and equipment for water 
injection systems; group automatic 
measuring units for oil well gauging 
metering; stations for hydraulic drives 
of submersible well pumps and 
underground oil extraction equipment; 
oil pumping stations, etc.
http://www.hms-neftemash.ru/en
Business unit: Oil & gas equipment

 Sibneftemash

Location: Tyumen, Russia
Founded in 1976
A member of HMS Group since 2011
Description: special oilfield equipment 
development, design and manufacture 
for oil exploration intensification and 
efficiency; current and work over repairs, 
isolation works and fracturing.
http://www.sibneftemash.ru/en
Business unit: Oil & gas equipment

 Kazankompressormash (KKM)

Location: Kazan, Russia
Founded in 1951
A member of HMS Group since 2012
Products: centrifugal, screw 
compressors and systems for air and 
various gases; compressor stations; 
refrigerators.
http://www.compressormash.ru/en
Business unit: Compressors

 Giprotyumenneftegaz (GTNG)

Location: Tyumen, Russia
Founded in 1964
A member of HMS Group since 2010
Description: the leading Russian R&D 
center with integrated oilfield designing 
for oil and gas.
http://www.gtng.ru/en
Business unit: EPC

 NIITURBOKOMPRESSOR n.a. 

 VNIIAEN

V.B.Shneppa (NIITK)
(before 26.08.1985 – ICBS – Special Design 
Bureau compressor engineering)
Location: Kazan, Russia
Founded in 1957
A member of HMS Group since 2013
Description: a major scientific and 
research and production center in 
Russia to develop centrifugal, screw, 
rotary and scroll compressors.
http://www.niitk-kazan.ru/eng
Business unit: Compressors

Location: Sumi, Ukraine
Founded in 1951
Associate of HMS Group (47%) since 2007
Description: development of pumping 
equipment for large complexes of 
atomic and thermal power engineering; 
on projects of oil, chemical, sugar 
and food industries, oil pipeline 
transportation and maintenance of 
pressure in oil pools, water supply 
and irrigation; at civil engineering and 
mining works, in underground systems, 
agglomerate-and-ironmaking and steel 
industries, sewerage system and cattle-
breeding complexes, municipal and 
public utilities etc. 
http://www.vniiaen.sumy.ua/en
Business unit: Subordinate enterprise

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE 
INVESTMENT THESIS

12

Business platform and core expertise are established  

and provide strong base for future growth

1 MATURE BUSINESS PLATFORM

 ˆ HMS Group business is 
based on the mature 
and established 
business platform with 
a focus on products 
where the Company has 
unmatched R&D expertise 
and production capabilities

 ˆ Business is to be further 
developed organically, i.e. 
currently there are no plans 
for M&A

 ˆ The company has stable 
recurring business with 
confirmed order backlog for 
the next year

 ˆ Further development will 
be held with low CAPEX at 
ca. 1.5x of D&A level

 ˆ EU presence: HMS Group 

has access and is 
conducting business with 
EU engineering companies 
(Siemens, Alstom, etc.) 
through its EU-based 
subsidiary Apollo Goessnitz

HMS GROUPANNUAL REPORT 2016Map of Operations  Investment Theses  Strategy

13

2 ENTERING NEW MARKETS

 ˆ Further development of 

business with Gazprom & 
other majors in oil & gas 
industry by executing large 
customized projects in all 
key segments of HMS Group

 ˆ Return to the market of oil 
transportation on the back 
of localization of trunk line 
pumps in Russia

 ˆ Customers in new markets 

 ˆ Oil & gas refining and 

are already a part of 
the client base and offer 
strong future opportunities

petrochemicals represents 
another growth area with 
expanded strong references, 
incl. international 
engineering majors

3 OPTIMIZATION OF THE BUSINESS PORTFOLIO

 ˆ HMS entered oil & gas 

infrastructure construction 
segment in 2007 with a view 
to offer integrated solutions

 ˆ Following the financial 
crises, this segment 
saw a sharp decrease in 
profitability

 ˆ HMS Group decided to exit 
the segment and continues 
to develop Engineering 
and Procurement (“EP”) 
business, based on HMS 
products and engineering 
competences

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCESTRATEGY

14

VISION

STRATEGIC GOALS AND PRIORITIES

HMS Group is 

an international 

machinery and 

engineering company – 

producer of industrial 

pumps, compressors, 

technological units 

and state-of-the-art 

integrated solutions 

for key industries: oil 

& gas, petrochemicals, 

power generation, 

mining & metals and 

water utilities.

1

Revenue Growth

The consistent increase of revenue is one of our main targets. 

2

3

Increasing Profitability

While continuing to expand our business, we are also 
concentrated on increasing our EBITDA margins.

Building a Platform  
for Further International Development

Our international growth targets require the Company’s 
sustainable development across all functions and processes.

Corporate Responsibility

HMS GROUPANNUAL REPORT 2016Investment Theses  Strategy  History

We view the expansion and diversification of our business as key factors of our business growth. HMS Group maintains 
solid positions in Russia and CIS countries, and as such, our primary focus is to sustain and grow our client base and our 
share in these core markets. We also have significant experience in providing supplies to customers in the Middle East, Asia, 
as well as in Western and Eastern Europe, taking active steps to increase our presence in the international marketplace.

15

Our product portfolio is regularly expanded and upgraded by our R&D function, which develops state-of-the-art products 
and solutions that allow us to stay ahead of our competitors. New products and the expansion of existing product lines 
helps us to enter new segments and niches across various industries and uses, providing tangible benefits to our clients.

Sales channels optimization helps us not only to increase market coverage, but also to maintain an individual and 
personalised approach to our different client groups. Customer experience is one of our highest priorities: we sell 
customised products and solutions via various channels in order to make our products available to a wide range 
of customers.

We have efficiently integrated our recently acquired assets and have started to benefit from multiple synergies in R&D, 
procurement, production and sales. We are in constant pursuit of cost control and value creation management across 
the entire production cycle. 

Our deep technical expertise and experience in supplying integrated solutions allows us to focus on high-margin 
projects and increase their share in our contract portfolio. We have participated in multiple strategic infrastructure 
projects in the oil and gas and energy sectors, which has helped us to build and strengthen reliable partnerships with 
industry leaders.

We see joint ventures and other forms of cooperation with industrial companies, both in Russia and abroad, to be one of 
the ways we can offer more sophisticated products and solutions and enter new markets and product groups.

In the face of the rapidly changing international environment and emerging challenges, we are consistently working on 
the development of a highly effective management system and corporate structure. We are also strengthening our 
competences in international marketing and sales, as well as in project and risk management.

HMS Group covers the full cycle of the machinery business, which allows us to maintain a leading position in 
the industry. We follow the best practices and international standards in product development, manufacturing and 
quality management in order to meet the high requirements of our international customers.

Over the past few years, we have managed to gather a team of highly devoted professionals in all functions. 
We are dedicated to the development of our personnel: HMS Group has a strong system of training its employees, and 
our management team is also regularly improving their qualifications to meet challenges and achieve strategic goals. 
We are now focusing on the culture of innovations and change by developing motivational incentives to ensure that each 
employee contributes to the Company’s success. 

HMS Group strictly complies with health and safety standards, following a code of ethics in respect to all of its 
stakeholders. We also aim to lower the environmental impact of our operations. 

We carry out charity work in the regions of our presence, and offer support to charitable foundations for children and 
the disabled. The year 2016 was marked by the continuous support we provided to a number of charity funds, schools and 
civic organizations. 

We also support sporting developments in the regions of our presence, including for our employees and their families. 
HMS Group became a general partner of the European Judo Championship in Kazan in April 2016.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHISTORY

16

1993

2003

German Tsoy, Artem Molchanov 
and Kirill Molchanov founded 
the original pump trading and 
servicing company. 

The Company expanded its 
operations and client base to 
become a leading distributor of 
pumps and pumping equipment in 
Russia and the CIS. 

HMS Group began to manufacture 
pumps after the acquisition 
of Livgidromash (currently — 
HMS Livgidromash), one of 
the largest manufacturers of 
industrial pumps in the CIS. 

HMS Group launched a pump skid 
assembly business in Russia and 
CIS countries. 

Hydromashservice became 
one of the leading enterprises 
specializing in the delivery of 
pumping equipment for oil and 
gas complexes, power and water 
industry and housing utilities. 

HMS Group enhanced its oil and 
gas equipment offerings through 
the acquisition of Neftemash, 
one of the largest Russian 
producers of modular flow 
control equipment for surface 
oilfield sites. 

1995

2004

HMS GROUPANNUAL REPORT 2016Strategy  History  Business Model

2005

2007

17

HMS Group became a leading 
manufacturer of high 
capacity customized pumps 
through the acquisition of 
Nasosenergomash (NEM), located 
in Ukraine, one of the major 
companies in the nuclear and 
thermal power generation industries 
and trunk oil pipelines in the CIS. 

HMS Group entered the EPC 
market through the acquisition 
of Sibkomplektmontazhnaladka 
(SKMN), a provider of integrated 
EPC services for the development 
and construction of oilfield 
infrastructure. 

The company also acquired 
a minority stake in 
Dimitrovgradhimmash (DGHM), 
a manufacturer of pumps and 
vessel equipment, with an option to 
purchase a controlling stake in 2012, 
and increased its R&D capabilities 
through the acquisition of a 49% 
stake in VNIIAEN, an R&D centre 
and the only one of its kind in the 
CIS, which specializes in pumping 
equipment for the nuclear power 
generation and oil transportation 
industries. 

HMS Group became a leading 
manufacturer of submersible 
borehole pumps for water 
through the acquisition of 
Livnynasos, one of the largest 
producers of submersible 
electric water pumps in the CIS. 

The company also acquired 
operational control over 
Tomskgazstroy, a provider of 
construction services for oil and 
gas pipelines, and expanded 
its maintenance and repair 
business through the acquisition 
of Nizhnevartovskremservice. 

2006

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHISTORY (CONTINUE)

18

2008

2010

HMS Group increased its presence in 
the water utility, power generation 
and modular equipment sectors 
through the acquisitions of 
Promburvod, the largest producer of 
electric submersible water pumps 
in Belarus, and NPO Hydromash, 
a manufacturer of pumps for 
the thermal power generation and 
oil and gas industries that has 
subsequently been joined to NEM 
and Rostov Vodokanalproekt (RVKP), 
a leading project and design facility 
for the water utility sector. 

HMS Group enhanced its design and 
R&D capabilities and its position in 
the EPC market through the acquisition 
of 51% of the voting shares of 
Giprotyumenneftegas, a leading 
independent Russian R&D centre 
focused on the design of the surface 
infrastructure of oil and gas fields. 

The Group participated in the ESPO-
1 pipeline expansion project and 
the construction of the ESPO-2 pipeline 
(Transneft), and commenced a large-
scale production of pumps for use in 
nuclear power generation. 

HMS Group continued to enhance 
its position in the water utility, 
power generation and oil and gas 
sectors through the acquisition of 
Sibnefteavtomatika, a manufacturer 
of high-precision measuring 
equipment for the oil and gas, 
power generation and water 
utility sectors.

The company participated 
in the flagship project of 
the Vankor oilfield development 
and the Baltic Pipeline System 
construction project. 

HMS Group went public 
in February 2011, placing 
37.2 percent of its stock on 
the London Stock Exchange 
via GDRs. 

As a key consolidator in 
the domestic pumping industry, 
HMS completed 3 acquisitions 
(Sibneftemash, Bobruisk 
Machine Building Plant and 
exercised the option to acquire 
its next stake in DGHM), seeking 
opportunities to increase 
its presence in existing and 
adjacent markets. 

2009

2011

HMS GROUPANNUAL REPORT 2016Strategy  History  Business Model

2012

2015

19

HMS Group entered the promising 
new gas projects market with 
the acquisition of the leading Russian 
industrial compressor producer 
Kazankompressormash. 

Pursuing the enhancement of its 
pumps product portfolio, the Group 
completed the acquisition of the German 
manufacturer of high-end specialized 
pumps, Apollo Goessnitz GmbH, which 
strengthened its market position in 
industries with a need for technologically-
demanding integrated solutions. 

The best year for HMS Group in 
terms of EBITDA ever.

EBITDA
7,446 RUB MN
41%

HMS Group made a disposal 
of SKMN to make the Group’s 
business model more effective, 
release resources, involved in 
the EPC business, and use them 
for the active development of 
the core business. 

The company received its first large 
compressor contract to deliver 
a complete gas compression 
system based on a centrifugal 
compressor with a gas turbine drive 
to Stavrolen (Lukoil). 

HMS Group 

established its 

business platform 

and core expertise, 

which provide 

the strong base for 

2013

2016

future growth.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEBUSINESS MODEL

20

HMS Group’s business model comprises all major elements of 

the value chain: research & development, manufacturing, procurement, 

marketing & sales, across all of its manufacturing business units 

(industrial pumps, industrial compressors and oil & gas equipment), 

supplemented by engineering and after-sales service, as well as 

EPC business with its own aspects.

HMS Group’s business consists of recurring operations (the manufacture of standard and customized 
equipment and sales across all target segments) and of large-scale projects that cover the full business cycle 
(from engineering and manufacturing to construction and commissioning).

HMS’ customers are mainly medium and large sized industrial companies. We also approach small businesses 
though our dealers and specialized independent trading companies. Participation in mega-projects allows us to 
maintain and strengthen partnership relations with the largest oil & gas and energy generation companies, as well 
as with leaders in other industries. 

C

P

rvice         E

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s
s
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a
s
-

r

e

t

f

A

R&D       Pr

o

c

u

r

e

m

e

n

t

Value

M
a
n

ufacturing       Marketing & sale

s

1  

RESEARCH & DEVELOPMENT

Our core business competence is Research & 
Development, which allows us to develop new products 
and provide state-of-the-art solutions. The development 
of new products is focused on innovations and 
efficiency in order to meet the growing requirements of 
our clients.

Our R&D capabilities include 3 leading R&D centers 
in Russia (Moscow, Kazan and Livny), 1 center in 
Ukraine (Sumy) and 1 in Germany (Goessnitz), as well 
as 2 leading Russian project and design institutes 
(Tyumen and Rostov-on-Don). We actively benefit 
from synergies between our R&D and engineering 
centers in terms of product development and 
project implementation. 

HMS GROUPANNUAL REPORT 2016 
 
 
 
 
 
 
  
 
 
 
 
 
 
History  Business Model  2016 in Context

21

2  

MANUFACTURING

3 

MARKETING & SALES

Our manufacturing assets consist of 12 plants in Russia, 
Ukraine, Belarus and Germany. In manufacturing, we 
also benefit from cooperation with our production 
facilities, which work as one large manufacturing 
complex, enabling us to optimize production costs and 
reduce lead-time. HMS plants can perform joint supplies 
for large-scale projects and can relocate orders, using all 
available capacities. 

We are also continuing to implement our large-scale 
capital expenditures program to increase our production 
capacities and achieve the highest technological level 
of production, in order to meet the growing demand 
and requirements of our clients. In 2016, the first 
stage of the localization project at HMS Livgidromash 
(the assembly, mounting and testing of the shop for the 
production of large industrial pumps) was completed. 
The second phase (the mechanical processing shop) 
is planned for completion in December 2017, and 
HMS Livgidromash will become the largest and most 
advanced pump manufacturing plant in Russia. We have 
also significantly expanded our manufacturing capacities 
at Kazankompressormash (with new capacities in 
the blanking and welding shop and the installation of 
new milling equipment). 

In 2016, HMS’ overall sales volumes reached 
Rub 41.6 billion (+11% yoy) and our client list amounted 
to over 6,000 names in Russia and abroad (+20% yoy). 
We increased sales to many client groups, especially 
in the industries of oil & gas upstream, conventional 
power generation and mining. Our compressor business 
showed impressive results due to the increased sales 
of gas compression systems (6 systems shipped to our 
clients in 2016). We are continuing to develop our sales 
channels, with sales volumes in 2016 via dealers and 
independent trading companies doubling compared 
to 2015.

Outside of Russia, HMS’ sales offices are currently 
located in Germany, Italy, the UAE and Iraq, as well 
as in Belarus, Kazakhstan, Ukraine, Uzbekistan and 
Turkmenistan. We are also growing our presence in new 
markets. In 2016, we entered the prospective Iranian 
market, with significant contracts for API process pumps.

Our marketing function strengthens our brand in both 
conventional and new markets. As part of our market 
strategy, we regularly familiarize our customers with our 
latest products and solutions at leading trade fairs all 
around the globe. 

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE2016 IN CONTEXT

22

January

 ˆ Quality management systems (QMS) of 

Kazankompressormash and NIITK were certified in 
line with STO Gazprom 9001-2012 requirements in 
the fields of design, production, delivery, installation 
and the maintenance of compressors, refrigerating 
systems and turbo expanders. This certification has 
confirmed the efficiency of the QMS, which ensures 
maximum compliance of manufactured compressor 
equipment with the quality, safety and reliability 
requirements of Gazprom and other oil and gas 
companies. 

 ˆ Kazankompressormash manufactured and delivered 
compressor systems for Tatneftegazpererabotka 
(TATNEFT). This equipment was produced under the 
reconstruction project for the crude gas compressor 
system at the Minnibaevo gas processing plant (GPP) 
and was delivered as prefabricated units.

February

 ˆ HMS updated the ratio of the Company’s depositary 
receipts program: for every five receipts held by 
depositary receipt holders, they received 1 “new” 
receipt in return. The issued number of ordinary 
shares and their nominal value stayed unchanged. 
Also, according to the terms of the amended deposit 
agreement with BNY Mellon, the annual depositary 
fee is equivalent to US$ 0.01 for every “new” DR, 
instead of the previous US$ 0.03 for every “old” DR, 
implying a fifteen-fold decrease in such fees. 

 ˆ Kazankompressormash signed a contract for the 

delivery and installation of a boosting compressor 
station worth Rub 2.8 billion. In accordance with the 
contract, the compressor station is to be delivered 
to the customer’s site. The station is based on three 
centrifugal-type compressor units with gas-turbine 
engines and is intended for the compression of low-
pressure associated gas.

 ˆ Sibneftemash’s QMS was certified by Gazprom 

(STO Gazprom 9001-2012). The Certificate received 
confirms the management’s high quality and 
effectiveness in the fields of design, production and 
delivery of equipment for the development of field 
infrastructure.  

 ˆ HMS Group supplied ten high-pressure pumps for 

the project of Yargeo (NOVATEK), which were put into 
operation at the oil and gas condensate pumping 
stations on the Yarudeyskoye field. The high-pressure 
pumping units are based on a retrofitted special 
application CNSp pump series, with a rated capacity 
of 180 m³/h and a pressure head of 1050 m. Due to 
their unique design, the supplied pumps surpass 
hermetic pumps, occasionally applicable for the 
transfer of high-pressure oil and gas condensate by 
a number of parameters. In 2015, the Group supplied 
a batch of state-of-the-art compressor systems for 
stripped associated petroleum gas to Yargeo for 
construction projects at the Yarudeyskoye field.

March 

 ˆ HMS Neftemash signed contracts with a total worth 
of Rub 3.1 billion for the delivery and installation 
of complex integrated solutions for the pumping of 
natural gas liquids, oil, wash-down water and rust 
preventive chemical. These contracts are a follow-
up to another project that has been successfully 
completed recently. 

 ˆ HMS Group completed the construction of the largest 
and most high-tech multiphase metrological test 
flow facility in Russia, which will allow the testing and 
metrological calibration of up-to-date multiphase 
metering units. The Federal Agency on Technical 
Regulating and Metrology of the Russian Federation 
(Rosstandard) certified the facility and approved it 
in accordance with the working standard of flow rate 
unit of liquid-gas mixtures. Representatives from the 
world’s largest metering unit s producers – Siemens, 
ABB, Honeywell, Schneider Electric, Weatherford and 
Emerson – took part in a formal opening ceremony, 
which was held on March 24, 2016.  

HMS GROUPANNUAL REPORT 2016Business Model  2016 in Context  Macroeconomic Development

 ˆ Kazankompressormash signed a contract for 

April

23

the delivery and installation of modular screw 
compressor units for the Novoportovskoe oil & gas 
condensate field for the next stage of the central 
production facility (Gazprom Neft). Three highly 
productive compressor units TAKAT, intended for the 
compression of natural gas, are to be produced. 

 ˆ Kazankompressormash manufactured and delivered 

two AEROCOM compressor systems for NLMK. 
Nitrogen six-stage integrally geared centrifugal 
compressors of the AEROCOM series have a capacity 
of 18,000 Nm³/h and 30 bar discharge pressure 
per unit, and are equipped with a 3,150 kW electric 
motor. They are intended for the process compressor 
equipment retrofit project at the oxygen and 
nitrogen compression area of oxygen shop. Similar 
compressor systems along with the custom designed, 
highly efficient 43GC1-210/31 centrifugal oxygen 
compressor, had been previously delivered to NLMK 
by Kazancompressormash. 

 ˆ The compressor system manufactured by 

Kazankompressormash was put into operation 
at the advanced oil-refining complex at LUKOIL-
Permnefteorgsintez. The 5GC1-300/2-12.5 centrifugal 
compressor system, with a capacity of 26,000 
Nm³/h an 11.3 bar discharge pressure and a 6.25 
compression ratio, is intended for the compression of 
unstripped gas as a part of the newly delayed coking 
processing line. Earlier in 2014-2015, three complete 
gas compression systems for the compression of dry 
stripped gas, as well as the centrifugal compressor 
system for the compression of dry hydrocarbon 
gas, were successfully put into operation at LUKOIL-
Permnefteorgsintez.

 ˆ Kazankompressormash put a high-tech gas 

compression system into operation at Stavrolen’s 
boosting compressor station, designated to 
compress dry stripped gas (LUKOIL). The gas 
compression system is driven by a gas turbine 
engine on the basis of a 5GC2-287/15-57 compressor, 
with a rated power of 25 MW by means of a gearbox. 
The gas compression system was completed by a 
steam recovery boiler (with the ability to generate 
steam up to 310°C and a pressure of 39 bar), plus gas 
separators, air-cooling units, a fuel gas treatment 
unit, water treatment units and other processing 
equipment. The complete gas compression system 
was manufactured and supplied as part of the 
project of Stavrolen for the construction of the 
first phase of the gas processing plant (GPP-1) with 
a capacity of 2 billion m3/year, designed for the 
processing of associated petroleum gas supplied 
from the fields named after Yu. Korchagin and V. 
Filanovsky.

May

 ˆ HMS signed an agreement with UniCredit Bank to 

open a 3-year non-revolving credit line in the amount 
of Rub 1.2 billion, which matures in May 2019. The 
credit facility was utilized for general corporate needs. 

 ˆ HMS Group took part in the 2016 Iran Oil Show 
International Exhibition in Tehran, Iran. A wide 
range of pumping equipment, manufactured in 
accordance with the API 610 standard, was presented 
at HMS Group’s booth. These state-of-the-art pumps 
are intended for the oil, gas and gas condensate 
extraction process, as well as for oil refining and 
petroleum chemistry applications. 

 ˆ NIITK designed and manufactured an integrally 
geared centrifugal compressor system for the 
Joint Institute for Nuclear Research (located in 
Dubna, Moscow Region). The AEROCOM 2-179/18 
centrifugal compressor system, with a capacity of 
10,600 Nm³/h and a 17.6 bar discharge pressure, is 
equipped with a 1,600 kW electrical drive and an 
up-to-date microprocessor automation system and 
is intended for the compression of nitrogen.  The 
compressor system is a part of the processing unit 
at the NICA accelerator complex, currently under 
construction in the Veksler and Baldin Laboratory 
of High Energy Physics (located in Dubna, Moscow 
Region). This project became one more example 
of successful cooperation between the institutes. 
NIITurbokompressor has already manufactured and 
supplied rotary screw compressor systems for helium 
to the Joint Institute for Nuclear Research.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE24

June

July

 ˆ HMS Neftemash signed a contract worth 

 ˆ NIITK designed and manufactured an integrally 

Rub 2.1 billion for the delivery and installation of 
a formation-fluid and low-temperature separation 
unit. The company will deliver this integrated 
solution to the customer’s site. The unit, made up of 
inlet formation-fluid separators, heavy condensate 
separators, heavy condensate degassers, low-
temperature separators, heat exchangers and others, 
will be installed at an oil and gas condensate deposit 
located in West Siberia in 2017. 

 ˆ HMS Group signed a contract to retrofit of a batch 
of water injection pumps that were manufactured 
by HMS Group and operated at the Vankor oil & 
gas condensate field. The contract assumed the 
procurement of complete refurbishment kits, in-
depth retrofit works, acceptance tests, installation 
supervision and the commissioning of CNS 
500-1900 and NCN-E-800b-1 pumps operating 
at modular cluster pumping station №2 in the 
free-water knockout unit FWKU-South. Hydraulic 
and performance tests of a single CNS 500-1900 
pump were carried out at the premises of 
Nizhnevartovskremservice, while rest of the pumps 
were retrofitted on site. 

 ˆ Kazankompressormash put two high-performance 
Soitaab (Italy) water jet cutters into operation: 
new WATERLINE 2060-1H-50HP machines with a 
2,000x6,000 mm working area and an ability to 
cut virtually all types of materials without causing 
mechanical and thermal deformation to the work 
pieces. One of the machines is equipped with a 
3D head for cutting work pieces up to 60-degree 
angle, providing complex cutting with chamfering. 
The implementation of this new technology is being 
carried out under the long-term investment program 
for the modernization of Kazankompressormash’s 
manufacturing facilities, which is aimed at increasing 
the production volume of state-of-the-art and 
reliable compressor equipment. As a part of the 
program, the latest generation NC machining centers 
made by the leading global manufacturers have 
already been purchased and installed, resulting in a 
significant increase in the accuracy of machining and 
a reduction in the lead-time.

geared centrifugal compressor system for the Bashkir 
Soda Company that is aimed at the compression 
of circulation gas in the vinyl chloride production 
system.   

 ˆ Kazankompressormash manufactured a complete 

gas compression system for the project of 
reconstructing the Yuzhno-Balykskiy Gas Processing 
Plant (SiburTyumenGaz). This compressor system 
wascompleted with dry gas seals, redundant air-
cooled oil coolers and a bypass valve located within 
the housing of the compressor system. 

August

 ˆ HMS Livgidromash was certified in line with STO 

Gazprom’s 9001-2012 requirements. The audit was 
carried out by experts from one of Russia’s leading 
certification associations – the Russian Register 
– and notified by an organization authorized 
by Gazprom. This certificate confirms that HMS 
Livgidromash’s quality management system in 
the engineering, design, manufacture, installation 
and maintenance of pumps and pumping units 
fully complies with Gazprom’s requirements and 
provides a supply of equipment and servicing that 
meets the customer’s requirements in the areas of 
performance, reliability and safety. 

 ˆ HMS delivered new generation pumping units to 
the Southern water treatment plant of Vodokanal 
of St. Petersburg. This project was implemented 
under a strategic partnership agreement between 
HYDROMASHSERVICE and Vodokanal of St. Petersburg 
in order to provide an increase in energy efficiency 
for the objects at Vodokanal of St. Petersburg and 
to enable the citizens of St. Petersburg and the 
Leningrad Region to have accessible and high quality 
service of water supply, sewage disposal and waste 
treatment.

HMS GROUPANNUAL REPORT 201625

September

 ˆ Kazankompressormash put two compressor systems 
into operation at the Yugo-Zapadnaya CHPP Phase 2 
that are based on GCM3-107/7-31 integrally geared 
centrifugal turbochargers with a capacity of 45,996 
Nm3/h. The discharge pressure (30 bar) and 3,150 
kW electric motor are manufactured with all the 
necessary accessory equipment, including an 
automatic control system, a nitrogen station, a 
compressed air station, and a methane-nitrogen 
mixture extraction unit. Compressor systems are 
designed to compress and supply natural gas to the 
gas turbine of a PGU300 power unit, according to the 
API 617 standard requirements.  

October

 ˆ Forbes ranked HMS among the Top 200 Largest 

Private Companies in Russia and among the Top 10 
Largest Machine-Building Companies in Russia in 
2016. Moreover, Forbes has ranked HMS Group No. 9 
in the ranking for Russia’s largest private machine-
building company. Companies are ranked by their 
total revenue for 2015, which totaled Rub 667 billion, 
down by 19 percent yoy from Rub 825 billion in 2014. 
Unlike most of the other participants, HMS was one 
of the few with a revenue growth. 

 ˆ HMS Group signed a Special Investment Contract 
(SIC) with the Russian Federation (the Ministry of 
Industry and Trade and the Government of the Orel 
region) as part of the XV International Investment 
Forum “Sochi-2016.” The special investment contract 

is a new tool whose aim is to support import 
substitution in the form of an agreement between an 
investor and the Russian Federation. The signed SIC 
provides HMS Group with a package of state support 
measures for the realization of the second stage of 
the company’s localization project, which is aimed at 
developing manufacturing competences for high-
capacity oil refining, oil transport and nuclear pumps 
in Livny, in the Orel region. The key advantage gained 
from the conclusion of the contract is the admission 
of state customers to procure manufactured products 
based on a SIC without having to hold a tendering 
process, as long as the product supplier is included 
in the register of single suppliers. 

 ˆ On October 7, Gazprom’s Deputy Chairman of the 

Board, V. Markelov, and the President of HMS Group, 
A. Molchanov, signed a long-term contract for the 
manufacture and supply of import-substituting 
products manufactured by Kazankompressormash.  
According to the contract, Kazankompressormash will 
provide the serial production, delivery and after-
market services of MKU TAKAT (modular compressor 
systems) based on rotary screw compressors. This 
new generation of state-of-the-art MKU TAKAT are 
intended for application as stripper wells and 
provide a solution for the extraction of low-pressure 
gas. These systems meet the requirements of the API 
619 standard. The compressor systems fully comply 
with Gazprom’s requirements and demonstrate 
the best technical performance for this type of 
equipment. 

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE26

 ˆ Kazankompressormash manufactured 5 complete gas 
compression systems for the project of infrastructure 
development of additional wells in the East 
section of the Orenburg oil & gas condensate field 
(Gazpromneft-Orenburg). The supplied systems are 
based on high-performance compressors, which are 
designed in accordance with the API 617 standard 
and have "back-to-back" type impellers made of 
titanium alloy that provides a significant reduction in 
dynamic rotor loads. Energy-efficient NK-16-18ST gas 
turbine units manufactured by KMPO are applied as 
compressor drives. 

 ˆ HMS Group signed a contract to supply a modular 
pumping station at the Novoportovskoe oil & 
gas condensate field under the project of its 
infrastructure development. The station is intended 
for the injection of a working agent into a formation 
for pressure maintenance. 

November

 ˆ The Group signed a number of credit agreements 

with Raiffeisenbank, totaling Rub 2.9 billion. HMS has 
refinanced its previously signed credit lines of Rub 
1.8 billion at lower interest rates, which will reach 
maturity in 2019. Furthermore, the Bank and the 
company have signed a new 5-year uncommitted 
loan facility with 3-year tranches in the amount 
of Rub 1.1 billion rubles, which will reach maturity 
in 2021. The credit line was utilized for general 
corporate needs. 

 ˆ HMS supplied a large batch of pumping units for the 
modernization project at the Gazprom Neft Moscow 
Refinery. The pumping units will operate as part of 
the sulfuric-alkaline waste and process condensate 
treatment system under construction. Single-stage 
and multistage high-pressure process pumps will 
feed the system with raw material and will pump 
out petroleum products and working liquids. The 
pumps have high-efficiency hydraulics of a flow path 
and are made of highly resistant stainless steel. The 
equipment is characterized by its low vibration and 
ability to operate smoothly. As a result, the refinery 
will significantly improve its technical and ecological 
manufacturing features. The fluid catalytic cracking 
unit will be retrofitted in the beginning of 2017. After 
the retrofit, the capacity of the unit will rise by 20 
percent. In addition, the refining depth and the yield 
of light petroleum products will increase. The quality 
and ecological features of the products, as well their 
energy efficiency, will be improved. 

 ˆ The company signed a contract to supply pumping 
units the Kola Nuclear Power Plant. AS-1D pumping 
units for the reactor planned after cooling system 
and the process water system, as well as the AS-H 
pumping units for auxiliary systems, will be supplied 
under the ongoing power generator life extension 
program at the Kola Nuclear Power Plant. In addition, 
HMS Group is currently implementing a contract for 
the batch supply of high and low pressure pumping 
units for an emergency cooling system of the core 
section at the Kola Nuclear Power Plant.

December 

 ˆ Fitch Ratings assigned the JSC HMS Group (legal 

entity, the holder of HMS Group’s assets, located in 
Russia) a first time Foreign and Local Currency Issuer 
Default Rating (IDR) of “B+”, with a “stable” outlook.  

 ˆ Two centrifugal compressor units were manufactured 

by Kazankompressormash after having been 
successfully tested and put into operation at 
the booster compressor station of NOVATEK-
Yurkharovneftegaz. The 53GC2-188/10-87 compressor 
units, with a unit capacity of 2.822 mn Nm³/d and 
a discharge pressure of 87 bar, were designed to 
be operated as a part of GPA-16 NK-03H Ural’s 
gas compression systems for the compression of 
associated petroleum gas. The most advanced 
and effective technical solutions were used in the 
development and manufacture of these compressors. 
The compressors were designed with the ability to 
operate using one or two compression stages, which 
ensures the reliable operation of the compressor 
system in all specified operational cases. The 
application of dry gas seals eliminates any possibility 
for leaks of the working gas. The operating mode 
of compressor units makes it possible to use of a 
parallel arrangement of casings and an application 
of three-shaft speed-increasing gears with two 
output shafts. The advantages of this arrangement 
are its small size, the flexible operation scheme 
of compressor units  (one compressor casing 
is operating over the first few years, and in the 
following years may involve sequential operation 
of two compressor casings), as well as the system’s 
high-energy efficiency. 

HMS GROUPANNUAL REPORT 201627

Export Activities in Short

Despite the fluctuations of world’s hydrocarbon prices in 2016, which led to the suspension of many major 
international oil & gas projects, the export sales revenue of HMS Group  still managed to reach about US$ 30 million.  
At the same time, the export backlog for 2017 increased by 30 percent, equaling US$ 40 million.

In 2016, HMS Group and its manufacturing facilities were prequalified for and enrolled into the list of approved 
vendors for such significant international customers as Exxon Mobil (the West Qurna-I project), Linde AG, ENEC, 
MAADEN, the Ministry of Petroleum of Iran, NIGC, ICOFC, and others. Furthermore, the Group continued its extensive 
cooperation with strategic customers such as BP, ENI, Petrofac, DAELIM, Technip, Tecnimont, Doosan and many 
others. 

In 2016, apart from the above, after the lifting of sanctions, HMS Group re-entered the Iranian market and signed 
contracts worth around Euro 7.9 million for the supply of API process pumps to Iran’s petrochemical industries.

HMS GROUPANNUAL REPORT 2016OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCE 
MACROECONOMIC DEVELOPMENT 

28

In 2016, the global economic growth rate was equal to 
3.1 percent, with advanced economies showing a decline, 
standing at 1.6 percent compared to 2.1 percent in 2015, 
and emerging markets and developing economies 
performing slightly better than the year before, 
standing at 4.2 percent compared to 4.0 percent in 2015. 
Among the main economic developments made in 2016, 
the following deserve most attention:

Supported by recovering oil prices, Russia’s economic 
decline began to slow down, with its decline in the GDP 
decreasing from -2.8 percent in 2015 (reviewed) to 
-0.2 percent in 2016. Under continuing international 
sanctions, additional support for the economy came 
from the localisation of production, which resulted 
in a 0.4 percent growth index for the output products 
and services, with industrial production (+1.1%) and 
agriculture (+4.8%) being the main contributing factors. 

 ˆ Prices for oil, metals and other commodities 
demonstrated growth by the end of the year. 
The price of Brent oil recovered from 
US$ 31 per barrel in January 2016 to US$ 53 per barrel 
in December, following OPEC’s agreement to limit 
crude oil production;

 ˆ  The growth of the Chinese economy remained 

above 6 percent, which was supported by a targeted 
government stimulus of consumption and real estate 
market recovery;

 ˆ  The US economic growth rate slowed down to 

1.6 percent; bolstered by low inflation, the Federal 
Reserve decided to raise the interest rate to 
0.75 percent in December 2016;

 ˆ  The European economy started to slowly recover 
in 2016, with its GDP growth rate increasing from 
1.2 percent in 2015 to 1.5 percent, with Germany 
contributing 1.7 percent of the GDP growth rate 
in 2016.

By the end of the year, the Russian Ruble had 
strengthened by 17 percent against the US dollar, 
and by 20 percent against the Euro (RUB/USD: from 
72.92 to 60.66; RUB/EUR: from 79.63 to 63.81), and as 
such, its volatility became significantly lower than 
the year before.

The current account of national balance of payments 
showed a decline from US$ 69.0 billion (revised) in 2015 
to US$ 22.2 billion in 2016, mainly due to a decrease in 
exports (from US$ 342 billion in 2015 to US$ 280 billion 
in 2016), although, balanced by a decrease in capital 
outflow (from US$ 57.5 billion to US$ 15.4 billion). Foreign 
bank liabilities lowered by 54 percent to the level of US$ 
27.4 billion in 2016.

As in the first half of the year, when the pressure on 
Russian Ruble was easing and inflation (the consumer 
price index) was declining, the Bank of Russia decreased 
the interest rate from 11.00 percent to 10.50 percent 
in June and to 10.00 percent in September, which 
should encourage the corporate and private financing. 
This is now much lower than 17.25 percent interest rate 
observed at the end of 2014, but still has a potential to 
decrease even further. 

The total sum of outstanding credits issued to the non-
finance sector decreased by 6.9 percent (from Rub 
44.0 trillion at the end of 2015 to Rub 40.9 trillion 
at the end of 2016), and outstanding credits to 
corporate borrowers decreased by 9.5 percent (from 
Rub 33.3 trillion to Rub 30.1 trillion respectively). 
The volume of the corporate overdue debt was lower by 
8.9 percent in 2016 compared to 2015. 

HMS GROUPANNUAL REPORT 20162016 in Context  Macroeconomic Development  Market Trends

29

In accordance with improvements in the real 
economy, the Russian stock market started to recover: 
RTS index (based on market capitalisation in USD) 
grew from 755 points in January to 1,152 points in 
December (+53 percent with a total capitalisation of 
US$ 171.5 billion), the MICEX index grew from 1,761 points 
to 2,233 points (+27 percent with a total capitalisation of 
Rub 10.5 trillion). 

Real domestic consumption in Russia decreased 
by 3.8 percent in 2016 (compared to an 8.1 percent 
reduction of the previous year). Investment in fixed 
assets lowered by 0.9 percent in 2016.

The industrial production index increased by 
1.1 percent, supported by growth in the raw materials 
extraction sector by 2.5 percent, and in the energy, 
gas and water production sectors by 1.5 percent. 
Manufacturing showed minor positive dynamics with 
a 0.1 percent increase. The main growth in manufacturing 
came from chemical production (+5.3%), wood 
processing (+2.8%), paper production (+0.8%), the textile 
industry (+5.3%), leather goods production (+5.1%) and 
food production (+2.4%). The machinery and equipment 
production index amounted to 3.8 percent yoy; in 
2015, it showed double-digit decline of 11.1 percent. 
Other manufacturing sectors continued to decline with 
the manufacture of other non-metallic mineral products 
decreasing by 6.6 percent.

Inflation (the Consumer Price Index) in Russia reached 
5.4 percent in 2016, in comparison to 12.9 percent 
the year before. The main cause of the slowdown in 
inflation was a significant drop in consumer demand, 
with trade turnover decreasing by 5.2 percent in 2016. 
The Industrial Producers Price Index was 7.4 percent in 
2016, versus 10.7 percent in the previous year, following 
overall economic stabilisation.

The Russian Federal Budget showed a deficit of 
Rub 2.97 trillion, which comprised 3.5 percent of 
the GDP – budget revenues decreased by 1.5 percent, 
while spending grew by 5.2 percent. The decrease of 
oil and gas earnings amounted to 17.6 percent when 
compared to 2015, thus the government succeeded to 
increase its non-oil and gas revenues by 10.7 percent 
compared to 2015. The main contributing factors of 
which came from public property, including the sale 
of Rosneft’s oil company shares in the amount of 
Rub 710.8 billion.

The average unemployment rate in 2016 stood at 
5.5 percent, which is 0.1 percent lower than in 2015. 
Real wages grew by 0.6 percent, yet real disposable 
income fell by 5.9 percent – the most significant 
decrease since the year 1999.

In 2016, the Russian Federation increased its external 
debt by 2.6 percent to the level of US$51.2 billion. 
Russia’s total debt grew by 1.6 percent to Rub 11.1 trillion 
(or 12.9 percent of the GDP).

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016MARKET TRENDS
OIL INDUSTRY

30

Upstream

Midstream 

Russia has the largest oil & gas reserves in the world, 
in addition to being the world’s second largest oil 
producer, with a 13 percent share of the world’s total oil 
output. In December 2016, Russia ranked first place in 
the world for oil production. The upstream oil industry 
is still the backbone of the economy and one of its main 
sources of investment resources, which affects Russia’s 
international payments and exchange rate.

In 2016, oil output in Russia reached 547.5 million tonnes 
(+2.5% yoy), according to Russia’s Ministry of Energy. 
This increase was maintained by the development 
of new oil production centres in Eastern Siberia and 
the growth of crude oil exports to Asia, primarily to 
China, where demand for Russian oil is increasing. 

RUSSIA’S SHARE OF THE WORLD’S 
TOTAL OIL OUTPUT
13% 

Russia has the largest oil pipeline system in the world – 
more than 72 thousand kilometres of oil pipeline and 
around 500 installed pump stations. The existing trunk 
pipeline system transports over 90 percent of the crude 
oil produced in Russia.

Transneft, the only oil pipeline operator in Russia, 
increased its oil exports by 2.7 percent yoy to 
235.8 million tonnes in 2016.

The existing pipeline system is currently being expanded 
through the following projects:
1.  The Kuyumba-Taishet main pipeline
2.  Expansion of the ESPO (East Siberia-Pacific Ocean) 

pipeline system
3.  The North pipeline
4.  The South pipeline

Transneft’s total capital expenditure for 2016 is 
estimated at Rub 337.5 billion rubles. 

Oil Production in Russia,
millions of tonnes

2.5% yoy

517

523

527

534

547

547

2012

2013

2014

2015

2016

The Zapolyarye-Purpe main pipeline

Russian Well Stock,
units

0.8% yoy

Production Drilling Rate,
thousands of km

17.4% yoy

162.8

165.4

168.3

174.4

173.1

173.1

20.0

21.7

20.8

21.8

25.6

25.6

2012

2013

2014

2015

2016

2012

2013

2014

2015

2016

HMS GROUPANNUAL REPORT 2016Macroeconomic Development   Market Trends: Oil Industry  Market Trends: Power Generation and Water Utilities

Downstream

Gas Pipeline Projects

31

There are 40 oil refineries in Russia with a total crude 
oil distillation capacity of 5.5 million barrels per day. 
Rosneft, the leading Russian oil company, is the largest 
refinery operator and owns 9 major refineries in Russia. 
LUKOIL, with 4 major refineries, is the second-largest 
refinery operator in Russia. 

In Russia, a lot of refineries are out-dated and are 
not able manufacture their main products – light oil 
products with a high level of refining depth, i.e. petrol 
and diesel – at a high quality level.  Previous changes in 
taxes have encouraged companies with modest success 
to invest in the modernisation of refineries to produce 
more high quality products, such as diesel and petrol. 
Tax changes introduced in 2015 and the low global 
crude oil price will continue to stimulate refineries to 
modernise their production facilities more intensively. 
Growth in the oil refinery industry is likely to be driven 
by several new projects: 

Isomerisation process units:
 ˆ Kuybyshevsky Refinery (Rosneft)
 ˆ Ryazan Oil Refinery Company (Rosneft)
 ˆ Gazpromneftekhim Salavat (Gazprom)

Alkylation process units:
 ˆ NizhegorodNOS (LUKOIL)
 ˆ Angarsk Petrochemical company (Rosneft)

Diesel hydro-treating process units:
 ˆ PermNOS (LUKOIL)
 ˆ Antipinsk Refinery (Rosneft)

Reforming process units:
 ˆ Kuybyshevsky Refinery (Rosneft)
 ˆ Novokuybyshevsky Refinery (Rosneft)
 ˆ  Syzran Refinery (Rosneft)

Cat-cracked petrol hydro-treating process units:
 ˆ NizhegorodNOS (LUKOIL)

Gazprom is virtually the sole owner of all natural gas 
pipelines in Russia. 

In 2016, the Russian natural gas transportation system 
included more than 170 thousand kilometres of high-
pressure pipelines with 250 compressor stations 
(3,825 gas-pumping units) and 26 underground natural 
gas storage facilities. The majority of Russia’s natural 
gas pipelines were constructed during the Soviet era 
and around 75 percent of the system is more than 
20 years old. 

Since the late 2000s, Gazprom has built major new 
pipelines for the transportation of natural gas from new 
gas fields, including fields in Yamal and Eastern Siberia, 
as well as for new export routes, including exports to 
China and pipelines to Europe in order to avoid Ukraine.

The Unified Gas Supply (UGS) system includes domestic 
pipelines and the domestic part of export pipelines 
in Western Russia; however, it does not include 
pipelines in Eastern Russia. In 2007, the Russian 
government delegated Gazprom with the task of 
establish the Eastern Gas Programme (EGP) to expand 
gas infrastructure in Eastern Siberia and the Russian 
Far East. The backbone of the EGP is the “Power of 
Siberia” pipeline, which is currently under construction.

The “Power of Siberia” pipeline will run nearly 
4,000 kilometres through 5 Russian regions: the Irkutsk 
region, the Republic of Sakha (Yakutia), the Amur region, 
the Jewish Autonomous region and the Khabarovsk 
territory, and will have an annual capacity of 
38 billion cubic metres of gas.

Gazprom approved a Rub 911 billion investment 
programme for 2017.

Crude Oil Processing by 
Domestic Refineries, millions of tonnes

1.1% yoy

Pipeline

Volume
bcm

Length
km

Compressors
MW

Construction

265.4

274.5

288.9

282.4

279.3

279.3

Ukhta-Torhzok, 
first and second 
lines

90.0

2,343

1,430

2014-2019

Power of Siberia

61.0

3,056

1,330

2015-2020

2012

2013

2014

2015

2016

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016MARKET TRENDS
POWER GENERATION

32

Russia still remains one of the largest electricity 
producers in the world, behind China, the USA, Japan and 
India. The relatively low energy efficiency of its national 
industries drives strong electricity demand. As a result, 
this strong demand is linked to challenges affecting 
the limited and ageing energy production capacity, 
and explains the need for the massive investment 
programmes of power generating companies and 
the ever-increasing growth of tariffs.

In 2016, electricity output in Russia increased by 
1.2 percent yoy, reaching 1,071 billion kW/h.

Russia’s power complex consists of approximately 
600 power plants, each with an individual capacity of over 
5 MW. In 2016, the total capacity of Russia’s power plants 
amounted to 257.1 GW, exceeding the 2015 level by 3.8 GW. 
This growth was driven by the construction of new power 
facilities and modernisation of the existing infrastructure.

The power industry is composed of the following 
capacity components: thermal (68%), hydraulic (21%) 
and nuclear (11%) plants. The long-term outlook of the 
Russian power industry has been determined in the plan 
entitled “The General Scheme of Energy Development for 
the Period up to 2020”.

ELECTRICITY OUTPUT IN 2016
196.4 BN KW/H
0.6% yoy

Power generation in Russia,
bn kW/h, GW

1,080

1,060

1,040

1,020

1,000

980

960

250

200

150

100

0

2012

2013

2014

2015

2016

Total capacity of power plants in Russia
Power generation in Russia
Change in generation capacities in Russia

Thermal Power Plants

In 2016, Russia’s overall installed thermal power plant 
capacity amounted to 175GW, an increase of 1.5 percent yoy. 
The infrastructure in the thermal power sector is quite out-
dated, with almost 55 percent of the installed capacities 
being more than 30 years old. Russia’s main thermal power 
stations use organic fuels such as gas or coal.

Russian power plants have an efficiency ratio of 37 percent, 
compared to 41 percent for developed economies. 
This difference dictates the need for equipment upgrades 
at all major-power generating companies in Russia. This is 
also the reason why the technical modernisation and 
reconstruction of existing power stations is the primary 
goal for the Russian thermal power sector, in addition to 
the start-up of additional modern generating capacities. 

In total, investments grew by 3 percent yoy and reached 
Rub 390 billion.

Nuclear Power Plants

Russia possesses full-cycle technology for the nuclear 
power industry, from the extraction of uranium ore to 
electric power generation. Currently, Rosenergoatom 
operates 34 nuclear power units with an overall installed 
capacity of 27.1 GW. They account for 18.3 percent of 
domestic electricity generation. The share of nuclear power 
generation of total energy in the European part of Russia is 
30 percent, and 37 percent in the Northwest respectively.

Currently, a number of large-scale nuclear power plants 
are being constructed in Russia. The following construction 
projects are currently underway: Novovoronezhskaya 
NPP Phase II, Leningradskaya NPP Phase II, Baltic NPP, 
and the world’s first floating nuclear co-generation plant 
named “Akademik Lomonosov.” In addition to Russia, 
Rosenergoatom is constructing nuclear power plants 
abroad, namely Kudankulam in India, Bushehr in Iran, 
Ostrovets in Belarus, Ninh Thuan NPP -1 in Vietnam, as 
well as a nuclear power station in Jordan, a nuclear power 
station in Armenia, Tianwan Second Stage in China, and 
Hanhikivi-1 NPP in Finland.

The majority of the 34 nuclear operating reactors in Russia 
are in the ageing process: 80 percent of their capacity has 
a 20-40 year maturity. This has led to the development 
of a large-scale investment programme by the state 
operator Rosatom.

In 2016, electricity output grew by 0.6 percent yoy and 
reached 196.4 billion kW/h.

The estimated investments in nuclear power increased by 
9 percent yoy and reached Rub 350 billion.

HMS GROUPANNUAL REPORT 2016Market Trends: Oil Industry  Market Trends: Power Generation and Water Utilities  Operating Performance

WATER

Water consumption in Russia is showing stable and 
positive dynamics, along with the steady growth of tariffs 
and an inflow of private investments into the sector. 

Development of the water management complex 
programme of the Russian Federation in 2012-2020, 
which aims to increase the coverage of water and 
wastewater services in Russia’s regions, with the goal 
of reaching 95 percent safe water supply coverage and 
87 percent wastewater collection and treatment by 2020. 

According to the Programme, 48 reservoirs and 
hydroelectric facilities are to be constructed and 
reconstructed at existing multi-purpose water reservoirs. 
The construction and rehabilitation of infrastructure will 
contribute to creating new opportunities for equipment 
suppliers, engineering firms and construction 
companies. Emerging interest in advanced solutions, 
such as membrane systems, ultraviolet and ozone 
treatment, has created good development prospects for 
the market’s participants.

A large number of water supply systems are in need of 
modernisation due to the low capacity of centralised 
water supply systems, which impedes the development 
of localities. The share of out-dated pipes exceeds 
60 percent in some cities. 

Capital expenditure on water and wastewater 
infrastructure is forecasted to grow from US$ 2.5 billion 
in 2016 to US$ 2.7 billion in 2020.

Today, the problems of water supply and wastewater 
treatment are addressed within the framework of 
the Special Purpose Federal Housing Programme, 
a series of special purpose federal programmes 
for territorial development, and programmes for 
the development of the republics in the south of 
Russia, the Far East, the Trans-Baikal and Kaliningrad 
regions. The programmes consist of activities 
for the construction and reconstruction of water 
supply facilities, sanitation systems, and wastewater 
treatment plants.

48 RESERVOIRS
AND HYDROELECTRIC FACILITIES 
ARE TO BE CONSTRUCTED AND 
RECONSTRUCTED

33

CAPITAL EXPENDITURE ON 
WATER AND WASTEWATER 
INFRASTRUCTURE IN 2016
BN
2.5 US$

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016 
OPERATING PERFORMANCE

34

Backlog & Order Intake

The Group built its backlog at Rub 24,035 million, down 2 percent yoy due to the decline in the compressors business 
segment. 

Backlog, Rub mn

Industrial pumps

Oil & Gas equipment

Compressors

EPC

Construction

Project and design

Total

2016 FY

10,318

8,512

3,476

1,730

719

1,011

2015 FY

10,075

5,716

6,915

1,702

581

1,121

24,035

24,409

Change yoy

2%

49%

-50%

2%

24%

-10%

-2%

In the pumps business segment, the backlog increased 2 percent yoy to Rub 10,318 million because of inflow 
of contracts for recurring products. In the oil & gas equipment business segment, the backlog increased by 
49 percent yoy to Rub 8,512 million due to the increase in the number of signed contracts for recurring products. 
The compressors’ backlog declined to Rub 3,476 million because of revenue recognition of two large contracts signed 
in 3Q 2015 and 1Q 2016 and fewer contracts signed for recurring products. The EPC backlog increased by a minor 
2 percent to Rub 1,730 million due to better performance of the construction sub-segment.

Order intake, Rub mn

Industrial pumps

Oil & gas equipment

Compressors

EPC

Construction

Project and design

Total

2016 FY

15,999

17,125

5,172

2,328

771

1,557

40,624

2015 FY

15,399

7,919

8,145

1,517

-181

1,698

32,979

Change yoy

4%

116%

-36%

53%

n/a

-8%

23%

Order intake1 grew by 23 percent and equalled Rub 40,624 million based on growth of all segments except the 
compressors. Order intake for industrial pumps increased by 4 percent because of more orders for recurring 
products. The oil & gas equipment grew by 116 percent not only because of large contracts signed but also due to  
72 percent growth of recurring business. 

In 2016, HMS Group signed three large contracts: two contracts worth almost Rub 5.6 billion in the oil & gas business 
segment, and a Rub 2.8 billion contract – in the compressors segment. 

Order intake for compressors decreased by 36 percent because the large contract signed in the reporting period  
(Rub 2.8 bn) was smaller than the large one signed in the comparative period (Rub 3.7 bn) combined with fewer 
recurring contracts signed. The latter was less because Kazankompressormash slowed down its activity in the area of 
recurring business to keep its productive capacity free as there were several large contracts under discussion. One of 
these discussed contracts was signed in 1Q 2017, adding Rub 3.9 billion to the compressors’ order intake and backlog.

In the EPC segment, TGS (the construction sub-segment) signed a number of new contracts. 

1  According to management accounts

HMS GROUPANNUAL REPORT 2016FINANCIAL PERFORMANCE

Group Performance

35

Group revenue was up by 11 percent yoy and reached a new high of Rub 41,582 million, growing for the third year in a row. 

In terms of revenue mix, this growth was supported the most by recurring products. In 2016, recurring business increased 
by 15 percent and as a share of revenue amounted to 75 percent vs. 73 percent last year. Here, machine-building recurring 
products2 grew by 18 percent yoy. Revenue from large contracts also grew, but at a slower pace, by only 3 percent yoy. 

In terms of segments, the compressors business segment was the driver of the revenue increase because of large 
contracts. 

Financial highlights, Rub mn

Revenue

EBITDA

EBITDA margin

2016 FY

41,582

6,369

15.3%

2015 FY

Change yoy

37,296

7,446

20.0%

11%

-14%

EBITDA margin decreased to 15.3 percent from 20.0 percent in the comparative period due to two main factors: 
 ˆ A decrease in the profitability of the pumps business segment because of the revenue mix with a larger share of 

recurring business, which has lower margins compared to large projects; 

 ˆ An increase in the share of large contracts in the compressors segment, that still have low margins. 

EBITDA declined by 14 percent yoy to Rub 6,369 million mainly because of the decline in the pumps business segment 
due to smaller share of large contracts, especially in 1Q 2016. The pumps’ EBITDA was almost completely generated 
by recurring business. In the oil & gas business segment, EBITDA generated by large contracts declined, and recurring 
business, in contrast, grew significantly, due to a higher profitability of innovative projects, among other things. Also, there 
was a high basis of comparison for the oil & gas equipment segment last year. The compressors segment increased its 
share in the company’s EBITDA as well as in the large contracts’ portfolio. 

Cost of sales increased by 19 percent yoy to Rub 30,799 million compared with Rub 25,783 million. This growth outpaced 
revenue (+11% yoy) and was driven by materials and components (+22% yoy). The main reason was a change in the 
prevailing type of contracts, which became more material-intensive in particular because of a specific nature of KKM’s 
contracts. Labour costs stayed unchanged, and as a share of revenue even decreased to 11 percent from 12 percent. 

Cost of sales, Rub mn

2016 FY

2015 FY

Change yoy

Share of revenue 
2016 FY

Share of revenue 
2015 FY

Cost of sales

Materials and components

Labour costs

Construction & design and 
engineering services of 
subcontractors

Depreciation and amortization

Others

30,799

20,172

4,627

2,173

1,340

2,487

25,783

16,520

4,607

1,135

1,281

2,239

19%

22%

0%

91%

5%

11%

74.1%

48.5%

11.1%

5.2%

3.2%

6.0%

69.1%

44.3%

12.4%

3.0%

3.4%

6.0%

Operating expenses excl. Cost of sales grew by 3 percent yoy to Rub 6,771 million, whilst as a percentage of revenue 
decreased to 16.3 percent. 

Distribution and transportation expenses increased by 23 percent yoy and amounted to Rub 1,700 million. As a percentage 
of revenue, they also grew, to 4.1 percent from 3.7 percent. Major contribution to the increase was made by transportation 
expenses and other expenses related to contracts’ execution. Here, transportation expenses grew due to a growth of the 
number of heavy and oversized products dispatched as well as more deliveries to remote northern regions of Russia. 

2 Machine-building products include standard pumps, oil & gas equipment, and compressors, and exclude EPC (GTNG and TGS) 

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016FINANCIAL PERFORMANCE (CONTINUE)

36

General and administrative expenses declined by 2 percent to Rub 4,523 million. 

SG&A expenses3 grew by 4 percent yoy to Rub 6,223 million, with lower share in revenue (15% in 2016 vs 16% in 2015).  
The growth of SG&A expenses was mainly because of an increase in transportation costs. 

 Expenses other than Cost of sales, 
 Rub mn

Distribution and transportation

General and administrative

Other operating expenses

Operating expenses ex. Cost of sales

Finance costs 

2016 FY

2015 FY

Change yoy

Share of revenue 
2016 FY

Share of revenue 
2015 FY

1,700

4,523

548

6,771

1,905

1,378

4,603

624

6,605

2,087

23%

-2%

-12%

3%

-9%

4.1%

10.9%

1.3%

16.3%

4.6%

3.7%

12.3%

1.7%

17.7%

5.6%

Operating profit declined by 20 percent to Rub 3,624 million compared with Rub 4,525 million because of the lower EBITDA. 
Operating margin decreased to 8.7 percent (2015: 12.1%). 

Finance costs declined by 9 percent yoy to Rub 1,905 million. Foreign exchange revaluation gain more than compensated 
for the growth of interest expenses of 11 percent yoy. 

As of January 1, 2017, average interest rate grew to 12.2 percent (01.01.2016: 11.4 percent), where Ruble-denominated only, in 
contrast, decreased to 12.4 percent (01.01.2016: 12.5 percent). Within a year, interest rate increased during the first 9 months. 
The reasons for the growth were the same as in the previous reporting period: a Euro-denominated loan was refinanced 
with a Ruble-denominated one, “old” before-the-crisis loans at low interest rates were replaced with more expensive 
ones. But since 4Q 2016, the average interest rate began to decrease. 

Profit for the year decreased by 32 percent yoy to Rub 1,198 million from Rub 1,764 million, due to the lower operating 
profit. And profit for the year adj. equaled to Rub 1,587 million, down 26 percent from Rub 2,148 million. 

Segment Performance

The reportable operating segments derive their revenue primarily from the manufacture and sale of industrial pumps, 
oil and gas equipment, compressors, oil and gas construction and other products and services. From 2015 onwards, HMS 
Group reports a total segment’s revenue, which includes external revenue and intersegment revenue, for more consistent 
demonstration of the performance of each segment. 

Industrial pumps Business Segmenta

The industrial pumps business segment’s revenue declined by 7 percent yoy to Rub 16,724 million. EBITDA decreased by  
33 percent yoy to Rub 2,755 million. As a result, EBITDA margin decreased to 16.5 percent. 

The main reason for the lower financials was a decline in the share of large high-margin contracts in revenue and EBITDA. 
Here, EBITDA was almost completely generated by recurring business with lower margin.

 Industrial pumps, Rub mn

Revenue

EBITDA

EBITDA margin

2016 FY

16,724

2,755

16.5%

2015 FY

Change yoy

17,925

4,098

22.9%

-7%

-33%

3  SG&A expenses = Selling, General and Administrative Expenses = Distribution and transportation + General and administrative  

a The industrial pumps business segment designs, engineers, manufactures and supplies a diverse range of pumps and pump-based integrated solutions to customers in the oil and 

gas, power generation and water utilities sectors in Russia, the CIS and internationally. The business segment’s principal products include customized pumps and integrated solutions 

as well as pumps built to ordinary specifications; it also provides aftermarket maintenance and repair services and other support for its products.

HMS GROUPANNUAL REPORT 2016Operating Performance  Financial Performance  Key Projects at HMS

Oil & Gas equipment Business Segmentb

37

Revenue stayed almost flat at Rub 15,144 million and EBITDA was down by 7 percent yoy to Rub 3,032 million. From the 
perspective of recurring business, the oil & gas equipment segment continued to deliver strong results. 

There was a twofold decrease in revenue from large contracts in the oil & gas business segment, but recurring business 
almost substituted them. EBITDA generated by large contracts declined. Recurring business, in contrast, showed significant 
growth in EBITDA terms. Also, the oil & gas equipment segment last year demonstrated a high basis of comparison.

EBITDA margin declined to 20.0 percent because of a larger share of recurring business. But, margins for recurring oil 
& gas equipment are higher than in the previous periods due to a higher level of innovation and added value of new 
equipment put into operation.

 Oil & Gas equipment, Rub mn

Revenue

EBITDA

EBITDA margin

Compressors Business Segmentc

2016 FY

15,144

3,032

20.0%

2015 FY

Change yoy

15,218

3,246

21.3%

0%

-7%

Revenue grew by 108 percent to Rub 8,700 million, and EBITDA increased to Rub 619 million mainly due to growing 
portfolio of large contracts.  EBITDA margin was almost the same 7.1 percent vs. 7.5 percent in the compared period.

Compressors, Rub mn

2016 FY

2015 FY

Change yoy

Revenue

EBITDA

EBITDA margin

8,700

619

7.1%

4,183

315

7.5%

108%

96%

Engineering, Procurement and Construction (EPC) Business Segmentd

The EPC business segment continued its negative dynamics. Revenue was down to Rub 2,297 million from Rub 2,617million. 
EBITDA dropped to minus Rub 75 million from plus Rub 180 million due to poor performance of the both sub-segments: 
project & design and construction. These weak results are a direct consequence of the shrinking contracts portfolio 
because of tougher pricing of oil & gas majors and stronger competition in the stagnating market for a small number of 
orders.  As a result, EBITDA margin turned negative 3.2 percent from positive 6.9 percent last year.

EPC, Rub mn

Revenue EPC

EBITDA EPC

EBITDA margin EPC

2016 FY

2015 FY

Change yoy

2,297

-75

-3.2%

2,617

180

6.9%

-12%

-142%

b The oil & gas equipment business segment manufactures, installs and commissions modular pumping stations, automated metering equipment, oil, gas and water processing and 

preparation units and other equipment and systems for use primarily in oil extraction and transportation. The segment’s core products are equipment packages and systems installed 

inside a self-contained, free-standing structure which can be transported on trailers and delivered to and installed on the customer’s site as a modular but fully integrated part of the 

customer’s technological process. 

C The compressors business segment designs, engineers, manufactures and supplies a diverse range of compressors and compressor-based solutions, including compressor units 

and compressor stations, to customers in the oil and gas, metals and mining and other basic industries in Russia. The business segment’s principal products include customized 

compressors, series-produced compressors built to ordinary specifications, and compressor-based integrated solutions.

d The engineering, procurement and construction (EPC) business segment provides design and engineering services, project management and construction works for projects for 

customers in the oil upstream and midstream, gas upstream and water utilities sectors.

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016FINANCIAL PERFORMANCE (CONTINUE)

38

Cash Flow Performance, Debt and Liquidity Position

Working capital4 increased by 13 percent yoy to Rub 9,962 million because of the continuing execution of large contracts. 
But as a share of revenue it stayed stable at 24 percent. 

Working capital, Rub mn

Working capital

Working capital / Revenue LTM

Capital expenditures

2016 FY

2015 FY

Change yoy

9,962

24%

1,701

8,813

24%

1,457

13%

17%

Despite the increase in working capital, HMS Group generated net operating cash inflow of Rub 1,808 million.

HMS’ capex grew 17 percent. This growth affected Net cash used in investing activities, the net outflow of which increased 
to Rub 1.8 billion (2015: Rub 1.4 billion). 

The company continues execution of its Localization project5 where it invested Rub 665 million during 2016 year. Excluding 
these capital expenditures, HMS raised its maintenance capex by 26 percent yoy to Rub 1.0 billion. In 2014-2015, the 
company reduced its capital expenditures due to the economic crisis in Russia and imposed sanctions, and today is 
increasing them to a “normal” level required for further development. 

Increased investment activities decreased free cash flow6, which amounted to Rub 20 million. 

Cash flow performance, Rub mn

2016 FY

2015 FY

Change yoy

Net cash (used in)/from operating activities

Net cash used in investing activities

Free cash flow (FCF)

Net cash (used in)/from financing activities

Cash & cash equivalents

1,808

-1,788

20

-394

2,990

1,881

-1,431

451

-1,594

3,496

-4%

25%

-95%

-75%

-14%

Cash & cash equivalents were down to Rub 3.0 billion vs. Rub 3.5 billion last year. 

Net cash (used in)/from financing activities increased by Rub 1.2 billion. 

Total debt increased by 3 percent yoy to Rub 16,336 million. Net debt grew by 8 percent yoy to Rub 13,347 million because 
financing cash flows (buy back of issued shares, dividends paid and purchase of a stake of Apollo), that totaled almost 
Rub 1.1 billion, weren’t covered by free cash flow of Rub 20 million. Larger Net debt and lower EBITDA resulted in the higher 
2.10x Net debt-to-EBITDA LTM ratio.

In December 2015, the Group exercised its right under the option agreement to acquire the remaining 25% share in Apollo 
Goessnitz GmbH. Share purchase transaction was legally completed in February 2016, and, as a result of this transaction, 
the Group increased its ownership interest in Apollo Goessnitz GmbH from 75% to 100%.

Debt & Liquidity, Rub mn

2016 FY

2015 FY

Change yoy

Total debt

Long-term debt

Short-term debt

Net debt

Net debt / EBITDA LTM

16,336

12,770

3,566

13,347

2.10

15,884

11,218

4,667

12,388

1.66

3%

14%

-24%

8%

3  Working capital is calculated as Inventories + Trade and other receivables (excluding Short-term loans issued, Bank deposits and Promissory notes receivable) + Current income tax 

receivable - Trade and other payables - Short-term provisions for liabilities and charges - Current income tax payable - Other taxes payable - Dividends payable (Rub 393 mn) which 

emerged because of dividends announcement in Dec 2016 and their payment in Jan 2017

HMS GROUPANNUAL REPORT 2016 
Operating Performance  Financial Performance  Key Projects at HMS

 Credit rating 

39

Fitch Ratings assigns JSC “HMS Group” (legal entity, the holder of HMS Group’s assets, located in Russia) a first time Foreign 
and Local Currency Issuer Default Rating (IDR) of “B+”, the outlook “Stable”. 

Significant Events & Financial Management After the Reporting Date

In March 2017, HMS Group signed two large contracts: Rub 3.9 billion for delivery of compressor equipment and Rub 10.2 
billion for delivery of oil & gas equipment. 

Financial management

In February 2017, HMS Group successfully placed a Rub 3.0 billion exchange bonds issue of JSC “Hydromashservice”, one 
of the main operational subsidiary of the Group. The company came back to the public debt capital markets with Rub 
3 billion 10.75 per cent coupon bonds with a 3-year put option and 10-year maturity. It was the first HMS Group debt 
issuance since 2013.

The same month, HMS signed a credit agreement with UniCredit Bank totaling Rub 800 million.  The 3-year loan facility 
with maturity in 2020 was utilized for general corporate needs, including refinancing at lower interest rates its previously 
signed credit lines. 

As of mid-April, 2017, average interest rate of Ruble-denominated loans decreased to 11.2 percent and to 11.0 percent for all 
loans, including FX-denominated.  

In April 2017, HMS did the following, among other things:
 ˆ Lowered the interest rates of one credit line without its refinancing, and
 ˆ Refinanced Rub 1.86 billion at a lower interest rate.

Change in Business segments and reporting structure

Due to the change in the internal management and reporting structure effective 1 January 2017, the results of the Group’s 
subsidiaries Giprotyumenneftegaz PJSC and Institute Rostovskiy Vodokanalproekt OJSC since 1 January 2017 will be 
presented within “Oil and gas equipment” segment, whereas previously these entities were included in “Engineering, 
procurement and construction” and “Industrial pumps” segments, respectively. Additionally, starting from 1 January 
2017, “Engineering, procurement and construction” segment will be renamed “Construction” segment, and “Oil and gas 
equipment” segment will be renamed “Oil and gas equipment and projects” segment. Because such changes occurred 
after the period end, they have not been reflected in the segment information herein, but will be reflected for the first 
time in the reporting period for 2017.

HMS GDRs

During the period from December 1, 2016 up to and including April 26, 2017, HMS Group repurchased 37,693 of its global 
depositary receipts (“GDRs”). The share repurchases are part of the Company’s buy-back program. In total, HMS Group 
purchased 903,562 GDRs (3.86 percent of its issued share capital).

5 Development of manufacture competences for high capacity oil transport pumps and nuclear pumps in Russia, Orlov region (Livny) at HMS Livgidromash

6 Free cash flow (FCF) = Net cash (used in) / from operating activities (operating cash flow) + Net cash used in investing activities (investing cash flow), represents the cash that a 

company is able to generate after laying out the money required to maintain or expand its assets base. 

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016 
 
KEY PROJECTS AT HMS

40

Centrifugal compressor 4GC2-75/30-83 GTU with gas-turbine engine

Major Siberian gas field

Completed Projects

Projects on Track

In 2016, HMS Group completed the delivery of oil & 
gas equipment to a major Russian oil & gas company 
under the so-called “Liquid Hydrocarbon Project,” signed 
in 2Q 2014. The total size of the contract, including 
additionally signed specifications, amounted to 
7 billion rubles. 

SUCCESSFUL COMPLETION OF THE  
LH PROJECT WITH ONE OF THE RUSSIAN  
OIL & GAS MAJORS RESULTED IN FOLLOW-UP 
CONTRACTS

7 RUB BN

In December 2013, the company signed 
a 5.7 billion rubles contract to supply an integrated 
solution to a major Siberian gas field. According to 
the contract, HMS will design, manufacture, deliver, 
supervise and test the complex technological facility, 
including compressors, pumps, tanks, vessels, filters, 
coolers and other components. The project is planned 
for completion in the near future.

In 2016, the company signed several follow-up contracts 
as a result of the successful execution of recently 
completed large-scale projects: 

 ˆ Contracts for the production of a boosting 
compressor station. The station, based on 
3centrifugal-type compressor units with gas-turbine 
engines intended for the compression of low-
pressure associated gas, will be manufactured by 
Kazankompressormash and installed on an oil and 
gas condensate deposit, located in Western Siberia;

 ˆ A contract for the delivery and installation of 

technologically integrated solutions for two Siberian 
gas fields. HMS Neftemash will deliver complex 
integrated solutions for the pumping of natural gas 
liquids and the pumping of oil, wash-down water and 
rust preventive chemicals. 

DEVELOPMENT OF DESIGN DOCUMENTATION, 
MANUFACTURING, DELIVERY, SUPERVISION 
AND TESTING OF COMPLEX TECHNOLOGICAL 
FACILITY, INCLUDING COMPRESSORS, PUMPS, 
TANKS, VESSELS, FILTERS, COOLERS AND OTHER 
COMPONENTS FOR PROVIDING COMPLEX 
INTEGRATED SYSTEMS

5.7 RUB BN

HMS GROUPANNUAL REPORT 2016Financial Performance  Key Projects at HMS  Research And Development

41

API 610 oil-refining pumps

Inter-stage compressor stations based on turbo-compressor units 

New Projects

New Projects after the Reporting Date

In March 2017, HMS Group signed a 10.2 billion rubles 
contract for the delivery of a range of technologically 
integrated solutions, including helium concentrate 
membrane recovery units (skids 1st and 2nd stage), 
as well as inter-stage compressor stations based on 
turbo-compressor units and gas booster stations, to be 
completed in the first quarter of 2018.

Later, the company signed a contract for the delivery 
of major and accessory processing equipment worth 
3.9 billion rubles, for the reconstruction of gas booster 
stations at the customer’s oil & gas condensate field. 

In the autumn, HMS Group signed a 9 million Euro 
contract to deliver oil-refining pumps in line with 
the API 610 international standard. This project is 
managed by a top international engineering company, 
which serves as a customer engineer under its EPS 
(Engineering and Procurement Services) contract with 
the Russian customer. HMS will produce and deliver 
more than 50 centrifugal API pumps of different designs 
for an atmospheric crude distillation unit/vacuum 
distillation unit, to be installed at one of Russia’s largest 
high-tech oil refining plantlocated in Western Siberia. 

In addition, several contracts with a total worth of 
7 million US dollars were signed to deliver 8 turbine 
feed pumps and other pumping equipment to 
the third and the fourth power plant units in 2017 and 
2018 respectively. These contracts are a follow-up to 
the contracts executed in 2004-2006 for the delivery of 
main pumping equipment to the first and the second 
units of this nuclear power plant. 

HMS ENTERED THE MARKET FOR PROJECTS 
OF INTERNATIONAL ENGINEERING 
CONTRACTORS IN RUSSIA, WITH SIGNING 
OF THE CONTRACT TO DELIVER API 610  
OIL-REFINING PUMPS

9 EUR MN

THERE ARE VERY FEW SIMILAR PROJECTS 
REALIZED IN THE WORLD, AND IT IS THE FIRST 
PROJECT OF THIS KIND IN RUSSIA. HMS GROUP 
WILL DESIGN AND MANUFACTURE EQUIPMENT 
TO OPERATE UNDER ADVERSE CLIMATIC 
CONDITIONS

10 RUB BN

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016RESEARCH AND DEVELOPMENT

42

HMS Group is continuously strengthening its research and development 

capabilities, with the Company`s strategy being aimed at establishing 

the best Research & Development in Russia and CIS countries. 

Our investments are dedicated to strengthening our core competencies 

in industrial pumps, oil and gas equipment and compressor 

technologies, as well as in developing solutions for the oil and gas 

industry and water utilities.

Pumps

Localisation Project
In 2016, HMS deepened the process of localising 
heavy pumps and pumping equipment, extending 
the lines of pumps produced at HMS Livgidromash. 
The company completed the first stage in Q1 2016. 
Within the framework of this project, HMS constructed 
a new production unit and a new transformer 
substation. The newly built test complex has become 
the only one of its kind in Russia, enabling testing of 
pumping units installed at the oil pipelines of Transneft 
and Rosatom’s nuclear power plants. It consists of 
all the main and support systems needed to conduct 
operational testing of heavy centrifugal pumping units.

Within the second stage of the project, 
a manufacturing building is to be constructed, which 
will be equipped with modern high-performance 
equipment. Additional manufacturing capacities 
and the multifunctional test complex will maintain 
HMS Group’s leading position and will cover customer 
requirements for high-tech pumps in the long term.

The project is being supported by the Ministry of Industry 
and Trade of the Russian Federation, the Government of 
the Orlov region and the Fund of Industry Development 
of the Russian Federation. HMS Group plans to complete 
the project by the end of 2017.

HMS GROUPANNUAL REPORT 2016Key Projects at HMS  Research And Development  Social Responsibility

43

New D series pumping units based on double-suction 
centrifugal pumps are characterized by improved 
service reliability and easy maintenance. Pumps are 
completed with ADCHR series induction motors made 
by RUSELPROM. 

A new generation of the double-
suction pumps, DeLium series, 
are developed with computer 
modelling and meet up-
to-date requirements for 
high efficiency, long service 
life and reliability. Extensive 
model range and using at 
least two interchangeable 
impellers for one casing allows 
the selection of the most suitable pump within 80-
3500 m3/h capacity range and 5-180 m head range. 
In addition, the impellers could be manufactured in 
accordance with specific customer requirements. Pump’s 
curves are adopted for parallel operation and operation 
with variable speed drives. Various versions of pumps 

are available for operation 

in the regions 
within -60 
to +60°С 
temperature 
range.

Nasosenergomash continues the differentiation of 
foundry materials created that are used for pump 
production. Manufacturing with post-heat treatment 
was development for the following alloy steels: 
1.1138 SEW 685, 1.4107 EN 10213, 1.4317 EN 10213, and 
others. New steel grades have high rates of resistance 
to corrosion and cavitation and are thus intended for 
operation in aggressive environments. 

In 2016, we continued to expand our pump products 
lines with new API pump models. We started to 
introduce to the market a new line of overhung water 
pumps (Kordis), launched a new family of pumps for oil 
refining (2NK, 2NPS), developed and started production 
of advanced pumps for oil transport (upgraded 
main line NM and new vertical NMV pumps). We also 
significantly upgraded our lines of pumps for power 
generation (PE feed pump and KsV condensate removal 
pumps) and launched an advanced model of slurry 
pumps for mining industry (HDP).

2NK series API 610 ОН2 pumps are the main processing 
pumps in petrochemicals and gas refining. They are also 
widely used in heavy duty industries like petroleum, 
petrochemical, energy, etc. The new pump line is 
available in a wide spectrum of construction and 
numerous design alternatives to meet all demand. 
It took more than 3 years of intensive work to develop 
and set up the production.   

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016RESEARCH AND DEVELOPMENT (CONTINUE)

44

Oil & Gas Equipment

Nitrogen Generator
HMS produced a prototype for a membrane nitrogen 
generator and completed its element-by-element set up 
(the heater, the pneumatic valve, the flow controller, and 
the gas analyser). 

Plate Heat Exchangers 
In 2016, HMS Neftemash began the realisation of 
a project for the development and production of plate 
heat exchangers for Russia’s petrochemical facilities. 
Under this project, HMS set up production of gasketed 
plate exchangers for oil and gas, in cooperation with 
G.A.M. Heat (Germany) and Euro Heat (Serbia). 

Binary Mixtures
In 2016, Sibneftemash begun the realisation of a project 
aimed at developing a technology and equipment 
complex for thermo-chemical, oil-and-gas-bearing 
formation treatment with the aim of increasing 
hydrocarbon production and restoring the ecological 
environment on oil & gas fields, instead of using the 
foreign technology of proppant-gel fracturing. 

The project is being carried out in cooperation with 
Tyumen State University and the Institute of Biochemical 
Physics of the Russian Academy of Sciences. Currently, 
the composition of binary mixtures’ components, 
stabilizers, initiators and the degradation of binary 
mixture activators in reservoirs, as well as their energy 
characteristics and mixture preparation procedure, 
have been optimised. The Company has produced 
prototypes of units for the preparation, mixing and 
injection of mixtures into reservoirs. HMS has applied for 
two patents: one for a mixing pump and one for a unit 
for the production and injection of binary mixture in 
reservoirs. 

HMS GROUPANNUAL REPORT 2016Key Projects at HMS  Research And Development  Social Responsibility

Compressors

Centrifugal Compressor Units
HMS Group has developed and produced a centrifugal 
compressor unit with a parallel arrangement of 
pressure cases that is unrivalled throughout the world. 
The 53GTs2-188/10-87 GTU unit will be put into operation 
at a boosting compressor station of NOVATEK’s 
Yurkharovskoe field. The realised plan, with parallel 
cases of low- and high- pressure, enables the effective 
transportation and processing of natural oil and gas 
within a wide range of gas composition, flow rate 
and pressure. 

45

Modular Compressor Unit TAKAT 78.2-7 M3a HL1
HMS developed a modular compressor unit (MCU) 
based on an oil-flooded screw compressor in order to 
operate in a technology of distributed compression on 
GAZPROM’s Yamburgskoe oil & gas condensate field. 
MCU TAKAT is composed of domestic components and 
consists of two container modules (compressor and 
separation) with an electrical module, a control module 
and a reserve generator that serves as a back-up system.

The Group’s current operating portfolio includes 
246 patents, 46 registered trademarks and 26 registered 
computer programmes, reflecting our commitment to 
research & development. 

Legal Protection of Intellectual 

Property

In 2016, the HMS Group continues the complex 
protection of exclusive rights to its products and the 
individualisation of produced goods and services that 
are provided with the purpose to acquire the right of 
exclusive use in the market. The company has received 
exclusive rights on 20 intellectual property assets: 
16 invention and utility model patents, 1 registration of 
application software, and 3 trademark registrations.

These patented technologies are intended to enhance 
the work of:
 ˆ Centrifugal pumps and compressors, and their 

separate units and parts,

 ˆ Gas separators,
 ˆ Compressor oil preheating systems,

as well as the improvement of the conditioning process 
of an oil-gas-water blend for transport, and the design 
of new products for thermo-chemical, oil-and-gas-
bearing formation treatment.

The stable annual dynamics for the registration of 
exclusive rights are related to HMS’ policy of discovery 
and the necessary provision of legal protection to 
the high-tech results of its intellectual activity. 

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016 
SOCIAL RESPONSIBILITY 

46

HMS Group fully recognises its responsibility to all of its stakeholders 

and makes an effort to communicate with them on a regular basis. 

The Group maintains an enduring and solid record of commitment 

to its people, contributing to social development and improvements 

in the quality of life across the local communities in the regions 

of its operation.

People

As an employer of over 15,000 people and being 
one of the major job creators across cities where 
the facilities are located, we carry enormous 
responsibilities for the people affected by our 
operations. We believe that employees are one of the 
core assets of HMS Group, and therefore, we can only 
be successful and sustainable through the attraction 
and retention of the best people, and by encouraging 
and developing them to achieve their full potential. 

In 2016, we continued our staff training and education, 
focusing mainly on the areas of accounting and 
functional education, including the development of 
managerial competencies for the company’s officers 
(with MBA/EMBA programs), as well as English 
language instruction. 

HMS GROUPANNUAL REPORT 2016Research And Development  Social Responsibility  BoD and its Committees

HMS conducts systematic actions that address 
accident prevention and the creation of healthy and 
safe working conditions. Safety is one of our top 
priorities and the company is improving its health and 
safety standards on a regular basis. 

This includes courses and trainings on occupational 
safety, fire and the environment, which are held at all 
production sites throughout the year. We also hold 
regular, routine medical check-ups for employees 
working in hazardous production areas. 

HMS’ branches issue free personal protective 
equipment, including work clothes, safety shoes and 
other personal safety apparel. The company analyses 
the given personal safety apparel on a regular basis, 
as well as examining novelty products. 

We promote and encourage a healthy lifestyle, not 
only because it helps to maintain a productive and 
positive workplace, but also because it is the right 
thing to do. 

In February 2017, one of HMS’ employees, 
Nikolai Kuzovlev, successfully participated in the 2016-
2017 Ice Climbing season, winning 8 medals. The last 
one was the bronze medal in the 2017 Ice Climbing 
World Championship.

The Environment

The efficient use of natural resources is one of 
HMS Group’s main priorities. The Group systematically 
implements environmental and energy-saving 
technologies at its production sites, in spite of 
the fact that the environmental impact of HMS Group’s 
subsidiaries is generally low. 

Not only do we continue to work on developing 
and selling an energy-efficient product and service 
solutions, but we also focus all of our businesses 
on the efficient consumption of fuel, paper, water, 
electricity and heating. 

The HMS Group conducts activities on a regular basis 
to offset its impact on the environment, including 
waste management, the analysis and control of 
water quality on industrial sites, compliance with 
environmental emissions, and the monitoring of 
the industrial environment. 

Charity

47

HMS’ charity initiatives are aimed at improving 
the social climate in regions where the company 
operates. The creation of jobs and business 
opportunities also strengthen local economies and 
provide support for the development of community 
projects.

HMS Group focuses at helping children who are in 
need of medical treatment, as well as children in need 
of social and professional assistance, of which these 
projects are realised through:

 ˆ Social support and protection of citizens, 

including improvement of the financial position 
of the indigenous peoples, social assistance 
to the unemployed, the disabled and other 
disadvantaged groups who, due to their specific 
physical or intellectual condition or other 
circumstances, are unable to implement their 
legitimate rights and interests by themselves;

 ˆ Promoting the prestige and the role of the family 

in society;

 ˆ Promoting the protection of motherhood, 

fatherhood and childhood.

Average Headcount 
as of 31 December 2016

17,814

16,913

15,613

15,236

15,018

15,018

2012

2013

2014

2015

2016

The average headcount decreased mainly because of 
restructuring in the EPC Business Unit.

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016BOARD OF DIRECTORS

48

HMS Group’s corporate governance practices are designed to ensure 

that the interests of all its stakeholders are given due consideration. 

The corporate affairs are governed by the memorandum 
and articles of association of the Company 
and the provisions of applicable Cyprus law. 
Although the Company is not subject to any mandatory 
corporate governance code in its home jurisdiction 
of Cyprus, nor required to observe the UK Corporate 
Governance Code, it has implemented various corporate 
governance measures. These include the appointment 
of two independent non-executive Directors to 
its Board of Directors and the establishment of 
an Audit Committee and a Remuneration Committee. 

Each of these Committees of the Board of Directors 
is chaired by an independent, non-executive Director. 
Under the Cyprus Companies Law, the directors have 
to declare the nature of their interest (either direct or 
indirect) in transactions at a meeting of the directors 
of the company. Under the articles of association of 
the Company, directors have no right to vote on a matter 
in which they have an interest even if the director has 
disclosed any interests in the transaction. HMS Group 
continues to review its corporate governance policies in 
line with international best practice.

The Board of Directors and Performance

General Overview
The Board of Directors consists of eight (8) 
members, three (3) of whom are Executive Directors. 
During the year Mr. Vladimir V. Lukyanenko was 
appointed as a Director of the Company by the Board 
of Directors.

THE BOARD OF DIRECTORS 
CONSISTS OF
8 MEMBERS

  Mr. Nikolay N. Yamburenko

Chairman of the Board of Directors  
Non-Executive Director  
Chair of the Strategy and Investments Committee

Mr. Yamburenko was appointed as a member of 
the Board of Directors in October 2010. He has been 
a non-executive member of the Board of Directors 
since 10 July 2014, when he was appointed Chair of 
the Board of Directors. Mr. Yamburenko previously 
held the position of Head of the Industrial Pumps 
Business Unit from 2005. Prior to joining the Group, 
Mr. Yamburenko was the CEO of Livhydromash 
(HMS Pumps), which is now part of the Group. 
Mr. Yamburenko has more than 30 years of industry 
experience. He graduated from the faculty of radio 
electronics of the Moscow Aviation Institute named 
after S. Ordzhonikidze, where he gained a degree in 
radio electronics.

HMS GROUPANNUAL REPORT 2016Social Responsibility  BoD and its Committees  Risk Management & Internal Control


















  Mr. Nikolay N. Yamburenko

49

Chairman of the Board of Directors  
Non-Executive Director 

  Mr. Artem V. Molchanov

Member of the Board of Directors 
Managing Director (CEO)

  Mr. Kirill V. Molchanov

Member of the Board of Directors

  Mr. Vladimir V. Lukyanenko

Member of the Board of Directors 
Non-Executive Director

  Mr. Yury N. Skrynnik

Member of the Board of Directors

  Mr. Philippe Delpal

Member of the Board of Directors 
Chair of the Audit Committee 
Independent Director

  Mr. Gary S. Yamamoto

Member of the Board of Directors 
Chair of the Remuneration 
Committee 
Independent Director

  Mr. Andreas S. Petrou

Member of the Board of Directors 
Non-Executive Director

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 201650

EXECUTIVE DIRECTORS

  Mr. Artem V. Molchanov

  Mr. Kirill V. Molchanov

Member of the Board of Directors 
Managing Director (CEO)

Member of the Board of Directors

As one of the founders of the Group, Mr. Molchanov 
has held various executive positions within 
HMS Group since its establishment in 1993. 
Mr. Molchanov became the President of HMS Group in 
2008 and was appointed as an executive member of 
the Board of Directors in October 2010. Mr. Molchanov 
has more than 20 years of industry experience. 
He graduated from the Plekhanov Russian Academy 
of Economics (currently Plekhanov Russian University 
of Economics), where he gained a degree in industrial 
economics.

As one of the founders of the Group, Mr. Molchanov 
has held various executive positions within 
HMS Group since its establishment in 1993. 
Mr. Molchanov was appointed as an executive 
member of the Board of Directors in October 2010 
and has served as Vice President of HMS Group 
since 2008. Mr. Molchanov has 20 years of industry 
experience. He graduated from the Bauman Moscow 
Higher Technical School (currently the Bauman 
Moscow State Technical University) with a degree in 
electromechanical engineering. He graduated from 
the Judge Business School, University of Cambridge 
with an executive MBA degree.

  Mr. Yury N. Skrynnik

Member of the Board of Directors

Mr. Skrynnik was appointed as an executive member 
of the Board of Directors in October 2010. He is 
currently the Head of the Compressor Business 
Unit, a position he has held since its establishment 
in 2012. Previously, Mr. Skrynnik held the position 
of Director for Strategic Marketing. Prior to joining 
HMS Group, he served as the Chief Representative 
of JSC “Sumy Frunze NPO” (Ukraine) in Russia from 
1999 to 2008. Mr. Skrynnik worked as Director of 
the Innovative Technical Subdivision of “Machines, 
Equipment, Technologies, Products and Services” 
Ltd. from 1992 to 1999. He served as a scientific 
research officer at the Moscow Institute of Chemical 
Machinery (currently the Moscow State University 
of Environmental Engineering) from 1986 to 1988. 
Mr. Skrynnik has more than 20 years of science 
and management experience. He graduated 
from the Sumy branch of the Kharkiv Polytechnic 
Institute with a degree in mechanical engineering 
in 1983. He was awarded a PhD in engineering 
science from the Moscow Institute of Chemical 
Machinery (currently the Moscow State University of 
Environmental Engineering) in 1988. Mr. Skrynnik is 
the author of more than 50 scientific publications 
and creator of 20 inventions.

HMS GROUPANNUAL REPORT 2016 
NON-EXECUTIVE DIRECTORS 

51

  Mr. Vladimir V. Lukyanenko

 Mr. Philippe Delpal

Member of the Board of Directors 
Non-Executive Director

Member of the Board of Directors 
Chair of the Audit Committee 
Independent Director

Mr. Lukyanenko was appointed as a non-executive 
member of the Board of Directors in July 2016. He is 
also the member of the Remuneration Committee, 
the Audit Committee and the Strategy and 
Investments Committee. Currently he is the Director 
General of PROFITPROM LLC. From 2006 to 2008 
Mr. Lukyanenko was the Vice-President of Hydraulic 
Machines LLC. From 2006 to 2008 Mr. Lukyanenko 
was the Vice-President of HMS Group. He has served 
as the Chairman of the Supervisory Board of Sumy 
Frunze NPO PJSC (Ukraine) from 2003 until 2007. 
He graduated from Moscow Chemical Engineering 
Institute (currently - Moscow State University of 
Engineering Ecology) with a degree in machine 
building in 1991. Mr. Lukyanenko has over 18 years of 
experience in the industry.

Mr. Delpal was appointed as an independent non-
executive member of the Board of Directors in 
December 2010 and is Chair of the Audit Committee. 
Mr. Delpal has had a career in banking, most recently 
as Chair of BNP Paribas Vostok in Moscow. He is 
now an Operational Partner for Financial Services 
in Baring Vostok Capital Partners, one of the largest 
private equity firms in Russia. He is also currently 
serving as a non-executive Director for Tinkoff Credit 
System Holding (LSE listed), Orient Express Bank OJSC 
(Russia), Blackrock Emerging Europe PlC (London, 
LSE listed investment trust), and Komercijalna 
Banka AD (Serbia). Prior to that, Mr. Delpal founded 
Cetelem Russia in 2006 and served as its CEO from 
2006 until 2010. Mr. Delpal was CEO of Rusfinance 
Bank (Société Générale Group) from 2004 to 2006. 
In addition, Mr. Delpal has over eight years of 
experience as an auditor at Société Générale. 
He graduated from the Telecom Paris Tech with 
a degree in IT, Telecoms and Economics. He has been 
living in Russia since 2004.

  Mr. Gary S. Yamamoto

  Mr. Andreas S. Petrou

Member of the Board of Directors 
Chair of the Remuneration Committee 
Independent Director

Member of the Board of Directors 
Non-Executive Director

Mr. Yamamoto was appointed as an independent 
non-executive member of the Board of Directors 
and Chair of the Remuneration Committee in 
December 2010. Prior to joining the Group, he served 
as Chief Executive Officer at Borets International 
in 2009. Mr. Yamamoto has served as the President 
of Yamamoto Consulting since 2008. He served 
as a member of the Board of Directors at Radius 
Servis from 2007 to 2008. Prior to this, Mr. Yamamoto 
enjoyed a 20-year career with Schlumberger Limited 
and served as Vice President of Schlumberger Russia 
from 2003 to 2008. Mr. Yamamoto has more than 
20 years of management experience. He graduated 
from the University of California, Berkeley, with a 
degree in engineering in 1988. Mr. Yamamoto is a 
member of the Society of Petroleum Engineers and 
the Independent Directors Association.

Mr. Petrou was appointed as a non-executive 
member of the Board of Directors in June 2010. 
From 1989 to 1998, Mr. Petrou served as a member 
of the Board of The Cyprus Tourism Development 
Public Company Ltd, representing the interests of 
the Government of the Republic of Cyprus. From 1987 
to 1990, Mr. Petrou served as the General Secretary 
of Cyprus Dairy Organisation. In 1986, Mr. Petrou 
established his own law firm. He is an honours 
graduate of the Law School of Democrious University 
of Thrace. Mr. Petrou has been a member of 
the Cyprus Bar Association since 1985.

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016 
 
 
BOARD OF DIRECTORS (CONTINUE)

52

Principal Activities of the Board of Directors in 2016

The Board of Directors held six meetings in 2016, all 
of which occurred in Cyprus. During the course of 
the year, the Board of Directors continued working 
on the development of the Company’s mid-term and 
long-term financial and business strategy, including 
investment plans, M&A activities, budgeting, long-
term incentive program for the management of 
the Company and general corporate development. 
In addition, the Board of Directors appointed 
Mr. Vladimir V. Lukyanenko as a non-executive director 
of the Company to serve until the next General Meeting. 

Mr. Vladimir V. Lukyanenko was also elected as 
a member of the Remuneration Committee, the Audit 
Committee and the Strategy and Investments Committee. 
In December 2016, the Board of Directors approved 
the payment of an interim dividend to the shareholders 
of the Company.

At its meetings, the Board of Directors also reviewed 
other issues connected with the activities of 
the Company that are within its remit, including 
the approval of corporate reports. 

The Board of Directors Committees

There are three Committees of the Board of Directors: the Audit Committee, the Remuneration Committee, and 
the Strategy and Investments Committee. Each Committee has its own internal terms of reference which set forth 
its duties and responsibilities, as well as qualifications for Committee membership, procedures for Committee 
member appointment and removal, Committee structure and operations and reporting lines to the Board of 
Directors. A brief description of the main activities of these Committees in 2016 is set out below.

AUDIT COMMITTEE 

General Overview
The Audit Committee comprises three independent 
Directors and is expected to meet three to four 
times per year. Currently, the Audit Committee is 
chaired by Mr. Philippe Delpal; its other members are 
Mr. Gary S. Yamamoto and Mr. Vladimir V. Lukyanenko.

The Audit Committee also supervised the internal and 
external audit procedures, and the implementation of 
the annual tax strategy within the course of the year. 
The Audit Committee also made recommendations to 
the Board of Directors with regards to internal control 
efficiency and interim dividend distribution.

REMUNERATION COMMITTEE

The Audit Committee is responsible for considering, 
amongst other matters: (i) the integrity of the Group’s 
financial statements, including its annual and interim 
financial statements; (ii) the effectiveness of the Group’s 
internal controls and risk management systems; (iii) 
auditors’ reports on the Group; and (iv) the terms of 
appointment and remuneration of the auditors of 
the Group.

The Audit Committee supervises, monitors, and advises 
the Board of Directors on risk management, control 
systems, and the implementation of codes of conduct. 
The Audit Committee also supervises the Group’s 
submission of financial information and a number of 
other audit-related issues, and assesses the efficiency of 
the work of the Chair of the Board of Directors. 

Activities in 2016
Three meetings of the Audit Committee were held in 2016. 
The main issues that the Audit Committee oversaw during 
the year were the preliminary review of IFRS financial 
statements  and internal control and risk management 
(including the audit plan). 

General Overview
The Remuneration Committee comprises four Directors 
and is expected to meet at least once per year. 
Currently, the Remuneration Committee is chaired 
by Mr. Gary S. Yamamoto; its other members are 
Mr. Nikolay N. Yamburenko, Mr. Philippe Delpal and 
Mr. Vladimir V. Lukyanenko. The Remuneration Committee 
is responsible for, amongst other matters, determining 
and reviewing the Group’s remuneration policies. 
The remuneration of independent Directors is a matter 
for the Chair of the Board of Directors and the Executive 
Directors. No Director or manager may be involved in any 
decisions regarding their own remuneration.

Activities in 2016
Two meetings of the Remuneration Committee were held 
in 2016. The main matter reviewed by the Remuneration 
Committee was the Group’s Long-Term Incentive Program. 
Ernst & Young were engaged in developing the Long-Term 
Incentive Program.

The Remuneration Committee adopted decisions and 
made recommendations to the Board of Directors 
regarding the Long-Term Incentive Program, in accordance 
with international best practice.

HMS GROUPANNUAL REPORT 2016Social Responsibility  BoD and its Committees  Risk Management & Internal Control

EXTERNAL AUDIT OF FINANCIAL STATEMENTS 

Litigations involving the Company 

53

Every year the Company/Group appoints an external 
auditor who is responsible for the auditing and 
inspection of the consolidated financial statements 
of the Company/Group in compliance with IFRS. 
The external auditor also prepares reviews of 
the consolidated interim financial information 
of the Company/Group in compliance with IFRS 
requirements. The external auditor of the Company/
Group is selected from leading audit firms after 
a thorough review of their respective proposals. 
Following the review, the Audit Committee gives its 
recommendations to the Board of Directors regarding 
the candidacy of the external auditor and the level of 
the auditor’s compensation and advises the Board of 
Directors on other terms and conditions of the contract 
with the auditor. In 2016, based on the recommendation 
of the Audit Committee, the Board of Directors selected 
Deloitte (Cyprus) to conduct the audit of the financial 
statements of the Company/Group for the year ending 
31 December 2015. Deloitte remains appointed for 
the 2016 audit.

STRATEGY AND INVESTMENTS COMMITTEE

General Overview
The Strategy and Investments Committee comprises 
four directors, one of whom is independent. 
The Committee is expected to meet at least once each 
year. Currently, the Strategy and Investments Committee 
is chaired by Mr. Nikolay N. Yamburenko and the other 
members are Mr. Gary S. Yamamoto, Mr. Yury N. Skrynnik 
and Mr. Vladimir V. Lukyanenko. 

The Strategy and Investments Committee is responsible 
for considering, amongst other matters: (i) strategic 
business combinations; (ii) acquisitions, mergers, 
disposals and similar strategic transactions involving 
the Company; and (iii) fundamental investments of 
the Company.

Activities in 2016
Two meetings of the Strategy and Investments 
Committee were held in 2016. The main matter reviewed 
by the Committee was the Group Strategy up to 2022. 

DIRECTORS’ COMPENSATION

The total compensation of the Chairman of the Board 
was Euro 270,115 for the year ended 31 December 2016.

The total compensation of the independent Directors, 
as set out in the Group’s consolidated statement of 
profit or loss and other comprehensive income, was Euro 
235,000 for the year ended 31 December 2016.

Grigorishin Litigation. In February 2014, the Company was 
served in Cyprus with an interim order of the District 
Court of Nicosia (the “Order”). The Order was obtained 
by Konstantin Grigorishin and certain other plaintiffs 
against a number of defendants, including the Company, 
certain of its shareholders and directors, and Bank 
of New York (Nominees) Limited. Among other things, 
the Order froze property of most of the defendants, 
including the Company, but excluding Bank of New York 
(Nominees) Limited and two other defendants, for an 
amount up to EUR 400 million.

In April 2014, following prior written and oral 
submissions against the Order by the Company and 
several other defendants, the District Court of Nicosia 
discharged the Order in full, including in respect of the 
Company and its shareholders and directors. As far as 
the Company is aware, since then the plaintiffs have 
taken no substantive steps to proceed with their action 
against the Company or its directors.

The Company strongly rejects the plaintiffs’ claims and 
allegations against the Company as groundless. The 
Company will continue to defend vigorously its position 
in these pending legal proceedings.

Tsoy Litigation. In late June 2014, the Company’s 
shareholder, German Tsoy, and his holding company, 
Acura Global Limited (BVI), launched an action in the 
District Court of Nicosia against a number of defendants, 
including certain other shareholders and certain 
directors of the Company. The plaintiffs have initiated 
this litigation purportedly as a derivative action seeking 
damages “for the benefit of” of the Company “and/or” 
its majority shareholder, H.M.S. Technologies Limited.  As 
such, no claims have been asserted directly against the 
Company by the plaintiffs. 

The Company’s non-defendant directors, who made 
up the majority of the Company’s Board of Directors, 
carefully considered the plaintiffs’ claims and 
allegations, obtained legal advice from the Company’s 
lawyers, and unanimously concluded that the plaintiffs’ 
allegations were entirely meritless.

In June 2016, the plaintiffs completely and unreservedly 
withdrew their action and made a declaration that 
they have no claim against any of the defendants to 
the above action. This withdrawal was not a result of 
any settlement agreement, and the Company was not 
required to pay anything to the plaintiffs in connection 
with this withdrawal of claims.

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016RISK MANAGEMENT  
AND INTERNAL CONTROL

54

Overview

The Group is exposed to various risks and uncertainties 
that may have undesirable financial or reputational 
implications. In order to minimize the negative 
impact of such risks and to benefit from available 
opportunities, a risk management and internal control 
system has been integrated into the Group’s operations. 

The overall objective of this system is to obtain 
reasonable assurance that the Group’s goals and 
objectives will be achieved.

The main principle in the design and maintenance 
of such systems is that the expected benefits should 
outweigh the associated costs.

Key features of the Group’s internal control system over financial reporting 

The Group uses a formal risk management program 
across its companies; there is an ongoing process for 
identifying, evaluating and managing the significant risks 
faced by the company. Risks are classified according 
to their likelihood and significance; different strategies 
are used to manage identified risks. This process is 
regularly reviewed by the Board in accordance with 
applicable guidance.

The Board is responsible for the Group’s system of 
internal control and for reviewing its effectiveness. 
This system is designed to manage rather than eliminate 
the risk of failure to achieve business objectives and 
can only provide reasonable and not absolute assurance 
against material misstatement or loss.

SETTING OF RISK-APPETITE
OVERSIGHT

Board

IMPLEMENTATION AND OVERSIGHT

Executive management

Audit Committee

POLICY IMPLEMENTATION AND 
IDENTIFICATION OF IMPROVEMENTS

Operational management

Internal audit

Internal control and risk management monitoring is 
performed through internal and external assurance 
providers, which include:
 ˆ Financial statement audits performed by external 
auditors. Discussion by the Audit Committee of 
the results of the audit, including a review of 
the financial performance, any changes to disclosure, 
a subsequent events review, important accounting 
matters and other internal control matters

 ˆ Review and formal approval of the financial results by 

the CEO, CFO, Audit Committee and the Board

 ˆ Board and sub-committee approval and monitoring of 

operating, financial and other plans

 ˆ Consolidation and verification of correct identification 
and proper assessment of critical business risks. 
The Audit Committee reviews changes to the risk 
profiles together with progress on actions for key risks 
on a regular basis

 ˆ Internal audit function. The Head of Internal Audit 
functionally reports to the Audit Committee and 
administratively to the First Deputy CEO. The internal 
audit department performs its activities in accordance 
with an audit plan and incorporates review of 
material controls, including financial, compliance and 
operational controls. The results of each audit are 
discussed in detail with the companies and business 
units concerned and action plans are agreed upon.

HMS GROUPANNUAL REPORT 2016BoD and its Committees  Risk Management and Internal Control  HMS GDRs

Continuous improvement

HMS Group’s goal is to continuously improve its 
governance and risk management sub-systems. 
We assess the findings of audits and internal 
investigations and use them to adjust our internal 
processes and procedures.

The key features of the risk management process 
include:
 ˆ The gathering and analysis of information related to 
internal and external factors which can negatively 
impact the achievement of the Group’s objectives

Principal risks and uncertainties

55

 ˆ The identification of the possible level of negative 
impact of various events on operational and 
financial results in accordance with applicable risk-
assessment methods

 ˆ Setting appropriate risk-tolerance levels
 ˆ Ranking risks according to their significance and 

probability

 ˆ Making appropriate decisions to manage identified 

risks

 ˆ Actively monitoring the steps taken to control 

the most significant risks.

The relationship between the main categories of the risks we encounter and how they affect our strategy is shown 
in the table below.

Risk\Strategy

Enhancing
margins

Driving
growth

Generating
cash

Maximising 
returns

Securing 
customers

Securing 
longterm
suppliers

Global politician and economic risks

Sales

Project execution risks

Human Capital

Acquisitions and disposals

Fraud and corruption risks

Technology

Legislation and regulations

Product liability and litigation

Financial risks

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

ˆ

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016RISK MANAGEMENT AND INTERNAL CONTROL (CONTINUE)

56

Below is a summary of the principal risks facing 
the Group’s business. The Group also faces other risks 
both known and unknown; some of them apply to 
similar companies operating in both the Russian and 
international markets. 

Global political and economic risks

The Group may be exposed to various political, 
economic and other risks not only in the countries 
where it has primary production facilities (Russia, 
Ukraine, Belarus, Germany) but also in jurisdictions 
where the Group has other interests (e.g. EPC projects 
in the Middle East and Central Asia). The Group has 
not to date been significantly affected by the recent 
developments in Ukraine but, in the event of a 
deterioration of that country’s situation, the Group’s 
operations in Ukraine (including export of production to 
Russia which is significant part of the Group’s integrated 
solutions), as well as its financial position, could be 
affected, and the extent of this impact is difficult to 
predict.

The introduction of new regulations or the imposition of 
trade barriers or international sanctions could disrupt 
the Group’s business activities or impact on the Group’s 
customers, suppliers or other parties with which it does 
business. In some instances, this could have an adverse, 
material effect on the Group’s financial position 
and prospects.

Sales

The Group’s business depends on the levels of 
capital investment and maintenance expenditures by 
the Group’s customers, which in turn are affected by 
numerous factors, including the state of the Russian 
economy and those of other nations, fluctuations in 
the price of oil, taxation of the Russian oil and gas 
industry, availability and cost of financing, and state 
investment and other support for the Group’s customers 
or in state-sponsored infrastructure projects.

The Group’s business depends on the award of contracts 
and renewals and extensions of existing contracts; 
moreover, the Group relies on a limited number of 
key customers and contracts and may incur losses 
due to unfavourable terms of contracts with certain 
large customers.

Project execution risks

Since the Group’s contracts are typically on a fixed-
price basis, there are risks associated with cost 
overruns (especially in the EPC segment). The Group 
seeks to mitigate these risks through its efforts to 
improve profitability and cost control, in part relying on 
volume growth and an increasing share of high-margin 
integrated solutions services.

Human Capital

The ability to achieve the Group’s strategic goals 
highly depends on our most important asset — our 
people. We develop and remunerate our employees 
using leading HR practices. In line with Group’s 
growth strategy, we aim to attract talented employees 
from the market and continuously improve our 
recruitment methods.

The success of the Group’s businesses depends heavily 
on the continued service of its key senior managers. 
These individuals possess industry-specific skills in 
the areas of sales and marketing, engineering and 
manufacturing that are critical to the growth and 
operation of the Group’s businesses. While the Group 
has entered into employment contracts with its senior 
managers, the retention of their services cannot be 
guaranteed. The Group is not insured against damages 
that may be incurred in the case of loss or dismissal 
of its key specialists or managers. Moreover, the Group 
may be unable to attract and retain qualified personnel 
to succeed such managers. If the Group suffers 
anxextended interruption in its services due to the loss 
of one or more such managers, its business, financial 
condition, results of operations, prospects may be 
adversely and materially affected.

HMS GROUPANNUAL REPORT 2016BoD and its Committees  Risk Management and Internal Control  HMS GDRs

Acquisitions

57

The Group cannot be certain that the anticipated cash 
flows, synergies and cost savings from acquisitions or 
other transactions will materialize or reach expected 
levels. Inefficient integration of the newly acquired 
businesses poses a risk to the Group’s operations. 
Any failure to integrate the operations of the Group’s 
companies successfully could adversely affect 
the Group’s business and financial condition and 
the results of operations.

HMS Group promotes ethical behaviour among its 
employees and maintains dedicated violation reporting 
channels to raise concerns within the Group through 
an ethics hotline available 24/7. The Group’s internal 
audit and/or security department perform investigations 
into alleged fraud and misconduct cases. If necessary, 
the results of such investigations are provided to 
the CEO, the Board, the management and Audit 
Committee, as necessary.

Since its formation in 1993, the Group has completed 
a number of acquisitions involving the purchase of 
industrial pumps, modular equipment manufacturing 
and EPC services companies and the Group expects 
to make additional acquisitions in the future. 
The integration of these and future acquisitions into 
the Group’s operations poses significant management, 
administrative and financial challenges.

The integration process may result in unforeseen 
difficulties and could require significant time and 
attention from management that would otherwise be 
directed at developing the Group’s existing business.

Fraud and corruption risks

Fraud and corruption are pervasive and inherent risks of 
all business operations. There is always some potential 
for fraud and other dishonest activity at all levels of 
a business, from that of a factory worker to senior 
management. Efficient operations and optimal use of 
resources depends on our ability to prevent occurrences 
of fraud and corruption at all levels within the Group.

As the Group operates in a number of jurisdictions 
around the world, the Board and senior management 
also put a strong emphasis on corporate compliance 
with applicable regulation, including anti-bribery and 
anti-corruption legislation, such as the UK Bribery Act.

The Group has implemented procedures to ensure 
that all employees are aware of the requirements of 
the Group’s anticorruption policies, with a particular 
focus on those roles most exposed to the risk of breach.

Legislation and regulations

Recent Russian government initiatives included 
significant amendments to tax law governing operations 
with entities incorporated in offshore jurisdictions. 
As a company with a majority of its operating assets 
located in Russia, HMS Group recognizes that these 
developments may have significant implications for its 
business and development plans. HMS Group continues 
to monitor these developments.

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016HMS GDR

58

As of December 31, 2016, HMS Hydraulic Machines & 
Systems Group Plc had an issued share capital of Euro 
1,171,634.27 divided into 117,163,427 ordinary shares with 
par value of Euro 0.01 per share, and these shares are not 
traded.

Since February 8, 2016, the ratio of the company’s GDRs 
program was changed:
 ˆ Old ratio:  
 ˆ New ratio:  

1 GDR equals 1 Ordinary share
1 GDR equals 5 Ordinary shares

In February 2011, the company signed a depositary 
agreement with The Bank of New York Mellon (BNY 
Mellon), under which the issue of Global Depositary 
receipts (GDRs) for HMS Group shares was initiated.

As of December 31, 2016, the total number of GDRs issued 
in exchange for shares of HMS Group amounted to 
9,600,800 GDRs or approximately 41% of the Company’s 
issued share capital.

For every 5 GDRs held by holders, they received 1 “new” 
GDR in return. The issued number of ordinary shares and 
their nominal value remained unchanged. And currently, 
there are 9,600,800 depositary receipts outstanding in the 
GDR program. 

According to the terms of the amended deposit 
agreement with BNY Mellon, the annual depositary fee 
will equal US$ 0.01 per “new” GDR instead of the current 
US$ 0.03 per “old” GDR, implying a fifteen-fold decrease in 
such fees.

HMS Group Plc GDR Details

Ticker

CUSIP

Exchange

ISIN

Ratio, GDR : common shares

Effective Date

Underlying ISIN

Depositary bank

Information on HMS Group Plc GDRs 
$

HMSG

RegS: 40425X407
144A: 40425X308

London Stock Exchange

RegS: US40425X4079
144A: US40425X3089

1:15

Feb 11, 2011

CY0104230913

BNY Melon

9

8

7

6

5

4

3

2

1

0

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

HMS GROUPANNUAL REPORT 2016Risk Management and Internal Control  HMS GDRs  Shareholder’s Info & Disclaimer

Price of HMS Group’s GDRs (rebased to 1:5 ratio)

2011

2012

2013

2014

2015

2016

1Q 2016

2Q 2016

3Q 2016

4Q 2016

Min

19.90

19.50

10.50

1.30

1.30

2.05

2.85

4.05

5.60

Max

41.21

29.90

21.15

12.50

4.50

2.85

5.00

5.60

8.01

59

At the end of the period

22.05

21.10

12.50

1.30

2.76

2.85

4.05

5.49

7.46

Major shareholders of HMS Group  

as of December 31, 2016

Shareholding structure by legal entities,
%

Shareholding structure by holders (effective share),
%

3.70%

21.26%

3.54%

HMS Technologies
GDRs Holders, where:
managers and persons closely 
associated with management 
other GDRs holders (Free-float)
Treasury shares

19.75%

3.70%

21.26%

27.85%

Managers and persons closely 
associated with management
Vladimir Lukyanenko
German Tsoy
Treasury shares
Other GDRs holders (Free-float)

71.51%

27.44%

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016SHAREHOLDER’S INFO  
& DISCLAIMER

60

Information

Company Name

Company Type

Fiscal Year-End

Disclosure

Managing Director (CEO)

First Deputy CEO (CFO)

HMS Hydraulic Machines & Systems Group Plc

Public

December 31

LSE

Artem Molchanov

Kirill Molchanov

GDRS HOLDERS’ CONTACTS

GENERAL CONTACTS

HMS Group
Investor Relations
Address: 7 Chayanova str. 125047 Moscow, Russia,
Tel: +7 495 730 6601
Fax: +7 495 730 6602
Email: ir@hms.ru
www.grouphms.com

Contacts for inquiries regarding:

 ˆ advise of a change of name and/or address;
 ˆ report lost/stolen GDR share certificates or the non-

receipt of a dividend check;

 ˆ request an election form for the scrip dividend 

program;

 ˆ request forms to transfer GDRs;
 ˆ report the death of a registered holder of GDR 

shares;

 ˆ request a duplicate account statement;
 ˆ have dividends electronically deposited to your bank 

account;

 ˆ consolidate similar account registrations;
 ˆ request general information about your shareholder
 ˆ account, etc

The Bank of New York Mellon
BNY Mellon Shareowner Services
PO Box 358516
Address: Pittsburgh, PA 15252-8516, USA
Tel: +1 888 737 2377 (USA only)
Tel: +1 201 680 6825 (International)
Email: shrrelations@bnymellon.com
Website: www.bnymellon.com

HMS GROUPANNUAL REPORT 2016HMS GDRs  Shareholder’s Info & Disclaimer

Disclaimer

61

This document contains forward-looking statements that reflect management’s current views with respect to future events. 
Such statements are subject to risks and uncertainties that are beyond HMS Group’s ability to control or estimate precisely, 
such as future market and economic conditions, the behavior of other market participants, the ability to successfully 
integrate acquired businesses and achieve anticipated synergies and the actions of government regulators. If any of these 
or other risks and uncertainties occur, or if the assumptions underlying any of these statements prove incorrect, then 
actual results may be materially different from those expressed or implied by such statements. HMS Group does not intend 
or assume any obligation to update any forward-looking statements to reflect events or circumstances after the date of 
these materials.

This annual report does not constitute an invitation to invest in HMS Group GDRs. Any decisions you make in reliance on 
this information are solely your responsibility. The information is given as of the dates specified, and we undertake no 
obligation to update it save as required by applicable law. HMS Group accepts no responsibility for any information on 
other websites that may be accessed from the company’s website by hyperlinks

OVERVIEWMARKETSADDITIONAL INFORMATIONPERFORMANCEGOVERNANCEHMS GROUPANNUAL REPORT 2016